EH, WHAT'S UP, WARNER? DOES SLOWDOWN AT STUDIO STORES MEAN TROUBLE FOR IT AND SIMILAR MICKEY MOUSE OPERATIONS?

Byline: Dave McNary Staff Writer

That's all, folks.

After opening 180 Warner Bros. Studio Stores in less than eight years, Warner executives disclosed this week they have pulled the plug on rolling out any more of the pricey retail outlets.

The final Studio Store opened at Citrus Park Town Center Mall in a Tampa, Fla., suburb on March 5, the same day that archrival Disney Stores debuted an outlet in the same location. Since then, Disney has opened more than a dozen stores and will roll out 20 more this year to give it 733, including outlets in high-profile shopping districts on North Michigan Avenue in Chicago and Oxford Street in London.

Analysts said Warner's decision shows customers may have lost enthusiasm for expensive Bugs Bunny and Daffy Duck merchandise in elaborately designed stores, particularly without fresh characters and concepts. Officials have admitted the stores' first-quarter revenues declined 1 percent from the 1998 quarter.

``What Warner has probably noticed is that in retail, you have to keep reinventing yourself and you're only going to be as hot as your new items are,'' said retail consultant Frederick Marx of Bloomfield Hills, Mich. ``The easy money has already been made.''

But Warner Bros., owned by media giant Time Warner Inc., insists that stopping the expansion has been part of its strategy all along. ``We're following our business plan,'' said spokeswoman Barbara Brogliatti. ``We've built the stores out to where we wanted to. Now we're growing them vertically.''

Retail consultant Mark Kissel said Warner could be making a shrewd move by limiting the number of stores.

``You want to be somewhat `understored' so you're perceived as being rare,'' Kissel explained. ``I'm always an advocate of not overbuilding your base because limiting supply creates demand. But they may have decided that they're not doing that well and the trend is flat.''

The stores are taking advantage of the popularity of ``Austin Powers: The Spy Who Shagged Me'' by selling offbeat goods like boxer shorts, martini glasses and pillows. They also offer items from the upcoming ``Wild Wild West'' and from TV shows such as ``Dawson's Creek,'' ``Friends'' and ``Buffy the Vampire Slayer.''

But the overwhelming majority of stock is based on Warner Bros. perennials like Bugs, Daffy, Tweety and the Tasmanian Devil.

By contrast, much of each Disney Store's walk-in area is dominated by characters from ``Tarzan,'' particularly Tantor the elephant and Terk the gorilla. The studio's 37th animated film, which opened nationwide on Friday, is expected to be a significant hit.

``You have to keep on giving people something new,'' Marx said. ``They don't have a `Lion King' and the items aren't going to blow out of the store unless they're really hot.''

Disney took the first step into the world of retail in 1987 with a prototype Disney Store at the Glendale Galleria. The idea was to take advantage of the public affection for Disney cartoon characters by offering a dizzying array of merchandise at upscale shopping malls.

Four years later, Disney had opened 80 stores, prompting Warner Bros. to start its owns chain. Between 1991 and 1996, Warner sped along like the Road Runner to establish itself as a serious retail presence and went from one store at the Beverly Center in West Hollywood to more than 160 outlets.

In both cases, the chains reflected the much-admired concept of corporate synergy by using merchandise to boost awareness and sales of films, TV shows and theme parks.

Warner Studio Stores popped up in many of the same shopping centers as Disney Stores such as the Glendale Galleria and Topanga Plaza in Woodland Hills. Other Warner stores opened in prominent high-traffic malls such as South Coast Plaza in Costa Mesa, Del Amo Fashion Plaza in Torrance and Santa Monica Place.

``The Warner stores exploded when they came on the scene,'' Marx recalled. ``But these are not inexpensive stores - they're really works of art - and people have moved on to other stuff like bookstores and the Internet.''

The Warner stores may have peaked in late 1996 when the film studio scored a moderate hit with ``Space Jam'' in late 1996. The outlets offered a wide variety of Space Jam apparel and souvenirs such as a $44 embroidered sweat shirt with Michael Jordan and Bugs Bunny likenesses.

But that was the last significant source of new animated merchandise for the stores, because the studio's next ventures into animation, ``Quest for Camelot'' and ``The King and I'' flopped. Momentum also took a hit in 1997 when ``Batman & Robin,'' the fourth version of Warner's key live-action franchise, performed well under expectations.

As a result, in the last three years, it has opened fewer than 20 stores. In fact, industry sources say the studio closed down its real estate operation late last year in a sign that it had ditched pursuing new sites.

Warner executives have declined to comment on the outlook for the stores and whether any closures may be coming. But the studio has indicated it has turned its back on traditional brick-and-mortar outlets at shopping malls. It launched the wbstore.com Web site earlier this year and named retail veteran David Clark, who had spent a dozen years as a Target executive, to the new post of vice president of e-commerce last month.

As for Disney, several analysts believe the entertainment giant faces problems of its own, though not as severe. They note that other studios, notably DreamWorks and Paramount, threaten its core business of animated films, which are the lifeblood of the chain of stores. There are also concerns that sales have flattened at the Disney Stores and by licensees.

Stewart Halpern of ING Barings Furman Selz, who recently lowered his profit forecast due to weakening merchandise results, said Disney needs to improve its selection.

``The fundamental question is the need to freshen the classic characters and give them new visibility,'' Halpern. ``You have to make sure you've got compelling product.''

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Photo, Drawing

PHOTO Warner executives said they will not open any more of the Warner Bros. Studio Stores, above.

DRAWING: no caption (Bugs Bunny)