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What Disney Could Gain from Its Target Partnership

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Late last month, Walt Disney (DIS) and Target (TGT) announced a retail collaboration to allow Disney to open dozens of shops inside US Target locations. The specialty Disney mini-shops, slated to sell exclusive toys, games, and apparel, are to start opening next month.

Disney-Target partnership to open mini-shops

Disney’s retail business falls under the company’s Parks, Experiences and Products segment. Revenue from the segment rose 7.0% YoY (year-over-year) to $6.6 billion in the June quarter, making it Disney’s slowest-growing segment. Meanwhile, the company’s Studio Entertainment revenue grew 33% YoY, and its Media Networks revenue grew 21% YoY.

We believe Disney is counting on the Target partnership to expand its retail footprint, boost its merchandise sales, and stimulate growth in the Parks, Experiences, and Products segment. Notably, the Target partnership comes just as Toys “R” Us, is struggling—Disney may be looking to take some market share from its retail toy rival. The US retail toy market generated $21.6 billion in revenue last year, according to The NPD Group.

Disney hunting for new growth opportunities

In the June quarter, Disney’s profit and revenue missed analysts’ estimates. Disney’s other efforts to boost profit include its video streaming service, Disney+, scheduled to be launched in November. The service is set to cost $6.99/month, making it competitive with Netflix’s most popular plan, which costs $12.99.

Disney is also trying to clean up its balance sheet. The company’s debt ballooned after it borrowed to support its $71.3 billion acquisition of Fox. Its debt stood at more than $58 billion at the end of the June quarter.

Disney’s Target partnership adds to its list of retail collaborations. The company has also partnered with JCPenney to open Disney mini-shops at its locations. These types of arrangements are becoming common. For example, Walgreens has struck a deal to open specialty sections inside Kroger stores.

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