Discovery Rechannels Assets

Firm to Close All 103 Stores, Cut 25 Percent of Workforce

By Frank Ahrens

Washington Post Staff Writer
Friday, May 18, 2007; Page D01

Silver Spring's Discovery Communications will close its remaining 103 retail stores later this year, including eight in this region, a move that will cut 1,000 jobs -- 25 percent of the company's workforce.

Since David Zaslav became its chief executive in January, the privately owned global cable network has been trying to shed non-performing sectors and bolster those that have the most potential for revenue growth, such as Internet video and high-definition television programming.

The company recently bought out one of its few owners, Cox Communications, to simplify its ownership structure with the goal of becoming a publicly traded company in the near future. Yesterday's announcement that the company is shearing off its high-cost retail stores likely will make Discovery more attractive to public investors.

All mall-based and stand-alone Discovery Channel stores are targeted for closing by late summer or early fall. Seven Discovery stores in airports licensed and operated by the Hudson Group, which owns news stands, will remain in business. The job cuts involve both full- and part-time workers; some of those workers may be offered jobs elsewhere in the company, Zaslav said yesterday. The workers are not represented by a union.

Discovery started in the 1990s with 15 stores of its own and bought 117 Nature Company stores in 1996. At the time, -- before the broad acceptance of online commerce, mall stores were a preferred way to sell branded merchandise.

The number of Discovery stores peaked at 170 nationwide and in Puerto Rico in the early 2000s, just as e-commerce began to be cost-effective. The company has been closing selected stores, while opening new ones, ever since.

The company, which has more than 100 television networks worldwide, including the Discovery Channel, Animal Planet and TLC, laid off 200 employees in April and hinted then it would shutter its retail stores, shifting its merchandising efforts to online sales and partnerships with established retailers.

"We [can] be bigger and in more places and stronger if we don't have these brick-and-mortar mall stores we're carrying around on our backs," said Zaslav, who was the cable chief of NBC Universal before joining Discovery.

For instance, Zaslav said Discovery has a deal to supply 550 Toys R Us stores with merchandise related to Discovery's Animal Planet channel.

"We realized we could reach millions of people without having to build out an independent chain of stores, have a staff, pay for the lights and air conditioning" and absorb other costs associated with maintaining stores, Zaslav said. As a unit within Discovery, the stores booked about $130 million in revenue last year but had a net loss of about $30 million, according to a Discovery executive who spoke on condition of anonymity because the figures are not publicly reported. The savings from closing the stores could run as much as $75 million per year, the company estimates.

Discovery examined the possibility of selling the stores, but found little meaningful interest from potential buyers, another Discovery executive said.

Online sales of Discovery merchandise are up 144 percent in 2007, compared with the same period last year, the company said, partly on the strength of DVD sales of Discovery's hit, "Planet Earth." The company does not break out store sales vs. online sales.

In addition to DVDs of Discovery programming, the learning-themed stores sell toys, such as a radio-controlled hammerhead shark suitable for alarming pool-goers, telescopes and exercise equipment. Such items will continue to be available at Discovery's online store.

In the first quarter of this year, Discovery's revenue increased 10 percent, to $728 million, compared with the same period of 2006. The company's first-quarter operating cash flow was up 24 percent, to $180 million, compared with 2006.

Discovery has retail stores in several area locations, including the Fashion Centre at Pentagon City, Montgomery Mall in Bethesda, Harborplace in Baltimore and Union Station in Washington. The company had a sizable store at Verizon Center when it opened in 1997 as MCI Center, but the store performed poorly, owing to low pedestrian traffic in the area, and closed in 2001, just before the Chinatown development started to heat up.

Zaslav said he has visited a number of the Discovery stores since he has been on the job and called the employees "a great group of people."

"They are enormously talented and those that want to stay in the brick-and-mortar space for their careers, I'm convinced their experience at Discovery will serve them well," he said.

Traffic was brisk at the Discovery story in Union Station yesterday afternoon, where staffers declined to speak to the media. Customers Jack and Bonnie Myers, visiting from New York, said they were surprised and a little saddened by the chain's closing, saying Discovery is a rare store that sells videos and toys designed to make kids smarter.

Told that the store's items would still be for sale online, both said they were unlikely to shop that way.

"We're out in the country," Bonnie Myers said. "We have dial-up. It's too slow."

Jack Myers said the stores provide something online shopping cannot.

"You lose something when you can't touch a product," he said.