Disney's Kingdom Giving Off A Lot Less Magic

| About: The Walt (DIS)

I have always recommended to retail investors wanting to get exposure to China that they might want to buy the stocks of American and European companies that are well-run in China, like education software company Blackboard (NASDAQ:BBBB) or Starwood Hotels (HOT).

BusinessWeek published an article that discusses my reasoning, but basically the stocks of Chinese companies are very volatile, and I figure a foreign firm that does well in China can do well anywhere and would be a good bet for small investors.

Recently, many investors have asked me what I thought about Disney (NYSE:DIS), as it nears its one year anniversary of opening Hong Kong Disney as a first major foray into the China market. To answer this question, my firm interviewed people who had attended Hong Kong Disney and people who thought about visiting in the next 2 years.

Unfortunately, our interviews revealed a rocky start for Mickey in Hong Kong that were similar to the ones Time Magazine's Michael Schuman has pointed out in his article.

Respondents said that the park was "Too small without enough rides," and that "It was not catered properly to Chinese crowds." Many respondents said that they had heard "such bad things about Hong Disney" that they would "cancel planned visits" because of the Spring Festival ticket disaster this year, where Disney was unprepared for the large number of visitors from mainland China. They were also put off from protests in Disney by cast members unhappy with working conditions.

Shocked at Disney's teething pains in Hong Kong, I decided to take advantage of a planned family vacation to the Magic Kingdom in Orlando to conduct a bit of research to see if the home country was still running well. I figured, if Orlando is still good, then Disney still has a chance to right itself in Hong Kong and its low stock price could be a tempting purchase.

I have very fond memories of Disney World from my 2 trips there -- once with my parents when I was a kid and once 6 years ago when my wife and I had just started dating. (In fact, our trip to Disney was our first trip away together and confirmed for both of us that we were in a serious relationship.)

Although we would be going to Disney in sweltering July, I was excited to go and figured that Florida in July would not be as intolerable as Shanghai in August.

___

When we landed in our resort at the Port Orleans Riverside, I was quite happy with the layout and atmosphere. The resort was very comfortable and, though a little expensive for the quality, I was overall quite happy. The weather too was less sticky than Shanghai's which made us all very pleased.

But things went downhill from there very quickly.

____

Attractions

On our first night, I dragged the family to Magic Kingdom to see the Haunted House, my favorite attraction from when I was a kid. I remembered the ghost in the cart and the dancing ghouls in the ballroom. I remembered it very well.

Unfortunately, I remembered it too well. Unless there were minor updates, the ride was exactly the same as I remembered it from nearly 2 decades ago and again from 6 years ago when I first thought things were looking old. This is Disney's biggest problem. Because they have such a solid following -- I interviewed people who said they come to Disney every year -- and because the parks are a real money-maker, Disney is not investing as much as it should in new attractions and in updating old ones because it does not seem that there is an economic incentive to do so.

Yes, there were some cool new rides like Epcot's Soarin or the Animal Kingdom's Dinosaurs (one of the coolest 5 minutes I have ever experienced), but there were far too many that are growing hoary with age. The Star Wars based one, Haunted House and Epcot itself (with today's ease of travel it is not so cool to see shops with a Japan theme, especially as Wal-Mart sells many of the goods) are looking long in the tooth.

Disney should make some basic changes to old attractions, such as to the painting in the grand foyer in the Haunted House. The costs would not be high, but it would give a good new look to the attraction.

Rating: C+

We decided we would go back in 10 years to see the new attractions because the new ones really are magical and hopefully by then there would be enough.
____

Service

This is where I was most upset. The service at the parks, in the resorts, and in the transportation most notably were awful. I cannot believe the number of rude and downright truculent Disney cast members I ran into.

I will give an example that gets my neck red to this day. Several members of my party from China do not speak any English as I imagine many of Disney's guests don't. We were taking a boat ride from downtown Disney back to our resort when one member of our party stood up on the shuttle boat to take pictures.

The captain of the boat had earlier announced that passengers had to remain seated at all times for safety purposes. Unfortunately, the person in my party did not understand. As soon as I saw him stand up, I told him he had to sit, which he did immediately.

But the Captain literally went bonkers like the demon in Fantasia. He started screaming and glaring at him and waving his arms as if the person in my party was an idiot. It certainly was not good-natured fun.

I said, "The guy does not speak English. He is from China. As soon as we told him he had to sit, he sat. You don't need to keep going on."

The Captain kept yelling and flapping his arms, so I said "There really is no need to be rude and make a scene. He did not understand your announcement."

The Captain then started screaming at me. He stopped the boat for and yelled, "You wanna get off my boat. I am the only captain here. You want to get off my boat!"

I was really shocked at the Captain's behavior.

When I called twice to complain to the guest relations number, no real apology was given to me, and I did not see a resolution to the problem. More disconcerting was that I found that the Captain's behavior was similar to the boorish behavior I ran into several times from cast members.

Grade: F-

Until Disney revamps its customer service again, I will not go back to Disney. We ran into really bad service several times. There also seemed to be a big difference with older cast members and young ones -- the older ones seemed to have been at Disney longer and did a fabulous job while the young ones seemed uninterested int heir jobs and were just going through the motions.
__

Food

Aside from the few new rides that got my blood pumping in a good way, the food at Disney was a huge bright spot. The food was quite good and reasonably priced both within the parks and at my resort. The ribs and BBQ chicken at my resort was fabulous, as was a salad with tuna at Epcott. I also like the enormous turkey legs sold in all the parks, though their size was a tad shocking.

Grade A+

Great food. Enough said.
___

After CMR's surveys on Hong Disney and my own experience in Orlando, it pains me to say this, as I have always been a big lover of Disney, but Disney is not a place retail investors should place their money nor should lovers of Disney visit the parks until there is a major overhaul.

Bad service, poorly laid out parks and old attractions indicate bad management to me which is my first point of analyzing companies. I do not see Disney coming out with good numbers anytime soon. Quite a few people in Orlando told me that they were unhappy with their experience this year -- this does not bode well for repeat business.

On the good side, Disney still has a magical brand name. If it can implement better management and training, then it would be a great stock to buy. I am keeping my eyes closely on Disney's team which has had turnover in Hong Kong. If it improves a bit, then Disney stock would be great.

DIS 2-yr chart: