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October 28, 2010 

While facing continued cotton inflation, retailers are now faced with the prospect of being blacklisted as some Chinese manufacturers are now turning down orders in USD due the Fx risk.


- While most companies have been dwelling on apparel cost inflation, JNY reported seeing equal cost pressures for footwear. Although cotton and other apparel materials have increased in price to a greater degree than leather, footwear's over concentration of production and labor force to China eliminates any cost pressure discrimination between the two categories.


- Interesting quote from fashion legend, Pierre Cardin “There is no more fashion because there is too much fashion. There is no longer a separation between one year and the next. We can't make fashion every six months, perhaps fashion manifests itself every ten years, but, in reality, people have to work and the stores have to sell."


- Another example of the democratization of fashion. Designer Derek Lam will be producing a collection for distribution on Ebay which asks consumers to select which designs actually make it to the production line. An interesting move for sure, which in theory should balance supply with demand and minimize fashion misses. The line will be shown in February, voted on, and then made available by summer 2011.


- Despite an increasing number of brands and SKUs entering the toning category, Skecher’s management is confident it will maintain or grow share as “filler” brands are cleaned out going forward. With Puma and Crocs among new entrants to the category along with weekly trend data reflecting a consistent loss of share to Reebok and “others” in athletic specialty, there is little to support this view.


Target's Go International Program to Design Dresses - To mark the fifth year of its collaborations with up-and-coming designers, Target Corp. has tapped 17 past participants in the Go International program to design a series of dresses. The retailer will launch the collection of 34 dresses, called Designer Collective, on March 13 at most of its stores and on target.com. The merchandise will be available through April 10. Go International was launched in 2006 after Target identified a need to capture more teen spending. Go International reportedly represents more than $100 mm in sales. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Word has it that this effort is actually a “best of” initiative, which will re-release styles that were top sellers over the past 5 years.  Expect vintage shops to perk up as well as they aim to sell “originals”.


Macy's New Gift Shops - Macy’s is blowing the lid off its traditional holiday boxed gifts that feature jewelry, cosmetics and cold weather accessories. New Gift Shops, ranging in size from several hundred square feet to more than 1,500 square feet, are filled with colorful, quirky items — about 400 stockkeeping units in all. The merchandise is split equally between men and women with about 90% of the items exclusive to Gift. The Gift Shops will be rolled out to 400 Macy’s units. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Hard to believe grab and go gift merchandising has never been put into a cohesive shop in shop until now.  Definitely makes last minute shopping even more efficient.

Nordstroms Opens A Non Profit Store In NYC - Nordstrom Inc. is moving into Manhattan again, but this time with a unique retail concept devoted to philanthropy. The latest venture will be a two-level, 11,137-square-foot “philanthropic-based store concept,” located at 350 West Broadway. All profits will go to nonprofit organizations. It’s a completely new endeavor, not a mini-Nordstrom by any means. It’s not going to have Nordstrom in the name. No Nordstrom signing. No Nordstrom shopping bags. It will have an identity all its own. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Interesting effort here clearly aimed at social responsibility.  With no name association connected to Nordstrom we actually believe this could be pure altruism.  No word yet on any tax benefits from the venture.

Fortune Brands Is Said to Plan Meeting With Shareholder Ackman - Fortune Brands Inc. , the maker of Jim Beam bourbon and Titleist golf balls, plans to meet with William Ackman after the activist investor bought 11 percent of the company. <bloomberg.com>

Hedgeye Retail’s Take:  Fresh off of his “cordial” meeting with JCP it looks like Ackman is making the rounds. 

Converse Opens First Full-Price Store - Converse opened its first full-price retail shop, on Newbury Street in Boston. A SoHo location will open in New York by the end of this year with other East Coast locations following in 2011.  <sportsonesource.com>

Hedgeye Retail’s Take: After losing Wade to the team across the hall (Brand Jordan), Converse is seeking ways to increase consumer exposure. Retail stores will gain exposure, but the key will be driving traffic and ultimately sales at an ROI that justifies the cost. Incidentally, Converse sales have improved on the margin in recent weeks according to our NPD data source.

British Retailers Take a Gamble on the Largest Mall in London - While British shoppers brace for the deepest budget cuts in decades, the largest mall in the City of London financial district opens its doors today as retailers bet on tourists making up for the drop in domestic spending. One New Change includes 220,000 square feet (20,439 square meters) of retail space housing chains including Top Shop, Hennes & Mauritz AB, Hugo Boss AG and Marks & Spencer Group Plc. The mall opens for business eight days after the government detailed 81 bn pounds ($128 bn) of cuts and 490,000 job losses. <bloomberg.com>

Hedgeye Retail’s Take: The timing couldn’t be worse, but with the decision to move forward on the project made years ago the best course of action is to start pulling through revenues.


China Toymakers Reject Clients as Yuan Gains Hurt Margins - Lucy Liang, a sales manager for Jiangsu Zhongxin Toys Co., disappointed potential clients from the U.S. and Europe inspecting the pink and yellow teddy bears crowding the toymaker’s stall at China’s biggest trade fair. “My boss orders us to turn down all the orders for the good of the company” because China’s yuan may rise, crimping profit margins, said Liang. The country’s toymakers accept profit margins of as narrow as 3% to stay competitive. The low profitability, coupled with payment periods of three months or more, means they are particularly vulnerable to currency fluctuations. “If the yuan rises to 6 to the dollar, we’re doomed,” said Simon Pan, general manager of closely held Zhejiang Huangyan Hongfan Toys Factory. It’s raising prices by 3% to 5% to offset the Chinese currency’s gains, and further increases would mean losing customers. <bloomberg.com>

Hedgeye Retail’s Take: Chinese manufacturers and businesses can either chose to build in an additional cushion to offset FX risk, or simply deny USD altogether. The latter is a more significant risk as supply inherently becomes tighter and even more costly creating further pressure on retailer margins.

Major Textile Groups Urge Action Against India on Cotton Export Restriction - Major textile groups across the world have urged the governments of the European Union, Mexico, Turkey and the US to take action against India if it continues to restrict the export of cotton. The groups cited an illegal pattern of export restraints on cotton that the Indian government has imposed since April. The Indian restraints have contributed to an enormous increase in the price of cotton for non-Indian textile producers around the globe. Since India began restricting the export of cotton in April, the price of cotton has increased by nearly 100%, from 62 cents per lb to $1.20 per lb. Cotton prices have hit all time highs in recent weeks. <fashionnetasia.com>

Hedgeye Retail’s Take: As the #2 global producer, India makes an easy target to help ease supply though the reality is there are a multitude of factors that continue to exacerbate the issue that are also driving prices higher – now it’s a cold snap in China.

Holiday: Starting Early and Expecting More - More holiday shoppers will buy online this year, and many of them will start earlier than they did last year, according to a new survey. E-retailers offering early-season discounts and promotions will come out ahead, the results suggest. Those results suggest e-retailers need to put forth their best offers early to capture the greatest sales, says Ken Burke, founder and chairman of e-commerce service provider MarketLive Inc. The survey of 1,000 online consumers finds 44% of respondents say they will do their holiday gift buying online, compared with the 37% who said so in last year’s survey. 39% say they intend to finish their holiday shopping by early December, greater than the 29% who planned to be done by Dec. 3 last year. <internetretailer.com>

Hedgeye Retail’s Take: Yet another competitive advantage for those with an e-commerce platform. With improved analytics, targeted discounting programs based on customer intel are making it even easier to avoid hitting the mall this season.

Multichannel Shopping Key for Holiday Season - While most Americans have already started their holiday research and shopping activities—and about half have made purchases—more than three-quarters still have work to do, according to October data from Google and OTX. And multichannel shopping will be critical in getting them to the finish line. Growth in ecommerce sales outpaces total retail, but online and in-store experiences contribute to each other in a complex way. A slight majority of internet users surveyed by Google reported that they would research items on the web and make a purchase in a store, more than would research online and buy online. Nearly a third also planned to do their initial research on the internet and check out the item in a store before making their final purchase online.  <emarketer.com>

Hedgeye Retail’s Take: Yet another reason why an online presence is critical for retailers looking to maintain share.

R3: SKX, TGT, M, JWN - 1