R3: WMT, RL, TRU, GPS

R3: REQUIRED RETAIL READING

November 11, 2010

 

 

 

RESEARCH ANECDOTES

  • With some retailers just now launching initial forays into e-commerce, it puts Ralph Lauren’s 10th anniversary of ralphlauren.com into perspective. Keep in mind that despite reporting 21% growth in its e-commerce business in Q2, this channel represents less than 5% of total sales and remains a material growth opportunity.
  • KSS noted that its October sales shortfall was largely a result of a dramatic impact on sales of outerwear during the warm weather trend over the first two weeks of the month.  As a result, outerwear inventories were a bit high coming out of the month.  On the flip side, management also noted that business trends have “returned, frankly, to a much more normalized trend rate for the year”. 
  • On the heels of its pop-up store store strategy, Toys”R”Us is now launching a mobile coupon campaign in additional efforts to capture customers. It’s a significant improvement compared to the e-coupons offered last year, which customers had to print to redeem. Recall that Starbucks launched a similar campaign back in 2009 to mixed reviews though TRU’s demographic will likely be considerably more receptive to redeeming offers through the holidays.

OUR TAKE ON OVERNIGHT NEWS

Free Shipping Offered at WMT - Wal-Mart Stores Inc., the world’s biggest retailer, is offering free shipping to homes on almost 60,000 holiday items through its website as it vies for budget- conscious shoppers.  The offer, which applies to products including furniture, jewelry and video games, is on now through Dec. 20, the Bentonville, Arkansas-based company said today in a statement. It isn’t valid on Apple Inc.’s iPod and iPad devices.  Wal-Mart is looking to win back customers in the U.S., where sales at stores open at least a year have declined for five straight quarters. Chief Executive Officer Mike Duke said last month that confidence among consumers, whose spending accounts for about 70 percent of the U.S. economy, is “not very positive” because of high unemployment. <Bloomberg>

Hedgeye Retail’s Take: Bad news for the entire e-commerce sector which will now be forced to compete with similar offers.  Free shipping is once again the ante for simply being in the e-commerce game.

Gap Goes China - The flagships of Louis Vuitton, Ermenegildo Zegna, Cartier and other luxury retailers clustered together on Mid Huaihai Road, a premier shopping street in the heart of the city, now have a new neighbor: Gap. On Wednesday night the American retailer unveiled the first of four wholly owned Gap stores in China in Hong Kong Plaza, a high-end shopping center on Huaihai. A launch party included speeches from regional executives and a fashion show featuring the 2010 holiday collection. The flagship will open to the public today. Two stores will open in Beijing — a two-story flagship in the AMP building on Wangfujing Street and a smaller space in Chaobai City, a regional shopping center — on Saturday and another flagship in the next several weeks on Nanjing West Road in the Venture Tech building in Shanghai in what executives say is a part of an ambitious plan to take Gap Inc. global. In October, Gap Inc., which will also open stores in Italy by the end of the year, said it expects international and online sales to account for 25 percent of revenues by 2013. Those areas accounted for 12 percent in 2009. The retailer’s chief executive officer, Glenn Murphy, has been at the forefront of the company’s global road map. <WWD>

Hedgeye Retail’s Take: With Gap looking to double its international exposure over the next 3 years, it’s no surprise that China will be a key market in which to grow.  While in theory margins should be higher outside of the domestic market, we still wonder how much investment/infrastructure spend will be needed to operate a multi-country, multi-language business across the globe.

Seven Turns Ten - Seven For All Mankind, whose founding in 2000 was a key milestone in the development of premium denim, is marking its 10th anniversary with a limited edition capsule collection, an oversize coffee-table tome and a series of events with magazine partners. The VF Corp.-owned label is issuing a line of anniversary jeans that accentuates its modern, classic aesthetic and is inspired by the clean lines of Southern California’s mid-century Case Study Houses. Each of the five styles for men and women, dubbed Case Study Denim, feature updated interpretations of Seven For All Mankind’s signature design elements, with prices ranging from $255 to $750. The collection is available in the company’s freestanding stores this week. Seven For All Mankind operates 39 stores in the U.S., with another 76 owned and partner-operated stores overseas. <WWD>

Hedgeye Retail’s Take: Oh the irony of selling $750 denim to promote the brand’s 10th anniversary while at the same time the core business remains under substantial pricing pressure.  We would not expect this PR event to help the situation.

Top-Line Strength at Mizuno - Mizuno Corp. saw its second-quarter profit nearly double, thanks to strong sales in Europe and North and South America. The athletic company, based in Osaka, Japan, said Wednesday its net income for the period ended Sept. 30 was 1.78 billion yen, or $21.6 million at current exchange, a 91 percent improvement over 931 million yen, or $11.3 million, in the same period last year. Revenues from Europe and North and South America more than doubled, on a currency neutral basis. However, revenues from Japan, Asia and Australia nearly halved. As a result, total group revenue stayed flat at 76.2 billion yen, or $923 million, compared to a year ago. The company said sales of sports shoes, especially running shoes, were strong in the quarter, and that it is seeing a strong recovery in the golf business. <WWD>

Hedgeye Retail’s Take: Another positive data point for technical running which is in-line with recent comments from Saucony.

Acra Focus on Plus-Size Bridal Category - Plus-size brides can’t get any respect. Just ask Yukia Walker. When Walker was shopping for a wedding gown three-and-a-half years ago, she suffered one insult after another. Walker got the cold shoulder from retailers that didn’t stock dresses for her size 20 frame. Stores didn’t have samples in her size, so she was forced to try on dresses with the backs cut out. “It was a very humiliating and humbling experience,” Walker said. “My sister had to try on my wedding gowns for me. It was very disheartening. I had to get a size 16 and go on a crash diet. I ended up with a wedding gown that I hate. ” After her experience, Walker decided to fill what she perceived as a major gap in the market. In September, she opened Curvaceous Couture, a 5,000-square-foot bridal salon in Columbia, Md., that specializes in sizes 16 to 32. Curvaceous Couture sells brands such as Ian Stewart, Enzoani, and Pronovias. Prices start at $1,000. “We give customers the opportunity to try on styles that actually fit them,” Walker said. “When you’re making a sizable investment, it’s embarrassing to have to endure such humiliations as not finding dress samples in your size.” While lower-priced lines for plus-size brides exist, high-end bridal collections in large sizes are scarce. “The luxury market has generally shied away from big sizes,” Walker said. “We’re interested in partnering with [the brides] and making them feel beautiful and special so they come away with a positive experience.” <WWD>

Hedgeye Retail’s Take: Another attempt to capitalize on the plus-size niche but this time may be different.  Pop-culture reality TV show, “Say Yes To Dress”, might actually help jumpstart the efforts of Curvaceous Couture. 

Men's Accessory Demand Robust - Accessories are a popular add-on item for men seeking a quick update of their styles. As a result, retailers are highlighting the category with more offerings and enhanced presentations — and the investment seems to be paying off. Saks Fifth Avenue last month introduced a new accessories outpost on the sixth floor of its flagship, with expanded assortments of Tod’s, Gucci and Ferragamo leather goods as well as watches and jewelry. Large leather goods, such as briefcases from Ferragamo and Mont Blanc, have been among the top performers. “We’re getting a nice lift from leather bags and leather goods,” said Tom Ott, Saks’ senior vice president and general merchandise manager of men’s wear. “Guys today are looking for the correct kind of bag to go with their lifestyle.”  In the past, men were content to make do with their outdated, worn leather pieces. “But now we see a renewed interest in all shapes and sizes of small leather goods, as well as exotics,” Ott said. Although the price of exotic skins such as alligator may be high, “if it’s a great make and a great skin, a guy will spend. Before the recession, if it just had a great name it would sell; now it has to have a great name and a great make.” Ott predicted that the category will continue to gain in importance. “The younger male consumer is very fashion-aware, and he wants to accessorize correctly,” he said. “This is a trend you saw in women’s wear first, but now men are embracing it too.” <WWD>

Hedgeye Retail’s Take: We question just how much demand for large men’s leather goods is coming from domestic consumers – chances are that foreign based tourists are capitalizing on currency arb much like what we’re seeing with luxury watch sales of late.

Fortune 500 Doubles Use of Twitter - America’s biggest corporations have dramatically increased their participation in Twitter, according to “The Fortune 500 and Social Media,” a yearly report from the Center for Marketing Research at the University of Massachusetts Dartmouth. Three in five Fortune 500 companies now have an active Twitter account, compared with 35% in 2009. This is even more than the number that have Facebook accounts, at 56%. More than a third of the companies with Twitter accounts regularly responded to consumers with @ replies or retweets within a brief period of time, making a solid effort to engage the 26 million US adults eMarketer estimates use Twitter at least monthly. <emarketer>

Hedgeye Retail’s Take: With the top 100 companies accounting for 39% of last year's accounts, adoption among the ranks between 200-500 drove growth in 2010. It's no surprise that specialty retail with 23 companies was the industry most strongly represented.

R3: WMT, RL, TRU, GPS - R3 11 11 10

Groupon’s Coupons - Facing steep competition from sites like LivingSocial, BuyWithMe and flash sale merchants like Gilt Groupe that are entering the local deal market, daily deals behemoth Groupon.com is attempting to simplify the process for merchants to redeem its local deal coupons called Groupons. It’s doing it with a free bar code scanning app for mobile devices using Google Inc.’s Android operating platform that enables merchants’ staff to use a smartphone’s built-in camera to scan and redeem Groupons presented by customers. Groupon says it plans to launch a similar app for Apple Inc.’s iPhone and iPod Touch and will soon ship as part of a special merchant promotion Android phones and iPod Touches preloaded with the Groupon app to thousands of affiliated businesses. When an employee uses the app to scan a Groupon coupon, purchase data is immediately transmitted to the merchant’s interface on Groupon.com, allowing business owners to track redemption and the total amount spent by a customer, Groupon says. Groupon may be giving its merchants a little extra TLC because it’s feeling heat from new competitors looking to tap its successful business model. Groupon, one of the first in the space, takes a hefty 50% cut of each coupon sold, according to its web site. It takes a lower 30% for deals promoted through Groupon stores—virtual storefronts where merchants can run their own deals. Stores are different from traditional Groupon offers because consumers must choose to follow a store.  <internetretailer>

Hedgeye Retail’s Take: As the coupon phenomenon continues to push towards paperless solutions, it’s no surprise to see one of the top deal concepts leading the push to gain share in the process.

U.S. Apparel and Textile Imports Increase in September - but the frenzied effort to restock inventories that drove substantial increases in July and August cooled somewhat. Combined shipments of apparel and textiles to the U.S. rose 16.7 percent compared with a year earlier to 5.2 billion square meter equivalents in September, the Commerce Department’s Office of Textiles & Apparel said Wednesday. September was the fourth highest month of textile and apparel imports in 2010. Apparel shipments were up 13.3 percent to 2.5 billion SME and textile shipments advanced 20.1 percent to 2.6 billion SME. The overall trade deficit narrowed to $44 billion in September from $46.5 billion in August. Companies are looking to scale back their orders after rebuilding stocks in recent months, said Nigel Gault, chief U.S. economist with IHS Global Insight. Combined imports from China rose 22.1 percent to 2.7 billion SME, with apparel up 12.5 percent to 1.2 billion SME and textile increasing 31.8 percent to 1.4 billion SME. Shipments of textiles and apparel from Vietnam rose 27.1 percent to 252 million SME, with apparel gaining 22.8 percent to 177 million SME and textiles up 38.5 percent to 75 million SME. Mexico increased its industry imports 21.4 percent to 235 million SME, as apparel rose 7.6 percent to 79 million SME and textiles climbed 29.9 percent to 155 million SME. A number of countries had import increases driven by apparel shipments. Honduras saw combined imports rise 35.8 percent to 118 million SME and Haiti’s shipments increased 28.4 percent to 29 million SME. Apparel imports from Cambodia increased 14.7 percent to 99 million SME and shipments from El Salvador advanced 37.5 percent to 79 million SME. Shipments of textiles and apparel rose from all of the top 10 U.S. suppliers, except South Korea, which saw imports decline 20.4 percent to 101 million SME. The top five apparel suppliers in September were China, Vietnam, Bangladesh, Indonesia and Honduras. China was also the largest textile supplier, followed by India, Pakistan, Mexico and South Korea. <WWD>

Hedgeye Retail’s Take: Keep in mind this is a substantial deceleration from the August rate of +29% reflecting retailers push to restock earlier than usual driven by transportation cost inflation fears. We expect a continued sequential deceleration with inventories now at higher year-over-year levels coupled withretailer interest in avoiding excess buildup.

China Shoe Manufacturer Migration - The number of shoe manfacturers in Wenzhou city has dropped to current 3035 from 4,000 at the peak period as companies in other inland cities such as Hebei, Henan and Hunan can produce cheaper products. According to China Leather Industry Association, the shoemaking industry in inland areas recorded a rapid growth that challenges the position of shoemakers in Wenzhou. Due to lower costs of labor and water and power supply, shoemakers in inland areas gain more market share of the low-end shoe market in China. The size of the shoemaking industry in Wenzhou has continued to shrink for several years. More than a thousand shoe manufacturers have been shut down over the past seven years. <FashionNetAsia.

Hedgeye Retail’s Take: Production flight out of Wenzhou has been swift with 25% shifting inland and cross borders. The city’s likely to see further contraction with future volume primarily driven by increased demand in Vietnam, Indonesia and other neighboring countries.

Pakistan Government Criticized for Raising Petroleum Prices - The Pakistan government is condemned by the Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA) for raising the rates of petroleum products by 9%. The already weakened export sector is confronted with a number of issues including that of acute power cut, deteriorating law and order conditions and rising prices of raw materials. The government’s decision of raising the rates of petroleum products has further distressed the industry. Moreover, as most of the times the garment units provide transportation facility to their workers, this rise in prices of petroleum products would certainly raise the transportation cost. Also, the leather garment factories use some of the chemical solutions which are obtained from petroleum products, due to which the production cost is bound to rise. A year-on-year hike of 50% in leather exports during the third quarter of the current year, has greatly elevated the prices of leather garment exports. Meanwhile, massive floods in the country have also claimed lives of a number of animals, leading to scarcity of raw hides and skins. <FasionNetAsia>

Hedgeye Retail’s Take: As the saying goes - when it rains, it pours. Despite having the ability to curb mounting pressures on Pakistan’s leather industry with subsidies it looks like input costs for luxury brands are only headed higher near-term.