November 18, 2010





  • ROST noted that the recent buying environment has been slightly more favorable as a result of Asian supply chain disruptions and erratic sales patterns at retail.  This favorable buying has resulted in a year over year increase of 500bps in the company’s packaway levels. 
  • Momentum continues in the dollar store space with DLTR reporting its strongest comp of the year up 8.7% against tough compares.  This is the second highest comp in over 7 years!
  • According to our weekly trend data, Skechers officially broke its positive sales momentum posting the first decline in year-over-year sales since June 2009 with toning trends (sales and ASPs) continuing to deteriorate.



Lopez/Anthony Embark on Fashion Line at KSS - Jenny from the Block is back in fashion. Jennifer Lopez, along with her husband, Marc Anthony, will today unveil a new lifestyle fashion venture with Kohl’s, multiple sources told WWD. The superstar couple is slated to be front and center at a press conference on the rooftop of the London Hotel in Los Angeles this morning, where they will join Kohl’s Corp. executives to publicize the partnership, which includes Hong Kong-based sourcing giant Li & Fung on the production side. The deal, which likely extends beyond men’s and women’s apparel to other categories, such as home, could eventually generate up to $3 billion in sales, added sources. The Kohl’s deal marks a return to the fashion business for Lopez since she shuttered her Sweetface contemporary sportswear brand in 2009. This new deal marries Lopez and Anthony with the Menomonee Falls, Wis.-based department store retailer that operates 1,089 stores in 49 states. The duo will join Kohl’s stable of exclusive brands that include Simply Vera Vera Wang, Candie’s, Daisy Fuentes, Tony Hawk, LC Lauren Conrad and Avril Lavigne’s Abbey Dawn. <WWD>

Hedgeye Retail’s Take: Despite closing down her Sweetface sportswear brand last year, JLo has had success at retail. While a $3Bn opportunity may sound optimistic, recall that Lopez has generated more than $1Bn in sales from her 16 fragrances since 2002. With Marc onboard for a men’s apparel line, KSS has locked up one of the more dynamic high-profile couples in fashion.


Gap Enters South America - Gap Inc., though still struggling in the U.S., keeps advancing its overseas expansion.  In September, the $14.5 billion retailer will open its first store in South America, in the Parque Arauco mall in Santiago, Chile. A franchise agreement has been signed with Komax, which has the exclusive rights to operate Gap brand stores in Chile. Komax purchases the merchandise from Gap and must adhere to Gap standards. Komax has franchise agreements with other well-known retailers, including The North Face, Brooks Brothers and Ralph Lauren. Gap did not state how many stores it expects to see in South America. Gap said, with Chile, it will have stores in 25 countries on six continents. “We are looking forward to offering Gap’s modern, cool American designs to customers in a retail sector that is strong, and has an exceptional demand for fashion,” said Stephen Sunnucks, president, Gap Inc., Europe and strategic alliances. “Komax has impressed us with their local expertise in the market and proven track record of launching international brands to customers in Chile.” Gap has 165 franchise stores in Eastern Europe, Latin America, the Middle East and Australia. By 2015, the company expects to have 400 franchise stores. <WWD>

Hedgeye Retail’s Take: International expansion continues to be a sizeable opportunity for the brand, however, doing so through franchise agreements not only limit risk, but upside on the P&L as well. 


Stride Rite Enters China - Parent firm Collective Brands Inc. announced a licensing and development deal with Li & Fung Retailing to launch the children's footwear brand in Greater China and Southeast Asia. Under the deal, a newly formed subsidiary, LiFung Children Holdings Ltd., will market the brand through standalone retail stores, shop-in-shops and e-commerce in Hong Kong, mainland China, Singapore, Taiwan, Macau, Malaysia and Brunei. The move marks the first time Topeka, Kan.-based Collective has brought any of its retail concepts or brands to mainland China. Initial plans call for the opening of retail outlets in Hong Kong, Singapore and Malaysia next month, followed by stores in China in 2011. "We are excited to partner with LiFung Children Holdings to bring Stride Rite to Asia," Sharon John, president of Stride Rite Children's Group, said in a statement. "We look forward to bringing shoppers across the region our range of products for children, as well as a store format dedicated to properly fitting the child and servicing parents and grandparents.” <WWD>

Hedgeye Retail’s Take: While the company’s recent Middle East franchise is a substantially larger deal initially, entry into China is notable nonetheless. Our sense is that after initial tests, Li & Fung will be properly incentivized to ramp store growth depending on brands reception.


Black Friday Discounts to Expect at KSS & TRU - In anticipation of Black Friday, Kohl's and Toys"R"Us have revealed their savings and doorbuster deals for the day after Thanksgiving. Kohl's will roll out its holiday sales at 3 a.m. on Nov. 26. Fifty percent off will be offered on toys from Fisher-Price, Playskool, Littlest Pet Shop, Hot Wheels, Matchbox, Tonka, Little Tikes, Crayola and Play-Doh. In addition, the retailer's exclusive brands will also see discounts, including on Simply Vera Vera Wang, LC Lauren Conrad, Food Network, Elle Contemporary Collection, Elle Décor, Dana Buchman, Candie's, Tony Hawk, Apt. 9, Chaps, Jumping Beans and Sonoma Life + Style. Meanwhile, TRU will open its doors at 10 p.m. on Thanksgiving night with more than 150 deals on toy, games and electronics. The savings will be available until 1 p.m. on Nov. 26. An additional 50 doorbuster deals will kick off at 5 a.m. on Nov. 26. Limited-edition items, such as Justin Bieber figures, as well as free Crayola 64-packs and coloring books with any purchase, will also be featured. Finally, 60 unadvertised deals will be announced on Toysrus.com and Facebook.com/Toysrus beginning at 12:01 a.m. on Nov. 23, which will be available in stores only between 10 p.m. on Thanksgiving and 1 p.m. on Nov. 26. <licensemag>

Hedgeye Retail’s Take: Here come the door-buster deals we have all come to expect. The incremental .com offerings at TRU exhibit the company’s competitive leg up on the technology front. 


AMZN Dips a Foot into Film - Amazon.com Inc. today introduced Amazon Studios for filmmakers hoping to wow the world with their movies. The world’s largest online retailer says it has set aside $2.7 million in monthly and annual prizes, which Amazon plans to award by Dec. 31, 2011. The efforts focus more on commercial potential than artistic merit, with Amazon listing making money first among traits it will look for in submitted materials.  “Winning screenplays and full-length test movies will be selected on the basis of commercial viability, which will include consideration of premise, story, character, dialogue, emotion and other elements of great movies,” Amazon says. Amazon has struck a deal with Warner Bros. Pictures that calls for Amazon Studios to produce the best projects, which will then go to Warner Bros. for a first look. Amazon can produce the movie with another studio if Warner Bros. passes. If Amazon Studios releases a film to theaters, the filmmaker or screenwriter receives $200,000 for the rights and a $400,000 bonus if the film earns at least $60 million in the United States. <internetretailer>

Hedgeye Retail’s Take: Historically a boom/bust type business, the internet giant finds yet another avenue for growth. In today's youtube-happy and tech savvy youth, Amazon's widely cast net will likely result in some success. One of the questions will be whether the studio is staffed  appropriately to handle the level of response it's likely to receive.


M&A Overseas - Selfridges Group Ltd. is adding to its stable of retail brands. The group, parent of the British department store, said this week it plans to acquire the Dutch luxury retail chain de Bijenkorf from the Maxeda Retail Group for an undisclosed sum. De Bijenkorf, Holland’s leading fashion and luxury goods retailer, has been in operation since 1870, and has a chain of 12 stores. Selfridges Group is expected to complete the deal and take ownership in early 2011. “De Bijenkorf is an excellent addition to our portfolio of international stores,” said W. Galen Weston, chairman of Selfridges Group. “This is an exciting opportunity for us to expand in Europe. Our long-term view and strong financial position will further enhance de Bijenkorf and offer a world-class experience to all parts of the Netherlands,” he said. The company said Paul Kelly has been named managing director of Selfridges Group Ltd., and will oversee the new business. Kelly was formerly chief executive officer of Selfridges and retailer Brown Thomas in Ireland. <WWD>  

Hedgeye Retail’s Take: Perhaps better known for their architecture than shopping, makes sense for the UK department store to diversify away from the British economy.


Consumer Brand Preference Study - Kohl’s, Neiman Marcus and H&M were among the category leaders in consumer preference in a study conducted by L.E.K. Consulting. The Retailer Preference Index helps retailers gauge who their nearest competitors are, based on consumer preferences. Criteria studied included product variety, perceived value for the money, service quality, ease of navigation in the store and fit. About 3,000 individuals were interviewed for the semiannual survey during the third week of October. Kohl’s came in as the top department store, followed by J.C. Penney and Macy’s, with Dillard’s and Sears rounding out the top five. Shoppers at premium department stores ranked Neiman Marcus first, followed by Nordstrom, Saks Fifth Avenue and Bloomingdale’s. Charlotte Russe was the leader among teen specialty chains, followed by Forever 21, Hollister, American Eagle Outfitters and Aéropostale. In women’s specialty retailing, H&M and Victoria’s Secret were a very close one and two, according to survey respondents. Old Navy, Ann Taylor Loft and Limited rounded out the top five. Ann Taylor ranked 16 out of 19 in the women’s specialty category, with New York & Co. in sixth place, Gap in seventh, J. Crew in 10th and Urban Outfitters in the 15th slot. <WWD>

Hedgeye Retail’s Take: A few noteworthy parings including New York & Co. still besting the likes of JCG and URBN in consumers eyes.


M&A in MMA - Authentic Brands Group, which recently acquired the Tapout brand, has purchased Sinister, an apparel and accessories company with origins in the mixed martial arts space.  Known for its early relationships with UFC champions like Chuck Liddell and Rampage Jackson, the Sinister brand has grown up along side the fastest growing sport in the world. "This acquisition completes our mixed martial arts stable of brands that will now reach all tiers of distribution," said Jamie Salter, chief executive of Authentic Brands Group. "Not only is Sinister's distribution at Kmart and Sears highly appealing but they have a world-class partnership with Hybrid, one of the best-in-class apparel licensees in the business." In addition to Sinister, Authentic Brands Group's MMA holdings consist of TapouT, TapouT Pro, TapouT MPS, TapouT Vintage, Silver Star Casting Company, Iron Star and Hitman Fight Gear. Sinister has been involved in mixed martial arts and the UFC since 1998, and became an official partner of the UFC in 2008. Its long-term relationships both with the UFC and its roster of athletes have been integral to the brand's growth and its introduction to new consumers. <SportsOneSource>

Hedgeye Retail’s Take: Mixed Martial Arts (MMA) is quickly becoming one of the most consolidated industries with a flurry of deals over the last few months leaving Authentic Brands with one of the most attractive portfolios in the space.  


China Leather Shoe Exports Grow - China’s leather shoes exports in September recorded a growth of 22.8% in volume and 40% hiking in value, while the total amount of exports for the first nine months reached 770 million pairs that are worth US$7.92 billion, up 14.6% and 25% respectively, according to the China Leather Industry Association. For the same period of last year, leather shoe exports reported a 23.8% decline in pairs and a 15.7% drop in value. In terms of imports, the value saw a growth of 25.1% year on year to US$420 million, and pairs up 11.1% to 11.22 million. The average value for per pair of imported and exported leather shoes maintain steady growth, with an increase of 9.1% on exports to US$ 10.28 for per pair and 12.6% growth on imports to US$36.99 for per pair. <FashionNetAsia>

Hedgeye Retail’s Take: Our sense if that the 9% increase in value per pair likely reflects the embedded cost escalation realized over the past year rather than an improved level of quality.


India Luxury Market The Indian luxury market has grown 13% over the past 3 years and is currently estimated to be $4.76 billion and is set to grow by 3 times by 2015 and apparel brands form a significant part of this growth especially in the category of menswear, according to Sanjay Kapoor, Chairman, CII Luxury Goods Forum, & MD of Genesis Luxury Fashion. "Informing about the current consumer preferences and spending traits, he said, "Jewelry, watches and accessories are the current largest categories and a new trend in apparel is the emergence of the 'menswear' luxury brands. Men too are becoming appearance and brand conscious and classic menswear brands such as Canali are finding favour with Indian men in the 35-44 age bracket, while younger men in the age bracket of 21-35 are dressing up in brands such as Paul Smith, Kenzo and Etro." Elaborating on the various factors, driving this market trend, he noted, "The economy is clearly on a recovery mode and men are beginning to spend on themselves too. They are well-traveled, and while earlier they shopped for their favourite brands overseas, now they can find the same brands in India too, hence it is far more convenient to buy here, the prices being almost the same, along with which, brands have their latest season collections in the boutiques here.” <FashionNetAsia>

Hedgeye Retail’s Take: There’s little question about the potential opportunity, what limits most retailers from stepping up plans to enter India continues to be the government controlled FDI restrictions.


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

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7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

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Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

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Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

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Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

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Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

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Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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