R3: REQUIRED RETAIL READING
November 19, 2010
RESEARCH ANECDOTES
- Foot Locker management confirmed our view that acceleration in the basketball category remains in the early stages. This is consistent with our weekly trend data that showed a 50+% increase in the category for October. Management also highlighted that demand is across the board, with key products from UA, NKE, Adi, and Reebok selling well.
- GPS noted that it will pull back on holiday marketing spending this year. Recall that last year the company returned to TV for the first time in three years, only to find that it did little to move the needle on sales. Capital preservation remains the key here. Consistent sales growth in core Gap remains elusive.
- In a positive sign of improving traffic, SCVL highlighted trends were up +2.5% in Q3 against the first tough comp (i.e. +5.7%) in over 2-years. Moreover, while posting a +7.2% comp for the quarter, the company reaffirmed comps would still have been up mid-single digit excluding the positive contribution from toning reflecting the underlying strength in core sales.
OUR TAKE ON OVERNIGHT NEWS
APP and Groupon Hookup - American Apparel Inc. today launched a nationwide Groupon offer in which consumers pay $25 for $50 of merchandise. However, unlike Gap Inc. , which offered its Groupon deal in August only for in-store purchase, American Apparel is allowing consumers in markets that do not have an American Apparel store to use the voucher online. For consumers in markets that do have a bricks-and-mortar store, the Groupon offer is in-store only. The offer also excludes shoes, sale items and various other categories. “We wanted this to be a truly national deal and it didn’t feel right to exclude people just because we haven’t opened a store in their city yet,” says a spokesman for American Apparel, No. 269 in the Internet Retailer Top 500 Guide. “This hybrid model should allow us to reach new customers we otherwise wouldn’t have met and drive traffic to our retail stores and web site.” American Apparel says that its goal is to give consumers an opportunity to try the retailer’s new knitwear products, its nail polish line and other products that are new to the company in the past year. “There is simply no other opportunity around to do something like that on a such a large scale,” he says. While Groupon typically takes a 50% share of the revenue generated from its offers, American Apparel says it negotiated a special rate for its offer. The company declines to disclose the specific arrangement. <internetretailer>
Hedgeye Retail’s Take: With 10k consumers in NYC, 6k in LA, and 7k in Chicago purchasing the offer by 4pm yesterday, Groupon has once again proven it can drive traffic. While positive, it’s far cry from the success Gap experienced for its $25 for $50 deal back in August that drew close to 500,000 customers stores.
Top Brands of Chinese HNW Consumers - A Shanghai-based research firm focusing on the luxury goods market, FDKG, has carried out a study about China’s high net worth individuals and has compiled a top ten for the luxury brands that wealthy people in China like to buy. The top ten brands by ownership amongst Chinese net worth individuals are Louis Vuitton, Dunhill, Gucci, Ports, Dior, Armani, Hermès, Chanel, Zegna and Prada. The study examined the spending habits of almost 800 wealthy Chinese businessmen and women from across the country, whose annual income reaches RMB1m ($150,000) on average. Ken Grant, managing director of the consultancy firm, commented: “Our view is that the habits of wealthy individuals in this market remain embryonic but that this will not last for long. Now is the time for luxury goods businesses to seriously consider engaging with the Chinese market.” <FashionNetAsia>
Hedgeye Retail’s Take: While high fashion dominates the list, China’s growing wealth suggests early movers in luxury retail like Ralph Lauren have share to gain.
Forever 21 to 5th Ave - Forever 21 is out to prove it has universal appeal — from Fifth Avenue here to London’s Oxford Street. The chain today opens a 45,000-square-foot unit at 693 Fifth Avenue, formerly home to the tony Takashimaya, where spare merchandise was artfully displayed and fresh flowers bloomed in the first-floor floral shop. Now there’s a shoe salon and trendy items such as fake fur vests ($22.80), fake leather bomber jackets ($24.80), looped wool ponchos ($24.80) and one-shoulder velvet dresses ($19.80). Forever 21 has a temporary six-month lease. “We want to be on Fifth Avenue permanently,” said Larry Meyer, Forever 21 Inc.’s senior vice president. “We are focused on making this store work. We hope the economics work out.” In the meantime, the space is being marketed by Thor Equities, the building’s owner. “We’re negotiating now with 10 different retailers,” said Joseph Sitt, chief executive officer. “They [Forever 21] are one of the 10.” <WWD>
Hedgeye Retail’s Take: Forever 21 remains the poster child for being the retailer with the MOST flexible retail strategy. While we’re not sure how taking a location on 5th Ave and in former Mervyn’s locations creates much synergy, we do know that being private certainly helps.
Swiss Watch Exports Still on the Rise - Swiss watch exports rose 18 percent in October to 1.6 billion Swiss francs, or $1.65 billion, fueled by sales of watches priced between 200 and 500 francs, or $206 to $516, the Federation of the Swiss Watch Industry said Thursday. "The main markets for the Swiss watch industry achieved better than average growth in October," the federation said. Watch exports rose 20.6 percent between January and October to 12.82 billion Swiss francs, or $12.16 billion. Dollar figures are calculated at average exchange rates for the period in question. Hong Kong, the largest market for Swiss timepieces, continued to achieve a sustained rate of growth, up 38.1 percent on the month. But China overtook it as the leading growth market with a rise of 42.6 percent in October. <WWD>
Hedgeye Retail’s Take: This continues to be a trend driven by currency arb and China’s growing wealth amongst the country’s young population.
The New Slim - Slimming down is all the rage today in the dress shirt and neckwear markets. Driven by demand from a younger consumer, shoppers are responding to narrower silhouettes in both categories, and manufacturers are responding by slicing material from billowy shirts and narrowing the width of their ties. Updated patterns in dress shirts and new fabrications in neckwear are also garnering interest as customers seek a quick and simple solution to update their wardrobes. “Both businesses have been good,” said Lou Amendola, chief merchandising officer of Brooks Brothers. “We’re selling ties that are more youthful in width and pattern, and on the shirt side, slimmer silhouettes are driving the business.” <WWD>
Hedgeye Retail’s Take: Whether by design or demand, less material is yet another way to offset higher costs. While this trend may indeed be more a function of macro dynamics than anything else, we wonder if the same opportunity is already exhausted for denim brands with skinny jeans now in Yr2.
Black Friday Expectations Optimistic - Talk of discounted toys, e-readers, appliances and even HDTVs has millions of Americans already mapping out their Black Friday plans and filling out their wish lists. According to a preliminary Black Friday shopping survey, conducted for the National Retail Federation by BIGresearch, up to 138 million people plan to shop Black Friday weekend (Friday, Saturday and Sunday), higher than the 134 million people who planned to do so last year. According to the survey, approximately 60 million people say they will definitely hit the stores while another 78 million are waiting to see if the bargains are worth braving the cold and the crowds. "The rules for Black Friday have changed significantly,” said NRF President and CEO Matthew Shay. “Instead of waiting until Thanksgiving Day to announce their promotions, many retailers are getting shoppers excited about Black Friday by offering sneak peeks of deals in advance, using social media to create buzz, or teasing upcoming deals on their websites.” <NRF>
Hedgeye Retail’s Take: An increasing population of technologically literate consumers coupled with retailers embracing new e-commerce/mobile concepts are sure to keep consumers abreast of the latest deals – not to mention the flexibility to adjust promotions mid-stream if need be.
New Bill Against Online Counterfeits - The Senate Judiciary Committee unanimously passed a bill on Thursday that would crack down on counterfeit merchandise and pirated products sold online by “rogue Web sites.” The bill, approved by a vote of 19-0, will advance to the Senate for a vote but it is uncertain whether the leadership will take it up in the truncated lame-duck session. If the Senate were to pass the bill, it would still not be enacted this year because there is no companion bill in the House. The bill will have to be reintroduced in the Senate next year, introduced in the House and pass both chambers before it can head to the president’s desk for his signature. Still, proponents of the bill saw the Senate committee’s approval as a big step in the right direction. “Today’s Senate action on legislation to combat online counterfeiting and digital theft is a major step forward for protecting American jobs and consumers,” said David Hirschmann, president and chief executive officer of the U.S. Chamber of Commerce’s Global Intellectual Property Center. The bill targets Web sites that primarily engage in online piracy and counterfeiting and are often foreign owned and operated. It would give the Department of Justice an expedited process to clamp down on Web sites dedicated to selling infringing goods and services and counterfeits, give authority to Justice officials to file civil action against domain names repeatedly selling counterfeits or providing online piracy and go after foreign site operators. <WWD>
Hedgeye Retail’s Take: Score another one for the “brands” which have slowly but steadily been winning the war on counterfeiting. We just wonder how this will play out for those brands actually looking to grow in China. Bringing authentic goods into the largest counterfeit market on earth is certainly going to pose a challenge. We’re pretty sure there is no “Senate Judiciary Committee” in China to deal with these issues.
Indian Workers to Strike - Apparel factories across India will close down today, the first such strike in the country’s clothing industry, to protest rising domestic cotton prices. The industry is seeking a total ban on exports of cotton yarn, the primary material used in the industry, which employs some 80 million Indians indirectly. In April this year, in response to pressure from the industry, the government banned raw cotton exports. Although that ban was later lifted, further export restrictions were put in place in October. “Because of cotton yarn exports, there is a serious problem of cotton yarn availability in the domestic market,” said the All India Apparel Export Promotion Council, an umbrella body that represents most apparel manufacturers. It added that its representatives across India, the world’s second-biggest exporter of cotton after the United States, would meet government officials to push for a ban. <WWD>
Hedgeye Retail’s Take: One word (again). Inflation.
