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November 29, 2010





Yes, It’s all about Black Friday and Cyber Monday. It’s painful to get caught up in who sold more sweater sets, what video game is hot, and what parts of the country had climate that was 5 degrees cooler than a year-ago. But let’s at least review that more notable headlines…

  1. First off, ranges for all the tracking services were between 0% and 3.5% growth. In other words, there was ample ammo for both the bulls and bears to take advantage of.
  2. Let’s out this weekend into context: The Black Friday weekend accounts for at least 10 percent of holiday sales, while 40 percent of the season’s sales occur between Dec. 15 and 25. Holiday sales overall generally account for 30-40% of a retailer’s annual case flow.
  3. Per WWD, “The Consumer is Back!” With consumers shopping a lot for them-selves this past weekend, retailers optimistically believe many still need to get out and buy gifts for their families and friends. However, they cautioned that the Black Friday period shouldn’t be regarded as a true barometer for what lies ahead, and noted that the 2008 holiday season was a bust even after a big Black Friday. “There’s just no guarantee,” acknowledged Terry Lundgren, chairman, chief executive officer and president of Macy’s Inc. But Black Friday, Lundgren added, “felt good, right out of the box.” “While Black Friday weekend is not always an indicator of holiday season performance, retailers should be encouraged that a focus on value and discretionary gifts has shoppers in the spirit to spend,” said Matthew Shay, NRF president and ceo. <WWD> 
  4. “Cyber Monday is really evolving to “Cyber Everyday.”  Per NPD, “[E-tailers] are using online as the continuous sale of the season. Cyber Monday has never been the busiest online shopping day; the biggest day is 10 days before Christmas. At eBay, peak buying hours on Black Friday were 6 p.m. to 8 p.m. MST. Meanwhile, sales from eBay’s mobile apps in the U.S. nearly doubled over Black Friday 2009. Globally, eBay mobile is on track to nearly triple its sales over last year. EBay expects mobile sales to exceed $1.5 billion this year. In women’s wear, Ugg boots were popular at $99, almost 40 percent off, according to a spokeswoman. So was a Hayden cashmere sweater for $69 at Bluefly’s eBay store. But while apparel was popular, the biggest categories online mirrored those at brick-and-mortar stores: consumer electronics and toys were in strong demand. <WWD> 

Hedgeye Retail’s Take: Good or bad, it is flat-out iresponsble to draw a conclusion based on this weekend. We’ve had solid Black Friday weekends in the past that have ended very poorly. One thing we do find notable is that men accounted for a greater percent of traffic. That’s purely anecdotal – but if true then it is a good event for retail. Men tend to have longer-and more drawn out cycles in fashion.

JNY, Company of the Year - Keeping up with The Jones Group wasn’t easy in 2010. In a year when many fashion players were reluctant to make big moves, the company struck high-profile footwear deals with Stuart Weitzman and Brian Atwood, upped the presence of its core brands and brought new talent in to every corner of the company. “We’re becoming the place to be,” said Jones CEO Wesley Card, who recently changed the name of the 40-year-old firm from Jones Apparel Group to The Jones Group to better reflect its new, wide-ranging approach. “We wanted to keep the Jones connection and [incorporate] a modern tone,” said Card. “And it is more attractive to outsiders looking at us.” “The name change symbolizes that other categories are just as important,” added Richard Dickson, the former Mattel executive who Card hired as his right-hand man last January, a move the CEO called the biggest milestone of the year.  “I really felt I could get the company only so far with my background and expertise. We’ve always been very good at operating the business, but that’s different than managing a brand,” Card said. “Richard loves the fashion and the product ... and he was ready to take on something big.” Dickson, who serves as president of Jones and CEO of its branded business and was the architect behind the reinvention of Barbie, knows how to capitalize on good brand stories. He said he found plenty of them when he arrived at Jones, which has been built around powerhouse department store labels such as Nine West, Easy Spirit, Jones New York and Anne Klein. “This is a stable of healthy brands that have stood the test of time,” Dickson said. “They will only get stronger with the fresh energy at the company.” <WWD>

Hedgeye Retail’s Take: Apparently share performance is not part of WWD’s “Company of the Year” criteria. The fact that JNY took the cake is an embarrassment to the industry.               

Wal-Mart Launches Formal Bid for Massmart - Wal-Mart, looking to tap growth in Africa, said on Monday that it had made a formal offer of about 17 billion rand ($2.4 billion) for a majority stake in Massmart, the South African retail chain. Wal-Mart said its aim was to “grow its international business by increasing its exposure to emerging markets with high growth potential.” Wal-Mart is offering 148 rand per Massmart share to acquire 51 percent in the discount retailer, a 19.2 percent premium over the 30-day moving average of the company’s stock price as of September 23, the shares’ last day of trading before the approach was announced. Having obtained a unanimous recommendation from the Massmart board, Wal-Mart needs the approval of the South African competition authorities as well as 75 percent of Massmart’s shareholders. <Dealbook.NYTimes.com>

Hedgeye Retail’s Take: WMT continues to seek international growth opportunities in an effort to create greater scale and further reduce its cost base and appears to be doing just that in South Africa. Apparently Japan isn’t the only country where the retailer has stepped up acquisition activity of late.

Running Remains Robust - The red-hot product category is on track to finish 2010 up 20 percent over the $5 billion in sales it did last year in the U.S., according to SportsOneSource. Almost all retail segments have profited from that boom: Mall and family footwear chains have both seen sales rise sharply. And the technical channel, which sped through the recession posting gains, is poised to finish 2010 at $760 million, up about 12 percent from last year, according to the Independent Running Retailers Association, whose membership represents roughly 60 percent of the specialty store volume. <WWD>

Hedgeye Retail’s Take: With sales in technical running really starting to ramp in the 2H of 2010, we expect continued strength to carry well into 2011 with footwear retailers as the primary beneficiaries.

Coty Closes in on OPI - Coty Inc., the seller of perfumes by Sarah Jessica Parker and Vera Wang, is close to buying nail-care company OPI Products Inc. for about $1 billion in cash, said two people with knowledge of the situation. The two closely held companies may announce the deal by today, said the people, who asked not to be identified because the matter is private. Private-equity firms Bain Capital LLC and Advent International Corp. were among the companies that also made bids, people close to the situation said last month. OPI, founded almost three decades ago by Chief Executive Officer George Schaeffer, sells polish used in nail salons, hand-and-foot care products and body lotion. Coty has bolstered its cosmetics business with acquisitions this month, agreeing to buy skin-care maker Philosophy and Dr. Scheller Cosmetics AG. Cysette Burset, a spokeswoman for New York-based Coty, wasn’t reachable for comment, nor was Harris Shepard, a representative for OPI, which is based in North Hollywood, California. <Bloomberg>

Hedgeye Retail’s Take: Just a week after acquiring Philosophy and Dr. Scheller Cosmetics AG earlier this month, Coty remains zeroed in on the nail-care company as it continues to build out its cosmetics business. With Bain and Advent International also in the running for OPI, Coty faces a more competition this time around and likely a higher premium as well.

Luxury Watches See Bright 2011 -  Watchmakers are looking to keep up the momentum. Luxury watches were particularly hard hit at the start of the global financial crisis two years ago. But with the U.S. stock market up more than 7 percent this year, compensation rebounding among high earners in the financial services industry and pent-up demand bred by consumer austerity, the forecasts of brand executives are positive. The watch sector at Christian Dior, whose timepieces retail from $1,000 to $500,000, is among the encouraging indicators of strength in the luxury sector. Sidney Toledano, president and chief executive officer of Christian Dior, said the company’s watch business “is developing extremely well,” having picked up sharply since the beginning of the year. “It’s one of the key categories developing in the first nine months. We’re dedicating even more space [to watches] in our stores.” Toledano cited robust sales of Dior’s Christal range, and of limited edition watches and unique pieces carrying prices of as much as 200,000 euros, or $266,000 at current exchange rates. Demand for watches across Asia, and particularly in China, is “very, very strong,” Toledano said. Philippe Pascal, president of LVMH’s watch and jewelry group, indicated that the luxury sector will be propelled into 2011 following a year of growth. “After a very dynamic nine months, up 29 percent versus last year, we started the [holiday] season with significantly increased marketing investments on key brands in key markets, including in the U.S.A., to support Tag Heuer, Hublot and Zenith. “Retail assortments are improving for our brands and, in fact, we are out of stock on some of our bestsellers due to demand,” he said. “So we are expecting a good holiday season across the world and for Chinese New Year [early February].” <WWD>

Hedgeye Retail’s Take: We can’t make a blanket statement about all of luxury based on one company...but $500,000 watches picking up steam???

Comscore Results on Free Shipping - A notable study from Comscore on e-Commerce Transactions with Free Shipping indicates that free shipping was included on 41% of transactions in Q3 down from 42% last year. With Wal-Mart challenging retailers to extend the option to consumers here in Q4 in addition to fewer incentives in Q3, we suspect Q4 transactions in 2010 is likely to set a new high water market compared to last year’s 44% level.

Hedgeye Retail’s Take: Perhaps the retailers that adapted the Zappos Model realized that it is impossible to replicate profitable on a small scale. (Note, Amazon is NOT small scale).

Consensus Yields Demographic Shifts - The overall growth of the online population in the US is stagnating, and most future growth will come from increases in minority audiences including Hispanics, blacks, seniors and children. Hispanics are the fastest-growing segment of the US population, and eMarketer expects the Hispanic online population to grow by nearly 10 million people between 2010 and 2014. Next year, eMarketer forecasts 32.2 million Hispanics, or 62.9% of the US Hispanic population, will be online. The results of the 2010 census could push those estimates up even further. While the bureau has consistently projected strong growth within minority populations through 2050, the new figures for all races may change more than the bureau projected. The census’s open-ended questions on racial and ethnic background—including a write-in answer for filers who did not feel their background could be explained by a single check-box answer—caused much confusion and comment. It is still unclear how respondents identified themselves and their families. <emarketer>

Hedgeye Retail’s Take: Looks like one of the fastest growing consumer bases just accelerated.

R3: Black and Blue - R3 11 29 10