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December 13, 2010






  • With a UK VAT increase taking effect on January 4th, retailers and manufacturers are expected to bear costs beyond the expected supply/demand changes resulting from the 2.5% tax increase.  In fact, it is estimated that it will cost UK retailers £35 million just to re-label and re-price items in inventory once the tax increase takes effect.  Even worse is the timing of such efforts which will take place during the traditional  post Christmas clearance period.
  • According to an Aon Hewitt survey, 8 in 10 Gen Y (ages 18-35) workers will not meet all of their financial needs in retirement unless there is a significant change in savings and investing behaviors.  Part of the problem arises from Gen Y savings habits, which leave only 50% of Gen Y workers participating in eligible defined contribution plans.  Of those who do participate, the average pre-tax contribution rate is just 5.3% of pay.
  • At the opening of a new store in Vancouver over the weekend, Louis Vuitton management noted that they set price based on costs – period. Throughout the downturn, Vuitton was the only brand not discounted at department stores. As such, with many retailers eying substantial cost inflation in 2011 the luxury retailer should prove to be a solid barometer in the coming year.


Retailers Eye Openings Again - Are brick-and-mortar stores inching back into expansion mode? Traditional retailers have taken something of a beating over the last few years, battered by everything from the recession and the newly frugal masses to the growing popularity of e-commerce and mobile commerce. Lord & Taylor’s plan to open its first new full-price store in 30 years, in Yonkers, N.Y., bodes well for the industry. Other positive indicators include the dearth of available space for pop-up shops — a recession-era phenomenon that gave retailers the flexibility to rent month-to-month — due to more permanent leases being signed. But for every upbeat trend there are caveats — accommodations to the postrecession economy and reminders that the free-spending days are still a thing of the past. For example, on the prime stretch of Madison Avenue last year there were 15 available stores. All were leased this year, albeit at lower rents. Retailers may be opening stores, but many of them are smaller than in the past, or existing stores are being carved up and downsized. Saks Inc. has shuttered underperforming units, while Charming Shoppes Inc. this year plans to close 100 to 120 Lane Bryant, Fashion Bug and Catherines units; The Jones Group said it would shut 165 stores, and Foot Locker Inc. closed 106 underproductive units after shuttering 179 in 2009.Nonetheless, the mood at last week’s International Council of Shopping Centers Meeting and Deal Making here was upbeat — a far cry from the grim confab two years ago at the height of the recession. <WWD>

Hedgeye Retail’s Take:  What’s more surprising is not that retailers are once again building confidence to grow again (plenty of cash and not much else to do with it), but rather that more stores haven’t closed over the past few years.  Yet another reason why inventory management is clearly the key to retail success.

PPR Squelches Speculation of Interest in Burberry - French retail-to-luxury group PPR said it is not interested in purchasing British luxury brand Burberry, quashing speculation that had goosed Burberry shares this week. “Burberry is a very beautiful brand, but it does not match the selection criteria for our luxury portfolio,” PPR spokeswoman Charlotte Judet said. PPR this week moved one step closer to its stated goal of selling its retail assets in order to fund expansion in the lifestyle segment, which should eventually dwarf its luxury division Gucci Group. The group announced on Thursday it had entered into exclusive negotiations with South Africa’s Steinhoff International Holding Ltd. for the sale of its furniture chain Conforama for 1.2 billion euros, or $1.58 billion at current exchange rates, in cash and the payment of its debt. Talk of the impending sales has fueled speculation PPR was interested in using some of the proceeds to snap up a new brand. Burberry and Californian outdoor sports lifestyle brand Quiksilver have been cited as key targets. <WWD>

Hedgeye Retail’s Take:  Active week for PPR speculation.  When a company says they plan on growing via acquisition it certainly makes the rumors easy to come up with. 


VF, Kellwood Said Eyeing Rock & Republic - VF Corp. and Kellwood Co. are both in the hunt for bankrupt Rock & Republic. According to financial and market sources, the discussions have intensified over the last several weeks. Executives at both VF and Kellwood declined comment. Both firms have taken a look at the distressed avant-garde premium denim brand before, but walked away because they wanted the assets, not founder Michael Ball. He is said to have wanted both an equity stake and a creative role in the reorganized firm, according to those familiar with the talks. So what changed?  Sources said Ball lost his leverage when a $60 million deal with Bluestar Alliance, a private equity firm that has since morphed into a brand management firm, fell apart last month. That deal would have allowed Ball to remain in a continuing role with a restructured Rock & Republic. Executives at Bluestar could not be reached for comment. <WWD>

Hedgeye Retail’s Take: Kellwood has been both actively and vocally looking to acquire a premium denim brand for more than 2-years now and is the more likely candidate of the two in our view.  For starters, VF is looking for a medium-sized brand with $300-$500mm in sales (R&R is closer to $100mm) and the reality is that there would be a fair amount of overlap with Sevens. Aside from the brand’s asset value, it appears that Ball’s involvement is proving to be a significant hurdle for prospective buyers – a reality the founder may soon have to come to grips with if a deal is to be done.


Q&A With COLM’s Tim Boyle - After a multiyear investment in personnel and product, President and CEO Tim Boyle and his team are dramatically growing their footwear business and redefining what Columbia means to outdoor retailers and consumers. Boyle said the company is ready to take its place in the top specialty outdoor independents and chains through a new focus on technically advanced product. That follows a major effort to move its brands out of the value-oriented and price-driven retailers it had become known for. This summer, the firm acquired OutDry Technologies S.r.l., a Milan-based group that created a patented waterproofing method. And last month, the Columbia brand rolled out Omni-Heat, a three-prong set of cold-weather technologies that it supported with its largest advertising campaign to date, a global effort that encompasses print, online and in-store elements. The growth agenda should pay off in footwear, which accounts for $238.5 million in sales — roughly 17 percent of the total business — on a trailing 12-month basis as of Sept. 30. "We've always talked about the enormous opportunity for our company for footwear," Boyle said in an exclusive interview with Footwear News. "We've been selling it since 1993, so we've had a few different people in the company managing it. And even though the business has grown, we've just never had the team in place that could literally explode it. And now we have that team in place. It should be our biggest product [category] ever." <WWD>

Hedgeye Retail’s Take: The company has made a big bet here not only on the product itself, but also the efforts to support it both at the staff level as well as externally with targeted marketing spend. Footwear remains the most significant growth opportunity over the intermediate-term with growth in the sporting goods channel both in apparel and footwear a close second.

Rising Costs Challenge Execs - Can footwear manufacturers manage rising sourcing costs without sizeable price increases?Projections vary, though virtually all industry experts agree that production costs including raw materials, labor, duties and freight, as well as costs associated with the re- valuation of the Chinese renminbi, are set to rise steeply in the New Year."People are calling it the perfect storm," said Deckers Outdoor Corp. COO Zohar Ziv. "It's unusual [for it all to be happening at the same time]. When we're coming out of a global recession, you would think there would be more labor availability, but the contrary has happened. "Matt Priest, president of the Footwear Distributors & Retailers of America, said his members are bracing for an increase ranging from 8 percent to 20 percent. The looming question is what this will mean for wholesale costs. So far — in the midst of a still uncertain economy — few have proposed across-the-board wholesale price increases. Instead, many have said they will mitigate any increase with operating efficiencies."Managing [sourcing cost increases] and not having some [wholesale] cost increase will be difficult but it is manageable," Priest said. Ziv said Deckers was exploring alternative sourcing areas such as northern China, and next year will begin some production in Vietnam. <WWD>

Hedgeye Retail’s Take: Operating efficiencies were commonly highlighted as a possible offset in the 1H of 2010, but with retailers now staring at HSD-LDD cost increases, it’s been a while since we’ve heard that as the leading rebuttal from retailers compared to price increases. The reality is that consumers will see these pressures at the store in the form of higher prices to some extent, with the balance absorbed by the supply chain. Just how much is absorbed by whom remains a key theme and critical question across retail as we head into 2011.


No Fear Sued Over Unpaid Rent - Several shopping centers in Southern California have sued No Fear, the action sports brand based in Carlsbad, CA, for falling months behind in rent for its retail outlets, according to a report in the Los Angeles Times. An attorney for No Fear Retail Stores Inc. blamed the late payments on the difficult economy and said the company was working with shopping centers to renegotiate leases. The lawyer said the rents are well above market levels and were signed during better times. According to the report, the Irvine Spectrum and Block at Orange both filed lawsuits in Orange County Superior Court; and shopping centers in Arcadia, West Covina and Valencia filed suits in Los Angeles County Superior Court. No Fear opened seven stores in late 2008 and early 2009. giving it 53 retail stores in seven states, most of them in California. No Fear also in 2009 agreed to acquire Canadian eyewear and apparel company Gatorz Inc. and emerge as a publicly traded company in Canada. The deal still needs regulatory approval in Canada. <SportsOneSource>

Hedgeye Retail’s Take: Last we checked, renegotiations are typically more productive when the rent check is still coming in.  Perhaps early indications of more supply to come in CA?

EU delays schemes to Offer Pakistan trade concessions - Asian countries and the European Union are seeking a compromise on a controversial EU plan to offer flood-devastated Pakistan trade concessions particularly on textiles as relief in January 2011. Bangladesh, India, Peru and Vietnam have refused to endorse an EU request for a WTO waiver at the 153-nation Geneva-based World Trade Organisation which is required for the temporary measures to take effect. EU leaders, who backed the idea in September, were hoping that the measures would come into effect on 1 January. “The EC (European Commission) officials are in touch with their Indian counterparts on this and we will satisfactorily resolve this matter,” India prime minister Manmohan Singh said. “We support all international efforts to provide succour to the flood victims of Pakistan through direct aid and grant assistance. On the other part we too had offered and remain willing to support the victims of natural calamities through relief assistance,” he added. <FashionNetAsia>

Hedgeye Retail’s Take: Offering aid is one thing, but offering concessions that could likely impact other countries is altogether different. Accounting for only 2% of EU’s imported home textiles last year compared to Pakistan’s 17% contribution, it’s easy to see why India is so concerned over any competitive advantage given awarded to Pakistan.