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December 20, 2010





  • First it was J Crew and now it’s vintage?  Word has it that first lady, Michelle Obama, traded in her fondness for J Crew and instead wore a vintage dress (in public!) to TNT’s Christmas in Washington taping.  Fashionistas are blogging up a storm as a result and pointing out that this is the first time a first lady has worn “second-hand” clothing in public.  Good news for thrift stores across the country, which get a substantial and free endorsement from one of the most widely watched women on the planet.
  • While Wal-mart’s “small store” format hasn’t amounted to much so far, the company is testing a new format on the campus of University of Arkansas.  The 10,000 square foot prototype called “Wal-mart on Campus” replaces a university run pharmacy.  Part grocer, part pharmacy, and part campus store, the prototype is thought to be part of a series of smaller format test stores that the company hopes to incubate as potential growth drivers.  However, testing on a university campus in WMT’s back yard hardly seems like a fair test. 
  • With 2010 shaping up to be a year in which the democratization of fashion took center stage with the help of technology, there’s yet another fashion start-up looking to shake things up.  This time, Fabricly aims to provide marketing, production, sourcing, and sales support to fledgling designers much like a record label would do for an emerging artist.  While the site likely takes a cut of finished good sales, the cost to produce and develop a salable product is born entirely  by Fabricly.  The success of this model is still unproven but it’s approach to letting designers remain “designers” while the “business” is left to others certainly makes practical sense.
  • Starting tomorrow, Toys”R”Us will be keeping its stores open 24-hours a day through 10pm Christmas Eve nationwide joining the likes of other toy retailers for the first time in the company’s history. Appears to be a doubling down of sorts in addition to the ~600 holiday pop-up stores.


Surge in Luxury due to Accessories - From handbags to shoes to watches, accessories are generating the power that is driving luxury’s surge.  It’s a global trend — from the U.S. to emerging markets such as China, Brazil, India and the Middle East. When the final tally is made, the sales growth of luxury accessories in 2010 is expected to be 16 percent, compared with 8 percent for luxury apparel, according to a new worldwide study from Bain & Co., a strategic consulting firm. By comparison, sales of luxury accessories in 2009 contracted 1 percent versus 2008, with luxury apparel sales dipping 10 percent. Customers are increasingly sophisticated, cherry-picking across categories, brands and channels for quality, style or value, the report said, with men showing the same spending patterns as women on leather goods. Despite persistent high unemployment in many countries, concerns about European debt and a still-wobbly global economy, stock values are up this year, holiday shopping indicators for high-end goods have been positive and, in a period when product adaptability and value are essential, accessories are particularly appealing because they are a versatile, fast way for consumers to freshen what’s in their closets. Pete Nordstrom, president of merchandising at Nordstrom Inc., said shoes and accessories have been “the strongest category for us in the last several years, before things got difficult, when things got difficult and now” as retail recovers.<WWD>

Hedgeye Retail’s Take:  Even more interesting is a study released by American Express that suggests luxury spending overall has eclipsed pre-recession levels. On the flip side, demand is not unanimously robust across the board.  Did anyone catch the Gucci and Jimmy Choo sales on Bluefly over the weekend?

Norma Kamali Seeks Investors - Staying true to her own convictions, Norma Kamali is embarking on her next challenge: She is seeking investors for a new venture selling an accessibly priced product line on her Web site. Kamali, who spoke Wednesday at the Fashion Institute of Technology, which hosted FashInvest’s first “Capital Conference: Where Creativity Gets Down to Business,” declined to provide specifics, stating the collection was still in the early stages but that it would be a line under her name. Kamali said she felt a responsibility to design apparel that women could use for five to 10 years. Some people thought her venture with Wal-Mart featuring $20 jackets and $12 vests was a risky career move, given her existing high-end collections, she said. Kamali boasted the entire outfit she was wearing on Wednesday was from her line at Wal-Mart. “I felt Wal-Mart wasn’t a risk because it was a challenge I wanted to do,” she said, noting the idea came from her work in the public schools, where she noticed that many moms didn’t go to the parent-teacher meetings. “Some women were so embarrassed that they didn’t go to the school because they didn’t have anything to wear.” <WWD>

Hedgeye Retail’s Take:   Did you Kamali was one of the originators of “packable, multi-use poly jersey clothing” and the inventor of the “sleeping bag coat”?  With Wal-mart helping to bring her name back to life, it’s not surprising that she’s looking to re-invent herself after a draught of innovation. 


Department Stores Bank on Outlets - Outlets are definitely in for department stores. Saks Fifth Avenue, Nordstrom and Neiman Marcus all opened new locations for their respective Off 5th, Rack and Last Call outlets this year, while timely real estate opportunities led Bloomingdale's to enter the outlet business for the first time. "With the recession receding a bit, luxury department stores are beginning to recapture the customers who slowed their spending," said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates and a former CEO of Saks Fifth Avenue. "They are now trying to refine the outlet concept so the customer does not feel like a second-class citizen." Retailers said outlets act as an extension of their brand and can reach shoppers who don't necessarily shop at their full-line outposts.  "The Bloomingdale's outlet customer is very different from the regular Bloomingdale's customer. For the most part, we're finding a whole new consumer, one who perhaps shopped our competition when it came to the outlets," said Arnie Orlick, SVP for outlet stores at Bloomingdale's, which bowed its first four outlets in Paramus, N.J.; Miami and Sunrise, Fla.; and Woodbridge, Va. <WWD>

Hedgeye Retail’s Take:   Hardly a new trend, outlets tied to luxury department stores have been around for the better part of a decade.  In fact, there are more Off Fifth’s, Last Call’s, and Rack’s  than full priced luxury department stores combined.  The key here is that 4-wall margins for these outlets are higher than the core businesses, making growth in this format a virtual no-brainer (at least for now!).


Breitling Launches First Store - After 21 years as a wholesale presence in the U.S., the Swiss luxury watch brand Breitling is staking a retail claim. The company today is opening its first store here on East 57th Street, in a neighborhood that Tiffany & Co., Tourneau and Bulgari, among others, also call home. “We feel we’re ready,” said Marie Bodman, president of Breitling USA. “We’re secure enough in our market. We know that Americans really will like it.…We want our customers to understand the DNA of Breitling.” The 3,400-square-foot unit was designed by Alain Porta and Frédéric Legendre. It covers three floors, each of which has a dedicated selling area. In addition, the second floor features a display of vintage Breitling timepieces and the third floor includes a conference room and a bar. The main floor is awash with color, thanks to several projected artworks by contemporary artist Kevin Kelly. “He’s Breitling — daring and sophisticated,” Bodman said. Walls were constructed from a wood called Quadrillo that is known for its ability to absorb sound. Bodman said the design will provide a blueprint for future stores. The firm plans two more next year, in Saint-Tropez and in Buenos Aires. Reflecting on the company’s progress in the U.S., Bodman said: “In 1989, I was the first one, traveling with my little suitcase, getting people to buy our watches.…Our watches 20 years ago were…well, everything else was thin and flat, and nobody wanted to see a chronograph.” <WWD>

Hedgeye Retail’s Take:  Clearly the “surge in luxury” is adding confidence to retail expansion for luxury expansion.  Or, perhaps the fact that over 25% of mom  & pop jewelers went out of business during the recession is reason enough for the brands to take back control of their distribution.


Online Firm Bonobos Gets Financing - Men’s online apparel firm Bonobos on Friday said it has secured $18.5 million in a third round of venture capital financing, led by Lightspeed Venture Partners and Accel Partners, along with ongoing participation from angel investors. Jeremy Liew of Lightspeed and Sameer Gandhi of Accel will join the Bonobos board, according to the online firm. Bonobos also said proceeds will be used for marketing purposes and expanding staffing. Andy Dunn, founder and chief executive officer of Bonobos, said, “With Lightspeed, we were especially impressed with Jeremy’s knowledge and understanding of the potential for online men’s retail to take off.…Sameer brings great experience from the board of Diapers.com, and Accel has a powerhouse portfolio in consumer technology across Facebook, ModCloth, Groupon and Etsy.”  <WWD>

Hedgeye Retail’s Take:   E-commerce investment is on fire and there’s apparently plenty of money on the sidelines looking to be put to work.  Not a bad investment for the founders of Bonobos which claim to have about $15 million in sales, 36,000 active customers, and sell 1 in 5 units to customers in New York City.

Inflation In E-Commerce Spikes- The prices of goods sold online has moved up sharply according to data from MIT. The movement higher has outpaced the Consumer Price Index recently, a possible sign of inflation in the cost of goods sold. There has been convincing evidence recently that the underlying costs of commodities used in many products sold at retail has moved higher more than expected by most economists. This could well be a sign of upcoming inflation at the consumer level.The measurement is based on online retail prices as of the start of 2007. The index is 100 at that point. The index has gone from just under 100 in late August to 100.77 recently.<247WallSt>

Hedgeye Retail’s Take:  Consistent with Hedeye’s inflation index, this “real world” index is tracking price escalation in real time with real data.  Interestingly, the MIT index got listed in the NY Times Annual Year in Ideas edition.

Snow is threat to retail revival in UK - As Arctic conditions gripped Britain again this weekend, the deep freeze threatened to curtail a nascent recovery in retail sales. Snowmen 'passengers' wait on snowbound Haywards Heath station  New figures show that after UK high streets were hit by a sales downturn due to cold weather earlier this month, they saw a dramatic bounce-back in trade last week. However, the fresh bout of snow that hit the country this weekend could derail the turnaround as store groups enter their most important trading week of the year. Travel chaos threatened to keep people at home and Brent Cross in north London closed yesterday. But Christmas shoppers at Bluewater in Kent seemed undeterred as the shopping centre stayed open despite the snow. Shops were also hopeful that customers would brave the wintry weather to pick up last-minute Christmas gifts as the snow delayed online deliveries. Between Monday and Thursday of last week, before the snow hit, the number of people shopping in the North East of England was just 0.1pc lower than the same week the previous year. Shopper numbers in Scotland were down by 1.4pc, while traffic volumes in the East Midlands and Yorkshire and Humberside were down by 3.9pc. <TelegraphUK>

Hedgeye Retail’s Take:  Despite the temporary logistical set back created by extreme conditions, this back drop bodes extremely well for sales of boots, outwear, and seasonal accessories (as long as this doesn’t last for weeks on end).

Cotton rises 12% due to export panic in India - Communication from government misunderstood to mean more exports. Cotton prices shot up by over 12 per cent to Rs 41,500 per candy on Friday after a communication issued that day by the commerce & industry ministry created panic in the market. It was misunderstood to mean that the government was pushing exports, though the cotton crop has been affected badly by erratic rainfall. The textile ministry had allowed the export of 5.5 million bales for a period of 45 days which ended on December 15. The communication from the commerce & industry ministry, a copy of which is available with Business Standard, stated that “it was the decision of the group of ministers that 5.5 million bales of cotton should be allowed for export during the cotton season 2010-11”. This, people in the trade felt, was an extension of the deadline of December 15. The textile ministry on Saturday clarified that there was no such extension. Textile Secretary Rita Menon told Business Standard that “the cap was not lifted, and, till December 15, only 3 million bales have been shipped”. However, she added that the government will reopen registration “so that the remaining 2.5 million bales can also be shipped”. <BusinessStandard>

Hedgeye Retail’s Take:  Clearly a sign of the fragility in the commodity market when a game of “telephone” on Friday created mini-run on cotton.  As a result, sensitivity (and prices) remain at highs.