R3: REQUIRED RETAIL READING
December 22, 2010
RESEARCH ANECDOTES
- Sometimes it’s better to have purchasing decisions made for you rather than laboring over too many options. Such is the premise of justbuythisone.com, a UK e-commerce site which narrows choices down to just one after the user inputs a product category and desired price point. The site then returns a suggested item to purchase along with three bullet points explaining why that particular item is right for you. The sites database is powered by 1.6 million customer reviews which help to match products with consumers.
- With promotional e-mail volume reaching new highs this holiday season, a few interesting statistics stand out. First, 63% of the top 25 online retailers sent out at least one promotional email per day between 12/13-12/17. In addition, 90% of all promotional emails sent last week contained the word “Christmas” but only 6% included the term “free shipping”. Finally, email volume appears to have peaked a full week earlier than last year, although overall volumes still remain at record levels on a year over year basis.
- Citing “colossal demand” for new products, Nike noted that elevated airfreight costs will not only continue through year-end, but now at least through the first half of fiscal 2012 (calendar 2011). Yet another margin headwind (RM, labor, and Fx) management is using as a way to keep numbers down.
OUR TAKE ON OVERNIGHT NEWS
American Eagle Taking Flight to Japan - American Eagle Outfitters Inc. is headed to the Land of the Rising Sun. Under a franchise agreement with Sumikin Bussan Corp., the company will open aerie and American Eagle stores in Japan, with the first slated to open in Tokyo’s Harajuku district in the first half of 2012. The retailer noted that since opening its first stores outside of North America in Dubai and Kuwait earlier in the year, it has been “steadily pursuing” an international strategy, with agreements for stores in China, Hong Kong and Israel, “as well as plans for other countries.” “American brands expanding to Japan have had a good degree of success,” said Morgan Stanley analyst Kimberly Greenberger. “The Japanese consumer, like the American consumer, is asking for and demanding more value.” “There is tremendous opportunity for sportswear brands in Japan, both domestic and international,” said Sumikin president Gashun Amaya. “American Eagle Outfitters is increasingly popular among Japanese customers, who have experienced it in their travels to the U.S. and Canada, as well as online.” “Japan is one of the most important international markets for retail and home to millions of fashion-conscious young people,” said AEO chief executive officer Jim O’Donnell. “Sumikin Bussan Corporation is the ideal partner for this region, given their extensive experience, industry leadership, and commitment to creating lasting value for customers.” <WWD>
Hedgeye Retail’s Take: Unfortunately the franchise model being employed here will not have much impact on overall results until the scale of the franchise network goes well beyond a couple of units in markets including Japan and the Middle East.
Nordstrom in Deal With Kids' Retailer - Nordstrom Inc. has acquired a minority stake in children’s and infants’ retailer Peek…Aren’t You Curious. Pete Nordstrom, president of merchandising, said in an interview on Tuesday that Peek merchandise will become a major part of the core offering in all Nordstrom kids departments. Peek, which has six stores in the West and Southwest and had 100 wholesale accounts, including Barneys New York, will be sold exclusively at Nordstrom, initially in 18 full-line units, and on nordstrom.com starting in February. Eight Nordstrom stores will initially have shop-in-shops inspired by Peek. Maureen Chiquet, Chanel’s chief executive officer, is a board member and alerted Nordstrom to the company. Nordstrom did not rule out investing in other businesses. “We want to be curious,” he said. “Curious and selective.” While the retailer isn’t a big proponent of shop-in-shops, Nordstrom said, “You may see more shop-in-shops if we found a unique brand.” <WWD>
Hedgeye Retail’s Take: Positive merchandising move that aims to differentiate and upscale the company’s children’s offering.
LVMH Boosts Hermès Stake to 20% - Bernard Arnault keeps gobbling up shares in Hermès International. In a disclosure that is likely to stoke hostilities between the two camps, Arnault’s LVMH Moët Hennessy Louis Vuitton said Tuesday it had crossed the threshold of owning 20 percent of the shares in Hermès, the maker of Birkin handbags and silk scarves. Arnault, chief executive officer of LVMH, surprised markets when he revealed in October that he had accumulated a 17.1 percent stake in Hermès via cash-settled equity swaps that allowed him to circumvent the usual market rules requiring firms to declare share purchases. Although Arnault said he had no plans for a full takeover, the move rattled representatives of family-owned Hermès, who have vowed to protect their company from what they deem an unwelcome suitor. LVMH said in a filing to stock market regulator AMF that it now holds 21,338,675 shares, or 20.2 percent of the share capital, through its subsidiaries LVMH Fashion Group, Altair Holding LLC, Ivelford Business SA, Bratton Services Inc. and Ashbury Finance Inc. <WWD>
Hedgeye Retail’s Take: Probably not the Christmas present the Hermes family was hoping for. This French soap opera is clearly far from over.
LULU Recalls Shopping Bags - Lululemon athletica inc announced the voluntary withdrawal of certain of its reusable bags, or shoppers, from its stores. This is in the wake of the recent discussion among other retailers over the proper disposal of reusable bags due to lead content. The shoppers are distributed free of charge to Lululeomon customers with their purchases. Lululemon invited all customers who have received one of the shoppers at issue to return them for a replacement shopper. In addition, any of its "guests" who simply wish to dispose of their shopper may return the shopper to any stores for appropriate disposal. The decision follows a report by the Tampa Tribune that many shoppers it tested from supermarket chains, including Walmart and Target, contained enough lead to be banned from local landfills. That report prompted Sen. Chuck Shumer, D-NY, to call for a federal investigation of whether bags containing unacceptable levels of lead are coming into contact with food. <SportsOneSource>
Hedgeye Retail’s Take: With the ‘seaweed’ scandal still fresh in consumer’s minds, the company takes a step back with lead tainted shopping bags now in the headlines. The offsets here are that it’s not related to the iconic clothing, LULU isn’t the first company slapped with lead infractions, and at the end of the day what’s a little lead relative to how good you’ll look in a pair of their pants.
VF Acquires Rock & Republic - VF Corp. has signed an agreement to acquire the trademarks and intellectual property of bankrupt Rock & Republic for $57 million in cash. The deal does not include the premium denim brand’s operations, retail stores or inventory, meaning Los Angeles-based Rock & Republic Enterprises will be wound down after completion of the transaction. The sale is a jarring return to earth for Michael Ball, the once high-flying chairman and chief executive officer who founded the brand in 2002. Ball, the sole owner, will exit the business. Rather than manufacturing Rock & Republic product itself, VF Corp. plans to operate the brand under a licensing model. Rock & Republic is the first acquisition by VF’s newly created Retail Licensed Brands group, which was formed in July 2009 and is led by David Conn, president of the group. Conn is a veteran of Iconix Brand Group, where he was executive vice president. VF has said the group’spurpose is to seek leading retailers to partner with on licensed brands. The deal will allow Rock & Republic to pay off about $25 million in debt to unsecured creditors and $15 million to secured creditor Richard Koral. <WWD>
Hedgeye Retail’s Take: Upon further review, licensing the Rock and Republic brand makes sense. With a licensed model, the brand won’t compete directly with VF’s Sevens business and Conn has played this game before. As for the VF’s appetite for M&A – no change as a result, they remain active.
The FCC Passes ‘Net Neutrality’ Rules - The U.S. Federal Communications Commission, in a 3 to 2 vote, today approved rules that will establish controls over how Internet service providers deliver Internet content and generally favor the nondiscrimination principle known as net neutrality.“For the first time, we’ll have enforceable rules of the road to preserve Internet freedom and openness,” Julius Genachowski, the commission’s chairman, said today. Whether the FCC has the authority to issue and uphold the rules is another question likely to be hashed out in court.The FCC says broadband Internet access services are “clearly within the Commission’s jurisdiction” as detailed within the Telecommunications Act of 1996. Other groups, such as Internet service and wireless provider Verizon, say they aren’t. “Based on today’s announcement, the FCC appears to assert broad authority for sweeping new regulation of broadband wireline and wireless networks and the Internet itself. The assertion of authority without solid statutory underpinnings will yield continued uncertainty for industry, innovators and investors,” the company said in a statement. <InternetRetailer>
Hedgeye Retail’s Take: It’s just the beginning of this saga – internet controls over push, pull, and privacy will take years to both establish and institute.
Italy Consumer Confidence Unexpectedly Rises to 11-Month High - Italian household confidence rose in December to an 11-month high as the economy expanded and unemployment fell in the third quarter, making consumers more optimistic about the recovery. The Isae Institute’s consumer sentiment index rose to 109.1 from 108.5 in November, the Rome-based research center said today in a statement. The reading was the highest since January and more than the 108.3 median forecast of six economists surveyed by Bloomberg News. Growing exports helped boost Italy’s gross domestic product 0.3 percent in the three months through September, more than the 0.2 percent initially reported. Unemployment fell in the third quarter to 8.3 percent, less than the 10.1 percent average for the euro region in October, a separate report showed yesterday.<Bloomberg>
Hedgeye Retail’s Take: Consistent with broad-based improvement in consumer confidence across much of Europe – even for the laggard.