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January 3, 2011




  • Keep an eye on Best Buy’s efforts to drive sales and brand loyalty via a substantial step-up in the company’s editorial efforts.  The launch of the company’s multichannel network containing everything from how-to videos to primers on new technology is called “Best Buy On” and includes both an online and in-store component.  In addition to content aimed at helping consumers become more educated on consumer electronics, the closed distribution network will also look to serve ads from brands including Swiffer, Tide, Duracell, and Braun.
  • According to comScore, e-commerce spending from November 1- December 26th increased by 13%, largely in-line with original expectations for a robust increase in online holiday spending.  Interestingly, the final push into the holiday (Dec 20-26) actually accelerated, with sales increasing by 17% for the week.  We’re still waiting to see what the post-Xmas trend looks like, especially I light of major weather events that were sure have tempered some clearance shopping.
  • In an effort to generate a little buzz, a North Carolina-based jewelry store Perry’s Emporium offered customers a full refund on holiday purchases if it snowed more than 3-inches during December – Ashville, NC ended up getting 6! For the expense of a $10,000 insurance policy, not only will Perry’s refunds be covered in full, but the publicity will also be hard to beat for the price.



Holiday Winners and Losers in Retail - The key question after holiday 2010 is which retailers gained in the bruising battle for market share and which ones lagged. And the fight is only going to get more intense in 2011.
“The pie is not growing. It shrank, and now it’s just regaining its original shape, recovering to 2007 levels,” said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates. “Luxury is leading the way, department stores are stabilizing and improving, the specialty area is where you see some trade-offs and discounting as a whole is seeing some improvement. It’s still a zero-sum game, and any increase is going to be a hard-fought battle. The winners in 2011 will be those that are multichannel, aggressive globally and focus on merchandise innovation.” 
They also are likely to be the stores that scored big this holiday. December sales numbers, to be reported by many major retailers on Thursday, should bear this out, though last week’s blizzard severely impacted business for two days. <WWD>

Hedgeye Retail’s Take:  Winners include e-commerce above just about all others – while the “zero sum game” landscape remains unchanged for retailers in 2011.

Retail Stocks end year with 23.5 Percent Gain - Aided by stores’ recovering sales and ongoing operational discipline, as well as a flurry of merger and acquisition interest at the end of the year, retail stocks posted a 23.5 percent gain in 2010 and moved within points of their historic highs at year’s end. Even after a 0.8 percent decline in the final week of the year, the S&P Retail Index ended 2010 at 507.79 versus its 411.12 finish in 2009. Its 52-week high through 2010 was the 514.64 reached on Dec. 7, and its 512.35 close on Dec. 21 was its best daily finish since July 20, 2007. With their 47.2 percent gain in 2009, retail issues essentially recovered the ground they had lost since the end of 2007, which concluded with the index at 409.94. The strong gains last year brought them close to their high-water marks of early 2007, before growing problems in the housing market and rising gas prices pressured them downward. Since its June 2002 recalibration, the retail index’s highest point was the 538.50 reached on Feb. 20, 2007. However, retail stocks sold off 31.9 percent in 2008 as the financial crisis spread and touched off the worst recession since the Great Depression. <WWD>

Hedgeye Retail’s Take: While expectation for M&A activity remains elevated in the 1H of 2011, the benefit of multiple tailwinds in 2010 are set to give way to several headwinds that are unlikely to result in similar gains come 2011.


Triple Five Hopes to Create New Xanadu Meadowlands - Major surgery is in store for Xanadu Meadowlands. And a big first step in overhauling the beleaguered, massive mixed-use complex happens today, when top officials from Triple Five, the developer of Mall of America, meet on-site for the first time with Xanadu creditors. Late last year, Triple Five and the creditors signed an agreement whereby Triple Five takes over and redevelops the stalled project, which is located in northern New Jersey on Route 3 in East Rutherford. Everything is on the table, from changing the project’s name to overhauling the exterior and reworking the retail space and tenant roster, according to Triple Five. For those driving along Route 3, the incomplete Xanadu is an eyesore. It’s also been a drain on the New Jersey economy. “This project needs help. It needs to be redesigned for productivity,” Maureen Bausch, executive vice president of business development for Triple Five, told WWD. “Now we are taking it to the next level, fine-tuning the plan design and the name, and so on. We are getting to work to see how to make it a reality.” Some design options will be reviewed today. “Some [retail] spaces are very, very deep. Retailers would prefer more store frontage. They don’t want the consumer to walk very far. They want guests to be able to get to a lot of stores and attractions with the shortest amount of work,” Bausch said. <WWD>

Hedgeye Retail’s Take: Perhaps viewed as a new square footage growth opportunity by retailers, with many questions left to be answered and a ‘goal’ of having the development open by 2014 interested retailers should have plenty room for negotiating.


Interview with Hublot’s CEO – Biver, 61, joined Hublot in 2004 and launched the Big Bang collection, which is promoted by celebrity faces such as skier Bode Miller, track star Usain Bolt and actor Jet Li. In 2007, Biver opened Hublot’s first store in Paris, and the brand now operates 26 units worldwide. One of Biver’s major goals was to penetrate the U.S. market, which he feels is underserved by the luxury watch industry. Hublot has stores in Bal Harbour and Boca Raton in Florida, a boutique in St. Thomas in the U.S. Virgin Islands and plans to open shops next year in New York and Beverly Hills. In Response to viewing the U.S. as an emerging market for watches: “It’s an emerging market for watches.…Compared to markets in Singapore, Switzerland, France, Germany, we are quite emerging.…In Asia they use the watch to communicate personality. They tell you who you are. Are you elegant? Are you discreet? Are you low-profile? Are you powerful? Are you arrogant? All these things can be communicated through the watch…and the Asians have understood this. [For example,] out of 100 Asians who can afford a $100,000 watch, 99 will buy it…out of 100 Americans who can afford a $100,000 watch, 20 will buy it.” On growing retail during global weakness, “In the Chinese culture, they say, “You fight the disease when you are healthy.” More and more we will discover that problems have to be solved when you are in good health. We prepared ourselves for the crisis…we were 100 percent cash when the crisis came. We had no debts, no leasing, no bank relations, nothing. So when the crisis came, nobody told us what to do. If you owe nothing to the bank, you can say, ‘Go to hell. I do what I want.’ <WWD>

Hedgeye Retail’s Take: Interesting cultural difference as it relates to brand importance as a status symbol.


Crocs Pays for False Antimicrobial Claims – Crocs, Inc. has agreed to remove language on product packaging and pay $230,000 to resolve cases involving unsubstantiated antimicrobial claims for several types of its shoes, according to the Environmental Protecton Agency. “EPA will take action to protect the public against companies making unverified public health claims,” said Jim Martin, EPA’s regional administrator in Denver. “Unless these products are registered with EPA, consumers have little or no information about whether such claims are accurate.” The case involves several styles of Crocs shoes that included unsubstantiated health claims on product packaging in violation of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The company also made similar claims in advertisements and on their web site. Crocs has agreed to stop making such claims and has cooperated fully with EPA enforcement staff. “We’re seeing more and more consumer products making a wide variety of antimicrobial claims,” said Sandra Stavnes, director of EPA’s technical enforcement program in Denver. “Whether they involve shoes or other common household products, EPA takes these unsubstantiated public health claims seriously.” Under FIFRA, products that claim to kill or repel bacteria or germs are considered pesticides, and must be registered with the EPA prior to distribution or sale. <SportsOneSource>

Hedgeye Retail’s Take: Yet another branded retailer removing environmentally beneficial/green claims once questioned by a credited agency. While the company has marketed footwear directly to medical professionals, our sense is that sales are largely tied to the products comfort above all else. Needless to say, the negative headlines continue for CROX.

Online Ad Spending Set to Break Records - New peaks in spending each year through 2014 After 2009’s downslide, US online ad spending in 2010 will rise by 13.9%, reaching a record $25.8 billion. And in that same vein, internet adspending will hit new peaks in each of the following four years, passing $30 billion in 2012 and breaking the $40 billion barrier in 2014.The more granular quarter-by-quarter picture shows a record spend of $6.42 billion in Q3 2010, as reported by the Interactive Advertising Bureau and PricewaterhouseCoopers (IAB-PwC), followed by a new record of $7.25 billion in Q4, according to eMarketer projections.“A spending peak in Q4 is likely, primarily because Q4 has been the biggest quarter for US online ad spending every year but one since 1999,” said David Hallerman, eMarketer principal analyst and author of the new report, “US Ad Spending: Online Outshines Other Media.”<emarketer>

Hedgeye Retail’s Take: In what appears to be a pocket of strength within the advertising industry, online advertising is expected to grow at a double-digit rate over each of the next 4-years while total media spending is expected to grow by only +2.9% reflecting increasing retailer interest in the channel.

R3: BBY, CROX, Luxury Watches, and E-commerce Spending - R3 1 3 11

China's Inflation May Cool With Factory Slowdown - China’s inflation may cool after manufacturing growth slowed in December because of a tighter monetary policy and the closure of energy-wasting and highly polluting factories. A purchasing managers’ index fell to 53.9 from 55.2 in November, China’s logistics federation and the statistics bureau said Jan. 1. Manufacturers’ input costs rose at a slower pace, the report showed. Premier Wen Jiabao is seeking to limit bank lending and inflows of capital that could fuel inflation after a record expansion in credit drove the nation’s recovery. The central bank raised interest rates on Christmas Day and, six days later, the currency regulator said it was expanding a program to let exporters keep revenue overseas. “A slower but still robust pace of manufacturing expansion is welcome because overheating is a risk policy makers want to avoid,” said Shen Jianguang, a Hong Kong- based economist at Mizuho Securities Asia Ltd. who has worked for the European Central Bank and the International Monetary Fund. “Another rate hike could come as soon as this month.” <Bloomberg>

Hedgeye Retail’s Take: Slowing input costs to manufacturers a positive change on the margin as it relates to further cost inflation out of China, however more importantly is the extension of a program that allows Chinese exporters to park foreign currency earnings in overseas accounts. Recall that more recently, Chinese businesses were starting to deny foreign-based orders – particularly those denominated in USD due to the Fx risk.