R3: REQUIRED RETAIL READING
February 23, 2010
RESEARCH ANECDOTES
- Wal-Mart noted that EDLP remains a key priority and one of the pillars of the company’s four-point plan to reinvigorate domestic sales momentum. With price leadership at the forefront of Wal-Mart’s marketing message, management also reiterated that the company will “only pass on price increases when they cannot be avoided”.
- Home Depot noted that the company’s 2011 forecast is based on a “commodity neutral” plan on the cost side of things. Management did go on to note that there has been an increased amount of vendor-requested price increases over the past 45 days and they will evaluate each request on a case by case basis. On the top-line, inflation in lumber and copper added about 50 bps to same store sales.
- Macy’s noted that the company’s fashion offering allows the retailer to be less reliant on opening price point basics and more focused on product that contains more fashion at higher price points. Additionally, the company noted that areas like home, center core, accessories, and other non-apparel categories will not be as impacted by raw material price increases.
- In a slight, but meaningful change in tone, VF’s management highlighted that marketing related investment spend will stay at the same rate in 2011 – approximately 5.5% of sales. Just last month it was suggested that marketing would revert back to historical levels of ~5% of sales to offset margin pressure. While the added spend will certainly help drive top-line growth towards expected levels of 8%-9% this year, the company has identified 100bps of additional SG&A expenses as an offset to higher costs in the coming months in an effort to keep operating margins flat-“ish.”
OUR TAKE ON OVERNIGHT NEWS
J.C. Penny to Unveil New Logo - J.C. Penney will an unveil a redesigned logo and a new slogan in its spring campaign launching during the Academy Awards on Sunday. The logo is still in red and white but with a more modern, graphic look. JCPenney is spelled out in lower case, the first three letters in white and contained in a red box; the rest of the lettering in red against a white backdrop. Logo redesigns can be tricky. Gap last year redesigned its logo, but scrapped it after a public outcry and quickly restored the old version. However, there’s always excitement surrounding the Academy Awards, where Penney’s is the sole retail sponsor.<WWD>
Hedgeye Retail’s Take: It’s going to take more than a logo change to drive traffic back into the company’s store.
Levi's, H&M ban Sandblasting - Levi Strauss & Co. and Hennes & Mauritz have agreed to collaborate with the International Textile Garment & Leather Workers’ Federation to draft a manifesto banning the use of sandblasting in denim, in the hopes of convincing other brands to eliminate it, the global union federation said Friday. Levi’s and H&M said last year that they were eliminating sandblasted products from their lines due to health concerns for workers who are involved in the process around the world. “Sandblasting is a serious industry concern, and even though we at Levi Strauss & Co. are confident in our practices, we decided that the best way we can help ensure no worker in any garment factory faces the threat associated with exposure to crystalline silica is to move to end sandblasting industrywide,” said a Levi’s spokeswoman. <WWD>
Hedgeye Retail’s Take: Sounds like selvedge and other clean denim looks may become more popular if sandblasting falls by the wayside.
Abercrombie consolidating fulfillment operations - As part of an ongoing move to cut costs, Abercrombie & Fitch Co. is making plans to consolidate its distribution centers into a single facility. Abercrombie & Fitch, No. 65 in the Internet Retailer Top 500 Guide, currently operates a pair of distribution centers near its headquarters in New Albany, OH. One center is used to ship orders for its global e-commerce channel and for its Abercrombie & Fitch store locations. A second center supports the retailer’s store network for the Hollister and Gilly Hicks brands. <InternetRetailer>
Hedgeye Retail’s Take: With e-com volumes rising at a rapid pace, the move for distribution efficiencies makes a ton of sense.
Moncler Said Eyeing Public Offering by June - Moncler Group is revving up to launch an initial public offering in the first half, possibly in June. According to sources, the Italian company has tapped Banca Imi, Morgan Stanley and Bofa-Merrill Lynch as global coordinators. The plan is to float up to 50 percent of Moncler on the Milan Stock Exchange. In addition to the Moncler brand, the Moncler Group includes high-end sportswear labels Henry Cotton’s, Marina Yachting and Coast, Weber & Ahaus, and it holds the license for Cerruti. The group closed 2010 with sales of 426 million euros, or $562.3 million. <WWD>
Hedgeye Retail’s Take: If you haven’t seen the company’s flash-mob fashion show in Grand Central check it out: http://www.youtube.com/watch?v=6Cn5FRLtWHE. Hopefully the roadshow will be almost as exciting.
Auri Footwear to be Sold- Wellstone Filter Sciences, Inc. has entered into an agreement to acquire Auri Design Group, LLC, which designs and sells Auri Footwear for men and women. The agreement is expected to close in the next few days, subject to the prior satisfaction of customary closing conditions and will result in Auri becoming a wholly-owned subsidiary of a public company. Wellstone plans on changing its name to "Auri, Inc." following the close of the transaction. "Our entire team is excited about the new opportunities that will be created by being traded on the OTC Market. It will help fuel our marketing and growth objectives in the short and long term" Founded in 2007 and headquartered in Laguna Beach, California, Auri Footwear was named by Forbes magazine as one of "America's Most Promising Companies." <SportsOneSource>
Hedgeye Retail’s Take: While still a nascent brand, the company has licensed Outlast technology originally designed for NASA spacesuits to keep feet cool and dry. Adding a bit of functional technology to the shoes fashion should help drive interest in the footwear which sells at $85-$230.
Mobile Payments Take Hold Around the World - A sixfold increase in the volume of mobile payment transactions is on the way in the next four years, according to one research firm. A forecast from Yankee Group predicts the worldwide transaction value of mobile payments will total $984 billion by 2014, up from $162 billion last year. That includes transactions from mobile banking, international and domestic remittances, contactless cards, mobile coupons and near-field communications. According to an Accenture survey of “tech forwards”—web users who use several networked devices and internet services—there is widespread concern around the world with the safety of mobile payments. <eMarketer>
Hedgeye Retail’s Take: Anything that facilitates faster checkout and higher consumer satisfaction is likely to take hold as in the case of mobile payment technology. Imagine not having to wait in a line ever again when wanting to check out of a Macy’s at Christmas.
Buyers Turn to Cotton Alternatives - It’s all about blending in for spring 2012 fabrics, with high raw material costs pushing weavers to increasingly experiment with alternative fiber mixes. Designers attending the recent edition of Première Vision here embraced the trend for blends, lauding the innovation on display across collections. Among the fabrics being blended with cotton were linen, viscose, synthetics and cellulose-based fibers like Lyocell, Modal and Tencel. “It’s a challenge; you have to make something new out of it,” said Lanvin men’s wear designer Lucas Ossendrijver, who cited Japanese woolen mill Nikke among the standouts. “More blends will come out on the market, which I think is more interesting as yarns are a lot more advanced than in the Seventies.” <WWD>
Hedgeye Retail’s Take: FYI the addition of synthetics can help the wear and tear of a garment. Good news for those who will need to justify paying higher prices by wearing their garments longer.
Textile Makers in Taiwan Required to Change Prices - Taiwan’s textile industry has not been positive about the new policy formulated by the Taiwanese Ministry of Economic Affairs (MEA) which requires producers across the textile value-chain to change prices of their products to just once-in-a-month. The MEA has suggested the once-in-a-month pricing policy to safeguard the interests of the downstream producers like fabric manufacturers to protect them from the volatility of raw material prices as well as ensuring adequate supply. <FashionNetAsia>
Hedgeye Retail’s Take: Don’t we live in a real-time, mark to market global economy? Monthly pricing in this case seems archaic.
China raises wages - China, the biggest brake on global inflation for two decades, is embracing wage increases that threaten to erode retailers’ margins and demand for bonds. Premier Wen Jiabao convenes the annual National People’s Congress March 5, where delegates will approve a five-year plan designed to elevate the role of domestic demand. Part of that strategy is endorsing higher pay, with all 31 Chinese provinces and regions likely to boost their minimum wages in 2011 for the second consecutive year, according to Credit Suisse Group AG. “When historians go back and describe 2010, the big story will be the massive increase in salaries that will redefine the global manufacturing model and redefine the inflation outlook for the next 10 years,” said Dong Tao, chief economist for non- Japan Asia at Credit Suisse in Hong Kong. <Bloomberg>
Hedgeye Retail’s Take: The margin pressures continue. The positive for most companies this time is that they now have alternative sourcing options after facing last year’s wage increases. As such, expect the shift in manufacturing to accelerate in the coming months.