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February 25, 2010






  • KSS indicated that its e-commerce business would approach $1 billion in revenues this year, representing 30% growth over 2010 sales of $720 million.  To support this growth an additional e-commerce distribution facility will open in the fall.  $1 billion in .com sales would represent approximately 5% of total company revenues.
  • Target noted that its overall home business has been a mixed bag.  There has been strength in the opening price point offering as well as the “best” categories.  However, the middle or “better” part of the assortment has been weak.  Merchants are working to the address this softness via a reinvigoration of product freshness.
  • Safeway believes that after two years of declining price per item, the company and industry needs to take some risks and pass increases along.   They are passing along inflation currently and are not seeing a “demand depressing effect”.  Management went on to say that they believe consumers are feeling better than they were one year ago which allows the market to absorb price increases with little resistance (so far).
  • GPS noted that it plans to be much smarter and more strategic with its promotional strategy in 2011 at Old Navy.  The company will ramp new efforts over the course of the year, with maximum year over year change in promotional strategy taking place over the back half.  Expect to see further innovation (digital) and creativity (not just % off).
  • Online sales at CROX has been one of the more impressive in retail with growth rates in e-commerce up +44% and +24% in Q4 and FY10 respectively. More impressive is the fact that online sales account for nearly 10% of the company’s revenues while most retailers and branded manufacturers are building off a much smaller base.
  • With gross margins up over 400bps in Q4, DECK acknowledged that the bulk of the expansion was due to price increases implemented last year ahead of anticipated raw material cost increases that never materialized. With pricing for sheepskin locked in and cost increases expected to be up 10% for 2011, we question how receptive retailers will be to further increases while other brands are essentially proposing higher prices for the first time related to higher input costs.



Polo Ralph Lauren Unveils new iPad App - This Friday, Polo Ralph Lauren Corp. is launching its first RLX iPad app, and this being Polo, there’s no shortage of innovative elements to underscore the brand’s athletic roots. It features real atheletes wearing the clothes, and the iPad’s built-in accelerometer, digital compass, assisted GPS and Multi-Touch screen capabilities allow users to do all sorts of things with the athlete images, from flipping it to tilting it and tapping the screen to experience the different movements of the clothes. “This application places the user in the driver’s seat so that they can control the technical functions of the apparel and experience the brand in a way that is visually entertaining,” <WWD>

Hedgeye Retail’s Take: RL has had apps all along for its purple/black label, but one designed specifically for the brand’s RLX line makes sense. The brand marketing and message, while still very much Ralph, is considerably different from the brands classic lifestyle lines making it a challenging fit inside the typical club-like RL store. The option to view the line virtually may ultimately help piqué interest and ultimately drive traffic. 


No Fear Fliles Chapter 11 - No Fear Retail Stores, Inc., which has 41 stores in California, Arizona, Nevada and four other states, announced that it filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California. Based in Carlsbad, CA, the stores target to motocross and surf markets. Its stores sell No Fear-branded clothing as well as Spy Optic and other brands. Other brands include So Cal, No Cal, Fearless, FMF, Gatorz, Hustler and Truth.<SportsOneSource>

Hedgeye Retail’s Take: The second brand of note to file YTD reflects the relative weakness we’ve seen in the west coast region.


Sportmax Unveils New Store Concept - A new Sportmax store concept will be unveiled here today. Covering 2,700 square feet over two stories, with four large windows, the store is located in the city’s central Via Spiga, and replaces a previous one on the same street, in Milan’s so-called golden shopping triangle. But Milan is only the first step in a global retail expansion for the brand. “While maintaining a selective distribution, we want to increase our worldwide presence, in China and Russia, for example,” said Luigi Maramotti, president of the Max Mara Fashion Group, which controls the Sportmax label. There are currently 13 Sportmax stores, in cities such as Paris, Moscow, Hong Kong, Shanghai and New York. These units will be renovated along the lines of the Milan blueprint. <WWD>

Hedgeye Retail’s Take: The upgrade at retail makes sense from both a presentation and messaging vantage point given Max Mara’s strategy to start distributing the Sportmax brand in department stores over the next two years.  

Clinique Enters the Digital Age The brand, which made its debut in 1968 with a hand-operated diagnostic slide device, has joined the iPad generation.  The new device, called the iPad Skin Diagnostic Tool, will be installed in new counter configurations, which ultimately will include new product testers for foundation and color cosmetics and a new smart-screen scanner that provides product information and even reviews from other consumers. “By integrating digital technologies into the shopping experience, we are offering the consumer a stimulating and socially modern way to connect with the brand,” stated Lynne Greene, global brand president of Clinique, Origins and Ojon at the Estée Lauder Cos. Inc. <WWD>

Hedgeye Retail’s Take: Which brands don’t have an app at this point is the question, but it sounds like the idea here is more one of self help at the counter, which may indeed increase traffic and interest in light of the fact that many shoppers look to avoid engaging predatory counter staff.


Cameroon May Increase Cotton Output 35% - Cameroon may increase cotton output by as much as 35 percent this season by using higher yielding strains and improving agricultural techniques, according to Sodecoton, the state-owned producer. “We intend to produce at least 39,000 metric tons more of the crop,” Ibrahim Ngamie, director of agricultural production, said in an interview today in the capital, Yaounde. That would boost output of the fiber to about 150,000 tons, up from 111,000 tons last year, he said. Cotton, mostly grown by about 227,500 small-scale farmers in the north of the country, is Cameroon’s fifth-largest foreign exchange earner, according to the government. The West African nation plans to boost output by reorganizing the industry, training farmers and increasing the use of more resistant and higher-yielding crop strains.<Businessweek>

Hedgeye Retail’s Take: Optimistic headline, but this is a rounding error. By way of perspective, as the world’s #24th leading cotton producer Cameroon produces only 1% of the cotton volume of #2 India.

Social Media Budgets Grow - Over the next several years, social media spending will become a bigger percentage of companies’ overall marketing budgets. Yet CMOs report there are still challenges when it comes to integrating social media into their overall business strategies. The American Marketing Association and Duke University’s Fuqua School of Business surveyed more than 400 top marketers for the February 2011 CMO Survey. They reported that over the next 12 months, social media spending will jump to 9.8% of marketing budgets, up from the current level of 5.6%. In the next five years, that percentage will increase to 18.1%. <emarketer>

Hedgeye Retail’s Take: With marketing budgets accounting anywhere from 5%-10% of sales for most retailers/brands, the average increase in spend implies a 25-50bps impact to margins this year. Given that most retailers are using the SG&A line to offset cost inflation, we expect most investments in social media to replace more costly marketing efforts rather than be purely an incremental expenditure.

R3: KSS, TGT, GPS, DECK - R3 2 25 11