R3: AMZN, WMT, FL, & ARO

03/11/11 09:04AM EST

R3: REQUIRED RETAIL READING

March 11, 2011

 

RESEARCH ANECDOTES

  • In recapping some of the merchandising mistakes Wal-Mart made last year, the CEO noted that the company actually increased its floor space allocation to entertainment and electronics category by 21%  last year.  Unfortunately, the company ended up increasing exposure to a category with the most pronounced deflation within the store.  This ultimately led to sales pressure as well as a negative return on the “space investment.”  Toys, apparel, and home were categories in which space was cut.
  • Despite coming out of the reported 4Q with inventories up 9% per square foot, ARO noted that the company has been aggressive in clearing inventories over the past two months.  As a result, post 4Q, inventories are currently up 4% per foot.  As for the pricing environment in the mall, management has not seen any major changes although they do note that competitors are testing different pricing schemes and promotions in preparation for higher costs over the back half of the year.
  • Foot Locker noted that as the company’s revamped apparel strategy continues to evolve it’s likely that Nike apparel will be more of a focus at core Foot Locker while AdiColor will be more geared towards Champs.  Sounds like the banner segmentation strategy is continuing to take hold.

OUR TAKE ON OVERNIGHT NEWS

 

Amazon Takes Action in Illinois  -  Inc.'s battle with state governments over sales taxes is escalating. The online retailer on Thursday took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation. The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other websites that refer traffic to Amazon's website and get paid commissions if customers make purchases there.<WallstreetJournal>

Hedgeye Retail’s Take:   Another effort to skirt the growing efforts of states to collect sales tax from online only retailers.  We believe Amazon and others will ultimately lose this battle as it makes no practical sense for them to operate under a second set of taxation rules when compared to most of retail.

 

Wal-Mart takes same day pick-up national - Wal-Mart Stores Inc. announced today that it will make its Pick Up Today service available at store locations nationwide by June. The service allows consumers to buy online at Walmart.com and pick up their orders at a nearby store in about four hours. The multichannel retailer began testing the service in October in about 800 stores. The test service limited the products eligible for same-day pick-up to select electronics, video games and household appliances. The company says the national rollout will encompass nearly 3,600 stores and up to 40,000 products, including products in additional categories such as baby, toys, home décor, hardware and outdoor living. Food products are not eligible for the program at this time. <InternetRetailer>

Hedgeye Retail’s Take:  Another way to potentially drive incremental store traffic while at the same time adding a customer friendly feature to the Wal-Mart shopping experience.  Sameday service within a matter of hours is certainly impressive.

 

Williamson to Do Macy's Line - Matthew Williamson is next up in Macy’s designer capsule collection series, a key component in the store’s accelerating strategy to woo younger shoppers and project a hipper image. Williamson will give a bright, bohemian edge to Macy’s selling floors, creating embellished day and party dresses, printed scarves, and day-to-evening rompers, among other items, about 30 styles in all. The line launches April 13 in 225 doors and on macys.com. Prices will range from $50 for a blouse to $150 for dress, with some more expensive items, such as leather and suede jackets, priced up to $300. An advertising campaign with model Dree Hemingway breaks Tuesday. <WWD>

Hedgeye Retail’s Take:  Macy’s continues to push the envelope with its exclusive, contemporary offerings taking a play out of the playbook of H&M, Uniqlo, and others.

 

Retailers Brace for Inflation - The recession forced retailers to offer better value. Now they’re scurrying to maintain the proposition as they shop the world for fall goods and confront sticker shock as a result of soaring labor and raw material costs. Prices for fall are expected to be 10 to 15 percent higher — and in some cases could rise even more depending on the product. While it will be mass and midtier retailers like Wal-Mart Stores Inc., Target Corp., Kohl’s Corp., J.C. Penney Co. Inc. and The TJX Cos. Inc. that will be hit the hardest, no company is expected to escape unscathed.  Higher apparel prices will only add to the growing specter of inflation across the economy — from food to gasoline. The skyrocketing price of oil because of turmoil in the Middle East has caused global stock markets to plummet in recent days, with the Dow on Friday closing below the 12,000 mark for the first time in six weeks. <WWD>

Hedgeye Retail’s Take:   Expect this story to remain perpetually in the headlines until prices finally head the other way.  That means we’re looking at 6-12 months of a “costs on the rise” media focus.

 

Big Retailers Try to Sway Congress on Debit-Card Fees - Thousands of credit-union members visited Capitol Hill on March 3 to warn that a Federal Reserve proposal limiting swipe fees collected on debit-card purchases is anti-consumer. A cap on fees banks collect from merchants will force card-issuing credit unions and banks to cancel reward programs, eliminate free checking, and impose annual fees, they told lawmakers.  A week later, about 170 small business owners flew into town with the opposite message. The Fed plan is pro-consumer, they said, because it will help lower retail prices while preventing card issuers from profiting at their expense, money that goes to fatten bankers’ bonuses.  Framing brawls about money as essentially consumer issues is a time-honored tactic in Washington. However, the debit-card fee issue is primarily a conflict between big business and big banks, Bloomberg Businessweek reports in its March 14 issue. Up for grabs is $16 billion in annual revenue. <Bloomberg>

Hedgeye Retail’s Take: Debit-savings, especially for consumables and discount retailers couldn’t come at a better time with escalating inflation on the horizon.  The question still remains if retailers will choose to enhance overall margins with the potential savings or put the cost savings back into price.

Foreign Businesses Hit by Japan Earthquake - Foreign companies Friday started counting the cost of a giant earthquake in Japan as operations were disrupted across the country.  Truck maker Volvo AB was among those worst hit as its main facility in Japan was forced to halt production. The Swedish company said damage to its UD Trucks facilities in Ageo in the southeast of Japan, seems to be mainly superficial, but it will be days before the company can do a full assessment.  Volvo employs 10,000 people in Japan, while a further 3,000 work at UD Trucks' dealerships. Volvo said the dealership at Sendai, close to the epicenter of the earthquake, had been seriously damaged, and it couldn't yet say how other dealerships had been affected. Food giant Nestlé SA said two of its locations in Japan had been impacted. <Wallstreet Journal>

Hedgeye Retail’s Take:   In retail, Coach comes to immediate focus with its international exposure highly levered to Japan.  Luxury goods companies are also likely to see some near term pressure.

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