R3: REQUIRED RETAIL READING
March 17, 2011
RESEARCH ANECDOTES
- Rue 21 noted that it expects to mitigate impending cost pressures via a couple of different strategies. First, the company believes that overall square footage growth provides incremental scale which in turn leads to cost breaks and volume discounts. Secondly, management believes that increasing the fashion quotient in the company’s assortment will allow the company to raise AUR’s without compromising quality. During 4Q, the company saw AUR’s rise 3%- a notable callout against most specialty concepts which have had trouble taking AUR’s higher over the past year or so.
- In a sign that the skinny jean phenomenon is waning, GES’ management confirmed that ‘roomier’ cuts are gaining momentum in both the U.S. as well as in Europe. More notably, non-denim bottoms are outpacing the company’s core denim bottoms.
- Keep an eye on the next apparel trend following the Snuggie. The new item dubbed the OnePiece comes to us from Norway and is essentially an adult onsie (aka jumpsuit). While this would appear to be a joke, the product is actually real and already selling at LA’s celeb-haven boutique Kitson. http://www.onepiece.co.uk/
OUR TAKE ON OVERNIGHT NEWS
Hugo Boss Continues Expansion Strategy - Hugo Boss is on a roll, propelled by its expanding company-owned retail network, strong sales in the growth markets of China and the Americas, more clearly delineated brand profiles — and a competitive dose of worrying. The German fashion group just ended the best year in its 86-year history, significantly outpacing even its own upgraded forecast from last October, and the momentum is continuing for 2011. Final figures for 2010 will be released March 29 but, as reported, preliminary figures saw net income surge 82 percent to 189 million euros, or $251 million. Group sales in 2010 sales rose 7 percent on a currency-neutral basis and 11 percent in euro terms to 1.73 billion euros, or $2.3 billion. All dollar figures are converted from the euro at an average exchange rate for the period. <WWD>
Hedgeye Retail’s Take: After several years of struggling to find its identity (and strategy) it appears that Hugo Boss is finally moving in the right direction. And thanks to China growth, there is newfound opportunity that was non-existent just a few years ago.
H&M Japan Relocates Office, Closes Stores - Hennes & Mauritz said it has closed all its stores in the Kanto region surrounding Tokyo and has temporarily relocated its Japan office to Osaka from Tokyo. Although several fashion companies are having employees work from home or remotely in the wake of electrical shortage and growing conerns about explosions and fires at a nuclear plant in northeast Japan, H&M's move is a particularly bold one. H&M Japan said that it is giving all of its employees and their immediate family the option to relocate to the Kansai area, home to the cities of Osaka, Kyoto and Kobe. <WWD>
Hedgeye Retail’s Take: Expect to see many more efforts focusing on safety ahead of profits in the near-term. Unfortunately the disaster’s impact will likely have long lasting effects on what was once one of THE top shopping-driven cultures in the world.
Men's Wearhouse Introduces Store Remodeling Program - Men’s Wearhouse has an aggressive rollout plan for its successful store remodeling program. This year, the company will remodel more than 100 stores in a plan that includes opening or revamping 135 units. As a result, by the end of 2011, nearly one-third of the company’s fleet of 590 traditional Men’s Wearhouse stores will be updated, according to Doug Ewert, president. “We’re projecting 170 stores will be done by the end of the year,” he said. Eventually, the entire chain will be remodeled. The company is also planning to open between 20 and 30 stores in 2011. Overall, capital expenditures are planned at $90 million to $100 million, which will be used for the remodels, store openings and investment in technology for the company’s online and e-commerce initiatives. <WWD>
Hedgeye Retail’s Take: While remodels are never a clear cut slam dunk for immediate returns, we applaud MW for upgrading its again store base and refreshing the in-store experience. Perhaps Penney and Sears should do the same?
Counterfeit Seizures Up - As the federal government ramps up scrutiny of counterfeiters, a report revealed Wednesday that footwear, apparel and accessories were among the top 10 counterfeit items seized by U.S. officials during fiscal 2010. For the fifth year in a row, footwear was the top commodity seized by federal officials, accounting for 24 percent of a total of 19,959 seizures valued at $188.1 million in the year ended Sept. 30, according to the joint report released by U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement. The total volume of counterfeit seizures rose 34 percent in the last fiscal year while their value fell 27 percent from $260.6 million in fiscal 2009. <WWD>
Hedgeye Retail’s Take: Efforts to curtail counterfeit imports continue to show tangible results although we wonder what can be done to curtail counterfeiting for distribution within China as many western brands look to increase their exposure the region.
Home Depot Aims to Build Social Media Following - The Home Depot Inc. is offering consumers who Like the retailer on Facebook exclusive offers every Friday throughout the spring as part of its Spring Black Friday Event. The promotion runs through May 27. The deals, which will be featured on the retailer’s Facebook page, will have prices that are 50% to 75% off regular prices on gardening, lawn care and patio items. For instance, it will sell a Martha Stewart outdoor dining set regularly priced at $499 for $299. To make a purchase a consumer clicks on a “Buy Now” button that is within the post announcing the deal. The retailer then presents the shopper with a broader product description along with a “Checkout Now” button. The consumer can then complete the transaction without leaving Facebook. <InternetRetailer>
Hedgeye Retail’s Take: One of the more progressive uses of technology for a retailer that is more known for its weekly circular, TV advertising, and in-store merchandising.
Dick's SG Brings Back National Runners' Month for May - Dick's Sporting Goods announced the return of Dick's Sporting Goods National Runners' Month, a celebratory campaign launching this May for runners across the country. The foundation of Dick's Sporting Goods National Runners' Month will be the activation of major sponsorship at ten premiere running events in metro cities across the country. In addition, the month-long running celebration will be surrounded by a comprehensive marketing program that includes the announcement of three widely respected running ambassadors, a major charity initiative, social and digital media elements along with running specials and promotions throughout May. <SportsOneSource>
Hedgeye Retail’s Take: Another example of increased marketing being pumped into the athletic space. This time the grassroots efforts come from the retailer (with likely some co-op along the way).
Liz Claiborne in Dispute With S&P - Liz Claiborne Inc.'s plans to refinance its troubled Mexx European business have sparked a dispute with credit-ratings company Standard & Poor's, which calls the planned debt exchange a default. The debt swap is Liz Claiborne's latest attempt to shore up its fast-fashion Mexx brand, which is its largest division and accounts for about a third of the apparel company's revenue. Liz Claiborne, which also owns the Juicy Couture and Lucky Brand Jeans lines, is offering to buy back €155 million ($215 million) of the €350 million in bonds it issued in part to help finance the 2001 acquisition of Mexx. The current bonds come due in 2013. The new bonds won't have to be repaid so soon, which the company says will give it more financial flexibility. Instead of paying full face value for the bonds, Liz Claiborne said it would buy them back at 96 cents on the dollar, which S&P Friday wrote was "tantamount to a default." <WallstreetJournal>
Hedgeye Retail’s Take: With the company expecting the MEXX business to breakeven by 2012, this is a move designed for added flexibility. We believe the greatest period of default risk is now in the rear-view. Given our expectation for the company to turn profitable in 2012, our sense is the options for restructuring existing debt will increase a year from now if the current tender proves to be a challenge.
Coalition of Retailers Push Amazon on Taxes - Wal-Mart Stores Inc., Target Corp. and other large retailers are ratcheting up a political campaign to force Amazon.com Inc. to collect sales taxes, sensing opportunity in the budget crises gripping statehouses nationwide. Target is one of the stores involved in the campaign to change sales-tax laws in more than a dozen states. The big-box stores are backing a coalition called the Alliance for Main Street Fairness, which is leading efforts to change sales-tax laws in more than a dozen states including Texas and California. Until now, the group has been largely associated with mom-and-pop stores, spotlighting stories of small toy shops and booksellers who argue Internet merchants that aren't legally required to collect sales taxes enjoy an unfair advantage with shoppers. Yet the Virginia-based group isn't just working for the little guys. Many of America's largest store chains—including Wal-Mart, Target, Best Buy Co., Home Depot Inc. and Sears Holdings Corp.—are involved in the campaign, lobbying legislators and increasingly taking public swipes at Amazon. <WallstreetJournal>
Hedgeye Retail’s Take: Leveling the playing field remains in every companies best interest with the exception of Amazon. Given AMZN’s hard stance on the issue in both TX and CA, we don’t expect a ruling near-term, but believe that AMZN will have to realize the inevitable in the not so distant future.
