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March 21, 2011






  • In one of the first earnings revisions attributed to the tragedy in Japan, Billabong has lowered its June fiscal year-end outlook. After originally guiding towards flat sales, the company is now expecting top-line deterioration to the magnitude of 2%-6%. Interestingly, Japan only accounted for only 4% of global sales and 3% of EBITDA as of FY10. While roughly two-thirds of Japanese profits  are typically booked between March-June, it appears that Japan is perhaps one of only a few regions coming in below expectations.
  • After a successful test last year, Home Depot is bringing back its ‘Spring Black Friday’ event with the first of four weekends in select markets this past weekend. With door buster discounts as high as 50%-75% off select items, the company will post offers on Facebook every Friday now through the end of May in an effort to rebound from the lowest level of Lawn and Garden sales in over a decade last year.
  • Following weeks of speculation regarding Apple’s interest in retail space within Grand Central, the latest news suggests that the retailer has pulled out of negotiations. With this deal now at, or near an end, the question remains where Apple will look to anchor its latest flagship in the Big Apple.    



Sears’ Turf Wars Campaign - In a retail world which is polarising between “value” and “specialty”, many department stores have reacted by dumbing down their offer and embarking on broad-based discounting programs. The upshot, in Australia at least, is that the line between “department store” and “discount department store” has become increasingly blurred. So it’s refreshing to see a venerable US department store bucking the trend with a sharp, category-specific, competitively-focused campaign. Sears, that bastion of US retail, has just launched a new promotional initiative for the Northern Hemisphere Spring called “Turf Wars”. As indicated by the theme, it’s a tough-talking campaign that “names names” (in a tongue-in-cheek way), urging consumers to shop for their lawn and garden products at Sears, rather than The Home Depot or Lowes (the big-box home improvement competitors in this category). <InsideRetailing>

Hedgeye Retail’s Take: What’s interesting here is that we’re starting to see more retailers and brands call out their competition in ways that etiquette of the past would disallow. (Note the New Balance running campaign vs. Nike).


Van Heusen to Diversify into Non-Apparel - Van Heusen, a part of Madura Fashion & Lifestyle, the branded apparel business of the Aditya Birla Group, is targeting the non-apparel space as a future growth engine.  Van Heusen is a leading premium lifestyle brand straddling the premium apparel range with a turnover of Rs.650 crore and it is now planning to increase its presence in the premium non-apparel space currently dominated by multinational brands. From a small presence in men's ties and belts, the company's non-apparel business plan includes an entry into men's footwear, eyewear, watches and luggage. It will also enter the women's shoes and bags segment. Speaking to this correspondent, Ajay Ramachandran, Brand Head, Van Heusen, said, “we see a good demand for these products and over the next five years, expect the non-apparel business to contribute around 10 per cent of our targeted Rs.2,000-crore turnover.” <TheHindu>

Hedgeye Retail’s Take: Little impact on P&L. But we continue to be won over on the margin with how Manny is running this ship. All these little initiatives are going to add up to something meaningful one day soon.


Crocs Develops Lightweight Sneaker for Men - Crocs Inc. stepped out of its element when it launched a brand of high heels and other women's shoes that looked nothing like its iconic bright, lightweight clogs. Now it's doing it again, with a line of seven-ounce sneakers for men. The Niwot, Colo.-based company has no intention of abandoning its signature clogs, beloved by some and loathed by others. But it's pushing to become a shoe brand for all seasons and buyers, chief marketing officer Andrew Davison said. This summer Crocs plans to extend the sneakers to women and offer women's shoes made with more translucent materials, while maintaining its ideals of lightweight, odor-resistant, fun, casual footwear, Davison said. "The next couple of seasons, you'll see us push the boundaries of what a casual shoe is," he said. <Forbes>

Hedgeye Retail’s Take:  There’s a big difference between pouring a few tons of plastic pellets into a vat and popping out those Crocs we’ve grown to know and love to hate. Getting into more of a lifestyle business means one thing – complexity. The process from design, procurement, marketing, manufacturing, and logistics means that Crocs will see a meaningful change in its cash conversion cycle. We think that this is going to be one of the keys to whether they can make this work.


A Struggling Wal-Mart Turns to Its Core  - After attempting to appeal to a wider variety of shoppers backfired, discount giant Wal-Mart Stores Inc. now is mired in its worst U.S. sales slump ever. I think we tried to stretch the brand a little too far,' says William Simon, Wal-Mart's chief for the U.S.  But William Simon, the former Navy officer put in charge of the flagging U.S. division last June, says he is confident that the lumbering giant can reverse its fortunes after seven consecutive quarters of domestic sales declines at stores open at least a year. Part of his strategy includes returning to the "Every Day Low Prices" formula Wal-Mart popularized, after the company in recent years veered away from offering low prices across the board and instead discounted some items while raising prices on others.  Mr. Simon says he hopes this will win back some of Wal-Mart's core customers—households earning $30,000 to $70,000 a year—which the company has been losing to upstart dollar-store chains. <WallstreetJournal>

Hedgeye Retail’s Take: The only thing notable in this article is that it is in the WSJ. We still think that with inflation on the rise in 2010, and consumer spending remaining challenging at best, Wal-Mart has its job cut out for it.


Marimekko to Expand in U.S. Online - Marimekko, the Finnish design house, is moving ahead with its U.S. expansion plans, opening a flagship here, launching an e-commerce site, and extending its collaboration with Crate & Barrel.  In addition, the company seeks to enter new retail partnerships for clothing and accessories and increase its presence in home furnishings stores.  The flagship will open this fall in Manhattan’s Flatiron District in the “Toy Building,” at 200 Fifth Avenue. With nearly 4,000 square feet of selling space, the store will mirror the recently opened flagship in Helsinki. Both stores are designed by IMA, the Japanese architectural firm, in cooperation with Marimekko’s own store design team. The world of Marimekko products will be displayed, with new merchandise showcased each season.  <WWD>

Hedgeye Retail’s Take: No threat


European M&A Activity Heats UpEurope appears to have caught the M&A fever again.  The last six months has been a lively period for European mergers and acquisitions activity, culminating in the blockbuster $6 billion-plus transaction by LVMH Moët Hennessy Louis Vuitton for Bulgari earlier this month that followed a rash of private equity deals. Overall, and boosted by the LVMH deal, M&A activity in Europe in the fashion and luxury space over the last six months has approached $10 billion — and all signs are the momentum will continue throughout the rest of the year.  “There’s been a pickup in activity over the last several months. It’s been very substantial. Right now luxury is back [and] banks are starting to lend again,” said Richard Kestenbaum, partner at Triangle Capital LLC. “There are signs that firms who have capital are waiting in the wings wanting to do something.”  In the Bulgari deal, LVMH was able to double its watch and jewelry division through a single acquisition.  <WWD>

Hedgeye Retail’s Take: Is it us, or does this snippet scream 2003-2007? We’re not suggesting that all deals will be bad. But when executives tout that they “doubled a business” with a given acquisition, it is usually a bad sign.


The Aftershock for Retail Companies in Japan - As fears mount about Japan’s economy slipping into a recession, footwear firms are struggling to keep stores operating normally in the region. While every company said last week they are most concerned about the safety of their employees amid growing threats of a nuclear crisis, execs noted that business has been disrupted to varying degrees. Kobe, Japan-based Asics Corp., which derives about a third of its revenue from its domestic business, experienced light damage in certain facilities and distribution centers, including cracked walls and broken windows in its business office in Tokyo. And not all 57 stores in the country are fully operational, said Gary Slayton, Asics’ VP of marketing. “Our infrastructure and supply chain haven’t been disrupted. <WWD>

Hedgeye Retail’s Take:  The ONLY consolation from a business perspective is that there are very few businesses outside of the lux market that have had any success in Japan in a pretty long time. This is actually a pretty good time for better-managed companies to invest capital.