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March 29, 2011






  • The belief that ‘any press is good press’ is just not reality – case in point, ANF’s new “Ashley” bikini…a padded top for girls starting at age 7. In fact, after releasing the product on its Abercrombie Kids website over the weekend, the company removed “push-up” from its description. No stranger to controversial marketing tactics including the infamous Quarterly, which reappeared briefly last year, the company has taken its edginess down from 20s, to teens, and now to 7-year olds. 
  • Add Hot Topic to the growing list of companies that will no longer report monthly sales. Among additional changes at the corporate level, the company’s CEO Lisa Harper has taken over primary merchandising responsibilities. While reflecting on the turnaround underway relative to her experience at Gymboree, Harper highlighted the task ahead is less structural a la GYMB and more about merchandising, planning, and product with a clear focus on turnover.
  • Texas-based sporting goods retailer Academy Sports will be celebrating the grand opening of its first store in the state of Georgia with a 70,000 sq. ft. store in Atlanta this Friday, April 1st. While Hibbett Sports may prefer the date to have greater meaning, the reality is Academy has become a better competitor in recent years compared to its historical position as the industry’s low-cost player. With both DKS and HIBB both focused on expanding westward, Academy’s latest move may stifle the company’s progress as it looks to secure its core markets.



Cotton Prices Expected to Fall in 2011 - Cotton prices are expected to plunge 51% to $1 a pound by Dec. 31, according to the median in a Bloomberg survey of 14 analysts and traders. Farmers around the world are planting more cotton to profit from high prices. Cotton rose to $2.197 on March 7, the highest in 140 years of trading in New York, after flooding in Australia and Pakistan and freezes in China ruined crops. The U.S. Department of Agriculture estimates that cotton crop output may rise 11% next year (beginning August 1), compared with a 3% gain this year. Analysts are predicting that production will increase from most of the world’s major cotton producers this year, and that the U.S. will plant more than 13 million acres of cotton this season, up from 11 million acres last year.Hedge funds are already cutting bets on higher prices by the most in three years, the report indicated.<SportsOneSource>

Hedgeye Retail’s Take: As Manny Chirico of PVH noted this morning, brand manufacturers are only seeing spot rates starting to come down, but there has not been any buying actually taking place just yet. Weighted average cost could, and should, go up even as cotton retreats. Best case, we think that a better planting cycle helps 2013. Do you want to invest based on 2013 numbers? Didn’t think so…


Chinese Industry Slammed by Rising Costs - Higher labor and materials costs, and the maturing of its economy have pummeled the Chinese apparel and textile production industry in recent months, leading to mass factory closures, cost control measures and a certainty of higher prices to come for customers. Factories across the manufacturing zone in the Pearl River Delta and on the eastern seaboard have reported cutbacks and closings in the past six months, largely due to soaring cotton prices and the increased salary and benefit demands to attract workers. Factory bosses now say they expect a streamlined, more efficient and higher-end production chain to emerge, but the transition period will be difficult. In short, big changes lie ahead for the world’s largest maker and exporter of apparel.<WWD>

Hedgeye Retail’s Take: Consistent with what we heard out of Li-Ning last week suggesting labor cost increases of +10%-15% are not a near-term aberration, but rather a trend that will continue ‘in coming years.’


Central America Warming Up to CAFTAIn the five years since the Central American Free Trade Agreement was implemented, U.S. and European apparel brands and retailers have faced sourcing challenges but are now said to be looking to increase business in the region. While the recession hit Central America hard and led to a decrease in U.S. apparel import volume in 2009 and created an uncertain business climate for the seven CAFTA countries, trade has begun to bounce back in the past year and companies are now exploring new investment opportunities. Central America’s apparel and textile industry could attract significant apparel investment by 2015 as U.S. and European brands shift activities to offset deepening sourcing woes in Asia, industry experts said. <WWD>

Hedgeye Retail’s Take: There has been a clear shift in focus by many retailers that have started to look beyond China to both Central and South America as alternative export markets. Increased labor rates have closed the gap and with transportation costs also starting to weigh on margins, proximity matters. VF has had a clear relative advantage here in recent quarters as one of the few brand manufacturers with Mexican-based production. The problem is that capacity in Asia vs. Central America is 20 to 1.

Borders Liquidators Squeeze Cash From Doomed Stores - At the Borders Group Inc. store on Broadway near Wall Street, box sets of Stieg Larsson’s best- selling “Millennium” trilogy, including the “The Girl With the Dragon Tattoo,” sat on a table near the door last week on sale for $69.39 -- a liquidation markdown of 30 percent. The set costs half as much on Amazon.com Inc. (AMZN)’s website, where it was listed for $34.58 -- with free shipping. Amazon’s Kindle e-book editions were even less, priced at $27.97. At Wal-Mart Stores Inc.’s website, the three books sold for $34.96. Borders, the second-largest U.S. bookstore chain after Barnes & Noble Inc. (BKS), filed for bankruptcy last month after management shuffles, firings and debt restructuring failed to combat falling book sales and competition from Amazon and Wal-Mart. It pledged to shutter about a third of its stores. <Bloomberg>

Hedgeye Retail’s Take: Creditors have recently rallied for BGP, but the downward thrust of this business has it heading inevitably South.


Carven Opens First Store Having in four seasons resuscitated dormant French fashion house Carven, designer Guillaume Henry now holds the keys to the brand’s first women’s wear store under his tenure, at 36 Rue Saint Sulpice on the Left Bank here. Its doors open today.  The boutique, once the spot of a 19th-century brothel, has had numerous lives before becoming a Carven store. “I stumbled across this boutique by chance and thought, this is perfectly situated in the heart of Saint Germain and opposite the Saint Sulpice church,” said Henry. Eric Chevallier — who is also responsible for visual merchandising at Paris’ concept store Colette — was called in to design the Carven space. “I wanted to use all the codes that are emblematic of Paris daily life,” he explained, while standing with Henry in the pristine, home-like 800-square-foot store.  <WWD>

Hedgeye Retail’s Take: Best known stateside as one of the featured brands at Barneys’ stores this season, selling the brand’s fragrance license last year was probably the right move in hindsight enabling management to focus on continuing to build brand momentum.


EU Law Could Choke E-Commerce Startups - It's an old story in Europe: ham-fisted regulation stunting growth and innovation. This time it's new legislation that could affect the e-commerce industry. A proposed EU directive will  change online return policies, which could end up hurting ecommerce startups. The bill is not yet final, with many more steps before eventual passage in June, but here's where it stands today: Customers would get 14 days, instead of 7 days currently in most European countries, to return goods, with a further 14 days to send them back. Crucially, the merchant would have to give customers a full refund even before receiving the goods to ensure they're not damaged.  For any order over 40 euros, the merchant would have to offer free returns. Merchants would have to offer shipping and free returns across all European countries. The law would hammer e-commerce startups' margins and raise prices. <BusinessInsider>

Hedgeye Retail’s Take: Clearly an effort to maintain the highly fragmented nature of European markets – this regulation would debilitate retailer’s profitability in the e-commerce channel. In addition to the swallowing the shipping cost – a factor many domestic retailers are coping with – the full refund before receipt policy would require added staff and costs to recover returns that been damaged or used in the process.