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March 30, 2011






  • In another example of retailers beginning to shift towards Central American countries for production, Steve Madden’s management reiterated that they expect roughly 25% of their women’s shoe line to come from Mexico this year. From a competitive standpoint, modestly higher costs are offset by both the absence of a duty and faster turnaround.
  • According to a recent filing, Blockbuster indicated it would be closing another 186 stores by the end of the month, bringing the current tally to 1,145 since filing for bankruptcy protection back in September. The current tally accounts for nearly 1/3 of the retailer’s original store base -- significantly exceeding the original estimate of 500-800. In addition to shuttered Movie Gallery locations, Blockbuster stores represent one of the primary sources for additional door expansion at HIBB.
  • With top-line growth in both Tommy Bahama and Lilly Pulitzer driven by strength in direct-to-consumer, it’s worth noting that e-commerce represents 6% and over 10% of each brand’s total volume respectively. For smaller brands like these, higher than average exposure to the DTC sales channel should drive above average growth. 
  • Let’s not look past this EBay Deal for GSI Commerce.  While it may not be a retail landscape-changer, it is certainly relevant. Here’s a few thoughts… 
      • GSIC owns Rue La La – one of the most successful ‘exclusive flash-fashion’ sites out there.
      • But while the headline sounds like Rue La La is the crown jewel, the reality is that EBAY is divesting 70% of it along with GSIC’s sports merchandise operation, and Shoprunner (GSIC’s e-commerce retail aggregator). 
      • Why? This deal is all about strengthening the company’s fulfillment and customer service operations and hopefully narrowing the gap with Amazon.
      • While Amazon has partnered with retailers and brands to fulfill their e-commerce businesses (check out Amazon Prime…there are thousands of examples), with the biggest being Target, EBay is nowhere on the map. With this deal, it automatically includes a customer list including Polo, Donna Karan, Levi, Aeropostale, and Dick’s Sporting Goods.



Vietnamese Industry supports EC removal of footwear tariffs - Vietnam’s Foreign Ministry spokesperson welcomes the decision of the European Commission (EC) to lift anti-dumping tariffs on Vietnamese leather-capped shoes, according to Vietnam Business News. Nguyen Phuong Nga has recently made the comment at a regular meeting of the Foreign Ministry in Hanoi, saying “The EC decision to remove the anti-dumping tariffs levied on Vietnamese leather-capped shoes from March 31, 2011 is suitable to real production and exports in Vietnam”. <FashionNetAsia>

Hedgeye Retail’s Take: This is commonsensical, but the end of a 5-year anti-dumping duty couldn’t have come at a better time for branded footwear manufacturers and retailers alike. For domestic companies with exposure to Europe like TBL, these duties have accounted for as much as a 100bps operating margin drag in the past. We suspect any margin contribution realized from the move will be used to offset current cost inflation and pricing pressures.


Kohl's to Open Distribution Center - Kohl's Corp. plans to open a distribution center in July in Maryland that will create about 1,200 jobs over the next three years. The department store operator said Tuesday that the Edgewood, Md., facility will fulfill online orders. It anticipates hiring more than 200 full- and part-time employees when the center opens in July. Kohl's reports that its online revenue climbed more than 50 percent last year. The Menomonee Falls, Wis., company anticipates $1 billion in online sales in 2011. Kohl's will have a total of 12 distribution centers across the U.S. with the addition of the Maryland facility. This will be its third distribution center focused on serving online customers, with other locations in San Bernardino, Calif., and Monroe, Ohio. <BusinessWeek>

Hedgeye Retail’s Take: With e-commerce accounting for roughly 25% of KSS’ top-line growth last year, this move should be no surprise. According to the release, the company expects to continue a substantial ramp in online sales with plans to expand capacity at the facility by nearly 2x in 2012.


Levi's will Pay $1 Million in Back Wages - Levi Strauss & Co. has agreed to pay more than $1 million in overtime back wages to 596 employees after the U.S. Department of Labor turned up wage and hour violations. The Labor Department Wage & Hour division’s San Francisco district office said it conducted a two-year investigation and found that Levi’s misclassified several groups of workers in the company’s U.S. stores, including assistant store managers at newly acquired stores, exempting them from overtime. The agency said Levi’s failed to record all hours employees worked in its payroll system. “Instead, the misclassified assistant store managers were required to work off-the-clock during late-night closings, early morning openings and staffing shortages,” the agency said. In addition to the assistant store managers, several administrative employees working at the company’s headquarters were also misclassified as exempt from the Fair Labor Standards Act and owed overtime, according to the Labor Department. As part of the agreement with the DOL, Levi’s has agreed to pay the back wages and made a commitment to upgrade its time and attendance system.  <WWD>

Hedgeye Retail’s Take: This amounts to about $1,675 per person.  The reality is that we’ve seen lawsuits related to overtime ‘oversights’ like this across all types industries over the last several years – perhaps the most high profile was Wal-Mart’s $86mm settlement last year.


Japan's Amaterrace to Develop Custom eVent Fabrications - GE’s award-winning eVent membrane technology will be paired with Amaterrace’s proprietary knowledge of lamination to create several new air-permeable fabrics never before seen in the outdoor industry. “Together with Amaterrace, we’re using GE membranes to create air-permeable windproof softshells and fleeces, woven-backed hardshells and windproof air permeable shells and liners,” said Glenn Crowther, product line leader for performance fabrics at GE. “Amaterrace has been instrumental in developing these ranges and we’re proud that GE’s membrane technology is a part of that. These are new-to-world, high performance laminates.” Amaterrace, based in Osaka, Japan, supplies Japanese smart fabrics and laminations to outdoor clients both in Japan and around the world. The company, founded in 2003, uses cutting-edge techniques and materials to create custom made or demand oriented waterproof/breathable and high performance fabrics with one of the best task force PT (production teams) in Japanese textile industries. <SportsOneSource>

Hedgeye Retail’s Take: Innovation continues in the space. While it sounds similar to Columbia’s OutDry technology that was acquired last year, COLM already has product in stores and on shelves. All we need is for a small, cool edgy brand to pick up the technology, come up with a hard-hitting marketing campaign, and clean-up.  Yes, this is what UnderArmour did.


L.A. Stores Affected as Economy Bites - The retail map here has been completely redrawn as multiline boutiques and stores from small labels have disappeared. With retail nationwide exhibiting signs of health as the recession eases, the comparable weakness of Southern California specialty stores has been remarkable for its persistence and its ability to hobble even stalwarts of the shopping scene. Blue Bee, the former Santa Barbara touchstone that once had six stores lining State Street before unceremoniously closing earlier this month, and iconic Los Angeles retailer Lisa Kline, which has gone from four stores to soon consolidating into a single men’s location on Robertson Boulevard, are the latest postscripts on this prolonged period of local retail decay that has sparked questions about the future of stores vital to cultivating the SoCal style that’s been exported around the world. <WWD>

Hedgeye Retail’s Take: Interesting to see these callouts. This is not  the bottom, however. No change here unfortunately with continued weakness in southern California echoed by Oxford Industry on last night’s call highlighting persistent challenges for the company’s Tommy Bahama business.


TPP Pact Negotiations at Critical Stage  - The Trans-Pacific Partnership trade negotiations are hitting a critical stage and the fashion industry is gearing up for a contentious battle in a high-stakes game of trade that will impact billions of dollars in commerce. The Obama administration is holding the sixth round of negotiations with eight other countries this week in Singapore in an ambitious effort to create a free trade area in the Asia-Pacific region with Vietnam, Singapore, Australia, Peru, Brunei, New Zealand, Chile and Malaysia. With the goal of completing a framework agreement by the next APEC meeting in Honolulu in November, negotiators are closing in on important areas that will have a direct impact on the fashion industry. Among the key issues to be determined are a textile rule of origin, a possible separate textile chapter, a tariff phaseout schedule on textile imports, and “cumulation,” which would allow apparel to be produced and textile inputs to be supplied and manufactured within any of the TPP partner countries and still receive duty free treatment. <WWD>

Hedgeye Retail’s Take: The government’s position in establishing a framework with domestic companies to look to countries in Central and South America as alternative production sources is gaining strength.