R3: REQUIRED RETAIL READING
March 31, 2011
- The continued shift towards consumables at Family Dollar continues to be one of the primary contributors to both strong traffic and comp performance of late. While absolute inventory levels are on the rise, we view less exposure to and dependence on discretionary sales as a positive for top-line growth – a trend that’s important given the lower margins related with the category.
- In a case that sounds eerily akin to American Apparel’s corporate culture, Marc Jacobs President Robert Duffy is being sued by the company’s former COO for producing a ‘yearbook’ of staff in the buff and forcing an employee to pole dance amongst other things. One of the unfortunate realities of a high unemployment rate is the level of antics like this and just how long they persist before an employee is forced to stand up and do the right thing.
- When asked about the company’s unit growth strategy through year-end, Macy’s CEO Lundgren offered a varied outlook – a decline in the company’s Every Day Value business with planned increases in the International Concepts brand due to increased demand for the line even in the face of higher prices.
OUR TAKE ON OVERNIGHT NEWS
Prada File for IPO on Hong Kong Exchange - Prada SpA, the Italian maker of Miu Miu bags and Church’s shoes, submitted an application to the Hong Kong exchange to hold an initial public offering in the city by July, said two people familiar with the company. The planned sale may give the company a valuation of about $10.7 billion excluding debt, said one of the people, who declined to be identified because the matter is private. Prada made the IPO filing yesterday, the people said. Prada, based in Milan, follows European brand-name companies including L’Occitane International SA (973) in selling shares in Hong Kong, where IPOs reached a record last year. The city is a popular luxury-shopping destination for tourists from China, which allowed individual travel to Hong Kong in 2003. Intesa Sanpaolo SpA (ISP), Credit Agricole SA’s CLSA Asia-Pacific Markets, Goldman Sachs Group Inc. (GS) and UniCredit SpA (UCG) are managing the IPO. Sally Kwong, a Prada spokeswoman in Hong Kong, declined to comment. <Bloomberg>
Hedgeye Retail’s Take: Just days after posting record profits, the luxury retailer has finally filed its long awaited IPO papers in Hong Kong with aspirations to float this summer. While hardly a surprise, the papers are not definitive until the deal is complete. As you may recall, this process has been delayed on three separate occasions over the last 10-years.
Gap Opens a Chinese Web Store - Gap Inc. is selling online in China. This morning, Gap, No. 23 in the Internet Retailer Top 500 Guide opened an online store on Taobao Mall, one of China’s biggest business-to-consumer e-commerce marketplaces. Gap, which late last year opened Gap bricks-and-mortar stores in Shanghai and Beijing, initially will use its web store on Taobao.com to sell merchandise from its Gap, Baby Gap and Gap Kids brands, the retailer says. Taobao reaches 370 million registered users, Gap says. Taobao also receives more than 50 million unique visitors daily and features more than 800 million individual product listings. “Given China is the cornerstone of Gap Inc’s global growth strategy, we believe that partnering with Taobao, with its phenomenal reach all throughout the country, is an important next step as we build on the success we’ve seen so far with our store openings and e-commerce offering,” says Redmond Yeung, president of Gap China. <InternetRetailer>
Hedgeye Retail’s Take: Even more cost effective than partnering with local franchisees, selling through one of the country’s more popular web portals will help grow brand awareness ahead of future owned retail expansion. Given the company’s success selling through the e-commerce channel domestically, this is a no brainer – particularly with the number of stores in China growing from 4 to 12-15 this year.
Fed Says Credit Card Swipe Fee Regulations Will be Ready by Summer - Federal Reserve Chairman Ben Bernanke assured Congress Tuesday that the agency is on track to implement swipe fee reform regulations by summer that will save retailers an estimated $1 billion in fees. “Retailers want to begin passing on swipe fee savings to their customers as soon as possible, and today’s announcement means those plans will be able to move forward as planned despite the anti-consumer efforts of some in Congress,” NRF Senior Vice President and General Counsel Mallory Duncan said. “The Fed has received thousands of comments on this proposal and it is appropriate for that input to be carefully and thoroughly reviewed. If they take a few extra weeks, we understand.” “The banking industry and some in Congress want to delay swipe fee reform for as long as two years, but Chairman Bernanke has made it clear that the Fed doesn’t need a delay in implementation,” Duncan said. “Congress held seven hearings and ordered two GAO studies of swipe fees before enacting this law last year. Congress has made its decision and should allow the Fed to complete its work. Delay beyond this summer’s deadline would amount to a $1 billion-a-month bailout for big banks.” <SportsOneSource>
Hedgeye Retail’s Take: This regulation comes at a critical time for retailers just as input costs ramp into the back half. The question remains whether retailers will choose to enhance overall margins with the potential savings or put the cost savings back into price.
Disparity Between Advertising Dollars and Usage - Despite the projection that online advertising will increase its share of US major media ad spending by more than 10 percentage points between 2009 and 2015, spending on digital, including internet and mobile, has not yet risen to match consumption patterns, eMarketer estimates. Among the major media of television, internet, radio, mobile, newspapers and magazines, US adults still spend the most time each day with TV. eMarketer estimates adults watched television for 42.9% of the time they spent each day with those media in 2010, and ad dollars align closely, at 42.7%. The internet, by contrast, took up 25.2% of adults’ daily media time in 2010, but received just 18.7% of US ad spending.
Hedgeye Retail’s Take: Legacy media is still getting over 25% of all ad dollar spend despite accounting for only 8% of where consumers spend their time. An even greater disconnect exists in mobile accounting for less than 1% of spend despite 8% of time spent. Our sense is that translation issues such as flash compatibility, text sizing, etc. play a key factor here, but don’t expect this spread to last for much longer as retailers commit to greater mobile visibility.