R3: REQUIRED RETAIL READING
April 12, 2011
RESEARCH ANECDOTES
- After looking to sell Gold Toe-Moretz for more than a year, the $350mm takeout by Gildan appears to have come at the 11th hour for Blackstone. Reports suggest that as of last year the company had debt of $345mm. While the deal price was well below suggested interest at $450mm, the deal importantly enables Blackstone to pay off its lenders. After negotiating its third wavier with creditors just weeks ago, details of the deal reveal just how close this one was.
- Joes Jeans provided the latest insight into the premium denim market on its earnings call noting a pickup in spring and summer sell-throughs compared to the end of 2010. In addition, the company highlighted continued demand for both skinny jean variations as well as new super-stretch fabric. On the contrary, the legging trend appears to have clearly come and gone resulting in negative sales growth in the quarter (-9%), excluding leggings sales were up +4%.
- Expect to hear more about Crailar in the coming months as a leading alternative to cotton and one that Hanesbrands will be introducing around Q3 in up to as much as 20% of certain products. Produced by Naturally Advanced Technologies, the new fiber is derived from flax seed byproduct. With only 200 acres planted set to be harvested this spring, supply is likely to be the gaiting factor to Crailar’s adoption rate as apparel manufacturers continue to seek cotton alternatives.
OUR TAKE ON OVERNIGHT NEWS
Wal-Mart Merchandise Goes Back to Basics - Wal-Mart Stores Inc. will launch a promotional campaign next month called "It's Back," to tell core customers the discounter is restoring merchandise it removed from store shelves in a flubbed renovation effort. Starting in May, Wal-Mart shoppers in the U.S. will see signs in stores heralding the return of fishing tackle, bolts of fabric and other "heritage" merchandise that Wal-Mart reduced or cut out altogether as it attempted to spruce up its stores to appeal to more well-heeled shoppers. That strategy failed, and the Bentonville, Ark., retail giant now is pursuing a back-to-basics strategy to reverse the company's fortunes after seven consecutive quarters of sales declines at U.S. stores open at least a year. "Some of these products were very important to our customers, particularly in rural areas, and they let us know they wanted them back," said Duncan Mac Naughton, the former chief merchandising officer of Wal-Mart's Canadian business, who was put in charge of U.S. merchandising in January. "We heard them, and they are going to notice a difference soon." <WallstreetJournal>
Hedgeye Retail’s Take: This is really not new, as the ‘back to basics’ theme has been well-telegraphed. But make no mistake, 7% of all retail sales transactions occur at a Wal-Mart. They’re heading ‘back to basics’ and driving prices incrementally lower at a time when costs are inflating. The implications for Wal-Mart’s supply chain and competitive set are obvious.
Sears to Roll Out Beauty to Key Stores - Sears is getting serious about beauty. The retailer said Monday it plans to reenter the beauty arena with full-fledged departments in 100 of its busier stores over the next several months. And while department store beauty is a competitive world, Sears’ move comes just in time according to a number of industry observers who assert the market is ripe for presenting drugstore-type beauty brands in mall anchors. The new beauty departments began rolling out in March, said one supplier carried within the store-in-store concept; initially the rollout had been planned for January. The beauty centers stock established drugstore beauty brands such as L’Oréal, Cover Girl, Maybelline, Revlon and Physicians Formula, as well as skin care, fragrance and nail care items. But there are also masstige-type brands such as Ahava, Lumene, Dermalogica, Burt’s Bees and StriVectin, said industry sources. <WWD>
Hedgeye Retail’s Take: Known more for its appliances than cosmetics, the strategy is notable here. We’ve seen some department stores reduce cosmetics counters and staff in recent months, but this is more direct move towards self-serve drugstore type product. In addition to announcing a collaboration with the Kardashian sisters among other fashion upgrades in recent months, Sears is clearly ramping efforts to drive the women’s business.
Reebok Reorganizes Marketing Functions - Reebok announced a major restructuring of its global brand marketing group, developing strategic business units to manage the company's categories, according to an internal memo obtained by SportsOneSource. Michelle Moorehead was named to the new role of head of brand strategy and marketing operations, Martina Jahrbacher was promoted to head of women's sport SBU, and Chris Froio was appointed head of fitness. Most recently, Moorehead spent two years in a general management role leading the Nike Kids business. Reebok indicated that in the coming months it will be forming a Kids SBU and hiring someone to oversee that part the business. The person leading the Kids SBU will report directly to Moorehead. Moorehead also spent three years as vice president, strategy and performance management for Target Corp. She also worked as a consultant for McKinsey & Co., where she led projects across a variety of functions and industries with a primary focus on strategy, marketing and e-commerce in retail industries. <SportsOneSource>
Hedgeye Retail’s Take: This is a big job for Moorehead. Past stints in strat planning at Target, Nike, and then over to the Kids Brand side at Nike is definitely a nice trajectors. But head of brand strategy and marketing operations for all of Reebok? Not insurmountable, but definitely a big step.
PacSun Unveils New Ad Campaign - Pacific Sunwear of California Inc. is amplifying its turnaround efforts with advertising might. The struggling Anaheim, Calif.-based company is taking to television, the Web, mobile phones, print publications and in-store displays with “Dress Irresponsibly,” a new ad campaign spotlighting branded merchandise available at PacSun from the likes of Fox, Hurley, Billabong and Volcom to connect with young customers by raising awareness of its fashion offerings. The campaign marks a transformation of PacSun’s marketing strategy from relying principally on in-store content to an expansive multimedia buy in order to recharge PacSun, which has been dragged down by same-store sales declines (negative 7 percent in the fourth quarter last year, the most recent reported) and a sales per square foot slide from $350 in fiscal year 2007 to $258 in 2010. “By showcasing the best brands…we are furthering PacSun’s 30-year leadership position with our core enthusiasts and at the same time bringing in new customers to our world of authentic California lifestyle,” said PacSun chief executive officer Gary Schoenfeld. “ ‘Dress Irresponsibly’ is about enjoying life, friends and embracing one’s own sense of style.” <WWD>
Hedgeye Retail’s Take: At least PSUN is spending their way into a potential solution instead of simply cutting costs. Who knows if this will work, but we’ll give credit where it’s due.
Hawaii Joins the Online Tax Fight - Hawaii lawmakers are trying to collect taxes owed on items sold over the Internet. The Honolulu Star-Advertiser reported Monday that a bill pending in the House would give online retailers like Amazon.com a choice of either paying a 4 percent general excise tax on sales from state consumers, or handing over customer information so tax collectors can track down the money owed. Consumers are supposed to pay a 4 percent use tax on out-of-state purchases, but few customers do so, and the state has no practical way to enforce the law. Hawaii could be losing an estimated $30 million in online sales taxes. <GreenfieldReporter>
Hedgeye Retail’s Take: This continues to gain momentum, and the pressure will lead to an inevitable on-line tax. It’s just a matter of time.
Strategies that Encourage Engagement on Facebook - Companies that post content on their Facebook pages outside normal business hours see engagement rates that are 20% higher than average, according to new data from Facebook marketing software company Buddy Media. Buddy Media analyzed the Facebook posts and engagement rates for more than 200 clients over the course of two weeks in January and February 2010. The agency measured engagement by looking at comments and “likes,” and factored in fanbase size. According to Buddy Media, 60% of posts were published between 10am and 4pm. However, many Facebook users prefer to log on to the site before or after work, and their engagement with company posts is higher during those times. By timing content to post when consumers are poised to be on Facebook, companies have a greater chance of being seen in a fan’s newsfeed. Additionally, the study found that engagement rates are 18% higher on Thursday and Friday than the other days of the week. <Emarketer>
Hedgeye Retail’s Take: Counter-intuitive from a business perspective, but an important detail in connecting with the consumer. The real call out here is the simple reminder that shorter is better per the stats below.
HauteLook Lures Members with Facebook Ads - There is a sharp difference between ads on Facebook and those on Google, says Greg Bettinelli, HauteLook’s senior vice president, marketing. Search engine ads respond to a customer’s intent—for instance, serving up a “Kate Spade Handbags” ad when a consumer searches for a “Kate Spade Green Purse”—while Facebook ads are more about discovery. “People aren’t looking for something specific on Facebook,” he says. “That means you have to find a way to be relevant to them.” For HauteLook, No. 191 in the Internet Retailer Top 500 Guide, that means serving up interesting content in each ad, such as inviting consumers to a private sale that takes place on the social network. And because of Facebook’s vast amount of data, provided by consumers supplying their demographic information and preferences for specific retailers, products and activities, a marketer can market with precision to particular consumer groups. <InternetRetailer>
Hedgeye Retail’s Take: Same store sales are a key metric for any business, but so are new client wins – a brick and mortar adage for a key difference in online advertising. While Google’s search feature may provide smaller companies more bang for the buck, Facebook enables more mature companies an avenue to drive new business albeit at what we would expect to be at a lower hit rate.