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April 18, 2011






  • Effective April 1, toymaker Mattel implemented a high single-digit price increase globally in an effort to offset inflationary input costs that can’t be mitigated through internal cost reductions. In a sign that discussions between product manufacturers and retailers are starting to get increasingly more stressed, the company highlighted that while they would not categorize retailers as “receptive” they have been “understanding” of the cost-justified increases as many make their own private label toys and are therefore intimately aware of the pressures at play.
  • Despite a mid-to-high teen price increase for its fall merchandise, Christopher & Banks expects average ticket prices to remain below other peer specialty stores. In an effort to offset declining average transaction values, the company noted after a successful initial test of its three outlet stores in fiscal 2011, it will be opening 22 new outlets in F12 in order to drive higher traffic and productivity.
  • A recent study on the most popular brands in China from Bejing-based consultancy firm R3 revealed that most of the Top 50 brands were imported. Two notable callouts among the Top 10 were Nike and Li-Ning coming in at #3 and #5 respectively. On the contrary, the absence of apparel brands at the top reflects the lack of popular Western brands impact among Chinese consumers.



Coach mulls listing in HK - US-based fashion accessories brand Coach Inc is considering listing on the Hong Kong Stock Exchange to help the company boost its brand awareness in the mainland Chinese market, sources reported. The company is currently in initial talks with investment banks on the deal. Currently, Coach operates 56 stores in the Chinese market, which contributes about 5% of the company's total revenue. The company expects the figure to rise to 10% in 2014. It was reported that the New York-headquartered company plans to open 25 stores in China during fiscal year ended June 2011. <FashionNetAsia>  

Hedgeye Retail’s Take: This would be an unorthodox move. We’ve seen plenty of foreign-based companies listing on U.S. exchanges to broaden investor exposure, but a U.S. based company listing on the Hong Kong exchange seems a bit premature. With only 5% of sales derived in China there’s little to gain here from a tax perspective (even at 10%) and with net cash on the balance sheet the opportunity for cheap financing is certainly not driving the decision here. Building brand awareness is waaay down on the a long list of reasons for why company’s decide on a dual listing – in fact, it’s the first time we’ve seen it.


Adidas Unveils Extra-Light Basketball Shoe - Adidas is gearing up for the grand finale of the NBA season. The Herzogenaurach, Germany-based athletic company launched its newest and lightest basketball shoe, called the Adizero Crazy Light, in New York on Thursday. Debuting nationally this weekend, the sneaker will be worn by brand endorsers Derrick Rose and Dwight Howard during round one of the NBA playoffs, and it will hit retail stores on June 3. Four colorways — in bright-blue, red, black and tonal gray — debut first, and six more come out throughout September. The retail price is $130. “We’ve been planning this for 12 to 18 months, and we thought about it carefully,” Lawrence Norman, VP of global basketball for Adidas, said about the timing of the launch. “So leading into the NBA finals, what better time to launch a basketball shoe than when all eyes are on basketball.” Weighing in at 9.8 ounces, the Crazy Light is touted as the lightest shoe in the category, which is a major selling point for the target consumer: 14- to 19-year-olds. “The shoe speaks to lightweight, the colors are graphically loud and completely young and relevant,” said product marketing manager Jack Gray. <WWD>

Hedgeye Retail’s Take: The lightweight trend continues to gain momentum and not just in running. A win-win for both manufacturers (lower cost and shorter lead timed) and consumers (comfort, cost, and ‘social responsibility’), brands are now in a stiff competition to raise the bar by reducing fractional ounces. This trend is clearly a key driver of the latest innovation to hit the space – expect much more to come in this regard.

R3: COH, ADI, MAT, Groupon, RL - R3 4 18 14

Groupon IPO may Value Company at $15-$20Bn - Groupon could raise as much as $1 billion in the IPO, which could come in the second half of 2011, although the exact size had not yet been determined, said the source, who was not authorized to speak to the media.The source cautioned that the size of the IPO and the market value of the company were not final and could change.The possible market value was first reported by the Wall Street Journal, which also said that JPMorgan Chase & Co was expected to have a co-manager role. Groupon was not immediately available for comment.The multibillion-dollar valuation is the latest in a string of high valuations for hot Internet companies including Facebook and Twitter, and raises questions about how these companies, albeit fast-growing, could ever justify the sky-high valuations. Groupon said it has been profitable since June 2009, but does not disclose financial information.<Reuters>

Hedgeye Retail’s Take: Like all good young  growing companies, Groupon has succeeded so far in making Google’s reported $6Bn bid back in the summer of ’10 look undervalued. As for all these high profile internet companies looking to go public around the same time – who said there isn’t power in numbers? That said, the underwriters could leak out any number they please at this point – and they’re probably not lowballing. Making us all talk about a $20bn valuation is the best way to make it happen. Nothing attracts a crowd like a crowd.


Victoria’s Secret is Winning the Popularity Contest for e-Commerce - Engaging shoppers with videos, photos and special offers seems to be enticing consumers to Like Victoria’s Secret and its Pink brand for young women. The two were the most Liked retail brands on Facebook in March with 12.1 million and 8.4 million followers, respectively, according to the ChannelAdvisor Facebook Commerce Index. The index tracks the number of Likes gained by each of more than 500 brands at the end of each month. “Victoria’s Secret is a popular brand that does a lot with Facebook at all its different touch points—catalog, online and in store,” says Scot Wingo, CEO of ChannelAdvisor, a firm that helps retailers sell through online marketplaces such as Amazon and eBay as well as comparison shopping sites. “They’re clearly focused on it.” <InternetRetailer>

Hedgeye Retail’s Take: We’d venture a guess that the demographic study here isn’t nearly as female centric as many would assume. That said, with over 8% of revenues derived from e-commerce, The Limited continues to boast one of higher rates in retail reflecting its focus on the channel.


Strategizes to Battle Inflation - The squeeze is definitely coming. Retail apparel prices may have fallen last month, according to the U.S. Labor Department’s Consumer Price Index, but that’s only a temporary lull. The real crunch is expected to begin in back-to-school and fall merchandise, when the pressure from rising raw material and fuel costs is expected to become too much to bear and retailers will at last have to pass on some of those increases to consumers. But retailers aren’t taking those inflationary pressures lying down. According to a study by AlixPartners, stores can mitigate the effects of higher prices for everything from cotton to gasoline by increasing long-range booking of materials and reducing product complexity, among other tools, as they look to minimize the negative impact of sticker shock when consumers start looking to spruce up their wardrobes for fall. According to the AlixPartners study, apparel inflation is averaging 17.4 percent for most retailers, with some seeing increases as high as 30 percent. Even employing some of the strategies available, more than 40 percent of firms could put themselves at a competitive disadvantage later this year. <WWD>

Hedgeye Retail’s Take: Consistent with some of the anecdotes above, the ‘value’ proposition will become an increasingly popular topic over the coming quarters for retailers – one that smaller players will struggle to keep pace with.


Will Higher Gas Prices Curb Spending? - As the spring season kicks into high gear, retailers are facing a new roadblock: significantly higher gas prices. In a Deloitte survey released last week, 71 percent of consumers said the uptick could cause them to curtail spending in the coming months, leaving storeowners uncertain about how business will play out this summer.  “People are aware of it and that it will change shopping patterns in regard to how often we may see a customer,” said Mark Waldman, president of St. Louis-based Laurie’s Shoe Center. “They may come in less often, but hopefully they’ll be buying more.” With gas prices in St. Louis averaging $3.67 at press time and expected to escalate, Waldman predicted the crunch will hit his middle-class shoppers the hardest.  “If a customer is spending so much on gas each week, there’s going to be an immediate emotional response,” he said. “But the consumer who’s used to better-grade products will probably continue to buy them, just not at the same frequency.”Higher costs at the pump — and rising fuel prices in general — are an added worry for footwear firms in an inflationary environment. <WWD>

Hedgeye Retail’s Take:  Note that consumers plan their spending on a sequential basis, not year/year. The slightest downward tick sequentially is magnified when compared to last year – which, of course, are the numbers we see in companies’ financials.


E-mail Security Breach Ensnares Polo, Others - Polo Ralph Lauren Corp. was among numerous companies affected by a massive e-mail breach at Epsilon, the Irving, Tex.-based multichannel marketing services firm. Epsilon, which sends 40 billion e-mails annually on behalf of more than 2,500 clients, said customer information from 2 percent of its clients was compromised in a data breach, which was detected March 30. The information that was obtained was limited to e-mail addresses and/or customer names only. An assessment showed that no other personal identifiable information was at risk. A spokeswoman for Epsilon said she couldn’t comment further while the company conducts an investigation and cooperates with authorities. According to security experts, the breach could result in an onslaught of phishing attacks — e-mails that purport to be from a legitimate business but are used to steal information such as passwords, account numbers and credit card information. <WWD>

Hedgeye Retail’s Take: Be careful who you hop in bed with. This is why RL took its ecommerce business in-house – to control its direction and grow it profitably. But in staying partnered with someone for email distribution the risk remained.  If you want it done right, do it yourself…


Wal-Mart Settles Slur Suit - Wal-Mart Stores Inc. has agreed to pay $440,000 to settle a lawsuit by the U.S. Equal Employment Opportunity Commission on behalf of Mexican immigrant workers at a California Sam's Club who claimed they were harassed about their national origin by a Mexican-American colleague. The EEOC lawsuit claimed that at least nine employees of Mexican descent, along with another worker married to a Mexican, endured ethnic slurs and derogatory remarks by a colleague. The agency said the "near daily" insults included remarks that Mexicans were only good for cleaning homes. It said they were reported to superiors at the Sam's Club near Fresno in April 2006 yet went unchecked for months. <WallStreetJournal>

Hedgeye Retail’s Take: This suit is small potatoes to the pending class action suit regarding Women being underrepresented in Management roles at Wal*Mart stores. If you see anything hit the tape about that one, then it means 2 things 1) there will be a cash flow event, and 2) the company will avoid a public precedent that will require it to change its human resource practices.