R3: REQUIRED RETAIL READING
May 9, 2011
RESEARCH ANECDOTES
- According to Millward Brown’s annual Brandz study that incorporates both economic factors and competitive dynamics to assess brand value, retail/apparel companies took 11 of the Top 100 in 2011. Amazon (formally categorized under tech) and Wal-Mart led the pack coming in at #14 and #15 respectively with all but Wal-Mart (-5%) growing in value year-over-year. Interestingly, Luxury was the third fastest growing sector in 2011 led by LVMH while Nike, H&M, and Zara rounded out the Top 3 in apparel, which landed at fifth. (here’s a copy of Millward Brown’s report).
- The first third of the K-Swiss management’s prepared commentary on Friday’s call was spent on the company’s recent marketing efforts – most notably its initiative featuring Jillian Michaels which kicked off in January and for good reason. This was the first quarter that Performance product (i.e. new innovation such as running etc.) overtook Lifestyle (includes legacy tennis white shoes) accounting for 43% compared to 33% of total sales respectively. In addition, not only has Tubes became a top seller at Lady Foot Locker, but the effort also includes an apparel line designed by Michaels, which presents substantial opportunity for the company with less than 8% of sales generated by apparel currently.
OUR TAKE ON OVERNIGHT NEWS
Gilt Groupe Raises $138 Million from Softbank and Others for Growth, Acquisitions -Gilt Groupe, the New York-based flash-sales site that offers discounts on apparel, travel, home decor and other categories, has raised a whopping $138 million in capital. Participants in the fifth round include Softbank Group, the Japanese-based telecom conglomerate, as well as Gilt’s previous investors, General Atlantic and Matrix Partners. Other new investors include: Goldman Sachs, New Enterprise Associates, Draper Fisher Jurvetson Growth, Pinnacle Ventures, Triple Point Capital and Eastward Capital. Softbank’s involvement is two-fold. Not only will it be contributing $62.5 million of the round, which will all be going towards Gilt’s U.S. operations, it will also invest a smaller undisclosed amount into Gilt Groupe Japan. The two companies will each own 50 percent of the joint venture. In all, Gilt has raised $240 million. The fifth round values the company at roughly $1 billion before the round is taken into account. The round was first reported in a regulatory filing last week. <Emoney>
Hedgeye Retail’s Take: Interesting…. A 5th round of financing is pretty big, and we’re definitely talking about some bigger numbers. Goldman is not buying into Gilt to own it in perpetuity. There will be a monetization event. But keep in mind that this business is not easily scalable – which is why it has ventured into so many categories. The Japan angle is interesting, as geographic expansion might be the meal ticket here given the absence of an opportunity to go deep in a category.
Online Retailer Amazon Repays Indiana Sales Tax Policy - Amazon.com is planning to open a third large distribution center with hundreds of jobs in tax-friendly Indiana, finding refuge from other states that have attempted to force the online retail giant to collect sales tax. Seattle-based Amazon is announcing today that it plans to open a 900,000-square-foot Internet order fulfillment center in Indianapolis this summer but gave few other details. It declined to disclose the facility's precise location. Company officials said the facility will create hundreds of jobs. That figure could go higher, considering that an existing Amazon fulfillment center in Whitestown has 1,200 full-time workers. Another in Plainfield opened with 350. Like the existing centers, the new Indianapolis facility is expected to hire hundreds of additional seasonal workers, particularly around the busy Christmas season. <Indystar>
Hedgeye Retail’s Take: The latest move in Amazon’s online tax charade, the retailer has found a shelter state after closing its DC in Texas back in February. Either way you look at it’s political. In this instance, its about jobs and a greater local presence by Amazon. That trumps internet sales tax in this instance.
Adidas Among Final Bidders for Acushnet Co. - Adidas AG and Blackstone Group LP are among the companies vying for Acushnet Co., Fortune Brands Inc.'s golf division that includes Titleist and FootJoy, sources told Bloomberg News. Offers are due May 9, and Fortune Brands may negotiate with multiple parties in the coming weeks, one source said. Sumitomo Rubber Industries Ltd., the owner of the Srixon golf ball line, also may submit a bid, one of the sources told Bloomberg. Fortune's sporting-goods business generated more than $1.2 billion in sales last year. <SportsOneSource>
Hedgeye Retail’s Take: This comes down to whether Adidas ‘could’ versus ‘should’ buy Acuschnet. They want it, as it would make them a force to be reckoned with in US golf when combined with Taylor Made. The price tag here is likely in the $800mm to $1Bn range (using EBITDA and Sales multiples). There will be other suitors, though the strong euro will help here. Most importantly, this would help Nike and UnderArmour, as it would tie up capital that Adidas would otherwise spend on growing its US business (and on sports market assets).
BCBG Looks to Refinance Debt - BCBG Max Azria Group Inc. is working to secure a new $230 million term loan to refinance a portion of its debt. Standard & Poor’s Friday gave the proposed senior secured first-lien term loan a rating of “B-minus.” The debt watchdog also raised BCBG’s corporate credit rating to “B-minus” from “CCC-plus.” The company’s current rating suggests that it has capacity to meet its obligations, but that adverse economic conditions might change that. BCBG has a $110 million first-lien term loan coming due in August that, if not refinanced, could impair the firm’s liquidity. The refinancing would extend repayment on the debt until 2015. “The ratings on BCBG reflect our belief that liquidity will improve to ‘less than adequate’ from ‘weak’ after the completion of the refinancing, with an extended maturity profile and adequate covenant headroom,” said S&P. <WWD>
Hedgeye Retail’s Take: Waiting a little late to refi debt due in August, huh? Anyone who might be interested in owning this brand should be sitting back and watching how this plays out. This might be an opportunistic buy.
Hampshire Sells Women's Business - Hampshire Group is getting out of the women’s business, freeing up resources for both acquisitions and its men’s wear operations in a bid to return to profitability. The New York-based firm, headed by chief executive officer Heath Golden, sold its Designers Originals, Mercer Street Studio and Hampshire Studio businesses to the LF USA division of Li & Fung and inked an agreement to sell its Item Eyes unit to KBL Group. The terms of the deals were not disclosed. “The plan is to get to profitability, and our women’s businesses were good businesses but difficult for us with our cost structure to really grow and do very well in,” Golden told WWD. “We had an opportunity to monetize them for good value and bring significant money back onto our balance sheet.”Hampshire’s losses from continuing operations widened last year to $9.7 million from $6 million in 2009, as sales fell 18.6 percent to $134.5 million. The company last turned a profit in 2007, when net income from continuing operations was $2.8 million. The company ended last year with cash and short-term investments of $33.7 million.<WWD>
Hedgeye Retail’s Take: If you can’t make money, then get out! These guys get it… Too bad they account for 0.0001% of the industry.
Barnes & Noble Plans to Launch a New e-reader - Barnes & Noble Inc. plans to launch a new e-book reader May 24, the company disclosed in a U.S. Securities and Exchange Commission filing this week. The bookseller already has two devices, the Nook and Nook Color. The Nook Color has a 7-inch touchscreen and retails at $249. The Nook, with a grayscale display, starts at $149. The retailer did not disclose whether this new device will be an additional e-reader or a replacement. A Barnes & Noble spokeswoman says the company will not comment beyond the single sentence announcing the planned launch in the filing. <InternetRetailer>
Hedgeye Retail’s Take: This product category might go down in history as one of the most rapidly commoditized categories.
Cotton Price Squeeze Goes On - The price of cotton per pound is at levels not seen since the Civil War and it doesn’t look like things will abate anytime soon. That was the message from Mark Messura, senior vice president of global marketing supply chain at Cotton Incorporated, who presented a cotton market analysis Wednesday at The Union League Club to industry executives. The event was sponsored by The Intimate Apparel Council, a division of the American Apparel and Footwear Association. “What’s going on in the cotton market is unprecedented,” said Messura. “A fundamental balance has tightened with exported crops nearly sold out worldwide, exported crops in China [the world’s largest cotton producer] close to sold out.…Ninety eight percent of U.S. cotton exports are already sold out on paper.…World production [of cotton] has dropped dramatically, by 40 percent, because farmers are planting more corn and soy crops. The real culprit is ethanol.” <WWD>
Hedgeye Retail’s Take: While Messura’s agenda is clearly biased, the argument is a fair one.
Getting Consumers to Buy In to Geolocation Apps - Many marketers find location-based services exciting because of the possibilities for local and loyalty-based initiatives, and the tech media lighted on check-in apps as a shiny new game. But the average consumer still has not found a real reason to check in—especially not one that overcomes their concerns about mobile privacy and security. Even knowledge of the apps has not reached many smartphone owners yet, according to digital marketing agency White Horse. A February 2011 survey of US smartphone users ages 14 and older found that fewer than three in five knew about location-based mobile apps, and just 39% used them. Even that level of awareness has likely risen significantly due to Facebook’s entrance into the market. Earlier market entrants foursquare and Gowalla have been quickly passed in usage by Facebook Places, which can be credited with introducing check-ins to the masses, if not leading to mass adoption.<eMarketer>
Hedgeye Retail’s Take: This is a really interesting call-out. We’re not sure what to make of it, other than mobile shopping has yet to catch on in a meaningful way. The companies who are investing in this today (and have been for years) will be the winners. We’ve got more work to do on that one.
