R3: WMT, GOOG, Luxury Brands, & Premium Denim

 

R3: REQUIRED RETAIL READING

 

May 10, 2011

 

     

OUR TAKE ON OVERNIGHT NEWS  

 

Wal-Mart's Africa Foothold Shaky as Job Worries Mount - The South African government warned that Wal-Mart Stores Inc.'s $2.4 billion proposed acquisition of African retailer Massmart Holdings Ltd. could cause thousands of job losses and worsen labor conditions, throwing cold water on one of the country's biggest potential overseas investments. The warning Monday came in an official report submitted to the Competition Tribunal of South Africa, an independent body that will approve or reject the deal. Local unions have opposed the proposed deal because of concerns about job losses. Wal-Mart's proposed acquisition of Massmart marks its first foray into the growing sub-Saharan market. Africa's prospects have proved alluring for the world's largest retailer, which plans to use the South African discount retailer as a foothold for continental expansion. <WallStreetJournal>

Hedgeye Retail’s Take: It’s hard to ignore the continent’s population of 1 Billion customers, but acquiring Africa’s third largest retailer presents discrete political risks to Wal-Mart unlike any it’s had to navigate before. While the bidding process continues to unfold in Africa, we suspect the company will remain more focused on growth in more developed countries.  

 

Google Music Service will Take on Amazon and Apple - Google will unveil details of its long-awaited music service on Tuesday in the battle with Amazon and Apple for the next generation of portable listening. The cloud-based music player will allow users to upload and store their music on the internet and listen to it on Android phones or tablets and computers. A Google spokesman said: "We plan to announce Music Beta by Google at our Google I/O developer conference. Please tune in to Google I/O Live on Tuesday and Wednesday for more details on all the news."It is similar to a "digital music locker" service launched by Amazon, the Amazon Cloud Player, in March, and will rival Apple's iTunes by giving Android users an easy way to store and listen to their music collections. But Google, like Amazon, is not thought to have done any deals with major record labels, offering a streaming listening service rather than one in which users can share songs or download the files themselves. <Guardian>

Hedgeye Retail’s Take: Content is king here and while Amazon and Google are new entrants to the music space, they’re participating in a different game of sorts and one that’s more competitive given the lower barriers to entry.

  

Introducing “Bookish.com” - An informational and e-retail site for book lovers will debut this summer. Bookish.com is backed by three major publishing houses—Hachette Book Group, Penguin Group USA and Simon & Schuster—and will sell print and digital e-books from those publishers and others. In addition to e-commerce, the site will feature original editorial content about books and authors designed to help consumers find something to read. The site will feature multiple book genres and enable readers to recommend books to each other. The company says editorial content will remain independent. “Bookish enjoys the support of significant, established players in the publishing and online space,” says Paulo Lemgruber, Bookish’s CEO. “With our ability to leverage the knowledge of publishers, retailers and authors, Bookish is innately positioned to fuel people’s passion for books.” Lemgruber is a former senior vice president of digital and operations at cable company Comcast Corp. <InternetRetailer>  

Hedgeye Retail’s Take: Publishing houses looking to capture mindshare in e-commerce with a platform that provides editorial content is a solid move in an effort to remain relevant in light of the industry’s massive consumer vacuum that is the e-book revolution. Concerns over just how independent content might be are trumped by empowering user recommendations and therefore democratizing the rating system -a move that has proven highly successful for Facebook. Not only does this give publishers valuable input from it's customers, but it also establishes a platform from which they can promote product directly - win-win.

 

Palladium Expands From Footwear to Bags - Palladium has long been known for the company’s signature fold-over sneaker boot, which has served many as a sort of upgraded, more rugged Converse Chuck Taylor. The boots and sneakers are available in many different styles, but all retain a simplicity that is true to the brand. Palladium is now expanding to include a small line of bags in the collection, which also seem to maintain the rugged simplicity of the brand’s shoes.   <Digitaltrends>

Hedgeye Retail’s Take: A little known brand to most, K-Swiss acquired it back in 2008 and it’s quietly grown to account for ~15% of sales from less than 3%. The company is making a calculated move across its brands to grow the apparel component of its business. As we noted yesterday, with less than 8% of the company’s sales  derived from apparel, this is a substantial opportunity that we expect the company to grow at a measured pace consistent with how it’s approached this type of opportunity in the past.

  

Luxe Brands Lagging 2008 Ratings - Apparel brands have nearly regained their prerecession vibrancy, but despite the recent rally in high-end spending, luxury names still have a way to go before they get back to 2008 levels, according to the recent BrandZ Top 100 Most Valuable Global Brands study. The total value of apparel brands rose 10 percent compared with the results of the 2010 study, and are just 1 percent below their 2008 level. The value of luxe brands has been expanding more rapidly, growing 19 percent versus last year, but the well-heeled names are still worth 13 percent less than they were in 2008. The study was conducted by Millward Brown Optimor and attempts to determine the intrinsic value of a brand by estimating the sum of all its future earnings and discounting that figure to a present-day value. <WWD>  

Hedgeye Retail’s Take: Sure, luxury is still off its 2008 highs more than apparel, but with three iconic luxury brands (Burberry, Hermes, and Cartier) making the reports Top 20 Risers list this year posting an average brand value growth of 53% yy one could argue that luxury is making up ground quickly. Interestingly, only two brands among the Luxury categories Top 10 brands by value declined since last year, Gucci and Hennessy down -2% and -7% respectively.

  

Premium Denim Resurrected? - Get ready for the bounce. New denim silhouettes and washes are reinvigorating what many retailers described as a decelerating denim trend last year. According to denim vendors and retailers, as the economy improves, the female customer is coming back — and not just to replace the jeans she already has, but to add new, fashion-forward looks to her closet. “Business overall is doing much better than our retailers have planned, be it at department stores or specialty stores,” said Marc Crossman, president and chief executive of Joe’s Jeans Inc. “It really comes down to a magnitude shift…now there are some major trend changes that I think will have an impact on that mix shift.” New Sixties- and Seventies-inspired silhouettes, white jeans and special washes are pulling the category back to relevancy, which is helping to “reignite” the premium denim market, said Crossman, who noted that like his competitors, his company is adding newness with wide legs and flares available in “all flavors, be it fabric or washes.” <WWD>

Hedgeye Retail’s Take: Whether it be flared leg jeans for Joe’s, or a continuation of skinny and colored styles as highlighted by True Religion, the fact that there are new styles out there that the consumer is responding to in some regard is a clear positive in that we may have finally reached a point of stabilization in the premium category. Let’s not get carried away thinking that the $200 jean growth engine is back, but no longer declining is a close second on the margin.

 

China Footwear Imports to U.S. Slow - China is feeling the impact of rising labor costs as U.S. footwear firms shift sourcing to other countries. According to a report issue Monday by UBM Global Trade’s Journal of Commerce, China's share of footwear imports to the U.S. dropped to 73 percent in the first quarter of 2011, from 75 percent in the first quarter of 2010. And while U.S. foreign demand for footwear in 2010 grew 16 percent year-over-year, Vietnam and Indonesia saw higher rates of growth compared with China, indicating sourcing shifts to those markets, the study found. China's share of U.S. imports is also waning in the labor-intensive apparel categories. In menswear, it dropped to 22 percent in the first quarter of 2011, from 25 percent in the first quarter of 2010; while women's and infants' wear decreased to 31 percent from 34 percent. “The results of this analysis underline the change of trend direction in U.S. imports of footwear and apparel from China, from upward to flat to downward, as manufacturing firms flee the country on rising wages,” said Mario Moreno, economist for The Journal of Commerce. <WWD>

Hedgeye Retail’s Take: The speed of exit/shift has varied among brands, but the move in aggregate was has been well communicated for nearly a year now. While many remain focused on share shift in southeast Asia, brands are increasing activity and attention to Central and South America as new potential sources of production – something we expect to hear more about in 2011.