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May 18, 2011






  • Confirming the recent strength in strip centers, management of URBN highlighted that Anthropology and Urban Outfitters stores were strongest in lifestyle centers and both weakest in street locations. Mall performance on the other hand was mixed.  
  • An interesting similarity coming out of both Lowes and Home Depot is the strong performance in the kitchen category. While Lowes highlighted strong promotional activity as the key driver, Home Depot cited a greater emphasis on educating its associates as the primary driver of double-digit comps across most of the category, which it turns out drove 40% of increase in total ticket growth in the quarter.
  • In a sign that consumer demand for aspirational product (i.e. higher ticket items) is still alive and well in the sporting goods industry, DKS’ management highlighted that higher end running shoes and the new $400 TaylorMade R11 driver were among the best selling items in their respective categories.



New Balance Creates Comfort/Casual Unit - New Balance is staking a bigger claim in the casual market. The Boston-based company has partnered with industry veteran Bob Infantino in the creation of DryDock Footwear, an independent business unit set up to develop its casual-comfort brands Aravon and Dunham. Infantino, most recently president of Clarks Cos. N.A., will assume the same role at DryDock. According to a company release, DryDock Footwear will be based in Boston, with Infantino spearheading development of the New Balance brands, in addition to creating new labels in the casual arena.“We’re getting together to do what [New Balance Chairman Jim Davis] did so nicely with [New Balance’s] size and width selection,” said Infantino, regarding the company’s initiatives. <WWD>

Hedgeye Retail’s Take: NB entering the brown shoe category instead of incrementally allocating capital (both human and financial) into taking share in athletic is an interesting turn. This is good for the incumbents – particularly UnderArmour.


Growth in Retail Container Traffic Levels Off - Import cargo volume at the nation's major retail container ports is forecast to level off this month at about the same numbers as last year after nearly 18 months of year-over-year gains, according to the monthly Global Port Tracker report released by the National Retail Federation and Hackett Associates. "After nearly a year and a half of volume increases, it's not surprising to see some leveling off," NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. "Retailers are being cautious with how much merchandise they import due to economic pressures such as higher commodity prices, but overall consumer demand remains strong." U.S. ports followed by Global Port Tracker handled 1.08 million Twenty-foot Equivalent Units in March, a gain of only 0.3 percent over the same month a year ago. The number was down 2 percent from February, traditionally the slowest month of the year. While the increase was small, it was the 16th month in a row to show a year-over-year improvement after December 2009 broke a 28-month streak of year-over-year declines. One TEU is one 20-foot cargo container or its equivalent. <SportsOneNote>

Hedgeye Retail’s Take: This comes as a surprise to us. After 2-years of pulling inventories down to borderline-unhealthy levels, shipments should be on the upswing. In the first quarter, it was clear that retailers/brands pulled product forward ahead of COGS increases – so perhaps volume took a breather.  Another consideration is that volume is tracked in TEUs, or twenty-foot-equivalent units. This says nothing about how full the containers are. As oil prices rise, we tend to see logistics teams maximize space inside the container to mitigate the need for additional TEUs. Remember that in filling a container, you either a) leave free space, b) fill perfectly, c) ‘cube out’ (run out of space), or d) ‘weight out’ (don’t fill the visible space, but hit weight limit). Apprel and shoes don’t ever weight out, so this is all about cube optimization. We suspect we’re seeing that today. BUT, if we see a consistent downtick in unit volume, it will test our negative assertion that unit shipments will not be down meaningfully for the year despite higher costs.


Polo Ralph Lauren Wins Fragrance Case - Score one for Polo Ralph Lauren Corp. A New York federal judge ruled Friday that the U.S. Polo Association cannot use a horse-and-rider symbol evocative of Polo’s famed logo in conjunction with the word “polo” to market its fragrances. The USPA claimed that Ralph Lauren was “attempting to monopolize the depiction of the sport of polo,” by preventing it from using its “double horseman mark” on its recently launched fragrance products, according to the original lawsuit filed Nov. 13 in Manhattan’s U.S. District Court. After deliberation, Judge Robert Sweet denied the USPA’s request for a declaratory judgment, citing that the use of the double horseman image with the word “polo” infringes on Ralph Lauren’s “substantive trademark rights” as it would likely cause “consumer confusion.” As a result, the court granted L’Oréal USA Inc., Ralph Lauren’s fragrance licensee, a permanent injunction and ordered that all of the plaintiff’s claims be dropped.<WWD>

Hedgeye Retail’s Take: This is big for RL. The battle between these two has been in progress for well over a decade. For better or worse, most consumers see a horse riding jockey swinging a mallet on apparel and think Ralph Lauren. We didn’t think much of this until we got an email from Bob Store’s last year promoting USPA gear. The association can certainly claim the ‘authenticity’ factor, but the logos are unmistakably similar. Time for the USPA to update its logo.


Sears Sues Former Executive of Lands’ End - Sears Holdings Corp. has asked an Illinois court to stop former Lands’ End president Nicholas Coe from joining Limited Brands Inc. as CEO of its Bath & Body Works division. Sears says in court documents that Coe violated his non-compete agreement with the company and is asking for an immediate injunction and damages. Sears also names Limited Brands Inc. and its Bath & Body Works business entities in the suit and asserts the companies were aware of Coe’s severance agreement with Sears, which says Coe cannot work for a Sears competitor for one year after leaving the retailer. Lands’ End is a division of Sears Holdings Corp. In the court filing submitted yesterday to the Circuit Court of Cook County, IL, Sears says Coe submitted his resignation May 11 with the intention of joining Limited Brands May 16. <InternetRetailer>

Hedgeye Retail’s Take: Hmm, not exactly direct competitors, but SHLD looking to pull whatever levers it can here obviously.


Faster Fulfillment - As they build new warehouses and reconfigure existing ones, many web retailers are deciding that rising consumer expectations of fast and accurate delivery require new technology and new warehouse procedures. Few areas of e-commerce illustrate the cutting edge of warehouse management better than flash-sale retailing. In order to offer shoppers big discounts on small quantities for limited periods, web merchants must be able to buy, receive, inspect, pick and ship orders quickly. “The supply chain itself has been our Achilles’ heel in this company for the last couple of years, as it is for any company scaling like us,” says Christopher Halkyard, vice president of operations for Gilt Groupe Inc., which had Internet Retailer-estimated sales of $425 million last year, up 150% from $170 million in 2009. Gilt is No. 49 in the Internet Retailer Top 500 Guide. <InternetRetailer>

Hedgeye Retail’s Take: Gilt Groupe either has a better handle on its fulfillment now or is eating the cost in the near-term since we just received yesterday an email announcing they’ve reduced shipping and will cover return costs if you opt for ‘store credit’. The bottom-line is that consumers are getting used to free shipping – these guys are forced to follow suit or lose share.


Hublot Opens New York Flagship - Hublot has opened the doors to its New York flagship and unveiled a timepiece in partnership with amfAR here. The 3,200-square-foot store on Madison Avenue between 62nd and 63rd streets is one of five freestanding U.S. stores the brand plans to open in the next six months — and the first in New York. Currently, Hublot has stores in Boca Raton and Bal Harbour, Fla., Beverly Hills and the U.S. Virgin Islands, and future domestic locations include boutiques in Las Vegas, Palm Beach, Fla., and Vale and Aspen, Colo. — all opening between October and December of this year, according to Hublot’s chief executive officer, Jean-Claude Biver.  <WWD>

Hedgeye Retail’s Take: Hublot has been opening stores more aggressively since ’08 when the company was in 100% cash according to CEO Biver. With only 28 stores globally, the brand is still small at retail, but is looking to change the buying habits of the U.S. consumer, who by and large is less apt to buy a luxury watch just because they can relative to Asian consumers. While we don’t love the timing heading into the 2H, the reality is that consumers looking to purchase a $100,000 watch are less sensitive to Main Street reality.


Wal-Mart in China E-Commerce Investment - Wal-Mart Stores Inc. is looking to further expand its reach into China. The retail giant said Friday that it’s buying a minority stake in Chinese e-commerce company Yihaodian in a deal that is expected to close within 60 days.  Launched in 2008, Yihaodian sells groceries, consumer electronics, clothing and other items, and has an employee base of 2,000, according to Wal-Mart. “Online sales in China are growing rapidly and are projected to match U.S. online sales in the next few years,” Eduardo Castro-Wright, vice chairman of Wal-Mart Stores and chief executive officer of Walmart global e-commerce and global sourcing. “By investing in Yihaodian, we're continuing to establish a presence in this important e-commerce market, and are moving forward on fulfilling our aspiration of being the leading global multichannel retailer." Wal-Mart, which has 8,986 doors globally, has 328 stores in China, according to a March 30 filing with the Securities and Exchange Commission.  <WWD>

Hedgeye Retail’s Take: With the aftertaste of the Alibaba debacle still palpable, it’s hard not to consider the risk in this strategy. Yes, the businesses are quite different and Wal-Mart could presumably acquire the business in whole if necessary, but we question the strategy from a branding standpoint. While the Wal-Mart nameplate has become synonymous with EDLP stateside even if at times that’s not the reality, selling goods through another branded site might jeopardize the valuable opportunity for brand-building in new markets.