R3: TGT, WMT, BBY, AMZN

 

R3: REQUIRED RETAIL READING

June 21, 2011

 

 

RESEARCH ANECDOTES

  • According to a Consumer Report study, the Simple Touch Nook has scored above the Kindle for the first time since inception. In addition to a longer battery life, one of the key features that give it an edge is that it supports e-book loans from public libraries something other e-book readers provide as well. With another line from Sony expected later this month, the pressure is on Amazon to not only match, but surpass its competition when the e-book loan friendly version arrives sometime “later this year.”
  • An increase in online grocery shopping has spawned a new service from Nielson Research called Online Basket View. The research giant noted that online shoppers now account for ~2% of total consumer packaged goods in the U.S. a category that’s expected to double in size by 2014 to $24Bn. With both Amazon and Wal-Mart testing new delivery services with “Amazon Fresh” in Seattle and “Wal-Mart To Go” in San Jose that will expand the number of goods they offer, legacy grocers are faced once again with an increasing threat from online competitors. While consumers are likely to expand the scope of buying online from diapers alone, there is something about picking out your own produce that will likely limit just how much share online concepts can capture from legacy grocers.
  • After this weekend’s performance, expect to see more in the way of endorsement announcements involving Rory McIlroy who became the youngest player to ever win the U.S. Open. With current deals including only hotel operator Jumeirah, Titleist, and Oakley, the young star some have already dubbed as the next Tiger Woods has undoubtedly attracted the attention of higher profile endorsers albeit at what is now a considerably higher price tag.

OUR TAKE ON OVERNIGHT NEWS

 

Supreme Court Nixes Class Action Against Wal-Mart - The U.S. Supreme Court ruled in favor of Wal-Mart Stores Inc. on Monday, stopping what would have been one of the largest gender discrimination class action lawsuits in history from moving forward. The high court ruled that the case cannot advance as a class action, which could have potentially encompassed 1.5 million current and former female Wal-Mart employees and exposed the nation’s largest retailer to billions of dollars in liability.  Gisel Ruiz, executive vice president of people at Wal-Mart, said of the ruling, “The Court today unanimously rejected class certification and, as the majority made clear, the plaintiffs’ claims were worlds away from showing a company-wide discriminatory pay and promotion policy.”<WWD>

Hedgeye Retail’s Take:  WMT did not only dodge a bullet here, but they dodged a full scale biological warfare onslaught.

 

No Union Victory for Target Workers - Employees at Target Corp.’s Valley Stream, N.Y., store on Friday voted to reject the United Food & Commercial Workers International Union by a margin of 137 to 85, the Minneapolis-based retailer said. “The results of Friday’s union election loss are being contested by the UFCW Local 1500,” said Bruce W. Both, Local 1500’s president, adding that the union plans to begin a campaign, “Target: Democracy,” at the 26 other New York metro-area Targets. The vote was closely watched by retail and labor experts because it was Target’s first union election in 14 years. Regardless of its outcome, it is predicted to have far-reaching implications. A union victory could embolden workers at other big-box chains, retail experts said. According to the UFCW, publicity surrounding the Valley Stream Target sparked interest from workers at other area stores. Local 1500 represents 23,000 retail food workers in the New York metro area.<WWD>

Hedgeye Retail’s Take: This was a pretty wide margin against unionization. We find that surprising, yet encouraging, for the retailers. Combine this with Macy’s peaceful resolution to the NY Union  contract, and the Supreme Court striking down the gender discrimination suit at Wal-Mart, and it gives the impression that labor relations in US retail is in its ‘happy place.’

 

Best Buy Expands Cloud-Based Online Music Platform - Best Buy Co., the world’s largest consumer-electronics retailer, is expanding a U.K. online music platform to the U.S. to challenge Amazon Inc. and Apple Inc. (AAPL) in so-called cloud-based offerings, the technology supplier said. Best Buy’s U.S. Music Cloud service, powered by Catch Media Inc., is available for mobile devices such as Research In Motion Ltd.’s BlackBerry smartphone and those using Android technology, Catch Media Chief Executive Officer Yaacov Ben-Yaacov said today in a phone interview. The platform, marketed as My Music Anywhere in the U.K., is designed allow users to stream content they have purchased to a computer, mobile phone or tablet, eliminating the need to transfer and store computer files, Beverly Hills, California- based Catch Media said in a June 14 statement. The service is similar to Amazon’s Cloud Player, introduced in late March, and Apple’s iCloud platform, which will be rolled out this fall. <Bloomberg>

Hedgeye Retail’s Take: Seems to us that we’re simply talking data storage here. As we see with external hard drives on computers, brand name is irrelevant. Our sense is that there will be three deciding factors; 1) Price, 2) Ease of uploading huge amounts of data to the server (Amazon’s Cloud is not perfect in this regard), and perhaps most of all, 3) Trust. 

 

China Planning to Reduce Taxes on Luxury Goods - China is planning to reduce or possibly even eradicate taxes on imported luxury goods, state media reported Monday.  The finance ministry will introduce a new tariff system for overseas products, including high-end goods, by the beginning of October, the 21st Century Business Herald said. The newspaper did not outline any specifics of the new plan, only reporting that taxes will be lowered or removed on cosmetics, perfumes, watches, bags, shoes and watches.  The aim of the new plan is largely to boost domestic consumption. The Chinese are now among the biggest consumers of luxury products globally, however millions of domestic consumers travel to Hong Kong and Europe to avoid taxes on luxury products on the Mainland that can be as high as 60 percent. <WWD>  

Hedgeye Retail’s Take: The interesting slant here is that its moves won’t account for production moves by luxury goods manufacturers. Technically speaking, there’s no reason why China cannot produce most luxury items --- yet they are looking to boost imports. Our sense is that they boost Consumption while they incrementally incentivize local factories to build up their own capacity. Then in another 2-3 years, we’ll have a luxed-out Chinese consumer with deflating local prices due to better manufacturing costs.

 

Chinese Sports Industry Sets Five-year Target - The General Administration of Sport of China has recently released the 12th Five-Year Plan (2011- 2015) for the sports industry, aiming to increase the added value of the industry up to RMB400 billion, accounting for over 0.7% of the total GDP, sources reported. The group set a target for the industry's industrial added value to increase over 15 percent annually. By 2015, the sports industry, including the apparel, footwear and accessories sectors, should hire a total of over 4 million employees. And the industry should become one of the important growth points of China’s economy, according to the report. <FashionNetAsia>

Hedgeye Retail’s Take:  China is not just talking production; it’s also research, design and marketing of the content we see today. But keep in mind that it also includes local branding and retail distribution of local brands, which we think, on the margin, are as big a threat to the broader industry as anyone.

 

Pressure Mounting for Taxes on E-tail - Shopping the Internet tax-free may soon be a luxury of the past. A string of states is pushing legislation to require online sellers to collect sales taxes, while the U.S. Congress also may enter the fray as soon as this month with a bill to do the same. The controversy surrounding the issue pits Internet-only retailers, and other so-called “remote sellers” like catalogue companies, against traditional brick-and-mortar storefronts, including those with e-commerce sites that typically are required to collect sales taxes in states in which they have stores. The controversy often is misidentified as being focused on small Main Street retailers struggling against e-commerce behemoths. However, large multistate stores are on the side of small retailers in complaining that they are at a competitive disadvantage when consumers calculate the added cost of sales tax before shopping with tax-free, Internet-only Web sites. <WWD>

Hedgeye Retail’s Take: Our stance on this has been clear. Internet taxation is something you can take to the bank. It will happen. More of the questions surround how the States will claim to the Federal government what they view to be their fair share. As they see that bucket go up to very large numbers – which it will – then everyone will want a piece. We’d be surprised to see them get a single dime.

 

Tory Burch Unveils Madison Avenue Flagship Plans - Tory Burch’s Madison Avenue flagship, which is slated to open in September, is already making quite an artistic statement. On Thursday evening, a 60-foot-high hoarding went up at the store’s location at 797 Madison Avenue, unveiling a collaboration between the designer and street artist James De La Vega, which will extend into product in time for the opening of the 8,135-square-foot, four-story flagship. Madison Avenue will become the 54th Tory Burch store to open in the world. “It’s a big deal for the company, and for me personally,” Burch said of the Madison Avenue location. “Having a presence uptown was very important for us. We launched on Elizabeth Street in 2004 and it’s nice to come uptown now. I live uptown, and I used to eat at the Gardenia coffee shop [the site’s previous occupant].” <WWD>

Hedgeye Retail’s Take: Tory  Burch’s name is in the press every other week. The brand is hot – though to its credit, it has been managed since its 2004 launch in a way that is somewhat Ralph Lauren-esque. Our bet is that she becomes part of a bigger company within 12 months.