R3: DECK, Groupon, Carrefour, BOGO

 

R3: REQUIRED RETAIL READING

June 22, 2011

 

 

 

RESEARCH ANECDOTES

  • After highlighting a streak of 29 weeks since their last BOGO, management of BWS noted that they will hold their first BOGO event in late July. Because of a reduction in activity with BOGOs down 44% in 2010 and another 29% reduction expected this year, management expects this year’s BTS event to ‘really engage the customer.’ For what it’s worth, we’ve never heard a management team say ‘our product looks like death, and we really think we’re going to turn off the consumer.’
  • Confirming a recent theme in retail, HBI noted that they too are seeing higher gas prices result in a consolidation in the number of shopping trips as noted by their customers. The offset has been an increase in average ticket, which has trended up driven in equal parts if not more so by the increase in units relative to pricing.

 

OUR TAKE ON OVERNIGHT NEWS

 

Deckers Shutters Simple Shoes - Simple is saying farewell. Goleta, Calif.-based Deckers Outdoor Corp. announced on Tuesday it would cease distribution of its Simple Shoes brand, effective Dec. 31. While Chairman, President and CEO Angel Martinez said in a statement he was proud of the brand’s efforts in producing eco-conscious footwear, the company chose to focus its efforts on its recently acquired Sanuk brand.  “Given that there is some degree of overlap between Simple and Sanuk consumers, and Sanuk’s positive outlook and global appeal, we make this difficult decision knowing it is in the best interests of the brands, the company and its shareholders,” Martinez said.  <WWD>

Hedgeye Retail’s Take:  The simple reality here is that DECK has followed suit with a growing theme in retail to ‘buy vs. build’ with its acquisition of Sanuk. The only problem is that the company had an existing brand that just couldn’t get off the ground. After coming to the realization that a focus on sustainability didn’t trump style, it was easier for the company refocus on a brand with over 1,700 points of distribution and positive revenue growth trajectory. Admitting defeat is never pleasant or easy to do, but you got to tip your hat to the DECK team here – putting Simple to bed is the right call.

 

Demographics of Groupon and LivingSocial Diverge - Daily deal sites Groupon and LivingSocial saw their audiences approximately triple in the year to April 2011, with gains of 250% and 182%, respectively, according to comScore’s “State of the US Online Retail Economy in Q1 2011” report. But while both play in the same space, differences have emerged in the geographies and demographics of their users, as well as their deployment of display and paid search advertising. The comScore analysis found that LivingSocial had an edge among East Coast-based users, while Groupon had more of a foothold among Midwest and West Coast-based consumers. This may not be all that surprising as LivingSocial is headquartered in Washington, D.C., and Groupon is based in Chicago. Beyond the geographic divergence, each provider appears to attract different types of users. comScore found that internet users under 45 leaned toward Groupon, while those ages 45 and older skewed more in favor of LivingSocial. Those ages 12 to 25 underindexed on usage of daily deal sites in general, but underindexed less strongly on Groupon. <emarketer>

Hedgeye Retail’s Take:  What’s interesting here is that according to results out of a Nielsen study back in March, LivingSocial’s demographic was younger than Groupon contrary to the results above. We appreciate the dynamic nature each sites respective demographic, but results would suggest that Groupon is making headway in the key demographic. LivingSocial’s churn rate according to comScore was also higher at 22% compared to 18% for Groupon in Q1 suggesting another metric whereby Groupon is edging out the competition.

 

R3: DECK, Groupon, Carrefour, BOGO - R3 6 22 11

 

Joe’s Jeans opens store in Dubai - Apparel maker Joe’s Jeans Inc. has opened a retail store in Dubai, United Arab Emirates, the first of at least seven stores it plans to open in the Middle East. The store at the Mirdif City Centre is part of an agreement with MultiTrend International to open stores in conjunction with exclusive rights to operate retail locations and market the Joe’s brand in Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and United Arab Emirates. MultiTrend, a member of the Al-Homaizi Group, is a franchisee or licensee in the Middle East for brands such as Destination Maternity; Spanish clothing brand Custo Barcelona; Go Sport, a French sporting goods retailer; and Cath Kidston, a British home accessories brand. The Al-Homaizi Group also has franchisee operations in casual and fine dining, including Burger King, Pizza Hut and Applebee’s franchises, food and beverages, including Al Rifai, Scoop a Cone and Boost Juice franchises, and home and office furnishings through IKEA franchises. <BizJournals>

Hedgeye Retail’s Take:  Joe’s has struggled to operating retail store profitably domestically in the U.S. so outsourcing to a partner with considerably more retail experience sounds like a prudent step. Additionally, without material operations outside the U.S., this deal is an important step to diversifying the company’s exposure. But really… the big issue for any brand always comes back to content, not distribution. The company should get the product right first.

 

Carrefour Shareholders Green-Light Dia Spin-off - French retailer Carrefour SA got the go-ahead from its shareholders Tuesday to spin off if its hard discount chain Dia, at the end of a stormy annual general meeting where minority shareholders and union representatives voiced their anger over the group’s disappointing performances. The resolution was approved by 77 percent of shareholders, clearing the way for Dia to be listed on the Madrid stock exchange on July 5. Carrefour, the world’s second largest retailer behind Wal-Mart Stores Inc., first put forward the spinoff in March as part of a controversial plan to sell some assets, after it rattled markets last year by issuing a profit warning and restating one-off charges in Brazil resulting from an audit. Carrefour chief executive officer Lars Olofsson had argued that the move would boost the company’s valuation and allow it to focus on turning around its key market, France, following its warning last week that current operating income in its domestic market was down 35 percent in the first half. <WWD>

Hedgeye Retail’s Take:  While some may argue the financial merits of divesting Dia, the reality is that the business has been a drag on management’s time and clearly disruptive – something investors typically underestimate given management’s perspective. Score one for shareholders making a difference.

 

BCBG Max Azria in $230 Million Refinancing - BCBG Max Azria Group Inc. has refinanced and is now slimming down with the closure of a major mass market business, although it is still not clear when vendors who have been awaiting payment in recent months will receive their money. Moody’s Investors Service offered some details of the $230 million refinancing as it upgraded the firm’s corporate family credit rating to “B3” from “Caa1,” indicating that while the company is on steadier ground it is still subject to “high credit risk.” “Given the potential for a double-digit consolidated revenue decline in 2011 due to the wind-down of a large mass market contract, a ratings upgrade is unlikely in the near term,” the rating agency said. That likely spells the end for the Miley Cyrus & Max Azria brand sold exclusively at Wal-Mart, although BCBG did not elaborate on the Moody’s report by press time. The Miley Cyrus line launched with much fanfare in August 2009, but has been said to be floundering. The Tex by Max Azria line, a collaboration with Carrefour, was closed in 2009. <WWD>

Hedgeye Retail’s Take:  Without added clarity for vendors, BCBG is still subject to restricted product flow and the competitive disadvantage that comes with it. Coupled with added pressure from increasing interest for exclusive deals it looks like BCBG is going to be a share loser for the foreseeable future.

 

New Textile and Apparel Standards Announced in China - China’s General Administration of Quality Supervision, Inspection and Quarantine, Standardization Administration has recently approved 192 national standards, among which eight standards relating to textile products. Products fall into the textile category include knitted wadded garments, knitting patchwork clothing, woolen fabrics, woodpulp spunlaced non-woven textiles, silk textiles, synthetic filament weaved gray fabrics, worsted fabrics and worsted fabrics with radioresistance. It is imperative that manufacturers and importers of items that are covered by these new standards take the necessary action to ensure that their goods meet these new requirements. The execution date of the new standards will be September 15th, 2011. <FashionNetAsia>

Hedgeye Retail’s Take:  With the gap between the cost of labor in China and its competitors compressing, quality becomes more important; however, establishing standards is one thing enforcing them is another altogether – an area where China has not had the best track record. The reality is that this simply gives Big Brother a stronger hand in being able to stop product that it deems unworthy of a ‘made in China’ tag. A very smart move, actually…whether it uses it or not.

 


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more