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June 30, 2011





  • When pressed on their cautious view regarding unit volume in a rising price environment at levels similar to 2009, management of General Mills offered the some color worth noting. Back in ’09, there was a significant shift from consumers eating out back to shopping in the grocery store, which drove both unit growth and pricing. Since eating away from home hasn’t rebounded, there’s no benefit this time around to drive the supply of volume. A similar parallel can be drawn to consumers trading down to department and discount stores – a tailwind that will be sorely missed with higher prices starting to flow through the supply chain. 
  • In their first presentation since former CEO Rubel’s departure, PSS’ interim CEO Mike Massey highlighted among recent changes a refocused effort back toward the lower-end consumer. As part of these efforts, the company will lower key price points and offer more units available at the entry-level.
  • In a rare case of admission, FDO’s CEO Howard Levine admitted that his +5-7% comp guidance for Q4 is indeed aggressive. The  confidence in achieving it comes from  several initiatives underway including an accelerated store renovation plan (now 900 by yearend up from 600-800), increased store openings, and additional planned promotional activity in select categories that has been well received so far this quarter.



California Passes Web Sales Tax - Joining several other states, California Gov. Jerry Brown on Wednesday signed legislation to require out-of-state Internet sales companies to collect and remit state sales taxes. The law takes immediate effect. The bill expands the definition of a company having physical presence in the state to require collection, aside from having an actual store. Now companies with subsidiaries in California or business relationships that refer potential customers — even a Web site link on an unrelated site — are required to collect sales taxes. <WWD>

Hedgeye Retail’s Take: The latest state to pass online tax legislation further constricts the options for “safe havens” where internet-based retailers can operate. There will be additional one off agreements similar to the one Amazon struck with Indiana – essentially exchanges employment guarantees for tax amnesty, however, a national standard will be the game changer in this battle. We strongly believe it’s still a question of when, not if.


Wallmart Pumps Out the Fuel Savings - Walmart announced that it will offer customers savings of 10 cents a gallon on all fuel, gas and diesel at participating Murphy USA and Walmart gas stations.  The reduction is part of a 90-day Rollback program. "Our customers have told us that high gas prices are a top budget concern, nearly as large an expense to their households as food and groceries," said Stephen Quinn, chief marketing officer. "We listen to our customers and because we know they are feeling squeezed by gas prices, we're implementing this gas Rollback to help them save, especially during high travel summer months." <RetailingToday>

Hedgeye Retail’s Take:  While this may actually prove to be a loss-leader for Wal-Mart, an additional 10 cents off basically doubles the savings if using cash at the pump as well. A 5% discount is likely to result in some much needed traffic.


Living Social Moves Ahead With IPO - Online daily deal site LivingSocial is meeting with banks to discuss an initial public offering of about $1 billion, according to a source familiar the situation. The amount values the Washington, D.C. based company in the range of $10 billion to $15 billion, according to the source. A representative for LivingSocial declined to comment. LivingSocial is the latest Internet startup seeking to woo investors who are piling into social media companies such as LinkedIn, Twitter, Groupon and Facebook. Online gaming company Zynga is expected to file for its IPO on Thursday that could value the company as high as $20 billion. LivingSocial is the No. 2 U.S. social deal site behind Groupon, which filed for its public debut and plans to raise $750 million that could value the company at $15 billion to $20 billion. <PRnewswire>

Hedgeye Retail’s Take: Surprise, surprise. A valuation there would suggest a solid appreciation of AMZN’s $175mm stake invested last year, which may now stand at close to $1-2Bn in value. 


Gap Sets Plans for South American Expansion - Gap Inc. hopes to open at least 26 stores in South America by 2016 as it continues to grow its global franchise, according to Carlos Alberto Cartoni, co-owner of Gap’s Chilean franchise partner Komax. After reportedly courting the U.S. brand for 20 years, Komax will open Gap’s first store, an 8,600-square-foot South American flagship, in Chile’s capital Santiago in early November. As part of the franchise agreement, Komax will install six Gaps and three Banana Republics in a first expansion phase by 2013. Depending on its success, the retailer, which also manages the Polo Ralph Lauren and The North Face trademarks in Chile, will roll out another six Gaps and five Banana Republics by 2016, Cartoni revealed. Under the expansion, Gap will also arrive in other main Chilean cities Antofagasta and Viña del Mar, he added. Santiago de Chile-based Komax will buy Gap’s clothing at wholesale prices that will include the U.S. retailer’s markup and won’t pay royalties. Apparel will be sourced directly from Gap’s global factories and will be tailored to Chilean consumer tastes.  <WWD>

Hedgeye Retail’s Take:  Not new news, but we are getting closer to the first Gap store in South America albeit a few months later than originally anticipated (Sept.). We suspect this goal of 26 stores is likely to prove conservative as the growth-starved retailer looks to capitalize on one of the few international markets yet to be tapped. In fact, we wouldn’t be surprised to see additional franchise agreements struck in other South American countries before long for that very reason. This company is so hard pressed to find obvious areas for growth.


Williams-Sonoma Heats up International Expansion - Building on its May launch of an international sales program for its youth-focused brand, PBTeen, in 75 countries, Williams-Sonoma Inc. is taking its other brands international this month, said Pat Connolly, executive vice president and chief marketing officer. The housewares and furnishings retailer, No. 25 in the Internet Retailer Top 500 Guide, by the end of June will enable all of its e-commerce sites for international shipping to 75 countries, Connolly told analysts last week at the Goldman Sachs Second Annual Dot Commerce Day. The company also operates Williams-Sonoma.com, PotteryBarn.com, PotteryBarnKids.com, WestElm.com and WSHome.com. “While at first this will be more of a service channel than a sales channel, we see it as the first step in ourinternational expansion,” he said. “We’ve hired senior leadership in this area, and foresee a strategy of entering new.” <InternetRetailer>

Hedgeye Retail’s Take: A natural progression for WSM’s aggressive international effort ahead of what will inevitably lead to a store expansion effort. While the initial push with free international shipping made plenty of headlines, it’s primarily be these core brands/products that international consumers will be looking for.


Best Buy to Shrink Store Footprint -  Best Buy plans to reduce its store size by subleasing store space to smaller retailers, according to The Los Angeles Times. The chain’s new stores will be in the 36,000-sq.-ft. range, down from its current 45,000-sq.-ft. model.  "We can reduce our overall square footage while actually increasing our presence," Best Buy CEO Brian Dunn said at the company's annual shareholder meeting this week. "It's an opportunity to capture cost savings and get ourselves 'right size.'" According to the report, the new stores that move into the Best Buy space will require their own restrooms, electrical systems and air-conditioning in addition to floor-to-ceiling walls separating the businesses. <RetailingToday>

Hedgeye Retail’s Take:  A 20% reduction in square footage makes a lot of sense. Some categories like entertainment and even consumer electronics have been shrinking of late and are likely targets of where the retailer can cut back. Our sense is that not too many customers would put up a fight if BBY reduced its eight isles of DVDs down to two.  


Coach Launches Mobile Commerce - Coach, which boasts nearly 277,000 fans on Twitter and 2.1 million on Facebook — enters a new digital realm today: mobile commerce. Developed through Usablenet’s technology platform, the feature will give customers the ability to purchase directly from their mobile devices and, if they choose, the option to pick up their merchandise at a local Coach retailer. “It’s nice to provide instant gratification and link our online and offline businesses,” said David Duplantis, Coach’s senior vice president of global Web and digital media. “It’s all about demand. Our customers are mobile by nature. Building a site that allows them to easily browse and purchase our products on their mobile devices is a seamless evolution and way for us to provide excellent customer service.” <WWD>

Hedgeye Retail’s Take:  Store site pickup is a key feature in saving consumer’s time. Execution will be critical here.