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Most Dominant Franchise In The World?

Nike, Inc's basketball franchise recently topped 90% share of the category. I'm struggling to find any franchise in any consumer industry in the world that is as dominant, but I come up dry.

In answer to the question How high can your market share go? Phil Knight was in print years ago with the answer 100% . In pouring through the share statistics on my previous post about the state of share change in the industry, I was reminded how simply dominant Nike's basketball franchise is, and how prophetic that seemingly impossible statement turned out to be.

Here's an amazing statistic for you. Adding up market share in basketball for the Nike Brand, Brand Jordan, and Converse, Nike Inc owns 92% of the category. If you ex out basketball shoes under $80, Nike's share goes to about 98%. I don't know about anyone else out there, but I cannot think of any consumer product in any category in any part of the globe that commands this kind of share. (Shoot me an email if you think of one).

Positive Call Out for Athletic Theme

I'm still convinced that the athletic channel is increasingly clean. I'm not a 'fashion guy' by any means, but I like to go through all the online sites pretty religiously - more often than not I learn something. I was struck by something on the Famous Footwear website.
  • Based on my math, there are 917 styles on sale in the 'clearance' section. That's not unusual. But the fact that I had to count past 304 dress shoes to even get to the first sneaker was noteworthy.
  • In fact, Famous' traditional product mix is 43% athletic, but less than 20% of its online 'clearance' inventory appears to be athletic. That's music to my ears if I am long anything in the Athletic arena.
  • Yes, I know that these little anecdotes are dangerous given sample size, and lack of depth into number of pairs backing each advertized style. But when anything 'fashion' or 'style'-related hits my fairly unsophisticated eyes, I think it's usually worth calling out.

Does a 20% Cost Increase For CROX Matter?

While most of the free world has never heard of the Rocky Mountain News, it has proven to be just about the most reliable general news organization on Crocs (through the Colorado angle). Earlier today, the RMN noted that Crocs is believed to rely on a DOW product that is about to implement a 20% price increase. While Crocs is very 'hush hush' about the secret formula for its Croslite material, the RMN noted that a patent issued in 2006 shows a polymer called Engage - sold by DOW - as a key ingredient.

Quite frankly, out of any footwear company in the industry, I'm least concerned about Crocs' cost pressures given that a stabilization of revenue will do more than any input cost increase. Also, I'm in the camp that the juice on the SG&A and capital intensity side of this model can more than offset any resin pressure.

No, I'm not making a bull call here. Not yet at least. But with the stock near $10 it's on my list.


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SBUX - Comments from the Goldman Conference

Coffee war commentary continues - SBUX's CFO Peter Bocian cited the company's current market share: 13%-14% of the brewed coffee market and just north of 50% market share of espresso-based beverages consumed out of the home. When MCD introduced its premium roast coffee in 2006, it received a lot of media attention and SBUX was often named as the company which would be hurt the most from a competitive standpoint. Now, with MCD expanding its coffee lineup to include specialty coffees (espresso-based lattes and cappuccinos), the media is again calling SBUX out as the biggest potential loser. Even before hearing SBUX's respective market share numbers quantified today, I was skeptical that MCD's specialty coffee introduction would substantially impact SBUX's performance going forward. In 2006, MCD entered a market where the market leader had a 13%-14% share position. Today, MCD is trying to tackle a market where the market leader holds more than a 50% share position. I think the numbers speak for themselves, but I can't help adding that the McDonald's product offering is very different from what Starbuck's serves.

More U.S. store closures on the horizon? - Starbucks said back on January 7, 2008 that it would close a number of underperforming U.S. stores as part of its turnaround strategy. The company quantified that number on January 30, 2008, saying it would close around 100 underperforming stores. Today, the company gave its first hint that the 100 number could be going higher when the CFO said he has a watch list for potential stores that may be on the bubble to close. Closing additional stores (beyond the already stated 100 stores) will only accelerate the company's ability to improve store-level operations and U.S. operating margins and will, more immediately, benefit same-store sales.

MCD - Comment from the Goldman conference

To date, McDonald's senior management has not included premium drip in the calculation for generating $125,000 from the new beverage initiative.

Today, Don Thomson President of McDonald's US said As you have heard before, we estimate that the sales potential for the entire new beverage lineup, from premium drip, specialty coffee, smoothies, frappes, bottle beverages and optimized travel drinks, that total is about $125K per restaurant, as you have heard us say before again.

We have not confirmed this with the MCD yet, but Don's comment represents a shift in the outlook for the new beverage line up.

LIZ: The Reverse Commute

Our HQ is in New Haven, CT -- about 25 feet from Yale University. I love my commute, because while everyone is driving south towards NYC, I am driving twice as fast in the other direction. That's what Liz Claiborne's announcement this morning sounds like to me. Liz is decentralizing its global sourcing operations such that its 8 top brand heads have the flexibility to go direct to the factories of choice to strengthen relationships between design and manufacturing -- even if it means going around Liz's sourcing infrastructure and using more expensive buying agents. This comes at a time when other companies are channeling a greater proportion of production through vertically controlled sourcing platform. I'm not sure I love this move as I do my own reverse commute. But I'll take action over inaction in this space any day.

On one hand, I give credit to any brand that acts in a way that compresses the lead time to get design closer to the point of consumer purchase. LIZ is an extremely bureaucratic organization with layers of approvals needed to push product through the system. This change might have some positive flow through as it relates to product relevancy from a trend perspective as well as inventory carrying costs.

On the flip side, given the immense cost pressures emerging - which I think is a paradigm shift for the industry - I wonder why anyone would choose to give up any form of size/leverage over key suppliers. In putting the cost inputs back in the hand of the individual brands - and potentially adding a 3rd party sourcing agent, this does anything but de-risk the cost model.

So how does this change my view on LIZ? It really does not. As I mentioned on 5/13, Bill McComb has been reinvesting cost cuts back into the organization over the past year. As such, he's sitting there with the highest SG&A ratio in the industry by a long shot, and LIZ has instituted a cliff-vesting schedule to incentivize 2009 performance based on EPS and ROIC hurdles. With nearly 500,000 options struck in the high $30s, he has one of three choices in '09; 1) watch his investments pay off in greater revenue and EBIT, 2) watch his efforts fail and subsequently cut (and print) several hundred million in costs, or 3) fail across the board, and risk both his current employment and the company's structure as we know it today. For a stock that has stopped going down on bad news, I don't see how any of these options won't be a positive.

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