What’s New Today in Retail (9/23)
JCP - J.C. Penney Said in Talks to Raise More Money for Turnaround
- "J.C. Penney...is in talks to potentially raise more cash, said people with knowledge of the matter. The chain doesn’t have immediate cash needs, and is exploring fundraising amid shareholder pressure to take advantage of cheap financing, said the people, who asked not to be named as the deliberations are private. Goldman Sachs...which arranged a $2.25 billion loan for the retailer this year, is advising J.C. Penney on funding options including borrowing against its real estate, said one of the people."
- "One option under consideration is for J.C. Penney to borrow against the real estate that it hasn’t already pledged as collateral on other debt, three people said. J.C. Penney values its owned and ground-leased real estate at $4.08 billion, according to a May investor presentation."
Takeaway: JCP does not need the cash right now, and our math suggests that it can go the next three years without tapping external sources. But a key consideration is that a new CEO would likely want to come in with zero liquidity risk. Our sense is that JCP is doing this to broaden the pool of potential CEOs.
JCP - JCPenney Cuts Off Free Wi-Fi
- "JCPenney is busy undoing the work of former CEO and ex-Apple retail head Ron Johnson, and this week the company is axing the free Wi-Fi he once dubbed 'fundamental architecture' for stores. The retailer confirmed the removal of the service to BuzzFeed after shoppers voiced their displeasure on Twitter. A JCPenney spokesperson explained that the signal wasn't used very often by customers."
- "JCPenney has already invested $12 million installing the system last year, but shutting it off for customers will save the chain about $7 million a year, according to BuzzFeed."
- "...CEO Mike Ullman, the investment hasn't been worth it. In addition to slow usage, he said the mobile checkout technology that was based on the Wi-Fi was confusing for most customers. Shoppers also don't tend to realize free Wi-Fi in a store exists, or just choose to use their own data plan instead. Mobile checkout will still be able to run on the private Wi-Fi network, but Ullman will put a new focus on making sure store associates are visible and able to assist customers."
Takeaway: This borders on ridiculous. But the reality is that people don’t go to JCP to get free Wi-Fi.
JNY - Bids Due for The Jones Group
- "The last of the second-round bids in the Citi-led auction to sell the company are expected to come in today, according to sources."
- "Private equity giant KKR & Co. and Sycamore Partners have paired up for a bid and are believed to be a formidable presence in the process. Leonard Green & Partners and Golden Gate Capital have also each expressed interest in the firm or in certain of its businesses, while Iconix Brand Group Inc. is said to have taken a look at the apparel side of the company."
Takeaway: We were asked by someone if we thought Steve Madden would be interested in Stuart Weitzman and 9 West. Our answer is Yes. Footwear assets are the crown jewel at JNY.
WMT - Walmart to present paper to government on sourcing model
- "American retail chain Wal-Mart Stores, yet to make an application for opening retail stores in India, is planning to send a paper on its sourcing model to the Department of Industrial Policy and Promotion (DIPP) soon. The next round of government clarification to the multi-brand retail policy could come after weighing the points made in that paper."
- "The Cabinet cleared up to 51 per cent foreign direct investment (FDI) in multi-brand retail exactly one year ago. But there hasn’t been a single proposal so far, due to policy riders which are considered tough by the industry. Thirty per cent mandatory sourcing from Indian micro, small, and medium enterprises (MSMEs) tops the list of hurdles. There are other roadblocks like the requirement of statewise clearances to retail chains, upcoming elections and fear of a policy reversal if the Bharatiya Janata Party (BJP), a party that has opposed FDI in retail, forms the government at the Centre. To woo foreign investors, DIPP recently issued clarifications easing some of the norms. But companies are asking for more."
Takeaway: WMT’s dance with India has been years in the making. If it succeeds, however, in accelerating its’ rollout in India, look for the stock to be revalued higher.
WSM - PBteen unveils first-ever collection with a celeb stylist, designer
- "PBteen has unveiled an inaugural collaboration with celebrity stylists and fashion designers Emily Current and Meritt Elliott. The exclusive, one-of-a-kind collection is the first collaboration of its kind for PBteen and represents Current’s and Elliott’s debut into the world of interiors and home furnishings."
- "The collection consists of more than 37 products across seven key categories and includes bedding, furniture, lighting, wall décor, decorative accessories and jewelry storage…The Emily & Meritt for PBteen Collection ranges from $29 to $799."
NKE - Nike’s Knight, Wife Pledge $500 Million to Cancer Research
- "Nike Inc. Chairman Philip Knight and his wife Penny Knight pledged $500 million to jumpstart a $1 billion cancer research initiative at Oregon Health & Science University...The gift is contingent on the university raising an additional $500 million for cancer within two years."
Takeaway: You gotta hand it to the guy, between this and his gifts to the University of Oregon’s Athletic Department, he’s establishing himself as one of the foremost philanthropists of his day. Note, however, that Nike does not consume much of his time anymore.
HD - Home Depot elects CVS exec to board
- "The Home Depot has elected Helena B. Foulkes to the company's board of directors. Foulkes will be a member of the finance and leadership development and compensation committees."
- "During her more than 15 years at CVS, Foulkes has served as the company's EVP and chief marketing officer, SVP of health services of CVS/pharmacy, SVP, marketing and operations services, January to October 2007, and SVP, advertising and marketing"
SHLD - Select Sears Hometown & Outlet Stores debut kitchen remodeling services
- "More than 20 Sears Home Appliance Showroom and Sears Appliance & Hardware stores in New Jersey, Pennsylvania and Delaware have unveiled kitchen remodeling services from Kitchen Tune-Up, a national kitchen and bath remodeling franchise."
- "The stores feature an interactive Kitchen Tune-Up kiosk, where customers can learn about affordable options to update their kitchen, view cabinet door samples and use an iPad to see project ideas and book an appointment for a no-obligation estimate."
MKS - M&S Uses New Technology To Monitor Factories
- "In the aftermath of Bangladesh’s Rana Plaza tragedy, retailers have been struggling to figure out how to monitor the factories they contract with, remote as they often are. Marks & Spencer (M&S) has announced a plan to use new technology to keep tabs on its factories, designed for mobile phones."
- "The new technology is designed to collect information directly from the factories regarding labor conditions, safety, job training and general worker satisfaction. Surveys are distributed to factory workers in various languages–Hindi, Sinhalese, etc.– and returned anonymously. M&S has already tested the program with thirteen of its suppliers in India and Sri Lanka, interviewing more than 2,000 workers."
- "M&S plans a massive rollout of the program in the future, with the intent to reach thirty more factories and 22,500 more workers in India, Sri Lanka and Bangladesh. It remains unclear how they intend to ensure workers have access to mobile phones and iPads, or how they can guarantee they are permitted by supervisors to answer the questionnaires candidly."
Two Hundred Bangladesh Apparel Factories Shut on Labor Unrest
- "Bangladesh apparel manufacturers suspended production in about 200 garment factories after at least 10,000 workers took to the streets demanding a salary increase...The workers pelted the factories with bricks and blocked a highway, Abdus Salam Murshedy, president of the Exporters Association of Bangladesh, said in a phone interview today."
- "The protesters demanded a minimum monthly salary of 8,114 taka ($104), up from 3,000 taka now, Murshedy said as he headed into a meeting with government officials to look into ways to control the unrest."
- "At a meeting with labor leaders and government officials on Sept. 17, factory owners’ representative Arshad Jamal Dipu proposed increasing the monthly basic salary by 600 taka to 3,600 taka."
Takeaway: Bangladeshi garment exports totaled $12.56 billion to Europe, $4.99 billion to the US, and $0.98 billion to Canada in the 12 month period ended June 30, 2013. As noted in the article, building safety improvements are expected to add $0.10 to the end price of each manufactured garment, that coupled with an increase in the minimum wage level could mean another bump to the final cost.
Cambodian Garment Factories Come Under Scrutiny
- "A monitoring group backed by the United Nations said it would begin to publicize garment factories' compliance with worker rights and safety standards in Cambodia, a controversial program that its organizers say will be the world's most extensive initiative to improve working conditions at plants."
- "The program...Better Factories Cambodia began rolling out on Friday"
- "But Cambodia's government and the country's factory association have opposed the new program, saying it could wind up shaming only some factory owners and driving business to other countries where oversight is less rigorous."
- " Better Factories, among other things, inspects manufacturing facilities for problems such as child labor and unsafe conditions and offers training for factories to upgrade but has no enforcement power."
Bangladesh Factory Owners Fear Excessive Minimum Wage Hike
- "Garment factory owners in Bangladesh are seeking a minimum wage increase for workers that is commensurate with the rate of inflation, but doesn’t exceed 20 percent."
- "The current minimum wage for garment workers in Bangladesh is Taka 3,000 ($39) per month after it went up by more than 80 percent in 2010. With the proposed rate increase, the new monthly minimum wage would be Taka 8,000 ($102)."
- "Production costs have increased with newly implemented fire and building safety compliance following the Rana Plaza building collapse and owners fear a wage increase of more than 20 percent would cause their factories to suffer."
Retailers’ online holiday campaigns to start before Halloween is over
- "Almost half [of retailers] — 49% — say they will launch their first online holiday campaign before the ghosts and sexy nurses have finished marking Halloween, online traffic-tracking firm Experian Marketing Services’ first such survey of 212 retail marketing executives found."
- "In terms of the way retailers are marketing to shoppers on the Web, 59% of them said they will be using online displays, followed by 55% of them citing email marketing. Print advertising comes in third place with 46%. In comparison, only 24% of marketers cited mobile marketing as a key holiday marketing channel."
- The Experian survey showed 70% of marketers said they plan to use some sort of online promotional offer this holiday season. Free shipping, cited by 39% of retailers, ranked as the top promotional tactic, followed by deal-of-the-day offers and e-coupons. While retailers such as Wal-Mart Stores Inc...and Toys “R” Us have touted free layaway offers, only 3% of executives surveyed say they plan to resort to layaway."
- "A confident 28% of respondents said they don’t plan to offer any promotions this holiday. While mobile didn’t rank as a top marketing priority, 43% of retail respondents said they plan to develop 'mobile optimized websites,' followed by 'mobile optimized email.'"