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TODAY'S CALL-OUT
The balance of power continues to shift from the East to the West

Li & Fung, the largest sourcing agent on the planet, said the insolvency of German retailer Arcandor, one of its biggest customers (6% of sales), would affect the company's ability to hit its three-year target of US$20 billion (HK$156 billion) in annual revenue. I don't care what anyone tells me, but this is good for US retailers. Increased capacity in Asia plus added government incentives for local factories to be net exporters of apparel and footwear while the major agents are aggressively courting more US business??? Can someone tell me why that's NOT fundamentally bullish?

In a recent press interview from New York, William Fung said...

"I think we have to work hard to sign more deals. We have been successful with the Liz Claiborne deal and we have a couple of other deals we are working on, in fact that is why I'm here".

In February, Li & Fung agreed to pay $83 million to become Liz Claiborne's primary sourcing agent for apparel and accessories. Late in April, the company said it expected to sign an outsourcing deal with loss-making U.S. retailer Talbots Inc within the next 45 days.

"We are hopeful we can make up for some of these unfortunate losses in our turnover," he said.

Fung, said he was working on a potential deal with an American company, and said the company would work to fulfill its three-year plan through acquisitions and outsourcing deals in the U.S. and Europe.

LEVINE'S LOW DOWN

Some Notable Call Outs

1) Three new anecdotes on the increasing focus companies need to have on growing online business. As noted several times, one of our key themes surrounds companies that have meaningful dot.com presence and order fulfillment operations (and invested in them BEFORE the real estate market crash).

  • High street fashion retailer Uniqlo has recently joined forces with SEO agency 4Ps Marketing in a bid to drive forward Uniqlo's online presence. The campaigns focused on the search engine Google using Search Engine Optimisation and Pay Per Click. The results of the partnership have seen Uniqlo's online revenue increasing by an impressive 30.76% for the month of May. (Bharat Textile.com)
  • NIKE partners with Baidu in brand promotion. Under the partnership, Nike will first integrate popular sports game contents with its brand promotion contents and put them up on its official website in a community, and then, embed the well-received Baidu community search products such as Baidu Zhidao and Baidu Baike into the Nike branded community. (Trading Market)
  • Online mall??? Fashionup.ro will invest more than 200,000 Euros to create and launch the first online mall in Romania. Fashionup.ro will be devoted to higher-end brands of clothes, footwear and accessories. Customers can also go shopping together with a consultant, who will give advice and details about the products (Financiarul)

2) The re-opened auction process for Filene's Basement continues, with a resolution expected this week. As of this weekend, Men's Warehouse partnered with Crown Acquisitions and Syms partnered with Vornado are both bidding for the assets.

3) This probably won't move the same store sales needle, but Whole Foods set up a temporary location at the Bonnaroo music festival over the weekend to supply concert goers with a variety of snacks and provisions.

4) A conversation with a small, private New England based off-price retailer revealed that business trends have been very strong for the last 6 weeks. Management believes less local competition from Filene's Basement as well as the company's direct mail advertising efforts are driving substantial traffic gains.

5) Adidas CEO Herbert Hainer commented on the company's restructuring efforts noting that it's made "significant progress with Reebok," but not "fast enough" in German newspaper Welt am Sonntag Sunday after being asked about a possible sale. After paying $4.3B for Reebok in 2006, both revenue growth and profitability have deteriorated significantly. However, with the company beginning to see improved results in the form of decelerating sales declines in Q1, my sense is a deal is unlikely near-term.

6) Here's the winner of the 'you can't make this stuff up' award of the week. Sears Holdings and AOL are tired of too much negative press out there. So they've come up with their own solution, GNN.com (an abbreviation for Good News Network) which will "foray into delivering 'good news' at a time when Americans need it.

7) Private equity interest in Chinese retail is not slowing down, but we stress 'retail.' Interest for manufacturing and sourcing assets is clearly on the downswing,

MORNING NEWS (full detail including sources at end of this note)
ZachHammer's overview of items you're unlikely to find in the general press.

  • Consumers aren't the only ones cutting back. Retailers are reining in their spending
  • London Retail sales rose 1.6% on a like-for-like basis in May
  • Matt Priest, the new president of the Footwear Distributors & Retailers of America is using a fresh set of eyes to evaluate and revamp the organization
  • VF Corp's CEO Eric Wiseman, speaking Friday at Reuters Global Retail Summit in London, said he has seen its U.S. markets "stabilize" but he does not expect a return to growth in 2009
  • Guitarist Eddie Van Halen filed a lawsuit against Nike in Los Angeles, alleging the company is using his trademarked red, white and black striped guitar design for one of their shoes
  • Ready for Star Trek: The Sneaker? Discount footwear retailer Payless ShoeSource is launching a broad line of Star Trek-inspired Airwalks at 4,000 stores this fall
  • Consumers' caution could dampen summer spending, Performics says

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough):
BBBY

06/12/2009 10:27 AM

BUYING BBBY $27.43

Buying red here in a name that will be one of the main Survivors of the US Retail bankruptcy cycle that will be associated with higher rates. KM

MACRO SECTOR VIEW AND TRADING CALL OUTS

 Retail First Look: 6/15/09 - 6 15 2009 8 40 16 AM

THIS WEEK'S COMPANY CALENDAR:

 Retail First Look: 6/15/09 - 6 15 2009 7 18 53 AM

MORNING NEWS SUMMARY DETAILS

Consumers aren't the only ones cutting back. Retailers are reining in their spending - with most broadline players slashing millions from their budgets as they try to counter withering sales. Although some, such as Wal-Mart Stores Inc., continue to pump money into their businesses to grab market share, the majority are drastically slimming down within their business models. And if consumer spending doesn't bounce back, retailers will have to start making more drastic and ultimately transformational changes that could reshape the industry, said experts. Sears Holdings Corp., Macy's Inc., Dillard's Inc., J.C. Penney Co., Saks Inc., Nordstrom Inc., and Target Corp. cut a collective $668 million in selling, general and administrative expenses in the first quarter, pushing their SG&A expense down 6.3 percent from a year earlier. That means fewer dollars supporting brands and driving foot traffic, the axing of information technology projects and cramped cross-country plane rides for executives who can't afford to be seen in first or business class as they lay off workers. "From travel to supplies to benefits to marketing to information technology, we're leaving no stone unturned," said Stephen I. Sadove, chairman and chief executive officer of Saks, which reduced first-quarter expenses by $44 million, more than it planned to cut for the whole year. "How we have always done it is irrelevant. We're approaching every area of the business asking how should we do it going forward." Saks rival Neiman Marcus last week revealed plans to reduce expenses by $125 million a year. "Our team has done an excellent job of decreasing their spend," said Burt Tansky, president and chief executive officer of Neiman Marcus. "We are undergoing a comprehensive process that we believe has been thoughtful and significant." About 60 percent of planned expense reductions already have been realized. Neiman's cut $38 million from selling, general and administrative expenses in the most recent quarter versus its 2008 counterpart. Sears, which has 3,900 doors under its namesake and Kmart brands and has been criticized in the last few years for not investing enough in its stores, is the industry's most aggressive cost cutter. The firm surprised Wall Street with first-quarter earnings after it reduced advertising spending by $107 million and payroll and benefit expenses by $84 million. Cuts are even being made in the off-price channel, despite the competitive advantage that comes from having a value orientation during the downturn. Earlier this year Stein Mart Inc. laid off 178 assistant managers, while the rest of its managerial staff took a 5 percent pay cut and store associates' hours were cut by 17 percent. Like other retailers, the company stopped paying shareholders a dividend, eliminated its stock buyback plan and halted contributions to employees' 401(k) retirement plans. All of this feeds into a vicious economic cycle, where the slowdown in consumer spending prompts businesses to cut workers, increasing the ranks of the unemployed and further weakening spending. Department stores alone eliminated a total of 10,800 jobs in February, March and April, according to government statistics that adjust for seasonal variations in workforce. Last month, the department store channel actually added 4,500 positions, although specialty stores cut 3,300 jobs.

Pasted from <http://www.wwd.com/business-news/stores-cost-cutting-may-transform-retail-2167503?navSection=business-news>

London Retail sales rose 1.6% on a like-for-like basis in May. This was the weakest growth in London this year but it was held back by tough comparatives and milder weather. Footfall in London in May fell 0.4% according to Synovate Retail Performance but the capital continued to outperform the UK as a whole - like-for-like retail sales across the country were down 0.8%in May, according to the British Retail Consortium. The BRC added that the favourable exchange rate continued to draw in tourists to the capital, particularly from Western Europe, but that those tourists were spending less. BRC director general Stephen Robertson said: "It's no surprise this May's sales growth was weaker than last year's, which greatly benefited from the dramatic improvement in the weather. Despite this, London retailers outperformed the rest of the UK by a wide margin. And consumer confidence held up better in the capital than other parts of the UK."  Robertson added: "The sunny days boosted sales of clothing, footwear and outdoor living, but not as strongly as compared to last May - which was sunnier."

Pasted from <http://www.drapersonline.com/news/multiples/london-retail-sales-rise-16/5003551.article>

Matt Priest, the new president of the Footwear Distributors & Retailers of America is using a fresh set of eyes to evaluate and revamp the organization. FDRA is gearing up to tweak its communications strategy, services and physical office space, said Priest, who started work at the organization in February, following former president Peter Mangione's retirement.  Communicating more effectively with FDRA's constituency is a key priority, according to Priest. "There are things that members expect in the age of Twitter and instant news," Priest said. "They expect the free flow of information on what decisions are being made, whether it's here or at the port of Long Beach, Calif., or in Beijing. ... Because at the end of the day, we're here to provide predictability and certainty in an uncertain global environment."  To achieve those goals, Priest said the organization will look for cost-effective uses of technology. A new Website was unveiled in the first few weeks of Priest's tenure. New e-mail newsletters with breaking news and information from Washington, D.C., have started going out to the association's members. FDRA also is exploring how Twitter and RSS feeds could be used to provide even more timely updates to members. Additionally, the association's offices on F Street in Washington, between the White House and Capitol Hill, will be updated to include a work center for visiting members who are in town for business.  Priest said he would also like to expand the locations where FDRA meetings are held to include Washington. Historically, meetings have been held in New York and Las Vegas, but getting execs to Washington, where they can be directly engaged, is important, he explained. "[Our members] are our best advocates here in Washington," Priest said. "I'm here to mind the store and make sure our voice is heard at Consumer Product Safety Commission staff meetings and on the Hill, but when a member can come in and speak to their member of Congress about the effects of certain legislation, that is an amazing tool for us as an industry." FDRA's core issues will stay the same, Priest said. They include duty reduction as exemplified in the Affordable Footwear Act; social compliance issues; navigating the implementation of the Consumer Product Safety Information Act; and the pending Employee Free Choice Act - a proposed bill that would make it easier for workers to form unions. "What keeps us sharp - what keeps any organization sharp - are the times we're in right now," Priest said. "We're in an environment where reevaluating our services and making sure we're providing the best bang for the buck is the assumption."

Pasted from <http://www.wwd.com/footwear-news/fdra-prez-unveils-strategy-2168607?navSection=footwear-news>

VF Corp's CEO Eric Wiseman, speaking Friday at Reuters Global Retail Summit in London, said he has seen its U.S. markets "stabilize" but he does not expect a return to growth in 2009. "The apparel (wholesale) business and the stores that we sell (in), things seem to be stabilising," said Wiseman, according to a report on Reuters.. "They're not stabilizing at a great place but compared to December, January and February, when week after week it looked a little bleaker, it's stable." Wiseman said VF had also seen some of its markets in Europe bottom out. "I don't think most of Western Europe is any better or worse than the U.S., it feels like it's stabilising here some too," he said. But Wiseman does not expect any of VF's markets to return to growth in 2009. "We are assuming that there is no recovery this year for sure," he said. Regarding the 2010 outlook, the CEO said, "We will not be assuming that there's an enormous recovery that lifts our performance. That assumption is off the table. Whether there's any improvement in 2010, and when you assume it, is the discussions we're having now." Wiseman said VF Corp continues to explore acquisitions, with the recession having created "lots of opportunities", and was having "a lot of discussions". "Our priorities are outdoor, action sports and contemporary, (brands), that's where we would most like to expand our portfolio," he said.

Pasted from <http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=28314>

Guitarist Eddie Van Halen filed a lawsuit against Nike in Los Angeles, alleging the company is using his trademarked red, white and black striped guitar design for one of their shoes. Nike's "Dunk Lows" shoes feature red, white and black streaks along the midsole. The lawsuit comes as Van Halen has come out with his own line of sneakers under a similar color-scheme

Pasted from <http://www.sportsonesource.com/>

Ready for Star Trek: The Sneaker? Discount footwear retailer Payless ShoeSource is launching a broad line of Star Trek-inspired Airwalks at 4,000 stores this fall, via a global licensing deal with CBS Consumer Products. The sneakers will sell for around $50, at the retailer, which is known for its $15 footwear and buy-one-get-one bargains. The shoes, designed by jeffstaple (aka Jeff Ng), will be styled after the colors and designs of Starfleet crew uniforms. Airwalk, which had its peak in the early '90s, has technically become a Payless house brand through a series of acquisitions. Payless bought Collective Licensing International, which manages Airwalk, in 2007 along with Stride Rite, at which time the operating company was renamed Collective Brands. Airwalk is still managed autonomously by the Collective Licensing International unit and is sold primarily at Payless in the U.S. Liz Kalodner, evp and general manager of CBS Entertainment unit CBS Consumer Products, brokered the deal on behalf of the property. She sees many advantages to exclusive retail offerings, and she's made several recent matches for stores and properties such as America's Next Top Model, Mighty Mouse and 90210. "There's a tremendous opportunity in today's market for direct-to-retail deals because they allow a retailer to differentiate itself and to have a great margin while doing so," Kalodner said.

Pasted from <http://www.brandweek.com/bw/content_display/news-and-features/licensing/e3i45a4bf33efc17917050c56202a50b1ff>

Consumers' caution could dampen summer spending, Performics says - Online consumers spent less on Mother's Day this year, and their caution could put a damper on spending through Labor Day, based on results of a May survey of web shoppers by search marketing firm Performics. The survey found 40% spent less on Mother's Day than usual, 8% more and 53% the same amount. And many consumers plan to spend conservatively this summer. 33% say they will spend less on summer vacations versus 6% who expect to spend more, and 19% say they canceled vacations because of the economy. 46% say they will spend less on home improvements versus 11% planning to spend more. The results are based on a survey May 12-13 of 300 consumers who had made online purchases in the previous six months. "From a low-key Mother's Day to cutbacks on summer travel and home improvement, it's clear consumers continue to tighten their belts and be more selective with their spending," says Michael Kahn, senior vice president of marketing at Performics. "Advertisers across the board, especially in highly affected segments like travel and home improvement, must acknowledge these behaviors and find creative ways to engage their audience and stay competitive." One way to do that is to focus search campaign keywords and ad copy on items consumers view as essentials, Kahn says. And, recognizing that more consumers will be staying closer to home this summer, he says multichannel retailers should make sure that search engines' local listings, such as Yahoo Local and Google Maps, have correct store information, hours, locations and products offered. The May survey was the second in Performics' planned monthly poll of online shoppers to track their confidence and spending plans. Consumers in the May survey were more pessimistic than they were in April, with 29% saying their household economic situation is improving or they expect it to improve this year versus 40% in April. "With only two months of data, we think it is probably still too early to draw conclusions on broad trends," Kahn says. He says it's likely that the responses vary with the latest economic news, such as unemployment reports and the rise and fall of the stock market.

Pasted from <http://www.internetretailer.com/dailyNews.asp?id=30772>