What's New Today in Retail (1/3)

Takeaway: AMZN now taxing 50% of biz. NKE gears new NTC App for women. 10%+ labor cost boost. WMT Donkey-gate. Good COLM China deal. F21 FW ASP +100%.



AMZN - Amazon Now Charging Sales Tax in Indiana, Nevada, and Tennessee 



  • "With the new year, Amazon is charging sales on purchases in three more states - Indiana, Nevada, and Tennessee. Amazon agreed to begin collecting sales tax in the three states in 2014, bringing to 19 the states in which it automatically adds tax to purchases."
  • "In 2016, South Carolina will join them, bringing the number up to an even 20. Amazon's warehouse expansions have given it a physical presence in more and more regions, speeding up deliveries but also opening it up to taxes. Some observers have estimated the retailer is now collecting sales taxes from half its customers."


Takeaway: No surprises here…We've had visibility into this issue for quite some time. The most surprising factor is that more states have not joined in. If the statement above that AMZN collects tax from half of its customers is true -- and it sounds right to us -- the most interesting fact is that AMZN's business remains on fire despite a narrowed competitive gap vs. brick and mortar retailers.


NKE - Nike Launches Updated N+TC App



  • "Nike’s updated N+TC app, which launched Tuesday for Nike Training Club’s nearly 11 million members, comes just in time for annual New Year’s resolutions. The upgrade boasts new features such as more than 100 customizable workouts, four-week programs to meet specific goals, milestone rewards that will be shareable via social media and a library of regimens inspired by professional athletes…"


What's New Today in Retail (1/3) - chart1 1 3


Takeaway: This new NTC (which we've used already) has some notable enhancements. We can't call them 'improvements' because that would suggest that the previous iteration was lacking -- which it wasn’t. The biggest takeaway is that the workouts are almost entirely geared towards women. That's not to say that dudes can't do the workouts (that statement was an attempted face-saver for me), but almost all of the digital instructors are women.  Last time Nike led with Allyson Felix (Olympic Gold Medal sprinter) and Manny Pacquiao (Filipino Boxer/National Hero). This time, its Serena, Sharapova, and a host of (extremely fit) women we've never seen before. Our sense is that all the data Nike collected over the years from NTC users allowed it to fine-tune its app and focus on a more commercial audience -- women.  Separately, most people don't know this, but many Nike retail stores host NTC classes in the stores -- much like how LULU clears the floor to host yoga class, Nike does it for circuit training.


WMT - Wal-Mart Adds DNA Tests in China After Donkey-Meat Recall



  • "Wal-Mart Stores Inc. said it’s adding DNA tests of meat it sells in China after recalling donkey products from a local supplier that authorities said contained fox DNA."
  • "Wal-Mart withdrew all products from vendor Dezhou Fujude Food Company Ltd., after fox DNA was identified in samples, the retailer said yesterday in a statement. Yucheng, China authorities put Dezhou Fujude officials in “criminal detention,” and Wal-Mart is considering legal action, according to the statement."
  • "Wal-Mart said it’s offering compensation to customers and that the testing it’s adding goes beyond what is legally required in China."


Takeaway: We're usually good for a comment on just about any topic. This one, however, leaves us without words.


M, JCP, MSO - Macy’s and Martha Stewart Living Omnimedia Settle Legal Dispute



  • "Macy’s, Inc. today issued the following statement: 'Macy's has resolved its breach-of-contract lawsuit against Martha Stewart Living Omnimedia. We are pleased to be able to put this matter behind us. The terms of our settlement are confidential, will not be disclosed, and are not deemed to be material to Macy’s. We can now return our focus to what we do best – bringing beautifully designed, high quality, affordable products to consumers nationwide. We look forward to a continued, successful partnership together. This settlement does not affect Macy's outstanding claim against J.C. Penney, which remains subject to the court's decision.'”


Takeaway: The big loser in this whole mess is Martha Stewart. Let's face it, her reputation isn't exactly stellar. And then the goes ahead and inks an exclusive agreement with JCP when she is already locked into one with Macy's? Perhaps blame it on Ackman and Johnson -- but Martha was central to the deal. If you ran a retailer, would you really want to do business with MSO again?


COLM - Columbia Sportswear Company and Swire Resources Announce Commencement of New Joint Venture in China



  • "Columbia Sportswear Company said its joint venture with Swire Resources Ltd. commenced operation as planned on Jan. 1, 2014. Also, as previously planned and announced, 29-year Swire Resources veteran Samson Wong was appointed president of the joint venture - Columbia Sportswear Commercial (Shanghai) Company - headquartered in Shanghai."
  • "The joint venture inherits the broad distribution network established over the past nine years by Swire Resources, which has acted as Columbia's exclusive distributor in China since 2004. That network consists of 51 wholesale dealers that, at December 31, 2013, operated approximately 660 Columbia Sportswear retail locations and 47 Mountain Hardwear retail locations in 180 cities. In addition, the joint venture directly operates approximately 70 Columbia branded retail locations in 7 cities."
  • "Reflecting Columbia's 60 percent ownership stake, the joint venture will be fully consolidated in Columbia Sportswear's operating results and financial position beginning with the first quarter of 2014…"


Takeaway: This is a good deal. Much of the Outerwear market in China is counterfeit/knock off, or just poor quality unbranded product. While COLM already has a presence there, it will now be with a much stronger partner, and one with which it has greater financial interest.  Despite the brand's presence in China, the market remains wide-open.


Forever 21 - Forever 21 Expands Footwear Line



  • "The Los Angeles-based retailer, which operates more than 630 stores in the U.S., is set to launch a premium leather shoe collection this week, featuring 10 styles."
  • "The leather collection, which will retail from $49 to $79, is a step up from the current selection, priced below $40. Some of the new styles feature cutouts, buckles, metallic hues and gold hardware."
  • "The line debuts online today and will roll out to L.A. stores on Jan. 3, eventually reaching nationwide shops by Jan. 10."


Takeaway: This is a big deal. Aside from the fact that whatever Forever 21 does it usually does right, it's noteworthy that price points vs existing products are going up by upwards of 100%. They better get the value proposition right, otherwise the consumer will vote very quickly. - IPO Prospect to Buy Yub for $30 Million



  • "On the way toward a possible initial public offering, digital-coupon company has agreed to acquire Yub, according to a person familiar with the agreement."
  • "Yub works with retailers to offer loyalty programs to lure shoppers into brick-and-mortar stores. could use the Mountain View, Calif., company’s technology and affiliate network to better track which online offers lead to in-store purchases."
  • " will pay about $30 million for Yub, according to a merger document reviewed by The Wall Street Journal."


Takeaway: Ordinarily, we'd dismiss something as minor as this. But the reality is that with the emergence of sites like and (and possibly Groupon -- but that's a stretch), we're left with powerful discounting mechanisms online that are still in the early stages of proliferation.


NXT - Next Raises Forecast After Christmas Sales Exceed Hopes



  • "Next Plc, the U.K.’s second-largest clothing retailer, raised its full-year profit forecast and plans to pay a special dividend to shareholders after holiday sales 'significantly' exceeded company expectations."
  • "The shares rose as much as 11 percent, the steepest gain in about five years, after Next said pretax profit for the year ending this month will be 684 million pounds ($1.1 billion) to 700 million pounds. That compares with October’s forecast of 650 million pounds to 680 million pounds."


Takeaway: There's a little trend for you…two retailers smoked sales expectations. 1) H&M, and 2) Next. US clothing retailers have got to have 'sales envy'.


BRK - Brooks Signs Nick Symmonds



  • "The Seattle-based footwear firm, which celebrates 100 years in 2014, added Olympian Nick Symmonds to its roster on Thursday. The move, the company said, is an example of a deepened commitment to competitive running this year."


Takeaway: But can he sell shoes? We can think of a dozen slow runners that can sell more shoes than elite runners. We're not sure with this guy -- but it's a question that should be asked. (If he was really marketable, Nike would have grabbed him).




IBM Digital: Holiday Online Sales Rise 10.3 Percent 



  • "According to the IBM Digital Analytics Benchmark, fourth quarter online sales were up 10.3 percent year over year."
  • "Department Stores: Fourth quarter online sales grew by 62.8 percent over 2012, with mobile sales growing by 49.6 percent year over year."
  • "Health and Beauty: Fourth quarter online sales grew by 14.7 percent over 2012, with mobile sales growing by 81.7 percent year over year."
  • "Home Goods:  Fourth quarter online sales grew by more than 46.4 percent over 2012, with mobile sales growing by 38 percent year over year."
  • "Apparel:  Fourth quarter online sales grew by 10.2 percent over 2012, with mobile sales growing by 54.5 percent year over year."


2014: Global Sourcing to be More Costly as Worldwide Minimum Wages Continue to Rise



What's New Today in Retail (1/3) - chart2 1 3


Cambodia Worker Protests Turn Deadly



  • "Security forces opened fire on protesting garment workers here on Friday, killing at least two or three people according to a local politician and a workers' union representative."
  • "The violence erupted during a demonstration at Canadia Industrial Park, coming after more than a week of peaceful protests and demonstrations by workers demanding high wages."


After an Oct/Nov bounce off the September disaster, are investors due for a shock?


  • We project mature regional gaming markets to post -9% in SSS revenues in December – as bad as September which crushed Q3 earnings.
  • Remember that the stocks recovered in later Q4 as October and November rebounded
  • PENN and PNK are particularly at risk
  • Look for the states to begin releasing numbers next week
  • Based on early feedback from Pennsylvania and Missouri, a double digit monthly decline in revenues is possible for both of those states.  Pennsylvania may release monthly numbers as early as today.
  • December 2013 has one less Saturday than prior year 


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UNP, NSC, CSX: Rail Regulation Outlook, Former STB and ICC Chairman Linda J. Morgan

Takeaway: Please join us on Wednesday, January 8th for a discussion with former STB and ICC Chairman Linda Morgan.

UNP, NSC, CSX:  Rail Regulation Outlook, Former STB and ICC Chairman Linda J. Morgan - nbb1





The history of railroad profitability is dominated by regulation and government intervention.  Railroads have been regulated because, like utilities, they possess some characteristics of a natural monopoly.  With current railroad profitability generally higher than at the start of the Interstate Highway System, will regulators gradually step back in?  If hints emerge that the regulatory pendulum might swing back against railroads, it could prove negative for railroad share prices.  If not, the favorable industry structure of the railroad industry may allow the continued high levels of profitability investors now expect.



UNP, NSC, CSX:  Rail Regulation Outlook, Former STB and ICC Chairman Linda J. Morgan - nbb2






  • What is the current posture of the STB and how does it differ from the former ICC’s?
  • Can you discuss 'paper barriers' and other sources of anticompetitive concerns and whether they are viewed as relevant by regulators and lawmakers?
  • How do Congress, the Obama Administration and the STB view the railroad industry and its resurgent profitability? How profitable can railroads get without more scrutiny?
  • Are customers unhappy that cost reductions and efficiency improvements are not fully reflected in rates, similar to an actual utility?
  • What form might additional regulation take and when might it come, if at all? What proposed legislation should investors currently focus on? Is it a matter of time before legislation passes?
  • Will the expansion of the Panama Canal impact the industry and how do industry participants and regulators view the project?
  • Who are the key players in Congress and in regulatory bodies and what are their agendas?
  • Do recent railroad accidents increase scrutiny? Will increased oversight or additional costs emerge?
  • Is there hope for high speed passenger rail in the U.S. and what does the future hold for Amtrak?


Please feel free to send question for Linda in advance of the call.





Linda Morgan has 35 years of in-depth regulatory and legislative experience in the transportation industry, with a practice focusing on a variety of railroad and other regulatory and commercial transportation matters and associated legislative and policy issues.


Ms. Morgan's past experience includes acting as the Chairman, during President Clinton's Administration, of the former Interstate Commerce Commission (ICC), which became the Surface Transportation Board (STB) in 1996. During her 8 years as agency Chairman, she presided over numerous transportation regulatory proceedings, including rail rate and service matters and railroad merger cases of unprecedented national scope and complexity. In 1999, the Senate confirmed Ms. Morgan for a second term, and in 2001, President Bush asked for her continued service as Chairman until he designated a new Chairman in December 2002.


Prior to joining the ICC, Ms. Morgan served for 15 years as counsel with the Senate Committee on Commerce, Science, & Transportation, including seven years as General Counsel. During this period, Ms. Morgan was responsible for much of the legislation that established the framework for today's transportation system, including surface transportation policy that she later was in charge of implementing as Chairman of the ICC and the STB.


More background on Linda Morgan here:

Fade the Dead Cat

Takeaway: Gold is nowhere near confirming anything at all except a dead cat bounce.

After crashing throughout 2013, Gold, Yen, VIX (volatility) were all up yesterday.


Yes, I will be fading that counter TREND move (shorting Gold and buying US and European equity beta) on that.


Sorry, but Gold is nowhere near confirming anything at all except a dead cat bounce.


Fade the Dead Cat - Gold Dead Cat


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