RETAIL FIRST LOOK: CIT Implications
14 JULY 2009
TODAY'S CALL OUT
I didn't want to jump on the CIT bandwagon here, but I received about a dozen emails yesterday talking about the gloom and doom associated with a Ch 11 filing. Make no mistake, this is bad near-term. In doing the math, about 9% of CIT's $65bn portfolio are related to Retail, but it is one of the profit centers. In fact, last year CIT generated $100mm in net income in Retail, despite a $633mm loss in the overall portfolio. What does this mean? There are hundreds (if not thousands) of brands and retailers across sub-industries of Consumer that have existed simply because of the crutches in the system that allowed them to deliver sub-par product to a marginal consumer. There is definitely life beyond CIT. There are other factoring firms that will pick up the share as the economic balance finds equilibrium once again. But think about it this way... Does Ralph Lauren need CIT? No way. Does Kellwood? Jones Apparel Group? Perry Ellis? Warnaco? Yes, yes, yes and yes. If the big guys are smart (let's assume that they are big because they are at least reasonably smart), then this is a time when they flex muscle and gain share at retail and in both the mind and wallet of the Consumer. This event should help flush away the dregs of retail. I know I am still too early in suggesting this, but in hindsight I think that CIT Ch 11 proceeding will be viewed as part of the bottoming process for US Retail.
In case anyone missed it, TBL snuck in an 8K after the close yesterday noting that Gene McCarthy is leaving the company effective on Friday. Terms will be disclosed as soon as they are finalized. In other words, there was a major shake-up, and he's out the door. There is no good that can come from this. Gene is the guy that TBL brought in to build a team to breathe life into the Timberland Brand. Gene 'gets' branding. He certainly did while VP Marketing of the Jordan brand during its rise to glory at Nike. He has been the architect of TBL's effort to clean up distribution, and take the brand upstream. Has it been a home run? No, but there is no absence of doubles and triples. My sense is that the 'penny pinching, tree-hugger' nature of the company is holding back on resources to grow the business at a time when it is deserving of the most capital. I'd pit Gene up there as being on Matt Rubell's (PSS) career path - only 5-10 years down the line. In fact, I think it'd be huge for PSS to hire the guy. As for TBL, this is a major blow. I had been a fan of the story up until earlier this year when I realized that numbers were too high. Now they REALLY look too high, and the talent to help TBL climb out of its miserable hole is fading. There's not much to hang your hat on with this story, except an acquisition. And as far as I'm concerned, the pool of buyers is half of what it was just three months ago, and the multiple has doubled. Not good, TBL. Not good at all...
LEVINE'S LOW DOWN
Some Notable Call Outs
- A last ditch effort is underway to save Ritz Camera from liquidation. After closing hundreds of stores but failing to hold off Chapter 11, the retailer is now pinning hopes on an auction for the whole company slated for July 23rd. If unsuccessful, it is expected that a complete liquidation will begin the next day.
- After 5 years of operating high-end outdoor retailer Smith and Hawken, Scott's threw in the towel on the chain and announced all 56 stores will close by year end. I wouldn't be surprised to see the brand reemerge, either in the form of further licensing deals (TGT already sells a line under the Smith and Hawken name) or an outright sale of the brand.
- Local marketing is in full force in advance of ANF's Hollister flagship opening this Thursday in SOHO, NY. The early marketing push includes two shirtless male models dressed in lifeguard shorts hanging out in front of the store's main entrance. Despite persistent same store sales weakness across all of the company's main brands, we expect the fanfare surrounding the store to be positive. After all, the store itself is likely to be very dramatic with an interior that supposedly sports a real pier and 77 flat screen tv's broadcasting a live feed of the ocean in Huntington Beach, CA.
- Ho Chi Minh City, Vietnam is aiming to further develop its retail and wholesale industry - Ho Chi Minh City has plans for an extra 95 supermarkets and 140 "trade centres" planning to be built in the period until 2015. They will be built mainly in the Vietnamese city's downtown, the Nam Sai Gon and Thu Thiem urban areas, as well as at stops along its planned Metro rail line. The government's goal is to expand the share of modern retail distribution to 40% of the total retail value by 2015, with the new developments also expected to encourage more convenience and food stores in residential areas. Ho Chi Minh City is also planning to upgrade a total of 64 traditional markets in 2009-10 and another 31 markets in the next five years. <fashionnetasia.com/industryupdate>
- Global cotton consumption expected to slow down - The US Department of Agriculture has reduced forecasts for global cotton consumption in 2009/10 due to expected slowdown in Pakistan, China and Thailand. The USDA said global consumption would be 112.62 million bales, down from last month's estimate of 113.42 million bales. However, the consumption prediction is still above last year's estimated demand of 110.34 million. The USDA also set the world production figure at 105.95 million bales for the year, down from its earlier estimate of 106.26 million bales. Global cotton consumption in 2008/09 was 106.93 million bales. <fashionnetasia.com/industryupdate>
- More hypermarkets are expected to be built in India by 2011 - Around 315 hypermarkets are expected to come up in tier I and II cities of India by 2011 to sell off all articles from automobiles to needles under one roof as by then recovery from current downturn would have firmly established, according to a joint study by industry body Assocham and KPMG. The study entitled 'Reinventing India's Retail Sector' in its analysis of Feasibility of Hypermarkets in tier I and II towns between 2008-11 points out that even in year 2008, 212 towns had sufficient market potential for hypermarkets for break even existence. However, the study pointed out that the potential of those markets are yet to be realized by the industry. "That is a different matter that this potential has yet to be realized," stated the report. The report further stated that organized retail, which is growing at 20 per cent annually, is encouraging mall building activities at phenomenal rate, which would ultimately amount to creation of chains of hypermarkets. Sajjan Jindal, president, Assocham, said that given the expected growth in number of households as well as in income and consumption per household in urban India, particularly in its leading 25 towns, 5 or more hypermarkets per city are feasible even in 2009. <indiaretailing.com/News>
- UK retail sales rise - UK Like-for-like retail sales rose 1.4% in June when fashion sales were boosted by the hot sunny weather and high street discounting. <drapersonline.com>
- Primark founder steps down - Primark founder Arthur Ryan is to step down as managing director of the fashion retailer in September, when chief operating officer Paul Marchant will become chief executive. <retail-week.com>
- CHRS holds off on selling food business, more executive changes - Charming Shoppes pulled its Figi's food business off the selling block and made several executive appointments. The retailer initiated the sale of its Wisconsin-based Figi's Gifts in Good Taste catalogue business in August to refocus its energies on core brands. But Charming Shoppes said it has halted the sale process because it was unable to find an "acceptable valuation" to complete the transaction. The company also announced the appointment of Anthony Romano to executive vice president of global sourcing and business transformation. Lisa Batra was named director of e-commerce for the Fashion Bug Brand, and Kimberly Aylward was appointed director of e-commerce for its Catherines brand. The firm hired Michele Pascoe as vice president of finance and chief financial officer of the Fashion Bug unit, and Brett Schneider to the same post at Catherines. <wwd.com/business-news>
- Kellwood works to secure financing - Kellwood Co. raced the clock Monday, exploring its financial options and negotiating with key bondholder Deutsche Bank to avert bankruptcy by restructuring $140 million in obligations, which comes due midnight Wednesday. Michael Kramer, president and chief executive officer of Kellwood, said the process could take up to a month. "We are surprised and disappointed by Deutsche Bank's current position as they were on our bondholder steering committee, helped structure the deal and told us all along that they supported it," said Kramer. <wwd.com/business-news>
- Industry retailers are jumping on the mobile commerce bandwagon - By Christmas 2010, shopping on the road, while waiting on line at the supermarket, traveling in China or backpacking through France - wherever there is cell phone service - just might be as normal as shopping online. The latest entry: London-based luxury e-tailer Net-a-porter on Monday launched a shopping application for the iPhone. Users who download the free application can see what's new in the store, shop and update their wish lists, among other things. At least 11 major companies, from Polo Ralph Lauren to Sears and CVS to Galeries Lafayette are raising their profiles by offering shopping on Web-enabled cell phones. Dozens more launches are expected in the next year. Just under 20% of customers have an iPhone or iPod Touch. <wwd.com/retail-news>
- Ranking of the top 10 Vacation Destinations in the US - Even in a down economy, some people are still willing to pay for an escape from the daily grind. But many vacationers have decided to stay a little closer to home this year, favoring a jaunt within the U.S. over trips abroad. And according to a survey of almost 550 travel agents nationwide, big cities, relaxing atmospheres and star power reign supreme in 2009. 1) Las Vegas, 2) Orlando, 3) Kahului HI, 4) Honolulu HI, 5) New York City, 6) Phoenix/Scottsdale AZ, 7) Anchorage, 8) Washington DC, 9) San Francisco, 10) Chicago <wwd.com/footwear-news>
- Eddie Bauer looking for bids - Eddie Bauer Holdings Inc. may draw bids from Iconix Brand Group Inc. as well as Golden Gate Capital. <sportsonesource.com>
- Nike merging websites - Nike has merged the popular nikeplus.com website and its close to 2 million members with www.nikerunning.com to give users a one-stop running destination online. Nikeplus.com has added many new features and social media opportunities. <sportsonesource.com>
- Sears teams up with the NBA and WNBA - Sears Holdings and the National Basketball Association (NBA), the Women's National Basketball Association (WNBA), and the NBA Development League (NBA D-League) announced a new promotional partnership in support of the Protege brand's line of basketball footwear, sold exclusively at Kmart and Sears. sportsonesource.com>
- K-Swiss lawsuit dismissed - The Los Angeles District Court has dismissed a lawsuit filed by K-Swiss against Puma over. Puma filed its own trademark infringement lawsuit in the District of Massachusetts and the case will continue to be heard there. <sportsonesource.com>
- SUBOI and Timex apparel license agreement - SUGOI Performance Apparel, a division of Dorel Industries Inc., and Timex Group, have entered into a license agreement for the design, manufacture and distribution of sports apparel under the Timex brand name. Sugoi will launch a line of Timex performance apparel designed for everyday athletes nationwide. <sportsonesource.com>
- Wal-Mart's magazine relaunching - Since its inception in 2004, Time Inc.'s All You magazine has been distributed at Wal-Mart stores and via subscription, offering consumers money-saving tips. This week, the magazine is relaunching its site to better serve its audience during a recession. Consumers visiting the site will get exclusive coupon offers, a Web video series and "Style for Less" tips. With more Americans moving to budget-friendly shopping, this was the right time for a relaunch, said All You associate publisher Suzanne Quint. Brands such as Carvel Ice Cream, Arm & Hammer and Snapple have signed on as sponsors, offering the exclusive coupons on the site. Heinz's Smart Ones is the site's launch sponsor. <brandweek.com>
- Swank Inc. teams up with women's belt business - Swank Inc., the men's accessories supplier, thinks it has found the platform to get into the women's belt business - a strategic alliance with Style 365 LLC, a women's belt resource. Swank, which designs, sources and distributes men's belts and other accessories to a range of retailers under a sizable portfolio of licensed and owned brands, will assume responsibility for sourcing, logistics, financing and other backroom functions for Style 365. John Tulin, chairman and chief executive officer of Swank, said his firm had made an investment in the women's firm but declined to specify its size. <wwd.com/business-news>
- Puma is keeping it sleek and colorful for spring '10 - Streamlined shapes, bright colors and sculptural accents characterize the looks - both performance-athletic and athletic-leisure - brought to the market by the Herzogenaurach, Germany-based brand (a division of French luxury house PPR). Puma styles are available at Puma retail shops, Puma.com and department stores and independent retailers, and sell for $60 to $295. <wwd.com/footwear-news>
RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): TGT
07/13/2009 10:20 AM
SHORTING TGT $37.98
We're expanding our short position in US Consumer. Being short Ackman's concentration factor (illiquidity) is also attractive here. KM