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Streaming Music the Amazon Way

Takeaway: Whatever Amazon does, customer attrition is critical.

Editor's Note: Below is a brief, complimentary excerpt from Hedgeye Retail analysis. For more information on our services, click here.


Amazon Working on Music-Streaming Service

 

Streaming Music the Amazon Way - 3 12 2014 3 21 21 PM

  • "Amazon.com Inc. is hoping to offer an on-demand music-streaming service to customers of its Amazon Prime program, but it may limit how much a person can listen to any given song, according to people familiar with the matter."
     
  • "The Seattle-based company has held negotiations with record companies and music publishers seeking to license their music for the planned service, but it remains far apart from some record companies on financial terms, these people said."
     
  • "The music service is one of several new features that Amazon may add as it raises the price of Prime to as much as $119 a year."

Takeaway from Hedgeye’s Brian McGough:

Here’s the deal. Amazon’s (AMZN) world continues to revolve around its Prime service in the same way Costco’s membership-only warehouse club revolves around its membership fee. Costco loses money excluding its fee, and Amazon loses money regardless.

 

Perhaps a boost in customers subscribing to Prime would put Amazon solidly into the black. Because, in truth, $119/year represents a 50% increase from current levels.

 

But you have to keep your customers. Attrition is critical. Simple as that.

 

To us, this move just sounds risky.

Connect to Hedgeye.


$MCD | The Anatomy of a Monthly Sales Press Release!

Editor's Note: Below is a complimentary research note from Hedgeye Restaurant Sector Head Howard Penney published March 10, 2014 at 12:33 PM.  For more information on our services, click here.

 

$MCD | The Anatomy of a Monthly Sales Press Release! - unhappy meal istock

 

The following are quotes from Don Thompson taken directly from the monthly sales press releases.  Reading between the lines, the evolution of the language suggests that management still does not have a plan in place to improve same-store sales:

 

September – management not giving up

"We remain confident in the fundamental strength of the McDonald's System and our ability to connect with customers and deliver the menu choices, value and convenience they expect from McDonald's."

 

November – management not giving up

"We remain confident in the fundamental strength of the McDonald's System and our ability to drive initiatives that will deliver the greatest benefit for our customers."

 

December – management begins to waver, as they admit they need to make “investments”

"As consumer expectations and the marketplace continue to evolve, we are making investments in our menu, restaurants and service to strengthen our connection with customers and build our business for long-term profitable growth."

 

February – management is intent on improving performance

"We are intent on improving our performance by building on our customer-driven strategies and the fundamental strengths of our proven business model."

 

March – management is now thoughtfully evolving its approach

"We are intent on improving our business performance by thoughtfully evolving our approach to ensure that we are delivering the most compelling value, service and convenience to each of the approximately 70 million customers who choose McDonald's each day."

 

On a global basis, MCD had a relatively strong May-August sales period.  Since then, trends have continued to deteriorate.  Since the December sales press release, it has been clear that management is still looking for an answer to evolving consumer expectations.  We don’t believe installing high density tables will help solve this problem.

 

The language in the February release says they are working hard, but there is still no actionable plan in place.  After missing numbers yet again, today’s press release suggests that whatever plan they thought they had in place must be reevaluated.

 

The red lines in the charts below signify a company that is in a secular decline.  Europe and APMEA look to be bottoming, but the secular decline in the US is dragging down global numbers.

 

Until we begin to see these trends improve, we remain bearish on MCD.

 

$MCD | The Anatomy of a Monthly Sales Press Release! - mcd large

$MCD | The Anatomy of a Monthly Sales Press Release! - mcd2

CONNECT TO HEDGEYE.

 


Cartoon of the Day: Obamacare

Cartoon of the Day: Obamacare - Too Few

 

According to the latest numbers, 4.2 million Americans signed up for Obamacare between October 1 and March 1. That’s far short of the administration’s expectations and well below enrollment projections from the Congressional Budget Office.

 

CONNECT TO HEDGEYE.

 


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Retail Callouts (3/12): FW, NKE, MW, AMZN, LB, HMB, TGT, Alibaba

Takeaway: Footwear/Jordan on fire. MW biz weakens as deal inks. Music to boost AMZN Prime. LB/Giselle lovers quarrel. H&M invades. Swatch sues TGT.

EVENTS TO WATCH

 

WEDNESDAY

  • DKS - BofA Consumer & Retail Conference: Wednesday 3/12, 10:30am
  • JWN - BofA Consumer & Retail Conference: Wednesday 3/12, 10:30am
  • PETM - BofA Consumer & Retail Conference: Wednesday 3/12, 1:30pm
  • WSM - Earnings Call: Wednesday 3/12, 5:00pm

 

THURSDAY

  • GCO - Earnings Call: Thursday 3/13, 8:30am
  • DG - Earnings Call: Thursday 3/13, 10:00am
  • ARO - Earnings Call: Thursday 3/13, 4:15pm
  • ZUMZ - Earnings Call: Thursday 3/13, 5:00pm

 

FRIDAY

  • ANN - Earnings Call: Friday 3/14, 8:30am
  • BWS - Earnings Call: Friday 3/14, 9:00am
  • BKE - Earnings Call: Friday 3/14, 10:00am
  • HIBB - Earnings Call: Friday 3/14, 10:00am

 

ECONOMIC DATA

 

Athletic Footwear

 

Sales over the past 3-weeks have been on a tear -- +27%, +10%, and +10% in each week, respectively according to NPD data. Brand Jordan has been particularly strong -- which is an understatement -- with trailing three week sales numbers up over 75% YY. The other callout would be UA, which released the Speedform Apollo two Fridays ago. Due to the timing of the release it's tough to get a good sense of sales trends - but one thing of note is that Units and $ are up big while ASP's are negative. This is due to two factors 1) liquidation of excess inventory, and 2) lower starting price point for the Speedform Apollo which retails for $99 compared to last years releases which started at $120.

 

COMPANY NEWS

 

MW - 4Q Earnings

 

Takeaway: Convenient for MW that they preannounced a quarter with their worst inventory position in years on the same day they ink the deal for the transformational JOSB acquisition.

 

Retail Callouts (3/12): FW, NKE, MW, AMZN, LB, HMB, TGT, Alibaba - chart1 3 12

 

MW, JOSB - Men's Wearhouse To Acquire Jos. A. Bank For $65.00 Per Share In Cash

(http://ir.menswearhouse.com/press-releases/detail/1294/mens-wearhouse-to-acquire-jos-a-bank-for-65-00-per-share-in-cash)

 

  • "The Men's Wearhouse and Jos. A. Bank Clothiers today announced that they have entered into a definitive agreement under which Men's Wearhouse will acquire all of the outstanding shares of common stock of Jos. A. Bank for $65.00 per share in cash, or total consideration of $1.8 billion.  The boards of directors of both companies have unanimously approved the transaction."
  • "Men's Wearhouse shareholders will benefit from approximately $100 to $150 million of run-rate annual synergies realized over three years, through improving purchasing efficiencies, optimizing customer service and marketing practices, and streamlining duplicative corporate functions.  Additionally, Men's Wearhouse's vertical direct sourcing model will be leveraged to improve combined merchandising and sourcing across the combined company and rationalize inventory over time."
  • "The combined company will be the fourth largest U.S. men's apparel retailer with pro forma sales of approximately $3.5 billion.  This transaction brings together a high-value collection of national and owned brands.  Building on the two companies' complementary business models, the combined company will better serve an expanded customer base in more locations and optimize merchandising and sourcing capabilities."

 

AMZN - Amazon Working on Music-Streaming Service

(http://online.wsj.com/news/articles/SB10001424052702304020104579433483787979164?mod=wsj_streaming_latest-headlines&mg=reno64-wsj)

 

  • "Amazon.com Inc. is hoping to offer an on-demand music-streaming service to customers of its Amazon Prime program, but it may limit how much a person can listen to any given song, according to people familiar with the matter."
  • "The Seattle-based company has held negotiations with record companies and music publishers seeking to license their music for the planned service, but it remains far apart from some record companies on financial terms, these people said."
  • "The music service is one of several new features that Amazon may add as it raises the price of Prime to as much as $119 a year."

 

Takeaway: AMZN's world continues to revolve around Prime -- much like how Costco's revolves around its membership fee. COST loses money excluding its fee -- AMZN loses money regardless. Perhaps a boost in Prime would put AMZN solidly into the black, as $119 per year represents a 50% increase from current levels. But customer attrition is obviously critical. Sounds risky to us.

 

LB - Gisele Bundchen Is No Angel as Victoria’s Secret Rival

(http://www.bloomberg.com/news/2014-03-11/gisele-bundchen-is-no-angel-as-victoria-s-secret-rival.html)

 

  • "Gisele Bundchen...is teaming up with closely held lingerie maker Hope to open the first Gisele Bundchen Intimates store in Sao Paulo in May. That same month, a Victoria’s Secret-branded shop is set to begin selling bras and panties in Brazil."
  • "...Gisele will also help Sao Paulo-based Hope open stores in London, New York, Los Angeles and other major cities next year, said Fabio Figueiredo, the company’s director of expansion. Hope aims to more than double the number of countries where it sells its underwear to 40 this year, he said."

 

Takeaway: LB has zero recourse on this one. The damaging part is not that it no longer has Giselle, but that she's helping to build a competitor.

 

TGT, UHR - Swatch Files Lawsuit Against Target Corp.

(http://www.wwd.com/business-news/legal/swatch-files-lawsuit-against-target-7582040)

 

  • "Swatch AG has filed a lawsuit against Target Corp., alleging the discounter of selling watches that copy its designs."
  • "The filing includes images of Swatch and Target watches with zebra-printed wristbands, as well as multicolor watches from both companies. Swatch’s round, brightly colored face without numerals are among the item’s elements, the suit notes."
  • "Swatch described the quality of Target’s watches as “inferior” to its own and said the continued sale of those watches is likely to confuse shoppers and damage the company’s sales. Swatch’s aim is to have Target cease selling the alleged copies, recoup profits from prior sales and attain damages."

 

Takeaway: Seriously…this is all Target needs right now. Jewelry/Watches is a reasonably profitable part of the store, and profit is driven not by $45 Timex Ironman watches, or Disney watches at $16.99 -- but by its similarly-priced product under its own store brands. The challenge for Swatch will be in proving that the designs are proprietary. But Swatch is traditionally not a very litigious company -- it only picks a fight when it really thinks it can win.

 

HMB - H&M's COS Set to Cover the Coasts

(http://www.wwd.com/retail-news/specialty-stores/hms-cos-set-to-cover-the-coasts-7581800)

 

  • "H&M’s plans for COS’ arrival in the U.S. are taking shape. After the first COS store in the U.S. premieres this spring at 129 Spring Street in New York’s SoHo neighborhood, the sleek, professional sibling of H&M has set its West Coast debut by signing a lease for an estimated 13,000-square-foot unit at 357 North Beverly Drive in Beverly Hills. COS, which stands for Collection of Style, has about 80 stores worldwide, but has yet to open stores in the U.S."
  • "COS isn’t only coming to America via its own stores. The retailer will continue a partnership started last year with Opening Ceremony by opening pop-up stores at the designer retailer’s outposts in New York and Los Angeles on April 17. The COS pop-up stores at Opening Ceremony will last until supplies run out. COS will be made available on opening ceremony.us as well."

 

Retail Callouts (3/12): FW, NKE, MW, AMZN, LB, HMB, TGT, Alibaba - chart3 3 12

 

Takeaway: There are maybe two or three companies in retail where we pay attention to WHATEVER they do. H&M is one of them. We hope other retailers in the US are doing the same.

 

OTHER NEWS

 

Alibaba - Alibaba buys majority stake in ChinaVision

(http://www.ft.com/intl/cms/s/0/2db9113e-a91d-11e3-9b71-00144feab7de.html?siteedition=intl#axzz2vkOgrFq9)

 

  • "Alibaba...has paid more than $800m for a majority stake in Hong Kong-listed ChinaVision Media Group, continuing a string of acquisitions that total nearly $3bn over the past year."
  • "Alibaba is preparing for an initial public offering expected for this year either in Hong Kong or New York that is expected to value the company at more than $100bn...Most of Alibaba’s recent acquisitions have been intended to shore up perceived weaknesses ahead of the IPO, mainly in the area of mobile internet."
  • "The ChinaVision deal will address what analysts say is Alibaba’s competitive disadvantage in video entertainment, where it lags behind both Baidu and Tencent. China’s online video scene is already the biggest in the world, with more than 400m viewers and hundreds of millions more set to join as superfast 4G connections become more popular."

 

Ace Metrix Unveils Top Ad Brands

(http://www.wwd.com/media-news/advertising/ace-metrix-unveils-top-ad-brands-7582223)

 

  • "Ace Metrix’s Blackbook list of the most effective television advertising brands is out, and Reebok scored the top spot."
  • "Winners are based on their Ace Scores, which reflect the interplay between an ad’s measured 'persuasion' — comprised of likability, information, attention, change, relevance and desire — and its measured 'watchability' and the likelihood of watching the ad again. All nationally aired ads are scored by more than 500 U.S. consumers weighted to the U.S. census for age, gender and income."

 

Retail Callouts (3/12): FW, NKE, MW, AMZN, LB, HMB, TGT, Alibaba - chart2 3 12

 

Takeaway: Yesterday we highlighted a survey of the least favorite brands, as measured by an independent survey of 32,000 consumers. American Apparel, Sears and K-Mart all scored among the most hated. But this survey is tougher to stomach. Only 500 consumers -- and they collectively rated Reebok and Skechers ahead of Nike. Seriously?

 

ANF - Hollister to Sell SeaVees Footwear

(http://www.wwd.com/fashion-news/fashion-scoops/hollister-to-sell-seavees-7582280)

 

  • "...Hollister will feature an exclusive male footwear line from SeaVees featuring signature Hollister colors on twill lace-up and slip-on sneakers."
  • "The exclusive line, which will be available only at hollisterco.com, is the latest effort to move the businesses toward a wholesale model."

 

SQBG - Sequential Taps Jameel Spencer as CMO

(http://www.wwd.com/business-news/human-resources/sequential-taps-spencer-as-cmo-7581981)

 

  • "Sequential Brands Group Inc. has hired brand strategist Jameel Spencer as chief marketing officer, a new position. Spencer will report to Sequential chief executive officer Yehuda Shmidman."
  • "Prior to joining Sequential, Spencer was cmo at Iconix Brand Group, and oversaw the marketing for brands such as Ed Hardy, Ecko, Umbro, Rocawear and Roc Nation."
  • "In his new role at Sequential, Spencer will develop and lead global marketing initiatives for the firm’s portfolio of brands that include William Rast, DVS, Caribbean Joe, Ellen Tracy and Revo, among others."

PODCAST | McCullough: What Could Possibly Go Wrong?

 

 

Hedgeye CEO Keith McCullough discusses growing market complacency and where the biggest market risks and opportunities exist in this morning's macro call.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
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