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11 AUGUST 2009


It’s harder than ever for ‘jobbers’ to find product to feed into off-price retailers. There’s another 2 quarters where favorable buys that were subsequently ‘packed-away’ will boost results. But then what’s there to maintain peak margins?

One area in apparel where we think we have a particular edge is in the off-price channel and getting a sense of the incremental change in buyers’ ability to find deals on certain brands. In that regard, there is no question in our minds that the flow of excess inventory is tightening in the domestic market. After retailers and suppliers cut inventories way back, the amount of goods sitting in warehouses and in limbo is diminishing. This should not be a shocker to those listing the standard retail tag line over the past year ‘we’re managing inventories closely, blah blah bah…’.  As such, what we’re seeing is meaningful momentum at TJX and ROST – not to mention peak margins and inventory over the 2 quarters baked due to elevated levels of ‘pack-aways’ purchased over the past year. But let’s not ignore the chart below, which shows how such favorable inventory/sales for the apparel industry has driven gross profit growth over the past decade. This WILL matter as we head into 2010…

2010 IS NOT THAT FAR AWAY - Avg ROST TJ and Sales Inv Spread


Some Notable Call Outs

  • One did not have to work too hard to determine the age of some of the merchandise at DSW’s “secret” Gucci sale. A quick glance through the leather planners clearly included vintage 2007 calendars. While DSW probably got a deal on the goods, at least some of the inventory has been sitting in a warehouse for quite some time.
  • BKS agreed to purchase Barnes & Noble College Booksellers for $596 million from the company’s founder and owner, Len Riggio. As many people know, Len is also the founder, Chairman, and largest shareholder of BKS. While the board engaged a special committee to explore and evaluate the transaction, it was interesting to learn that the College business was not shopped to any third parties. Even more interesting, is the parallelism to a previous transaction in which BKS purchased Babbage’s (from Riggio) and combined it with Funco (both are predecessors to GameStop). At that time the transaction was viewed with some skepticism, but ultimately shareholders won out. A quick check shows that the original investment by BKS in Babbages/Funco was about $400 million in ‘99/’00. Today GameStop’s enterprise value is $4.4 billion.


-UK retail sales values across all retail sectors rose 1.8% on a like-for-like basis and 3.6% on a total basis during July - July showed an improvement on June – when like-for-likes were up 1.4 per cent - but the growth was versus a weak July 2008. Sales in department stores were mixed during last month, but the category benefitted from the wetter weather in the latter part of the month. Clothing sales fell back to just below the July 2008 level last month. During the good weather in the early part of the month, summer ranges sold well during the Sales. However, stronger discounting was needed towards the end of the month. The cooler, wetter second half of the month meant that new autumn ranges had a good start, with rainwear, jeans, leggings, tights and light knitwear proving popular. Casual ranges outperformed formal ranges and childrenswear outperformed adult ranges. Footwear sales were strong during the month. Sandals and casual footwear sold well on sunny days, especially when Sales were extended or increased. Footwear retailers implemented deeper discounting than last year and shoes drove sales in the wetter second half of July. Children’s footwear showed the strongest gains helped by back-to-school. Non-food, non-store sales, which include the internet, mail-order and phone sales, in July were 20% higher than a year ago, bolstered by clearance Sales. The mixed weather hit women’s and men’s clothing but not footwear or children’s clothing which all had another good month. <drapersonline.com>

-The supermarket buy-one, get-one free (bogof) offers could be banned under a Government plan to reduce Britain’s food waste - The Department for Environment, Food and Rural Affairs is demanding that grocers agree to a tough target on reducing food waste or face legislation that forces them to make savings. They could be told to ditch bogofs in favour of half-price deals and package food in a greater range of sizes to suit the single person’s fridge as well as that of a family. The series of reports – called Food 2030 – has been welcomed by food specialists. Defra and the Food Standards Agency are preparing new guidance to reduce confusion about date labels on food. However, the BRC said it would resist attempts to restrict bogofs.  <retail-week.com>

-Privacy clearly has its attractions for online retail - While online discounters such as Bluefly and Overstock have been around for years without impressive results, the online sample sale format known as a “private sale” has caught on worldwide like Champagne at a wedding, showing impressive growth and attracting venture funding. The hype and froth over firms such as Vente-Privee, Gilt Groupe, Rue La La and Ideeli are reminiscent of the dot-com bubble. On the one hand, it seems too good — or too gimmicky — to be true. On the other hand, the off-price market has been estimated at $29 billion a year and it stands to reason at least some percentage of that could move online. (In the apparel world, online retail accounts for about 10 percent of sales.) The magic words seem to be “private” and “sale.” The bargains are hidden behind a firewall where only members can see them — although becoming a member is usually not difficult. (Some sites are invitation only, and others will accept anyone who registers.) The sales are up for a limited time, usually 36 hours, and generally focus on only one brand. Returns and exchanges tend to be limited. Discounts can run as high as 70 percent off. Because nonmembers (and search engines) can’t see what labels are for sale, even luxury and designer brands such as Gucci, Zac Posen and Carolina Herrera don’t mind clearing their excess inventory this way. The deep discounts, the aura of exclusivity and the convenience of shopping online appeal to consumers — who are signing up in the millions to join the sites. The results? Many items sell out within minutes.  <wwd.com/business-news>

-It’s the 11th hour for Escada AG - The German fashion house said Monday it would file for insolvency later this week if its bond exchange offer fails to reach an 80% acceptance rate. The tender period for the bond exchange of 200 million euros, or $287 million at current exchange, expires today at 3 p.m. European Standard Time. The offer has already been improved and extended, but Escada said given the company’s imminent illiquidity, it is not possible to do so again. Results of the offer aren’t expected to be known until Wednesday, however. Escada’s supervisory and management boards will meet Wednesday to determine what further steps to take if the financial restructuring fails. Under the improved exchange offer, bondholders are being given 400 euros, or $572, and 10 Escada shares per 1,000 euros, or $1,430, of debt. The exchange is a crucial part of Escada’s financial restructuring program, and is required to set up future credit lines as well as permitting the planned capital increase to go through. <wwd.com/business-news>

-Best Buy puts an e-commerce industry veteran in charge of global marketing - Barry Judge, who helped launch BestBuy.com, has been promoted to executive vice president and chief marketing officer. Judge has held the chief marketing officer title since February 2008. <internetretailer.com>

-Knitwear firm Hampshire Group cuts more jobs - Hampshire Group Ltd. on Monday reported a wider second-quarter loss and job cuts that will bring its global head count to half of what it was at the start of fiscal 2009. The Anderson, S.C.-based knitwear firm is in the final phase of a restructuring that began in April and will shed 93 further jobs, or 29% of its current staff. The majority of the latest cuts will come as a result of consolidation of its Asian operations, but will also include some in its executive level, the company said. Hampshire expects to save $9.3 million in selling, general and administrative expenses through the restructuring. Since the start of the fiscal year, the company has shed about 160 positions, or 50%of the workforce. <wwd.com/business-news>

-The United Football League said its online retail store, GetUFL.com, will launch Monday, August 10th - The UFL's e-commerce launch is in advance of the League's press conferences next week in Las Vegas, San Francisco, Orlando and New York to announce team names, unveil "Premiere" season uniforms and commence ticket sales. Team merchandise will be available next week after each team name is revealed.  <sportsonesource.com>

-New York Knicks' Harrington promotes affordable footwear - A new challenger has entered the sneaker arena and with the endorsement of several high-profile athletes and one rapper, Protege hopes to provide an affordable alternative to the big-name shoe brands. On Saturday at the Kmart on Wabash Avenue in Northwest Baltimore, about 500 people were on hand to meet New York Knicks forward Al Harrington and his guest, rapper Fat Joe, at the Protege Basketball Block Party. Harrington, who helped develop the shoe line, is one of the first athletes to sign with Protege. The brand is sold exclusively at Kmart and Sears, with most pairs retailing at $34.99. The brand is also worn by Golden State Warriors guard Stephen Jackson and several WNBA players. "It's all about giving back," said founder and chairman Rodney Henry. "They have great hearts. It's not about the money. It's a chance to give back to the kids - inspire and uplift them." Said Harrington: "It's a give-back brand. We did it for our community. Made it affordable so people can look good and feel good wearing it. ... Kids see me and Stephen wearing them every night so they know they're battle-tested." <baltimoresun.com>

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

08/10/2009 10:41 AM


See McGough's note titled "Warming To A Dog." This dog is down today. Buying red. Everything has a price. KM


UA: Gene McCarthy, SVP of Footwear, was either awarded or purchased 35,000shs ($840k) the 8K filing does not disclose if these shares were awarded, but we assume it may be part of Mr. McCarthy’s employment plan.


2010 IS NOT THAT FAR AWAY - SV 8 11 09