RETAIL FIRST LOOK: FEET ON THE FLOOR
24 AUGUST 2009
TODAY’S CALL OUT
Every day, I feel honored and privileged to put on my Research Edge jersey and compete along with my teammates. They make me better every day, and hopefully, I occasionally reciprocate. This morning I need to direct you towards Keith’s Early Look. He sets the stage with a look at Merlin Olsen’s approach to his NFL career. He played for the same team for his entre 15 year career, made it to the pro bowl in all but his last, and never missed a game. Every morning his feet were on the floor, with no days off, and no excuses. You’ve got to either a) admire that, or b) pray that you are not competing against it.
This applies quite well to being a retail analyst in these fleeting days of summer. Everyone else is getting over the earnings season hangover for companies on a Calendar FY. For retailers, the hangover is in full force.
Last week was a busy one, and this will be too. One of the biggest thematic call outs thus far has been in the sporting goods sector. With results out of DKS, FL, and HIBB, we got a nice snapshot into where this industry stands. Bottom line is that inventory is building across the board. Not good. Retailers are shifting to lower-price performance shoes, and are giving new brands a shot. KSWS, PSS and UA stand out on the positive side. Nike and DKS are Neutral to negative. FL and HIBB are scary.
There’s another dozen retailers reporting this week. Our feet, as always, will be on the floor helping members of our exclusive network win.
LEVINE’S LOW DOWN
Some Notable Call Outs
- As Ann Taylor looks to improve its merchandising, while at the same time cutting inventory levels dramatically (down 30%/square foot), it is finding that its customer has become accustomed to buying on promotion. Even with lower ticket prices, the customer is not meaningfully responding to such price cuts. As result, the merchandising strategy on a go forward basis will include much more planned ticket promotions that highlight “before and after “ pricing.
- Following a mid-teens same store sales decline in its US division, Footlocker is looking to change its footwear mix in an attempt to boost sales. Management hopes to insert “value” in the assortment through the addition of more moderate priced footwear. Expect Footlocker to make an “aggressive” push in brands like K-Swiss and in product categories that include classic tennis and white shoes. Heightened promotional activity is also likely as the company looks to drive traffic and adjust inventory levels to current demand.
- Technical running shoes remain the bright spot in an otherwise challenging athletic footwear environment. Hibbett Sports highlighted that its technical running category actually comped positively in 2Q. Additionally, it is one of the few categories that is being planned up for the remainder of the year.
-The New Normal for vendors and retailers- Even as vendors and retailers continue to struggle with non-shopping consumers, declining sales and a near-term outlook that remains uncertain, the outlines of the world beyond the economic downturn are coming into focus. And the result can be summed up in one phrase: Less will be more. The NPD Group estimates that 12% of vendors will not survive the recession and nearly 20% will abandon expansion strategies and retrench, focusing on their core products and markets. There will be fewer consumers, which will mean fewer stores, fewer collections, fewer products per collection and lower inventories. That will be what will be required to adapt. But to survive, vendors and retailers will have to ensure there is less duplication, faster turnarounds and more exclusive, innovative product to excite shoppers. Here, WWD canvasses manufacturers, analysts and consultants on the key factors that will drive the age of the New Normal. INVENTORY REDUCTIONS - Retailers are cutting inventories by 15% or more from a year ago, meaning reduced orders for vendors, as well. Small manufacturers are the most vulnerable as merchants stick with tried-and-true labels to lure reluctant shoppers back into their stores. SELLING OUT - For the retailer, it’s a balancing act between creating demand and disappointing the customer. Although stores are counting on being able to reorder midseason, that may not be possible, especially on fashion goods, since vendors have cut back as well so as not to be stuck with excess merchandise. MARKDOWNS - Full price doesn’t mean much anymore in light of in-season discounts that can hit 70 to 80 percent. NPD reports that 52% of all merchandise is now sold at promotional pricing — five years ago, 52% was sold at full price. The risk of such deep discounting is that original selling prices become meaningless and that, even once the economy recovers, consumers will resist paying full price. BUYING CLOSER TO NEED - With retailers clamoring for faster turnaround, can vendors answer the call? Fashion firms say anything less than eight weeks is impossible to achieve due to the demands of the production schedule. VERTICALIZATION - Department stores have been losing market share nearly every year since 2003, and that trend is expected to accelerate this year. According to NPD’s Cohen, department stores, which account for 16 percent of fashion sales, have been losing about 0.5 percent a year, and he expects they could lose up to a full point as mass merchants and lower-priced retailers gain consumer attention during the recession. <wwd.com/business-news>
-Good news: Sales of men’s underwear are up so far this year - If Alan Greenspan’s theory is correct, the economy may have turned the corner. The economist and former chairman of the Federal Reserve Board famously kept tabs on sales of men’s undergarments, which he believed could accurately predict swings in consumer spending. Unlike coats or sportswear, underwear sales tend to be unmoved by the vagaries of trends or seasonal spending. Greenspan, who articulated his theory of “briefonomics” more than 15 years ago to then-CBS reporter Robert Krulwich, saw in this stability a winning economic indicator. “On those few occasions where [sales] dip, that means that men are so pinched that they are deciding not to replace underpants,” According to The NPD Group, sales of men’s underpants are up 4.7 percent for the first half of the year, even as the men’s wear business overall continues to stagnate, falling 5.2% during the same period. But even if underwear is an economic groundhog, the rest of apparel has a way to go before it will enjoy comparative gains. For the same six-month period, sales of tops tumbled 8.8%; tailored clothing dipped 5.2%. Apparel accessories slumped 4.4%. Only sleepwear and fleecewear posted gains, surging 11.7% and 14.4%, respectively. <wwd.com/menswear-news>
-Direct Foreign Investment in China fell 36% in July - Despite deep declines in foreign investment, analysts say the textiles and apparel industry is bound to recover and begin seeing new investment as soon as the world’s economy gets back on its feet. The Chinese government last week released new figures showing the country’s foreign direct investment, or FDI, fell by 35.7% in July from the same month a year ago. The decline marked a continuing pattern that began with the onset of the credit crunch last fall, with 10 months in a row of falling foreign direct investment in China. Although the government has been pushing long-term economic development for more homegrown innovation and domestic consumer demand to wean itself off a reliance on exports, China remains heavily dependent on foreign direct investment. “We still need a lot of foreign investment, that’s for sure,” said Lu Yayong, of the China Research Center of Foreign Direct Investment. “With too little capital invested in private businesses and the country’s high savings rate, foreign investment is very important for the development of this economy. <wwd.com/business-news>
-The U.S. International Trade Commission voted to find a trade remedy case involving textile products and Chinese quotas - The U.S. International Trade Commission voted unanimously on Friday to move forward with the first trade remedy case involving textile products from China since quotas were lifted at the end of last year. The ITC found that imports of “narrow woven ribbon with woven selvage” from China and Taiwan injured or posed a threat of injury to domestic companies. The ruling clears the way for the Commerce Department’s Import Administration to move ahead with its parallel investigation. The products covered by the decision include certain woven ribbon used for embellishing apparel or decorative purposes like gift wrapping. <wwd.com/business-news>
-For retailers these days, liquidity is the name of the game - To reduce losses — and improve their bottom lines — retailers across categories are seeking out ways to improve cash flow. And in this economic climate, all areas of the business are prime targets for potential savings. “Inventory is No. 1,” said Paul Erickson, SVP of RMSA Retail Solutions, a consulting firm. “And the faster you sell it, the better your cash flow.” Though that may sound obvious, Erickson, who often gives seminars on the topic, advises that independent retailers turn, or sell, their entire inventory at least three times a year. But how do you do that? For many retailers, reducing inventory levels has helped. DMM of footwear at DTLR, which has 66 athletic stores throughout the East Coast, said that while he can’t stop buying completely, his approach is different now. Such opportunities, he said, include looking for deals from vendors, who may be receiving cancelled or returned orders that they are willing to resell for a better price. And now more than ever, such arrangements between retailers and vendors can help a store’s cash-flow situation. <wwd.com/footwear-news>
-L.L.Bean announced the March 2010 launch of L.L.Bean Signature, a sportswear collection for men and women - The company has tapped Alex Carleton, the founder of fashion label Rogues Gallery, as the L.L.Bean Signature creative director. The company said the L.L.Bean Signature will be rooted in L.L.Bean tradition. Carleton plans to take iconic L.L.Bean style elements from different decades and juxtapose them with innovative, modern designs to create updated fit and style for the new label. “L.L.Bean Signature will take the best of Bean and re-interpret it in a fresh new way,” said Chris Vickers, vice president of L.L.Bean Signature. <sportsonesource.com>
-UK's Debenhams demands better supplier terms - The department store group wrote to some of its suppliers last month, demanding that they meet its “minimum standard payment terms” by August 4. The new terms moved the payment timetable from 60 days to 65 days, according to The Daily Telegraph. Retailers extend payment terms to enable them to have cash in their bank for longer. Payment terms have been moved from around 30 days to up to 90 days over the last decade. Debenhams declined to confirm the terms it demanded. However, it said that the changes were requested to a “minority” of suppliers so that they could be bought in to line with its other suppliers. A spokesman said: “A letter has gone to a minority of our suppliers who do not comply with the company’s minimum standard payment terms. Payment terms remain unchanged for the majority of suppliers.” Like-for-like sales at Debenhams fell by 0.8% over the 12 weeks to May 23, meaning that the department store has taken market share from rivals. It also improved its gross margin by 90 basis points. <drapersonline.com>
-Christopher & Banks eyes the holiday season with a multichannel strategy - New online gift centers on the women’s apparel retailer’s e-commerce sites are increasing click-through rates while also expanding product offerings in stores, where shoppers can check computer monitors for suggested gift arrangements. <internetretailer.com>
-Nike Inc., Tommy Hilfiger USA Inc. and Diesel USA Inc. hurt by confessed Ponzi scheme operator Marc Dreier - On Aug. 19, Judge Jed Rakoff, of U.S. District Court in Manhattan ordered that Dreier also pay restitution to his victims. Hedge funds Elliot Associates LP and Fortress Investment Group topped the list, owed $99.9 million and $84.4 million, respectively. However, Rakoff also ordered that Dreier make good with smaller investors including apparel firms Nike, owed $243,124; Coogi Partners LLC, owed $47,650, and Adidas America Inc., owed $6,258. The 24-name list included a handful of other fashion firms owed less than $5,000, such as Tommy Hilfiger, Diesel, Seven For All Mankind, Rock & Republic Enterprises Inc. and Nautica Apparel Inc. Court records did not immediately make clear how Dreier is to pay back his victims, though Rakoff ordered, in a July 17 ruling, that he forfeit millions of dollars worth of cash and property. The 10-page list of assets included bank accounts, homes in the Hamptons and West Indies, an Aston Martin and a collection of contemporary art that featured works by Andy Warhol and Damien Hirst. <wwd.com/business-news>
-Lead plaintiffs in a lawsuit appeals judge' dismissal of case on SHLD and its chairman, Edward Lampert - Former Kmart investors filed the suit against Lampert and onetime Kmart chief executive officer Julian Day in 2006. The lead plaintiffs in a lawsuit that had accused Sears Holdings Corp. and its chairman, Edward Lampert, of securities fraud said Friday they would appeal a judge’s dismissal of the case. Former Kmart investors filed the suit against Lampert and onetime Kmart chief executive officer Julian Day in 2006, but a judge threw the case out last month. <wwd.com/business-news>
-Despite discouraging sales trends in much of the footwear industry, there was an increase in visitor attendance - The mood at the Atlanta Shoe Market, held here Aug. 14-16, was one of optimism, as visitor attendance jumped 16 percent from last year. Among the retailers touring the aisles were regulars such as Belk, Peebles, Shoe Carnival and Shoe Show, and newcomers Boscov’s and Von Maur. Independent store owners reportedly came from across the Southeast, as well as more distant areas including the Midwest, Southwest, New England and Caribbean. Exhibitor attendance, meanwhile, rose 6 percent year-over-year, with new brand additions including The North Face, Toms Shoes, Dolce Vita and Members Only. While pricing continued to be a factor, buyers at the Atlanta Shoe Market said they were on the hunt for uniqueness. <wwd.com/footwear-news>
-Women’s footcare accessories brand Foot Petals, has big plans for the coming months - Despite a rocky economy, Tina Aldatz, president of women’s footcare accessories brand Foot Petals, has big plans for the coming months. The Long Beach, Calif.-based company has developed into a $9 million business, and Aldatz expects to more than double that number by 2011 through a series of initiatives, including an exclusive and nationwide partnership with Target, a footwear license and concentrated international growth. “ Here at home, where Foot Petals can be found in nearly 5,000 stores and about 100 online retailers, Aldatz has teamed up with Target to create small shop-in-shops in the shoe departments at all the chain’s 1,700 locations, beginning February 2010. The company has been selling its accessories in specialized colors and shapes to Target since 2007 under the exclusive Fab Feet name. <wwd.com/footwear-news>
-American Apparel is announcing the launch of larger and more elaborate kids and babies lines of clothing - Responding to countless requests from customers and employees for American Apparel in youth sizes, the company has translated dozens of its adult styles for the children's lines, as well as incorporating new colors and designs. "We've received so many letters from parents asking us to 'shrink down' some of the signature styles for their kids. The ones we started with are simple, practical, fun solutions for parents short on time; they already know the styles and how comfortable they are. We've been looking forward to building this part of our line and are very happy to have answered this demand," said Marsha Brady, a creative director for American Apparel. American Apparel currently sells the kids and baby lines at more than 70 US retail locations, several international shops, and online from its e-commerce site. As the company's target customer has matured and begun to include larger numbers of parents, there has been an increased retail and wholesale demand for American Apparel basic styles in children's sizes. In expanding in this area, the company also has an opportunity to reach out to a consumer who may not otherwise have shopped at American Apparel. <prnewswire.com>
-When James Blake takes the court at the US Open in a couple weeks, he’ll be wearing his new Fila line. But unlike any athlete before him, the logo doesn’t spell out his initials or show a symbolic silhouette. Instead, Blake’s logo is “TR,” and the line is called Thomas Reynolds, the first and middle name of his late father. “I wanted to be part of something that wouldn’t necessarily have to always be tied to me and be more about the spirit that father embodied,” Blake said. Fila will help capture the lessons instilled in James by Blake’s father, who died in 2004, through print ads and through hang tags on the line. While some might think that having a brand modeled after a player's family member is a risk, Blake's agent Carlos Fleming views it from a different perspective. Golf, fitness and leisurewear are the next up for the Thomas Reynolds brand if everything proceeds as planned. <cnbc.com>
RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): AMZN
08/21/2009 10:38 AM
SELLING AMZN $84.88
I've been looking for an out in this position, and what else can I say - I'm out. Selling green. KM
INSIDER TRADING ACTIVITY
WMT: James Breyer, Director, purchased 5,000shs ($257k) increasing total common holdings by nearly 10%.
- Paul Sweetenham, SEVP, Group President – Europe, sold 11,070shs ($391k) after exercising the right to buy 12,500shs, less than 20% of total common holdings.
- Jerome Rossi, SEVP, Group President, sold 41,250shs ($1.5mm) after exercising the right to buy 41,250shs, roughly 50% of total common holdings pursuant to 10b5-1 plan.
TRLG: Joseph Coulumbe, Director, sold 2,000shs ($44k) less than 10% of total common holdings.