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RETAIL FIRST LOOK: I'M PART OF THE CLUB!

SEPTEMBER 17, 2009

TODAY’S CALL OUT

You gotta love when a retail concept is so powerful that it grants select consumers the privilege to shop at its store.  These little start up retailers seem like noise right now…but the strategic implications are meaningful.

I was whipping through overnight news early this morning as part of my usual routine, and I was interrupted by receipt of a critical email. Gilt.com notified me that it had accepted my request to be part of the ‘chosen’ group of customers that has the privilege to shop its site of luxury off-price goods (after I ‘applied’ a week ago). I kid you not. We’ve mentioned gilt.com a few times in recent weeks, and it will certainly be mentioned a lot more as it goes public. If there’s one thing I am certain, it is that this is a BIG deal.  Is it not just about gilt.com. It’s also about…

Ruelala.com-off price, some luxury, generally higher end, limited time sales, subscriber based

Yoox.com (going public)- Italian company, fashion driven, expected to come public by year end on Italian bourse

Netaporter.com – Ultra high-end women’s luxury apparel with massive breath of designers

Saks, Neiman, Nordstrom…you guys paying attention? I can tell you that designers like Ralph Lauren are, and unless you ‘get it’ you will increasingly look like a dinosaur.

And mind you, this is NOT just about the high end. Amazon is the most obvious mid-tier callout. Just weeks before buying Zappos, they launched an Outdoor store (incl apparel). Then with Zappos (which was a huge deal) they also acquired the clothes.com domain.  Now we’re seeing ads like the one below marketing apparel specifically, and to cap it off, major brands admit  that they need to make product specifically for Amazon.

My point here is that when a new bricks and mortar store opens, we can pretty accurately gauge its market opportunity based on local demographics, and sheer physical productivity constraints. But a well-executed .com store is limited only by back-end fulfillment.  These stores – and the countless sites yet to be announced will absolutely have capacity implications. So those of us that are banking on the ‘shrinking capacity due to bankrupties’ thesis might want to tweak our thinking.

My prediction continues to be that valuations for anything with a powerful consumer-direct business (ie WSM, JCG) will continue to defy gravity. The legacy retailers will be on the prowl. Many of these upstart initiatives will be taken out before they come to market.

RETAIL FIRST LOOK: I'M PART OF THE CLUB! - 1

LEVINE’S LOW DOWN

Some Notable Call Outs

  • When speaking at a conference, Delta Apparel CEO Bob Humphreys described the inventory levels at retail as “lean” for the segments the company operates in (primarily casual activewear). However, the one area where Humphreys sees heavy inventories in the undecorated t-shirt business (blanks) where he believes wholesale inventories are still high. He went on to say that retailers have not been as aggressive in managing screen tee inventory as they have been in most other apparel categories.
  • Casual Male CEO, David Levin, does not see any further opportunity to cut inventory levels from here and sees a likelihood that inventory actually ticks up. However, the company is currently planning inventories flat for next year.
  • Add Dress Barn to the list of retailers with substantial lease action opportunity over the next twelve months. The company will attempt to negotiate approximately 25% of it leases over the next year and expects rents to remain flat to down relative to current terms.
  • The opening a Tommy Hilfiger flagship store on 5th Avenue in Manhattan is either a sign of the brand’s resurgence or the worst timing in history for opening high cost real estate. The store occupies 22,000 square feet in the former Fortunoff location.
  • Does anyone pay full retail for a book anymore? Only one day into record sales of Dan Brown’s, The Lost Symbol, and one can find the book on sale for $14.38 at Sam’s Club and $16.36 at Costco. On Amazon.com the book sells for $16.17 (plus free super save shipping) and for $17.97 ($16.17 with loyalty card) on barnesandnoble.com. While the pricing clearly varies, the percentage off of full retail for bestsellers now appears to be 40-50%!

MORNING NEWS 

-Americans Plan to Limit Spending Amid Concern About Economy, Survey Shows - Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months. <bloomberg.com/news>

-Retail apparel prices increased a seasonally adjusted 0.6% year over year and sequentially declined 0.1% from July - Women’s apparel prices fell 1.3% in August and declined 1% compared with a year earlier. Men’s apparel prices increased 0.3% in August, but dropped 1% in 12-month comparisons. August retail prices allayed some fears that most retailers would be forced into discounting to survive. However, not every apparel category was able to avoid discounting. More fall and winter women’s merchandise than was typical hit the racks already discounted, which lead to a drop in prices for many items, said Malinda Harrell, an economist with the Labor Department. <wwd.com/business-news>

-CPI and back to school season - The back-to-school season did help drive girls’ and boys’ retail apparel prices up as merchandise hit store floors at full price. Girls’ apparel prices increased 5.1 percent in August and advanced 3.8% year-to-year. Boys’ apparel prices rose 2.3% in August and spiked 7% compared with a year earlier.  <wwd.com/business-news>

-If Abercrombie & Fitch Co. has its way, Beyoncé Knowles’ recently announced fragrance may not be too fierce - Abercrombie & Fitch Co. wants to block Beyoncé Knowles from launching a fragrance under the name of her alter ego, Sasha Fierce, in her deal with Coty Inc. The teen retailer alleged in a federal complaint filed Tuesday that a scent with that label would infringe on its own Fierce cologne trademark. But Coty said Wednesday Knowles’ dual personality would not factor into plans for her perfume, which will be sold in department stores globally and launch in the Americas in the spring. “We can confirm at this time…that the terms Fierce and Sasha Fierce are not being used as names of a Beyoncé fragrance,” a Coty spokeswoman said. <wwd.com/business-news>

-Ikea Says Its Sales Growth Slowed to 1.4% During `Challenging' Year - Ikea Group sales growth slowed last year to 1.4 percent as the world’s biggest home-furnishings retailer faced what it called a “challenging year.” <bloomberg.com>

-Carlyle-Backed Xtep May Acquire Sportswear Brand Outside China Next Year - Xtep International Holdings Ltd., a Chinese sportswear company partly owned by Carlyle Group, may buy a foreign brand as early as next year to boost sales and profit margins, Chief Financial Officer Terry Ho said.  <bloomberg.com>

-Uniqlo founder Tadashi Yanai said he’s got bigger plans: to revolutionize the way consumers buy clothes - “When I was young, Brooks Brothers, Polo Ralph Lauren, [Giorgio] Armani — those brands really were changing the world,” the 60-year-old executive said in an interview at Uniqlo’s brand new showroom atop its Ginza flagship. “But after that, no one else has managed to do the same thing. We want to be a brand that really changes the world.” To that end, Uniqlo, a brand known for innovations such as selling T-shirts in plastic tubes and creating a fabric that retains body heat, is going global. Yanai said Uniqlo plans to open 100 to 200 stores a year outside Japan. Two weeks ago, Fast Retailing outlined an audacious plan to grow its sales from the 682 billion yen, or $7 billion at average exchange, forecast for the year ended Aug. 31 to 5 trillion yen, or about $54 billion, by 2020 through a combination of international and domestic expansion as well as acquisitions. Even though sales have more than doubled over the past six years, the company still has a long way to go to reach that target. “We would like to become a more global company,” said Yanai, a few hours after unveiling Uniqlo’s first footwear collection, a Japan-specific lineup of ballet flats, Ugg-style boots and other styles. <wwd.com/markets-news>

-Joe's Jeans warned of potential delisting from the Nasdaq if shares don't climb to $1 - Joe’s Jeans Inc. said Wednesday it has been warned by the Nasdaq Stock Market that the company’s shares are in danger of being delisted if they don’t climb to $1 or more. The stock of the Los Angeles-based premium denim producer fell 2 cents, or 2.2%, to 75 cents Wednesday and hasn’t closed above $1 since Oct. 1. Joe’s ran afoul of Nasdaq rules because its shares failed to close at or above $1 for 30 consecutive trading sessions. The company has until March 15 to regain compliance by closing at $1 or more for 10 consecutive trading days. If the company is still below the required price by the March deadline, it could be granted an extension of 180 calendar days to move its stock up or make an appeal to Nasdaq. <wwd.com/business-news>

-Brands brands are finding retailers hungry for new product and a bit more confident about business prospects - Those launching lines now, amid the first tentative steps out of the recession, might be catching things on the way up. Although expectations are tempered by a heavier dose of realism as a result of the global downturn, the recent round of trade shows in Las Vegas have left new brands feeling there’s still much opportunity in the market. Brands tended to use the same fabrics and same laundry facilities, resulting in a sea of five-pocket premium jeans retailing for $200 with the main difference in the labels, embroidery, stitching or other minor detail. Daniella Siri started Recession Denim in April and has gotten the line into more than 60 stores, including Bloomingdale’s, with retail prices of $80 to $100. She’s had little trouble getting meetings with store buyers and believes the price for the level of quality she’s providing is hitting the right chord. <wwd.com/markets-news>

-New Balance launches new ad campaign with new agency - In its first big initiative with Mother, its new agency of record, New Balance has emerged with a campaign that is both small-scale and high-concept. The “574 Clips” Web/video project was created for a limited-edition line of 574 sneakers, produced in the company’s Lawrence, Mass., factory using surplus clips of fabric. Also contributing to the title is a series of video clips that began airing online this week at 574clips.com and show the unique and sometimes odd experiences of each pair of shoes. Fans who purchase a pair at one of 10 boutiques nationwide can then claim their shoes online and have their name posted at the end of the video. According to New Balance, the campaign (and classic kicks) are targeted to sneakerheads and will be promoted through blogs including Hypebeast, High Snobiety and Nice Kicks. <wwd.com/footwear-news>

-Sport Supply Awarded US Communities Contract - Sport Supply Group, Inc. has been awarded the U.S. Communities Contract to act as the exclusive supplier of sporting goods, physical education equipment and uniforms for the program for the period October 1, 2009 to September 30, 2014. The agreement also includes a provision for two potential extension years. <sportsonesource.com>

-Russell Athletic plans to close a distribution center in Columbus, OH, laying off 112 people - According to the Columbus Ledger-Enquirer, the Georgia Department of Labor has been notified of the closure, which is effective Nov. 9. <sportsonesource.com>

-Luxury brand Burberry will launch a social networking site next month - The site, artofthetrench.com, will initially feature users sending in pictures of themselves wearing Burberry trench coats. The retailer said it already has more than 660,000 fans on Facebook. Chief executive Angela Ahrendts told the Financial Times: “These might not even be customers yet. Or they may be a customer for a bottle of fragrance or for eyewear. But these are the customers who need the brand experience, who need to feel the brand. That word-of-mouth spreads through their social networks and continues to be a positive conversation [about Burberry]… that is so powerful.”  <drapersonline.com>

-YOOX moves ahead with plans for an initial public offering - Though key details have yet to be released, including the number of shares and the price per-share, YOOX has made a formal request to be listed on Borsa Italiana SpA, the Italian stock exchange. <internetretailer.com>

-Zappos.com is the most consistent in August - The top 49 retail web sites measured last month had an average site availability rate of 92.17%, according to Gomez. <internetretailer.com>

-PacSun.com puts a battle of the bands online - Local bands vie for a spot on the PacSun.com concert tour as fans view and vote on uploaded performance videos on the e-commerce site. <internetretailer.com>

-Eddie Bauer revived, rolls out new outdoor collection - The active outdoor lifestyle brand Eddie Bauer returns this fall with a new apparel line, The Heritage Collection. Last month, Golden Gate Capital rescued the bankrupted retailer for $286 million. The clothing collection features 22 styles for men, including hunting coats, rugged chaps, fly-fishing vests, moleskin field shirts and leather jackets. The line is available now at www.eddiebauer.com and will roll out later this month at select stores. <licensemag.com>

-Brazilian tanneries pleased with results of ACLE 2009 - The Brazilian Leather export program coordinated the CICB - Center for the Tanning Industry in Brazil, with support from the Brazilian Export Agency APEX-Brazil, reported on the All China Leather Exhibition (ACLE 2009) held in Shanghai, China, from 2 – 4 September. <fashionnetasia.com>

-Pakistan: Government provides new subsidies to garment companies - The Pakistan government has promised to offer PKR17 bn (US$205 m) as a 3% cash subsidy to exports of knitted or woven garments during fiscal year 2009-10 based on the net FOB value. An additional 1% subsidy will be given to those garment exporters who can increase their shipments by 15% compared with the previous year. The government says that the subsidy will be paid to provide drawback of local taxes and levies collected from garment manufacturing plants. <fashionnetasia.com>

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): KR, AMZN

09/16/2009 02:12 PM

SHORTING KR $21.27

Re-shorting an over-owned name that got hammered yesterday for reporting terrible numbers. Levine remains bearish on Krogering. Shorting green. KM

09/16/2009 01:50 PM

SHORTING AMZN $89.90

Buy Amazon because the Bankers of America at Merrill like that this is an e-commerce "play" - you have to be kidding me. And Wall Street's crash isn't even 1yr old yet. Shorting high. KM