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RETAIL FIRST LOOK

SEPTEMBER 21, 2009

TODAY’S CALL OUT

  • Footwear maker Wolverine World Wide is announcing plans to add production lines to its Big Rapids factory. The factory makes the company's Bates brand of footwear worn by uniformed military and police personnel. It makes sense that this would be US production given the PR disaster that would ensue from incremental capacity for military footwear coming out of Middle America and into China.  But this initially caught my eye because I am increasingly convinced that we’ll see a supply chain shake-up above and beyond the current state of flux as the US dollar ceases to be the world’s reserve currency. Expect to hear more from us on this in coming weeks as this will increasingly rear its head as a key issue.
  • Over the weekend Amazon.com launched a new private label brand called AmazonBasics, a line of consumer electronics accessories. While it is likely this week will be filled with lots of buzz about Amazon’s private label efforts and attempt to morph into a “general store”, most may not realize Amazon has already been selling private label products. The company has been selling products for about two years under the brands: Pinzon (kitchen gadgets), Strathwood (outdoor furniture), Pike Street (bath and home products), and Denali (tools). With the recent acquisition of Zappos, we would not be surprised to see more private label in softlines on the horizon.
  • Overnight, Li & Fung Ltd., (the biggest supplier of clothes and toys to US mass retailers) came out and noted that it is seeing re-order activity at a level not seen in two years, and that “Mid-tier” and mainstream U.S. retailers such as Walmart, Target and Kohl’s Corp. are “doing well.”  In the same statement, management noted that “for the world to get out of the recession, it has to be based on a U.S. recovery.”   Ok…tell us something e don’t know.  Yes, the comment is directionally positive, but I’ve never seen these guys come out and say anything other than positive things about their biggest customers. Their comments synch with the “things stopped getting worse” theme, and nothing more.
  • In effort to re-brand and re-position itself, privately held Restoration Hardware has re-launched. The company’s new focus is on higher quality and higher prices. The new offerings are 20-30% higher than prior merchandise and the brand is now intensely focused on quality, style, and craftsmanship. Given the company’s long history with ever changing strategies, we wonder how going upscale at this time will be received by both its loyal and potentially new customers.
  • In addition to selling one million copies of The Lost Symbol on its first day, digital e-book and audio book versions jumped to the top of the list of the most pirated books on the internet. The book has now been downloaded tens of thousands of times on BitTorrent, just one of many popular peer to peer file sharing sites. While digital music pircy has had its fair share of high profile legal battles, digital books up until now have been largely left out of the spotlight. It will be interesting to watch how aggressively Dan Brown’s publisher attempts to control or curtail digital piracy given this will most likely become the most downloaded book (legally and illegally).

MORNING NEWS 

-J.C. Penney and Phillips-Van Heusen are turning to football to bolster their relationship with the male shopper - In a new marketing initiative that will run through February, the companies have teamed up with the Pro Football Hall of Fame to provide the first-ever forum for fans to vote and debate their choices for 2010 inductees. Starting Tuesday, fans can visit the Van Heusen Pro Football Hall of Fame Fan’s Choice at jcp.com/fans to find stats on all 130-plus candidates, and opinions from sports experts, Hall of Famers and other fans. They are also encouraged to debate potential choices, lobby for their favorite players and post videos to support their picks. Steve Lawrence, executive vice president of men’s apparel for Penney’s, said the initiative is part of the store’s “long-term plan in men’s. We know our marketing efforts have to reach men, and sports marketing is the best way to do that. And football is the holy grail of sports marketing.” The campaign will also be featured at select NFL stadiums around the country where Hall of Famers and memorabilia from the Hall of Fame will appear, and “Fan Face-Off” debates will be encouraged. <wwd.com/menswear-news>

-Mindful of the environment, the industry increasingly turns to natural rubber outsoles that combine cushioning with flexibility - This renewable material can be used on its own or mixed with coconut husk fibers, cork and hemp, further reducing its environmental impact. Such alternative materials also help reduce the weight of a rubber outsole by as much as 40%, due to their lower densities. Outsoles made of natural rubber can be found on everything from tailored pumps to novelty wedges reminiscent of the 1970s and from brands such as Terra Plana, Arche and El Naturalista. Although these bottoms are more costly to produce than their synthetic counterparts (such as EVA and polyurethane), due to increased difficulty handling the material, manufacturers are taking advantage of it nonetheless for the comfort and environmental advantages. Rubber, a yellowish, elastic, amorphous material that comes from the latex or milky sap of various tropical plants, dates back to Mesoamerica (southern Mexico and Central America), 1600 B.C. But these days, the bulk of rubber is produced in Malaysia, Thailand and Indonesia, in climates near the equator, where rubber plants thrive. Over the decades, the term rubber has come to refer to both natural and synthetic versions, the latter introduced in 1935 by German chemists. However, synthetic rubber is made with petroleum and is nonrenewable. And while man-made rubber accounts for more than 75% of all rubber production, more companies are looking to make outsoles with recycled man-made rubber — especially from used tires — in combination with the natural material to help protect the environment. <wwd.com/footwear-news>

-Retailers at last week’s Children’s Great Event Shoe Show took a conservative approach to spring ’10 buying - Many said the price-value equation is more important than ever. While buyers weren’t abandoning their higher-end collections altogether, they were looking at their opening price points rather than top-of-the- line goods. One collection fulfilling needs was Geox, which offered introductory items that were $5 less than the collection’s usual retail price of $60. According to Patrick Dougherty, national sales manager for children’s at Edison, N.J.-based Geox, the company introduced lower-priced product for fall ’09, a tactic he said is continuing into spring. The merchandise has attracted both current accounts and new ones, Dougherty said. “We see it as an opportunity to get new customers into the brand,” he explained. Less-expensive product is now available in its light-up program, sport line, multipurpose footwear and waterproof collections.  <wwd.com/footwear-news>

-Sport footwear sales flat for Back to School - Even as back-to-school becomes less important to a retailer’s success for the total year, the season is still a bellwether for how the market views retail health in the back half of the year and the prospects for Holiday sales growth. The BTS season may be more important to the Sport Footwear business as parents send their little ones packing for school. A later Labor Day holiday this year had a noticeable impact on the timing of sales at retail. <sportsonesource.com>

-K-Swiss discusses performance platform for future growth - While Under Armour received overwhelming attention from the media and Wall Street for its running shoe “launch” this past year, another iconic athletic brand is making inroads into the running shoe market while flying under the radar.  The primary difference in the way the two brands entered the running has to do with the slow, measured approach taken by K-Swiss Chief Executive Steven Nichols as he works to build on a performance platform for future growth. Founded in 1966, K-Swiss may be best known for its signature leather model tennis shoe, its “Classic” that made its debut at Wimbledon the same year as the brand’s inception. Over time, the “Classic” has evolved from a high-performance shoe into a casual, lifestyle shoe. In 2008, K-Swiss reclassified its footwear products into two product categories - lifestyle and performance. “We’re the newest addition to specialty running,” says Mark Sheehan, director of performance running for K-Swiss.  Sheehan, who has created running products for Nike, Reebok and Puma, says K-Swiss has “points of difference” that sets it apart from competitors.   <sportsonesource.com>

-Russian Retail Sales Declined 9.8% Last Month, Steepest Drop in 10 Years - Russian retail sales fell for a seventh month, the longest period of declines on record, as pay cuts and mounting joblessness forced shoppers to reduce spending. <bloomberg.com>

-Japan's ABC-Mart to Open 10 Shoe Outlets in Taiwan By 2012, Nikkei Says - ABC-Mart Inc., a Japanese retailer, will start operations in Taiwan next month and is targeting sales of 2 billion yen ($21.9 million) in the year ending February 2012, the Nikkei newspaper reported.  <bloomberg.com>

-Specialty retailer Rue21 revealed plans on Friday for an initial public offering within the next two months - The company filed a registration statement with the Securities and Exchange Commission and firms typically go public within 60 days of the filing the statement, called Form S-1. The underwriters are Bank of America, Merrill Lynch, Goldman Sachs & Co., J.P. Morgan Chase & Co. and Piper Jaffray & Co. Rue21 targets young men and women ages of 11 to 17 with private and exclusive brands. The retailer has more than 500 stores in 43 states, mostly in strip centers, regional malls and outlet centers, as well as a Web site. The store locations are in small- and middle-market communities with populations between 25,000 and 200,000 people. Typically, Rue21 faces limited direct competition in the communities in which it operates, the company said. Merchandise is offered in apparel, accessories, footwear and fragrances at value prices. <wwd.com/business-news>

-Feds ask for more financial data from Overstock.com - The U.S. Securities and Exchange Commission is investigating Overstock’s previously announced restatements of its financial statements in 2006 and 2008. The online retailer says it will cooperate with the regulatory agency. <internetretailer.com>

-The South Australian Farmers Federation has recently recommended the federation members to vote for the current 2 % levy at the forthcoming Woolpoll. The wool committees of the other state farmer organizations also will hold a meeting in coming weeks to make a recommendation in this area. The organizations have not publicly voiced their opinion, but in all probability, will also recommend a vote in favour of the current 2% levy to their members. It would mean an end of the national wool research and marketing body Australian Wool Innovation and its research, marketing and development programs, if the wool growers will not vote for current 2% levy. State farmer groups are encouraging the wool growers to vote in Woolpoll and sending across the message that, not taking part in Woolpoll means, allowing others to take a decision on their behalf. <fashionnetasia.com>

-South Africa: 140 clothing workers on strike are arrested - About 140 clothing workers have been arrested in Johannesburg while they were peacefully on legal strike in front of clothing factories for wage raise demands. According to the local news, the police fired teargas and rubber bullets to the workers, Louisah Modikwe, the SACTWU Organiser was smacked and manhandled by a police officer. Most of the arrested workers have been locked up at Jeppe Police Station in Market Street in Johannesburg. The union has despatched its attorney to the police station but police have refused any discussion. <fashionnetasia.com>

INSIDER TRANSACTION ACTIVITY:

SKS:

  • Jennifer De Winter, EVP of Stores, sold 25,823shs ($188k) after acquiring the right to buy 25,823 less than 15% of total common holdings.
  • Stephen Sadove, Chairman & CEO, sold 25,823shs ($188k)after acquiring the right to buy 25,823 shares less than 4% of total common holdings.
  • Donald Hess, Director, sold 25,823shs ($188k)after acquiring the right to buy 25,823 shares roughly 16% of total common holdings.
  • Robert Wallstrom, Group SVP, sold 12,913shs ($94k)after acquiring the right to buy 12,913 shares less than 8% of total common holdings.
  • Michael Rodgers, EVP of IT/Operations, sold 5,164shs ($36k)after acquiring the right to buy 5,164 shares less than 4% of total common holdings.

BGFV: Steve Miller, President & CEO, sold 80,000shs (~$1.2mm) less that 10% of total common holdings pursuant to 10b5-1 plan.

GPS: Sabrina Simmons CFO, sold 20,000shs ($440k) after exercising the right to buy 20,000 shares nearly 50% of total common holdings pursuant to 10b5-1 plan.

TJX: Jerome Rossi, SEVP – Group President, sold 41,250shs (~$1.6mm) approximately 50% of total common holdings pursuant to 10b5-1 plan.

DFZ: Glenn Evans, Sr. VP Sourcing & Logistics, sold 5,000shs ($38k) roughly 17% of total common holdings.

TLB: Gregory Poole, EVP Supply Chain Officer, sold 5,844shs (~$55k) less than 20% of total common holdings.