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Takeaway: Nike ‘Flash’ = great example of growing around traditional retail. Sears REIT = Bad Idea. Banks vs retailers on Cyber attack liability.

EVENTS TO WATCH

 

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart1

 

COMPANY HIGHLIGHTS

 

SHLD - Potential REIT Formation

 

Takeaway: Let's not forget that Dillard's attempted to structure a public REIT in 2011, but never got it done. The market's appetite for anything other than primo mall properties is simply not there. Sears talks about 200-300 locations, but Sears only has 130 'A' Mall locations.  The property location is critical here -- more so than with other transactions. Dillard's at least will likely remain a viable entity for a fairly long time. Sears, however, has a 95% likelihood of being wiped clean from the retail landscape within five years -- and 60% chance within 3-years, in our opinion.  We can come up with a list of retailers/restaurants who would want a piece of the 'A' Mall properties Sears owns when it goes away, but at best we can identify a home for a third of the real estate SHLD owns. Overall, this transaction seems unlikely to us -- unless financial terms are egregiously skewed in favor of investors.

 

NKE - Flash Collection

 

Takeaway: This new Nike Flash campaign is a bigger deal than the financial press will give it credit for. It's geared largely toward running and as shown in the pictures below, the product literally glows  when under a light (most notably -- a car's headlights for people who run early morning and at night). The jacket shown below retails for just under $500, and the shoes between $100-$150. Most notable here is that the old way of doing things at Nike is that the company would come out with a shoe, or a shirt, and they would literally have nothing to do with one another -- and that's because the footwear and apparel organizations did not come out of their silos. But now the product is integrated in design, manufacturing, logistics, and presentation at retail.  This collection will only be available at Nike online and Nike retail stores. Sorry, Foot Locker. 

 

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart2

 

TGT, HD, TJX - Banks take on retailers over who foots cyber attacks bill

(http://www.ft.com/intl/cms/s/0/23f1339c-6778-11e4-84feabdc0.html?siteedition=uk#axzz3Ifj64F1C)

  • "In a rare show of unity, industry bodies that represent banks are banding together to urge lawmakers to introduce legislation that would force retailers to pay for the clean-up themselves during the new session of Congress next year."
  • "The data breach at the retailer, which the company reported in September, cost community banks and credit unions at least $160m to reissue cards and pay for other services related to the attack. Home Depot estimated that the breach cost the company at least $62m."

Takeaway: This isn't applicable to the breaches at TGT and HD, but it's the driving force behind banks pushing for a change in legislation. The biggest breach in history at TJX in 2007 compromised nearly 100mm cards and cost the retailer $256mm. TGT's stats look like this - 40mm cards compromised at an estimated cost of $129mm. We have to assume that banks are eating 2 to 3 times that amount. It makes sense to us that Retailers could and probably should be left holding the bag when their internal systems fail.

OTHER NEWS

WMT - Wal-Mart Feels Pinch From China Austerity Campaign

(http://online.wsj.com/articles/wal-mart-says-china-sales-hurt-by-nations-austerity-campaign-1415550596)

  • "The Bentonville, Ark., retailer’s same-store sales in China declined 1.6% from a year earlier for the quarter through July."
  • "Wal-Mart isn’t concerned about slowing growth in the world’s second-largest economy, Mr. Price said. He said he was sticking by a plan to have around 480 Wal-Mart stores in China by the end of 2016."

NKE - Nike & Adrian Peterson: No More

(http://www.wwd.com/footwear-news/business/nike-adrian-peterson-no-more-8025541)

  • "The football player is the fourth athlete in 2014 — after Ray Rice, Oscar Pistorius and Jon Jones — to lose a contract with Nike."

AdiBok - Reebok to Launch Wearble Tech in '15

(http://www.wwd.com/footwear-news/markets/buzz-new-launches-from-reebok-asics-more-8026207)

  • "The athletic brand told Footwear News last week it plans to enter the wearable tech business in 2015."

M - First Persian Gulf Macy’s to Anchor $1 Billion Mall

(http://www.bloomberg.com/news/2014-11-10/first-persian-gulf-macy-s-to-anchor-1-billion-mall.html)

  • "The Persian Gulf’s first Macy’s Inc. department store will be part of a $1 billion Abu Dhabi mall planned by Gulf Capital and Stephen Ross’s Related Cos."
  • "The Al Maryah Central mall will connect with an existing luxury shopping center called the Galleria on Al Maryah Island. The mall will have 2.3 million square feet of space and the project includes a tower containing a 200-room hotel and another with about 300 serviced apartments…"

Gilt Groupe - Gilt Turns Eye Toward Asia

(http://www.wwd.com/retail-news/direct-internet-catalogue/gilt-eyes-china-8026367)

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart3