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October 21, 2009


Instant shopping gratification appears to be a growing trend, following Amazon’s announcement a few days ago that they would offer same day delivery in select metro markets.  Now comes Shoebuy.com which is launching ProductExpress (seems like a horrible name for an online retailer of shoes and accessories).  The site offers an edited assortment of the Shoebuy inventory with free overnight shipping on every order.  I’m sure it won’t be long before other competitors are forced into the free shipping game as the holiday season approaches.  As a consumer, it’s tough to ignore on-sale merchandise with free next day delivery.

Why do I think this matters? I think it is an important stage in the evolution of the consumer-direct model. Keep in mind that ‘consumer direct’ for many brands often meant building expensive outlet networks, selling to off-price retailers (TJX, ROST), or relying more heavily on their friendly neighborhood department store to clear goods. That stage of evolution was glacial. This one is much much faster, and the math is not equal for all.

Why? There's got to be a break-even hurdle from a product perspective as it relates to absolute price point where ‘free shipping’ makes sense. For an in-line brand/retailer (RL, NKE, GES, UA, etc…) their $$ margin on Free Shipping can still be solid. For example, if RL has a list price on a $100 item at its own retail store, its’ cost to manufacturer and source the item is probably $25-$30.  If it is not selling, they can take down price in their own store by 40% to sell overnight and get $30 in gross profit (pre occupancy and selling). That’s actually not bad, all things considered. But on the flip side, they can take the excess product, do free overnight shipping (let’s say at a $10 cost bulk discount cost), lower price by 25%, and have a $35 profit. Yes, that makes even more sense.

For a department store, or someone that sells another’s brands, the math is different. That same $100 product has a $50-$60 cost to the retailer. That immediately wipes away $25 in potential profit that could be realized by going direct to consumer.  They’d need to sell the product next day at full price in order to retail the same margin that the brands could get if they otherwise go direct with clearance. Good luck with that…


Some Notable Call Outs

  • Despite slightly positive traffic increases, SuperValu continues to struggle with converting customers to increase their basket sizes. Management noted that there has been a fairly notable drop in the number of items customers are putting in their baskets. While the overall economy is a key factor, management also noted that “regular” pricing still needs to be adjusted to avoid cherry picking. It seems to me that SuperValu is being shopped for its promos while the customer shops elsewhere for better value on non-promo items.
  • Coach management indicated that sourcing cost reductions have resulted in an 8% decrease in average unit costs. Savings will be used to offset sharper pricing as well as potentially fund promotional activity at the Factory Stores. The company believes it has good visibility on sourcing costs through fiscal 2010 although as the economy turns, inflation will likely return. Raw material and input costs are now at the low end of the range the company has seen historically.
  • Instant shopping gratification appears to be a growing trend, following Amazon’s announcement a few days ago that they would offer same day delivery in select metro markets. Now comes Shoebuy.com which is launching ProductExpress (seems like a horrible name for an online retailer of shoes and accessories). The site offers an edited assortment of the Shoebuy inventory with free overnight shipping on every order. I’m sure it won’t be long before other competitors are forced into the free shipping game as the holiday season approaches. As a consumer, you can’t beat free next day delivery!


-Trinity Details IPO - Trinity Group, a subsidiary of privately held Li & Fung (1937) Ltd., expects to raise between 485 million Hong Kong dollars to 664 million Hong Kong dollars by listing on the stock exchange here, although the plan could raise up to 889 million Hong Kong dollars. In U.S. dollar terms, the initial public offering could raise anywhere from $62.6 million up to $114.7 million. The firm, which was acquired three years ago by Li & Fung, will offer about 452 million shares, to be priced at 1.30 Hong Kong dollars, or 17 cents, to 1.71 Hong Kong dollars, or 22 cents, a share. Trinity manages six high-end and luxury men’s wear brands in the Greater China region, namely Kent & Curwen, Gieves & Hawkes, Cerruti 1881, D’urban, Intermezzo and Altea. <wwd.com>

-Remington Parent in 'Advanced Preparations' to Go Public - The Wall Street Journal is reporting that Cerberus Capital Management, a private equity firm best known for its ill-fated acquisitions of Chrysler LLC and GMAC LLC, is in "advanced preparations" for an initial publc offering of Madision, NC-based Freedom Group, Inc., owner of Bushmaster Firearms, Remington Arms Co., and Marlin Firearms, among others. The Journal reports that over a three year span, Cerberus has acquired at least seven U.S. gun and ammunition manufacturers which have consolidated in Freedom Group Inc. Furthermore, the Journal reports that Cerberus will try to take Freedom Group public amid "a flurry of private-equity-backed companies hoping to exploit and improved IPO market." <sportsonesource.com>

-China: Textile industry steps Up rhetoric on US-China Trade - The US textile manufacturing industry, led by the National Council of Textile Organizations, is continuing to wage a determined lobbying campaign in Washington, in an effort to persuade Congress and the Obama administration to establish restrictions on imports of sensitive textile and apparel products from mainland China. NCTO’s current position on China is perfectly showcased in comments submitted to the Office of the US Trade Representative on 22 September regarding China’s compliance with its WTO commitments. NCTO’s comments identify a range of protectionist and mercantilist policies allegedly being pursued by the Chinese government and seek to make a case for a more robust US trade enforcement policy against imports from the mainland. <fashionnetasia.com>

-EU: Forging trading details with South Korea - The European Commission(EC) has unveiled details regarding South Korean-European Union(EU) trade agreement, that is expected to benefit textile and clothing manufacturers in both regions. According to the new agreements, duties on EU imports of most clothing products, which are now mostly between 5.3% and 12%, will disappear, while duties on South Korean shoe imports, that ranges between 3% and 18%, will vanish. <fashionnetasia.com>

-Philippines: Urges for duty-free status to US - The Philippines has been stepping up efforts to lobby an apparel duty-free access to the US by early next year. Under the proposed bill, the Philippines will be given preferential duty treatment for certain apparel articles sold to the country as the Philippine garment factories will be allowed to import and use US textiles for eventual garment shipments back to the US in order to save the standard 30%-40% tariff. <fashionnetasia.com>

-Bill Eases Pressure on Cargo Scanning - The Senate approved a $42.8 billion bill Tuesday by a 79 to 19 vote that boosts funding for the Customs & Border Protection agency and possibly delays a 100 percent cargo scanning deadline. The measure provides funds for the Department of Homeland Security, which includes Customs, for the 2010 fiscal year that began Oct. 1. It requires President Obama’s signature. The House passed the legislation last Thursday. Retailers argued the scanning technology does not exist and feared foreign ports could not comply as a result, which would lead to delays in shipments. They praised language in the bill that calls into question the feasibility of meeting the 2012 deadline to scan all U.S.-bound cargo containers at foreign ports to determine if they contain terrorist weapons. Lawmakers said the deadline for implementation presents “practical difficulties.” <wwd.com>

-Survey Forecasts Lower Holiday Spending - Holiday shoppers can be counted on to check their gift lists more than once or twice — with a sharp eye on bargains because of plans to spend less than they did in 2008, according to two new polls. About two-thirds of consumers surveyed this month by The Zandl Group for WWD anticipate cutting outlays for holiday gifts, while the National Retail Federation’s 2009 “Holiday Consumer Intentions and Actions Survey” showed 43 percent of shoppers will be bargain hunting. The 8,431 people polled by NRF this month expect to spend about $682 a person on average, or 3.2 percent less than the $705 spent last year. <wwd.com>

-Target zeroes in on its own price cut for books pre-ordered online - Target Corp. isn’t going to sit still on the sidelines in the online book price war ignited last week by Amazon.com and Walmart.com. Target, which operates Target.com, No. 20 in the Internet Retailer Top 500 Guide, announced Monday that certain pre-ordered books will be sold online for $8.99, essentially matching the prices of its two big online rivals, and qualify for free shipping. Target is the latest big chain retailer or web-only merchant trying to become the lowest priced online bookseller. In a bid to be the web’s low-price leader for all types of products, Wal-Mart Stores Inc. on Friday started offering some pre-ordered popular titles for $9 each on Walmart.com. <internetretailer.com>

-Cabela's Partners with Credit Card for Another Retailer - Cabela's Inc. announced a partnership with with CHS, an energy, grains and foods company, to create a new credit card and loyalty program for customers of Cenex filling stations, a brand of CHS. It's the first credit card and loyalty program created with another retailer by World's Foremost Bank, Cabela's credit card unit. The new Cenex co-branded Cabela's CLUB Visa card offers the same benefits as the Cabela's CLUB Visa credit card, with additional points for every purchase made at any of the 1,600 Cenex fueling centers and for other non-Cabela's purchases. <sportsonesource.com>

-Barnes & Noble Unveils Nook for Same Price as Kindle - Barnes & Noble Inc., the largest U.S. bookstore chain, introduced a device for reading digital versions of books, entering a market dominated by Amazon.com Inc. and Sony Corp. Barnes & Noble’s Nook will sell for $259, matching a recent price cut for Amazon.com’s Kindle device. The Nook will start shipping by Nov. 30 and will be available in all Barnes & Noble stores, the New York-based chain said today at a press conference in Manhattan. <bloomberg.com>

-Online spending growth at all time low - Online spending growth dropped to a record low in September as etailers were hit by heavy high street discounting and localised postal stikes. Year-on-year online sales growth was ahead just 8% to £3.9bn for the month - a record low - while month-on-month growth at 1.9%, was an unusually low rate for September according to the IMRG Capgemini e-Retail Sales Index. Online clothing, footwear and accessories sales stuttered in September with sales rising by just 10% against last year. Average growth this year for the sector has typically been 20%. However, sales were hit as many high street retailers launched promotions early this year and the recession continued to influence consumer spending. <drapersonline.com>

-Austria: New application of eco-friendly Tencel fibre on cancer-care - Natural fibre Tencel has found a new application for cancer and long-term patients due to its non-toxic and sustainable nature. RoyallWear dba Jazzy Johnnys, an organisation dedicated to providing cancer patients with an attractive, well designed garment, has recently tied up with Tencel producer Lenzing Fibres to develop a new clothing line for itsanti-wicking, anti-moisture and temperature-sensitive properties that keep moisture off the skin and inhibit bacterial growth. <fashionnetasia.com>

-Puma's Q3 Sales Slump 11.4% in Americas - Puma's sales dropped 5.5 % to €673.4 million ($1.005 bn) in the third quarter. At constant exchange rates,  sales were down 9.8%. Sales in the Americas fell 11.4% due to a "difficult economic environment."According to a report from its parent, PPR, sales for Puma in Latin America declined mainly as a result of tightened customs and the slowdown of tourist activity. Sales in Asia-Pacific were down 8.3% despite the strong performance in China and India. Activity in Eastern Europe/Middle East/Africa continue to see "good momentum" while Western  Europe recorded "another difficult quarter." <sportsonesource.com>

-PPR Sales Drop 7.6 Percent In Q3 - PPR SA reported a worse-than-expected slump in third-quarter sales, reflecting the continuing economic crisis, a decrease in tourist flows and a slowdown in wholesale orders as retailers preferred to keep inventories low. The French retail-to-luxury group said sales in the July to September period declined 7.6 percent to 4.56 billion euros, or $6.58 billion. Sales were down 8% on a comparable basis versus forecasts of a 6 percent drop. Dollar figures were converted at average exchange rates for the period. <wwd.com>

-Guadagno Leaves Versace USA - Patrick Guadagno has exited as president and chief operating officer of Versace USA after four years. In recent months, Guadagno made strides to broaden the designer label’s standing in New York. Saks Fifth Avenue has reinstalled the brand on the third floor of its Fifth Avenue flagship. And Versace recently shored up its presence at Bergdorf Goodman with last month’s opening of a 400-square-foot shop for ready-to-wear, accessories and shoes. The brand had been absent from the store for three years until 2007, when it reentered with its runway collection and was afforded less than optimum space. <wwd.com>

-Gucci Launches iPhone App - Gucci will today unveil its first iPhone/iPod Touch app, aimed at entertaining and enlightening consumers with a 24-hour music channel, hotel and restaurant tips, playlists and a turntable for mixing tracks designed by the music producer Mark Ronson. The free app also gives iPhone/iPod Touch users the opportunity to purchase an exclusive model from the limited edition Ronson sneaker collection when the Gucci Icon-Temporary store opens in their respective cities. <wwd.com>

-Anthropologie Opens First European Store Friday - Anthropologie will plant its first flag in Europe on Friday with the launch of a 10,000-square-foot clothing, accessories and homeware emporium on Regent Street, halfway between Oxford Street and Piccadilly Circus. The bright and airy store, with soaring ceilings, central skylights and white oak flooring, spans three levels and features a 50-foot-high wall of evergreen plants fed by rainwater that’s been collected on the roof. <wwd.com>

-Iconix to Pay Fine to FTC - Iconix Brand Group Inc. will pay $250,000 and post notices about its information collection practices under a settlement reached with the Federal Trade Commission. The FTC had said that the company didn't comply with certain provisions of the Children's Online Privacy Protection Act with online promotions it ran for brands last year. Iconix said its non-compliance was inadvertent and did not harm children but said it would pay the settlement to avoid a protracted dispute. <sportsonesource.com>

-ILGWU Retirees Allege Raynor Misused Funds - Retired members of the International Ladies Garment Workers Union entered the legal scrum between UNITE HERE and Workers United when they accused the breakaway group’s president, Bruce Raynor, of mismanaging their pension plans in a lawsuit filed Tuesday. The retirees are seeking an injunction that would give control of the plans to UNITE HERE. Computer records of the suit were not immediately available, but an attorney for the group provided a copy of the complaint to WWD and said they filed their action in U.S. District Court in Manhattan. <wwd.com>

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

10/20/2009 10:01 AM


The bulls got me this time on KR, but I'll be back. Booking the loss on a down day in order to manage risk. KM


NKE: Phillip Knight, Director sold 1.4mm shares ($88.5mm).

BGFV: Steven Miller, President & CEO, sold 9,900 shares ($156k).

BBY: Richard Schulze, Chairman, sold 23,700 shares ($971k).

BKE: Hanson Kyle, Gen. Counsel, sold 3,700 shares ($120k).

FINL: Steven Schneider, President & COO, sold 5,000 shares ($34k) after exercising the right to buy 5,000 options.