Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart

Takeaway: Wal-Mart Squeezed Vendors In The Spring, Now It's Doing It Again. KATE adds depth to org. chart.

WMT - Wal-Mart Squeezed Vendors In The Spring. Now It's Doing It Again.

(http://www.reuters.com/article/2015/06/24/us-wal-mart-stores-suppliers-idUSKBN0P400K20150624?feedType=RSS&feedName=topNews&utm_source=twitter)

 

1) It’s been almost 3 months since a story hit about WMT squeezing its vendors for concessions. But this year, unlike prior years it is to pay employees instead of customers (or shareholders by way of better margins).

2)  We've seen a stark contrast in risk management processes from companies who operate in this space. When 3 of the top 6 private sector employers in the country (WMT, MCD, and TGT) announce that all employees will receive a 25% premium to the government mandated minimum wage it’s impossible to think that it won't have ripple effects across the industry. While many have talked down the potential hit, the well run companies are actively managing the business in a way to offset the rising employment cost pressures. That's exactly what this move by WMT is all about.

3) Unfortunately for WMT, the higher wage rate isn't resulting in a meaningfully better shopping experience -- or if it is, we're just not seeing it in WMT's comp. It makes sense that the retailer would take a second whack at pricing pressure.

4) All in we're looking at a 4%-8% annualized EPS hit at each of the following retailers if we extrapolate the estimated cost per employee at WMT to the relevant number of employees in each retailers workforce.  

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart - chart1 6 24 15

5) The reason why we haven’t seen elevated compensation expense pressure yet is because we’re now at a seasonal lull for retail. By mid-July, retailers will start beefing up temporary workforce ranks for ‘Back to School’ and then they kick it up a notch again in October as they prepare for Holiday. With the exception of grocery retailers, they ALL follow that pattern. That’s precisely when we’ll see the biggest wage pressure.

  

KATE - Kate Spade & Company Appoints Emilia Fabricant Executive Vice President, President Of North America

(http://phx.corporate-ir.net/phoenix.zhtml?c=82611&p=irol-newsArticle&ID=2061846)

 

KATE announced the addition of a President of North America to its ranks yesterday. This makes perfect sense from where we sit. The KSNY brand should hit the $1bn mark in NA by years end. And this will take some of the executional responsibility off the plates of the C-Suite. In fact, we're surprised that KATE has not added more people at the top ranks sooner. KATE now has leadership in place for both its North American and International segments with the announced hiring of Emilia Fabricant yesterday. We don't know Fabricant personally, and parts of her resume are kind of a head scratcher to us (bebe, Aeropostale, Charlotte Ruse). But Leavitt has made good HR decisions to date...and we'll give him the benefit of the doubt on this one while we vet her on our own. Also, this is not the kind of role (ie Creative) where a person can walk in the door and do damage on their first day on the job.

 

All in, we still like the KATE story a lot, and think it is egregiously undervalued here relative to the underlying earnings power and growth potential.

  

OTHER NEWS

 

SPLS, ODP - Staples merger unlikely after judge blocks Sysco/US Foods union

(http://nypost.com/2015/06/24/staples-merger-unlikely-after-judge-blocks-syscous-foods-union/)

 

JWN - Advantage Sales & Marketing LLC CEO Tanya Domier Joins Nordstrom Board Of Directors

(http://investor.nordstrom.com/phoenix.zhtml?c=93295&p=irol-newsArticle&ID=2061866)

 

CVS, TGT - CVS Health has a new marketing chief

(http://www.retailingtoday.com/article/cvs-health-has-new-marketing-chief)

 

Li & Fung Joins With Chinese Retailers for Joint Venture

(http://wwd.com/retail-news/department-stores/li-fung-joins-with-chinese-retailers-for-joint-venture-10163997/)

 

Meijer opens first Wisconsin stores

(http://www.retailingtoday.com/article/meijer-opens-first-wisconsin-stores)