• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here


    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.


November 11, 2009


This morning’s announcement that Best Buy is testing the sale of fitness equipment in 40 stores caught our eye. Yes, we respect the concept of the “test” and realize it would be unwise to make wide sweeping predictions based on something that is in so few stores and still in its infancy.  However, we can’t help but wonder how fitness equipment will ultimately fare within the Best Buy box.  A couple of points to consider:

  • Women dominate fitness activity participation and likely have a disproportionate influence on purchasing decisions related to fitness equipment.  
  • Best Buy is probably one of the most male-oriented retail concepts given the nature of the products it sells.  With that said, consumer electronics are about 50/50 when it comes to purchases by men/women.  More balanced than one might think, but still far less than the 70+% of apparel purchased by females.
  • Best Buy is highlighting the ability of its Geek Squad to install new equipment in home.  This will likely require some training to get the “Squad” up to speed on assembling treadmills or will require a massive recruiting effort to find employees with expertise in computers, home theater, AND fitness equipment.  Also, seems odd that the Geek Squad will also now be involved with heavy lifting (literally).
  • Historically, fitness equipment has been a tough category for most retailers.  The slow-turning, highly seasonal, and high ticket nature of stationary bikes, treadmills, and elliptical machines has not been a great driver of margins or inventory turns.  Additionally, fitness can be a trendy business as both new technology (i.e the introduction of the elliptical machine) and new fitness techniques (i.e yoga, not new but definitely more popular than ever) come and go every few years. 
  • Finally, although fitness equipment sales to consumers may actually be stabilizing this is truly a discretionary category.  Perhaps the time is right from the perspective of entering the business at the bottom, but this category will need a macro-driven recovery to see a meaningful pick up.

-Eric Levine



Some Notable Call Outs

  • In an effort to streamline inventory management and better align inventories with sales, management of American Apparel suggested a somewhat novel solution. They basically suggested that they are going to grow out of their over-inventoried position, by either opening more stores (to put the inventory into) and/or waiting for a rebound in the wholesale business (which is highly macro driven). While supply chain efficiencies and new systems are also part of the plan, this was one of the more “blunt” solutions we have heard in a while when it comes to inventory reduction.
  • Fossil management indicated that the consumer is chasing fashion and willing to pay up for it. The company reported strong sales in the higher priced Michele fashion-luxury brand, in the licensed Michael, by Michael Kors brand, and in the higher priced fashion offerings within the Fossil line. Overall, $85 fashion watches were top sellers in the third quarter, which compares with an average $55 price point for the basic line. As an added note, 45% of the company’s watch sales will take place over the next 10 weeks.
  • As expected, the holiday season is heating up and it’s heating up early. As retailers jockey for position to “one-up” Black Friday, Best Buy is set to promote an Acer laptop for $250 beginning tomorrow. The no-frills model is likely to be the lowest priced laptop in the mass market, until we see others (Walmart?) join the promotional party. With prices on full sized laptops at these levels, it’s not hard to see where prices on netbooks are heading…


Mitchells Acquires Wilkes Bashford -Late Monday night, the Mitchells, operators of the largest family-owned specialty store in the U.S. with sales of $100 million, inked an 11th-hour deal to acquire the assets of Wilkes Bashford, which simultaneously filed a voluntary Chapter 11 petition. The deal by Ed Mitchell West LLC is for $4.6 million in cash and is subject to higher offers and bankruptcy court approval. A contingency of the sale is that the purchase be completed by Nov. 30 in order to maximize business during the holiday selling period, according to Bob Mitchell, co-president of Mitchells. <wwd.com>

Fred Leighton Acquisition Completed - Fred Leighton has a new beginning after almost two years in bankruptcy. FL Acquisitions LLC — comprised of Kwiat Enterprises and Och-Ziff Capital Management Group — and FOF Inventory Holding LLC signed a deal Tuesday to acquire all of the assets of Fred Leighton Holding Inc. for $25.8 million. Kwiat chief financial officer Greg Kwiat has been named chief executive officer of Fred Leighton, in addition to his post at Kwiat. FL Acquisitions acquired the Fred Leighton stores in New York and Las Vegas, as well as all Leighton trademarks and intellectual property. Leighton’s Beverly Hills store, opened in 2008 by then-president Peter Bacanovic, closed last month. FL Acquisitions and FOF Inventory Holding jointly acquired the fine jewelry inventory. <wwd.com>

Arcandor Seeking Buyer for Karstadt - The search is about to begin for a buyer for the insolvent Arcandor Group’s Karstadt department store chain, insolvency administrator Klaus Hubert Görg said at a creditors’ meeting on Tuesday. Unlike Quelle, Arcandor’s catalogue business which is being liquidated, Görg said a restructuring of the insolvent 126-door department and sports store group was the “best alternative for all participants.” He remains committed to a sale of the group as a whole, and said there have been several serious offers, though he declined to be more specific. The Metro Group, which runs the competing 113 German Galeria Kaufhof department stores, has long expressed interest in taking over some, but not all, of the Karstadt doors. No official offer has been made. <wwd.com>

Former Wal-Mart CEO Lee Scott Joins Private Equity Firm - Former Wal-Mart Stores Inc. chief H. Lee Scott Jr. has jumped into the private equity game and joined Solamere Capital, an investment firm cofounded by Tagg Romney, son of former Republican presidential candidate Mitt Romney. Scott, who earlier this year ended a nine-year run as president and chief executive officer of Wal-Mart, will be an operating partner and member of the Lexington, Mass.-based firm’s investment committee. Scott will review investment opportunities and help grow companies in which Solamere takes stakes. <wwd.com>

Baucus Pushes Asia-Pacific Trade Pact - Senate Finance Committee chairman Max Baucus (D., Mont.) proposed a blueprint for trade on Tuesday, with the Asia-Pacific region as its centerpiece. Baucus prodded President Obama, who is leaving Thursday on a seven-day trip to Asia, to pursue a regional trade pact with key Asian trading partners. He outlined the goals to a sold-out audience of trade importers and associations at an event cosponsored by George Washington University’s Institute for International Economic Policy and the Washington International Trade Association. Baucus called on Obama and Congress to be more aggressive on trade, saying the U.S. must expand commercial ties to other Asian nations while maintaining a steady trade relationship with China. He said a balance, including stronger labor and environmental provisions, was needed in trade deals. <wwd.com>

Skechers will bring fashionable scrubs to medical professionals - Skechers will bring a fashionable line of medical scrubs to health professionals beginning in January. Nurses and doctors will have a new option to look fashionable in their scrubs. Skechers USA Inc., the Manhattan Beach-based maker of fashionable shoes and apparel, said Tuesday that clothing manufacturer Strategic Partners Inc. will produce and distribute Skechers brand clothes for health care professionals. Starting in January, Skechers medical apparel will hit independent uniform retail stores. The deal represents the first time the Skechers brand will be used for an industry-specific market, Skechers spokeswoman Jennifer Clay said. "Many medical professionals wear our Skechers Work slip-resistant footwear on the job, so developing medical apparel branded with Skechers is a natural extension of Skechers will introduce fashionable medical apparel in January 2010. <dailybreeze.com>

China’s Economy Strengthens, Boosting Yuan Calls - China’s industrial production and trade surplus climbed in October, indicating a strengthening recovery in the world’s third-largest economy that’s likely to amplify calls to let the yuan appreciate. Today’s figures come days before leaders from the Asia- Pacific region gather in Singapore, and a visit by U.S. President Barack Obama to Beijing, where he plans to raise China’s currency policy. Premier Wen Jibed has so far rebuffed pressure to loosen reins on the yuan, awaiting a bigger rebound in exports in an effort to secure social stability and job gains. <bloomberg.com>

China: Retail sales up 16.2% in October - China's retail sales in October has seen substantial growth, with an increase of 16.2% year on year to US$ 171 billion, according to the National Bureau of Statistics. Although the rise was 5.8% lower than that of a year earlier, but 0.7% higher than that in September. The first 10 months saw a 15.3% growth in retail sales to 10.14 trillion yuan year on year. The rate was 6.7% down from the same period last year, and 0.2% up from the first nine months this year. <fashionnetasia.com>

UK: October retail sales see highest hike in seven years - UK retailers last month have seen their biggest October sales growth for seven years, with clothing sales helped by sales of children's Halloween costumes, according to the British Retail Consortium (BRC). Retail sales values rose 3.8% on a like-for-like basis from October 2008 while sales rose 5.9% against a 0.1% decline in October 2008 on a total basis. Clothing and footwear showed stronger growth than in September, the BRC said. <fashionnetasia.com>

Fast Retail Passes Seven & I as Japan’s Top Retailer - Fast Retailing Co., operator of the Uniqlo casual-clothing chain, rose to a record in Tokyo trading, overtaking Seven & I Holdings Co. as Japan’s largest retailer by market value. Fast Retailing added 1.4 percent to close at 16,920 yen on the Tokyo Stock Exchange, the highest level since the stock first traded in April 1997. The gain gives it a capitalization of 1.79 trillion yen ($20 billion), while Seven & I, operator of the 7-Eleven convenience-store chain, fell 0.7 percent to 1,948 yen, cutting its market value to 1.77 trillion yen. <bloomberg.com>

Retail Forward: Holiday Shoppers Cautious, Less Pessimistic - Consumers plan to cut holiday spending habits by 45 percent this holiday season, compared to the 53 percent who planned cutbacks last year, according to Retail Forward's ShopperScape results for October. Meanwhile, shoppers surveyed also said they plan to increase their near-term spending by 9 percent versus last October's reported 8 percent. Retail Forward reports that the more positive feelings toward holiday spending this year could be attributed to its survey findings on household financial health, which says more shoppers are better off in terms of their credit card debt levels, monthly mortgage and car payments than are worse off. However, other data points to consumer indecisiveness with 42 percent saying they don't how much they will spend and 20 percent saying they don't know how much of their budget they've spent so far. <licensemag.com>

J.C. Penney's Sets Up Facebook Holiday Campaign - For the first time, J.C. Penney is staking out holiday turf on Facebook. As part of its “Joy of Giving” marketing campaign, Penney’s is starting a virtual community on its Facebook page, enabling visitors to exchange stories about how they give joy, browse gifts and click through to jcp.com, where they can purchase presents online. Designed by T3, an Austin, Tex.-based digital marketing agency, the online destination was to go live Tuesday. In a preview of the holiday network, gift givers spotlighted in photos of themselves on red gift tags — suggesting they are giving of themselves — have posted responses to the question: “How do you give joy?” Answers run from “I surprise my wife by cleaning the house” to “baking my chocolate chip cookie recipe for all my friends” and “volunteering to read for the blind.” <wwd.com>

Luxury Brands Acclimate to the Internet - Luxury brands may only just be learning to effectively communicate on the Internet, but they are chattering up a storm — and one voice is calling for more clarity. “Brands have been so criticized for lateness, they are overcompensating,” said Uché Okonkwo, founder of the Paris-based consultancy Luxe Corp and author of “Luxury Online,” due out this month from Palgrave Macmillan. “Social media is a means to an end. Getting it right means first assimilating what it’s about, and that takes time. Brands are smart, which is why it’s so surprising when they go wrong online.” <wwd.com>

Chanel, World Tricot Court Decision Due - Chanel will learn Dec. 11 if it has to pay damages to World Tricot, the French knitwear supplier, which alleged the couture house copied one of its crocheted designs in 2005. The case was heard last week before a commercial court here. Carmen Colle, president of World Tricot, which manufactured high-end knits for Chanel for seven years, is seeking 2.5 million euros, or $3.7 million, in damages after she spotted what she said was Chanel’s take on a World Tricot sample in a Chanel boutique window in Tokyo in March 2005. Chanel denied the allegations, which it said have tarnished its image, and is counter-suing for 500,000 euros, or $742,855, for commercial prejudice and 1 euro, or $1.50, in moral prejudice, a company spokeswoman confirmed. Dollar figures were converted at current exchange rates. <wwd.com>

Dooney & Bourke Chairman Sentenced to Prison - Frederic Bourke, the co-founder and chairman of accessories firm Dooney & Bourke, was sentenced on Tuesday to one year and one day in prison for his role in a conspiracy to bribe officials in Azerbaijan. U.S. District Court Judge Shira Scheindlin in Manhattan said Bourke, who was convicted in July after a monthlong jury trial, knew of the bribes but was not the plot’s originator. She also fined Bourke $1 million and ordered him to serve three years of supervised release. He was allowed to remain free on $10 million bail, pending his appeal. Scheindlin said he was not a flight risk and there were facts in the case that could result in a new trial or reversal. <wwd.com>

‘Sesame Street’ turns 40 with American Apparel T-shirts and totes - As the first generation of "Sesame Street" viewers veers toward middle age, it’s hard to believe that the show that introduced generations to Kermit the Frog, Bert and Ernie, Oscar the Grouch, Elmo and, of course, Big Bird, turned the big 4-0 yesterda. Sesame's 40th season debuted on the tube this morning with a special appearance by First Lady Michelle Obama and Cameron Diaz, brought to you by the letter “H” and the number 40. <latimes.com>



  • William Fisher, 10% Owner, sold 99,000 shares to GPS in a share repurchase agreement for a gain of $2.2mm.
  • Robert Fisher, Director & 10% Owner, sold 114,000 shares to GPS in a share repurchase agreement for a gain of $2.6mm.
  • John Fisher, 10% Owner, sold 141,000 shares to GPS in a share repurchase agreement for a gain of $3.16mm.
  • Doris Fisher, Honorary Director & 10% Owner, sold 289,800 shares to GPS in a share repurchase agreement for a gain of $6.5mm.

AMZN: John Doerr, Director, sold 11,500 shares after converting 2,300 restricted stock units on a one-for-one basis for a net gain of $1.45mm.


  • Robert Gordon, SVP, sold 75,000 shares after exercising options to buy 75,000 shares for a net gain of $213k.
  • Bruce Everette, EVP, sold 75,000 shares after exercising options to buy 75,000 shares for a net gain of $213k.
  • Donald Wright, SVP, sold 14,000 shares after exercising options to buy 14,000 shares for a net gain of $40k.

WAG: David VanHowe, VP, sold 18,000 shares after exercising options to buy 15,000 shares for a net gain of $216k.


  • James Kelly, President & COO, sold 95,000 after exercising options to buy 95,000 shares for a net gain of $855k.
  • Barry Sullivan, EVP, sold 9,000 shares after exercising options to buy 9,200 shares for a net gain of $31k.

LIZ: William McComb, CEO, sold 9,000 shares for a gain of $48k.

TBL: John Crimmins, CFO, sold 3,400 shares after exercising options to buy 3,400 shares for a net gain of $9k.