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Takeaway: Nike e-comm push hurts traditional wholesale. An interesting look at WMT wage moves. Amazon holiday.

NKE - E-comm push hurts traditional wholesale


This story discusses the impact of the athletic brand (particularly NKE) push into the direct segment. Because of the way that consumers shop today, it makes it very hard for the little guy to compete with not only the traditional wholesale competitors like DKS, FL, FINL, Sports Authority, Academy, HIBB, etc. but also the brands which have emphasized direct growth. For starters, it's almost impossible for an independent retailer to establish an online presence because of the economics associated with the small scale and limited allocations. It's like Hibbett Sporting Goods (which we think will lose 300-500bps of margin as it builds its e-comm business), but worse. Maybe the technical running shops still have a place in the market, as they can offer a level of service and expertise not available on the internet today. But, a) that type of store only caters to small portion of the population, and b) those sales can easily be moved to the internet once the knowledge is transferred and performance attributes are found.

This isn't an issue just affecting the bottom of the competitive marketplace. As NKE adds $10bil in e-comm revenue over the next 5 years it will send shockwaves around the rest of the traditional supply chain. Look no further than the most recent quarter from NKE when it was the first time EVER that wholesale accounted for less than 50% of incremental profit. This means that Nike itself is now a more important profit driver than all of its traditional customers combined.

-Alec Richards

Retail Callouts (12/28): Nike E-comm, Retail Wages, AMZN - 12 28 2015 chart1

WMT - Wages With Minimal Wiggle Room


This is an interesting way to look at the minimum wage decisions at WMT written by the Andrew Pudzer, CEO of CKE Restaurants. Here is a quick summary of his math. The 20 retail companies that land in the Fortune 500 recognize an average of $6,300 in annual profit per employee. On an average retail work week of 31.5 hours the raise to $9 and $10.10 from the current $7.25 minimum wage would equate to an increase in annual wages per employee of $2,370 and $4,446, respectively. That would take annual profit per employee down by 38% for a hike to $9 and 71% for a hike to $10.10. Of course there are companies that already pay over the federal minimum wage, but it's all about the pay gap needed in order to attract the right type of talent which will cause wage inflation across the industry. The bottom line is, this isn't a positive development for retail especially when companies can't pass along the added cost pressures through to the consumer. Which will ultimately result in less employees as costs go up.

-Alec Richards

AMZN -  Amazon Celebrates a Record-Setting Holiday


AMZN put out a press release this am talking about Prime, hardware, and TV stats. Not a lot of concrete detail in the release on Prime other than a brief mention that more than 3mm Prime members were added in the 3rd week of December.  At first glance this number is impressive, however we suspect a large portion of the additions are late holiday shoppers leveraging a 1 month free trial to get the free two-day shipping. 

December to date ChannelAdvisor comp numbers, suggest a sequential slowdown in comps for the 4th quarter to the 20% range in line with current consensus estimates.

-Alec Richards

Retail Callouts (12/28): Nike E-comm, Retail Wages, AMZN - 12 28 2015 chart2

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