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 November 24, 2009


As the ‘lean inventories and higher gross margin’ trade is coming to an end in retail, CEOs can learn a thing or two from Bill Belichick and UC Berkeley’s David Romer. The bottom line is that winners take the shot – that is invest when others adopt a position of conservatism.

As a former defensive back, I questioned Patriot’s coach Bill Belichick’s call last week to go for it on a 4th and 2 on his own 28 yard-line with 2-minutes left.  Amongst other things, the call flew in the face of ‘conventional wisdom’ (unfortunately, the same can’t be said for Yale’s decision to go for it on 4th & 22 against Harvard last weekend). So, when I heard about a paper from a UC Berkeley Economists that provided empirical evidence to support Belichick’s call, I read it and was intrigued not only with its conclusion, but also with just how similar many of these same considerations apply to CEO’s in retail today.

The crux of the David Romer’s report is that coaches are more worried about job security than winning. If a coach takes the shot and fails, it’s his fault.  However, if he punts and losses, then he made the ‘right call’ according to conventional wisdom and the team takes the blame. This is akin to the economic concept of Prospect Theory whereby people tend to fear losses more than equivalent gains. As it relates to retail, companies are at the end of the ‘lean inventories and higher gross margin’ trade and are essentially faced with a 4th & short call of their own.

We’re now at the point where companies have to either 1) rely on a meaningful consumer rebound, or 2) take the shot. This could be either in the form of those companies that have been investing over the past 1-2 years in the best tools, processes, and brands to ensure that they have the clearest shot (UA, RL, PSS, DKS, KSWS and soon-to-be FL and NKE), or those that have a proactive plan to step up inventories and actually grow – profitably – while minimizing risk (KSS, BBBY, DECK). On the other hand, many CEO’s have followed ‘conventional wisdom’ electing to punt by cutting costs and adopting a wait-and-see approach before stepping up their spending (e.g. JCP, ANF, VFC, TRLG, CMRG).

Whether it be 4th & short, or investing at a time when ‘conventional wisdom’ dictates that conservatism should prevail, the bottom line is that winners take the shots. This will play out as the bifurcation between the winners and the ‘rest of the pack’ widens in 2010.

Here’s a link to Romer’s paper: http://elsa.berkeley.edu/~dromer/papers/PAPER_NFL_JULY05_FORWEB_CORRECTED.pdf


Casey Flavin



  • While most view Black Friday as the traditional kick off to the gift giving season, a recent survey suggests otherwise. According to the Consumer Reports Holiday Poll, 66% of shoppers who make it out to the stores on Black Friday will be purchasing something for themselves.
  • The deflation continues with this year’s annual Farm Bureau survey of the Thanksgiving Meal. This year’s survey indicates that a traditional holiday meal for eight will cost $38.53, $3.84 less than last year. All items in the meal survey showed decreases except peas, sweet potatoes, and pumpkin pie filling.
  • According to Wal-Mart’s blog, the company will be offering a Sony Blu-ray DVD player for $118 on Black Friday. While that in itself isn’t noteworthy, the way in which the pricing information is presented caught my eye. A Wal-Mart employed blogger suggests that the actual item is advertised for $148 in the printed ad (circular) but it will actually be sold for $30 less . Is this part of a strategy to offer incremental “value” in-store without the consumer even knowing it or is Sony getting cold feet and throwing in some vendor support at the last minute?


U.S. Senators Pressure Obama on China Currency Issue; Citing a Competitive Disadvantage for U.S. Manufacturers - After a conciliatory tone struck by President Obama, U.S. senators are pressing the administration to take a more aggressive stance on currency reform in China. Obama’s meeting in Beijing this month with Chinese President Hu Jintao produced no new agreements and led to a fresh round of criticism in Congress. In addition, the Treasury Department has failed to cite China as a currency manipulator in two semiannual reports this year, although Obama pledged during the campaign to crack down on China’s currency. Opponents argue that China deliberately manipulates its currency, the yuan, by pegging it to the dollar instead of letting it float freely on the market in order to gain a trade advantage with cheaper exports, putting U.S. manufacturers at a competitive disadvantage. Lawmakers have introduced several bills, all of which have stalled, levying varying degrees of penalties against China for undervaluing the currency. <wwd.com>

European Industrial Orders Increase for Sixth Month - European industrial orders advanced for a sixth month in September, led by capital goods such as machines, as the euro-region economy pulled out of its worst slump in more than six decades. Orders to industrial companies in the 16-nation region rose 1.5 percent from August, when they increased 0.6 percent, the European Union’s statistics office in Luxembourg said today. Economists forecast a gain of 1 percent, according to the median of 19 estimates in a Bloomberg survey. In the year, new orders dropped 16.5 percent after declining 23.2 percent in August. The euro-region economy returned to growth in the third quarter after governments pledged billions of euros to fight the crisis. The Organization for Economic Cooperation and Development doubled its global growth forecast for 2010 on Nov. 19. Still, the euro’s ascent is making exports less competitive, threatening to curb the pace of growth. <bloomberg.com>

French Consumer Spending Climbs on Car Incentives, GDP Growth - French consumer spending rose more than expected in October as government incentives boosted car sales and the economic expansion that began in the second quarter continued. Spending on manufactured goods advanced 1.1 percent from September, Paris-based national statistics office Insee said in an e-mailed statement today. Economists expected a 0.4 percent gain, according to median of 19 forecasts in a Bloomberg survey. Spending rose 3.5 percent from a year earlier. French households, grappling with rising joblessness while also benefiting from state stimulus measures and the end of the deepest recession in more than half a century, have spent erratically this year. Spending gained in five and fell in four of the first nine months, a volatility set to continue even as growth in unemployment slows, economists say. <bloomberg.com>

S&P Lowers Foot Locker's Debt Ratings - Standard & Poor's lowered the debt ratings of Foot Locker Inc. one notch to B+ from BB-. The rating agency cited operational challenges due to poor same-store sales and eroding credit-protection measures. "The downgrade reflects the moderate operational challenges due to persistent negative same-store sales and decline in the company's credit protection measures," said David Kuntz, an S&P credit analyst. The ratings agency noted that the company is likely to experience "ongoing performance difficulty" over the near term. The outlook is stable.  <sportsonesource.com>

Prime minister proposes funding for small businesses - A growth capital fund to boost investment in small businesses was proposed by Gordon Brown yesterday. Speaking at the CBI conference in London, the prime minister responded to an independent report that found small businesses have suffered a “structural” lack of investment during the recession. The Rowlands report called for the government to help small businesses to obtain funding of £2m to £10m and said that the shortage of venture capital for small businesses was a permanent rather than a cyclical problem, with investors concentrating on investments above £10m. <drapersonline.com>

South Africa Economy Expands 0.9%, Ending Recession - South Africa’s economy returned to growth in the third quarter, ending the first recession in 17 years, as manufacturing rebounded and the government invested in roads, railways and stadiums for next year’s soccer World Cup. Gross domestic product rose an annualized 0.9 percent, compared with a contraction of a revised 2.8 percent in the previous quarter, Statistics South Africa said in a report released today in Pretoria, the capital. The rand erased an earlier 1 percent loss after the release of the data. Manufacturing recovered in the third quarter as the global recession eased and demand for exports improved. Murray & Roberts Holdings Ltd. and other construction companies have also benefited as South Africa spends billions of rand to build a high-speed rail-link and renovate stadiums for next year’s soccer tournament, the world’s most-watched sporting event. <bloomberg.com>

CIT Gets OK for $500M in Financing - A bankruptcy judge on Monday gave CIT Group Inc. the go-ahead to borrow as much as $500 million to operate while in Chapter 11 proceedings. The approval gives the commercial lending giant, a primary lender to many small and midsize businesses, the ability to issue letters of credit to back its debt. In a court filing last month, CIT said it would use the letters of credit to support its own obligations and commitments as well as those of its subsidiaries. A group of lenders led by Bank of America Corp., which will serve as administrative agent, provided the loan. Judge Allan Gropper signed off on the arrangement in U.S. Bankruptcy Court in Manhattan. CIT had obtained an interim order of the court earlier this month that allowed it to borrow $125 million of the loan.  <wwd.com>

Fiber Price Sheet: November 24, 2009 - Prices listed reflect the cost of one pound of fiber or, in the case of crude oil, one barrel.

RETAIL FIRST LOOK: 4th & SHORT - Fiber Price Sheet


China's Textile City Grows in Stature - Whether the garment label reads Made in China, France or the USA, there’s a good chance the fabric originated in a relatively unknown textile region: Shaoxing. In the 20 years since Keqiao Town in Shaoxing County was designated China Textile City, tax breaks and political support have helped boost its development as the main textile hub in the world’s largest fabric-producing country. However, its standing remains under the radar, especially to the West. Keqiao manufactures 10 percent of all the cloth in China, and dyes or prints, one-third. It is home to 19,000 trading companies, more than 10,000 textile producers, 3,500 international purchasers and scores of other players in the textile supply chain. <wwd.com>

Inter Ikea May Invest Up to $1.2 Billion in China - Inter Ikea Centre Group, the mall developer part-owned by the world’s biggest home-furnishings retailer, plans to invest as much as $1.2 billion in China over the next five years. The company will build two shopping centers in China, John Tegner, Inter Ikea Centre’s managing director, told reporters in Beijing today. It has 22 mall projects to be developed over the next three to four years in Europe and China, he said, without providing a breakdown. “It makes a lot of sense,” Richard Perks, a retail analyst at Mintel in London, said by telephone. “The market is growing very fast and there is no reason why someone like Ikea shouldn’t succeed. It is a brilliant business.” Ikea is expanding in the world’s third-biggest economy after recessions damped demand in the U.S. and Europe. The company’s sales grew at the slowest pace in more than a decade in the year ended August, rising 1.4 percent. Inter Ikea Centre develops shopping malls that feature the outlets of the home- furnishings retailer. <bloomberg.com>

US: Five US retailers join forces with Better Work - The US Council for International Business (USCIB) has announced support for Better Work by five of the biggest US apparel companies including Gap, Levi Strauss & Co., Nike, Walmart and the Walt Disney Company, all of which will contribute over USD $1 million to Better Work through the USCIB’s foundation. The programme will use contributions to support the development of labour standards compliance assessment and training tools, benefiting the companies’ supplier factories among others. "Better Work is a perfect example of a public-private collaboration with measurable benefits." stated Peter Robinson, President and CEO of the USCIB, in announcing the decision. "By bringing all stakeholders together in a collaborative approach, Better Work is helping to create sustainable change." <fashionnetasia.com>

Famous Footwear exec steps into expanded role - Brown Shoe Company Inc. announced that John Mazurk will assume the role of senior vice president, consumer and retail business development, with oversight for the direct to consumer area, including Shoes.com and other branded e-commerce sites. In the role he will spearhead the creation of a dedicated digital and social media competency. Shoes.com is No. 162 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name). Mazurk, who joined the company in 2002 as Famous Footwear senior vice president, retail sales, was named senior vice president, specialty retail, in 2005. <internetretailer.com>

NRF Sees 134 MM Black Friday Shoppers - According to a preliminary Black Friday shopping survey, conducted for the National Retail Federation by BIGresearch, up to 134 million people will shop this Friday, Saturday or Sunday, higher than the 128 million people who planned to do so last year. According to the survey, 57 million people say they will definitely hit the stores while another 77 million are waiting to see what retailers are planning before heading out the door. “Regardless of what we’ve already seen these last few weeks in terms of promotions, retailers still have a few tricks up their sleeves to excite Black Friday shoppers,” said Tracy Mullin, NRF President and CEO. “With retailers fully aware that shoppers are looking for incredible deals, Americans can expect huge sales on popular items like toys, electronics and apparel.”  <sportsonesource.com>

Burberry Shakes Things Up on Madison Avenue - Burberry has brought its new London and Brit attitude to Manhattan. The brand is opening two stores under those names today at 444 Madison Avenue at the foot of its Manhattan headquarters, which was inaugurated in May with the lighting of three neon Burberry signs atop the building. These aren’t just another pair of store launches for Burberry, which has 62 units in the U.S. and Canada. The two stores, which flank the headquarters entrance, mark the first Burberry Brit and London stores in the world, and highlight a branding strategy initiated by chief executive officer Angela Ahrendts and chief creative officer Christopher Bailey. The move clearly delineates the Burberry business into the Prorsum, London and Brit labels. Prorsum representing runway fashions, London the tailored, wear-to-work portion, and Brit its casual, weekend lifestyle aspect.  <wwd.com>

BCBGeneration Adding Jewelry - BCBG Max Azria Group is launching jewelry under its youth-focused BCBGeneration label, in a licensed partnership with Trebbianno LLC. Hitting stores next fall, BCBGeneration jewelry is designed to complement the brand’s assortment of apparel, handbags and footwear. The collection will comprise earrings, bracelets, rings and necklaces ranging in at retail from $28 to $100. The jewelry line will be overseen by Joyce Azria, who last June joined the family business as creative director of BCBGeneration. Azria oversees the design, creative strategies and marketing for the line’s apparel and accessories.  <wwd.com>

Gucci Brothers Launching To Be G Handbags for Spring - There’s no sign of the famous family name in the label two Gucci brothers are launching for spring. With To Be G, a handbag collection by Guccio and Alessandro Gucci, great-grandsons of Guccio Gucci, who founded the Gucci brand in 1921, the brothers are set on carving out their own niche, while avoiding any trademark infringement. “We are not doing this because our name is Gucci, nor do we want to try and replicate what the Gucci brand is doing,” said Guccio Gucci during a tour of his Scandicci, Tuscany, manufacturing plant. “We have our own vision.”  <wwd.com>

JCPenney's Invites Shoppers to Turkey Tailgate - This Black Friday, JCPenney's is touting a 15 percent increase in special discounts over last year. The retailer also plans to open stores at 4 a.m. for its "Turkey Tailgate," the day after the holiday. Beginning today, JCPenney's is revealing a sneak peek of its doorbusters at www.jcp.com. A number of licensed goods will be discounted, including I "Heart" Ronson women's fashions beginning at $5.99, Cindy Crawford Style sheet set for $44.88 and Discovery wonderwall video projector for $68.88. Customers will also receive a free 2009 Disney snow globe while supplies last. "We know this season's Black Friday will be more promotional than ever and that our customers will be expecting outstanding value," says Mike Boylson, executive vice president and chief marketing officer for JCPenney's.  <licensemag.com>

Blacks Leisure Creditors Support Rescue Plan - Creditors of Blacks Leisure Group, the outdoor retailer based in the United Kingdom, voted overwhelmingly on a rescue plan that should allow the company to stay in business. The company, which runs the Blacks Outdoor and Millets chains, said its proposal for a company voluntary arrangement (CVA), an insolvency process, was supported by over 97% in value of creditors who voted at meetings on Monday. That was well in excess of the 75% figure required for the proposal to succeed. Under the terms of the CVA, landlords of 101 closed or closing shops will accept reduced payoffs. If the landlords had not passed the CVA, Blacks would have missed out on bank funding and would have had to enter administration. A pot of £7.25 million (U.S. $7.25 mm) has been set aside to compensate just over 100 landlords of retail stores and other sites, equivalent to around six months' rent each. <sportsonesource.com>

TAG Signs Factoring Pact - Total Apparel Group, Inc., a master distributor and licensee of international trademarks in the branded apparel, footwear and accessories sectors, entered into a receivables factoring agreement with Coral Capital Solutions that will expedite the cash flows of the company and provide collection services, while reducing credit risk. <sportsonesource.com>

Awake Apparel owner gets 35 months in prison - The owner of the Londonderry clothing retailer Awake Apparel has been sentenced to 35 months in federal prison on charges involving fraud and unauthorized use of credit cards, federal prosecutors said. Adrian Fijolek, 23, is a citizen of Poland and will be deported there once he completes his sentence, prosecutors said. His crimes took place between November 2007 and July 2008. They involved obtaining fraudulent credit cards and automobile loans, depositing valueless checks in bank accounts, and conducting fraudulent retail credit sales for Awake Apparel. Prosecutors list $669,000 in funds improperly obtained and used. <unionleader.com>


SHOO: Edward Rosenfeld, CEO, sold 33,000 shares after exercising options to buy 16,000 shares for a net gain of $1mm.

BBY: Richard Schulze, Chairman, sold 550,000 shares for a gain of $21.5mm.


  • Tom Kartsotis, Chairman, sold 49,000 shares for a gain of $1.6mm.
  • Donald Stone, Director, sold 7,500 shares after exercising options to buy 13,500 shares for a net gain of $125k.


  • Richard Hayne, President, sold 728,000 shares for a gain of $24mm.
  • Freeman Zausner, CAO, sold 50,000 shares after exercising options to buy 50,000 shares for a net gain of $1.4mm.
  • Harry Cherken Jr., Director, sold 15,000 shares after exercising options to buy 10,000 shares for a net gain of $460k.

NILE: Dwight Gaston, Senior VP, sold 1,500 shares after exercising options to buy 1,500 shares for a net gain of $72k.

WMT: James Breyer, Director, purchased 5,000 shares for a cost of $270k.

ICON: Yehuda Shmidman, EVP, purchased 75,000 shares for a cost of $900k.

TJX: Ernie Herrman, SEVP, sold 10,000 shares after exercising options to buy 10,000 shares for a net gain of $170k.