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December 9, 2009


I’ve been increasingly concerned that China flexes its muscle to become a bigger force in the US footwear supply chain as it increasingly exports content instead of only its cost of manufacturing. Li Ning is firing the first shot. Watch this everyone. It matters.

Did anyone notice that Li Ning (top local brand in China) will be testing the US market in January with its first retail outlet and R&D center outside Asia in Portland (yes, Nike’s stomping ground)?  On one hand, I took a look at the choice of location and my initial gut baffled me. But the we probably have to think a bit more strategic about this… Yes, Li Ning wants to test the US market, but they’re doing this with the intent of the US being a much more meaningful part of its business 2-3 years from now.  Can someone give me a good reason why Li Ning could not get to 3-4% share of the $18bn US athletic footwear market? The only way to do that is to beef up talent. What better place to be than in the collective backyard of Nike, Adidas USA, Columbia, and a host of smaller brands that will all serve as a source of both market intel and talent as the years progress.

This is just the beginning, folks. People are so hyperfocused on US companies finding nickels and dimes by manufacturing their wares in China and then importing finished goods back the states. In fact, we’ve been all over those nickels and dimes. But let’s not lose sight of the fatter-tailed call here, which is a secularly-stronger Chinese currency giving Chinese content owners the opportunity to compete with US incumbents on their own soil at lower prices.

So let me get this straight…We’ve got an Asian company with a structural low-cost advantage, better access to capital and better cost of capital, that is making a shift towards exporting its content, instead of China simply allowing foreign brands to use its manufacturing assets. This product is competing against many over-levered marginal brands and retailers, and are being sold to US consumers who are collecting ZERO percent on their savings accounts and are likely devoid of any form of stimulus whatsoever.

This is not good. Not good at all…


  • Kroger suggested that in the last two months, both the deflationary environment for fresh food and grocery items and the competitive promotional environment intensified. Specifically in core grocery items, the category went from being slightly inflationary in Q2 to being deflationary by 1% in Q3. Management also noted that sales for November, including Thanksgiving, were below expectations. Until the economy improves, it appears that the competitive environment will remain intensified as all consumables retailers are fighting for market share in what is a low margin business to begin with.
  • In an effort to simplify its merchandising strategy and drive full priced sales Talbot’s management has been increasing the focus on key items. The result of these efforts has been a substantial reduction in clearance, substantial inventory reduction (down 40% over 2 years) and an increase in the penetration rate of key item sales to over 50% in 3Q. As a result, EBIT margins rose to 9%, even with same store sales down 16%.
  • At a conference, PVH management indicated that same store sales momentum in its retail business remains robust through the first week of December. Same store sales are trending up 6%, consistent with November. Black Friday weekend results were actually above the current run rate.
  • Autozone management noted that discretionary product sales were at the lowest percentage of the sales mix in the current quarter than they have been in the past three. Maintenance and failure products continue to grow at a faster rate as customers remain cautious with their purchasing patterns.


Iconix Renews Three Direct-to-Retail Deals - Direct-to-retail renewals have been signed by Iconix Brand Group for its brands, Candie's, Fieldcrest and Waverly. Candie's has renewed its exclusive multi-year license agreement with Kohl's. The retailer will continue to distribute Candie's-branded apparel, accessories and lifestyle products in U.S. stores and at www.kohls.com through 2016. Candie's has been at Kohl's since 2005. Fieldcrest will continue to be sold exclusively at Target through 2015. The home brand touts bed and bath products. The brand has been with the retailer since 2005. Lowe's has also renewed its agreement with Waverly Home Classics paint, in which it will continue to hold the exclusive license. The home improvement retailer has carried the range since 2003. "These renewals demonstrate the strength of the Iconix brands and their continued importance to our retail partners," says Neil Cole, chairman and chief executive officer of Iconix. <licensemag.com>

Talbots Gets New Owner, Slashes Debt - One leader of the misses’ retail market has a new majority owner and a lot less debt. Shares of The Talbots Inc. rose more than 14 percent Tuesday after the specialty retailer reached a deal to end its 21-year relationship with its majority owner, the U.S. subsidiary of Japanese retail giant Aeon, retiring the $491 million debt it owes Aeon through a merger with special purpose acquisition company BPW Acquisition Corp., and agreeing to a new $200 million credit facility from GE Capital. Upon completion of the multifaceted transaction, BPW is expected to own 60 to 69 percent of Talbots’ outstanding shares. While analysts weren’t surprised Talbots would make a dramatic move to extract itself from its onerous liquidity problems, many were surprised the retailer managed a third-quarter profit, also announced Tuesday. <wwd.com>

Men's Wearhouse to Continue Promotional Posture - The Men’s Wearhouse Inc. is keeping the promotional pedal to the metal for holiday, putting the bottom line at risk. In posting a 35 percent increase in third-quarter earnings, the 1,274-unit, Houston-based retailer said it expects business to remain challenging in the fourth quarter and will answer that with continued aggressive promotions. It also said Tuesday it anticipates a fourth-quarter loss of 15 to 19 cents, versus analysts’ earlier expectations of a 1-cent profit, leading shares down sharply in after-hours trading. On its analyst conference call after the market closed on Tuesday, chief executive officer George Zimmer said: “Until we have clear signs that the consumer is spending freely without promotion, we are guaranteeing that we’ll get our business by marketing heavily and promoting heavily.”  <wwd.com>

Walking Company Files Ch. 11 - The Walking Company Holdings Inc. has filed for voluntary Chapter 11 bankruptcy protection, citing, in part, the lagging economy, as well as its recent rapid store expansion. The firm, which filed in Santa Barbara, Calif., on Monday, said it hopes to emerge from Chapter 11 in early 2010 and that it seeks to shed its unprofitable stores.“This action is an unfortunate but necessary and responsible step to preserve The Walking Co.’s value for its secured creditors, vendors, landlords, additional creditors and employees in light of the ongoing challenging retail environment,” Andrew Feshbach, CEO of The Walking Co., said in a statement released Monday evening. “We believe our business model is sustainable in today’s world, despite declining consumer spending and mall traffic at present. However, the unfortunate timing of our rapid expansion caused us to enter into lease commitments at what now appears to be the high water mark for retail space. The chapter process will allow us to shed our unprofitable stores and go forward as a financially viable retailer.” <wwd.com>

Walmart Mexico Acquires 519-Store Affiliate - Latin America's largest retailer Walmart Mexico plans to acquire the operations of Walmart Central America from its parent company Walmart Stores, Inc. The not-yet-approved acquisition will see Walmart Mexico gaining an additional 519 stores and expanding its territorial reach into Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. In the 12 months through September 2009, Walmart Central America had sales of $3.3 billion.

The expected $2.7 million deal will be submitted to a shareholder vote on Dec. 22. <licensemag.com>

Hudson's Bay in Li & Fung Deal - The Hudson’s Bay Trading Co. beginning next year will utilize Hong Kong-based global consumer goods exporter Li & Fung Ltd. as its sole sourcing agent for the Zellers, The Bay, Home Outfitters and Lord & Taylor divisions.  “Li & Fung will bring design, technology and market expertise and expedited shipping to the Hudson’s Bay Trading Company,” said Jeff Sherman, chief executive officer of HBTC. The move is expected to save HBTC costs via a partnership with one sourcing company instead of several around the world. HBTC has been doing much direct-to-factory sourcing on its own while also working with sourcing agents around the world.  <wwd.com>

1-800-Flowers.com finds a taker for its home and children’s gifts business - After discontinuing its operation last summer, 1-800-Flowers.com Inc. has a buyer for its home and children’s gifts business. 1-800-Flowers has agreed to sell the business, which includes PlowandHearth.com, WindandWeather.com, ProblemSolver.com and HearthSong.com, to PH International LLC for $17 million. PH International is a manufacturer and wholesaler of home décor and garden products headquartered in Richmond, VA. Under the agreement, which is expected to close by the end of January, PH International will acquire the Plow and Hearth, Problem Solvers, Wind and Weather, HearthSong and Magic Cabin brands, as well as the division's offices and warehouse facility in Madison, VA. The deal includes another distribution center in Vandalia, OH.  <internetretailer.com>

Supply chain specialists GXS and Inovis announce a merger - Each with a large presence among retailers and consumer products manufacturers, GXS Inc. and Inovis Inc. plan to combine their complementary offerings designed to help retailers and their trading partners share information and conduct online commerce. Terms were not disclosed. The merger, which is subject to regulatory review and expected to close early next year, would bring together two companies with long histories in serving business-to-business operations, including synchronizing product data, transmitting electronic purchase orders and invoices, and providing supply chain visibility. Among GXS’ offerings is its Internet-based GXS Trading Grid, a B2B e-commerce platform or portal through which retailers and their suppliers can conduct business using GXS’ hosted software applications.  <internetretailer.com>

Global Brands Liquidates - After mulling more than 150 potential deals over its two-and-a-half years, Global Brands Acquisition Corp., the investment firm founded by Joel Horowitz, Lawrence Stroll and John Idol, is liquidating and returning its funds to shareholders, according to a filing with the Securities and Exchange Commission. The New York-based venture, a special purpose acquisition company, raised $287.5 million in a public stock sale in December 2007 and used interest from a trust holding that capital to evaluate potential targets. Under Global Brands’ charter, the company had to close its doors and return remaining funds to shareholders if a deal wasn’t consummated by Sunday. Last month, the firm laid out plans to transform into a real estate investment trust under an agreement with Gerrity International. Shareholders were set to vote on that arrangement at a special meeting Friday, but the parties terminated the deal and the meeting was canceled.  <wwd.com>

NYC Counterfeit Raid Yields Big Haul - A monthlong investigation yielded a trailer’s worth of seized counterfeit goods in Manhattan’s Chinatown neighborhood Tuesday. Investigators covered 30 stalls in 10 buildings on the four-block stretch of Canal Street between Broadway and West Broadway, said Jason Post, a spokesman for the Mayor’s Office of Special Enforcement, which conducted the operation. The raids started late Monday night and lasted into Tuesday morning, as investigators seized knockoff perfumes, handbags and other accessories, Post said. The confiscated goods bore the marks of Gucci, Tiffany, Chanel, Coach, Juicy Couture and Cartier, those with knowledge of the operation said. No arrests were made during the sweeps and the counterfeit items were turned over to the New York Police Department, according to the mayor’s office. Authorities had not placed a value on the seized merchandise as of press time. <wwd.com>

Visuality E-Mail Program Boosts Fashion Orders - Visuality, a simple Web-based e-mail program with pictures, is increasing sales for fashion brands and changing how they sell. An e-mail with a photo of every item a retailer has purchased and pictures of suggested updates and new items can easily replace more cumbersome spreadsheets, reports and attachments. “Someone who is absolutely at the kindergarten level of Internet use just opens it up,” said Bud Konheim, chief executive officer of Nicole Miller. “You send them an e-mail, and there’s a message with the pictures. One phone call and you’re doing business.” “It definitely has affected our bottom line with incremental sales,” said Annette Mathieu, president of sales and marketing for Cynthia Steffe. <wwd.com>

CIT Expected to Exit Ch. 11 Thursday - CIT Group Inc. said Tuesday that it expects to emerge from bankruptcy proceedings on Thursday following a Manhattan bankruptcy court’s confirmation of its prepackaged plan of reorganization.  “CIT’s successful emergence establishes a strong foundation for the future of the company,” said ç, chairman and chief executive officer, who noted the company now has a stronger capital structure and an improved liquidity profile. Last month, CIT posted a $1.07 billion third-quarter loss, due mostly to higher reserves set aside for credit losses from a year ago. CIT became the fifth-largest bankruptcy in U.S. history — after Lehman Brothers Holdings Inc., Washington Mutual Inc., WorldCom Inc. and General Motors Corp. — when it filed its Chapter 11 petition on Nov. 1. As expected, the filing was just by the holding company, leaving operations such as its factoring group to proceed without interruption.  <wwd.com>

Retailers Get $1.1B Payment in Antitrust Case - An estimated 634,000 retailers will share a holiday windfall of $1.1 billion, the final payment in a landmark antitrust case against Visa and MasterCard over debit and credit card practices. The merchants will start receiving checks this week as part of the 2003 settlement of their $3.4 billion class action lawsuit. The National Retail Federation, International Mass Retail Association (now the Retail Industry Leaders Association) and 20 chains, including Wal-Mart Stores Inc., Sears and The Limited Inc., filed a lawsuit against Visa and MasterCard in federal court in New York’s Eastern District in 1996, alleging the companies violated federal antitrust laws. The lawsuit specifically cited the “honor all cards” rule, which required merchants that signed contracts for the use of Visa and MasterCard credit cards to also accept their debit cards. For every transaction on a credit or debit card, retailers pay a fee to the card companies. <wwd.com>

Simon Property Buys Prime Outlets - With outlets tracking better than other store sectors, Simon Property Group Inc. has seized the moment. The nation’s largest developer on Tuesday revealed a definitive agreement to buy Prime Outlets in a deal valued at about $2.33 billion, including the assumption of Prime’s debt and preferred stock. Under the agreement, Simon will pay $700 million for the owners’ interests in Prime Outlets, comprised of 80 percent cash and 20 percent in SPG common operating partnership units. The acquisitive Simon Properties has also been said to be considering a bid for some assets of General Growth Properties Inc. For major developers, growth through acquisitions is increasingly important considering the country’s already filled with too many shopping centers leaving little opportunity or reason to build new ones and funding new projects in the tough economy is also challenging.  <wwd.com>

Facebook, Twitter Influence Holiday Gift Buying, Survey Shows - Social media has influenced 28 percent of U.S. holiday shoppers in gift-buying decisions this year, according to a survey by ComScore Inc. Shoppers were most swayed by product reviews written by other consumers, the Reston, Virginia-based research firm said yesterday in a statement. “We are getting our first real glimpse at the impact social media will play on commerce as we enter the next decade,” ComScore Chairman Gian Fulgoni said in the statement. J.C. Penney Co. and Eastman Kodak Co. are using Facebook Inc., the world’s largest social-networking site with more than 350 million users, and Twitter Inc., a site that lets its more than 58 million users send 140-character messages, to lure shoppers searching for bargains online. bloomberg.com>

Industry Gives Obama Thumbs-Up For Job Proposals - Business groups reacted favorably to several tax break proposals President Obama outlined Tuesday to help jump-start small business investment and job creation as part of a broader strategy to stimulate the private sector and staunch massive job losses that have driven the unemployment rate to decades-high levels. Obama proposed a broad package of stimulus and job measures that focused on deeper tax breaks for small businesses, new spending for infrastructure projects and tax breaks for people who make their homes more energy efficient. The pace of job losses slowed slightly in November and the unemployment rate dipped to 10 percent, but millions of people remain out of work, which continues to depress economic activity. Kevin Burke, president and chief executive officer of the American Apparel & Footwear Association, called Obama’s proposals a “step in the right direction,” but warned the administration and economy “still have a long way to go.”  <wwd.com>

U.K. Consumer Confidence Stays Unchanged in November - U.K. consumer confidence stayed close to the highest level in 1 1/2 years in November as shoppers became more hopeful for the economy’s prospects in 2010, Nationwide Building Society said. The index of consumer sentiment was at 73, the same as in October and one point lower than September’s reading, the customer-owned lender said in an e-mailed statement today. The proportion of shoppers expecting the economy to worsen in six months fell to the lowest since the survey began in 2004.Chancellor of the Exchequer Alistair Darling, who will present his pre-budget report today, said this week he would rather suffer criticism for removing economic support too late than too early. Bank of England policy makers are judging if Britain has escaped the recession as they spend 200 billion pounds ($326 billion) on bonds to aid growth.  <bloomberg.com>

OECD: International investment activity collapses - International investment activity has been more than halved by the global financial and economic crisis, with both developed and emerging economies suffering sharp declines, the OECD said on Tuesday. It said overall international mergers and acquisitions were expected to tumble 56 percent this year -- the biggest annual slide since 1995. In a statement released in the sidelines of an international investment conference, the Paris-based Organisation for Economic Co-operation and Development said the slump largely involved its 30 mostly developed economies but was also evident in racier economies such as China and Brazil. The conference emphasised the big role emerging economies have been taken in the realm of international investment. "This (overall) fall is largely due to the 60 percent decline in value of cross-border merger and acquisitions (M&A) by firms based in the OECD area, from over USD1 trillion in 2008 to USD454 billion in 2009," the OECD said in a statement, adding that the forecasts were based on analysis of data up to Nov. 26. <moneycontrol.com>

Tiger Woods' Image Problem -Tiger Woods may be reaching a tipping point as a multimillion-dollar marketing juggernaut. The golfing great’s negative buzz is soaring and his likability rating is ebbing. Marketers have not televised any Woods commercials in prime time on the five major TV networks or on 19 cable channels (excluding the Golf Channel) since Nov. 29 amid a drumbeat of allegations about extramarital affairs since he crashed his Cadillac Escalade near his Florida home, according to The Nielsen Co. Woods was also absent from commercials on sports programs last weekend, including NFL games, said Aaron Lewis, communications director at Nielsen. A 30-second spot for Gillette Co., on the Nov. 29 telecast of NBC’s “Football Night in America,” was the last to appear in prime time featuring Woods. PepsiCo Inc.’s Gatorade is the first brand aligned with Woods to blink. Even as it continued to show full-motion images of the 33-year-old athlete at gatorade.com/tiger/products Tuesday night, the sports nutrition drink company said it was dropping its Gatorade Tiger beverage. It said the decision was made before Woods’ SUV crash.  <wwd.com>