Back in August, CKR started to go after MCD by name when it warned “consumers not to fall for the McHype.”  The burger war, which is thus far a one-sided battle, started with CKR saying, “The Original Six Dollar Burger at Carl’s Jr. has 24 percent more meat than McDonald’s Third Pounders, yet costs the same - $3.99.  And at Hardee’s, the 100% Black Angus beef Original Thickburger has just as much meat as McDonald’s Angus burger, but costs 60 cents less. Those are the facts and that’s the value of our burgers.”  Since then, CKR has introduced both The Big Carl and The Big Hardee, which it calls a counterpunch to MCD’s iconic burger, the Big Mac. 


When CKR first launched this attack, I offered the following warning:


MCD can and will beat CKR at the advertising game if it so chooses.  In the near-term, CKR may get some attention from its mudslinging tactics as everyone enjoys a good corporate battle!  And, the money-back guarantee may increase trial at Carl's Jr., but in the end, MCD will likely win the battle as you can never underestimate the company's marketing muscle.


Along these same lines, Crain’s published an article today titled “McDonald's rivals launch barrage of ads attacking quality, price,” which discusses whether MCD should and/or will fight back as other competitors, including Wendy’s and Burger King, have joined CKR in going after their biggest competitor.  Specifically, the article states, “Ads for Wendy's, Burger King, Hardee's and Carl's Jr. take direct aim at the quality of McDonald's fare.  It's an unusual scrum of comparative advertising that comes as McDonald's U.S. sales slide and the battle for marketshare intensifies.  Most of the ads call out McDonald's burgers or breakfast items by name — Wendy's alone stops just short of identifying its target — and all attack the quality, freshness, taste or price of McDonald's food.”


The article correctly points out that MCD spends more than twice as much on advertising as its fast-food rivals with MCD spending $856.1 million in the October 1, 2008-September 30, 2009 timeframe according to TNS Media Intelligence relative to BKC’s $316.5 million, Wendy’s $289.6 million and Carl’s Jr.’s $38.3 million.  With this level of spending, I continue to believe that MCD can and will win this advertising battle if it so chooses.  I don’t think MCD will go after its competitors by name because the fact that many of its peers are going after them only highlights its leadership position.  And, relative to the article calling this “an unusual scrum of comparative advertising,” MCD’s CEO James Skinner would disagree as he said on the company’s 3Q09 earnings call that these types of naming names advertising tactics are “nothing new for us, by the way, just so you know, but we've consistently been providing Dollar Menu to our customers over the last seven or eight years. It's a consistent approach. We have value across our menu and we're very pleased with the customer reaction to our Dollar Menu and the expectation for us is to be able to stay the course on this and continue to communicate everyday affordability everywhere in the world really, not just here in the United States…But it's not unusual for our competitors to name names regarding McDonald's. We've been through this in previous periods and we will continue to take share and continue to grow and our Dollar Menu will be a big piece of that.”


In discussing whether MCD will fight back, the article raises what I think is the more important question about how the company will allocate its marketing spending going forward when it states “But every dollar spent on a defensive ad is a dollar that won't be spent on McDonald's other priorities: launching its national $1 breakfast menu, ballyhooing its new beef snack wrap and touting its ambitious lineup of fancy coffee drinks.”  Without even considering the need to defend its name, I have concerns about how MCD will be able to continue to support its core menu while also promoting its McCafe launch.  MCD has stated that it has been able to continue to advertise its core menu while also allocating more marketing dollars to breakfast and specialty coffee.  The company did increase its total dollars spent, but lower media rates really enabled MCD to focus on both its core menu and McCafe launch in 2009. 


As of the company’s 3Q09 earnings call, management stated that the trend of slowing media costs was already starting to slow and that pricing was beginning to move up.  Specifically, MCD said that “the spending rate, the spending trend for [MCD] is if anything going up, not going down.”  MCD’s decision to go aggressively after the beverage category diluted the company’s marketing message in 2009.  I think this increase in media rates could make this more of an issue in 2010 and impact the company’s ability to continue to spend behind McCafe without giving up some level of spending behind its core menu, which drives the bulk of MCD’s business. 


Add to that the fact that MCD has already said that it will launch a Dollar Menu at breakfast supported by national advertising.  We also know that the company will be completing its rollout of frappes by mid-2010, which will require media support.  MCD said at its November analyst meeting that it will allocate more advertising dollars to its Dollar Menu (to 15%-20% of resources from its current 10%-15% level).  This increased spending behind the Dollar Menu could include spending behind the launch of the Dollar Menu at breakfast, but management had not yet announced that it would be launching the Dollar Menu at breakfast when it made this comment about advertising spending.  Then, there is the Angus burger which was launched in July, which might require increased marketing support.  If MCD then also chooses to spend to defend its name, some part of the menu will suffer from a marketing support perspective.




Slouching Towards Wall Street… Notes for the Week Ending Friday, December 18, 2009

The Boy In The Bubble


We are interested in policy decisions because they direct the way markets and market participants behave.  Every piece of legislation is anchored in a principle of social philosophy, and sometimes we need to tease apart the policy rhetoric before we figure out what lies beneath.  We have had a bit of fun lately at the expense of Fed Chairman Bernanke, dubbing him “He Who Sees No Bubbles” for his steadfast refusal to acknowledge that his no-interest interest rate policy is stoking market excesses (we can’t say “bubble” – what do we call them?)


We call your attention to the Law of Unintended Consequences.  This is what happens when you planned for nearly everything – but not quite.  Those who fail to plan get to wriggle through another Ivy-League loophole – the Unknown Unknowns.  This is a six-figure way of saying I did a poor job on the analysis, but the graphs looked awesome…


When it comes to the Chairman of the Federal Reserve, the nation and the world have a right to expect that there be no unintended consequences.  Chairman Bernanke is exceptionally learned, intelligent and thoughtful.  We can only conclude that the bubbles occurring on his watch are intended consequences.  To borrow an unfortunate military term, they are Collateral Damage.


The bubble in low-grade debt is a case in point.  According to the Financial Times (16 December, “Distressed Debt On The Wane In US Markets”) debt trading at under fifty cents on the dollar, “is rapidly disappearing from the US financial markets as yield-hungry investors push up prices.”  The article cites high-yield managers as reporting the highest returns on their portfolios in history.  The lowest-grade paper has had the biggest jump: the worst-rated bonds have more than doubled in price this year.


“Bonds trading at less than 50 cents on the dollar account for only 1.1 per cent of the high-yield market” reports the FT.  A year ago, they represented 27.5% of that sector.  In real numbers: today there is market value of $8.9 billion in distressed debt; a year ago there was $202 billion.  Somebody bought an awful lot of it, and bankers have raked it in as “high-yield bond issues in 2009 have brought in $171bn.”


Obviously, the trashing of the world’s patrimony through trillions of dollars of subprime debt securities has neither crimped anyone’s appetite for yield, nor made folks more discerning in where they place other people’s money.  Perhaps we should keep mum and let the Chairman stay on course.  If the world wants to relieve us of the burden of our trash – and pay us a premium for the privilege – that may be the best policy solution.  We recall Chairman Bernanke’s testimony that the Federal Reserve is not responsible for preventing bubbles in other nations’ economies.


Even the Fed can not prevent the proverbial Fool being parted from his Money.  Nonetheless, it appears the Chairman has accomplished what the marketplace could not, which is to uncover the market-clearing price for the worst-rated debt.  Who’d a thought it would be a 100% premium?


Take that, Efficient Market Theory!    





The Epistle Of Paul


In hoc signo vinces.


Our modern-day Saint Paul is an aging giant – a man of great stature, both physically and morally.  No stranger to tribulation and danger, he voluntarily charges back into the fray to save the world.  Having put himself on the chop-chop block when his career truly hinged on it – and having pulled off what the world acknowledges to be a heroic feat of economic derring-do – Paul Volcker has returned to teach us the lesson of history.  He is already suffering the consequences of his choice.


Wall Street is full of smart people.  It is even fuller of smart-asses who, at critical junctures are fond of spouting statements like “Those who can not remember the past are condemned to repeat it” before heading off to print the next trade with someone else’s money.  There’s this to say about teaching lessons: the students have to actually be in the classroom.


Business Week reports (15 December, “Volcker: Financial Fix ‘Like A Dimple’ So Far”) the aging warrior has trekked across five nations, visiting nine cities in the past eight weeks, warning that financial authorities “have not come anywhere close to responding with necessary vigor” to the world’s financial situation.  He scolded a gaggle of financial executives at the Wall Street Journal conference in West Sussex, England, for proposing changes that were “like a dimple.”


Far from being a revelation on the road to Damascus, Volcker came by this knowledge the hard way – he lived every bruising moment of a global fiscal crisis and withstood the shocks largely alone.  With the death this week of Professor Samuelson, “Dimples” Volcker is perhaps the only world-class economist alive who actually was an established economist during past crises.  Harvard’s Niall Ferguson observes that potentially civilization-ending or society-disrupting events happen just far enough apart that those in power today were not around to experience it last time.  Add to this the standard 30-minute (interrupted by commercials) memory span of Wall Street, Washington, and television-addicted America, and it’s a wonder anyone can remember how to use an ATM, much less rescue a damaged economy.


We wish our knight errant, Sir Paul, God speed as he pursues the dragon risen from its lair.  On that famous trek to Damascus his namesake, Saint Paul, saw a heavenly vision, the words of which ring down through the ages.  Indeed, part of that same message applies directly to the task Mr. Volcker has taken on, and it is a blazon the US would do well to bear in mind.  We may not yet see the Sign of Victory, but we are surely In Hock.





The Bair Witch Project


Sheila Bair, FDIC Chairman, remains one of our heroes in the world of financial markets regulation.  Her view of the world is vastly different from almost anyone else’s in Washington.


It is all a bit unreal to be sitting in your kitchen sipping your morning coffee and reading about the pitched battles being waged across conference tables in London and Washington over how many trillions will be spent over the coming decade.  When the only bank servicing your community is forced to shut its doors, that’s reality.


According to the Wall Street Journal (16 December, “Bank Agency Boosts Budget 35%”) “more than 130 banks have failed this year, and the agency’s inventory of assets in liquidation has more than doubled” to a current $36.8 billion.  The agency will also share losses on an additional $108 billion of damaged assets from more than 80 failed banks.  It’s no wonder Ms. Bair keeps coming up short in the till.  Indeed, twice this year the agency took down billions in stepped-up fees from its member institutions, as cash drained from its coffers.


The FDIC insures 8,041 institutions (figures from the FDIC website Institution Directory page) with combined assets of approximately $13.3 trillion, and deposits of $9.1 trillion.  Requested staffing and budget increases would bring FDIC manpower to 8,653 employees, almost double its 2006 level.


The math is not encouraging, and the nation desperately needs Chairman Bair’s knowledge and dedication.  The FDIC’s “problem list” of troubled banks is at 552 and expected to rise.  We could be looking at ten percent of the nation’s banks being close to the brink.  Gee, sounds like a crisis to us. 


The FDIC doesn’t announce publicly which banks are at risk of failure – that task is ably handled by members of Congress who precipitate crises by “outing” weak institutions for their own political purposes.  It can’t be easy being the only regulator whose agency actually deals with real people.


FDIC teams are widely acknowledged to be highly professional, and sensitive to the reality that they are taking people’s lives in hand.  They are also efficient.  In the past, Chairman Bair has made a point of bringing in retired bank examiners or professionals who moved on after a decade or more at the FDIC.  Teams often have failed banks up and running in short order, with minimal disruption to the grateful community.


Chairman Bair is managing this full-blown crisis while staging a fight for survival.  The Journal (18 December, “Agencies In Brawl For Control Of Banks”) reports that Senator Dodd “has proposed revoking all of Ms. Bair’s powers to supervise banks.”  Ms. Bair, widely praised for being perhaps the sole financial regulator not asleep at the switch, is now in danger of being unseated and left with nothing more than a dustpan and brush. 


We figure it must be that testosterone thing.  It can not be a coincidence that, for over a decade, no one in a position of authority was troubled by the Lori Richards’ mediocre management of the SEC Office of Compliance Inspections and Examinations.  You know, the guys who didn’t look at Bernie Madoff?  Nor was anyone up in arms about SEC Enforcement Director Linda Thomsen, on whose watch the Pequot Capital investigation went up in smoke.  Chairman Bair is fighting a multiple uphill struggle in Washington: she is a woman, she makes sure she has command of the facts, and she does not back down when Groupthink is the required order of the day. 


We think Chairman Bair is the target of a Capitol Hill witch hunt.  Why does she have to go begging for a $4 billion operating budget and assure Congress that her staff increases will all be temporary workers?  Who will Senator Dodd turn to when Ms. Bair has been sidelined? 


A run on the banks is a scary thing. We urge Congress not to stage a run on the bank regulators.




Stocking Stuffers


Financial industry participants are characterizing this year’s SEC initiatives as an all-out war on the securities industry (, 17 December, “Washington Strikes Back: Washington On The Warpath”) in which the very underlying structure of the markets has come under attack.  Fingering Congress as the driver of this mule team, Traders Magazine observes that the topics currently under attack include over-the-counter derivatives, short selling, dark pools, and co-location high frequency trading operations. 


The politicization of the markets is, itself, damaging the world economy.  The financial markets issue is not a mere question of liquidity, but of societal stability.  Greed rules the day.  For Congress and the regulators, it is greed for grandstanding and confrontation for its own sake.  For the bankers, it is cold cash.  But this is not a confrontation from which anyone will emerge a winner.  Failure to stabilize the financial market will lead to profound social unrest.  In a worst case, neither the Washington elite nor the Glock-toting investment bankers will survive.


Over-the counter derivatives might be moved to exchange-style trading, and can be centrally cleared.  The industry complains that this would put the members of the clearing houses at direct risk for every trade.  This is called Self-Policing and is what those who call themselves Capitalists complain Washington would take away from them.  If the market is in fact all wise, then it will not long tolerate dishonest or inefficient participants, and those left standing will be the better for it.  The alternative to making the entire derivatives marketplace responsible for every trade, is to make no one responsible for any trade.  We already tried that. 


The transparency and standardization offered by exchange trading will have other consequences.  Once derivative contracts are quoted in real-time, firms will immediately retailize them.  In short order, armies of retail brokers will be sent forth to pump derivatives into 401Ks.  This will lead to a bubble of abuses, as there will be a lag between the time these instruments are set among the population, and the time FINRA and the SEC identify them as a risk.  We take as our paradigm the failure on the part of the regulators to require any kind of training or registration of sales people, any special type of account treatment, or any suitability standard or risk disclosure document in putting individual investors’ dollars into ETFs.


Short sellers, the canaries in the gold mine of Wall Street, come under attack whenever there is severe market turbulence.  Regulators the world over dutifully took them to task in 2008-2009, and the cudgels were taken up by those who most profited from the legitimate pursuit of this practice.  It was laughable to watch Dick Fuld, then-CEO of Lehman, shrieking at Washington to reign in the shorts who were “ganging up” on Lehman stock.  Those of us who have spent years in the game recognize that the shorts are, in nearly every case, better informed than the longs – and always better informed than the target companies themselves, as the managements are subject to Groupthink, while short sellers’ only guide is Profit-think. 


As one of the regulators who slapped on a ban on short selling in the market meltdown of September 2008, the London Financial Services Authority (FSA) assessed the effects of its policy and concluded (FSA Discussion Paper 09/1, “Short Selling”, February 2009) that that the greatest risks posed by short selling are lack of transparency, which can be cured through simple reporting regulations, and illegitimate market manipulation during extreme market conditions – which is to say, market fraud.  Notably, the FSA “are firmly of the view that the positive benefits of short selling outweigh the negative impacts.”  Finally, they found the economic impact of the September ’08 short selling ban was negligible. 


Domestically, as we have pointed out, Chairman Schapiro appears to be dispensing a healthy dose of benign neglect to the whole short selling kerfuffle, so perhaps it will die the quiet death it deserves.


One side-note on the short selling story is reported in Floyd Norris’ blog (, 9 December, “Overstock Claims Victory”).  Norris, NY Times chief financial correspondent, has waged a running battle with Overstock CEO Patrick Byrne.  This time around, he reports a $5 million settlement of’s lawsuit against Rocker Partners, a short selling hedge fund.


CEO Byrne, one of the more entertaining CEO’s, advises shareholders to stay tuned for the lawsuit against the prime brokers, in which Overstock is alleging the major Wall Street firms “facilitated naked short selling through their prime brokerage operations.”


Dark pools are part of a fundamental debate over the nature of the marketplace: should government provide a level playing field, or should government force everyone to play at the same level?


The public marketplace, as exemplified by the NYSE and NASDAQ, is a social contract in which the investing public agrees that this is the proper way for a marketplace to operate.  We submit that few investors have ever given much thought to this, with the exception of those most disadvantaged by it, which are the ones who opt into the Dark Pools.


Dark pools are part of third market trading which has offered investors such benefits as cheaper executions, better pricing on large orders, anonymity of orders, and the ability to work very large blocks without the hangers-around in the crowd picking off their trades.  Professional investors, many of whom handle the retirement money and, through mutual funds, personal investments of a large number of American private investors, have flocked to the dark pools for the solid business reason that they are getting better executions.  We note that the requirement to obtain Best Execution for client trades is a primary market obligation imposed on money managers.


The vested interests are clamoring for relief.  But they also are believers in self-help.  The NYSE has constructed a football stadium-size facility at an “undisclosed” location to house high-frequency traders whose strategy hinges on being physically closer to the exchange floor than their competitors, thereby giving them an edge in timeliness of execution.  To the lay person, this expresses itself as



E = MC2 + 100 yards


where “E” is “Superior Execution.”


Can it really be that transactions that are already being processed at the speed of light can be bested by a technology that moves… er… faster?  In the warp-speed world of high-frequency, low-latency trading, firms are lining up for a literal front seat at the exchange floor. 


The exchanges have attacked the dark pools for creating a “bifurcated market.”  Bifurcating the market used to be the sole prerogative of the registered exchanges, which are striking back by creating their own private trading venues.


FINRA, which inexplicably mustered out 300 of its most seasoned regulators in an early retirement program this year, has flexed its remaining muscles in going after the First Call practice.  The Wall Street Journal (18 December, “Wall Street Trade Huddles Probed”) reports FINRA has requested information regarding the practice of giving certain trading indicators to certain customers, and not giving them to others. 


There can only be one “first call.”  That is not a Wall Street fiction, but a physical reality, and the biggest commission dollar always comes from the customer who gets that first call.  If FINRA wants to change the fundamental character of Wall Street relationships, this is a good place to start.  As they get closer to undermining the way Wall Street works, they may find Congress suddenly uncooperative when they realize how much it will cost them in future campaign contributions.  


Which brings us to the Usual Suspects in Washington, headed by the Usual Suspect In Chief.  We were not the only ones who found our President less than Presidential when he addressed the CEOs of three of the nation’s largest financial institutions as “you guys.”  These executives, unlike Jamie Dimon, did not take the corporate jet to the Monday Morning Massacre.  Goldman CEO Blankfein, John Mack of Morgan Stanley, and Citigroup’s Richard Parsons were grounded in New York due to fog.  Instead of spending an entire day shuttling back and forth to Washington to participate in a public Presidential woodshedding, they called in, took their lumps telephonically, and reported back to work at their desks.  Their investing acumen notwithstanding, Goldman Sachs apparently can’t get a reliable weather forecast.


President Obama’s remark “I did not run for office to be helping out a bunch of fat cat bankers on Wall Street” had us thinking of the millions contributed to Obama’s presidential campaign by Wall Street.  According to “”, contributions from Goldman Sachs employees in 2009 were just shy of one million dollars.  The Top Twenty also feature Citi ($701,290), JP Morgan Chase ($695,132), and Morgan Stanley ($514,881)


As far back as the primaries (LA Times, 21 March 2008, “Democrats Are Darlings Of Wall Street”) the giving was clearly skewed, and the press raised the specter of Wall Street buying the Democrats’ acquiescence in softening financial regulatory reform.  What a silly notion, since these were the same Democrats who sent Glass Steagall to the gallows.  One, in fact, the spouse of the very President who kicked away the stool.  We are tempted to make a joke about Getting in bed with the Powers That Be, except in the case of President Clinton that does not appear to have been such an exclusive venue.


President Obama may not care to help out the Fat Cats, but the Fat Cats certainly helped him.  Riffing on Matt Taibbi’s characterization of Goldman in Rolling Stone, we think Goldman might be entitled to a “Squid Pro Quo”. 


Anyway, the President announced that he impressed upon the bankers that they need to start lending money to business – at the same time the banking regulators are admonishing them to tighten lending standards.  And perhaps most important – and most meaningless of all – he was able to show that the bankers of America are at his beck and call.  Well, a lot of them, anyway.


On the regulatory front, under the leadership of Chairman Schapiro, the SEC has made visible progress.  It now appears to be able to identify Shinola – something it significantly failed to do for a decade.  The present insider trading cases have much riding on them.  If new Enforcement Chief Khuzami manages to bring the Galleon case over the goal line, it will go far towards asserting a new age of credibility for the agency.


The  stage is set for what should prove an interesting year.  What we don’t yet know about 2010 is what regulatory bungles, what Wall Street scams, what international criminal transactions, what collusion between lawmakers, drug dealers, prostitutes and financiers have not yet been uncovered and will come to light next year.  We are rubbing our hands in anticipation. 


What’s under your tree this year?


Wishing you Happy Holidays, and a healthy, prosperous 2010.



Moshe Silver

Chief Compliance Officer

FINL: A Beat Will Need to Come from Costs

FINL: A Beat Will Need to Come from Costs


Our analysis suggests that in order for FINL to beat numbers like so many others have in recent weeks, it’s going to have to come from somewhere other than the top line.  


Lining up footwear and apparel POS data with FINL comps suggests that there is little upside to be gained on the top line for the quarter about to be reported. This analysis has served us well, as FINL comp trends have an 85% correlation with a blended combination of NPD footwear data (85% of the blended data) and Sportscan sports apparel figures (15% of the blend) over the last year and a half.  Tracking the comp trends to the data blend, implied Q3 10 comps range between -1% and -3%, which compares to the consensus at -0.8%. 


On a positive note, the first two weeks of the quarter have definitely stepped up, and appear to be trending +mid-single.  But keep in mind that FINL noted on the Q2 call that comps were up 7% in September, which clearly did not hold.  


FINL: A Beat Will Need to Come from Costs - FINL Chart 


One of the most notable points is that FINL’s sales/inventory spread trajectory is sitting in positive territory for the 6th quarter in a row. Inventories are lean…very lean. In order to prevent erosion, FINL really needs to see an acceleration in sales in conjunction with more commitment to actually beefing up inventory.


We’re modeling a 5.6% sales decline, a -4% EBIT margin, and a loss of $0.11 per share.  Could FINL print the Street’s -$0.09? Yes, and they could even beat it. But it will need to come from SG&A – and the cuts there are finite.


We’re not uber-bears on FINL by any means… In fact, this is a space we like a lot headed into 2010. But before ’10, we need to get past this quarter.


Note: FINL reports earnings after the close on 12/22 with the call on 12/23 before the open


FINL: A Beat Will Need to Come from Costs - FINL SIGMA

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Below is an important call-out from our Healthcare Sector Head Tom Tobin on union membership amid the Health Reform debate. The implications will extend into 2010 as the Democrats look to appease the unions and garner votes going into mid-term elections:



Union support of Health Reform is in the news.  With the Public Plan gone from the Senate version, the AFL-CIO and the SEIU are almost withdrawing their support.  I guess the political gambit for Democrats is where else can unions turn if the Dem's disappoint them?  Unions are an interesting participant in the Health Reform debate.  Presumably, by moving their negotiating partner when it comes time to talk about financing the health benefits of their workers, the government is a better choice than the Industries their workers serve.  Organizing union members for a politician’s campaign gives the union greater leverage, since the politician is presumably more interested in staying in office than concerned about spending tax dollars on benefits.  Grinding it out with Industry, who has a credible threat of moving jobs overseas, the union is in a  much weaker starting position. 


Union membership has been in secular decline for decades, although the rate of change has slowed materially in the last few years.  In recent PCE data, union dues have accelerated despite declines in payrolls.  Could membership be turning?  Union’s health benefits are good for health providers and neutral for Managed Care, since the benefits are managed through a TPA, or third party administrator.  Meanwhile, The Employee Free Choice Act appears to still have a lifeline.  With unions feeling snubbed over the public option and Politicians still needing campaign help, look for the unions to return for something.  Democrats will certainly be knocking on the door come 2010 mid terms. 


 Disunity - Labor Unions1


Disunity - Labor Unions2



We got a little update on what's going on at Marina Bay Sands (MBS) this weekend from some friends on the ground.



CEO and Chairman, Sheldon Adelson, was apparently in Singapore this weekend and toured MBS, allegedly by driving through the atrium in a car.  While there has been many articles published over the last few days regarding the opening of the first stage of Marina Bay Sands in late March/early April, we're hearing that there could be further delays.  However, with the recent assist from the Singapore government, MBS can now open in stages so it's possible that it will open earlier but with less.


We're hearing the logistics firm, Kuehne & Nagel, will be handed the keys to floors 4-22 on January 4th for all 3 towers.  They expect to have most of the furniture in place by late February.  Apparently there are 198 different room types and configurations across the 3 towers.  We heard this past week that several of the furniture orders were incorrect (i.e. left turning sofas when the rooms were designed for right bends).  All of the super high end rooms are located on floors 50-54, which is where the cranes working on the Sky Garden are currently anchored.  Until those cranes are dismantled, and most of the work on the Sky Garden is complete, work on the high floor rooms cannot begin. 


It's now likely that the initial opening includes only some of the hotel rooms.  The Singapore government recently announced it was relaxing some of the deadlines and allowing the project to open in stages.  We believe the government is very keen on the project succeeding, which must be very encouraging to LVS management.  Hopefully, LVS has learned from its governmental affairs mistakes in Macau.

R3: PSS/Footwear Trend Update


December 21, 2009





With average growth of 3% over the past four weeks, we’re seeing the athletic footwear space put up its first positive growth numbers in 14 weeks. Why? It keeps coming back to this ‘toning shoe’ trend (ie MBT, Reebok’s Easy Tones, Skechers’ Shape Ups, etc…). These shoes are embedded in the ‘walking’ category of the industry. ‘Walking’ is only 3% of an $18bn industry – which might not seem like much. But its size has nearly doubled over the past year due to ‘toning shoes’.  The interesting point here is that the athletic category is actually down on a year/year basis if we take ‘walking’ out of the mix. Are we alarmed by this? Not particularly. In past boot cycles – like we have today – athletic rarely has grown, and has not even held up as well as we’re seeing today. While a pair of Manolo Blahnik boots hardly competes against a Nike Dunk for share of consumer wallet, between 5-10% of the athletic business fights for dollars from the marginal fashion consumer who has been drawn to other areas  of footwear and apparel throughout 2009. 


As it relates to market share, this naturally knocks performance brands and rewards those that don’t chase fashion. In other words, it dings Nike and helps Reebok and Skechers.  Several people have asked me whether Nike will throw its hat in the ring here. Fat chance. As for retailers, while one could argue that it attracts dollars to the athletic retailers, I’d push back and call it a simple mix shift. What it does, however, is broadens the retail base that could sell the product (these brands will jam the product into a CVS if they could…).   One of the few companies that will benefit from both the boot and toning trend is PSS. The trend gods are finally throwing PSS a bone.


The charts below tell the story.


R3: PSS/Footwear Trend Update  - Walking Category Chart


R3: PSS/Footwear Trend Update  - Walking Category Pie Charts


R3: PSS/Footwear Trend Update  - 1





  • In an effort to try and make up for potentially lost sales due to the major snowstorm in the Mid-Atlantic/Northeast, many retailers have announced extend hours until Christmas. Target is now opening one hour earlier than planned and closing at midnight up until Wednesday night.


  • According to Neilsen, was the most visited apparel/beauty site during the month of November. Based on the unique visitors, the site saw a 32% increase in traffic y/y and registered 7.93 million visits. Avon, The Gap, Ebay, and Victoria’s Secret round out the top five for the month.


  • While the buzz is building around the World Cup this summer in South Africa, another international sporting event is gearing up as February approaches. The Winter Olympics this year will feature a higher profile sponsorship program for Under Armour, a brand that sells outerwear but is not necessarily equated with cold weather. The company has apparel deals with the men’s and women’s U.S. freestyle skiing teams, U.S. bobsled and skeleton teams and Canadian curling teams. Expect to see a substantial amount of marketing focused on U.S Alpine skier Lindsay Vonn. Vonn is now considered one of the best U.S skier’s of all time and has won back-to-back World Cup championships.





Loehmann's Lands Credit Deal With GE Capital - Loehmann’s has secured a three-year, $35 million asset-based revolving credit facility with GE Capital, Corporate Retail Finance. The deal, expected to be unveiled today, replaces the revolver held with CIT Group Inc. and takes some pressure off Loehmann’s parent company, Istithmar. Loehmann’s would have required additional support from Istithmar if the revolver didn’t come through. Istithmar is an investment arm of the troubled Dubai World, which is saddled with debt, but last week got a $10 billion lifeline from Abu Dhabi. Along with Loehmann’s, Barneys New York is part of the Istithmar portfolio. Asked if last week’s news on Dubai World had anything to do with securing the GE credit, Jerry Politzer, chief executive officer of Loehmann’s, said, “I don’t think so. I am sure everything in some way, shape or form affects other things, but in this case, not really. We were working on this way before. During the course of discussions [with GE] it didn’t come up.”  <>


American Apparel Sale benefits unemployed illegal immigrants - American Apparel sells clothes at up to 85% off, with proceeds going to help the 1,600 employees recently let go after federal inspections found problems with their immigration documentation. "It makes me feel less guilty for buying all this stuff," said Dolores Arellano, 19, one of hundreds of shoppers who thronged Saturday to the parking lot of American Apparel in downtown Los Angeles. The trendy, L.A.-based clothier sponsored the "Justice for Immigrants" event to benefit some 1,600 employees let go in recent months after federal inspections uncovered discrepancies in their immigration documentation. All the proceeds from the sale will go to the families of the dismissed workers and to organizations representing immigrants, said Peter Schey, an attorney for American Apparel in the immigration case. Saturday's pre-Christmas sale featured discounts of up to 85% on shirts, sweaters, and sweaters.  <>


Solorzano to Lead Wal-Mart Latin America - Wal-Mart Stores Inc. promoted Eduardo Solorzano to executive vice president, president and chief executive officer of Wal-Mart Latin America, overseeing the retailer’s operations in nine of the region’s countries and Puerto Rico. Solorzano will also become chairman of Wal-Mart de Mexico, which he currently leads as president and ceo. He takes on his new role Jan. 18. Scot Rank, executive vice president and chief operating officer of Wal-Mart de Mexico, will fill the void left by Solorzano. <>


Helly Hansen Appoints Baselayer Designer and Category Manager - Helly Hansen announced two new appointments to assist with the development of the brand’s baselayer category. Ida Gullhav was hired as a designer and Kristoffer Ulriksen has been promoted to category manager for baselayer and midlayer. Gullhav, 29 years old, joins the brand with an background in fashion design. Having graduated from the Oslo National Academy of Arts in 2003, she went on to launch her own underwear brand at Oslo Fashion Week the same year. In 2006 her continued success was recognised by the Norwegian magazine, Henne, as she was awarded with the prestigious title of Norway’s Best Fashion Designer. <>


Bottega Veneta Opens at CityCenter - Bottega Veneta has launched its third Las Vegas location, a 2,000-square-foot store at CityCenter, the $8.5 billion resort, entertainment and retail development that opened Thursday. The new store will carry the entire line for women’s as well as men’s accessories, fine jewelry, home, gifts and luggage. “The store at CityCenter enables Bottega Veneta to extend the reach of our unsurpassed service and unique shopping experience within an important luxury goods market,” said Bottega Veneta president and chief executive officer Marco Bizzarri.  <>


Scoop Opens 'Swing Shop' -  Scoop has converted its clearance space at 875 Washington Street here into a “swing shop” that will change its merchandise concept six times a year like a fashion chameleon. The 770-square-foot boutique, formerly called Scoop It Up, is now known as Scoop After Dark, reflecting the array of evening dresses, sequin skirts and blouses and festive jewelry, shoes and accessories. Yet that could be a temporary moniker since by the end of January, the shop will have a different persona. It could morph into a showcase for a handful of young, emerging designers, or something else. “Open-see” days, an opportunity for designers who may never have been seen by Scoop buyers to show their lines and potentially get an order, are in the works. Or when the weather gets warmer, the shop could be called Scoop Beach, or possibly a spring version of After Dark. It’s to be determined. <>


CIT Survival to Be Tested - CIT Group faces some challenges as it hopes it can move certain operating divisions, such as factoring, to the group’s bank in order to survive, while knowing it’ll also have to rebuild some of those operations. That’s the conclusion from CIT on Friday in a management update the firm provided to shareholders following its exit from bankruptcy proceedings on Dec. 10. CIT addressed the firm’s liquidity challenge and the recapitalization of its balance sheet during its bankruptcy. It reduced debt balances by $10.5 billion to $44.3 billion, and it now has some debt maturities that don’t come due until 2012. Bondholders now own CIT, having received equity shares in the reorganized firm. The firm’s goal is to move certain operations, such as the factoring arm, or trade finance division, into CIT’s bank. That will first require regulatory approval. And it still needs to work with the Federal Deposit Insurance Corporation to lift the cease-and-desist order on CIT’s Utah bank. That order prevents CIT’s bank from originating new loans, entering into transactions with affiliates or even accepting new brokered deposits. <>


Third record week in a row for John Lewis - John Lewis achieved sales of over £112m in the seven days to Saturday, its third record sales week in a row. The figure is 15.5% up on the same week last year but also beat the same week in 2007 by 11.4%. Online sales growth was more muted, up 7% on the same week last year. Unsurprisingly outerwear sales were a standout performer in the icy conditions, while childrenswear and home technology were also strong. Food gifts, electronic games and board games were popular too. <>


With Christmas a week away, online retailers highlight expedited delivery - Though one fewer of the top 100 online retailers offered free shipping this week than last, several retailers’ home pages put an increased emphasis on free expedited shipping offers that would ensure gifts arrive by the day before Christmas, according to a survey by Internet Retailer. 72 of the top 100 online retailers offered free shipping this week, down from 73 the week before, according to the survey, which was based on reviews of offers presented on the web sites of the top 100 online retailers as listed in the Internet Retailer Top 500 Guide 2009 Edition, which ranks retailers by 2008 web sales. In the comparable week a year ago, 66 offered free shipping. In addition, 74 retailers in the top 100 also presented major promotional displays on their home pages—many highlighting last-minute gift ideas—and a number of retailers followed up with special e-mail offers to shoppers who had signed up for e-mail promotions. Among the e-mail promotions, one of the most generous came from apparel retailer Coldwater Creek, which sent an e-mail offering 30% off anything on the site. <>


Novelty Fading for Pop-Up Shops - The hottest trend in retailing this year isn’t Zhu Zhu pets or over-the-knee boots — it’s pop-up stores. Global luxury brands, mass merchants and even small, independent designers have opened an avalanche of pop-up stores in the last 12 months to introduce new products or collections, generate buzz or motivate the ever-elusive shopper to buy. They also can be a way for a retailer to test a neighborhood before plunging head-on into an expensive real estate commitment. But the question is whether all these pop-ups are too much of a good thing. Observers believe the concept may be wearing thin and, in 2010, retailers might need to come up with another idea or a fresh angle for the pop-up to excite consumers. That’s key, since the main role of pop-ups is primarily to be marketing vehicles rather than drivers of significant profits and sales. <>


Debit-card use grows, but risks still an issue - An estimated 13.5 million Americans still are paying off the Christmas presents they charged to their credit cards last year. This year, eager to control their spending and avoid steep finance charges, many consumers entered the holiday shopping season determined to use the "other" plastic in their wallets: their debit cards. I can control my money that way," said shopper Chris McIntyre. "I know what I can spend and what I can't spend." Debit-card use started to rise dramatically last year, when the depth of the recession became apparent and nervous banks began to freeze credit lines, boost interest rates and tighten lending requirements. In the fourth quarter of 2008, debit-card purchases ($206 billion) exceeded credit-card purchases ($203 billion) for the first time, according to, a subsidiary of Bankrate Inc. This year, 72 percent of holiday shoppers are relying on cash, checks or debit cards. Avoiding credit cards certainly can pay off: Studies suggest that consumers spend 12 percent to 18 percent less when they pay with cash or its equivalent. <>


U.K. Retailers fear imposition of VAT on food - Fears have been expressed that VAT may be imposed on food in next year’s Budget. Politicians are understood to be considering a levy of about 5% on food in a bid to address the country’s financial challenges, a “senior supermarket figure” told the Sunday Express. The source said VAT on food is “on the agenda” and that, although overall weekly spend would likely remain unchanged, shoppers on a limited budget might switch to cheaper products and cut back on treats. After last year’s temporary VAT reduction to 15%, the rate will return to 17.5% at the start of 2010. Retailers fear that after next year’s general election it could be raised further on non-food items. <>



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