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R3: REQUIRED RETAIL READING

January 14, 2009

With day 1 complete, there are a handful of observations and highlights worthy of passing along from the 12th annual ICR Exchange.

TODAY’S CALL OUT

With day 1 complete from the annual ICR Exchange, the following is a handful of first-hand observations:

  • Take it as a sign that the market is back, people are just plain sick of the cold weather, or the interest in retail, apparel, and restaurants is at peak levels. The conference is PACKED! There are likely several hundred attendees including investment bankers, sell-side analysts, investors, company managements, and institutional salesmen.
  • “Banker Bonanza” observed first hand. The conference literature includes 12 profiles of investment banks, each touting their expertise in consumer-sector transactions. Word has it there has been a full schedule of “one-on-ones” between the banking teams and company managements. Attendance at the “private day” on Tuesday was also sizable.
  • Standing room only at “breakout” tables for: JCG, CROX, AEO, DECK, RUE, GES, PLCE, and LULU
  • Empty “breakout” table of the day award: GOLF
  • Most talked about presentation: Rue 21. Management’s opening comments about Rue’s post-IPO stock performance and market-cap growth takes self-promotion to a new level. There is likely still near-term upside given the hyper square footage growth and related comp benefits coming from a young store base. However, there is a high degree of skepticism surrounding the company’s 1500 store goal and sustainability of same store sales if the economy actually improves.
  • Quote highlights:
    • “We’re in the pop culture business” –Mickey Drexler, J Crew
    • “When I was asked if we were ready to go public, I said, why not?” – Bob Fisch, Rue 21
    • “We’re working to become a shoe company that retailers can deal with in a normal way” –John Duerden, Crocs
    • “Aerie inventory is a little rich” –Joan Hilson, American Eagle Outfitters
    • “You gotta throw last year away” -Jim O'Donnell, American Eagle Outfitters
    • “We can play in any mall in the country.”  -Aeropostale
  • Mark your calendars for a March update on the fate of AEO’s Martin & Osa concept. Based on management comments, it now seems likely that the company will put an end to developing the 28 store, money-losing concept. Management was up front that the progress here is just not where it needs to be and a decision will now be made as to whether or not the company will continue to run the division.
  • Deckers updated its longer-term sales goals, raising the forecast for UGG’s to $900 million in 2012 from $750 million. 30% of sales will be international, which still seems low given the limited penetration in key markets such as Japan and Germany.
  • While the mood is decidedly more upbeat across the board (vs. last year), there is still a consistent undertone of caution from most management teams. Even with better 4Q results, extrapolation into 1Q is absent. Tight inventory management remains a key focus for 2010 and barely any presentation suggested inventory growth was a key factor in driving sales. Macro has been notably absent from most discussions, with management’s refraining from assessing the state (or fate) of the consumer.

MORNING NEWS 

Firms Like Gildan Activewear Inc.Take Stock After Haiti Earthquake - Apparel companies assessed the situation on the ground in Haiti on Wednesday after the devastating earthquake on Tuesday that killed thousands of people and crippled the Caribbean nation. The American Apparel & Footwear Association and the U.S. Association of Importers of Textiles & Apparel said they had reached out to members doing business in Haiti and would continue to do so as the situation evolved. The AAFA Apparel Foundation, the group’s charitable arm, began coordinating with disaster relief organizations on Wednesday to offer assistance. Allan Ellinger chairman of the Fashion Delivers Foundation, has put out a call for donated women’s and men’s clothing, as well as sheets, throws and blankets. Gildan Activewear Inc. said it would move some of its manufacturing operations to Central America after the earthquake in Haiti damaged one of its subcontractor’s factories. The Montreal-based company, which manufactures T-shirts, socks and underwear, said one of three factories that sews fabric for Gildan suffered substantial damage during Tuesday’s quake. Gildan said it would shift production of the shirts destined for the U.S. screen-print market to the Dominican Republic, Honduras and Nicaragua. The company said its U.S. retail customers will not be affected.  <wwd.com>

L Capital Takes Stake in Italian Brand Dondup - L Capital, the private equity arm of LVMH Moët Hennessy Louis Vuitton, said Wednesday it has taken a 40 percent stake in Italian apparel and denim brand Dondup for 30 million euros, or $43.3 million at current exchange. This confirms a WWD report in September. The brand’s founders, husband-and-wife team Massimo Berloni and designer Manuela Mariotti, hold the remaining shares, with four minor partners. Through the agreement with L Capital, Dondup chief executive officer Berloni said he planned to expand the brand’s business internationally. Dondup reported sales of about 60 million euros, or $83.4 million at average exchange, last year and Italy accounted for 80 percent of the business. Berloni said he was “less attracted by emerging markets that show a more immediate boost and more by those that may be tougher, but will allow a more solid growth and a serious presence in Europe,” citing Germany, France and the U.K. as examples.  <wwd.com>

Kaberuka Sees Production Opportunities in Africa - Africa may be an alternative for textiles and apparel manufacturers that are paying higher labor costs in China and other newly industrialized nations, a top African banker said. Donald Kaberuka, president of the 53-nation African Development Bank, which seeks to promote economic and social development on the continent, said at the bank’s Eminent Speakers Program here that the higher wages have already caused some Chinese industries to relocate to Southeast Asian nations such as Cambodia and Laos. Speaking with a group of visiting foreign reporters, Kaberuka said he expects some relocations for textiles and apparel industries “could be on the African continent.” He plans to visit Beijing next month in an effort to ensure “that some of this manufacturing capacity comes to Africa.” However, Kaberuka, a former minister of finance in Rwanda, said big outlays would be needed to improve core infrastructure such as roads, ports and public utilities.  <wwd.com>

Wet Seal expands its mobile channel with an m-commerce site - When your demographic is 15- to 25-year-old females, the kind of consumer who is connected to her mobile phone 24/7, mobile commerce is a good bet, many experts say. That’s what The Wet Seal has concluded, and it’s expanding its mobile offerings as a result. The multichannel retailer has launched a mobile-optimized version of its e-commerce site; consumers enter the e-commerce URL on their mobile phones and are automatically redirected to the m-commerce site. The site joins a mobile app and text messaging program.  <internetretailer.com>

Coach Opening Shanghai Flagship - Coach Inc. is affirming its presence in China and growing aggressively throughout the Far East. The $3.2 billion American accessories giant will open a 7,000-square-foot flagship in Shanghai in April. The New York-based firm, which has 343 full-price boutiques and 118 factory outlet stores in North America, and about 160 locations in Japan, has accelerated its original plan for China and is opening 15 locations this year. By June 30, the end of the firm’s fiscal year, there will be 43 units throughout Mainland China and its special administrative districts of Hong Kong and Macau. <wwd.com>

ID Wholesaler.com conjures up a newly designed web store - A new redesign and e-commerce platform helped online photo identification products retailer ID Wholesaler grow annual web sales by about 7.3% to $17.5 million in 2009 from $16.3 million in 2008. In August, ID Wholesaler worked with web site design firm Fuze LLC to update its e-commerce site with cleaner pages, guided navigation and bigger images. The new design also features a navigation bar on the top of the home page and other pages that highlights the site’s core product categories such as printers, photo identification systems and related supplies.  <internetretailer.com>

ShoeMall.com adds products and tweaks its site to drive a sales turnaround - After a rocky beginning to the year, Shoemall.com ended 2009 with record-breaking online sales during the holiday shopping season. Shoemall.com recorded a 148% boost in online sales on the Friday after Thanksgiving from the same Friday the year before, its highest sales on that Friday. In December, online sales increased 30% from December 2008. The company ended the year with $90 million in online sales, a 3% decline from $92.9 million in 2008. Bresina credits the addition of two new product lines on its site—children’s footwear and accessories such as handbags, scarves and hats—with improving sales during the course of the year. <internetretailer.com>

Intermix Changes With the Times - The 23-unit national specialty store retailer — known best for its extensive mix of both established and emerging designer brands including Stella McCartney, Elizabeth and James, Balmain, J Brand, ALC by Andrea Lieberman, Chloé, Rag & Bone and Proenza Schouler — has entered 2010 with a new buying and merchandising strategy and several other developments. These moves — including everything from shutting several under-performing units (Charlotte, N.C., closed this week and Orlando, Fla., shuttered a few months ago) to launching a redesigned, more sophisticated logo and new store environment — come after a rough few years in the retail arena. With that said, Khajak Keledjian, chief executive officer and co-founder of Intermix, said he has seen single-digit comp-store sales increases year after year, even during the recession. He claims this is because of Intermix’s unusual “mom-and-pop feeling” in each of the stores, where customers feel as though they are shopping in an environment which is unique to their specific neighborhood, allowing them to purchase special, not mass-produced, items.  <wwd.com>

On top of credit score, retail credit lines now ask for income, asset data - Consumers will have to divulge more personal information to apply for store credit cards -- possibly putting the brakes on so-called instant credit -- under sweeping industry reforms finalized by the Federal Reserve on Tuesday. The measure, which takes effect on Feb. 22, requires all credit card issuers to consider shoppers' income and ability to pay before granting approval for a card. The rule aims to tighten the lax lending standards that helped fuel the financial crisis. Retailers say the new measure could disrupt popular promotions that incentivize shoppers, such as discounts for opening a credit card. Typically, retailers quickly approve new accounts based on customers' credit scores. The new regulations require that they also consider shoppers' income and assets.  <washingtonpost.com>

Supreme Court Hears NFL Licensing Case - Exclusive licensing agreements between apparel makers and professional sports leagues were put to the test on Wednesday as the Supreme Court considered arguments in an antitrust case that could have significant ramifications for the industry. The crux of the case before the high court is whether the National Football League acts as a single entity that can collectively enter into exclusive licensing deals for apparel products and is immune from antitrust laws or whether it is a collection of independently owned businesses and therefore subject to antitrust laws that prohibit price fixing and monopolies. The case involves American Needle Inc., a manufacturer based in Buffalo Grove, Ill., which sued the NFL, National Football League Properties, 30 of its 32 teams and Reebok International in 2004 alleging a violation of antitrust laws when the NFL entered into an exclusive, 10-year licensing deal with the activewear firm to produce headwear with NFL team logos in 2001.  <wwd.com>

House Committee Passes Bill on Pricing Agreements - The House Judiciary Committee approved a bill Wednesday that would overturn a Supreme Court decision giving apparel brands the ability to set minimum prices. In a landmark case in 2007, the Supreme Court struck down a 96-year-old legislative ban on minimum pricing agreements, giving apparel brands the potential to enforce the lowest price at which their products could be sold.  In effect, the ruling allowed manufacturers to potentially restrict how much a retailer can discount a product, creating challenges for off-pricers, Internet retailers and other discounters. The decision gave lower courts the flexibility to determine, on a case-by-case basis, whether minimum pricing agreements are anticompetitive based on several factors. Previously, such agreements were illegal on their face.  Watched closely by the fashion industry, the Supreme Court case pitted Leegin Creative Leather Products against PSKS Inc., which operated the Kay’s Kloset boutique in a Dallas suburb. The court sided with Leegin.  <wwd.com>

E-retailers sold more items at full price, boosting December profits - Web sales grew 18% in December compared with December 2008 and profits increased by 20% as e-retailers sold more products at full price after a year of luring consumers with heavy discounts, according to a monthly study of 150 e-retailer clients of MyBuys Inc. that the personalization technology firm provides exclusively to Internet Retailer. Total revenue from items sold at list price increased nearly 30% in December, MyBuys says. Meanwhile, revenue generated by sales of discounted items increased by 19%, down substantially from the 100%-200% increases in sales of discounted items earlier in the year, the study shows. While revenue growth from discounting was substantially smaller than prior months, the average discount offered increased by 5%, growing from 25.3% in December 2008 to 26.6% in December 2009.  <internetretailer.com>