R3: FL: Bringing the Hardwood to Champs

R3: REQUIRED RETAIL READING

February 24, 2010

 

FL is synching with the NBA and Adidas in a strategic partnership, in yet another example of the kind of exclusivity and differentiation that we believe will be key to the turnaround at Foot Locker.

 

 

TODAY’S CALL OUT

 

We continue to believe in the opportunities for Foot Locker and the major effort underway to revamp the company’s merchandising and product offering. As retail earnings have dominated the headlines over the past couple of days, an announcement with little fanfare was made that brings the NBA, Foot Locker, and Adidas together in a strategic partnership. Through its Champs Sports division, the three entities are teaming up to create an official NBA shop within its stores. The offering will include official NBA/Adidas on-court licensed apparel and NBA themed fashion apparel. The merchandise is expected to range from official jerseys and uniforms to hats and accessories. Importantly, the collaboration also includes an exclusive fashion line created by Adi for Champs. Exclusivity remains one the biggest opportunities for Foot Locker and its 5 major sub-brands, and this is a step in the right direction. Not only will all of the product be provided by Adidas with some of it only available at Champs, but the entire concept of the NBA shop will be unique to the chain. Currently, the NBA has only one branded store on 5th Avenue in New York.

 

While Champs has always sold a limited offering of NBA gear, this represents a cohesive and coordinated effort highlighted by an 80-100 square foot area delineated by a replica hardwood floor and NBA Shop fixtures. We suspect the NBA and Adidas picked up the tab on these efforts, which is clearly a win-win from a capital allocation perspective as it relates to Foot Lockers cash flow and balance sheet. With all due respect to Nike, it’s also positive to see some efforts aimed at better balancing the brand presence within the store.

 

R3: FL: Bringing the Hardwood to Champs - 1

 

As one might expect, the merchandise will be predominately geared towards local team preferences, with additional product tied to the teams and players that resonate on a national level. Rollout is anticipated this month with 69 stores primarily in the Miami market, with expansion into other major markets shortly after. By the ’10-’11 season all 500+ stores are expected to have the 8-10 foot shops. While it is still too early to tell exactly what impact these shops will have on productivity, we believe this is yet another step in the right direction. After years of status-quo merchandising efforts, this partnership on a very basic level indicates that vendors and even leagues are excited about the prospects of working closely with Foot Locker to reinvigorate growth. If proven successful, would it be unreasonable to see a MLB or NFL shop at some point? We still believe this is just the beginning of many more merchandising changes on the way…

 

As a reminder we will be hosting a conference call this Friday (2/26) at 11am highlighting two of our Top Ideas for 2010 – Nike & Foot Locker. Contact to request access.

 

Eric Levine

Director

 

 

LEVINE’S LOW DOWN 

  • An email in my inbox yielded an interesting take on the “limited-time” sale from Banana Republic. The After 5 Style Event advertised 25% off orders of $100 or more. However, the discount is only valid online between 5PM and 11:59PM EST time and in-store from 5PM-9PM. Given that the coupon arrived at 1:15PM the same day, it will be interesting to learn if higher value discounts offered over a short period of time can actually drive demand enough to move the needle. 
  • Macy’s CFO indicated that recent snowstorms in February have had a negative impact on sales, but that the month is still “doing well”. 
  • Target management noted that they are now beginning to see a positive turn in the performance of their home categories. While basics categories are performing well, pockets of strength in the better and best categories are also popping up. 
  • Iconix noted on its quarterly call that Wal-Mart’s Latin American sub-brand, Suburbia, will be selling Mossimo in a direct-to-retail partnership. While this is perfectly allowable under the terms of the license, it is still interesting to note that Target in the U.S has been the brand’s main growth driver over the past 10 years. We don’t often see an exclusive brand in one region, also being distributed by a competitor in another. 
  • While other areas of retailing are beginning to talk about inflation, Home Depot is not seeing any signs that product costs are on the rise. Inflation remains very low, according to management and should remain so over the course of 2010. Management also pointed out that lumber is currently only 7% of the sales mix, down from a mid-teens percentage when the housing market was much more robust. As such, lumber price increases are not having a material impact to sales at this time. 
  • When asked about e-books and e-readers, Barnes and Noble management indicated that they believe in a platform of content distribution that is open and compatible with numerous devices. This commentary is interesting, especially in light of the company’s efforts to develop and sell its own device (the Nook). As of now, it looks like BKS is taking a slightly different approach to Amazon, which is building its business almost exclusively around the Kindle. 
  • LIZ management noted that restructuring efforts have resulted in a dramatic reduction in the company’s distribution infrastructure. With a peak of 10 DC’s in 2006, the company is now operating one central facility in the US. 

 

MORNING NEWS

 

Finish Line Secures Credit Facility - The Finish Line, Inc. entered into an unsecured $50 million revolving credit facility credit agreement. The facility, which expires on March 1, 2013, provides that, under certain circumstances, the company may increase the aggregate maximum amount of the credit facility by up to an additional $50 million. According to a filing with the Securities & Exchange Commission, the new credit agreement will be used by the company, among other things, to issue letters of credit, support working capital needs, fund capital expenditures and for other general corporate purposes. The new credit agreement and related loan documents replace the company's prior credit facility dated as of Feb. 25, 2005 and related loan documents, in each case as amended from time to time. All commitments under the prior credit agreement were terminated effective Feb. 18, 2010. Existing letters of credit of $3,950,350 under the prior credit agreement were deemed issued under the New credit agreement. No advances were outstanding under the Prior credit agreement as of February 18, 2010, and no advances were borrowed under the New credit agreement on February 18, 2010. Accordingly, the total revolving credit availability under the New credit agreement immediately after the consummation of the New credit agreement was $46,049,650. The company's ability to borrow monies in the future under the New credit agreement is subject to certain conditions, including compliance with certain covenants and making certain representations and warranties.  <sportsonesource.com>

 

Wal-Mart Plans Latin American Acquisitions, Acquires Streaming Movie Company -  Wal-Mart Stores Inc., the world’s largest retailer, plans to make acquisitions and open new outlets in Latin America, said Eduardo Solorzano, president and chief executive officer of the region. Wal-Mart is seeking growth in fast-growing markets such as Brazil, China and India as its U.S. sales have stalled. The retailer said last week that domestic sales would be “more challenging” in the first quarter after reporting fourth- quarter revenue that trailed its projections. International sales account for a quarter of the company’s revenue. In other news, Wal-Mart Stores Inc. says it will buy Vudu Inc., which sells technology and services that enable consumers to stream high-definition movies into homes. The deal, which Wal-Mart says will close within the next few weeks, puts the retailer in closer competition with such companies as Netflix Inc. and Apple Inc., both of which sell digital entertainment. Terms were not disclosed. Founded in 2004, Vudu will become a wholly owned subsidiary of Wal-Mart. Wal-Mart says Vudu’s licensing agreements with studios and distributors enable access to 16,000 movies. Consumers need broadband Internet connections and high-definition TVs or Blu-ray players to rent or buy the movies. Vudu sells boxes that attach to or are built into TVs, enabling access to movies.  <bloomberg.com>   <internetretailer.com>

 

Charming Shoppes launches a universal shopping cart - Plus-size apparel retailer Charming Shoppes Inc. introduced today a universal shopping cart that follows shoppers across its four e-commerce web sites: lanebryant.com, cacique.com, fashionbug.com and catherines.com. The change will allow shoppers to pay one flat shipping rate for purchases made at more than one site, as well as to have purchases shipped to its stores for free. "We're thrilled to offer our customers the ease and convenience of shopping our entire family of brands online with one universal check-out," says Jim Fogarty, president and CEO of Charming Shoppes. "This new functionality allows us to leverage the strength of our great brands while maintaining what is unique and compelling about each brand's identity." <internetretailer.com>

 

Calvin Klein Supplier Top Form to Boost Bra Capacity - Top Form International Ltd., a Hong Kong bra maker that supplies brands including Calvin Klein and Maidenform, plans to increase manufacturing capacity as retailers in the U.S. and Europe restock and demand rebounds. Top Form, which has almost tripled in market value over the past year, may build a fourth factory in China, ChairmanWillie Fung Wai Yiu said. The company may boost capacity by 20 percent within the next two years.  The underwear and nightwear market in the U.S., Top Form’s biggest market, may grow 2.4 percent to $12.9 billion this year after declining 8.6 percent in 2009, according to data from Euromonitor International. Top Form, which is 23 percent-owned by Belgian luxury lingerie maker Van de Velde NV, also supplies other brands sold by retailers including Victoria’s Secret and Wal-Mart Stores Inc., Fung said. <bloomberg.com>

 

Industry Lobbied With Their Wallets in 2009 - The retail and fashion industries largely increased their level of spending on lobbying last year, pouring millions of dollars into influencing critical policies on trade, health care, organized retail crime, credit card fees and union organizing. Wal-Mart Stores Inc., Sears Holdings Corp., Tiffany & Co., Hanesbrands Inc., J.C. Penney Co. and Abercrombie & Fitch all boosted their spending last year on lobbying the Obama administration and Congress, according to the government’s recently released lobbying figures. Target Corp. and Limited Brands Inc. cut back on lobbying expenditures. President Obama’s signature issues, including health care reform, climate change and clean energy proposals, and financial regulatory reform all stalled in Congress last year and have been in limbo in the early part of 2010. Apparel brands, retailers and industry trade groups, opposed to many of the far-reaching policy proposals that would impose tough new regulations on the business community, saw their money spent on lobbying as a great return on investment. But there were fewer lobbying successes in the trade area, where many of the industry’s trade expansion priorities failed to lead to congressional action under a Democratic-controlled Congress and White House. <wwd.com>

 

Carrefour to Close 21 Belgian Stores - Citing worsening market conditions, Carrefour Belgium, a subsidiary of Carrefour SA, the world’s second-largest retailer, on Tuesday revealed plans to shutter 21 stores in Belgium. At stake are some 1,672 jobs. Carrefour outlined plans to develop its franchise business to help bail out certain hemorrhaging stores and to contribute 300 million euros, or $408 million at current exchange, over three years toward the remodeling of existing stores in line with new retail concept developments, including online initiatives. Carrefour operates 627 stores in Belgium. <wwd.com>

 

Japan's Jan. Exports Surge 41% - Japan’s exports surged 40.9 percent in January, providing the most recent sign that the world’s second-largest economy is recovering. The Ministry of Finance said Wednesday that exports rose to 4.9 trillion yen, or about $54.07 billion at current exchange, on increasing demand for Japanese goods from Asian countries. Specifically, exports to China, Japan’s single largest trading partner, grew 79.9 percent. Exports to the United States increased 24.2 percent. The data is good news for Japan but there are still concerns about the longer-term economic prospects for the country, in light of persistent deflation and high levels of government debt. There are also fears that Toyota’s recall crisis will dent the nation’s economic growth and tarnish its image abroad. Earlier this month, Japan's Cabinet Office said the country’s fourth-quarter gross domestic product grew a faster-than-expected 1.1 percent from the previous quarter. It advanced 4.6 percent on an annualized basis. <wwd.com