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R3: REQUIRED RETAIL READING

June 4, 2010

11 notable items this morning. 5 are about M&A. Buckle up folks…

 LEVINE’S LOW DOWN 

- In the past we’ve mentioned social media and the internet as a tool for further democratization of the fashion world. Now it appears companies, such as Levi’s, are using Facebook as an open casting call for it’s next “Levi’s Girl”. The company is accepting short video submissions via a Facebook app to find someone to interact with the company’s female consumer, via social media.

 

- The plastic bag continues to fade into history with the latest legislation from California attempting to ban the distribution of plastic bags at pharmacies, grocers, c-stores, and liquor stores. If passed by the state Senate, the bill would be the first, but likely not the last state to ban the distribution of disposable plastic bags. Score one for the environment.

 

- The funding spigot continues for online “flash sale” start-ups, with HauteLook scoring $31 million from Insight Venture Partners. With excess inventories dwindling across the luxury space, we see how it makes sense for the company to use some of its beefed up balance sheet to venture into additional categories. However, we do wonder how all these sites can survive having been founded on luxury apparel and accessories, only to venture into sales of Omaha Steaks and discounted hotel rooms.

 

- Interesting how on the same day Wal-Mart gets flack on greater depth on its gender-discrimination issues than previously disclosed, it also gets some welcomed press on opening banking operations in Canada and looking at acquisitions in Asia. Nice deflection!

 

- WMT Clarification: Some newswires are noting that WMT has an analyst day today. Note that October is the real analyst day.  This event is the annual shareholder meeting in which they have a q&a with analysts at the end of the day. Historically been a non-event, as annual forecasts related to store growth, capex, and other initiatives take place in the Fall.

MORNING NEWS 

LaHockey: Owner of Bauer Hockey Acquires Lacrosse Manufacturer - Kohlberg Sports Group Inc., the owner of Bauer Hockey, has acquired Maverik Lacrosse, the manufacturer of lacrosse equipment, apparel and accessories. John Gagliardi will remain CEO of Maverik Lacrosse. <sportsonesource.com>

Hedgeye Retail’s Take: One low-margin product plus another low-margin product = yes, you guessed it…a company selling two low margin products.

Remington Arms Co Takes 75% Stake in Mountain Lifestyle Clothing Company - Remington Arms Company, Inc. has bought a 75% stake in Mountain Khakis, LLC in a deal that will accelerate product development at the Charlotte, NC-based maker of mountain lifestyle clothing while expand Remington's foothold in the outdoor lifestyle market.  <sportsonesource.com>

Hedgeye Retail’s Take: This makes  a little bit of sense. A hard goods manufacturer moving into apparel tends to be best done when it is acquired – if history is any example. But then again, gun sales are in a cyclical slump right now. Acquiring from a position of weakness is never good.

UK Indie Department Store Acquires Bankrupt Company - Indie department store group Beales has acquired Robbs of Hexham from MCR, the administrator for beleaguered indie department store group Vergo Retail, for £250,000. <drapersonline.com>

Hedgeye Retail’s Take: I’ve never heard of either of these companies. M&A is really gaining steam – especially with smaller companies in consumer.

Foot Locker Bid Speculation Drives Shares at JJB Sports - Shares surged in JJB Sports yesterday after speculation that US sports footwear giant Footlocker could make a play for the sportswear retailer. <drapersonline.com>

Hedgeye Retail’s Take: Huh? This would really shock me if it came to fruition. There’s a whole lot of wood to chop in the base business here with Foot Locker. Also, its presence in Europe is that of a Pan-European retailer with an American feel. It’s expertise is certainly not in micromanaging markets like JJB tries to (and stinks at). If FL did this deal – which we don’t think it will – then we’d be very concerned.

WSJ Anti ANF: WSJ recommends against Abercrombie & Fitch - A "Heard on the Street" column notes the brand is doing well in Europe, but warns that since it runs its own stores, history would suggest that Europe won't become a gold mine for it. And even if Europe does become a gold mine, it is not clear that the gold will fill the sinkhole that the US is set to be for the next few years. At 21 times EPS, the column recommends against holding the shares in hopes of an eventual recovery in US sales. <Wall Street Journal>

Hedgeye Retail’s Take: The WSJ is actually sniffing down the right path.

Retailers in California Make Settlement - The Center for Environmental Health has reached a $1.7 mm settlement with more than 40 retailers, including Macy’s Inc., J.C. Penney Co. Inc. and Saks Inc., and distributors in a lawsuit that sought to reduce the amount of lead in handbags and other accessories. Payments from each defendant average $45,500 to $48,000, with the bulk consisting of legal fees in the $30,000-plus range. <wwd.com/business-news>

Hedgeye Retail’s Take: Not financially meaningful, but definitely interesting from a consumer vantage point.

Zappos Founder Talks Business, New Book, and Amazon - Hsieh, 36, talks about his new book being released Monday, titled “Delivering Happiness: A Path to Profits, Passion and Purpose.” Discussing the Amazon deal, "We think of Amazon as being the replacement to our board of directors and as a giant consulting company with free access for us. It’s up to each [Zappos] department to decide how much to tap into that." Hsieh say Zappos is moving faster than ever with better warehouse capabilities. According to Hsieh, Amazon has kept their promises. Most of Zappos's business is still concentrated on footwear (80% to 85%), but they are making a big push in other categories, especially apparel which is 10% to 15% now. Apparel was up almost 50% in 2009. <http://www.wwd.com/retail-news/?module=tn>

Hedgeye Retail’s Take: This dude is one of the few CEOs I follow on Twitter. Sometimes a loose cannon…but always interesting perspective on the evolution of the business.