R3: REQUIRED RETAIL READING
June 14, 2010
Add Wal-Mart to the growing list of retailers that will have the iPhone 4 at launch. This marks the first time the world’s largest retailer will have the Apple phone available on day one, despite selling the 3Gs after it launched at other venues. While the buzz/hype surrounding the new product is a boost for retailers, it’s interesting to see Apple’s tight rein on distribution slowly relax as each subsequent launch has taken place. With the phone available at thousands of doors at launch this go around (vs. hundreds for earlier versions) we wonder if this strategy actually leads to the sale of more units or just dilutes sales productivity and leads to shorter lines for consumers. For those using length of lines to determine iPhone 4 demand, we suspect this time around may be different.
LEVINE’S LOW DOWN
- It was only a matter of time before the hit TV show, Glee, had its own line of merchandise. Thanks to Macy’s and Claire’s Stores, a line of Glee branded products will be hitting the shelves soon. Macy’s will have an exclusive range of apparel and accessories while Claire’s will sell a line of jewelry. Aside from the popularity of the TV show, the show’s music has been downloaded 7 million times (so far).
- Keep an eye open for Target’s latest collaboration, this time with former child actor Soleil Moon Frye a.k.a “Punky Brewster.” The organic line of baby clothing will debut in July and will carry the brand name, The Little Seed. Frye already operates an organic children’s clothing store in Los Angeles, which serves as a base for the Target line.
- With much of the industry is focused on utilizing social media i.e. Twitter, Facebook, Foursquare, etc. to attract new customers, Lululemon has stayed true to the age old strategy of building the business one hand shake at a time. As part of its retail strategy, managers integrate themselves into the fitness community in an effort to get top instructors involved with the brand – such is the case in Tampa ahead of the company’s June 18th store opening. While recent studies suggest social media sites have a modest impact on consumer behavior at best, the bottom-line is there is no substitute for direct word of mouth persuasion.
Teen Retailers Run into Some Fashion Trouble - Specialty stores catering to fickle 13- to 19-year-olds are struggling as these consumers grow tired of the Americana and surf-and-skate fashions they’ve long snapped up and search for a new look — even if they’re not quite sure what that look might be. Their ennui is setting off alarm bells over the crucial back-to-school season even as schools let out for the summer. Not only is demand soft, but competition is growing. Fast-fashion retailers such as H&M, Zara and Forever 21 are gaining momentum since their looks change every six weeks or less, and mass merchants are picking up market share, as well. 4% to 6% of teens last year shifted from shopping at specialty stores to shopping at mass merchants and discounters. According to The NPD Group, apparel spending among 13- to 19-year-olds dropped 9.4% to $34.7 billion in the 12 months ended April from $38.3 billion during the comparable prior-year period. Soft demand in the teen segment and a glut of inventory that built up since the first quarter at key stores could trigger an all-out price war in the space, pressuring results for the second quarter and b-t-s, according to analysts. Comparable-store sales at teen stores fell 2.7% in May, Thomson Reuters’ reported. The need to clear out inventory in advance of b-t-s shipments at retailers including Gap Inc., American Eagle Outfitters Inc. and Abercrombie & Fitch Co. not only could put stores under higher price and margin pressures, but also affect consumer psychology going into the important b-t-s selling season. <wwd.com/business-news>
Hedgeye Retail’s Take: While we wouldn’t characterize the current apparel supply as a “glut”, there’s no denying that retailers including AEO and ANF have begin to take bets again on key product categories in an effort to drive sales. What’s least surprising is that consumers have essentially migrated towards “newness” and away from fashion that seems to repeat itself season after season. Maybe teens finally have enough polos and cargo shorts?
Moncler Plans IPO in 2011 - Moncler confirmed plans to go public on the Milan bourse by the spring-summer of 2011 and has appointed Merrill Lynch and Morgan Stanley as its global advisors. According to a spokesman for Carlyle Group, which acquired a 48 percent stake in Moncler in mid-2008, the timing isn’t set in stone but is subject to market conditions. The operation would value the company at between 600 to 800 million euros. Most recently Moncler lured fashion veteran Alberto Lavia from Façonnable to become its chief executive officer with the aim of further strengthening its managerial structure. <wwd.com/business-news>
Hedgeye Retail’s Take: Perhaps best known for its down jackets, the Italian-based apparel brand is the latest to test the IPO waters – a process that has likely been accelerated by the country’s debt concerns.
The Future of Toning - How does toning top a full year of massive sales and major buzz? By exploring new avenues of growth and reenvisioning the category itself, industry experts said. Athletic players from across the spectrum have joined the crowd with their own toning shoes. American Sporting Goods Corp. brands Avia and Ryka premiered instability-based toning shoes to accounts such as DSW and The Finish Line; and in May, Collective Brands Inc.-owned Grasshopper debuted a health and wellness style exclusively with HSN. Even core running brands, including New Balance, which launched into toning in April, have gotten in on the act. NPD estimates that the toning footwear market for men and women has increased to $74 million in April from $3.6 million in May 2009. While the long-term direction of the market isn’t clear, almost everyone agrees that toning will enjoy more success. “Every business — new or old — has a ceiling attached to it, and the question is how much growth can you expect? I don’t know yet when the saturation point comes for toning, but we, at least, have not seen it yet,” said Uli Becker, president and CEO of Reebok. “We’re not even close to reaching a limit in 2010.” <wwd.com/footwear-news>
Hedgeye Retail’s Take: While the ultimate size of the toning market opportunity remains unclear, one this is – competition is up meaningfully over the last 6-months including MBT (the trends originator) joining the fray with a $100 offering.
England-US World Cup Game Hurt UK Retail Traffic Saturday - England’s first World Cup game hit shopper numbers on Saturday, when footfall fell by 4.7%. <drapersonline.com>
Hedgeye Retail’s Take: Retailers take note. The World Cup provides upside to sales for some retailers, but interest around the sport can’t be ignored when allocating headcount.
Amazon Stays On Top As Healthiest Retailer - Amazon.com Inc., the world’s largest online merchant, won the top spot in an annual survey of the healthiest U.S. and Canadian retailers for a second year in a row as more shoppers make purchases online. Amazon.com’s technology keeps inventory levels and expenses down, said Consensus Advisors Chief Executive Officer Michael O’Hara, whose firm did the survey. Aeropostale Inc., Urban Outfitters Inc., CVS Caremark Corp. and Wal-Mart Stores Inc. round out the top five in the list, which comes out tomorrow. Amazon.com has posted three consecutive quarters of profit growth as consumers begin spending again amid the economic recovery. 1) Amazon.com (no change), 2) Aeropostale (+2), 3) Urban Outfitters (no change), 4) CVS (+2), 5) Wal-Mart (no change), 6) Bed Bath & Beyond (+6), 7) Coach (-5), 8) The Buckle (+1), 9) Guess (-1), 10) Lululemon Athletica (new). <bloomberg.com/news>
Hedgeye Retail’s Take: The study, which looks at multiple factors including growth, debt levels and pricing over a 5-year period leaves us with many questions including the definition of “healthy.” A quick look at our SIGMAs suggests the weighting of these factors are not equal with all but two companies (CVS and WMT) sporting overcapitalized balance sheets. While all are currently in Quadrant 1 (margins expanding and sales/inventory spread positive), the differentiation in near-term trends are notable.
Note: Our Q1 SIGMA book will be available for distribution later this week – if you’d like to see the SIGMAs for the aforementioned companies please let us know.
Study Shows Social Sites Have Had Little Impact Over 6 Months - Some consumers show interest in discussing and interacting with brands on social sites like Twitter and Facebook. But research shows little change since six months ago in users’ likelihood to participate in these activities. <emarketer.com>
Hedgeye Retail’s Take: Hard to know if Twitter in general is losing steam or consumers just aren’t continuing their rapid growth in using social networking as a means to influence other consumers. Either way, the fact that over 50% of Twitter users still recommend a company or product is noteworthy. At the very least, companies need to be focused on these “influencers” in an effort to keep brand images favorable.