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June 18, 2010

While most believe toning has been carrying all the weight for the industry, it appears that the core athletic footwear space is holding its own.


It’s no secret that toning has had a meaningful contribution to the Athletic Specialty channel, with particular strength in May.  However, in recent weeks toning’s contribution to the overall athletic space (as shown below) has sequentially decelerated, but at a greater rate than non-toning product.  As such, if we exclude toning from the equation we see that the overall athletic industry remains in positive territory, with a far less contribution from toning. 

More specifically, it’s worth noting that Skechers and Reebok are showing a meaningful sequential increase in sales when we exclude toning from the data set.   Clearly each brand is benefitting from substantial increases in brand awareness, driven of course by toning.  More interesting will be Reebok’s efforts in the Fall, when we expect to see further line extensions and enhanced merchandising efforts aimed at capitalizing on the brand’s new life.  It’s still early to have complete confidence in the brand’s full resurgence, but this may be the best opportunity for Adi to reinvigorate Reebok since aerobics burst onto the scene.

R3: Putting Toning Aside - Toning 1

R3: Putting Toning Aside - Toning 2 


- Kroger observed that the promotional activity out of Wal-Mart lately is not terribly different than it has been, despite additional media attention focused on increased rollback activity. In fact, Kroger believes that Wal-Mart is acting more like the traditional grocers than they ever have, with a larger focus on key item promotions. Recall that as an EDLP retailer, key items have not been a big a part of Wal-Mart’s pricing strategy.


- PVH management noted that the company’s retail same store sales continue to trend in the 11-12% positive range quarter to date. This is inline with prior quarter results. When questioned about the situation in Europe, PVH’s CEO responded with “We are seeing, if anything, we are seeing the business strengthen over the last six weeks, not weaken. Our comps have improved as we have come up against what I would consider easier comparisons as the year has gone on.”


- PIR one pointed out that it has seen no deceleration in sales halfway through the company’s current quarter. In fact, June month-to-date same store sales are tracking ahead of the company’s reported 14.3% first quarter increase.


Footwear and Apparel CPI Declines While Total CPI Growth Slows- Retail apparel prices fell 0.6% compared with a year earlier while Footwear prices increased 1%. Women’s apparel prices declined 0.1% while men's dropped 2.1%. The overall CPI increased 2% while core CPI increased 0.9%. On the margin, apparel prices sequentially improved while footwear continued to erode albeit at a slower rate. Compared to the Core CPI growth, footwear had been rebounding since July 2007, but has recently slowed and fallen in line while apparel notoriously struggles below the core rate. <wwd.com/business-news>

Hedgeye Retail’s Take:  In contrast to the government data, ASP’s on footwear continue to increase year over year.   After the latest round of earnings reports, most footwear companies suggest that ASP’s are up low to mid single digits.  On the athletic side, innovation has been key to the retailers ability to sell higher price points. 

R3: Putting Toning Aside - CPI 1

R3: Putting Toning Aside - CPI 2 

U.S. Soccer Sues Sports Authority Over World Cup Ads - The U.S. Soccer Federation sued Sports Authority Inc. over its advertisements linked to the World Cup, contending Dick's Sporting Goods is the national team's only licensed retailer. <sportsonesource.com>

Hedgeye Retail’s Take:  Maybe Dick’s should challenge TSA to a friendly to settle the dispute? 

Liz Claiborne Scores Canadian Licensing Agreement - The firm’s namesake brand, which J.C. Penney Co. Inc. will begin carrying exclusively in the U.S. in August, will be sold north of the border under a licensing agreement with Trimera Group’s Future Fashions division. The brand is currently sold in Sears Canada, but is not produced under license. The agreement, which covers apparel, handbags and accessories for the Liz Claiborne brand, also includes men’s and women’s apparel under Claiborne’s Axcess label, which is sold at Kohl’s in the U.S. Liz Claiborne will provide “select design services” for both brands, while Trimera will work on design, as well as production, distribution, marketing and merchandising. Trimera produces and markets a range of apparel goods worldwide, working with brands as diverse as Disney and Nickelodeon to Sean John and Nike. <wwd.com/business-news>

Hedgeye Retail’s Take:  While Canada isn’t going to move the needle, this is a good move to leverage the now-licensed Liz brand.  Unfortunately, Canada is probably one of the few markets left for which the namesake brand has brand recognition.   

Zumiez to Expand into Canada - Canadian retail real estate consulting firm Northwest Atlantic announced that Zumiez will open a store in the greater Vancouver area. <sportsonesource.com>

Hedgeye Retail’s Take:  Following in the footsteps of other retailers including KSS and TGT, the push north continues.  The action sports market is alive and well in Canada and this makes perfect sense. 

Google Releases Commerce Search 2.0 - Google on Thursday released Version 2.0 of a service that it hopes the nation’s top 1,000 retailers will use to power the searches on their e-commerce sites. Unlike most competing search products, Google Commerce Search is a cloud service, so it can be set up and customized relatively quickly, and performance will not vary even during unusually busy times such as holidays and sales, according to the company. The faster, better customizable platform claims it will improve conversion rates. Merchants can set up menus with categories of their choice, such as denim, tops, brands, dresses under $99 or pencil skirts. If retailers want to promote certain types of items — latest arrivals, sale or private label, for example — they can arrange to have those show up first on search results. <wwd.com/business-news>

Hedgeye Retail’s Take:  We’re all for making the online shopping experience easier and more efficient and this all seems to make intuitive sense.   

Sun Capital Partners Buys Remaining Limited Stake - Limited Brands Inc. said on Wednesday it has sold its remaining 25% stake in Limited Stores LLC to Sun Capital Partners Inc. for $32mm. Sun Capital now fully owns the brand, having bought a 75% stake in 2007 from Limited Brands, whose chief executive officer, Leslie Wexner, decided to shed the underperforming apparel businesses he founded in the Sixties. In addition to Limited Stores, Wexner sold a 75% stake in  Express to Golden Gate Capital. <wwd.com/business-news>

Hedgeye Retail’s Take:  Is a name change finally on the way for Limited Brands now that the flagship brand has finally been sold?   

Price Wars in the UK - Premium independents have been forced to fire the starting gun on their summer Sales up to four weeks early to compete with high-end department stores. <drapersonline.com

Hedgeye Retail’s Take:  With the UK retail marketplace historically promotional at only certain times of the year, this is an interesting development.   

Reebok Cleans Up It's E-Commerce - Reebok had a problem with the way it managed content on its e-commerce site. Adding any new marketing messages or merchandise took too long and required special training with the company’s third-party content management system. After switching to Allurent Inc.’s on-demand Visual Merchandiser tool, Reebok was able to more quickly make changes to its site, reducing the time spent managing web content by 50%. <internetretailer.com>

Hedgeye Retail’s Take:  Probably a good time to upgrade the site that has gotten deluged with visitors since EasyTones hit the market.  In fact, the site is almost entirely devoted to the toning product- as it should.

International Brands Dominate Facebook Fan Index - Although American brands hold the #1 spots across fashion, footwear, and retail, international brands hold top spots.  Adidas, Puma, Lacoste, and Burberry rank 2-5 in fashion. Adidas and Puma take 2 and 3 in footwear. Zara and H&M take 2 and 3 in retail. 

Hedgeye Retail’s Take:  Many interesting conclusions to gather from the table below.  Mainly, those brands with the biggest budgets and reach by traditional measures are not necessarily the most popular Facebook brands.  Also, luxury brands seem to have a great following despite the likeliness of having an older, less tech savvy customer demographic.   

R3: Putting Toning Aside - Facebook Fan Index