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July 7, 2010

There is a lot of head-scratching out there on the part of investors and managements alike about why austerity in the UK is not hitting consumers yet. We think that there is a meaningful duration mismatch brewing.



Marks & Spencer Group put up decent enough sales numbers (+4.4%) in its first quarter, but a tepid outlook wasn’t what the market had in mind. Sales were up 4.4% in the first quarter ended July 3, however, the retailer is cautious about the remainder of the 2010-11 fiscal year. Clothing (+7.4%) and General Merchandise (+7%) drove the sales gains. Per the company, customers responded well to improved styling, stronger fashions and great value.  I call that a fluff statement – but hey, numbers don’t lie. M&S’s discretionary business definitely remains healthy.  

This is most interesting because we’re hearing from Ralph Lauren, Nike, Calvin Klein/Tommy Hilfiger (WRC/PVH), Next, Burberry and others that sales in Europe remain healthy – at least in constant currency.

That dovetails interestingly with a question I’ve been hit with more than a few times over the past week. The crux of it is “when will austerity measure really begin to negatively impact consumer spending in the UK.”

Investors in the US have that attitude where they are shrugging their shoulders and saying ‘wow, I started to brace for a slowdown 2-3 months ago in UK, and have not yet seen it. Maybe I was wrong in my conservatism. Ironically, CFOs are saying the same thing. Now the companies are starting to think that they are bullet-proof, and are therefore conveying that cockiness to shareholders. Ultimately, investors are getting complacent with complacent management teams.

That, of course, is when the volatility – and the fun – begins. When does this come to light? I’m not sure. Will it be at the Goldman conference in September? Or when the companies give their 2011 plans w 4Q10 results in Jan?  Too much longer and the currency hedges will unveil holes in the model. Take your pick. Either way, complacency is gonna hurt those components of the global retail supply chain that don’t have a Macro process and have not been planning for this for 2-years.

Maybe the simplest way to put it is how Keith highlighted recently “Austerity hasn’t actually been implemented yet. When it does, there will be a lag as to when it ultimately touches the consumer. But old spending habits will die hard when they do… and duration mismatch between the actual austerity and it hitting people where it matters will become increasingly obvious.


  • We continue to keep an eye on Amazon’s apparel and footwear efforts as the site continues to grow the business in a post Zappos world.  This time the company is offering a set number of fall footwear SKU’s for pre-sale, with delivery beginning in mid August.  While this is something we don’t often see from a physical shoe store, we can’t ignore the positive benefits to Amazon’s cash flow and inventory management from gauging demand  for fashion styles in advance.
  • According to a Harris Interactive poll, 7 in 10 Adults see the economy staying the same or getting worse over the next twelve months.  The survey also highlights a more dire look in the next six months, in which only 21% of American’s believe their financial condition will improve over the next 6 months (down from 25% in May).
  • In an effort to begin monetizing Twitter, the company launched @earlybird, a Tweet that announces limited time deals, special events, and exclusive offers.  Similar to Gilt or RueLaLa, the Tweet stream aims to feed consumers find limited but compelling deals offered by retail partners.  Twitter will take a percentage of each sale generated by the service. 


Hot Temperature Drove East Coast to Shopping - Consumers throughout the Eastern U.S. sought relief from record-breaking temperatures Tuesday any way they could — including going shopping. As the thermometer topped 100 degrees in Manhattan and elsewhere, retail executives said traffic to their air-conditioned stores and malls was heavier than normal. The searing heat followed the warmest July 4th weekend since 2007 and the third-warmest June in 50 years. And the heat wave was forecast to continue through at least Friday, when temperatures are expected to dip to the more-normal mid-80s. Over the weekend, businesses in the eastern two-thirds of the U.S. experienced double-digit increases of seasonal purchases compared to the coldest 2009 period in a decade, according to Planalytics. West Coast consumers are still waiting for summer to start and holding off on seasonal purchases. <wwd.com/retail-news>

enhanced search functionality and increased customer service. <sportsonesource.com>

Hedgeye Retail’s Take: Let’s get the heat out of the way. It’s good for biz now, but cool weather in Aug will set back-to-school off on the right foot.

R3: UK Comp/Austerity Duration Mismatch - Weather 7 10 

Mobile Commerce to Jump from 160 Retailers to 770 - Today there are 160 retailers active in mobile commerce, according to Internet Retailer research. By month’s end, if all goes as planned, there will be 770. E-commerce platform and online marketing provider Shopatron Inc. is in the final weeks of testing m-commerce site-building functionality that it will add to its platform offering at no additional cost to its more than 800 clients. <internetretailer.com>

Hedgeye Retail’s Take: Kind of surprising that we still refer to this as ‘e-commerce.’ It’s getting to a point where it is just ‘commerce.’ Anyone that’s just catching on now is way behind the curve.

China's Shandong Ruyi to Complete Acquisition With Japanese Fabric Maker Renown - Shandong Ruyi Group, one of the largest Chinese textile manufacturers, has expected to complete its purchase of 41.18% stake in Japanese Renown Inc, a 108-year-old fabric maker, by the end of the month.  <fashionnetasia.com>

Hedgeye Retail’s Take: A culturally odd deal that we see so few of. Nonetheless, it makes sense – especially with import/export duties eliminated intra-Asia as of 1/1/10.

BEBE To Shutter PH8 Concept - Bebe Stores Inc. said Tuesday it will end its failed PH8 experiment and either close the format’s 48 stores or convert them to the more promising 2b bebe concept. Closures and conversions are expected to begin shortly, with all stores either closed or converted by the end of Bebe’s 2011 fiscal year next July. Bebe said comparable-store sales for the fourth quarter would come in at the low end of earlier guidance of a midsingle-digit decrease to a midsingle-digit increase.  <wwd.com/business-news>

Hedgeye Retail’s Take: It’s about time…

Pier 1 Plans to Slowly Re-enter E-commerce - Pier 1 is hatching plans to make all of its inventory available for purchase online by September, but for in store pick up and payment only. After a three year absence, Pier 1 Imports Inc. is making a very limited return to online retailing. The multichannel retailer of various home furnishings is hatching plans to make all of its inventory available online by September. But purchases will be limited to making a reservation online, but paying for the merchandise and picking up the items must be done in a Pier 1 store, the retailer says enhanced search functionality and increased customer service. <internetretailer.com>

Hedgeye Retail’s Take: Very late to the party, but with 5 consecutive quarters of improved sales growth vs. inventories, PIR needs another trick. Maybe this is a temporary fix.

Indian Apparel Manufacturers Seek Business in Vietnam - Indian garment companies are seeking new business opportunities by planning to offer high-quality material as well as technology assistance to Vietnamese companies. <fashionnetasia.com>

Hedgeye Retail’s Take: This is still a function of a focus on higher consumption intra-Asia vs. relying so heavily on the West. Not good long-term for us.

ANF Still Investigating Bedbug Problem in Manhattan - Abercrombie & Fitch Co. is still investigating its bedbug problem in Manhattan, but hoping to reopen the Abercrombie & Fitch unit in the South Street Seaport on Thursday. The company’s Hollister flagship on Broadway and Houston Street in SoHo reopened Saturday after the infestation was exterminated, and on Tuesday saw good traffic despite the scorching heat (and being temporarily tainted), with Broadway busy midday. <wwd.com/retail-news>

Hedgeye Retail’s Take: Tough to manage risk around something like this. More of a PR mess than anything else, but it definitely will have a lingering effect on that store.