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R3: REQUIRED RETAIL READING

July 8, 2010

We’re going with two call outs today…and they have nothing to do with Same Store Sales. The first is a glimpse into recent activity at Li&Fung, which is one of the best global long-term investment stories I have seen in years. The other is Italy, which has resorted to blaming €140mm on its Football team.

TODAY’S CALL OUT

 

Li & Fung Hot With Activity - Hong Kong-based sourcing giant Li & Fung said Thursday it has made three acquisitions over the past two months and struck a series of licensing deals in an effort to boost its market share and profitability. The company said it has bought the following companies for an initial cash consideration of $140 million: The Hong Kong-based Jackel Group, a player in the beauty and packaging industries; HTP Group, a Hong Kong-based denim specialist; and nearly all of the assets of Cipriani Accessories Inc. and its affiliate The Max Leather Group. Li & Fung said it has signed four additional licensing deals: a pact with celebrity stylist Rachel Zoe to launch a new contemporary collection, an expansion of its existing licensing deal with martial arts apparel maker Tapout to include men’s and junior’s sportswear, the formation of a new company with Star Branding to create new lifestyle concepts, and a new licensing deal with Sean Combs’ Sean John label for sportswear and active wear.  <wwd.com/business-news>

Hedgeye Retail’s Take: In the world of global retail, I can not find a better structural story than Li&Fung. As a 20-year trend of outsourcing and offshoring to China by US companies leveraging the US$ as the world’s reserve currency comes to an end – and reverses – LF is the only company that will win consistently. Small acquisitions into ancillary areas on which to leverage sourcing infrastructure makes a ton of sense to me. And that’s coming from someone that rips apart 9 out 10 acquisitions that comes across the retail tape.

Italian Retail Troubled by Economy, World Cup Woes - Local retailers in Italy are claiming to have a hard time meeting sales targets as consumer is failing to buy in the summer months due to weather, lack of confidence, and World Cup woes. The summer sales season, one of two times each year when retailers like Benetton and Prada mark down prices, normally accounts for about 12% of annual Italian revenue for the clothing and shoe industries. This year’s sales period coincides with unemployment at an 8-year high, consumer confidence slipping to a 16-month low in June and hotter-than- average temperatures in city centers from Milan to Rome. <bloomberg.com/news>

Hedgeye Retail’s Take: Italy takes the cake – twice. First by flopping out of the World Cup. Then by actually quantifying the impact on its economy of the failure of its football team to perform – 140mm Euro.  Let me get this straight…that’s 8.5% of GDP. For losing to Slovakia and drawing vs. New Zealand??? I know Americans don’t ‘get’ football. But c’mon. They can hardly quantify their unemployment rate nevermind the consumption impact of World Cup. Let’s get real.   

MORNING NEWS 

JJB Sports Experienced Nice Lift from World Cup - British sportswear retailer JJB Sports, which avoided administration last year, said sales have continued in line with expectations even after England's premature exit from the soccer World Cup. The company, a seller of England soccer kits as part of its World Cup range, said comps in the six weeks to July 4 jumped 22.3%, while gross margins surged. Cumulative like-for-like sales from Feb. 1, the start of the financial year, to July 4 rose 12.1%.  <reuters.com>

Hedgeye Retail’s Take: Spain/Netherlands is a dream matchup for Europe. But what’s next?

Uniqlo's Parent Fast Retailing Company Cuts Full Year Forecasts - Fast Retailing Co. Ltd. saw double-digit growth in the first nine months of the year but uneven sales of its spring items forced the company to cut its full-year forecasts, just months after raising estimates in April. The Japanese company’s monthly sales performance so far this year has been mixed, an outcome the company has blamed on unseasonably cool spring months and problems keeping some popular spring styles in stock. <wwd.com/business-news>

Hedgeye Retail’s Take: You know what this means? Yes, they’ll pick up the deal cadence.

Twitter Enters E-Commerce - Twitter is launching @earlybird, its own take on popular daily deal sites such as Rue La La or Gilt Groupe that offer limited-time sales at deep discounts. Twitter has not elaborated on the types of deals it might promote, but it did say that initially the offers will be from large, international brands or focused on the U.S. market. Participating retailers will set the terms of the offers, including the availability, amount offered and price. <internetretailer.com>

Hedgeye Retail’s Take: T’was a matter of time.

DKNY Opening in Singapore - DKNY Jeans International will unveil a new retail concept with today’s opening of a Singapore boutique. Located in the city’s Paragon Shopping Center, the new store will be a prototype for other DKNY Jeans freestanding units and concept shops. The company plans to unveil boutiques in Jakarta, Indonesia; Hong Kong; Beijing, and Sydney, as well as concept shops in China, Taiwan and Thailand. The company operates and distributes to 160 DKNY Jeans freestanding, shop-in-shop and multibrand stores. At this point, 11 new concept stores are expected to open by next year. <wwd.com/retail-news>

Hedgeye Retail’s Take: This makes sense. DKNY has been around for about 20 years now, which is like forever in the fashion world. All along it has maintained relevance as a global brand.

Target Prepares for Shaun White Shoe Line - The premiere collection of Shaun White shoes is set to hit Target stores nationwide and online at Target.com the week of July 11th. Shaun White shoes, an expansion to his line of clothing with Target, features a variety of skate and lifestyle shoes for boys and young men.  <sportsonesource.com>

Hedgeye Retail’s Take: You gotta love this kid… What’s interesting is that White’s apparel line did not sport a logo. He purposely minimized any glaring logo to maintain some form of anti-establishment status. Not quite sure if that will work with footwear. In fact, his Red Bull commercials have a very ‘big business’ slant that augers to him going more mainstream. But mark my words, this is as important a launch to watch (for Vans, Converse, Nike 6.0) as some of the Asian brands coming into the US.

Cornell University Drops Nike Contract Due to Honduras Labor Dispute - Without "significant progress" toward the resolution of an ongoing labor dispute in Honduras, Cornell University said last week it will follow the University of Wisconsin at Madison's lead and end its licensing agreement with Nike by the close of the year. In April, UW became the first university to cancel its contract with Nike over a contractor's treatment of workers in Honduras. <sportsonesource.com>

Hedgeye Retail’s Take: After all the progress Nike has made, this is yet another sign showing how hard these reputations are to shape. Let’s hope that these Universities don’t do any business with Gildan – who is massively overweight Honduras.

Who Spends Most Time on Facebook? - Age, income and ethnicity all play a role in how much internet time users spend on the social giant. And marketers may find the heaviest users the most valuable to target. <emarketer.com>

Hedgeye Retail’s Take: I have no clue what the investment significance is of this chart. But thought it was interesting from a social networking standpoint.

R3: Football & Fung - R3 7 8 10