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RETAIL READING

August 09, 2010

TODAY’S CALL OUT

With most eyes (and feet) still firmly focused on the toning trend, it may be time to begin to pay attention to the latest product innovation to hit the athletic footwear marketplace.  Barefoot running.  While Vibram created the first barefoot product in 2005, the popularity of the goofy looking Five Finger foot coverings is building.  Importantly, “barefoot” or “minimalist” footwear is becoming more mainstream with several brands launching products at the Outdoor Retailer tradeshow last week. Keep in mind, Christopher McDougall’s “Born to Run” book highlighting the benefits of running barefoot launched in May of 2009. With the book in the top 100 of Amazon’s bestsellers list since its launch and still #8 on the top 10 list, it’s fair to say there is considerable interest in merits of this concept. While it is still very early in terms of brand proliferation, it’s likely that we begin to see these shoes showing up in chain stores, after initially being distributed via specialty stores and independents. 

Interestingly, “less is more” certainly holds true here with pricing.  Most of the shoes are commanding premium pricing, hovering around the $100 price point.  While we haven’t had a chance to deconstruct the shoes themselves, we’re pretty sure the margin profile of a shoe designed to contain the minimum amount of material and sewn parts is one of the more profitable shoes on the shelf.  At this point it’s premature to make too big of a deal about this trend, but we do believe that this is further support for the athletic footwear cycle.  Innovation is key to the longevity and pricing power of the category, and this is yet another example of how something as boring/tired as “sneakers” continues to be reinvented. 

R3: Shoe(less) - 1

LEVINE’S LOW DOWN 

- Keep an eye on recently introduced legislation aimed at protecting original fashion designs.  The bill introduced by Senator Chuck Schumer, called the Innovative Design Protection and Piracy Prevention Act, is designed to provide limited intellectual property protection to the most original design.  Similar legislation has been introduced over the past four years, but this effort seems to have more support, including backing from the CFDA and AAFA.

 

- As retailers work to embrace and develop mobile commerce as an additional source of revenue and marketing reach, China has surpassed the US in mobile internet usage.  According to Nielsen, 38% of mobile subscribers access the internet on a mobile device compared to 27% in the US.   Total mobile subscribers top 750 million in China.

 

- Expect the buzz surrounding Coach’s latest luxury effort to reach new heights as the Reed Krakoff brand opens its flagship store on August 19th.  The Madison Avenue location is still under plywood wraps.

MORNING NEWS 

Apparel Retailers Increase Political Contributions for Democrats - In the overall retail category, which includes a broader array of PACs, including apparel retailers, home builders, electronics and drug stores, Republicans have still outpaced Democrats in contributions, but the gap has tightened. Republicans received 52 percent of a total of $3.5 million in contributions in this cycle, while Democrats received 48 percent, according to the center. The split was 55 percent Republican and 44 percent Democrat in the last cycle, so contributions to Democrats have increased proportionally so far. Wal-Mart’s PAC, by far the largest in the industry, has given $460,500 (54%) to Democratic candidates in the run-up to the Nov. 2 congressional elections — when all of the House’s and a third of the Senate’s seats are up for grabs — compared with $390,550 (45%) to Republican candidates, according to the Center for Responsive Politics. During the last congressional election cycle, in 2007-2008, Wal-Mart’s PAC gave more to Republicans ($655,000) than to Democrats ($573,700). <wwd.com/business-news>

Hedgeye Retail’s Take:  Despite the slight shift towards the Democrats, it’s more interesting to note that one of the country’s largest industries (in terms of employment) only spends a paltry $3.5 million in contributions.  Perhaps it’s the lobbyists who are seeing all the cash. 

Intimate Apparel Under Cost Pressures - Although customers appear to be slowly returning, intimates vendors and retailers are under intensifying pressure to keep tight control of spending as costs for raw materials, labor and shipping escalate. Industry executives said they are taking a conservative approach to inventory for fall and holiday because of anxiety about a double-dip recession, chronic high unemployment and weakened consumer confidence. Vendors said they have been absorbing rising costs, for the most part, because retailers are coping with margins constrained by aggressive promotions. But executives speculated they will be forced to raise wholesale prices unless the situation improves in the next several months. The cost-saving initiatives undertaken by innerwear companies include: Committing orders six to 10 months in advance at a fixed price for unfinished greige goods; reinforcing partnerships with major contractors, factories, mills and fabric makers who can negotiate lower prices, package deals with major contractors that can command lower prices for fabrics, trims and laces; and designing with more embellishments such as pleats and ruffles that give a garment the look of added value while using less of an expensive fabric. <wwd.com/retail-news>

Hedgeye Retail’s Take:   Nothing new here but yet another inflationary trend. 

Barefoot and Lightweight Are the Trends from Outdoor Retailer Show - With high-profile collection launches from Merrell and New Balance — and related product from Teva, Terra Plana and Ecco, among others — outdoor players were optimistic the category will fuel sales. The explosion of minimal shoes and footwear designed with some barefoot elements has given running a boost. A few key shoes include: Vibram Five Fingers, Terra Plana, New Balance’s Minimus, and Merrell Barefoot Collection. <wwd.com/footwear-news>

Hedgeye Retail’s Take:   Less is more, always.  Given the limited use of materials for “minimal shoes” we wonder if this might become one of the highest margin categories in all of athletic footwear.  Retail price points hover around $100 for shoes that are essentially rubber socks. 

Footwear Retailers Expanding Product Offerings, Holding More In-Store Events, and Ramping Marketing - Independent shoe retailers are tweaking product strategies for the fall with emphasis on existing brands, adding lines at lower price points, and expanding the number of labels they carry.  Other retailers are growing outside of footwear by selling clothes and accessories for the first time this fall in an effort to bring in more people. Retailers can’t discount much more, so it makes sense to bring in something else that might sell. Still, promotions will be a key strategy for many retailers this season whether through small discounts or packaged deals. <wwd.com/footwear-news>

Hedgeye Retail’s Take:   This sounds like the usual scramble to compete with the bigger chains.  Unfortunately adding apparel into a footwear store is usually not the answer.  Look for apparel markdowns by the time the season is over.

Jimmy Choo May Be Up For Sale - Jimmy Choo Ltd., the luxury shoe brand and retail chain, may be sold for as much as 500 mm pounds ($797 million) by TowerBrook Capital Partners. TowerBrook in 2007 bought a majority stake in Jimmy Choo in a transaction that valued the company at 185 million pounds, the newspaper said. The retailer’s owners, who are considering their options, may decide instead to sell shares in the business in the next few years for 1 bn pounds.  <bloomberg.com>

Hedgeye Retail’s Take:   If true, an impressive return in a very short time for the young luxury brand.  M&A still going strong, despite recent market jitters and an increasingly unclear outlook for the consumer (luxury included).

Tuscan-Based Luxury Retail Group Evanthe Buys Malo - According to industry sources, Evanthe, a general contractor that develops luxury stores for the likes of Louis Vuitton, Prada and Abercrombie & Fitch, bought Malo for between 8 mm and 10 mm euros. Besides the price, the administrators and the ministry were convinced by Evanthe’s industrial plan to grow and develop the brand. Malo is part of IT Holding, which has been in government-backed bankruptcy protection since February 2009.  <wwd.com/business-news>

Hedgeye Retail’s Take:  Interesting ownership change of a fashion brand, now in the hands of the company that actually builds luxury stores.  Sounds like Malo may be coming to a high end mall or high street location soon as part of its revitalization efforts.

Footwear Trend: Camo - Camouflage prints are storming the girls’ market — and in this case, the idea is to stand out, not blend in. Whether in classic green and brown, or fun fashion colors such as pink and blue, the pattern punches up kids’ sneakers and sandals. <wwd.com/footwear-news>

Hedgeye Retail’s Take:   Here’s a trend that never seems to go away.  Hopefully the shoes don’t get lost in the woods (or the closet).

Australian Tennis Brand Expands to US - Australian tennis brand Volley, a staple Down Under since 1939, will have its first broad launch in the U.S. market at the upcoming Project show this month. Created by Australian tennis legend Adrian Quist for on-court use, the simple canvas silhouettes have remained largely unchanged since their introduction. New York-based JM&S Projects LLC brought the line to the U.S. in an exclusive partnership with Steven Alan for this year, but is opening up the distribution for the unisex styles at the show. A $60 low-top will be available for immediate delivery; the $80 high-top will deliver Oct. 1. Both are targeted to sneaker boutiques and independents. <wwd.com/footwear-news>

Hedgeye Retail’s Take:  Another “authentic” canvas shoes enters the competitive marketplace joining KSwiss, Jack Purcell, Converse, and Keds to name a few.

Jambu Enters Barefoot Market - New York-based Jambu is boarding the barefoot bandwagon with the Barefeet Designs collection for spring ’11. With three styles for for women, the $99 range features a memory foam footbed that the company compares to “walking on sand,” and lightweight and flexible outsoles made of a blend of natural and synthetic rubbers and rice husks. The collection will deliver Jan. 15 to independent retailers, e-tailers and sports- and outdoor-focused accounts.  <wwd.com/footwear-news>

Hedgeye Retail’s Take:  How long before Skechers enters the barefoot market? Surely something has to be in the works.