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R3: REQUIRED RETAIL READING

August 30, 2010

Bold move by Nike in securing automatic lacing patent – remember the ‘Air McFly’ in Back to the future? Anecdotes on Sperry and Saucony remain positive. Real estate price divergences are becoming a reality.

RESEARCH ANECDOTES

- Price disparity between high-end real estate locations and just about anywhere else continues for retailers. While some management teams have waited for rates to drop at A center locations, the reality is that elevated prices are likely to persist. J.Crew CEO Mickey Drexler surrendered that his team has “now accepted that” as the company looks to ramp store growth. On the other hand, B and C locations remain highly flexible to negotiations.

 

- Building on the success of its initial Kardashian launch, BEBE highlighted that inventory investment doubled for the second line in April, which continues to sell through at a similar rate. With the third line coming in September, stakes are even higher with the line now expanding beyond dresses to include sportswear layering product (i.e. pants, shirts, jackets, etc.).

 

- Add another layer to the deep discount value store hierarchy with Goodwill now looking to expand its footprint. Management recently commented that they expect to open five stores a year until 2014 – a noteworthy commentary for landlords given the higher than average traffic these stores typically generate.

 

- In a society increasingly demanding of instant gratification, it was only a matter of time before designers started offering lines straight off the runway - Burberry just happens to be the first. As part of its Prorsum collection to be shown in New York on September 13th, consumers willl be able to purchase select merchandise online and receive it within just 6-8 weeks. With online and mobile retail purchasing on the rise, you can expect designers to pick up on this trend quickly. 

OUR TAKE ON OVERNIGHT NEWS 

Nike Secures Automatic-Lacing Patent - Nike Inc. has secured a patent with the World Intellectual Property Organization for "automatic lacing system." Many stories circling around the Internet linked the product to the footwear worn by Michael J. Fox's character Marty McFly in the 1989 film "Back to the Future II." <sportsonesource.com>

Hedgeye Retail’s Take: We kid you not – take a look at the illustration from the patent application below as well as these prototype demos for kicks. Perhaps it’s a bit ironic with Nike’s CEO Mike Parker on the September cover of FastCompany magazine titled “The World’s Most Creative CEO”. Either way, these “Air McFlys” are the latest example of just how deep the Beaverton brain trust runs. While some may argue this takes innovation to the extreme, you don’t get dubbed “the most creative” without taking bold shots from time to time.

R3: NKE, PSS, Barefoot Running, and more… - 1

R3: NKE, PSS, Barefoot Running, and more… - 2 

Key Items Out of Atlanta Shoe Market - After a slow summer season, retailers at the Atlanta Shoe Market, held Aug. 13-15, told Footwear News they were depending on must-have items to propel sales in the coming season and into next spring. Todd Hill, VP of Hills Shoes in Cana, Va., noted that he was sticking with current bestsellers, such as Merrell, for spring ’11. Likewise, Saxon Shoes of Virginia, is going deeper with customer favorites such as The North Face which has been a big sales driver in the fall with boots and backpacks. Vibram FiveFingers and Sperry Top-Sider were two other brands that were high on retailers’ wish lists in Atlanta, though several buyers complained that Sperry was only accepting future orders due to overwhelming demand. <wwd.com/footwear-news>

Hedgeye Retail’s Take: Isn’t it amazing how Sperry is truly on fire, but no one really gives a hoot? Ditto for Saucony. We’ll have a PSS note out later today that adds context.

OR Panel Weighs In On the Barefoot Craze - As performance product continues to ignite the athletic footwear market, execs are betting that consumers are willing to pay more for less, according to a panel of experts at the Outdoor Retailer show, moderated by Footwear News. Their take: Barefoot, minimalistic and lightweight footwear styles are leading the running market, re-engaging consumers and spurring interest in running. “I’ve been selling shoes for 17 years, and I’ve never seen a movement like this, where people are so interested in how to run,” said Christopher Peake, director of performance for Henderson, Nev.-based Zappos Merchandising Inc., part of Zappos.com. There’s been a lot of marketing, especially in the toning and the wellness market, that has really driven consumers to come to these categories. The book “Born to Run” and the adoption of Vibram FiveFingers by a much wider population really kicked things off in a big way last summer. And with the recession, there were a lot of people scaling back to basics, stripping things down and thinking about products differently. <wwd.com/footwear-news>

Hedgeye Retail’s Take: This statement is both comforting and ridiculous at the same time. First off, what is currently being billed as a ‘toning shoe’ does NOT, I repeat DOES NOT teach you how to run. On the flip side, Born to Run is an exceptional book, and it truly is a motivator for us to run the way mother nature intended. Barefoot running definitely works – a few thousand years of our ancestry can prove that. I’m surprised Nike hasn’t made a bigger push with its ‘Free’ technology, which was designed to mimic barefoot running. Keep your eyes peeled there. 

Shoemaking Gradually Shifts to Eastern Europe as Costs Hike - Due to hiking production costs, Austria’s footwear production dropped by 20% to 1.8 million pairs in 2009, with shoemaking companies beginning to transfer their production to mostly Eastern Europe. <fashionnetasia.com>

Hedgeye Retail’s Take: In light of EU anti-dumping measures on China expiring earlier this year expect this trend to continue as the competitive environment gets increasingly more challenging for domestic manufacturers who have historically exported ~70% of footwear to Eastern European countries.

Watch Maker Cartier Files More Lawsuits Against Web Sites - Three weeks after suing private sales site HauteLook.com, Cartier set its sights on two other flash Web sites. The company alleged that ILS Holdings LLC and Swiss Watch International Inc., owners of EditorsCloset.com and IvoryTrunk.com, sold “refurbished and/or damaged” Cartier watches. The watchmaker said the defendants did not disclose to their customers that the products were not backed by Cartier’s manufacturer’s warranty. The plaintiffs seek injunctive and monetary relief. <wwd.com/business-news>

Hedgeye Retail’s Take: Reminiscent of Tiffany’s battles with eBay over authenticity, the threat of brand dilutive activities online has unfortunately become the price of business for luxury retailers. With little help from the government policing counterfeit product, efforts to curb disingenuous online activity will remain squarely on the shoulders of the retailers looking to maintain brand integrity.

Sears Looks to Enhance its Online Shoe Offering - The retailer has just launched the Sears Shoe Experience website, where consumers can make purchases and get trend advice in the fashion, kids’, fitness and work categories via blogs hosted by Sears.com. Among the features on the site is a personal shoe-shopper program, where customers can receive personally selected shoes within 24 hours. The retailer also is tapping into social media on Facebook, Twitter, YouTube and Vimeo.  <wwd.com/footwear-news>

Hedgeye Retail’s Take: Better known for selling appliances, Sears is the latest mass-merchant looking to capture a piece of the footwear business as Wal-Mart reduces its involvement. Not the most likely benefactor, but a sizeable one worth watching…

TJX Blames Buying Problems For Slump - TJX Companies, owner of off-price retailer TK Maxx, has blamed a “delayed transition” to spring 10 product for a slowdown in UK sales. <drapersonline.com>

Hedgeye Retail’s Take: This is only the beginning - expect ‘transition/distribution’ delays to be the scapegoat du jour on Q3 calls.

Oriental Trading Files For Bankruptcy - Oriental Trading Co. Inc. is seeking Chapter 11 protection to reorganize debt. The retailer, which sells party and school supplies, crafts and gifts, has accumulated loans of nearly $272 million. Oriental Trading, which operates such e-commerce sites as OrientalTrading.com and TerrysVillage.com, didn’t list specific totals of its assets and debts. But the court filing does reveal that Oriental Trading owes significant amounts to its lenders and several key e-commerce and delivery companies. <internetretailer.com>

Hedgeye Retail’s Take: This is notable for the simple fact that it’s been a while since we’ve seen a retailer file.

The Finish Line Reduces Page Load Times by 50% - The Finish Line Inc., an online retailer of athletic shoes, has reduced page load times by 50% after implementing the Dynamic Site Accelerator from Akamai Technologies Inc. The technology makes web pages load faster by relying on web servers located across the country and world. For instance, a server located in Boston would deliver site data to consumers in that area, while servers located on the West Coast would handle shoppers there. <internetretailer.com>

Hedgeye Retail’s Take: With spending primarily in back-end capabilities over the last few years, the company is shifting investments toward improving consumer facing, front-end functionality. FL, take note.

Zara to Sell Online Commencing Next Week - Zara is finally hoping onto the e-commerce bandwagon to be selling online to countries including France, Germany, Italy, Portugal, Spain, and the UK starting September 2. <fashionnetasia.com>

Hedgeye Retail’s Take: For a company known for lightning quick product turnaround, it’s hard to believe they’re just stepping into the world of e-commerce. With less than 50 stores in the U.S. this could prove disruptive for domestic fashion retailers indeed.

Children's Footwear Trend: Nautical - Nautical looks have sailed back into the kids’ market. Sandals, sneakers and ballet flats with anchor motifs, rope trims and classic color palettes of red, white and blue will have girls looking ship-shape next spring. <wwd.com/footwear-news>

Hedgeye Retail’s Take: Good for Sperry/PSS.

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