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R3: REQUIRED RETAIL READING

September 7, 2010

Almost 14 months after the Amazon/Zappos deal was announced, we’re seeing some notable moves to strike brand exclusives and leverage both platforms. This is only the beginning. By the time this will be meaningful to AMZN’s P&L (which it ultimately will be), the impact on the footwear industry will be painful.  

OUR TAKE ON OVERNIGHT NEWS 

Heidi Klum and New Balance Launch Line on Amazon - The supermodel has teamed up with New Balance to design an activewear collection that will be sold exclusively on Amazon.com. The line, rendered in cotton and silk and dubbed Heidi Klum for New Balance, includes tunics, woven tops, leggings and outerwear. The collection will be available in a boutique on the Web site in the U.S., U.K., Germany and Japan on Oct. 7 and prices will range from $32 to $168. Klum was inspired by the increasingly busy lives of women, who she said want to be “stylish, comfortable and hip.” Along with an integrated viral component, print ads will begin running in November magazines. <wwd.com/retail-news>

Hedgeye Retail’s Take: This is relevant for a few reasons. 1) Heidi Klum sells. 2) New Balance has historically stayed far away from fashion-related endorsements. 3) NB has never done a major on-line exclusive. 4) On Sept 1, AMZN announced that Aldo would use Zappos as its exclusive on-line retail partner. And finally, 5) what do you notice about the photo below??? This is NOT a New Balance/Klum/ZAPPOS deal. It is an AMAZON deal.  We’re about  14 months into the Amazon/Zappos marriage, and we’re absolutely positively starting to see the lines blur between the brands, and the strategy to leverage both platforms move forward more aggressively. With an $800mm price tag, it’s about time. Keep your eye on this. It’s meaningful.

 R3: AMZN Coming on Strong - 1

 

July Golf Rounds Slide 5% - According to Golf Datatech, golf rounds played in the U.S. were down 5.1% in July compared to July 2009 and down 3.3% on a YTD basis. <sportsonesource.com>

Hedgeye Retail’s Take: I love hacking away on the course as much as the next guy, but this is yet another statistic showing that the sport simply does not grow. Keep in mind that last July and August it pretty much rained constantly. Weather compares are easy.  Golf is economically sensitive, but that is much more so on the hardgoods side of the business.

PSS and Fashion's Night Out - There’s a first time for everything. Payless ShoeSource guest designers Christian Siriano, Lela Rose, Patricia Field and Isabel Toledo will join forces for Fashion’s Night Out this Friday, marking their first joint appearance. Payless CEO LuAnn Via said shoppers can expect “pure energy, excitement and fun” as the designers show off their latest collections and mingle with customers at the Lexington Avenue store. “It’s always amazing how you can see the unique [personalities] come through in each label,” Via added. As for their differences, she described Rose’s designs as “classic with a twist,” Siriano’s as “edgy chic” and Toledo’s as “inventive with practical elegance.” <wwd.com/footwear-news>

Hedgeye Retail’s Take: I want to believe that this matters. And while it might, the reality is that the company needs to step back and really ask itself if ‘pure energy, excitement, and fun’ is something that the average shopper visiting its 4,800 stores really wants. 

Wal-Mart Finds Unsafe Practices at Factory of China Supplier of Appliances - Wal-Mart Stores Inc. , the world’s largest retailer, has found unsafe work practices in a mainland China factory operated by Elec-Tech International Co. , which supplies the chain with home appliances. <bloomberg.com>

Hedgeye Retail’s Take: Is it me, or is this like saying “I have uncovered some irresponsible practices at US investment banks.’?  This is a great way to do one of two things… 1) throw the public a bone by touting how social responsibility in China is important to WMT, and/or 2) giving a reason why there will be delays and changes to appliance deliveries.

TBL Advertising 3D - Timberland is putting its best foot forward in a new global campaign showcasing the Earthkeepers collection of eco-friendly apparel. The effort, dubbed "Nature Needs Heroes," includes TV, print and retail ads, as well as social media and a microsite that uses 3D technology to help consumers become better acquainted with Earthkeepers. The site allows users to examine a frozen moment on screen at a 360-degree angle. In the past, Timberland focused on traditional elements like TV and print, said Jim Davey, Timberland's vp of global marketing. "This is the first time we've reflected new media realities with additional elements like 3D microsites and interactive windows in our retail stores," he said. Furthermore, Timberland aims to drive its eco-friendly message home through TV and print ads. <brandweek.com>

Hedgeye Retail’s Take: Not exactly revolutionary, but notable enough for a brand that been unable to grow for the better part of 5-years.

Ohio to L.L. Bean: Pay Up - In a case being watched by other states, Ohio wants $210,000 in back taxes under the state’s commercial activity tax law. L.L. Bean is seeking the shelter of a U.S. Supreme Court ruling on state sales taxes, but Ohio says that ruling doesn’t apply. <internetretailer.com>

Hedgeye Retail’s Take: This one is actually quite interesting, as it is yet another  example of a state that is looking for ways to get paid by Consumer-Direct models that are otherwise taking share from bricks and mortar.

Specialty Stores Cut Jobs - August employment figures pointed to a long slog to full economic recovery, as specialty retailers cut positions while department stores added a handful of jobs and the overall unemployment rate rose slightly. Specialty store retailers eliminated 1,200 jobs last month to employ 1.39 mm, while department stores added 300 positions to employ 1.49 mm. General merchandise stores, which include department stores, eliminated 4,700 positions to employ 2.95 million, the Labor Department said. The private sector “continued to trend up modestly,” adding 67,000 jobs in August, according to the Labor Department, the eighth straight month it has done so. <wwd.com/business-news>

Hedgeye Retail’s Take: Check out those general merchandise/department store numbers…

Vietnam: Leather and Shoe Export in August Increases by 19% - Vietnam’s leather and shoe export turnover in August continued maintaining high growth rate at of 19% year-on-year. Increases were driven by the export of handbags, wallets, suitcases and umbrellas. The association predicted that in the rest four months, Vietnam’s leather and shoe sector may not only fulfill the targeted export turnover of $4.6 bn, but can reach over $5 bn.  <fashionnetasia.com>

Hedgeye Retail’s Take: Yes, yes and yes. With the yuan floating, other non-Japan Asian countries will absolutely take share as they arb price spreads between local vs. Chinese production. It’s vital to keep these numbers in context, and not get sucked into thinking that big numbers reported by Vietnam, Indonesia, Malaysia, and Thailand are representative  of the industry at large. That’d be overstating economic reality.

British Retail Sales Up But Not Strong - UK retail sales values were up 1.0% on a like-for-like basis from August 2009, when sales had fallen 0.1%. On a total basis, sales were up 2.8% against a 2.2% increase in August 2009. Food sales growth slowed a little. Clothing and footwear sales strengthened, helped by new autumn/winter ranges and back-to-school. Homewares edged up but sales were still often deal-driven, with big-ticket items affected by consumer uncertainty over job cuts and income prospects. Non-food non-store sales (internet, mail-order and phone sales) picked up in August and were 17.8% higher than a year ago, but this was against an exceptionally weak 8% gain in August 2009. <brc.org.uk>
Hedgeye Retail’s Take: British comp sales grew 1% for August but slowed on the 2 year and 3 year to 0.5% and 0% respectively. British and US comps look the same with the underlying trend showing that sales are flat and moving sideways. 

 R3: AMZN Coming on Strong - 2