R3: China, Wages, TIF, SKX, & Teen Apparel

R3: REQUIRED RETAIL READING

September 14, 2010

 

Another day, another handful of stories focusing on wage pressure in Asia.  At this point, it’s widely known inflation in apparel is on the horizon.  What is less known, is how companies will ultimately deal with rising prices and its impact on demand.  History suggests “adding more detail” into the garment is not the secret sauce.

 

 

RESEARCH ANECDOTES

 

- Word has it that the iPad will be making its way onto Target’s shelves in early October. Recall that the discounter recently became the only physical retailer to sell Amazon’s Kindle. To further add fuel to the fire, Kindle just revealed its latest TV campaign which highlight’s the Kindle’s ability to be read in direct sunlight while the iPad reader is left fighting the glare.

 

- According to a Harris Interactive poll, two thirds of American’s think the current job market is bad, while 22% say it’s neither god or bad, while only 12% say it’s good. On a slightly positive note, the monthly poll has improved since January, which at that time indicated 70% of Americans thought the job market was bad.

 

- According to Piperlime’s VP/GM, the website garners 20% of its revenues and 24% of its customers from New York. As a result, the recently opened SOHO pop-up shop appears to be well placed. The store, which is the first physical location for the brand, is now open for 25 days, coinciding with NYC’s Fashion Week.

 

 

OUR TAKE ON OVERNIGHT NEWS 

 

Tiffany Back to the Accessories Business - Back into handbags and small leather goods for the first time in the last two decades, Tiffany has recently launched its new leather accessories collection in twelve of its US stores. <fashionnetasia.com>

Hedgeye Retail’s Take:  Finally, the company’s acquisition of Lambertson Truex is beginning to show at the store level.

 

K-Swiss Enters Accessory Licensing Deal - Active Energy, a division of Accessory Exchange, has inked a deal with K-Swiss to become its exclusive accessory licensee. Active Energy will produce and distribute accessories to include socks, sport bags, and headwear. <sportsonesource.com>

Hedgeye Retail’s Take:  Yesterday it was a collaboration with sportswear designer Billy Reid and today it’s a licensing deal.  Clearly the team at K Swiss is looking at any and all options to reinvigorate the top line.

 

Skechers Secures 70th Patent on Shape-ups Footwear - Skechers USA, Inc. has secured its 70th patent worldwide for its Shape-ups footwear line. <sportsonesource.com>

Hedgeye Retail’s Take:   We remain concerned that SKX has morphed from a marketing company (and a pretty good one) into an R&D company, with an increasing focus on innovation and performance in the athletic category.  It’s great to protect the company’s IP, but it’s also a completely different business model that is costly and with higher risks.

 

China Will Spur Consumer Spending Earlier - China will move up the timetable on reforms to spur consumer spending, with an eye toward balancing its trade surplus and moving toward long-term economic stability, Premier Wen Jiabao said Monday. In his opening address to the summer meeting of the World Economic Forum, Wen spoke about China’s success in weathering the global financial downturn through stimulus spending and other macroeconomic controls. He said that while the country’s $586 billion spending package was necessary, changes are needed to build a stronger economic foundation. <wwd.com/business-news>

Hedgeye Retail’s Take:  Nothing new here as China continues to move from an export economy to one of consumption. 

 

Teen Market Price Wars - The teen market has a new price leader, as Forever 21 displaced The Wet Seal Inc. for the lowest average unit retail (AUR) price this month. According to a study Forever 21’s AUR declined to $15.34 this month, down 9.3% from its September 2009 AUR, while Wet Seal’s climbed to $17.36, up 13% from the year-ago level. While overall AUR prices in the teen sector rose 6% from a year ago pricing wars continue to place significant margin pressure on teen retailers. The largest decline in AUR was registered by Aéropostale Inc., which tallied a 17.4% decline to $18.88. Urban Outfitters Inc. increased its year-on-year AUR a full 18.7% to $47.35 while Abercrombie & Fitch Co.’s Hollister brand followed a 30.6% decline in AUR in August with a 5.6% drop this month.  <wwd.com/business-news>

Hedgeye Retail’s Take:  This data confirms what management teams described as an “aggressive” promotional environment for back to school.  Perhaps the change in seasonal weather patterns will help to firm up pricing on Fall apparel, while at the same time clearance levels remain light on a year over year basis.

    

Cambodia: Garment Workers Plan for Massive Strike - About 80,000 Cambodian workers are planning a massive week-long strike over wages, which will threaten production that contributes a sixth of the country's garment factories.<fashionnetasia.com>

Hedgeye Retail’s Take:  More inflation on the way, as workers across Asia and the Indian sub-continent continue to protest in an effort to secure higher wages.

 

Legislation Will Impact US Trade With China and South Korea - The fashion industry is closely watching the Congressional agenda this fall as momentum appears to be building for legislation targeting China’s undervalued currency and approving a free trade agreement with South Korea. With just seven weeks until midterm elections on Nov. 2 — and Republicans seeking to take control of the House with all 435 seats, as well as one-third of the Senate up for grabs — Democratic congressional leaders are promoting a domestic manufacturing and small business agenda they hope will sway voters disenchanted because of the troubled economy. <wwd.com/business-news>

Hedgeye Retail’s Take:   Yet another reason why sourcing expertise remains a key competitive advantage.  Enter Li & Fung which could soon be busy looking for additional South Korean factory capacity if and when the cost of doing business with China increases as a result of legislation. 

 

Brooks Brothers Extends Brand Through New Products and Launches - At its spring presentation on Monday, the retailer revealed that it will launch a separate Web site for the Black Fleece collection designed by Thom Browne. The site, blackfleece.com, will go live at the beginning of next month and will feature an online look book and some original content designed to appeal to the collection’s customers. In addition, the company will add body splashes for men and women to the Black Fleece offering in November. Produced by Inter Parfums, the company’s licensee for its Black Fleece fragrance, there will be three separate bottles, called Red, White and Blue, which are signature colors of the collection. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Oddly enough Black Fleece, which is substantially more youthful and edgy vs. the its conservative parent hasn’t sold so well.  The hip, but expensive, sub-brand can be found in abundance at local sample sales as well as other off-price retailers