R3: BBY, RL, UA, LIZ, SHLD, COST, and COLM

R3: REQUIRED RETAIL READING

September 15, 2010

Keep an eye on Skechers, which is now receiving some heat for producing a kids cartoon.  Unfortunately, the FCC doesn’t allow the use of children’s cartoons as vehicle to sell or promote products.  In other words, “Zevo-3” was looking a lot like a cartoon version of an infomercial.

RESEARCH ANECDOTES

- Best Buy noted that it expects to see promotional support increase over the back half of the year in an effort to spur demand in the TV category.  Management believes there is pent-up demand for the category, and vendor driven promotions may be key to reinvigorating sales growth.  Additionally, it was noted that home theater sales at the company’s Magnolia brand were improved, which could also be a leading indicator as prices drop on newer technologies.

 

- The future of the women’s business was a key topic of discussion for Under Armour yesterday. Highlighting the success of its partnership with Nordstrom, CEO Plank mentioned that it is in a testing phase at Bloomingdales and early indications are positive. Among the benefits of offering a more expansive assortment in women’s including more outerwear are the opportunities for distribution growth particularly at the higher-end, which is clearly underway.

 

- Despite concerns over a dilutive competitive environment in Texas over the last 12-18-months, Dick’s Sporting Goods confirmed that dynamics have indeed improved with the market now comping at a faster rate than the company on a consolidated basis.

 

- Fleet Feet, a 90 store chain of specialty running shops, reported a same store sales increase for the first half of the year of 11%.  Recall that the performance running category has been a key driver of both ASP’s and the strength in the athletic footwear sector.

 

- The ultimate UGG’s have arrived.  In a rare collaboration, the sheepskin bootmaker has teamed up with Jimmy Choo to offer a luxury version of the classic boot.  The boots which are studded and embroidered range in price from $595 to $795.  Expect to see these at Saks.

OUR TAKE ON OVERNIGHT NEWS 

Ralph Lauren Takes Rugby International, Quietly - On Wednesday, the company opened its first Rugby boutique outside the United States: a 4,300-square-foot store in Tokyo that occupies a large corner of the sprawling Ralph Lauren flagship on Omotesando Ave.  The boutique, featuring mosaic floors and wood interiors, attracted a modest line of about 20 or so folks- some decked out in Ralph’s finest- before the doors swung open. Ralph Lauren feted the boutique with a party Tuesday night but the home office in New York turned down requests for photo previews and interviews to talk strategy. Rugby, a lower-priced brand than others in the Ralph Lauren stable, is moving into the Japanese market at a time when consumers are definitely trading down to fast fashion and diffusion collections. Hennes & Mauritz, Forever 21 and Topshop are all busy expanding in the country.  <wwd.com/business-news>

Hedgeye Retail’s Take:  Smart move to plant the seeds while the brand is still growing up.  Perhaps Abercrombie’s flagship opening in the same city gives Rugby a sneak peak at the Japanese consumer’s preference for all things preppy. 

Sears Holdings Launches UK Style by French Connection - Sears Holdings Corp. will launch UK Style by French Connection this spring, in a daring collaboration between two brands from different continents with little in common other than striving to lift their underperforming businesses. UK Style by French Connection will be sold exclusively at Sears stores starting in March for spring. It will offer contemporary clothing and accessories for women, men and children, and possibly eventually broaden into home goods and fragrance. The collection will be available on sears.com. LF USA’s Regatta division will source, develop and manufacture the collection. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Yet another example of Sear’s playing catch up, this time with a brand that has dramatically reduced its U.S. presence over the past few years.  KSS, JCP, and TGT still have an edge here on fashion collaboration. 

 

Sears and Target Move up In m-Commerce Site Performance Index - Sears rose seven spots and Target four on the weekly Keynote Mobile Commerce Performance Index, bursting into the top five performers on the index of 15 m-commerce players. For the week beginning Sept. 6, Sears came in third with an index score of 756 out of 1,000, its m-commerce site home page loading on average in 6.47 seconds and loading successfully 99.33% of the time. Target came in fourth with a score of 751, its mobile home page loading in 4.96 seconds with a success rate of 98.94%. Walmart.com came in first with a score of 865, and Barnes and Noble came in second at 811. <internetretailer.com>

Hedgeye Retail’s Take:  While somewhat complex to build, we remind investors and the industry that “m-Commerce” is nothing more than e-commerce on a smaller screen.  There are great opportunities to use location based services to better target customers, however we are still a couple of years away from mass adoption of such technologies. 

Costco.com Crashes for 3 Hours During Holiday Sale - Costco.com, the e-commerce site for warehouse club retailer Costco Wholesale Corp., crashed and went offline for approximately three hours on Labor Day, Sept. 6. The outage occurred from about 11 a.m. to 2 p.m. Eastern Time, according to web monitoring service Gomez. Ginnie Roeglin, senior vice president of e-commerce at Costco, confirmed the crash to Internet Retailer but declined to disclose the cause or its impact on sales. Costco.com was running a Labor Day sale when the outage occurred. <internetretailer.com>

Hedgeye Retail’s Take:  Interesting to see such a surge in traffic for Costco, which is not normally a promotionally driven, high-low retailer.  We suspect this was a vendor supported promo that was clearly a great deal. 

 

Columbia Sportswear Joins Grassroots Outdoor Alliance - Columbia Sportswear Co. has been named a vendor partner by the Grassroots Outdoor Alliance. <sportsonesource.com>

Hedgeye Retail’s Take:  The partnership here highlights the need to remain close with the independent outdoor shop community, despite the dominance of chain stores.  The Grassroots Alliance is a trade organization made up of independent outdoor retailers. 

 

LIZ's Kate Spade Makes Some Management Changes, Launches Apparel, Jewelry, Handbags, and Fragrances - Craig Leavitt, co-president and chief operating officer, has been named chief executive officer, a new post. Deborah Lloyd, co-president and creative director, has been tapped as president and chief creative officer. Both will continue reporting to William L. McComb, ceo of Liz Claiborne, which has owned Kate Spade since 2006. Leavitt and Lloyd have worked in tandem since 2008 to improve both the Kate Spade product and retail experience in an effort to create a global lifestyle brand. Kate Spade has begun a global push, including a new joint venture in Japan with partner Sanei, with plans to open stores in Japan, China and Korea. Kate Spade has 39 freestanding units and 29 outlets in the U.S. In addition, Kate Spade has launched apparel, jewelry and a fragrance, Kate Spade Swirl, as well as evolving the handbag collection and the Jack Spade label. <wwd.com/business-news>

Hedgeye Retail’s Take:  One of the few highlights in the LIZ portfolio, Kate Spade has done surprisingly well evolving away from its core canvas handbag roots.   

 

FCC Asked to Block Skechers' New Cartoon Series - An advocacy group is asking the Federal Communications Commission to block a TV cartoon show starring characters first created to market Skechers footwear to children. The Boston-based Campaign for a Commercial Free Childhood targeted the series called "Zevo-3" that's scheduled to premiere Oct. 11 on Nicktoons. <sportsonesource.com>

Hedgeye Retail’s Take:  More negative PR for the footwear brand, which recently announced it was producing its own cartoon series.  Unfortunately, it’s essentially illegal to turn a cartoon into an infomercial, which is why the series is being called into question.  After all, why would SKX produce a cartoon if it wasn’t trying to sell kids shoes?

 

AAFA Urges Members Not to Respond to Trucking Survey - The American Apparel & Footwear Association is instructing its members not to respond directly to a survey by the trucking industry, arguing it requests proprietary information and could be used to justify massive rate hikes for apparel shippers. Instead, the AAFA wants member companies to send responses to it so it can produce its own study to counter a possible rate hike. <sportsonesource.com>

Hedgeye Retail’s Take:  Recall that the initial survey was requested in response to an effort to reclassify clothing under the Commodity Classifications Standards Board.  Essentially, any change in classification would increase trucking rates, which is why the AAFA is trying to protect the sharing of proprietary member information.

Apparel and Textile Imports Post 3rd Straight Month of Double Digit Increases in July - Combined shipments of textiles and apparel rose 23.2% in July to 5.2 bn square meter equivalents. Apparel imports rose 14.3%, while textile shipments increased 31.3%. The majority of the top 10 textile and apparel suppliers continued to increase shipments to the U.S. in July, but at a slower pace than in June. Import volume in July was the second highest monthly level since 2005; the June mark was the highest. <wwd.com/business-news>

Hedgeye Retail’s Take:  Nothing like easy compares against what was likely one of the worst periods for imports in the prior year.  Overall, despite the surge, inventories appear to be in good shape at retail.  Demand remains unchanged.

The World Of Fast Fashion - Fashion on demand is here, from sped-up deliveries at Burberry to businesses in which the consumer acts as buyer, backer and even the designer, and can get the products to her door within weeks if not days. Driven by the Internet, new forms of retail combine urgency with mobile commerce, social media, gaming and crowdsourcing. The growing power of the consumer is stirring the potential of a tug-of-war with the brands themselves as shoppers demand exactly what they want and how they want it — and they want it right away. The balance of power between retailers, shoppers and brands began to shift long ago, but now consumers are no longer content to steer the fashion vehicle — they want to own it. There are brands like Burberry, which are fully embracing the rush to immediacy. Burberry this season not only will live-stream its show but will enable customers to order select pieces that will be delivered directly to them within seven weeks. <wwd.com/retail-news>

Hedgeye Retail’s Take:  What is most amazing here is that the consumer is essentially getting what they want, when they want it.  Seems so simple, yet it has taken so long for technology to facilitate this high level of customer satisfaction.

Sri Lanka: Garment Exports Expand Into New Markets to Reach $5 bn - Sri Lanka’s garment industry targets to generate $5 billion business in five years despite recent losses due to the withdrawal of GSP Plus duty free status to the EU. According to the former Secretary General of the Joint Apparel Association M.P. Tuly Cooray, the value addition of the garment industry has grown from 30-35% to 60-65%. Before the suspension of GSP Plus Scheme, garment exports to the EU increased up to $1.6 billion last year from $1,025 million in 2005.  <fashionnetasia.com>

Hedgeye Retail’s Take:  Yet another non-Asian country that is looking to gain share as prices rise in the traditional manufacturing basin.  Political stability will be key to the government’s efforts to more than triple current garment exports.

UK Retailer Next Doesn't See Meltdown in Consumer Spending - Next chief executive Lord Simon Wolfson has issued a cautiously optimistic outlook on trading prospects, forecasting that there would be no double dip recession or “meltdown in consumer spending” at the retailer’s half-year results today. <drapersonline.com>

Hedgeye Retail’s Take:  It would be more interesting if we actually heard a CEO express that they believe a meltdown IS on the horizon.  Not the words we will ever hear from a CEO however.

Gilt Goes Local and Male - The flash sale site has started to roll out local deals in six cities, along with a Facebook sweepstakes. And in another move designed to boost sales, Gilt launches a site where men can learn about fashion, grooming, manners, food and drink. <internetretailer.com>

Hedgeye Retail’s Take:  All of a sudden Gilt has become an online mall of sorts, mixing off-price, editorial, and local (think Groupon) promotions into one.  This is what happens when availability of high profile fashion apparel dries up.