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R3: REQUIRED RETAIL READING

September 16, 2010

For first time in a while we’re seeing a handful of news items centered on growth and new concepts.  However, none of them are in a conventional sense.  Keep an eye out for another British invasion as well as mobile stores (in the form of trucks).

RESEARCH ANECDOTES

- With smartphones now representing 25% of cellphone ownership, mobile advertising is quickly becoming the fastest growth vehicle in the advertising industry.  As a result, mobile advertising is expected to account for about 20% of online ad budgets next year.

 

- Keep an eye on U.S expansion by British retailer, All Saints.  The company which is centered around a dark, vintage aesthetic has plans to open 50 U.S. stores over the next 5 years.  There are currently 6 domestic locations.  In the U.K. the retailer has amassed over $200 million in sales in just over 4 years.

 

- First it was a food truck revolution and now it maybe a fashion truck revolution.  In accordance with LA’s fashion week, a handful of designers and brands are setting up mobile stores.  These trucks are then tied in to Twitter or other mobile-based location tools to alert customers where they are parked at any particular time.  While this trend is still too small to matter, it certainly puts a twist on a traditional pop-up shop and calls “rent” into question.  Furthermore, it seems like this may be the ultimate “store” for testing new products or new markets.

OUR TAKE ON OVERNIGHT NEWS 

 

RL and TNF Score Victory Against Chinese Cybersquatters - Polo Ralph Lauren Corp. and VF Corp.’s The North Face unit scored a major victory against Chinese cybersquatters, but collecting the damages may be another matter entirely. A court in the Southern District of New York awarded the brands $78 mm, which is believed to be the highest sum of damages ever awarded in an Internet counterfeiting case. Initially filed in March, the lawsuit pitted the apparel brands against a network of more than 130 Chinese Web sites selling counterfeit goods to U.S. customers through up to 6,500 domain names such as laurenpolo.com and officialnorthface.com. <wwd.com/business-news>

Hedgeye Retail’s Take: While not often talked about, counterfeiting remains a huge challenge for these brands and others, especially within the Chinese market.  Interestingly, the Chinese government has recently been more sympathetic to Western brands in helping to crack down on the problem.

Dolce and Gabban Unveil New Retail Concept - Domenico Dolce and Stefano Gabbana are about to unveil a groundbreaking new retail concept — and this time, the Milanese fashion duo isn’t shy about highlighting the work of other designers. This weekend, Dolce & Gabbana will open Spiga2, a multibrand boutique that is curated by Dolce and Gabbana and features the work of young, emerging designers from around the world. The store is located at Milan’s Via della Spiga 2, which was previously an accessories-only store for the brand. Dolce and Gabbana handpicked the pieces they are planning to sell in the store, and the first run of designers includes Behnaz Sarafpour, Sophie Theallet, Yigal Azrouël, Fannie Schiavoni, Erkan Coruh, Peter Jensen and Heather Williams. <wwd.com/retail-news>

Hedgeye Retail’s Take: The focus on emerging designers remains high, as it seems many larger brands are searching for their next big growth vehicle.  Given the cost to start a fashion brand, it makes sense for lesser established designers to partner with those that can help expand reach and broaden distribution and awareness. 

 

Footwear News Teams Up with SKS - Footwear News has selected this seasons’ hottest heels — and starting now, consumers can vote for the sexiest pair. A special limited-edition magazine will launch today in select Saks Fifth Avenue stores, as will the “Sexy Shoes” contest. Voting is open to the public and will take place online, as well as at the 10022-SHOE boutique in the flagship Saks Fifth Avenue store in New York. Top designers featured in the contest include Christian Louboutin, Manolo Blahnik, Jimmy Choo, Chanel, Miu Miu and Dolce & Gabbana, among other big names.

 <wwd.com/footwear-news>

Hedgeye Retail’s Take: In other words, the women’s fashion footwear department at Saks has turned itself into a NCAA-style bracket.  Yet another example however of the democratization of fashion.  Online campaigns such as this one continue to encourage consumers to “vote” for what they like, which in theory should help retailers and brands better align themselves with what the market is looking for. 

 

New York Retailers Benefit from Fashion's Night Out - New York retailers said they were ecstatic over the boost they received from the second-annual Fashion’s Night Out. For brand Ralph Lauren, the citywide event that took place last Friday, was a major improvement from the previous year.  Stuart Weitzman, who spent FNO making appearances at his Columbus Circle and Madison Avenue locations, said the night drew more consumers into his stores than last year’s event. The designer added that being open until 11 p.m. instead of closing at the normal 6 p.m. time helped add to sales. The 2010 event equated to more than just extra foot traffic, it doubled some retail stores best sales days yet. <wwd.com/footwear-news>

Hedgeye Retail’s Take: Not only did it seem like this year’s event was better marketed, it also compares against one of the more difficult years for Fashion Week.  If anyone was in NYC this week, then it was pretty hard to ignore all things fashion. 

 

D6 Sports Licenses Action Sports Brands - D6 Sports announced its licensing acquisitions of World Industries, Zoo York, Mark Ecko, Bratz, Moxie Girlz, BFC Ink and Skelanimals. Along with the Airwalk, TapouT, Jester and No Rules action sports lines it already holds, D6 Sports said its poised to become the leading provider of action sports licensed products to the sporting goods channel. <sportsonesource.com>

Hedgeye Retail’s Take: With this stable of growing brands, we wonder how long before Iconix takes a hard look at D6. OR, maybe they already have. 

 

Theory Looking to Buy Proenza Schouler Brand - According to several sources, Theory’s Andrew Rosen is looking to buy the Proenza Schouler brand from European private equity fund Permira. The rumor first surfaced in the early spring, but Rosen, Theory’s co-founder and president, denied it at the time. However, talk of a deal resurfaced this week, and sources are confident Rosen and the Proenza Schouler designers are up to something this time. <wwd.com/business-news>

Hedgeye Retail’s Take: Recall that Proenza changed hands as a result of its parent, Valentino, also landing in the hands of Permira.  The brand has long been rumored to be for sale, although this time the potential buyer seems more feasible than prior whispers.

 

Coalition Asks Congress To Aide in Lower Shipping Rates - A coalition of importer, exporter and logistics associations is asking Congress to help change the law governing antitrust immunity for international ocean carriers, arguing that shipping rates should be set by market forces and not foreign-based companies “acting in concert.” Retailers, importers and exporters argue that carriers, particularly in the U.S. westbound and eastbound Pacific trade routes, charge identical or similar rates, break contracts to enact surcharges, bump containers off ships and refuse to load cargo without additional compensation. <wwd.com/business-news>

Hedgeye Retail’s Take: A fair request indeed as price fixing rarely benefits the customer and is typically immune to the underlying supply/demand forces, but there are no quick fixes here. Don’t expect these efforts, which have been cited regularly as a key inflationary factor in the near-term to save retailer’s margins in the 2H.

 

The Game of Online Free Shipping - Although free shipping of one form or another has become common on e-commerce sites, merchants must decide whether it really improves business or becomes just another cost to bear. Several merchants advise testing what works best with different product categories and pricing strategies—for example, offering free standard shipping only for light-weight but high-margin products, or setting a minimum order value. RestockIt.com, an online-only retailer of office and restaurant supplies has experienced conversion rate hikes of 20% to 30% through free shipping offers. RestockIt.com  has found free-shipping works best by offering it as standard fare on more than 100,000 of its higher-margin products. <internetretailer.com>

Hedgeye Retail’s Take: The cost of shipping heavier and therefore more expensive items is not as important in retail than some other industries, perhaps aside sporting goods/exercise equipment, but as we highlighted in our August e-commerce Black Book and have included below, there is no question free shipping is a critical factor in the consumer’s purchasing decision tree.

 

R3: RL, TNF, SKS, and Fashion Trucks - 1

Bangladesh: New Fiscal Package for Garment Exporters - Funded by the Export Development Fund, Bangladesh is offering a second stimulus package for ready-made garment exporters, which includes offering $10 million loans as well as continuing the five-percent cash incentive programme on the total value of exports. <fashionnetasia.com>

Hedgeye Retail’s Take: A 5% incentive program when new minimum wages remain at unacceptably low levels at $43 versus the $75 proposed, is likely to do little to drive productivity in a country with a disenfranchised workforce.

 

Pakistan: Discussion Over Trade Concessions with the EU - After a two-day meeting with the European Union foreign ministers in Brussels last week, Pakistan will be granted extraordinary trade concessions, which are set to bolster flood-devastated nation and help Islamabad tackle extremism. <fashionnetasia.com>

Hedgeye Retail’s Take: With floods impacting nearly 15% of the Pakistani population, the #4 global producer of cotton is going to require continued relief. This issue will continue to weigh on prices near-to-intermediate term.

 

Cost of Cotton Production Rises - The International Cotton Advisory Committee (ICAC) Secretariat undertakes a survey of the cost of cotton production at three-year intervals. During the last three years, the cost of production of seedcotton increased to US$0.43 per kilogram. The cost of production of cotton lint (net of land rent and the value of seed) increased to $1.22 per kilogram, a 17% increase from the average cost estimated in 2006/07. Lower yields in 2009/10 compared with 2006/07 were the main factor resulting in the rise in production costs. The net cost of production averaged about $1.15 per kilogram in Asia and West Africa. The Fruitful Rim region of the US, followed by Colombia and China, had the highest costs of production. India, whether irrigated or rainfed, had the lowest production costs for cotton because of recent increases in yields and high values for seed. The most recent survey was completed this month using data from 2009/10. Thirty-four countries participated in the latest survey, providing 63 entries, including rainfed and irrigated regions and regions within countries. <fashionnetasia.com>

Hedgeye Retail’s Take: Cotton / apparel cost inflation is likely to continue impacting prices, however remains secondary to the critical factors of global supply/demand dynamics.