R3: TGT, WMT, BBY, HBI, VFC

R3: REQUIRED RETAIL READING

September 27, 2010

With the holiday season fast approaching, much to do with retailers adjusting store locals and formats while the brands are keyed in on marketing and advertising strategies.   

RESEARCH ANECDOTES

- The urban retail landscape is likely to heat up a bit with Target’s announcement that it will pursue a test of a smaller format store, ranging from 60-100k square feet. The company plans to open its first prototype of the concept in Seattle in 2012. Additionally, speculation remains that Wal-Mart is also pursuing a similar strategy that may be announced at the company analyst meeting in October.

 

- According to Adage (the leading source of marketing and advertising news), Best Buy is planning on increasing its TV ad presence this holiday, a move that is counter to industry trends. Ad spend on TV is expected to rise by a low double digit percentage, with the funding coming from a cutback in newspaper inserts and other newspaper ads.

 

- Converse is coming to Manhattan with its first flagship retail store in Soho. Nike is said to be taking the 7,000 square foot former Ann Taylor location on Broadway. The store is expected to be open by the holidays.

 

- As one of the key top-line growth drivers at VF Corp., management clearly noted in a recent meeting that future growth at The North Face would come primarily from growth in new(er) sport categories (e.g. cross country skiing & long-distance running) in lieu of incremental distribution. That said, the brand is growing at key outdoor retailers such as DKS and REI despite increased competitive pressures from Columbia’s new OmniHeat line.

 

- Only a short time after winning space at DG from Fruit of the Loom, Hanesbrands’ sales are already up 30% at the account relative to its predecessor. Providing not only a real-time example of the strength of the brand, the company’s success at DG also serves as a powerful sales tool reflecting the superior productivity of the line for retailers as well.

OUR TAKE ON OVERNIGHT NEWS 

 

Wal-Mart Offers to Buy South Africa's Massmart for $4.2 Billion - Wal-Mart Stores Inc. , the world’s largest retailer, plans to buy Massmart Holdings Ltd. in a transaction worth about $4.6 billion, entering Africa in its biggest deal in more than a decade. <bloomberg.com>

Hedgeye Retail’s Take: The last continent without a Wal-Mart appears to be heading for EDLP.   While the headlines appear to paint the African opportunity with a broad brush, it’s highly unlikely we’ll see Wal-Mart’s influence makes its way beyond the major urban and developed centers in lower-risk countries.  With that said, this is a sizable investment indeed and one that was needed to make this company truly global.

Best Buy Expands Its Buy Online, Pickup In Store Options - Best Buy is bolstering its buy online, pickup in store program with a guarantee that the retailer will make in-stock items available for pickup within 45 minutes of an order being placed. It is also allowing shoppers to pick up items direct from its warehouses. <internetretailer.com>

Hedgeye Retail’s Take: This trend has legs as we see more retailers prescribe to the in-store pickup option. For a retailer with bulky product like BBY, this model makes even more sense as it saves the consumer shipping costs and an additional leg for the retailer easing the load on distribution demand.

Converse Jumps Back Into TV - Combining the worlds of basketball and music, Converse is breaking a 60-second TV spot promoting its Star Player Evo shoe, featuring Julius “Dr. J” Erving and Doug E. Fresh along with several well-known skateboarders. The spot will break during this Sunday’s The Family Guy and also will run during the first NBA season opener on Oct. 26, which will feature the Boston Celtics squaring off against the Miami Heat. Though Converse CMO Geoff Cottrill said the brand has advertised on TV recently, including during the MTV Video Music Awards, according to The Nielsen Co., such appearances have been relatively rare. The brand spent well under $1 mm on measured media in the first six months of 2010, zero in 2009 and $5 mm in 2008, according to Nielsen. <brandweek.com>

Hedgeye Retail’s Take: Highlighting its heritage, Nike is obviously stepping up the marketing of its brand – what’s more interesting is the targeted demographic. With Dr. J and Doug E Fresh headlining the spot, the brand is clearly looking to resonate with Baby Boomers since it will be the first time for the majority of today’s youth watching to see the stars of the 70s & 80s in person.

Burlington Coat Factory Boosts Comps Through Discounting - Burlington Coat Factory Investments Holdings Inc. saw its losses mount in the second quarter despite increases in net and same-store sales. Gross margin declined to 35.6% of sales from 39.5% a year ago. Burlington Coat Factory saw strong performance in dresses and women’s suits, intimate apparel, accessories, shoes, men’s, and home divisions. Misses, sportswear, juniors and the Baby Depot operation underperformed the company average. <wwd.com/business-news>

Hedgeye Retail’s Take: Further evidence that brand strength is critically important in today’s market, not to mention a functional web presence. It’s safe to say that intimates at Burlington Coat Factory is not exactly destination shopping.

 

NBA Players Have New Jersies from Adidas - NBA players will have a new look on the court this season. Adidas, the league’s official outfitter, unveiled the Revolution 30 uniforms last week, which will be worn by all 30 teams. The brand says the new jerseys are 30% lighter than last year’s and are made from 60 percent recycled materials. Among the changes: The material that makes up the player’s number was switched from a heavier fabric to a breathable mesh. The uniform is the result of four years of research done by Adidas. <wwd.com/footwear-news>

Hedgeye Retail’s Take: After suffering a brief setback when Garnett switched endorsements from Adi to Anta, they’ve given the NBA something else to talk about – great timing given the lightweight trend.

P Diddy Plans UK Launch for Sean John Megabrand - Sean Combs, the singer previously known as P Diddy, is to launch his lifestyle clothing brand Sean John in key European markets early next year. <drapersonline.com>

Hedgeye Retail’s Take: Diddy going global – only surprise here is that it hasn’t occurred sooner.

Vibram FiveFingers Making Moves - On the strength of its quirky-looking FiveFingers product, the Italian brand has been a standout in a weak economy. In fact, sales have tripled every year since the style's debut in 2006 — and this year, the brand is on course to deliver 1.4 mm pairs of the glovelike shoes, a fivefold increase over the prior year. Vibram's retail customers claim they have runners coming in and buying their second and third pair already. It's a category of footwear that's not going away. About a third of the Vibram business worldwide is in FiveFingers product, with 90% of that done in North America. The company derives the other two-thirds of its business from its components program. To keep pace with demand, the firm expanded to a new office earlier this month, giving it three times the space. On the production front, Vibram has shifted its operations from a single factory in Southern China to five, with one or two more scheduled to be added by the end of the year. Additionally, the company has upgraded its distribution center capabilities and installed a new operating system, which should be able to handle the company's needs beyond $1 billion in sales. At the same time, the brand has continued to unveil new styles, and for spring '11 will introduce kids' shoes. To support the growth initiative, Vibram is now venturing into advertising for the first time. <wwd.com/footwear-news>

Hedgeye Retail’s Take: All this growth on word-of-mouth marketing, just wait until the brand makes marketing efforts official. If you haven’t already, we recommend reading “Born to Run,” the book largely responsible for the accelerating the barefoot trend.

The EU Acts to Encourage Cross-Border Shopping - In an effort to persuade consumers in the European Union to shop online with retailers outside consumers’ home countries, the E.U. Parliament this week gave its backing to a trust mark that e-retailers could place on their e-commerce sites to show they meet reliability standards. Bureaucrats and merchant groups still need to hash out the requirements retailers must follow to obtain the mark. But the parliament wants to base those requirements on E.U. law and follow the example of trust mark labels used in its 27 member states. <internetretailer.com>

Hedgeye Retail’s Take: The EU takes note of one of the key growth channels for U.S. retailers.

Six Leather Plants in Jiangxi, China to be Shut Down - Six leather-related factories in Jiangxi are being forced to close down by the end of the month as a result of Chinese state programme of eliminating outdated production capacities. <fashionnetasia.com>

Hedgeye Retail’s Take: The latest update as China continues to make its efforts to ‘clean up shop’ public to counter its perception as one of the global economies most hazardous working environments.

Sharp Cut in Indian Apparel Tax Refund Rates to Affect Jobs, Exports - Indian exporters are disappointed about the government’s sharp reduction in the rates of duty drawback or tax refund, stressing that such a move will adversely affect employment in industries include apparel, leather and handicraft.  <fashionnetasia.com>

Hedgeye Retail’s Take: Despite its position as one of the largest global economies, the reduction in tax refunds will certainly hamper India’s export economy. Fortunately for most domestic retailers, India has not been one of the primary beneficiaries of the shift out of China relative to southeast Asia countries.