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October 11, 2010

Fair amount of smaller events in the news today likely to be overshadowed by M&A announcements from last week. 



- Telluride became the first city in Colorado to the ban the distribution of plastic bags by grocers and retailers.  Recall that this trend has been gaining steam, with several other U.S cities including San Francisco, Brownsville, TX, Malibu, Fairfax, and Palo Alto all banning plastic.  In some cities like Washington, DC there is actually a nickel charge for each bag a consumer chooses to take.


- Expectations for Gap’s analyst meeting on Friday may be on the rise now the company’s logo change has been met with controversy. Gap’s president Marka Hansen noted that, “Our brand and our clothes are changing and rethinking our logo is part of aligning with that.”  After all, we’re pretty sure the logo change alone isn’t going to move the mall traffic needle.  There is definitely more to come from this story…


- With an increasing interest in ‘green’ products, the Federal Trade Commission has proposed revised guidelines for marketers in order better define and substantiate such claims as not to deceive consumers. In a surprisingly democratic move, the commission is soliciting public input until December 10th at which time it will make changes final. Given all the permutations of environmentally friendly product, material, and manufacturing, the commission may among those hiring into the holidays just to sort through the feedback.



SHOO Upped Betsey Johnson Investment - Steve Madden, who has upped his investment in Betsey Johnson LLC from covering her credit debt to buying her trademarks, has no plans to make major changes. Last month Steven Madden Ltd. took over a $48.8 mm loan to Johnson’s firm and has since absolved the loan in exchange for ownership of the brand’s intellectual property, including the moderate collection Betseyville. Madden now has licensing deals with the designer’s company, Betsey Johnson LLC, for it to produce the clothing and operate her boutiques and get royalties from Johnson’s firm and its other licensees. According to sources, Madden pumped in $3 mm for five years to help with her firm’s operating needs. Steve Madden Ltd. gets a 10% equity in that operating company in exchange. Beyond the initial investment, Madden said the strategy is to ramp up marketing and fortify the daytime dress and shoe businesses.  <wwd.com/business-news>

Hedgeye Retail’s Take:  Not a bad move as Madden looks to diversify into new product categories and away from the core brand.  With that said, given the amount of debt that Johnson was saddled with, we wonder how much cost cutting and streamlining will be needed to get the business moving in the right direction.


Wal-Mart Plans to End Profit Sharing Contributions - Wal-Mart Stores Inc., the largest U.S. private employer, plans to end profit-sharing contributions in February, replacing them by matching some of the dollars employees put in their 401(k) retirement plans to pare expenses. The retailer will match contributions up to 6% of eligible employees’ pay, according to a memo obtained by Bloomberg News. Previously, Wal-Mart automatically put up to 4 percent of pay into the profit-sharing plan. The switch by Wal-Mart, which has about 1.4 million U.S. employees, will only benefit those who are in the plans, so staff will need to join to profit from the move. <bloomberg.com>

Hedgeye Retail’s Take:  While cost savings is the leading factor here, WMT may actually be late to the party of those shifting retirement plans towards 401k from more traditional profit sharing plans.  The focus here however, still remains on driving the topline rather than cutting costs.


New Reef Brand President Has Tough Road Ahead - New Reef President Jeff Moore, who began work at the brand last month, could have his work cut out for him. While the brand maintains a leadership position in the flip-flop category, competition is increasing and cutting into Reef’s business. Brands such as Sanuk and Olukai have been pressuring Reef's business. Moore said he hoped to firm up the operations by shifting the at-once business to a futures strategy. Moore said he hoped to entice surf shops with special product that will be available only through pre-orders. <wwd.com/footwear-news>

Hedgeye Retail’s Take:  What was once thought to be another “lifestyle” growth brand for VFC, now seems to be flip-flop company under pressure.  Product diversification probably still makes sense here as the brand looks to de-seasonalize its core biz.


American Apparel Appeases Lender With Key Management Hiring - Beleaguered US chain American Apparel has hired Blockbuster executive Tom Casey as acting president, in line with a pledge to lender Lion Capital to secure key management talent. <drapersonline.com>

Hedgeye Retail’s Take:  We’re still scratching our heads on this hire, who comes with substantial Blockbuster restructuring/bankruptcy experience.  We’re pretty sure Lion Capital is hoping Mr’ Casey learned what NOT to do in order to survive.


Maidenform and Time Three Clothier Sue Over Shapewear Design - Innerwear giant Maidenform Brands Inc. and Times Three Clothier LLC are suing each other over the design of shapewear that launched last year. The litigation involves Maidenform’s multimillion-dollar Fat Free Dressing by Flexees line and Yummie Tummie, a contemporary shapewear line from Times Three Clothier that has estimated wholesale sales ranging from more than $8 mm to double digits. <wwd.com/markets-news>

Hedgeye Retail’s Take:  Nothing like litigation to settle a dispute over laziness.   If consumers were just a bit healthier, this whole debate wouldn’t even matter. Instead, we’ll continue to monitor shapewear as yet another “lazy” trend.


CSN Stores Finds A Way to Make Money From Consumers Who Don't Buy Online -  CSN Stores launched a paid ad platform that enables bricks-and-mortar furniture retailers to buy ads on CSN sites that also sell furniture.  More than a year later, the company says the program delivers to consumers visiting the CSN site the most relevant, localized information. CSN says the ads do not cannibalize its web sales, even though one study of the program suggests the program boosts the number of visitors to competing retailers’ sites. The Get It Near Me ad platform launched in August 2009 but the company has been actively pursuing sales only for the last five months. The program is open only to retailers with a bricks-and-mortar presence, but retailers that have an e-retailing arm in addition to a retail storefront also are allowed.  <internetretailer.com>

Hedgeye Retail’s Take: Give credit where it’s due, CSN started up in 2002 and has grown into a Top 3 online U.S. retailer of home and office goods. While the ad model may have worked well with so many retailers lacking an e-commerce presence initially, as that mix shifts, it’s likely that so too will CSN’s model. It may be decidedly cheaper for retailers to partner with CSN given its web prowess – particularly if the company decides to pull the plug and key traffic feed for bricks-and-mortar retailers.

Specialty Retail Adds Jobs Into Holiday Season While Department Stores Cut - Specialty retailers added jobs in September while department stores eliminated positions, the Labor Department said Friday. Specialty retailers added 2,500 jobs to employ 1.39 mm in September. Department stores eliminated 2,100 positions to employ 1.49 mm. In the broader economy employers cut 95,000 jobs in September, driven in part by the elimination of a significant number of temporary census jobs. <wwd.com/business-news>

Hedgeye Retail’s Take: With shoppers buying ‘closer to need’ we expect hiring to accelerate from both specialty and department store retailers following the likes of Kohl’s announcement to hire over 20% more temporary workers this year after multi-year reductions at the employee level.


Import Cargo Volume Expected to Slow Again in October - Import cargo volume at the nation’s major retail container ports is expected to be up 11% in October over the same month last year and should continue to see year-over-year growth even as seasonal levels wind down through the remainder of 2010. While October has long been the busiest month of the year as retailers rush to fill shelves with merchandise for the holiday season, the peak shifted to August this year. The change came both because of a backlog in cargo from earlier in the year after ocean carriers were slow to replace vessels taken out of service during the recession, and because retailers brought merchandise into the country early to avoid the risk of delays this fall. September was estimated at a 20% increase while October slowed to 11% .  <sportsonesource.com>

Hedgeye Retail’s Take: Slowing volume has been largely expected as demand for 2H inventory came earlier in light of anticipated capacity constraints as well as a modest shift to air freight.


Jewelry Industry Pressured by Gold Prices - The jewelry industry is scrambling to adapt as the price of gold hits new peaks. With economic uncertainty high and interest rates at historic lows, investors have sought refuge in the precious metal, which has risen almost 23% this year. The surge in gold has forced jewelers to turn to lower-cost metals such as brass and copper, adjust with designs that require less of the precious metal and expand the use of cheaper mixed materials such as a combination of gold and sterling silver called “gilver.” Lowering the price of fine jewelry by incorporating silver is no longer full-proof as silver hit a high last week, of $23.52 and has increased 27% this year. <wwd.com/markets-news>

Hedgeye Retail’s Take: Raw material costs are up across industries, but turning towards intentionally degrading the quality of goods as is the case with ‘gilver’ is rarely successful catalyst to drive demand.