R3: JCP, COH, SHLD, PERY, and Fila

R3: REQUIRED RETAIL READING

October 13, 2010

The JCP/Ackman chess match remains front and center today while Fila becomes the first brand to market with toning apparel just in time for the holidays.

RESEARCH ANECDOTES

- In the “really?” category, we note that teen pop star Justin Beiber inked a deal to release a collection of 6 nail polishes.  Perhaps this is the product that Wal-Mart needs to get traffic moving in a positive direction.  The line is set to launch at WMT in December, followed by a rollout into Target and Sears early next year.

 

- Coach tops the list of the second annual Digital IQ Index of luxury brands, skyrocketing from the middle of the pack last year to the top.  The index measures the “digital competence” of luxury brands.  Rounding out the top five in order are: Ralph Lauren, Louis Vuitton, Gucci, and Hugo Boss. 

 

- According to the Gallup Well-Being Index, 6 in 10 Americans are either overweight or obese.  Approximately 36% fall into the overweight category while 26.6% are obese.  The good news here is that the obesity rate has been essentially unchanged for two quarters. 

OUR TAKE ON OVERNIGHT NEWS 

 

JCP Hires Goldman Sachs To Play Defense Against Bill Ackman - J.C. Penney Co. Inc. has taken a page from the Target Corp. playbook and hired Goldman Sachs to help play defense against activist investor William Ackman, sources said. Ackman plans to “engage in discussions” with Penney’s management and other stakeholders concerning the firm’s “business, assets, capitalization, financial condition, operations, governance, management, strategy and future plans.” Little is known of Ackman’s plans. <wwd.com/business-news>

Hedgeye Retail’s Take:  Given that Target ended up holding its own against Ackman, the move to hire the same defensive player probably makes a ton of sense.  In the meantime, this will unfortunately become a costly battle that shareholders are likely going to pay for.

 

Levi Strauss Sales, Expenses Grow - Net income at Levi Strauss & Co. dropped by 30.8% in the third quarter while sales improved as the company increased spending on new stores and advertising its Levi’s and Dockers brands. Total net revenue was up 6.6%, driven by the strong performance of the Levi’s brand in the Americas, the company’s acquisition of 73 outlet stores operated by a third party in 2009, and the expansion of the company’s retail store base, offset by wholesale declines in Europe and Japan. Although Europe did grow 6% cc, the 9% FX impact erased all growth. SG&A increased 15.5% primarily due to the spending on new stores and marketing. <wwd.com/business-news>

Hedgeye Retail’s Take:  While the topline was supported by such investments, we note that expenses and not increasing costs were the key factor weighing on the bottom line.  This is likely to change as cotton remains at elevated levels.  Recall that Levi’s and Dockers are in the midst of rebranding efforts.

   

Sears Opens More In-Store Toy Shops - Sears is opening 79 additional Toy Shops within its stores, including in new markets Minneapolis, Philadelphia, San Diego and Washington, D.C. The expansion is based on a successful pilot launch last year. The year-round in-store Sears' Toy Shops will carry offerings from Fisher-Price, LeapFrog, Hasbro, Bakugan and VTech, as well as specialty items. The latest openings will bring the Toy Shop count to 99. The shops measure approximately 1,500 to 1,800 square feet. <licensemag.com>

Hedgeye Retail’s Take:  Sears continues on its trend of creating a mall within a mall environment.  However, toys appear to be heading for a competitive holiday following Toys R Us’ intention to open 600 pop up stores as well as Target and Wal-Mart’s intentions to be very sharp on pricing.

 

PERY Extends Nike License - Perry Ellis International has extended its license agreement with Nike, Inc. in which Perry Ellis will continue to design, produce, manufacture and distribute select apparel and swim equipment within North America under the Nike Swim brand through 2014.  <sportsonesource.com/>

Hedgeye Retail’s Take:   Status quo here with the swim license which means much more to PERY than it does to NKE.

 

Fila USA to Sell Women's Body Toning Workout Apparel - Fila USA announced the release of the Fila Body Toning System (BTS), a collection of body toning workout apparel for the women's fitness industry. The Body Toning System will first deliver to Dick's Sporting Goods stores and athletic specialty stores in early October. <sportsonesource.com>

Hedgeye Retail’s Take: While late to the toning shoe game, Fila becomes the first on shelves with a complimentary apparel product. With women now frequenting the athletic channel with increased frequency, retailers are likely to quickly adopt (or at least try) early toning apparel offerings in an effort to up-sell and retain new incremental female customers. Next in line is Reebok Easy Tone apparel in stores come November just in time for the holidays.

 

Fast-Fashion Flocks to India - Fast-fashion and contemporary brand retailers are flocking to India to tap into the nation’s rapidly growing economy and a market comprised of millions of young people. The latest is Forever 21, which opened its first store in India at the Ambience Mall here late last month, with a long line of customers waiting outside, impatient for the doors to be thrown open. Forever 21 joins the likes of Diesel, Zara, Ecko Unltd. and Italy’s OVS Industry. Other brands that made their entry into India earlier this year include Vero Moda and Seven For All Mankind. Over the last few years, Promod, Calvin Klein and S. Oliver have been establishing their stake in the metro cities. Meanwhile, well-entrenched brands like Van Heusen still see room for substantial expansion. What comes next? The entry of Gap is awaited, particularly in light of its plans to launch in China later this year. The frequency of purchase is highest among younger consumers. More than 81% of India’s population is under 45, and these consumers are the most fashion conscious. <wwd.com/retail-news>

Hedgeye Retail’s Take: Clearly an attractive market for retailers, but the key force tempering foreign direct investment continues to be Indian reform. Expect more aggressive entry by retailers as the government opens its gates further.

 

Russian Footwear Demand Recovers, 83% of Imported Shoes From China - Although footwear consumption in Russia is relatively smaller than those in European Union and the US, demand has been recovering, with China supplying 83% of imported shoes to the country. According to a recent survey conducted by Discovery Research Group, the average annual shoes consumption is 1.4 pairs for Russian, whereas 4.5 pairs for other European and 6.5 pairs for American. The imports in 2009 grew 22.3% to 222.1 million pairs from a year earlier. The average price for imported a pair of shoes was US$10. In terms of value, shoes consumption in the first quarter of 2010 increased 15% to 20%. Industry experts said that shoe demand in Russia is recovering, with prices also being on the rise. <fashionnetasia.com>

Hedgeye Retail’s Take: A population half the size of the U.S., but footwear consumption only ~20% of the American consumer suggests a capacity for increased demand. With the country’s GDP running +5% and an ASP of only $10 expect footwear demand trends to closely follow that of oil prices in the near-to-intermediate term.