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October 21, 2010


Both Limited and Payless look to the franchise model to provide lower-risk growth outside of their core markets.  While this arrangement is not new to domestic brands looking abroad, it’s likely that a substantial number of franchises will need to open before a material positive P&L impact is felt.


- A Sperry Store walk through with senior management revealed that the company is still evaluating an apparel line extension.  While no specific plans have been made to launch “Sperry Apparel”, the brand is working with a partner to co-merchandise apparel in its 7 company-owned stores.  This effort will help to determine which aesthetic , price points, and product categories may work alongside the heritage shoe brand.  We’re thinking this may be akin to what J Crew has done with bringing in outside brands to compliment its core offering.


- Google’s Think Holiday presentation revealed that the biggest e-commerce chopping day in advance of the holiday’s is not Cyber Monday.  Instead, Green Tuesday (Dec 14th) is currently forecast to be the largest pre-holiday day for internet shopping with sales expected to be $1.095 billion.  For comparison, Cyber Monday is expected to produce $775 million in revenues.


- Proving that c-list celebrity fashion brands usually don’t last, Jersey Shore’s JWoww’s line Filthy Couture has shuttered after just one season.  No word yet on the success of other wares being peddled by The Situation or Snooki.



Payless ShoeSource Expands Into New International Markets - The retailer, a division of Topeka, Kan.-based Collective Brands Inc., Wednesday announced it has struck franchise deals to open Payless stores in four new international markets: Indonesia, Mexico, Malaysia and Singapore. The franchise model for Payless is proving to be a strong strategy to accelerate PSS's ability to place stores in new countries and with minimal capital investment. In Mexico, Grupo Axo, which has worked with such brands as Coach, Marc Jacobs and Emporio Armani, will partner with Payless on a projected 41 Payless stores in three years. Both companies believe Mexico can ultimately support as many 300 stores, significantly raising Payless’ profile in the fast-expanding Latin American market. Jakarta, Indonesia-based Map Active will represent Payless in Indonesia, Malaysia and Singapore. The company expects to open 20 Payless units across the three countries by 2011, with a larger rollout to follow. The news comes after previous announcements that Payless would enter the Middle East in 2009 and the Russian market this year. <wwd.com/footwear-news>

Hedgeye Retail’s Take: The franchise model is just getting underway representing a significant additional growth channel for the company beyond its coveted Saucony and Sperry brands. The bigger question at this point is how aggressive these franchise partners intend to ramp locations – surely more to come here today with the company hosting its analyst day today.

Limited Brands Looks to International Growth - Leslie H. Wexner, chairman and chief executive officer of $9 bn Limited Brands Inc., is back at it — looking at the big picture, especially abroad. “I would guess the potential on international is probably equal to the U.S. If I believe I could do $20 bn in North America, there is probably another $20 bn across the world,” he said, with Limited’s major brands — Victoria’s Secret, Pink, La Senza and Bath & Body Works. Wexner cited the possibility of opening “several hundred” stores in the Middle East, including 200 in Turkey. And in Brazil, where a new 1,000-square-foot Victoria Secret airport store is running at about a $10 mm annual rate, The perception of Victoria, Victoria’s Secret beauty and accessories is high and Brazil probably has the potential for 300 to 500 stores. <wwd.com/business-news>

Hedgeye Retail’s Take:  Rare comments from the CEO and founder of Limited indicating substantial growth for the brands.  However, recall that most growth in the Middle East and Turkey is conducted through licensing/franchise arrangements.  While more profitable from a margin rate perspective, it will take significant scale to see these efforts impact the P&L.

Aéropostale Opens Flagship in Times Square Friday - The 19,000-square-foot flagship, which opens in Times Square here Friday, will have high-tech interactivity residing alongside good, old-fashioned New York imagery. A 120-foot animated billboard made up of 2 mm LEDs features varying content, including the store’s own shoppers, who can dance with virtual Aéropostale models in a 700-square-foot room called the Balcony. A camera embedded in the screen will film their antics and display them on the billboard 20 minutes later. Just the idea of the Balcony, a room devoid of product and cash registers, and devoted solely to shoppers’ entertainment, is unorthodox. The flagship has been designed to raise Aéropostale’s profile and is viewed as the company’s ticket overseas. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Finally, all three major teen retailers have flagships in Manhattan!  Note that ARO, AEO, and Forever 21 are all located in Times Square with megastores.

Africa's 1 Billion Consumers Too Many for Wal-Mart to Ignore - Members of Africa’s burgeoning middle class prompted Wal-Mart Stores Inc. on Sept. 27 to propose purchasing Massmart, the African continent’s third- largest retailer, for $4.6 bn. With 288 stores in 14 African countries, purchasing Johannesburg-based Massmart would enable Wal-Mart to profit from one of the world’s fastest- growing retail markets. Africa’s population reached 1 bn last year and after economic growth averaging 4.9% from 2000 to 2008 the number of families with an income of more than $20,000 a year has exceeded India’s, according to a report by McKinsey & Co. Inc. <bloomberg.com>

Hedgeye Retail’s Take:  While it’s easy to paint Africa with a broad brush given its 1 billion consumers, we highly doubt we’ll be seeing any Massmart/Wal-Marts opening in some of the more politically unstable nations on the continent.  Growth likely remains centered in the most developed and stable nations.

Neiman Marcus Launches Gift App - Upscale department store Neiman Marcus has launched a holiday gift app for Apple Inc.’s iPhone and iPod Touch devices that offers shoppers free delivery and gift wrap, and the ability to shake their devices for a special surprise. The app displays gift ideas updated daily by the Neiman Marcus buying team and a Surprise Me feature that enables shoppers to view unique gift ideas by shaking their mobile devices. Shaking an iPhone activates the device’s accelerometer, which triggers a function within an app. Shoppers also can browse by price range choosing Little Gems, $100 and under, $200 and under, or $300 and under, or select Indulge to browse more expensive items.  <internetretailer.com>

Hedgeye Retail’s Take:  Just one of many “holiday” apps on the way to spur purchasing and add some fun into the process.  The jury is still out however on the “shaking” motion.

Fewer Shoppers Per Channel For Holiday - The NPD Group Inc. went looking for the hot channel for holiday shopping and couldn’t find one. According to a survey by NPD, the percentage of respondents who plan to shop various tiers of distribution for their holiday purchases fell for all of the top 10 distribution channels studied. Discount stores retained the top spot from a year ago but were down to 54% of shoppers from 58%, and online shopping remained at number 2 with a decline to 35% from 37% last year. National chains stayed at number 3 as they dropped to 29% from 32%, and department stores moved up to number 4 from number 5 but still registered a decline in percentage of shoppers, to 22% from 25%. Warehouse clubs dropped to number 7, at 17%, from number 6, at 21 %, last year. Electronics stores fell from number 4 last year, with 26%, to number 6, at 19%. Outlet stores were eighth on the NPD list with 16% of respondents planning to shop there, down from 20% in 2009. Apparel specialty stores retained their ninth-place finish, but were likely to attract 15% of shoppers, down from 18%. In 10th place were off-price retailers, at 13%. <wwd.com/business-news>

Hedgeye Retail’s Take:   Most notable here is the drop in share expected for the consumer electronics chains.  We believe this is largely a result of e-commerce growth and to some degree improved merchandising from the discounters in the CE categories . 

Swiss Watch Exports Grew 25.5% in September - Swiss watch exports continued their double-digit growth in September, rising 25.5%, boosted by sales of gold and steel timepieces, the Federation of the Swiss Watch Industry said. "After nine months, the sector has once more confirmed its clearly positive trend and even picked up the pace slightly," the federation said. Watch exports rose 20.8% between January and September. Hong Kong, the largest market for Swiss timepieces, remained the growth leader with an increase of 50.3%, while France emerged as the top European market with a 44.3% jump. <wwd.com/business-news>

Hedgeye Retail’s Take:  This trend remains consistent with prior data suggesting luxury watches (and goods) remain in a substantial recovery mode.  Importantly, while a rebound is underway domestically, most data suggests the strength is centered in Asia with some pockets of strength in Western Europe.