The Weekly Consensus: Week of February 1, 2010
The Big Story: Know Vacancy
Betsy White
In early January Reis, Inc., a real estate research firm, published some sobering statistics. Vacancies at regional and super-regional centers rose to 8.8% in the fourth quarter of 2009, the highest rate since Reis began tracking this statistic in 2000 and up from 7.1% a year earlier. The amount of empty space in smaller neighborhood and community centers was even greater at 10.6%, almost 20% higher than the previous year. And the bad news for landlords doesn't stop there: asking rents are reportedly down to 2006 levels, effective (paid tenant) rentals are down to 2007 levels, and vacancy rates are projected to continue to increase in the near term, with a recovery not forecast until sometime in 2012. It's going to take a lot of creativity and flexibility to fill the glut of vacant retail space.
Press releases by a number of retailers support this trend. Companies such as Jones Apparel, GameStop, Borders, JC Penney and Sam's Club have recently announced, along with others, the closure of over 1,600 stores in 2010, with few, if any, new stores planned to offset the closings. Due to the overall contraction in retail sales, it's both healthy and struggling companies that are shuttering locations to conserve capital, improve returns and stem losses.
In the face of soft retail sales and high unemployment, what's a landlord to do? For a short term fix, some retailers and landlords are trying "pop-up" stores to either test a concept or location, or to sell seasonal products (think costumes, calendars or cheese balls). News reports indicate pop-up stores have been around since 2006, with the earliest locations used as marketing tools for new brands or product launches. In the past year, companies such as Toys R Us, which opened 80 temporary locations over the 2009 holiday season, and Gap, along with higher end names such as Hermes and La Perla, have all taken advantage of the vast inventory of retail space to increase sales and draw in new and existing customers.
Last week the Massachusetts Registry of Motor Vehicles announced it opened a new branch office in the Liberty Tree Mall in Danvers. While not necessarily remarkable on its own, what is unusual is that the mall's owner, Simon Property Group, provided this space rent-free. Hailed as a public/private partnership, not only is it saving money for the good taxpayers of the Commonwealth (the mall location replaced a branch that closed nearby), but the new location provides an convenient location for the motoring public to transact business, while potentially benefitting the mall's owner and fellow tenants through increased foot traffic.
Perhaps Simon Properties is on to something. With so much open space, mall traffic is certainly down, so what other non-traditional tenants could there be to draw the public back into the malls? On the civic front, empty store locations in the less-trafficked parts of the mall could be given to municipal libraries, which always seem to need new or additional space while drawing a neighborhood crowd. Vacated larger box stores could potentially be used by car repair shops. While waiting for the oil to be changed, brakes to be fixed or tires replaced, a captive audience is just looking for something to do to pass the time.
To bring back traffic and attract tenants, shopping centers need to become more relevant to today's time-constrained and cash-strapped consumers. The best retail companies are constantly thinking up creative ways to draw potential customers into their doors. Mall owners need to do that too.
Apparel/Swimwear/Intimates
Betsy White
Manhattan Beachwear Sells Majority Stake
Cypress, Calif.-based women's swimwear maker Manhattan Beachwear sold an 80 percent stake to Linsalata Capital Partners, a Cleveland-based private equity firm. Manhattan Beachwear, which licenses the Kenneth Cole, Hermanny by Vix, Sofia by Vix, Hobie and Split labels, has annual sales of $65 million, according to Linsalata. Founder and chief executive Allan Colvin and his management team "invested alongside [Linsalata] and will continue in their current roles," a release from the investment firm said. In the past, Linsalata has invested in niche apparel, including Alpha Shirt Company and Augusta Sportswear Group. Linsalata said the goal of the acquisition is to build on Manhattan Beachwear's success with its retail partners, which include large national department stores, mass merchants and specialty swimwear outlets, and become the leading supplier of women's swimwear by providing unique design capability and high quality products supported by consistent execution and low cost global supply chain.
Sheplers Western Wear in Wichita Hires New CEO
Former QVC Inc. executive Bob Myers has been hired as CEO for Wichita-based Sheplers Western Wear. Gryphon Investors, the San Francisco-based private equity firm that owns Sheplers, made the announcement Monday. Myers replaces Dennis O'Brien, an operating partner at Gryphon, who has been acting CEO since September. Myers spent eight years at QVC, most recently as senior vice president, helping build the company's Internet business. He also spent 15 years at JCPenney. Myers graduated from Buffalo State University and is on the board of Shop.org.
Revamping Richemont's Wardrobe
The luxury goods industry still looks broadly cheap, assuming Asian demand will help it regain the multiples it sported back in the halcyon days of 2001-2007, and this suggests it's time for a strategic move by cash-rich Compagnie Financiere Richemont. What about considering minority stakes in fashion houses Polo Ralph Lauren Corp. and Salvatore Ferragamo as possible alternatives to the names that have already cropped up on the rumor list? So far, Richemont has been cited as looking at Germany's Rodenstock or Italy's Prada S.p.A., and even a tie up with France's LVMH Moet Hennessy Louis Vuitton, but this chatter has elicited denials or a no-comment response from the Swiss-South African conglomerate. Bolt-on acquisitions to beef up Richemont's underweight presence in apparel would certainly help it to diversify from its core, and more cyclical, 'hard luxury' business of watches and jewelry. And it isn't short of capital to play with. As at September 2009, it had a net cash position of EUR902 million that could be put to work, and there are plenty of privately owned luxury apparel brands with $1 billion-plus in revenue that could be used to bulk up the company's 'soft luxury' presence.
Burkle Seeks Control of Barneys New York
Supermarket mogul Ron Burkle and his investment vehicle Yucaipa Cos has proposed taking a controlling stake in U.S. luxury retail chain Barneys New York in exchange for a $50 million cash infusion, a source familiar with the matter told the Wall Street Journal. Last November, Yucaipa purchased a large amount of Barneys debt from Citigroup Inc (C.N) at about 60 cents on the dollar, the Journal said. The reported loan deal would leave Istithmar World Capital with a 20 percent stake in the chain, known for its pricey duds and semi-annual warehouse sales.
Athletic & Sporting Goods
Michael O'Hara
Acushnet Sales Buoy Fortune Brands Q4 Results
Fortune Brands, Inc, reported double-digit sales increases for Titleist golf balls and FootJoy shoes, along with strong growth in Asia, helped its golf brands outperform the market in the fourth quarter. The company reported sales of its Acushnet golf brands - Titleist, Footjoy and Cobra - rose 6.9% to $226.9 million in the quarter ended Dec. 31. Comparable net sales for golf rose 2%, compared to a decline of 4% in spirits and 4% in home security. Operating losses in the golf business rose to $20.9 million in the quarter, up from $8.5 million a year earlier before charges and extraordinary gains. The company's golf business took another $9.5 million in restructuring charges during the quarter for cost incurred in reducing costs and realigning its supply chain. That raised total special charges for the golf business to $35.2 million for the year. Fortune Brands said total net sales for the company, whose brands include Jim Beam, Sauza tequila, Canadian Club, Moen faucets, Master Lock and several cabinet and door and window brands, rose 1% on the strength of the golf business and a more stable home security business. That marked the the first such increase in eight quarters.
Columbia Sportswear's Q4 Earnings Handily Top Estimates
Columbia Sportswear Co. reported fourth-quarter sales increased 1% to $358.3 million from $354.9 million a year ago, including a 3 percentage point benefit from changes in foreign currency exchange rates. Earnings reached $23.1 million, or 68 cents per share, below year-ago results excluding charges but well above Wall Street's consensus estimate of 39 cents a share. In the year-ago period, Columbia earned $18.6 million, or 55 cents, a year agom after a pre-tax impairment charge of approximately $24.7 million, or 46 cents per share after tax. For the latest quarter, Wall Street's consensus estimate had been. The company said it expects first quarter 2010 net sales to increase approximately 4% to 5%, including an estimated four percentage points of foreign currency benefit, and first quarter 2010 operating margin to decrease approximately 100 to 200 basis points, compared with first quarter 2009.
Apparel Lifts Under Armour's Quarter
Baltimore-based Under Armour Inc. beat analysts' estimates and nearly doubled its fourth-quarter profit in 2009 - an increase helped by gains in its apparel business during the holiday season, the company said Thursday. The results prompted the athletic apparel maker to raise its 2010 projections by 10 to 12 percent to between $945 million and $960 million. The company's fourth-quarter net income increased by 83 percent to $15.2 million, or 30 cents per share, compared with $8.3 million, or 17 cents per share, a year earlier. Under Armour also reported a 22.5 percent rise in its profit for the year, netting $46.7 million compared with $36.2 million in 2008.
Brunswick Corp. Sees Q4 Sales Plummet 22%; Loss Nearly Doubles
Brunswick Corporation reported net sales for the fourth quarter ended Dec. 31, 2009 were $657.3 million, down 22% from $837.7 million a year earlier. For the quarter, the company reported an operating loss of $188.2 million, which included $68.6 million of impairment and restructuring charges. In the fourth quarter of 2008, the company had an operating loss of $38.4 million, which included an $81.2 million benefit from the reversal of variable compensation and defined contribution retirement accruals, affecting all of the company's segments, and $48.9 million of impairment and restructuring charges. For the fourth quarter of 2009, Brunswick reported a net loss of $124.0 million, or $1.40 per diluted share, as compared with a net loss of $66.3 million, or 75 cents per diluted share, for the fourth quarter of 2008. The diluted loss per share for the fourth quarter of 2009 included impairment and restructuring charges of 78 cents per diluted share, and a $1.20 per diluted share benefit from special tax items. Diluted loss per share for the fourth quarter of 2008 included 34 cents per diluted share of impairment and restructuring charges, and 59 cents per diluted share of non-cash charges for special tax items.
Banking & Lending
Douglas Stebbins
Banks See a Leveling Off in Bad Consumer Loans
Since the financial crisis hit, banks have chipped away at the mountain of mortgages and credit card debt looming over struggling Americans. At last, those efforts appear to be paying off, at least for the banks, Andrew Martin writes in The New York Times. At some of the nation's largest lenders, the number of consumer loans that are going bad is starting to level off. And while no one is declaring a full-scale recovery, executives at Bank of America, Wells Fargo and other big banks sound optimistic that the worst may soon be over. "Credit quality appears to be stabilizing, if not improving," Brian T. Moynihan, chief executive of Bank of America, said Wednesday, as the bank reported fourth-quarter earnings.
NRF: Interchange Fees Cost Consumers and Retailers
Though many consumers may be dealing with difficulties associated with credit cards such as increasing fees and interest rates, retailers also may be feeling the pinch in the form of certain fees put forward by card companies. In recent testimony to legislators in California, National Retail Federation senior vice president Mallory Duncan said that card issuers charge retailers interchange fees for purchases made with credit cards. The fees average about 2 percent per transaction and generated an estimated $48 billion in income for card companies. Duncan said that interchange fees cost every household about $427 in 2008, which is up from the $159 they cost consumers in 2001.
Bill Ending Banks' Role in Student Loans Stalls in Senate
Four months after it sailed through the Democratic-led House, legislation to overhaul federal student lending and channel about $80 billion in savings toward an array of education initiatives has stalled in the Senate. In his State of the Union address Wednesday, President Obama exhorted the Senate to pass the bill, which he said would revitalize community colleges and make college more affordable. But the bill faces unified opposition from the Republican minority and sharp questions from at least some Democrats, according to congressional aides from both parties, and the Democratic majority has put it on hold during the drawn-out health-care deliberations. By cutting banks out of the equation, the administration expects to reap $80 billion over the next decade for increased student aid, community colleges, early childhood education and other programs. Prominent players in the lending industry, including Sallie Mae, oppose the legislation, saying that it will eliminate thousands of jobs and that there are ways to save the government money without shutting out private lenders.
Catalog & Internet
Christopher Ellis
ShopNBC Names Multichannel Retailing Veteran Bob Ayd as President
ShopNBC the premium lifestyle brand in electronic retailing, today announced that Bob Ayd, a multichannel retailing veteran with more than 30 years of experience in the marketspace, has been named President of the company, reporting to Chief Executive Officer Keith Stewart. As part of his new role, Mr. Ayd will oversee Merchandising, Planning, Programming, Broadcast Operations, and On-Air Talent. Cultivated over three decades, Mr. Ayd brings an extensive background and proven track record of success to ShopNBC, including executive leadership roles at multi-billion-dollar retailers QVC and Macy's. Most recently, he served as Executive Vice President and Chief Merchandising Officer at QVC (U.S.). During his tenure at QVC, he also served as Senior Vice President, Design Development & Global Sourcing and Brand Development, and Senior Vice President of Jewelry and Fashion. While at Macy's, Mr. Ayd held a number of executive leadership positions including Senior Vice President in Women's Sportswear.
Blue Nile Founder's Next Category Killer
In 1999 Mark Vadon launched Blue Nile, the online diamond retailer that has shaken the status quo by treating the luxury stones as mere easy-to-compare commodities. Blue Nile's annual sales reached $285 million last year. Vadon, who is still executive chairman at Blue Nile, now sees a similar opportunity in a new retail category: baby items. He is launching a new Web site called Zulily this week with another Blue Nile alum. Unlike Blue Nile, Zulily is a private sale site, meaning customers sign up to be invited to sale events.
New York Investigates Web Retailers Over Hidden Fees
New York Attorney General Andrew Cuomo is investigating 22 retailers for directing online shoppers to fee-based membership programs of discount clubs that often charge hidden fees. Cuomo sent subpoenas to websites for major retailers such as Barnes & Noble, Avon and Staples, which have deals with three companies that offer such discount programs, namely Webloyalty, Affinion/Trilegiant and Vertrue. Cuomo said in a statement that his office also reached an agreement with online movie ticket retailer Fandango to end similar practices. Cuomo's investigation has found that online shoppers are often "unknowingly" directed to a membership program seller's website that is separate from the online retailer's site. Information about the membership program and its ramifications are often buried in fine print and cluttered text, Cuomo said. For instance, a customer clicking on the link automatically agrees to a transfer of his or her credit or debit card account information.
Consumer Electronics/Video/Audio
Douglas Stebbins
Apple iPad: Steve Jobs Unveils the New Apple Tablet
The Apple iPad has finally arrived. After months of buzz about a tablet-style touchscreen personal computer, Apple CEO Steve Jobs today announced the company's new iPad. Before the famed CEO even opened his mouth to say a word, the crowd gave him a standing ovation. Much like an iPhone, the iPad has a touch screen that zooms in and out of Web sites and a virtual keyboard. It also orients to portrait or landscape viewing, depending on how you hold it. Jobs said it will be half-an-inch thick and weigh in at 1.5 pounds. It will have a 9.7-inch display and include Wi-Fi and Bluetooth connectivity. And the price? Though analysts expected the device to cost between $800 and $1000, Jobs said, "I am thrilled to announce to you that the iPad pricing starts not at $999, but $499." Wi-Fi-only versions of the iPad cost $499 for the 16BG model, $599 for the 32 GB model and $699 for the 64 GB model. Devices equipped to run on AT&T's wireless 3G network cost an extra $130 and run from $629 for the 16 GB model to $829 for the 64GB model.
E-reader Rivals Hope for Boost from iPad
At the Consumer Electronics Show in Las Vegas this month, e-readers were among the hottest products. No fewer than two dozen were on display, each positioning itself as a winner in the era of digital reading. Now those plans look tentative at best. "Many consumers who were thinking of a dedicated e-reader device are going to be reconsidering in the wake of the iPad launch," said Michael Gartenberg, analyst at Interpret, a technology and media consultancy. But its rivals appear less concerned by the threat than excited about Apple's entry. They hope the iPad gives the e-reader market the same boost the iPhone gave smartphones. "The iPad's focus on reading is a validation of the digital reading experience," said Steve Haber, president of Sony's digital reading division. "The paradigm shift we've been speaking about is happening, and the momentum is building at an amazing pace."
Sam's Club to Demo Consumer Electronics
Sam's Club is rolling out a new in-store demonstration and sales program for the consumer electronics, wellness, and food and beverages categories. According to Sam's Club president/CEO Brian Cornell, the chain has tapped Shopper Events, a third-party marketing company, to develop an enhanced "Tastes and Tips" sampling program that will include integrated demo stations, signage, and trained, uniformed staffers who will also sell the products they demo. "Our demos can be a competitive advantage, and we want to take this member experience to the next level," Cornell told staffers in a notice. The program replaces about 10,000 in-store sampling personnel, or nearly 10 percent of the chain's workforce.
Cosmetics & Pharmacy
Billy Busko
NCPA Responds to President Obama's State of the Union Address
Following President Obama's State of the Union Address to Congress and a response from Gov. Bob McDonnell, R-Va.—both of which discussed healthcare reform—an organization representing the nation's independent pharmacies issued its own response, reiterating priorities to strengthen the role of pharmacists in health care. NCPA also emphasized concerns it hopes Congress will address in healthcare-reform bills, including the creation of a fair reimbursement system for Medicaid generic prescription drug reimbursement, an exemption for pharmacists from unnecessary accreditation requirements for the selling of medical supplies to seniors, bringing transparency to certain aspects of how the costly administrators of prescription drug plans, pharmacy benefit managers, operate so that plan sponsors, patients and pharmacists can make more informed decisions and continuing to strengthen programs like medication therapy management that have already proven their benefits to patients.
NPD: 2009 a Year of Decline for Prestige Beauty Sales
The U.S. prestige beauty industry experienced a 6% decline in dollar sales during 2009, according to recent data from market research company the NPD Group. Prestige fragrance posted the biggest declines, followed by prestige makeup, and prestige skin care. NPD noted that the food/drug/mass channel (excluding Wal-Mart) was flat in 2009. Similar to the prestige beauty market, fragrance sales declined. Makeup sales in the mass channel experienced growth and skin care sales were flat overall; however, excluding hair care, sales of skin care products at mass actually experienced growth in line with makeup.
Antitrust Officials Clear Sanofi's Tender Offer for Chattem
Sanofi-Aventis has cleared its tender offer for Chattem with government antitrust officials, the French drug maker announced Tuesday. Sanofi said waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 has expired. The offer is expected to expire on Feb. 8 unless Sanofi extends it. Sanofi originally offered to buy Chattanooga, Tenn.-based Chattem, the maker of products such as Selsun Blue and Cortizone-10, for $93.50 a share in December.
Department & Discount Stores
Mark Lenz
Macy's Said to Be Cutting 1,500 Store-Level Jobs
Macy's Inc., the second-biggest U.S. department-store chain, is eliminating 1,500 store-level positions effective March 6, two people familiar with the decision said yesterday. Macy's, based in Cincinnati, is firing department managers and merchandising team managers, said the people, who declined to be identified because the cuts haven't been made public. Some stores are losing operations managers, and the remainder will be shared across multiple stores, the people said. In addition, full-time stock positions were cut, they said.
Filene's Basement Bankruptcy Gets OK
FB Liquidating Estate, what remains of Filene's Basement, has won bankruptcy court approval for a plan that will pay secured creditors in full and pay unsecured creditors 75 cents on the dollar. The Burlington, Mass.-based company, a former subsidiary of Columbus' Retail Ventures Inc., filed for bankruptcy reorganization in May. Discount retailer Syms Corp. and real estate firm Vornado Realty Trust paid $64 million for most of the company's assets, and will continue operating the retailer under new ownership and its familiar Filene's Basement name.
Wal-Mart Tells Employees It Will Cut 11,200 Jobs
Wal-Mart Stores, the nation's largest retailer, is cutting about 11,200 jobs at its Sam's Club warehouses, the company told its employees in a memo on Sunday. The chain is eliminating about 1,200 membership recruiting jobs, or two jobs in each of the more than 600 Sam's Club stores. Wal-Mart is also laying off 10,000 workers who demonstrate products in its Sam's Club stores. Those demonstrations, like food sampling, will be outsourced to Shopper Events, a marketing company based in Arkansas that already handles some demonstrations at Wal-Mart stores.
Bloomingdale's Outlets Emerge as Reality Providing Macy's Flexibility
By opening up Bloomingdale's outlet stores, Macy's is providing itself with the flexibility to satisfy the changing luxury consumer. Macy's interest in opening Bloomingdale outlet stores was noted by our Bnet colleague Ian Ritter in a post last week. He pointed out that rumors of a new outlet operation aligned with the luxury chain had swirled in the aftermath of success enjoyed by its competitors. Both Saks and Nordstrom said in their last reported quarterly results that outlets did better than their department stores. Nordstrom, for example, reported that comparable store sales, those at locations open for at least a year, declined by more than four percent at department stores but gained three percent at its Nordstrom Rack outlets.
Energy Alternatives
Christopher Ellis
Leaks Imperil Nuclear Industry
The nuclear industry, once an environmental pariah, is recasting itself as green as it attempts to extend the life of many power plants and build new ones. But a leak of radioactive water at Vermont Yankee, along with similar incidents at more than 20 other US nuclear plants in recent years, has kindled doubts about the reliability, durability, and maintenance of the nation's aging nuclear installations. Vermont health officials say the leak, while deeply worrisome, is not a threat to drinking water supplies or the Connecticut River, which flows beside the 38-year-old plant, nor is it endangering public health. But the controversy is threatening to derail the nuclear plant's bid, now at a critical juncture, for state approvals to extend its operating life by 20 years when its license expires in two years. Nuclear Regulatory Commission inspectors, Vermont Yankee's owners, and state officials are tracing the source of the radioactivity and searching for other leaks in the labyrinth of below-surface pipes on the plants' property about 10 miles from the Massachusetts border. The timing couldn't be worse for the nuclear industry, coming as it attempts a broad rebirth as a green energy source in the battle against global warming; the reactors do not emit greenhouse gases that cause the atmosphere to warm.
UVa Engineers Study Environmental Impacts of Algae-based Biofuel
With many companies investing heavily in algae-based biofuels, researchers from the University of Virginia's Department of Civil and Environmental Engineering have found there are significant environmental hurdles to overcome before fuel production ramps up. They propose using wastewater as a solution to some of these challenges. These findings come after ExxonMobil invested $600 million last summer and the U.S. Department of Energy announced last week that it is awarding $78 million in stimulus money for research and development of the biofuel. The U.Va. research demonstrates that algae production consumes more energy, has higher greenhouse gas emissions and uses more water than other biofuel sources, such as switchgrass, canola and corn.
Footwear
Michael O'Hara
Wachovia, Wells Fargo Provide Revolver to Shoe Carnival
Shoe Carnival, Inc., a retailer of value-priced footwear and accessories, announced the successful completion of a new revolving credit facility. Wachovia Bank, a Wells Fargo Company acted as lender and administrative agent, and Wells Fargo Securities acted as sole lead arranger for the transaction. The new credit agreement provides for up to $50 million in loans and commercial and standby letters of credit through April 30, 2013. The new agreement revises and updates certain terms and covenants contained in the prior credit agreement. Shoe Carnival is a chain of name brand and private label footwear in 311 stores located in the Midwest, South and Southeast.
New England Footwear Turns Shoe Industry Upside Down
Since Nike popularized running shoes in the 1970s, footwear manufacturers have stitched fashion over function to set or respond to product trends, whether for aerobics shoes, cross trainers or walking shoes sleek enough for the office. Doug Clark thinks the next major trend will stress health over exercise. "I predict that it's wellness shoes, not fitness, that we'll be talking about in 10 years," said Clark, CEO of New England Footwear, a company he launched in 2008 to produce healthier, more innovative shoes. "We're an incubator of new ideas," said Clark, who spent 14 years in product development at Timberland, the final four as vice president of the company's Invention Factory. "The pace of technology is exploding; we set up a business to leverage these innovations and put them to work."
Shoebuy.com Celebrates 10 Years of Continuous Growth and Expansion
Shoebuy.com, one of the largest retailers of footwear, accessories and related apparel on the Internet and an operating business of IAC celebrated the tenth anniversary of its site launch. Founded in the midst of the dot-com boom, Shoebuy.com is one of the few Internet companies to emerge successfully from that period. And even in the wake of our recent Great Recession, Shoebuy.com has become one of the most heavily-visited apparel shopping sites in the U.S. with over eight million visitors in December alone. As it entered its 10th year, the company commemorated its impending anniversary by expanding into several other retail arenas. For example, it recently unveiled Designer.shoebuy.com, a site that offers a specialized shopping experience and design-focused products, and ProductExpress.com, which provides free overnight delivery on a broad selection of shoes and accessories. Shoebuy.com also replicated its business model in another product category with the November launch of FloraFlora.com, an e-tail flower supersite. The company also recently unveiled an iPhone app, enabling shoppers to enjoy all of the traditional Shoebuy features from their mobile devices.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Borders Chief Executive Ron Marshall Quits After Year
Borders Group Inc., the money-losing bookstore chain, said Ron Marshall resigned as president, chief executive officer and a director of the company, after a little more than a year on the job. Marshall, who joined Borders in January 2009, is leaving to run another publicly held retailer, Borders said, without identifying the company. Michael J. Edwards, the chief merchandising officer who joined the company in September, will act as interim CEO, Borders said in a statement today. The board hired Korn/Ferry International to help find a permanent CEO. The retailer, which last reported an annual profit in 2006, has seen revenue drop for the past three years as consumers spent less on books and non-essential items amid declining home values and rising unemployment. Marshall, seeking to stem those declines, said last month the Ann Arbor, Michigan-based retailer will start selling digital books this year. Borders fell 1 cent to $1.09 yesterday in New York Stock Exchange composite trading. The shares, which almost tripled in 2009, have dropped 7.6 percent this year.
Borders Group Lays Off 10% of Corporate Staff
The Borders Group, the country's second-largest bookstore chain, has laid off 124 corporate employees, about 10 percent of its corporate staff. The company, which announced the resignation of its chief executive, Ron Marshall, on Tuesday, also laid off 40 workers in two warehouse facilities in Nashville, Tenn., and Mira Loma, Calif. Anne Roman, a Borders spokeswoman, said that the company had laid off 88 employees from its Ann Arbor, Mich., headquarters, many of them from the technology and finance departments. A further 36 corporate employees from around the country lost their jobs. Borders has been under a cloud of speculation about its long-term financial health and has struggled to improve sales in a difficult market for book retailing. It has reported disappointing results amid price pressure from big-box retailers like Wal-Mart and Costco, as well as intense competition from online booksellers like Amazon. For the 11-week period ended Jan. 16, the company announced that sales fell nearly 14 percent compared with the period a year earlier.
KKR Buys UK Retailer Pets at Home
Private equity firm Kohlberg Kravis Roberts KKR.UL is buying British retailer Pets at Home in a deal one person familiar with the matter said was worth about 955 million pounds ($1.5 billion) including debt. The higher-than-expected price could fuel speculation that other companies considering sales, like fashion retailers New Look and SuperGroup and online grocer Ocado, might also opt for a private equity deal rather than an initial public offering, analysts said. KKR, whose retail investments include health and beauty group Alliance Boots and toys chain Toys'R'Us, saw off rival bids from Apax APAX.UL, Bain and TPG TPG.UL, sources close to the matter said. KKR did not give a value for the deal, but a person familiar with the process said it was 955 million pounds, including around 230 million in debt.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Borders CEO Leaves to Lead Grocery Chain
Borders Group chief Ron Marshall has resigned to take the CEO position at Great Atlantic & Pacific Tea. Marshall held the Borders post for a year, after a career in grocery retail that included stints at Pathmark Stores and Nash Finch. Borders' Chief Merchandising Officer Michael Edwards will take over as interim CEO while the company conducts a national search for a permanent replacement.
Budweiser Benches the Clydesdales
For the first time in at least eight years, Budweiser's high-stepping horses—arguably the most recognizable mascots in the beverage business—are sitting out this year's Super Bowl. As in past years, Budweiser's parent, Anheuser-Busch, produced a Clydesdales spot for the game but didn't wind up using the ad because it didn't "test" as well with focus groups. The move is the latest in a string of marketing changes that have taken place at A-B since it was purchased by Belgian brewing giant InBev in 2008. The brewer, which has bought five minutes of pricey Super Bowl time, is typically the biggest advertiser during the game. A single 30-second spot during the Feb. 7 game aired by CBS costs between $2.5 million and $2.8 million. Last year, A-B's Super Bowl line-up was heavy on horses, with at least three Clydesdale spots. The horses always appear in warm-hearted and nostalgic ads, such as young Clydesdale that trains like boxing champ "Rocky" to be on the wagon team. This year, the company decided to go with more humor. A-B said the Clydesdales will still appear in its ads, just not in this year's big game. The company introduced the Clydesdales in 1933 to celebrate the end of Prohibition. The horses thurndered down the streets of St. Louis, carrying the first case of post-Prohibition beer from A-B.
Price Chopper Sues Penn Traffic for Breach of Contract
After some contemplation as to how to proceed, Price Chopper has filed a lawsuit against the Penn Traffic Co. for $1.6 million for breach of contract and other legal issues in connection with Price Chopper's unsuccessful offer to buy 22 of the bankrupt grocer's P&C Foods supermarkets for $54 million.
Home Improvement/Auto Repair
Billy Busko
Ford Posts Q4 Profit, Forecasts Operating Profit for 2010
Ford Motor Co. posted a fourth-quarter profit and swung to its first full-year profit since 2005 while forecasting an operating profit for this year despite a still-fragile economy. The results showed continued progress in CEO Alan Mulally's recovery efforts in the face of the weakest U.S. sales in 27 years. Ford reported fourth-quarter net income of $868 million compared with a loss of $5.9 billion a year earlier. Revenue rose to $35.4 billion from $29 billion. Ford snapped a three-year streak of losses by recording a net profit of $2.7 billion for 2009 compared with a loss of $14.8 billion in 2008. Last year's results were aided by large gains from debt-reduction efforts and other items. Ford's operating profit, after taxes, for the fourth quarter was $1.6 billion compared with a loss of $3.3 billion a year ago. For the year, Ford's operating profit was $8 million compared with a loss of $7.3 billion a year earlier.
Home Depot Lays Off 1,000 In Support Operations
Home Depot Inc. is cutting 1,000 jobs nationwide as it continues centralizing its human resources and other support operations and closes three pilot stores. The largest home-improvement retailer said the moves, which represent less than 1% of the roughly 322,000 workers it employs worldwide, are intended to boost efficiency and productivity rather than in response to broader business or economic trends. In a memo to employees Tuesday morning, Chairman and Chief Executive Frank Blake said the world's largest home-improvement retailer had no plans to close stores outside of the three pilots: a small-format store in Wilson, N.C., a temporary hurricane recovery outlet in Waveland, Miss., and a clearance outlet in Austell, Ga.
Housewares/Furniture
Billy Busko
Household Spending on Housewares Up Slightly, IHA Says
The average U.S. household spent $609 on housewares in 2008, an increase of 0.7 percent over the prior year, according to the latest State of the Industry Report from the International Housewares Association. The new data, compiled for IHA by Riedel Marketing Group, showed that average household spending increased for both housewares and personal-care products, while the average for furniture, appliances and miscellaneous household equipment fell. In terms of overall spending, U.S. households spent more on housewares than on dairy products, and slightly less than on fruits and vegetables. The average household expenditure on gasoline and motor oil was nearly four times of that for housewares, the report said.
Leggett & Platt Swings to 4Q Profit on Higher Margins
Leggett & Platt Inc. swung to a fourth-quarter profit as the diversified manufacturer's efforts to cut costs and maintain pricing helped offset lower sales. The maker of products ranging from residential furniture to industrial machinery also projected full-year earnings of 75 cents to $1.15 a share on revenue of $2.9 billion to $3.3 billion. Analysts polled by Thomson Reuters expected $1.06 and $3.07 billion, respectively. The company, which has been hurt by lower demand, has responded to the economic downturn by focusing on margin improvement. It has cut costs, trimmed its work force and consolidated facilities in areas where sales are weak. Leggett & Platt posted a profit of $35.2 million, or 23 cents a share, compared with a year-earlier loss of $18 million, or 11 cents a share. Earnings from continuing operations were 26 cents, compared with a loss of 5 cents a year earlier. In November, the company estimated earnings of 17 cents to 27 cents. Sales fell 13% to $769.7 million, above analysts' view of $723 million. Gross margin improved to 22.1% from 12.5%.
Intellectual Property & Multi-brand Companies
Douglas Stebbins
Li & Fung Signs Walmart Deal That May Generate $2 Billion Sales
Li & Fung Ltd. today entered an agreement to supply clothes and other consumer goods to Wal-Mart Stores Inc. that may generate an additional $2 billion of sales in the first year, President Bruce Rockowitz said. Walmart will have the option to acquire WSG Pte, the Li & Fung buying agency involved in the arrangement, after Jan. 1, 2016 according to a statement from Li & Fung, which didn't set a price for the unit. Rockowitz declined to say if today's deal would make Walmart the biggest client for the Hong Kong-based outsourcing specialist, overtaking Kohl's Corp. Li & Fung, which makes more than 60 percent of revenue in the U.S., is accelerating efforts to buy smaller rivals and sign outsourcing agreements to meet a target of $20 billion in sales this year.
bebe stores, inc. Enters into Licensing Agreement with Accessory Network
bebe stores, inc., announced today that they have entered into a 3-year strategic licensing agreement with Accessory Network Group, LLC "ANG", to design, manufacture and distribute a full lifestyle offering of handbags and small leather goods to select department & specialty stores worldwide, as well as bebe retail stores and bebe.com. Retail pricing of the handbag and SLG collection ranges from $58 - $120, with specialty leathers retailing around $200.
Jewelry/Mining
Mark Lenz
Gassman's Insider View: Zale's Goldberg Never Had a Chance
When Neal Goldberg was named CEO of Zale Corporation back in December 2007, I sent him a note that said, "Get all of your money up front, because you won't be around long enough to collect it on the backside." Unfortunately, his recent departure bears out this prophetic piece of advice; Goldberg lasted barely two years. In the past ten years, Zale has had five different people serve as CEO - Bob DiNicola served two non-successive terms as CEO, so it is arguable that the company has had six people in the top slot over the past decade. That's way too much leadership turnover.
Diamonds Get Their Sparkle Back
The luster is quickly returning to the global diamond business as the economic recovery helps put more rocks on fingers and a supply crunch drives up prices. Some diamond sellers also report more people buying the shiny stones as investments, after having lost millions in stocks in the recent market meltdown. Expectations are that diamond prices will keep climbing this year, on the back of a steady recovery that began in the last half of 2009.
Why Diamonds are China's Friend
Chinese consumers are whetting their appetites for bling. Diamond sales in the world's most populous country rose 16.9% in 2009 to $1.5 billion, state-run media said Sunday. The surge catapults China's diamond market in front of Japan's, which now holds the No. 3 spot; it is second only to America's. These gemstones weren't always coveted in China, where jade and gold pieces are traditionally given as gifts. But aggressive efforts by De Beers including TV spots and wedding sponsorships, initiated during the 1990s, helped change modern practices to include a diamond. The wedding industry is worth about $82.5 billion a year, which amounts to 2.5% of GDP, according to Reuters. An account of how the wedding craze is boosting businesses like real estate described one family-owned jewelry shop in Beijing that used to make the occasional bespoke diamond piece but now sells hundreds of rings a month to meet demand. Each year in China about 10 million couples tie the knot, and the figure is expected to reach 11.82 million this year, according to People's Daily, a state-run newspaper.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Staples to Settle Overtime Claims for $42 Million
Staples Inc. said it agreed to pay $42 million to settle several class-action lawsuits accusing the office supplies seller of misclassifying assistant store managers as exempt from overtime pay. The company said the global settlement was subject to court approval. It did not, however, admit to any wrongdoing in connection with the allegations. The settlement would resolve claims for damages dating back as far as 2002 and covers more than 5,500 current and former associates. The company said in a statement that it agreed to resolve the allegations to "avoid further distraction." Staples, which has also agreed to drop its appeal of a verdict against it last year in New Jersey, said the $42 million settlement would include amounts associated with the prior verdict.
Ritz Returns to Growth Mode
The nearly 100-year-old Ritz Camera legacy is continuing on firmer footing following last year's bankruptcy, buyout and restructuring by chairman/CEO David Ritz. Nearly one year after the filing, the renamed Ritz & Wolf Camera & Image chain has re-opened shuttered stores, added Verizon Wireless to its expanded CE offering, and secured a $25 million credit line with PNC Financial Services to help refinance existing debt and fuel future growth. "Despite an economic environment that has weighed heavy on so many retailers, Ritz & Wolf Camera & Image is poised to succeed," said president Stephen LaMastra in a statement released on the eve of the PMA 2010. "We have come out of the challenges of the past two years with renewed vigor and focus and with a clear imaging strategy for a new retail landscape," continued LaMastra, formerly president of Wolf Camera. "We will continue to lead this company, its stakeholders and our customers through these tough economic times, and we are confident that a bright future is ahead."
Restaurants/Food Service
Mark Boucher
Arby's Chief Tom Garrett Resigns
Tom Garrett has resigned as president and chief executive of Arby's after 29 years with the brand, parent company Wendy's/Arby's Group Inc. said Thursday. Roland Smith, president and chief executive of Atlanta-based Wendy's/Arby's Group, has assumed the role of interim president for the brand while the chain searches for a permanent replacement. Garrett's exit comes as Arby's continues to struggle with lackluster sales, said Bob Bertini, a spokesman for Wendy's/Arby's. In the company's latest quarter, ended Sept. 27, Arby's reported a 9-percent drop in North American same-store sales. A longtime executive with the chain, Garrett was promoted to chief executive of Arby's in 2008 following the merger of its parent company, Triarc Cos. Inc., with Wendy's International Inc. Despite the implementation of a number of initiatives during Garrett's tenure as CEO, Arby's performance did not improve. Those initiatives included a $1 value menu as well as the rollout of several new products, such as its Roastburger line and $5.01 combo meals.
O'Charley's Closes $45M Credit Facility
O'Charley's Inc. said Wednesday it has amended its revolving credit facility that was set to expire next year, reducing the amount to $45 million, extending its maturity and changing covenants for additional flexibility. The operator or franchisor of 372 restaurants under such casual-dining brands as O'Charley's, Stoney River Legendary Steaks and Ninety Nine Restaurants, O'Charley's closed the deal with Bank of America, Regions Bank and Wells Fargo Securities, it said Wednesday. The company's new $45 million facility was reduced from $83 million, and will now mature in 2013, rather than October of next year. Amended terms allow O'Charley's to repurchase its 9-percent senior subordinated notes, which had been prohibited in the prior credit facility. In addition, collateral for the deal, which originally included mortgages on 88 corporate restaurants and O'Charley's corporate offices, has been reduced to mortgages on 47 restaurants. The amended facility also will allow sale-leaseback transactions, which were not permitted under the prior terms.
Sizzler Looks to Grow Again
After two years of halted growth, the more than 50-year-old Sizzler chain is setting the stage for a franchise push with a new restaurant design, an upgraded menu and a new management team - the head of which actually wants to buy the chain. Kerry Kramp, president and chief executive of the Culver City, Calif.-based Sizzler USA, said in an interview with Nation's Restaurant News that he has spent the past 18 months revamping the 191-unit "family casual" chain to become "recession proof." He now wants to buy Sizzler from its current owners, if or when the economy improves and funding becomes available.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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