The Weekly Consensus: Week of May 17, 2010
Lifetime Guarantee
Betsy White
Over the past week the press has been filled with stories about President Obama’s nomination of Elena Kagan to be the next Supreme Court Justice. A successful completion of the confirmation process will lead to an appointment to the highest court in the land which, while not a story with obvious or particular business relevance, is the grant of a job for life. The parents among us can claim a lifetime service distinction in an unpaid capacity, but in a business context, there are few who can claim a guarantee of long-term employment. While macro economic conditions have improved since late 2008, business restructurings have resulted in a current national unemployment rate of almost ten percent. It is the rare among us who have worked for the same organization for more than a decade or, even more rare, during our entire career.
From another perspective, how many of us have transacted with the same retailer consistently during a significant portion of our lifetime? Keeping a customer for the long-term is a challenge all retailers face daily. For most, staying relevant to the times creates customer loyalty. The discounters and off-price businesses have performed particularly well recently in our increasingly value-focused economy. Not only have these retailers enticed additional spending by existing customers, but off-price, warehouse, discount and dollar stores, and new media businesses from Amazon to flash websites such as RueLaLa and Gilt have attracted new customers seeking value. The challenge for all of these businesses now is to find ways to maintain and increase the customer base as the economy improves. The largest similarity these businesses have to each other is that their product offerings generally appeal to all ages. Unlike many specialty apparel retailers that have to spend many precious marketing dollars to constantly attract new customers to replace those that age past their target demographic, the generalists have the ability to devote more resources to maintain lifetime loyalties.
The merchants who are successful in keeping their customers for life will be those that execute well, are the most effective communicating (ranging from their use of new tools developed in electronic media to stellar customer service), and find ways to best adapt all of the elements of merchandising to the economic times. Consumers seek products with a perceived high value, which can range from full price luxury brands such as Tiffany, to discount private labels such as Walmart’s Great Value. With choice virtually unlimited, a company does not want to give its customers a reason to buy anywhere else.
Just as the nomination to be a Supreme Court justice is not an assurance of an appointment, steady feet in the door, clicks into the shopping cart and rings into the actual or virtual cash register are not guaranteed. For both the Supreme Court and in commerce, however, there are certainties – in the former, that someone will be appointed to the Court when there is an opening, and in the latter, that consumers will spend to feed, clothe and shelter themselves and their families.
Apparel/Swimwear/Intimates
Betsy White
How H&M Keeps Its Cool
Fast-fashion retailer H&M is a bit frosty toward warm climates. The trendy company has stores in 37 countries, but none in Texas. Miami shoppers won't find a place to purchase H&M's cheap chic clothes, either. The problem isn't a lack of demand. It's that the chain's Swedish parent company, H&M Hennes & Mauritz AB, isn't sure how to sell clothes in cities that are always warm. Call it a retail variant of the Stockholm Syndrome. H&M forged its successful strategy in the season-changing Europe it calls home, says Daniel Kulle, president of H&M U.S. Uncertainty about whether that strategy could survive a transplant to warmer regions means while Toledo has H&M, Dallas has to wait. That quirky concern has a strategic issue at its root. H&M, the world's third-largest fashion retailer by revenue, still sells pretty much the same products in its 1,900 stores around the globe. Its planning and allocation systems are geared toward turning over merchandise quickly, not tailoring assortments to individual regions. H&M says it is investing in tools and distribution centers to allocate its goods more effectively.
Express Clothing Co. IPO Prices Low -- Underwriter
U.S. clothing company Express Parent LLC priced shares in its initial public offering below the expected range, according to an underwriter. The Columbus, Ohio-based company sold 16 million shares for $17 each, raising about $272 million. It planned to sell 16 million shares for between $18 and $20 each. Express is the No. 6 specialty retailer in the United States and is known for its tailored "editor" pants, according to its prospectus. As of Jan. 30, it had 573 stores selling clothing aimed primarily at 20- to 30-year-old women. Private equity firm Golden Gate Capital bought 75 percent of Express in 2007 when its parent company, Limited Brands Inc, sought to exit the volatile apparel industry. Golden Gate planned to sell a portion of its shares in the offering, but expected to retain a greater than 50 percent stake in the company, according to the most recent prospectus. Express net sales fell 0.9 percent to $1.72 billion in the year ended Jan. 30. The company swung to a $75.31 million profit from a $29.04 million loss. Comparable store sales -- outlets open at least a year -- slipped 6 percent compared with a 3 percent dip a year earlier.
Jones Apparel to Refresh Namesake Brand
A top item on the agenda for Richard Dickson, Jones Apparel Group Inc.'s new president, is to revitalize its namesake Jones New York brand as the company enters a new phase of growth that could include acquiring more luxury brands. Just three months after joining the company as president and chief executive officer of Jones' branded businesses, Dickson told reporters on Wednesday that the company was working on a new marketing and advertising campaign for the 38-year-old brand. "We are well down the road of introducing a new ... advertising and marketing plan for Jones," Dickson said, adding that "all options are on the table" including the possibility of revamped merchandise and a collaboration with an external designer. He said the sweet spot of the brand was selling career looks to women aged 45 and older, but that he wanted to introduce it to younger women as well.
Why Does This Pair of Pants Cost $550?
Even in a season when designers made no secret about reining in prices to appeal to the newly chastened luxury consumer, it is still possible to walk into a store and wonder what exactly they were thinking when a pair of khaki cotton pants — right there on the hanger, no special packaging or 3G plan or anything — can cost as much as an iPad. Never mind that classic button-fly chinos at Abercrombie & Fitch cost $70 or that Gap sells “original khakis” for $44.50. The fact that luxury chinos exist — and in surprising numbers — is another story, one that illustrates the challenge faced by designers to justify the still sky-high prices of their clothes. A distinctive design might strengthen the argument, but is $550 really a fair price for basic pants?
Athletic & Sporting Goods
Michael O'Hara
Sports Authority Launching New Store Brand
Sports Authority Inc. plans to launch "S.A. Elite," a new store brand to operate alongside the sporting-goods chain's existing stores. The privately held retailer described S.A. Elite as a "small store concept designed to meet the needs of the elite sporting goods consumer while providing a unique and compelling shopping experience." The new chain will offer high-end performance apparel, footwear, and accessories from premier brands, the company said. Stores will range from 12,000 to 15,000 square feet in size, smaller than the typical Sports Authority outlet. The first S.A. Elite store will be in Denver and is planned for an August 2010 opening.
Lululemon Raises Stake in Australian Venture
Lululemon Athletica Inc., a Canadian maker of high-end workout clothes, said Wednesday it has increased its equity interest in its Australian joint venture partner, New Harbour Yoga Pty Ltd., from 13 percent to 80.3 percent. David Lawn, who heads Lululemon's operations in Australia, and another investor own the remaining 19.7 percent, the company said. Financial terms were not disclosed. Lululemon first entered the Australian market in October 2004 and now has nine stores and four showrooms in the country. A native of New Zealand, Lawn is the former CEO of surfing brand Rip Curl and executive vice president of U.S. fashion retailer Express. He joined Lululemon in 2006.
Cabela’s Profit Jumps 57.8%
Cabela’s reported Tuesday that net income increased 57.8% to $8.1 million for the quarter ended April 3. Total revenue increased 5.1% to $559.6 million; retail store revenue decreased 1.5% to $271.3 million; direct revenue increased 2.1% to $222.7 million; and same-store sales decreased 1.7%. According to the outdoor retailer, the divestiture of Van Dyke’s taxidermy business and Wild Wings in late 2009 accounted for $7.1 million of revenue in first quarter 2009.
Catalog & Internet
Christopher Ellis
Tippr will Battle Groupon, Living Social in 10 cities
The online daily deal is white hot right now. But just how big is the playing field? While Groupon is leading the charge with its fresh round of funding and $1 billion valuation, Seattle-based Tippr has announced plans to compete in at least 10 cities. Other brands such as Living Social and BuyWithMe also compete in several national markets with already existing local media sales forces. It’s a crowded space, for sure, and only getting more interesting. For example, Tippr’s founder Martin Tobias thinks patents playing a role. He acquired several e-commerce patents from a dot-com boom-and-bust company called Mercata and feels this will give his company a competitive advantage. Tippr, which launched in February, is a unit of Kashless, which raised $5 million in venture funding from RRE Ventures and in 2008.
Costco and Target May Be Flying High, but Their Web Sites Aren't Closing the Deal with Consumers
Some otherwise well-regarded retailers, including Costco, Target and CVS, are poised to fall behind in the battle for online sales because they aren’t taking proper care of the consumers who visit their sites. A just released Online Retail Consumer Satisfaction Index study tracks how consumers feel about their experiences with e-tailers, but it also looks at what the market research firm characterizes as purchase intent, a gauge of how ready a particular website’s shoppers are to spend when they visit. Satisfaction is predictive of where consumers are most likely to do their online spending in the future. Amazon has few worries. Number two in the satisfaction scoring at 86, it was number one in purchase intent with a score of 92 out of 100. Walmart and Kohl’s, which earned a place in customer satisfaction elite by scoring an 80, also were among the tops in purchase intent, both posting an 89. In the middle was Costco, with a 90 purchase intent rating but a satisfaction score that only came in at an average 78. With a higher-than-average purchase intent of 88, CVS and Target registered average satisfaction ratings. In Costco’s case, what works in the store may work against it online. Costco’s treasure hunt approach to merchandising -– with various bargain-priced discretionary products such as recliners and canoes displayed to entice customers on their monthly visit for paper towels and burger patties -– may not be cutting it on the Internet where people are used to finding whatever they seek.
Consumer Electronics/Video/Audio
Douglas Stebbins
Best Buy Readying Gaming Magazine to Compete with GameStop
The next step in Best Buy's strategy for gaming will be the launch of "@Gamer," an official gaming publication for the retailer, which may launch as soon as next month. That's according to the Game Beat blog, which cited the Facebook page of veteran video game journalist Andy Eddy, who will be working for the magazine. A Best Buy spokesperson confirmed the magazine's existence to Kombo.com, but did not give a specific time frame for the launch. GameStop has a similar version of the concept, Game Informer.
Blockbuster Investor Threatens Fight for Board Seat
Blockbuster Inc. shareholder Gregory Meyer is giving the struggling video rental company one last chance to name him voluntarily to the board of directors. If Blockbuster doesn't accept the offer in writing by today, Meyer said in a Securities and Exchange Commission filing late last week, he will launch a full-scale election campaign for a seat. "As a shareholder, I'm presenting them with an opportunity to move forward in a very amicable way, a very fair way," Meyer said in an interview Monday.
Wal-Mart May Sell Apple iPad This Year in Electronics Expansion
Wal-Mart Stores Inc. may start selling Apple Inc.’s iPad in 2010 in some U.S. stores as it competes with electronics chains for consumers who want to connect their e-mail, movies, games and music. Apple has sold more than 1 million iPads since they went on sale in the U.S. last month, making the debut more successful than the introduction of the iPhone in 2007. Apple sells the device, a tablet computer that lets users read digital books and access the Internet, online and in its stores. Best Buy Co. also sells it. Wal-Mart, the world’s largest retailer, plans to announce today that it is adding more Internet-connected flat-panel televisions, Blu-ray disc players, mobile phones and routers enabling U.S. consumers to link gadgets in their homes. A similar push by Best Buy, the world’s largest consumer electronics retailer, and RadioShack Corp. boosted their earnings last quarter.
Is Video Game Retailer GameStop in 'Play'?
In the video game world, there is no more direct line to the enthusiast audience than GameStop. The retailer, which has more than 6,200 stores nationwide, is a gathering spot for players, who flock there when big games are released. It has withstood numerous attempts by big box stores to encroach on the most profitable parts of its business model. Its first quarter financial results were solid and the outlook is good for its second quarter report, scheduled on May 20. But because the stock continues to trade so cheaply, some on the Street have begun to whisper that GameStop could find itself a takeover target. Right now, it’s nothing more than whispers. Analysts say they haven’t heard any solid chatter or seen activity that indicates anything is imminent. But because the stock is so cheap, it leaves a wide-open field for suitors. GameStop is a company that could mesh well with a number of other retailers. The name that’s most frequently bandied about as a buyer, though, is Best Buy.
iPad Prompts Scramble for Second at Samsung, Hewlett-Packard
In the wake of the debut of Apple’s iPad on April 3, hardware companies are doing a lot of high-tech soul-searching about the tablets they have in the pipeline, Bloomberg Businessweek reported in its May 17 issue. This month, days before the e-reader was to hit stores, Samsung delayed the introduction and called the device back for retooling, said a company employee who asked not to be named. Hewlett-Packard Co., Dell Inc. and Asustek Computer Inc. also are reassessing the tablet market. Hewlett-Packard presented a Windows-powered tablet called Slate at the electronics show in January and wrote about it on its Web site. The Palo Alto, California-based company hasn’t promoted the device since early April. A few weeks later, it agreed to buy Palm Inc., the handheld maker known for its easy- to-use software, for $1.2 billion. Hewlett-Packard won’t comment on the status of the Slate, and analysts said the company will now design a tablet using Palm’s software. If Hewlett-Packard releases a consumer tablet, it would probably be based on the Palm operating system, not Windows, says analyst Tim Bajarin of consulting firm Creative Strategies.
Cosmetics & Pharmacy
Billy Busko
CVS Caremark Chief Medical Officer: Retail Clinic Model has 'Come of Age'
As CVS Caremark's MinuteClinic passes the milestone of its first decade of delivering convenient access to quality care, and with the nation facing a historic expansion of the market for primary health care, MinuteClinic locations are poised to help primary care physicians handle the influx of 32 million citizens who will gain access to health insurance beginning in 2014, said Troyen Brennan, CVS Caremark chief medical officer. During his presentation, Brennan outlined how the walk-in retail clinic model has "come of age" just as the need for new access points for basic health care is becoming more acute because of the growing shortage of primary care physicians, and with an influx of new patients needing care. The good news, Brennan said, is that MinuteClinic receives better than 90% customer satisfaction rates while achieving good outcomes for their patients. In addition, the clinic is experiencing growing acceptance by commercial insurers and doctors, who at one time viewed the business with skepticism but have come to view clinics as complementary to their practices.
Estee Lauder Says More Than $200M Notes Tendered
Estee Lauder Cos. said that more than $200 million worth of senior notes have been tendered in the company's debt buyback offer so far, exceeding the company's original plan. The cosmetics maker said about $139.7 million in 2012 notes and $69.1 million in 2013 notes have been tendered and not withdrawn. The company has decided to raise the amount of 6 percent senior notes due in 2012 that it will buy back to $130 million from $100 million, as a result of the strong interest.
Walgreens Postpones Plan to Sell DIY DNA Kit
US pharmacy giant Walgreens has postponed plans to sell do-it-yourself DNA test kits after the government safety watchdog suggested the tests needed regulatory approval, the retail chain said. The Pathway Genomics "Insight Saliva Collection Kit" was to have gone on sale May 14 at Walgreens stores across the United States, promoted as an easy way for people to determine their risk from cancer, diabetes, Alzheimer's and other diseases. But the US Food and Drug Administration this week contacted Pathway Genomics to say its test needed regulatory approval before it could be sold over-the-counter. Similar tests have been available for purchase over the Internet, but it would be the first time they were sold through retail stores. The Pathway Genomics kit was to have been sold for 20 to 30 dollars.
Department & Discount Stores
Mark Lenz
Mohamed al-Fayed in £1.5bn Harrods Sale
He swore he would never sell — but he did. This weekend, Mohamed al-Fayed, who pledged to stay at Harrods until he died, agreed to sell the Knightsbridge department store to the royal family of Qatar for more than £1.5 billion. Fayed, 81, sold the company to the rulers of Qatar, the tiny Gulf emirate, after months of discussions. The deal was sealed at a meeting in Amsterdam between the two sides’ advisers late on May 7. The sale of the London landmark comes only weeks after the Egyptian tycoon vowed that he would never sell, saying that he would offer “two fingers” to foreign investors who wanted to buy the shop in London’s Knightsbridge.
Nordstrom's New York Rack Smooths Road for Luxury's Comeback
Nordstrom has entered New York City — not with a full-line department store but with one of its Rack outlets, demonstrating that its bargain operation has more going for it than just helping the retailer cope with the economic downturn. With its location on Union Square, Rack is entering a lion’s den of mass-market retailing, taking on the bargain elite including T.J. Maxx, Forever 21and Filene’s Basement. That’s fitting however, as its rapid Rack expansion shows that Nordstrom knows it has to figure the mass market into its plans for the future.
Wal-Mart Eyeing Russia's Lenta
U.S. retail giant Wal-Mart is in preliminary talks to acquire Russian retailer Lenta after years of trying to enter the fast-growing market, sources with firsthand knowledge of the matter said. "It is fair to say that at this point there has been some information exchanges and some discussions but the talks are still pretty informal," one financial source said. Founded in 1993 as a small "cash and carry" warehouse in St Petersburg serving primarily cafes and small retailers, Lenta has become a major hypermarket chain in Russia with 36 stores. Wal-Mart, which is looking for new growth markets, has been trying to penetrate Russia for several years. In Moscow, it has a 12-strong team working on its Russian market entry strategy, the source added. The same source said Wal-Mart would not be interested in buying just a stake in Lenta but the whole company. "If they (Wal-Mart) did a deal, they would buy the whole thing," he said. Lenta and Wal-Mart declined to comment on Wednesday.
Macy's Swings to Profit, Aided by Move to Meet Local Demand
As an illustration that the My Macy's strategy is working, the company's smaller stores and those in small markets that have gotten more attention from the managers saw the biggest increase in demand within its 810 stores, with the exception of its New York Herald Square flagship, said Chief Financial Officer Karen Hoguet. Men's merchandise and home goods drove purchases, along with updated apparel and fashion watches, she said. "My Macy's structure is making an enormous difference in our business," she said. The company said it is "premature" to raise its annual profit forecast further at this time given the economic uncertainty. It had already increased its full-year outlook to profit of as much as $1.80 a share from as much as $1.60 a share on April 27 when it hosted its first analyst meeting in three years.
Mall, Shopping Center REITs See Brightening Retail Landscape
With consumers spending more at U.S. malls and shopping centers this year, retail REITs reported improved first quarter operating results, stronger store sales and stepped up leasing activity as occupancies, rents and other fundamentals showed signs of stabilizing. In conference calls with analysts and investors monitored by CoStar Group, REIT executives said retailers are generally in a more positive mood, with the number of bankruptcies continuing to decline and some retailers even beginning to contemplate new store openings or expansions. Capital markets are improving and many executives said they are looking forward with renewed confidence to this month's International Council of Shopping Centers (ICSC) annual convention in Las Vegas, a major retail deal-making forum for investors and tenants.
Meet the New Boss
Macy's is planning to launch an exclusive clothing line from Hugo Boss next year. The new line, whose working name is "White Label," is expected to include suits, sportswear and accessories for men and women at lower prices than most of the wares currently sold under the Hugo Boss brand, sources said. The clothing line is the latest high-profile exclusive for Macy's CEO Terry Lundgren, who last week inked an agreement for Macy's to become the sole department-store distributor for the Sean John label founded by hip-hop mogul Sean "Diddy" Combs.
Warmer Welcome for Retail Discounters in Twin Cities
In pre-recession times, thrift stores and other discount retail chains sometimes got the cold shoulder from commercial landlords because they didn't send the "right image" or because they couldn't afford the rents at prime suburban centers. But things have changed in the past few years. Discounters like the Dollar Tree, used merchandise sellers such as Goodwill and Savers Inc. and cost-cutting grocers like Aldi are among the few categories of retailers that are expanding, and rather than turning them down, struggling landlords and developers are now welcoming them as a vital lifeline to fill abundant empty space or to anchor new sites.
Target, Wal-Mart Juice Up Electronics Aisles
New products being rolled out at Walmart discount stores include televisions that can connect wirelessly to Internet movie streaming services -- such as Netflix Inc and the Vudu service Walmart just bought -- and carry un-Walmart price tags of up to $2,000, Walmart executives said on Wednesday. For the right electronics with the right features, even customers at a retailer that competes on low price are willing to spend, Gary Severson, senior vice president of the entertainment division at Walmart said during an interview. "We are seeing a customer that is accepting of price points where there's value at that price point," Severson said. "It doesn't have to be the opening price point to have value." Target, meanwhile, is remodeling its electronics sections to make it easier for shoppers to buy items such as video games and cellphones, while also better displaying large, flat-panel televisions.
Hey! Not So Fast, Eddie
Suppliers to Sears Canada are accusing the retailer of trying to strong-arm them into sharing profits reaped from the strength of the Canadian dollar. In a move that industry insiders have called highly unusual, Sears Canada has told its suppliers it will cut its payouts for merchandise shipments because of a recent surge in the value of the Canadian dollar vs. the greenback. The rise of Canada's so-called "loonie," which has risen more than 20 percent vs. the US dollar since January 2009, has benefited many suppliers who export to the retailer's Canada-based stores. Sears Canada said it will cut payments for recent and future shipments by as much as 10 percent and it will bill vendors retroactively to claw back its share of past currency-related profits. "This looks opportunistic, and not in a good way," said Catherine Swift, president and CEO of the Canadian Federation of Independent Business, which has received more than 20 complaints from Sears Canada vendors.
Energy
Christopher Ellis
IEA: Solar Could Make Up 25% of Worlwide Energy Production by 2050
Solar electricity could represent up to 20% to 25% of global electricity production by 2050. This is the finding of two new analyses by the International Energy Agency (IEA): the solar Photovoltaic (PV) and Concentrating Solar Power (CSP) roadmaps, launched this week in Spain, during the Mediterranean Solar Plan Conference. The roadmaps detail the technology milestones that would make this possible, highlighting that the two technologies will deploy in different yet complementary ways: PV mostly for on-grid distributed generation in many regions and CSP largely providing dispatchable electricity at utility scale from regions with brightest sun and clearest skies. With effective policies in place, PV on residential and commercial buildings will achieve grid parity – i.e. with electricity grid retail prices – by 2020 in many regions. PV will become competitive at utility-scale in the sunniest regions by 2030.
Fired Up: Bioheat Gains Momentum
The renewable energy industry has grown substantially in recent years, despite the down economy. But while solar, wind and to a lesser extent, geothermal energy put up solid growth numbers, the bioheating market has lagged behind. The reasons are simple enough. Low rates of new construction, a declining housing market and lower oil prices have made capital intensive investments in wood pellet, chip and gasifying systems a tough sell. But the signs of recovery are now being seen in this space. Consumer demand is improving and policymakers are placing renewable heating higher up on their energy agendas. In the last six months, the American Renewable Biomass Heating Act of 2010 (S.3188) was introduced in Washington, D.C., and new state- and utility-level incentives were also created in New Hampshire, with more expected in other Northeast states.
Footwear
Michael O'Hara
Heelys Q1 Revenues Slump 27%
Heelys, Inc. reported first-quarter sales declined to $6.7 million compared to net sales of $9.2 million a year ago. Gross profit was $3.2 million, or 47.9%, compared to gross profit of $3.4 million, or 36.7%, for the first quarter of 2009. Selling, general and administrative expenses, excluding litigation settlements and related costs, were $4.2 million compared to $5.1 million in the first quarter of last year. Litigation settlements and related costs incurred during the first quarter of 2009 were related to the class action lawsuit (filed in August 2007), the shareholders' derivative lawsuit (filed in October 2007) and the individual lawsuit (filed in May 2008). These lawsuits were settled during the third and fourth quarters of 2009. The Company reported a net loss of $1.2 million, or ($0.04) per fully diluted share, versus a net loss of $1.3 million, or ($0.05) per fully diluted share in the first quarter of 2009.
Phoenix Footwear's Q1 Sales Slide 3%
Phoenix Footwear Group, Inc. earned $440,000, or 5 cents per share, in the first quarter, rebounding from a loss of $3.0 million for the first quarter of 2009. Loss from continuing operations of $683,000 compared to a loss of $2.7 million for the first quarter of 2009. Net sales of $5.9 million which included increases of 20% and 4% for Trotters and SoftWalk, respectively. In aggregate, sales decreased by 3% compared to the first quarter of 2009.
Skechers Launches Leather Accessories Collection
Skechers USA, Inc. signed a licensing agreement with French Craft Leather Goods Co., Inc. to design, produce and distribute a Skechers-branded line of leather goods and accessories for men, women and kids. The new line of belts, buckles and wallets will hit retailers in June 2010. Skechers belts, buckles and wallets will be available in fine independent department, specialty and sporting goods stores throughout the United States and Canada.
Gifts/Accessories/Luggage/Pets
Mark Boucher
PetSmart, GNC to Offer Pet Vitamins
As Americans obsess over personal fitness, weight loss and healthy living, PetSmart is hoping they will do the same for their pets. The Phoenix-based pet product retailer has entered a partnership with General Nutrition Centers Inc. to develop a line of vitamins and supplements aimed at all stages of a pet’s life. The products will be manufactured by GNC and sold exclusively at PetSmart retailers beginning this fall, executives said.
Off the Deep End -- Help Best Friends Rather Than Harm
When I was growing up I had a number of best friends bracelets, necklaces and charms. I cherished those cheap pieces of jewelry for a time but at some point they would end up in the depths of a jewelry box, lost or even on the floor. I was the youngest, hardly ever babysat and was relegated to Galt, where baby cousins didn't have the opportunity to risk all the choking hazards in my room. But had I known any of those charms contained dangerous levels of cadmium that, when swallowed, can cause cancer and harm the kidneys and bones, I would have taken more care to protect my family and dogs. As far as I know, none of my jewelry contained unsafe levels of cadmium. But girls today may not be so lucky. A consumer safety agency announced the voluntary recall of about 19,000 best friends charm bracelet sets made in China and sold exclusively at the jewelry and accessories store Claire's, the Associated Press reported Monday. Claire's has more than 3,000 stores in North America and Europe. The U.S. Consumer Product Safety Commission expects more recalls.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Bi-Lo Works to Reinvent Itself
Bi-Lo's challenge under its recently approved bankruptcy reorganization is learning to better compete against other grocery chain and big-box stores. Burdened by debt and facing fierce competition and tense negotiations with creditors, Bi-Lo soon will emerge from bankruptcy proceedings "financially stronger, with less debt, and as a more competitive company in the marketplace," said Michael Byars, Bi-Lo's president and chief executive officer. Bi-Lo said its projections call for 207 stores in South Carolina, North Carolina, Georgia and Tennessee. Under the company's amended plan, filed after Bi-Lo's creditors withdrew a competing proposal, Lone Star, a Dallas-based private equity firm, would retain ownership of the grocery chain. Bi-Lo's reorganization calls for $150 million of new equity from a Lone Star affiliate, a new $200 million term loan to Bi-Lo from Credit Suisse and a $150 million asset-based loan from GE, according to court filings and Bi-Lo's attorneys. The attorneys said proceeds from the equity infusion and the term loan will be used to pay off a $260 million term loan held by Ahold, Bi-Lo's former owner. Unsecured creditors will divide $40 million.
Whole Foods Promotes Robb, Gallo as Q2 Results Soar
Whole Foods Market said it has named Walter Robb co-chief executive officer and A.C. Gallo as president and chief operating officer — moves John Mackey, co-CEO and co-founder of the chain said do not mean he plans to slow down. It's simply an acknowledgment to the outside world of the role both executives have played for years, Mackey said. “My goal is to keep this team together for another decade or so,” he told investors. Robb and Gallo previously held the title of co-presidents.
Winn-Dixie Sales, EBITDA Fall in Q3
Winn-Dixie Stores reported lower sales and EBITDA for the third quarter that ended March 31. Net income for the 12-week quarter rose 26% to $209 million, while adjusted operating cash flow declined 13% to $50 million; sales fell 2.3% to $1.7 billion, and identical-store sales dropped 2.2%. For the 40-week period, EBITDA declined 13.9% to $103.3 million, with net income down 50.9% to $14.9 million; sales declined 2.6% to $5.5 billion, and ID sales fell 2.3%.
Food Industry Groups Back Swipe Fee Reform Amendment
One hundred and thirty-four trade organizations, among them such food retailing industry stalwarts as Food Marketing Institute and the National Grocers Association have signed a letter addressed to all members of the U.S. Senate and endorsing an amendment to the Restoring American Financial Stability Act of 2010 sponsored by Senate Majority Whip Richard Durbin (D-Ill.) that will address excessive debit card swipe fees and the practices of credit card companies and the banks that issue their cards. Other retail groups supporting the amendment are the National Association of Convenience Stores, the National Retail Federation, and the Retail Industry Leaders Association, which drafted the letter.
Home Improvement/Auto Repair
Billy Busko
GM Speeds Up Repair of Dealer Network
General Motors Co. has a new strategy in dealer relations, led by its CEO and North America boss: Clean up the mess left by the old GM. GM is adopting a more flexible approach to its dealer footprint, welcoming back dozens of rejected dealers in the past two months and extending settlement offers of as much as $1 million. GM had said in March that it was offering reinstatement to 661 of the 1,160 dealerships whose owners sought arbitration over GM's decision to wind down franchises at their stores. GM later raised the number to 666. Now the reinstatement figure is significantly higher. When the dust settles, GM's surviving dealerships likely will number more than 4,500, compared with the 3,600 the automaker said it wanted last year when it was in bankruptcy.
Gilt Groupe Expanding Home
Now online shoppers can have more Gilt in their homes too. Gilt Groupe, one of the first and perhaps the largest of the online sellers of luxury brands at discounted prices, is launching an expanded Gilt Home offering today. It says it will feature an average of 15 home sales a week from some 200 brands, including Cuisinart, Kyocera, Ligne Roset and Missoni Home.
Spring to add shine to Home Depot, Lowe's
U.S. home improvement chains Home Depot Inc. and Lowe's Cos Inc. are set to report a strong spring quarter next week, as consumers spruced up lawns and gardens and sought energy-efficient appliances. Many homeowners put their renovation plans on ice during the recession. But in the last few quarters, more have upgraded appliances to benefit from a federal stimulus for energy-efficient goods and invested in homes they are likely to live in for a longer period of time. Some took up home projects like painting, while many others bought fertilizer, potting soil and tools to turn over gardens for the spring. Demand for outdoor furniture and products like lawn mowers was also strong, analysts said. That is good news for Lowe's, which is due to report quarterly earnings on Monday, and Home Depot, scheduled to post results on Tuesday.
Scotts Q2 Income Up 53%
Marysville, Ohio-based Scotts Miracle-Gro has posted second-quarter net income of $118.5 million, up 53% from $77.4 million in the second quarter of 2009. Sales totaled $1.12 billion, up 19% from $940.7 million in the year-ago period. This increase was driven by a 21% rise in sales in the company’s Global Consumer segment to $1.01 billion from $840.6 million for the same period last year. Consumer purchases of the Scotts’ products at its major U.S. retailers increased 7% fiscal year-to-date through the quarter, which ended April 3.
Housewares/Furniture
Billy Busko
Furniture Brands Swings to Q1 Profit
Furniture Brands International Inc. reported a first-quarter profit of nearly $3.5 million, compared with a loss of about $4.2 million in last year’s quarter. However, the furniture maker said that for the quarter ended March 31, net sales fell to $322.4 million, down 10 percent from $356.9 million in the first quarter last year. Furniture Brands said first-quarter retail sales at its 65 company-owned stores totaled $35.6 million compared with sales of $29.8 million at the 62 stores the company owned in the first quarter of 2009.
Havertys Reports Results for First Quarter 2010
Haverty Furniture Companies, Inc. reports solid first quarter 2010 operating results, with increased sales of 8.2%, strong gross profit margins and decreased operating costs. Earnings per share for the first quarter of 2010 are $0.11 compared to a loss per share of ($0.34) for the same period of 2009.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Green Mountain Clears Regulatory Hurdle, Wraps Up Diedrich Buy
Vermont-based Green Mountain Coffee Roasters Inc. has wrapped up its buy of Irvine-based coffee seller Diedrich Coffee Inc. after clearing regulatory hurdles. Diedrich was bought Tuesday for $290 million in cash by Green Mountain, which in December prevailed over Emeryville-based Peet's Coffee & Tea Inc. in a bidding war. The inquiry likely had to do with sales of a new type of single brewing cups known as K-Cups, which Green Mountain will control with the purchase of Diedrich. K-Cups allow you to brew a single cup of coffee in a special machine by putting one of the K-Cups into the slot where coffee grounds and a filter would go on other machines. Green Mountain’s Keurig Inc. unit owns the K-Cup brand and grants licenses for others to produce them. Diedrich was one of a handful of K-Cup licensees.
NexCen Sells Brands to Levine Leichtman for $112M
NexCen Brands Inc. said Thursday it is selling all of its franchise businesses, including the Great American Cookie, MaggieMoo's, Marble Slab Creamery, Pretzelmaker and Pretzel Time brands, to an affiliate of private-equity firm Levine Leichtman Capital Partners for $112.5 million. NexCen, which began exploring strategic alternatives in February amid falling sales and a cash shortfall, said part of the proceeds of the buyout would be paid to its lender, BTMU Capital Corp., to satisfy the company's debt. The deal is subject to approval by NexCen shareholders and is expected to close in the third quarter of 2010. NexCen's deal with Levine Leichtman represents the latest in a spurt of restaurant company buyouts. So far this year, deals have been announced for Rubio's Restaurants Inc., Dave & Buster's, CKE Restaurants, Papa Murphy's International, Fuddruckers, Wingstop Restaurants and On the Border.
Jewelry/Mining
Mark Lenz
Zale Fortifies Its Footing with $150 Million Loan
Zale Corp. on Monday announced a three-pronged recapitalization, including a $150 million loan from a private equity firm, to help turn around the struggling jeweler beset by falling sales and cash-flow issues. "This gives us a very healthy foundation to complete our turnaround strategy," said Zale chief financial officer Matt Appel. The Irving-based retailer has been hurting for cash and closing stores. San Francisco-based private equity firm Golden Gate Capital provided the $150 million loan in exchange for a 25 percent equity stake. Golden Gate's stake will be in common shares that it can purchase later at $2 each.
The 'Discretionary' Dilemma
There is no question that diamonds that do not come in the form of an engagement ring or wedding band have been a tough sell during this recession, as cash-strapped consumers turned away from discretionary purchases to shore up their savings, or simply make their mortgage payments. A whopping 79 percent of those who participated in National Jeweler's Product Panel on non-bridal diamond jewelry reported that their sales in this category were flat (15 percent), down slightly (33 percent) or down significantly (31 percent) due to the economy. It has been difficult, no doubt, but the challenges are not enough to make jewelers abandon staples like diamond pendants, stud earrings or line bracelets. Instead, store owners have found creative ways to get customers in the door and over to the diamond display cases.
Dissecting Tiffany’s Year-End Filings: The Strategies that Helped It Weather the Recession
Tiffany & Co. is one of the most admired merchants in the jewelry industry, and it has earned that reputation rightfully. Not only has it shown the exceptional power of a store brand, but its financial results illustrate that retail specialty jewelers can operate profitably, even in a recessionary environment. While its average ticket dropped modestly in 2009, its cash flow was dramatic, and its profit margins were four-times the industry average. Tiffany recently filed its annual report with the Securities & Exchange Commission; this document always contains nuggets that will help other jewelers see how a successful retail merchant runs its business. Among our findings: Tiffany’s average ticket rose for bridal jewelry, but fell for fashion jewelry; profit margins outpaced the industry averages dramatically; Tiffany generated strong cash flow; performance drives compensation at Tiffany; Tiffany’s charitable contributions are a matter of public record; Iridesse stores were not productive; Tiffany reduced its advertising during 2009; Tiffany’s sales mix is mostly jewelry; and Tiffany’s product mix metrics illustrate its commitment to vertical integration.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
The Web Easily Outpaced Store Sales for Jo-Ann in Q1
Web sales easily outpaced store sales for Jo-Ann Stores Inc. in the first quarter. For the quarter ended May 1, Jo-Ann recorded an increase in e-commerce revenue of 8.4% to $10.3 million from $9.5 million in the first quarter of 2009. Total sales grew year over year 4.4% to $480.3 million from $460.0 million. Comparable-store sales increased 4.1%. Based on Internet Retailer calculations, the web accounted for 2.1% of total sales in the first quarter, the same as the prior year.
Office Depot to Shutter Maryland Warehouse, Cut 132 Jobs
Office Depot Inc. is laying off 132 people this summer when it closes a distribution center in Odenton, Md. The office supply company is consolidating its supply chain system in the Northeast at a new 600,000 square-foot facility in Newville, Pa. Operations at the 320,000-square-foot facility in Anne Arundel County will begin to wind down this month and will cease July 16.
The Knot Wraps Up 64% Web Sales Growth in Q1 2010
Wedding merchandise retailer The Knot Inc. wrapped up solid first quarter web sales. Online wedding supplies revenue, which represents the retailer's web sales, grew 64.3% to $6.9 million from $4.2 million in Q1 2009. The May 2009 acquisition of Felicite.com, developer of wish list technology and operator of eWish.com, a stand-alone gift registry service, contributed $1.6 million in revenue. Wedding registry services revenue was $1.69 million, a 1.2% decline from $1.71 million in the prior year. Online advertising revenue grew 12.5% to $14.4 million, compared with $12.8 million in the prior year quarter. Publishing and other revenue was $4.4 million, a 10.0% increase from $4.0 million in the first quarter of 2009. Total sales were $27.5 million, up 16.0% from $23.7 million in the first quarter of 2009.
Restaurants/Food Service
Mark Boucher
Arby's Still Struggling as Wendy's Improves
After launching a national value menu, Arby's will introduce two premium sandwiches as it continues to seek a winning formula to reverse falling sales. The premium products -- a Steakhouse Sub and a Prime Cut chicken sandwich -- will be promoted alongside Arby's new $1 value menu, parent company Wendy's/Arby's Group Inc. said after reporting first quarter results that included an 11.5-percent drop in same-store sales at the roast-beef-focused chain. Meanwhile, sister concept Wendy's posted its best same-store sales in a year with an increase of 0.8 percent at its North American stores for the first quarter, the company said.
Analyst: More Restaurant Buyouts Ahead
On the heels of the buyout news from Rubio’s Restaurants Inc., Keybanc Capital Markets analyst Brad Ludington has offered up three possibly tantalizing meals for the next hungry private-equity firm. Ludington said in a report Wednesday that he is confident the market is ripe for deep-pocketed private-equity companies to swoop in on moderately priced restaurant entities. So far in 2010, private equity deals have been announced for Rubio’s, Dave & Buster’s, CKE Restaurants, Papa Murphy’s International, Fuddruckers, Wingstop Restaurants and On the Border. Other companies that have either begun to explore corporate options or already have looked at sale offers include California Pizza Kitchen, Benihana, Kona Grill and Hooter’s of America. Ludington picked three more to add to the mix: Bob Evans Restaurants Inc.; Red Robin Gourmet Burgers Inc.; and Ruby Tuesday Inc.
Starbucks Makes Push for Seattle's Best
In an ongoing plan to “unleash the power” of Seattle’s Best Coffee as a second global coffee brand, Starbucks Corp. said it is launching a new identity for the concept, including an updated logo. Starbucks also said Wednesday that it had signed an agreement with AMC Theatres, which will begin serving Seattle Best coffee at 300 cinemas this summer. The new logo for Seattle's Best reflects the brand's positioning as offering a more accessible specialty coffee in mass-market venues, said Starbucks, which acquired the concept in 2003. Earlier this year, Starbucks announced plans to sell Seattle’s Best Coffee at Burger King restaurants across the country by September. Seattle’s Best is also available in Subway locations, as well as Borders Bookstores, on Alaska Airlines and on Royal Caribbean Cruise ships.
Orange County Choppers Restaurant Planned
Advent Entertainment has acquired the international rights to the Orange County Choppers Roadhouse name and plans to open the first unit this summer in Newburgh, N.Y. The 8,500-square-foot Roadhouse will include a full-service restaurant, bar and retail shop. Newburgh, 60 miles north of New York City, is the headquarters for Orange County Choppers, which is known for its custom motorcycles and the “American Chopper” reality television show on TLC. The OCC Roadhouse will feature American-style “comfort food” with indoor seating for 225 and a patio with fireplaces and barbecue pit to seat another 100. It will have a center bar and a keg room with 165 beers on tap. A bowling alley, concert hall and microbrewery are planned for the second phase in 2011.
Banking & Lending
Douglas Stebbins
GM Making a U-Turn on Auto Loan Business?
Three years after selling its controlling interest in financial services company GMAC, General Motors is looking at reentering the auto-loan business. Executives at the Detroit-based carmaker believe having an in-house financing operation would allow GM to offer more competitive loans and leases and help drive profits, according to news reports. GM might buy back its GMAC business, start a new finance unit or form a partnership with banks and other financial institutions, reports Bloomberg News, citing anonymous sources. CEO Ed Whitacre wants the company to have its own finance operation up and running in time for GM's initial public offering, which has been anticipated since the company exited bankruptcy last July and which could happen as soon as October.
US Eyes Ban on Mortgage ‘Liar Loans’
The US Senate on Wednesday approved an amendment to ban “liar loans”, mortgages that allowed borrowers to overstate their incomes, as debate on the financial regulation bill targeted one of the causes of the crisis. “This outlaws no-documentation liar loans on income,” Sen. Jeff Merkley told the Financial Times, adding that bonuses for originators who steered borrowers to expensive loans – “one of the worst parts of the mortgage retail” business – would also be banned by the rule change. Lenders would be obliged to hold 5 per cent of any mortgage they wrote as part of the changes. “No one had any skin in the game,” said Sen. Amy Klobuchar during the debate on the change. “These lenders never intended to keep the loan long enough for that to matter.” The widespread practice of selling mortgages to borrowers who had little hope of repaying the loans, coupled with the explosion in securitization, helped to spread bad loans across the financial system in what is recognized as a key cause of the crisis.
Senate Passes Amendment on Debit and Credit Card Swipe Fees
Retailers won a long-sought victory late Thursday as the Senate approved a measure that would give them more power over the fees they pay to banks each time shoppers swipe a credit or debit card. The controversial amendment by Sen. Richard J. Durbin (D-Ill.) represents one element of a broader overhaul of financial regulations, but it is a piece that ordinary consumers could feel most directly. It passed 64 to 33, with 17 Republicans joining dozens of Democrats. The measure allows stores to give customers discounts for paying with cash or using cards with cheaper fees, and it would permit retailers to set price thresholds for accepting credit cards.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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