The Weekly Consensus: Week of June 14, 2010
Bigger Problem
Kristen Nill
By the time this week's newsletter arrives in your inbox, it will have been 55 days since the Deepwater Horizon exploded in the Gulf of Mexico. According to the latest estimates as this goes to press, the spill has sent 90 million gallons of oil into the water (more than 8 times that of the Exxon Valdez disaster) and in the time it took me to write this, 120,000 more gallons have been added to the total. Heartbreakingly, there is no way to determine how many birds, fish, and other underwater marine life have perished or are threatened. The statistics of the damage done in the last 55 days are staggering. Adding insult to injury, some reports expect that the oil will continue to leak through the end of the summer, which is really just a less scary way of saying “we can’t stop it.” The crisis has brought many questions to light. First among these questions is, of course, who is to blame?
Most have zeroed-in the blame on BP as it scrambles to stop the leak; their disaster recovery plan was flawed, certain expectations were based on unrealistic calculations and they all but missed some of the most obvious issues. BP was able to skirt some important responsibilities due to considerable self-regulation afforded by the US Minerals Management Service (MMS), the federal agency that oversees the oil industry. In fact, it is not MMS but the industry itself that ultimately sets the safety standards and environmental rules for offshore drilling. Is the problem then with MMS for their mostly hands-off approach? Their conflict of interest is clear: in addition to regulating API, MMS also collects royalties on the oil and gas from their leasing tracts. The relationship between the oil companies and MMS is thought by many to be a little too close for comfort, and changes to its operating procedures are on the way.
Despite the fact that the MMS is now headed for a new organizational structure, is it the federal government’s fault for not recognizing this need sooner? Has MMS, API and therefore BP been allowed to get away with too much? The short answer is, simply, “yes.” But, there is more blame to be spread around, and it strikes much closer to home. Because even as the public criticizes BP, and BP blames Transocean and Halliburton, who point the blame right back at BP, the hard truth is that we are all at fault. We did this. We demand oil, so we must drill for it somewhere, and this time it all went horribly wrong. And yes, “we” means everyone. No member of modern American society gets a pass, even if they do drive a hybrid and turn the lights out when they leave a room.
It is impossible to take back the events and actions that have led to this crisis, so in the short term there is not much use in vitriol and recrimination. Fortunately or unfortunately, BP appears to be the only outfit with the expertise and resources to fix the problem. Their engineers are working around the clock, but the equipment that is needed to stop the leak doesn’t even exist yet. While we wait for the resolution and work on the clean-up, we should takes some time to think about what it is that we have done.
Apparel/Swimwear/Intimates
Betsy White
How Sonsi.com Can Take the Plus-Size Market to New Social Shopping Heights
Though it launched yesterday, Sonsi.com, a new social commerce site targeting plus-size women, is a concept that’s overdue. After all, 60 percent of American women buy apparel in sizes above 12. Careful branding and marketing are in order though. As a subsidiary of Charming Shoppes which also owns Lane Bryant, Fashion Bug, and other plus-size brands, Sonsi (which means curvy in Scottish) is competing against sister site Inside Curve. Lane Bryant’s social networking/shopping site Inside Curve debuted last summer and also merges fashion retail with social networking. Inside Curve took Lane Bryant’s active Twitter and Facebook presence to the next level by offering dedicated shoppers a forum to squawk or squee about purchases and get special deals and discounts on Lane Bryant threads. The company isn’t showing any signs of giving up on the site. In fact, plus-size fashion blogger Diana Rajchel told me she was at Lane Bryant HQ last week for a conference where execs heavily promoted the site and even encouraged her and others to pipe their blog feeds to Inside Curve.
Talbots Taps Linda Evangelista for Ad Drive
Former supermodel Linda Evangelista will be the new face of Talbots Inc. The classic women’s retailer - which yesterday reported a narrowed first-quarter loss, but issued a downbeat outlook - will feature Evangelista in a national advertising campaign starting in September as it continues a turnaround. “Given the considerable progress we have made in updating our merchandise and elevating our brand image, we are confident that this is the right time to push forward and accelerate our marketing efforts and our spending,” CEO Trudy Sullivan said. Evangelista’s classic beauty defines Talbots’ motto of “tradition transformed,” Sullivan said. Talbots targets women 35 and over. “We love Linda simply because she is so beautiful and she’s iconic and she’s 45,” Sullivan said. “She’s right in our target - our sweet spot. She’s a mom, (and) she has a lot of the attributes that our core customers absolutely love.” Talbots’ ramped-up marketing strategy also includes regional advertising, sprucing up the look of its stores, and increased catalog circulation and customer prospecting via the Web.
Wedding Dresses for a More Relaxed Bride
There's an adage that finding the perfect wedding dress is like finding a perfect partner: You want one that hugs your body, offers support, lifts you up and makes you feel beautiful. So wouldn't it be great to get a dress from a brand that, like your future spouse, you trust to give you these things on an average Wednesday as well as on what's supposed to be the most memorable day of your life? That seems to be the philosophy behind the slew of major mass-market retailers now offering bridal gowns. It was an idea popularized by J. Crew, which launched its Weddings and Parties collection in 2004 after noticing women were buying some dresses in multiples to use for bridesmaids or in white to use for themselves. The notion then grew to include Isaac Mizrahi's Target dresses, Viktor & Rolf's design for H&M and others. The trend seems to be exploding now, tapping today's market of more budget-conscious brides with gowns from the Limited, Ann Taylor and, shipping out July 1, White House | Black Market. Next spring, bohemian brides-to-be will be able to sift through Anthropologie's wedding gown selection, while discount divas with their eyes on luxury names can check out Vera Wang's designs for David's Bridal. And there are lines like BCBG Max Azria, which doesn't have an official bridal line but has figured out why its loyal customers are fighting over the last off-white column strapless dress in their stores. The company has added to its website a "wedding shop" dedicated to its more formal dresses, including white ones that can pass for bridal gowns.
Apparel Chains a Big Hit in Small Towns
They don't set up shop in big-city, glitzy fashion malls. You'd be more likely to find them in strip centers between Tractor Supply Co. and the local Chinese buffet. But to small-town consumers who want to be trendy and fashionable, these stores are like diamonds in the rough. Think Rue21, Peebles, Maurices and Goody's -- all apparel retailers that shy away from big markets, focusing instead on small to midsized towns where people crave a place to shop for clothes. "We are going to be in a strip center at the corner of Main and First Street, where there is a nail salon, a dollar store and maybe a tractor supply," said Bob Aronson, a vice president with Stage Stores, which owns both Peebles and Goody's. "That's where we love to locate."
Azria Takes BCBG off the Block; Bids on Karstadt
Talk about a fickle fashion designer. Max Azria -- who this spring put his Los Angeles fashion empire BCBG on the block -- appears to have suspended the auction of his own label while making a surprise investment in Karstadt, a bankrupt German department store. In a bizarre turn of events, Azria -- a diminutive, deal-obsessed chain smoker who sells his fashions everywhere from Bergdorf Goodman to Wal-Mart -- "probably isn't proceeding" with his search for a big equity partner for BCBG, according to one source close to the situation. Instead, the 61-year-old Azria is partnering with Nicolas Berggruen, the billionaire son of a famous art dealer who fled Nazi Germany, to spruce up German retailer Karstadt, which collapsed a year ago during the credit crisis.
Athletic & Sporting Goods
Michael O'Hara
Chinese Sports Companies Focus on Sponsorships
The newest sponsor of women’s tennis is a half-billion dollar sporting goods maker that virtually no one outside of China has ever heard of. Peak, which announces its five-year deal with the Sony Ericsson WTA Tour this week, is the latest cash-flush Chinese company to form a partnership with well-known foreign athletes, teams and leagues. As with other such deals, the focus is on boosting brand image at home. In fact, shoes and other products from companies such as Peak, Li Ning, Anta and Xtep can hardly be found for sale outside the country. The brands are targeting the burgeoning Chinese middle class, which has a growing interest in leisure activities and plenty of pocket money. The idea is that Chinese consumers will think more favorably about domestic brands and their international status when they see established foreign stars wearing the products.
The World Cup as Big Business
At a party in 1998, João Havelange was asked whether he considered himself the most powerful man in the world. It was a question suitable for a head of state, but Havelange, who was merely the president of FIFA, didn't blanch. He said, "I've been to Russia twice, invited by President Yeltsin...In Italy, I saw Pope John Paul II three times. When I go to Saudi Arabia, King Fahd welcomes me in splendid fashion...Do you think a head of state will spare that much time for just anyone? That's respect. They've got their power, and I've got mine: the power of football, which is the greatest power there is." Now, 12 years later, on the eve of World Cup 2010 in South Africa, FIFA and its showcase quadrennial tournament are more powerful than governments or the multinational corporations that queue up to sponsor the games. FIFA was laughably late to tap the reach of mass media, but in the past two decades, it has fully harnessed the technological and marketing powers of a global economy. The World Cup has become such a force that it triggered a cease-fire in a brutal civil war in Ivory Coast, caused stock markets of losing nations to tumble and catalyzed a spike in the birthrate of the 2006 host, Germany. How's that? Hosting the World Cup allowed Germans to express a nationalist spirit that had been understandably dormant for 60 years. They felt the love, apparently. When FIFA's juggernaut opens in Johannesburg on June 11, it will be South Africa's turn. The rainbow nation expects nothing less than a reaffirmation of its nationhood and the chance to inform billions of television and Internet viewers that the host country represents the thriving future of the continent.
Catalog & Internet
Christopher Ellis
Sharper Image Issues First Catalog Since Its 2008 Bankruptcy
Sharper Image is ready for its comeback. The former San Francisco retailer has issued a 68-page Father's day catalog — its first under new ownership. A joint venture by Bluestar Alliance, Hilco Consumer Capital and Gordon Brothers bought the struggling company out of bankruptcy for $49 million in May 2008. That year, it closed all its retail stores. The new owners are focused on building back the company by selling branded goods through licensees and at third party retailers like Bed, Bath & Beyond and Macy's. The Sharper Image e-commerce site is licensed to Camelot Venture Group, a private investment firm, which issued this catalog and has three more catalogs planned for the holiday season.
Sears Innovates to Expand Customer Choice
Sears Holdings Corp. is constantly innovating—not for the sake of innovation, but to make customers' lives easier, said Imran Jooma, the retailer's senior vice president and general manager, e-commerce. "When customers want something, they want it today and they want it now," he said. "So we center our efforts on giving them choice, convenience and value. The choice to get whatever they want, whenever they want it and however they want it." That choice means having the items for which shoppers are looking. To bolster its product offerings, Sears introduced Marketplace on Sears.com, which enables merchants to sell on Sears.com. The effort increased assortment on the site by nearly 12 million products. If a shopper still can't find the item she wants, she can use the retailer's PersonalShopper program that allows a consumer seeking a hard-to-find item to communicate with a Sears representative by e-mail, phone call or live chat from a Sears web site. In addition, a consumer can download the PersonalShopper app to her mobile phone, take a picture of a desired item with her phone's camera and e-mail the photo to a Sears personal shopper. When the agent finds the desired item, he alerts the shopper when it is available for pickup.
Social Media "a Big Push" for JCP
J.C. Penney Company is increasingly relying on digital and social media formats to foster closer ties with its existing and new shoppers, the company said. Jim Kenney, svp, corporate strategy and investor relations, said that while "there is still a lot to learn" about this emerging marketing channel, he urged that "the whole press forward in new media has been pretty interesting for us, and it's been a big push for us."
Consumer Electronics/Video/Audio
Douglas Stebbins
Blockbuster Girds for Worst
Blockbuster Inc. is in talks for a new loan that would keep it afloat in bankruptcy court, a fresh sign the movie-rental chain could be forced to seek Chapter 11 protection from creditors to rework more than $900 million in debt. Blockbuster is in discussions with bondholders to get up to $150 million in so-called debtor-in-possession financing, said people familiar with the matter. Such loans, which typically carry high interest rates, are used to help companies operate while under Chapter 11 protection. The senior bondholders, owed about $630 million, would provide the financing to protect their original investment should Blockbuster file.
World Cup Ushers in ESPN 3D, 3DTV Era
3D TV is taking a big step today, as ESPN 3D launches with initial coverage of the FIFA World Cup, starting with South Africa versus Mexico. The service was announced in January, and ESPN has been talking it up, comparing the launch of this channel with that of ESPN HD seven years ago. ESPN 3D plans to air 25 world cup matches over the next month, including the finals on July 11. Other planned events include the Major League Baseball Home Run Derby on July 12, the ACC Championship and the BCS National Championship games in college football, next year's Big East tournament in college basketball. Also on the future roadmap: the X Games and the NBA. The network says it expects to show about 85 events in the first year. The rest of the time, it will go dark.
FTC Said to Prepare Review of Apple Tactics in Mobile Ad Market
The U.S. Federal Trade Commission is preparing to review allegations that Apple Inc. is engaging in anti-competitive tactics to restrict rivals in the mobile- advertising market, people familiar with the matter said. Regulators want to know whether moves by Apple will result in less competition in the growing market for ads on handheld computers and phones. Spending on mobile ads in the U.S. is expected to rise to almost $500 million this year from $220 million in 2009, according to IDC. Omar Hamoui, founder of Google Inc.’s newly acquired AdMob mobile-ad service, wrote in a June 9 blog posting that Apple issued rules that would prohibit developers “from using AdMob and Google’s advertising solutions” on Apple’s iPhone.
Cosmetics & Pharmacy
Billy Busko
CVS Caremark to Cut off Walgreen from Network
CVS Caremark Corp. said it will end rival Walgreen Co.'s participation in its retail pharmacy network starting in a month. The move would mean that people whose prescription drug benefits are handled by Caremark would not be able to be reimbursed for prescriptions filled at Walgreen pharmacies. Walgreen said it expects most of its 7,500 stores to be out of Caremark's commercial network in 30 days. Some Walgreen stores won't be cut off as quickly because of state laws or client contracts. The Woonsocket, R.I., pharmacy benefits manager also said it will end Walgreen's participation in its Medicare Part D retail pharmacy network on Jan. 1.
Macy’s Reacts to Changing Consumer Shopping Habits
The continually challenging economy has forced even the largest merchants to rethink their strategies — and, for Macy’s, that includes a new beauty concept called Impulse Beauty, as well as a new mobile shopping app and a program designed to track down out-of-stock products. An assisted open-sell concept which coexists with traditional beauty counters, Impulse Beauty is intended to showcase smaller brands, most of whom are entering Macy’s distribution for the first time.
CVS Roils Independent Pharmacies with Refill Plan
Independent pharmacies say they are getting squeezed by a CVS Caremark Corp. drug refill program that restricts where participants can buy prescriptions. The pharmacies are losing 5 percent of their 118 million customers, said Doug Hoey, chief operating officer of the National Community Pharmacists Association. CVS Caremark has won that by making users on some drug plans get refills solely through its 7,000 retail stores or mail-order program. “Our biggest issue is that the patient is mandated to go to CVS or Caremark,” Hoey, whose group represents more than 23,000 independent pharmacies, said in a telephone interview. “They lose the ability to choose where they get their medicine.” His trade group joins Walgreen Co., the largest U.S. drugstore chain, in escalating complaints about the way CVS Caremark operates its pharmacy benefits management division. The Caremark unit runs prescription drug programs for companies and government agencies, negotiating prices between drug manufacturers, clients and retail chains.
Department & Discount Stores
Mark Lenz
Big Lots Shies Away from "Closeout" Identify to Capture New Vendors, Shoppers
Looking to forge relationships with new vendors and at the same time better appeal to shoppers, Big Lots recently altered its tagline to omit the word "closeout." The new tagline is "Extreme Value" - a change from the prior "Brand names, closeout prices" message. During the discount chain's presentation, SVP and CFO Joe Cooper discussed Big Lots' varied efforts to shape its merchandise offering and price points to fit its "Extreme Value" approach. "The No. 1 reason people shop Big Lots is for seasonal, and seasonal is not a closeout category," he explained, also citing furniture as another product category specifically created for the retailer rather than sourced as a closeout offering. "The customer does not care how we source our goods," he continued. "They don't understand closeouts. As a matter of fact, this year we've moved away from "Brand names, closeout prices" [tagline] because after consistent communication with customers, [we learned that] customers do not generally understand the concept of a closeout, or [think] it is negative ... Our shopper doesn't want cheap, she wants value."
Target Takes Some Tentative Steps into Discounter Loyalty Card Programs
Discounters have been watching supermarkets flood the market with loyalty card programs and have been trying the waters themselves lately, with Target the latest to take the plunge, if a little halfheartedly. Target is shifting how it rewards holders of its REDcards to reposition them in the loyalty card vein. REDcards include the Target and Target Visa credit cards as well as the debit vehicle that the retailer refers to as a check card. Under the new program, the retailer will provide five percent off any in-store or online transaction processed on its REDcards. The per-use discount replaces a rewards program that offered cardholders a 10 percent-off coupon for signing up and the chance to earn more 10 percent-off coupons with purchases.
Nordstrom Builds High-Low Momentum
While sales have been strengthening at Nordstrom, executives from the Seattle-based retailer told a group of investors that one of the best lessons it learned in the recession was a savvier balance between its full-line Nordstrom stores and the Rack, its rapidly growing off-price division. The company says it plans to keep opening between 10 and 15 Rack stores per year -- but, as growth picks up at Nordstrom, there is less inventory. "We've had Racks for 35 years, and it's a very profitable concept," Rob Campbell, head of investor relations, said. "It's worked well in both in tough times and good times." As consumers tiptoe back into luxury spending, he said, "the Rack's performance has moderated in recent months.
Footwear
Michael O'Hara
Tony Hsieh: Why I Sold Zappos
The first time Amazon.com tried to buy Zappos, we said no without even thinking. It was the summer of 2005, and Zappos, the start-up into which I'd poured the past five years of my life (and almost all of my money), finally seemed to be on the right track. Zappos sells shoes and apparel online, but what distinguished us from our competitors was that we'd put our company culture above all else. We'd bet that by being good to our employees -- for instance, by paying for 100 percent of health care premiums, spending heavily on personal development, and giving customer service reps more freedom than at a typical call center -- we would be able to offer better service than our competitors. Better service would translate into lots of repeat customers, which would mean low marketing expenses, long-term profits, and fast growth. Amazingly, it all seemed to be working. By 2005, gross merchandise sales were $370 million, and we made the Inc. 500. We weren't profitable yet, but we were close to breaking even, and our revenue was growing quickly. At the time, we made almost all our money selling shoes, but our hope was that we'd eventually go into all sorts of other businesses. We saw Zappos as a global brand like Virgin -- except whereas Virgin was about being hip and cool, Zappos would be about offering the best service. The plan was to grow sales to $1 billion by 2010 and eventually go public. As I talked to Amazon founder and CEO Jeff Bezos, who visited our headquarters in 2005, I realized that to Amazon, we were just a leading shoe company. If we sold, we'd probably be folded into their operations, and our brand and culture would be at risk of disappearing. That was why we told Jeff that we weren't interested in selling at any price. Four years later, Amazon came calling again. Our sales had grown steadily since 2005; by 2008 we were doing more than $1 billion in gross merchandise sales annually -- two years ahead of our original plan. We were now profitable, and our culture was even stronger. As before, our plan was to stay independent and eventually go public. But our board of directors had other ideas.
The Parents of CSR: Nike and Kathie Lee Gifford
Just a few decades ago, "CSR" meant customer service representative. My, how things have changed! Corporate social responsibility is now a profession. Business schools feature CSR curricula while the popularity of sustainability professional organizations such as Net Impact have exploded. Even CSR-focused think-tanks and trade media have proliferated: The Corporate Responsibility Officers Association joined the ranks of Ethical Corporation which followed Business for Social Responsibility that stood on the shoulders of the Center for Corporate Community Relations (now the Boston College Center on Corporate Citizenship). It wasn’t always so. CSR, as we now know it, sprung out of the apparel industry’s use of sweatshop and child labor. There are two pivotal events that changed the expectations of business to evaluate the social and environmental impact of its supply chain: the exposure of Nike’s business model and Kathie Lee Gifford’s clothing line.
Heelys Announces New COO/CFO
Craig D. Storey has joined Heelys as chief operating officer/chief financial officer. Storey was most recently CEO/CFO for Ft. Collins, Colorado based Sprig Toys. Prior to that he was with Radica Games, a Hong Kong based toy and gaming company with offices in Dallas, which is now part of Mattel, for twelve years. Storey will manage all financial, legal, IT and operational aspects of Heelys' business. He will focus on continuing the company's drive to become more innovative and efficient as well as extending its reach across Europe, Asia and Latin America.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Coach Makes Bigger Gains on Smaller Prices
Coach says its shift last year to lower price points continues to pay off, and that it will keep up the momentum by adding even more price assortment to its luxury offerings. "We feel very good about our positioning," chairman/CEO Lew Frankfort told investors. "Consumers have responded very well to shifting assortments, and the greater opportunity to purchase Coach at a lower price than a year ago." The company began the shift last year with the introduction of its Poppy line, Michael Tucci, president of the chain's retail division, explained. That move, he says, took average ticket sales down to about $300, "the sweet spot. Poppy is our introductory price point -- we didn't move like-for-like price points down, but we did introduce lower-priced products through the Poppy line." Poppy bags are priced around $200, while many in its Madison collection are close to $400, with some as high as $800. Tucci says that handbag sales have improved overall, and that while Coach will continue to beef up selection at the low end through Poppy and at the high end through Madison, "we are working the mix to focus on that center opportunity, in lines like Kristin and Julia, in the $250 to $350 range, to drive further growth. That is the most significant opportunity for us in 2011."
Brookstone Tries The High-Tech Wireless Debt Reduction Machine
This hasn’t been a huge year for debt swaps, but there’s a pending offer for $170 million of notes, courtesy of a major retailer of Video Spy Pens and massage chairs that synchronize with iPods. Brookstone Co., whose owners include J.W. Childs Associates LP, Temasek Holdings and Singapore-based “lifestyle products” company Osim International, is offering cash or new notes maturing in 2017 for its outstanding $170 million of 12% second lien notes due 2012. The Brookstone buyout in 2005 valued the company’s common stock at about $409 million. Noteholders will get either $800 of new notes or $800 cash per $1,000 principal amount of 2012 notes. Standard & Poor’s Ratings Services characterized the exchange as “distressed,” and lowered its corporate credit rating for the retailer to CC from CCC. S&P has a negative outlook for the company. Brookstone’s stockholders are contributing cash to buy back the notes, an amount expected to range from $13.3 million to $20 million, S&P said. The deal is conditioned on participation by two-thirds of noteholders. The offer, which launched May 5, was previously set to expire June 4 but was extended to June 18.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Target to Increase Meal Solutions
Target Corp. plans to expand its P-fresh remodels, which include expanded grocery sections, to 340 more stores this year, up from 100 installations last year, Gregg Steinhafel, chairman, president and chief executive officer, told the annual shareholders meeting. He also said future P-fresh sections will expand offerings of quick-meal solutions and fill-in groceries, "and there will be a new visual presentation and category improvements." Minneapolis-based Target has done P-fresh remodels at 200 locations. Steinhafel said Target plans to open only 13 new stores this year, for a net gain of 10.
U.S. Bank Purchases Kroger Credit Portfolio
Kroger said it would expand a strategic alliance with U.S. Bancorp, the Minneapolis banking firm that on Wednesday said it had purchased Kroger’s credit card portfolio from RBS Citizens. U.S. Bancorp, operator of U.S. Bank, said it would offer additional financial services to Kroger customers, including new payment systems. U.S. Bank currently operates nearly 192 in-store banks at Kroger stores. Kroger, through its Kroger Personal Finance subsidiary, offers credit cards, gift cards and prepaid cards through partnerships from preferred providers.
Court OKs Planet Organic Sale; Directors to Resign
An Ontario court has approved the sale of natural and organic food chain Planet Organic to its largest creditor, Catalyst Capital Group. Planet Organic received no cash in the deal but had owed more than $32 million to Catalyst as a result of its convertible notes. Catalyst acquired all assets of the nine Planet Organic stores in Canada and all the shares of the subsidiary operating 11 Mrs. Green’s Natural Markets in the U.S. In conjunction with the transfer, Planet Organic said board members Brent Knudson and Ian Newton had resigned, and Darren Krissie would resign.
Casey’s Rejects Hostile Bid from Couche-TardCasey’s General Stores urged shareholders to reject a $1.9 billion hostile bid from Alimentation Couche-Tard, the Canadian convenience store operator. The move by Casey’s, a Midwestern operator of convenience stores, follows Couche-Tard’s announcement of a slate of nine directors as part of a planned proxy fight. Last week, Couche-Tard, which owns the Circle K convenience stores, said it would take its $36-per-share cash offer, which Casey’s had rejected as too low, directly to shareholders in a tender offer scheduled to expire July 9. In its statement on Tuesday, Casey’s insisted that it could generate more growth without resorting to a merger. It also argued that Couche-Tard’s offer was opportunistic and lacked committed financing. Couche-Tard is headquartered in Canada but has more than 3,500 stores across the U.S. under such names as Circle K. Casey’s operates about 1,500 stores.
Home Improvement/Auto Repair
Billy Busko
Pep Boys Reports First Quarter 2010 Results
The Pep Boys — Manny, Moe & Jack, the nation’s leading automotive aftermarket service and retail chain, announced results for the thirteen weeks (first quarter) ended May 1, 2010. Sales for the thirteen weeks ended May 1, 2010 increased by $13.5 million, or 2.7%, to $510.0 million from $496.5 million for the thirteen weeks ended May 2, 2009. Comparable sales increased 1.4%, consisting of a 0.1% comparable service revenue increase and a 1.7% comparable merchandise sales increase. Re-categorizing Sales into the respective lines of business from which they are generated, comparable Service Center Revenue (labor plus installed merchandise and tires) increased 0.9%, while comparable Retail Sales (DIY and Commercial) increased 1.8%.
AutoZone Favors Store Openings over Acquisitions
AutoZone Inc., the biggest U.S. auto parts retailer, plans to open stores in cities such as New York City, Chicago and Boston rather than buy a competitor to expand, Chief Executive Officer Bill Rhodes said. AutoZone, which operates more than 4,300 stores in the U.S. and Puerto Rico, expects to add another 140 to 160 in the year that starts in August, Rhodes, 45, said by telephone from the company’s headquarters in Memphis, Tennessee. More car owners handled their own repairs to save money in the economic slowdown, fueling demand for AutoZone’s products, Rhodes said. The retailer is looking for sites in Philadelphia, Milwaukee and Orlando and Tampa in Florida, he said. An acquisition may generate unwanted expenses to integrate the businesses, Rhodes said.
Housewares/Furniture
Billy Busko
Lifetime Brands announces $165M credit facility
Lifetime Brands, Inc., North America's leading resource for nationally branded kitchenware, tabletop and home decor products, announced the completion of new credit facilities in an initial aggregate amount of $165.0 million. The new credit facilities consist of a $125.0 million Revolving Asset-Based Facility and a $40.0 million Second Lien Term Facility. The Revolving Asset-Based Facility, which, under certain circumstances, may be expanded to $150.0 million, has a five-year term. Loans under the facility bear interest at LIBOR plus a margin of 225 to 275 basis points, based upon availability. J.P. Morgan Securities, Inc. was the sole lead arranger of the Revolving Asset-Based Facility. The Second Lien Term Facility also has a five-year term. The interest rate is equal to LIBOR (with a floor of 1.5%) plus a margin of 850 basis points.
Pier 1 Reports Strong Q1 Sales
Home-goods retailer Pier 1 Imports said same-store sales surged in the first quarter as consumers spent more on their homes, sending its shares up as much as 15 percent. An improving economy has renewed demand for home goods, benefiting Pier 1 and larger rivals Williams-Sonoma and Bed Bath & Beyond. Unlike prior years when it offered fewer items in large numbers, Pier 1 now gives shoppers more choice by offering a wider array of decorative items, while managing inventory purchasing decisions to hold prices on merchandise. Same-store sales in the quarter, which rose 14.3 percent, benefited in March from an early Easter holiday and stayed solid through the rest of the quarter, ending with a strong Memorial Day weekend, the company said.
PPR’s Conforama Said to Draw Interest from Rivals, PE Firms
PPR SA’s Conforama, France’s second- largest furniture retailer, may draw bids from buyout firms including Colony Capital LLC and Goldman Sachs Group Inc.’s GS Capital Partners as well as Steinhoff International Holdings Ltd., said three people with knowledge of the matter. PPR isn’t holding formal talks with the potential bidders and may decide not to sell if it doesn’t get a high enough price, said the people, who declined to be identified because the matter is private. PPR values Conforama at about 1.5 billion euros ($1.82 billion), said one of the people. Colony Capital and GS Capital Partners bought a controlling stake in BUT, France’s third-largest furniture retailer, in January 2008 and may consider combining the business with Conforama, according to the people. Conforama, which operates 236 stores in Europe including 180 in France, focuses on the mass discount market.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
The Overlooked Power of Category Names
High-fructose corn syrup is getting a bad name. Hunt's ketchup is the latest product to replace corn syrup with old-fashioned sugar. Even today, thanks to the objections of the Sugar Association, the FDA is resisting a simple name change from "high-fructose corn syrup" to "corn syrup." But the broader lesson is the importance of the category name itself. Every brand has two names: a brand name and a category name. It's not just Kleenex, it's Kleenex tissue. Too many marketing people take the category name as a "given." All of their efforts are spent on promoting the brand, not the category name. Yet over time, the category name can be an extremely important element in the success of a brand.
GM to Employees: It's 'Chevrolet,' not 'Chevy'
Apparently, when General Motors isn't busy destroying documents, they're apparently not taking the time to improve their vehicles. Instead, they're fretting over whether people refer to their most popular brand as "Chevrolet" or "Chevy." In a memo sent to employees, GM executives wrote: “We'd ask that whether you're talking to a dealer, reviewing dealer advertising, or speaking with friends and family, that you communicate our brand as Chevrolet moving forward... When you look at the most recognized brands throughout the world, such as Coke or Apple for instance, one of the things they all focus on is the consistency of their branding.” Except... their example of Coke certainly doesn't fly in terms of a consistent brand name. Since the company is named "Coca Cola" and in some parts of the country, a "Coke" just means any kind of soda. And even though "Apple" is a solid brand name, many people refer to their Apple computers as "Macs," and yet everyone knows they're referring to an Apple product. In response to the utter ridiculousness of trying to rid the world of "Chevy," GM took things very seriously and issued a back-tracking response: “We love Chevy. In no way are we discouraging customers or fans from using the name... We hope people around the world will continue to fall in love with Chevrolets and smile when they call their favorite car, truck or crossover ‘Chevy.’”
Jewelry/Mining
Mark Lenz
Credit Jewelers Learn to Cope with Crunch
Not many consumers walk into a jewelry store prepared to plunk down thousands of dollars in cash for an engagement ring--especially not these days. But somehow, each hopeful groom-to-be finds a way to walk out with a ring, and jewelry retailers continue to find a way to help bridal and other consumers pay for their purchases, even after third-party financiers put the clampdown on private-label credit card programs amid the recession. Private-label credit cards, also known as store or branded cards, often carry a promotional component, such as deferred interest charges, fixed interest rates for the life of a purchase, or a percentage-off discount at time of purchase.
Why Diamonds Aren’t Just a Girl’s Best Friend Anymore
A diamond is the hardest natural material known to exist. It also might become one of the hardest materials to find in the future. So says DeBeers, the world’s biggest diamond producer, at least. The company has a particularly gloomy outlook on the sparkly gems. Saying that world sources are depleting too quickly to meet long-term demand. Unfortunately, many others in the industry agree with the assessment. That means ladies may have to settle for smaller “bling” under the Christmas tree. And gents should expect to shell out a bit more cash when buying gifts for their female friends.
Michael Hill Paring Back US Operations
Battered by harsh retail conditions in the United States, Michael Hill International is to close eight of its 17 stores there to concentrate on sites with the most promise. The jeweler will be left with nine US stores, all within the greater Chicago area. Michael Hill bought 17 stores in July 2008 from Whitehall Jewellers which had filed for Chapter 11 bankruptcy protection. It bought the chain for about $7 million, mainly for inventory which it bought for 20 per cent below cost price.
Antwerp Upbeat as Polished, Rough Figures Rise
Imports and exports of both rough and polished diamonds increased for the fifth consecutive month in the diamond-trading center of Antwerp, Belgium, with per-carat prices for diamonds growing robustly, statistics released Wednesday show. "Demand for polished goods has risen phenomenally with statistics indicating that not only do buyers want diamonds, but that they are willing to pay higher prices per carat for polished goods," the Antwerp World Diamond Centre says. "Polished exports once again showed much higher rises in financial terms than increases in volume." The report indicates demand for polished diamonds has increased in both volume and value terms, likely attributable to wholesale and retail restocking after a considerable period of de-stocking due to the recession.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Specialty Operations Boost Toys "R" Us but Rivals, History May Chop It Down
ThToys “R” Us plans to return to the world of publicly traded retailers with a stronger and more diverse organization, but it must keep learning from the success and mistakes of others –- and of its own past –- if it is going to have any chance of growing in the face of fearsome rivals. Walmart, Target and Amazon have proven they can take sales away from Toys “R” Us. So it has been developing low-sales-volume specialty businesses in sectors where big-volume retailers don’t generally like to play, with much of the effort online. But operating specialty business can be tricky. In the past, Toys “R” Us had to shutter Kids “R” Us and Imaginarium. Although it is expanding in apparel, furnishings and learning toys again, the past failures suggest that specialty operations may not be the retailer’s strong suit. Add to that the fact that selling toys online is a new and potentially tough game. Low operations costs and an ability to offer broad assortments provide Toys “R” Us advantages in its specialty operations. However, the Internet also affords Walmart, Target and Amazon the ability to jump into hot sectors and pull business away wherever Toys “R” Us appears to be enjoying some success.
Gart Capital Buys Retailer Swoozie’s
Gart Capital Partners, a private equity investment partnership located in Denver, Colorado that invests in closely-held and family-owned retail and consumer businesses, announced today the purchase of the remaining assets of Swoozie's, Inc., an Atlanta-based specialty retailer. Price of the acquisition was not disclosed. The upscale chain of stores co-founded by Kelly Plank-Dworkin specializes in unique gifts, stationery, invitations, greeting cards, and personalized products that celebrate significant life events. Swoozie's, filed for Chapter 11 bankruptcy protection in April 2010. The newly formed company of Gart Capital Partners and Plank-Dworkin plans to begin re-opening up to eight stores in Georgia, Alabama, South Carolina, North Carolina, Texas, Florida, and potentially Denver by late summer. The new team also plans to have their online retail operations re-activated in the next few weeks to meet the needs of loyal customers in markets where stores closed following the bankruptcy.
Restaurants/Food Service
Mark Boucher
Peltz Looking For Wendy's Exit?
Nelson Peltz, whose Trian Fund Management combined the Wendy's and Arby's chain, said this afternoon in an SEC filing that he's received a preliminary inquiry from a "third party" expressing an interest in an acquisition involving the company. Details are, as tends to be in these filings, sketchy. Yet the filing later said that Peltz and Trian plan to "review their investment" on a continuing basis and "may take such actions with respect to their investment in the Company as they deem appropriate."
Logan's Roadhouse Going Public
Logan's Roadhouse is going public, ending a four-year drought of restaurant company IPOs. The steak chain's parent company, LRI Holdings, filed its registration statement with the SEC this morning, saying it plans to raise $200 million. This is not the first registration statement the 211-unit chain has filed -- it had previously filed an S-1 in 2006 only to withdraw the registration later when its parent company at the time, CBRL Group, sold the chain to a private equity group. We can only assume that the registration will stick this time.
Biglari Facing His Own Uprising
Sardar Biglari, the activist investor who took over Steak & Shake largely by inflaming shareholder anger, is himself facing a shareholder uprising. A group of investors led by GAMCO Investors this afternoon filed a Schedule 13D amendment announcing opposition to Biglari's pay plan. Biglari turned Steak & Shake into a holding company and renamed it Biglari Holdings. In late April the company announced a proposal to pay Biglari like a hedge fund manager, giving him a bonus equal to 25 percent of any increases in Biglari Holdings' book value above 5 percent. That plan angered shareholders, helping drive down the company's stock price by a third.
O'Charley's CEO Resigns
O'Charley's said that its CEO, Jeffrey Warne, has submitted his resignation, but judging from the terse, three paragraph press release, we don't think the decision was unwelcome news at the company. Philip Hickey, the company's chairman, said only that he is "appreciative" of Warne's service, and "we wish him the best in the future." More to the point: O'Charley's has been under-performing, even in a tough market, and the returns on the company's stock have badly lagged other publicly traded restaurants.
Banking & Lending
Douglas Stebbins
Tight Credit Is Turning Franchisers Into Lenders
When Remi Tessier recently decided to open a pizza franchise, he got a big surprise: it was not going to be easy to get financing from a bank. Chains are facing the worst credit squeeze since the franchise model boomed in the years after World War II. This year, the franchise industry is expected to seek $10.1 billion in capital, but banks are expected to lend only $6.7 billion, according to the International Franchise Association. Some franchisers have gone a step further and put their own balance sheets to work by creating captive financing programs, pooled credit support or leasing programs. Others have tried “credit enhancement” in which the franchiser guarantees part of a loan to encourage tight-fisted lenders to free capital. Some franchisers are submitting themselves to the bank credit report process — essentially getting their credit-risk language translated into banking terms — so that franchisees have a lender-friendly package ready to take to banks that might have never seen a loan application from a particular chain.
Mortgage Delinquencies Decline, but What Does It Mean?
Stricter lending rules have helped curb the number of mortgage delinquencies. Agencies from the FHA to Fannie Mae and Freddie Mac are reporting a decreasing number of people who are behind on mortgage payments. But while it seems that mortgage delinquencies have peaked, the number of people still behind on mortgage payments remains high. Anyone looking for good news in the numbers will have to look past the 4.9 million borrowers who haven't made a mortgage payment in at least three months. That number is up from 3.7 million people one year earlier. The Mortgage Bankers Association reports that one in seven homeowners is either paying late or in foreclosure.
Small Business Loans Get Big Lift
Massachusetts small businesses, seeing prospects improving, are borrowing more money through government loan programs to expand, hire, and start ventures, providing another sign that the state’s economic recovery is gaining traction. Borrowing through the US Small Business Administration’s primary guaranteed loan program has more than doubled in Massachusetts over the past year, and is on track to match levels not seen since 2005. The loan activity in Massachusetts is also among the most robust in the nation: Only eight other states have had more activity over the past several months, according to the agency. As the outlook has improved, so has SBA lending. From October through the end of March, the first six months of the federal fiscal year, Massachusetts lenders made 923 SBA loans totaling $142.3 million, compared with 443 loans worth $61.8 million during the same period in fiscal 2009.
Those are the latest headlines. Thank you for reading.
Sincerely,
The Team at Consensus
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