The Weekly Consensus: Week of August 30, 2010
Grid Compass
Betsy White
If you've already taken your vacation or are just about to in this last week of official summer, here's hoping that you have been or will be able to take some time to be "off the grid." The world will survive without you, but most of us spend some vacation time connected - Blackberries, iPhones and other multi-media devices have seen to that. The question is whether your connection status is by your own choice. If you're the President of the United States, you need to stay connected at all times. But is that true if you're the Vice President of Marketing?
Living off the grid involves living self-sufficiently, with no reliance on public electricity, water or utilities. Those living off the grid in the US can have different motivations, ranging from environmentalism to survivalism to historical traditions for those such as the Amish. Estimates are that nearly a quarter of a million people in the US choose to live off the grid (although a fair number are probably still connected to the Internet), with 1.7 billion people around the globe grid-less. A recent Slate story covered one such citizen of the world, a Brazilian Indian who is the last survivor of an uncontacted tribe. This man is not only living by himself in the Amazon, but he is clearly not interested in any other human, as illustrated by one attempt at outside contact that resulted in an arrow to the chest of a researcher. One of the most remarkable points in the article is the lengths to which the government of Brazil is going to maintain this individual's solitary lifestyle, including blocking off 31 square miles of territory as off-limits to trespassing by others. Apparently, it takes a country to save this man and his choice to maintain a grid-less lifestyle.
It's amazing how the meaning of this connectivity has expanded in the last 20 years or so. Most of us still remember a time when there were no cell phones, no personal computers and certainly no Internet. These advances in technology have given us more flexibility and certainly more knowledge, but have brought with them more responsibility and accountability. And, even though we might complain about it, most of us seem addicted to the grid. During the latter part of last week, our email server was having problems. On one day we received no emails, and had no ability to successfully send them either. On the next day we experienced intermittent problems. Our email provider has assured us that no emails were lost, and that it has fixed the underlying problem, but our inability to use a preferred communication method was maddening.
Just how reliant has the world become on email? According to the Radicati Group, 247 billion emails were sent each day on average in 2009, which equates to 90 trillion per year. Using an estimate that 80% of emails are spam, approximately 50 billion emails per day are legitimate, and email is certainly the preferred and primary method of sending and receiving information in the world.
There are countries, such as Saudi Arabia, the UAE, and India, which have sought to keep their citizens off the email grid (at least the connection through a Blackberry device), under the presumption that secure Blackberry messages enable terrorists to communicate unmonitored. According Research in Motion's co-CEO, Michael Lazaridis, "This is about the Internet. Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If (these countries) can't deal with the Internet, they should shut it off." Mr. Lazaridis has it right, and it's a worrisome contention.
Apparel/Swimwear/Intimates
Betsy White
American Eagle Could Close as Many as 100 Stores
American Eagle Outfitters Inc. said that it will close as many as 100 underperforming clothing stores within the next two to five years as the teen retailer tries to recover from earnings that plunged 66 percent in the most recent three-month period. CEO James O'Donnell did not identify stores that will close but said they have low sales and are either marginally profitable or slightly less profitable and are not expected to improve. Between 50 and 100 stores will be closed when their leases expire or they get a "kick-out date," O'Donnell said. An undetermined number of employees are expected to lose their jobs in the store closings, he said. American Eagle, which targets teenagers and young adults, has completed the closings of 28 stores in its money-losing Martin+Osa division, which are not included in the future closings, O'Donnell said.
Gap Expands Web Shopping, Eyes Growth in Canada
While Gap Inc. has struggled for years to reclaim its former glory in the mall, the global clothier has enjoyed virtually consistent gains in one area: e-commerce. It started investing a decade ago in its U.S. online sites, gradually speeding them up and, by 2008, blending its namesake, Old Navy, Banana Republic and other chains under one cyber-umbrella to encourage cross-shopping. It bolstered the e-business by adding specialty shopping sites for shoes and athletic wear. Now, faced with growing economic uncertainty and skittish consumers, Gap is betting heavily on e-commerce beyond its U.S. home base. Tuesday, it officially launched its Canadian e-tailing sites for its three main chains. Earlier this month it rolled out its sites in the U.K. and will do so in China later this year. By the end of 2010, it will offer shipping to 65 countries. "We are a big growth engine for the company," said Toby Lenk, president of Gap's online division. "We're the little engine that could."
Dress Barn is Seeking a New Identity
Dress Barn hopes to undergo an extreme makeover. The company is seeking shareholder approval to change its corporate name to Ascena Retail Group Inc., or Ascena, and to reorganize into a holding company. "The proposed change in structure and name should provide an image more closely aligned with our current vision and strategies," President and Chief Executive Officer, David Jaffe said in a statement. "In recent years, we've become a fundamentally different company that extends beyond the original Dress Barn concept and brand. Our vision is to be a family of retail brands each serving a unique customer niche." Among those other brands Jaffe mentioned are 757 Maurices and 890 Justice stores that market apparel and accessories to tween girls.
Frederick's of Hollywood Outsources, Consolidates
Last week, Frederick's of Hollywood unveiled its new plan to achieve $2 million in annual savings by outsourcing the last of its manufacturing processes and consolidating its distribution operations. Production at the intimate apparel company's last production plant, located in the Philippines, has now ceased. The closure is expected to save the Frederick's $1.5 million annually. Additionally, the company is moving all of its retail and wholesale distribution operations to its 168,000-square-foot facility in Phoenix, AZ. As a result, its distribution center in Poplarville, MS, is set to close by the end of November. Frederick's estimates that the consolidation will save about $500,000 in operating costs per year.
Athletic & Sporting Goods
Michael O'Hara
Consumers Snub Tiger Woods Apparel Line
Tiger Woods fans have put up with the philandering, the text messages and the domestic spats. Now comes what may be the hardest thing of all to tolerate: Losing. Woods has played through the year without a single tournament win, putting him at 83rd on the PGA Tour's money list. As his performance slumps, so have sales of his apparel line through Nike Inc., according to retailers Golfsmith International Holdings Inc., Roger Dunn Golf Shops and Golf Discount Superstore. Golf apparel sales overall are on the rise, signaling consumers are returning to the course, just not to Woods. Nike gets about 10 percent of its golf sales from the Woods brand, whose shirts, jackets and pants are among the most expensive clothing the sportswear maker sells. The line's volume through the first half dropped 7.5 percent from a year earlier at Golfsmith's 76 stores, Chief Executive Officer Martin Hanaka said in an interview. Total golf apparel sales climbed 11 percent over the same period at the Austin, Texas-based retailer. "The Tiger effect has been negative this year," Hanaka said. "Fortunately, other Nike products and other brands have been doing well, so we've been able to overcome it." Nike's apparel sales climbed 13 percent in the quarter ended May 31, and its golf apparel sales also have climbed about that much this year, according to Powell. The retailer is now selling the fall 2010 men's collection on its website. The cover boy? Not Tiger. It's 2009 British Open Champion Stewart Cink. Woods appears in a list of "athletes" on a linked page.
Ohio Rules L.L. Bean Owes Commercial Activity Tax
The State of Ohio has ruled that L.L. Bean owes it $210,770 for a Commercial Activity Tax (CAT) that could raise the state tens of millions of dollars from out-of-state direct marketers, the Dayton Daily News reported. Ohio State Tax Commissioner Richard Levin ruled this month that the Maine-based outdoor retailer owed the tax from July 1, 2005 through March 31, 2009. The state adopted the CAT in 2005 as a levy on a company's gross receipts, but maintains it is separate from a sales tax. The outcome of the L.L. Bean case will determine whether the state can collect tens of millions of dollars in tax revenue annually from out-of-state direct marketing companies, the Dayton News reported. More than 100 companies from outside the state have appealed findings that they out the CAT. Levin maintains companies with annual taxable gross receipts of at least $500,000 has a "substantial nexus" in the state and must pay the tax. It's not clear whether L.L. Bean will repeal the ruling.
Title Nine to Open Two Stores in Chicago
Title Nine is opening two stores in the Chicago market, its first stores in the Midwest. The first will open by the close of August in downtown Evanston and the second in the Lincoln Park neighborhood in October. The openings will bring the 21-year-old women's activewear direct mail and retailer's store count to 18 nationwide. Title Nine, based in Emeryville, CA, still distributes more than 30 million catalogs a year but has been slowly building its store base. Until recently, its stores were focused in California, the Pacific Northwest and Colorado. Title Nine opened in Madison, WI., and Edina, MN, in the past year. It also opened a store in 2009 in Austin. Title Nine continues to be known for its commitment to proper-fitting sports bras, and its website carries more than 50 styles. The company is also launching a sub-brand called Bounce, a tongue-in-cheek label trading on its expertise in sports bra construction. It now has six stores in California, three in Colorado and two in Washington. Other stores are located in Boise, ID; Edina, MN; Portland, OR; Austin, TX; and Madison, WI.
Catalog & Internet
Christopher Ellis
Gap's Q2 Web Sales Easily Outpace Store Sales
Gap Inc., which recently announced plans for a major international e-commerce push, posted a healthy increase in second quarter web sales. For the second quarter ended July 31, Gap reported: Web sales increased 15.2% to $258 million from $224 million in the second quarter of 2009; Total revenue grew year over year 2.2% to $3.32 billion from $3.25 billon; Comparable-store sales increased 1%; Net income grew 2.6% to $234 million from $228 million in the second quarter of 2009. "Our economic model helped us deliver both sales and earnings growth for the second quarter, while we navigated some challenges along the way," says CEO Glenn Murphy. "Looking forward, we're committed to our strategy of growing sales and market share in North America as we also invest in our long-term global and online growth initiatives."
CafePress Helps Web Sites Become Stores
CafePress, an e-retailer that sells customized merchandise, has launched a dedicated piece of software it calls the CafePress Shops app. The widget enables members of Webs.com to sell products from their web sites. Those members can install the CafePress Shops software to sell products from their web sites. Webs.com is a web site building and hosting company that has more than 50 million users. "You don't need any technical ability," says Amy Maniatis, vice president of marketing at CafePress. "The app enables everybody that has a Webs.com site within a click to have a store loaded onto their web site." Site users receive 10% of sales from stores that have orders processed and fulfilled by CafePress. Webs.com users can customize and create up to 25 products through templates or downloaded images that consumers can apply to such items as T-shirts, mugs and stickers.
Overstock.com Launches Private Sale Website
Overstock.com has launched new website Eziba.com, offering furniture and other home decor products during special private sale events with the same $2.95 delivery fee the online retailer is known for. Furniture will account for 10% to 20% of the Eziba.com offerings, said Overstock President Jonathan Johnson, and most of it will be accent pieces. However there are larger items, including a queen Victoria leather bed listed for sale until late Wednesday morning for $579.99. "We sell beds and sofas and armoires - we've got it all," Johnson said. "And the good news is anything you buy ... ships for $2.95," an uncommonly low fee for the furniture industry, he added. The products are offered in daily sale events starting each day at 11 a.m. Eastern time and running between 48 and 72 hours. There will be two to four furniture sales per week, Johnson said. Among the furniture and accents supplier are rustic furniture company CG Sparks, Southern Enterprises, Safavieh and Cambridge for rugs, and others. Johnson said some of the products are offered solely on the new site while others are crossover goods also sold on Overstock.com. Eziba.com is not accessible through Overstock's homepage, but customers can sign up at Eziba.com or log in using their existing Overstock.com user name and password. All customer care inquiries are handled by Overstock.com's customer service team.
Zara Takes the Plunge Into Crowded Online Market
Europe's largest clothing retailer, Spain's Inditex, is taking its flagship Zara brand online, but it can expect stiff competition from other giants of high-street fashion already well-established in cyberspace. Zara's virtual boutique will be available on August 27 in selected European markets: Spain, Germany, France, Italy, Portugal and Britain. From 2011, it will be expanded to the United States, Japan and South Korea. But it will enter an already crowded sector, where its main rivals in low-cost fashion have been operating for years. US retailer Gap, which has been online in the US since 1997, expanded the service to 55 countries on August 16. Sweden's H&M, Europe's second-largest clothing retailer, has been selling online since 1998 in seven countries, including Germany, and plans to move into another major market, Britain, on September 16.Zara's late entry to the market may be a surprise, but it may also have anticipated a boom in cyberspace clothes shopping. Clothing sales represented just 2.5 percent of online commerce in Spain last year, and 5.6 percent in France, according to industry experts in these countries.
Consumer Electronics/Video/Audio
Douglas Stebbins
Blockbuster Tells Hollywood Studios It's Preparing for Mid-September Bankruptcy
Blockbuster, the movie rental chain, is said to be readying a bankruptcy filing for mid-September, The Los Angeles Times reported on Thursday, citing people briefed on the matter. Blockbuster's bottom line has suffered over the last several years as the rental movie marketplace has seen the rise of such competitors as Netflix and Redbox. The firm's C.E.O., Jim Keyes, and the company's senior debt holders and a restructuring team reportedly informed executives at the major film studios in Hollywood last week of Blockbuster's intention to enter a pre-planned bankruptcy near the middle of next month. Blockbuster needs to keep the studios on its good side so as not to interrupt the supply of new DVDs during a restructuring.
Apple 'Rethinks Major Apple TV Re-Launch'
Apple is expected to unveil new versions of the iPod and changes to its entertainment services next week, but the firm will hold off on a major relaunch of its Apple TV project. Sources close to Apple suggest that television is the next major frontier for the firm to tackle, after it has transformed the mobile telecoms and MP3 player industries. The firm could also unveil a new strategy for Apple TV, which Apple chief executive Steve Jobs has previously described as being just a "hobby". Possible options include dropping the price of Apple TV set top boxes - which allow users to download content from iTunes to watch on their televisions - by as much as two thirds, while also offering rentals of mainstream TV shows.
Best Buy Announces In Store Game Trade-Ins
Electronics giant Best Buy announced on Thursday a plan to allow gamers to trade in their old video games for store credit at over 600 of its retail locations. The company has had a similar online program in place for over a year but this move makes it even easier for customers to get something back for that $60 game they have not played months. The announcement comes a day after Target Corp. revealed a similar plan. The Target trade in offer covers iPods and certain cell phones as well though. The Target offer is also for store credit only, not cash. Best Buy says it plans to start trialing in store game trade ins in October. At the moment Best Buy customers can go online to trade their games in which involves filling out several forms and mailing the games in to Best Buy.
Cosmetics & Pharmacy
Billy Busko
L'Oreal's Net Rises 21.2 Percent
L'Oréal's first-half net profits rose 21.2 percent to 1.32 billion euros, or $1.75 billion at average exchange. For the six months ended June 30, the French beauty giant's operating profits grew 21.4 percent to 1.67 billion euros, or $2.21 billion, representing 17.3 percent of sales. The company called this "a record half-year figure." L'Oréal's gross profits increased 11.9 percent to 6.89 billion euros, or $9.14 billion, representing 71.3 percent of revenues, versus 70.2 percent in the same prior-year period. The firm said numerous factors had a positive impact, including improvement in manufacturing costs and the reduction of inventory and physical distribution costs. Meanwhile, the increase in promotional offers to customers and currency fluctuations had a negative effect. As reported, L'Oréal's first-half sales gained 10.2 percent to 9.67 billion euros, or $12.82 billion. On a comparable basis, revenues rose 6.3 percent.
Connecticut AG Probing Rite Aid on Price Increases
Connecticut's attorney general is investigating Rite Aid Corp. over changes the drug store chain made to its savings program, according to a statement from the attorney general's office. Ride Aid increased prices for some generic drugs and eliminated discounts for oral contraceptives, brand medications and some medical supplies for Connecticut members of its Rx Savings program, Attorney General Richard Blumenthal said in a statement. Blumenthal said the chain posted signs saying the changes were needed to comply with a new law requiring pharmacies to provide members of Medicaid and other state programs the same prescription drug discounts they offer the public. Blumenthal issued a subpoena for more information about the changes and said the law doesn't require Rite Aid to change its savings program. The drug store chain intends to cooperate with the attorney general, Rite Aid said.
Department & Discount Stores
Mark Lenz
Nordstrom Links Online Inventory to Real World
Retailers have been flailing about a bit in their efforts to get people to shop again, deploying all sorts of gimmicks and promotions to spur customer spending. Merchandise being processed at the 600,000-square-foot Nordstrom Contact and Fulfillment Center in Cedar Rapids, Iowa. The center ships an average of 20,000 packages a day. Wal-Mart hoped that deeper cuts in its standard rollbacks would be a draw, but then said the prices went too low. At Saks, perhaps customers would go for designer labels if the lines offered less-expensive items. And for Macy's, how about inexpensive clothes by Madonna? The secret, at least for Nordstrom, has not involved a piercing insight into a customer's mind. Rather, it has changed the way that it handles, of all things, inventory. And that has brought the department store more success in improving sales than at most of its competitors, whose recent reports signaled that their consumers were still cautious.
Barneys Hires Former Gucci Executive Mark Lee as CEO
Barneys New York, the high-end retailer controlled by a Dubai investment company, said it hired former Gucci Group NV executive Mark Lee to manage the business. Lee, 47, will be Barneys's first chief executive officer since Howard Socol resigned in 2008, after the retailer was bought by Dubai World's Istithmar World PJSC. Lee will start Sept. 1, the New York-based retailer said. Lee's appointment "sends a very big signal that Istithmar is serious about running that business," Paul Wilmot, who handles public relations for brands including Calvin Klein, Donna Karan and Oscar De La Renta, said in a telephone interview. "Whether they divest it remains to be seen, but they brought in the most capable executive."
Costco Sees Malls as the Next Way to Grow Business
Costco Wholesale Corp. is taking on the role of mall anchor, moving into spaces once occupied by department stores that for decades reigned as the retail centers' big draws. Costco plans "to accelerate" steps that will in essence put its mini-mall type stores into shopping centers, the warehouse club's co-founder and chairman, Jeff Brotman, said in an interview. Costco's stores, which can be the size of three football fields minus endzones, carry tens of thousands of items, ranging from tires to polo shirts to pigs feet. So far, Costco has just dipped its toe in the water when it comes to locating stores in malls. But coming off the heels of last week's announcement of three-mall based Costcos - two to be built in what were traditional department stores - Brotman said his company is looking at several other sites, including a mall in Trumbull, Conn., to open Costco membership warehouse clubs. The approach dovetails with Costco's continued expansion of off-mall sites, which already number over 400 locations in the U.S.
Department Stores Ramp Up for Fall with Trendier, Fast Fashion' Choices
When Georgia Dixon's mom suggested they go to Macy's for school clothes, the 16-year-old didn't see the point. "Usually when I think of Macy's, I think of where my mother goes to shop," said Georgia, whose family lives part-time in Coconut Grove, Fla. "I would never go to shop here." But Georgia and her mom, Anna Dixon, were amazed Wednesday when they stumbled on the new Material Girl collection - designed by Madonna and her daughter Lourdes - at Macy's. For Macy's it's a way to attract new customers like Georgia Dixon and take customers from specialty stores.
Diamond Giant Sues Kohl's
De Beers is suing retailer Kohl's and a trio of New York jewelry manufacturers for allegedly infringing on its patents for its Everlon Diamond Knot collection. In one action, De Beers sued Kohl's, New York company Brilliant Jewels/MJJ as well as ten unnamed "John Does" over the Love Knot collection sold at Kohl's stores. The similarities between Everlon and the Kohl's Love Knot collection were the subject of a JCK blog post in December 2009. "The [Everlon] Collection is De Beers' original design concept and style, and has attracted significant consumer and trade attention," court papers say. "[The] Defendants were aware and copied Plaintiff's patented designs when it created the 'Love Knot' collection."
Footwear
Michael O'Hara
Nike Secures Automatic-Lacing Patent
Nike Inc. has secured a patent with the World Intellectual Property Organization for an "automatic lacing system" as part of a footwear design. Many stories circling around the Internet linked the product to the footwear worn by Michael J. Fox's character Marty McFly in the 1989 film "Back to the Future II." In the patent filing, Nike describes the item as "a set of straps that can be automatically opened and closed to switch between a loosened and tightened position of the upper." It also includes an "automatic ankle cinching system." The patent was originally filed on April 9, 2009 with the World Intellectual Property Organization. But news of the patent reached the Internet Wednesday at sites such as Dime.com, the basketball e-zine, and online sneaker magazine NiceKicks.com.
Famous Footwear Parent Brown Shoe Posts 2Q Profit
Brown Shoe Co. Inc. returned to a better-than-expected profit in its second quarter as revenue rose, particularly in its wholesale division, and the retailer relied on fewer promotions at its Famous Footwear chain. But while the company said it is encouraged by early results of its back-to-school season, it expects sales for the year to grow in the low double-digit range. Previously it had said sales could range from high single-digit growth to low double-digits. Shares fell $1.88, or nearly 15 percent, to $10.92 in morning trading. The company, which sells Dr. Scholl's, Franco Sarto, Naturalizer and other brands, said Wednesday its quarterly net income after paying preferred dividends totaled $5.3 million, or 12 cents per share, in the three months ended July 31. That compares with a loss of $4.2 million, or 10 cents per share, a year earlier. Excluding one-time items such as charges related to a technology initiative, the company earned 15 cents per share, compared with a loss of 7 cents per share a year earlier. Revenue rose more than 14 percent to $585.8 million.
Independent Review Board Affirms Shape-Ups' Claims
Skechers USA announced that an independent review board from New Zealand attested that Skechers' Shape-ups advertising claims are accurate, truthful and "prepared with a due sense of social responsibility to consumers and society." On Aug. 10, 2010, the New Zealand Advertising Standards Authority ruled that "that the claims in the [Shape-ups] advertisement regarding muscle tone and posture had been substantiated by [Skechers] and therefore were not likely to mislead or deceive consumers." Skechers said this is the second time in recent months that independent panels have made favorable rulings relating to the claims that Shape-ups tone muscle, improve posture and promote fitness, according to Skechers. Earlier this year, Australia's independent Theraputic Products Complaints Resolution Panel (CRP) dismissed complaints by two competitors of Skechers.
Gifts/Accessories/Luggage/Pets
Mark Boucher
Borders CFO Resigns for New Job
Borders Group Inc. said that chief financial officer Mark Bierley had resigned to take another job, the latest personnel move to hit the brick-and-mortar bookseller, which is trying to turn around its business. The company just named a new chief executive, Bennet LeBow, in June. The previous CEO, Ron Marshall, left the company in January to head supermarket chain Great Atlantic & Pacific Tea Co Inc. In the interim, Mike Edwards had served as CEO. Bierley, who was named chief operating officer in June, served with Borders for 12 years. He will be replaced on an interim basis by Glen Tomaszewski, a Borders vice president, while the company searches for a permanent CFO. Borders has been working to lower debt and improve sales in the midst of widespread weakness for traditional book sellers as more consumers shift to digital books.
The ABCs of E-Reading
People who buy e-readers tend to spend more time than ever with their nose in a book, preliminary research shows. A study of 1,200 e-reader owners by Marketing and Research Resources Inc. found that 40% said they now read more than they did with print books. Of those surveyed, 58% said they read about the same as before while 2% said they read less than before. And 55% of the respondents in the May study, paid for by e-reader maker Sony Corp., thought they'd use the device to read even more books in the future. While e-readers are still a niche product just beginning to spread beyond early adopters, these new reading experiences are a big departure from the direction U.S. reading habits have been heading. A 2007 study by the National Endowment for the Arts caused a furor when it reported Americans are spending less time reading books. About half of all Americans ages 18 to 24 read no books for pleasure, it found. Some 11 million Americans are expected to own at least one digital reading gadget by the end of September, estimates Forrester Research. U.S. e-book sales grew 183% in the first half of this year compared with the year-earlier period, according to the Association of American Publishers. Among early adopters, e-books aren't replacing their old book habits, but adding to them. Amazon, the biggest seller of e-books, says its customers buy 3.3 times as many books after buying a Kindle, a figure that has accelerated in the past year as prices for the device fell. It's too early to tell the reading lift will sustain after the novelty of the gadgets wears off, and the devices go mass market. But because e-book gadgets are portable, people report they're reading more and at times when a book isn't normally an option: on a smartphone in the doctor's waiting room; through a Ziploc-bag-clad Kindle in a hot tub, or on a treadmill with a Sony Reader's fonts set to jumbo. Among commuters, e-readers are starting to catch up with BlackBerrys as the preferred companions on trains and buses.
Grocery/Healthy Foods/Snacks/Confectionery
Mark Boucher
Stop & Shop Slams A&P in Lawsuit Response
In a response to a lawsuit filed in District Court, Stop & Shop said that advertisements comparing its prices with A&P were not misleading and that A&P in fact was guilty of "insidious and defamatory" ads. A&P filed a suit alleging the Stop & Shop ads comparing prices on baskets of identical items between the chains contained false prices and misleading artwork, and sought a court order to pull the ads. Stop & Shop, in its response argued "the motivation behind A&P's motion is not to enjoin false and misleading advertising," but rather "is just the latest in a series of attempts by A&P to impermissibly prevent Stop & Shop from engaging in truthful, accurate speech. ... A&P seeks to restrict this speech so it may obtain a competitive advantage in the marketplace and charge its customers higher prices."
Bashas' Secured Creditors Seek Delay
The secured creditors of Bashas' have asked the U.S. Bankruptcy Court to rule on their request to delay implementation of the chain's reorganization plan pending a formal appeal, according to local reports. The reorganization plan, which would free Bashas' from Chapter 11 and which is set to go into effect August 28th, would pay off all creditors in full within three years.
A&P Set to Close 25 Stores
A&P said it would close 25 stores as it begins the implementation phase of its newly announced turnaround plan. The stores slated for closure include locations in close proximity to other A&P-owned stores, those facing real estate and cost issues, and underperforming stores, the retailer said. The closures are expected to be completed during the fiscal third quarter, which begins in September. A&P officials declined to provide a list of stores slated for closure, although a spokeswoman said the closures "include those across our A&P, Waldbaums, Pathmark, Super Fresh and Super Foodmart banners."
Mid-Atlantic Acquires More Exxon C-Stores
Mid-Atlantic Convenience Stores said that it has acquired 58 convenience stores and fuel stations in Northern Virginia and Maryland from ExxonMobil Corp. Terms were not disclosed. MACS, an investment platform backed by Catterton Partners, was created to consolidate the highly fragmented convenience store industry. The group in June acquired a majority interest in Uppy's Convenience Stores and 170 convenience stores from ExxonMobil in Maryland, Virginia and Delaware. With the addition of the sites announced Wednesday, MACS now has nearly 300 c-stores in the Mid-Atlantic states.
Home Improvement/Auto Repair
Billy Busko
Recession, Big-Box Chains Hammer Local Hardware Stores
For three years, Terry Reynolds has watched sales dwindle at his ACE Hardware store. And he has mourned as other local hardware stores have chained their doors for the last time - including three that are closing in the next few weeks. "We get tired of fighting and trying to survive," Reynolds said. The thought of whether he will be next is always sitting on a back shelf, but it's not an option he wants to think about. Reynolds said he believes his community needs a local hardware store - even if his store has a Lowe's or The Home Depot within five miles of it in three different directions. Beyond the bolts and brass knobs, the mom and pop hardware store sells itself on service and specialty products. It is a place where shoppers can find a mishmash of garden gnomes, garbage disposals and good advice. "They can come in and say, 'I woke up this morning and didn't have water. What's wrong with my well?' We'll kind of walk them through it," said James Rimer, who owns 34-year-old Blythewood Feed and Hardware with his mother, Neysa. "That's something they're not really going to find somewhere else." The local hardware store is a slice of Americana that is quickly fading as large chains have swooped into smaller communities over the past couple of decades and as customers have put their wallets under lock and key in a lasting economic downturn. "I've never seen it this bad sustained for coming up on two years," said Rimer, who has seen customer spending drop an average of 10 percent this year.
Global Automotive Industry M&A Activity Shows Slight Uptick in Deal Volume
The global automotive industry M&A deal market shows a cautious uptick in deal volumes observed during the first half (H1) of 2010, against a backdrop of the lowest disclosed deal value in five years, according to the automotive transaction services practice at PricewaterhouseCoopers LLP In H1 2010, 265 deals closed with a disclosed value of $11.6 billion. For much of 2009, the deal market remained a setting for companies' restructurings, divestitures, and capital infusions, notes McCarthy. However, as firms aim to position themselves for long-term success, the deal market appears to be transitioning towards creating and executing strategies for sustainable growth and value creation. Focus on synergistic transactions during H1 2010, coupled with the subdued pace of economic recovery meant smaller but arguably more strategic transactions. In contrast, H1 2009 was characterized by unusually high disclosed deal value due to government-driven bailouts and the completion of two megadeals conceived in 2008. Government investment and the two megadeals made up $21.8 billion of the $31.6 billion in disclosed deal value in H1 2009. With most of the massive restructuring behind us and given a cautious credit environment, H1 2010 precluded such megadeals, resulting in a 63 percent YoY decline in overall disclosed deal value.
Housewares/Furniture
Billy Busko
Bombay Brand to Re-Launch Full Collection in U.S.
The Bombay Company is set to relaunch in the U.S. with a 250-piece collection of home decor, gifts, textiles and furniture. Housed in the brand's new penthouse showroom at 489 Fifth Avenue, the 250-piece collection revives Bombay's tradition of offering a broad selection of globally-inspired furniture, tabletop, top-of-bed, embellished accessories, textiles, and gift and novelty items distinguished by classic styling and unexpected detail. As part of its relaunch initiatives, Bombay is also scheduled to debut a collection on QVC Thursday, September 30. The one-hour show marks the beginning of a relationship between the Bombay brand and the multimedia retailer. Featuring 14 pieces that range in price from approximately $29.00 to $180.00, the line will offer an eclectic assortment of home décor and accents pieces. Bombay is reintroducing many of its best-selling pieces for the relaunch, including the art nouveau D'Orsay table collection, Asian Garden dinnerware and the Montebello reverse-painted mirror. New designs include updated old world pieces like the herringbone travel trunks, and more exotic items such as the sleek damask candle lantern. Once a multi-channel retailer with more than 450 stores and nearly $600 million in annual retail sales, Bombay has been repositioned for the wholesale market with programs suited to specialty, department and mass channels. Retail prices for the Bombay collection reflect the brand's broad appeal with accessories that start at $7.00 and investment furniture pieces ticketed up to $1,500.00.
Kirklands Sees Margin Pressure in H2; Shares Tank
Home accessories retailer Kirklands Corp. reported quarterly results that missed market expectations and warned rising freight costs would hurt its gross margins in the second half of 2010. Shares of the Nashville, Tennessee-based company, which also cut its revenue view for the year, plummeted 27 percent on the news. "The level of (gross margin) decline will depend heavily on our sales results in the back half, but we currently would expect that to range between 150-250 basis points," Chief Financial Officer Michael Madden said on a call with analysts. Kirklands, whose rivals include Bed Bath & Beyond and Cost Plus, said the rise in overseas and in-bound freight costs accelerated in the second quarter. It also expects the retail environment to be more promotional in the second half, adding pressure on merchandise margins, but expects this to be offset slightly by lower occupancy costs. "It is clearly a bit of a bargain-driven market right now and that could continue for a while," Chief Executive Robert Alderson said.
IP Holding Companies & Multi-brand Companies
Douglas Stebbins
Kellwood Buys Upscale Sportswear Line Adam
Kellwood Corp., the Town and Country-based apparel company, is in an aggressive growth mode and could potentially double its size in the next 6 to 9 months, Michael Kramer, the company's chief executive said Thursday after it completed an acquisition. The company announced it bought Adam, a six-year-old contemporary sportswear line founded by Adam Lippes that is sold at top retailers such as Bergdorf Goodman, Neiman Marcus, and Harrods. "Adam is the first one we've nailed," Kramer said. "Hopefully this is the first of many to come." Kellwood has looked at 40 to 50 brands in the last four months, he said. It is focusing on looking for contemporary brands in the upper- to moderate-price levels in both men's and women's fashions.
Big in China: Brands Import Foreign Celebrities
As the Chinese economy evolves, brand marketers there seem to be following in the footsteps of other global brands in applying tried and true techniques, such as using celebrities. What's different, though, is that upstart Chinese brands are importing foreign celebrities to pitch local products to Chinese consumers. Basketball star Kevin Garnett is just one example of a Western celeb finding fame and fortune in China. As he discusses above, locals now chant "KG" when they spot him in the street - also the brand name of the locally-produced sneakers he's been busy promoting in the off-season. As we noted yesterday, foreign brands are so prolific in China these days that consumers there are feeling bombarded with marketing messages, and starting to tune out. That means brands, local or foreign, have to get smarter at how they attempt to break through the noise. For example, Anta, a Chinese maker of athletic shoes, has employed NBA player Luis Scola, Serbian tennis player Jelena Jankovic, and most recently, Boston Celtics star Garnett to market its brand and boost sales at its more than 7,800 stores throughout the country.
Jewelry/Mining
Mark Lenz
Signet Q2 Sales Flat, H2 Outlook 'Uncertain'
Signet Jewelers Limited U.S. and UK sales in the second quarter totaled $722.8 million, rising just 1.7 percent year-over-year. Sales of $1.53 billion in the first six months of the year increased 4.1 percent from 2009. The jewelry retailer reported a 4.5 percent increase in same store sales, posting a net income of $40.7 million for the second quarter, an increase of 47.5 percent. About 80 percent of the company's sales were in the U.S., rising 5.1 percent to $580.8 million in the quarter. Same store sales rose by 5.9 percent compared to a decline of 5.5 percent in the second quarter last year.
Dissecting De Beers' 'Distribution Update'
After a sleepy couple of weeks, news wise, De Beers woke up the diamond world on Monday when it announced a series of changes, a "distribution update" if you will, to the way it sells its rough diamonds. Probably the biggest change: De Beers announced that Diamond Trading Co. sightholders--those vaunted companies that receive rough directly from De Beers at its 10 sights (sales of rough diamonds) held throughout the year--will be able to buy rough at Diamdel auctions beginning in October (more on this below). In addition, De Beers also announced that it will give non-sightholder companies the chance to apply for the sightholder status in the midst of the next contract period and that it is taking steps to make the sightholder application process less cumbersome. I'm sure the latter, especially, is a welcome change, as I have heard numerous complaints about the heavy volume of paperwork involved in applying.
Jewelry Price Inflation Differs Sharply Between Suppliers & Retailers
The spread between jewelry price inflation at the retail level versus the supplier level has widened in July. The Jewelry Consumer Price Index showed that there was virtually no price inflation for jewelry among America's retail merchants. However, at the supplier level, the Jewelry Producer Price Index rose at a startling rate. Retail jewelry prices rose by 0.3 percent in July, well above last year's average of 1.8 percent level for the full year, and above a 1.3 percent inflation rate for 2010 year-to-date. Suppliers' jewelry prices surged by 10.1 percent this year, far above last year's average of +3.6 percent and above 2010 year-to-date's inflation rate of 9.7 percent. For the past year, jewelry suppliers' prices have been rising steadily and sharply, but jewelry prices at the retail level have remained moderate. This has caused a margin squeeze, particularly among retailers.
Tiffany Drops as Second-Quarter Sales Fall Short of Estimates
Tiffany & Co., the world's second-largest fine jewelry retailer, dropped the most in two months in New York trading after second-quarter sales trailed analysts' projections. Tiffany said today that revenue rose to $668.8 million in the quarter ended July 31, missing the $690.8 million average of estimates compiled by Bloomberg. The jeweler saw "pronounced softness" in Southern California, Las Vegas and Arizona, Vice President Mark Aaron said on a conference call. Sales growth in the Americas accounts for more than half of total sales at Tiffany. Confidence among consumers, whose spending accounts for about 70 percent of the U.S. economy, slumped last month amid mounting evidence of a slowing recovery.
Fewer, Better Things
Back in the fourth quarter of 2008, when the economic crisis broke, De Beers launched a campaign to motivate the diamond industry to maintain its share of discretionary spending through the recession. The company's research showed that "62 percent of women would strongly prefer one wonderful gift - like a diamond - than several small ones." This theory makes as much sense now as it did then. Little did we know to what extent De Beers was internalizing that message. Just like the women it surveyed, the diamond giant appears clearly focused on "fewer, better things" this diamond decade. In industry terms, it appears that De Beers will be bringing fewer, more profitable diamonds to fewer, more profitable clients.
Office/Crafts & Hobby/Flowers/Party
Mark Lenz
Michaels Reports Net Loss of $1 Million
Michaels Stores Inc., the nation's largest arts and crafts retailer, swung to a second-quarter net loss on higher interest expenses, but sales continued to rise as shoppers visited more frequently. The Irving-based chain of 1,033 Michaels and 145 Aaron Brothers stores reported a net loss Thursday of $1 million vs. a profit of $2 million in the same period last year. Total sales increased 3 percent to $831 million in the period that ended July 31, up from $807 million a year ago. Strongest categories were cake decorating, kids' crafts and jewelry. Events such as a book signing by Ace of Cakes chef Duff Goldman and craft how-to classes increased store traffic.
Jo-Ann Stores Inc. Reports Second-Quarter Profit vs. Year-Ago Loss
Jo-Ann Stores Inc. has reported a second-quarter profit compared to a year-earlier loss, and has raised its earnings guidance for all of fiscal 2011. The fabric and craft retailer posted net income for the quarter ended July 31 of $5.4 million, or 20 cents per diluted share. In the year-earlier second quarter, Jo-Ann lost $3.2 million, or 13 cents a share. Sales at Jo-Ann rose 4.7%, to $439.3 million from $419.4 million. Darrell Webb, Jo-Ann chairman and CEO, said in a statement that the results "marked not only record earnings performance but also the first time in five years that we have generated positive earnings in the second quarter."
Restaurants/Food Service
Mark Boucher
Dunkin' Adds 338 Units in First Half of 2010
Dunkin' Brands Inc. said its Dunkin' Donuts brand has maintained strong growth in the first half of the year, with 338 net openings worldwide. Of those 338 new restaurants, 75 are located in the United States. Canton, Mass.-based Dunkin' Brands also said it has inked development deals to open another 72 stores throughout the country. During the first half of 2010, the chain signed multistore development deals in 14 markets, including Detroit; South Bend, Ind.; Miami; Fayetteville, N.C.; Chicago; and St. Louis. Franchised units have already opened in Tampa, Fla.; Raleigh, N.C.; Phoenix; and Atlanta.
Restaurant Traffic Expected to Slow as Population Ages
Restaurant traffic growth is projected to lag the nation's annual population growth over the next 10 years as aging baby boomers dine out less frequently, according to The NPD Group. In its study, "A Look into the Future of Foodservice," NPD projected that annual visits to restaurants would increase 8 percent by 2019. That works out to about 0.8 percent per year, which lags the 1.1-percent annual growth rate in the nation's population expected during that time. Demographic factors, mainly the aging of the American population, will provide significant headwinds to restaurants trying to build traffic over the next decade, NPD found.
Sardar Biglari Drops Stake in Red Robin
Two companies led by investor Sardar Biglari have sold their combined 6-percent stake in Red Robin Gourmet Burgers Inc., according to documents filed with the Securities and Exchange Commission. Biglari is the chairman and chief executive of San Antonio-based Biglari Holdings Inc., which operates the Steak 'n Shake and Western Sizzlin chains. He also is a well-known restaurant investor who has played roles in deals at Friendly Ice Cream Corp. and during the Applebee's-IHOP merger. Documents filed August 21 with the SEC by Red Robin and Biglari Holdings, but not made public until August 23, said Biglari Holdings had divested 738,599 shares, or 4.7 percent, of Red Robin common stock and that The Lion Fund LP had sold another 202,590 shares, or 1.3 percent. Lion Fund is controlled by Biglari Capital Corp., a wholly owned subsidiary of Biglari Holdings.
Restaurants Shift Egg Suppliers after Recalls
With a second supplier recalling shell eggs over salmonella concerns, restaurant operators said they were working to find safe sources of the product. More than 1,000 people across the country by Friday were reportedly identified as having the strain of salmonella enteritidis that has been linked to shell eggs served in restaurants or sold in stores in multiple states. Health officials say the number of salmonella cases from May through July is approaching 2,000 - nearly three times the average number of cases recorded for the same period over the past five years - though not all have been identified as the same strain tied to the eggs. As of Friday, the U.S. Centers for Disease Control and Prevention had identified 26 restaurants or events where more than one ill person with the outbreak strain had eaten. The CDC did not identify the restaurants or their locations.
Banking & Lending
Douglas Stebbins
Commercial Property Owners Choose to Default
Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans. Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense. Like homeowners before them, some companies are choosing to default on debt or to surrender buildings. "We don't do this lightly," said Robert Taubman, chief executive of Taubman Centers Inc. The mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J. Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.
Credit-Card Rates Climb
Interest rates continue to tumble for the U.S. Treasury, companies and home buyers alike. But for a large portion of 381 million U.S. credit-card accounts, borrowing rates have been moving only one way: up. And average rates are likely to climb further in the near future. New credit-card rules that took effect Sunday limit banks' ability to charge penalty fees. They come on top of rule changes earlier this year restricting issuers' ability to adjust rates on the fly. Issuers responded by pushing card rates to their highest level in nine years. In the second quarter, the average interest rate on existing cards reached 14.7%, up from 13.1% a year earlier, according to research firm Synovate, a unit of Aegis Group PLC. That was the highest level since 2001. Those figures look especially stark when measuring the gap between the prime rate-the benchmark against which card rates are set-and average credit-card rates. The current difference of 11.45 percentage points is the largest in at least 22 years, Synovate estimates. By comparison, the spread between 10-year Treasurys and a standard 30-year fixed-rate mortgage is just 1.93 percentage points, near historical averages, according to mortgage-data provider HSH Associates.
A Busy August Fuels M&A Speculation
For investment banks, August is the sleepiest month, sending dealmakers to the beach. But not this year. There's been $217.9 billion worth of mergers and acquisitions so far this month. That makes it the fourth-busiest August ever, not far behind the dotcom go-go years of 1999 and 2000 and the credit boom year of 2006, when leveraged buyouts reigned. Last August, there was less than $130 billion worth of deals, according to Thomson Reuters. Ramirez expects more mergers and acquisitions, especially in the technology sector where companies such as Apple Inc., Google Inc., Cisco Systems Inc. and Intel Corp. have amassed tens of billions of dollars in cash. There have been about 20 deals worth $1 billion or more so far this year, according to Ramirez. That compares to six transactions worth at least $1 billion in 2009.
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