The Weekly Consensus: Week of October 8, 2012 Vol. 4, No. 41
Six Degrees from the Holidays
The recent anxiety about a bacon shortage traces its roots across the pond, when, while “fighting for…growth and prosperity,” Britain’s National Pig Association (“the voice of the British Pig industry”) issued a press release that included the following assertion: “A world shortage of pork and bacon next year is now unavoidable.”
It only took a week for the world to take notice. The bacon story was broadly picked up on the Internet, and then through mainstream media outlets in the US and Canada, including CNBC, CBS, the Washington Post and the CBC. Suddenly, people were talking, and worrying, and completely off base, since what Britain’s National Pig Association calls “bacon” is what Americans call “Canadian bacon,” and what Canadians, strangely enough, call “back bacon” – not the product pictured above, which the British call “streaky bacon,” Americans call “bacon” and, strangely enough, Canadians call “bacon.”
But, since restaurants and home chefs (not to mention soap makers, distillers, candy companies, lip balm makers, scented candle producers, baby formula companies, etc.) seem to include bacon as a part of everything, it’s no wonder that so many people were up in arms when they heard that their ingredient of choice might not be available. The question is, is there really a looming shortage, and should people hoard bacon because we’re headed for an era of rationing? As noted above, the answer to the first part of the question is no, because it turns out that sometimes “bacon” is not bacon. As to the second part of the question, there will not be a dark age of bacon rationing, but consumers everywhere will be finding, no matter what bacon they seek, price increases.
The cause of the bacon price increase is corn. Drought conditions this year have devastated the world’s corn crop. Corn is not only the source of the oceans of high-fructose syrup in which America drowns itself, but also used as fuel for some cars and to feed livestock, and when the price of it goes up, the price of everything will follow.
The underlying cause of the bacon crisis of 2012 is but a small part of a bigger story about looming increases in the cost of staples, which result in an increase in non-discretionary spending, which leads to decreased disposable income and lower consumer confidence. The lower income brackets are the canaries in the coal mine of consumer spending, fading first, and fast, but there are signs that rising costs are leaving a mark among the more financially robust as well. High-end brands such as Burberry and Tiffany that have heretofore been immune to the general consumer spending pullback that came with the global recession have started to see demand for their products flattening, or even declining. As we start to get closer to the all-important holiday season, if even the wealthy are no longer feeling so secure that they can spend as freely as they have in the recent past, while the not wealthy experience yet another decrease in their discretionary budget, it does not bode well for holiday spending. Projections to the contrary may simply be, yes, putting lipstick on a pig.
Li & Fung Ltd. is in advanced talks to buy Synergies Worldwide, a small, New York-based supplier, a source familiar with the matter said. The move would help Hong Kong-based Li & Fung gain a better foothold in the fast fashion and discount clothing space. Li & Fung is now negotiating the finer points of a deal with Synergies, which specializes in low-cost sourcing and has a strong foothold in manufacturing centers like India, Pakistan and Bangladesh, the source said. The source did not want to be named because the talks are not public or final yet. Li & Fung, which is halfway through an ambitious three-year growth plan that aims to grow core operating profit to $1.5 billion by 2013, has said it would grow the company both organically and through acquisition. Some analysts questioned whether the company's acquisition-led business model still works.
Maybe St. John could use a little parental guidance. The stodgy women’s power-suit brand, which was put on the block this spring as its business continues to unravel, has held merger talks with Escada — the German luxury label that had owned it nearly 20 years ago. Megha Mittal — the 35-year-old daughter-in-law of Indian billionaire Lakshmi Mittal, who scooped Escada out of bankruptcy in 2009 — recently flew to the West Coast to meet with execs at Irvine, Calif.-based St. John, sources said. Other prospective bidders for St. John, owned by private-equity firm Vestar, include clothing company Jones Group and PE firm Lion Capital, which has made investments in American Apparel and John Varvatos. Insiders said the company, formerly known as St. John Knits, could fetch as much as $300 million, which would amount to 10 times the company’s adjusted EBITDA.
Apparently Christopher & Banks Corp. has temporarily ended its search for a new CEO. The women's apparel company said in a filing with the U.S. Securities and Exchange Commission Oct. 2 that CEO Joel Waller has agreed to stay in the job through March 31. Waller, 72, was given a $150,000 bonus for agreeing to the extension of his contract. Waller, the former CEO of Wilsons The Leather Experts, joined Christopher & Banks on Dec. 14, 2011 as president. He was hired for a one-year term. Two months later, CEO Larry Barenbaum left the company and Waller was named CEO while the company's board searched for a new leader. More than seven months later, the board is still looking.
Express Inc. slashed its forecast for the current quarter, highlighting the perils of resorting to promotions that fail to clearly communicate value to the customer, ahead of the crucial holiday selling season. The retailer was forced to discount to clear out inventory and return to affordable tops after a shift to expensive knitted sweaters earlier in the year proved unsuccessful. However, Express’s strategy of offering a discount on a second purchase failed to attract customers as they were left unsure about the value proposition, an analyst said. The company, which operates more than 600 retail stores, said a shift to simpler discounts helped improve traffic at its stores in the final week of September.
Journelle in New York City is no ordinary store. Among its intimate apparel store peers — who are in the business of helping women find the perfect undergarments through a sometimes thrilling and at other times exasperating process — Journelle stands out. Journelle opened its doors in 2007 — when bankruptcy for small businesses skyrocketed. From the first quarter of 2007 to 2008 bankruptcy filings for small businesses grew 33%. From first quarter 2008 to 2009, bankruptcy filings leapt by 75%. Yet Journelle not only survived the recession, but thrived through it, experiencing double digit growth over the period. While many companies decided to cut costs, batten down the hatches and conserve cash in response to the bad economy, Journelle's CEO, Claire Chambers, said she saw the recession as an opportunity: "I realized that woman will still purchase undergarments but they would have very little tolerance for anything subpar, including the shopping experience. This was the time to truly stand out from our competitors, and that is what Journelle had to do if we were going to get the sales that were out there. So I doubled down on the customer experience and the sales associates."
Denver's Gart Capital Partners has acquired five Dallas-based Run On! stores through its joint venture with The Finish Line Inc. The Running Specialty Group joint venture now owns 24 running stores in the Northeast, Florida and Texas as well as the new run.com e-commerce website. The Running Specialty Group plans to expand deeper into Texas in the next five years, tapping the run.com website to expand retail opportunities for brick-and-mortar stores.
Dan Thomas looks up at the rain clouds hovering above St. Paul’s cathedral in London and then smiles approvingly at the two golf umbrellas he’s just bought for 5 pounds ($8) from a branch of Sports Direct. The 28-year-old electrician from Essex said the store chain controlled by Mike Ashley, the owner of Premier League soccer club Newcastle United, is his initial port of call when he’s looking for sporting goods. The reason: Price.“I’ll always have a look in Sports Direct first because they’re cheap,” said Thomas, who usually buys T-shirts for use at the gym from the store. “The umbrellas were more expensive when I looked on EBay.” With prices luring thrifty customers, Sports Direct International Plc’s stack-it-high-sell-it-cheap strategy helped push its biggest competitor into bankruptcy this week, while manufacturers Nike Inc. and Adidas AG have the products they spend millions of dollars marketing sold at a discount. Logos of the world’s largest sporting-goods companies often get displayed in stores that resemble a yard sale, according to Bryan Roberts, a director at Kantar Retail in London. “It’s not the most attractive proposition in terms of in- store experience, but it’s been tremendously effective,” Roberts said in a telephone interview.
5.11 Tactical has acquired Beyond, a highly technical performance clothing company that builds custom American-made apparel. The acquisition enhances 5.11 Tactical’s domestic manufacturing, product innovation and rapid prototyping capabilities, while providing Beyond with an expanded infrastructure to meet the global needs of the extreme purpose built customer, such as winter expeditionary teams, alpinists, and Special Operations communities. Industry veteran Rick Elder has been appointed as president of Beyond, which will continue to operate as a separate division of 5.11 Tactical in Seattle, WA, while Beyond Founder Scott Jones will move into the role of chief designer.
Macy's plans to hire about 80,000 seasonal workers this holiday season, a 2.5% increase from last year when the Cincinnati-based operator of Macy's and upscale Bloomingdale's hired 78,000 workers. Macy's said that the seasonal workers will be used to staff up not only its Macy's and Bloomingdale's stores, but also its call centers, distribution centers and online fulfillment centers. Many of the positions will be part-time. Macy's employs about 175,000 staffers on a year-round basis.
Sears Holdings Corp. said it’s hiring of seasonal workers for the crucial winter holidays will be unchanged from a year ago. During a holiday press event, the company, which operates Kmart and Sears, Roebuck and Co. stores, said that its hiring plans come as it has worked hard to make its associates more productive with strategies including mobile checkout. Sears, based in Hoffman Estates, declined to say how many holiday workers it plans to hire but said that the company's workforce is about 260,000. The holiday shopping season is the busiest period of the year for retailers.
With more than 7,200 stores in 45 states, one would think that Family Dollar had already encountered just about any obstacle that could occur when opening new locations. But though the company could lease, build out and stock a 7,000-sq.-ft. store quickly, fulfilling technological needs could be difficult: Because many locations are in remote areas, connecting the stores to a centralized location was challenging. Those difficulties translated into expensive solutions, like copper-based frame relay circuits to connect the POS system and other functions of the wireless area network (WAN). It also meant waiting on the local telecom to provide the technology to the store, which could take months. It also meant difficult decisions. Family Dollar could choose to “open the store with full functionality, or ... with only a subset of functionality,” says John Schoonover, the Charlotte, N.C.-based discounter’s network engineering manager.
U.S. auto sales got hot in September with a 13 percent gain that unexpectedly pushed the monthly selling pace higher than for any month since the industry's 2008 collapse. Sales totaled 1,188,899 light vehicles for the month, almost 100,000 more than most forecasters had expected. The seasonally adjusted annual sales rate rose to 14.9 million. That's higher than the cash-for-clunkers 14.6 million SAAR in August 2009 and the best since the near-15 million mark in March 2008. Automaker executives expect a solid end to the year.
AutoNation, Inc. announced that its retail new vehicle unit sales in September 2012, as reported to the applicable automotive manufacturers, totaled 22,982, an increase of 23% as compared to September 2011. Retail new vehicle unit sales in September 2012 for AutoNation's operating segments were as follows: 6,870 for Domestic, up 10% versus September 2011, 11,854 for Import, up 38% versus September 2011, and 4,258 for Premium Luxury, up 11% versus September 2011. For the third quarter of 2012, AutoNation's retail new vehicle unit sales, as reported to the applicable automotive manufacturers, increased 22%, with Domestic up 12%, Import up 35%, and Premium Luxury up 6%, in each case as compared to the third quarter of 2011. There were 25 selling days in September 2012 and September 2011.
DTC sightholders will now call themselves “De Beers sightholders,” because of a new corporate realignment from De Beers. “We believe it strengthens the De Beers brand to give everything one name,” says spokeswoman Lynette Gould. “Across our organization, there has been a proliferation of sub-brands over many years…. [That] has left us with too many diverse brands that only serve to dilute De Beers’ leadership position and deprive each business unit of the full value of the corporate brand.” But, she adds, “This is not happening overnight. Sightholders don’t have to rush out and do this big rebranding exercise.” This change was spurred partly by a strategic review led by consulting firm McKinsey and Co., Gould says.
Bailey Banks & Biddle Group has hired Baltimore-based Smyth Jewelers to manage the company’s nine locations. Smyth’s current leadership team of Mark Motes and John Jackson will serve as the company’s chief executive officer and chief operating officer, respectively. The company will manage operations, purchasing, administration, and field support functions, a statement said. Bailey Banks & Biddle Group declined to provide additional details. But former CEO and president Paul Leonard tells JCK he has stepped down due to health issues, which he calls "serious but not life-threatening." Bailey Banks & Biddle currently has locations in Arkansas, California, Florida, Missouri, Pennsylvania, Texas, and Virginia.
Blue Nile has now committed whole-hog to growing its fashion jewelry business—it’s hiring a design director, has appointed a new chief merchant, and just unveiled its first proprietary line with Monique Lhuillier. At a Sept. 5 presentation at a Citi Technology Conference, CEO Harvey Kanter admitted that turning Blue Nile into a site for "non-engagement" and fashion jewelry—as opposed to just low-priced diamond engagement rings—has been “difficult.” But he said it was part of a “30 month plan” that won’t pay off until 2014. He stressed that the site wants to change its entire image, to become “less transactional and more inspiring and engaging.” “We don’t want to be the Amazon of jewelry,” says Kanter—though now, that's basically what the site is. “We have to have a point of view…If you are a David Yurman customer, you like what their aesthetic is. We are strongly oriented…towards developing an aesthetic and point of view in the marketplace.”