GLG News by Andrew Ashbaucher

Implications: Gap seems Inspi(red) to maintain relationships with manufacturers that use child labor.

Analysis: While Gap's stores are promoting a "We help the World" message, their relationships with Indian manufacturers are not cooperating.  Child labor issues surface periodically in the apparel industry, and the reaction to those instances goes a long way toward avoiding a crisis. 

Gap has an opportunity to turn a negative into a big positive if they truly focus on changing the face of child labor practices withing their supply chain.  If they take advantage of the opportunity and work within the (red) campaign a giant step toward regaining the top spot in their field could be attained.  If they try to sweep this under the rug and eliminate any risk, they are looking at a potential forest fire, San Diego style! 

It will be interesting to see if Gap truly believes in the (red) campaign or if they are just using it to sell t-shirts.

Implications: Garmin is selling very well.  Potential problems with map makers will not affect Holiday sales.

Analysis: With 3rd Quarter earnings due to come out on Wednesday is it too early to look at the 4th Quarter? 

Indicators at the store level all lead to positive results through the Holiday season.  Store Personnel indicate that Garmin is competing very well with TomTom, and Magellan.  This strong inter-category competition coupled with rocking sales leads to a very positive outlook for Garmin.  Consumers are still very interested in the product set with the only potential problem being GPS subscription services offered by cell phone companies.

Store personnel don't always have a handle on overall performance abilities, but if enough of them are polled you can usually triangulate an exact position.

Implications: Rate decreases don't necessarily mean more consumer spending.  Specific companies need to find ways to be profitable within the existing market.

Analysis: Two great subjects:  Retail and Rates.  Do they have a relationship, are they dating?  Are these two industries in the same car on a Friday night out on Whistler's Point exploring the world together, or are they just passing by one another on the way to the lunch room?

Sure interest rate changes can have an effect on Consumer Spending, but the reality is much less defined.  A large number of consumers have already spent their disposable income, many have spent their disposable income for the next several years.  Consumers are broke!

Instead of looking for a generalized way of determining Consumer Spending for the upcoming Holiday season, start looking at the details that matter.  Has a company found a way to tap into the decreasing number of consumers that haven't tapped themselves out?  Has a company found a way to increase profits even if they do not have increases in same-store-sales?  These are indicators that matter when competing within the current sales market.

Companies that will have increases this Holiday Season are the companies that have found a way to increase their share of the People-who-still-have-money category.  Not the companies that are relying on existing customers to refinance their homes.

Implications: Spicy Pickle will do very well with expansion.

Analysis: Eating at a Spicy Pickle restaurant is an enjoyable experience AND the system is very well set up.  After 5 years of eating at several different Spicy Pickle Restaurants it is exciting to see the company go public.  The management seems to have a great foundation and the planning has been done to push this concept up a level. 

Spicy Pickle won't soon reach the Quiznos level let alone the Subway level, but the products are great, the service has always been great, and people seem to be looking for a better quality sandwich. 

Implications: Focusing on profitability puts Nike in a strong position.  Keeping an eye on the potential for its divisions instead of the performance will have lasting long term effects.

Analysis:

It’s exciting to see Nike working on its swing.  Hitting the ball more by increasing profitability will result in more wins.  Letting Nike Bauer and Exeter Brands group go will allow Nike to reinvest capital into brands that have a much higher run scoring potential.  If Nike is serious about reaching $23 billion in revenue by 2011 it will have to have many more big hits, and Nike Bauer and Exeter Brands group don’t have the power to produce big numbers. <!--[if !supportEmptyParas]--> <!--[endif]-->

Hockey is not getting any bigger.  In fact, the popularity is shrinking.  The boom for street hockey and inline skating is quickly being overcome by lacrosse.  Overpowering a market is usually a fantastic business objective, but hockey has a small market that will take vast amounts of marketing dollars to increase.  Chasing after currently booming markets just makes a lot more sense.

<!--[if !supportEmptyParas]-->Exeter Brands group will be easy to replicate.  Marketing to the masses with lower cost goods can be duplicated with growth from within Nike.  A creation of a new way to reach the budget audience will also fall in line with Nike's strategy to streamline operations.  The Starter and Team Starter brands have had brand recognition washed away making them much less likely to sell versus the same merchandise under a Nike brand.

Implications: Finish Line has the cash and credit within their cash flow.  What will happen to existing Genesco retail outlets? 

Analysis: Finish Line has prided itself on having a debt-free philosophy.  With large amounts of cash on hand (usually 200-400M), and excellent credit with their vendors, it should be a simple transaction to convert current cash flow from its savings and vendor payments to a buyout plan for Genesco Inc. 

Lifestyle athletic footwear has been on the rise for 5 years.  With companies like Zumiez doing very well is would be an easy addition to the selection at Finish Line.  The key will be the product flow; can Finish Line control the inventory?  If they work on their supply line, stores should have no problem fitting the new inventory on their shelves. 

The next question will be the plans for existing retail outlets like Journeys?  Will an addition of Genesco footwear in the Finish Line store just take away sales from Journeys, or will the addition take market share away from stores like Zumiez?

Implications: Nike starts delivering on its promise to increase business.  An almost guaranteed home run launches at Payless ShoeSource.

Analysis:

Nike hits a home run!  In releasing a new brand called Tailwind, Nike increases its market share potential dramatically.  A new line of women’s footwear for the value shopper is a fantastic strategy that will see dramatic results.

Tailwind is already a strong name within the Nike family.  Having hit shoes under the Tailwind name for a decade has made Tailwind a common name among athletes and athletic shoe aficionados.  Finish Line, Foot Locker, Champs, and other retailers have made a killing on the Tailwind product.  Giving this new company an already well-known brand name gives this launch a kick-start.

Opening up a new market with value footwear is a great way to boost business.  Athletic footwear retailers know that value customers don’t often shop their stores.  The customer base of these stores will not be burdened with new competition, while stores like Payless ShoeSource will benefit greatly. 

Nike has seen recent challenges to its business model by other value footwear.  The Starbury One, by Stephon Marbury, retails for $14.99 at Steve and Barry’s University Sportswear, and Shaquille O Neal’s line of Shaq’s Dunkman shoes have been on the market for years.  This new Tailwind line allows Nike the ability to appease the cash stripped consumer while at the same time upholding its core brand.

Implications: They are good, they melt in your mouth, but whole-wheat doughnuts are not that answer to increasing sales for Krispy Kreme. 

Increased competition from coffee and energy drink sectors must be addressed, but is this the way to do it?

Analysis:

Implications:

Hooray!  It is now time for Gap to re-emerge as an industry leader.  Look out American Eagle, Abercrombie and Fitch, Urban Outfitters, and Hollister Co., the old Champ is poised for a comeback!

Analysis:

Hooray!  It is now time for Gap to re-emerge as an industry leader.  Brand loyalty for Gap is strong and powerful, the problem is that it has been forced into the underground.  Shoppers continue to shop Gap hoping for resurgence in buying possibilities.  Unfortunately the product mix has not maintained its edge.  In the specialty apparel industry “Product is King”.

Customers are offered neither the classic Gap polo shirt and jeans nor the hip new designs they are looking for.  Instead they are treated to copycat designs that first appear in stores like American Eagle, Abercrombie and Fitch, Hollister Co. or Urban Outfitters.  Shoppers have been mistreated by Gap’s complacency with its product mix but are looking for a way to return to one of their favorite stores.

It is not that shoppers are not interested in Gap, it is that they are disappointed in what they find there.  With new openings for the CEO and high-level designers, now is the opportunity shoppers have been hoping for.  If new “fresh” designs start hitting the racks, the turnaround for Gap could be much easier than expected.  Shoppers will once again be able to visit Gap with pride and begin to talk about Gap as the place to go instead of the place that never has anything “cool”.

If you are looking for future indicators of Gap’s performance go to the mall and look around.  Do you see any Gap bags?  Do you hear any teens asking their parents when they can go to Gap?  These are the questions that need answering, and now is the time for Gap to step up to the challenge.