Contributing Member of the Consumer Goods & Services Councils

All News Analyses by this Author

French Connection: possibly the first steps only

September 18, 2009

Analysis of:French Connection posts loss | www.retail-week.com

Closing stores and trimming overhead are appropriate and time honored steps for retailers to make in response to the current economic climate.  Given that the weakness is primarily in the US and wholesale channels, it's not clear that this is addressing any underlying causes as opposed to trying to stop the bleeding.

Dollar Stores May Be Peaking

August 27, 2009

Analysis of:KKR’s Dollar General Files for $750 Million IPO as S&P Advances | www.bloomberg.com

Beneficiaries of the depth of the recession, poor responses by mass merchants and alterations in consumer perceptions, Dollar Stores in general may be peaking in value now, not showing potential for upside during an economic rebound.

Private Label Dynamics

July 27, 2009

Analysis of:Private Label Programs Take Off | www.brandweek.com

Several macro-social factors are at work influencing the uptake and acceptance of private label products across previously low penetration segments.  Combined, these lead to greater penetration, broader acceptance, and probable long term sustainability.  Consumer attitudes, information access, and lack of product development are keys to understanding the shift.

Marketers: This is worth exploring

July 21, 2009

Analysis of:Walmart Browbeats Marketers for Bigger Slice of Their Ad Budgets | adage.com

WMT is publicly suggesting that it's vendor community shift marketing spend from traditional mass media to alternative media developed specifically by WMT.  The clear intention is to factor this spend decision into the amount of business WMT does with each vendor/marketer.  The initial response has been to decry this as another "strong arm" effort by WMT to obtain marketing funds.  Alternatively, this could be an eye opener for branded marketers, and an unprecedented opportunity.

Expansion Critical to Fresh & Easy's Operating Outlook

June 24, 2009

Analysis of:Fresh & Easy Plans Fresh Stores, Products | www.retailerdaily.com

Although an improbably small percentage of Tesco's overall volume and profit, the potential for the US operation to reach significant scale makes keeping a critical eye on the performance necessary.  Fresh & Easy's operating loss may have been deeper than expected.  However, financial modeling suggests at this stage of development, operating profit was unlikely.  The only option available is to expand the store count and the product offering, leveraging fixed operating costs and infrastructure expenses while creating greater economies in logistics, marketing and local sourcing.  Even if the additional 5 California stores do not stem the red ink, Fresh & Easy must continue to expand or fold the division.

Pent up demand does not lie in discretionary retail assortments

June 19, 2009

Analysis of:Goldman Sachs' Downgrade of Wal-Mart Incorrectly Favors Discretionary Retailers 4 comments | seekingalpha.com

Year over year comparatives and expectations for pent up demand do not capture the fundamental shift in spending habits experienced over the past 9 months.  Moreover, the Goldman Sachs viewpoint ignores the broad based nature of the retail recession.  Discretionary retailers will not be the first to rebound, rather, hard goods and household necessities, followed by value priced apparel should provide the greatest short term return.  Overall, the author is correct in his belief that WMT represents a continued value play at its current price.

A Perplexing Approach to Private Branding at Amazon

June 18, 2009

Analysis of:Amazon Plunges Into Private Label Business | www.fastcompany.com

As Amazon continues to explore ways to expand it's model, improve margin and drive sustainable growth, it is perhaps inevitable that "best practices" in traditional retail might be worth investigating.  However, Private Branding may not be one of those that fits the Amazon model and environment effectively.  At the moment, there appears to be little corporate investment behind the tactic, which is good news for the shareholders.  Based on information available and the current merchandising of their Private Brands, this venture should not be seen as making a material difference in volume, earnings, or ROI.  This analysis specifically excluded Kindle as a unique product/line, NOT a private brand.

Sears Holding tactics "work"....but for how long?

May 25, 2009

Analysis of:Sears Swings to a Profit and Secures New Credit | online.wsj.com

The critical aspects of the first quarter results are three compelling numbers.  Comp store declines, inventory decline, and the massive reduction in selling and admin expense.  Comp stores declined in virtually every major category at Sears (despite the "housing" related p.r.), and primarily in apparel for Kmart.  The major component of SG&A reduction was advertising.  Inventories did not match comp store decreases.  Adding up all these numbers presents a less than rosy outlook.  Yes, GM went up 130 basis points.  Perhaps, appropriate markdowns were delayed to make that happen.  With inventory down only 7% and comp stores down close to 10%, the GM basis point gain is probably not sustainable through the next quarter.  The $100 million reduction in ad spending too will be seen most in the coming quarters.

The Real Driver for Under Armour

May 22, 2009

Analysis of:Under Armour is Everywhere | www.fool.com

Under Armour's success in the marketplace, acknowledged in their annual report, is a function of marketing.  As management notes, some competitors are better positioned to outspend, out-market and out-advertise UA.  A key ratio in the 2008 full year performance is SGA increasing as a percent of sales over 2007....and running at a very high rate already.  In the event that UA finds sales or distribution lagging, it is unlikely that a siginficant increase in SG&A expense could be expected.  And  without that spending, sales will NOT organically increase.

Is Billabong in a "strength" position?

May 18, 2009

Analysis of:Billabong to Sell New Stock, Cuts Earnings Forecast | www.bloomberg.com

Transforming debt to equity based financing is certainly a sound financial move in today's economy.  While interest rates remain low, the drain on EPS of any unnecessary debt is highly discouraged.  Leveraged balance sheets are risky balance sheets for any company dependent on a consumer spending rebound.  The critical question remains the underlying strength of Billabongs business, it's niche within the industry, and the probable continued impact of the global recession.

Shrinking Markets and the Role of Supply Chain Specialists

February 18, 2009

Analysis of:Li & Fung Slides After HSBC Cuts Stock to ‘Neutral’ | www.bloomberg.com

Li & Fung is no more in control of it's top line growth than any other service or goods provider who is dependent on a limited market.  There is not an unlimited number of potential clients for Li & Fung's services and products.  Nor is there very much that Li & Fung can do to significantly gain share with existing clients.  In truth, as with many other suppliers to retail, the downturn in consumer spending and it's attendent concentration of retail share leave very few top line levers management can rely upon.  The reality is that extant of gaining share through acquisition or stealing share through price reductions, Li & Fung's top line will remain a function of the top line of it's core customers.

Macy's actions are counterproductive and do not address the core issues

February 3, 2009

Analysis of:Macy's Takes Marketing Local, Cuts Jobs Nationwide | adage.com

Macy's top management continues to show no clear signs of understanding the breadth and depth of the problems they face.  Centralizing merchandising, marketing and planning may be appropriate moves when supported by the right technology.  However, announcing a simultaneous "regionalization" program which ads 35-40 executives to allow for localized marketing, merchandising and planning makes virtually no sense.  Rather than come to grips with the real issues, Macy's continues to grasp at slim straws.  Already with a Price - Book ratio around 0.37, Macy's is valued less than any other comparative retailer except Dillards and The Bon Ton.  Even Saks has a higher ratio.  In comparison, WM and Nordstrom are above 3, TGT above 2, and even struggling JCP is above 1.  With a virtually captive Board, there's no sign that Macy's shareholders can expect to see any improvement in their status.

Will the Saks and Neimans cuts impact their ability to execute and compete effectively?

January 19, 2009

Analysis of:Saks and Neiman Marcus Announce Layoffs | www.nytimes.com

The degree and extent of the decline in luxury retail has caught most analysts and luxury retailers off guard.  The prevailing theory had been that the more affluent consumers remained capable of spending, and we were seeing delayed or deferred spend in response to attitudinal fears.  The sustained depth of the drop of volume puts that theory into question, spurring drastic measures by Saks and Neimans.  The critical issue is whether these cuts impair their ability to serve the remaining customers effectively.  If so, they become the second step in a downward spiral neither company will emerge from.  Of interest will be how long these cuts stay in effect.  Spring is the lowest volume period for these retailers, and perhaps the strategy is to re-hire if/when luxury spending rebounds.

Macy's has fundamental business model problems a write down will not resolve

January 16, 2009

Analysis of:Macy’s Goodwill Writedown May Speed Stock’s Spiral | www.bloomberg.com

Clearly the May Co acquisition has proven to be probably ill advised, and certainly the price was far too high.  Even at the time, the price presupposed a continued expansion economy, and the ability to apply the Federated model to the May locations.  Both proved to be overly optimistic.  The write down, should it occur, will accurately reflect the real value of the acquisition, which probably should have been simply a real estate play driven after May hit inevitable liquidation.  However, Macy's real problem is that closing 11 stores is probably far from adequate and the Macy's "model" isn't well suited for the current apparel environment.

It could really be worse than reported

January 8, 2009

Analysis of:U.S. Retail Sales Fell 0.8% in Week After Christmas | www.bloomberg.com

The accounting for promotional versus clearance markdowns may be hiding a deeper and more pervasive impact on margin, and therefore earnings.  Although far from comprehensive, a quick survey of post-Christmas clearance pricing tactics shows a much higher incidence of "promotional" offers than is usual.  Promotional markdowns are booked when the product is sold, while clearance markdowns are booked at the time of the price adjustment.  The anticipated super-deep post-Christmas pricing hasn't completely materialized, and one of the reasons may be an attempt to move markdowns from December into January.  Sears in specific has used this approach in the past to artificially bolster earnings.  Contrary to the article's conclusions, the real problem isn't consumer desire to avoid full retail. It's much worse than that.

Will "Partnership" save Apparel Vendors?

January 6, 2009

Analysis of:Saks, Macy’s Discounts Spark Vendor Spat After Holiday Slump | www.bloomberg.com

Just as with the auto retail disaster, department stores and apparel chains are facing a similar scenario impacting the entire supply chain, not just the retail end of the funnel.  Unlike the auto's, the apparel supply chain is relatively fluid, and the vacuum created by departing players can be relatively easier to fill. Apparel vendors face the dual reality that many do not have the brand loyalty base they did in the past, and the number and variety of potential retailers has shrunk markedly.  The result is that as bad as things are for retailers, they still have the majority of the leverage.  This is true in general, and not in specific.  To truly understand this eco-system, each individual brand and vendor has to be analyzed distinctly.

Can Marshall make a Difference at Borders?

January 6, 2009

Analysis of:Borders Names New Chief After Holiday Sales Fell 12% | www.bloomberg.com

The change in management at Borders should be viewed positively from at least two angles.  Ron Marshall is credited with enabling Nash Finch to operate effectively in a very tight and very competitive market.  Having done business with Nash during those years, I can honestly say that nothing specific about the operation impressed me......other than that they survived.....in a time and place where many did not.  The core of that business was logistical and operational efficiency.....something which is desperately needed at Borders. Anne Kubek, without doubt, understands the history of Borders, the marketplace, and the competitive dynamic.  Together, they may represent a formidable team. However:  the essential market dynamics impacting Borders are beyond poor, and the short term forecast is very bad.  Can Borders survive?

What's Next for Retail?

January 6, 2009

Analysis of:Retailers' holiday sales drop at least 5.5 percent | www.msnbc.msn.com

The unsurprising dismal results from December do not indicate that a bottom has been reached.  In fact, as others have pointed out, the Jan - Feb period is likely to be even more brutal, with greatest impact felt by promotional retailers used to living off post-Holiday markdown liquidations.  Not only will those sales be slower, at deeper discounts, but there will be far fewer overall shoppers fueling the clearance period. Effective action for retail requires very specific tactics in assortment planning, merchandise strategy, operational effectiveness and marketing focus.  Those retailers showing indications of excellence in these areas will out perform the market.

Gas Prices are not the basis for Walmart's Success: It's strategy and delivery are!

December 9, 2008

Analysis of:Why Walmart's Winning: Gas Prices Pump up Retailer's Sales | adage.com

Walmart's customers certainly have less disposable income than other retailers.  Without doubt, the reduction in gas prices helps those with less income porportionately more than those with more income.  Clearly, if an average two income family with fairly decent commutes to work can easily be saving in the $400 - $500 a month range on gas, as compared to several months ago.  This is absolutely signficant.   Walmart, in advance of the recession becoming public angst, switched to "Save More, Live Better" as a positioning statement, and supported that with competitive price reductions on marketbasket staples.  This is reason Walmart is succeeding.

Online Retailers mirror Brick and Mortar worst practices to stimulate sales

December 5, 2008

Analysis of:Online Retailers Dangle Free Shipping, Discounts | online.wsj.com

Deep discounting and margin eroding features such as free shipping represent bad business as usual for retailers.  When sales are tough, drop price and stimulate demand.  If all the analysis is correct, online saw an approximately 15% gain over last year.....along with significantly more free shipping and deeper price discounts.  This implies negative impact to gross margin and operating profit.  By competing on price alone, online retailers are mimicking the worst practices of their brick and mortar brethren.

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