GLG News by John English

Implications: 1. Just what is Sears plan ? 2. Understanding how the company has operated in the past decade. 3. Audibels only work if you have an actual game plan and a buy-in from the players along with a strong feeling of confidence that you can win.

Analysis: Before audibles can work you need to have an actual "game plan" and a buyin for success from your players. You must understand Sears is a company who has been drawing their plays in the sandlot ground since the early 90's. "You go long no I mean short did I say short"? Okay, that didn't work so "you go short, I mean long". Actually, it sounds like and Abbot and Costello "who's on first" routine that is not so funny for the shareholders. It's difficult for you to understand their plan because they don't really have one as I see it. I suggest you stop your car and watch some kids playing football in the park and that might help you understand Sears but please don't try to use traditional retailing logic.   

Implications: Economic weakness starting to show at the register. 
Low Consumer Confidence Index in Sept could become an epidemic.
Two players in diverse retail sectors trim expectations for 2007 who will follow 

Analysis:  

NY Daily News .Com reported the fact that Target and Lowes “have now trimmed their expectations for the year because of slow sales.” I found this of particular interest as these companies represent what I would consider a microcosm of two distinct industries that appear to be trending in the same direct. Lowes cutting expectations doesn’t come as much of a surprise. You would have needed to be in orbit all year not to realize that was coming because of the downturn in the housing market but, Target too!  With the Consumer Confident Index for September reporting its lowest level in two years per the Conference Board there is reason for concern. Target, in my opinion, is positioned as a good measurement of mass retails today. So, we have both Home Center business (they don’t stock toys as you know) and now retailer Target both preparing for less versus more for the remainder of 2007. My experience though very small in comparison to manufacturers is in line with this somewhat pessimistic view the 4th Quarter 07. I am aware of ship dates on purchase orders being move back and quantities adjusted down in some cases. I am not aware of total order cancellations yet but I am sure there is a watchful eye on daily retail sales reports to determine what is a comfortable inventory position going forward. If there is any erosion I am afraid cancellations won’t be far behind for everyone. I have been very surprised by the resilience of our consumer in the marketplace today as they have maintained a strong position thus far but I don’t know how long this can go on and how deep it will affect the balance of 2007 when it does turn. If I had the answers to these questions I would be clairvoyant but I am not so I will only have my opinion based upon the dynamics I know to be true in the marketplace today. Comparable sales “even” with 2006 might be acceptable or even best case for many retailers in 2007.       

Implications: 4th quarter implications Future of Global Sourcing Effects of costs and margin when and if quality control and higher standards are imposed  

Analysis:

I found the article by Alex Veiga AP Business Writer to be most insightful. Let’s cut to the chase here. “China makes more than 80% of the toys sold domestically and as he states “if you're trying to avoid Chinese toys this Christmas, there's not going to be much under the tree”. We can add” or the top line of your company if that is your industry”.  So, let’s start the healing process or should I say damage control and get this off the presses as quickly as we can. Well, those goods that have been produced for this Christmas season aren’t just being made in the North Pole as we speak, they are here and many are coming off the shelf I would venture to say. The impact on Mattel revenue of 5 billion plus which is driven by the fourth quarter can be astronomical and they are just one player in this arena. You can tickle Elmo all you want this Christmas and I doubt you will even get a grin. Those retailers who have taken toys out of their assortment for low margin, returns and seasonality are now breathing a sigh of relief. The impact on so much of the retail sector that depend upon footsteps which are created by shoppers who go into a store to buy a toy and come out with several plus other merchandise will be significant. The implications on fourth quarter sales are huge. I guess all the toy retailers will be trying to buy a non made in China” magic eight ball” very soon to see what their future looks like for the balance of 2007. Long term we really need to consider the consequences of our actions if it’s food, boots or toys as we become so dependant upon global sourcing. The implications can be lethal in many ways and I’m not being xenophobic. The fact that we fix things and put check and balance in place after the fact in so many instances is  reactionary at best and demonstrates a prior willingness to “look the other way “ and hope not to get caught for the sake of margin and profits.     

Implications: 1. Make room Babies R Us. BB&B is starting small but has the clout to make an impact in this market segment.  

2. Cradle to grave selling mentality at BB&B a good thing

3.  Good Margins, not highly seasonal, limited markdowns limits the BB&B risk factor.  

Analysis: Well, someone needed to step up and I guess 8 stores is a start. Babies R' Us has done a excellent job in this category but BB&B in time can do more with a "cradle to grave" opportunity, selling past infant and toddler goods and into their core business. I'm sure they will be best served in E Commerce versus bricks and mortor initially.  This is truely an opportunity to gain marketshare and diversification in a business sector that is somewhat of an open playing field for big players as it's made up of so many Mom and Pop doors. This is not an off-price business and generates good   margins for the retailer. It is driven by grandparents who spend more on their grandchildren than they did on their own children because they now have money to spend. There is nothing quite like a Birth, Wedding, or for that matter a Funeral to get the emotional wallet open with little regard for "shopping around". A good strategic move for BB&B in my opinion.         

Implications: Top line growth remains a key struggle at Sears and Kmart

Revenue from investments and reduced expenses are good icing but you need a cake (sales) to put them on 

Analysis: Déjà vu might be a new film release but it is an old flick when it is seen once again in retailing. For the past 25 years of downsizing, right sizing and reorganization at Sears the only thing that has remain constant is a poor top line performance. Led by a new team, time and time again the once ‘icon” of retailing has continued to flounder when fishing for sales. They have sold just about every non store related asset to show profitability at times during this past 25 years with the hope of borrowing time to fix their real problem on the top line. Several executives have walked away wealthy as those under them scrambled to find work in the latter part of their career. Revenue from investments, surplus cash and reduced expense are certainly icing but if you don’t have a cake to put it on you are not ready to serve your investor unless you are serving him his last meal on a spoon. JC Penney, Sears one time direct competitor seems to have figured out a way to exist in the ever changing retail environment leaving Sears in the dust when it comes to winning on the top line. It is no surprise that “Home Goods’’ was most affected by poor sales recently at Sears and Kmart as this is a category that many other traditional retailers and off-price retailers are emphasizing today. Once faced with new competitive the result is usually lost market share by those who don’t have the infrastructure in place to compete at a high level in dynamic businesses. Oh how they miss the days of JC Higgins and those days when no one dared to challenge the name of Craftsman or Kenmore.

Implications: 1. Changing retail marketplace

2. Early competition for Off Price Retailers

3. New techniques to drive sales and footsteps

Analysis: During my regular competitive shopping last week I noticed something at our local Belk Department Store that stopped me in my tracks. Last year it became evident to me that department store retailers were on sale much earlier in the fall season and offered greater discounts on seasonal apparel than I had seen in prior years. It appeared to me that these traditional department stores were taking markdown sooner and the percent off regular price was significantly more initially than in the past. The time that the “off price” retailer had almost exclusively to offer highly discounted merchandise to the consumer was now going to be shared by non traditional competition at this time of year to generate both sales and traffic.

This year, I witnessed the associates at our local Belk Department Store using 8 1/2x11” paper with hand written percentage off amounts to cover their normal signage to create what the associate told me was a “garage sale” type presentation. I thought what a paradigm shift has occurred, first with the consumer naturally, now with those who must make a living serving their needs. The customer who once hid a bag that had the name of an off price retailer on it now carries it proudly to show that he or she is, in fact, an enlightened consumer who knows a value and is very willing to spend less rather than more on branded products (especially) to gain bragging rights. Belk Department Store took that one step further to create an event and did everything except put the apparel into brown boxes and let the customer sort through it, but, there is always next year.

For me, it is really interesting and speaks well for those companies like Belk Department Store who are willing to try to be different if only for a weekend but more importantly it shows the power of the off price format, “the hunt” atmosphere so to speak and the change that has occurred in the psyche of the consumer and the retailer today.