February 13, 2017 Consensus

The Weekly Consensus – February 13, 2017 (Volume 9, Number 7)

The Big Story
After A Fashion
Maeghan Thompson


New York Fashion Week (NYFW) has kicked into high gear once again bringing a warm welcome to the winter cold that grips New York City.  Celebrities and journalists from across the world have front-row seats to see American designers present their collections.

Since the very first Fashion Week in 1943 which was called “Press Week,” held at the Plaza Hotel, there have been many changes.  Press Week was organized by Eleanor Lambert, press director of the American fashion industry’s first promotional organization, the New York Dress Institute.  Press Week’s purpose was to draw attention away from French fashion during World War II when industry insiders were unable to travel to Paris. Lambert worked with American designers to produce full collections and Press Week eventually became what we know today as Fashion Week, leading to the rise in prominence of American designers.

This year’s NYFW has approximately 150 shows that will launch collections down runways or stage them in studio spaces.  Since the advent of Fashion Week celebrities have become street wear designers and social media platforms have enabled passionate followers who would be otherwise unable to watch shows remotely and in real time.

With the fashion world always reinventing itself there is more diversity than ever before in what’s coming down the runway.  More designers in recent years are embracing models of different races and sizes to reflect the real world at a rapid pace.  No longer are designers able to use sample sizing as an excuse for why there are only size 0 models on the runway and instead there is more of a focus towards who they are designing the clothes for.

For decades NYFW has been the epicenter for fashion designers to show their latest collections followed by London, Milan and finally Paris.  This year, there will be a noticeable absence as more than a half-dozen big name designers are choosing to show their lines somewhere else.  Designers are no longer convinced that it is worth the amount of money to have a conventional runway show and are opting out of NYFW entirely.  Among them is Tommy Hilfiger who opted to stage an event in Venice Beach and he isn’t alone – Tom Ford, Rebecca Minkoff and Rachel Zoe are also heading out west to hold shows in Los Angeles.  However, it seems that for every designer who leaves a new up-and-coming designer arrives.

What will become of NYFW in the next few years?  Is New York losing its status in fashion or are New York shows undergoing a mid-life crisis now that the way consumers shop is changing?  The same rules of the past are going away and designers are trying something new to stay on top and to revive their brands.  Maybe, after all of these years, designers who have been reinventing themselves year after year are looking to refresh their brand to stay competitive with new designers.

One important aspect of this change in location is perhaps just building better business practices.  Changing locations of where designers choose to reveal their new clothing lines can make it more accessible for everyone, not just the VIPs who are sitting front row to not only see, but to be seen.  NYFW certainly isn’t going anywhere any time soon but what is happening for sure is change.  Perhaps now the focus can veer off of which celebrities are sitting in the front row and return back to what NYFW is really about: fashion.  Designers’ choosing different venues to debut their lines leaves opportunity for new talent and an opportunity to reevaluate why NYFW has become vital to the fashion world and perhaps how to maintain that when the world is constantly changing.

Apparel & Footwear

Clothing Retailer J.Jill Files For IPO (Again)

It’s a tough time for brick-and-mortar retailers, especially for ones that are public, such as Macy’s or Sears. But one Quincy-based company, women’s apparel brand J.Jill Inc., sees an opportunity to enter the public market.  It’s not the first time it’s been there.  On Friday, the company filed for an initial public offering, looking to trade on the New York Stock Exchange under the stock ticker “JILL.”  J.Jill was public up until 2006 when it was sold to Hingham-based Talbots Inc. for more than $500 million. Talbots sold the chain to Golden Gate Capital in 2009 for $75 million. In 2015, the retailer was sold to New York and London-based TowerBrook Capital Partners.

Here’s Why Experts Think Ugg’s Parent Company is Up for Sale

News that Marcato Capital Management purchased a 6 percent stake in the firm sent shares jumping in after-market trading.  The activist hedge fund disclosed in a filing with the U.S. Securities and Exchange Commission that it had snapped up 1.9 million shares in Deckers Brands and that it plans to have discussions with the firm’s management, board and other shareholders around enhancing shareholder value.  Specifically, the filing says that Marcato intends to engage with the firm’s leadership on “various operational initiatives or broader strategic initiatives including, but not limited to, potential acquisitions or sales of/or involving [Deckers] or certain of [its] businesses or assets.”  There has been chatter for some time that Deckers or, at least, several of the brands in its portfolio — comprised of Teva, Sanuk, Ahnu, Hoka One One, Koolaburra and breadwinner Ugg — were on the selling block.

American Giant Making a Bigger Footprint

American Giant is marching ahead with its Made in America strategy, growing its manufacturing base and expanding into new products.  Bayard Winthrop, the company’s founder and chief executive officer, said, “In the last year we’ve broadened the product mix and received tremendous customer response. We knew we were ready for a thoughtful and measured expansion.”  For holiday, American Giant introduced several new products that included bottoms for the first time and new tops styles such as a waffle-weave cotton Henley shirt, a button-down cotton work shirt and what it called “The Pant” — a black cotton and spandex legging.  “We want more for the brand, moving into new categories that can open opportunities and improve our financial performance after a big increase in 2016,” Winthrop said.

LL Bean Freezes Pensions, Offers Early Outs

L.L. Bean is moving to cut costs by freezing pensions and offering voluntary early retirements, and company officials say they are taking a hard look at its generous shipping and return policies.  The Freeport-based outdoors retailer will freeze its defined-benefit pension plan and boost its 401(k) savings contributions to all 5,000 workers, including 1,000 out-of-state store employees who were not previously eligible for the full pension, company officials said.  It’s part of a broader look at all aspects of the business which could lead to changes that affect shoppers.  L.L. Bean currently offers free shipping on everything, and its “satisfaction” guarantee is so liberal that it’s led to abuse of the return policy. Company officials said they will have more to say later this year about shipping and efforts to combat fraudulent returns.

High-Tech Men’s Underwear at $70 Disrupts Sleepy $8 Billion Category

The office, in lower Manhattan, has all the markings of a tech startup. There are high ceilings and a cool warehouse vibe, craft beer is on tap in the kitchen, and the place is buzzing with twentysomethings.   But they aren’t trying to make the next hit mobile app. The big idea here is to disrupt another ubiquitous product.  “There were so many evolutions in technology, but underwear was stuck in, like, the early 1900s,’’ said Tom Patterson, founder of Tommy John, which makes premium undies. “It was a very sleepy category.”  Tommy John is part of a growing drive by fledgling brands to get men to rethink underwear and pay more for it. It isn’t easy. The $8 billion category—the subject of the latest Material World podcast— has long been an afterthought. Many guys restocked only after ridicule from a significant other, or when disintegration could no longer be denied. Thanks to fellow upstarts such as Mack Weldon, guys are giving this everyday item more consideration.  Skivvies ranging from $25 to $70 a pair now come with a list of features as long as those that once came with lawnmowers and television sets. They are “game-changing products,” with moisture control, cool zones, and stealth waistbands. They can be Swiss-made, breathable, anti-microbial, and anti-odor. Tommy John even reconfigured the front flap and developed a “Quick Draw” fly for easier access.

Athletic & Sporting Goods

Bass Pro Shop’s $5.5 Billion Deal For Cabela’s Is Falling Apart

The wheels look like they’re coming off the merger Opens a New Window.  between Bass Pro Shops and Cabela’s. It appears the hurdles for successfully navigating the regulatory landscape are more hazardous than originally believed. Not only has the Federal Trade Commission sought more information about the transaction, delaying the potential closing deadline, but the regulatory request has jeopardized the sale of Cabela’s financial arm to Capital One.

Puma Predicts Profit Jump As Bolt, Rihanna Assist Resurgence

Puma SE said operating profit in 2017 will grow at least as fast as last year, when three big global sports events and better sales of women’s wear helped the measure jump by a third.  Chief Executive Officer Bjoern Gulden is in the fourth year of a turnaround effort, balancing sportswear and street styles with the help of endorsements from celebrities including sprinter Usain Bolt and singer Rihanna.

Cosmetics & Pharmacy

L’Oréal Confirms It Is Considering Selling The Body Shop As Profits Fall

L’Oréal has confirmed it is exploring a potential sale of The Body Shop as the ethical beauty retailer revealed sliding sales and profits.  The world’s largest cosmetics company said it had not made any decision on the future of the Sussex-based retailer, which has more than 3,000 stores in 66 countries, but had “decided to explore all strategic options” in order “to give it the best opportunities and full ability to continue its development.”  The announcement confirms reports earlier this week that L’Oréal had appointed bankers to examine a sale of The Body Shop with some private equity suitors already interested.

Coty Stock Slides

Shares of Coty tumbled after second-quarter earnings and revenue fell short of analysts’ estimates.  The New York-based beauty company reported adjusted earnings of 30 cents per share, below Wall Street’s projections of 34 cents per share. Revenue came in at $2.30 billion, while analysts had forecast $2.35 billion.  CEO Camillo Pane said the second quarter was “challenging.” “The business was impacted by significantly higher-than-anticipated inventory levels in the market on the acquired P&G Beauty Business, competitive pressure in the consumer beauty division and the distraction associated with the merger integration efforts,” he added.  In October, Coty closed its merger with Procter & Gamble’s (PG) specialty beauty business.

Reckitt Benckiser To Buy Mead Johnson

Reckitt Benckiser Group Plc agreed to buy Mead Johnson Nutrition Co. for $16.6 billion, taking the U.K. consumer-products maker into the baby-formula market and providing a catalyst for growth as its sales momentum slows.  The $90-a-share takeover will add to earnings within a year and lead to 200 million pounds ($250 million) of cost savings after three years, the maker of Lysol cleaners said Friday. Reckitt shares fell, reversing early gains, as the company forecast 2017 revenue gains below analyst estimates and said it had a “soft” start to the first quarter.  Reckitt Benckiser’s biggest-ever takeover boosts growth prospects after 2016 revenue advanced at the slowest pace in more than five years amid tough conditions in Europe and emerging markets like Brazil.

PBM Unit Leads CVS Health To Record Fourth Quarter

CVS Health reported record fiscal fourth-quarter and full-year 2016 results, headlined by net revenues for the three months ended Dec. 31 increasing 11.7%, or $4.8 billion, to $46 billion, up from $41.1 billion in the three months ended December 31, 2015. For the year ended Dec. 31, net revenues increased 15.8%, or $24.2 billion, to $177.5 billion, compared to $153.3 billion for the year ended December 31, 2015.  Net income also enjoyed a healthy increase, with GAAP diluted earnings per share rising to $1.71 billion, or $1.59 per share in the most recent quarter, compared to $1.5 billion, or $1.34 per share in the year-ago period. Adjusted earnings per share were $1.71, an increase of 11.7% year over year.  Net income for the year ended Dec. 31 was $5.3 billion, an increase of $80 million or 1.5%.

NPD Group: Prestige Beauty Grew 6% In 2016

The prestige beauty industry grew by 6% in 2016, adding $1 billion in sales to bring in some $17 billion total for the year, according to a recent report from the NPD Group. The report highlights that prestige beauty sales outstripped the mass channel thanks to such high-growth categories as makeup, which saw 12% sales growth and contributed 82% of the industry’s total gains, and skin care, which saw 2% sales growth.  Mass beauty’s sales gains, which were about 2% in 2016, were driven by makeup and skin care equally, with skin care in mass showing greater gains than in prestige. Fragrance sales were down in mass for 2016.  Makeup sales grew 24% over 2015 last  year, and though skin care saw a decline in sales, that market was driven by masks, lip treatment, facial cleansers and exfoliators. Fragrance juices sales increased 2% for the year, and flankers were responsible for 161% of fragrance gains. Home scents saw notable growth, with diffusers increasing 19% in sales.

Discounters & Department Stores

Where Do Customers Go When Their Department Store Closes?

This year, more than 150 locations for Macy’s and Kmart will close their doors forever. When these stores shut down, where do their former customers take their business?  Foursquare, in a report released, analyzed foot traffic at Macy’s and Kmart stores, and found that while the closing stores often see a jump in sales thanks to closeout sales, retail rivals win in the long run.  “When a retailer announces store closures, one might assume that competitors see an immediate benefit,” Sarah Spagnolo, Foursquare editor-at-large, wrote in a blog post. “Yet that’s not what the data tells us.”  Instead, according to the report, Macy’s and Kmart stores slated for closure attracted a wealth of shoppers during their closeout sales, many from its rivals.

Michael Kors Drops as Lower Mall Traffic Weighs on Forecast

Michael Kors Holdings Ltd. fell the most in more than a year-and-a-half after cutting its annual profit forecast, signaling that dwindling retail traffic and a plan to reduce its reliance on the troubled department-store industry will continue to weigh on results.  Profit will be as much as $4.19 a share, excluding some items, in the fiscal year through March, the London-based company said. That was down from its November forecast and trailed analysts’ average projection.  Michael Kors is trying to trim its dependence on department stores, where a lack of customers has resulted in the use of discounts that hurt the designer’s margins and brand image. The fashion house, known for its luxury handbags, is removing all friends-and-family sales from February and has introduced new products, such as the Mercer line, to entice customers to pay full price. Still, Chief Executive Officer John Idol said that challenges — including falling customer traffic, currency fluctuations, and political uncertainty in some European countries — will remain through the spring season.

Kohl’s CTO On Personalizing Customer Experience

When it comes to creating a true ‘MEaningful’ customer experience, Kohl’s is relying big time on data to understand customer behavior for crafting a personalized experience.  The retailer has been focused on redesigning its e-commerce site, advancing mobile initiatives to unify the experience and tapping data on both those fronts in addition to providing associates greater insight on customer wants and needs.  “The next evolution is to bring the store into that equation,” said Kohl’s CTO Ratnakar Lavu, with the goal of connecting the digital store and the physical store.  Lavu shared Kohl’s customer experience philosophy and strategy during a panel talk, “Creating MEaningful Experiences — Unifying Digital Journeys,” at the NRF ‘Big Show,’ held in mid-January at the Javits Convention Center in New York City.

Grocery & Restaurants

Buffalo Wild Wings Shareholder Nominates Four To Board

An activist shareholder nominated four people to the Buffalo Wild Wings Inc., board, including a former development executive with the chicken wing chain and a former Pizza Hut CEO.  In making the nominations, Marcato Capital Management LP hopes to correct what it argues are “persistent failures that have plagued critical business areas” at the suburban Minneapolis-based chain.

Why Activists Are Targeting Restaurants

2014 was a huge year for activist investors in the restaurant industry. That year, several large shareholders targeted restaurant companies. They won several seats on the Bob Evans Farms Inc. board and most famously took out every board member at Darden Restaurants Inc.  Then activists took a break. There was relatively little on the shareholder activist front in 2015 and in most of 2016. But that dry spell appears to have ended in a major way late last year, and especially in early 2017.

NPD: Restaurant Traffic Won’t Improve In 2017

A restaurant industry that struggled with weak sales and traffic in 2016 shouldn’t expect much improvement in 2017, according to The NPD Group. Chicago-based NPD expects restaurant industry traffic to remain stalled in 2017, the market research firm said.  Traffic will also continue its long-term shift away from dine-in brands to quick-service restaurants. NPD expects traffic at quick-service restaurants to grow 1 percent this year, while traffic at dine-in locations will fall 2 percent. Currently, the majority of restaurant visits go to limited-service concepts.

Home & Road

Ellery Purchases Assets Of Extreme Linen

Ellery Homestyles, a leading supplier of ready-made window curtains and top-of-bed products, announced today it has acquired assets of Extreme Linen, a designer, manufacturer and distributor of comforters, duvets, sheets and decorative pillows. Financial terms of the transaction were not disclosed.  Yigal Barmucha, founder and president of Extreme, has joined Ellery as Chief Merchandising Officer of Bedding, as has members of his team.

Electrolux To Acquire Anova

Electrolux has reached an agreement to purchase Anova, a San Francisco-based manufacturer of a connected device for sous vide cooking.  The up-front purchase price will be $115 million in cash, and Electrolux will eventually pay up to $135 million further depending on Anova’s future financial performance. Anova produces the Anova Precision Cooker, which can be connected to a user’s smartphone and provides recipes for sous vide dishes. Sous vide is the cooking technique by which food is placed in a sealable bag and brought to a precisely controlled temperature in a water bag.

Innocor Acquisition By Bain Capital Private Equity Is Complete

Innocor, Inc., a leading designer and manufacturer of advanced foam products for commercial and retail channels, today announced the completion of its acquisition by Bain Capital Private Equity, a leading global private investment firm. Carol Eicher, Chief Executive Officer, will continue to lead the company together with the current management team. Financial terms of the purchase, which was announced last December, were not disclosed.

Jewelry & Luxury

These Retailers Are Still Way Behind The Curve In Online Sales

Luxury fashion retailers are gaining ground online — but they’re still lagging much of the retail industry when it comes to digital sales.  Despite recording a 13 percent jump last year, online still accounts for just 8 percent of the total luxury market’s revenue, according to the latest report by Bain & Company. That’s less than half the penetration of the broader apparel and accessories categories, according to eMarketer.  This shortfall stands at odds with the fact that many of the luxury category’s core, affluent shoppers, are more likely to shop online than are the broader population.

2016 US Jewelry Sales Strong, Say Preliminary Govt Figures

Sales of fine jewelry and fine watches rose by a robust 4.8 percent in the American market during 2016, according to preliminary data from the U.S. Department of Commerce. Total sales were a record $80.9 billion.  Strong jewelry sales were propelled by solid gains in consumer spending as well as an increase in the average jewelry ticket driven primarily by increased diamond jewelry sales.

What Tiffany Can Learn From Lady Gaga

Lady Gaga jumped from the roof of Houston’s NRG Stadium during the Super Bowl halftime show on Sunday, a splashy comeback for a superstar whose shine has faded recently.  If only Tiffany & Co. would take a similar leap of faith.   The luxury jeweler — while launching a new ad campaign starring the same Lady Gaga — stunned investors by quietly disclosing it would drop CEO Frederic Cumenal. Tiffany said former CEO Michael Kowalski would serve again temporarily while the company looks for a replacement for Cumenal, who had failed to turn around its sagging sales since taking over in April 2015.  Tiffany shares fell 7 percent in pre-market trading, as the surprise resignation prompted analysts to downgrade the stock and reduce probably too-optimistic sales and earnings estimates.

Could The Vital Chinese Market be Turning a Corner in Jewelry Sales?

One of the biggest concerns for diamantaires over the past couple of years or so has been the decline in sales of diamond jewelry in China. Following the financial crisis of 2008 and the recession that gripped Europe and the United States, the strength of the Chinese market was seen as giving a degree of support to global sales.  But as the Chinese economy has declined, with GDP consistently decreasing, and an anti-corruption drive has put a sharp brake on luxury gift-giving in a bid to stem corruption, the luxury sector in general, and diamond jewelry sales in particular, have been feeling the pain.  Only stable, and perhaps somewhat slightly growing, sales in the United States have managed to give diamantaires some form of salvation.

Diamond De-Industrialization

Analysts are unanimous in asserting that public welfare in recent years has been growing across the world, saying that if this is so, demand for jewelry is growing as well. Meanwhile, diamond consumption and diamond prices are inexorably going south in the last few years. However, the market of luxury goods, including jewelry, does not show any significant fall, staying at the same level year after year.  If jewelry demand is really growing, what are people buying instead of diamonds?  For a long time, we have been passionately surveying the market of synthetic diamonds and its aggressive marketing. Against this background, we lost sight of another interesting market – the market of colored gemstones, which, seemingly staying in the shadows, demonstrates rapid growth. And the emergence of another strong player on the jewelry market makes the overall situation even more complicated and confusing.

Office & Leisure

Why Does THIS Suitcase Have A 10,000 Person Waiting List?

It isn’t a Birkin, but this bag has a waiting list worthy of Hermès.  A high-tech carry-on suitcase from travel goods brand Raden currently has a waiting list of 10,000 people.  The A22 Carry bag came onto the market 10 months ago, and in that time 20,000 have been sold.  But what’s so special about a carry-on suitcase?   This is no ordinary bag. The 8.4-pound model is packed with tech to make travelling a breeze, including a battery to charge mobile devices.  It also has a companion app that informs users of how much the bag weighs when packed, current weather conditions, traffic alerts and deals on flights.  Plus Bluetooth technology keeps track of the case’s location when it’s out of the owner’s sight.

Staples Bets On A Startup That Can Manage The Whole Office

Many a startup has minted fortunes by selling businesses on novel platforms to help run core functions such as sales or accounting.  The mission for Managed by Q is a different sort of core business operation. It bills itself as a kind of hub for office managers and other executives to tackle all the other things that keep a workplace humming along, whether that’s cleaning the office, stocking up on supplies or even offering employees yoga classes.  The startup—which likes to call itself Q for short—can provide office managers via its app specialized personnel to do a range of services including IT support, plumbing, painting, catering and furniture assembly.  Now active in New York, San Francisco, Los Angeles and Chicago, Q recently raised $30 million in Series C funding led by office-supplies retailer Staples Inc. The companies also have formed a cross-selling partnership that helps customers of either company to order products or services from the other. Existing investors including Alphabet’s GV and RRE Ventures also participated, bringing total funding to $72.5 million.  Under their pact, Staples gains access to more midsize companies and services that office managers need but don’t have time to research.

Technology & Internet

Amazon Payments Transactions Double In 2016

Amazon.com Inc.’s payment service nearly doubled the number of transactions it processed in 2016 from the previous year, but even with the substantial growth, its volume remains far lower than the likes of PayPal and big internationally based payments players like Alibaba Group Holding Ltd.’s Alipay.  Amazon Payments’ service, called Pay with Amazon, allows shoppers to check out on other merchant websites using the payment information stored in their Amazon account. Amazon says more than 33 million customers completed a transaction using Pay with Amazon on another website since its introduction in 2013, Amazon said. Of those users, more than half are Amazon Prime members, Amazon says.  By comparison, PayPal Inc. has 197 million customer accounts and processed $6.1 billion worth of payments last year. Alipay, which corners the market in China, has 450 million users and processes 175 million transactions a day.

Amazon Offering Free In-Home IoT Consults

Amazon has launched a free in-home consulting service to extend its beachhead in smart home.  Leveraging its ubiquitous Alexa personal digital assistant platform, the company has assembled teams of in-house IoT experts that can visit customers’ residences and provide product recommendations and solutions for creating connected-home environments.

Facebook Agrees To Have Its Ad Metrics Audited

Facebook Inc. agreed to submit to audits by the media industry’s measurement watchdog, the Media Rating Council, a move that could appease some advertising executives who had become skeptical of the social network’s metrics.  Facebook had come under fire recently after a series of missteps in which it disclosed several mistakes in reporting metrics to partners and advertisers. The company conducted its own review of practices and vowed to be more transparent about errors in the future.  According to plans for the next year laid out in a statement, Facebook said it aims to release more detailed information, such as metrics on how long users viewed an ad and how much of it was visible on the screen.

Finance & Economy

Shoppers Weigh Boycott Calls As Buying Gets More Political

Long before Trump slammed Nordstrom for dropping his daughter’s clothing and accessories line — spurring the president’s supporters to call for a boycott of the department store — politically active consumers have used their purchasing power strategically. They could punish brands with which they disagreed, and reward those whose views aligned with theirs.  In the polarized Trump era, the simple act of buying a drink or shoes has never seemed so political. Social media makes it easier than ever for activists and consumers to target or defend stores and brands that take a stand or those they see as proxies for a politician.  As a result, “every shopping bag is a potential political statement,” said Allen Adamson, founder of Brand Simple, a consulting firm. “It is like carrying a sign in a rally.”

Post-Holiday US Consumer Spending Shows Typical Decline

Americans’ daily self-reports of spending fell to an average of $88 in January, down from $105 in December. This is consistent with the drops in January over the previous four years.  Still, this is the highest daily consumer spending average for the month of January since 2008, when the average was $97. While December is often the highest month for consumer spending — and December 2016 was the highest December in nine years — January is often the lowest.

Trump’s Deregulation Wave May Have Companies Geared Up To Spend And Hire

Companies may finally see more reason to invest back into their businesses, thanks in part to their hope for less regulation.  The first quarterly earnings reports since the election point not only to another quarter of growth but also general optimism in business plans to spend on equipment and hiring. That aspect of business is known as “capital expenditure,” and its lackluster growth since the financial crisis of 2008 has contributed to the sluggish economic recovery.  Now it looks as if capital spending may finally be set to pick up. The economy is improving, and businesses could get a boost from new policies under the Trump administration.