February 12, 2018 Consensus

The Weekly Consensus – February 12, 2018 (Volume 10, Number 7)

The Big Story
A Super Bowl for the Millennials
Michael A. O’Hara

Last Sunday’s Super Bowl LII featured a gutsy head coach making his debut in the big game and an anonymous back-up quarterback becoming a legend to rival Rocky Balboa in the City of Brotherly Love.  But the nation’s most broadly celebrated non-holiday holiday also contained some discernable non-football cultural trends worthy of note:

Advertising vs. Cord Cutting

DVRs and YouTube have devalued TV advertising.  The obvious exception to this is for events that are best watched live, such as election coverage, award shows and, of course, sporting events.  The Super Bowl is the pinnacle of live TV, not just because of its enormous audience but because we have all agreed that focusing on ads is part of the experience.  The Super Bowl is the only time when ads go from irritant to art.  According to Sports Illustrated, 30 second ads this year cost $5 million, an all-time high. But the official audience for the big game last week declined to 103.4 million, down 7.4% from last year’s game.  While there are several potential causes for the drop, clearly cord-cutting is a factor:  an estimated 2.6 million people caught the game on apps or websites.

Social Media Use

The Super Bowl is not just a game, it’s a party.  A Harris Poll conducted for Kronos and Mucinex this year projected that almost 14 million people planned to call in sick the day after the game.  Even though we are at a party, it seems we still want to interact with those who aren’t.  Twitter reported 4.8 billion impressions during the Super Bowl, and “62 million people worldwide generated 270 million [Facebook] interactions during the big game,” according to AdWeek.

Social media also provided an unfiltered platform for a couple of New England Patriots who needed to correct the narrative about themselves after the game.  Cornerback Malcolm Butler took to Twitter and Instagram to refute rumors that his benching was the result of missing team curfews, and quarterback Tom Brady accessed Instagram to thank fans, teammates and coaches for a great season following reports that he would sit out pre-season activities if he wasn’t paid more money.  (Oh, by the way, the reports of Brady threatening to sit out were erroneous – the result of a reporter falling for another millennial social media ploy, “catfishing.”)

Social Causes

Even cynical older generations can agree that one of the most compelling features of millennials is their passion for social causes.  This season, millennial players used the league itself as a platform for social protest about police violence, discussions about inequality, honoring veterans and addressing growing concern over concussions in their sport.  The advertisers surely caught this trend.  Hyundai ran an ad touting its donations to pediatric cancer organizations, Verizon honored first responders, and Budweiser and Stella Artois (sister companies) touted their efforts to provide fresh water to victims of emergencies and less developed countries.  And, while Dodge Ram clumsily attempted to usurp the words of Dr. Martin Luther King, my crew watched the first ad post kickoff in awe as Toyota chronicled the story of a Paralympian skier Lauren Woolstencroft.  While I am still not sure what her story has to do with cars and trucks, it was an incredibly inspiring way to start the game.

Finally, this lifelong, die-hard Patriots fan congratulates the fans of the Philadelphia Eagles on their team’s great game and win.  (Now, if Malcom Butler had played . . .)

 

 

Headlines of the Week

Retailers: Would you let Amazon deliver orders to your customers?

Over the last several years, Amazon has been building up its fulfillment and delivery infrastructure at a rapid pace, opening new fulfillment centers and increasingly relying on its own drivers for last-mile delivery of Amazon orders. Many retailers and analysts have speculated that Amazon was positioning itself to act as a full-fledged delivery carrier—which would compete with the three major carriers, including FedEx, UPS and USPS. An article in the Wall Street Journal suggests that Amazon is beginning to do just that. The world’s largest online retailer reportedly plans to launch “Shipping with Amazon,” a service that would deliver online orders for Amazon marketplace sellers.

 

Mitsui & Co. (U.S.A.), Inc. Invests in Custom Apparel Leader INDOCHINO

INDOCHINO, the global leader in made to measure apparel, announced a strategic investment by Mitsui & Co. (U.S.A.), Inc. The investment and strategic collaboration will help INDOCHINO accelerate its North American expansion plans and investment in its global operations and supply chain. INDOCHINO is transforming men’s apparel by making custom clothing accessible and affordable for everyone through its unique, experiential approach to online and offline retail. The company grew revenue more than 50% for a second consecutive year, achieving full year EBITDA profitability and expanding from 10 to 20 showrooms in 2017. Mitsui is among the world’s most diversified trading, investment and services enterprises, with a strong track record of cultivating pioneering business models and growing global businesses. Mitsui engaged Consensus to provide strategic advisory services on the transaction.

 

 

Apparel & Footwear

The Death of Clothing

The apparel industry has a big problem. At a time when the economy is growing, unemployment is low, wages are rebounding, and consumers are eager to buy, Americans are spending less and less on clothing. The woes of retailers are often blamed on Amazon.com Inc. and its vise grip on e-commerce shoppers. Consumers glued to their phones would rather browse online instead of venturing out to their local malls, and that’s crushed sales and hastened the bankruptcies of brick-and-mortar stalwarts from American Apparel to Wet Seal. But that’s not the whole story. The apparel industry seems to have no solution to the dwindling dollars Americans devote to their closets.

Former Perry Ellis chairman offers to buy company for $430 million

Perry Ellis International Inc’s former chairman, George Feldenkreis, offered to buy the clothing company for $430 million with a plan to take the company private.

Feldenkreis, who is the company’s largest shareholder, offered $27.50 per Perry Ellis share. The deal would be financed with a combination of debt and equity, according to a regulatory filing. The financing is backed by a $300 million commitment from Fortress Investment.  The offer price represents an 18.6 percent premium to the stock’s closing price on Tuesday Perry Ellis confirmed that it received the offer from Feldenkreis and would review the proposal.

L.L. Bean is dropping its unlimited returns policy

L.L. Bean’s generous return policy is going to be a little less forgiving: The company, which has touted its 100 percent satisfaction guarantee for more than a century, is imposing a one-year limit on most returns to reduce growing abuse and fraud. The outdoor specialty retailer said returns of items that have been destroyed or rendered useless, including some purchased at thrift stores or retrieved from trash bins, have doubled in the past five years, surpassing the annual revenue from the company’s famous boot. “The numbers are staggering,” CEO Steve Smith told The Associated Press. L.L. Bean announced that it will now accept returns for any reason only for one year with proof of purchase. It will continue to replace products for manufacturing defects beyond that. The company is also imposing a $50 minimum for free shipping as part of a belt-tightening that includes a workforce reduction through early retirement incentives and changes in workers’ pension plans.

 

 

Athletic & Sporting Goods

GOAT Gets $60 Million and Merges with Flight Club to Create a Sneaker Superpower

GOAT (short for Greatest of All Time), a sneaker marketplace app, and Flight Club, the New York-based consigner of rare and expensive sneakers, are merging—and collecting $60 million in investment money from Index Ventures.  In the merger, GOAT, only founded in 2015, will become the parent company of Flight Club, a brand founded way back in 2005. That power structure illustrates how quickly digital brands like GOAT are growing, but the belief behind these investments is that GOAT, and companies like it, still have a ton of space to grow into.

Leslie’s Poolmart buys one of Pittsburgh’s fastest-growing companies

Leslie’s Poolmart Inc. confirmed that it purchased the assets of Valley Pool & Spa Inc., a transaction that includes the operation of its stores, ecommerce operations and the related warehouses and corporate office facilities. Financials were not disclosed. Phoenix-based Leslie’s launched in 1963 and is the world’s largest retailer of swimming pool and spa supplies, services and repairs for residential and commercial customers. It has more than 900 stores in 35 states.

Cosmetics & Pharmacy

Natural, Organic Hair Care Grows with Consumer Demand

People do not merely wash and style their hair anymore. They also hydrate, protect and strengthen their hair — and many consumers want to do so with wholesome ingredients and few or no chemicals. That might explain why sales of everyday hair care items are flat or growing slightly, while manufacturers say they are focusing on new products that appeal to the changing demographic. According to Mintel, natural and organic personal care, or NOPC, products are gaining in popularity, with 37% of consumers saying they bought more NOPC products in 2016 than the previous year.

 

Discounters & Department Stores

Essentials in Macy’s new fashion line aimed at Muslim women

Macy’s is launching a “modest” fashion line this month geared toward Muslim women that will feature maxi dresses, ankle-length cardigans and hand-dyed hijabs. The collection will be available on Macy’s website beginning Feb. 15 at a time when mall traffic has plummeted and the beleaguered retail chain has been aggressively closing stores. Macy’s is the latest U.S. brand to tap into the growing Islamic clothing market, after Nike last year debuted a hijab designed for female Muslim athletes, American Eagle began selling denim hijabs, and DKNY launched its Ramadan collection of long, flowing dresses in 2014.

After 33 years at Neiman Marcus, CEO Karen Katz contemplates life in comfortable shoes

For the past seven years, Karen Katz has been Wonder Woman in couture, fighting to right the financially embattled Neiman Marcus Group. Now Katz is stepping down so she can step out. On Sunday, Katz officially retires as president and CEO of the $4.7 billion retail company that includes Bergdorf Goodman, MyTheresa.com and Last Call stores in addition to Dallas’ iconic fashion-forward chain. She’s keeping her seat on the corporation’s board.

 

Grocery & Restaurants

Amazon offering delivery from Whole Foods through Prime Now

Amazon has introduced free two-hour delivery of Whole Foods Market items through its Prime Now service. Debuting in neighborhoods of Austin, Cincinnati, Dallas and Virginia Beach, Va., Prime Now customers can shop for best-selling groceries, produce, meat, seafood and other items via the Whole Foods Market selection at primenow.com or by using the Prime Now app available on Android and iOS devices. Amazon said it expects to expand the service across the U.S. this year.

 

Kroger sells c-store unit to U.K. retailer

Kroger has inked a deal with EG Group, a privately-held petrol forecourt c-store retailer based in Blackburn, England, on the sale of Kroger’s c-store business unit for $2.2 billion. As part of the agreement, EG Group will establish their North American headquarters in Kroger’s hometown market Cincinnati and continue to operate stores under their established banner names, which include Turkey Hill, Tom Thumb and Quik Stop.

Yum! Brands and Grubhub Announce New U.S. Growth Partnership

Yum! Brands, one of the world’s largest restaurant companies, and Grubhub, the nation’s leading online and mobile takeout food-ordering company, announced a new partnership to drive incremental sales to KFC and Taco Bell restaurants in the U.S. through online ordering for pickup and delivery. YUM also entered into an agreement with Grubhub to purchase $200 million of common stock, subject to customary closing conditions, an investment that will provide Grubhub with additional liquidity to accelerate expansion of its industry-leading U.S. delivery network, drive more orders to YUM restaurants, and further enhance the ordering and delivery experience for diners, restaurants and drivers.

Home & Road

Houzz Acquires Designer Platform IvyMark

Online home remodeling and design resource Houzz announced that it acquired IvyMark, a business management tool and engaged community for interior designers and home design companies. Houzz says more than 1.5 million active home renovation and design professionals in more than 65 categories – including more than 200,000 designers worldwide – use Houzz to showcase their work, build their brands and reach new clients. IvyMark co-founders Alexandra Schinasi and Lee Rotenberg launched the company in July 2016 with the mission to modernize the way interior design firms run their business. IvyMark quickly gained traction within the interior design community, signing more than 2,400 design firms in just over a year.

Stanley Furniture to Proceed with Proposed Sale to Churchill Downs

Stanley Furniture will proceed with its proposed sale agreement to Churchill Downs LLC after receiving no other superior proposals during the past two weeks.  The company revealed on Jan. 22 it had opened a two-week “Go-Shop Period,” during which it would consider proposals from other prospective buyers. It would compare any such proposals to an $18.4 million offer from Churchill Downs LLC that would also provide the seller a 5% equity interest in the buyer’s post closing parent company. The sale is subject to approval by the company’s shareholders. If the shareholders approve the sale, the company aims to complete the sale sometime during the first quarter.

FFO Home Buys Louisville’s Furniture Liquidators, Mattress & More

FFO Home has acquired the parent of Louisville, Ky.-based Furniture Liquidators and Mattress & More, pushing into a new market and new states and gaining a ready-made platform to launch more sleep specialty stores.  Larry Zigerelli, FFO president and CEO, told Furniture Today the 47-store value-oriented retailer purchased Service Furniture and Bedding Tuesday for an undisclosed amount. That gives the fast-growing Top 100 company 13 Furniture Liquidators stores in the greater Louisville market, including stores in Indiana and a central distribution center, as well as 15 area Mattress & More locations.

Jewelry & Luxury

90s fashion is back and so are the flashy logos

When it comes to fashion, flashy logos have been out of vogue for a while. But a number of premium retailers say logos are back. Coach Brand President & CEO Josh Schulman told investors on the company’s second-quarter conference call that the company is seeing “a global movement in luxury brands toward a higher penetration of logo product.” The recognizable Coach “C” print has not been a part of the handbag maker’s main assortment for several years as it has been undergoing a brand transformation, but that will change soon.

Human Rights Watch Finds Major Jewelers’ Supply Chains Lacking

Human Rights Watch, the international nongovernmental organization that conducts research and advocacy on human rights, studied the supply chains of 13 leading jewelry brands and found that most of the companies don’t have full traceability for their gold and diamonds, and don’t sufficiently assess human rights risks. In a recently released 99-page report, “The Hidden Cost of Jewelry: Human Rights in Supply Chains and the Responsibility of Jewelry Companies,” the NGO looked into the supply chains of companies that together represent roughly 10 percent of global jewelry sales.

 

How Shinola is taking its ‘built in Detroit’ mission national

At Shinola Detroit, a seven-year-old American-manufactured watch and leather goods lifestyle brand, the mission can all be tied back to a dark blue jacket. Travis Harrison, head of retail at Shinola, wore one on stage at the Future Stores Miami conference Wednesday during a keynote presentation on how the brand integrates storytelling into the store experience. “This is a workwear jacket,” he told Retail Dive during an interview after the speech, as he tugged on the sleeves. “It tethers that line of manufacturing and our ambassadors as they connect with our guests on the frontline. It’s that visual tie … it’s a sense of unity.”

 

Office & Leisure

Toys R Us begins liquidation sales ahead of store closings

Bankrupt Toys R Us has received court approval to move forward with its plans to shutter about 180 stores, under both the Toys R Us and Babies R Us banners, across the U.S. The liquidation sales at those locations are beginning as soon as Wednesday, the company said. Discounts on items will be as much as 30 percent off, to start. Closures are also set to begin this month and run through mid-April of this year. As Toys R Us restructures its assets, the company will also refresh a number of existing locations to be co-branded as Toys R Us and Babies R Us stores. The company said these efforts all have the goal of making Toys R Us “more viable and competitive” in the retail industry today.

Technology & Internet

15 percent of American online shoppers have e-commerce box subscriptions

Some 46 percent of online shoppers in the U.S. pay a monthly subscription for online streaming media, like Spotify or Hulu, according to a new survey by consulting firm McKinsey. Fifteen percent had subscribed to at least one e-commerce delivery service like Dollar Shave Club, Blue Apron or Stitch Fix in the past year. Most e-commerce box subscribers have streaming-media subscriptions as well.

Finance & Economy

US jobless claims unexpectedly drop to a near 45-year low

The number of Americans filing for unemployment benefits unexpectedly fell, dropping to its lowest level in nearly 45 years as the labor market tightened further, bolstering expectations of faster wage growth this year.  Claims fell to 216,000 in mid-January, which was the lowest level since January 1973.  Economists polled by Reuters had forecast claims rising to 232,000 in the latest week. The week ended February third marked the 153rd straight week that claims remained below the 300,000 threshold, which is associated with a strong labor market. That is the longest such stretch since 1970, when the labor market was much smaller.  The labor market is near full employment, with the jobless rate at a 17-year low of 4.1 percent.

 

Investors brace for more swings as U.S. inflation specter rises

Coming off one of the most volatile stretches in years, two important readings on U.S. inflation could help determine whether the stock market begins to settle or if another bout of volatility is in store.  If January’s U.S. consumer price index from the U.S. Labor Department and the producer price index come in higher than the market anticipates, brace for more selling and gyrations for stocks.  U.S. consumer prices rose 2.1 percent year-on-year in December and is forecast to stay around that pace this month.  The equity market has become highly sensitive to inflation this month. A selloff in U.S. stocks last week was in large part sparked by the Feb. 2 monthly U.S. employment report which showed the largest year-on-year increase in average hourly earnings since June 2009.