October 8, 2018 Consensus

The Weekly Consensus – October 8, 2018 (Volume 10, Number 38)

The Big Story
New Brands and Old Retail Continue to Converge

Last week, we learned that Eloquii was being acquired by Walmart, and Birchbox would receive a strategic investment from Walgreens. The latter announcement included additional detail that Birchbox “retail experiences” will be created in Walgreens stores – eleven stores to start, but the goal will be to expand to more.

These developments have several similarities. In both cases, digital-first brands are allying with brick-and-mortar retailers to seek new distribution opportunities and new demographics. In both cases, old-guard retailers entrenched in the mass and convenience space are attempting to reach new, younger audiences and enhance their own brands in the process. The new products emerging from these partnerships will not be all that revolutionary. The customer experiences and the makeup of the target customers, however, are intended to be something more transformative, particularly for Walgreens and Walmart.

In a statement, Richard Ashworth, president of Operations at Walgreens, said “This is an exciting time for beauty at Walgreens.” “Our customers want to shop the most sought-after brands in a welcoming and accessible environment, and the addition of Birchbox to our growing beauty offering is a big step in delivering on our promise to differentiate and elevate the beauty experience at Walgreens. This collaboration will help enable Walgreens to continue to strengthen our beauty offering and build our prestige portfolio.”

Birchbox CEO and co-founder, Katia Beauchamp, noted “In Walgreens, we have found an exciting partner that supports our mission of reaching an underserved customer who doesn’t prioritize beauty.”

With Walmart’s acquisition of Eloquii, a direct to consumer, plus-sized women’s apparel brand, Walmart positions itself to capitalize on one of the fastest-growing segments in apparel, plus-size fashion, and adds another brand to its growing collection of digitally native vertical brands that include Bonobos, Modcloth, and Allswell, a home goods and mattress company launched by Walmart.

While it would seem likely that Eloquii will soon find its products sold through Walmart.com or its more youthful subsidiary Jet.com, that apparently has yet to be determined. Andy Dunn, founder of Bonobos and leader of Walmart’s digital efforts, has downplayed the importance of that question, and although Bonobos was acquired by Walmart more than a year ago, it is still not sold on either Jet.com or Walmart.com. “That wasn’t the basis for transaction,” Dunn said. “For us the real value here is in owning a great brand that enables us to have that proprietary product and experience.” In a post announcing the transaction, Dunn said “we are laser focused on developing a portfolio of direct to consumer brands with a unique assortment you can’t find anywhere else.”

The convergence of new brands and traditional retail focusing on improved customer experiences will continue. Rising brands are always looking to expand, and big retailers are looking to get better. There’s more and more willingness on the part of larger players across the consumer spectrum to buy rather than build, and the result is earlier commercial and financial partnerships with growing brands.

 

Headlines of the Week

How Eloquii fits into Walmart’s quest for upscale growth

Despite already being the largest company in the world, Walmart is still hungry for growth. On Tuesday, the retail powerhouse announced its latest acquisition of a digitally native millennial brand — four-year-old women’s plus-size apparel brand Eloquii. While Walmart did not disclose the deal price, a person familiar with the acquisition told Recode Tuesday afternoon that Walmart will pay $100 million, roughly two and a half to three times Eloquii’s annual revenue. An anonymous source also told CNBC it valued the company at $100 million and that other retailers had been interested in buying Eloquii during the process.

Mattress Firm Files for Chapter 11

After months of rumors that it would file for Chapter 11, Mattress Firm Inc. did so, with plans to slash its store count and, in conjunction with its prepackaged restructuring plan, gain access to new financing. Mattress Firm said it received commitments for approximately $250 million in debtor-in-possession financing, which, subject to court approval, will be available to support its ongoing operations, a release said. It also obtained commitments for $525 million of senior secured credit facilities to enable it to emerge from Chapter 11 and support operations thereafter. Mattress Firm expects to complete the prepackaged restructuring process within the next 45 to 60 days. An initial group of approximately 200 stores is expected to be shuttered in the next few days, the company said.

 

 

Apparel & Footwear

VF to sell Reef brand to The Rockport Group

Greensboro-based VF Corp. is further slimming its portfolio by entering into an agreement to sell beachwear brand Reef to The Rockport Group. The company disclosed the deal today, the terms of which were not disclosed. The acquisition is expected to close October 2018. The Rockport Group is based in Newton, Massachusetts, and is a maker of casual and dress shoes. The group was acquired by private equity firm Charlesbank Capital Partners LLC Aug. 3. Reef will keep its headquarters in Carlsbad, California, and will operate as an independent brand under The Rockport Group.

Chanel Buys Men’s Swimwear Brand Orlebar Brown

In more fashion acquisition news this week, French luxury brand Chanel has acquired British men’s swim brand Orlebar Brown for an undisclosed sum. While terms of the deal were not disclosed, Chanel bought out all shares from company founder Adam Brown and private equity firm Piper. Brown will stay on as creative director of the company, which has grown into a full-fledged lifestyle and resort brand known for its swim trunks, polo shirts and T-shirts. The move signals another effort from Chanel to buy small, niche fashion companies who specialize in certain product categories.

 

Athletic & Sporting Goods

Athletic accessory firm Implus makes ninth acquisition in three years

Implus, an athletic brand company, has acquired RockTape, a provider of athletic tape, for an undisclosed amount.  The Durham-based company provides athletic, fitness and outdoor accessory products. The company distributes to over 75,000 retail outlets in North America and in 70 countries.  By acquiring RockTape, Implus plans to use RockTapes’ kinesiology tape as an additive to Implus’ established wellness brand. RockTapes’s current office in Campbell, California, will be maintained to support expansion of the products.

 

BSN Sports Acquires Port Jeff Sporting Goods

BSN Sports, a division of Varsity Brands and the nation’s largest direct marketer and distributor of sporting goods to the school and league markets, announced the company has completed the acquisition of Port Jeff Sporting Goods based in Port Jefferson, NY. Port Jeff has been providing sporting goods equipment and apparel to team customers in the New York area since 1971.

Gen Cap America buys Orthopedic Physical Therapy Products

Gen Cap America Inc said that it acquired Orthopedic Physical Therapy Products. Management also invested. Financial terms weren’t announced. OPTP, of Minneapolis, provides physical therapy, fitness and wellness products.  OPTP’s diverse range of products, including products such as foam rollers, lumbar rolls, and exercise balls, are sold directly to healthcare professionals, clinics, personal trainers, and individuals, as well as through distributors and resellers.

 

Cosmetics & Pharmacy

Walgreens Takes Minority Stake in Digital Makeup Company Birchbox

Walgreens is stepping up its emphasis on beauty products and trying to appeal to millennials in a new partnership with digital beauty subscription company Birchbox.

Birchbox is among a new breed of retailers that tend to appeal more to younger shoppers by sending members monthly, six-month or yearly packages of sample makeup, hair and skin products. Walgreens will experiment with adapting the concept to some of its stores, stocking shelves with more “prestige” makeup brands, dedicating 400 to 1,000 square feet of space to Birchbox and allowing customers to “build your own Birchbox” at Walgreens.

Walgreens, Kroger Partner on Pilot Store Format

Walgreens and Kroger are working together to pilot an exploratory store format at 13 Walgreens locations near Kroger’s Cincinnati headquarters. The companies said the format will combine Kroger’s grocery expertise with Walgreens’ strengths in pharmacy, health and beauty. Shoppers at the Northern Kentucky stores will be able to order Kroger grocery items online and pick up at the participating Walgreens locations. Additionally, the stores will stock Kroger’s own brand products, including such private-label brands as Simple Truth. The companies said they would conduct the pilot over the next several months, listening to customer feedback.

Discounters & Department Stores

J.C. Penney names retail veteran Jill Soltau to be its new CEO

J.C. Penney’s search for new chief executive officer led it to select the first woman to head the 116-year-old department store chain. The Plano-based retailer on Tuesday named Jill Soltau, 51, as chief executive officer.  She joins Penney from JoAnn Stores, a fabric and crafts company of 850 locations in 49 states, where she was president and CEO. The 30-year retail veteran takes the reins at Penney on Oct. 15 with the company’s stock trading at historic lows, under $2 a share. The embattled Penney has been without a CEO since May when Marvin Ellison left to become CEO at home improvement chain Lowe’s. Two other C-suite executives have since exited as well.

Target is back to its ‘cheap chic’ roots, but the retailer has to keep the momentum going

Nestled inside Target’s Minneapolis headquarters, racks of unfinished clothes line the walls. In another area, sketches and splotches of color are hung up for inspiration. Walk down the hallway, and it looks like you’ve arrived at an HGTV set with bedrooms, living rooms and kitchens on display. This is the creative hub of Target’s in-house brands — a key part of the retailer’s turnaround. Scattered throughout, there are chemical mixing labs and an alcove with a handful of 3-D printers. About 550 employees work together to bring roughly 40 private labels, such as Goodfellow & Co. for men’s clothing and Up & Up for cleaning supplies, to life.

 

Grocery & Restaurants

Healthy Prepared-Meal Delivery Service Kettlebell Kitchen Announces Partnership With Munchery

Kettlebell Kitchen, the nationwide fitness goal-focused prepared-meal delivery service, announced its partnership with food delivery company Munchery. Earlier this summer, Munchery suspended deliveries to the East Coast. As of last week, Munchery customers are once again able to order delicious and nutritious ready-to-eat meals from Kettlebell Kitchen. Munchery customers in the region who are looking to place orders on Munchery.com will now be re-directed to KettlebellKitchen.com.

 

Taylor Gourmet files Chapter 7 bankruptcy

The 19-unit Taylor Gourmet hoagie chain filed Chapter 7 bankruptcy proceedings after closing all of its locations in the Washington, D.C. area and Chicago.

Home & Road

Century Furniture Parent Successfully Bids for Heritage Home Companies

Rock House Farm Family of Brands, the parent of Century Furniture and Hancock and Moore, said it has received final court approval of its bid to acquire substantially all assets of the Hickory Chair, Maitland Smith, Pearson and La Barge furniture brands from Heritage Home Group. The transaction is expected to close on or before Oct. 12. The bid was $17.5 million, according to a report in Furniture Today. Upon closing, the roughly 500 mostly North Carolina employees of Hickory Chair, Maitland Smith, Pearson and LaBarge will become employees of Hickory Chair, which will be owned by RHF Investments Inc.

Jewelry & Luxury

Movado Completes Acquisition of Millennial-Focused Brand

Movado Group now owns MVMT Watches Inc., the millennial-focused watch and accessory brand started by a pair of 20-something college dropouts. Movado paid $100 million ($85 million net of tax benefits) upfront for Los Angeles-based MVMT and could pay as much as $100 million more depending on how MVMT performs financially under Movado ownership. Southern California natives Jacob Kassan and Kramer LaPlante—who are now both in their mid-20s—started MVMT in 2013 after deciding they were going to quit school to launch their own business.

 

Neiman Marcus Is Discussing Debt Overhaul With Lender Groups

Neiman Marcus Group Ltd, the luxury retailer facing a $2.8 billion loan coming due in two years, has started talking to groups of creditors about reworking its borrowings to give it more breathing room, according to people with knowledge of the matter. Advisers for groups of bondholders and lenders are talking to the company about options including giving the retailer more time to pay back its loan. In exchange, they would change Neiman Marcus’s credit agreement to give creditors more power if the company’s fortunes deteriorate too much, said the people who asked not to be identified because discussions are private. They’re also discussing a possible bond exchange.

Cartier Sues Saks Fifth Avenue Over Flagship Boutique

Cartier has filed a legal action against Saks Fifth Avenue, seeking a declaratory judgment that will prevent a Cartier shop from being ejected from Saks’ New York City flagship. According to Cartier’s complaint, filed Oct. 3 in New York State Supreme Court, two years ago the brand signed a five-year lease with Saks that stationed a Cartier boutique near the flagship’s 49th Street entrance. This year, Saks began a renovation of the ground floor of the flagship, which caused “substantial challenges for Cartier,” including increased dust and debris as well as lower foot traffic, the papers said.

 

JewelPops, Company Behind the Kameleon Brand, Has Filed for Bankruptcy

JewelPops Inc., the company behind the popular Kameleon jewelry brand, has filed for bankruptcy in Canada. A Canadian bankruptcy database shows that JewelPops Inc. filed for bankruptcy on July 27. Grant Thornton was appointed insolvency trustee.

According to social media posts from several of the brand’s retailers, the company has apparently ceased operations.

 

Office & Leisure

Barnes & Noble opts for strategic review after takeover interest

Barnes & Noble Inc said on Wednesday it would explore strategic options after several parties, including founder-chairman Leonard Riggio, showed interest to buy the bookseller, sending its shares up as much as 24 percent in extended trading. The No.1 U.S. book store chain also adopted a plan to thwart any hostile bid after it found a rapid accumulation of stocks by parties that the company said it could not identify. The plan would prevent any party from accumulating 20 percent or more of its common shares by automatically offering preferred shares at a 50 percent discount to other shareholders.

Riggio, who holds the largest stake of 19.24 percent according to Refinitiv data, has committed to vote in favor of any transaction recommended by the special committee formed to review strategic options, the company said.

Toys R Us mascot Geoffrey the Giraffe makes surprise appearance at Fall Toy Preview in Dallas

Toy manufacturers and their retail buyers converged last week in Dallas at one of the industry’s largest wholesale events for the first time without Toys R Us in attendance. At least until someone made an appearance as the toy superstore’s longtime mascot, Geoffrey the Giraffe. A group of secured lenders that controls the failed retailer’s intellectual property said in a bankruptcy court filing this week that they plan to bring back the brand. That’s why they sent Geoffrey to the Fall Toy Preview, which ended Thursday at the Dallas Market Center.

Technology & Internet

Gerber Technology Acquires Avametric, Deepens Investment to Provide End-to-End 3D Solution For Fashion Industry

Gerber Technology announced today that it has acquired San Francisco based Avametric. Avametric develops the world’s leading cloth simulation technology and enables fashion brands to deliver highly accurate 3D renderings of their products on customizable avatars for e-commerce and augmented reality (AR) applications. The acquisition follows 12 months of collaboration between the companies after Gerber announced in November 2017 they would be integrating Avametric’s fabric simulation engine into their AccuMark® 3D platform.

 

Amazon ups minimum wage to $15 for all full, part-time and seasonal employees

Amazon is making another major delivery, this time for its employees: a $15 hourly minimum wage. The e-tailing giant said Tuesday it would increase its minimum wage on Nov. 1 to $15 for all U.S. full-time, part-time, seasonal and temporary employees. Amazon currently has more than 250,000 Amazon employees, and plans to hire more than 100,000 seasonal employees this holiday season.

Revolve Officially Files for IPO

Revolve has filed documents with the Securities and Exchange Commission with the intention of listing an initial public offering on the New York Stock Exchange. The news follows a recent expansion into Europe as well as the biggest, most influencer-filled #RevolveFestival Coachella weekend it’s thrown yet. The Los Angeles-based company, which goes by Revolve Group Inc. in the filing, encompasses the e-commerce destinations Revolve.com and Fwrd.com, as well as 19 in-house brands under the Alliance Apparel, Inc. (which Revolve acquired in 2014) umbrella. In an overview within the filing, Revolve boasts of its success in wooing millennial consumers with its digital-first approach to transforming the shopping experience, as well as its leadership in social media and influencer marketing. In 2017, the company reported $399.6 million in net sales and $5 million in profits, numbers it’s set to exceed in 2018. For the six months ended June 30, 2018 (a period that includes its most sales-generating time, festival season), it reported $245.1 million in net sales and $15.8 million in profits — that’s a 179.9 percent growth, or near-tripling, in profit over the same period last year.

Finance & Economy

Holiday shopping: Americans will boost spending 5 percent

More consumers will be feeling jolly this holiday season, pushing up holiday spending by 5 percent to $1,250 each, thanks to a growing economy, according to consulting company PwC.  The biggest spenders this year will include men, high-earning millennials and Amazon Prime members, the study found. On the flip side, several types of consumers said they’re likely to cut back this year, including people living in small towns and rural areas.  Holiday spending has been recovering since the 2008 recession, when Americans tightened their budgets and cut their outlays by about 5 percent that year.

Jobs market sees private payrolls surge by 230,000, highest since February

Job growth surged in September to its highest level in seven months as the economy put up another show of strength, according to a report from ADP and Moody’s Analytics.  Private companies added 230,000 more positions for the month, the best level since the 241,000 jobs added in February and well ahead of the 168,000 jobs added in August. Businesses with between 51 and 499 employees added the most by size, with 99,000 new hires. Large businesses added 75,000 while small firms contributed 56,000.