November 19, 2018 Consensus

The Weekly Consensus – November 19, 2018 (Volume 10, Number 44)

The Big Story
A Tale of Two Cities
Mark Lenz

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…” starts A Tale of Two Cities, the Charles Dickens novel from the 1850s.  For many U.S. cities this past week, there was a similar maelstrom of opposing emotions and headlines after it was finally revealed that Long Island City, NY and Arlington, VA were chosen as the winners in the Amazon HQ2 lottery.  While the politicians in New York and Virginia puffed out their chests, questions percolated in many corners of the country: who were the real winners and losers in Amazon’s decision?  Who was wise and who was foolish throughout the whole pageant?

While this appears to be a win for New York and Northern Virginia, was the dripping of copious incentives in front of Amazon smart?  Based on reports, the total incentives from the two cities will be in the range of $2.3 billion, tied to the expected creation of 50,000 high paying jobs and the occupancy of or construction of related space in the two locations.  There will certainly be other infrastructure costs related to accommodating that many new employees in each city.  The mayors of these two cities are happy, but other local politicians are asking if this is foolishness with already difficult housing, school and transit/traffic situations in those cities as well as alternative uses for the incentive funds in their cities.

Not every city in the country was offering incentives like the two winners did.  For example, “Blindly giving away the farm isn’t our style,” wrote San Antonio officials in an open letter to Mr. Bezos.  I live in the Dallas/Fort Worth area, the other large metropolitan area named as a finalist in the HQ competition.  The DFW city leaders are saying that they are disappointed not to be chosen by Amazon, but the area has been a winner in many corporate relocations and expansions in recent years without the hefty Amazon price tag.

In Long Island City, after the short list came out the previous week, there was a feeding frenzy in the real estate market.  The Wall Street Journal reported “brokers say they are already selling [condo] units—sometimes sight unseen—via text message. Others are renting vans and packing them full of clients eager to view multiple buildings, or holding group tours in Chinese.”  It would appear that real estate owners and those in the real estate industry will have the best of times.  On the flipside, those that are currently leasing space in Long Island City and nearby may see costs rise above their means, resulting in times that may not be so good.

A Tale of Two Cities continues “…it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…”

Many if not all of those emotions can be seen in the Amazon saga as well.  While Amazon has brought prosperity and many jobs to Seattle over the years, in recent years it has also fostered the highest increase in housing costs in the country and snarled traffic in the city.  While the Chambers of Commerce and promoting politicians in the new HQ locations say that they believe, many others in New York and Virginia are reacting with incredulity saying, why are we giving billions of dollars to the richest man in the world?  Some are hoping to latch on to great riches while others despair the impact on housing, education and transit.  But this story is not yet told.  We’re only a couple sentences in.

 

Headline of the Week

Levi’s Preps for IPO with Valuation at $5 billion

Levi Strauss & Co. is prepping an IPO that could raise between $600 million and $800 million at a valuation of around $5 billion, according to CNBC. Why it matters: There aren’t too many 100 year-old companies around, let alone 145-year old companies that remain iconic and successful. Plus, Levi’s isn’t only a fashion trailblazer, it has also completed one of the largest-ever IPOs at the time of issuance ($50m in 1971) and a then-massive take-private leveraged buyout ($1.7 billion in 1984). After profit declines in recent years, Levi’s is seeing its top and bottom lines rise once again. During 2017, Levi’s posted revenue of nearly $5 billion. The company has also cut its debt load in half over the last two years.

 

 

Apparel & Footwear

Plus-Size Fashion Is a $100 Billion Opportunity. That’s Why Dia&Co Raised $40 Million

Women who wear plus sizes spend 20 cents on the dollar to what women who wear straight sizes spend on clothing—a discrepancy that puts that stray 80 cents up for grabs to retailers who are able to provide actual fashion options to the 67% of U.S. women who wear size 14 or above. That’s why Dia&Co, the plus-size fashion startup that started with subscription boxes, just raised a whopping $40 million—on top of $30 million that the company raised in early 2017 but never announced. The $70 million in newly-announced funding brings Dia&Co’s total capital up to $95 million. The $40 million Series C was led by Union Square Ventures, and USV partner Rebecca Kaden will join Dia&Co’s board along with Alfred Lin of Sequoia Capital, which also participated in this round.

Victoria’s Secret CEO Jan Singer to step down

The CEO of Victoria’s Secret’s lingerie division, Jan Singer, has resigned and plans to step down after working at the retailer for two years. The lingerie company, owned by L Brands, has struggled to grow sales as younger shoppers turn to more inclusive bra and underwear retailers. Singer joined Victoria’s Secret from Spanx and had been trying to “aggressively” seek out new customers with new products and by understanding shoppers better. The company is expected to share more details about Singer’s departure on Monday, when L Brands reports quarterly earnings. It wasn’t immediately clear who Singer’s replacement would be.

‘Mad Men’ Costume Designer Janie Bryant’s New Extended-Size Line Is for All the Joan Holloway Fans Out There

“How can you make me look like Joan?” That’s the question that costume designer Janie Bryant often hears from fans of her work, especially for her figure-celebrating and sultry-chic ’60s wardrobe for Christina Hendricks as office manager-turned-business owner, Joan Holloway on “Mad Men.” “The curvy girls would always ask me, ‘When are you going to design cute clothes for us?’ explained Los Angeles-based Bryant on a visit to New York in October. The Los Angeles-based costume and fashion designer was in town for a sneak peek of her new size 12-to-24 womenswear line, JXB by Janie Bryant, which will launch later this month.

 

Athletic & Sporting Goods

Nike and Adidas Sold More Than $28 Million in Product on Alibaba’s Singles’ Day

Everyone wanted a piece of Alibaba Group’s Singles’ Day pie — and at least three athletic brands nabbed a hefty slice.  The China e-tail behemoth said today that its annual shopping extravaganza, Singles Day, generated $30.8 billion in gross merchandise volume (GMV), an increase of 27 percent over the prior year. And athletic powerhouse brands Nike and Adidas were among the 230-plus brands that exceeded $14 million in GMV — joining Apple, Estée Lauder, L’Oréal, Gap and other major brands.

Why you’re seeing less Nike for sale on Amazon

In February 2018, there were more Amazon product listings for Nike than any other clothing or footwear brand, according to an analysis by research firms Coresight Research and DataWeave. Just over six months later, Nike had dropped to the eleventh most-listed brand, as the number of Nike products for sale fell by nearly half.  Nike confirmed last year that it would launch a pilot program to offer a limited number of products directly through Amazon for the first time. It had previously hesitated to put its sneakers and clothes on the platform. Amazon’s vast—and still growing—third-party marketplace, which in 2017 accounted for most of the stuff sold on Amazon, was rife with Nike items never authorized for sale by Nike, as well as counterfeits. According to the Wall Street Journal, after weeks of talks, the companies came to an agreement that would see Nike sell a limited number of products on the site. In exchange, Amazon would crack down on the unauthorized third-party sales and knockoffs.

Performance Bicycle, ASI Parent Company ASE Files For Chapter 11

Advanced Sports Enterprises Inc.—parent company of retail chain Performance Bicycle, wholesale distributor ASI and five bike brands—announced it is seeking Chapter 11 protection in U.S. Bankruptcy Court.  ASE is parent to bicycle brands Fuji, Kestrel, SE, Breezer Bikes and Tuesday Cycles; retail chains Performance Bicycle and Bike Nashbar; and wholesale distributor Advanced Sports International.

Cosmetics & Pharmacy

FDA to Crack Down on Flavored E-cigs, Combustible Menthol Products

Citing a rise in youth e-cigarette use in its 2018 National Youth Tobacco Survey, the Food and Drug Administration has unveiled efforts to curb the increase. With the report noting that more than 3.6 million middle and high schoolers used e-cigarettes in the past 30 days — up roughly 1.5 million students from last year — FDA commissioner Scott Gottlieb on Thursday outlined efforts to curb youth e-cig use, with a particular focus on flavored products. The survey found that the past year has seen a 78% increase in reported e-cigarette use among high schoolers and a 48% increase among middle schoolers, and that of those who use e-cigarettes, 67.8% said they use flavored e-cigarettes.

 

Coty Appoints New CEO, Oversees Board Changes

Coty’s leadership team is undergoing a very big change. The company, which is the parent to such brands as the recent Leaping Bunny certified CoverGirl, Rimmel, Max Factor and OPI, announced that its current CEO, Camillo Pane, would be resigning.

Pane will be leaving his post for family reasons, and Pierre Laubies will be taking over as the new CEO of Coty, effective immediately, the company said.

Men’s Wellness Start-up Maapilim Raises Series A

Direct-to-consumer grooming start-up Maapilim has raised a $4 million Series A round. The financing was led by Viola Ventures, Kaedan Capital and the joint venture of Keshet International and Dick Clark Productions. Avishai Avrahami, cofounder and chief executive officer of web site-creation platform Wix, has also invested. Maapilim, headquartered in Tel Aviv and founded by husband duo Jonathan and Doron Keren, focuses on high-end, natural, men’s grooming products sourced from the Mediterranean coasts. The lineup includes shower, grooming, hair and skin products, priced between $15 and $52.

 

Discounters & Department Stores

Walmart raises earnings forecast, expecting strong holiday sales

Walmart on Thursday reported earnings that topped analysts’ expectations and raised its forecast for the full year, expecting a strong holiday season.  Earnings were fueled by strong e-commerce sales, as the company continues to gobble up online brands to compete with Amazon in categories like apparel and home goods, while also scaling its grocery business. Comparable sales climbed for their sixteenth consecutive quarter, as existing Walmart shoppers flocked to its stores more frequently and added more to their baskets. The big-box retailer’s revenue fell short of analysts’ estimates, however, due to currency headwinds. It’s taken a hit in recent quarters due to increased investments overseas.

Macy’s raises profit forecast before key holiday season

Macy’s Inc raised its annual earnings forecast on Wednesday, signaling a strong holiday shopping season ahead, encouraged by good performance at its stores and its growing online business. The largest U.S. department store chain, which has closed more than 100 locations and cut thousands of jobs since 2015, also reported much better than expected profit and sales for the third quarter, boosted by double-digit growth at its online shopping service. Like many other major U.S. retail names, Macy’s has been struggling with plummeting mall traffic and a defection of customers to a new range of online and fast-fashion stores.

Coming soon to Bloomingdale’s: LG TVs, washing machines and refrigerators

Bloomingdale’s, known for selling chic clothing to shoppers with champagne tastes, is about to sell TVs, washing machines and refrigerators for the first time. The upscale retailer is teaming up with electronics maker LG, which will have a shop inside Bloomingdales’ Manhattan flagship starting Nov. 19. The boutique will sell LG’s premium Signature line, and its TVs, dishwashers, and other large appliances will also be for sale on bloomingdales.com.

Grocery & Restaurants

Sweetgreen receives $200M investment

Fidelity Investments has made a $200 million investment in Sweetgreen, bringing the fast-casual salad chain’s total equity raised over the past five years to $365 million, the company said Tuesday. The Fidelity funding round values the 90-unit Los Angeles-based brand at more than $1 billion, the company said. The company said the latest Series H funding round will go toward expanding Sweetgreen’s digital platform, layering blockchain digital ledger technology on its supply chain, adding restaurant units and markets and investing in other areas.

 

Lidl US to acquire Best Market

Lidl US is planting its foot squarely in the metropolitan New York market. The deep discount grocer, the U.S. arm of Germany-based Lidl, said Friday that it plans to buy 27 Best Market supermarkets in New York and New Jersey. Financial terms of the deal weren’t disclosed. Plans call for the acquired stores to be converted to the Lidl banner.

Home & Road

NPD Survey Shows a Positive Outlook on Holiday Spending

Consumers plan to spend more both this holiday season and in the home category, according to The NPD Group’s holiday shopping survey. Eighteen percent of consumers surveyed for NPD’s 2018 Holiday Purchase Intentions report anticipate spending more during the upcoming holiday season—an increase of 2 percentage points since last year and 4 percentage points since 2016. On average, consumers planned to spend $693 on holiday shopping, with Gen X, Baby Boomers and the Silent Generation hitting anticipated spending peaks at roughly $750. The home and beauty categories will see notable increases this season, the survey said, and one in three shoppers plan to purchase home products. In 2017, consumers actually spent less for the holidays than they had planned for all categories, except for home electronics.

Advance Auto Parts Races Ahead on Strong Earnings, Guidance

Shares of auto parts provider and distributor Advance Auto Parts Inc. took off after the company announced fiscal third-quarter financial results that beat expectations and raised its guidance for the fiscal year. For the fiscal third quarter ended Oct. 8, AAP reported adjusted earnings of $189.9 million, or $1.89 a share, up from $105.7 million, or $1.43 in the year-earlier period. Analysts polled by Zacks expected earnings per share of $1.77. Net sales increased 4.3% to $2.3 billion, while gross profit gained 6.2% to $1 billion. Comparable-store sales gained 4.6%, AAP said.

Jewelry & Luxury

The Last Line Is Trying to Turn the Traditional Fine Jewelry Model on Its Head

With whimsical and photogenic jewelry styles like diamond-encrusted safety-pin earrings and rainbow tennis necklaces, as well as a legion of influencers who love to wear them, it would be easy to dismiss The Last Line as just another “Instagram brand.” But founder Shelley Sanders has loftier goals than building a social media following — though she’s done a great job of that, too. Along with her CEO husband, Sanders set out to disrupt the fine jewelry industry by launching a direct-to-consumer fine jewelry brand in July of 2017. The Last Line is a bit more accessibly priced than traditional fine jewelry companies, where markups tend to be unnecessarily huge — a diamond tennis bracelet might cost more than $6,000 at a traditional retailer but go for $3,750 on The Last Line — and the designs are a lot less boring.

De Beers Cuts Prices of Cheaper Rough

De Beers significantly reduced prices of lower-quality rough diamonds at this week’s sight in response to a slowdown in the Indian manufacturing sector, dealers reported. Prices fell by high-single-digit percentages versus the previous sale, sightholders told Rapaport News Tuesday. The drops were for rough costing $100 per carat or less, including both small and large stones that produce polished with low color and clarity.

The World’s Second-Largest Rough Diamond Will Yield 67 Gems

Graff Diamonds says it has sliced and diced the 1,109 ct. Lesedi La Rona into 67 stones—which range in size from below 1 ct. to over 100 cts. That will eventually include one large “exceptional” stone, which is still being cut and polished. Graff has not released any details on that stone’s possible size and shape. For now, Graff is offering around 30 diamonds derived from the original piece of mega rough at its stores and on its website.

 

Office & Leisure

FAO Schwarz is ready for its close up: The iconic retailer opens new flagship in Manhattan

FAO Schwarz is ready for its close up. The iconic retailer will open its new store in Rockefeller Plaza on Friday, three years after it shut its previous flagship. The store will be a combination of the old and the new, bringing back FAO’s giant clock tower – whose face will welcome shoppers with a wink – as well as its giant dance on piano which had a starring role in the 1988 Tom Hanks movie classic “Big.” “It’s about the theater, it’s not just a toy store,” says David Niggli, FAO Schwarz’s chief merchandising officer, who noted that much of the retail industry is now similarly offering unique experiences to attract shoppers in the era of Amazon.  “Timing seems right for us to be back because everybody’s doing that.” FAO Schwarz shuttered its Fifth Avenue flagship in July 2015, then was purchased the following year by ThreeSixty Brands.

Michaels taps into experiential retail

Crafting is venturing beyond wine and paint parties to Michaels stores, which have launched a new program to host classes taught by local experts. The arts and crafts retailer has also tapped actress Busy Philipps to host celebrity guests in a You Tube series called “The Make Off.” In her latest video, Philipps goes head-to-head with actor Neil Patrick Harris decorating Christmas trees. Other celebs who have joined her series include Wiz Khalifa, Rob Gronkowski and Snoop Dogg. Michaels’ MAKER Nation is a pilot educational program designed to make classrooms at its stores into community “making” spaces, the arts and crafts supply company said. Crafters who want to teach their skills to others will make their own schedules, set their own class prices, and will be responsible for their own marketing.

Petco Ending Sales of Pet Foods with Artificial Ingredients

Nationwide pet food retailer Petco has announced it will begin removing pet foods and treats containing any artificial colors, flavors, or preservatives from its stores and online marketplace. The move comes in response to a growing consensus among pet parents that they favor natural ingredients in the foods they feed their companion animals. “The move makes Petco the first national pet specialty retailer to take a stand against such ingredients,” the company said in a statement, “reaffirming the company’s commitment to being the lifelong, trusted partner—for pets and pet parents alike.” Although products that boast “natural” ingredients currently make up only a small portion of the pet food industry, its stock is continuing to grow.

Technology & Internet

Alibaba sets new Singles Day record with more than $30.8 billion in sales in 24 hours

Alibaba last week tore through last year’s Singles Day sales record, racking up more than $30.8 billion in the 24-hour shopping event. Gross merchandise value (GMV), a figure that shows sales across the Chinese e-commerce giant’s various shopping platforms, surpassed last year’s $25.3 billion record at around 5:34 p.m. SIN/HK (4:34 a.m. ET) on Sunday, and kept marching higher through the rest of the day. In Chinese currency terms, GMV totaled 213.5 billion yuan, easily beating last year’s figure of 168.2 billion yuan and representing a nearly 27 percent year-on-year rise. That was, however, smaller than the 39 percent year-on-year growth recorded in 2017.

 

Facebook goes on defensive over New York Times investigation

Facebook and its CEO, Mark Zuckerberg, spent much of Thursday swinging back after a New York Times investigation published Wednesday suggested that the company had not been forthcoming enough about Russian interference on its platform and reported that it had hired a firm that dug up dirt on its competitors. Participating in a conference call with reporters Thursday that was meant to be about rules regarding how Facebook polices its platform, Zuckerberg instead had to focus mainly on the Times’ story and reporters’ questions about it.

 

Finance & Economy

Average Christmas season holiday spending to top $1,000 this year

Consumer confidence will result in holiday spending that on average will eclipse the $1,000 mark, officials with the Nation Retail Federation are predicting.  Consumers say they will spend an average of $1,007.24 during the holiday season this year, up 4.1 percent from the $967.13 they said they would spend last year, according to the annual survey released by the NRF and Prosper Insights & Analytics.

 

U.S. consumers paint a mixed picture ahead of the holiday season

We got a mixed picture of the U.S. consumer ahead of the holiday season.  Earnings out of Walmart (WMT) showed that in the third quarter shoppers were streaming into the company’s stores and increasing their spending online.  But October’s retail sales report indicated that while consumer spending continues to grow, the post-tax cut boost we saw to the consumer is starting to fade a bit.

Household debt hit a record high of $13.5 trillion last quarter

The total debt shouldered by Americans has hit another record high, rising to $13.5 trillion in the last quarter, while an unusual jump in student-loan delinquencies could provide another signal that the nation’s economic expansion is growing old.  Total household debt, driven by a $9.1 trillion in mortgages, is now $837 billion higher than its previous peak in 2008, just as the last recession took hold.