The Big Story

What to Believe

Billy Busko

With Christmas only two days away and the important Holiday retail season soon ending, the classic movie Miracle on 34th Street comes to mind.  Filmed in 1947, the movie features two story lines that seem as relevant today as they were 70 years ago:  corporate competition and reputational value.

Winner of three Academy Awards, the backdrop to Miracle on 34th Street was the fierce competition that took place between two New York department store giants, Macy’s and Gimbels.  (Interesting facts regarding Gimbels include that it was the originator of the Thanksgiving Day Parade, it once owned Saks and it was the largest department store in the world in the 1950s.)  Fast forward to today, and retail and consumer product competition seems just as stiff, if not worse, but the giants have changed names to Walmart and Amazon.  The movie shifts to a more personal level when the climax centers around whether Kris Kringle is who he says he is – Santa Claus.  Fast forward to today, and the feature of modern shopping that facing its own crisis of authenticity is online product reviews.

Overly eager endorsements and artificial ratings have been around for a long time, but the issue of online fake reviews has become a wide-spread epidemic in recent years.  Fakespot, a company with a mission of identifying fake reviews, estimates that 52% of reviews posted on are “inauthentic and unreliable”.  Fakespot estimates that 33% of Amazon reviews are fake or unreliable.  Fake reviews are those generated by robots or provided by people compensated to write them.

On Amazon, sellers look to get any advantage they can, and some rely on fake information.  Better reviews result in higher search rankings, which lead to increased sales.  And the cycle perpetuates.  Last year, 58% of all Amazon sales came from third-party sellers ($160 billion), and one million new sellers joined the marketplace.  With thousands of new sellers signing up each day, there is intense competition.  A sizeable subset of these companies are willing to give away free products in return for positive reviews.  According to Nuanced Media, the scheme is designed to dupe Amazon’s algorithm by creating the illusion that a product is flying off the shelves.  Recognizing that better reviews provide better search results, the ecommerce consulting firm Pattern estimates that a 1-star increase in a product’s average rating leads to a 26% increase in sales.

A common cheating tactic is for sellers to post Facebook ads offering free product.  Once communication is established via Facebook Messenger, a tacit agreement is made where the consumer makes the purchase, and, once a positive review is written, a full refund is subsequently made via PayPal. Alternatively, BuzzFeed News has reported on “black hat” services that offer to remove negative reviews from product pages, exploit technical loopholes to lift overall sales rankings, and bribe Amazon employees to leak sensitive information.

Walmart and Amazon argue that they are taking great pains to address fake reviews.  Amazon claims to have spent $400 million last year to protect customers from review abuse and estimated that it prevented 13 million attempts to post inauthentic reviews.  In a statement to CBS MoneyWatch, Walmart claimed to monitor all reviews. Yet, issues at Amazon remain, and Walmart has been known to post product reviews that originated from other sources.

The breadth and the depth of the problem has drawn the attention of the Federal Trade Commission, which is now filing suit against such bad characters.  The FTC Director of Consumer Protection has expressed, “People rely on reviews when they’re shopping on-line.  When a company buys fake reviews to inflate its ratings, it hurts both shoppers and companies that play by the rules.”

While there are clear efforts underway in the government and elsewhere to make the internet safer and more trustworthy for consumers, counterfeit reviews can be added to the list of things that make some of us nostalgic for simpler times.  Like 1947.  At the close of Miracle on 34th Street, [spoiler alert] the New York Post Office delivers 21 full mailbags of letters from young boys and girls to Kringle, effectively verifying his identity.  No one needed to ask how many of those letters were written by robots.


Headlines of the Week

IFF Wins Race for DuPont’s Nutrition Business in $26.2 Billion Deal

International Flavors & Fragrances (IFF) has agreed to merge with DuPont’s nutrition business to create a $45 billion consumer goods company. DuPont’s stock climbed 5% in premarket trading, while shares in IFF fell 5.1%. The deal, which values DuPont’s nutrition and biosciences division at $26.2 billion, will create a company supplying a range of products, including soy proteins, probiotics and flavors and scents for consumer products. IFF produces flavors and fragrances in foods and manufactures cosmetics. DuPont’s nutrition business has been boosted recently by growing demand for plant-based meat alternatives due to its specialty proteins. The new company would have annual revenue of $11 billion, remain under the name IFF and be based in New York, IFF said. DuPont was formed earlier this year from the breakup of DowDuPont into three companies: chemicals business Dow Inc., agriculture business Corteva and specialty-sciences business DuPont.

Nestle to sell U.S. ice cream business

Nestle S.A. has entered into an agreement to sell its U.S. ice cream business to Froneri for $4 billion. Froneri is a joint venture created in 2016 between Nestle and PAI Partners, a European private equity company. Once completed, the transaction will make Froneri the second largest ice cream manufacturer in the world. Nestle’s U.S. ice cream business portfolio includes such brands as Häagen-Dazs, Drumstick and Outshine. The business had sales of approximately $1.8 billion in 2018. Nestle will continue to manage its remaining ice cream businesses in Canada, Latin America and Asia.



Apparel & Footwear

Zac Posen trademark reportedly bought by Centric Brands

The Zac Posen trademark has reportedly been bought at auction by Centric Brands. The new business arrangement affects the Zac Posen brand and related intellectual property, according to WWD. Posen is also reportedly working out details regarding his involvement in the deal. In October, Posen shuttered his fashion label House of Z after failing to find new investors or a buyer for the company. Yucaipa Cos., the investment firm which has owned a controlling stake in Posen’s brand for over 15 years, has reportedly been looking for a buyer for the brand since April.

Genesco to Acquire Leading Footwear Licensee Togast and to Enter into a Levi’s Footwear License Agreement

Genesco Inc. announced it has entered into a definitive asset purchase agreement to acquire New York-based Togast LLC (“Togast”), which specializes in the design, sourcing and sale of licensed footwear. The purchase price for the acquisition is $33.7 million in cash at closing, plus up to an additional $34.0 million in cash contingent on the achievement of financial targets over the next four years. The transaction, which is subject to customary closing conditions, is expected to be completed in January 2020, and is expected to be accretive to next year’s earnings. Prior to the acquisition, Togast served as distributor for Levi’s footwear in the United States. Commensurate with the closing of this transaction, Genesco will enter into a new U.S. footwear license agreement for men, women and children for Levi’s®, as well as renew and extend its men’s Dockers® footwear license. In addition, the Togast purchase expands Genesco’s portfolio to include footwear licenses for G.H. Bass & Co., ADIO and FUBU, among others.

Ascena Retail Group reverse-splits stock in effort to avoid delisting

The board of directors of Ascena Retail Group, Inc., the parent company of seven women’s apparel brands including Ann Taylor and Lane Bryant, has approved a 1 for 20 reverse split of its common stock in an effort to avoid delisting from the Nasdaq stock exchange. The retail group said in a statement it can regain compliance with the Nasdaq minimum share price requirement by maintaining a closing bid price of $1.00 per share for a minimum of 10 consecutive business days prior to January 27, 2020. The stock was trading at $8.20 early Friday morning, per MarketWatch. The reverse stock split affects all issued and outstanding shares of the company’s common stock and reduces the number of shares from 199.4 million to 9.97 million. Ascena Retail Group operates e-commerce websites and approximately 3,400 stores throughout the United States, Canada and Puerto Rico under the brands Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, Catherines, and Justice.

Michael Kors parent company Capri Holdings acquires shoe factory

American conglomerate Capri Holdings Ltd., parent of Michael Kors, Versace and Jimmy Choo, is expanding its portfolio investment in the manufacturing sector. The company has reportedly acquired Alberto Gozzi Srl, a Tuscan shoe manufacturer, for an undisclosed sum. The Alberto Gozzi company was founded in 1974 and the business remains a key producer for luxury brands as well as its own range. Describing its high-quality craftsmanship as avant garde manufacturing and technological innovation, the company’s website states the construction of each shoe by Alberto Gozzi includes at least eighty different steps. Luxury brands and groups have long been taking vertical ownership of their supply chains to ensure longevity, sustainability, artistry and reduce risk.


Athletic & Sporting Goods

Paddle Powerhouse Pelican Supersizes, Buys Confluence Outdoor

Pelican International made huge news in the paddling world by acquiring Confluence Outdoor.  Pelican International was already a major paddlesports manufacturer. But its acquisition of Confluence Outdoor now makes Pelican the largest provider of paddlesports gear in the industry.  Pelican International (no relation to Pelican Products) is based in Quebec, Canada. It makes everything from canoes and kayaks to fishing boats, pedal boats, and standup paddleboards.

Israel’s PlayerMaker Raises $10M For Sports Analytics Wearables

Israel’s PlayerMaker has raised $10 million in a Series B led by Singapore-based firm FengHe Group, for its smart sensors which attach to player footwear. The funding round will be used to grow in Europe, the United States, and Asia.  The product – a small strap which attaches to the side of a soccer boot by a silicon strap and contains a gyroscope and accelerometer – works on analyzing player-specific data. It can tell a coach how many touches a player has on a ball, or the total distance travelled during a game (and top speed during that duration).

Cosmetics & Pharmacy

Amorepacific Group Invests in Milk Makeup

Milk Makeup has a new investor —  Amorepacific Group. The Seoul-based Amorepacific joins Main Post Partners and Alliance Consumer Growth as minority shareholders in the clean beauty brand. The strategic partnership will help Milk Makeup forge a path to enter the South Korean marketplace. Mazdack Rassi, CEO/cofounder, Milk Makeup, says, “The South Korean beauty market is highly competitive and incredibly innovative, so we are thrilled to have Amorepacific’s help to ensure our success…This strategic partnership will allow us to benefit from Amorepacific’s significant expertise and resources. And in true partnership, Milk Makeup will share the strategies that have made it one of the fastest growing color brands in the U.S.” Rassi co-founded Milk Makeup in 2015 — along with Dianna Ruth, Georgie Greville, and Zanna Roberts Rassi. The brand quickly became a cult-favorite among beauty enthusiasts for its innovative formulas and clean ingredients.

Lawless Beauty secures minority investment from Cult Capital

Clean cosmetics brand Lawless Beauty has secured a new minority investment from growth equity firm Cult Capital, formerly known as JMK Consumer. The “significant” but undisclosed amount of capital will be used for product innovation, team expansion, and marketing efforts, and for deepening the brand’s relationship with Sephora — its distribution partner since 2018. Founded in 2018 by Annie Lawless, Lawless Beauty provides certified clean cosmetics—products that avoid toxic ingredients—that offer the full coverage of equivalent high-quality makeup, which may contain harsh ingredients. Founded five years ago by John Kenney and Sarah Woelfel, Cult Capital focuses on ‘cult’ consumer brands with extremely engaged and committed customer bases. In addition to Lawless Beauty, the Cult Capital portfolio includes skincare brand Supergoop!, vegan cheese brand Miyoko’s and direct-to-consumer medical apparel brand Jaanuu.

Rite Aid’s solid Q3 offers ‘momentum’ for growth

Rite Aid beat Wall Street expectations with its third-quarter earnings, which saw net income rather than the net loss the company posted for the same period last year. Revenue for the company totaled $5.46 billion, compared with $5.45 billion in the prior-year period, and income was $52.3 million, or 98 cents per share, compared with a $17.3 million net loss in the prior period. The company’s retail pharmacy segment saw total revenue of $3.91 billion, down 1.7% from a year ago. Same-store sales decreased by 0.1% from the prior-year period, which Rite Aid said was driven by a 0.1% increase in pharmacy sales and a 0.5% decrease in front-end sales.


Discounters & Department Stores

Why Target and Disney Are a Great Combination

If you can’t get to Disney World this holiday season, at least you can get to Target. Over the summer, Target announced that it was opening mini Disney theme shops within some of its stores, as well as a Disney “digital experience” in the Target app. With movie-based toys increasing in popularity, this is a winning mix for the two powerhouse companies.

Missed shipping deadlines? Kohl’s is staying open 24 hours a day for late shoppers

If you’ve missed retailers’ shipping deadlines and still have a lot of shopping to do, Kohl’s stores are staying open around the clock. Starting 7 a.m. Friday, most locations will be open around the clock through 6 p.m. Christmas Eve for the final stretch of the holiday shopping marathon. This is the seventh year Kohl’s has offered 24-hour shopping leading up to Christmas. Store hours vary by location, the retailer said in a news release.

5 Bold Retail Predictions For 2020, For Walmart, Amazon and More

Predicting the future is a fool’s pursuit, it’s been said, but sometimes the need to do so overwhelms any amount of common sense or logic. That’s even more the case at the end of the year, when forecasting what’s likely to happen in the new year seems to be epidemic. It’s even worse when the decade turns.  So, never one to shy away from the prognostication game, here are the five big news stories that will dominate the retail headlines over the next 12 months.



Emerging Consumer Companies

DTC neighborhoods gain traction

With more direct to consumer brands moving into retail, either through permanent locations or pop-ups, clusters of those stores are surfacing in cities like New York, Chicago and Los Angeles. Whereas shoppers once found one or two DTC stores in a neighborhood, they can now see them filling entire streets.

BURST introduces innovative dental floss

BURST, the Los Angeles based subscription dental care company, has launched a new dental floss that expands between your teeth to clean hard-to-reach places. The floss mint-eucalyptus-flavored, charcoal-coated dental floss sells for $12.99, and can be delivered to a customer’s door for $6.99 per month. BURST has raised more than $20 million from outside investors that include Volition Capital.

Summersalt raises $17.3 million Series B

Summersalt, the St. Louis based travel wear brand, announced that it has raised a $17.3M Series B. The investment was led by Mercato Partners with participation from Founders Fund, Lewis and Clark Ventures, Revolution’s Rise of the Rest Seed Fund, and Victress Capital. It brings total funding to $26 million. Founded in 2017, Summersalt initially focused on swimwear and now sells travel essentials such as cashmere sets, packable jackets and wrinkle-free pants. The latest investment will be used to expand into additional apparel and accessories categories.



Grocery & Restaurants

JAB Holding to combine Jacobs Douwe Egberts and Peet’s Coffee and explore international IPO

JAB Holding Company is combining two of its coffee brands — Dutch beverage group Jacobs Douwe Egberts and Berkeley, Calif.-based Peet’s Coffee & Tea — and exploring an initial public offering outside of the United States with the merged company, JDE Peet’s. Jacobs Douwe Egberts announced the merger Dec. 17, adding Berkeley, Calif.-based Peet’s Coffee to its portfolio of international beverage brands, including Maxwell House, L’OR, Jacobs Coffee, Douwe Egberts, Senseo, Tassimo, Moccona, Kenco, Pickwick and Pilão. With the combination of the two companies, JDE Peet’s will have a footprint in 140 countries.


Granite City Food & Brewery files for Chapter 11 bankruptcy protection

Casual-dining restaurant operator Granite City Food & Brewery Ltd. has filed for Chapter 11 bankruptcy protection and is putting itself up for sale, the company reported Tuesday. The Minneapolis-based restaurant company, which operates 25 Granite City Food & Brewery locations and four units of the Cadillac Ranch concept. “After an intensive review of strategic alternatives, Granite City’s Board of Directors determined that a reorganization of its businesses was needed,” the company said in a release Tuesday. “The Board further determined that the restructuring could only be accomplished by filing for Chapter 11. Concurrently, Granite City has announced a going concern sale to KRG Granite Acquisition LLC for aggregate consideration of $7.5 million plus certain liabilities. The transaction remains subject to Bankruptcy Court approval and an auction process which is expected to conclude in February 2020.”

Home & Road

Casper cuts 30 employees as part of reorganization

Fast-growing online retailer Casper made a round of staff cuts last week, according to a news report. Bloomberg said Casper dismissed “around 30 employees as part of a reorganization associated with its evolution into a so-called multi-channel business,” according to one of the dismissed employees. Bloomberg said its information came from “people with knowledge of the matter.” The cuts would mark a sharp departure from Casper’s growth trajectory, which has seen the company emerge as one of the best-known and largest online mattress retailers. Casper is preparing for a U.S. initial public offering that could occur as soon as this year or the first half of 2020, Bloomberg News reported in October.

DecorMatters raises $10M in funding

Tech company DecorMatters, which uses augmented reality and artificial intelligence to assist interior designers, has raised $10 million to continue with technology improvements. “With the new funding, DecorMatters is advancing our AI and data technology to deeper and wider ranges to build an even more enjoyable experience including trend discovery and furniture shopping for our users,” said Farris Wu, DecorMatters co-founder and CEO. The funding round, led by ZenStone Venture Capital, will help the company expand its efforts to bring AR and AI to additional consumers. Founded in 2016, the company’s iOS app is now being used by more than 4 million people to design and share interior spaces.

Serta Simmons Bedding disagrees with S&P credit rating downgrade

Serta Simmons Bedding says it disagrees with Standard & Poor’s recent downgrade of its issuer credit rating. That downgrade does not account for SSB’s improving performance trends, SSB said. S&P downgraded SSB’s credit rating to “CCC” from “CCC+,” which brought a response from the bedding major. “We have been advised that credit rating agency Standard & Poor’s downgraded our rating to CCC from CCC+ based mostly on where our debt is trading in the markets,” SSB said in a statement. “It does not account for the continued trends of improved performance in our cash and EBITDA. While we acknowledge their right to do this, we disagree with their outlook. The other credit rating agency, Moody’s, is placing greater emphasis on recent performance trends and has not indicated that they are changing the outlook on SSB.”

Jewelry & Luxury

U.S. Sanctions Diamond Dealer for Allegedly Aiding Hezbollah

The U.S. Department of the Treasury’s Office of Foreign Assets Control has sanctioned Lebanese diamond dealer Nazem Said Ahmad for allegedly generating millions of dollars for terrorist group Hezbollah. Being added to OFAC’s Specially Designated Nationals and Blocked Persons List means that U.S. citizens are forbidden to do business with Ahmad, and anyone who does business with him may be subject to enforcement action. In addition, his U.S. assets are frozen.

Tiffany Received No Other “Credible” Takeover Bids

Tiffany & Co. did not receive any other “credible” bids during the month when LVMH engaged in a very public bidding process to acquire the retailer, according to the proxy statement it filed with the Securities and Exchange Commission on Wednesday. During that period, the company’s financial advisers, Centerview and Goldman Sachs, reached out to four “potential alternative bidders…most likely to be interested in an acquisition.” All four said they were not interested in buying Tiffany at the levels it sought.

Jewelers Struggle to Connect as Young Chinese Consumers Go Cold on Gold

Legacy jewelers in China need to take a page from their foreign competitors and figure out how gold can appeal to younger consumers. Since the mainland China luxury market took shape in the early 1980s, one constant amid constant change has been strong demand for gold — a fact that has driven revenue for Hong Kong brands such as Chow Tai Fook, Luk Fook, and many others for decades. But, as has been the case for virtually every high-end brand — domestic or foreign — operating in the highly balkanized luxury market in China, the young generation presents new challenges for brands heavy on gold jewelry.

The Unlikely Beneficiary of the Hong Kong Crisis: Mongolia’s New Luxury Market

Mongolia isn’t a country commonly associated with luxury. Its nominal per capita GDP sits below that of Armenia, Tuvalu and Sri Lanka. Its only real city, Ulaanbaatar, is the planet’s coldest capital and often its most polluted. But some of the world’s biggest luxury brands are betting on it. Chinese consumers are the trump cards Mongolia is counting on. And the crisis simmering in Hong Kong.


Office & Leisure

CBD Continues to Make Headway in Pet Market

People turn to many resources to help overcome certain physical and emotional ailments. When they find something that aids in their well-being, such as cannabidiol (CBD) products, it seems only natural for them to wonder if these same products can benefit their pets. Industry insiders and pet owners are saying they do, and the CBD product category is surging as a result. The “pets as people” movement not only means taking care of pets physically, but emotionally as well, including when it comes to stress reduction, according to Packaged Facts. In its 2018 Pet Owner Survey, 85 percent of dog owners and 38 percent of cat owners agree that, “My pet sometimes has anxiety/stress issues.” There clearly is a need, the report’s authors noted, which has created more opportunities for CBD products in the pet market.

Universal, Lego in Talks for Film Partnership

Lego has been exploring its options since early fall, when its pact with Warner Bros. expired. That partnership initially shot out of the gate with much success. The Lego Movie, released in 2014, garnered much acclaim as well as box office gold, overcoming naysayers who believed such a nakedly corporate branded movie would fail. A spinoff focusing on Batman was also a hit in early 2017, and Warners planned a whole slate around Lego. But the failure of The Ninjago Movie in late 2017 caused a retrenchment, and after the failure of this year’s Lego Movie: The Second Part, Lego began rethinking its deal. Lego and Universal seem to be a good fit on paper. The studio is light on name-brand franchises, unlike rivals Paramount, which has movies based on Hasbro toys; Sony, which has Spider-Man franchises; and the big behemoth, Disney.

Technology & Internet

Apple, Google and Amazon plan to join forces to link home devices

Apple Inc., Alphabet Inc.’s Google and Inc.—three of the biggest smart-home and voice-assistant providers—are joining forces to make internet-connected homes easier to set up and safer to use. The rivals announced Wednesday that they’re working with the Zigbee Alliance, a foundation that promotes standards for the Internet of Things, and its members including Samsung Electronics Co., Somfy SA and IKEA, on a new standard that will ensure their products work with one another. The alliance is aiming to have its new joint protocol ready by the end of 2020.

IAC to spin off online dating service Match

Technology holding company IAC/InterActiveCorp announced Thursday it has agreed to spin off all of its shares of online dating company Match Group. Shares of Match jumped more than 5% in premarket trading on the news. Match shareholders will receive one share of New Match and $3 per share in consideration, while IAC will receive $3 per share in cash. “We’ve long said IAC is the ‘anti-conglomerate’ – we’re not empire builders,” Barry Diller, chairman and senior executive of IAC, said in a statement. “We’ve always separated out our businesses as they’ve grown in scale and maturity and soon Match Group, as the seventh spin-off, will join an impressive group of IAC progeny collectively worth $58 billion today.”


Finance & Economy

US housing starts rise more than expected, with permits at a 12-1/2-year high

U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2-year high as lower mortgage rates continue to boost the housing market and support the broader economy.  The housing market is regaining momentum after the Federal Reserve cut interest rates three times this year, pushing down mortgage rates from last year’s multi-year highs. A survey on Monday showed confidence among homebuilders jumped in December to the highest level since June 1999.

US manufacturing production rose more than expected in November

U.S. manufacturing output rebounded more than expected in November, as the end of an almost six-week strike at General Motors plants boosted auto production.  The Fed’s measure of the industrial sector comprises manufacturing, mining, and electric and gas utilities.  There was a 12.4% jump in the production of motor vehicles and parts in November. Overall, production rose 2.1% for consumer goods and 1.7% for business equipment, the Fed said. Utilities output increased 2.9% compared to a decline of 2.4% in the previous month.

For the first time in history, the US economy has started and ended a decade without a recession

As of December, the U.S. economy has expanded for a record 126 straight months, the longest time period in the country’s history according to the National Bureau of Economic Research. Put another way, the U.S. has avoided a recession for an entire calendar decade for the first time ever.  Economists cite a few reasons for why the expansion has lasted for so long. For one, the U.S. was coming from a low point at the end of the last decade. Much of the expansion over the past ten years has been spent recovering from the Great Recession.