China Planning to Reduce Taxes on Luxe Goods Click to Open PDF Article
Chinese shoppers may no longer have an incentive to purchase product in Hong Kong, Europe, or the U.S.
Posted: Posted: Tuesday, June 21, 2011
Source: WWD

Merchants Shred Costs of Payments by Plastic Click to Open PDF Article
The Federal Reserve has proposed capping interchange fees at 12 cents per transaction, down from an average of 44 cents today. This would result in huge savings for retailers.
Posted: Tuesday, June 21, 2011
Source: WSJ

Retailers Upbeat on Fall Sales Outlook Click to Open PDF Article
Every major retailer quoted in this article suggests that men’s apparel sales were strong for Father’s Day.
Posted: Thursday, June 23, 2011
Source: WWD

New Fashion Push in Kmart Campaign Click to Open PDF Article
Amazingly, Kmart’s head apparel merchant (Tara Poseley) did not even know a Minneapolis-based ad agency (PHM) previously helped Target develop an aspirational marketing strategy for its apparel… until after she selected the firm to develop an ad campaign for Kmart. Yep, that’s who you want in charge of your apparel at Kmart… someone like Ms. Poseley with their head in the sand.
Posted: Thursday, June 23, 2011
Source: WWD

Stocks Fall. Optimism Stands Tall Click to Open PDF Article
Surprise, stock analysts have a rosier outlook of the future than economists and the recent data would suggest.
Posted: Monday June 27, 2011
Source: WSJ

Apple Upsets the Department-Store Cart Click to Open PDF Article
Given the traffic generated by their stores, AAPL should be enjoying major rent concessions. Are they?
Posted: Posted: Monday, June 13, 2011
Source: WSJ

Penney Picks Boss From Apple Click to Open PDF Article
Steve Jobs made Mr. Johnson’s job at AAPL easy. Let’s see how his experience at AAPL translates to industry laggard JCP.
Posted: Wednesday, June 15, 2011
Source: WSJ

Secrets From Apple’s Genius Bar: Full Loyalty, No Negativity Click to Open PDF Article
Super interesting article. But, it’s worth noting that “some former employees say they have already seen the quality of Apple retail staff decline.”
Posted: Wednesday, June 15, 2011
Source: WSJ

American Retailers Try Again in Europe Click to Open PDF Article
Given the success of European retailers in the U.S., it’s a wonder that it took so long for North American retailers to realize that opening in Class A locations overseas was a winning strategy.
Posted: Thursday, June 16, 2011
Source: New York Times

Matthew Rubel Exits Collective Brands Click to Open PDF Article
A disappointing era comes to an end. Footwear has been on fire everywhere over the past few years… except at PSS.
Posted: Thursday, June 16, 2011
Source: WWD

Reminder: We like to look at the Commerce Department data on a comp basis (year-over-year change). Hey, it’s government data, so caveat emptor. This month’s report delayed due to an annual revision of the data. See Full Report Here

Big picture, our favorite measure of “what’s happening at the mall” (excludes Motor Vehicles, Gasoline, and Building Materials) suggests a +6.3% year-over-year sales improvement in May 2011. This represents an acceleration versus the adjusted +6.1% growth in April 2011.
The most compelling category specific storylines in May 2011 were:

Big ticket categories are struggling the most. Furniture & Home Furnishing Stores, Electronics & Appliance Stores, and Motor Vehicle & Parts Dealers each reported decelerating year-over-year growth rates versus the prior month in both April 2011 and May 2011.

Almost all other categories reported an accelerated year-over-year growth rate in May 2011 versus April 2011.

After a relatively impressive March 2011, Electronics & Appliance Stores reported a material top-line deceleration in April 2011 versus March 2011. Sales in May 2011 declined -0.3% versus LY.

Food Service & Drinking Places delivered robust +5.3% year-over-year growth in May 2011. The category has now delivered +4.0% year-over-year growth or greater in 9 consecutive months.
Building Material & Garden Equip Supplies Dealers saw their sales rebound in May 2011 versus the prior year following a decline in April 2011.

Monthly “Big Picture – what’s happening at the mall” year-over-year results for the trailing 12 months:

June 2010 July 2010 August 2010 September 2010 October 2010 November 2010 December 2010 January 2011 February 2011 March 2011 April 2011 May 2011

+4.5% (-0.3% 2-year) +4.2% (-0.7% 2-year) +4.8% (+1.2% 2-year) +4.8% (+3.3% 2-year) +5.0% (+4.7% 2-year) +5.8% (+6.2% 2-year) +4.9% (+7.7% 2-year) +5.2% (+7.5% 2-year) +5.2% (+8.5% 2-year) +5.3% (+10.4% 2-year) +6.1% (+10.6% 2-year) +6.3% (+10.5% 2-year)

Wal-Mart’s Mea Culpa on Apparel Click to Open PDF Article
This is probably the last investor meeting that Mike Duke and Bill Simon will host at WMT.
Posted: Posted: Monday, June 6, 2011
Source: WWD

Organized Retail Crime on the Rise Click to Open PDF Article
Apparently, getting the merchandise from the DC to the store is more difficult today.
Posted: Wednesday, June 8, 2011
Source: WWD

Gap Bringing Global Approach to U.S. Click to Open PDF Article
Mr. Murphy AGAIN suggests that the product will improve in the near future. This time, it’s because stores/product will begin to emulate the core chain’s stores overseas. Do you believe him this time? Not us.
Posted: Thursday, June 9, 2011
Source: WWD

Real Estate Firms Focus on Quality Sites Click to Open PDF Article
Demand for Class A space continues to increase while demand for sub-Class A wanes. In our view, this will continue as specialty retailers continue to close non-Class A locations in a new retail environment that includes the Internet.
Posted: Thursday, June 9, 2011
Source: WWD

Target’s Gregg Steinhafel Grilled at Annual Meeting Click to Open PDF Article
Did Mr. Steinhafel really want questions about the business? RedCards and PFresh roll-outs have been a disappointment.
Posted: Thursday, June 9, 2011
Source: WWD

Talbots (TLB – $2.53) reported another in a string of disappointing earnings results this week. Nothing new here. Over a year ago, we suggested that we thought TLB’s BPW acquisition was a disaster waiting to happen.

But, the company’s quarterly earnings conference call this week provided yet another example of the company addressing relatively short-term concerns and ignoring a bigger issue… the company’s bloated average store size.

First, let’s take a look at a few of CEO Trudy Sullivan’s ridiculous comments from this week’s conference call:

Apparently, Ms. Sullivan may not have actually looked at the financial results for Q1 2011 and the company’s guidance for Q2 2011. These sort of Mr. Magoo-like comments from her just make you scratch your head.

As if that was not enough spin doctoring above, Ms. Sullivan finally suggested on the conference call that, “I feel very, very optimistic about the corrections we have made to the product as we ramp into the back half.”

Therein lies the problem. Ms. Sullivan and TLB have a long track record of promising improved performance in the future. Yet, it never seems to appear.

The stock price today is a far cry from the $13.00+ per share level that was seen just prior to the acquisition of BPW (a SPAC) over a year ago. How this management team remains employed is beyond us.

In our view, the unveiling of a Three-Year Strategic Plan (October 2010) was nothing more than an attempt to “buy time” to stay employed for the next 12-24 months before investors recognized that the emperor had no clothes (literally). How Ms. Sullivan remains employed today is beyond us.

So, when Ms. Sullivan is finally shown the door, how can TLB be salvaged?

The elephant in the room is the company’s bloated store size. There is a reason that CHS has historically delivered much stronger levels of profitability than TLB and CWTR (good grief, another CEO that needs to exit stage left). CHS has an average store size that is less than half the size of TLB/CWTR.

The fact is that TLB’s store size (7,000+ square feet) worked well 10-15 years ago when there was less competition.

TLB management needs to think bigger than simply fixing the knit/sweater categories (apparently, the only problem today according to TLB management). Closing stores is a step in the right direction, but right-sizing the core chain’s square footage is a strategic thought process that is being missed by the current management team.

Why is TLB management not addressing the most important issue facing the core chain today (square footage rationalization)? Unfortunately, TLB management is trying to fix a “new age” problem with “old school” thinking.

Clearly, TLB management believes that a tweak to the product will turn things around (i.e. old school). But, the company will need to think bigger and address its real estate conundrum if the company wants to remain a viable entity in the years ahead. Otherwise, Ms. Sullivan’s “small” thinking is likely to produce a “big” flirtation with Chapter 11.

In fairness, Ms. Sullivan is faced with a dilemma that many CEOs in retail are grappling with today. Most retail CEOs are trying to continue selling a growth story to investors. But, many of these CEOs are putting the long-term viability of their companies in jeopardy by not addressing the “bigger” issues of the day.

Certainly, it’s less ‘sexy’ to tell the investment community that you’re embarking on a program to lower your average store size and rationalizing square footage by -25%. But, in the Internet age, many of these chains should be more focused on their web site and less focused on maintaining a chain’s historical box size.

Ms. Sullivan’s seeming desire to consistently satisfy the short-term investment community (quarterly spin doctoring) is getting in the way of addressing a longer-term problem for the core chain. If she (or, the next CEO) does not start to address what really ails the company (bloated square footage), she’ll continue to put the future of the company in jeopardy.