Unstructured Finance

New way to invest in Wal-Mart behind the scenes

Wal-Mart’s sales are closely watched by Wall Street and considered a bellwether for the retail industry and the health of the overall economy. Now, the International Securities Exchange and Revere Data are trying to bring Wal-Mart’s suppliers to the forefront of investors’ minds.

Several consumer products companies – such as private-label drink maker Cott Corp. and toy maker Hasbro – derive a good chunk of their sales from Wal-Mart. Now, a new index tracks the performance of 30 companies that get 16 percent or more of their sales from the retail giant. The company with the biggest exposure in the list is Handleman Co., a distributor of CDs and movies to stores, which gets 74 percent of its revenue from Wal-Mart.

Reuters subscribers can check out the index by opening a quote screen and entering .WMX. That symbol can also be entered on the investing page of Reuters.com in the section labled Stocks & Mutal Funds. 

These are the ten companies with the greatest revenue exposure to Wal-Mart in the ISE-Revere Wal-Mart Supplier Index: Company   Ticker symbol  % of revenue from Wal-Mart  Handleman Company HDL 74.0 Cott Corporation ( USA) COT 40.0 Chattem Inc. CHTT 34.0 CNS, Inc. CNXS 31.0 Cal-Maine Foods, Inc. CALM 30.9 Del Monte Foods Co. DLM 29.0 Playtex Products, Inc. PYX 28.0 LeapFrog Enterprises Inc. LF 28.0 Iconix Brand Group Inc. ICON 27.7 The Clorox Company CLX 27.0

Bain looks at what teens want

(Guest bloggers Darrell Rigby, head of global retail, and Kris Miller, head of North American retail, at consulting firm Bain & Co., weigh in on how teen’s shop.)

Teens and young adults account for nearly 51 million US holiday shoppers. Bain recently conducted panel research with Communispace to understand how this segment shops during the holidays. Panel participants (aged 16 to 24) expected to spend almost 18% of their money on apparel and almost 16% on electronics.

We also found that teens plan to spend about a third of their holiday funds onlinefive times more than the average 6% to 7% for the general population. Even with most of their holiday shopping in stores, over 90% of teens research products online at least occasionally, with more than a third saying they do so for most of their purchases. In other words, teens are quite comfortable with multichannel shopping.

Best Buy’s Anderson talks about the retailer’s third-quarter

Best Buy on Tuesday reported weaker than expected third-quarter profit, as competitors slashed prices on flat-panel televisions and its profit margins got squeezed. In an telephone interview, Best Buy CEO Brad Anderson discusses what happened in the quarter. Below is an edited transcript of the interview:
Reuters: It seemed like here was a lot of price competition in the 40-42 inch size (flat-panel television). Can you talk a little bit more about the larger size TVs, and is there an opportunity there for you to protect margins in those larger televisions?
Anderson: Customers are buying larger and larger screen sizes, but prices have come down about 30 percent on plasma TVs for instance, so we’re expecting the kind of pricing and margin pressure. The biggest thing we had happen in the last quarter is that the Thanksgiving weekend was more promotional than we expected…well actually …not so much more than we expected, but what people bought were at even lower margins than what we had anticipated. But overall it’s a very competitive business. It’s going to continue to get more competitive as a higher and higher percentage of the population is buying flat panel and larger screen size.
Reuters: Best Buy is focusing a lot on service with its Magnolia home theater installers, the Geek Squad. Does it look like it has come to the point where maybe customers don’t want services? They just want a good price on a TV and they’re willing to load it in a car and get it home and set it up on their own?
Anderson: No, our install business was up triple digits, so we had huge demand for install. Geek Squad was up very high double digits — so both are growing very rapidly.

Reuters: On the conference call with analysts there was talk that people want more service the larger the screen is? 
Anderson: If you and I went off and bought a 25-inch flat panel, that’s relatively easy to hook up. …But if you get to a bigger screen size, now transporting it is a problem. They’re very delicate. They’re also relatively heavy. And now you start putting other devices — Instead of maybe just a cable or satellite box connected up, you are now putting a whole range of things from computers to high-definition DVD players, etc, — All of which makes it much more complex to put together. So we look at the screen size as being the big variable as to whether people want service.
Reuters: Do you think that services will change as prices come down on larger screen sizes, and more people are able to buy them?
Anderson: No, because you’ve got all of the same kinds of issues. …So far, our experience has been that it’s completely related to screen size. Larger screen sizes are getting a lot less expensive, and that’s part of the reason we’ll see so much growth in install and service. 
Reuters: What really drove that tremendous price competition Thanksgiving weekend? Is it discounters coming in and trying to grab share from specialty retailers?
Anderson: No. First of all, Thanksgiving weekend has continually gotten more aggressive over the last numbers of years in our business. And customers continue to get sharper in terms of finding the very best value. …So everybody sort of chases that weekend, and the pricing offers will continue to get more aggressive. 
Reuters: Were you surprised at how steep they went this year in terms of those pricing offers?
Anderson: Yes, it was steeper discounting than we expected.
Reuters: Will this change your plans as you go into either this December holiday season or next year’s Black Friday weekend?
Anderson: No. I’m sure we’ll be as aggressive next year as we were this year. We’ll adjust our expectations based on what we’ve seen from the consumer. I don’t see it changing our plans. ….We think that overall, our results are very good and we’re very optimistic about the year as a whole. Next year we might adjust what we would expect to see happen, but I don’t think we’ll change our strategy.
Reuters: Can you talk a little bit about video gaming? We had Nintendo’s Wii and Sony’s PlayStation 3 come out right before Thanksgiving. How is this year compared to last year when we had the Xbox 360 just hitting the market?
Anderson: Xbox has done really well and we’ve got it in stock. So that’s been a real strong leading indicator for us. Obviously, for both the Wii and PlayStation 3, everybody is selling the items as soon as they can possibly get them. Those are things that deteriorate margins for us because the (video game consoles) are sold with very little margin. But longer term it’s good because there’s more margin for us as we get into selling not the game set, but the games that are played on it. So we’re excited about seeing so many units being sold into the market
Reuters: Were you happy with the allocation you got? Everyone wants more than they do get, but do you feel you got a fair allocation?
Anderson: If Sony’s reading this, no. (He laughs) Overall we feel like we’ve been treated fairly by Sony and Nintendo.
Reuters: Do you get push back from customers when they see a hot product like a PS3 in such short supply?
Anderson: Yes
Reuters: How do you deal with those customers?
Anderson: We try to be very, very clear. Like when we had all of those people standing in line, we tried to let them know which ones were likely to be getting one (a PS3). We’ve tried to be as upfront as possible about the limitation of supply. But you’re stuck with not being able to promise solutions to customers, because we can’t get anything close to the demand.
Reuters: Is iPod demand cooling at all this year?
Anderson: No. iPod has had explosive growth. We’re not expecting the same kind of explosive growth we saw in the last few years. But we’re expecting a very strong iPod season.
Reuters: Any surprise products that have emerged as hot this year?
Anderson: I think the biggest surprise we’re having is how strong notebook sales are. As notebooks continue to get more capable and come down in price, we’re seeing much more demand I think than we thought.

The waiting is the hardest part

waiting.jpg   After all the fanfare that accompanied the post-Thanksgiving holiday sales kick off, the retail industry has now settled into another annual tradition, the waiting game. 
    In this game of chicken, consumers wait to see how much retailers discount goods to get them in the stores while retailers hope consumers are spurred to action by concerns that the item they want may be sold out before they come to buy it.
    “Because Christmas falls on a Monday this year, shoppers may be postponing purchases for a final-weekend spree,” Bain & Co. consultants wrote in their latest holiday spending newsletter.
     Morgan Stanley analysts said in a report on Monday that its holiday shopping survey, which was conducted in late November, predicts a stronger holiday season than November sales indicated.
    But industry consultant Britt Beemer on Sunday cut his expectations for same store sales to a 2.7 percent increase this holiday season from a 3.1 percent increase. The move marked only the fourth time in 20 years that Beemer, chairman and founder of America’s Research Group, has changed his forecast during the holiday season.
    In an exclusive survey for Reuters, America’s Research Group also found that almost 40 percent of people said if they do not see 50 percent off promotions this season they will buy fewer gifts, buy less expensive ones, or buy gift cards instead.
    What do you think? Are you waiting for big discounts before you shop? And how big do the discounts have to be?   

Ex-Wal-Mart marketer speaks

Wal-Mart this week dumped advertising agency Draft FCB from its $580 million account and started searching for a replacement, unravelling the work of its former senior vice president of marketing Julie Roehm.

Roehm, who parted ways with the world’s biggest retailer under a cloud of controversy this week, sat down for a telephone interview with Reuters. Here’s what she said about Wal-Mart, DraftFCB, a suspect dinner at New York hotspot Nobu and allegations of an inappropriate relationship with a subordinate.

Below is an edited transcript of the interview:

Reuters: Could you comment on the dinner with DraftFCB at Nobu?
Roehm: In the process of any agency review it’s important to get to know the people that you are hiring, because at the end of the day you are hiring people who provide a service not a product or a widget. That requires that you get to know them, how they think strategically, who they are as people, because it’s part of negotiations. You want to make sure you are not only hiring the agency, but specifically, the people who are going to serve your business. In many instances, we certainly did have dinners with all of the agencies involved and obviously this was an example of it. Actually, in this case I don’t believe it was a dinner, I think it was just a gathering and there were hors d’oeuvres served. That said, it’s not uncommon or out of character to do those kinds of things with agency partners or even potentially agency bounds. 
Reuters: Did you feel this overstepped Wal-Mart’s strict guidelines?
Roehm: They are very strict, there’s no question. Our assumption is that in large gatherings, such as something like that where obviously there are things like hors d’oeuvres and there are not specific bills handed out, our discussions with our agency partners were to bill us back. So my assumption was that that was what was occurring in that instance. In terms of drinks of any sort, which I know was reported in Business Week, I bought my own drinks personally and we do have records to verify that. 
Reuters: Did Wal-Mart bring up this dinner when you and Wal-Mart parted company?
Roehm: They did not. None of it was ever brought up. Nothing of anything that has been reported was ever brought up. 
Reuters: Do you know if they have talked to Draft about this?
Roehm: I do not know. 
Reuters: What reasons were given when you parted ways? 
Roehm: From a legal perspective I can’t speak on it. 
Reuters: Were you fired or did you resign? 
Roehm: Right now we’ve agreed to separate ways 
Reuters: So somewhere in-between those?
Roehm: That’s right. 
Reuters: Did Wal-Mart investigate you? Do you know where the reports are coming from? 
Roehm:  I don’t know where… obviously there are a lot of people who are in town and with the company so I’m sure you can find people to say just about anything. In terms of what was reported: Yes, I did attend an event at Nobu; Yes, I did sit in Howard’s (Howard Draft, DraftFCB CEO) Aston Martin. In terms of all the other components, I think those are the only things that are really being talked about. 
Reuters: There have been questions about a relationship with a subordinate. 
Roehm: No. Well, certainly I have relationships with all my subordinates, but in terms of an inappropriate relationship? Completely untrue.

Bright lights, big bill?

     Planning on stringing up zillions of flashing lights on your house to outshine your neighbor this year? Well Commonwealth Edison has a step-by-step guide to help you figure out how much that friendly competition will cost you: 
    Tips for calculating added energy costs:
    1. Determine how many bulbs are on your strands of decorative indoor and outdoor lights. For example:  1,000 total bulbs.
    2. Check the wattage per bulb – one watt per bulb is common.  For example:  1 watt.
    3. Multiply watts per bulb by number of bulbs. For example: 1 x 1,000 = 1,000
    4. Convert to kilowatts (kW) – 1,000 watts equals 1 kilowatt.  For example: 1 kW 
    5. Estimate the number of hours in a month the lights are on.  For example: 5 hours per day x 30 days = 150 hours
    6. Multiply the total kilowatts by the total number of hours the lights will be on to get the total kilowatt-hours (kWh).  For example: 1 kW x 150 hours = 150 kWh
     7. Multiply the total kilowatt-hours by the total cost of electricity.
     And voila — there’s your bill. For typical ComEd customers, the total cost of energy supply, transmission and distribution of their electricity will be 8.6 cents per kilowatt-hour through the end of the year.  For example, 150 kWh x .086 = $12.90. 
     So, will you still be putting up as many lights are you planned….or maybe adding a few more? 

Happy electronic Christmas

Looks like you can’t go wrong with electronics this holiday. The top 10 products searched for on Yahoo Shopping on Cyber Monday were all tech items – mainly video game related:frame.jpg
1. Nintendo Wii
2. Playstation 3
3. iPod
4. xBox 360
5. Sony PSP
6. GPS
7. Nintendo ds
8. iPod Nano
9. digital camera
10. digital picture frame 
And now that cameras have gone digital, so too are picture frames. During the week 11/19-11/25, searches on Yahoo! Shopping for digital picture frames increased 239 percent week over week.