Unstructured Finance

Now Wal-Mart is calling the Super Bowl winner too?

Wal-Mart has conquered the retail, toy and grocery segments of the U.S. market. Now the world’s largest company thinks it can accurately predict the winner of the Super Bowl too.

The retailer said higher sales at its stores of T-shirts of the big game’s participating teams has successfully predicted the outcome in three of the last four years. Sorry, Philadelphia Eagles fans, but your support was not enough to overcome quarterback Tom Brady and the New England Patriots in 2005.

Fans of the Chicago Bears (pictured right buying team merchandise after Chicago won the NFC championship game), who will play the Indianapolis Colts in Super Bowl XLI in Miami on Feb. 4, can take hope. Wal-Mart said in the early going, Bears’ T-shirts hold a slight edge as of Jan. 26.

Oddsmakers are ignoring such history, however, having established the Colts as the favorite by about a touchdown.

Wal-Mart may be hedging its bets as it also pointed out that Colts fans have bought more DVDs about their team’s history. And the store in Rensselaer, Indiana — the halfway point between Chicago and Indianapolis — is selling merchandise for both teams.

Coach’s Frankfort talks about holiday season, consumers

frankfort.jpgCoach Inc. on Tuesday reported better-than-expected second-quarter profit, as more people visited Coach stores and more of those visitors snapped up the retailer’s full-priced handbags.

In a telephone interview, Coach Chief Executive Lew Frankfort discusses what happened during the quarter and holiday season, as well as his views on the American consumer. Below is an edited transcript of the interview: 
 
Reuters: Quarterly sales and earnings exceeded your, and Wall Street’s, expectations. How would you describe the quarter and what stood out? 
     
Frankfort: What particularly stands out is the 21-percent same-store-sales growth we achieved in our full-price retail stores. When we break that apart and analyze where that growth came from, we’re particularly pleased because it came from a substantial increase in traffic, conversion and a more modest increase in average ticket. So, (it was) the combination of more people visiting us, buying more frequently, and at a modestly higher ticket.

A second standout was the surge in new customers. When we analyzed where they are coming from what we find is that one-third are coming from other brands that are accessible luxury. A second third are trading up from the more moderate segment, with the remaining third trading down.   
    
Reuters: In the press release you said you are recognizing a larger market opportunity in terms of addressable market size and market share. Can you elaborate? 
   
Frankfort: When we look at new consumers coming into the franchise, one-third of them are trading up from the more moderate segment where historically they have bought bags at lower (price) levels than Coach. When we include this segment, it brings the total addressable market to north of $7 billion. Coach has only about 20 percent of that market. Previously, we had defined our market more narrowly, to only include those consumers who spent historically at our level. That market was about $5 billion to $5.5 billion, so (including the moderate segment) increased the addressable market by 25 to 30 percent … and decreased our market share from 26 percent to under 20 percent. 
    
Reuters: As you expand your range of offerings to include higher-end and more value-priced items, how do you prevent the dilution of your brand’s cachet?
    
Frankfort: We have always targeted the top 20 percent of U.S. households and we attract an additional 20 percent below the top 20 percent. One of the reasons we introduced Legacy and some of the other higher-end products was so we could do a more effective job in marketing to the top tier of our customers who already shop Coach. Many consumers who are in the top 1 percent to 3 percent in income (already) buy Coach. But they might, for example, buy a Coach accessory, which they might put in their European luxury handbag. These consumers are already customers of Coach and they demonstrated their interest in Coach being a larger share of their accessory wardrobe. 
    
The second thing I might mention is that in America we live in a very egalitarian society where consumers are accustomed to shopping high and low. Consumers are looking for innovation and relevance and perceived value. Americans are not snobbish. We have not felt any snobbery whatsoever from any segment of our target consumer base. Americans don’t have the inherent bias toward luxury that so many people in other cultures have. 
 
Reuters: How did this past holiday season compare to your expectations? 
 
Frankfort: We went into holiday bullish because we had a very strong fall season. What we find is that the best predictor of future behavior is our most recent experience, and we had a very strong fall season with rising traffic and increasing conversion. It bode very well for the holiday season. We built our inventories higher than we otherwise would have, anticipating that the momentum we had experienced in the fall season would continue through holiday, which it has done.
 
Reuters: What is your outlook for consumer confidence and spending, both with respect to Coach and the economy in general? 
    
Frankfort: At the middle and higher ends, consumers continue to be confident. We believe that spending will be strong. However, consumers are increasingly discerning and judicious. They will pick their shops. They’re looking for products and services that are relevant to their lifestyles.

U.S. consumers put reins on big-ticket spending

U.S. consumer spending on big-ticket electronics like flat-screen televisions was the headline trend during the past holiday shopping season, but a new survey shows a larger number of consumers just said “no” to high-priced items.

A total of 19.4 percent of those surveyed by America’s Research group said they put on hold purchases of $500 or more.
tree1.jpgThat’s up from 16.2 percent in December 2005 and 12.5 percent in December 2004.
The biggest reason for the frugality? Almost 45 percent said they “don’t want to spend the money,” compared with 36.4 percent a year earlier.
“The consumer has a much higher mind-set to buy only what they need, versus what they want,” Britt Beemer, founder and chief executive of America’s Research Group, told Reuters.

That trend could bode poorly for the home improvement industry in coming months, he said.

Retailers have their priorities

Increasing sales, differentiating product assortments, retaining customers and cutting costs are the top priorities for retail executives in 2007, according to the Retail Horizons study, which was developed by the NRF Foundation and Wells Fargo Retail Finance and discussed at the National Retail Federation’s annual conference in New York.

Growth — About 59 percent of merchandising executives said driving same-store sales increases was a key focus, while 68 percent said increasing market share was a key initiative. Nearly three-quarters of online executives said increasing online sales was a top focus.

Differentiation — Differentiation of product offerings is the second most important strategy and challenge for 2007, according to the survey, which found that 18 percent of merchandising executives said they will focus on implementing an assortment-planning process this year.

Taking a Bite Out of Organized Retail Crime

vic1.jpg    Once upon a time, people started stealing Victoria’s Secret underwear and began selling them on eBay. Then the store’s parent company, Limited Brands, fought back with Operation Pink, marking merchandise with UV ink, and catching the culprits who stole and resold them on eBay. The operation was a success.
    But there is no happily ever after for the lingerie chain or for any other retailer hit by organized retail crime, at least not in the near future.
    What once used to be individual crime in unique geographical areas has now exploded onto the retail scene as a significant problem, Limited says.
    The new breed of thieves is organized, with specific roles for each member, and operates on a national level.
    “These groups operate more like a terrorist cell,” said John Talamo, Vice President of Limited Brands’ loss prevention division. “So if we apprehend a group and its leaders, it doesn’t affect or disrupt the operations of other groups.”
    Speaking at the National Retail Federation’s annual expo in New York, Talamo said what used to be petty theft once has now become organized crime, and needs to be handled by professionals. 
    He said Limited has taken matters into its hands, by forming a separate team within its loss prevention division that works with the legal and legislative arms of the government to fight organized retail crime.
    In addition, the NRF’s Retail Loss Prevention Intelligence Network is bringing together companies affected by retail crime by building a national database of incidents of theft at retail stores. 
    The NRF expects the database to help law enforcement agencies and companies to nab thieves. It also hopes to create a geographical map of the network in the future, allowing users to zoom into specific areas and check crime statistics and security measures that stores use in the area before setting up shop.
    So, can Gap and Express expect retail crime to be a thing of the past soon? It looks like moderate victory now, but only time can tell for sure.

Bain looks at gift cards and January sales

(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 how gift cards are spurring more January sales)

January has emerged as a powerhouse sales month. In fact, January sales have grown to nearly 25% of total sales in the NovemberJanuary sales period. From 1995 to 2005, $10 billion in sales have shifted into January from November and December. We expect this trend to continue in January 2007, especially with the increased impact of gift cards–nearly 40% of gift cards are redeemed in January.

Gift cards are more prevalent than ever before. A recent Consumer Reports survey indicated that gift cards would be the second most popular gift after clothing this holiday season. The National Retail Federation predicted that consumers will purchase a total of $24.8 billion in gift cards this seasona $6.3 billion increase over 2005. The average consumer is expected to spend $117 on gift cards, compared to $88 last year.

Growth in electronics loses some juice

televisions.jpg    Electronics like flat-panel TVs may have helped drive increases in sales for U.S. retailers this holiday season. But price cuts slowed the pace of the sales gain, according to a report released Tuesday by consumer and retail information company NPD Group.
    Retail sales of consumer electronics like televisions, MP3 players and computers totaled $8.75 billion from the week of Thanksgiving through the week ended Dec. 23, according to the NPD Group
    While that marked a 6.5 percent increase from 2005, that was less than the 10 percent increase posted in the same period between 2005 and 2004.
    NPD said price cuts on flat-panel TVs slowed the pace of growth, as did the the fact that Christmas Eve fell on a Sunday this year — eliminating that final day from the reporting period.
    Electronics were among the most heavily advertised items this year, with retail industry leader Wal-Mart Stores Inc. promoting lower prices. But investors are now watching to see what the lower prices meant in terms profits for retailers. They hope to learn more when retailers report December sales this week.

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