US retail sales were up 0.8% in November vs. an expected 0.3% increase, a good sign for the economy in Q4 provided that a vast majority of those sales don't end up getting returned immediately after the holidays. The link has an interesting chart. It doesn't appear, however, that European retailers like Hennes & Mauritz AB (H&M) can revel in the news. The company - previously blamed for the decline of fashion retail in the US due to its fast trend-based innovation and production - reported dogsh*t numbers earlier this week. Notably, "[t]he H&M brand’s online sales and sales of the group’s other brands continued to develop well. Meanwhile, the quarter was weak for the H&M brand’s physical stores, which were negatively affected by a continued challenging market situation with reduced footfall to stores due to the ongoing shift in the industry." The company may be forced to slow expansion plans and close stores. 90 is the number currently floated. We expect there to be more.
Bon-Ton Bankruptcy Coming to a Mall Near You Around January 15 2018
Bon-Ton Department Stores Inc. ($BONT) filed a notice with the SEC indicating that it is using its 30-day grace period to delay making a $14mm interest payment. It had gotten a small reprieve in December to bridge it through the holidays as vendors were clamoring for more friendly terms. Presumably, factorers were tightening terms as well. It seems like that the company will file for bankruptcy on or around January 15.
Activist Investing: A deep dive into what has made Elliott Management successful.
Casinos & Gambling: The Supreme Court is considering arguments that will dictate the future of sports betting at casinos and racetracks around the country - a potential lifeline to an industry that has been plodding along. New Jersey is getting ready for some positive nows.
Guns (Long Irony): Donald Trump hasn't threatened the gun industry enough. Without the fear of increased regulation (which, of course, is mind-boggling after Las Vegas, but we digress), gunmakers are heavily discounting product and their stock is going in the sh*tter. American Outdoor Brands Corp. ($AOBC) and Sturm Ruger & Co. ($RGR) both saw stock declines this week on the news of slashed profit targets.
Healthcare: A running tally of all of the bankruptcies in 2017. The performance improvement consultants must also be at high capacity. Scripps Health, for instance, announced $30mm in cost cutting this week. And community health centers are apparently suffocating without federal funding from Congress.
Professional Fees: Caesars Entertainment Operating Co. is primed to pay $160mm in legal fees. Importantly, this number does not include the fee totals paid to financial advisors, investment bankers and the company's claims agent. Apples to grenades, we admit, but considering the fees seen in bankruptcy, Robert Mueller's $6.7mm nut over five months of investigation seems pretty lean and efficient to us. Just saying.
Retail (The Rise of Clicks to Bricks): Everlane is the latest digitally-native vertical brand that is embracing physical locations. Relating to the company's CEO, "He started the company understanding stores as albatrosses on the bottom line; now, he sees the value in them as temples to the brand." Meanwhile, FAO Schwarz is attempting yet another brick-and-mortar comeback in NYC.
Some predictions for 2018. Some retail startups to watch. Luxury "e-tail" is where its at. And luxury brands got a boost by a new ruling in Europe's top court, which ruled in favorof cosmetic maker Coty's efforts to prevent the sale of its products on third-party sites like Amazon or Ebay. Retail, it seems, is finally starting to learn to throw some elbows.
We've been concerned about New York City since we started and it finally seems like others are coming around to realize how much this retail situation is affecting things. "One by one, cherished local shops are disappearing, replaced by national chains or, worse, nothing at all." Welcome to the party pal. And so the New York Times proposes some solutions, including a "vacancy tax." Good luck with that.
Yup, You Read That Right
Last week we riffed on the need for a biglaw pop-up retail location which, if we do say so ourselves, is brilliant. But things are getting next level: Pornhub, "the premiere online destination for adult entertainment" is opening its first brick-and-mortar pop-up which is sure to get consumers excited enough to...uh, pop-up? (Yes, we hate ourselves for that). Anyway, the company opened locations in NYC and Paris on "Black Friday" in its first robust effort to expand into the retail vertical. And, naturally, they're offering an "experience" at their locations: there'll be a bed inside where people are invited to sit, interact with the camera and livestream! What could go wrong? (Uh, intentional and intentional indecent exposure, harassment, bed bugs, we could go on and on...).
Think Outside the Box, We Say
We can't seem to get over our own obsession with private equity/biglaw/bank recruiting; we've written about it here, here and here. Why? Mostly because its stupid-absurd which, in turn, makes it funny. But after reading about the rise of corporate pop-ups here, we came up with what we think is a genius way to jumpstart business development and recruiting efforts in one fell swoop: a biglaw pop-up store. Stick with us here: picture a mall with next-wave bankruptcy candidates like Charming Charlie, Nine West, Bon-Ton Stores ($BONT), Sears Corporation ($SHLD), Destination XL ($DXLG), Destination Maternity ($DEST), etc. (collectively, the "Effed Retailers"). Picture, also, within close proximity, a corporate pop-up for, say, Law Firm AB&C LLP featuring all kinds of fancy screens rolling clips of how bada$$ and extreme its attorneys are while arguing (or singing) in court on behalf of retail clients. Imagine the product placement opportunities for the likes of Payless Shoesource, rue21 Inc., Gymboree, and True Religion (the "Successfully Reorganized Retailers"). "Stop by the AB&C LLP popup for awesome limited edition kicks and 'lit' specialty women's apparel," they'll say. In the opposite corner there can be a skull-and-crossbones banner hovering over an ominous display of retail carnage, e.g., hhgregg, Gander Mountain, etc. - all of which were, conveniently, of course, represented by other firms. Like, literally, a pair of running kicks should be on fire and death metal ought to be playing on the loud speaker. Of course, the managers of the Effed Retailers will see this and, in a panicked frenzy, start dialing corporate HQ asking, "Who is our Restructuring counsel?" Oh, really? Fire them. We need to hire AB&C LLP stat!" Meanwhile the Successfully Reorganized Retailers will generate some revenue from the product placement which, of course, they'll want to pay back when they inevitably are no longer "successful" and need to file for Chapter 22. Cha Ching! Another retention. Don't forget the REITs: Simon Property Group ($SPG) can continue to boast about 97% occupancy rates thanks to AB&C LLP filing space. And, finally, think of the branding potential. Law students and future law students will walk by and say "Holy crap. I want to go work at THAT law firm, AB&C LLP." Massive cross-benefit for recruiting. Whichever of your firms deploys this strategy first can send royalties via Paypal to email@example.com.
Long Live Tony Soprano
So, apparently organized crime is a "new" threat to retail. Granted The Sopranos hasn't been on TV for years, but wethinks organized crime has always had a grand ol' time boosting valuable merchandise. Not entirely sure what's new about this. The masterplan that the Sun describes at the Apple Store in Towson hardly sounds like a sophisticated operation. But, what do we know? That said, we read the piece and we couldn't help but think about Walmart's ($WMT) employee delivery program. We mean, seriously, what could go wrong?
It's crazy how quickly oil and gas companies defaulted and, in turn, how quickly restructurings swept through the space. Now, default rates there are way down while retail is picking up some of the slack...
This is interesting. Upshot: retailers ought to move away from the traditional seasonal approach if they want to compete with millennials insatiable year-round appetite for experiences. (PETITION NOTE: of course, it's too late for a number of retailers: we suspect this year's holiday season is make-or-break for a number of retailers, e.g., Nine West, Charlotte Russe, 99 Cents Only Stores). And marketers are focused on the 26 year-old millennial who apparently barely know how to put on pants in the morning (firewall). Good luck, though: JP Morgan Chase, Citigroup, and Bank of America just reported numbers and noted higher credit card-related losses in the last quarter. Each is increasing reserves against losses. Spending was up last month in auto, retail and restaurants, by the way. Query whether that spending will translate into future credit card losses and reserves.
We love this. Take conventional retail, sprinkle on a bit of ice-induced shrinkage and slap an "experiential" label on it and BOOM!, you've got yourself an (allegedly) juiced-up revenue-producing retail experience. Or not. Points for experimentation and creativity, though.
Lets Debate Vernacular, Shall We?
Retail.AI (Short Vernacular). So, let's not call malls "malls" anymore. Let's call them "community hubs" or "community centers." We don't want to, uh, "'get lost in the vernacular.'" C'mon. This is a fulsome piece about the future of malls, featuring all kinds of fancy comments from mall operators about the future of brick-and-mortar retail. A QIB Global Real Estate professional notes, “Offering more than a simple consumer transaction, we are creating places that encourage people to dwell, drawing in the community and ensuring people will visit again and again. By curating a more integrated, experience-led offer that responds to a broad range of customer needs, we’re supporting an uplift in sales across all categories including fashion and apparel.” Anyone still awake? Can someone check to see if the Guinness Book of World Records' record for buzzword usage was broken? And, like that, poof! People go to malls again. Woohoo! A few things seem apparent to us from this piece: (i) the Westfield at the World Trade Center, as we've previously reported, is underperforming; (ii) the same-store-sales measurement is out-dated if mall operators envision nothing but food, gardens, and sale returns (until Amazon institutes a Shyp-like service where, so long as you are Prime member, you can have couriers pick up and package shipments for you); and (iii) everyone is losing faith in department stores. Of course, it's a bit easier to be optimistic as a REIT operator if/when you're able to leverage public financing to aid your modernization efforts. Serious question: how is that not a bailout of sorts?
H&M is Latest Brick-and-Mortar Retailer to Feel Pain
Before the "Amazon Effect" dominated the #retailapocalypse narrative, commentators liked to say that (predominantly European-based) fast-retailers like H&M, Zara, and Uniqlo were killing brick-and-mortar American retailers. They innovated faster, many said, keeping more to-date with fast-changing fashion changes. You know, like, athleisure pants that droop from the a$$ so you can look as moronic as Justin Bieber. What a model: recognize (cough, copy) a trend, develop it and ship within weeks. Rinse, wash and repeat. Curious, though, that H&M's numbers (continue to) look like dogsh*t, with profits down 20% YOY. The company has expanded its physical footprint dramatically - now up to 4100+ stores - and is only now realizing it needs to rapidly expand its e-commerce capability. Sound familiar?
Ah, Poor Headlines...
Bloomberg is getting a little lax here with this headline, "Filing 'Chapter 22' Becomes Enticing Option for Ailing Retailers." We get what they're TRYING to say here which is that restructuring retail right now is really tough. And that a number of retailers, e.g., Wet Seal, American Apparel, General Wireless & Eastern Outfitters, have filed for bankruptcy twice in a short time span. Get it? Chapter 11 + Chapter 11 = Chapter 22. So creative these restructuring folk. Anyway, we've highlighted this issue too (see "Rewind II" here). But to suggest that filing a 22 is "enticing" is a bit of a stretch, yeah? All four of those businesses are effectively gone now and a lot of investor money was lost along the way: not much "enticing" about any of that. But they make tons of money and we do a free newsletter so what the hell do we know? P.S. the article short-changed the industry-agnostic, cough, appeal, of a chapter 22: it neglected to mention Venoco LLC and the possibility of a few solid oil and gas 22s to come.
More = Busted Tech, Investment Banks & REITS
Biglaw. Summer Associate satisfaction surveys (firewall). In case anyone actually gives a sh*t.
Busted Tech. A view that recent IPOs will never make money. Meanwhile, Toys R Us is a harbinger of, you guessed it, BUSTED TECH.
Canadian Retail. Also looking increasingly ugly.
Cov Lite. We're old enough to remember when people said it was dead and would never come back. Memories are short AF.
Delaware. This article about retail bankruptcy cases avoiding filing in Delaware misses the mark widely. Like, way outside. Any DE practitioners want to opine - without attribution - on this?? Email us here.
Investment Banking. Jefferies can't trade for sh*t but advisory fees baby. Given these advisory fees, it looks like UBS wants to get back into the restructuring advisory game. Again. For, like, the 283th time.
J.Crew. Investors are pissed.
New York. Is it in danger of becoming Detroit?
Puerto Rico. The hits just keep on coming. Sad, really.
REIT Investments. This is an interesting piece about alternative investments by REITS. Simon Property Group ($SPG) looks particularly active.
Retail (Taxes). When you're industry is in secular decline, fight for scraps. Here, tax changes.
Experiential retail experiences only work if, at the end, a customer is compelled to buy. That’s not what happened with PIRCH. PIRCH attempted to be a platform that demonstrates the various brands it introduced to the consumer. But platforms only work if they take a cut of a transaction between a seller and an end user. Bottom line: PIRCH's failure is a cautionary tale for retailers who lose focus on sales in favor of experiences.
We admit it. There were a few folks on the team who used to do the whole vitamin thing. We were pumping iron, man-scaping, and trying everything and anything to "get shredded" like Brad Pitt in Fight Club. Now we just drink Soylent and Juicero.
No, we're not serious. About the Soylent part. And, CLEARLY, the Juicero part.
Anywho, the vitamin/nutrition space has gotten hammered and...hold on to your butts...another retailer is filing for bankruptcy. Enter Vitamin World which, per this Reuters report, may file bankruptcy as soon as this month to effectuate the closure of some of its 345 stores. Apparently, they've spent the better part of the last several months trying to negotiate themselves out of some onerous leases (query: who is their real estate advisor? Update: RCS Real Estate Advisors) and haven't been successful enough to thwart a bankruptcy filing. What's interesting about this is that Portrait Innovations filed for chapter 11 earlier this week for the same reason. Apparently landlords are convinced they can get better rent elsewhere. Maybe they think Square ($S) will be opening up more brick-and-mortar. But we digress.
Look, "the Amazon effect" is real and Vitamin World probably won't be the last vitamin/nutrition business to wear the dreaded Scarlet BK. Seriously, look at these 1-year charts: blood red everywhere...
This won't be the last distressed situation you hear about in the vitamin space.
Correction: it was brought to our attention that the original piece gave the impression that all the stores are closing. We have edited the above to indicate that the plan is to effectuate some closures.
We had previously warned that the pain trickling through the sporting goods retail space - combined with Nike's new efforts to go B2C via Amazon and otherwise - will hurt the Foot Lockers ($FL), Dick's Sporting Goods ($DKS), and Hibbett Sports ($HIBB) of the world. Well, we should have put our money where our mouth is: Hibbett Sports Inc. reported that it was going to miss its Q2 numbers BADLY with same store sales tumbling 10%. But, at least they've got a fancy new e-comm site up (with a lot of sale action going on).