Chico’s – if you can’t beat Amazon, join ’em

Chico’s – if you can’t beat Amazon, join ’em

We continue to hear about the retail apocolypse that is destroying brick & mortar retail. Each monthly Retail Sales report shows continued share gains by non-store retail sales, government speak for digital commerce, one of the core drivers of our Digital Lifestyle investing theme. Following the path blazed by Nike (NKE), Carter’s (CRI), Calvin Klein and even Sears (SHLD) – yes we said Sears – is selling Kenmore-branded appliances on Amazon in some markets, Chico’s FAS (CHS) is jumping on board.

For those unfamiliar with Chico’s it is a retailer of women’s “casual-to-dressy clothing, intimates, and complementary accessories” which sounds like something in the cross-hairs of Amazon’s own private label clothing effort. Some retailers like J.Jill (JILL) are looking to build their own digital commerce platform, but Chico’s move is less capital intensive and allows for it to leverage Amazon’s formidable logistis. Not a bad idea for a company whose top line appears to be stagnating.

 

Chico’s is the newest retailer to set up shop on Amazon. Beginning in mid-May, a select assortment of Chico’s brand merchandise will be available on Amazon. This includes the company’s core collections, Travelers, Zenergy athleisure, no-iron shirts, So Slimming pants and Chico’s jewelry.

All Chico’s merchandise will be eligible for free shipping through Amazon Prime. Chico’s FAS will maintain control of marketing, pricing and promotions for its products on Amazon.

Based on sales, additional Chico’s merchandise, such as White House | Black Market and Soma products, will likely be added in the future, according to the company.

Source: Chico’s partners with online giant

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

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HHGregg’s Connected Society Pivot to Appliances Hasn’t Paid Off, Will Shut 40% of Locations

HHGregg’s Connected Society Pivot to Appliances Hasn’t Paid Off, Will Shut 40% of Locations

Most tend to focus on the Connected Society headwind that is rippling through brick & mortar retail apparel companies like Macy’s and Kohl’s, but there are other retailers that are being hit. Consumer electronics retailers, like Best Buy and HHGregg, have seen their business raked over the Amazon coals and pivoted to appliances, an already competitive landscape with Lowe’s, Home Depot, Sears, Sears Hometown and Wal-Mart. While HHGregg attempted to bob and weave against the Connected Society headwind that is serving as Amazon’s tailwind, it jumped from the frying pan into the fire as it traded one competitive landscape for another.

Struggling appliance and electronics retailer HHGregg is planning to close 88 of its weakest stores as part of an effort to stay afloat.The Indianapolis-based company on Thursday announced it would shutter stores in 15 states and close three distribution centers.

The closings, which do not include any Indiana stores, will be completed by mid-April and result in about 1,500 layoffs. HHGregg has about 5,000 employees.

HHGregg’s decision to eliminate 40 percent of its stores is the latest move in an increasingly desperate attempt to right the company’s course. It comes just three days after the New York Stock Exchange delisted HHGregg for failing to meet the minimum listing requirement.

The company in recent months has tried to reinvent itself as a high-end appliance store. It’s the seventh-largest appliance retailer in the U.S. behind  according to the consumer electronics trade publication Twice.

Source: HHGregg closing 88 stores amid bankruptcy rumors

Consumers Spend More in December, But Ouch Those Revolving Debt Levels Sure Could Hurt

Consumers Spend More in December, But Ouch Those Revolving Debt Levels Sure Could Hurt

This morning the US Bureau of Economic Analysis published its take on Personal Income & Spending for December. We’re rather fond of this monthly report given the data contained within and the implications for several of our investment themes, including Cash-strapped Consumers as well as Affordable Luxury and the Rise & Fall of the Middle Class. 

So what did the December report show?

Personal Income rose 0.3 percent, far faster than in November, but still below the 0.4-0.5 percentage gains registered in September and October. We saw the same pattern with Disposable Income (which is a better barometer for discretionary spending), as one would expect to see during the holiday shopping laden month of December.

That’s as good a segue as any to remind our readers that holiday shopping during November and December came in stronger than the National Retail Federation had forecasted. The final tally was a year over year increase of 4.0 percent compared to the NRF’s 3.6 percent forecast.

Now you’re probably saying to yourself, “How can that be given all the bad news that we’ve been hearing from Macy’s (M), Target  (TGT), Kohl’s (KSS), Sears (SHLD) and other brick and mortar retailers?”

To be honest, we doubt the average person would have thrown in the “other brick and mortar retailers” part, but we know our readers are smarter than the average bear.

The answer to that question is that non-store sales, Commerce Department verbiage for e-tailers like Amazon (AMNZ), eBay (EBAY) and digital Direct to Consumer business like those found at Macy’s, Under Armour (UAA), Nike (NKE) and other retailers, rose 12.6 percent year over year to $122.9 billion. We certainly like those stats as they confirm several aspects of our Connected Society investing theme, but we would argue a more telling take on the data is that non-store sales accounted for 19 percent of holiday shopping in 2016, up from 17 percent the year before. Nearly one-in-five shopping dollars was spent through online or mobile shopping.

We’ll get a better sense of this shift, which we only see as accelerating, later this week when both United Parcel Service (UPS) and Amazon report their quarterly results for the December quarter. Team Tematica will also be listening to Direct to Consumer comments from Under Armour and other apparel and footwear companies as they too report quarterly results over the next few weeks.

Now let’s take a look at December Personal Spending – it rose 0.5 percent, a tick higher than was expected. Given the NRF data above, it was rather likely we were going to get a better print vs. expectations.

In combining both the income and spending data for the month, we get the savings rate, which fell to 5.4 percent, a five-month low. Compared to a few years ago, that savings level looks rather solid even though it’s well below the longer-term trend line. What we do find somewhat disconcerting, given the prospects for the Fed to boost interest rates up to three times this year after only doing so just two times in the last two years, is the amount of revolving consumer debt outstanding. As evidenced in the graph below, those levels have continued to climb steadily higher during 2015 and 2016.

Should interest rates move higher in 2017, the incremental interest expense could crimp consumer wallets, reducing their disposable income in the process. To us, that could mean less Affordable Luxury or even Guilty Pleasure spending as more become Cash-strapped Consumers.