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We'll dig our way out of that hole when we get into it. -- Jim Murdoch

Retail Industry Update
by Risa Kaplan (TMF Style)

SAN FRANCISCO, CA (June 5, 1997) -- May same-store retail spending rose a moderate 2.3% over the same period last year, according to data compiled by TeleCheck Services Inc., the world's largest check acceptance company. Although the pace of economic growth has slowed, consumer confidence is strong and unemployment rates remain low. Same-store sales received a boost from a calendar fluctuation, in which this May had one more Saturday than last, Telecheck's index is compiled on a calendar basis and is based on the total sales volume of check-writing consumers at a broad cross-section of retailers. Figures are not adjusted for inflation. Checks account for 37% of retail spending.

Specifically, the nation's retailers today posted mixed sales results for May, as cool weather dampened sales of such seasonal products as patio furniture and summer apparel, and many retailers faced tough comparisons with a strong performance last May. Most results, however, were about in line with expectations. Cincinnati-based Federated, which operates such chains as Bloomingdales, Macy's and Sterns, said unseasonably cool weather across much of the country hurt apparel sales.

CASH REGISTERS THAT GO CLINK IN THE NIGHT

" It is a quarter to three, nothings in the den 'cept my nightie and me Plug in the jack, I have a little shopping do to on my Mac I'm buying a chair, a big teddy bear, avoid the mall plight Hey charge it to my Visa and send it "air overnight ,"

Here I am, typical American consumer, who spends more time than she wants to admit to online. So I was thinking cybermalls, and retail, demand, and sales, and what issues are there for retailers who might benefit from this shopping in cyberspace.

At first blush, advantages seem apparent. Cyberstores never runs out of shelf space which is often a real complaint about traditional retail. These websites provide information, qualified and knowledgeable help. Sometimes it can be a definite contrast to conventional retail as in computer stores where the salesman may know less than your 15-year-old. Useful information is allowing shoppers to become informed consumers. Imagine, shopping with your kids, armed with information.

Perhaps the online method of shopping may hold the answer to recent industry studies that shocked the recent National Association of Recording Merchandisers (NARM) convention, showing consumer dissatisfaction with conventional retail systems. Open 24 hours a day, seven days a week, no holidays, no snow days, no parking lots, no food court or muzak. Lastly. imagine finding a record, a book, an antique for which you have been looking for years, or, better yet, discovering an item you had forgotten existed. These are all part of an online shopper's delight.

So who is and isn't shopping on the web? Women are now the fastest growing segment of Internet users. According to Nielsen Media Research, in March 1997 the proportion of women online increased significantly, to 42% from 34%. More than 44 million professional women in the United States, as well as the estimated 7.7 million women business owners, provide an upscale demographic and desirable target market for the web. Increasingly, it's women who are making the purchasing decision. In general, the home is the center of life for most Americans right now. The baby boomers who may have belonged to mail order record clubs as teenagers now order CD's and videotapes through the mail and play them at home on expensive state of the art equipment they may have also purchased by mail. Time is valuable and convenience reigns.

The segment of our population which is slow to come online and probably won't is our senior citizens. Even though they are a huge percentage of the American population, many don't want the technology, or can't afford it, and for those who ventured into the the new electronic age many still have VCRs that blink 12:00. Until these demographics change over time, this segment probably won't tapped into the net. In 15 years, as my generation ages, we will continue to use the Internet and as many of us get sick and infirmed it may be our best source for shopping and companionship.

Meanwhile, let's examine if the population already wired has proven to be producing sales for products marketed on the Internet. While significant numbers of Americans who access the Worldwide Web do so to obtain product information, the vast majority do not yet use the Internet to place orders for those products.

That's the report from a recent Chilton Research Services Express poll, a nationwide telephone survey of a random sample of Americans ages 18 and older. In the poll, better than one in three respondents who access the Internet (36%) said that "getting product information" online is important, but only 14% rated "ordering products" an important Internet activity. Of further interest to Internet marketers is the fact that only 10% of respondents who access the Web said they have actually made a purchase via the Internet. Perhaps recent reports that have called into question the security of the Internet are making shoppers reluctant to divulge credit card information on the web.

This issue of security in Internet shopping may, however, become moot. Shopping at different cyber malls will be as secure and convenient as making traditional face-to-face purchases at different shops and malls, at least where MasterCard is accepted. This week, American Express Travel Related Services Company, Inc. and WAL-MART (NYSE: WMT) announced completion of the first U.S.Internet transaction in which actual goods were purchased using the Secure Electronic Transaction (SET) protocol.

The SET protocol provides a high level of security for electronic transactions made over the Internet. It is an advance over other Internet security technologies through its use of digital signature certificates and encryption technology to allow consumers and merchants to verify the authenticity of the parties involved in a card transaction across the Internet. In addition, SET provides more secure protection of the card numbers and other confidential information sent across the Internet.

Wal-Mart is among the first merchants to launch a web site offering SET security. Over the next few weeks, American Express, Wal-Mart and GlobeSet will continue SET transaction testing in an effort to make this capability broadly available to American Express Card members, Wal-Mart customers and other merchants. Once consumers feel more comfortable about these transactions purchases over the web should increase. (Similar to the saving account without a passbook, took a while for me to get used to.)

Eventually most types of items will be available on the Net to buy. However, the successful companies with real revenues generated on line will be those selling specific items people are willing to buy without touching, and those which can deliver the best service. Items that buyers mentioned purchasing included certain types of clothing, computer hardware and software, books and CDs. Food seems to be a favorite purchase along with gifts and other personal items like perfume, dolls, and flowers.

But what is apparent is that the online retailers available today are those that have had major mail order retailing experience. Catalog companies do a tremendous amount of sales over the phone, already have ramped up in telecommunications, warehouse facilities, and have well trained telephone customer service employees. Being on line and setting up a web page seems to be the easy part of Internet marketing. But the allure of this shopping is that the purchase is available immediately, and will be shipped out and in the customer's hands quickly. Consumers will have little patience for stores online that can not deliver these goods.

On AOL, some of our favorite publicly traded companies have direct sites. They advertise everyday all over America OnLine. Get some coffee: Welcome To Starbucks. Buy a shirt: Welcome to JCPenney!; need a new computer or office supplies: OfficeMax OnLine; buy a book: Barnes and Noble@AOL- The World's Largest Bookseller Online; see a mail order companies wares: Lillian Vernon's New Store ; buy Reebok sneakers: The Store; or purchase a gadget The Sharper Image Store.

The most interesting company I did find is Internet Shopping Network, the leader in online computer retailing. It recently announced the grand opening of its store on the AT&T WorldNet Service Market Square.The Internet Shopping Network store in AT&T WorldNet Service Market Square offers shoppers the largest online selection of computer hardware and software products in the world, accompanied by the most complete product information and reviews available.

Internet Shopping Network was the first on-line retailer in the world when it was launched in April 1994. The company has grown to become the leading retailer of computer hardware and software on the Internet and has over 40,000 products from major manufacturers. The Internet Shopping Network is a wholly owned subsidiary of the billion-dollar television HOME SHOPPING NETWORK (Nasdaq: HSNI).Shoppers can find the site at http://www.isn.com.

Could TOM become LIZ, or hey, Renee Richards want to wear some Tommy Girl?

TOMMY HILFIGER (NYSE: TOM) reported results for the fourth quarter and fiscal year ended March 31, 1997. For the fiscal year ended March 31,1997, net revenue rose 38.4% to $661.7 million. Net income increased 40.5% to $86.4 million. Earnings per share increased 38.2% to $2.28 from $1.65 in fiscal 1996. For the fourth quarter of fiscal 1997, net revenue increased 35.2% to $170.5 million. Net income rose 24.6% in the same period a year ago. Earnings per share were $0.59, an increase of 22.9% from $0.48 in the comparable period last year. The company announced it "had experienced healthy increases in each of our business categories, with our men's wholesale sales accounting for the majority of revenues. We are very pleased with the strong performance of our men's wholesale business which, despite its large base, continued to grow beyond our expectations." (remember this quote for later)

During the fiscal year, the company launched several new products through licensing arrangements, including women's casual wear with Pepe Jeans London Corporation, "tommy girl," the company's first women's fragrance with the ESTEE LAUDER Cos.,(NYSE: EL), men's footwear with THE STRIDE RITE CORP. (NYSE: SRR) and prescription eyewear with Liberty Optical. The company also signed a new licensing agreement with Lantis Eyewear Corporation to produce a complete line of men's sunglasses which will launch at retail in September 1997.

In related business, the company recently announced its entry into the home furnishings market through a licensing arrangement with Revman Industries, Inc. a small mill, to produce and market a line of linens, bedding, bath products and related accessories. The line will debut at retail in June 1998 at better department stores and in select catalogs nationwide. The company also announced plans to expand its wholesale business to include men's performance activewear and an infant and toddler line.

It appears the company's strong financial results this year can be at least partly attributed to both through an increase in the number of stores opened as well as increased sales at existing store locations. Retail business for the year shows comparable store sales at double digit increases. The company opened 11 new outlet stores during the fiscal year for a total of 55 outlet and specialty retail stores. In addition, construction is well underway for a first flagship store, located on Rodeo Drive in Beverly Hills.

As part of its retail strategy and global expansion plans, the company also secured leases for a specialty retail store and a flagship store in London. The 18,000-square-foot flagship is located on New Bond Street and will showcase all Tommy Hilfiger products. It is scheduled to open in 1998. The second retail store, 2,600 square feet, is slated to open on Sloane Street this fall.

Okay, Okay, you must be shaking your head saying, so what could possibly be wrong? All that expansion sounds terrific. It sounded pretty terrific for LIZ CLAIBORNE (NYSE: LIZ) as she became the darling of Wall Street and started her major expansion. But now let's look at her story. Making money its first year, Liz Claiborne remained the fastest-growing, most profitable US apparel maker in the 1980s. In 1981 it went public and by 1986 had made the Fortune 500 with sales topping $800 million.

In a period of amazing growth from 1985-1989 the company ventured into many areas, some more successful than others. Throughout this period of rapid (some said uncontrolled) growth The company expanded into men's clothing (Claiborne, 1985), cosmetics (Liz Claiborne, a 1986 joint venture with Avon; in 1988 it acquired full rights to the line), women's sizes (Elisabeth, 1989), and a line of knit sportswear (Liz & Co., 1989). A new label of higher-priced sportswear by in-house designer Dana Buchman was introduced in 1987, by which time a 1984 dive into girls' clothing had failed. The company moved into retailing in 1988, opening First Issue boutiques with a separate brand of casual sportswear. It expanded with Liz Claiborne and Claiborne stores (in-store shops for department stores) in 1989.

In 1990 the company established a separate shoe division. Two years later Liz Claiborne acquired the Crazy Horse, Russ Togs, Villager, and Red Horse brand names and took over 16 outlet stores from bankrupt Russ Togs. Reality of being in all these areas caught up with the company in 1993, when earnings plunged 42%. The company discontinued the sneakers line that year. In response, Liz Claiborne analyzed its business and began making changes. It closed the First Issue stores, and reduced production.

It was a painful lesson that LIZ learnt. Companies should do what they do best. In the case of Tommy Hilfiger, he does men's wear the best. The problem is that these fashion designers think that doing all these other lines is easy, get a designer, license the name and go for it. But that is not what happens. The further away from the line the designer is known for, the more Murphy's Law takes over. They really don't understand children's clothes (ask Donna Karan, Albert Nipon) and they don't know linens, and sheets (ask Ralph Lauren, who licensed his bedding line to Dan Rivers, found poor quality and that most of the goods, after the grand introduction of the line, took six months to deliver.)

My guess is as the company becomes more successful there are all these managers who need an area to manage and someone gets this idea, hey, none of us have ever had a toddler, but let's do kids clothes. Let's increase revenues by doing everything. The other negativity to all these lines is that saturation of a name many times diminishs the value. Hey, Tom, I don't want to wish you any ill luck but you're no Ralph Lauren.

Well I hope that Tommy shareholders don't suffer the way LIZ's did. But if you see the Tommy comforter and sheet set at Marshall's, I won't say I told you so...

RETURNS REFUNDS AND EXCHANGES

INTIMATE BRANDS (NYSE: IBI) reported net sales for the four-week period ended May 31, 1997, of $256.4 million, an 18% increase from $216.5 million for the comparable four-week period ended June 1, 1996. The company's comparable store sales increased 7% for the four weeks ended May 31, 1997. The grand dame of fine jewelry, crystal, dinnerware and watches TIFFANY & CO. (NYSE: TIF) announced plans to open its first store in North Carolina in the fall of 1997. The new Tiffany store will occupy approximately 3,800 square feet. The company plans to open an average of three new store locations in the United States each year. Other store openings in the United States this year are: Palo Alto, California; Chestnut Hill, Massachusetts; and Cincinnati, Ohio.

SEARS, ROEBUCK AND CO. (NYSE: S) reported a 1.2% decrease in same-store sales, amid a decline in sales of its hardline goods as cool weather delayed sales of such seasonal products as air conditioners, riding mowers and tractors. The nation's No. 2 retailer said total domestic sales for the period ended May 31 climbed 4.2% and total revenue improved 4.5%.

KMART (NYSE: KM) said same-store consolidated sales rose 2.7% in the month, while US same-store sales increased 2.8%. Total consolidated sales for the four weeks ended May 28 edged up 2.1% to $2.48 billion. Strong performers included the Martha Stewart Everyday domestics line, children's apparel, sporting goods, home electronics, food housewares, health and beauty accessories and photography.

J.C. PENNEY INC. (NYSE: JCP) same-store sales rose 1.7% at its JCPenney unit and 8.8% at its Eckerd drugstore unit. Total sales, including JCPenney, Eckerd and catalog sales, jumped 43.5% to $2 billion. JCPenney total sales moved 3.1% to $1.03 billion, while Eckerd total sales were $706 million, up from $154 million. Catalog sales were $257 million, up 10.5% from $233 million.

ALTERATIONS

Credit Suisse First Boston Corp. reinstated coverage of CVS CORP. (NYSE: CVS) with a "buy" rating, a source at the firm said. Morgan Stanley & Co. downgraded its investment rating on shares of NEIMAN-MARCUS GROUP INC. (NYSE: NMG) to "outperform" from "strong buy," a source at the firm said Monday. Salomon Brothers Inc. analyst lowered his rating for COMPUSA INC. (NYSE: CPU) to "buy" from "strong buy." A research note said the lowering of the rating was based on the company's share price. The firm noted that revenue growth has slowed over the last four quarters and that the company has missed its revenue target recently. However they expect revenue growth of 20% to 25% going forward.

Next week in honor of Father's Day, retailers for Dad.

Remember your plastic -- "We never leave Fooldom without it."

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