In The Headlines
Eddie Bauer Looks to Urban America for Growth
Eddie Bauer’s outerwear is meant for active enthusiasts to pursue the great, open outdoors. But the company’s future growth may rest on the shoulders of urban dwellers. The outerwear and apparel maker, with about 300 stores in North America today, says it sees a clear path to open an additional 200 locations. That expansion can be partly fueled by new locations in major cities where it does not currently have a presence.
Eddie Bauer recently opened a Manhattan store, a fairly small pop-up location that the retailer intends to fully renovate next year. It will be the brand’s first location in the city since 2007. “We know we have a lot of customers in the area,” said Eddie Bauer Chief Executive Mike Egeck. He said the company crunched data gleaned from its online business shows the retailer has at least 20,000 customers in Manhattan, and some 250,000 Eddie Bauer shoppers in New York.
Eddie Bauer’s roots can be traced to 1936, when the company’s namesake founder developed the first quilted goose down jacket in North America. The company’s heritage is a “great American authentic outdoor brand,” according to Egeck, and the company has worked hard to reestablish that image after landing in bankruptcy in 2009.
Over the past few years, Eddie Bauer has focused more on designing technical outdoor products, introducing a line of shoes for the first time ever this year, and the retailer has also developed more gear for the warmer months. Today Eddie Bauer is more like The North Face and Columbia Sportswear, and less like Ann Taylor and Talbots, two chains it found itself competing with at a dark time for the apparel maker. “There are 45 million outdoor enthusiasts in the U.S.,” said Egeck, in a nod to the customer base Eddie Bauer hopes to tap. Egeck, a retail executive with years of experience in the outerwear and denim industries, is an avid hiker.
The adult activewear market is worth over $30 billion in the U.S., according to the research firm NPD Group. Although Eddie Bauer, owned by private equity firm Golden Gate Capital, does not disclose annual sales, it is fair to assume the brand is pretty tiny. The company was nearly acquired earlier this year for $825 million, in a deal with Jos. A. Bank Clothiers that was terminated after Men’s Wearhouse bought Jos.
Beyond store expansion, Eddie Bauer is also focused on diversifying its apparel line. The company generates 65% of annual sales in the fourth quarter, so it is highly exposed to the cold weather months. And while last year was particularly cold in North America, not every winter will be that severe. “They can’t just be cold weather gear,” said Ron Friedman, a retail consultant for accounting and advisory firm Marcum LLP. “That’s only good for six to eight months maximum. Diversification of products should be important to them.”
Egeck says that those efforts are already underway. The company’s shoe business is meant to be a year-round offering. It also has a travel line meant for the spring and summer months, and sells a new line of lighter, reversible jackets that feature bright colors on one side (for visibility on the mountain) and more muted colors for around town. “What we find in the outdoor market is there is a ton of people that may only go hiking two or three times a year, or ski four or five times a year, but they still define themselves as a hiker or skier,” Egeck said. “But then they’ll also wear the clothes day-to-day as an identifying badge that says, I am an outdoor customer.” And those potential customers are also walking around the streets of Manhattan.
Selling Organic Foods the Wal-Mart Way
Sales of organic food are booming again. The growth in sales of organic products in the U.S., food and nonfood, had slowed to 4.6% in 2009 but has since rebounded. Sales rose 11.5% in 2013, to $35 billion, according to the Organic Trade Association.
Once sold primarily in musty natural foods shops, organics went wide after Whole Foods Market took over the high end of the market, earning the nickname “Whole Paycheck” in the process. In recent years the mainstream has discovered natural foods, and big chains like Kroger and Safeway now devote considerable space to organics. Sales of organic products at Costco have doubled in two years to about $3 billion a year. Now Wal-Mart Stores, the nation’s largest grocer, is expanding its selection of organic foods, and it is promising to sell the goods at the same prices it sells nonorganic food.
Most organic food costs at least 25% more than regular fare. Wal-Mart says it will keep prices low by using Wild Oats, a well-known name in organics, as its supplier. The deal came together in 2011 after two industry veterans of organic foods bought the Wild Oats name from Whole Foods. Founder Anthony Zolezzi said he visited Wal-Mart’s Bentonville, AR, headquarters 13 times to sell the company on rebooting Wild Oats as a way to sell affordable organic foods. The idea was “to democratize organic to the masses,” says Zolezzi. Wal-Mart now accounts for more than 90% of business for the Wild Oats brand. “Our new, specific effort with Wild Oats, launched earlier this year, is a natural progression as we meet customer demand,” says John Forrest Ales, a Wal-Mart spokesman. “We are working to lower the price of organic pantry staples to be at parity with national brand nonorganic products.”
Studies differ on whether organic food, produced without synthetic pesticides, antibiotics, or chemical fertilizer, is any more healthful than conventionally grown produce, but that has not slowed its appeal. “There’s a growing belief among a lot of educated people, and it’s filtering into the mainstream, that organic is a better way to eat,” says Jim Hertel, managing partner for Willard Bishop, a retail consulting company in suburban Chicago. Food accounts for 92% of overall organic sales. The other 8% includes organic clothing, personal care products, and pet food.
The biggest obstacle to continued growth—and cheaper prices—is lack of supply. Farmers cannot convert to organic production overnight, and in recent years there has not been much incentive to do so because of the high prices they are getting for conventional products. The drought in California, where 21% of the 14,326 organic farms in the U.S. are located, is further limiting supplies. “The entire organic dairy industry cannot keep up with the demand,” says Eric Newman, vice president for sales for Organic Valley, a cooperative of organic dairy farmers based in Wisconsin. He says organic milk suppliers are rationing supplies, filling about 80% of what customers order.
It is too soon to know how much Wal-Mart’s organic expansion will further disrupt the industry. Wild Oats CEO Tom Casey says the organic industry is historically fragmented, with small and inefficient companies relying on wholesalers to distribute their products for a premium. Only about 8¢ on the dollar winds up in farmers’ pockets, he says. Wild Oats squeezes savings in the manufacturing and distribution chain, largely because Wal-Mart’s size provides economies of scale. “It’s really simple,” says Casey, a former banker. “We are out to change the industry to make great-tasting, affordable organics available to everyone.”
Wal-Mart’s own research found that 91% of its shoppers would consider buying organic if it were affordable, says Wal-Mart spokesman Ales. “Conversations about obesity and health and all of these things have kind of rekindled America’s experience in eating better,” says Todd Linsky, vice president for organic sales for Grimmway Farms, the world’s largest carrot grower. “There doesn’t seem to be much end in sight to that proposition.”
Sources:
1. http://for.tn/1owYAMG – Fortune
2. http://buswk.co/1yk0h03 – BusinessWeek
The Good News Is . . .
• The U.S. economy created 214,000 jobs in October, the Labor Department reported Friday, pushing the unemployment rate to its lowest level in six years and suggesting the labor market recovery remained intact. The closely watched unemployment rate dipped to 5.8% in the month, its lowest since 2008. Among the largest gains last month were in food and beverages, which added 42,000 positions; retail added 27,000 jobs. Professional services employment jumped by 37,000.
• Whole Foods Market, Inc., the leading grocery retailer of natural and organic foods, reported earnings of $0.35 per share, an increase of 9.4% over year-ago earnings of $0.32. The firm’s earnings topped the consensus estimate of analysts by $0.03. The company reported revenues of $3.3 billion, an increase of 9.4%. Management attributed the company’s results to continued growth in same store sales and strong sales contributions from new stores.
• The Irish drug maker Perrigo agreed to acquire Omega Pharma, one of the largest providers of over-the-counter health care products in Europe, for $4.5 billion. The deal is expected to expand Perrigo’s international presence and give it a larger position in the European over-the-counter health care sector. Omega produces about 2,000 products in a variety of categories, including cold and cough medicine, skin care, and weight management.
Sources:
1. http://1.usa.gov/1gck641 – Bureau of Labor Statistics
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1trrlpR – Whole Foods Market, Inc.
4. http://nyti.ms/13PlCFs – NY Times Dealbook
Planning Tips
Tips for Winterizing Your Budget Against Cold Weather Calamities
Winter weather generates its own unique hazards. Last year, winter storms caused $1.9 billion in insured losses, according to insurance group Munich Re. Below are some tips to help you avoid the special, budget-busting types of problems that winter weather can bring.
Take care of your sidewalks, steps, and handrails – Falls of all kinds (not just on icy surfaces) send 8.9 million people to the emergency room each year, at an average cost of $1,051. A visitor’s slip on your property could be costly, too, resulting in an expensive liability claim against your homeowner’s insurance policy. Before it gets cold, make any repairs needed for your steps and/or handrails. They can become almost lethal when covered with snow and ice. Turn gutter spouts so they do not drain onto walkways. Once winter sets in, be diligent about clearing snow and ice from sidewalks, driveways, and outside stairs.
Prevent roof dams – Icicles hanging from the eaves may be a sign of an expensive problem called ice dams. This happens when warmth from your house melts the underlying layer of snow. That accumulates at the eaves and refreezes, blocking drains. When all that ice and snow eventually melts, it can find its way into your home. Most often it flows into the roof, where it will drip down through ceilings and walls, causing damage and mold. In preparing your home for the winter, check your roof. Clear gutters of leaves and other debris so ice melt has a clear exit. Over the life span of your roof, periodically hire a professional to check for damage such as loosened tiles, which can make it easier for water to work its way in. Adding insulation in the attic can also help reduce heat loss.
Clean your chimney – By-products of wood fires can build up over time in the chimney, and that residue, known as creosote, is combustible. In 2011, the most recent year for which data was released, there were an estimated 22,500 residential fires involving a fireplace, chimney, or chimney connector according to the Chimney Safety Institute of America. Even if you only use your fireplace occasionally, be sure to hire a contractor annually to clean and maintain the chimney.
Avoid frozen pipes – In the winter, freezing pipes can be a big problem. Water expands as it freezes. When that happens in a pipe, the pipe can burst letting water escape into the surrounding wall or area. It is typically covered under your homeowner’s insurance, but like water damage from ice dams, a burst pipe can require extensive repairs. To prevent damage, keep your home’s temperature at a minimum of 55 degrees, even if you are away on vacation. Also, make sure any exposed pipes (for example, in the attic or basement) are adequately insulated. Be sure to shut off the water leading to outside sources like the garden hose.
Perform an audit to reduce high home heating bills – The first home heating bill of the winter can often be a shock. Last winter, depending on the fuel you used and where you lived, the average cost to heat a home for the winter was as much as $2,563, according to the Energy Information Administration. A drafty house or inefficient heating system could result in a bigger-than-expected bill. Consider a home-energy audit, which is often available for free through your utility provider, to help identify potential problems. Basic maintenance, such as cleaning the HVAC filters and weather-stripping windows and doors, will also help keep bills low.
Sources:
1. http://on.mktw.net/1wSX3lr – MarketWatch.com
2. http://bit.ly/1wT2PoU – US News & World Report
3. http://usat.ly/1j7bWMJ – USA Today
4. http://bit.ly/1wT2Qt3 – Intuit
5. http://nyti.ms/1G83g1f – New York Times
6. http://bit.ly/1ua13yu – Inc.
