MARKET UPDATE

03.21.21

JENSEN GUTZWILLER

Market News:

  • Retail sales (in stores, restaurants and online) dropped 3% in February compared to Jan.

  • February is usually a quiet month for retail, as stores prep for the spring selling season.

  • Analysts expect spending to increase in upcoming months with stimulus and Covid-19 vaccinations.

  • The unemployment rate has fallen to 6.2% (to put in perspective, economists suggest that below 5%, the economy is very close to or at full employment capacity).

  • Coronavirus cases in the U.S. are hovering near their lowest levels since early October and Biden indicated all Americans will be eligible to receive a vaccine by May 1.

The power of the Kirkland Signature


Though it may not capture the luxury sector, Costco has diverged from your standard grocery and wholesale food market to a successful retailer of everything from trailmix to your favorite leggings and diamond necklace.


While traditional retailers, like JCPenny and Macy’s close and file bankruptcy one after another, Costco’s low prices, practical assortment of apparel and accessories, and built in “everything in one” shopping experience has contributed to its continued success and growth. 


The company's first location opened in 1976 as Price Club. It was exclusive to business members who could purchase a wide range of supplies and wholesale items. Since, it has expanded but stayed true to its core model and promise. With low margins that position it uniquely with highly competitive pricing, its annual entry fee generates the majority of revenue.

So how does it keep its prices so low and still turn a profit? 

 

Have you ever noticed that you are pulling products right from pallets? Well that's because Costco spends essentially 0 on advertising, marketing or promos: a calculated cut to make lower prices even lower.


Wal-Mart, considered a penny-pincher when it comes to advertising, spends only about 0.5% of revenue on marketing and Target spends less than 2%.


Costco? 0.
 

So outside of the genius business model Costco has mastered what’s so special about their retail? 

The Kirkland Signature Brand:

  • Kirkland Signature label is Costco’s own, best bang for your buck brand with a variety of apparel items ranging from pants and shirts to socks and more. Many are actually manufactured by name-brands and remarketed for Costco (so you're getting the same product just with a different label and lower price)!

  • The markup for Kirkland signature is capped at 15% (so if a shirt is $10 it can’t be sold for more than $11.50).

  • 14% is the highest markup it will charge for brand name items. 

  • It’s rumored that TUFF brand and Kirkland signature leggings are identical to Lululemon (same logo placement, thick Lycra spandex fabric and under $19)!

A legendary and lenient return policy: Costco has a 100% satisfaction guarantee with only a few exceptions (and a lifetime warranty for many of its products). 


No fitting rooms: The warehouse style model and emphasis on maximizing every square foot which leaves no room for dressing rooms. However, Costco’s all star return policy ensures customers aren’t disincentivized to purchase.
 

Costco sees revenue of more than $7 billion a year in clothing and footwear (more than Old Navy, Neiman Marcus and Ralph Lauren).


For Kirkland and Costco retail deals, don’t knock it till you try it because numbers don’t lie (and let's be honest you can always return it. :)
 


Supply Chain Disruption

The abnormal weather that took place this month in Texas exacerbated already mounting problems for worldwide manufacturers struggling from the pandemic. From cars to clothing to semiconductors, the compounded disruptions have been felt across a wide range of industries. 


The increase in costs to compensate, and delays that can’t be mitigated, have affected profit margins and pricing for companies and products.


Industrial production fell a seasonally adjusted 2.2% in February compared with January.
 


Fungi in Fashion?


Stella McCartney recently unveiled the first line to be made with Mylo, a vegan, sustainable, animal-free leather alternative created by engineering  mycelium.The infinitely renewable fungi was developed by California-based Bolt Threads (the two have been working together since 2017) and the process to create the sustainable leather alternative is entirely cruelty-free and reduces environmental impacts.
 

Mylo is a soft material that is regenerative and can be found from natural resources in the wild. 
McCartney has used the fabric for two garments, a black bustier top and utilitarian trousers that illustrate the separation of feminine and masculine attitudes in her summer and autumn 2021 collections. 


Though the two pieces are not currently for sale, McCartney plans to integrate the leathery fabric into future collections alongside an exclusive collection of brands, including McCartney, Adidas, Kering and Lululemon that are working to integrate the new resource as well.


Products made with Mylo will be available for purchasing starting in 2021, according to MYLO.
 

Little bits

  • Adam Driver and Lady Gaga, are set to star in The House of Gucci a portrayal of the real-life Gucci family and the murder of Maurizio Gucci, the grandson of founder Guccio Gucci. With the debut of the two leads in a quintessential ⁠après-ski look, (featuring  '70s-style aviator glasses and a cream cable knit turtleneck) we are confident that it will be a cinematic masterpiece with à la mode style.

  • Over two weeks since street-front shops, malls, markets, museums, and libraries opened. The sluggish return to retail normality suggests that retailers worldwide may need to be patient as shoppers make a cautious return to old habits. 

  • A new opportunity for out-of-home (OOH) is emerging, especially as lockdowns come to a close.

  • Thom Browne's co-gender Autumn-Winter 2021 collection features Olympic Alpine Ski legend Lindsay Vonn in a “noir- and fantasy-inspired” short film based on "The Wizard of Oz."

  • Puma has launched a new apparel collection and shoe with brazilian soccer star, Neymar. The collection features street-art-inspired graphic jerseys, shorts, training accessories, and a new soccer shoe in bright hues of pink and electric blue.

  • Loreal has invested €1 billion so far into sustainability plans, entlisting over 4000 researchers to work towards goals of 95% of ingredients to be derived from renewable plant sources, minerals or sustainable processes by 2030.

Stocks to Follow


Costco

Ticker: COST
Exchange: NASDAQ
Share Price: 322.98
Market Cap: 142.93B
P/E Ratio: 33.03

 

Overview: 

  • Has 800 stores mostly in North America and over 98.5 million members

  • In 2019, Costco sold $152.7 billion worth of merchandise. 

  • Its gross margin which excludes membership fees has remained at the 11% rate since 2014.

  • In 2019, Costco made $3.35 billion from membership fees, an increase of 7% from the previous year. Its entire net income for the year was $3.66 billion.

  • As studies show millennials trading in apartments for white picket fences, the acceleration of movement to the suburbs and away from cities is forecasted to benefit the Costco (between location and bulk value for families). 

 

Nike

Ticker: NKE
Exchange: NYSE
Share Price: 143.97
Market Cap: 182.04B
P/E Ratio: 81.61

 

Overview:  

  • Nike’s sales during its fiscal third quarter dropped in part due to supply chain disruptions in the US and ongoing store closures in Europe. 

  • In North America, revenue dropped 10% year over year, as Nike said shipments have been delayed by more than three weeks.

  • Nike has continued to see growing online sales as its e-commerce sales surged 59% in the period ending on Feb. 28.

  • Nike has reported net income of $1.45 billion 90 compared with $847 million a year ago (surpassing analysts expectations).

  • In recent news, Ann Hebert, Nike's vice president has exited the company after 25 years following a report that Herbert’s 19-year-old son had used a credit card in her name to purchase and resell sneakers. Hebert stepped down four days after the Bloomberg article was published.

Citations: 

https://hip2save.com/tips/brands-behind-costco-kirkland-signature/ 
https://clark.com/shopping-retail/warehouse-clubs/costco-clothing/ 
https://www.wsj.com/articles/us-economy-february-retail-sales-coronavirus-recovery-11615844390 
https://www.retaildive.com/news/at-costco-everything-resonates-with-the-consumer/565064/
https://www.businessoffashion.com/articles/news-analysis/the-state-of-fashion-2021-reality-check 
https://www.wsj.com/articles/manhattans-blighted-soho-district-showing-new-signs-of-life-11615482938 
https://www.google.com/search?q=costco+stock&rlz=1C5CHFA_enUS907US907&oq=costco+stock&aqs=chrome..69i57j0i131i433j0i433j0l4j0i433j0l2.4078j1j7&sourceid=chrome&ie=UTF-8  
https://www.investopedia.com/stock-analysis/040915/3-reasons-costco-great-company-cost.aspx
https://www.mylo-unleather.com/ 
https://www.wsj.com/articles/everywhere-you-look-the-global-supply-chain-is-a-mess-11616019081?mod=hp_lead_pos1 
https://www.businessoffashion.com/news/sustainability/uk-lawmakers-call-for-crackdown-on-companies-with-supply-chain-links-to-forced-uighur-labour 
https://www.wsj.com/articles/saks-fifth-avenue-owner-to-separate-e-commerce-and-stores-units-11614945600