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Q&A With Joseph Gromek, CEO of Warnaco

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The Robin Report - Joe GromekWarnaco’s (WRC) performance since CEO Joe Gromek arrived in 2003 has been spectacular. He inherited a company that was just coming out of bankruptcy, and had suffered a bottom line loss of almost $900 million in 2001 on sales of $1.6 billion and a loss of almost a billion dollars on sales of $1.4 billion in 2002. Starting with his first year, and every year thereafter, except for a negligible dip in income in 2008 and revenue in 2009, Warnaco enjoyed double digit growth on all key metrics. The company sailed through the Great Recession as though it didn’t happen. Sales now stand at about $2.3 billion, operating margin at 11.4%, and operating income at $262.7 million.

Q. Joe, can you give us some background on the turnaround efforts put in place before the recession, and highlights of how you were able to get through the recession with only minor hiccups and outperform the majority of players in this industry? Was there something about your business that “insulated” Warnaco from the full impact of the recession?

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Posted July 6, 2011

Tech Bubble II

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The Robin Report - Tech Bubble IIIs it “here we go again?” Or, is it “this time is different”? Is it “irrational exuberance”? Or, is it a brilliant investment strategy?

Is this a new bubble that floats? Or, is this a “same old, same old” bubble that explodes, and quite possibly at a time when the fragile and hardly recovering economy can least absorb it.

So, the question is not whether there will be a technology “bubble.” There is one. And, its inflation will accelerate given all the free money sloshing around in pursuit of investment nirvana. The only question is: will the bubble’s seemingly insane valuation, in fact, turn out to be accurately valued with long term sustainable growth, like railroads a century ago? Or, something like that.

I have to chuckle when I recall hearing on a TV talk show that when JP Morgan (JPM) CEO Jamie Dimon’s child asked him what a “financial crisis” is, and his response was: “….oh, something that happens about every ten years.” I guess some of those “brainiacs” in Silicon Valley could use the same line.

The Economist magazine had another funny observation. After the dotcom boom of the late 90’s turned into a bust in 2000, they observed bumper stickers in the Valley imploring: “Please God, just one more bubble.”

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Posted July 6, 2011

Q&A with Jane Elfers, CEO of The Children’s Place

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We had the opportunity to talk with Jane Elfers, CEO of The Children’s Place, the number one pure-play children’s specialty apparel retailer. Here’s what she had to say about her first year at the company, the differences between the specialty and department store businesses, and the challenges of selling to some of the most value-conscious customers on the planet: parents of small children.

Q. Jane, you’ve been at the helm of Children’s Place for a year which has been a transitional one for the economy. Can you give us some idea of how the company has been doing through all of this? Do you think the recession is over, and if so, what will the recovery be like? What do you think about 2011 and beyond?

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Posted April 13, 2011

Easing the Margin Squeeze

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Supply Chain Optimization Can Offset Rising Costs

Best Practices from Kurt Salmon

For most of the last two decades, the U.S. retail industry has benefitted from a thriving American consumer economy and a commitment from China to provide low costs. But in the past year, in nearly unprecedented fashion, costs have risen across all components of the retail supply chain. In the past, retailers have protected profits by passing along cost increases to suppliers or, in some cases, even consumers. In the current economy, however, suppliers are less and less willing to take up the slack; and consumers, clearly, are already skittish about spending—even at rock-bottom prices.

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Posted April 13, 2011

Q&A with Jan Hatzius, Chief U.S. Economist, Goldman Sachs

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The Robin Report - Jan HatziusWe talked with the Goldman Sachs Chief U.S. Economist, who is responsible for setting the firm’s U.S. economic and interest rate outlook, about his forecast for economic growth and employment, the likelihood of another economic decline, and the future role of the U.S. in the world economy.

Q. What are your expectations for the economy in the next two years?

A. We expect real GDP growth to be 3.25% in 2011 and 3.8% for 2012, roughly a percentage point above the economy’s underlying trend. It means that some of the excess capacity that built up from 2007 to 2009, especially in the labor market, is starting to be filled in. We estimate consumer spending will grow 3.5% in 2011 and 2012, caused by growth in personal income and employment, which underpins spending. The unemployment rate should come down gradually. It’s at around 9% now, and we have it declining to about 8% by the end of 2012.

Q. So unemployment will drop by only a percentage point in the next year and a half?

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Posted April 13, 2011

Q&A with Neil Cole, CEO of Iconix Brand Group

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The Robin Report - Neil Cole

Neil Cole

We talked with Neil Cole, CEO of Iconix Brand Group. The brand management company licenses its 27 (and growing) brands in exclusive deals with big retailers and wholesalers, allowing them national brand distribution with private label exclusivity and economics. Here’s what Neil had to say about consumer and economic trends, and the importance of true brands.

Q. How was 2010 for you, and looking ahead, what do you see? Is the recession over?

A. We had a great year and a strong fourth quarter with all of our brands. We have 27 individual, unique brands, but last year most were up by double digits. Christmas was better than we expected, so we’re very excited. I think the consumer is consuming, feeling good, feeling like they have a job. I think people are hiring again, but it’s a long slow recovery. It’s going to take a while to get back to where we were a couple of years ago. The industry is going through a dramatic change, with consolidation and all the things you’ve talked about, and will continue to change. Compared to 5 years ago, things are so different.

Q. What about the teen sector, where you have a lot of brands? Isn’t it pretty saturated?

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Posted February 22, 2011

HOOKED! China’s Low-Cost Mainline

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Apparel Insights

The Robin ReportWhen the chilly winter weather arrived last month, I headed to some of my favorite stores in search of some new clothes. As I looked through rack after rack of clothing, I was intrigued at the seemingly increased diversity. Sweats from Pakistan, dresses from India, outerwear from Eastern Europe, jeans from Guatemala and tops from Vietnam were just a sampling of what I found.

But then there was China. Once the source of primarily low-end, basic product, China was represented by at least half the apparel I saw, at all levels of the market, from discounter to upscale specialty store to the big luxury retailers.

Are we hooked on the spreading “drug” of China’s low cost production across all of apparel? If so, what will China do to keep us hooked so we don’t pursue other sources? Chinese factories currently own a 39% (up from 13% in 2004), share of all apparel imported into the U.S. (see graphs on next page.) What happens when they own most, if not all of it? At the risk of overdoing the metaphor, if they reach that level of control over our sourcing “habit,” will they begin cutting quality to increase profits in the face of other rising costs?

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Posted January 11, 2011

Quotes to Remember

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The Robin Report“If you inflate the economy without doing anything about growth, you’re just printing money,” said Jyotisko Sinha, one of several MBA students attending a meeting with Ben Bernanke, discussing the Fed chief’s decision to buy bonds to reduce long-term interest rates.

WHICH LEADS TO WHAT, BEN?

A “LAMPERTISM” FOUND

“Nothing offends more than executives being paid for failure,” declared Eddie Lampert, CEO of the failing Sears Holdings Inc.

HEY WALL STREET!—A MESSAGE FOR YOU FROM GERMAN CHANCELLOR, ANGELA MERKEL

“There needs to be a mind shift away from making money to earning money.”

The Robin ReportANOTHER VIEW ON CHINA FROM A TRUE INTELLECT

Thomas Friedman, editorial columnist for The New York Times said: “my parents used to say to me, ‘finish your dinner, people in China are starving.’ By contrast, I find myself wanting to say to my daughters, ‘finish your homework, people in China are starving for your job.’”

ONE OF MY PALS—-

“I disagree with Kay Jewelers. I would bet on any given Friday or Saturday night more kisses begin with Miller Lite than Kay.”

COMEDIAN GEORGE LOPEZ ON THE PREZ—

“President Obama said if we just give his policies time, more jobs will come. You know what? In two years, there are going to be openings at the White House. “

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Posted January 11, 2011

Who’ll Blink First

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And How to Get Out of the “Value Vise” that Kills

The Robin ReportThe light at the end of the tunnel is not what you think it is. It’s a train. And, it’s loaded with a bunch of stuff freshly made in China and elsewhere bearing, on average, a 10% cost increase, according to Li & Fung, arguably the world’s largest sourcing agent, at a recent Goldman Sachs conference. This rise in costs, according to L&F, will be driven primarily by higher raw material prices, cotton being the major one for apparel, as well as labor and transportation, to be tacked onto larger orders than last year (due to “shelf” replenishment going into the Holiday season.)

Who among the many players in this pipeline staring contest is going to blink first in accepting these higher costs?

Well, just as with death and taxes, the only thing we can be sure of is that consumers will not be blinking at all, only nodding – and only at lower prices.

Hanesbrands, VF Corporation, Jones, Carter’s and JC Penney have all declared they will be raising prices next year. Two words for them: good luck!

Go ahead and raise prices and observe how quickly your customers spot equivalent value for a lower price right across the aisle. Then observe how quickly your margins shrink as you put your stuff on promotion.

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Posted November 19, 2010

CHINA:Communists – Capitalists – Conquistadors

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The Robin Report

This isn’t really an old Chinese Proverb. I composed it in 2004 to introduce a feature story on the opportunities and threats to be expected from China. Its suggestion, that China will forward-integrate and acquire American assets, including retailers and brands, is now even more prophetic than it was back then. China’s enormous and rapid growth has allowed it to recently surpass Japan as the world’s second largest economy, but has also caused internal and external growing “pains,” which have been exacerbated by the Great Recession. And, one of the major results that will come out of the economic and social issues attendant to such growth (and the necessity to maintain its momentum) will be exactly as the last line in my “proverb” suggests. Therefore, I felt it was timely and relevant to bring this prophecy front and center, which is exactly where I now think it sits on the “dragon’s” agenda.

TO “CAPITALISM ON STEROIDS” IN ONE NANO-SECOND; TO “GLOBAL ACQUIRER” IN TWO

As has been said many times and in many ways, the big irony today is that the greatest capitalists on the planet are in Communist China. Perhaps an even bigger irony is the fact that China was among the first capitalist nations, if not the first, dating back over 700 years to Marco Polo’s trading era.

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Posted November 19, 2010

Dear Reader

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The Robin Report - Dear ReaderAs we head into the over-analyzed, all-important Holiday retail season, I’m having flashbacks to “the land of the rising sun.” However, my image gave way to a deflating sun, as Japan withered from its strong and rising number two spot on the global economic stage, brusquely shoved down to third place by the now blinding sun rising over China. There are two big time messages in this metaphor that should give pause to our economists and general business and financial communities.

First, if you take my “Who Blinks First?” article to a potential end scenario, the U.S. economy could easily fall into a Japan type deflationary cycle. It’s pretty simple. Not only will consumers not “blink” first and give in to higher prices (due to inflating commodities, raw materials, labor and shipping costs), just the opposite is happening.

More than ever, consumers are demanding lower and lower prices. I guarantee you, we will see one of the most promotional Holidays ever, which means that manufacturers and retailers will be forced to take the hit on their margins, which means they must find lower costs or take costs out of the product, which means they will give in once again to lower prices, and so forth and so on, a deflationary cycle. [Read more...]

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Posted November 8, 2010

“Chicken Little” or the “Bluebird of Happiness?”

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Is the economy a case of “chickens coming home to roost” to a double-dip recession and a possible deflationary cycle, or a several- year-long “slog” that forces us to accept the fact that slow-to-no growth is our new economic reality, the so-called “new normal”?

In other words, is the sky going to fall (again), as Chicken Little would have it, or are the Bluebirds of Happiness getting it right when they persist in chirping that we’re in recovery mode, albeit a slow one?
But first, how did we get into this mess?

Well, even though you’ve read or heard a thousand different takes on it, here’s my back of the napkin quickie as context for the rest of the article.

It was a result of a toxic combination of what Warren Buffet called Weapons of Mass Destruction, or derivatives leveraged to the moon (sliced and diced by the “masters of the universe,” spreading the risk around the world), along with a borrowing binge by consumers and our government against collateral that didn’t exist, or at most, was over-inflated, all to fuel massive over-consumption. Call it a “house of cards” or a “bubble.” Who cares? One collapsed, the other popped.

Then there was the short-lived ebullience, among many, late last year and into the first quarter of this year, over what seemed to be an emerging recovery. This enthusiasm began to fade, however, in the wake of a lot of negative second quarter economic data and discouraging third quarter forecasts, resulting in uncertainty over where the economy is headed. And uncertainty closes pocketbooks and shuts down business growth investment.

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Posted October 9, 2010