Misplaced Optimism in Retail

L. Brands - What the Holy F*#*?

Read this fascinating Wall Street Journal piece about L. Brands Inc. ($LB) CEO Leslie Wexner and tell us that you don't want to short the sh*t out of the stock. 

The gems within are plentiful:

"The internet won't kill stores."

Tell that to the employees of 50 '17 bankrupt retailers and 7000 closed stores.

"The fascination with smartphones will fade."

Right, because Apple is a $50 billion-a-quarter generating company on the basis of fad. P.S. the man carries two iphones and wears an Apple Watch. 

"People crave social interaction and will seek it at places like malls."

Sure, now back to our Snap streak, Facetime, right swipe, and Netflix and chill. 

"Frozen food didn't wipe out restaurants."

No, but in-home delivery seems to be doing a pretty good job of that. 

"Landline phones didn't end face-to-face conversations."

No, they didn't. But those smartphones you think will fade ended landline phones and now people send LinkedIn requests to connect to you only to walk right by you at the next networking event. 

Mr. Wexner is going all-in on physical brick-and-mortar stores. As if direct-to-consumer brands aren't coming at Victoria's Secret on every flank. Wexner has 3000 stores, a number on the upswing. 20% of sales for Victoria's Secret and Bath & Body Works are online, and Mr. Wexner expects that level to remain stable. Wait...what?!?! E-commerce growth is explosive and yet Mr. Wexner doesn't think that warrants some increased focus and adoption of online sales? This is unbelievable. All of this coming from the same man who completely and admittedly missed the athleisure trend - an opportunity that could've helped develop a decade of customer affinity and loyalty. Comically, the article goes out of its way to quote Mickey Drexler, another elderly man who had no idea what was coming for him. Where's a grain of salt when you need one? 

At the time of the article, 6.9% of LB shares outstanding were short. We reckon that the number has increased since then. 

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And, yet, strangely, Mr. Wexner is not the only one who remains optimistic about brick-and-mortar. The Wall Street Journal writes"Many retailers, beset by online competition and shifting consumer tastes, are slashing costs and closing hundreds of stores. Nordstrom Inc. ($JWN) is doing the opposite." On the heels of a failed take-private transaction whereby the Nordstrom family couldn't secure the requisite financing, the family is investing heavily in its footprint with revamps, investments and new concepts. The WSJ cites the Trunk Club as one such investment - yet fails to mention that Nordstrom already wrote down that investment to the tune of millions of dollars and the founder has left the company. Ay dios mio.

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More broadly, we wonder if there is an epidemic of misplaced optimism in certain pockets of distressed retail. In Toys R Us, executives were given exorbitant bonuses prior to a bankruptcy filing only to go into bankruptcy court and attempt a second bite at the bonus apple. Fast forward a month later and the company is skittish about even releasing holiday numbers, the UK seems to be on fire, and there is no clear picture of the future of the company. 

Claire's Stores just awarded its executives with (prepetition?) bonuses. We know what comes next.

rue21 and Payless are already rumored to be in trouble, mere months after emerging from bankruptcy. As we've previously said, cue the Scarlet 22. 

Bon-Ton filed for bankruptcy seeking a sale of the business. And, yet, there is no stalking horse bidder. The company marketed and attempted to sell the company for months prior to the bankruptcy filing and, we repeat, there is no stalking horse bidder. Consequently, certain creditors are arguing that the company should simply be liquidated in order to preserve value. Why waste time, they argue. 

Good question.