San Francisco Consumer roundtable

Craig Johnson of Consumer Growth Partners and Laura Petrucci of the Winthrop Group talked re retailers and primarily in the apparel space. Laura focused on the move by consumers to the experience rather than eHmaterialistic buying patters. This should lead even affluent baby boomers who have been scared by recent economic changes to be better educated and more selective with unique product motivating the buyer rather than price. Better due dilligence means that pricing must be in line but unique product is the draw for the affluent and the aspirational buyer.
Some wholesalers she discucussed moving to multi strategy models. Craig and Laura talked on the over storing in retail but then mentioned that saturation has not been met in the Outlet Mall concepts. Today maybe 100 good outlet malls and maybe a capacity to double this in the next few years.
Laura and Craig had different views looking forward as Laura had more concerns of employment impact to the economy and Craig sighted savings rates dropped from a peak of 5 1/2% to a more normal 3 1/2% today and that this showed spending would stabilize.
Yet both cited aspirational and many high end buyers going to the discounters, who have gotten better at buying and catering to targeted markets and the educated clients using the outlet mall as their new malls of destination and some choice. Will talk more tomorow on some of the individual names they discussed.

Tatum/Roulston Report

Whenever in past recessions we have seen the downward correction, inevitably the markets and pundits start to estimate timing and velocity of recovery. Knowing the market is both a leading indicator and a measure of confidence; its direction historically is influenced not only by economic activity but visibility and predictability of the future.

This month’s Tatum Survey showed a measurable change in company executives’ outlook and their experience in the last 30 days. As quantifiable as the Fall of 2008 downturn the January survey reflected that in December that measurements of backlogs, capital expenditures, and employment all saw current trends changing and 60 day outlooks improving. That type of brad based turnaround has not been seen in two years. The only trend not showing improvement was capital availability but here also the outlook improved. It is hard to believe that if business conditions improve the banks won’t get involved to a greater degree. The survey seems to indicate they are more receptive.

This is one month not a trend. But at this point it seems clear that stabilization albeit at a level back near two years ago(or more in certain industries) has temporarily been reached. Over 90% of respondents say business conditions are unchanged or improving. We will look very closely at this number moving forward. The ratio of improved to worsened has improved steadily in 2009, we believe the markets are telling us that we are at an inflection point. Over 95% of businesses think the 60 day outlook is positive. In large part this is driven by their outlook for backlog growth resulting in some plans for increased spending and employment growth. This is a good sign yet only one month. Our belief is this survey although sometimes volatile continues to reflect change on the ground much more timely.

WMT outsources its product demonstrations

Recently Wal-Mart announced it will eliminate 10,000 jobs as part of a plan to turn over its product-demonstration program to Shopper Events, an independent marketing firm. A few weeks ago the company closed 10 stores nationwide and eliminated 1,500 jobs.

Taken together, the job cuts are the largest in Wal-Mart's history, according to retail consulting firm Customer Growth Partners. "Based on our records, it's the biggest ever," said CGP president and Roulston Research's Consumer Chair, Craig Johnson. But the moves could help Sam's Club recover from a years-long slump, Johnson said.

"We think this is a cost savings move, as well as something that could improve customer service," he said.

Johnson said that product sampling, typically involving free food, has become an important marketing tool for retailers like Sam's Club, where food and consumables can account for half of overall sales.

John Wiley: Tapping Online Potential

Our Dallas presenter likes John Wiley and Sons' prospects in electronic publishing (NYSE: JW-A, $41.98). The company moved all of its legacy content in the Scientific, Technical, Medical and Scholarly segment to its online platform Wiley InterScience, creating a new revenue stream. In the Higher Education business, WileyPLUS, JW's electronic learning platform has been a success, with the one million users mark passed last September. The company is testing new distribution models. John Wiley's business is truly global, with 50% of the revenue generated overseas. The acquisition of Blackwell Publishing two years ago almost tripled the company's offering of scholarly journals, the #1 category in the company's STMS segment, which accounts for 60% of the total sales. John Wiley has added a number of important journal licenses in the recent quarters, while keeping contract losses to a minimum.

uncertainty moves markets not news sometimes

This months Tatum survey clearly points to an improvement in economic indicators. In particular the outlook of cap spending, employment and general business conditions all moved upward with a more consistent positive outlook. tomorrow i will give more details but safe to say that despite my personal doubts general outlook is positive.

NetScout Systems: Undervalued Play on Wireless Buildout

Our Dallas presenter likes NetScout Systems (NASDAQ: NTCT, $14.66) at this level. This provider of network performance management solutions is seeing uptick in customer activity in wireless and financial services segments. Demand for the company's sophisticated monitoring tools is poised to expand as the data traffic on wireless networks continues its exposive growth. The coming 4G rollout will further raise the appeal of NTCT's solutions to carriers. Growth in high-frequency trading necessitates upgrades to infrastructure at exchanges, brokers and other participants in the financial services industry, another growth driver for NetScout. The stock is trading at a substantial discount to projected earnings.

WSJ Transaction Tax Op-Ed

Don Luskin and I co-authored an Op-Ed in the Wall Street Journal, attacking a proposed transaction tax that would drive up the cost of trading for individuals and institutions. The tax would cost the average equity mutual fund 30 basis points a year in performance, directly. The true cost might be higher as dealers would face substantial taxes on stock they positioned, additional taxes to unwind, and more taxes if any hedging were required. Additionally, other market makers might reduce the liquidity they provide as a result of the tax, if enacted.

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