The Gloves Are Off for Retailers in 2013

Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Demand for the Italy's Missoni fashion brand at discount retailer Target (NYSE: TGT) was enough to cause the big-box retailer's website to crash in 2011. Now the fate of the brand is uncertain as a plane carrying Vittorio Missoni, the chief executive of the family business, went missing off the Venezuela coast last weekend of January 4.

Missoni was founded by Ottavio Missoni, Vittorio's 91-year old father. The senior Missoni also has a younger son, Luca, who according to the New York Times is the fashion brand's creative director and who is also spearheading the search effort for the missing Vittorio. Angela, a third child of Ottavio's, is Missoni's designer. The trio of siblings together own the fashion brand but Vittorio is largely responsible for the label's U.S. push.

Target's Unmatched Missoni Boost

The success that Target had with the Missoni brand is somewhat unprecedented. In my local Target store in Fairfield, New Jersey, the Missoni line sold out on the very day that it was introduced. In 2012, Target partnered with Neiman Marcus and spotlighted collaboration with the brand for the holidays. The retailer's December sales, however, left something to be desired.

Last month got off to a slow start for Target but sales picked up in the final days of December. Unfortunately, it wasn't enough to lift sales results significantly, as net retail sales increased 0.8% versus the year ago period while comparable store sales were flat.

Target projects that 4Q EPS will be inline with expectations and may even surpass the lower end of an anticipated range, which is between $1.64 and $1.74 or on a GAAP basis between $1.45 and $1.55. Target is opening its maiden retail locations in Canada in 2013 and that explains the big gap between the two EPS ranges, according to the retailer.

Bidding War

Target is not the only big-box retailer with changes up its sleeves for 2013. Wal-Mart (NYSE: WMT) is said to be waiting in the wings watching the bidding for the bankrupt Hostess brand play out. An auction for Hostess' bread business, which could fetch $350 million, according to The Wall Street Journal, could surface in coming days. Wal-Mart, which generated $7 billion in cash flow in the first three quarters of 2012, is likely to be up against Flowers Foods (NYSE: FLO) and Mexico's baking giant Grupo Bimbo SAB, for Hostess' bread business, the WSJ indicates.

For its part, Flowers Foods just made changes to an existing $500 million senior unsecured revolving debt facility. Under the new terms, the company can gain access to an aggregate of $700 million. One of the potential purposes of the facility is for acquisitions. A press release stated:

"Amending and extending the credit facility improves our capital structure, providing a solid debt capital base and continued source of liquidity. This amendment to our credit facility positions us to take advantage of an assortment of opportunities as we work to achieve our expansion goals." -- R. Steve Kinsey, FLowers Foods chief financial officer and vice president

Play Nice

For its part, Wal-Mart has been on the offensive of late. The discount retailer is in the midst of a pricing war with its competitors, one in which the big-box retailer is continuing a controversial ad campaign launched months ago that promises to beat other retailers' best prices. The social media and broadcast ads go so far as to name competing stores and their prices, which has ignited an uproar among companies like Toys R Us' and Best Buy (NYSE: BBY), according to the Wall Street Journal. Wal-Mart's competitors have begun filing complaints against the discount retailer essentially for false advertising, alleging that Wal-Mart is not making accurate comparisons or quoting true prices.

Making matters worse, Wal-Mart forced electronics retailer Best Buy to make good on a promise that it would match competitor’s prices. Best Buy's promotion backfired as it forced the electronics retailer to sell the golden Apple iPhone 5 for Wal-Mart's low price of $150, which cost Best Buy tens of thousands of dollars in the meantime, the WSJ indicates. Best Buy blames Wal-Mart, suggesting that the discount retailer didn't even have enough inventory on hand to satisfy demand at that price. 

For its part, Target is said to be readying over-the-top broadcast ad campaign for its food business, according to Supermarket News. Details are scant but are said to target PTA moms.

Competition among retailers is already heating up and we're only days into 2013. Retailers are focused on market share and profits and hopefully innovation. So far the ones benefitting the most seem to be consumers.


GerelynT has no position in any stocks mentioned. The Motley Fool recommends Flowers Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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