Amazon vs. Walmart (Regular Entry)

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Screw it. We've been desperately trying to avoid mention of Amazon but it's simply impossible. This week Amazon ($AMZN) launched its Kohl's ($KSS) takeover...uh, partnership...pursuant to which consumers can buy Amazon products at Kohl's locations and return Amazon shipments for processing. In other words, Kohl's has become a return center for Amazon. Nothing to see here. Meanwhile, Amazon took over a few floors above the Macy's ($M) location in Seattle. Nothing symbolic about that whatsoever. Amazon has also partnered with large apartment landlords to install lockers inside large buildings. That's one way to dominate the "last mile." And people were in an uproar about that (dumbass) startup Bodega? Imagine this: "Hey Alexa, order me some toilet paper please." Within ten minutes your apartment building doorman calls you and says you have a package. How can that be? Well, just so happens the Amazon Locker in your apartment building has a stockpile of toilet paper laying in wait. Mark it: we're headed in that direction. And nobody seems to realize it. Bezos is laughing at the Bodega founders right now as he surreptitiously dominates local small business. If he has time to laugh while simultaneously wrecking fashion, that is. 

Fast Forward (Concordia International Corp., Harvey Gulf International Marine, Charming Charlies)

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Initiate the countdown to Concordia International Corp's US-based bankruptcy. The Canadian-based pharmaceuticals company announced that it wasn't paying its $26mm interest payment on its unsecured notes and subsequently filed a CBCA proceeding in Canada. In a blow to the "efficient markets" theory, the stock traded down precipitously following the interest payment announcement. How this wasn't "priced in" is beyond us."Dumpster Fire" is right. Meanwhile, in an additional sign that oil and gas distress persists, Harvey Gulf International Marine, an offshore marine transportation provider, is in the midst of trying to figure a balance sheet restructuring. So, healthcare and oil and gas: sounds about right. Meanwhile, Charming Charlie'searned itself an S&P Global Ratings downgrade. Walter Investment Management Corporation will be filing a prepackaged bankruptcy case in November. All told, activity seems to be picking up in restructuring circles despite a soaring Dow.

Disruption (Google, Apple, Facebook, Amazon)

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Though somewhat redundant given prior pieces he's written, Benedict Evans doubles-down on why so much disruption is going to come from the Big Four. In a word: scale. In another: mobile distribution. Still, it seems - maybe in light of the recent Russian ad-buying scandal - that people are more focused than ever on the Big Four (Five, if you want to include Microsoft ($MSFT)). Indeed, here, The New York Times highlights how even massive companies like Snapchat ($SNAP) andUber are struggling to deal with the behemoths. On point, Google, which has previously invested in Uber, announced earlier this week a $1b investment in Lyft. Snapchat, meanwhile, much to the chagrin of pundits, is marketing an $80 dancing hot dog costume for Halloween. On one hand, it's brilliant to create consumer products based on your digital product. On the other hand, however, when your target market is the millennial, an $80 price point for a Halloween costume strikes as a, uh, a bit rich maybe...?

Retail.Captain-Obvious

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This is interesting. Upshot: retailers ought to move away from the traditional seasonal approach if they want to compete with millennials insatiable year-round appetite for experiences. (PETITION NOTE: of course, it's too late for a number of retailers: we suspect this year's holiday season is make-or-break for a number of retailers, e.g., Nine West, Charlotte Russe, 99 Cents Only Stores). And marketers are focused on the 26 year-old millennial who apparently barely know how to put on pants in the morning (firewall). Good luck, though: JP Morgan Chase, Citigroup, and Bank of America just reported numbers and noted higher credit card-related losses in the last quarter. Each is increasing reserves against losses. Spending was up last month in auto, retail and restaurants, by the way. Query whether that spending will translate into future credit card losses and reserves.

Walmart Gives Retail a Brief Reprieve

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A number of retailers have cited wage increases as one of the reasons for filing for bankruptcy. John Morberg, the CEO of Garden Fresh Restaurant Intermediate Holdings, made sure to highlight this issue upon that company's bankruptcy filing. On the flip side, Toys R Us includes wage increases in its go-forward business plan. Target recently announced wage increases too. But Walmart, which had previously announced wage increases didn't match Target in its earnings announcement on Tuesday, providing relief to a lot of retailers already squeezed by various macro trends. Speaking of Target and Walmart, they are innovating to compete with Amazon for the "last mile." This could get ugly.

Retail.AI - JC Penney Edition

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We love this. Take conventional retail analytics data, sprinkle on a bit of crowdsourced retail recon (parking lot vacancies), and slap a "machine learning" label on it and BOOM!, you've got yourself an (allegedly) algorithmically-generated conclusion that 200 JC Penney locations have a 67% chance of dying. Newsflash: WE could tell you that 200 JC Penney locations have a 67% chance of dying without a single line of code. That'll be $25k please. 

Unrestricted Subsidiary Shenanigans: iHeartMedia Version

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Last week we wrote about Caesars and the "mess" that ensued after beleaguered creditors went after PE funds for value transfers to unrestricted subsidiaries (a playbook recently deployed in J.Crew, as well). This past week a judge ruled in favor of the company in iHeartMedia Inc., ruling that an equity transfer to an unrestricted sub didn't equate to a default. Elsewhere in iHeartMedia world, lots of negotiations and due diligence (per Reorg Research).
 

Mark to Market (Short Academics & Long Optimism)

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MIT released a study that indicated that private equity and venture capital marks tend to increase as the public equity market increases. Shockingly, the marks don't decrease, correspondingly, when the equity market decreases. Choice quote, "'We make no claim that this behavior is intentional...[i]t is quite plausible that private equity managers subconsciously produce positively biased valuations merely because they are optimistic.'" Riiiiight. Color us cynical, but we think it's pretty hard to justify that 2-and-20 when an ETF is up 18% and your risk-adjusted return is -3.3%. But optimism. Sure. 

Oil & Gas - No Good News

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The industry still isn't in the clear as a variety of oil and gas companies continue to struggle to survive in the new lower-oil-price reality. Not helping matters? BNP Paribas decided to cutoff business (firewall) with companies whose primary business is oil and gas extraction from shale deposits and/or tar sands - an aggressive measure to reduce exposure to fossil fuels. Obviously this is an opportunity for the shadow bankers. Also not helping matters: the US continues to export over a million barrels a day, exporting into foreign markets and counter-balancing OPEC's efforts to curtail supply. Nevertheless, theInternational Energy Agency lowered its forecast for 2018. And a group of oil and gas execs surveyed by Deloitte see crude oil prices remaining below $60/barrel through 2018 which will require producers to continue focusing on lowering costs (thereby further squeezing oil field servicers). 

Grocery.Effed

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Already-distressed grocers like Bi-Lo Holdings and Fresh Market were already dealing with the threat of increased competition from Amazon when Hurricane Irma swept through and hammered them. Apollo Global Management reportedly has extended a 6% unsecured $50mm bridge loan to Fresh Market to help keep it afloat. Meanwhile Bi-Lo is advisored to the hilt and seems headed towards some kind of restructuring. Tops Friendly Markets also has secured debt trading at distressed levels. While Kroger announced somewhat flat guidance going forward, it acknowledged an expected fall in earnings as price wars heat up with Amazon and foreign encroachers like Aldi and Lidl; it also announced that it hired Goldman Sachs to explore a sale of its convenience store business. While the stock traded up on the news, it is still down nearly 37% since the WholeFoods news. There will be winners and losers in this space and it seems increasingly likely to shake out quickly. 

Vultures Are Swarming Around Houston Distressed Real Estate

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Vulture investors are swarming all around distressed Houston real estate. Because of course they are. Elsewhere, folks are beginning to worry about the effect of Amazon's ($AMZN) increased push into fashion: will it rock retail real estate even more than it has? With seven private labels now, Amazon is rumored to expand into sportswear, going directly after Nike ($NKE) and Under Armour ($UA). Query what level of data Amazon can leverage from usage of its AWS to crush its (new) competitors.

Toys R Us is Getting Desperate

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When in Doubt, Talk Augmented & Virtual Reality

Retail.AR. People are really trying to make virtual reality a thing. Facebook cannot sell the Oculus Rift but, hey, sure, Toys R Us will obviously rebound from bankruptcy thanks to VR and AR. We can't wait for the inevitable press stories about how kids are projectile vomiting in the pop-up Times Square store. Mark our words: it's coming. 

Mall Operators are Getting Desperate

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Lets Debate Vernacular, Shall We? 

Retail.AI (Short Vernacular). So, let's not call malls "malls" anymore. Let's call them "community hubs" or "community centers." We don't want to, uh, "'get lost in the vernacular.'" C'mon. This is a fulsome piece about the future of malls, featuring all kinds of fancy comments from mall operators about the future of brick-and-mortar retail. A QIB Global Real Estate professional notes, “Offering more than a simple consumer transaction, we are creating places that encourage people to dwell, drawing in the community and ensuring people will visit again and again. By curating a more integrated, experience-led offer that responds to a broad range of customer needs, we’re supporting an uplift in sales across all categories including fashion and apparel.” Anyone still awake? Can someone check to see if the Guinness Book of World Records' record for buzzword usage was broken? And, like that, poof! People go to malls again. Woohoo! A few things seem apparent to us from this piece: (i) the Westfield at the World Trade Center, as we've previously reported, is underperforming; (ii) the same-store-sales measurement is out-dated if mall operators envision nothing but food, gardens, and sale returns (until Amazon institutes a Shyp-like service where, so long as you are Prime member, you can have couriers pick up and package shipments for you); and (iii) everyone is losing faith in department stores. Of course, it's a bit easier to be optimistic as a REIT operator if/when you're able to leverage public financing to aid your modernization efforts. Serious question: how is that not a bailout of sorts?

Notable: (Community Health Systems, Fairway Market, Nordstrom, etc.)

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Airlines. Another European airline jumps into administration (the third this year). 

Community Health Systems. This just keeps getting better and better. 

EFH. The Judge continues to perplex people. Sempra Energy jumping through hoops to get the Oncor deal done.

Fairway Market. Perhaps it will avoid its (inevitable) Chapter 22 thanks to John Catsimatidis. 

Family Offices. Long them.

Hedge Funds. Short them. Or...uh, maybe not? Wethinks the hedge fund PR machine is in overdrive. 

Nordstrom. Struggling with its attempts to go private.

Offshore Drilling. Not much of a US focus, but some are bullish. We were surprised by this. 

Payday Lenders. Peace out...if this happens.

Toys R Us. Thanks to advisory fees, perhaps the private equity sponsors didn't fare as poorly as many think.

Sophia Amoruso's Nasty Gal Failure = Trite Lessons

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Short Puffery

We love how entrepreneurs are all about "move fast and break things" and "don't be afraid to fail" but then when they do, and do so badly, there is barely anything that really provides an in-depth post-mortem (frankly, the aboveCaesars-piece notwithstanding, the same can be said for restructuring deals). Take, for instance, this piece of puffy garbage about Sophia Amoruso, which purports to inform readers about what Ms. Amoruso learned from Nasty Gal's rapid decline into bankruptcy. Instead it provides some evergreen inspirational advice that applies to virtually...well...everything and anything. TOTALLY USELESS.