Roulston Research Retail Partner Craig Johnson creates Annual, Holiday, and Back-to-School forecasts on an annual basis and has consistently been one of the most accurate forecasters in the industry. This summer he predicted in BTS 2011 sales would rise 6.2% which was more optimistic than anyone because people were concerned with slowing consumer spending, high unemployment, and the political unrest in Washington. He turned out to be very close with sales from the July-September sales rising 6%. Craig’s Holiday forecast has been right on the money the past few years. This year he is predicting total holiday sales will rise 6.5% for the November to December period over last year, which is over twice the consensus forecasts that are calling for modest 2.5-3% growth. This would be the most rapid growth since 6.9% year-over-year growth in 2004. Craig states, “After three years of scrimping and saving, Americans are ready to spend — strategically and smartly, but for the first time in years, very few things will stand between an American consumer and her shopping destination.” Customer Growth Partners sees the apparel industry leading the way with a YOY increase of 7.6% while value retailers will also thrive, growing 8% YOY, led by the dollar stores and off-price apparel chains. To read the full article please visit http://www.chainstoreage.com/article/customer-growth-partners-holiday-sales-rise-65-554-billion.

To obtain Customer Growth Partners 2011 40 page Holiday Forecast please contact Michael Igelnik at (216)765-0519 or migelnik@roulstonresearch.com. The report discusses the retail environment from a macroeconomic perspective and provides aggregate, and detailed sectoral and company specific forecasts for the November-December season, across all major retail categories, including eCommerce/Direct to Consumer. He also reviews 30 of the nation’s top retailers and gives a detailed company analysis, providing insight into who will be the winners and the losers during the holiday season.

Two good friends have closed their hedge funds in the last few months. They are smart guys who were making good insightful investment decisions. It just so happens they were not making their decisions based on the U.S. budget discussion or the European debt crisis or inept politicians and regulators in Washington. They didn’t care about all the new offerings in social media remembering the tech bubble that began the last decade. They were looking at the fundamentals of businesses and shorting stocks like Netflix and finding undervalued companies early in their recovery cycle. They were patient and good investors.

Now they are being fired by investors for doing exactly what they said they would do. They are fired by investors that forgot that a hedge fund may not outperform in the early stages or late stages of a headline driven economy. They did not care about a media frenzy directing confidence and sentiment. They are fired for not performing in the short term of a volatile market and investment environment. It’s sad that this happens and if those investors had just waited three months they would be vindicated. It’s sad because instead of investors trusting these independent minds, we temporarily have been instead dominated by media, government and research with ulterior motives. Conflicts of interest now drive our thought process. The independent thinkers are overwhelmed by short sightedness and “from the hip” reactions from regulators in Washington to analysts on Wall Street. We are firing the wrong guys.

Companies are challenged to make forecasts anymore. They don’t know when the next rule is going to change. Talk to anyone with FDA, EPA, NLRB or SEC oversight. To say it is unpredictable is an understatement. Why can’t they get the energy industry together to set fracking environmental rules into place to set a clear standard? Why can’t proprietary trading by banks/brokers be recognized as front running clients? Why can’t the government just define insider trading clearly? Why do these people below get paid by buy side firms for their research after Netflix stock in three months drops from $304 to $75? This company lost nearly 10% of their subscriber base in one quarter and none of these analysts whose job it is to forecast and offer insight were even close with their thoughts and opinion. They work in an antiquated and commoditized model.

Roulston Research offers independent views from those with lifetimes of experience in their industry. Our teams of industry consultants do not work for public companies. They are not insiders. They are the best tutors to understand from being there in industry. They are used to being pitching coaches to Cy Young winners. Buy Side analysts need the best insight for due diligence. Analysts need to hear all sides even if they believe differently. They need to know conflicts and filter information accordingly to add insight to the future. The sell side doesn’t do research anymore, they gather data. Consider for a moment where your next research dollar is going. Read these Yahoo quoted excerpts and ask yourself, who are the knowledge leaders to whom your research dollars should be allocated? This information didn’t change yesterday.  

  • Ingrid Chung, Goldman Sachs: She cut her rating on the stock to Neutral from Buy, setting a new target of $75, down from $200. She gave two reasons for the downgrade. One, she writes that she is “disappointed that management is sticking with the “if [we] build it, [they] will come” stance, assuming that consumers will soon forget about the price increase.” And she adds that she is disappointed that the company chose the U.K. for its next market launch, “given the high level of existing competition and the lack of available content there.” Her 2012 EPS estimate drops to $2.09, from $5.54.
  • Mark Mahaney, Citigroup: His rating drops to Neutral from Buy, with a new target of $95, down from $220. “We upgraded NFLX from Neutral to Buy on 5/2 @ $232 with a $300 price target,” he writes. “Our call has been drastically wrong. The 60% price increase in July and the aborted effort to separate the DVD business were 2 major execution errors. Incremental negatives now: 1) a dramatic ramp-up in International expansion spend for 2012 without sufficient evidence of strong Latin American takeup – Q4 guidance implies a [sequential] decline in International Net Sub Adds; and 2) a significant decline in U.S. Hybrid (Streaming/DVD) Subs post the 9/15 negative pre-release. Consumer backlash is mostly the cause, but increased competition is likely a factor.”
  • Vasily Karasyov, Susquehanna Financial: Rating to Negative from Neutral; target to $60, from $124. “Looks like the nuclear winter scenario is playing out for NFLX,” he writes. “Subscriber base expansion in the U.S. appears to be minimal and losses from international launches are weighing on profitability. We think Q3 results combined with Q4 guidance and comments on 2012 put to rest the bull case on NFLX as we know it.”
  • Doug Anmuth, J.P. Morgan: Rating to Neutral from Overweight, target to $67, from $205. “We believe the long-term potential for streaming-only in the U.S. and international markets remains intact and Netflix’s value proposition to streaming only subscribers is unchanged,” he writes. “However, Netflix expects to double its domestic streaming content spending in 2012 and start-up costs in Latin America and U.K./Ireland are likely to come in much higher than we anticipated. As a result, Netflix does not expect to be profitable for the first few quarters of 2012-this compares to previous Street expectations for $5 – $6 of GAAP EPS.”
  • Tony Wible, Janney Capital: Downgrades to Sell, from Neutral, with target reduced to $51, from $102. “The new baseline of sub metrics is troubling, management credibility has crumbled, international adoption is weak, content costs are mounting, and its is clearer that the DVD business accounts for the vast majority of profits,” he writes in a research note. “Furthermore, there are still a massive number of negative catalysts on the horizon including: issues with Usage Based billing, new DVD windows, EPIX exclusivity, DISH promotions, AMZN initiatives, new competition from Apple, streaming cost accounting, and Starz deals with competitors. Management has failed to rebuild faith in the stock, which is still expensive and mispriced by value standards.”
  • Anthony DiClemente, Barclays Capital: He keeps an Overweight rating, but cuts his target to $125, from $260. “We believe the capitulation in shares is overdone and would point to two encouraging data points: 1) gross subscriber additions were up 20% year-0ver-year in the third quarter despite the subscriber reset, and 2) unique Netflix subscribers are expected to be slightly up in Q4,” he writes. “These two points may not have been readily apparent upon a cursory read of the shareholder letter.”
  • Justin T. Patterson, Morgan Keegan: He keeps his Market Perform rating, but cuts his target to $90, from $140. “Netflix is in the tough spot of regaining consumer trust, which makes us skeptical that December will show ‘strongly positive’ net adds. Coupled with rising costs, we need to see evidence, not a hypothesis, of stabilization before getting constructive.”

How do we leverage resources and cut costs? Don’t buy the equipment borrow it from a neighbor. Don’t hire the mechanic go to a friend who knows cars. Alternative research is really not alternative at all. Go to those you trust for their opinion and insight but network with knowledgeable people.

Veterans have been there. In sports we want them on our team. They want the bat with two outs in the 9th inning in a tied game. They provide leadership. They provide guidance. They are the best resources to be our mentors by knowing how the game should be played. Using mentors in research is simply the best guidance we can have to check our work and gain the best insight.

We regularly are asked for a different perspective. What is next? Our perspective in Cleveland, Ohio is not the same. It may be more conservative and it may be more driven by manufacturing or influenced by alternative grounding. Our blog reflects over 50 industry experts timely insight harvested by our Director of Research Jeff Stevenson. Separately I talk to a lot of people and hope you find value in our updates.

The Director of Research is the coaching staff of internal resources. Before the buy-side analysts in the 1980’s the Director of Research organized brokers. Today the key is to leverage resources for outperformance. Stimulating analysts to network for best resources maximizes intelligence gathering and the quality of due diligence.

Roulston Research Technology Partner Rob Enderle recently commented on the largest outage in years for Blackberry last week where users lost access to e-mail, messaging and Internet services across the United States and Canada. Blackberry has had a strained relationship with consumers for awhile now and this might have been the last straw for numerous longtime users. The outages occurred at the worst possible time for Research in Motion, the producers of the phones, because it was the same time that Apple was launching the new iPhone 4S. Rob states, “Damaged by this week’s widespread Blackberry outage, Research in Motion should bleed customers on a “massive scale” as Apple’s iPhone 4S hits stores.” Many of Blackberry’s users have stuck with the phones because of the quality and efficiency of its e-mail system. Despite missing quarterly earnings for the first time since 2004 this week Apple is positioned to take advantage with the new iPhone and new partnership with Sprint. To read the full article please visit http://www.huliq.com/1/apples-iphone-4s-sprint-deals-may-result-massive-blackberry-exodus-2011-black-friday.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events. You can visit his website at http://www.enderlegroup.com/.

Roulston Research Media Partner Mark Ramsey recently created a blog posting about his recent interview with Kaihaan Jamshidi who is the Director of Strategy for Method, a brand, experience, and innovation company who works with major companies like Nordstrom, Time Warner, and AOL. The highlights of the interview were to discuss how broadcasters should innovate the radio experience and the future of advertising buying. Kainhaan explains how from an advertising and marketing perspective of a brand there is not much value placed on radio. Traditional radio hasn’t figured out how to make the commercials drive growth and work. Radio has been able to run because of low cost content production and as soon as you start looking at alternative formats for creating more interactivity then cost becomes a factor. Having the low-cost content could be an advantage though because more podcast-style programming could be produced that allow much wider range of content, voices and opinions. Radio needs to be less focused on how it has been perceived in the past and be willing to add more channels, such as video or internet, to provide content where consumers want to see it. Another major problem with the media industry is that companies have become too reliant on the process of media sales with the traditional 10-30 second spot. Broadcasters need to work more directly with brands or get to a cost-per-point way of thinking to show them the value of advertising on radio. The traditional radio stations have two sides, programming and sales, that are more and more working together to ensure that they have high quality programming while at the same time the advertising has to be compelling enough to be part of the content mix rather than an interruption. These strategies would help major domestic broadcasters and smaller radio stations become more relevant in today’s society. To read Mark’s full postings to see his and Kaihaan’s insight into these topics please visit http://www.markramseymedia.com/2011/10/how-to-innovate-the-radio-experience/ http://www.markramseymedia.com/2011/10/is-cost-per-point-the-enemy-of-radio-innovation/.

Mark Ramsey Media is one of the best-known research and strategy providers to media companies in America. He has worked with several television and innumerable radio broadcasters over his career, including all the biggest names, from Clear Channel, CBS, Bonneville, Sirius XM, and Greater Media in the US to Corus and Astral Media in Canada. Clients from outside broadcasting have included EA Sports and Apple.

One of Roulston Research’s Retail Partners specializing in merchandising commented on how the Gap recently announced that they would be closing 34% of their domestic stores. The market liked this decision by the company but it is not really the long-term answer. What this decision really says is that the company has no brand and no clear fashion direction moving forward. They also haven’t figured out which stores based on existing volume can be profitable. Gap’s decision shows that the company is shrinking to become profitable and not growing their business. The company will continue to do this as more and more of their leases come up to reduce another million square feet. Using financial engineering as a way to create operational profits is not a good long-term strategy for merchants and will not work for Gap.

If you would like to have a one on one engagement with any of our partners please contact Michael Igelnik at migelnik@roulstonresearch.com or 216-765-0519.