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Tax and Spend?

BY Jeff Green

For anyone involved in retail, it feels like the International Council of Shopping Centers (ICSC) Spring Convention in Las Vegas signifies an important yearly milestone. Those of us in the industry can be forgiven for visualizing a “retail year” that begins immediately after the convention in May and runs until RECon opens its doors the following year.

With that in mind, now seems like the right time to think about what comes next for the industry — those hot-button issues that will loom largest in the months ahead. There are plenty of candidates: ongoing evolutionary changes in store size, the fate of retail icons like J.C. Penney, Sears, K-Mart, Barnes & Noble and Best Buy, and the continuing emergence of mixed-use development and urban infill redevelopment as prominent retail development models.

To my mind, however, there is one issue on tap for the “retail year” ahead that might trump them all: the Internet sales tax. Ironically, this was one of the few potentially impactful issues not prominently discussed at this year’s ICSC.

The concept of an Internet sales tax has been debated back and forth for years, but with the U.S. Senate passing the Marketplace Fairness Act in early May, and President Obama on the record as supporting it, the only thing standing in the way of the new policy is the House of Representatives. Essentially, the new law would eliminate a loophole that has been in place since the beginning of e-commerce: Because existing laws required retailers to collect sales tax only on those goods that are shipped to states where they have a physical presence, customers doing their shopping online have largely been able to avoid paying any kind of sales tax. The idea is that an Internet sales tax, which would mandate that online purchases are assessed sales tax based on the state sales tax of the individual making the purchase, would put online retailers and brick-and-mortar retailers on a more level playing field.

In reality, of course, things aren’t quite so black and white. The division here is less between online and traditional retail models so much as it is between the big brands like Amazon and Wal Mart and the smaller independent operators. If you think about how difficult it would be for a mom-and-pop operation (some of whom already have a tough enough time investing the resources required to maintain a viable online presence) to calculate and collect state-specific sales tax totals for every transaction, you can see why many smaller retailers would not exactly be thrilled if this comes to pass.

The broader issue for brick-and-mortar retailers is whether an Internet sales tax will impact consumer behavior, making them more likely to purchase items they might have otherwise bought online at a storefront instead. I tend to think that it will, and that this kind of a move would at least slow the rise of online retail a little bit and give a much-needed boost to brick-and-mortar sales. On the other hand, I have also heard people making a different argument, suggesting that the impact on retail behavior will be fairly modest or marginal, and that the small price difference is not the primary driver of online shopping habits so much as convenience and practicality.

It’s possible that the hype and intense media coverage surrounding the passage of this legislation would have as much — if not more — of an impact on consumer behavior as the tax itself. Psychologically, shoppers will be much more aware of the issue, and I think it’s likely that the simplified version of what this would mean (“Shopping online is now more expensive”) will seep into the consciousness of many consumers.

One way or another, this pending legislation will impact retail development. Will it give brick-and-mortar retail a reprieve from online encroachment? Or will it be little more than a blip on the radar? What do you think? If this bill passes and an Internet sales tax becomes the law of the land, will it be yet another boost for the biggest brands and a drag on smaller and independent names? Join the conversation by leaving a comment below or feel free to e-mail me at [email protected].


Click here for past columns by Jeff Green.

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Report: Lululemon chair sold stock prior to CEO exit

BY CSA STAFF

Lululemon’s chairman, Dennis "Chip" Wilson, sold stock worth $50 million just days before shares slumped following CEO Christine Day’s resignation, according to a Reuters report.

Reuters goes on to cite a Wall Street Journal report — which in turn cites InsiderScore.com, a site which tracks insider trading and institutional ownership — that Wilson set up plans to sell stock back in December. Wilson founded the company in 1998 and remains its largest voting shareholder.

Shares of Lululemon slumped following Day’s announcement, despite reporting net revenues of $346 million for the first quarter ended May 5, an increase of 21% from $286 million in the first quarter of fiscal 2012. The company’s comparable-stores sales for the first quarter increased by 7% on a constant-dollar basis.

When discussing the company’s first quarter results and her exit, Day referred to the company’s mishap with its Luon black yoga pants, which were too sheer and had to be pulled off shelves back in March and which the company began selling again a week ago.

"While we regret that we had quality issues with our black Luon [yoga pants] we are proud of the organization’s ability to get Luon delivered back into our stores within 90 days of having pulled it from our line, all the while keeping our guests happy and engaged with the brand,” Day said.

Click here to read the Reuters report.

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Sycamore Partners acquires mall goth retailer

BY CSA STAFF

Sycamore Partners has acquired mall- and Web-based specialty retailer Hot Topic and its Hot Topic, Torrid and Blackheart concepts for approximately $600 million.

"Hot Topic and Torrid are both leaders in their categories, and we are excited to have both brands as part of our portfolio," said Stefan Kaluzny, managing director of Sycamore Partners. "Sycamore Partners is very pleased to have the opportunity to partner with Lisa Harper and her team to invest in the continued development of both the Hot Topic and Torrid retail brands."

"We are very happy to partner with Sycamore Partners. Their knowledge and expertise in the consumer and retail markets is precisely what we need to optimize both the Hot Topic and Torrid brands," added Lisa Harper, CEO and chairman of the board of Hot Topic.

As a result of the merger, the company’s common stock is no longer listed for trading on the NASDAQ Global Select Market.

Guggenheim Securities acted as financial adviser to Hot Topic and Cooley LLP acted as its legal counsel. Winston & Strawn LLP and the Law Offices of Gary M. Holihan, P.C. acted as legal counsel to Sycamore Partners.

The Hot Topic transaction is the fourth investment by Sycamore Partners, which has more than $1 billion in capital under management. Previous transactions include the acquisition of a controlling interest in Mast Global Fashions from Limited Brands, the formation of Pathlight Capital and the acquisition of the Talbots.

The company operated 618 Hot Topic stores in all 50 states, Puerto Rico and Canada; 190 Torrid stores, 5 Blackheart stores, and 3 e-commerce sites.

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