WWD : China Tops in Emerging Markets Ranking

China Tops in Emerging Markets Ranking

    When it comes to retail opportunities in emerging markets, Asia is tops and China is the crown jewel.
    Despite having the lowest economic gains in more than two decades, China’s retail sector was red-hot last year, growing 11.6 percent, according to A.T. Kearney’s Global Retail Development Index. Generally, economists consider retail growth of between three and five percent to be strong.
    After not being number one for five years, China took the top spot again in the research report, which ranks 30 countries in emerging markets via two dozen “retail-specific” and economic metrics. This year’s report also includes a spotlight on luxury brands, and the analysts categorized countries based on how well-entrenched luxury brands are in those markets.
    In the overall rankings, the analysts noted that over the next seven years, China’s retail market is forecast to grow to $8 trillion, which is twice that of the U.S. The analysis also showed Asia as the top regional performer – even as it experienced an economic slowdown. And as news headlines can attest, emerging markets have experienced some intense challenges.
    “As a result of turbulence in the Middle East, Latin America, and Russia, the past year has seen a more cautious approach to international expansion into some developing markets,” said Mike Moriarty, A.T. Kearney partner and coauthor of the GRDI. “However, retailers are taking a longer-term view of emerging markets, with fewer exits, and more targeted investments in areas of growth.”
    In China, the authors said retailers are “adapting to an environment of slower economic growth.” This adaptation is centered on an strategic emphasis on market share and profitability, which can be seen by recent store closures and by “optimizing store portfolios,” the authors said. For example, the market leaders closed about 200 stores in the country last year, compared with 35 closures in 2013.
    Most of the closures involved grocery chains and department stores. It’s a different story, though, when it comes to specialty stores and luxury. The researchers said over the next two years, Apple aims to expand its units to 40 stores from 15 now and there’s already been a burst of growth from fast fashion.
    “Global fast fashion retailers opened a combined 264 stores in 2014, including 80 Uniqlo stores, 60 H&M stores, and 16 Zara stores,” the authors said. “Luxury players are also expanding despite China’s anti-corruption policy, which many feared would dampen demand. Hermès opened its fifth Maison Hermès in the world in Shanghai, and Lane Crawford opened its third Mainland China store in Chengdu.”
    Meanwhile, as a region, Asia is experiencing robust e-commerce sales. The region’s e-commerce market stands at $525 billion, which exceeds North America’s $483 billion. “As Internet penetration expands and online offerings improve, Asia’s ecommerce retail sales could grow as much as 25 percent annually,” the authors said. “The online channel will continue to be a major focus for retailers in the region in the coming years.”
    Regarding other regions, socioeconomic volatility has been a key factor. “In the Middle East and Latin America, for example, turbulence brought a more cautious approach to international expansion, but at the same time retailers made few significant market exits,” the authors said, adding that Russia has been an exception as “the heightened political risk” there triggered “sizeable closures or complete exits from players such as Adidas, franchisee Maratex, and Mexx, among others.”
    From a higher elevation, the analysts said retailers have increased their understanding of emerging markets as well as how to navigate “shifting economic and political trends.”
    In the luxury spotlight, the authors said presence in emerging markets is important for brands because these regions represent 30 percent of the global luxury market. “Luxury remains a relatively bright spot in emerging markets, as the wealthy have proven less vulnerable to economic woes than the general population,” said Hana Ben-Shabat, A.T. Kearney partner and GRDI coauthor.
    The report categorized countries into three tiers based on luxury brand presence. The first tier is “established markets,” which have 11 to 15 brands, and includes: Brazil, China, Kuwait, Malaysia, Qatar, Russia, Saudi Arabia, Turkey and the United Arab Emirates. The next tier is “middle of the pack,” which have six to 10 brands, and includes: Azerbaijan, Colombia, Jordan, Kazakhstan, Mexico, India, Indonesia, Panama and the Philippines. The last tier is “emerging luxury markets,” which have up to five brands, and includes: Angola, Botswana, Chile, Mongolia, Nigeria, Oman, Peru, Sri Lanka and Uruguay.
    The authors said there are opportunities for luxury brands “no matter where you look, but luxury brands’ strategies have to be tailored to the local market to succeed.”
    For example, the report noted that developed luxury markets such as China and the UAE can be less risky, but are more competitive too. “In mid-sized markets such as India, players need to actively build their brands and be ready to pounce once luxury real estate becomes available,” the report stated. “For those that are more intrepid, breaking ground in new frontiers could pay off big in the long run if they can get past the initial challenges.”

    >>> US Gapping down

    Gapping down
    In reaction to disappointing earnings/guidance    : BAMM -4.8%

    Select metals/mining stocks trading lower: GFI -2%, AU -1.9%, MT -1%, BHP -0.9%, RIO -0.8%

    Select oil/gas related names showing early weakness: SD -1.6%, STO -1.3%, RDS.A -1.1%, SDRL -0.9%, BP -0.7%

    Other news: MCP -24.4% (WSJ details that Molycorp (MCP) is expected to skip its June 1 debt payment), MRTX -20.8% (presented at ASCO, initial data from ongoing expansion study of MGCD265 -- also downgraded to Hold at Brean Capital), CLVS -8.6% (preented at ASCO, Phase 2 studies of rucaparib in ovarian cancer and Rociletinib (CO-1686) Phase 2 study results)

    Analyst comments: ACAT -2% (downgraded to Underperform from Market Perform at BMO Capital), GSBD -1.4% (downgraded to Market Perform from Outperform at Wells Fargo), HES -0.8% (downgraded to Hold from Buy at Deutsche Bank
    )

    >>> US Gapping up

    Gapping up
    In reaction to strong earnings/guidance    : DSKY +12%, GZT +1.4%, NGL +0.6%

    M&A news: CLDN +6.1% (co hired Wedbush to seek an acquisition or partnership), ALTR +4.7% (Altera confirms it will be acquired by Intel (INTC) for $54 per share)

    Select ASCO presenting names showing strength: ONTY +29.5%, IMGN +19.4%, EXEL +11.4%, VBLT +10.8%, HALO +6.7%, CBLI +5.9%, CTIC +5.2%, RXDX +5.2%, JUNO +4%, OGXI +3.3%, THLD +3.1%, PSTI +2.5%, KPTI +2.2%, BMY +2%, CRIS +1.2%, CLDX +1.1%, CLDX +1.1%

    Select China related names showing strength after Shanghai Comp was +4.7% overninght: SFUN +2.2%, LFC +2.1%, YOKU +2%, FXI +1.7%

    Other news: PRAN +19% (announces that the EC has approved orphan designation for PBT2 for the treatment of Huntington's disease), HERO +13.7% (received a notice from Saudi Aramco withdrawing the previously issued notice of termination with respect to the contract for the Hercules 261 and declaring that all terms and conditions of the contract remain in full force and effect), CYTX +8.9% (enters into a four year, $17.7 mln term loan with Oxford Finance), MDCO +7.5% (nnounces the results of its Phase 1 study for ABP-700), BIOC +6.1% (announces receipt of a US Patent for its blood collection and transport preservative Diazolidinyl Urea), IMMU +4.7% (reports complete responses in patients with metastatic triple-negative breast cancer after Sacituzumab Govitecan treatment), ADXS +4.3% (announces FDA clearance of investigational new drug application for phase 2 study of ADXS-HPV), CLF +2.8% (still checking; may still be related to Insider purchases rpted on Friday), HRTX +2.7% (discloses it entered into a 7 year Commercial Manufacturing Services Agreement for SUSTOL with Lifecore Biomedical), OREX+2% (discloses it entered into a supply agreement with Mallinckrodt (MNK) for naltrexone), MDXG +1.7% (traded higher AMC Friday, favorable commentary on Friday's Mad Money), NBG +1.5% (cont vol surrounding Greece), ACHN +1.1% (Point72 Asset Management discloses 5.0% passive stake in 13G filing)

    Analyst comments: ANR +16.3% (upgraded to Neutral from Sell at Goldman ), LIFE +5.9% (initiated with a Overweight at JP Morgan), SYN +5.3% ( initiated with an Outperform at William Blair; $12 tgt), FATE +3.8% (initiated with a Outperform at Leerink Partners), PAY +2.3% (upgraded to Outperform from Mkt Perform at Raymond James ), BYD +2.2% (upgraded to Outperform from Neutral at Credit Suisse), COLL +1.4% (initiated with a Buy at Jefferies), C +1.1% (upgraded to Buy from Neutral at Goldman
    )

    >>> Altera - To be acquired by Intel for $54/shr, total deal valued at $16.7B; I

    To be acquired by Intel for $54/shr, total deal valued at $16.7B; Intel sees deal as accretive to EPS in year one 

    Intel Corporation (NASDAQ: INTC) and Altera Corporation (NASDAQ: ALTR) today announced a definitive agreement under which Intel would acquire Altera for $54 per share in an all-cash transaction valued at approximately $16.7 billion.

    The acquisition will couple Intels leading-edge products and manufacturing process with Alteras leading field-programmable gate array (FPGA) technology. The combination is expected to enable new classes of products that meet customer needs in the data center and Internet of Things (IoT) market segments. Intel plans to offer Alteras FPGA products with Intel Xeonprocessors as highly customized, integrated products. The companies also expect to enhance Alteras products through design and manufacturing improvements resulting from Intels integrated device manufacturing model.

    Intels growth strategy is to expand our core assets into profitable, complementary market segments, said Brian Krzanich, CEO of Intel. With this acquisition, we will harness the power of Moores Law to make the next generation of solutions not just better, but able to do more. Whether to enable new growth in the network, large cloud data centers or IoT segments, our customers expect better performance at lower costs. This is the promise of Moores Law and its the innovation enabled by Intel and Altera joining forces. We look forward to working with the talented team at Altera to deliver this value to our customers and stockholders.

    Given our close partnership, weve seen firsthand the many benefits of our relationship with Intelthe worlds largest semiconductor company and a proven technology leader, and look forward to the many opportunities we will have together, said John Daane, President, CEO and Chairman of Altera. We believe that as part of Intel we will be able to develop innovative FPGAs and system-on-chips for our customers in all market segments. Together, we expect to drive meaningful value for our customers, partners and employees around the world. This is an exciting transaction that provides immediate and significant value to our stockholders. We look forward to working closely with the Intel team to ensure a smooth transition and complete the transaction as quickly as possible.

    Altera will become an Intel business unit to facilitate continuity of existing and new customer sales and support. Intel plans to continue support and development for Alteras ARM-based and power management product lines.

    The transaction is expected to be accretive to Intels non-GAAP EPS and free cash flow in the first year after close. Intel intends to fund the acquisition, which is expected to close within six to nine months, with a combination of cash from the balance sheet and debt.

    The transaction has been unanimously approved by the Intel and Altera Boards of Directors and is subject to certain regulatory approvals and customary closing conditions, including the approval of Alteras stockholders.

    J.P. Morgan Securities LLC and Rothschild Inc. are serving as financial advisors and Gibson, Dunn & Crutcher LLP and Weil, Gotshal & Manges LLP are serving as legal advisors to Intel. Goldman, Sachs & Co. is serving as the exclusive financial advisor to Altera and Wilson Sonsini Goodrich & Rosati, Professional Corporation, is serving as legal advisor to Altera