| To: Tom Caruthers who wrote (48) | 2/28/2004 9:02:42 AM | | From: Glenn Petersen | | | | While there is no mention of KNOT, this article will give you a good idea as to strategic importance of May's investment in KNOT:
chicagotribune.com
May sees bliss in tuxedo tie-ins
3 chains become 1 under retailer
By Bob Brown
Tribune staff reporter
February 27, 2004
As owner of the largest bridal store chain in the nation, May Department Stores Co. knows a bit about weddings.
So when the St. Louis-based retailer spied the fragmented men's formalwear market in the Chicago area, the company was smitten. May viewed it as a match made in heaven for its After Hours tuxedo unit, the industry's largest.
May walked down the aisle in June with Modern Tuxedo, a 26-store chain in Chicago with $12 million in annual sales, then followed that up with the acquisition in September of Desmonds Formalwear, a LaCrosse, Wis.-based firm with 66 outlets in the Midwest and $20 million in sales yearly.
Finally, in December, May purchased 125 Gingiss stores out of bankruptcy. Gingiss is the area's oldest and best-known name, founded by two brothers in Chicago 80 years ago.
May's winning bid didn't include another 111 Gingiss franchise stores; those owners have until September to drop the Gingiss name.
The swift rollup of Chicago's formalwear business has gone pretty much unnoticed, with few outward changes. But industry watchers are waiting to see if May can leverage the power of its sector-leading David's Bridal chain and After Hours unit to dominate the Chicago market.
"The synergy there is very obvious," said Jack Springer, executive director of the International Formalwear Association based in Chicago. "One could help the other."
Robert Huth, the former chairman of David's Bridal and now president and chief executive of May's bridal group, said the company set its sights on Chicago soon after acquiring After Hours, and the three deals gave it "an instant presence."
"We were very interested in expanding and were looking for ways to grow," Huth said. "It's a big market."
Springer said men's formalwear was an estimated $1 billion business in 2003. It is hard, though, to come up with a precise figure, he cautioned, because independent companies are famously close-mouthed about sales.
What is certain is the tuxedo industry survives off two events: proms and weddings.
The short but lucrative prom season runs for about six weeks from mid-April into June, Springer said, accounting for 20 percent to 25 percent of revenue.
The wedding season is the bread and butter of the industry, with tuxes rented in about 90 percent of the estimated 2.3 million weddings in the U.S. last year, Springer said. Costs range from $65 for generic brands to more than $125 for designer models, he added.
That's where the importance of the link between David's Bridal and After Hours comes in.
Brides typically exert a strong influence on where the tux is rented and what it looks like. So nearly all tuxedo stores try to partner with a bridal shop or buy bridal lists to use in direct advertisement mailings.
"What you want is the bridal leads," Springer said. "Certainly, it gives [May] an advantage. Once they've got the bride in there, that's their customer."
After Hours is a newer name in the formalwear universe. The franchise started when an Atlanta-based tuxedo shop, Mitchell's, began consolidating competitors in that region, then bought properties in Philadelphia and Michigan, Huth said.
The operation caught the eye of May, which in August 2000 had purchased David's Bridal for $420 million. May acquired the After Hours business in December 2001 for $121 million, which also included 10 Priscilla's of Boston bridal shops.
Big plans, plenty of sellers
Since then May has continued the expansion, with more than 330 stores in 30 states and Washington, D.C. The goal is to put After Hours stores in all 50 states within the next five to six years and "be a dominant player in the industry," Huth said.
He has found no shortage of willing sellers.
"I think the industry today is such that a lot of players are wondering what their future in the business will be," he said.
For the next two years, however, the company will concentrate on absorbing and integrating the businesses it has, Huth said.
Plans call for closing 8 to 10 of the 15 Desmonds stores in the Chicago area, Huth said, with the remaining outlets converted to Modern Tuxedo stores, a process already under way. That change won't last long, as the Modern Tuxedo brand will be scrapped within 18 months and the stores will be turned into After Hours outlets "so we have a national name," he said.
But the Gingiss brand, which includes 28 Chicago stores, will be kept, Huth said, with some different styles and lines to give the chain a separate identity.
Springer said the tuxedo business shakeout has captured everyone's attention.
"Consolidation is the big question the whole industry has," he said. "Certainly it has small independents thinking about joining up with other independents."
Rather than strike fear, that size and corporate structure give some Chicago-area independents confidence that they can successfully compete with After Hours.
"We couldn't be happier," said Sam Carlson, owner and president of Black Tie formalwear shops. "This is a huge opportunity. They've taken our three most formidable competitors and turned them into one."
Carlson, who operates three stores in the south suburbs, recently teamed with a former manager at Modern Tuxedo on three additional Black Tie stores. The pair have formed an affiliation with House of Brides, a leading Chicago-area competitor in the bridal industry that touts its 50,000-square-foot Schaumburg showroom as "the world's largest wedding store."
For the past 10 years, House of Brides had a tie-in with Modern Tuxedo, including stores-within-stores at several of its five locations. The takeover by After Hours ended that association, said Dale Buziecki, the company's general manager.
Further expansion, possibly with some former Gingiss franchisees, is in the planning stage, Carlson said.
Personal touch a priority
The situation is comparable to what happened when the banking industry was in the throes of consolidation: Customer service suffered, Carlson said.
In the formalwear business, competitors pretty much have the same products, he said, which leaves service and price to differentiate themselves.
"We're small enough to service them the way they want to be serviced. They're too big for the personal touch," Carlson said of May's venture.
Nevertheless, another giant competitor worries Carlson and fellow independents.
Men's Wearhouse Inc. entered the tuxedo rental market in 1999 and now offers rental tuxes in 494 of its 511 locations, said Jeffrey Fript, the firm's vice president of operations.
Tuxedo rental volume last year was $50 million, he said.
The tuxedo business complements Men's Wearhouse's regular apparel sales by getting new customers into the store three times: the first to select a tuxedo, the second to pick it up and the third to return it, Fript said. On those occasions, salespeople suggest other items that might be needed, such as clothes for the honeymoon.
Huth acknowledged that Men's Wearhouse has built a formidable operation but said it lacks a vital component.
"We have that one big advantage," Huth said. "We have the first shot on the bride because of David's."
Copyright © 2004, Chicago Tribune |
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| To: Glenn Petersen who wrote (50) | 3/6/2004 5:35:53 PM | | From: Tom Caruthers | | | | Hi Glenn,
From the conference call, it seems to me that KNOT is on the verge of becoming significantly profitable. I think their strategy to provide higher quality merchandise will pay off, though I think they still need to be conscious of the fact that couples are trying to save as much money as possible and KNOT needs to be cost competitive. Increases in local advertising also bodes well as I believe this is where the money really lies. The whole industry is so fragmented that KNOT, unlike any other business in the bridal industry, has the ability to really consolidate things under their roof. I think patience will be rewarded handsomely.
Tom |
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| To: Glenn Petersen who wrote (50) | 4/3/2004 9:33:19 PM | | From: Tom Caruthers | | | | Hi Glenn,
Although the stock has suffered a significant correction, I am encouraged that the company has the ability to make money on many fronts, including local advertising (which represents a huge upside) as well as increasing merchandising revenue.
These could substantially impact the bottom line and also the share price. Hope things are well.
Tom |
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| To: Tom Caruthers who wrote (52) | 4/7/2004 8:32:44 PM | | From: Glenn Petersen | | | | Tom,
Here is another source of potential revenue for KNOT that I had not previously thought about. There are some nice quotes from The Knot here.
The Gay-Marriage Windfall: $16.8 Billion
Aude Lagorce, 04.05.04, 6:00 AM ET
forbes.com
The national debate over gay marriage is still heating up, with no resolution in sight. But one thing is abundantly clear: Legalizing same-sex marriages would mean a windfall for the wedding industry. We estimate that if the laws were changed, gay couples currently living together would collectively spend $16.8 billion to get hitched.
Of course, they wouldn't all get married right away, so it might be several years before the industry reaped the entire windfall. But it seems reasonable to presume that if same-sex marriage were to be legalized, a large percentage of gay couples immediately would begin making plans to march down the aisle together. The industry would catch the bouquet in the form of a short-term gain of prodigious proportions.
From caterers to jewelers to travel agents, the $70 billion-per-year U.S. wedding industry embraces a wide array of sectors. If gay couples could say "I do," and assuming they spend as much on the occasion as their heterosexual counterparts, then such companies as Tiffany (nyse: TIF - news - people ), Williams-Sonoma (nyse: WSM - news - people ), Marriot International (nyse: MAR - news - people ), Federated Department Stores (nyse: FD - news - people ) and May Department Stores (nyse: MAY - news - people ) would see a serious boost in their matrimony-related business.
Gay marriage would inject a sudden growth spurt into an industry whose expansion prospects are constrained by the limited growth in annual marriages. That's not to say that the sector has been stagnant in recent years: The average cost of a wedding has climbed steadily in the last decade to reach $22,000 in 2004, according to The Knot, the largest online wedding site with about 1.1 million new couples registering each year.
The U.S. Census bureau found that roughly 92% of heterosexual couples living together in 2000 were married. We assume for the sake of argument that the same percentage would apply to gay couples. The census estimated that 594,000 homosexual couples were living together in 2000, so we figure that 92% of them, roughly 546,000 couples, would wed if they could. They might not do it right away, but over time they would swell the ranks of would-be brides and grooms.
Of course, when straight couples marry, not all of them hold a reception to celebrate the event. Every year, about 15% of newlyweds pass on the canapés and decide that a quick trip to City Hall suits them better. So we eliminated 15% of our gay couples as well, leaving us with 464,000 couples likely to throw a party to celebrate their nuptials. Then we multiplied that figure by the amount the average heterosexual couple currently spends on such items as engagement rings, banquet halls, wedding dresses and honeymoons. (Click here for more details about our methodology.) Add it all up, and it comes to $16.8 billion.
Gay-Wedding Windfall: Our Methodology
According to the U.S. Census Bureau's Census 2000, there were 54.5 million married heterosexual couples living together and 4.9 million unmarried heterosexual couples living together. We deduce from these numbers that 92% (54.5 million out of 59.4 million) of heterosexual couples living together are married.
We also know from the census that there are 594,000 homosexual couples living together. Extrapolating from the heterosexual percentage, we assume that 92% of the gay couples, or 546,000, would get married if they could. But only about 85% of heterosexual couples who wed have a traditional wedding ceremony, so we assume that same percentage would hold true for gay couples as well. We thus base our calculations on 464,000 gay couples holding a reception with guests.
Reception, Catering And Wedding Planning: $4.7 Billion
According to WeddingChannel.com, the average cost per wedding for reception and catering combined is $9,847.
The math: $9,847 x 464,000 = $4.57 billion
In addition, 15% of couples use wedding planners (15% of 464,000 is 69,600). The cost of such planners usually equals about 10% of the total wedding-day costs, according to the Association of Bridal Consultants. The average wedding-day cost is $22,000, according to The Knot. That means planners make about $2,200 per wedding.
The math: $2,200 x 69,600 = $153.1 million; plus $4.57 billion for reception and catering = $4.7 billion.
Flowers And Décor: $816.6 Million
According to The Knot, the average cost per wedding for these items is $1,760.
The math: $1,760 x 464,000 = $816.6 million
Photography And Video: $1.02 Billion
According to The Knot, the average cost per wedding for these items is $2,200.
The math: $2,200 x 464,000 = $1.02 billion
Music And Entertainment: $659.3 Million
According to WeddingChannel.com, the average cost per wedding for these items is $1,421.
The math: $1,421 x 464,000 = $659.3 million
Wedding Bands: $603.7 Million
According to Condé Nast Bridal Group, the average cost per wedding of these items is $1,301.
The math: $1,301 x 464,000 = $603.7 million
Apparel: $1.31 Billion
According to Condé Nast Bridal Group, the average cost per wedding for the bride's gown and other apparel items is $2,822.
The math: $2,822 x 464,000 = $1.31 billion
Engagement Rings: $1.66 Billion
According to Condé Nast Bridal Group, the average cost per wedding for these items is $3,576.
The math: $3,576 x 464,000 = $1.66 billion
Honeymoons: $1.7 Billion
According to The Knot, the average cost per wedding for this item is $3,657.
The math: $3,657 x 464,000 = $1.7 billion
Invitations And Stationery: $217.2 Million
According to WeddingChannel.com, the average cost per wedding for these items is $468.
The math: $468 x 464,000 = $217.2 million
Cake: $196.7 Million
According to WeddingChannel.com, the average cost per wedding for this item is $424.
The math: $424 x 464,000 = $196.7 million
Gifts: $3.94 Billion
According to the Association of Bridal Consultants, the average amount spent per wedding gift is $85 and the average couple receives 100 gifts. So the average cost per wedding for this item is $8,500.
The math: $8,500 x 464,000 = $3.94 billion
Our Grand Total: $16.8 Billion |
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| To: Tom Caruthers who wrote (52) | 4/7/2004 8:35:22 PM | | From: Glenn Petersen | | | | The Forbes review of The Knot's site:
TheKnot.com
www.theknot.com
Most agree that your wedding day may be the most expensive single day in your life. This site offers a treasure trove of vendors and resources for everything from gowns to gifts to honeymoon packages. Brides-to-be can use the budget calculator, guest list manager and wedding checklist, and create a personal Web page to post details about engagement and wedding plans. Check out the Planning category, which has lots of helpful articles in categories including Food & Drink, The Wedding Party and Sticky Subjects (such as pre-nups, or what to do if your parents take control of your wedding). You can also post your comments or questions in the popular message boards area with topics ranging froms Honeymoon and Reception Ideas to Wedding Withdrawal and Money Matters. Brides can create a registry on the site that offers 20,000 products in departments like fine china, table accents, bedding and bath and sports and leisure. Among the partners are Linens-n-Things and Fortunoff.
BEST: The Gowns area has a comprehensive gallery of over 20,000 dresses for brides, bridesmaids, flower girls and Moms.
WORST: Lots of annoying pop-up windows pushing the sale of the site's products. |
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| To: Glenn Petersen who wrote (54) | 4/28/2004 2:36:59 PM | | From: Tom Caruthers | | | | Glenn,
Any idea why KNOT is down quite a bit in the last couple of days? On less than 30k shares, it has dropped from low $4's to low $3's. I have a few scenarios. Either 1) this is one illiquid stock 2) bad news has leaked and is causing near term pressure on the stock, or 3) market makers or others are moving the stock down to accumulate in advance of good news (positive earnings, takeover, etcv). Given the low volume, I think it is a combination of the #1 and #3 scenarios. What you do notice on the intraday charts is that the stock is often taken down on <1000 shares and then a larger block is moved at that lower price.
In fact, I think an acquisition of KNOT would be a good move by some of these internet based companies - IVillage, Yahoo, MSFT, etc.
I have to believe that online advertising is doing well given Yahoo's performance and that the company's businesses (publications, merchandise sales, etc) are doing well given that this is the prime time of year for organizing weddings.
I wonder...Perhaps I will try to accumulate more.
Tom |
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| To: Tom Caruthers who wrote (56) | 4/28/2004 2:55:16 PM | | From: Glenn Petersen | | | | Tom,
I noticed the drop about fifteen minutes before your post. I have not been able to find anything that would account for the drop. I even checked out the SEC website. Nothing. I would be more inclined to cite the fact that the stock is illiquid. I would not expect any news until after the annual meeting, which is scheduled for May 13.
This would make a good acquisition candidate for someone. I would add Barry Diller's IACI to your list of potential suitors.
At $3.30, an excellent buying opportunity IMHO. |
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| To: Glenn Petersen who wrote (57) | 4/29/2004 6:39:41 PM | | From: Tom Caruthers | | | | Hi Glenn,
What is happening with KNOT I have seen many times before. Today's volume was 20,000+ shares and the stock does not move. There is accumulation by the MM's on this stock. I think the stock will move sharply up by earnings. I guess we will see.
Tom |
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