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Holiday Shopping: Some Hedge Funds See Value in Mall Visits

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NEW YORK (–Retail attracted long/short managers this year because it tends to be more volatile than other sectors, presenting trade possibilities. Some who watch retail have made visits to stores part of their research–a significant source of information on holiday sales and other key indicators.

Trading of retail stocks intensifies when companies announce store sales, typically every month. There is speculation on the numbers beforehand, and trading volume can triple on the day the sales figures come out.

“There’s a lot of action,” says Dan Hess, chief executive of Merchant Forecast, a New York-based research firm that conducts regular visits to malls and issues a weekly report on retailers.

Hedge funds as well as mutual funds are among subscribers. Mr. Hess, a former retailer, got the idea of offering the service two and a half years ago when he spoke to analysts at a US$2 billion hedge fund that made large investments in retail. They were excellent analysts, he says, but “not a single one of them had been to a mall in three years.”

Merchant Forecast employs more than 100 people across the country to, well, shop every week. They visit some 80 malls, talking with salespeople, watching store traffic, counting shopping bags. “People on the front lines know better than anybody else what’s doing well in retailing,” says Mr. Hess.

Great Sales Day

He finds that hedge funds are interested in this type of research and are more agile than mutual funds in jumping on opportunities. “They realize something is missing in their research when they talk to us,” he says. “If they had it their way, we wouldn’t sign on another client. They try to keep us under the radar.”

His weekly bulletins contain detailed observations. For example, during Thanksgiving week, the beginning of the holiday shopping season, Merchant Forecast reported that early gift card selling was off to a strong start, initial sales of GapKids’ new toy collection were not too strong and Macy’s had a great sales day.

A Guess? sweater was found to be too expensive for teens, its target customers, while the Lauren line came out a clear winner. As his army of sharp-eyed shoppers continues gathering holiday data, Mr. Hess remains sanguine about the long-term prospects of malls as well as hedge funds’ presence in retail.

Contact Bob Keane with questions or comments at: [email protected].


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