Lego wants to build business with girls

(Reuters) - Nine-year-old Ida Fraende, who likes to play with Lego bricks, is not so unusual in Scandinavia but globally speaking she is not typical: Jorgen V. Knudstorp hopes to change that.

The Chief Executive of Europe's largest toymaker, who has brought the once-troubled group back to profit and renewed its growth ambitions, has a keen eye on the market where Mattel and Hasbro of the United States are the mom and pop.

Girls are an area where "we'll never stop trying," Knudstorp, who joined the family-owned firm in 2001 from consultancy McKinsey & Company, told Reuters.

"I think there is something that genetically skews us towards boys, but we can do better."

To win girls over Lego -- whose iconic plastic bricks have entertained children and wounded unwary barefoot parents since the late 1940s -- is working to change its mindset, and taking its bid for their custom online.

The firm founded in 1932 by carpenter Ole Kirk Christiansen intends next year to launch an online Lego Universe, to tap into a booming market that has created successes such as Second Life and World of Warcraft.

The group which started out with wooden toys like ducks and trucks has recovered from a massive 1.9 billion Danish crowns ($388 million) loss in 2004 and managed to build market share in a stagnant global market.

 

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Wal-Mart's February Sales Rise; Gap, AnnTaylor Fall

(Bloomberg) -- Wal-Mart Stores Inc.'s February sales gained more than it expected as cash-strapped consumers seeking food and basic clothing cut spending at Limited Brands Inc., AnnTaylor Stores Corp. and Gap Inc.

Wal-Mart, the world's largest retailer, said today in a statement that sales at stores open at least a year rose 2.6 percent last month, beating its estimate for a gain of 2 percent or less.

Shoppers headed to discounters and warehouse clubs to stock up on food and necessities, shunning lightweight jackets and sweaters at department stores and mall-based retailers. A decline in jobs, gasoline costing more than $3 a gallon and the continued erosion of the housing market have caused consumers to limit spending.

``We are seeing the consumer trading down,'' Fred Crawford, managing director at AlixPartners LLP, a Southfield, Michigan-based consulting firm, said in a Bloomberg Radio interview. ``You've got a large swing set in Middle America. In good times, they buy up into department store categories, and in tougher times, they buy down into mass categories.''

U.S. retailers' same-store sales may have risen 0.5 percent to 1 percent last month, according to the International Council of Shopping Centers. The New York-based trade organization reports monthly results later today.

Companies in the U.S. unexpectedly lost 23,000 jobs in February, the first decline in almost five years, according to a private report based on payroll data from ADP Employer Services released yesterday. The University of Michigan/Reuters index of consumer confidence fell last month to its lowest level since 1992.

Retail Shares

Wal-Mart climbed 55 cents, or 1.1 percent, to $50.10 at 8:19 a.m. in trading before the New York Stock Exchange opened. Gap fell 4.7 percent.

The 31-member Standard & Poor's 500 Retailing Index has dropped 5.2 percent this year before today, compared with a 9.2 percent decline for the S&P 500 Index.

Limited Brands, the owner of the Victoria's Secret lingerie chain, said February same-store sales dropped 9 percent, better than analyst estimates for a 10.9 percent drop.

Staples Inc., the world's largest office-supplies retailer, reduced its full-year profit and sales forecast March 4 as customers at its North American retail stores reduced purchases of copiers and desks.

``The core economy, the part that's really relevant to Staples and Staples' customers, is declining,'' Staples Chief Financial Officer John Mahoney said in a telephone interview. ``From the perspective of our customers and our business, this is a recession now.''

February Sales

February tends to be the least important sales month in the first quarter for many retailers, comprising about 30 percent of discounters' quarterly revenue, according to Christine Augustine, a retail analyst at Bear Stearns Cos.

With ``sluggish'' traffic, most retailers may be ``playing defense'' by managing inventory and cutting costs, she wrote in a Feb. 29 research note.

``Aside from Valentine's Day and President's Day, and the demand for consumables and other necessities, we think consumers had few reasons to shop in February, particularly given the tough economic backdrop,'' Augustine wrote.

AnnTaylor, the clothing retailer that caters to women ages 25 to 55, said February same-store sales dropped 1.7 percent, less than the average analyst forecast for a 3.1 percent decrease. Gap, the largest U.S. clothing retailer, said sales fell 6 percent, almost twice the 3.1 percent decline estimated by analysts.

 

Read more at Bloomberg

Credit Swaps Thwart Fed's Ease as Debt Costs Surge

(Bloomberg) -- Credit trading models used by Wall Street have gone haywire, raising company borrowing costs even as Federal Reserve Chairman Ben S. Bernanke cuts interest rates.

General Electric Co. is one of five U.S. companies rated AAA by both Standard & Poor's and Moody's Investors Service, making its ability to repay debt unquestioned. Yet when the Fairfield, Connecticut-based company sold 2.25 billion euros ($3.35 billion) of five-year bonds last week, its annual interest payment was $17 million higher than on a sale nine months ago.

Borrowers from investor Warren Buffett's Berkshire Hathaway Inc. to Germany's HeidelbergCement AG face the same predicament. Yields on $5.12 trillion of corporate bonds tracked by Merrill Lynch & Co. average 2.05 percentage points more than U.S. Treasuries, the most since at least 1997.

The higher costs are an unintended consequence of securities that allow investors to speculate on corporate creditworthiness. So-called correlation models used to value them have become unreliable in the fallout from the U.S. subprime mortgage crisis. Last month some showed the odds of a default by an investment-grade company spreading to others exceeded 100 percent -- a mathematical impossibility, according to UBS AG.

``The credit-default swap market is completely distorting reality,'' said Henner Boettcher, treasurer of HeidelbergCement in Heidelberg, Germany, the country's biggest cement maker. ``Given what these spreads imply about defaults, we should be in a deep depression, and we are not.''

Hedging Losses

The problem started in the second half of last year when subprime mortgage delinquencies started to rise, causing investors to retreat from complex instruments such as synthetic collateralized debt obligations, or packages of credit-default swaps that became hard to value. The swaps are contracts based on bonds and used to speculate on a company's ability to repay debt.

As values of CDOs began to fall, banks that had sold swaps underlying the securities started to buy indexes based on them instead, a method of hedging their losses on portions of the CDOs they owned. The purchases are driving the cost of the contracts higher, raising the perception that company bonds tied to the swaps are suddenly riskier and leading investors to demand higher yields throughout the corporate debt market.

The Markit CDX North America Investment-Grade Index, a gauge of credit-default swaps on 125 companies from Wal-Mart Stores Inc. to Walt Disney Co., more than doubled since the start of the year to a record 171 basis points on March 4. The index, which dropped to a low of 29 in February last year, was at 170.5 basis points at 7:10 a.m. in New York, according to Deutsche Bank AG.

 

Read more at Bloomberg