April 1, 2019 Consensus

The Weekly Consensus – April 1, 2019 (Volume 11, Number 13)

The Big Story
A Growing Influence
Maeghan Thompson

Last week, Viral Nation, a leading social media marketing agency, was named “Best Large Influencer Marketing Agency” by the 2019 Influencer Marketing Awards.  With a massive group of influencers across various industries, Viral Nation connects brands with social media content creators.  This form of marketing (and the industry’s associated awards) may have been considered niche only a few years ago, but it has become an integral part of brands’ marketing budgets, and only appears to be getting more important.

There are several marketplaces where brands can link with influencers to create content.   One of these marketplaces, TRIBE, is an Australian influencer marketing startup founded in 2015 that announced last week a U.S. launch and a $7.5M Series A funding round.  TRIBE has its influencers create posts for ongoing campaigns, and then allows brands to pay for only the posts they approve for sharing.  TRIBE has over 50,000 influencers and has worked with over 40 of the top 100 global brands.

Brand influencers are ranked by their follower counts and engagement rates (comments, likes, and shares) which can range from celebrity influencers, to macro influencers, to micro influencers.  Macro influencers have millions of followers and are great for broad reach, whereas micro influencers tend to have higher engagement rates, affordable pricing, and are often more relatable to consumers.  Depending on which kind of influencers brands choose to work with, and the length of the campaign, demand (and consequently sales) can be generated in immediate bursts or over a number of weeks.

There are several key social media platforms on which influencer marketing is usually deployed, including the household names of Instagram, Facebook, YouTube, Snapchat and Twitter.  But brands can also look outside of social media to podcasts and blogs to connect with potential customers.  Among all these options, however, when it comes to influencer marketing, Instagram is the 800-pound gorilla.  According to Mediakix, 89% of marketers believe that Instagram is the most important social media platform in their influencer marketing strategy. Mediakix projects that influencer marketing will total $5-$10 billion in 2020.

Certainly, trends are supportive for influencer marketing, from the increasing number of social media users, to the improving functionality of the platforms. For instance, Instagram has recently launched a checkout feature that allows users to buy products directly in the app, which allows for a faster shopping experience and doesn’t require customers to be redirected to websites outside the platform.  As Instagram becomes a more convenient and powerful shopping tool for consumers, marketing strategies on the app are likely to become more important to brands.

However, great rewards often come with great risks, and influencer marketing is not alone.  A few of the risks of influencer marketing are loss of control of marketing messages, decreased brand credibility, and complications with seller fees.

Despite these risks, influencer marketing appears poised for ongoing growth. Which hints at another risk. Influencer marketing derives much of its power from its authenticity – it is often more compelling to hear about a product from a friend than it is to be bombarded with an advertisement. But as influencer marketing becomes increasingly ubiquitous, will it become a victim of its own success? Once your feeds are clogged with influencers pumping every imaginable kind of product, will you still be interested in their advice?

 

Headlines of the Week

Apple made its most important announcement in years last week

Apple CEO Tim Cook began last Monday’s highly anticipated event at the Steve Jobs Theater by defining the word “services.” The conceit was to lay out a new vision for how to think about Apple. If Apple Version 1 was the Macintosh computer, and Apple Version 2 was mobile hardware from the iPod and iPhone through the Apple Watch, then Apple Version 3 would include a variety of subscription services with recurring revenue.

Push for Big Changes at Bed Bath & Beyond

Bed Bath & Beyond is being targeted by activist investors gearing up for a proxy fight. A group of three activist hedge funds are looking to replace the chain’s entire 12-person board, along with longtime CEO Steven Temares, who has led the company since 2003.  The group  —  comprised of Legion Partners Asset Management, Macellum Advisors and Ancora Advisors —  together hold about a 5% stake in Bed Bath & Beyond. The investors believe that the retailer has not kept up with the new retail environment and that it has allowed its costs to increase. They want the company to revamp its inventory and consider selling such noncore assets as Buy Buy Baby and Cost Plus World Market, reported CNBC. They also want to link executive compensation more closely with performance.

 

 

Apparel & Footwear

Clothing retailer Maurices being sold to European private equity firm

A European private equity firm is buying Duluth-based Maurices. OpCapita announced March 25th that it is picking up a majority stake in the women’s apparel retailer, ending 14 years of ownership by Ascena Retail Group. “We believe there is a real opportunity to increase the profitability of Maurices through hands-on operational improvement,” Henry Jackson, CEO of OpCapita, said in a statement. “As we establish Maurices as an independent stand-alone company, we welcome the continued support of Ascena through their retained stake and the range of services they will provide.” The $300 million sale is expected to close this summer. The former president of Gap, Jeff Kirwan, will be brought on as executive chairman to help boost sluggish sales.

Lands’ End in brick-and-mortar push

Lands’ End is betting on standalone brick and mortar. The apparel brand will open a store in Pittsburgh featuring clothing for men, women and children, one of 10 to 15 locations the company expects to open in its current fiscal year. Looking more long term, Lands’ End reportedly plans to open between 40 and 60 stores during the next several years. Lands’ End’s retail push comes as it continues to break away from former owner Sears, which spun it off in 2014 and where it has operated in-store shops since 2005. The brand has been steadily downsizing its presence in Sears. It plans on pulling out of Sears completely by the end of 2019. The Pittsburgh store is designed to offer a modern take on Lands’ End’s nautical heritage, with the company’s signature colors of true navy and white adding a classic accent.

Rent the Runway sued by rental competitor

FashionPass, an apparel rental business founded in 2016, filed a lawsuit Tuesday against competitor Rent the Runway, according to a complaint filed in the superior court of the state of California. The lawsuit alleges that FashionPass has “suffered, and will continue to suffer, damages as a result of Rent the Runway’s monopolistic and anti-competitive conduct.” The company further alleges that Rent the Runway “devised a scheme to eliminate competition from FashionPass by using coercive tactics to pressure the manufacturers with which FashionPass conducts business, to refuse to sell merchandise to FashionPass.” FashionPass named 20 manufacturers, including labels like The Jetset Diaries, Saylor and ASTR the Label, as having been pressured to sell exclusively to Rent the Runway or lose business altogether.

 

Athletic & Sporting Goods

Dick’s Sporting Goods and Reebok Are Going Their Separate Ways

Dick’s Sporting Goods isn’t just getting rid of guns from its stores — it’s also eliminating apparel from a national brand as well. After being hit hard by gun buyers boycotting its stores following some controversial decisions regarding the sale of certain firearms, the sporting goods retailer doubled down and announced it would be removing firearms from 125 stores this year. It may even take them out of more stores later on. But Dick’s is also suffering from the slowdown in sales from several major apparel brands. Consequently, it will be shedding the Reebok brand after its licensing agreement with Adidas expires and replacing it with more of its own private-label lines.

Debenhams offers Sports Direct chance to keep stake as it wins £200m lifeline

Debenhams has offered Sports Direct a chance to hold on to its stake in the company by making a firm bid for the business or injecting new money as part of a £200m rescue finance package.  The statement was issued hours after Mike Ashley launched a stinging attack on advisers to the department stores group, saying they should be jailed after Debenhams rejected a potential takeover bid from the founder and chief executive of Sports Direct in favour of pressing ahead with its refinancing plans.  Sports Direct has been given until 8 April to decide whether to meet the demands or see its 29% stake wiped out as Debenhams lenders take control of the department store’s equity.

Cosmetics & Pharmacy

Unilever Makes Bid for French Cosmetic Brand Garancia

Beauty heavyweight Unilever has made a bid to acquire French cosmetics brand Garancia for an undisclosed amount. Founded in 2004 by Savéria Coste, Garanacia offers premium products across skin and body care, fragrance and make-up. Products are predominantly sold through pharmacies across France. Commenting on the deal, Coste said: “After sustained growth in France in recent years, Garancia is now ready to enter a new phase of its development, and Unilever Prestige would be the right partner to help Garancia achieve our ambitions, while maintaining our continued commitment to clean ingredients, creativity and excellence, which will guarantee the preservation of Garancia’s core values.”

Bain Capital Takes Stake in Maesa

Bain Capital Private Equity has acquired a majority stake in Maesa. Under this joint ownership of Bain Capital Private Equity and Maesa’s co-founders and management, the company will enter the next phase of its growth strategy. Maesa, headquartered in New York and Levallois-Perret, France, was founded in 1997. It employs nearly 300 employees across seven offices globally and generates approximately over $230 million in global annual sales. The founders and the management team of Maesa remain substantial shareholders alongside Bain Capital Private Equity and will continue to focus on driving the growth of the business, investing in leadership and developing talent.

 

Discounters & Department Stores

Outrage as Sears cancels life insurance benefits for up to 90,000 retirees

Sears announced this month that an undisclosed portion of the struggling department store chain’s 90,000 retirees would be losing their life insurance benefits. The retailer sent letters to the retired employees informing them that their life insurance would be axed as of March 15, according to Ron Olbrysh, chairman of the National Association of Retired Sears Employees (NARSE) — and some allegedly didn’t receive their letter until after that date had passed. The dreaded news came just a month after Sears chairman Eddie Lampert saved the department store from bankruptcy by having a $5.2 billion bid approved, allowing about 40,000 current Sears employees to keep their jobs.

Shopko Is Liquidating: These 2 Department Stores Could Be the Winners

Shopko will liquidate all of its remaining stores over the next few months. This represents an important market share opportunity for several rivals — most notably, Kohl’s and J.C. Penney. Shopko carries a wider range of merchandise than department stores. It sells food and general household goods, and many of its stores feature pharmacies and/or optical departments. That said, Shopko also carries a wide range of brand-name and private-label apparel, footwear, and home goods. Department stores probably have the most to gain from Shopko going out of business, simply because sales growth has been so hard to come by. For big department store chains like Kohl’s and J.C. Penney, picking up even $100 million in incremental sales from Shopko would be a huge win. Kohl’s is positioned to win a sizable chunk of Shopko’s sales, due to the heavy geographic overlap between the two chains, both of which are based in Wisconsin.

 

J.C. Penney taps new CFO

J.C. Penney on Tuesday announced the appointment of Bill Wafford as chief financial officer, effective April 8. He succeeds Michael Fung, who had been serving in the interim after some shuffling of the role in October. Wafford arrives from The Vitamin Shoppe, where as CFO he oversaw the company’s finance strategy and “played a significant role in reducing debt, decreasing inventory and improving operating income in 2018,” according to a Penney press release. He joined the struggling supplements retailer in 2017 as senior vice president overseeing strategy, finance, international operations and business development.

 

 

Emerging Consumer Companies

Casper raises $100 million, eyes IPO

Casper, the New York City-based sleep company, raised $100 million in funding. The round was led by existing investors Target Corp., New Enterprise Associates, and Norwest Venture Partners, and brings Casper’s total money raised to $340 million. The latest round valued the business at $1.1 billion, and will fuel international expansion and growth of its physical retail stores.

Away sues Macy’s and maker of exclusive luggage line

Away, the New York City-based travel startup, has filed suit against Macy’s and the maker of one of its exclusive luggage lines, Olivet. In the suit, Away alleges that Macy’s and Olivet learned of confidential information as part of the discussions around a “potential business opportunity,” and later used that information, including closely-held design specifications and supply chain details, to make competing products.

 

 

Grocery & Restaurants

McDonald’s to automate upselling with purchase of AI company

McDonald’s Corp. has purchased a technology company that will automate the upselling of menu items in the same way Amazon suggests products to online shoppers. The Chicago-based chain announced last week the purchase of Dynamic Yield Ltd., which specializes in personalization and decision logic technology.  Terms of the deal were not disclosed but the Wall Street Journal, citing anonymous sources, said McDonald’s paid $300 million for the company, which has offices in New York and Tel Aviv, Israel.

 

Albertsons Cos. tabs Pepsi’s Vivek Sankaran as CEO

After only six months at the helm, Jim Donald is stepping down as president and chief executive officer of Albertsons Cos., to be succeeded next month by PepsiCo executive Vivek Sankaran. Albertsons said Friday that Sankaran, CEO of PepsiCo Foods North America, is slated to take the reins as the Boise, Idaho-based grocer’s president and CEO on April 25. Donald will become co-chairman along with board member Leonard Laufer, a senior managing director at parent company Cerberus Capital Management.

 

New York private equity firm buys 73 Taco Bells in Texas

New York private equity firm Bessemer Investment Partners LLC has acquired 73 Taco Bell restaurants in Texas as part of an asset sale with Houston-based KorMex Foods. Terms of the deal, which closed in November 2018, were not disclosed. Bessemer, in a statement released Wednesday, said the firm has formed a new portfolio group, MAS Restaurant Group LLC, to oversee growth of the franchise operations. Andrew Mendelsohn, a principal at Bessemer, said MRG will grow the Taco Bell system through both new store development and acquisitions in Houston and beyond.

 

Kona Grill CEO resigning as brand considers possible sale

Kona Grill Inc.’s CEO Marcus Jundt is resigning as an investment firm co-founder joined the company’s board to oversee an evaluation of strategic alternatives, including a possible sale. Jundt, who took over as sole CEO in January, informed the company that he would resign March 31, the Scottsdale, Ariz.-based casual-dining brand said. Kona Grill also said that Shawn Hassel, co-founder and managing partner of investment firm Bestige Holdings LLC, had been appointed to the board. The company retained Piper Jaffray as its financial adviser to assist in the evaluation of strategic options “such as a sale of the company, merger, financing transactions or other potential alternatives.”

 

Home & Road

At Home Group Becomes Billion-dollar Retailer

At Home Group, the home décor superstore, posted a net sales increase of 20.6% to $354.1 million for the fourth quarter ended Jan. 27, compared with $293.7 million at the same time last year. “We are pleased with our fourth quarter results as we continued investing across the business for the long term,” said Lee Bird, chairman and CEO for At Home Group. “The fourth quarter was our 19th consecutive quarter of more than 20% sales growth and our 20th straight quarter of positive comparable store sales increases, capping another strong year. “Through annual sales growth of nearly 23%, we became a billion-dollar retailer in fiscal 2019,” he continued. “We also expanded our footprint to 180 stores in 37 states as we progress toward our long-term goal of more than 600 stores nationwide.”

Conn’s Q4 Sales and Earnings Jump

With tax law expenses behind it and same-store sales gains in non-Hurricane Harvey affected markets, Conn’s reported a big jump in fiscal fourth quarter profits and a 3% increase in total revenues. But overall same-store sales were off, and for the third consecutive quarter, the Top 100 company’s furniture and mattress business was among its weakest performing segments. For the quarter ended Jan. 31, net income for the credit-oriented furniture, electronics and appliance retailer increased to $29.5 million, or 91 cents per share, from $3.3 million, or 10 cents per share, for the same period a year ago. Adjusted net income was $31 million, or 96 cents per share, vs. $17.9 million, or 56 cent per share a year ago.

Mattress Firm Store Closings Drive 4% Sales Decline

Sales at Mattress Firm for the quarter ending Dec. 31 dropped 4%, a decline driven primarily by “a significant reduction in the store base from the prior year period,” the company’s parent said. In a quarterly update on its business, Steinhoff International reviewed the sales performance of Mattress Firm. In the quarter ending Dec. 31, like-for-like sales increased by 3.6%, “representing the third consecutive quarter of positive like-for-like sales growth. Furthermore, sales per store during the quarter under review increased by 17% as the business benefited from better than expected transfer of sales from stores closed during the restructuring and from improved productivity,” Steinhoff said.

Jewelry & Luxury

The Great Diamond Shortage That Never Was Is Likely Coming Soon

For more than 15 years, the diamond industry has been telling the world about a looming shortage of gems. Instead, demand has been stubbornly underwhelming, and the miners have done a wonderful job of digging up more and more stones. But the pain may soon be over for an industry that’s being squeezed by oversupply. In two separate reports this week, analysts set out forecasts of a tightening market in the next few years, with diamond supply falling into deficit in or around 2021.

How Flight Delays Are Turning Airports into Luxury Malls

Who needs a book? Next time your flight is delayed, just peruse Prada. That’s the impulse luxury retailers are banking on, apparently, as more brands invest in brick-and-mortar stores in international aviation hubs. According to the Wall Street Journal, no less than 33 high-end brands—including Gucci, Dior, Hermès, Louis Vuitton and, yes, Prada—have signed up to open up shop in Istanbul’s new airport. Luxury brands appear to have realized the formula for robust store sales in 2019: flight delays + a captive audience.

It’s no secret that brick-and-mortar shops have struggled of late as U.S. consumers buy more and more goods online. But sales at airport shops have offered up a surprising and welcome counterpoint to that trend.

How Sotheby’s is Curating Luxury Experiences for Millennials

This coming weekend, Sotheby’s is hosting its auction in Hong Kong, and it will be remarkable. With a span over a multitude of categories, from fine wines, champagnes, modern and contemporary art, diamonds and jewelry to East Asian art and curiosities, it’s estimated value exceeds $1 billion. What I find particularly interesting is that the business model of Sotheby’s reaches far beyond selling expensive items. What Sotheby’s is now doing, in reality, is to curate luxury and even create luxury.

 

Office & Leisure

JOANN Stores hires new CIO to push customer experience strategy

JOANN Stores has hired Varadheesh Chennakrishnan as its new CIO, tasking the veteran executive with advancing a customer experience strategy for the 75-year-old fabric and craft retailer. JOANN’s announcement comes less than a year after the Hudson, Ohio-based company opened its first concept store, which includes new customer-facing technologies, such as touchscreen kiosks for personalized shopping experiences, special orders and livestream capabilities that are being rolled out to some of the company’s other 865 stores. Prior to joining JOANN, Chennakrishnan was at Ulta Beauty, a chain of beauty stores in the United States, headquartered in Bolingbrook, Ill.

GameStop wants to be a big player—in esports

GameStop is diving deeper into the fast-growing esports industry. The world’s largest video game retailer on Wednesday announced a series of partnerships in the esport space. Esports, which involve live video game competitions, are growing at breakneck pace. Conservative estimates project that the global esports market will be a $1.5 billion industry by 2020. The new GameStop initiatives include an alliance with Complexity Gaming, which is partially owned by Dallas Cowboys owner Jerry Jones, and North America’s most established and successful esports teams, winning more than 140 championships in nearly 30 game titles over its 15-year history. GameStop’s new partnerships come as it continues to adjust to the new landscape for brick-and-mortar by transforming itself from a traditional retailer to a “cultural experience” for gamers.

Electronic Arts, the major video game company behind ‘Madden’ and ‘Apex Legends,’ is laying off about 350 employees

Electronic Arts will lay off about 350 of its 9,000 employees, according to a statement from CEO Andrew Wilson. Electronic Arts is North America’s second-largest video game company with about 9,000 employees. The largest, Activision-Blizzard, laid off 800 employees in February. Both companies posted subpar earnings after the 2018 holiday season, which is typically a peak for video game companies. While EA reported a 10% increase in year over year net revenue last quarter, the company lowered its expected annual revenue from $5.15 billion to $4.875 billion. With America’s largest video game companies forced to make layoffs despite record revenues, its been an unsettling start to the year for workers within the industry.

Technology & Internet

1stdibs Raises $76 Million in Series D Funding

1stdibs announced that the company has raised $76 million in Series D funding. The brand, an online marketplace for luxury furniture and art pieces, was founded in 2001. Its initial goal was to bring the famous Paris flea markets to a worldwide digital audience. Today, the e-commerce website sells vintage and contemporary pieces from 4,200 separate dealers. In a statement released in conjunction with the news, 1stdibs stated that it plans to use the funding for acquisitions, international expansion, further investment in its business, and growth in adjacent categories. As of now, the company has raised $170 million in primary capital.

 

Wayfair Heading to the Mall

Wayfair is diving deeper into physical retail. The digitally native home furnishings and décor giant announced plans to open its first full-service brick-and-mortar location, at the Natick Mall in Natick, Massachusetts. The store is expected to open in early fall. In addition, Wayfair said it will open four pop-up shops this summer. The retailer first experimented with pop-ups last year, opening temporary holiday outposts in November at Natick Mall in Natick, Mass. and Westfield Garden State Plaza in Paramus, New Jersey. And in February, Wayfair opened a 20,000-sq.-ft. outlet store connected to its warehouse in Florence, Kentucky. The company said its new store in Natick will bring its brand to life in an engaging format to delight customers with convenience and ease. Customer service and home design experts will be available to offer complimentary design consultations to customers. An assortment of products will be available in store for immediate purchase.

 

Finance & Economy

Consumer confidence falls in March in another sign of economic anxiety

Consumer confidence fell sharply in March, extending a recent up-and-down pattern that reflects greater worries about the U.S. economy. The consumer confidence index dropped to 124.1 from 131.4 in February, the Conference Board said Tuesday. That’s the second lowest rate in a year. Economists polled by MarketWatch had forecast a 133 reading. Americans grew less confident in March in the state of business and their ability to find a job, according to a survey of how they felt right now. The so-called present situation index sank 12 points 160.6, marking the biggest one-month decline since the middle of the last recession in 2008.

 

Fueled by Strong Economy, U.S. Labor Force Defies Projected Declines

The U.S. labor-force participation rate has defied predictions of demographic-driven declines thanks to a strong economy that is pulling in and retaining more workers.

The rate’s trajectory from here will have big implications for a range of issues, including how fast the economy can grow, how much inflation it generates in the process and whether the Federal Reserve will continue to feel comfortable keeping interest rates so low. Since bottoming out in September 2015, the share of the population aged 16 and over working or looking for work has stabilized around 63%, cutting against an extended decline tracing back to 2001. In just the past six months, the number of people outside the labor force has fallen by 1 million, the largest such decline on record.

U.S. trade deficit narrows sharply as exports rebound

The U.S. trade deficit dropped more than expected in January as China boosted purchases of soybeans, leading to a rebound in exports after three straight monthly declines. The Commerce Department said on Wednesday the trade deficit declined 14.6 percent, the largest decline since March 2018, to $51.1 billion also as softening domestic demand and lower oil prices curbed the import bill. Data for December was revised slightly down to show the trade gap widening to $59.9 billion instead of the previously reported $59.8 billion. Economists polled by Reuters had forecast the trade gap narrowing to $57.0 billion in January.

Consumer spending, personal income data show economy slowing swiftly in the new year

U.S. consumer spending rebounded less than expected in January and incomes rose modestly in February, suggesting the economy was fast losing momentum after growth slowed in the fourth quarter.  The weak consumer spending report extended the run of soft data ranging from housing starts to manufacturing, that have flagged a sharp slowdown in economic growth early in the first quarter. The economy is losing steam as the stimulus from $1.5 trillion in tax cuts as well as increased government spending dissipates.  The outlook is also being overshadowed by slowing global growth, Washington’s trade war with China and uncertainty over Britain’s departure from the European Union.