The past year saw consumers proving their mettle. The resilient consumer was a major talking point as leading retail executives and analysts lauded the consistently robust shopper. The triumph of this narrative was mirrored in the S&P 500 Consumer Discretionary index, which saw an impressive surge of over 40%. This was a noticeable leap, dramatically outdoing the 24% gain of the broader S&P 500 since the beginning of the year. However, consumer spending habits in America are shifting amid ongoing inflation, according to recent earnings calls and industry data. The traditionally robust “buy now” consumer attitude is being replaced by a more thoughtful “consider before purchasing” approach. This trend is evident in big-box stores where customers are cutting back on expenses, prioritizing essential items, and delaying nonessential purchases. Retail shoppers are not completely closing their wallets, but they’re becoming more judicious about their spending.
Executives from various companies, including Target and Home Depot, have noted a more discerning consumer, a trend illustrated by a 4% decrease in Target’s net sales compared to the same period last year. Recent data from the Commerce Department reflects this shift as well, with a 0.1% drop in retail sales in October, the first decrease since March. However, not all sectors are equally impacted, as health and personal care stores report a 1.1% increase in sales.
Ultimately, emerging insights from industry veterans hint at a consumer market that is becoming significantly more discerning. This development could potentially cast ominous shadows over the coming year’s economic forecast. Walmart’s CFO, John David Rainey, expressed his concern over the increasingly selective consumers during a recent discussion on Yahoo Finance Live. “There’s some stress on the consumer. The consumer is being discerning, maybe choiceful.”
Lending further weight to this trend, Elsie Peng, a Goldman Sachs analyst, noted a rise in credit card delinquencies, “a trend that’s weighing heavily on households that are already debt-burdened.” She wrote, “Higher interest costs and resumed student loan payments are likely to keep delinquency rates elevated in early 2024, especially for low-income households.”
For retailers, the first rule in mitigating the risks posed by more considered consumerism is to have a strong, differentiated brand and ‘must have’ products. The slowing in expenditure is not coming about just because of a decline in household incomes – an influence though that is – but also because of psychological factors: as such, many consumers will still be able to afford products that they really want. Strong brands that promote lifestyle values that consumers recognize and buy into will be the ones best placed to do well.
A second rule will be to engage with consumers far more. The days when retailers could simply put products on shelves and expect them to sell have gone. Retailers that create interesting environments that stimulate consumers and give them a reason to visit their stores will be the ones that secure the most footfall.
A third rule is that retailers will need to adapt their business models to a slower growth environment. Some will need fewer physical stores than they used to, others may need to rationalize their product offer, others may need to rationalize operations to reduce costs. Retailers that do not review and change their business propositions will be the ones most at risk of failure.
Neil Saunders, Managing Director, GlobalData
Are we really witnessing a new kind of shopper? Or are we seeing the predictable results of an economic cycle, combined with greater ease of information and price search? It’s dangerous to paint consumers with such a broad brush.
Consumer sentiment seems to be on an uptick, holiday spending was healthy, and other economic indicators — especially falling interest rates — could point this conversation in a completely different direction twelve months from now. Keep an eye on Target, where discretionary spending for apparel and soft home have historic peaks and valleys, to see if the “discerning shopper” is a real phenomenon.
Dick Seesel, Owner, Retailing in Focus, LLC
I think, yes, we’re mixing two different shifts here, short-term and long-term: the former being a temporary decline in real incomes due to high inflation, and the longer-term increase in real incomes (anxiety notwithstanding).
The reaction of retailers/manufacturers to the former should have been fairly simple: moderate your price increases – i.e. be part of the solution rather than the problem – if for no other reason than not being perceived as a gouger. Of course this meant sacrificing margin, and likely (some) profit, and I think most of us have an opinion as to which side of the choice most companies came down on.
Longer term, tho, the issue won’t be one of sacrifice, it will continue to be the age old one: how to best serve growing markets. And, as always, those with the best value proposition – better …or at least cheaper – will be best positioned
Craig Sundstrom
If this is the new normal, then retailers are in for turbulent times. If minimalism and value become the key components of decision making, then there are a lot of stores and brands out there that will have difficulty staying open. I am confident that many retailers are hoping this is simply a passing fad that will go away.
This is my last 2023 post so here is to a better 2024 for all of us. See you in the comments section in the new year!
Mark Self, President & CEO, Vector Textiles
Consumer sentiment lags consumer action. Despite record job creation, the largest increases in wages in more than 30 years, and low unemployment, the public still has a mindset that the economy is weak. Holiday retail sales would suggest that shoppers are back in the game, even if they don’t think so. Back in the 70s and 80s, it didn’t take long for the consumer to readjust to spending even though annual inflation exceeded 10% for several years, reaching 14% and experiencing a recession.
Gene Detroyer, Visiting Professor, Guizhou University Of Finances and Economics, University of Sanya
Apparel & Footwear
Matchesfashion Sells for $63 Million USD, Marking Heavy Loss for Apax Partners
Luxury e-tailer Matches (formerly Matchesfashion) has sold to Frasers Group, a retail conglomerate owned by Mike Ashley, for just £52 million GBP ($63 million USD), according to Business of Fashion. The sale marks a significant loss for Matches’ private equity backer Apax Partners, which purchased the company at a reported $1 billion USD valuation in 2017. Frasers, which already owns British stores including Sports Direct and House of Fraser, has invested a sizable sum in Matches’ Flannels retail chain, as the group looks to elevate into more luxury markets under CEO Michael Murray’s leadership. Founded by Tom and Ruth Chapman in the ’80s as a brick-and-mortar storefront in London, Matches was previously a highly-profitable company. However, in recent years, it’s faced challenges in scaling its business model and expanding its consumer base, which has ultimately led to annual losses. Matches is among an expanding group of high-end fashion e-tailers experiencing difficulties. Last month, Farfetch narrowly dodged bankruptcy in a sale to South Korea’s Coupang, which provided the platform with $500 million USD in emergency funding. Meanwhile, Yoox Net-a-Porter’s fate is mirky, after a deal to merge the company with Farfetch did not go through.
Hackers steal personal data from parent of North Face, Timberland
VF Corp. is disclosing a cyberattack that exposed some company data, including personal data. In a brief form 8K statement released to the Securities and Exchange Commission (SEC), the parent company of The North Face, Timberland and Vans reported that on Dec. 13, 2023, it detected “unauthorized occurrences” on a portion of its IT systems. Upon detecting the unauthorized occurrences, VF Corp. said it immediately began taking steps to contain, assess and remediate the incident, including beginning an investigation with external cybersecurity experts, activating its incident response plan, shutting down some systems and cooperating with federal law enforcement. According to VF Corp., the full scope, nature and impact of the incident are not yet known, but it has had and is “reasonably likely” to continue to have a material impact on business operations until it completes recovery efforts. VF Corp. said it has not yet determined whether the incident is “reasonably likely” to materially impact its financial condition or operational results.
Mango Sees 500 Store Openings Through 2026
Mango, the Barcelona-based fashion brand, plans to open about 500 stores through 2026 and close out fiscal 2023 with sales in excess of 3 billion euros. Last year, Mango generated 2.68 billion euros. Mango celebrates its 40th anniversary next year and in March will present a new strategic plan for the 2024-2026 period. “The new roadmap will focus on strengthening its differentiated value proposal, commitment to innovation and sustainability, and driving sales through the major expansion of its store network and the growth of all its channels,” the company indicated in a statement on Wednesday. “Consequently, until 2026 the company will implement an ambitious expansion plan, with close to 500 new store openings, focusing its efforts on key markets such as the United States, Spain, France, Italy, the United Kingdom, India and Canada.” The company also reported that during 2023, online sales extended to an additional 20 countries. This year, Mango had more than 130 net store openings and 80 store refurbishments, bringing the total to about 2,700 stores in over 115 markets worldwide.
Something Navy Is Reportedly Being Sold for $1
After a series of business difficulties — including the departure of its CEO — Something Navy is reportedly being sold to IHL Group for just $1, according to WWD. Influencer Arielle Charnas founded Something Navy as a blog in 2009; she collaborated with Nordstrom to create a brand of the same name in 2017 and eventually spun it off on its own in 2020 with the help of Naadam’s Matt Scanlan. Scanlan left his role as CEO over the summer, as Something Navy closed its stores and halted production. The brand had been embroiled in rumors of turmoil for months already. In this deal, which has yet to be signed, IHL Group — which counts Jason Wu, Aeropostale, Tahari, BCBGmaxazria and BCBG Generation among its portfolio — and boutique developer Amirian Group would pay $1 for the business and assume $7.5 million in liabilities. As for the future of the brand, which has been on pause for almost a year, it seems the intention is to bring it back: While she’d relinquish full control of the business and creative operations, Charnas is looking to stay at Something Navy as an ambassador, per WWD. She and the brand’s original investors would also each retain a 14.5 percent stake in it.
Athletic & Sporting Goods
Compass Diversified Receives $75.2 Million Equity Investment
Compass Diversified (CODI), owner of Velocity Outdoor, BOA, Primaloft, 5.11, and other active lifestyle brands, reported that it had completed a private placement of approximately 3.6 million of its common shares to a mutual fund managed by Allspring Global Investments to raise $75.2 million. The shares were sold for $21.18 per share, the proceeds of which will be used for general corporate purposes. CODI’s Branded Consumer segment includes BOA, Primaloft, 5.11, Velocity Outdoor, Ergobaby and Lugano Diamonds. The Velocity Outdoor business includes the Crosman, Benjamin, Ravin, LaserMax, CenterPoint, and King’s Camo brands in the airguns and archery space.
Active Lifestyle M&A Activity Slows
Fewer major deals were executed across the active lifestyle space in 2023 amid rising interest rates and persistent economic uncertainty, but several tuck-ins and smaller to medium-size acquisitions were inked. A clear trend was seen in the divesture of brands by former brand consolidators, including Wolverine Worldwide, VF Corp. and Vista Outdoor to jettison strong brands that no longer fit a new tighter brand management model. Wolverine and VF Corp. are now focused less on the number of brands and more on fewer key brands that can grow globally and through direct-to-consumer. Authentic Brands Group (Authentic) is acquiring brands it can license to key partners globally, while Wolverine is licensing some of its former core brands. Vista divested firearms and ammo brands over the last few years to fit within a new corporate profile.
Cosmetics & Pharmacy
Unilever Acquiring K18
Unilever has announced it is acquiring hair care brand K18. Terms of the deal were not disclosed and the transaction is expected to close in the first quarter of 2024. The brand was founded in 2020 by Suveen Sahib and Britta Cox. K18’s range of six products help to identify and address the causes of hair damage, utilizing patented bioactive K18 peptide. Earlier this month, Kline tapped the brand among the 25 beauty brand most ripe for acquisition. The brand’s Hair Mask was among the most-Googled products of 2023.
Shiseido Acquires Dr. Dennis Gross Skincare
Shiseido is acquiring Dr. Dennis Gross Skincare (DDG Skincare Holdings LLC) to build its dermatologist-backed prestige skin care holdings, which include Shiseido and Clé de Peau Beauté. Terms of the deal were not disclosed. The acquisition comes amid a dermatological beauty boom in the industry. Shiseido expects the 24-year-old brand to help drive growth in the Americas region. Dr. Dennis Gross Skincare will also be expanded internationally.
Yellow Wood Partners Announces Acquisition of Elida Beauty from Unilever
Yellow Wood Partners LLC (“Yellow Wood”), a Boston-based private equity firm focused on investing in consumer brands and companies, announced a binding offer to acquire Elida Beauty, a portfolio of brands from Unilever. The Elida Beauty portfolio includes Unilever brands Q-tips®, Impulse, Caress, Tigi, Timotei, Monsavon, Brut, Moussel, Alberto Balsam, and VO5. This will be the fourth brand carve-out over four years. Yellow Wood’s family of brands include Suave’s Dr. Scholl’s and Scholl International; Beacon Wellness and PlusOne; Real Techniques and EcoTools; Isle of Paradise; Tanologist; TanLuxe; Byoma and Freeman Beauty.
Naomi Watts Buys Back Her Stripes Brand From Bankrupt Amyris
Following Amyris’ bankruptcy, Naomi Watts is said to have acquired her brand, Stripes, at auction for US$500,000. The purchase was completed via Watts’ investment vehicle, Sakana, which lists the actor as Managing Member. Further brands from the Amyris portfolio have also been snapped up at auction. Rosie Huntington-Whitely’s Rose has been bought by AA Investments for US$2.5 million while Jonathan Van Ness’ JVN Hair has been sold to Windsong Global for US$1.25 million. Amyris filed for Chapter 11 bankruptcy in August placing a big question mark over the future of its sizable beauty portfolio. The auction in the latest in a series of transactions that has seen Biossance sold to THG and several founders buy back their brands.
Discounters & Department Stores
Nordstrom continues off-price push with new Rack locations in 4 states next fall
Amid its sales declines, Nordstrom announced plans to open Nordstrom Rack stores in Houston, Texas; Omaha, Nebraska; Noblesville, Indiana; and Franklin, Tennessee. The retailer plans to open these new locations in the fall of 2024. The stores range between 24,000 square feet and 34,000 square feet, per its press releases. While the retailer runs four Nordstrom Rack locations in Tennessee, three in Indiana and 23 in Texas, the Omaha location will be the first Nordstrom retailer of any kind in the state, the company said.
J.C. Penney Q3 sales decline, loss widens
J.C. Penney Q3 net sales fell 10.7% year over year to $1.5 billion. Due to declining late fees, cyclical rising losses, and higher program costs, credit card revenues dropped 18.6%, driving total revenue in the quarter down 11.1% to $1.6 billion. Merchandise gross profit improved 270 basis points, with margin expansion coming from national and private brands, especially in women’s apparel, adult active, footwear and handbags. Digital sales as a percent of total sales expanded 200 basis points. Inventory was down 12%. Net loss in the period widened by 76.5% to $30 million, according to financial statements filed this week with the Securities and Exchange Commission. For the nine months ended Oct. 28, EBITDA plunged 55.3% to $181 million.
Will Macy’s follow Sears to the retail graveyard?
If Macy’s is fielding an offer from investors who want to monetize its property, then any transformation that incoming CEO Tony Spring may be plotting is about to get more difficult. Theoretically, going private could provide Macy’s with some breathing room to undertake reforms without pressure from often short term-oriented investors, according to Jessica Ramírez, a senior research analyst with Jane Hali & Associates. This is what Nordstrom executives (many of them also family members) probably had in mind when they attempted to take the business private several years ago. “That’s a different story — taking it private so that they’re not being scrutinized by Wall Street,” Ramírez said by phone. “The real estate is very interesting because Macy’s does own a lot, and they previously have sold, which has helped to some extent. But if they were to be taken private, in the best case scenario, it should be someone who also has an interest in retail, in order to propel forward. It would be a huge overhaul because there are so many problems.”
Emerging Consumer Companies
Iris&Romeo expands into Sephora with Series A funding from True Beauty Ventures
Clean beauty brand Iris&Romeo has announced its retail expansion into Sephora, along with a Series A funding partnership with True Beauty Ventures. Iris&Romeo, known for its innovative, clean skincare-makeup hybrid products, aims to provide multi-functional hero products for the beauty minimalist. The brand’s hero essentials, including the award-winning Weekend Skin SPF 50 and Best Skin Days™, will be available on Sephora.com starting December 26th. Michele Gough-Baril, the founder of Iris&Romeo, expressed excitement about the opportunity to tell the brand’s story to a wider audience and work with Sephora. Amy Abrams, VP Merchandising, Makeup at Sephora, praised Iris&Romeo’s minimalist and simplified approach to beauty and its focus on improving skin wellness. The Series A funding will be used to enhance retail readiness, improve supply chain efficiencies, create brand-first content, and make key hires. Tara Desai, the CEO of Iris&Romeo, highlighted the expertise of True Beauty Ventures in the early-stage beauty space and the funding’s potential to reach more consumers, particularly within the 35+ demographic.
Subtl Beauty secures $5 million investment for expansion and growth
Subtl Beauty, a NYC-based company specializing in compact makeup, has secured a $5 million investment from Cult Capital in a Series A funding round. The funds will be used to expand operations and reach. Subtl Beauty, founded by Rachel Reid in 2018, offers convenience-focused makeup products in a travel-friendly stackable format. The brand’s products are vegan, cruelty-free, paraben-free, and fragrance-free. Cult Capital, known for its experience in building and scaling consumer brands, has a track record in the beauty industry with brands like Supergoop!, LAWLESS Beauty, and Act+Acre. The investment demonstrates Subtl’s potential as a game-changer in the beauty industry. Cult Capital only invests in brands with a minimum revenue of $2 million, which Subtl has exceeded. Sarah Woelfel, Partner at Cult Capital, praised Subtl’s convenient and compact beauty solutions, highlighting the brand’s strong connection with beauty enthusiasts and the unmet demand in the beauty sector. Since its launch, Subtl has sold over 300,000 Staks.
Food & Beverage
ADM ends 2023 with 2 flavoring acquisitions: Revela and FDL
With an eye toward gaining a greater foothold in the flavors and ingredients category, agriculture giant Archer Daniels-Midland is ending 2023 with two major acquisitions. ADM announced that it had reached agreements to purchase dairy flavoring maker Revela Foods and UK-based functional ingredients producer FDL. It did not disclose financial terms for either deal. Revela Foods, which saw $240 million in sales this year, is a leader in the dairy ingredients space. It operates three production facilities in the Midwest that use enzyme technology to craft dairy flavorings for a variety of foods, from snacks to sauces to desserts. FDL will also further the agri-business giant’s reach into flavorings. The company has created over 10,000 proprietary flavor formulations, ADM said. FDL works to help formulators infuse ingredients into new products, such as vanilla and menthol. The UK-based company operates three facilities in its native country, with a projected $120 million in sales in 2023. FDL also has a strong presence in the European foodservice sector, according to the press release announcing the deal.
Coca-Cola’s Red Tree Beverages Brings More Juice To Bev-Alc Category with Minute Maid Spiked
Coca-Cola is bringing another of its juice brands to the bev-alc world. This time, it’s Minute Maid Spiked. The Coca-Cola Company’s bev-alc subsidiary Red Tree Beverages is launching a line of multi-serve wine cocktails under the juice brand in spring 2024. The launch adds to Coke’s “deliberate and disciplined experimentation in alcohol,” a company spokesperson said, and includes three flavors – Lime Margarita, Strawberry Daiquiri and Piña Colada – of ready-to-serve, wine-based cocktails with 13.9% ABV per 1.5-liter bottle. Minute Maid Spiked marks the first time Red Tree is launching a hard product on its own, without collaborating with its other bev-alc partners Molson Coors (Topo Chico Hard Seltzer, Simply Spiked, Peace Hard Tea), Brown-Forman (Jack & Coke) and Constellation Brands (Fresca Mixed). The brand is also Red Tree’s first foray into using wine as an alcohol base. Coke has increasingly gone further into alcohol using the expertise of bev-alc makers. Though slightly less ubiquitous as its recent partnership with Brown-Forman on the Jack & Coke RTD, Coke is using a similar playbook with Pernod-Ricard, licensing the spirits house’s Absolut Vodka brand to be paired with Sprite starting internationally and then bringing the canned cocktail stateside. Jack Daniels maker Brown-Forman recently reported that its Coke partnership is showing increased traction since it was launched in March.
Swander Pace Capital, two partners acquire Quebec bakery
Private equity firm Swander Pace Capital has partnered with CDPQ and Roynat Equity Partners to acquire a majority stake in St-Méthode Bakery, a supplier of fresh bread products. St-Méthode Bakery (BSM) will continue to supply customers throughout Quebec and other markets from its bakery in Quebec. Mariette and Joseph Faucher founded St-Méthode Bakery in 1947. The bakery now distributes La Récolte de St-Méthode, Les Grains St-Méthode and Le Campagnolo products to retailers and customers throughout Quebec and Canada. Products introduced over the years included a multi-grain bread with no added fat or sugar in 1998 and a Campagnolo loaf made with extra-virgin olive oil in 2001. Swander Pace Capital’s portfolio includes Café Valley, which manufactures and distributes baked foods for the in-store and foodservice channels. Swander Pace Capital in January of 2020 completed the sale of Voortman Cookies Ltd. to Hostess Brands, Inc. CDPQ, an investment group, was created in 1965 to manage the funds of the Quebec Pension Plan. Roynat Equity Partners is a division of Roynat Inc., a subsidiary of Scotiabank.
Grocery & Restaurants
Beef O’Brady’s, Brass Tap parent company acquires Newk’s Eatery
FSC Franchise Co., the Tampa, Fla.-based parent company of Beef O’Brady’s and The Brass Tap, has acquired the 100+-unit fast-casual concept, Newk’s Eatery, the company quietly announced in a press release about FSC’s 2023 development wrap-up. According to FSC Franchise Co. CEO Chris Elliot, the three companies “have great synergy” and there will be ample opportunity for franchisees to become multi-concept operators within the company. “We’ve been looking to add something to our platform for several years, and we think that Newk’s is the perfect complementary brand,” Elliot said. “It’s fast casual with average unit volumes of $2.2 million, and it has the same geographical footprints across the Southeast that we currently have, so we’re ecstatic about that partnership.” Elliot added that the acquisition was part of a larger expansion strategy for FSC Franchise Co. and that 2023 was a “record year of new deals” for the company, with 10 Brass Tap openings, and one Beef O’Brady’s opening. The company has plans to open another 23 Brass Tap and Beef O’Brady’s stores in 2024, alongside 10-15 new Newk’s locations annually.
Chick-fil-A stronger than ever amid more competition
Every restaurant chain from McDonald’s to Popeyes wants to take down Chick-fil-A, but its hold over customers is tighter than ever. Since its founding in 1967, Chick-fil-A has grown to become the third-largest restaurant chain in the U.S. by systemwide sales, despite having fewer locations than Sonic Drive-In or Papa John’s. The chain is barreling toward holding the majority market share of the chicken fast-food category. The average non-mall franchised Chick-fil-A restaurant rakes in $8.7 million in sales annually. That’s despite being closed on Sundays, although some New York lawmakers are pushing back on that policy. For comparison, the average franchised McDonald’s location that has been open at least a year sees about $3.7 million in annual sales. McDonald’s, which is the largest U.S. restaurant chain by sales, has a clear size advantage over Chick-fil-A, with roughly 14,000 U.S. locations, and plans to build 900 more by 2027. But McDonald’s hasn’t been able to match Chick-fil-A’s massive annual unit volumes or its reputation for customer service.
Home & Road
Ikea warns of possible out-of-stocks amid Suez Canal crisis
Inter Ikea Group, responsible for strategy at Ikea, is warning that some Ikea products may be unavailable while it manages the volatile situation at the Suez Canal. Attacks by Iranian-backed Houthi rebels in Yemen have disrupted passage. “We are in close dialogue with our transportation partners to ensure the safety of people working in the IKEA value chain and to take all the necessary precautions to keep them safe,” an Inter Ikea Group spokesperson said in an emailed statement. “This is our main priority.” The company is evaluating possible alternatives. Because Ikea doesn’t own its own container vessels, its freight partners manage all of its shipments, the spokesperson said.
Steelcase reports revenue decline in Q3, though orders remain strong
Office and contract furniture giant Steelcase reported $777.9 million in third quarter revenue, a 6% decline from the same quarter last year. Revenue fell 5% in the Americas and 7% internationally, which was “lower than expected” the company said, attributing it to a lower backlog at the start of the third quarter. Orders, though, grew 15% for the quarter from the prior year, consisting of 16% growth on the America side and 10% internationally. Last quarter, orders fell 7% in the Americas. Steelcase said order growth in the Americas was driven by large corporate customers in both continuing and new business, while international growth was driven by the Asia Pacific region. Operating income of $43.8 million in the third quarter represented an increase of $23.3 million compared with the prior year.
Conn’s CEO lays out 4-pronged approach for future with Badcock
In a call with investors on Dec. 19, the day after the announced acquisition of fellow Top 100 retailer Badcock Home Furniture &more, Norm Miller, Top 100 Conn HomePlus president and CEO, touched on four key elements that he believes will make the combined entity a success moving forward. “Combined, we believe we can leverage the core capabilities of both Conn’s and Badcock to accelerate growth, expand profitability and provide our customers and team members with greater opportunities as part of larger, more dynamic company,” Miller said, noting the four key rationales are that the union accelerates growth opportunities, combines Conn’s credit platform with Badcock’s capabilities, increases scale of both companies and strengthens the financial profile. Miller noted that the similarities between the brands is too much to ignore. “The consumers are very similar when you look demographically,” he said. “We carry the same product, similar customer, similar geography, similar business model that is fueled and driven by in-house financing. In almost every single box, when you compare the two companies, the similarities are shocking.”
Jewelry & Luxury
De Beers’ Rough Diamond Sales Down 37% YOY
De Beers Group finished 2023 with rough diamond sales totaling $3.63 billion, down 37 percent when compared with 2022. The company faced tough comparables—2022 sales neared $6 billion, the company’s strongest showing in four years—and softer-than-expected demand due to inflation and the sluggish Chinese market. De Beers holds 10 “sales cycles” per year, and the total for each generally includes sales of rough diamonds made to both sightholders and online auction customers. Sales began declining steadily in the fourth sales cycle (May 1-16) and in the eighth (Sept. 18-Oct. 3), De Beers began pulling back on sales in earnest.
As sales slow, will luxury brands keep pumping up their prices in 2024?
It’s normal, even expected, for luxury brands to increase their prices. Between 2019 and 2022, luxury prices increased by as much as 25%, according to data from Edited, far outstripping the pace of inflation. Luxury brands increasingly relied on their most affluent customers who showed no signs of slowing down their spending. But now, the slowdown has finally come to luxury. Luxury sales were down 14% across the board in October and down another 15% in November of this year. Multiple major luxury retailers are struggling, too, including Saks Fifth Avenue, which failed to pay its vendors for months earlier this year, and online retailers like Farfetch and Matches, both of which were sold for pennies on the dollar this month after periods of declining sales. So with spending curbed among aspirational consumers, will 2024 see luxury brands finally slowing the pace of their increases?
High-end brands like LVMH and Gucci-owner Kering felt the pinch in 2023—but a new type of luxury is gaining a share of consumers’ wallets
Luxury goods once seemed immune to economic woes, but the luster may be fading. During the pandemic, the luxury market thrived as the affluent—unfazed by price hikes—indulged in Birkin bags and rare watches. Yet, signs now point to a slowdown in the “roaring 20s” luxury boom. Take China, for instance, where the post-COVID sales surge early in 2023 didn’t last. The nation’s slower economic rebound and global uncertainties have contributed to a pullback in luxury spending. According to Claudia D’Arpizio of Bain & Co., a leading expert in the field, despite initial resilience, luxury markets face challenges due to geopolitical shifts and subdued consumer confidence. This turbulence has impacted major players like LVMH, the conglomerate behind Dior and Louis Vuitton. Its Q3 revenue growth slowed compared to the previous year, setting a tone echoed by rivals such as Gucci-owner Kering and Burberry. Richemont’s half-year sales, although up 6%, fell short of expectations, and secondary market prices for Rolex and Patek Philippe have taken a hit.
Office & Leisure
Mattel to make ‘American Girl’ after ‘Barbie’ success
Mattel said on Wednesday it was planning to make a live-action feature film based on its “American Girl” doll line with Paramount Pictures and Temple Hill Entertainment, after the box-office success of its “Barbie” movie earlier this year. Shares of the toymaker rose marginally in extended trading after it also said Lindsey Anderson Beer, who wrote the Netflix film “Sierra Burgess is a Loser,” would write the screenplay and produce the film. The Margot Robbie-starrer “Barbie,” released in July, recorded the biggest opening of the year, which Mattel in October said was expected to contribute more than $125 million toward its Dolls segment’s key gross billings measure in 2023.“American Girl” was founded in 1986 by Pleasant Rowland, a teacher-turned-entrepreneur who set out to celebrate girlhood with beautiful dolls and adventurous books that would nourish a child’s imagination and provide education and entertainment.
White Oak Commercial Finance Provides $120MM Senior Credit Facility to Alliance Entertainment
Alliance Entertainment Holding Corporation, a distributor and wholesaler of the world’s largest in stock selection of music, movies, video games, electronics, arcades, toys and collectibles, closed a new 3-year $120 million senior secured asset based credit facility with White Oak Commercial Finance. This credit facility replaces the Company’s revolver with Bank of America. The new credit facility includes a $120 million asset based revolving credit facility. The Revolver will bear interest at a rate of the 30-day SOFR plus 4.5%. Borrowings from the facility will primarily be used to retire the existing credit facility, fund working capital needs and provide for general corporate purposes. Bruce Ogilvie, Chairman of Alliance, commented, “We are now well positioned to continue to execute strategic plans including investments in automating facilities and upgrading proprietary software, improvements which we believe will improve EBITDA and inventory turns.”
Lionsgate Completes Purchase of Entertainment One Studio from Hasbro
Santa Monica-based Lionsgate has completed its acquisition of the Entertainment One film and TV studio from Hasbro for $375 million in cash, it was announced Wednesday. The sale adds 6,500 film and television titles to Lionsgate’s existing library, including the Showtime hit “Yellowjackets,” ABC’s “The Rookie” and Discovery’s “Naked & Afraid” franchise. The sale is subject to purchase price adjustments, plus Lionsgate’s assumption of production financing loans for eOne projects, according to toy and gaming company Hasbro. Lionsgate approximated the total value of the transaction to be $500 million in August. Earlier this month, Lionsgate reportedly laid off 10% of eOne’s workforce in preparation for the merger closing. Cuts previously hit eOne in June, when Hasbro reduced the studio’s staff by 20% amid its plan to sell the asset. Hasbro said it will continue to develop and produce entertainment based on its brands, which include “Magic: The Gathering,” “Dungeons & Dragons” and “Peppa Pig.”
Technology & Internet
Apple will sell latest Apple Watch models after import ban halted
Apple will be able to sell the latest Apple Watches after an import ban was temporarily paused by an appeals court on Wednesday, in a major victory for the iPhone maker. Apple said in a statement that the Apple Watch Series 9 and Ultra 2 models will be on sale at Apple’s stores on Wednesday and that they will be available online starting Thursday. “We are thrilled to return the full Apple Watch lineup to customers in time for the new year,” an Apple spokesperson said in a statement. Apple stopped selling its Series 9 and Ultra 2 watches last week in stores and online in response to an International Trade Commission order in October that found the blood oxygen sensor in the devices had infringed on intellectual property from Masimo, a medical technology company that sells to hospitals.
Electric scooter company Bird files for bankruptcy
The electric scooter company Bird, once valued at $2.5 billion by investors, filed for Chapter 11 bankruptcy protection in Florida federal court Wednesday. The company has entered into a “stalking horse” agreement, which sets a floor for Bird’s value, with its existing lenders, according to a release. Bird said it will use the bankruptcy proceeding to facilitate a sale of its assets, which it expects to complete within the next 90 to 120 days. Bird’s electric scooters are touted as an environmentally friendly alternative to driving and other forms of public transit. They exploded in popularity before the onset of the Covid-19 pandemic, and the company raised more than $275 million in 2019, which pushed its valuation to $2.5 billion. But after customers stopped riding as they were forced into lockdown in 2020, Bird struggled to recover. The company went public via a merger with a special purpose acquisition company in 2021, but its share price tumbled.
Finance & Economy
New US jobless claims rise again as labor market cools
The number of Americans filing initial claims for unemployment benefits rose last week, indicating the labor market continued to cool in the year’s fourth quarter. New state unemployment benefit claims rose by 12,000 last week to 218,000, according to the Labor Department. A Reuters poll showed economists expected an increase to 210,000 initial claims for the week ended Dec. 23. The rolls of those receiving benefits after one week of aid rose 14,000 from the week prior, reaching 1.875 million. Continued unemployment claims, a measure for hiring, have increased since mid-September, indicating those already out of work may be having difficulties getting a job.
U.S. Holiday Retail Sales Rose 3.1%—Falling Behind Expectations
U.S. retail sales increased 3.1% year-over-year during the holiday season due to retail promotions and an increase in online and restaurant spending, according to a preliminary report from Mastercard—failing to meet expectations of a 3.7% growth this holiday. Online spending increased by 6.3% year-over-year compared to in-store spending at 2.2%, pointing to a faster growth rate for online shopping, though in-store shopping still made up a larger portion of total retail sales.
