The Big Story

Discussing the Future of Retail at ICR and NRF

Consensus

Last week saw two notable industry events: NRF (NRF 2020: Retail’s Big Show & Expo) and ICR (ICR Conference 2020). Both shows, on the heels of year-end and holiday sales and another year of retail evolution, gave indications of what’s important today and what’s coming next.

At NRF, the theme for this year’s event was vision – vision on the future of retail – and one recurring message was that the physical store remains central to retail success, even despite all of the talk of digital transformation and online brands. It was a point made repeatedly at ICR by companies who have weathered the retail storm and are thriving.

Here are some key takeaways:

The reports of a retail apocalypse continue to be exaggerated. No one will argue that traditional retail has been unaffected by the new retail landscape, or that all large and culturally significant retailers can navigate the storm. Generally, however, physical retail remains strong. Stories of unheralded retailers continuing to grow and continuing to remain profitable abounded. These are not the stories that crowd the headlines.

A favorable shopping experience for consumers is now table stakes. The in-store shopping experience has always been key to satisfying customers, but there is increasing interest in and demand for experiencing brands and products in ways that can’t be achieved online. Brands that provide a distinctive or more sensory-rich experience off-line can capitalize. Erik Nordstrom, Co-President of Nordstrom, described how the company’s new Manhattan store is the most experiential store of all its locations. It has the most food and beverage offerings, with bars in the middle of departments, enabling customers to eat and drink as they shop.

Omnichannel has never been more important. Popular thinking has moved from the idea that online sales are the solution, to recognizing that online sales are only part of the solution. Excelling in all channels is necessary. This recognition and the process through which excellence is achieved will differ for each brand. With new channels and tools still developing, such as voice recognition and artificial intelligence, understanding how to optimize each channel will take time and will be iterative.

Blending physical and digital channels for consistency and seamlessness is a must. Between buying a product online and picking up in-store, or checking that a product is in stock at a location before visiting to touch and feel and consider purchasing, the melding of physical and digital is critical. David Dobson, the Retail, Hospitality and Consumer Goods Industry Director at Intel Corporation, described it this way: “The first wave of disruption was about how to compete with online. The next wave is really about the integrated solution. It’s not online versus in-store but rather how to deliver value to the customers wherever they want to be. It’s clear that you have to have both, and you have to merge those experiences.”

Brand and differentiation remain critical. It’s no longer enough to put out a good product or to have an attractive value proposition. Customers want to know what brands stand for and what they’re all about. Kevin Plank, founder of Under Armour, explained, “When a consumer walks into a retail store, there’s two things they need to know and understand,” he said. “What’s your personality, and what’s your point of view?”

Sustainability becomes more common and mainstream. Most brands have considered how to incorporate sustainable practices into their businesses, if not focused on ways to become more sustainable. These efforts include fair wages and better working conditions in factories, reducing packaging and waste from production or operations, and taking overt action to help or protect the environment through donating profits or cleanup efforts. The approach for many is similar to West Elm’s. Jennifer Gootman, West Elm’s Vice President of Social Consciousness explained that the company’s strategy was to “get a little greener every day.” For many, incremental steps are what’s needed to start the conversation and to begin company adoption.

The themes from both NRF and ICR tell a story of change and opportunity. Brands and retailers that recognize that the shifting landscape and do more to attract, delight, and retain valuable customers will outperform their peers.

 

Headlines of the Week

Gap pulls plug on Old Navy spinoff to focus on turning around sales

Gap Inc on Thursday scrapped its plan to spin-off Old Navy and said it would instead work to stem dropping sales, while fewer discounts during the holiday season helped full-year earnings, sending its shares up about 4%. The move came as a surprise as just two months ago the company had stuck to its plan to separate despite several analysts calling for the strategy to be canned due to weak sales and the abrupt exit of Chief Executive Officer Art Peck. Peck unveiled the plan in February last year when Old Navy was a bright spot for the company, which was struggling with out-of-fashion apparel at its Gap brand. However, sales for Old Navy have slowed in recent quarters, raising doubts about the brand’s value as a separate entity. “Old Navy’s business has not been good. With the CEO out of the way, this is the right move,” said Jane Hali, at research firm Jane Hali & Associates.

 

 

Apparel & Footwear

Tailored Brands sells rights to Joseph Abboud; designer to exit

Tailored Brands is selling the Joseph Abboud trademarks to a brand acquisition firm for $115 million. The menswear retailer said it will sell the Joseph Abboud trademarks to New York-based brand acquisition and management firm WHP for $115 million. It has also entered into a licensing agreement with WHP for the exclusive rights to sell and rent Joseph Abboud branded apparel and related merchandise in the U.S. and Canada. Tailored Brands also said that the designer Joseph Abboud will be leaving the company at the end of January to pursue new opportunities in the global fashion community. Tailored Brands acquired the designer label in 2013 for $97.3 million.  Tailored Brands will continue to own and operate the factory in New Bedford, Massachusetts, that manufactures quality U.S. made tailored clothing.

 

Express lays off workers from Columbus headquarters, NYC design studios

Express, Inc., the retail apparel company, has fired 10 percent of the employees at its Columbus headquarters and its design studios in New York City. In a release to investors Tuesday, Express announced a “restructuring of its corporate workforce to align its organization with the company’s go-forward strategy.” According to the release, in addition to the layoffs, leadership teams will be reorganized to “ensure the stores are operating in the most efficient manner.”

Boohoo blasts ailing High Street retailers out of the water with record sales

Online fashion retailer Boohoo enjoyed ‘record’ results in the final four months of last year and has upped its performance forecasts, throwing its ailing bricks-and-mortar based counterparts into the shade. The group, which has seen the likes of Little Mix and Love Island star Maura Higgins back its ranges, said all its brands, including Boohoo, Nasty Gal and Pretty Little Thing, performed ‘exceptionally’ over the period. Bucking the recent retail trend for profit warnings and disappointing results over the festive period, Boohoo raised both its full-year revenue and margin outlook. The retailer reported a 44 per cent jump in revenue to over £1billion in the 10 months to 31 December.

Payless emerges from bankruptcy with US growth plan, store reopenings

Payless ShoeSource — once America’s most ubiquitous discount shoe retailer — is planning a comeback. The budget chain emerged from bankruptcy protection on Thursday with plans to reopen some of the 2,100 stores that it had shuttered last year in the US. Known for its affordable shoes, boots, sandals and accessories, Payless execs declined to say how many stores it might open in the US, where it once operated as many as 2,500 stores. But this will be the second time the 64-year-old brand from Topeka, Kan., seeks to reinvent itself after a financial disaster. Payless first filed for bankruptcy protection in 2017 with $435 million in debt. Eighteen months later it was back in bankruptcy court after being squeezed by discounters such as T.J. Max and DSW and $473 million in debt. The new management team hails from licensing firm CAA-GBG and is led by that company’s former president, Jared Margolis.

 

Athletic & Sporting Goods

MacNeill Pride Group Purchases ORCA Coolers

MacNeill Pride Group, a diversified global designer and manufacturer of sporting goods and related products, has purchased Outdoor Recreation Company of America (ORCA), a leading supplier of premium coolers, drinkware and other outdoor accessories. Terms were not disclosed.  ORCA will continue to operate from its Nashville headquarters. Founded in 2012, its product line includes hard-sided coolers, soft-sided backpack style coolers and a full line of stainless steel drinkware.  ORCA joins a portfolio that includes PrideSports, the world’s leading maker of cleats, studs and spikes for multi-sports under the CHAMP® and Softspikes® brands; Pride Manufacturing Company LLC, which creates engineered wood products such as golf tees, cigar tips and toys; and MacNeill Engineering, which designs, manufactures and tests footwear components.

Renowned Quebec goalie equipment company in David-and-Goliath legal battle with CCM

A legal battle is pitting a legendary Quebec-based maker of hockey goalie equipment against CCM, the world’s largest hockey equipment manufacturer.  EGB is a family-run company based in Terrebonne, Que. that’s been making elite goalie equipment since the 1970s.  EGB has been in a commercial partnership with CCM since 2009. That 10-year deal expired on Dec. 31, after the two companies failed to come to a new agreement. In court documents filed last week, EGB alleged that CCM is now stealing its designs and using them to make and sell its own goalie pads.

TB12 Acquires Wellness and Nutrition Company, VitalFit

TB12, the performance lifestyle brand co-founded by six-time Super Bowl champion Tom Brady and business partner Alex Guerrero, announced that it has acquired VitalFit Nutrition – a wellness and nutrition company offering innovative, plant-based fitness recovery products. Together, TB12 and VitalFit will explore new product innovations in an effort to continue helping people of all ages perform and recover better.

Cosmetics & Pharmacy

Early-Stage Investors Flock to Clean Makeup

With a fresh round of financing, clean makeup brand Kosas has an aggressive growth plan. The brand, best known for blending skin care and makeup to develop cult products like Tinted Face Oil, $42, has raised a series B round, led by Stripes Group. Existing big-name investors, including Scooter Braun’s TQ Ventures, Leandra Medine and Abe Cohen, and Arielle and Brandon Charnas, have also re-upped and invested in the latest round of capital. Other series A investors — CircleUp, Beechwood Capital and Imaginary Ventures — also participated in the series B. Kosas has been growing rapidly. Industry sources said the business was up more than 400 percent for 2019, bringing total retail sales to around $20 million. Projections for 2020 show the business nearly tripling, industry sources said, to between $50 million and $60 million in retail sales. Kosas is one of several clean makeup brands to raise capital in the past month. In December, influencer Annie Lawless’ Lawless Beauty raised a series A from Cult Capital. And earlier in December, Ilia also raised a series B, led by Sandbridge Capital with participation from Silas Capital. While the three brands are relatively small — Kosas is projected to be the biggest of the three in terms of retail sales for 2020 — they are all growing, something the mainstream prestige makeup category has been struggling to do.

CVS Health to convert ‘hundreds’ of stores in 2020 to new concept

CVS Health is moving full steam ahead with updating stores to its new health-focused store format. The company, which introduced the format at the end of 2018 in Houston, plans to update hundreds of its stores to the new format this year, according to CNBC. Currently, CVS has 50 HealthHUB locations. “We’ve made a commitment to have about 600 hubs by the end of this year. That’s 12 [updated stores] a week with a trajectory of 1,500 hubs by the end of 2021,” CEO Larry Merlo told CNBC. Merlo said he is encouraged by the early results in the first group of updated stores.  “We’re seeing increased traffic in the stores, we’re seeing higher front-store margins and we are seeing terrific utilization of the health-related services,” he said. “So we’re really pleased with what we’re seeing.”

Going K-razy: Korean beauty’s influence on mass

A decade or so ago, no one would have thought that Korean Beauty would be having as much of an impact on the domestic beauty category as it has. Yet, products either made in or inspired by South Korean manufacturing have made a major imprint on the U.S. beauty industry and, more importantly, have made a huge impact with consumers always on the lookout for something new to help with their beauty regimen. And, while the skin care category has made the biggest impact, many industry officials said that makeup is starting to gain a larger role. In fact, many of these industry gurus said that a number of the biggest sales drivers in mass beauty today are rooted in K-beauty.

 

Discounters & Department Stores

Walmart shuffles executives after holiday season, chief merchant departing

Walmart is shuffling its executive team after the 2019 holiday season. The company’s chief merchant Steve Bratspies is set to depart, according to an internal memo sent to employees by Walmart U.S. CEO John Furner, which was reviewed by CNBC. Scott McCall will replace Bratspies, the memo said. McCall most recently led entertainment, toys and seasonal at Walmart. “I am incredibly proud of what we have accomplished as a team …” Bratspies said in an emailed statement, reflecting on his 14 years at the company. “I will always cherish my Walmart family and take pride in the growth we fueled together, but it’s time for a new challenge. I am excited about what’s ahead for me and for Walmart.”

The real warning in Target’s holiday sales: Toys are in trouble

Target didn’t have the strong holiday in the toy department that many expected, ringing alarm bells for the entire industry. The retailer on Wednesday reported its toy sales were about flat over the 2019 holidays compared with the prior year, though it said it continued to gain market share in toys, based on data from NPD Group. Target shares fell more than 7% on the news, while the report sent Walmart’s stock down more than 1%. Toymaker Hasbro’s shares dropped about 2.5%, while Mattel’s stock tanked more than 6%.

An Amazon Acquisition of Kohl’s Looks Like a Great Idea Again … for Kohl’s

If the idea rings a bell, it may be because the prospect of e-commerce behemoth Amazon.com acquiring brick-and-mortar outfit Kohl’s first surfaced in 2017. Neither name floated the premise then, but plenty of other people did. Amazon had just purchased Whole Foods, and was experimenting with a small number of physical bookstores. A bigger retailing deal seemed to be a fairly natural progression, particularly given how Amazon was starting to dabble in private label goods.

 

 

Emerging Consumer Companies

Opening Ceremony to close all stores and sell IP

Following a sale of the brand’s trademark and intellectual property to New Guards Group, Opening Ceremony will close all of its stores this year. The brand’s new owner plans to move production of Opening Ceremony’s in-house line to New Guards’ headquarters in Milan, with the founders staying on as co-creative directors. New Guards Group, which is behind high-end streetwear brands like Off-White, Palm Angels, and Heron Preston, was acquired by Farfetch in 2019 for $675 million.

Steph Korey stays at Away

Steph Korey, co-founder and CEO of Away, who announced that she would step down as CEO following reports of Away’s workplace issues, will remain at the helm of the travel company. She had earlier planned to become chairman with Stuart Haselden from Lululemon becoming CEO, but will now be co-CEO along with Haselden.

Bevel launches eleven products in one day

Walker & Co., maker of the Bevel brand of personal care products, launched eleven new products, expanding beyond the original skin and shave categories to now include body and hair products. Additionally, the line will begin national distribution at retail. The company was acquired by Procter & Gamble in December, 2018.

 

 

Grocery & Restaurants

TreeHouse ends R.-T.-E. cereal merger talks with Post

TreeHouse Foods, Inc. on Jan. 13 said it terminated its agreement to sell its ready-to-eat cereal business to St. Louis-based Post Holdings, Inc. The decision comes a little less than a month after the Federal Trade Commission filed an administrative complaint challenging the companies’ proposed $110 million transaction. TreeHouse said it will begin the process of remarketing the R.-T.-E. cereal business.

 

Cott to rebrand as it becomes pure-play water company

Cott Corp. has reached an agreement to acquire Primo Water Corp. for approximately $775 million. Primo is a single-source provider of water dispensers, multi-gallon purified bottled water and self-service refill drinking water. The acquisition, combined with Cott’s announcement earlier this month that it is exploring strategic alternatives for its S&D Coffee and Tea business, is part of Cott’s broader effort to transition into a pure-play water company. The announcement that Cott is transitioning to a pure-play water company comes less than a week after the company said it is evaluating certain strategic alternatives for S&D Coffee and Tea. Predominantly a carbonated soft drink manufacturer for most of its nearly 100-year history, Cott sold its traditional beverage manufacturing business to Refresco for $1.25 billion in 2018. In 2019, the company sold its soft drink concentration production facility and RCI International division to Refresco for $50 million, a move that effectively removed Cott from the carbonated soft drinks business.

 

Purity Organic acquires Dunn’s River Brands

Organic food processor Purity Organic, Inc, has acquired Dunn’s River Brands Group, Inc. Terms of the transaction were not disclosed. Dunn’s River Brands is a beverage processor that owns such brands as Sweet Leaf Tea and Tradewinds Beverage Co. Sweet Leaf Tea is an organic iced tea brand. Tradewinds Beverages is a maker of slowed brewed iced teas that are sold in 64-oz packages and have a strong market position in the Great Lakes region of the United States.

 

Home & Road

Fast-growing home decor chain raises earnings, sales outlook

At Home expects to end its fiscal year on a high note. The home decor retailer last week increased its fourth-quarter earnings and sales outlook. For the quarter, ending Jan. 25, the company expects its net sales to land on the high end of its $385.0 million to $393.0 million estimation. The company also raised its earnings outlook to $0.33 to $0.36 from prior guidance of $0.31 to $0.36. Analysts are expecting $0.33, according to Marketwatch. For the year, At Home expects same-store sales to hit the high end of its previously provided outlook of $1.35 billion to $1.36 billion. The company also increased its earnings for the year to $0.53 to $0.56 from its prior estimate of $0.51 to $0.56. “We are pleased with the improved performance of our business and remain on track to exit the fiscal year with a healthy inventory position and significant improvement in annual free cash flow,” said Lee Bird, chairman and CEO, At Home.

Ikea to open ‘city centre’ concept in London

Ikea’s $5.8 billion initiative to open smaller format “city centre” stores to get closer to shoppers in dense urban areas is landing in London. Ingka Centres, Ikea’s retail real estate arm, has purchased Kings Mall Shopping Centre in the Hammersmith neighborhood of West London for $220 million and will install its new concept there along with co-tenants. Ingka last year announced its plan to place city centre stores in 30 major cities in Europe, Russia, Asia, North America, and Oceania. Most will be placed in mixed-use community destinations that could include retail and entertainment, as well as health care and educational facilities. Ikea began building city centres in China last year. The Hammersmith location will be its first in England. Ingka Centres operates 45 malls and shopping centers in Europe, Russia, and China that it claims draws 480 million visitors annually. Its plan is to grow to 70 locations hosting 1 billion visitors by 2025.

Canadian RTA specialist Bestar acquires Bush Inds.

As part of a plan to strengthen the distribution of both brands across North America, Canadian RTA furniture manufacturer Bestar has acquired RTA specialist Bush Inds. from Lorraine Capital of Buffalo, N.Y., the companies announced jointly on Tuesday. Bestar is a division of Novacap, one of Canada’s leading private equity firms. It was founded in 1948, and Bush Inds. was founded in 1959, giving the companies a combined 133 years of experience. While officials did not reveal a purchase price, they said that the deal is supported by Desjardins Capital and Fonds de solidarité, which are becoming shareholders in the combined Bestar-Bush company. Officials also noted the purchase will create an organization with combined sales of about $200 million and a combined work force of more than 600, more than 200 of which are in Canada. A major focus for the companies moving forward will be to boost the e-commerce business.

Jewelry & Luxury

Signet’s Holiday Comps Rise, Particularly Online

Signet’s comps grew this holiday—though an increasing amount of its customers weren’t at the mall, but on their couch. The company announced that its 2019 holiday comps rose 1.6%—with online sales climbing an impressive 13.5%, even as brick-and-mortar sales dropped 0.2%. The results, for the nine weeks ending Jan. 4, topped Signet’s prior guidance and led America’s largest jeweler to boost its guidance for the next fiscal year. It now expects that fiscal 2021’s same-store sales will rise 0.1%; it had previously expected them to fall 1%–1.7%.

Tiffany’s Temporary Flagship Is Essentially the World’s Swankiest Pop-Up

Tiffany & Co. is busy renovating its legendary Fifth Avenue flagship space, a project it announced in 2018 that’s scheduled to wrap up in late 2021. In the meantime, it’s opened what amounts to the mack daddy of all luxury pop-up shops next door. America’s favorite jewelry brand—which was purchased by French fashion conglomerate LVMH in late 2019—has set up a temporary shop in a building that’s adjacent to its permanent store. And though it was designed as an ephemeral retail spot, it gives a convincing impression of a luxury department store, à la Barneys New York.

Rolex Raises Its Watch Prices an Average of 3.4%

At the beginning of the year, the Swiss watch company raised U.S. prices on its much-coveted watches by an average of 3.4%, according to jeweler sources who received communications from the company. In recent years, the brand had generally held off on increasing its U.S. MSRP (manufacturer’s suggested retail price). But after another super-hot holiday, the increase was not unexpected. One Rolex seller estimated that prices went up about 3%–6%, with stainless steel models getting the largest increase.

Watch Brand Benrus Revived by Investor Group

This year a private investment group will relaunch Benrus, a once-popular watch brand that has had a rocky recent history. The new group, which purchased the rights to the brand in late 2017, is led by mergers and acquisitions lawyer Michael Sweeney, who will act as managing partner. He has brought on Michael Goeller, former executive vice president for worldwide operations for Bulova, to act as the brand’s chief operating officer. The company has made other hires that it is not ready to announce yet, Sweeney tells JCK. Benrus is also formalizing deals for its product to be sold at department stores and high-end independents, and it plans an e-commerce element, he says.

 

Office & Leisure

Papyrus to close stores around the country

Stationery retailer Papyrus is closing stores around the U.S., with liquidation sales already underway. The company has not announced the closures publicly, but employees at stores in multiple states confirmed that their stores will close and they have been told to display sale signs. A reporter observed a store in Washington, D.C., with makeshift 20%-off signage throughout the store that noted all sales were final. The retailer’s parent company did not immediately respond to a request for comment. ​Papyrus most recently said on its website it had more than 260 stores. Two sources familiar with the matter said that the retailer’s parent, Schurman Retail Group, is closing Papyrus’ entire store fleet, and it has hired a liquidation firm to assist with the sales. A store employee at a New York location confirmed that all Papyrus stores in the state will close.

Lego sets its sights on a growing market: Stressed-out adults

Elisabeth Briggs finds calm in clicking small, interlocking bricks together and turning piles of multicolored plastic into something recognizable. Sometimes she has a beer while playing with Lego bricks — at 37, she’s allowed. For Briggs, this ritual has become a kind of guided meditation with a tangible reward at the end: a big city skyline, perhaps, or an iconic building she can display in her office. Lego, the world’s largest and most profitable toymaker, is zeroing in on a growing demographic: stressed-out adults. The 87-year-old Danish company increasingly bills its brightly colored bricks as a way to drown out the noise of the day and perhaps achieve a measure of mindfulness. The company’s newest kits — which include the Central Perk cafe from the sitcom “Friends” and a vintage 1989 Batmobile — tap into Gen X nostalgia, while its Ideas and Forma lines are being targeted to adults who want to occupy their hands but keep their minds loosely engaged.

GameStop holiday sales plummet; lowers forecast

The holiday season brought no cheer to GameStop. The beleaguered retailer reported that its total global sales plunged 27.5% to $1.83 billion for the nine-week holiday period ended January 4, 2020. Same-store sales fell 24.7%. GameStop said its holiday results were indicative of overall industry trends impacting the video game industry and driven by an accelerated decline in new hardware and software sales, particularly in the month of December. “The accelerated decline in new hardware and software sales coming out of black Friday and throughout the month of December was well below our expectations, reflective of overall industry trends,” said George Sherman, CEO, GameStop. Given the deceleration in sales trends, particularly in December, GameStop said it now expect fiscal 2019 earnings to be below guidance.

Technology & Internet

Bezos’s India visit marked by probe into Amazon

Amazon.com Inc. CEO Jeff Bezos got a bitter reception during his India visit this week after the country’s antitrust regulator initiated a formal investigation hours before his arrival and infuriated small store owners demonstrated in the streets. Bezos is in New Delhi for the Smbhav summit, an Amazon India gathering for small and medium businesses, where he announced Amazon will invest a fresh $1 billion to help bring such companies online. He also committed the retail giant to exporting a total of $10 billion of made-in-India goods by 2025. India is arguably Amazon’s most important overseas market and a key growth driver, however the small businesses that the CEO is hoping to endear himself to are organizing in opposition.

 

Google ends third-party cookies in ad-tracking

Google is upending the advertising world with its decision to “render obsolete” a key tool used by marketers for years to track would-be customers as they move around the web: It’s phasing out the cookie. On Tuesday the Alphabet Inc. unit said it would stop supporting third party cookies over the next two years. Cookies—the bits of code that lodge in peoples’ browsers and follow them around the web—allow advertisers to target people with ads for websites they previously visited, and keep track of which ads finally induced a purchase. Cookies have long been a core part of how the massive online ad industry operates.

 

Finance & Economy

US retail sales climb in December, and November sales were revised up

U.S. retail sales rose for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, which could strengthen the view that the economy maintained a moderate growth pace at the end of 2019.  Sales rose in December despite retailers such as Target Corp, Kohl’s, J.C. Penney and Macy’s reporting a decline in sales for the holiday period as foot traffic in malls dropped.

 

New jobless claims fall 5th straight week to 204,000 in sign of strong U.S. labor market

The number of Americans who applied for unemployment benefits in early January fell for the fifth week in a row, giving a clean bill of health to strong U.S. labor market as 2020 got underway.  Unemployment claims are seen as a rough measure of how many people are losing their jobs. They fell to a 50-year low of 193,000 last April and have mostly hovered in the low 200,000s since then.

 

 

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