Andy Dunn, the originator of the term Digitally Native Vertical Brand (DNVB), the founder of Bonobos, and the head of Walmart’s digital consumer brands unit, revealed last week in a LinkedIn post called “A Love Letter to Walmart” that he will be leaving the retail giant early next year. The post described some of the lessons Dunn learned about retail and leadership over his time at Walmart, as well as his admiration and eventual devotion to Walmart’s mission to “deliver a better life for its core customers.” Walmart returned the love to Dunn with its response, with one of its spokespeople proclaiming “Andy’s contributions to the organization have been invaluable.” The duet of statements was so amicable, it begs the question “why is he leaving?” And Dunn’s seminal role in the last decade of retail’s evolution prompts the thought “what happens now?” As is often the case, the retrospective question is much easier to answer than the forward-looking one.
Neither Dunn’s post nor Walmart’s statement gave much in the way of an explanation for the executive’s impending departure, but it isn’t much of a leap to speculate that it is related to Walmart’s vacillating approach to digital brands. Beginning with the company’s $3.3 billion acquisition of Jet.com in 2016, and continuing with its 2017 buying spree of Shoebuy, Moosejaw, ModCloth, and Bonobos, Walmart’s initial plan appeared aimed at creating an online portfolio of proprietary brands that could compete with Amazon. Once Bonobos was bought, Dunn was tasked with further filling out Walmart’s digital portfolio. But almost right away, things began to change. The pace of Walmart’s acquisitions began to slow and the incubation of new internally-developed private brands became a growing part of the company’s strategy. Dunn seemingly adapted well, helping Walmart to launch its own mattress brand, Allswell, but the sands continued to shift. Reports surfaced earlier this year that Walmart’s ecommerce businesses were projected to collectively lose $1 billion, creating tension within the company. There were rumblings this summer that Walmart was entertaining offers for Bonobos, and ModCloth was sold off this fall. The tone of last week’s statements make it sound like Dunn and Walmart tried their best in good faith, but given his evolving mandate, one could argue it would have been more surprising if Dunn didn’t leave.
Last week’s communications also gave few hints about what happens now. Walmart appears set on its current course of developing and launching new proprietary labels and deploying the learnings it gained from its acquisitions elsewhere in its core business, as it has done successfully with grocery. The future is hazier for Dunn. The closest thing to a clue about his next steps may have been in Walmart’s statement, which said “as an entrepreneur at heart, Andy Dunn has decided now is the right time to take the next steps in his career.” Perhaps he will start a new brand – he’d have no trouble finding backers.
More broadly, Dunn’s symbolic role as a founding father of a generation of startups and the closing of this chapter at Walmart raise the same “what now” question for DNVBs at large. Intense competition and rising customer acquisition costs, problems that likely contributed to Walmart’s changing DNVB game plan, have made it more challenging than ever for digital startups to scale and turn a profit, and investors are getting pickier as these challenges become more apparent.
Perhaps, with the benefits of his vision, notoriety, and experiences grappling with these issues at Bonobos and Walmart, Dunn’s next venture will show us the way. We’ll be rooting for you, Andy.
Headlines of the Week
Bonobos founder Andy Dunn to depart Walmart in 2020
The founder of Bonobos, Andy Dunn, is leaving Walmart, roughly two years after the company acquired the money-losing online apparel retailer and he joined Walmart to help grow its e-commerce operations. Dunn said in a LinkedIn post on Thursday that he would be departing in early 2020. He didn’t specify where he would be heading next. Dunn will remain with Walmart through January and will work closely with merchandising and brand leadership to “ensure a smooth and successful transition,” a Walmart spokesperson said in an emailed statement. Bonobos, known for its patterned men’s shirts and chinos, is one of a handful of digital companies that Walmart has acquired in recent years to try to grow online and compete with Amazon.
Apparel & Footwear
Ted Baker chief executive quits as retailer warns on profits
The chief executive of struggling retailer Ted Baker has resigned as the firm again warned over profits, sending its shares plunging. The group said Lindsay Page, who took over from founder Ray Kelvin after he resigned in March, has been replaced by finance boss Rachel Osborne, who takes up the role with immediate effect. Chairman David Bernstein has also quit. The resignations were announced as the company scrapped its shareholder dividend payout and said it is now expecting annual pre-tax profits of between £5m and £10m after worse-than-expected trading in November and over Black Friday. It confirmed it has hired consultants Alix Partners to carry out a review of the group’s operational efficiency, costs and business model as part of an urgent recovery plan. The firm already began a review of its assets in October, which is ongoing.
Someday There Might Not Be a Menswear Department
While gender-free clothing has been on runways and in fashion magazines for years, building a retail space around the concept was until recently seen as financially risky. Now, some companies are out to prove that the cultural fulcrum has shifted enough to give it a try. According to Pew research, 35% of Generation Z knows someone who identifies as non-binary and prefers gender neutral pronouns—and millennials and even Generation X aren’t far behind. Retailers, and in particular clothes sellers, have taken notice. “I do believe gender-neutral fashion is the future,” Fashion Institute of Technology Professor Dawnn Karen said. “I feel like we’re moving towards that.” Holding itself out as the first gender-free store in New York, The Phluid Project in Manhattan’s Soho neighborhood is part of this nascent segment.
Boot Barn is on the road to bring Western fashion to the East Coast. The California-based workwear and lifestyle retailer has nearly 250 stores peppered across 33 states in all regions except the Northeast, which is where CEO Jim Conroy has his eye on for expansion. “We’ve mapped out the whole country, state by state, and we’ve gotten to a number of exactly 250 — doubling to 500,” Conroy said. As many retailers gradually close brick-and-mortar locations to adapt to the online shopping environment, Boot Barn is banking on its physical store strategy to continue selling its footwear, apparel and accessories to customers. The company gets more than 80% of its sales at its stores because many of its products are “store-preferred” purchases that provide “insulation from online” competition such as Amazon, Conroy said.
The Children’s Place plans Gymboree relaunch, misses Street with Q3 sales
The Children’s Place will bring back Gymboree across channels in 2020. As part of its third-quarter financial results, the specialty apparel retailer said it is on track to relaunch the Gymboree brand in early 2020 with an enhanced, personalized, online shopping experience at gymboree.com, and with over 200 shop-in-shop locations in select The Children’s Place stores across the U.S. and Canada. Gymboree Group filed for bankruptcy in January 2019, saying it would close all its stores. In March 2019, The Children’s Place paid $76 million to acquire the rights associated to the Gymboree brand and its value-oriented Crazy 8 brand. The company also reported that net sales increased 0.4% during the third quarter of fiscal 2019 to $524.8 million from $522.5 million in the third quarter of fiscal 2018. Children’s Place primarily attributed this growth to a same-store sales increase of 0.8% during the quarter. However, consensus estimates had predicted net sales would reach $534 million and same-store sales would increase 3.5%.
Athletic & Sporting Goods
iFit raises $200M to stream fitness content on NordicTrack workout machines
The ink has settled on a $200 million growth equity investment for in-home fitness streaming platform iFit, the company’s parent ICON Health & Fitness announced. Pamplona Capital Management led the raise. iFit — which shares its parent company with workout machine makers NordicTrack, ProForm and Freemotion — has built a streaming platform for use on these companies’ products. Users can sign up for individualized virtual workouts and classes led by live trainers. Additionally, the platform will automatically adjust the settings of the machines during a session to match the on-location workouts being displayed.
Nike’s swoosh logo mark has consistently been characterized as one of the most recognizable – and thus, valuable – logos in the world. As such, the swoosh, along with Nike’s trademark-protected name, are two of the most important assets of the Nike brand, according to Forbes’ “World’s Most Valuable Brands” list. For 2019, it put Nike’s brand value – which is, in large part, driven by its swoosh mark – at $32.4 billion, thereby, situating the 55-year old company quite a bit more favorably than the likes of fast fashion behemoth Zara (with a brand value of $18.4 billion), arch-rival adidas ($16.6 billion), and luxury entities, such as Louis Vuitton ($13.5 billion), Rolex ($8.04 billion), Gucci ($10.2 billion), and Hermès ($10.9 billion), among others.
Cosmetics & Pharmacy
Revlon Sales Efforts Now Focus on Almay, American Crew, Other Portfolio Brands
While everything at Revlon Inc. remains up for grabs, the company is now focusing on selling brands like Almay and American Crew in order to invest back into the business and pay down debt, according to a source with direct knowledge of the deal process. “Where things are focused right now is on selling more significant portfolio and regional brands as a way to drive investment back into the core strategies,” the source said. A spokesman for the company said: “Revlon is working with Goldman Sachs reviewing strategic alternatives and that process is ongoing and progressing well. As we continue to consider all of the options, one path that could drive the greatest value for our stakeholders is pursuing transactions involving the portfolio and regional brands. We see these brands as being highly valuable with strong consumer followings in their markets and sectors and significant growth potential under new ownership.”
OptumRx acquires Diplomat Pharmacy
Optum is acquiring Diplomat Pharmacy and integrating it into its OptumRx pharmacy care services business. The company is paying $4 per share of outstanding common stock for Flint, Mich.-based Diplomat in a cash tender offer that includes the assumption of Diplomat’s outstanding debt. Diplomat brings expertise in managing specialty medications that treat patients with complex diseases, such as oncology and immunology, and provides specialized infusion therapies offered in convenient and clinically appropriate settings in all 50 states and Washington, D.C. The combination will support improved health outcomes and reduced prescription drug costs while helping lower the overall total cost of care, the company said. The transaction was unanimously approved by Diplomat’s board of directors.
Discounters & Department Stores
Moody’s slashes department store outlook, sees operating income down 20% this year
Department stores are in for more trouble as 2019 comes to an end and we head into a new decade, according to two analysts’ notes. Goldman Sachs lowered its rating on Macy’s shares last week to sell from neutral, still seeing “significant downside” in the company’s stock price. That’s despite Macy’s shares having already tumbled about 48% this year to a market value of $4.8 billion. Moody’s, meantime, cut its operating income growth forecast for the entire department store sector. The credit rating agency is now calling for department store retailers’ profits to be down 20% in 2019, compared with prior expectations for a 15% drop. “Off-price retailers and discounters once again posted robust sales as customers continued to flock to value,” Moody’s senior credit officer Christina Boni said. She said off-price chains such as TJ Maxx and Ross Stores are turning inventory roughly two times as fast as department store chains including Dillard’s, J.C. Penney, Kohl’s, Macy’s and Nordstrom.
Dollar General to sell CBD products in select states
Dollar General has just made a huge announcement in regards to CBD products. The Goodlettsville, Tenn.-based company revealed that approximately 20 CBD product SKUs in 1,100 stores across Tennessee and Kentucky, will be hitting its shelves. In addition, the company plans to expand the product’s availability to seven more states — Colorado, Florida, Indiana, Oregon, South Carolina, Texas and Vermont — by spring 2020. CBD products consumers in the select markets can find include such topical cosmetic products as creams, ointments, bath bombs, bath salts and face masks. There are no plans to provide ingestible or edible CBD products, the company said.
Emerging Consumer Companies
Lebron James partners with Calm, mediation and sleep app
Los Angeles Laker Lebron James announced a partnership with meditation and sleep app Calm. The partnership is aimed at highlighting the importance of mental fitness. James will voice original audio content on the platform and star in a new marketing campaign that will see him on TV, billboard, and radio ads. He has worked with the company to create “Train Your Mind,” a series of 10-minute segments focusing on mental fitness and covering topics such as managing emotions, sleep, and maintaining balance.
Away announced that Stuart Haselden, Lululemon’s chief operating officer, will take over as CEO of Away in January. Haselden will replace co-founder Steph Korey, who will become executive chairman. Haselden will join Korey and co-founder Jen Rubio on the board of directors. The announcement comes amidst reports of company culture issues.
Rent the Runway partners with W Hotels
Rent the Runway announced that it has partnered with W Hotels on a “Closet Concierge” service at four select hotels – the W Aspen, W South Beach, W Washington, D.C. and the W Hollywood. After booking a room, guests will be able to choose four styles to rent for $69. Those items will then be waiting for them in their hotel rooms upon arrival. Guests drop off items at the hotel’s front desk when checking out. In the past year, the company has expanded its physical presence through other partnerships, including order pickup and drop-offs at select WeWork and Nordstrom locations.
Grocery & Restaurants
Kroger, Walgreens form group purchasing organization
Adding scale to compete with big rivals, The Kroger Co. and Walgreens have created a group purchasing organization (GPO) called the Retail Procurement Alliance. Kroger and Walgreens said Wednesday that the new GPO will build on their retail partnership, unveiled just over a year ago, by enhancing purchasing efficiencies, lowering costs and fostering innovation through combined resources. A procurement joint venture would increase their purchasing power with suppliers as well as enable them to rein in pricing from efficiencies of scale. In addition, Kroger and Walgreens field strong rosters of own brands, and offering their private brands at each other’s stores provides an element of exclusivity that could attract more shoppers.
C&S Wholesale Grocers stands ‘well-positioned’ in Ahold deal, execs say
C&S Wholesale Grocers reiterated its support of major customer Ahold Delhaize USA as the food retailer transitions to self-distribution. Keene, N.H.-based C&S has agreed to sell Ahold Delhaize three warehouses: two in York, Pa., and one in Chester, N.Y. The retailer also is pursuing a lease for a C&S facility in Bethlehem, Pa. Continuing a 30-year relationship with Ahold Delhaize USA companies, C&S said it will serve as the third-party labor provider at the York and Chester warehouses.
Home & Road
Home Depot expects single-digit total sales increase for 2020
The Home Depot is heading into fiscal 2020 expecting year-over-year improvement in its rate of total sales growth. At its 2019 investor and analyst conference, the home improvement giant reaffirmed its guidance for fiscal 2019. This includes total sales growth of approximately 1.8% and same-store sales growth for the comparable 52-week period of approximately 3.5% (fiscal 2018 was a 53-week year). Diluted earnings-per-share are expected to increase 3.1% from fiscal 2018 to $10.03. In addition, Home Depot is providing a preliminary fiscal 2020 outlook that includes total sales growth of approximately 3.5% to 4% and same-store sales growth of approximately 3.5% to 4%. Home Depot also provided an update on its “One Home Depot” strategy, which is based on delivering a “frictionless, interconnected” shopping experience that enables customers to seamlessly blend the digital and physical worlds.
Lovesac Q3 sales up 25%, but income drops
Lovesac, the furniture company known for making Sactional adaptable sofas, posted a net sales increase of 25% or $52.1 million in the third quarter of fiscal 2020, which ended on Nov. 3, compared with net sales of $41.7 million in the third quarter of fiscal 2019. Gross profit dollars increased by 14.7% to $26.3 million for the third quarter of fiscal 2020 compared with $22.9 million in the third quarter of last year. The company’s net loss was $6.7 million for the 2020 third quarter compared with a net loss of $2.5 million in the 2019 third quarter, which resulted in a net loss per share of 46 cents compared with a year-ago net loss per share of 22 cents. Company shares went down more than 10% after the earnings per share missed by 4 cents and third-quarter revenue missed by more than $2 million. The company said the decrease in earnings was driven primarily by the impact of the 25% China tariffs, partially offset by the reduced costs of Sactionals and Sacs products.
Home Depot: Shrink pressures ‘most significant’ impact to margin outlook
It’s easier than ever to shop 24 hours a day, seven days a week. It’s also easier to steal 24 hours a day, seven days a week. That’s one of the reasons why the dark topics of theft and organized crime – even the opioid crisis — intruded on The Home Depot’s Investor and Analyst Conference this week in Atlanta. Continued pressure from shrink, primarily driven by product theft, was described as “the most significant impact to our margin outlook,” by Home Depot Executive VP and CFO Richard McPhail. “We have tested approaches to mitigate this loss while minimizing the impact on our customers shopping experience, and are now rolling out new solutions more broadly,” McPHail said.
Jewelry & Luxury
Gluck Corporation acquires direct-to-consumer watch brand Torgoen
Gluck Corporation has acquired Torgoen, a US-based direct-to-consumer (DTC) aviation-inspired watch brand. Torgoen joins a portfolio of brands at E. Gluck — a specialist in the design, manufacturing and distribution of watches — that includes Armitron, Anne Klein, Badgley Mischka, Juicy Couture, Nine West and Vince Camuto. No financial details relating to the acquisition have been disclosed. Torgoen was launched in 2010 by a group of aviation enthusiasts, and makes a range of watches inspired by vintage cockpit instruments. “E. Gluck and Torgoen share many core values including developing high-quality watches at affordable prices,” says Bobbie Weichselbaum, CEO of E. Gluck Corporation. “We are excited to have them join our family of brands and look forward to applying our expertise to help Torgoen grow to its full potential.”
Balmain appoints Jean-Jacques Guével as CEO
In the latest of a series of executive changes in fashion, Balmain has appointed Jean-Jacques Guével as CEO on Friday. Guével, who was most recently CEO of French label Zadig & Voltaire and has held executive positions at Celine and LVMH, will join the company in February 2020. The new CEO will focus on expanding the house, developing its assessors line and the brand’s international growth. Guével succeeds Massimo Piombini, who left Balmain for personal reasons earlier this month. Piombini was appointed CEO by Mayhoola for Investments soon after the Qatari fund, which also owns Italian luxury brand Valentino, acquired the Parisian house for an estimated €460 million in June 2016. The valuation was around four times the company’s estimated annual sales.
Office & Leisure
You can ski all year round in New Jersey at the American Dream mall
Even in the dog days of summer, this New Jersey slope will have a fresh coat of snow every morning for skiers and snowboarders to shred. That’s because the Garden State’s newest ski spot stays safe from all the elements. Welcome to Big Snow, a 180,000-square-foot spread with 4 rideable acres inside East Rutherford’s sprawling new American Dream mall. It’s the first indoor ski and snowboard area in North America, and the space — kept at a constant 28 degrees all year — opened to the public Thursday afternoon. Though smaller than a typical outdoor slope, Big Snow still packs a wintry punch. There are three trails — ranked easy, intermediate and advanced — as well as a freestyle park, reached by a stand-on “moving carpet,” a four-person chairlift and a T-bar. Without rentals, prices for a two-hour lift ticket start at $29 when reserved online in advance.
Chewy posts 40% net sales growth
Chewy on Monday reported third quarter net sales grew 40% to $1.23 billion from $875.6 million in the year-ago period. The company’s net loss widened slightly to $79 million from $78.6 million last year, according to a company press release. Chewy, which was acquired by PetSmart in 2017, grew it’s active customer base 33% in the most recent quarter to 12.7 million. Net sales per active customer increased 11% to $360 and sales from its Autoship subscription service customers represented 70.4% of total sales, CEO Sumit Singh told analysts on a call. Chewy has failed to become profitable and landed itself on Retail Dive’s list of companies that could go bankrupt within 12 months. However, Singh directed attention to two verticals, its private brands and pharmacy services, as bright spots during the quarter.
SoftBank to sell Wag stake back to startup, marking another setback for Japanese investing giant
SoftBank Group Corp.’s Vision Fund has agreed to sell its nearly 50% stake in Wag Labs Inc. back to the struggling dog-walking startup, marking another disappointment for the Japanese investing giant. Wag, which earlier this year laid off several dozen employees, is letting go a significant amount of the remainder of its workforce, according to an internal memo viewed by The Wall Street Journal. In a memo sent to Wag employees Monday, Chief Executive Garrett Smallwood said: “We are amicably parting ways with SoftBank and SoftBank will no longer have board representation.” He added: “Today, we said goodbye to a number of our friends and colleagues as we align our organization with the needs of our business.” Through its app, Wag offers on-demand dog-walking services around the U.S. through a network of tens of thousands of dog walkers. Its other investors include venture firms General Catalyst, Battery Ventures and Acme.
Technology & Internet
Justice Department To Review Google’s Pending Acquisition Of Fitbit
The U.S. Justice Department will review plans by Google to acquire Fitbit Inc for possible antitrust issues. Google on November 1 offered to pay $2.1 billion to acquire Fitibit. Watchdog groups like Public Citizen and the Center for Digital Democracy, among others, have urged antitrust enforcers to block the deal on the grounds that it will give Google even more data about American consumers. Google’s primary business involves targeted advertising, data mining, and services.
GameStop Corp. got no relief in its third quarter with sales and earnings that fell well short of analysts’ expectations. Same-store sales plunged 23.2%. The struggling retailer reported a third-quarter loss of $83.4 million, or $1.02 a share, in the quarter ended Nov.2, compared with a loss of $488.6 million, or $4.78 a share, in the year-ago period. Revenue plunged 25.7% to $1.44 billion as sales across nearly every product category declined. Analysts expected revenue of $1.62 billion. “Our third-quarter results continue to reflect the prevailing industry trends, most notably the unprecedented decline in new hardware sales seen across the market as the current generation of gaming consoles reach the end of their lifecycle and consumers delay their spending in anticipation of new hardware releases,” stated George Sherman, CEO, GameStop. “With console makers set to introduce new and innovative gaming consoles late next year, we anticipate this trend to continue until the fourth quarter of 2020.”
Finance & Economy
November Retail Sales Signaled a Slower Start to the Holiday Shopping Season
Retail sales edged up only slightly last month, signaling a slower start to the holiday shopping season. According to the Department of Commerce, November’s figures increased an adjusted 0.2% month-over-month to $528 billion — weaker than economists’ anticipated 0.5% gain — and was 3.3% above the prior year period. (October’s retail sales were revised slightly higher, rising 0.4% to $527 billion.) Declines occurred in several sectors where consumers often shop for holiday gifts. Clothing and clothing accessories stores, department stores and sporting goods stores all suffered declines. Online retailers were in better shape, growing 0.8% over the previous year.
Jobless claims suddenly jumped to a two-year high
The number of Americans filing for their first week of unemployment benefits suddenly jumped last week to the highest level in more than two years. The number of initial claims rose to 252,000 in the week ending December 7, an increase of 49,000 from the number of claims filed the week before, the Labor Department said. That’s higher than the 213,000 claims economists had expected and marks the highest level since the week ending September 30, 2017. Even though the pop in claims was notable, just one data point doesn’t make a trend. Last week’s data could be an outlier due to seasonal noise, given the timing around the Thanksgiving holiday on November 28.
