The Big Story

CGBS Keynote Profile: Kohl’s CEO Michelle Gass

Consensus

We are excitedly counting down the months and weeks until the Consensus Great Brands Show (CGBS), which will take place on Wednesday, September 25th, at the New York Times TimesCenter in Manhattan – https://greatbrandsshow.com/. With the date of the CGBS approaching, we are using this space each week to profile a different company that will be taking the stage in September. As we strive to assemble the most compelling slate of participating companies yet in the history of this event, we hope our weekly previews underscore our growing anticipation for this year’s show and give you a head start on learning about these dynamic brands and entrepreneurs.

Kohl’s CEO Michelle Gass – Curated by Kohl’s

 

Consensus is looking forward to hosting Kohl’s CEO Michelle Gass to the CGBS stage this year for a keynote conversation with Consensus founder and CEO Michael O’Hara. We look forward to hearing Ms. Gass’s views on the dynamic retail environment, and how Kohl’s is responding.

Kohl’s new initiatives to drive traffic and attract customers certainly provide interesting material to cover. The company’s partnership with Amazon to process Amazon returns for customers in all of its stores may be its highest profile move of this ilk to date, but Kohl’s continues to roll out more ideas. One new initiative announced last week will be covered on stage at the CGBS as it dovetails well with the theme of the event, and because we at Consensus are proud to have helped Kohl’s bring it to fruition: Curated by Kohl’s.

Curated by Kohl’s is a program that will bring a selection of new, emerging brands into more than 50 Kohl’s stores and to Kohls.com, beginning in mid-October. The goal is to showcase a number of new, modern brands and products, “as a way to surprise and delight Kohl’s customers with a continuous stream of new, relevant merchandise, and as an avenue to bring new customers to Kohl’s,” said chief merchandising officer Doug Howe. Products will span apparel, home, and accessories. Select brands that will be included in the mid-October launch are Adore Me, East Adeline by Dia&Co., Kid Made Modern, Lovepop, Luca + Danni, and United by Blue.

Consensus is proud to have played a role in the creation of Curated by Kohl’s, having served as an advisor to the company as it developed the format of the program and identified potential participating brands. We look forward to continuing our involvement with Curated and discussing its future with Ms. Gass and the CGBS audience on September 25th.

 

 

 

 

Headlines of the Week

WeWork reveals massive $900 million loss in filing to go public

WeWork released its much-anticipated IPO prospectus on Wednesday, revealing a $900 million loss in six months as the workspace rental company lined up to join a flurry of tech companies going public in 2019. WeWork, which rebranded to the We Company, is widely expected to go public as soon as next month. It was recently valued at $47 billion after SoftBank, the company’s biggest backer, invested an additional $2 billion in January. In the filing, the company reported revenues of $1.54 billion and a net loss of more than $900 million for the first six months of 2019. By comparison, another tech titan that went public this year, Uber, had a loss of $5 billion in the second quarter, largely due to stock based compensation from the IPO. WeWork also reported that it had 527,000 members as of June 30, an increase of more than 90% from the year before.

 

Kohl’s to partner with emerging brands

Kohl’s on Tuesday announced “Curated by Kohl’s,” a selection of products from emerging brands to be sold online and in more than 50 Kohl’s stores beginning in mid-October, according to a company press release. A company spokesperson declined to share which locations are participating. The chosen assortment, which will include apparel, accessories and home goods, will be refreshed quarterly, and found in each selection’s respective department, according to the release. The first round will feature lingerie brand Adore Me, plus-size apparel brand East Adeline by Dia&Co, Kid Made Modern craft kits, Lovepop greeting cards, Luca + Danni bracelets, and eco-friendly bags, drinkware and reusable straw kits from sustainable brand United by Blue. Later this year, items from Nine West, Scott Living home lifestyle collection, and Elizabeth and James, plus a holiday capsule by fashion designer Jason Wu, will be added to Kohl’s assortment. For next spring’s rotation, the department store will partner with Facebook to identify brands that have built a strong online community there, the company also said.

 

 

Apparel & Footwear

Steve Madden expands apparel offerings with latest acquisition

Steve Madden is on a buying spree. Steve Madden said Tuesday that it has acquired BB Dakota, a California-based, on-trend women’s apparel company, whose portfolio includes owned brands BB Dakota and Jack by BB Dakota and licensed brand Cupcakes and Cashmere. The acquisition comes the day after Steve Madden announced that it had purchased online sneaker upstart Greats. The financial terms of the deal were not revealed. BB Dakota, whose products are sold by department stores, e-commerce retailers and specialty shops as well as on its web site, had net sales in the 12 months ended June 30, 2019 of approximately $43 million.

 

Francesca’s completes strategic review without a sale

Francesca’s has finished a review of strategic alternatives and decided “at this time” to go it alone, focusing on its current turnaround plan. In announcing the review in January, the women’s apparel retailer said it was considering a possible sale. Francesca’s also said it entered a new $10 million term loan agreement with Tiger Finance meant to improve liquidity and support its strategic initiatives. The loan matures in 2022 and currently gives Francesca’s net additional liquidity of $7 million. It also comes with covenants that restrict the retailer’s capital spending unless certain payment conditions are met. Francesca’s interim CEO Michael Prendergast said in the release said that the loan “represents a vote of confidence in the Company’s turnaround efforts.”

All Avenue stores closing, liquidation now underway

Another women’s retailer is closing all of its stores. Plus-size retailer the Avenue will close its 222 stores in 33 states, according to a press release from liquidation company Hilco Merchant Resources. Hilco is managing the liquidation with Gordon Brothers. Eight months into 2019, there have already been 29% more store closings announced than in all of 2018, according to a new report from global marketing research firm Coresight Research. Based on Coresight Research’s figures, retailers’ earnings reports, bankruptcy filings and other records, more than 7,600 stores are slated to shutter this year and thousands of locations already gone. Dressbarn announced in May that it is shuttering all of its stores by the end of 2019. Charming Charlie announced in July that it will close its 261 stores.

San Francisco bag maker Timbuk2 sold to furniture company

San Francisco bag maker Timbuk2 has sold to Exemplis, a Los Angeles furniture maker, for an undisclosed price. As of May, Timbuk2 had 24 stores and 130 employees. It operates a manufacturing facility in the Mission where workers make custom orders. It sells directly to shoppers via its stores and its website but also makes its bags — including messenger bags, backpacks and cross-body bags — for corporate clients such as Facebook, Google and Tesla. It has wholesale retail partnerships with Urban Outfitters and Nordstrom, among others. Initially called “Scumbags,” the company was founded in 1989 by Rob Honeycutt and primarily made messenger bags, a favorite among local bike messengers. Honeycutt sold the company to VMG Partners, a venture capital firm in San Francisco, in 2005. VMG later sold its shares to TB2 Investors, a private investing group led by then-board chair Ken Pucker.

Tapestry Falls as Kate Spade Line Misses Promised Turnaround

Tapestry Inc.’s struggling Kate Spade line didn’t return to sales growth as predicted last quarter, prompting the parent company to pull back on store openings for the brand and lower its outlook for the year. The shares fell as much as 17%, the lowest in ten years.

Same-store sales, a key retail measure, dropped 6% at Kate Spade, compared with the 1.4% gain average estimate. Tapestry, which predicted in May that the Kate Spade unit could return to positive, said Thursday the brand’s results “did not meet our expectations and more time is required to drive a positive inflection in the business.” Kate Spade hasn’t posted a single quarter of same-store sales growth since it was bought by Tapestry more than two years ago. Tapestry said it needs to act “swiftly and decisively” to turn it around.

 

Athletic & Sporting Goods

Nike launches a sneaker subscription service for kids

Nike announced that it is debuting Nike Adventure Club, a sneaker subscription for kids ages two through 10. Nike will offer parents three options for their kids: four pairs of sneakers a year for $20 a month, six pairs for $30 a month or 12 pairs for $50 a month. Parents and kids will be able to choose from a selection of around 100 sneakers.  Nike is targeting time-strapped parents in the suburbs and rural areas who don’t live near a shoe store with the program.

 

Mørenot acquires Hvalpsund Net

NORWEGIAN aquaculture supplier Mørenot has acquired the Danish net maker Hvalpsund Net, the company announced.  The move comes as Mørenot, which was itself bought by northern European investment fund FSN Capital last year, continues to expand.  The acquisition of family firm Hvalpsund is the fourth time the FSN group has invested additional capital in Mørenot.  The company now has sales worth more than NOK 1.2 billion and over 700 employees.

Dick’s Sporting Goods launches inclusive athletic apparel line

Dick’s Sporting Goods has released a new line of apparel.  The athletic retailer announced the launch of its new line, DSG, last week and held an event in California to mark the occasion.  The Pasadena, California, event was complete with a special guest appearance — “Full House” star Candace Cameron-Bure led a workout for women in attendance.  The new DSG line, according to a press release, “is designed to make sport accessible for every athlete and every family.”

Cosmetics & Pharmacy

Olaplex Lands Nearly $100 Million Win in “David v. Goliath” Fight Against L’Oreal

In May 2015, executives from two haircare companies came together at a restaurant in sunny Southern California to discuss a potential acquisition. A representative for established industry stalwart L’Oreal USA met with an officer from the barely one-year-old Olaplex, a California-based startup that was gaining traction for its proprietary bonding system, a multi-step process aimed at strengthen and protecting hair, in Santa Monica to commence a dialogue about a potential deal. The acquisition discussions – which saw Olaplex co-founder and chief executive officer Dean Christal share “confidential information,” including about an unpublished Olaplex patent application “in good faith,” information that L’Oreal agreed to keep secret by way of a formal confidentiality agreement – were put to bed early, L’Oreal would later allege. The beauty industry titan asserted that as soon as Mr. Christal put a $1 billion price tag on his venture, a figure that L’Oreal has characterized as a “sham,” the negotiations for an acquisition came to a halt … for good. But while the two parties’ willingness to explore a potential purchase had expired by the end of spring of 2015, their involvement would go on for much longer. In January 2017, Olaplex filed a trade secret misappropriation, patent infringement, and breach of contract lawsuit against L’Oreal, and a bitter, transnational legal battle centering on blatant theft and “corporate greed” was born.

Rite Aid appoints CEO

Rite Aid’s search for a CEO is over. The company’s board of directors has named Heyward Donigan, a longtime healthcare veteran, to the position and added her to the board. “Today’s announcement is an important step in positioning Rite Aid for the future, and we are confident that Heyward is the right person to lead the company in capitalizing on the opportunities in the evolving healthcare environment,” Bruce Bodaken, chairman of Rite Aid’s board of directors, said.

 

Discounters & Department Stores

Macy’s CEO Jeff Gennette: Shoppers have ‘no appetite’ for price increases from looming tariffs

Macy’s CEO Jeff Gennette, on the heels of the retailer’s dismal quarterly earnings report, said consumers will have “no appetite” for price increases thanks to new tariffs. That’s as Macy’s shares were falling more than 15% in early trading Wednesday, sending shares of other department store operators such as Kohl’s, J.C. Penney and Nordstrom down. The S&P 500 Retail ETF (XRT) was down 3.4%. The declines come against a broader market move downward, as investors worry about whether the U.S. economy is slipping into another recession. The bond market on Wednesday morning was flashing its biggest recession signal yet, with the widely watched spread between the yield on the 2-year Treasury note and the yield on the 10-year note inverted. If the economy does weaken, tariffs will put added pressure on consumer spending.

We are in the middle of the great American department store shakeout—and there’s no stopping it

“You’re going to Bloomingdale’s with Julie? That’s like cheating on Rachel in her house of worship,” Chandler Bing says to fellow “Friends” character Monica Geller. That two-decade-old joke would not work today. The Rachel Green character, whether sporting mini-barrettes and spaghetti strap dresses or not, would more likely be shopping at home, on her computer, with a glass of wine. Of the victims of the retail upheaval, department stores have been among the hardest hit. Annual sales at U.S. department stores fell 20% from 2017 to 2018, and sales are on pace to drop even further this year, according to the U.S. Census Bureau. Over the past few years, Bon-Ton and Gordmans liquidated and Sears went bankrupt. The pressure isn’t abating. Barneys earlier this month filed for bankruptcy, while J.C. Penney is working with restructuring advisors to tackle its debt load. Shares of Nordstrom are down nearly 38% and Macy’s are down 35% so far this year. More than 1,000 department stores have shuttered over the past decade.

 

 

Emerging Consumer Companies

Vuori raises $45 million from Norwest Venture Partners

Vuori, the Encinitas, California-based activewear brand, announced a $45 million investment from Norwest Venture Partners. The company grew at nearly 200% in 2018. The funding will be used to build the team, purchase inventory, and open more physical stores around the country.

Allbirds Steps into Apparel with Sustainable Socks

When Allbirds set out to reinvent footwear in 2014, it couldn’t have anticipated that its shoes would become a staple in the modern eco-conscious person’s wardrobe. Its signature sneakers, made from Merino wool, have sold more than a million pairs around the world. The juggernaut of success has driven the company to expand its menu, from slippers and high-tops to shoelaces made from recycled plastic to a line of children’s shoes, adorably named Smallbirds. But along the way, the Allbirds team noticed something surprising. “Very early on, we realized that about half of our customers were wearing our shoes without socks,” says company cofounder Tim Brown. Now Allbirds is dipping its toes in the apparel market with its first non-shoe product: socks. They’re made from a new proprietary yarn called Trino—a blend of the company’s existing Tree and Merino fibers—and are meant to keep your feet sweat-free, whether you’re wearing Allbirds shoes or not. Brown says the company spent 18 months developing the socks; they wanted them to be the best socks.

 

 

Grocery & Restaurants

Motif Ingredients snags major investment, rebrands as Motif FoodWorks

Ingredient innovation and food technology company Motif Ingredients announced it has received $27.5 million in funding led by growth equity firm General Atlantic, with participation from CPT Capital. The company also announced a new brand identity and name, Motif FoodWorks, as well as several new leadership appointments. Motif uses biotechnology to recreate proteins from dairy, eggs and meat for use in animal-based product alternatives. It said it will use the funding to accelerate its product pipeline, expand collaborations across several molecular food science disciplines, scale its staff and improve R.&D. efforts.

The Rise of the Virtual Restaurant

Food delivery apps like Uber Eats, DoorDash and Grubhub are starting to reshape the $863 billion American restaurant industry. As more people order food to eat at home, and as delivery becomes faster and more convenient, the apps are changing the very essence of what it means to operate a restaurant. No longer must restaurateurs rent space for a dining room. All they need is a kitchen — or even just part of one. Then they can hang a shingle inside a meal-delivery app and market their food to the app’s customers, without the hassle and expense of hiring waiters or paying for furniture and tablecloths. Diners who order from the apps may have no idea that the restaurant doesn’t physically exist. The shift has popularized two types of digital culinary establishments. One is “virtual restaurants,” which are attached to real-life restaurants like Mr. Lopez’s Top Round but make different cuisines specifically for the delivery apps. The other is “ghost kitchens,” which have no retail presence and essentially serve as a meal preparation hub for delivery orders.

Home & Road

Lifetime Brands Moves Forward on Growth Plans

Despite a second-quarter net sales drop of 4.2 percent, Lifetime Brands CEO Rob Kay said the company is making progress on its long-term growth initiatives. For the three months ended June 30, Lifetime’s net sales were $142.5 million—a decrease of $6.2 million from the same period a year ago. For the six months ended June 30, net sales were up 9.6 percent, reaching $292.5 million compared with $266.8 million for the corresponding period in 2018. The company’s SKU rationalization initiative impacted both gross margin and operations for the period. Lifetime Brands did declare a quarterly dividend of $0.0425 payable on Nov. 15.

Vietnam mattress imports fall in June after months of growth

After months of rapid growth, mattress imports from Vietnam fell in June, Raymond James reported. “Interestingly,” the company said in a recent report on mattress imports, “Vietnam mattresses actually declined sequentially to 91,784 in June vs. 109,959 last month. This marks the first sequential decline we have witnessed for Vietnam mattress imports in 2019. Recall, residential furniture production has been shifting out of China to Vietnam for years, so it made logical sense for some of China’s mattress production to move to Vietnam. “Importantly, though,” Raymond James added, “it does not appear (at least in the near term) Vietnam has the production to match all of China’s imports.”

It said that Chinese mattress imports peaked at 6.2 million units in February 2019, so even at Vietnam’s current annualized run-rate of 1.2 million units (May and June 2019 data annualized), its mattress output is still well below China.

Lodge Makes First Acquisition with Portland Cast Iron Brand

Lodge Cast Iron has acquired Finex, a Portland, Ore.-based cast iron cookware manufacturer. This marks Lodge’s first acquisition in its 123-year-old history. Finex was founded in 2012. Finex will continue to function out of Portland and its employees will join the Lodge team. The Finex brand will operate separately as it does today, and its sales, marketing and small-scale production will remain there, while the bulk of the manufacturing will be relocated to Lodge’s facility in Tennessee, Lodge President and CEO Mike Otterman told HFN. “We were not pursuing acquisitions but have been familiar with the Finex brand for years and the timing worked out perfectly as they were looking for a partner to invest in their continued growth,” Otterman told HFN.

Purple revenue up 36% in Q2

Purple Innovation, producer of a range of mattress, bedding and cushioning products, posted fiscal net revenue of $103 million for the second-quarter ending on June 30, a 36% increase over the $75.8 million revenue in the prior-year second quarter. The company reported a gross profit of $42.8 million compared with $31.8 million in the second quarter of 2018. Purple’s operating loss was $2.4 million for the current quarter compared to an operating loss of $4.7 million for the prior-year second quarter. Adjusted operating income was $5.3 million compared with an adjusted operating loss of $4.1 million in the second quarter of 2018.

Jewelry & Luxury

Chinese Jewelry Will Still Be Tariffed in 3 Weeks

The Trump administration is delaying planned tariffs in order to save Christmas for toy, clothing, footwear, and electronic retailers—although some in the jewelry business are wondering why it also didn’t get a last-minute reprieve. In a surprise reversal, the administration delayed tariffs on certain goods imported from China until Dec. 15 to prevent an impact on U.S. holiday sales. Jewelry products did not make the list. As was previously announced, on Sept. 1, the United States will slap an additional 10% duty on almost all jewelry produced by China. The items on List 4A—which will still be tariffed next month—include diamonds, gemstones, synthetic gemstones, as well as gold and other types of precious metal jewelry. The roster of jewelry items begins on page 84 of the list. Analyst Paul Zimnisky says he was surprised jewelry wasn’t spared.

Longtime De Beers Exec to Join Diamond Foundry

Toby Cruse, a two-decade veteran of De Beers, is joining Diamond Foundry as its new vice president of strategic sales, the latter company confirmed to JCK. He will join the lab-grown diamond company after the De Beers–mandated six-month “cooling-off” period, says spokesperson Ye-Hui Goldenson. Until recently, Cruse served as De Beers’ vice president of sightholder sales for India and the Middle East, based in Dubai, United Arab Emirates. He first joined De Beers in 1999.

Strong Traffic at IIJS 2019 Clouded by Concerns Over Global Trade War

Visitor turnout at the India International Jewelry Show (IIJS) Premiere 2019 show, held Aug. 8–12 in Mumbai, was high, but sentiment was clouded by concerns over a global economic slowdown. Indian jewelers had mixed views over whether barriers to Chinese exports to the U.S. could help boost the Indian diamond and jewelry market share, displacing competition from China. “Business will come to India,” said Alkesh Shah, vice chairman of Gold Star Jewelry. “But are we in a position to digest all of this new business? The answer is no, because we do not have the space or the factories. Nevertheless, our business can increase by 10 to 15% easily. We will definitely benefit.”

What Is ‘Salmon Gold,’ and Why Is Tiffany Using It?

Tiffany & Co. is the first jeweler to start using gold sourced from an initiative that combines re-mining with fish habitat restoration. Announced this week by non-governmental organization Resolve, the initiative is called “Salmon Gold” and is being adopted by another pretty well-known company—Apple. It is, the organization said, an innovative approach to mining gold that will also restore habitats in Alaska, Canada’s Yukon Territory and British Columbia, all regions with “globally significant” habitat for salmon and other anadromous fish species (those spend most of their lives in saltwater but return to freshwater to spawn). The project targets areas affected by tailings—residue from old placer gold mining sites—left in the streams or on the banks, which can prevent fish like salmon and grayling from migrating and spawning.

 

Office & Leisure

Lolli & Pops files bankruptcy amidst store closings

Customers to many Lolli and Pops stores across the country in recent days noticed the new-ish candy store closed up shop. The holding company for Lolli and Pops filed for Chapter 11 Bankruptcy protection in the state of Delaware where it is incorporated. Earlier Monday, stores in Boise and other malls owned by Brookfield Properties were closed, but a mall official hoped the situation would be temporary. Darren Howard, general manager for Brookfield Properties, who oversees the mall, said Sunday that negotiations between the parties were ongoing. Lolli and Pops launched in 2012 with a store in Tulsa, OK. It quickly grew to 72 locations across the country. Private owners control the company, which is based in San Francisco.

Mattel, Hasbro surge after US delays tariffs on China-made toys

Shares of major toy makers Mattel and Hasbro rose on Tuesday after the United States Trade Representative announced it was delaying proposed tariffs that would have applied to toys. Mattel shares rose 4.64%, while Hasbro climbed 2.75%. Hasbro, which has a market value of $14.7 billion, has gained 43% so far this year, while Mattel, which has a market value of $4 billion, has gained 15% during the same period. President Donald Trump announced earlier this month that a 10% tariff would go into effect on Sept. 1 on a list of items, including toys. The USTR said in a statement Tuesday that the tariffs on some items, including “certain toys,” will be delayed until Dec. 15 or removed.

Technology & Internet

Faire, The Online Marketplace For Local Mom-And-Pop Shops, Is Going Global

Faire, the online wholesale marketplace that wants to help mom-and-pop shops compete with Amazon, is making it easier for those stores to source products from around the world. Faire announced that it has added 370 international artisans and vendors from 39 countries to its wholesale offerings. The Faire business model is designed to give mom-and-pop shops the scale and buying terms that the big guys enjoy, while helping them easily access goods from craftspeople and small manufacturers (the preferred Faire term is “makers”) who make products not found in big box stores or online. Faire combines the buying power of thousands of mom-and-pop shops across the U.S, to get its participating stores favorable pricing. The Faire platform uses algorithms that can predict what items will sell well in individual stores, and makes suggestions to retailers.

ThredUp partners with Macy’s to sell secondhand apparel in stores

Macy’s and second-hand apparel site ThredUp are piloting sales of used clothing in 40 Macy’s stores nationwide, Macy’s CEO Jeff Gennette announced to analysts Wednesday morning. Macy’s won’t take ThredUp consignments or returns, except for returns of ThredUp merchandise purchased at Macy’s stores, a ThredUp spokesperson told Retail Dive in an email. ThredUp also has a similar partnership with department store Stage Stores, the spokesperson said.

 

Finance & Economy

‘Crazy inverted yield curve’ vexes Fed, with no clear resolution

Amid the recent financial market volatility, the interest rates on some long-dated government bonds have fallen below the level for short-term debt.  Called a “yield curve inversion,” this has been a traditional warning sign for the economy: If smart investors see more risk two years ahead than 10 years down the road, it can’t be good for near-term growth.  In response, President Donald Trump and others have upped demands for a U.S. Federal Reserve rate cut.

 

U.S. Home Starts Fall on Further Weakness in Apartment Building

U.S. new-home construction unexpectedly fell in July for a third month on another drop in starts of apartment buildings that masked a gain in single-family units.  Residential starts dropped 4% to a 1.19 million annualized rate after a downwardly revised 1.24 million pace in the prior month, according to government figures. The median forecast in a Bloomberg survey of economists called for a 1.26 million pace.  Multifamily home construction slumped for a second month, while starts of single-family housing increased to the highest level since January.

 

US retail sales rise strongly in sign of consumer optimism

Americans spent more at retail stores and restaurants in July, a sign that concerns over weakening economic growth and a persistent trade war that have roiled financial markets have yet to dampen consumer confidence.  Consumer spending, the primary driver of the U.S. economy, appears healthy even as other sectors of the economy, such as business investment, have weakened amid growing uncertainty over the U.S.-China trade conflict. Job growth is steady, the unemployment rate is near a 50-year low, and wages are rising modestly, which bolsters Americans’ spending power.