Ikea teams up with Best Buy, Claire's Chapter 11 and how ChatGPT is upending the customer journey

0:08Hello, everyone. Welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I am senior reporter Gabby Barco. I'm here with co-host Melissa Daniels. Later on in the episode, Melissa talks to modern retail reporter Julia Waldo about how brands are responding to the potential for shoppers to be able to check out in chat GPT. This is a story that broke out last week and they're going to be discussing what Julia heard from brands about it. But first, this week, we'll be talking about Claire's filing for bankruptcy and what that says about the state of legacy retail brands.

0:52Plus, we're going to talk about Ikea's new partnership at Best Buy. They are doing a store-within-store concept. That sounds pretty interesting. So yeah, with that, Melissa, how is your week going? It's going well, pretty busy. And, you know, August is zipping by. Kids in my area are going back to school next week, believe it or not. Oh, no, it's too early. It's still too hot. The benefit is they get a two-week spring break, which sounds pretty luxurious in my mind. I know. I just, school in August never sounds natural to me, but maybe it's the East Coast thing. Well, we also have a quick announcement before we get into our rundown of the news this week, and that's that we've got a special event coming up.

1:40It's our first ever live Modern Retail Podcast recording. We'll be hosting it virtually on LinkedIn, and it'll be held at noon Eastern on Wednesday, August 20th. We'll be talking about survival strategies for today's CPG Brands, and we'll be joined by the illustrious Mike Duda, the co-founder and managing partner of Bullish, a VC firm that's had portfolio companies like Warby Parker, Harry's, Hims and Hers. I'm excited for this. I think it's going to be a great time. And we'll be talking about our insights, but really we want to hear from our listeners. Yeah, I'm excited too. So if you have any questions, comments, please call us at 347-746-0006 and leave a message.

2:27We can answer on air. Mike will solve all of your business problems. Kidding. Yeah. Join us August 20th at noon Eastern. We'll see you there. All right. Well, let's get into one of the news topics we were going to discuss this week. And that's how Ikea is partnering with Best Buy on a shop and shop concept. I think this is pretty notable because it's the first time that Ikea has ever officially sold through a third-party retailer. That's right. Yes. And it is essentially like these thousand square foot shops, which are showrooms that are going to be inside Best Buys. So there's a pilot program right now that's running in, I believe, 10 locations across Florida and Texas.

3:12But yeah, it's pretty exciting. I mean, it's an interesting collaboration in the sense that these are two very different retailers, but it makes sense when you think about it, because the idea is that if you're shopping around for new appliances at Best Buy and you want to get a sense of where to put it in your kitchen or your laundry room, you have the IKEA showroom right there. Yeah, I do think this is a really smart move, And it makes a lot of sense when you think about people who are buying new appliances. They may very well be renovating their kitchens or looking at other areas of their home to upgrade.

3:50And I think the sort of larger design ecosystem of IKEA has been something of a sleeper hit for them. You know, I think more people associate them with, you know, your Calix shelf and your ubiquitous coffee tables. you know, but really they have this sort of broader offering for kitchen and design. So I think it could work really well for them. We'll see how the pilots perform. Yeah, you've got some in the press calling this a, quote, genius idea because, like you said, it services customers while they're already browsing. But maybe we can start talking about, what this means for Best Buy in particular, because Best Buy, based on performance recently, it could really use just an injection of excitement, new offerings in their store.

4:44Their sales are down this year. And so this is kind of a way to bring in some new customers or at least create some new offerings. Yeah, I believe they cut their profit outlook earlier this year citing tariffs, which is something common across many brands and retailers this year. But I also think that they have an interesting wrinkle because of the slower demand for appliances, which is connected to a slower housing market. And that's something we write out about a lot at Modern Retail, you know, talking to furniture and design brands. Yeah. On the other hand, IKEA seems a little bit more insulated despite, you know, slowdown in furniture, it still seems to be performing pretty well.

5:26But like we said at the top, this is the first time IKEA is offering any sort of product or services outside of its direct channels. Anything that you see on Amazon, for example, is not coming directly from IKEA. Those are third-party sellers. So that's what makes this a big deal. Yeah. So for the most part, People have had to make those trips to the giant warehouse like IKEA stores to get design inspiration or be able to request samples or services. And so I'm curious, do you think is Best Buy a natural fit there? Will it actually make a big enough dent where they will get new customers? It's hard to tell.

6:11It's still just a test. And we don't really know the financial agreement, how that's going to work out. But to me, it feels like this is more of a play for Best Buy than it is for IKEA. Yeah, you know, it's another offering that they can add to their arsenal at a difficult time. And for IKEA, it's an experiment with a ton of potential upside. You know, the national footprint of Best Buy is something that they cannot replicate. So if this pilot works and they're able to tap a bigger portion of that footprint, it could mean big things for customer acquisition and repeat sales. You know, I think IKEA has also struggled a little bit with being really relevant as an e-commerce player.

6:55Even though it does have a website that it's done a lot with in the last few years, I think it's still not necessarily thought of as a place people go to online shops. So if they can get a Best Buy partnership that will help with pickup, I believe two of the pilot locations are also serving as free IKEA pickup points. I think there's sort of a last mile play for them here, too. Yeah, I mean, they seem pretty excited. Rob Olson, who's the chief operating officer of IKEA U.S., says they're bringing together our home furnishing expertise, product services with Best Buy's leadership in appliance and technology.

7:33this is basically creating a one-stop destination. And again, this is focused on creating your dream kitchen or your dream laundry space and with storage solutions. So yeah, we'll see how it goes. But if you live near one of the 10 locations, I guess you can go see for yourself. Yeah. And let us know. All right. Well, with that, let's move on to Claire's bankruptcy. Of course, this is a little more of a downer. But this week, Claire's filed for Chapter 11. This is its second bankruptcy filing in, I guess, about seven years. The first one was in 2018, and they had this big, you know, comeback turnaround plan the last few years.

8:18But that has not panned out. But yeah, what are your thoughts here? Where did Claire steer wrong? Yeah, I mean, I'm not sure how much people were surprised by the news this week. But there is a lot going on and a lot of deeper issues that got the company to this point. You know, just sort of in general, you have to wonder if these legacy brands are just sort of built for a different time. You know, I feel like so many people in our generation and those a little bit above us have a lot of memories at Claire's. I feel like so many of our generation probably got their ear pierced there. So it's always kind of hard when you see these brands that are loaded with nostalgia go through troubles like this.

8:59Yeah, 100 million years pierced since 1978 is the stat. But this is the classic, you know, mall retailer, right, that tried, like others, to refashion itself for Gen Z, for the upcoming generation, Gen Alpha. But I think really the through line here is that it just had way too much debt and overhead to be able to overcome all of that. Unlike some other retailers, I think people look to Abercrombie as a success story in reinventing a mall brand. But here, I think that just the operation was too sprawling and they never quite recovered from the first bankruptcy. Right. Yeah. And that, you know, had eliminated almost$2 billion in debt, according to the court filings for this bankruptcy.

9:49And, you know, there was a bit of a surge for Claire's in 2021, 2022. They grew their loyalty program to like 8 million shoppers. They sort of did a store-in-store launch with like 20 ,000 locations across Walmart, Kohl's, and CVS. But none of that really became, you know, the game-changing clay that they needed. We are not CFOs, so we're not going to get into the finance too much. But the court filings show that the liabilities are between$1 billion to$10 billion. Again, there's a coming$500 million payment. And yeah, I mean, even most brands on their best day can't just make that happen, let alone one that's been struggling for years.

10:29Yeah, I think the big one was also there's a big real estate burden. Claire's had$2.6 million in monthly lease obligations. This is at their 1 ,350 stores that they have, which is a pretty small footprint compared to, I think at their peak, they were at over 3 ,000. But yeah, I think all of this compounded did not help. But to transition to a really big issue that they're facing in 2025 is like many companies, they have tariffs and supply chain costs that are also adding to their woes. This is not surprising. But yeah, what are your thoughts on that? Yeah, this is definitely a situation that I think we're going to see more of as brands struggle, and that is tariff costs adding on to other operational and financial burdens that they're trying to sort through.

11:21In Clairs' case, they don't own any manufacturing operations. They're entirely reliant on third-party suppliers. Roughly 70 percent of their inventory from last November to this spring came from international suppliers to boot, 56 percent alone from China. So the new tariffs announced in April were projected to cost Clair's an extra$30 million. You know, according to the court filings, attempts to mitigate that through new promotions or even price increases failed. And even earlier this year, I believe they did some widespread layoffs and did a reduction in force back in March. Well, where does this leave Clair's, do you think, like as it restructures and potentially seek a new buyer to get out of this second bankruptcy?

12:07Yeah, it's a great question and one that we'll probably get answers to in the coming weeks and months. One thing that stands out to me that might be their most valuable asset is the brand IP. This is something we saw during the Bed Bath & Beyond bankruptcy a couple years back, more recently with Joanne Fabrics and Michael's buying it. And that's essentially this trend where the brands that people know and in some cases really love aren't really valuable as businesses anymore. So that sort of brand just gets carried over to somebody else who can put it on other products and give it a second life.

12:43You know, you wonder if this is all going to wind up in the hands of a private equity firm. From my review of what's happened so far, they've already talked to a lot of potential buyers. So we'll see what shakes out there. But it's a hard sell. I mean, who wants hundreds of small leases in malls? You know, it's a tough sell right now. Yeah, and it doesn't look like e-commerce is really going to be a big lifeline, not only because, you know, you can't pierce ears online. Not yet. Not that I'm aware of. But also because their online sales, which is, you know, the accessories and whatnot, that only brought in$9 million.

13:24in sales last year. So it's, quote, not conducive to a large scale transition in the long run. So yeah, I mean, like I said, this is just another example of how legacy brands have such an uphill climb right now. You know, they're saddled with these really old fashioned business models. They have these huge footprints, like you mentioned with the leases. And, you know, They're competing, of course, with everybody else on the market. So Claire's is also just part of a long lineup that's growing and growing in 2025, where you're seeing these legacy mall brands filing for bankruptcy. We talked about Forever 21, Joanne Fabrics, Party City, Big Lots, which got a little bit of a last minute lifeline.

14:13And then Rite Aid, which is in the process of closing hundreds of stores. All of their filings obviously shook out differently, but it's just not looking good with everything going on this year. Yeah, this will definitely be one to watch, along with some of those other stores you mentioned. And again, you know, I'm sad to say it, but I don't think is the last of the Chapter 11s in 2025. And we'll certainly be watching to see what else is going on in that world. but more immediately coming up we have our featured segment today I'm talking with reporter Julia Waldo about how brands are responding to the potential for shoppers to check out and chat GPT we get into what they're doing differently to keep up with shoppers who are using more AI bots in their customer journey and we talk over some pretty revealing data about just how common this is becoming to use AI in your shopping journey so stay tuned for that after the break

15:23We have talked a lot at Modern Retail about how the rise of artificial intelligence is changing up how brands and companies operate. But in a more general sense, it's also just changing the way we shop. People are using smarter search tools and craving more personalized recommendations. We're also using AI to help us find the best price or other AI-powered shopping assistance. But the customer journey really doesn't look anything like it used to. And so behind the scenes, brands are racing to keep up with new tools, new roles, and in some cases, completely new business models. Let's get into what's changing, what's working, and what brands still haven't figured out for this discussion.

16:05I have Julia Waldo with me. Julia, how are you today? I'm great. Thanks, Melissa. How are you? I'm doing well. Excited to get into this. This is one of my favorite topics lately. But recently over at Modern Retail, you wrote about how brands are reacting to the news about a potential new checkout tool that would happen within ChatGPT itself for people who are looking to shop. You know, tell us about that story and what you learned. Yeah, as you said, so the Financial Times reported a couple weeks ago that OpenAI had shown brands a prototype of a checkout function completely within chat GPT, meaning that users would be able to complete transactions within chat GPT within that interface without having to go to an external browser or other window and buy from brand's website or that of a retailer.

16:58It's unclear when this will go live, when this will roll out, but it is in development. I had asked OpenAI if they could, you know, issue any further comment. They said they didn't have any further updates at this time. So I'm sure we'll get, you know, more when that comes out. But, you know, basically, this is going to be a real game changer, you know, because it really then turns ChatGPT into essentially an affiliate marketing channel and really kind of changes the game there for, you know, how people shop within ChatGPT and, you know, what data ChatGPT He is also collecting on, you know, shopper behavior.

17:37Well, right. And that was something that I thought was really smart in the story you wrote that some of your sources had talked about was that that's kind of an open-ended question and you don't necessarily know, you know, what kind of data you might get back about that shopper, whereas something that happens on your own platform or something that happens, you know, within a platform that you have a direct backend into, like an Amazon, you can learn a lot more about who your customer is. But if it's happening on ChatGPT, will you even know who that customer is from a sort of data standpoint and not just the end transaction?

18:13Right. And I feel like for brands nowadays, you know, there's a lot of talk about wanting to know who your customer is, their preferences, where they're shopping, you know, what kinds of products they're looking for, you know, which kinds of signals they're responding to. And so, you know, if people are buying directly within ChatGPT, there's kind of this unknown of whether ChatGPT is going to then share the information, the data, the insights with those brands, you know, thereby giving brands a glimpse into people's shopping journeys. Otherwise, if ChatGPT just kind of keeps that information to themselves, that could, you know, make it so the brands don't know that information, therefore can't, you know, act upon that to try to, you know, further the brand journey for their customers.

18:55Yeah, yeah. It's a totally new problem that they would have to sort of navigate. I really liked what Jimmy Zolo, the founder of Adaptive Clothing Company, Joe and Bella said to you. He said, quote, we can't be thinking of chat GPT or other AI models just as search engines. Now we have to be thinking about them as storefronts. And that, you know, it's like people already haven't figured out how to use it as a search engine from a brand perspective, right? People are still figuring out how to optimize their websites and, you know, their overall media and press presence to resonate in ChatGPT. Now you also have to figure out how to sell there.

19:34It's quite a game changer. But I want to backtrack a little bit and just kind of talk about how we got here, you know, because this does sort of all stem from changes in consumer behavior, how people are using the internet to inform their shopping journeys. And it's really just throwing the old funnel completely out the window. You know, just sort of anecdotally or in what your reporting has told you, you know, how are shoppers using AI to inform their shopping journey right now? Yeah, so a lot of people are actually using ChatGPT and, you know, Google Gemini, etc. to shop. There's this recent Bloomreach survey that just looked into this, actually.

20:14it surveyed a thousand people ages 18 to 50 and basically nearly 50 percent of these respondents said that they actually trust ai more than a friend when making clothing choices about what to buy which is very interesting to me um i have not personally tried that out i would rather ask a friend but maybe i think it depends how honest your friends are um that's true they're going to be real with you about what you should buy. I mean, this opens a whole can of worms. But that's a really interesting stat. You know, I'm wondering if from your perspective on this, like, do you think that's because it's just convenient for people?

20:54Is it a trust factor? Like, what is it that you think the relationship is between people and AI that makes them have this like, oh, I'm just going to ask chat GPT? Yeah, I guess it's the speed of answers is probably really helpful. You know, you get something back instantaneously. You're not asking a friend who's maybe waffling like, oh, could you turn this way? Could you turn that way? You know, kind of thing. But also, I think, yeah, there's this trust factor that you mentioned, like, Chad GPT, you know, says it's objective for certain purposes, although there is a little asterisk at the bottom that says Chad GPT can make mistakes, which is definitely true.

21:32But I think, you know, there's this idea that if Chad, for a lot of people, if AI or Chad GPT or Google Gemini tells you something, a lot of people just inherently trust that and just go off of that. And I think a lot of people are really busy in their everyday lives now, you know, and if, you know, an AI model can tell you a quick answer to a decision that you have to make, a lot of people will just go with it. Right. Yeah, that Bloomreach survey that you referenced, I see here that nearly 60 % of consumers say they've used AI to help them shop. So really, we're talking about this becoming a, you know, a majority of shoppers who are thinking about their buying journeys this way.

22:15And, you know, the fact that they think it's more honest, I think, is really telling about how we view these tools as authorities, right? A few other findings among the respondents who have used AI shopping assistants, not just ChatGPT, but all AI shopping assistants, 97 % found them helpful. And then 76.8 % said these tools helped them decide to purchase items faster than if they were shopping on their own. So there's almost this like immediacy where, okay, I think I need to buy something. What can AI tell me to buy? Great, perfect, I'm done. And like you said, people are so busy. And in this way, the tools are becoming kind of an efficiency model for people, right?

23:00You're getting time back in your life, which is really priceless. Exactly. Exactly. Exactly. Yeah. It seems like a shortcut for a lot of folks. You know, this conversation reminds me a lot of one I was having a few years ago about how Instagram and then TikTok were changing people's shopping journeys. Because instead of asking Google, they just asked TikTok. I'm wondering if you see any parallels there as well. Yeah, it's interesting because, you know, a lot of these social media channels, people are now using as search engines themselves, like they're going into Instagram, people are typing out questions they have about products, about certain looks, about things like that, and then, you know, getting results, you know, in Instagram, in TikTok.

23:40So a lot of people are, you know, basically using these platforms, you know, as discovery tools in the same way that we're seeing them use, you know, some of these AI tools. It's kind of an interesting crossover there. You had mentioned Google. Gemini earlier, Google Lens also has some great interplace with the Google Shopping. So if you just see an item that you think is cool, you can put it in Google Lens and it'll tell you all the ones where you could buy it that are like that. I mean, and it's almost instantaneous, right? And then Amazon's Rufus has a lot of different things you can do to learn about products or get product recommendations.

24:16And now we're even seeing companies start up specifically to cater to this demand. Recently, over at Glossy, our sister publication, they covered Daydream, which is a new AI-powered shopping platform. This is all they do there. But Julia, back to your reporting on this, given the prevalence of the tools, how are brands responding? Is this something that they're ready and willing to tackle? Does this feel like a crazy new thing they have to keep up with? What are some of the responses and conversations you've been having? Yeah, it's a good question. A lot of the brands that I've spoken with have kind of mixed feelings about this, I would say.

24:56I think for some, they are excited about the possibility of people, you know, checking out via ChatGPT or using, you know, these AI models to quicken, I guess, their shopping journey. Because for the brands like that, that can increase their revenue. It can increase their sales. And, you know, some brands are also seeing, you know, these AI models really move the needle for them in terms of brand awareness. So for example, I talked to Viv For Your V, which is a brand that sells toxic-free period care products. And they actually received a 400 % bump in visitors to their website last summer after this study came out that basically talked about how there are heavy metals like lead and arsenic in some tampons.

25:45So people were searching for, you know, what are safer options for me if I want to use a tampon, if I want to use a pad. And they told me in particular, Google Gemini and ChatGPT were giving them, giving these people with these queries, giving them, you know, links and information from the VIV for your V website. So they said that really helped because they've really focused on education. And they said that these models were really picking up on what they were, you know, putting out essentially. But there are some also some concerns and, you know, especially with this idea that ChatGPT in particular could become a checkout engine.

26:25And then if we start seeing that with other models like perplexity or such, you know, there is this concern that it could become kind of like a pay to play field. And, you know, I should say that OpenAI and ChatGPT, they have not publicly said like what commission they would take from these sales. but you know there that is something that has been reported that there would be some sort of commission model and so you know brands are kind of trying to figure out okay like how can I on the back end then really tailor my website copy tailor you know how I talk about my product to make sure that when people do search for things that they are getting the correct results and getting accurate information about my brand right yeah and I really love that anecdote about Viv for your V because it It sounds like stuff that they had already been doing in the course of just trying to be a good brand online and have, you know, their best foot forward is what surfaced them within ChatGPT.

27:24It's not like they were specifically saying, we're going to do this so we get AI tools to recommend us. Is that fair? Exactly. Yeah. And I'm hearing from some brands like there is a concern that, you know, because AI moves so quickly, some of these brands are like, okay, we want to stay ahead. but we don't want to have to sacrifice what our brand means or the value of our brand, or even what people want from our brand just to show up in results from places like Gemini and ChatGPT. Like a lot of them that I've talked to that are, you know, are very concerned about this and say like, we need to stick to the values of our brand and not necessarily, yeah, just do it for the clicks or for the traffic.

28:06Yeah. Well, I think it's like we all learned our lesson, right around Google and around SEO and the way that that you can just kind of be brought along on that journey. Right. And now we're almost in a similar spot where do you develop your whole site and your whole infrastructure to a technology that is very much subject to change? Right. But at the same time, you have to sort of prep anyway. We touched on this when we had the folks from PF candle on a couple weeks back. And they were saying as they were trying to make it more obvious that their brand was made in America, they sort of put that in all their keywords and on their web pages so they could be surfaced, you know, more by AI engines.

28:48Joe and Bella, the adaptive clothing company we talked about earlier, they're A-B testing their web copy to see if, you know, bullet points or sentences show up better in an AI recommendation or the sizing information on the product description page play better on its own as text or as a chart. You know, these are the sort of technicalities and minor details that, you know, sound like they don't matter, but are really going to be the day-to-day changes brands have to make if they're trying to prepare in this way. Totally. And I feel like the sizing information, that whole aspect was so interesting to me.