Inside the private equity playbook to revive Claire’s

0:07Hello, everyone. Welcome to the Modern Retail Podcast, where we discuss the ways the retail industry is changing. I am senior reporter Gabby Barco here with my co-host Melissa Daniels. Hey, Melissa, how are you this week? I'm doing well. I am gearing up for a trip back east and pertinent to the topics on this podcast. I cannot wait to go to Wegmans and bring home a suitcase full of private label groceries. I'm very excited for you. Sad that we won't get to meet yet, but that's okay. Yeah. For those who don't know, Wegmans has some really good private label products. Like they make a killer peanut butter pretzel.

0:52Their jarred sauces are pretty good for, you know, good meal starters. And they have some really great selection of tea. So I'm excited. Yeah. Well, there's a lot more. So you might be surprised. I think they've ramped up their private label. I'm now a Wegmans shopper. So, you know. Oh, we haven't gotten into that. I know. Yeah, we can't derail the podcast. The salad kits are definitely a go-to for me. And obviously the prepared food, that's like what they're known for. But they also have like their own branded like healthy soda. I'm doing air quotes. Oh, interesting. You know, so the brands better watch their back, you know.

1:37But yeah, no, I'm excited for you. That'll be fun. And then we're going to talk about the East Coast in a little bit because I want to hear your thoughts on this Lululemon NFL partnership. You're like our in-house sports expert when it comes to these things because... I know. Yeah, it's like the blind leading. That's a low bar, yeah. No, no, it'll be fun. I'm excited for this one. But yes, so we do have a lot of ground to cover this episode. Later on, we have our guest, Lawrence Berger of Ames Watson, which is the PE firm that recently acquired Claire's. And he kind of like lays out their roadmap of how they're going to revive our favorite Y2K mall brand.

2:25But before that, we're going to get into this week's news. So first, we're going to talk about some unfortunate news. You know, we've had a lot of layoffs in the industry this past couple of weeks. So we're going to look at, you know, Amazon, Target, UPS, all of these mass layoffs that are happening. And then we're going to talk about Lululemon and Fanatics partnering on an NFL collection. That'll be exciting. But yes, first up, let's talk about layoffs. Um, yeah, I guess on first blush, I looked at these numbers and I was like, oh yeah, this is like, I think the biggest in Amazon history is what I'm, is what I was reading.

3:0614 ,000 corporate jobs are being cut. Yeah. I think this is an interesting point to note that these are 14 ,000 corporate jobs, right? These aren't people who are in warehouses or doing packing, but people who have, you know, taken on corporate roles at Amazon. You know, some outlets like Reuters have estimated that there'll be about 30 ,000 job cuts in total. But when we look at what this means for Amazon corporate, they currently employ around 350 ,000 people. So it's a decent chunk, but they still have plenty of workers on that side of the business. Yes. And then, of course, that doesn't count, you know, the warehouse and logistics workers, which make up the majority of the overall workforce.

3:54Yeah. So they did put out a memo about it after a bunch of reports were circling last week, but they are offering 90 days for people to get new roles at Amazon. I'm not really sure how that works. That feels like very corporate is to kind of like try to figure out a different department to go to because it's a lot of people to be doing that. And then the others will be offered severance, of course, and transition benefits. I guess my thought is just like, this is not good, which obviously is an understatement. But my point is that, you know, Amazon is one of like a handful of companies that are still growing and turning a profit.

4:36But I think it just goes to show how much pressure there is on both their retail and their web services business to grow because, you know, they've kind of been like criticized a little bit for kind of lagging on the AI stuff, you know. So this maybe feels like a correction, especially because last week they opened this gigantic AI data center in rural Indiana, and that costs like about$11 billion. dollars. So it seems like and they alluded in the memo that, you know, AI is changing the world. We got to go with the times, that kind of thing. Look, it's never a good thing when one of the biggest companies in the world has to lay people off.

5:18And that's, you know, 14 ,000 families and households that are now impacted. Right. That's that's not good news. But from a business standpoint, I do feel like it shows how quickly things are changing and how companies might have to make some really tough decisions. You know, how much of those corporate workers were working on projects and programs that have been eliminated because of AI advancements or how many of them were working on initiatives that are no longer relevant to Amazon's core competencies. Like, you know, you just sort of wonder sometimes that companies can be really quick to hire, quick to jump on a trend, start a new initiative.

5:56And if it doesn't pan out or become mission critical, you know, then you can be at risk of a layoff. Yeah. And then on a smaller scale, but obviously pretty relevant to retail, we also had target layoffs on the corporate side. So they're cutting about 1 ,800 jobs at their Minneapolis HQ. And I think overall, it equates to about 8 % of the company's corporate staff. And in a statement to local news, they said that the reductions are quote, a necessary step in building the future of Target. We talk about Target a lot on the show. Obviously, they are going through some growing pains recently. So that does not surprise me, is sort of creating efficiency.

6:44And then you had UPS, which cut 48 ,000 jobs over the past year. And they're also, again, trying to create efficiency, driving profit, that kind of thing. A lot of the jobs I was reading about, you know, what kind of jobs there are, and I think it's like managerial, corporate, that kind of thing. But yeah, I think that just goes to show that there is a trickle down effect, right? When overall retail is not doing well, you've got the logistics companies kind of following suit. Yeah, what else did you have you seen, I guess, that you think we should mention as far as these layoffs go? Well, I saw recently this week that Carter's, the children's apparel brand, announced they're eliminating 300 roles in store closures.

7:32We also saw some news that Puma, according to the Wall Street Journal, is eliminating 900 white collar roles globally. You know, that's on top of other 500 roles that were already cut. Nestle has said that it's eliminating 16 ,000 jobs globally. So, you know, to me, this is all pointing to companies really taking seriously the macro economic environment we're in. Can you afford to employ all these people and remain, you know, if not a profitable business, one that can function? And it's hard and it's sad. And I think, as you said, it goes to show you there's a trickle down effect, right? You can't have the kind of trade policy changes and inflation that consumers are dealing with and expect everyone to be unaffected.

8:19we just don't live in that world where things are that much of a vacuum. Yeah. And of course, we're referring to everything from tariffs to AI capabilities, you know, a lot of them trying to kind of incorporate and jump onto a lot of these capabilities. But yeah, we have seen this pattern before, you know, in the last few years, we keep seeing like rounds and rounds of mass layoffs at a lot of these big companies. But I think just still seeing the numbers in black and white is pretty staggering. And I did see some comments that this was coming right before the holidays. That's a lot of people to be laid off right before.

9:03But I think a lot of these companies are obviously taking the restructuring aspect and like end of year, maybe budgeting and planning pretty to heart. Yeah, definitely critical timing for these announcements. And, you know, it's just we'll see. I have a feeling this isn't the last of the layoff announcements that we will be hearing about and discussing before Q4 is over. But in other news, in the world of apparel, we saw that Lululemon announced a major partnership with the NFL and Fanatics. As you mentioned at the top of the show, this is a really fun collection. Lulu's releasing branded apparel and accessories featuring the logos from all 32 NFL teams.

9:50Gabby, what are your thoughts on this collection? Well, I think it's really nice. It looks pretty similar to their NHL collection that they released last year. So obviously they're on a little bit of a run there, which we'll get into in a minute. But yeah, I obviously the Buffalo Bill stuff reminded me of you. So I was going to I was wondering whether you're going to grab one of those half zips or, you know, the classic Lulu leggings with like a giant logo on the back of your calf. Um, I would, it'd be fun to see, to see that, you know, somebody working out in front of me with that on. I have to say Lulu leggings aren't the best fit for my body type and the way that I work out.

10:36Um, so I will probably pass on the leggings. However, yeah, that half zip is calling my name. Um, I, I can't resist a half zip as some listeners may have already heard we talk about on this podcast. So I'm excited about maybe scoring one of those this holiday season. I was scrolling through. It looked like the San Francisco half sip was the first to sell out, which I thought was interesting. You'd think it might be the Chiefs, given the potential crossover between Swifties and Lululemon fans. But the collection as a whole, it's got men's, it's got women's, it's got t-shirts, it's got hoodies. It's this really elevated game day apparel look.

11:15And I think, you know, sports is such a big part of culture right now. And I think it's been a really fun community building exercise for people to participate in sports. You know, when we're in an environment that can feel kind of uncertain and kind of tense, right? I think sports can be a great unifying factor. Me and some of my friends have been watching way more football games together this year, just as a reason to get together and get the kids together and eat some food and hang out. And pretty much every time someone has to re-explain to me the rules of football and I continue to enjoy it.

11:46So I think they're onto something here. As you mentioned, they've already done NHL merchandise before, but I think more broadly for Lulu as a company, it just shows how they're going to keep tapping new audiences and new kind of mediums to stay relevant. You can't just sell yoga pants when you have so many competitors nowadays. So it's just interesting to see the directions they're going in. Yeah, I mean, even the other ways that they're getting into sports fandom is they have deals with ambassadors like F1 driver, Lewis Hamilton. Obviously, he's a huge celebrity tennis player, Francis Tiafoe.

12:23So, you know, this has been kind of a big picture initiative for them. And because we're seeing a lot more women getting into sports fandom, it makes a lot of sense. But then on the other end of the spectrum, you know, they also have other collaborations where they're trying to kind of step outside of their core demographic. They have this new collaboration with Erewhon. I don't know if you saw that one. I did not. It's kind of fun. It's like a Los Angeles-inspired collection that's in collaboration with Erewhon. It's very like, you know, Hayley Bieber smoothie girl aesthetic. So that's on the other end of the spectrum, which is what I was referring to.

13:08Yeah, yeah. No, I see what you mean. I do feel, though, like Lululemon has done something that's not easy to do, which is tapping multiple demographics. You know, I think there's like tech bros who wear Lululemon. I think there's yoga moms who wear Lululemon. I think there's like running moms who wear Lululemon. They have such a broad demographic at this point. I mean, and, you know, I don't really shop Lululemon, but I do see it when I go to the outlet stores. And occasionally I pop in there to pick up things. And it's always full. You know, I mean, the brand just still has such a good reputation and such draw for people that I think expanding into new areas that are maybe more broadly athletic, more fandom, I think is going to be really smart for them.

14:00And I think it's going to pay off. We've seen other brands do this as well, to be clear. They're not the first ones. Abercrombie, Old Navy, you know, they've all done sort of special NFL collections before too. Yeah, it really does take you to like a global level once you start doing branded merch. Yeah. And to your point, you know, they're also trying to really grow their men's business by bringing that into the fold. So it's all interconnected as it usually is. But yeah, I guess with that, we can just give a little bit of a preview of our featured segment with our guest this week. I'm excited.

14:42We recorded this together. We got to talk about Claire's a lot and actually Lids, which is the other company that the PE firm Ames Watson was able to turn around and overhaul. And they pretty much have like a similar playbook that they want to apply to Claire's to revive it back to its glory days. Yeah, this was such a fun conversation with with Lawrence Berger. He had so many good insights to share, not just about the sort of Ames Watson playbook, but the challenges that mall brands in particular can be facing in the ways to modernize that. I really appreciated his insights just on the mall store environment and what workers in mall stores are experiencing and how to navigate that.

15:27So, yeah, listen in after the break.

15:42One of the biggest retail headlines this year has been Claire's filing for Chapter 11. But rather than fall into the annals of retail history, the North American operations for the iconic mall chain were acquired by Ames Watson for$140 million this September. Part of why Ames Watson was interested? They've already kind of done this. Lids, the Hap brand, filed for Chapter 11 in 2019, and Ames Watson bought them for$100 million. At the time, Lids was hitting annual revenue of$600 million, and that's now up to$1.4 billion. So to unpack the Claire's deal and all the ins and outs of turning around an iconic brand, we are joined by Ames Watson co-founder Lawrence Berger.

16:26Lawrence, welcome to the Modern Retail Podcast. Thank you. Super excited to be here. I can't wait for this conversation. So many of us have touch points of Claire's and memories. We've talked a lot about on this podcast on how it's such a nostalgic brand and really does have a lot to offer, but the operations really had struggled so much in recent years. So I'm looking forward to getting into all that. But before, you know, we talk about Claire's, I would kind of like to start with Lids and what you acquired from them in 2019, the situation you faced, because it seems like there's really some parallels between what you're embarking on with Claire's and that deal.

17:08Yeah, I think a lot of parallels. So the time we bought Lids about six years ago, It was a$600 million business. There were roughly 600 stores and everything was declining. Traffic was declining. Revenue was declining. The number of stores was declining. It was profitable, but barely profitable. And it was just a really negative story. And we looked at the business and we thought to ourselves that there was something really interesting to rebirth this company, to reinvent it. And so if I fast forward now, the five plus years, you have a business that has gone from 600 to 1.4 billion in sales. The store count is now 2000.

17:55We have lots of different brands. So not only the Lidz stores, but we run the merchandise in about 800 college bookstores across the country. We have Dodger stores and NBA stores and NHL stores. And so, and more importantly, I think the brand is cool again. I think the brand is vibrant. I think that people are engaged with it. People are lining up for things that we do. And so, you know, we think it's been pretty remarkable what's happened there over the last few years. We love a line at Modern Retail. We love stores that can generate a line. No, it doesn't. Yes, yes. So, Lawrence, I'm curious, you know, outside of being two iconic, like Y2K mall mainstays, what other parallels did you see in the story when you were looking at the books and you're like you saw potential in Claire's?

18:48Well, you know, it's interesting because the parallels in many ways were really obvious. They're in the same malls. The store size is about the same, around 1 ,000 square feet, typically staffed by one or two people. Highly experiential. So at Lids, not only do you have the giant hat wall and people are buying their hats, but more often than not, people are now customizing their hats. getting them embroidered or patches put on them and really personalizing them. At Claire's, it's obviously piercing, right? Piercing is a big driver of bringing in customers and attaching them to the brand. So there was a lot on sort of just those basics.

19:33Obviously, very different product, very different customer base. But in terms of the actual functioning, very, very similar. And then what would you say would be, I guess, the differences when you are looking at, you know, is this going to be harder to fix? We're obviously in a very different environment than we were in 2019, you know, coming out of COVID now. Obviously, the economy, tariffs, et cetera, et cetera. Yeah. So I think I think that the Claire's world has become much more competitive. So there are other places where you can go and get your ears pierced. I also think we live in a world where over the last 10 years, the reality is children are growing up much faster than earlier.

20:20And so the 12 or 13 or 14 or 15 year old girl who used to go to Claire's now may be going to places like Sephora and other places. So I think the world has become more competitive and more difficult to stand out. Now, you know, we think that Claire's the term we kept looking, kept thinking about when we were due diligence in the business was we just came to this conclusion that it's a wonderful brand, but it was a broken business. And so to us, the merchandise was a little bit stale. The stores needed to be needed to be refreshed. All of that dovetails and it was almost the exact same situation with Lids.

21:09When we bought Lids, almost all of their product, you could buy similar product in other places. Today, 70 % of the product in Lids is exclusive to them. right and so so we when we bought lids it was very commoditized is the word i would probably use i would say that the experience you couldn't personalize nearly as much and so it was just kind of blah and our view is that claire's is a little bit blah now also but that means it can be improved that means that there is an opportunity to do something great what is interesting about both of them is you have diehard customers and you have a lot of nostalgia and attachment to both of those brands.

21:54And so our view was that if we executed properly and we brought in the right product and we improved the experience for the customer, that those people, and we've shown her at Lids, would not only come back to the brand, but they would tell their friends about it who would come to the brand. And it is our hope that we can do the same thing at Claire's. yeah you've used a couple words that i i love because i feel like sometimes in these retail conversations we get very uh into the jargon and the marketing but you've said it was cool it was blah and it's like it is sort of just a vibe right that you kind of walk in you know something and you say hey this feels cool hey this feels great um so when you when you look at what you want to do with claire's you know are there sort of specific things you can do physically to a store to make it feel cool and modernized?

22:46You know, is there anything that you can sort of do from a fixture or signage standpoint to make Claire's feel, you know, quote unquote, cool again? Yeah, listen, I think it's many things. It's never, it's never just one thing. So the first thing is, I think we have to improve the merchandise mix over time. That doesn't happen instantly. You know, our view is that we're likely not going have the right merchandise mix for about six months. There's some really good merchandise in there. We're rushing in some stuff for holiday now, but we're not going to be up to the standards that we want. So I think you've got to make it so that merchandise is at the core of what people want.

23:27The example I give from Lids is Lids at this point always has new product that's in there. And what I believe we've conditioned our customers to is that if they're walking in the mall, they think to themselves, let me go by Libs and see what's new, even if I was in the mall last month. And so we feel like you've got to do that. You've got to have interesting, new, fun things that bring people into your store. Secondly, they've got to have a great experience with the team in the store. So people have got to be welcoming. They've got to know the product. When you get your ears pierced or you get your hat embroidered, they have to be friendly and knowledgeable and helpful and make you aware of interesting new things that are there.

24:15So I think it starts with the merchandising. I think that we can improve the service with training and with hiring. We did both of those in lids. And then I think that there are other things that we can do. I keep walking into the Claire's stores and thinking that they're, you know, part of the wonder of Claire's is you kind of meander around and you discover things. We don't want to take that away. But, boy, it would be nice to have some better signage in there to make it a little bit easier to find what you're looking for quickly if that's the case. And then I think we've got to just clean some things up.

24:49I keep joking about the purple carpet, which is iconic. and I guarantee you we are going to be cleaning that carpet and replacing that carpet. But there's other stuff there too. But I think the core is merchandising. Yeah. I just want to drill down on that a little bit more. Are you going to stick with the kind of like exclusive Claire's kind of thing? Do you see vendor or wholesale deals playing a bigger role at Claire's? What kind of product categories are missing? Anything you can share about that? Yeah. So we have lots of ideas and we like to test things. And so often when we test things, they're successful.

25:25Sometimes they're not successful. And then when something's successful, we try and blow it up. So I think that there's a core stuff at Claire's that isn't going to change very much. They have wonderful jewelry, right? They have wonderful gifts. We think that we can do more stuff with licensed in a lot of different categories. It's been very, very small. We think that we can do really interesting collaborations. We think that we can do more interesting stuff with hair and beauty. And we're also toying with the idea of trying to do some more stuff for the mom, right? The mom grew up with the store.

26:02They love it. They're going to be in there with their children doing some shopping. Well, I mean, you know, my wife buys cheap jewelry all the time. That's fun. And so can we do some more stuff? We keep having the question also, you know, would that mom buy the purple, you know, the cool purple, what I think is cool, purple hoodie with Claire's branding on it? We're going to see and we're going to try some stuff out there. I wanted to ask a little bit more about the fleet of the stores. I happened to pass by one when I was in Europe a few weeks back, and I was like, I wonder what this is going to become.

26:39So that kind of leads me to my question, which is, I believe there was a really big international expansion over years or decades. So can you tell us anything about how you foresee either scaling back or kind of recalibrating or retooling the footprint? Yeah, you know, Claire's, when we bought it, had a mixed model. So in some regions and countries, they basically had a licensing agreement. So there was a local operator and they would have the stores that were up to standard set by Clair's in the United States. They would buy some product directly and then some product would come from the United States.

27:17We're going to expand that. So what we believe is we want to really focus on the North American stores and making them great. We can't do everything at once. And so we've entered into new licensing agreements in a bunch of countries, in the Middle East, in the UK, in parts of Europe. And so local parties who we've vetted, who run amazing stores, are going to take those over and run them with a lot of help from us in terms of guidance and product. Florence, earlier you mentioned how staffing is such a key part of this. And I believe you and your team have already been doing some hiring, getting some more DMs.

27:57How do you staff up a brand at a time like this when the headlines are saying, hey, it's closing, it's going out of business, but you're out there trying to find people to work for it and help you with this turnaround? How do you square all that from just kind of like a process standpoint? And how does it go bringing new people into a brand at this juncture? Yeah, so this is our biggest challenge. challenge. And so I think if you think about the practicalities of this, a business that was heading towards bankruptcy and then in bankruptcy, so many great people left the business because they wanted to find other jobs.