M&A slowdown, Walmart's beauty play and how a U.S. manufacturing boom could create a more circular economy

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0:50Hello, everyone. Welcome to the Modern Retail Podcast. I am senior reporter Gabby Barco. I'm here with fellow senior reporter Melissa Daniels. Hello, Melissa. How are you? Hi, Gabby. I'm doing great. How's your day going? It's going great. I'm excited to chat with you. We're really getting into the rhythm of our new show. It's all exciting. Later on in this episode, Melissa is interviewing Rachel Kibbe of American Circular Textiles about the state of U.S. manufacturing. That's a pretty big topic right now. But first up, let's talk about some other news that happened this week. So first, we're going to check in on the state of mergers and acquisitions.

1:35It's sort of taken a little bit of a hit or a pause, at least, given, you know, everything going on right now with the markets. And then after that, we're going to talk about Walmart doubling down on beauty and why that is. But yeah, first up, what's happening in M &A? This is a space that, you know, we cover pretty extensively because a lot of brands that we write about, you know, there are emerging venture backed startups, the ultimate goal is usually to exit and maybe get some strategic or big conglomerate to acquire you. So we've had a few exciting acquisitions in the last few months, and that really got people excited, especially investors, I know firsthand.

2:21But obviously, with, you know, the way the markets are reacting to tariffs, I should say, stating the obvious, that's taking a little bit of a backseat. So let's get into it. Yeah, this is a really great topic to get into right now, because I think a lot of businesses, when they're thinking about their growth strategy, there is that end of the road of, gosh, it would be really nice to get acquired by a conglomerate or something like that. And It's just not looking like those deals are going to be as common maybe as they once were. So, Gabby, you talked to a lot of folks about this this week. What are you sort of hearing about the deals that are happening?

3:04You know, is there any sense that there's like a race to get in before things get any worse? Is everything just kind of at a standstill? Like just wondering what the activity is happening. Well, the halt is causing a little bit of disappointment just because there was so much momentum going into the new year. I alluded to it earlier, but we've had, you know, Siete Foods, that was a huge Pepsi co-acquisition. Poppy,$2 billion, again, Pepsi acquisition. Just a few weeks ago, Lesser Evil was the popcorn brand was bought out by Hershey. So there was this sort of rhythm that was developing after like a year or two of really crickets almost like, you know, the acquisitions were just so far and few in between.

3:50And so I guess this is throwing a little bit of a wrench into it. And yeah, it sounds like, you know, Wall Street analysts are obviously looking really closely to it. And it's also interesting because this was also meant to be a pretty M &A friendly environment. By this, I mean, you know, the new administration coming into this year. We wrote about that just in the new year. So yeah, but obviously what's happening right now is more of a reflection of what's going on with supply chain, uncertainty, tariffs, and all of that. Yeah, it sounds like there's just a lot of hesitancy. You know, I could see not wanting to make a big investment right now in an acquisition because you don't necessarily know what the future of that company is going to hold until we have more clarity around, say, tariff policy.

4:45You know, once again, it's all coming back to tariffs. I also was curious, you know, you said that a lot of this is kind of like reflective of markets, right? And, you know, it's really less about the businesses sometimes than it is the capital that's moving around them. You know, are you getting a sense of whether any deals that could get done this year are going to be smaller? Or, you know, are we going to see some more of those big mega deals, like just kind of wondering if there's any sense of what sort of the size of the deals that we're going to be having look like. Yeah, it's hard to tell because so much of this is usually in the work, you know, behind the scenes.

5:23But from talking to investors, they're like, I think probably what's going to happen is that the big players, some of which, you know, these big CPGs that we've been talking about, maybe are going to take a beat or just kind of wait and see. And that seems to be a big theme, you know, with everybody right now is just kind of like, literally trying to see what's going to happen over the next month or two. So I think naturally speaking, we maybe aren't going to hear about some big deals, unless maybe they were already in the works or something. But I think really the core of it, though, and this is seems kind of obvious, but these strategics right now want to see like profitable growth, they want to look at your cap table, make sure that you are a healthy business before they acquire you.

6:08And so when you have so much uncertainty, we talk to brands every day about like, they're like, I don't know what's going to happen next week with my business, my supply chain, that can be hard to assess. So that's kind of where that tension, I think, is coming in. Yeah, yeah. It's like, you really just want to stay profitable. You want to, you know, let alone have larger growth, you know, can you at least just make sure that you're keeping things going the way they have been and that you're able to stay afloat. I'm wondering if there's any conversations you had in your reporting this week that gave a hint about what sectors investors are looking at right now, if any.

6:48Or when we think about M &A activity in the retail world the last couple of years, were there certain kinds of brands that were more popular? You mentioned Poppy and Lesser Evil. That to me is this like better for you sort of more wellness CPG type of brands being popular. Like I'm just wondering who might have the best shot if anybody right now. Yeah, I think a lot of these buzzy brands that are just growing so quickly, they're really popular with Gen Z and millennials. Those deals we were talking about, that's kind of reflective of this overarching, I guess, narrative. I think I talked to Luke Goldstein from Simple Food Ventures.

7:32You know, they've invested in like Belly Welly, Cure Hydration, these sort of like better for you food and beverage, but also part of like a bigger wellness trend. And these are what some of the big companies are looking at because, you know, as he put it, it's much easier to go out and acquire a brand with a cult following or brand equity than it is to R &D it for years to come. Who even knows what that's going to look like in a few years? Like if you are a big, like a Pepsi, for example. So it seems like that is still, like investors are still bullish on that. I think they're like there is we are going to continue to see that.

8:12I think it's just a matter of time. Like it probably won't be next month, but maybe by the end of the year. Who knows? So that's that's kind of the sense I got. Yeah. Yeah. And keeping in mind that a lot of this tariff policy changes that we've been discussing is still a big if. Right. You know, there's things that have been put on hold. So who knows if they'll get put on hold again or if they'll be off the table. But as far as the sort of buzziness is concerned, it made me think about an acquisition that I did cover last month with Unilever acquiring the personal care brand Wild. They have a refillable deodorant based in the UK and had branched into other personal care products like lip balm, hand soap.

8:52And they had just done their first US launch with a little bit in Target. And then right on the heels of that sort of announced that they were acquired by Unilever. And I think it was the kind of thing where they weren't necessarily, how did he put it? He said that it wasn't on his bingo card for 2025. They hadn't sort of set out to it. But I think this deal sort of came to them and they saw what was ahead and felt like it would be good to get that surety while they could of having a new owner. So for a lot of brands, it might just sort of happen even without expecting it if you're in the right place in the right time.

9:27Yeah. I mean, a lot of these are being watched pretty closely. But it makes sense. I think during these sort of economic uncertainties, some people do look to sell or like, oh, somebody's knocking on my door with a great deal, maybe time to consider just because it does give you a little bit of a safety net giving everything going on and just resources. And yeah, so a lot going on there. But, you know, given the current state, I think we're going to have to wait till the dust settles before we know. But yeah, I think as Luke said, this could also be a pretty good opportunity for some of these big strategics to look out for some brands that they could scoop up, you know, while the moment's hot.

10:12But yeah, so with that, let's move on to Walmart, which is pretty much pushing further and further into beauty and skincare. Speaking of, you know, this sort of wellness halo that I feel like has developed around a lot of different categories is just trickling down everywhere. So Walmart right now is piloting what it calls beauty bars. They're kind of like these concepts within their stores at 40 of their locations. So it'll be basically, you know, what you think of when you think of beauty and skincare, which is like you have little stations and you have beauty experts, you can ask questions, you can test samples.

10:53That's a big one, I feel like right with big box. Like I'm always like, how do I try this on before I buy it? So they are kind of moving towards that, the Ulta, the Sephora model. And yeah, what are your thoughts? I mean, there's a lot of reasons why, but as we talked about last week with LVMH and Sephora, this is just one of the strongest, most resilient categories. So to me, it makes sense that some of these big box retailers want to lean on it more. Yeah, I love this topic. And I think it's something that has a ton of opportunity for Walmart and for Walmart shoppers, right? You know, we hear a lot about trading down.

11:33We have heard a lot about how Walmart is even rolling back prices more in certain categories to entice shoppers who are becoming more price conscious. So then if you can have this sort of add on little treat culture of a beauty bar where you can pick up some samples and some new things for yourself. I think that works really well. I also, I'm sort of curious, though, how this is going to work physically in the stores. You know, this is happening at 40 stores, which is really, you know, quite a nominal amount when you look at how many locations Walmart has. So I'm sort of curious, like, to see this.

12:08I'm hoping someone posts some TikToks or videos or something because, like, where in the store is it? Are these things also behind lock and key? You know, I was in Walmart the other day and I wanted to pick up something from the beauty section. And of course, it was, you know, I had to wait for the associate to come over to get it unlocked. So just sort of thinking about how something like this physically plays into a store is interesting to me. Yeah, this is probably a good time to talk about the type of offerings we are talking about. So, you know, the rollout also is coinciding with Walmart's spring beauty event.

12:43It started April 18th and it's running all the way through May 31st. That's a really long sale. And they have all of these what I consider pretty high end brands, Olaplex, Dyson, L 'Oreal Paris, as well as, you know, like Bubble, which is more like a tween and teen geared skincare brand. So obviously they want to showcase that they do have these brands that, surprise, surprise, are also at Ulta and Sephora. But they want to do it in a way that is going to cater to the Walmart customer who is literally everyone, right? I mean, the demographic is just so wide, which explains just the wide range of products.

13:25But yeah, what are your thoughts about that? I mean, their VP of beauty, Vinima Shakar, wrote a blog post about this and said they added more than 40 premium brands in the past year, which is a lot. Yeah, I think it's a smart move. And I think it's something that is going to pay off as they continue to compete with the altas and targets of the world. I was looking at this list and noticed that they're even adding some higher end fragrance like Versace Bright Crystal, which can confirm is a wonderful summer scent. But would I pick some up at Walmart? Maybe. You know, I just think these might be things that you don't think about buying there.

14:01So it's really a category expansion that might be long overdue because people are buying these things already at other locations. So why not just find it at Walmart? And as we know, not only convenience, but Walmart, where it can't compete is value pricing. Obviously, right now it's on sale. This is also coinciding with a growing clean beauty at Walmart initiative. They launched this in 2023, and now it features over 900 products. And then last year, they expanded the marketplace to include like premium beauty. So they have like Curology, pretty smart being. So really rounding out that offering to hit pretty much every type of customer, like I keep saying.

14:46but I guess with that you know we kind of touched on it but maybe now we can kind of just wrap up by talking a little bit about where this fits in the overall increasingly competitive beauty and skincare space everybody wants to be a beauty retailer it seems yeah yeah because it's one of those sticky categories and so they want to just keep improving it I think it's going to get a little bit harder though you know as much as it's it's great to see Walmart expanding the category and really having that mix of high and low that I think a lot of shoppers gravitate to, you know, it's going to get more competitive.

15:23And, you know, Amazon is doing more with beauty, too, right? And you can't discount the sector of folks who are going to prefer to just order things online rather than buy from a curated in-store selection. You know, I think it's going to be an interesting competitive landscape in the years to come. target recently i think stalled some of its alta store in stores right that that's not rolling out the same way it had planned i think they kind of are slowing down on opening more uh given that if you listen to this show you know we talk a lot about target sort of going back to the drawing board and trying to rebuild uh its customer base um because they have lost a lot of traffic recently But yeah, they're trying to just focus on the existing Ulta store within stores.

16:10But I don't know. I'm reading between the lines. And I mean, that's an opportunity for Walmart kind of building a competitor there. Yeah, yeah. It'll be interesting to see. And like I said, I'm kind of curious what the actual physical manifestation of this is going to look like, because I think that will really determine its success. You know, are you building a counter that feels really approachable? Is this something that is staffed in a way that the customer feels like they can get service and can get the sample that they're asking for, that any questions they have can be answered quickly? Can you check out right there and head out?

16:47Do you have to bring it to the line or find a self-checkout that's available? You know, I think the day-to-day of this will really determine if it's something that Walmart wants to keep doing. Yeah. All right. Well, on that note, Melissa, we can move on to an interview that you did this week. But remind us again who your guest is and what you discussed. Yeah, I spoke with Rachel Kibbe of American Circular Textiles. And we talked about the state of American manufacturing at a time when many people are focused on what it means to be made in the USA or brands that are looking to nearshore due to some of the tariff policy changes.

17:25We talked a lot about the benefits of circular textiles and just the demand that brands have for getting products that are made here and have fewer environmental consequences attached to them. Great. Well, we are going to look out for that right after the break.

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18:40Rachel Kibbe, welcome to the Modern Retail Podcast. Thanks so much for having me today, Melissa. It's great to have you. We're talking at a very timely moment. Not only is April Earth Month, a time when we should all be thinking about sustainability, but at a time when U.S. manufacturing is in the spotlight. So with that, Rachel, tell us about your job and your role and where you work. Sure. So I am CEO and founder of a firm called Circular Services Group. And out of Circular Services Group, we run an organization called American Circular Textiles. So you can think of those two organizations as a business strategy firm and a trade association for circular textiles.

19:24And so what that means in practice is we help the private sector, we help businesses both scale domestic manufacturing and circular textiles and advocate for them at the federal and state level to lawmakers. Right. And you have a membership act that includes lots of brands who are on the forefront of sustainability. Who are some of the brands you work with? Yeah, so we represent over 30 organizations now from retailers to resale to rental to recycling to sortation repair and care. H &M and Reformation are part of our membership. ThredUp, The Real Real, Rent the Runway, Vestiaire. So we really represent sort of all of the verticals in what we call the circular economy that are going to handle the life extension of our apparel and footwear.

20:14Yeah, this is something we talk to so many brands about at Modern Retail. I think it's become very common for everyone to think about the lifecycle of the products we're creating. So, you know, when you say circular economy and we talk circular manufacturing, what does that mean? If someone wasn't familiar with those terms, how would you define them? So I think everybody may have a different answer in our sector for that. But how I define circularity overall is just the life extension of the products we've already created with the goal of reusing those resources or recycling them over and over.

20:53And really, what I've come down to believe is that it's just a new way of manufacturing. So you could even call it manufacturing and we'll go into that. Yeah. Yeah. Let's dive in. For those who haven't picked up already, this is going to be a nerdy conversation. But that's what we like to do. And I feel like this topic is so timely because right now we're in this landscape where tariff policy is changing. International trade is getting all kinds of fuzzy and really uncertain for business owners. And an answer to that often becomes, well, what can you do to nearshore? What can you do to get more US manufacturing done?

21:31And I was wondering if you could sort of help us understand the lay of the land on, you know, what is made here in the U.S. with textiles and how does that interact with circularity? Yeah. So, you know, where the United States used to be one of the leaders in apparel manufacturing, we are no longer. And I think everybody knows that we do still have some solid technical textile capabilities, primarily in the military, aerospace, industrial fabric sectors. But when we're talking about consumer apparel production, it's really been hollowed out. Most cut and sew capacity is relatively small scale.

22:13It's quite expensive and it's pretty limited to niche or higher end brands. And so now there's really sort of a critical lack of supply chain here for even those apparel manufacturers who do have operations here. For instance, sourcing buttons, zippers, or even basic cotton shirting is fairly impossible. And at the scale, we would need to really just close our entire population. And so we have to import a lot of their raw materials. And certain goods like very technical or even basic performance or outerwear, We don't even have the manufacturing capability in terms of machinery to make those products here at all.

22:59Yeah, yeah. And hence this situation where we are importing so, so, so much from from other countries. Yeah. You know, I was looking at some BLS numbers this morning and it sounds like the textile mill subsector overall has lost, you know, more than 30 ,000 workers from from 2015 to today in the product mills subsector. So that's more, you know, your linens, your bedding and things like that, that lost another 15 ,000 workers over 10 years. So even the, it sounds like the infrastructure we did have for this and the industry we did have for this was already shrinking when we got to this point. Yeah, it's absolutely true.

23:38And it's kind of crazy to think about. We produce a large portion of the world's cotton, for instance, here. We grow that only to export it and buy it back from ourselves. because we can't spin it or weave it here anymore. So yeah, it's a big challenge what we're undergoing right now to rethink how we might make more product here in the United States in the timeframe that's sort of being proposed. Right. I think that's a really good level set. So let's get into some of the more circularity piece of this. What is it that we could have in the US that maybe would allow more product to stay here, that would allow material to be used and reused?

24:23Does anything like that already exist as like a proof of concept or what do we sort of have and where does this go? Right. It's a really good question. And it's not just a proof of concept. We have a lot of parts of the circular economy supply chain here. We have thrift stores, We have resale and rental platforms. We have a certain number of repair and care networks through dry cleaners and other means. And so the reuse portion of circularity, meaning just taking a garment and ensuring its lifecycle is extended through another customer or person buying it or swapping it or renting it. we have that capability here.

25:05And the good thing is when we're thinking about like US manufacturing is those jobs are here because that supply chain is best done regionally. What we don't have is large scale textile to textile recycling. I think a lot of consumers are confused about that because some collection and reuse programs are called recycling, which isn't necessarily wrong because reuse is a critical aspect of quote-unquote recycling, but the actual recycling infrastructure, meaning taking your t-shirt and turning it back into a new t-shirt, we're almost at ground zero. And the costs to stand it up initially are pretty hefty.

25:49But the thing about it is from a regulatory perspective, it's already required now in the EU. There's the EU Waste Framework Directive, which is going to require all large retailers to pay for the collection, reuse, and recycling of their products, which is going to impact the United States. And we also have those types of regulations happening in the US. One just passed in the state of California in September. So it would benefit us in the United States to start building textile-to-textile recycling infrastructure because it's going to be regulated, it's going to be required. And it's also an economic and job opportunity.

26:26We have the most feedstock in the world for recycling because we are the largest consumers of apparel and footwear in the world. So it's one way to flip that on its head and create an opportunity. But that's going to need or require a combination of regulatory and incentive-based policy levers along with private sector investment. Yeah. Yeah. This is one of those things where a lot of different stakeholders. And I know a lot of journalists hate that word, but sometimes it's the only one I can use. You know, people with skin in the game, I guess is another way to say it. People who need it. Yeah, they have to get together and figure out how to do this and make sure that things aren't going, you know, directly to landfills the way they have for so many years.

27:10You know, you talked a little bit about what's passed in the EU and California. These are those extended producer responsibility laws some of us may have heard about or attempted to write about. What's the lay of the land on EPR? How does it work? What are some of the things brands should be aware of as they start to see those terms and policies crop up? I think that's the big question on everyone's mind, because the thing about a lot of environmental regulations is once they pass, it's all in the implementation, which means how the rules are written. I like to talk about EPR as the most complicated French pastry recipe you've ever had to make as a group project with different companies who have different ideas about how it's best accomplished and how the outcome will taste the best.