Modern Retail Rundown: Amazon swings to profit, fast casual's resilience & Target goes all in on curbside returns

0:06Hello and welcome to the Modern Retail Rundown. I'm your host, senior reporter, Gabby Barco, and I'm here with editor-in-chief, Kale Guthrie-Weissman. Good morning, Kale. Hello, Gabby. How's it going? Great, great. Yeah, we have so much to get through, like every other week, of course. We'll be breaking down the biggest headlines out of the retail world. This week, we are discussing Amazon's latest quarterly earnings. Then we'll be talking a little bit about Fast Casual with Subway and Chipotle's stellar numbers. And then lastly, we will be talking about Target's new curbside returns program, which sounds pretty exciting.

0:45But first up, I do want to do a quick update. Of course, we can't really talk about big headlines without giving listeners an update on Bed Bath & Beyond, which, of course, the news is changing constantly on a daily basis. And so just to fill in some gaps, last Sunday, Bed Bath did indeed file for a bankruptcy, but they also announced that their actual stores, every store will be closing. Bye-bye, baby. The website, everything, which I have to say, I didn't necessarily see coming. I thought maybe there was a way to salvage it, but, you know, end of an era, really. End of an era. This has happened before.

1:27I've probably mentioned linens and things on the show before. It just happens. It means that they couldn't find a buyer, so clearly they weren't able to do it. They did add the caveat that if there is some Hail Mary deus ex machina that comes in the last minute, maybe someone will salvage the stores or some of the stores. It's not looking good, though. And so there have been a lot of updates. This is likely the final update. Yeah. And with that, there are some interesting news coming out of that tangentially, which we find really interesting, which is that other retailers have, quote unquote, stepped up.

2:04This is a story I wrote this week about retailers. What did you call it, Kale? I would like you to read the headline. Competitors are dancing on Bed Bath & Beyond's grave, which, you know, true, maybe, you know, they probably wouldn't say as much. But I thought this was a great story you wrote just about we're seeing like the container store. They're taking their coupons. Who else did you talk to? Big Lots is taking those 20 % off coupons. So if you've been eyeing something, you know, I guess, take your expired coupons there. And then we also talked to the registry players, Zola and BabyList. So that's obviously a really big part of Bed Bath's business.

2:46It used to be one of the biggest registry companies really around. And now sadly that's gone away. So everybody has to migrate their registries. Please keep those up to date, I guess, if you want to get your gifts is the theme. We'll find all of this on modernretail.co. But yeah, crazy, crazy time for Bed Bath & Beyond and the overall, you know, in-store home goods industry right now. Yeah. Yeah. But, you know, we can move on to a company that's still very much in business. Let's talk about Amazon and its latest quarterly earnings, which, you know, came in at some really great numbers, it looks like.

3:29Sure, yeah. So Amazon had a good earnings, which in some ways is not necessarily surprising, but the last few earnings have not been great. Like I think last quarter they posted a loss, which people, investors specifically, were not too thrilled about. But they're back in the black. So congrats to Amazon. And there's a lot of things I'd love to drill in on. We could talk about advertising. We could talk about things. But yeah, it was definitely an interesting earnings report, I guess I'd say. Yeah. And speaking of being back in the black, of course, that comes with... I mean, of course, I'm sure their business is actually doing fairly well.

4:12But they have been pretty aggressive about cutting costs. Of course, like every other company, they've cut a lot of jobs, something we've covered on the show here. But in the last couple of months specifically, 27 ,000 jobs. So, you know, I think it's safe to say that had something to do with getting back into profitability mode, which was actually also a jump over last year for the year prior. Yeah, like they I think last year, they also posted a loss. But there were a few other things that they had to take a markdown because of Rivian, I believe. Like it was a it was a whole a whole thing. But I think and I want to talk about other earnings that we've seen because this has been this is the beginning of the earnings bonanza that we're seeing.

4:59But especially for the big tech giants, where you know, we have Amazon, we have Google, we have meta. All of them have had huge layoffs. like tens of thousands. I think Amazon might be one of the biggest. But I think this type of cost cutting is what is driving a lot of a lot of these, you know, a lot of what's going on is that they're pulling back on a lot of their major investments and a lot of their, you know, initiatives involving people. And that's probably what's helping at least on the financial front, them right-size the ship. Yeah. And then we should talk a little bit about, you know, what AWS is playing a part of, because it's probably worth mentioning that, of course, you know, here we talk a lot about the e-commerce and the retail side of Amazon.

5:52But of course, when they report earnings, there's, you know, a bigger picture usually. Yeah. I mean, I think with Amazon specifically, and I think that this is a theme we're seeing throughout. I mean, we could extend send this to Google as well, which is it's these digital services that are really helping these companies grow. For some numbers, some backing, Amazon's advertising business saw revenue growth 23 % to$9.5 billion. And let me find the stat when it comes to its actual just overall services, which involves AWS. It cumulatively rose 17.3 % to a little over$70 billion. And so So that's more than what it was a year ago.

6:33And a lot of that, some of that's driven by advertising, but a lot of that is AWS. And I'm pretty sure, just to zoom out a little bit, Google saw also big jumps from its cloud service. And so it seems like it's these, you know, these low, you know, high margin, I should say, you know, these, you know, not selling things, areas of the business that are driving growth for a lot of these tech giants. Yeah. And then just, you know, I always get taken aback when you hear these numbers. I mean, 9.5 billion in ads is just very hard to wrap your brain around. But just goes to show that is, I think, where these companies see their future, really.

7:14It definitely shows that the advertising is growing. And that's a very important part of the business. But I still think that on many fronts, a lot of advertising, the entire overall advertising ecosystem is being squeezed. And so it's smart that all these companies are seeing that for growth, but also looking at other services like cloud computing, etc. as their major drivers. Yeah, and I think that's a big theme, like I mentioned, with a lot of these platforms specifically. We've seen it with Meta, with Snap this past week, where they've just, you know, have had these really stellar numbers that are coming from advertising as opposed to other parts of their business.

7:59Yeah, it's interesting because we, you know, we're seeing overall okay numbers, you know, both Meta and Alphabet Google grew. Snap was less great. Like, I think they saw a revenue decline, which wasn't good. But even Pinterest had pretty good advertising numbers this past quarter. And also, and this is a side note, and maybe we'll get into this in the coming weeks, but right after Pinterest announced that it had a pretty okay quarter, it saw some growth, things are looking okay, it announced a pretty big partnership with Amazon alongside Amazon Ads. And so it shows that a lot of these platforms are looking at advertisements and looking at these other types of, you know, revenue streams as their area for growth, specifically in this uncertain economic time that we're all in.

8:48Next up, we are talking about one of our favorite topics, Kale, which is fast casual. What do you know? I love fast casual. I've eaten Chipotle in the last few weeks. It was great. Okay. So, so that means you were one of the, you know, millions contributing to their foot traffic, because this past week, Chipotle and Subway both just reported that their sales are great, their same-store sales are great, traffic is great, digital owners are great, everything's great. So why don't we get into why that is? Yeah. I mean, the Subway thing is really interesting because they've been on the rocks recently and are trying to find a buyer.

9:31But just some numbers about Subway, same-store sales climbed 12.1%. Digital sales increased 11.4%. In North America, same store sales, 11.7%. Pretty much across the board, it saw good growth after some real issues over the last few years. And then it's a similar story with Chipotle. Both of them, I mean, I think that they both are they both are kind of signs of the times in terms of consumption, where even though Chipotle has been raising prices, it's often seen as, you know, a cheaper meal alternative. It's, you know, something people get at lunch, something people get at dinner. And so it just shows that this is an area of the economy that is staying robust, especially these, you know, this type of restaurant experience that isn't full sit-down dining that many people think of as more of a cheap luxury, I guess you could say.

10:33Although I guess Subway is not really a luxury. But I don't know. I just think it's interesting that they both are seeing such good, robust sales after having a pretty bumpy last three years. Yeah. And we should mention, these are Subway's self-reported numbers. So of course, they released them when they were glowing. I think some other publications pointed out, but they themselves are in an interesting position because they've been on this, you know, sort of turnaround or rebuilding plan for the last few years and having, you know, signing all these celebrity spokespeople. So I'm sure that had a lot to do with it, but they are sort of reinventing themselves to prep for a sale.

11:14And they're hoping it's actually pretty soon, like over the next couple months. Yeah, absolutely. And I mean, like, I think another interesting thing is that digital sales are growing. You know, I mentioned the subway sales at Chipotle, digital orders accounted for nearly 40 % of the sales, which is something that Chipotle has been investing in for the last however many years. It's a really big part of its growth plan. And so it shows that some of these long term strategies seem to be working out, at least at Chipotle. We can't really, you know, you're totally right with the subway that we should maybe take it with a grain of salt in the sense that it's trying to find an acquirer.

11:50But, you know, people are eating out like this. Yeah. But yeah. And then with, I mean, I think just the most surprising thing to me is just how profitable Chipotle is. I mean, yes, 10%, you know, you just think about, I guess a bowl costs 10 % more than it did a year ago. But when you look at the profits, it's, you know, 291.6 million compared to 158.3. I mean, that's, I'm not good at math, but it's not almost double basically. Yeah. I mean, it's, it's definitely over 50%. So yeah. Yeah. It's, it just goes to show how resilient I think they are. And they even mentioned that their customer base just does not seem to be deterred by any of these increases.

12:36It's true. But they also said something interesting, which is that they're going to stop price hikes for now. So, you know, it shows that they're not going to go overboard and, you know, continue doing it until people say they can't possibly afford it. They made the rise that they thought they needed to do. People kept coming, which, you know, kudos to them. And then they said, we're not going to do price increases, which is, I think, a bellwether potentially for what we might be seeing down the line, because we've been seeing price hikes across the board, across industries. Pepsi and Coca-Cola both had their earnings this past week, and they both had very steep price hikes.

13:15And there was something really interesting in both of them, which is that they're continuing to see growth, but they're continuing to see revenue growth. Sales volumes for both have either flattened or dropped. And so people are not buying more of those products, but they are still buying the products enough that the price hikes did something. And that shows that there is some resistance in this inflationary environment. I think Chipotle, I guess, did it correctly and now knows that it needs to stop. Yeah, it's very much knowing when to stop putting your hand in the cookie jar situation, because I think you're right that the actual revenue is growing, but then the unit volume is dropping.

14:00And I guess maybe the question here is, and maybe Chipotle is already seeing it, but I don't know if you could necessarily outrun inflation in that way. You know, at some point something's got to give and they're kind of seeing that now. Exactly. And I think that what Chipotle did was, you know, they raised prices. They have a core offering people like they also launched some new things like, you know, I tried the chicken al pastor a few weeks ago. Maybe that brought people in. I don't know. And what Pepsi and Coke and other CPG leaders have been doing have been a mix of raising their prices and then also having things in smaller packaging size, you know, shrinkflation, something that you've written a lot about, that probably didn't entice shoppers and maybe wrinkled them in a way more so than just the fact that, you know, the bull went up, you know, 50 cents or a dollar or something like that.

14:54Yeah. And I'm sure the rest are the ones trading down to cheaper brands or private labels. They're going somewhere else. They're not just not buying toilet paper. Exactly. And what is the private label of Chipotle? I don't know. Maybe that's Subway, actually. Is it? Yeah, I guess now that I think about it, there isn't really a lower end tier, right? No, I mean, like, I think that, you know, I could talk for hours about Chipotle. It's a really interesting branding because it is both considered a value option, but also a greater than value option. It's, you know, it has a certain brand cachet. It's similar to, I guess you could say Chick-fil-A in that sense, where it's, you know, they have a cult following, people go back to it a lot, but it's not considered, like, the lowest of the low.

15:43And I think that that is part of how they grew that brand and the type of storytelling they're saying. And I think that's probably one of the reasons Chipotle has been able to raise prices and not lose customers, in fact, gain customers. yeah and then next up uh speaking of ways to not lose customers we are going to be talking about target's very peculiar option may i say i don't think we've really seen a lot of retailers try this out but target is now offering curbside returns so you know they're way way beyond curbside pickup that's very 2020. Now we're all about curbside returns. They launched it, I believe they were already testing it, I'm sure in Minneapolis over the last couple of years, but they now operate at a quarter of the 2000 or so stores and it will be eventually rolled out everywhere else.

16:42But to me, I feel like this is, as somebody who wrote a lot about Omni Channel or click and collect. This feels like another way to entice that shopper who only really wants to shop via the app or online and not have to deal with going inside the store. And so if you just want to return something you bought online, you can just drop it off at the curb and I guess have the employees deal with it. That does seem like a really big investment, but clearly they do think that their customer base will really go for it. Click and collect has become very popular over the last few years, which we all know.

17:20I was looking at a stat. I think it now represents, or in 2022 represented, 11 % of e-commerce sales were click and collect, according to Euromonitor, which that's, you know, nothing to sneeze at. I do think, you know, and also I will add that Target is probably one of the major leaders. It's been able to train its shoppers to really love buy online, pick up and store. And so I think it is expensive to do these type of things, but it is probably less expensive than doing pure e-commerce. And that's something that I've been talking with a lot of people about, especially on the Amazon front, is that e-commerce is really expensive.

18:01It has a lot of moving parts. It requires a lot of backend logistics. And one of the most expensive parts of it is returns. And so I think this is probably expensive to put in place at Target, But it's less expensive than pure online returns where they would have to ship it back or do something like that. And so I think that this is a way to try and lower the cost of one of the most expensive parts of the retail business that a lot of these omni-channel retailers need to offer. Yes. And with that said, I think it's also worth noting that with Target specifically, they do have a pretty unique model even within this type of retailer, which is that they fulfill the majority, I think something like 95 % of orders from their stores already.

18:56So it makes sense that you would handle returns also within the store because all of the infrastructure is already there. So you don't really have to overlap too much with warehousing and all that. Yeah, absolutely. And I mean, I think that this is all a move from pretty much Target and Walmart have been forced to offer as many digital programs as they possibly can. And those, you know, pretty much every retailer. But Target and Walmart have been able to really grow their e-com presences because, you know, they've needed to compete with Amazon because the pandemic hit and they needed to offer, you know, better services so that people would feel comfortable and don't want to go into stores.

19:33And now I think it's smart that they both are offering these kinds of programs that involve actually going to the store. You know, albeit a return, you know, a drive up return doesn't mean they're going inside the store. But it does mean that they are integrating more with a Target store than they would have had they just shipped it out from their home, you know? And so I think that this is all a move to try and get people to think more about their in-store shopping experience, to try and remove some of the costs associated with shipping things, and also just, I don't know, make it slightly less expensive than it already is.

20:10Yeah, and I think we'll see if others follow suit on this model, which took a few years, like I said, to actually put into place. I mean, yeah. And I mean, Target is, Target's in a pretty okay spot to try these big experiments. Its annual revenue grew by about$31 billion from 2019 to 2022. It's a retailer that's been doing generally pretty well. And so it's able to implement these wide-ranging new programs that involve thousands of stores. Other retailers probably don't have the luxury to do that. They would need to do something that they know will be successful. They know will cut costs. And so I think that maybe others will follow suit, but they'll have to make sure that they're able to implement changes that actually have an impact.

21:01And, you know, Target has a little bit more wiggle room than others. Yep, for sure. Well, that's all we have for you this week. You You can rate us and give us a review on Apple Podcasts, Spotify, or wherever else you're listening. Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders that will be speaking with Kale every week or do already speak with Kale every week. Who do you have on next week, Kale? Next week, I have eBay's chief product officer. We're talking about all things eBay. That's very exciting. Very excited for that one. All right. Well, thank you, everyone, for listening.

21:43Thank you.