Modern Retail Rundown: Apparel sales rebound, Meta's EU lawsuit & TikTok Shop's traction in Southeast Asia

0:05Hello 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. Hey, Gabby. It's been a while since we last saw each other. How was your trip? It was great. It was very sunny and wine-filled, but I'm very excited to chat retail with you as usual. So back recharged and ready to dive in. Glad to hear it. great so as you all may know every week we break down the biggest headlines in the retail world on this episode we delve into some of the mysteries or factors of why some fashion retailers are currently thriving while others are struggling next we discuss meta's record 1.3 billion dollar privacy lawsuit filed by the european union and lastly we look at how tiktok shop is gaining traction among life commerce players in Southeast Asia.

1:04So first up, let's talk about apparel retail, which has been in flux for the past, I don't know, maybe six to 12 months. And some of the retailers have been citing, of course, a lot of factors like the economy and consumers just cutting back on spending as to why their revenue and profits are down. But there are a couple of bright spots among them that are doing well. This week, Urban, which owns Urban Outfitters, Free People and Anthropologie, as well as Kohl's posted better than expected earnings. And of course, you know, this isn't time for summer shopping and traveling. It seems that they're really resonating with their own customer bases.

1:51Whereas most recently, we've seen retailers like Walmart, Target, Foot Locker even, which tends to be pretty resilient, and American Eagle citing a dip in spending. So, yeah, why don't we run the numbers, Cale? And I think Urban to start out with is pretty interesting because they always seem to be a little bit under the radar, but one of those kind of quietly doing well retailers, I would say. Yeah, absolutely. I mean, I guess it shouldn't be surprising, but this has not been a great earning season for many industries, and apparel especially, and because apparel is often thought of as more discretionary.

2:29And so especially retailers in the middle, you know, that cater to nicer clothes that are a little bit more expensive. One would think that most of them wouldn't be doing well. But Urban brought in$53 million profit in the first quarter, which was a jump from last year's profit, which was$32 million. And sales rose 6 % to what they're calling a record$1.11 billion. Urban's a really interesting company because it has a bunch of different companies. You named them earlier that that go towards it. You know, there's anthropology, there's Urban Outfitters. I also think the newly part of things is really interesting because that's more of a service that they've been really, really focusing on.

3:11What the company specifically said, revenue was driven by a 5 % increase in comparable retail segment sales, strong growth in subscription brand newly and a significant improvement in gross margins. And so it just seems that there were a lot of factors and a lot of investments likely made earlier that are now helping Urban get to this good point where it's seeing pretty healthy numbers while others are not doing as well. Right. Yeah, Nulya is an interesting one to us, of course, because we cover rental a lot. And they've now become pretty up there with Rent the Runway. It's just that their assortment does lean a little bit more casual.

3:54They still do formal wear. But for day-to-day shopping, we always hear it's pretty great value. Analysts really seem to like it. And the model and the app are very just well-designed. And so it doesn't surprise me that Nuuly is just driving so much of the growth, especially, again, I think the timing. You know, people may be re-upping their subscriptions despite the actually price increase recently makes a lot of sense for value wise. I just did a story about how people are opting for rentals in order to kind of rotate their wardrobes as opposed to buying, you know, higher end items. But yeah, I think with all that to say, it'll be interesting to see whether this momentum keeps up among these sort of, you know, midsize retailers.

4:45Another one that has really reinvented itself recently is Abercrombie & Fitch, which has been doing pretty well throughout the pandemic. But especially in the last quarter, sales increased by 3 % to$836 million from the same time last year. And same-store sales are up 3%. And so with Abercrombie & Fitch, I think maybe the same sort of thing, right? I think we constantly hear that assortment is so unique. It's such great value. They kind of teeter that line between millennial and Gen Z, you know, a little trendy, but not super fad focused the way that some fast fashion is. But yeah, what do you think the longevity is of this type of growth, Kale, as far as catering to this specific customer?

5:38Well, I think it'll be brand by brand. So with Abercrombie and Fitch, I was looking at their numbers. And one thing that stood out is that, you know, the company as a whole is doing well. But I believe Hollister, which is owned by them, did that still not not doing as great as they would like. Let me see. Hollister comparable sales fell six percent as the company continued to improve its style to a more economically sensitive shopper. I think that's that's from Yahoo Finance, by the way. Yeah. So I think that gets at really what's at the heart of this issue, which is the ones that are doing well have been able to solve inventory and solve assortment.

6:19They are probably at the right price point to figure out who they're catering to. But also, and I thought this was really interesting with Abercrombie & Fitch, their inventory is down 20 % from a year ago and pretty much said that the new items that come in are being sold. And I think the big issue that a lot of the other apparel companies that are facing major headwinds and aren't able to sell through are because they're still sitting on a huge amount of inventory and don't know what to do with it and aren't able to strategically bring in new inventory to cater to whatever the new styles are.

6:53So I really think the nut of this is that this is a years-long inventory problem. We've been talking about inventory problems for how long now? Like since the pandemic, pretty much. But it seems like the ones that are doing well have been able to go through their old inventory, smartly invest in the new ones, and be pretty nimble, making sure that they're selling the right types of clothes at the right price points, while other ones are still sitting on just way too many things in their stores and aren't selling through. Mm-hmm. Yeah. Yeah, speaking of inventory streamlining, Kohl's is also another retailer that is weirdly doing well.

7:28I know he keeps saying that, but I think just after looking at - Yeah, we were weirdly in our notes so many times. I mean, I think after you watch or you look at so many earnings where you kind of hear the same line reading of economy, economy, consumers cutting back on spending, it kind of goes to show that it is possible to do well, but there are, like we mentioned earlier, some factors that have gone into it. And Kohl's also actually has cut their revenue by, or their inventory, excuse me, by 6 % this quarter and really focused on newness and unique assortment. And of course, you know, we can't really talk about this without talking about their Sephora play, which is really the big one.

8:14their CEO talked about, you know, just helping bring those people back constantly, right? Because they're just, they want things that are giftable, new looks, seasonality. Yeah. So again, Kel, the numbers, maybe kind of just speak to that a little bit. Sure. So their revenue hit$3.36 billion this past quarter, compared to an expected$3.34 billion. And, you know, that's a good many millions of dollars that they were above expectations. And that speaks to exactly what you were talking about earlier, which is Kohl's is thinking about inventory. It made smart partnerships with Sephora and is clearly working on having the right types of items that people actually want to buy.

9:00And it's all about these are all older retailers and they're trying to think about the best ways to reinvent themselves. And clearly these are the players that are doing well. And there are others that aren't doing as well. You mentioned Foot Locker. I'm pretty sure Express, though I don't have the notes up right now, you know, Express has been trying to do this for a really long time and has not had the sales growth that it wants. And so it seems that this is a very difficult calculation of figuring out where to invest, how to invest, and how to also cut down on the excess that you had earlier.

9:31I think that the Kohl's part that you said earlier, that the inventory got cut by 6%, really speaks to the strategy that's working. Right. And I think the irony being that these are all, like you said, just legacy, what we normally think of as mall-based retailers. These aren't necessarily the most hip or cutting-edge formats, but I think it shows that right now shoppers are really being selective and looking out exactly for what they want and, of course, value versus just browsing the web and shopping e-commerce the way they had been a couple years ago. Yep, exactly. It was very surprising for me that we saw these results from these players.

10:15I was expecting to see more mixed results from a lot of them. Just because of what I've been hearing from executives, how demand has cooled. Apparel is always a tough industry, but especially tough now. And so there are definitely some lessons to be learned in terms of how to operate such big businesses in such a way so that you're able to grow sales. Yeah. And then just to wrap up a little bit with apparel, I've heard in the last few months, that dip from the beginning of the year through spring is usually very expected. Post-holidays, people sort of rein in their apparel shopping and then it kind of ramps back up during summer and travel season and then back to school after that.

10:59But yeah, I do wonder whether apparel is finally sort of making a comeback after a lot of the markdowns that they relied on, just brands, like you've mentioned, Gap, Express, that have really had to slash a lot of their prices over the last year or so in order to drive that revenue? Yeah, it definitely could, but I think it'll be the companies that have been thinking about the styles and the price points that are speaking to their shoppers. And so I think some apparel retailers probably will not see the growth that they would like for a summer bonanza. I do think economically, just with all of the things that are going on, the debt ceiling fight that's going on, a country eventually going into default, interest rates rising, inflation is cooling, but it's not like everything is back to normal just yet.

11:54And so I imagine that the overall apparel numbers will not be as great as an industry, but there will be certain bright spots from the companies that are thinking smart about what it is that they sell and who they're selling to. Well, next up, we are talking about Meta and its latest antitrust debacle, I guess you could call it maybe. So Meta this week was slapped by a huge lawsuit,$1.3 billion or 1.2 billion euros. Just goes to show that the small currency exchange now. Yeah, I was about to say, yeah, if we said this a year ago, it would have been a much bigger dollar fund. Right. Yeah. And so this is a huge privacy find I think the biggest ever that the European Union has ever tacked on to a company.

12:49And so this, you know, it's nothing really new. Companies like Meta and Amazon have constantly faced these, especially because the EU has some of the strictest privacy laws when it comes to user data in the world, especially compared to the US. And because Meta obviously is an American company that operates globally, this is a really big deal, especially for their ad business, which at this point is pretty much the business, right? You could say, considering their users dipping. So yeah, Kale, can you just give us maybe a little bit in layman's terms, what the EU is claiming that Meta is doing with their citizens' data.

13:38Yeah. So this is a decades-long fight that's been going on. And there have been so many different privacy issues related to Meta and Facebook. Most people think of Cambridge Analytica and all those issues. This isn't that. This is actually a little bit simpler, I would even say, where there's been issues roiling around can United States governmental agencies have access to Facebook user data, which they historically have been able to get. And so the issue is that I think it was the NSA specifically could get access to Facebook users' data, and that includes UK and European citizens. And that's not okay, according to the EU.

14:23And so GDPR, as of this week, is celebrating its fifth year as a rule, the law of the land for digital data in Europe. And I think that the EU has been trying to show that it can actually enforce it. And so this is, it's really big enforcement to prove we mean business. If you want to have a digital company that deals with users' data in our countries, you need to abide by our rules. And that means that, you know, the US government can't have access to this data of our citizens in the way that it has been before. And so right now, this is only related to the Facebook app, like Facebook as a whole.

15:05There has not been that much talk about WhatsApp or Instagram. And this isn't even necessarily about the advertising business. This is actually just about the actual data that Facebook users use that others could have access to through various judicial means. But there are a lot of ramifications for the advertising business. And so this could, depending on what happens, this could have a really big impact because a lot of people in Europe use Facebook. And so if Facebook makes a rash decision and isn't able to change its programs so that it conforms to these data regulations, it's actually completely unclear what could happen.

15:49Yeah. And, you know, of course, this always brings up the questions of will Facebook leave Europe or will it, you know, I don't know, reign in some of these practices. But that, in my experience, has never really been an option for a lot of these companies just because of the way cross-border activity happens these days with digital media. But what could it actually mean, I guess, in reality? And with Facebook saying that it will be appealing the decision, of course. Yeah. Is there anything that we could actually expect to change? Or will they, as in the past, just eat the fee and continue to sort of fight back?

16:33I mean, this fee is so big that they could obviously pay the fee, but I also think that it sets a precedent in terms of the EU regulators, meaning business. And so I think Facebook does have to change something. And so just to give some context, what the EU said is you have to pay the fee, and then Meta needs to pause all data transfers between the EU and the US within five months and make changes within six months or be forced to delete a decade's worth of EU user data. So pretty much the EU is saying, you need to make it so that the US can't have access to this user data, and you need to delete it.

17:14And so I am not smart enough. I do not have the technical know-how to know if Meta is able to make these changes so that it couldn't allow for this sort of cross-border data transfer. I imagine it could, but I'm sure Meta doesn't want that to happen. And so does that mean it will leave the EU? That would be pretty wild. I think 10 % of Facebook's ad revenue comes from Europe, so it would be leaving a lot of money on the table. I've been trying to get a sense for what people think Meta and Facebook will do, and it's pretty much what most people think is Meta's going to try and appeal it and win.

17:55And if it doesn't win, it'll sort of be the Wild West because this is such a big ruling. Like this fine is so much bigger than previous fines. And it shows that it's trying to really show its teeth. The regulator is really trying to show its teeth and tell Meta that it means business and it needs to conform to these regulations. So the answer, unfortunately, and it's not a great answer, is I don't know. And it'll be really interesting to see how it pans out. we will move on to i guess that sort of a related topic which is you know uh digital platforms that are trying to expand their global footprint uh of course we will be talking about tiktok which for the last couple of years has really tried to establish its own e-commerce and advertising ambition being very brand friendly uh but in this case we'll be discussing their uh the TikTok shop, which is basically the TikTok version of live commerce or video commerce or whatever the players want to call it these days, which is gaining momentum in Southeast Asia.

19:05And so in this case, they are competing with a couple of pretty big established companies, which are Shopee and Lozada. And with TikTok, I mean, I think this is like sort of a quiet investment for them That's really skyrocketed in the last year or so, especially because right now we're hearing that live commerce is, quote unquote, you know, sort of dying off post lockdowns, post COVID. But of course, with Asia specifically, it's it has been and probably will always be a really big segment of e-commerce. And so this is I thought this was a really interesting evolution in where TikTok sees itself, I guess, in the overall global e-commerce space.

19:51Yeah, it's super interesting because TikTok or TikTok's parent company, ByteDance, which also makes the Chinese app Duyin, it's a huge e-commerce presence in China. And now most of the headlines have been focused on TikTok trying to advance its prowess in the United States. But Southeast Asia clearly is also a big thing. And so according to, this was a CNBC article, I think, citing potentially the information, TikTok shop's GMV skyrocketed more than four times to$4.4 billion in Southeast Asia in 2022. And the company is targeting a GMV of$12 billion by the end of this year. That's big growth. That's a lot of money.

20:39But also, Shopee and Lazada are doing way more money than that. So Shopee in 2022 had$73.5 billion in GMV, and Lazada's GMV was$21 billion. Or Lazada's was from 2021. And so it's not the same year. But it shows just the size of those apps in Southeast Asia compared to where TikTok is now. And it also shows the opportunity that TikTok sees with trying to sell things on its app. And so we don't often talk about these other regions, but they mean huge business. And so it makes sense that TikTok would be trying to go after this area. Right. Yeah. And I think, like you mentioned, this is sort of a drop in the bucket compared to what a company like Shopee is doing.

21:31But with live commerce, as we mentioned, already being pretty crowded in Asia, I was wondering, I guess, whether just the TikTok name or cache might help give it an edge in this case or whether, you know, I guess maybe some of the baggage that we've been talking about this episode could actually end up backfiring when it comes to just what it's trying to do with e-commerce. and, you know, specifically branded, right? And with the brand advertisements. Yeah, I mean, I think it definitely, I think TikTok has an okay brand recognition and brand cachet, especially in Asia. And so I think it's a little, it's a different type of issue than it is, say, in the US or in Europe.

22:20But it also, it's very hard to go up against incumbents. And so it means you have to spend a lot of money And you really have to make the right partnerships and, you know, work with the right key opinion leaders to really grow the business in a way that will be able to rival these other players. So I, you know, I don't know what TikTok's internal plans are to focus on those regions, but I imagine it's probably not going to be the same playbook that it's been using in the United States because it's just a host of different, a host of different political issues, a host of different e-commerce, you know, it's a different e-commerce landscape.

23:01And so I think, you know, it's definitely possible people around the world know what TikTok is, but it does have a lot of work to do to get up to those other two players. Yeah. And I do want to round it out by talking a little bit, I know we've been hinting at it throughout, of how TikTok is restructuring its e-commerce team. I feel like it's been really been up and down, just especially since 2020. They announced all of their really ambitious plans to expand it, especially in the U.S., of course, since it's such a big market. But right now, it does seem like it's pulling out of some markets and moving them to others.

23:43So, yeah, why don't you tell us a little bit about what the teams, I guess, reshuffling would mean for this? Yeah. So the Financial Times, a couple of days before this latest story about Southeast Asia came out, pretty much said that TikTok is reshuffling, restructuring its entire e-commerce team and focusing only on the regions in which it's already launched and already is seeing growth. And so there were so many headlines months ago about how TikTok was going to launch in Europe, and that was its big push. Now it seems like that's no longer the case for the time being. supposedly, according to the FT, TikTok has moved a team in Spain that was focused on a Europe push.

24:26And they're going to be focused in London on the UK, where TikTok shops is already live. Southeast Asia obviously is playing a big role because TikTok is seeing such a big role with that. And also it's going to be refocusing on the US. So pretty much there was a lot of talk about TikTok trying to do a big expansion into Europe. it seems like it's putting that slightly on pause and focusing on other areas in which it's already launched and it really wants to grow, that being the UK, the United States, and Southeast Asia. And so, you know, it makes sense. Try to grow what you already have. Don't expand where you are not or where it hasn't been working thus far.

25:06And like, you know, maybe this has to do with the EU stuff we were talking about before. Like the EU is a pretty strict, you know, set of countries. Their regulators have been enforcing a lot of different rules. And so maybe TikTok doesn't want to deal with that right now until it has these other these other aspects figured out. Yeah. And I think the the London move is pretty interesting because as, you know, the Brits love to remind you every five seconds is that, you know, they are not they're no longer for the EU and Brexit is happening. So, you know, it's sort of an adjacent market that could still do very well.

25:44But of course, like you mentioned earlier, I think not trying anything in the EU is still leaving a lot of money on the table. But in this case, I guess just to sort of wrap it up, I would love to just hear a little bit more about just live stream shopping in general and where it is not just overseas, but even here in the US. Because I do feel like we constantly get sort of mixed messages about the, you know, the sustainability of it all and whether shoppers are really going to be using it consistently to just to discover products or shop. Yeah, well, there was a really interesting stat in this Financial Times report that I thought showed the disparity between TikTok's push in Southeast Asia, where live stream shopping is very big and there are already a bunch of players that are doing well, and how it's still, and we say this like a broken record every few months, it's not hit the big time in the US and really not in the UK either.

26:44And so the FT reported that most of TikTok's e-commerce sales come from pre-recorded videos and linked outs. Two people told the Financial Times said that TikTok's live stream selling service only generated 20 million pounds last quarter in sales for the UK. TikTok, it should be said, refuted this, didn't give a number, but said it was much higher. But I think that shows that live stream selling, which TikTok has been trying to really push, is not as major in markets like the US and the UK as it wants to be. You know, that doesn't mean it won't be. But this has been a push for years now, pre-pandemic, during the pandemic.

27:25Now, here we are. And it is yet to become a ubiquitous aspect of the e-commerce experience. And so just the fact that TikTok supposedly only generated 20 million pounds, it's a lot of money. But compared to the GMV that we were seeing in the others, which were in the billions, right? It just shows there's a lot of room to grow, but it also will take a lot of changing habits and just how people shop. mm-hmm yeah and then of course this is all happening with the backdrop of the supposed or i don't know just whatever it is that's happening right now with tiktok potentially being banned by the u.s so it just seems like they're getting it from all sides at the moment yeah um well that's our show for this week please rate and review us on apple podcast spotify or anywhere else you're listening to us.

28:26Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews by Kale with Industry Leaders every Thursday. Kale, do you have a preview for us for next week? Yes, I do. I talked with Collars & Co., which is a really interesting company that was on Shark Tank. And I love talking to companies that are on Shark Tank. But they are an apparel company that are trying to make a shirt that is both dressy, but also informal, like a polo. You'll hear more about it, but they're a really cool company. Great, excited. And then of course, come back on Saturdays for the Modern Retail Rundown.

29:05And as always, thank you for listening.