Modern Retail Rundown: Big-box earnings blitz, Instacart's ad growth & Shein's shrinking valuation

0:05Hello, everyone, and welcome to the Modern Retail Rundown. I'm editor-in-chief Kale Guthrie-Weissman, filling in this week for senior reporter Gabby Barco, who I believe is probably sipping rosé in a southern French chateau right now. Lucky her. But I'm here with our managing editor, Anna Hensel. Anna, how are you doing? I'm good. I mean, I also wish I was sipping rosé in a French chateau, but that's okay. We'll settle for podcasting. Exactly. That's like our work version of rosé, I guess. For those who don't know, every week on the Modern Retail Rundown, we break down the biggest headlines in the retail world.

0:43On this episode, we're going to go deep into some recent big box earnings and what they mean for the retail industry. Then we've got some fun, interesting new stats about Instacart's advertising business. We're going to drill into that. And Ana and I love to talk about e-commerce advertising businesses. So I'm sure we'll have a fun conversation there. And then lastly, we're going into the world of digital fast fashion with some recent Sheehan fundraising news. It's a lot to do, but let's get started. So first, Ana, the week in retail earnings. Who are some of the companies that announced their earnings this week?

1:19Yeah, so it's always an onslaught of news this week. So usually in retail earnings season, it's the big box retailers who report first. So we had Home Depot, Target, Walmart all report earnings this week, as well as Foot Locker this morning. Got it. Was there a general theme to them? Like, how did they did they all do well? Did they all do not well? Or what have you gotten? Or I guess we can go from one to one. How did Home Depot do? Let's say that. Let's start there. Yeah. So it's interesting tracking all of these because, I mean, what we have been talking about a lot is like, are we, aren't we in a recession?

1:59How is inflation still impacting spending? And so I was curious to see, you know, how all these earnings came out this week to kind of give us a better sense of what's going on. And so with Home Depot, they fared the worst probably of the big box retailers, although there's more earnings to come next week. So someone could probably do worse. But they revised their guidance downward for the rest of the year. So initially, they were projecting that sales would be flat. And now they're projecting that sales will be down between two to four percent this year. So, you know, definitely could be worse.

2:38Home Depot definitely benefited a lot during the pandemic from people buying homes and then redoing their homes. But new home sales have cooled and home is one of the categories that we've seen people cut back a lot on spending. So it does make sense. I mean, I think it's just that Home Depot as a publicly traded retailer, like they were in a better position even compared to a lot of like home improvement, home retailers. But now even basically, I think the story is like, you know, their luck is starting to run out a little bit. And yeah, inevitably, sales are going to be down this year because they just can't.

3:22You know, there's only so much you can do when people are cutting back on spending in the category you're operating in. Yeah. And I feel like Home Depot specifically is a type of retailer, as with Lowe's and others, that when interest rates go up, which leads to a cooling housing market, that's going to really screw them up. And we're seeing this. We didn't put this in the doc, but I'm pretty sure, and I'm going to double check this, but other smaller but quote unquote hipper home goods places are also facing some headwinds. So I think the container store said that they're having layoffs this week at their recent earnings.

3:56And I think it all points to just sort of that home goods trend of flattening out, if not going down after a crazy three years, you know? Yeah, there's some other. I mean, Gabby actually did a story. I'm losing track of time if it was the week prior. But there's also a lot of these like marketing agencies that work with smaller digitally native startups. They released aggregated reports on how their clients are faring. And that also showed that these smaller players in the home goods space, a lot of their sales are declining. Got it. Got it. So let's move on to Target. So how did Target do? Yeah.

4:39So Target managed to get barely gross revenue. Sales were up 0.5%. I mean, I think with Target, and I saw this in kind of a reaction to the earnings that came through my inbox. Again, they were one of the companies that just did really, really well during the pandemic. And so, yes, while sales growth is slowing, if you look as a whole, like Target's revenue is still up significantly compared to 2019. And so, you know, I think with Target, like there's still a lot that they're benefiting from. And so having a quarter where sales barely grew, I don't think it's going to impact them that much in the long run.

5:29Yeah. I mean, I think Target has always been. I don't know if golden child's the right word, but it's been doing it's been doing pretty well now. Yeah. So but then we have the other golden child or maybe it's like golden grandpa or grandma. We have Walmart. So what happened with Walmart? Yeah, so Walmart actually did pretty well. So they raised their full year guidance. So they reported that sales were up nearly 8 % during the fiscal first quarter. And it's projecting that sales will be up 3.5 % in total by the end of the year. That also is an indication, right, of just how inflation is impacting spending because Walmart is a place that's known for lower prices.

6:12So if people are spending more at Walmart, I think that's a sign that, yeah, their wallets are getting squeezed and they are going to opt for some of the lower price retailers. Absolutely. So what do you think that there is a tying bind about what all of these say? Yeah. And another interesting thing to note with the Walmart earnings is that it was especially food and I believe health and wellness sales were up as well, whereas sales of higher margin items like electronics, general merchandise, I think apparel were down slightly. So I think that this all gives a really good indication, right, of where people are spending their money.

7:04People are cutting back on discretionary goods. And if you are a retailer that sells more quote unquote essential stuff, then you can probably still manage to like eke out some revenue growth because you're going to have people still going to you for that stuff. and maybe you can push better margin private label products or something. Something that just also was really interesting that came out this morning. So I haven't really had time to look into it fully, but Foot Locker reported earnings and they said sales were down 11.4%. Ooh, that's bad. Yeah, my only reaction to that is like, not great.

7:48Yeah. So I think that that is that's a really big indicator. Right. And next week and the week after, it's going to be a lot of the apparel department store retailers who are reporting earnings. And I think that's going to be a pretty big indicator. Right. I think we may see more results like Foot Lockers. That's interesting. So it's going to be a tough year. I know Foot Locker, they just released this big new transformation initiative, which in their parlance is the lace up strategy. And so, you know, they try to spin it as like we're in the early stages of our transformation. But yeah, it's going to be a pretty tough year for them.

8:33Yeah, it seems like just reiterating what you said, but if you are in a more discretionary category. And I think apparel, I mean, apparel, a lot of apparel retailers have not been doing good as is. And especially if you look at department stores, they have not been having the shining earnings for the last couple of years that they would like to have. And so early indications may point to that things are still not looking so good for them, but we don't know. We'll see. We'll see that next week. Yeah, we have so many more earnings to go. I know. It means stories for us to write. So that's always that's always a good thing.

9:03Were there any other interesting tidbits that you saw from the earnings? So just also going back to apparel, I mean, I think that so there are still some apparel retailers who are doing well. TJ Maxx reported that comp sales were up 3 % year over year. So I think off price is going to continue to do well. and so one of our reporters read about this but in Target's earnings they specifically called out retail theft they said it could impact profitability by 500 million this year I just think it's interesting that more retailers are calling that out in earnings and I also think it goes to show I don't know I mean there's just a lot going on right now like inflation is the big story but there's a lot of other challenging things that retailers are dealing with right now I actually wanted to ask about the retail theft thing because I found that really interesting where I think it was Walgreens about six months ago or you know last year said a very similar thing and there was a bunch of news about how this is hurting our bottom line there is organized retail theft we're doing this and then at the next earnings report the CEO was like I think the quote was like maybe we cried a little bit too much or pretty much said, like, maybe we overemphasized what this problem is.

10:26And I wonder if some CEOs are seeing the initial thing that companies like Walgreens did and thinking that they can use that as a rationale for less good profits. Because I think now is going to be a tough time to grow your profits given the economic landscape. But maybe I'm wrong. What are your thoughts on that? Yeah, it's really hard to tell with these. Yeah. But I go back to how I act as a shopper. And like, I know, you know, here in New York, if I go to one of the targets, there's a target I go to in Brooklyn. And a lot of the like personal care products are locked up now. and you know if it's like okay I have to get uh shampoo and toothpaste and all of these are locked up under different aisles and I have to press a different button each time to get it I have just many times been like okay well I'll just get um toothpaste because I desperately need that and then just my shampoo is fine.

11:34I'll like get that off of Amazon. So yeah, I think that none of these retailers have really figured out how to deal with it. And it'll be interesting to see how that plays out as well. Absolutely. All right, moving on. Now we have some new details on Instacart's advertising business. Ana, do you want to lay out what we've learned from some reporting? Yes. So we have been, we get a lot of pitches about new ad features Instacart is releasing. So it seems like, yeah, it's been a really big priority for them. And we got some new numbers to back that up. So the information had a really interesting story on how Instacart's attempts to beat up its ad business are going ahead of a potential IPO.

12:23Specifically, what they said is that the grocery delivery firm's ad revenue totaled about$740 million last year, up 30 % from 2021, according to a person familiar with the matter. And then the information story also said that nearly 30 % of Instacart's 2022 revenue came from selling advertising rather than delivering groceries. So both of those numbers were pretty interesting to me. I mean, I feel like a lot of times when a company launches, you know, some new revenue initiative, it's usually like a single digit percent of revenue or something. 30 % is pretty significant. And also, I mean, yeah, 740 million.

13:07So it's pretty close to building a billion dollar advertising business, which is crazy. Yeah. And like the hope for every platform is to really grow through ads because the margins are so great on that. And so especially when you're Instacart, where you're in the grocery business and I imagine if they did not do advertising, it would never have any semblance of ever being profitable. So these are the type of numbers they want to show, at least to make investors happy, right? Yeah. And also, Instacart's been rumored for a long time that it's going to be going public. I think the information story said that they're targeting after Labor Day.

13:45And so especially if you're going public, right, you want as many revenue lines going up and to the right as possible. So yeah, it makes sense that they've been really focusing a lot on being like, we're not just a grocery delivery platform. We're also an advertising business. So can you give a little bit of context about some of the new updates to the ad platform? Because you're completely right that our inboxes are full with pitches about Instacart with some new shoppable this, some new that. And it all goes towards one strategic move, which is to grow the advertising business. But what have you seen that was notable from these recent updates?

14:22Yeah. So with all of these companies, tech companies that start with very nascent ad platforms, right, a lot of the focus is on just releasing new different types of ad units. So I know that they released a weighted items ad unit, which lets brands advertise, which is kind of crazy as I'm talking about this. But like weighted items like a banana. But like, do you really want to be advertising a banana? Like it's a very cheap purchase. Yeah, that's true. That's true. I take it back. I think, so, you know, they're constantly having new ad formats trying to make things more shoppable or maybe like promoting video and ads.

15:09They also are trying to get more retailers to use its retail media network. So I think one of the latest announcements was that Sprouts is going to be using Instacart to power its retail media network, which, you know, gives them more revenue and also more data. I think what's also been pretty interesting about Instacart is they've had a lot of announcements recently that are all about actually helping CPG brands advertise, do bigger kind of splashy advertising campaigns, especially on TV. And what I do find funny about about Instacart and every tech company does this as they're building their ad platforms.

15:53But like a lot of their language is about how we're just trying to help our partners grow. Because like, how can you argue with that? All they want to do is help other businesses. They're just a benevolent platform that's here to help. Exactly. Just like Facebook helps small businesses. So they announced a partnership with Roku to allow brands to measure. So, you know, if you're a CPG brand and you're running an ad on Roku, then you can track who bought something on Instacart after viewing an ad. So I think that is pretty, it's all about, right, like using their data to help companies advertise on other platforms, which I think actually is pretty smart because obviously they're not just going to advertise on Instacart.

16:43And then they also did a co-branded TV campaign with AB InBev in the lead up to the Super Bowl, which is like, you know, it's not something they're gonna be doing with every brand that's not really replicable. But again, I think it's interesting to me that their strategy is also like trying to get companies to advertise more on Instacart, but also like will help you with your TV advertising too. Well, it makes sense in a certain way because yes, Instacart wants to be a huge platform that everyone uses, but I still, the jury's out for me personally, whether it'll become as ubiquitous as Amazon in terms of people who use it.

17:19So if you provide these other ancillary services that go beyond the app itself, that's a real ticket to growth, right? Right. Yeah. I mean, I think that, so with Instacart too, like they're seeing pretty good growth right now from their advertising business. But yeah, to your point, you know, the question I have is like, how much will people continue to use grocery delivery? And also, will people continue to stick with Instacart? So, you know, that's something that could hurt their ad business growth. If fewer people start getting their groceries delivered through Instacart, then it makes it harder to convince brands to advertise through there.

18:03Exactly. And I want to zoom out a little bit because we have an example of a similar company that has very similar ambitions, but going about it differently, which is DoorDash. And, you know, DoorDash is building out its own ad network. But it seems to be more cautious. What are your thoughts on the way that they strategically diverge? Yeah, so it was pretty interesting to me, this information article specifically contrasted how how Instacart is building out its ad business to how DoorDash is doing it. And with DoorDash, they haven't released any numbers in terms of how big their ad business is.

18:45But a lot of the language in, again, this article was about how DoorDash is trying to be much more cautious. They don't really want to clutter the app with ads. Although it is kind of interesting. It's like as soon as you introduce ads, then people notice it, right? So I have seen some tweets from people being like, oh, there's more ads on DoorDash these days. But so their CEO, Tony Zhu, said in a recent earnings call, it's really important to remember that with any marketplace business and certainly any desire to build an ads business, the most important thing is the engagement in the marketplace.

19:22So I think that they are, it seems like, you know, and also kind of is a way for them to be very coy and not share too much about how their ad business is doing. But I think that for them, yeah, it's like they are trying to say like, hey, the real focus here is like how much people are using a wrap, how much they're engaging with the marketplace. And like, that's ultimately what's going to drive the ad business. So it's like, kind of this constant balance, right, for companies that want to build out ad businesses, like, one way to grow revenue is to add more ad units, but that also could hurt engagement.

19:59So something, you know, it's still early days for a lot of these companies, you know, so we have no idea like how their ad businesses will stick around or how big they will ultimately be. Absolutely. And one last thing with DoorDash that I think is really interesting is that, yes, they're being much more cautious and diligent with their ad business, but they're also slowly trying to eat Instacart's lunch by becoming more of a grocery and convenience delivery, which who knows how that's going. But DoorDash was known as a restaurant delivery platform. But now whenever I order something on DoorDash, I get, do you want to pick up something from 7-Eleven?

20:34So I find it interesting that they're all going into a similar area when it comes to delivery, but now they have different advertising strategies. Let's move on. So now we're going to the world of Shein, which is another topic I think you and I to talk about. So Shein has lowered its valuation. Do you want to give some of the details there, Anna? Yeah. So I kind of, so I pitched this story to you yesterday and I kind of laughed because I just read the headline and it was like, oh, Shein lowers its valuation. I was like, wow, that's such big news. And like, basically they lowered their valuation from one astronomical number to another astronomical number.

21:18They're still doing good. But a year ago, they were valued at$100 billion, and now they're only valued at$66 billion. Poor, poor Shein. Poor Shein. And they also raised an additional$2 billion. So I think ultimately, that is a sign. It's just reflective of what private market valuations are like. Pretty much every business is revising its valuation downward. So Shian is still doing well, but still pretty interesting. And also, so this article is from the Wall Street Journal, and they also had some pretty interesting numbers in there. So again, according to the journal, reportedly, sources familiar with the matter, Shian did$23 billion in revenue last year and over$800 million in net profit.

22:08And this year they were reportedly targeting 40 % revenue growth. So again, still doing very well. Yeah, absolutely. Those are, I mean, I guess the world of cheap fashion gives you good numbers like that. One thing that I find really interesting and I want to talk with you about is maybe one of the reasons why the valuation got decreased is there's economic factors, but also there's increased competition. So we have players like Timu. um and so like and that seems to be growing quicker than i'll be honest i expected like it's becoming a much more popular platform right yeah um tamu has been i mean it's crazy they just launched in the u.s last year they haven't even been in the u.s um for a year and they have they've basically just been on the advertising blitz ever since um so you know makes sense that they're growing fast.

23:04They have been doing a lot of splashy advertising. Like they ran multiple Super Bowl ads, not just one. And so according to Sensor Tower, Temu actually has more monthly mobile active app users in the US than Chien. And, you know, so with people who buy through these platforms, not everyone has the mobile app, right? But I think that that is really interesting. and certainly, you know, everyone in the fast fashion space has been watching Shien and I think that inevitably now all these companies are going to be figuring out like, okay, how can we eat a little bit of their lunch basically? Absolutely.

23:45It also seems like there's been recent headlines both on modern retail and others that these new e-commerce platforms are going a very Amazon-like route where they're building out a third-party marketplace. So I think Shien has been hiring up and they already launched one in Brazil. Is that right? And has she launched in the US? I don't remember. I think that they certainly were hiring for people to help them launch a few months ago. And so I think that what was interesting is that with those job listings with Chien, they really wanted to recruit US sellers. And so I think that that kind of feeds into.

24:29So like, there's a lot of talk around the perception of Shein, but I think like, clearly it's not hurting its sales, but you know, whenever you have an app that churns out a lot of very inexpensive clothing items very quickly, there's a lot of concerns about quality. So I think that like a lot of companies, when they launch a third-party marketplace, right, they're trying to, they're doing it to grow a new line of business, but also the margins are probably better because they don't have to ship the product themselves. That's why, like, Macy's has launched a third-party marketplace. Walmart has, obviously.

25:12But with Shein, I think it's, like, a way to kind of change their perception a little bit and to, again, kind of similar to what we were talking about with Instacart. All these companies just want to say that they're helping small businesses. We're just helping. We're just big helpers. Yeah. And I think that and also get people to think about Xi 'an for different things than just ultra fast fashion. I would also say, and this is something that we didn't talk about before, but I'd love to get your thoughts. It seems like this is a playbook that has been tried before and kind of failed with Wish, where Wish was very similar.

25:51Timu seems maybe a little bit more similar than Xi 'an, But it's the same sort of idea. And Wish was essentially a third party marketplace, although I think most of their sellers were based in Asia, if I'm not mistaken. Right. And so, yeah, and that was big until it wasn't. And now, from what I can gather there, they haven't been doing so well. Right. Yeah, I mean, I think the issue with Wish was that they had too many people who, you know, they had some issues with quality control, which I think they've readily acknowledged. Like they just went through a rebrand, which we wrote about and talked about how they have these new standards for vetting sellers.

26:35But, you know, their issue was, I think, that just too many people ordered products through Wish that they were not happy with. And yeah, you know, if you have a third party marketplace and you don't vet it well enough and people have bad experiences with it, eventually they're just going to stop ordering from it altogether. So that's, you know, the risk with any company that launches a third-party marketplace. It might not happen overnight, but like if enough people have bad experiences with you, they're just not going to order from you anymore. Well, that's all the time we have for the show this week.

27:10Please don't forget to rate and review us on Apple Podcasts, Spotify, or anywhere else that you might be listening to us. Also, don't forget to subscribe to the Modern Retail Podcast, where I interview industry leaders every Thursday. This week, we have a really fun one. It was a live podcast with the founder and CEO of Parachute, Ariel K. Please check it out. It comes out next Thursday. And of course, don't forget to come back this Saturday, every Saturday for the Modern Retail Rundown. Anna, thank you so much for joining. I had a blast chatting with you. Thank you, Kale. And as always, thank you all for listening.

27:43Have a good one.

27:53Thank you.