Modern Retail Rundown: Macy's CEO plots an exit, Uber Eats' ghost kitchen cleanup & Telfar’s new pricing model

0:05Hello, and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and this week I'm joined by our managing editor, Anna Hensel. Hello, Anna. Welcome. Hi, Gabby. We talk every day, but it's exciting to be talking on a podcast. Yes, and in real life, not on Slack. Every week we break down the biggest headlines in the retail world. This week has been very busy. we're going to be discussing Macy's CEO, leaving the company, Uber Eats, Ghost Kitchen Problem, and Telfar's new dynamic price model. So let's get started with Macy's. The CEO, Jeff Gannett, is stepping down next February, so it's a long ways, but there's already a lot of prep that goes into it, and he'll be replaced by Bloomingdale's CEO, Tony Spring.

1:01Bloomingdale's, is, of course, a Macy's company. So, you know, they've kept it all within the family, although they did say that their search included external and internal, which I thought was interesting. But why don't you just give us a little bit of a rundown about what this could mean for Macy's, especially after a couple of rough years where they've had to rebuild? Yeah. So I was looking at Macy's recent earnings report right before this, and just a couple numbers that stood out to me that I think very clearly indicate why Macy's is doing this. So first and foremost, when you look at the active customer numbers for both the Macy's brand and the Bloomingdale's brand, Macy's is bigger.

1:46It has 42.7 million active customers, but that represented a 4 % decrease compared to the prior year. Now, when you look at the Bloomingdale's brand, they had 4.1 million active customers in 2022, but that represented a 5 % increase compared to the prior year. So why is Macy's doing this? Because it is struggling to continue to be the go-to destination for shoppers. But if you look at the Bloomingdale's brand, that is growing. So I think, you know, the hope is that if they can take the CEO of this promising sub-brand, that he will be able to kind of help reinvigorate Macy's overall. Yeah, and I think it's also interesting that Bloomingdale's having, being the strong, you know, bright spot in Macy's is probably no coincidence.

2:41It's a very historied brand. It's, you know, it's more on the luxury side. It probably has a little bit of a different customer. But I do wonder, you know, I guess as far as vision goes, do you foresee the look and feel of Macy's changing? Because and maybe we should give the listeners some context into what that means. You know, Macy's was known for decades for being just really big and sprawling and having a lot of departments and kind of being lost in there. I've lost my mom in there a lot growing up. But what do you think? And then, you know, Bloomingdale's is more curated, I guess you could say.

3:17So do you see overlap there and, you know, the new format that Macy's is trying to adapt being kind of in that vein? So here's what I see Macy's having struggled with the past few years. Jeff Gannett tried a lot of different things to kind of reinvigorate the Macy's store. I started reporting on retail in 2019. And the year before that, Macy's had acquired Story, which was this hip curated store in Chelsea, I believe. And the idea was that they would change out merchandise on maybe a monthly or a seasonal basis. It was always changing, basically, and there was always a new theme. So one of the things Jeff Gannett tried is They acquired Story, and the founder of Story came on to Macy's and tried to bring the concept into the department store.

4:14And I forget exactly what year they shuttered it, but kind of the problem that Macy's ran into a story is that they built out this kind of subsection in a Macy's store where there would be merchandise always changing. but that didn't really change the rest of the store. It just felt like kind of this afterthought in this still very big, sprawling department store. And that's the challenge Macy's has faced any time it has tried to reinvent itself or mix up its stores or experiment with a new store concept. It has hundreds of very big stores, and it's very hard to change all of those stores. So in addition to story, you know, Macy's has experimented with other store concepts.

5:07They've tried to expand their off-price offerings. They've tried to open more of what they call Market by Macy's, which is more of this curated store in urban centers that's more designed for the shopper, you know, who wants to go in and out. So while Bloomingdale's has a lot of things going for it. It's a more curated store, has a little bit, attracts more of a luxury shopper. While Bloomingdale's might have done a lot of things right, I question, you know, how can Macy's take those changes and effectively apply it across its huge portfolio of sprawling stores? I think that's going to be the challenge, regardless of what experience Tony Spring has, regardless of what idea he has, that would be the challenge for any Macy's CEO.

5:57Yeah. And I believe, if I recall correctly, the story shakeup was at the beginning of 2020, which coincided with the pandemic. And then, of course, like everybody else, Macy's had to quickly pivot to e-commerce and build it out very quickly. So they did make some headway there, but there was also some bumps in the road, of course. So yeah, what about, can you tell us a little bit about the pandemic era? And they actually did have some positive outcomes. I think they, you know, they didn't have as much excess inventory as other retailers this past holiday. So they were able to salvage, you know, some of their debts and all that.

6:36But yeah. Yeah. I mean, the one thing that Macy's does have going for it is it's in a better financial position than other department stores. So that gives, you know, them a little bit more room to work with, to experiment with new concepts, which obviously take money. I think that Macy's, like every retail company, you know, had a bit of a whiplash during the pandemic. Of course, when in-store shopping shut down overnight, that was hugely detrimental to the company. sales declined. People weren't buying as many discretionary goods at the very beginning of the pandemic. Eventually, they were aided by the fact that people got a lot of stimulus checks.

7:24When people started going back to the office and back to the events, they wanted to buy more apparel. Macy's, I believe, also benefited from the fact that people wanted to buy more home goods. compared to some other department stores like Nordstrom. They do sell more home goods. So that was another benefit for them. And so if you look at the numbers, of course, there are periods over the past couple of years where Macy's sales declined dramatically. They increased dramatically, been very whiplash. But the number I keep coming back to is if you, again, look at their most recent earnings during the fourth quarter, net sales were down 4.6 % year over year.

8:03So while Macy's has had some bright spots, over the past few years, ultimately, Gannett is going out on a bit of a negative note. Yeah, and you know, he was credited with leading them through all of these turbulent times. So it'll be interesting to see what that transition will look like next year. Yeah, absolutely. We will keep an eye on it. Next, we will be transitioning into Ghost Kitchens, and specifically Uber Eats, which has had I feel like this problem has been around for a few years, ever since basically ghost kitchens came around. You know, they're very polarizing concept. Basically, this week, Uber Eats announced or, you know, it's been reported in The Verge that they are cracking down on the ghost kitchens on the platforms, which, you know, I believe they have something about 40 ,000 of them, which is a lot.

8:58And they're looking to get rid of about 5 ,000, which I think is more than 10%. It's a pretty substantial amount. But a lot of this has to do actually with just, you know, restaurants that are either duplicates or they're operated by the same party that is trying to basically cover multiple neighborhoods or areas at the same time, which, you know, I think is against the policy and tries to compete with actual, you know, walk-in restaurants where people can actually dine in. So, yeah, Ana, why don't you just give us a little bit of why ghost kitchens have become a moneymaker, but also kind of an issue for these platforms?

9:44Yeah, it's a really, it's been a really fascinating phenomenon. There were, there's a lot of interest in the idea of ghost kitchens a couple years ago. So, you know, if you are, if you don't know what a ghost kitchen is, basically the idea is that it is a delivery only kitchen. It might be producing food for multiple different restaurants in the same kitchen. And so on the face of it, the idea sounds great financially. You don't have to pay restaurant workers. Your costs are much lower. again, you can, in theory, churn out multiple menu items from multiple restaurants in the same kitchen. And so, you know, there's been a lot of venture capital interest in this sector.

10:41Interestingly, you know, Travis Kalanick, who founded Uber, also started his own ghost kitchen company called Cloud Kitchens. And so there's been a lot of VC money going into this space, which has led to a proliferation of ghost kitchen listings on platforms like Uber Eats. And now it's interesting. I do feel like I have a little bit of a different purchasing mindset than a lot of people. I don't think I've ever actually ordered from a ghost kitchen before. I don't know about you, Gabby, but I always do a lot of research like, does this restaurant actually have a physical location? Because one of the things I am concerned about with ghost kitchens is what is the quality like?

11:26If I look in order from a place on, say, Seamless that I see has a physical restaurant space, you know, I can look at the reviews, see what people like. But if I don't know if it has a physical restaurant, I don't know if I trust it. I don't know how you feel about that. Yeah. And I think that's actually one of the biggest criticisms of these ghost kitchens. Some people argue they're not an actual culinary hub. They're basically just churning out these delivery specific meals. We saw a lot of celebrity partnerships and themed. I believe I had a Steve Aoki pizza in San Francisco at one point. But I personally, like here in New York, like you, if I haven't walked by it, I don't order from there.

12:08That's my rule. But, you know, it did pretty well. The only problem now I think is, like you said, there's a lot of confusion. I think most people who aren't really looking into it have probably ordered from a ghost kitchen or some kind of, you know, sketchy maybe kitchen over the past few years without realizing it. And I think that's what Uber Eats is trying to prevent, right, is maybe focusing more on quality and preventing these, you know, well-funded. Well, maybe not. I mean, I don't think it's just the companies, these startups that they're cracking down on. I think there's the duplication issue, right?

12:50Yeah, absolutely. So to go into the numbers, this was all pulled from The Verge, which reported on this. So Uber Eats is cracking down on ghost kitchens, and these kitchens now have to meet a few different pieces of criteria to remain on the platform. So one is that Uber Eats is now requiring virtual locations to have menu items that are at least 60 % different from any other virtual restaurants operating from that same physical location. So it's basically to crack down on companies that are churning up multiple restaurants, but that are basically the same. Uber Eats will now require the Ghost Kitchen and its parent restaurant to maintain a 4.3-star rating or higher on the app, have 5 % or fewer orders that they have canceled, and have a 5 % or lower inaccurate orders rate.

13:47So, again, that kind of gets at the quality issue. I think that some of these ghost kitchens may be trying to take on more orders or churn out more, you know, deliveries than they realistically have the capability to fulfill. And then as a result of these changes, Uber Eats said it is getting rid of around 5 ,000 virtual ghost kitchens out of 40 ,000 total on the app. So, yeah, that's pretty crazy to me that they have that many ghost kitchens. And, you know, there's 5 ,000 that run afoul of these new rules. So they're getting rid of it. But they still have 35 ,000 ghost kitchens on the app, which is crazy.

14:28Yeah. And this is a good time to go into, you know, there's been a lot of reports over the last few years on why some of these facilities that don't have, you know, a storefront or consumer-facing presence have run into trouble. There's been a couple of startups that ran into health code violations, for example. Some cities are having issues with this. So yeah, what are your thoughts on that and what it means for the larger space? Yeah, so immediately when I read this Uber Eats story, I thought about some of the issues that Reef has also been running into, which is also a ghost kitchen startup.

15:09So Reef is backed by SoftBank. They have a lot of venture capital funding. And at their peak in mid-2021, Reef operated more than 330 trailers in the U.S. and abroad. So that was kind of one of their differentiators, I guess. They were like, you know, we can go where other ghost kitchens can't because we're going to spin up in these trailers that can go anywhere. And one of the things that Reef has run into is in these various cities, they have run afoul of permitting issues because just because you have a trailer doesn't mean you can open up a kitchen anywhere and then also run into issues with health codes.

15:55And so, again, because Reef got a lot of money, they had the soft bank backing, they were able to spin up a lot of big partnerships very quickly. So they secured licensing agreements with a bunch of restaurant chains. So one statistic that really stood out to me is that Wendy's announced in 2021 that it planned to open 700 delivery-only locations with Reef. A year later, they downgraded that number to about 100 to 150 sites by the end of 2025. And now that partnership is very up in the air. And there is a story from Insider earlier in March that said that Wendy's was pulling back even further on its delivery, only operations with Reef.

16:50And so now Reef's future is kind of up in the air. I think that they're going to try to license their technology. I believe that they have hired some restructuring advisors. So, you know, this ghost kitchen model is starting to run into some challenges, and that further cements why Uber Eats is cracking down on these delivery-only kitchens. We should probably say some of that, I'm sure, also has to do or is being impacted by, you You know, that really big delivery boom that was going on in 2021 has died down a little bit, especially as people want to go and dine in or pick up their food even. So I'm sure there's multiple factors.

17:36But, yeah, the fact that even the restaurant partners are pulling back, it means that, you know, the peak of that demand has probably subsided now. Yeah, I would agree with that. Now we're going to be moving on to a story that I thought was really interesting. So it's Telfar announced that they are adopting a dynamic pricing model to gauge demand from their customers during collection drops. A story in the business of fashion kind of broke down the model. I want to explain it as accurately as I can because there's a lot of moving. It's confusing, so we'll get into it. It's a lot of moving pieces because at first I was like dynamic pricing.

18:21That's like what's happening at Ticketmaster right now, right? But no, it's not actually. It's meant to – the idea is that – so for those of you who aren't familiar, Telfar is a designer brand that has just become very popular in the last few years. And they're known for their periodical collection drops of their handbags that are very sought after. There's a lot of limited edition colors that people, you know, wait all night to try to buy. And so a lot of the issues that have come up is actually, you know, some brands will say is a good problem to have. But there's always a lot of disappointment.

18:58I feel like I wake up and see a lot of Telfar hashtags on Twitter when people can't get the bag they want. And so I think this is the solution for that issue, which is the pricing model. So essentially what's going to happen and is actually happening right now until about April 24th, this new collection drop is being priced at wholesale. So not the suggested retail price on the direct-to-consumer site where it's sold. And so based on the odors that are being placed in real time, that pricing will start to rise. So if something is becoming very popular, that price will start to rise. And then the, I think, you know, the bags that maybe people aren't really purchasing will stay at wholesale.

19:42So people can really, you know, go back and forth between what maybe they could afford or what is, what they'd like to purchase. But, you know, looking through the comments, I think there was a lot of confusion, just like what we just mentioned about what that means and why, you know, different prices on different days will mean for different customers that are trying to get their hands on it. So what are your thoughts of this? I mean, it also could maybe solve the issue of excess inventory, which is something we talk a lot about. Yeah. So I was looking through Telfar's Instagram comments when they announced it.

20:19And the one comment that stood out to me is someone who posted, I still don't understand it, but I love it. Which, yeah, I thought just summed it up very accurately. So one important thing to note is that Telfar is only testing this with apparel right now. They're not doing it on handbags yet. But as you mentioned, there's kind of four different pieces to this. So the collection drops at the wholesale price. Then the price will go up every second until it reaches full price. And then the price it sells out at becomes the price forever. So basically, if it sells out more quickly, like quicker than the amount of time it would take for it to reach full price, then people get it at a better deal.

21:07And I know the way that it was positioned is, you know, this is a way to make these pieces more accessible, especially if there's a lot of demand. And so I do think it's very interesting. To me, it's not so much a way to solve the issues of excess inventory, but I think that it's a new way to measure demand and just how far will people go to get their hands on a new piece of Telfar that quickly? And is this something that the company can replicate feasibly? I think the biggest challenges they're going to run into here is that, one, it's confusing, as the Instagram comment stated. And so while I'm all for ways to make pricing more accessible, I think it has to be very clear for people to understand.

22:03And so I'll be curious to see if they tweak the messaging at all. Another thing that stood out to me is that they said the price goes up every second. To me, that seems very fast. I don't have any data handy on how quickly Telfer sells out, but I'm like, why don't they do it every minute or something? Just every second seems very crazy to me. And again, I'm curious if this will work across multiple product lines. They're just testing it with apparel right now. They're especially known for handbags. So could they bring this to handbags one day? And can they do it in a way that doesn't overwhelm both customers and their team?

22:46Because it could, again, if it's confusing, it could also lead to a lot more like customer service inquiries, negative social media comments that their team has to deal with. So I think it's interesting. But the overall question is, is this feasible for the team on a regular basis? Yeah, I'm looking at the numbers literally going 100 miles a minute right now on each piece. And there is a little ticker that shows when it will reach full price. The other thing was that I saw some people commenting on is, will this actually weirdly like reverse psychology customers where the items that were previously not in demand will maybe become more coveted, covetable?

23:35Is that a word? Yeah. Coveted. Sorry, coveted. It's the morning. So that could actually maybe even impact the future buzz or the way people shop the website in the future. Yeah, I think you're absolutely right. There's so much fascinating psychology around product drops. And there's a lot of companies in retail that have found success with it. And yeah, I think on its face, it seems pretty straightforward. You know, if you tell someone, this is the psychology even just behind, you know, sales, you can only get this for a limited time. Of course, that's going to drive some people to buy it as quickly as possible.

24:20And so I do think that you are right that this actually might lead to people trying to snap up more quickly. maybe items that previously, setting all this aside might not have been in as high of demand. I think the other thing, again, that's going to be tricky is that I think that brands can find success with drops for a while. But if it gets to a point where it is too hard for people to get their hands on. Like they, you know, say that, okay, because people know now that the quicker they buy, that that impacts the price, you know, if it leads items to sell out too quickly almost, and now people feel like, well, it's way too hard for me to get my hands on this Telfar apparel, that could also alienate some customers.

25:14So that's the other thing they're going to have to tend with. And then, of course, you know, this is e-commerce and drop. So I also saw some concerns around bots perhaps being at play. I'm not sure if there's a policy in place and I don't know if there is a way to stop them. But I wonder if that's going to also be another issue that might, you know, cause a hindrance actually for more people to not be able to purchase. spot. As someone who did not even try to buy Taylor Swift tickets, because I knew that it would be too crazy. Of that experience. Okay, tell us. Yes, I'm still wounded from that.

25:53But yeah, I think that that is the other interesting component here as more brands attempt the drop model, especially for like streetwear and luxury brands where people could also, you know, resell for a higher price on a secondhand market. That's the other issue that these, again, especially streetwear and luxury brands have to contend with if they're going to pursue more of the drop model is, yeah, how do you contend with these bots who may snap up items before your core customers and then drive up the price on the resale markets? It's very fascinating. I don't have a solution to that. No. And yeah, the last thing I just want to add is I do wonder if this is maybe adoptable by other brands.

26:45I mean, Telfar has really, really big brand equity. It's a Black-owned designer brand, which are, of course, very rare, US-based. And so it has a lot of support and a huge following. And so I wonder, like, you know, if you're not Telfar, is it possible to really replicate? That'll be interesting to watch. Yeah, I don't quite know, to be honest. I think that just a lot of the initial comments I've seen around this announcement is indeed how replicable will this be? And we'll find out. Yep. Well, that's all we have for you this week. You can rate and give us a review on Apple Podcasts, Spotify, or wherever you're listening to this.

27:30It helps us out a lot. Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders every Thursday. And of course, come back Saturdays for the Modern Retail Rundown. Goodbye.

27:54Thank you.