Modern Retail Rundown: Nike rekindles wholesale relationships, GameStop’s executive shakeup & Great Jones gets acquired

0:06Hello and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and I'm here with managing editor Anna Hensel. Good morning, Anna. Hi, Gabby. How's it going? It's good. It's good. Yeah. I'm excited to chat with you this week. Always great to have you back. Thank you. Yeah. It's been a weird time here in New York City. The air quality has not been great, as I'm sure everyone has seen on the news. But even in dystopian times, there's a lot of retail news. Yes, yes, always time to podcast. So on this week's episode, we're going to start out by talking about Nike's shifting relationship with its wholesale partners.

0:48It's a pretty interesting one over the last couple of years. And then we'll move on to discuss GameStop's C-suite shakeup, which is pretty chaotic at this point. And finally, we'll discuss the latest D2C acquisition news with Great Jones announcing that it is being sold to one of its suppliers and investors. So why don't we dive right in? Let's talk about Nike's sort of renewed relationship with its wholesale partners, which, of course, for decades, you know, people could buy Nike shoes pretty much or Nike products really pretty much anywhere, any major apparel retailer. And then in the last few years that's shifted where Nike was like, well, you know, we're a very sought after brand.

1:39Why wouldn't we just have our own D2C strategy in order to obviously, you know, save a lot of that margin. But Ana, why don't you give us a little bit of background on what happened there? And then leading up to this week's announcement where DSW and then last week Macy's both announced that they are actually going to be rekindling their relationship with Nike. Right. So the news here is that both DSW and Macy's announced within the past couple weeks that they're going to start carrying Nike products once again. And we also wrote about this on modernretail.co. So I would encourage you to check that story out.

2:23But I wanted to talk about it during the podcast because I do feel like it is really big news. Nike has been held up for a few years now as kind of the sought-after example that most brands want to emulate when thinking about how to build a DTC strategy. So Nike for many decades has historically been reliant on wholesalers. But then in 2017, it unveiled, well, two strategic initiatives. So one was called the Consumer Direct Offense Strategy, and it promised to double direct connections with consumers. And another thing they also unveiled at this time, which I just think is one of the funniest corporate strategic initiative names ever, was their triple-double initiative, because why just triple something when you can triple-double it?

3:21But they kind of released a few key areas of focus there. And again, it was like, here's three areas that we want to double the business in. And one was kind of what they called direct connections with consumers or DTC. And so basically Nike has been on this journey over the past couple years, well, five years now, where they have started pulling back on relationships with wholesalers while also at the time trying to grow its DTC business. So in December 2021, Nike announced it would stop selling its sneakers at DSW. But now DSW is saying that they will start working with Nike to carry Nike products nationally and online in Q4.

4:10So it's kind of an about face for Nike. And then Macy's also made a similar announcement last week stating that they would start carrying Nike Apparel again after its Nike partnership ended in 2021. Yeah, so I think that this is a really big indicator. I'm curious to see, you know, if what it says about Nike's focus on DTC and if other retailers are going to follow Nike's trajectory. Yeah, and I think like you said, This was a legacy company that was able to basically reshuffle or recalibrate its channels between the direct and the wholesale. But because it's so ubiquitous, and I think because of that expectation of so many different types of customers across all of these retailers, like a Dick's Sporting Goods customer is very different than a Macy's, than a DSW.

5:09And so I want to talk a little bit more about what you think this could mean going forward, whether it will be continuing to shift, because we are seeing the Nike's D2C sales are pretty strong. So I'm kind of curious why these decisions are sort of being reversed, I guess. yeah it was interesting when this news broke uh kind of yesterday now we're recording this on a friday dsw announced this during their earnings call on thursday i saw a few comments from people basically insinuating that like this means dtc is dead nike's abandoning dtc i don't think that's the case at all. So if you look at Nike's recent earnings report, this was in March 21st.

6:00They're set to report another quarterly earnings on June 29th. But during their last earnings call, they said Nike direct sales were$5.3 billion, up 17 % year-over-year on a reported basis. And Nike brand digital sales were up 20 % year over year on a reported basis. So Nike's DTC business is still growing pretty strongly. I think maybe what happened here is that Nike realized that perhaps maybe they cut some of their relationships with wholesalers too quickly. And I think that Nike can still focus on its DT. Nike is a very strong brand. I think that it's a rare brand where people are going to buy products from them in like multiple places because they just really like Nike.

6:54And so I think that Nike realized that they can still grow their wholesale business by maybe adding back a few partners, but also at the same time still grow their DTC business. I think they've realized it's not like an either or situation here. And I wonder if there is one other factor that we've been seeing over the last couple of months that I think is pretty interesting, which is that sneaker sales specifically are down. I think they're calling it sort of the sneaker fever has broken or the bubbles burst. It is down, But some of that could also maybe be the economy or just overall pullback on spending.

7:39But yeah, Euromonitor says that sneaker sales grew only 2.7 % in 2022 compared to 19.5 % the year before that. So it is definitely coming a little bit to a halt. But I wonder if that had anything to do with Nike's decision to sort of start to diversify that back again in order to cast a wider net. I do think you're right. And I think potentially it could also go beyond sneakers, right? I think that obviously inflation is still high and people don't have as much disposable income as they did in 2021. and even in 2022, kind of coming off of all of the stimulus money during the coronavirus pandemic.

8:31But now people are cutting back on apparel spending. They're cutting back on sneaker spending. And I don't think we've really seen this in Nike earnings yet. Again, I was looking through their most recent quarterly earnings. And last quarter, what really hurt Nike was that sales in China were down a lot. Sales were still up in North America quite a bit. But I do wonder if, like most other retailers, we will start to see their sales growth slow. Definitely wouldn't be surprised. And so I do think that that could also be feeding into Nike's decision to add back more wholesale retailers, another way to generate sales.

9:17And also, it's adding back retailers who have a pretty strong national retail footprint. And people are shopping more in stores compared to 2020 or even 2021. So I think those both can be pretty big factors here. Yeah. Yeah, I'm just really fascinated by who they're picking and choosing. Seems like there's maybe a little bit of a hierarchy because for a while it was sort of like Dick's was randomly a very big one. They even have a tie-in with their loyalty program. So I wonder, do you think we'll continue to see very strategic reversals of these decisions? Yeah, it is kind of the haves and the have-nots in terms of Nike's relationship with its wholesalers, uh footlocker for years has kind of been nike's biggest wholesale partner and they are still uh working together quite a bit but yeah nike is doing a lot of things with dick's sporting goods um which is interesting i don't know if random's the right word um but it's sorry about just funny to me yeah well yeah i don't i don't live near a dick's sporting goods so like i haven't been there in a very long time.

10:35But yeah, Nike. And also, this is kind of key to Nike's strategy. I think as wholesalers are getting nervous as they see Nike cutting some accounts, what Nike has also tried to do is like, work more closely with some of these wholesale retailers to be like, hey, we still care about our wholesale partners. So yeah, as you mentioned, Nike and Dick's sporting goods, joined their loyalty programs. And this week, they also said that they would be doing their largest joint ad campaign to date. Yeah, so I think I'm curious to see what else Nike does with a lot of these wholesalers. Again, ultimately, I think it is meant to appease kind of these wholesalers for Nike to make it seem like, you know, we still want to work very closely with all these retailers.

11:33However, ultimately, like the ball is still in Nike's cores. Again, they're a very sought after brand. So I do feel like they have the cachet to kind of work with wholesalers how they want. And as evidence this week, you know, cut a wholesaler and then add them back in. Well, next up, we are going to be talking about GameStop. So a little bit more of a chaotic energy, as I mentioned previously. Yes. There's been a C-suite shakeup. They essentially just fired their CEO fairly abruptly this week, following very, I mean, disappointing revenue and losses. So yeah, what's going on at GameStop And how is this impacting their meme stock, Anna?

12:24I, you know, I only see what's happening in the news. What's going on at GameStop? I don't really know in terms of what the strategy is. But yeah, on Wednesday, GameStop fired CEO Matthew Furlong and appointed Ryan Cohen as executive chairman. and Ryan Cohen was actually the one who brought in Matthew Furlong as CEO to kind of shake things up. So the person who was brought in to shake things up is now on his way out or already on his way out. So the announcement sent GameStop shares tumbling. And yeah, I mean, the company isn't in a great position right now. And their fiscal first quarter earnings reported on June 7th.

13:10Net sales were$1.24 billion compared to$1.38 billion in the prior year's first quarter. And the company also reported a net loss of$50.5 million. So sales were down. They're also reporting a loss. I think that explains why the CEO was fired. Yeah. And at the same time, they appointed Ryan Cohen to replace their previous CEO, who is quite a figure. He's Chewy's founder, and he was already on the board at GameStop and basically is credited as being the king of the meme stocks or this sort of god figure to a lot of these shareholders that buy shares in things like GameStop, AMC, all of these retail meme stocks that you've been hearing about the last couple of years.

14:06But I wonder what the significance of that is and if he has an actual strategy to turn this around, because most of his role to this day has been sort of being an activist investor. Yeah. And so one thing I want to note, so Ryan Cohen is executive chairman, as is the case with a lot of CEO shakeups, you know, that may just be for an interim period, they may bring in a permanent CEO, we don't really know yet. But so, you know, Ryan Cohen has been involved with GameStop for a couple years now. And again, kind of under his tenure, the company has been doing a lot of things to try and reinvent itself in the age of online shopping.

14:55So it started investing in crypto and Web3 and all of these other tech buzzwords. It launched a digital wallet last year, and it also made more than 600 corporate hires since the start of 2021, according to Mebo obtained by CNBC. Yeah, a lot of what I just said there was pulled from reporting from Retail Dive and CNBC. But it also had multiple rounds of layoffs last year. It also fired its CFO last year after burning through a ton of cash. There's been a ton of executive shuffling in addition to the CEO getting fired this week. And so GameStop has basically been in turnaround mode for the past couple years, but it's not really clear if that is working.

15:50And it also spent a lot of cash, probably too much cash to get there. So in the fourth quarter, GameStop reported its first quarterly profit in two years. So for the past two years, wasn't reporting any profits. But now in the first quarter, it's back to reporting losses. So again, kind of explains why the CEO got fired. But yeah, in terms of Ryan Cohen's role in all of this, as we were researching this, there's just some funny quotes we came across. So in a CNBC kind of profile of Ryan Cohen, one Reddit user told CNBC that he is the god figure of the meme stock community. And then I also liked this line from another CNBC article, actually in relation to the news this week.

16:43But the CNBC article said that the activist investor and Chewy founder is known for saying very little publicly and making vague statements online. Always a sign of an interesting figure. But yeah, after Furlong's, the news of Furlong's firing broke, Cohen simply tweeted, not Furlong. He didn't link to any news story. He didn't mention the firing. But of course, everyone went into a frenzy trying to figure out what that meant. So yeah, I think probably more chaos ahead for GameStop, but we'll see how it all shakes out. yeah yeah we'll see also how their stock evolves with with this new story as yes if it continues to be a meme stock yeah they uh they do hang on to his every word it seems so we'll see and then next up we are talking about some acquisition news always exciting in the retail space that we cover uh this week great jones uh if you don't know it's a very instagram friendly cookware brand, sold itself to Meijer Corporation, which is an investor and a supplier of cookware brands.

18:04But yeah, Gray Jones founded in 2018, sort of part of this wave of cookware brands that are trying to, well, direct-to-consumer cookware brands that are very aesthetically, very aesthetic, as the Gen Zers will say, and also are really trying to disrupt the Le Crescet's of the world, sort of the old guard of the cookware brands. Right. But at the same time, I do think it's kind of ironic that it is basically sold to a legacy supplier. This company owns a bunch of different cookware brands, so like Farberware, even Rachel Ray's cookware line, which is pretty popular. So it's in the company of essentially its competitors, but I think it just maybe speaks to where we are right now in the D2C space, given that it's a good time to sell, right?

19:01Right. You and I both love covering D2C startups, Gabby. So very excited to talk about this segment. Yeah. So just to go into the history of Great Jones a little bit, which you already touched on a little bit. But so they were a cookware startup that launched in 2018. And there have been and will continue to be many cookware startups. But their kind of key hero product that they launched with was a Dutch oven. So again, it was meant to appeal to the millennials who couldn't afford La Crusette yet, but still wanted to upgrade their kitchen. and then they expanded into other cookware products like bakeware.

19:46So again, I feel like, like as is the case with a lot of DTC startups, they got a lot of buzz and attention for their first product. They raised some funding, they raised a seed round, and then they last announced, I believe in 2020, that they had raised 1.75 million in funding, excuse me. So yeah, it got a lot of buzz. But what's also another thing to note with Great Jones is, you know, they were also the subject of a 2020 Business Insider article about the co-founder breakup between then co-founder Sierra Tishgart and Maddie Malalas. So Tishgart ultimately stayed on as CEO and shepherded the startup through this recent acquisition.

20:34I think what's important to note here is that DTC Cookware is a very crowded space. So they competed with, and I'm sure I'm forgetting some companies here, but like Carraway, Our Place, Maiden, Mizzen, Hexclad. Even if all of those startups don't sell all of the same products, they like still all sold pots and pans. And Great Jones didn't have the retail distribution that some other startups have in recent years. Like, for example, Great Jones products were available for sale in Nordstrom and through Surla Table, but not in any big box retailer. Carraway is in Target right now, for example. And with the D2C space, yeah, it's just there's always so much competition.

21:20I feel like companies will have an edge for like one to two years. And then whichever one wins is kind of the byproduct of a few things. Like, are you able to get into retailers more often? And so I think part of that explains why Great Jones likely sold now. Yeah, because, you know, I think typically we, you know, the thought was that 2018 was not that long ago. I know, it's crazy. Five years at this point. That was kind of rare, I think, in maybe the 2010s where you don't really see major acquisitions of startup brands. that early usually takes you like going on a decade basically to get acquired.

22:04So I think maybe we should talk a little bit about how this speaks to the state that we're in right now, where we're sort of in this like purgatory of these companies don't have the venture capital that a lot of them were able to launch with and be able to sort of subsidize their operations with for the first couple of years. But at the same time, the sales have also slowed down, I think, especially in cooking or any of the, we call them here at modern retail at home categories have slowed down pretty significantly. I mean, obviously, especially in this economy. But yeah, I think it kind of speaks to the fact that this is maybe a time where a strategic shift or the safety net of a parent company could maybe give you an edge.

22:54Absolutely. So there's a few kind of macro factors going on here. So one, you mentioned VC funding. So Fast Company covered Great Jones's acquisition. And while they don't say it outright, the piece kind of hints at the idea that part of the reason why Great Jones sold is because it was having difficulty fundraising. So there was a quote in there from Sierra Tishgar where she said the VC expectations have shifted a lot recently from just grow revenue as quickly as you can and don't worry about profitability to meeting that profitability goal sooner. And so if you're a DTC startup and the expectations have shifted to focus on profitability and don't just focus on revenue growth.

23:45I mean, a lot of reasons why these startups got so much VC funding is just so that they could grow, grow, grow revenue and put a bunch of money into Facebook ads and releasing new products. But if the focus is on profitability, that's not as much where VC funding calls for. So that's maybe a case where you would sell to a strategic like Meijer Corporation, for example, If they already manage a bunch of cookware brands, they have all these relationships with like retailers and suppliers. So they can probably help a DTC startup like Great Jones launch more products sooner or get into retailers and do it more profitably.

24:28And then also to your point about just the sale of quote unquote home goods, like, yes, it's a category where people invested a lot in their homes during the pandemic. A lot of people probably upgraded their cookware. But now we're seeing home goods sales slow as inflation is higher. And some people might feel like, hey, I've already made all the upgrades to my home that I wanted over the next couple years. So, yeah, I think those are kind of the two bigger macroeconomic factors that likely also led Great Jones to sell. And I think we'll see more acquisitions of DTC startups in a similar vein in the coming months, like these startups that raised at a Series A at most, maybe, and then didn't really make any other fundraising announcements beyond that, selling for undisclosed sums to these conglomerates that manage a ton of brands but aren't really as well known to an average consumer.

25:31And yeah, I'm curious, Gabby, since we both cover the DTC space a lot, what do you think of? Do you think we'll see more acquisitions? What are you hearing from kind of the other founders you speak with about what this environment is like right now? Yeah, I mean, essentially is that right now in order to extend your runway and, you know, go back to your investors to raise money, you really have to, you know, show them the books, I guess, or show them the numbers that you have a strategy at least to path to profitability. So, yeah, one brand that had covered their sale of who were only a couple of years old were like, this is just what's going to be the best for us in order to grow in a way where we're not just going further and further into debt or accruing losses over the years.

26:25because we saw the only other option really to exit is to IPO. And, you know, not to open that cat awards, but the unprofitable D2C IPOs are not really doing super well at this point. So I could see it as a very smart decision to sort of get a best of both worlds and, you know, take that pressure a little bit off. So I do think we'll probably see more. The only thing that I'm always curious about is like, how much are these selling for? Are they, is it safe to assume they're not profitable when they're selling? It's hard to tell because we don't see any of the numbers. Right. I do think, hey, if they were getting sold for a billion dollars, they probably would say that loudly and be willing to talk about that to every news outlet.

27:15So I think it's safe to assume that it's not like an astronomical outcome. But yeah, we don't know the exact numbers for sure, especially because so many of these, the startups, and then even in the case of Great Jones, the companies that acquire them, they're privately held. Yeah, so that's our show for this week. Please rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening. Also, don't forget to subscribe to the Modern Retail Podcast to hear more with industry leaders on our flagship podcast, which comes out on Thursday and then come back on Saturdays for more Modern Retail Rundown.

27:55As always, thank you for listening.

28:03Thank you.