Modern Retail Rundown: Slowing U.S. retail sales, Thrasio's comeback & Care/of troubles

0:05Hello, everyone. Welcome back to the Modern Retail Rundown. As always, we'll be recapping some of the headlines that caught our eye of the week. I am senior reporter Gabby Barco. I'm here with editor-in-chief Kale Guthrie-Weisman. Hey, Kale, how are you? Good morning, Gabby. I'm doing well. I'm excited to talk retail and e-commerce and all of the good news and bad news that's happening in the industry this week. Yeah, good news, bad news is a good way to put it. Yeah, so we have a couple different different stories we're going to be going over. So one of them is the US retail sales report, you know, it comes out every month.

0:45But for May, it seemed like it was it had slowed down. And so there's, you know, some thought about what that means for consumer spending for the rest of the year. And then we have Thrasios comeback following the bankruptcy filing that we spoke about a

1:08over there. And then we will be wrapping up with the shutdown of vitamin brand care of, or at least the subscription business for now. We'll see what happens there. Yeah. So first up, let's talk about the retail sales growth in May. So it has, it did significantly slow down according to the latest commerce department report. they rose by 0.1 % last month. That's below the expectation of 0.2%. Doesn't seem like a lot, but it is, you know, millions of dollars. And on a year over year basis, it was an increase of 2.3%. So pretty tepid results there. But, you know, it does have people worried that maybe The resilience of the American consumer is finally starting to tatter.

2:04Yeah. I don't know. What are your thoughts? I mean, my thoughts are is that what seems to happen is a lot. You get the initial numbers and then a few months later, you get the revised numbers. And it seems like they keep on revising the numbers down. So I believe that they downwardly revised the previous month to a 0.2 % drop. And so it just seems like it's not only that it's really tepid growth, but when they relook at the numbers and crunch numbers and try to get it so that it's as accurate as possibly can, it's not to the level of growth that they had originally thought. And so that just means that we're in this very bizarre economic moment where there are other signs that things are going very well when you look at the economy.

2:51You can look at stocks, you can look at, I don't know, all these other things. But then the retail sales are a really important bellwether. And then for sources that I talk with, I'm sure that you talk with, it's always the question of how do you properly forecast where demand is, how people are going to shop. And right now, it is just such a big unknown. There are just so many mixed signals out there, and this is probably the most mixed of signals out there. It's very difficult to understand exactly where we are in the economy right now, and this is just a further proof of that. So it's just another example of the bizarre place that the country is in right now.

3:32Yeah, I mean, this for May specifically, we can talk about some of the areas that did do well. I thought it was interesting that e-com did see a boost after a decline in April. So it didn't quite offset it, but there was a 0.8 % increase in April. There was a 1.8 % decline. So slightly rebounded there. And then there's an emphasis on hobby-focused categories. So there's like sporting goods, musical instruments, bookstores saw a pretty decent increase, and then furniture store sales fell. That's not a surprise. That's been happening for a couple of years now. But I think that seasonality plays a big part of it, but it is interesting what people are gravitating towards, even at tight budgets.

4:22Yeah. And another thing, and I'm looking at the Bloomberg article that gave a great synthesis on where things are at. One of the interesting points that they made was that most of the retail numbers focuses on goods and services is the other end that aren't as robustly reported in this report. And services, at least according to economists, are doing okay. Here's a quote from an economist at Santander U.S. Capital Markets, LLC, he said, to be sure, the bulk of the action in terms of overall consumer spending occurs in the services component, not in retail sales. But those results are certainly in line with my view that the consumer is on the cusp of a significant slowdown.

5:08So pretty much saying that there is some services spending, but then not as great. And then I'll say something else I thought was interesting, which is restaurants and bars. The only service sector that is included in this report, it declined 0.4%. So even though they're saying that spending on services is going okay, restaurant and bars went down last month by a pretty big margin compared to others. So I thought that was kind of interesting. Yeah. And so I think what you mentioned a few minutes ago about this being a bellwether, it's because the consumer spending is responsible for about like two thirds of all economic activity.

5:49Unlike, you know, the stock market, which a lot of people take, it's not really the economy. So yeah, the weaknesses do usually sound the alarms, like you said. So the speculation now is that the the feds will be reducing interest rates this year. So that could be good news. But, you know, again, who knows if that's going to be enough or helpful, because this has been sort of a pretty slow trickle for the last few months of trying to grow while also keeping unemployment low. It's a whole thing. I still can't really keep track of how this is working. It's not really anything I've seen in my lifetime.

6:32So it's interesting. Yeah. And also, it seems like every business, every economist, every onlooker is waiting for the Fed to lower interest rates. And it says that it might happen, but it hasn't happened yet. I feel like the latest I've heard, at least according to the comments I've been given, that it might happen later in the year. And so I think that as long until there is big movement on that, then we'll still be in this bizarre sort of unknown area. But one thing that I'm always interested in, and we sort of saw this last month, or there was a test of this last month with Memorial Day in the sense of like there's usually Memorial Day sales.

7:14That usually is a day then people buy things. I think it said in the report that furniture did pretty well, probably because Memorial Day sales sell furniture. But in July, we should have Prime Day, which it's a small thing. It's just a way for Amazon to make money. But every major retailer follows suit. So we'll probably see a Target-esque Prime Day, a Walmart-esque Prime Day, though they are probably not happy that I'm using the word Prime Day, sales days, discount days, whatever you want. But that is meant to stimulate the economy, get people to buy things at a discount. So that'll be an interesting thing to keep an eye on next month to see if that moves the needle at all.

7:56And so I'll be interested to keep an eye on that. Yeah, I think after a couple of years of these very squeezed wallets, we will see where things will be shifting to. But I think it's also interesting to see what people are going to be gravitating towards throughout the summer season. Usually we've seen more travel and experiential things being spent on versus products. So that could be interesting too. But yeah, we'll keep an eye out on that. Now on to Thrasio's reemergence. I know, Carol, this is a company you've really been watching for the last few years. So I will let you take it away and explain what went down this week.

8:43What's the latest update? I mean, yeah, I'm always watching this company. I'm always watching or trying to watch all of the companies in the sector because it was such a bubble. It was such an insane thing to watch as a reporter for so many years. And it was such a fall from grace. And the news we got this week isn't surprising. It's what we knew was going to happen in the sense that in April, Thrasio filed for Chapter 11 bankruptcy. And today it has reemerged or not today, but this week it has reemerged. But you get a sense from what the company is saying right now about what its plans are and where it thinks the overall Amazon slash e-commerce aggregator space is going.

9:27So just to recap, Thrasio filed for bankruptcy last April. In the press release announcing this latest development, Thrasio said, the revitalized Thrasio will prioritize its top performing brands with a focus on profitability as a consumer goods company. It also added that as part of this entire process, it received an infusion of$90 million in fresh capital and has paid down a lot of its debts. We'll go into the debts that it had in a few minutes. But it's interesting. I mean, when you have such a big company, you don't just close up shop and call it a day. The company is now trying to pare down what it's doing and reemerge as something that can be profitable.

10:10So now we're seeing a semblance of what this new business is going to look like. That's where we're at right now. Yeah, we can touch maybe on how we did get here for those maybe who don't remember from a few months ago. So over time, Threshio raised$3.4 billion in debt and equity, had investors like Goldman Sachs, BlackRock, JP Morgan, Chase. And I think the valuation really peaked in 2021, right? Probably for a lot of companies, but$10 billion. I mean, this is a lot for a company that's essentially just buying up Amazon brands at that point, right? So looking back, it does make sense, the trajectory that it was on.

10:54But yeah, I think it just seemed so big at the time that it felt like something like this maybe was inevitable. But it is rebuilding now. And it seems like maybe trying to be more on a more sustainable track from what I'm gathering. Yeah. And I think it's trying to have a business model that does not, how do I put this, does not sway with the winds of wherever the economy is going. So it grew because of a couple of things. One, right in 2020, e-commerce saw this huge jump. There was a big interest in every company that successfully sold on Amazon. Not only that, but interest rates were down. So the company was able to raise VC cash, but a lot of debt.

11:38And so it was able to raise a boatload of money, acquire so many brands and just say, this is the future. We're taking the CPG model of being an umbrella company of brands, but we're doing it only for businesses that successfully sell on Amazon. We'll buy them at a premium, and then we'll bring them into our entire Rolodex of companies, and they'll just operate at a hum. They'll be, you know, bada bing, bada boom, now we're a profitable business. But then interest rates rose. But then the e-commerce growth that was a hockey stick in 2020, 2021 started to flatten out. And all of that meant that the projections that they had were not going as well.

12:27One thing that I find really interesting is that Thrasio from the beginning, or at least as long as I've been covering them, has always put a focus on talking about profitability. So I was going through past things, and I remember that it really talked up the fact that it was profitable. So in 2021, it told TechCrunch that it made$100 million on revenues of$500 million in 2020. So pretty much saying, we're a profitable business. But clearly it wasn't. Or as interest rates rose and it had to pay off those debts, it wasn't able to keep revenues coming in at that same rate. And so what we're seeing now, as you said, is just sort of they're reconfiguring exactly what the business is and trying to make it so that they can have achievable targets and achievable ambitions.

13:14Because before it was literally like, we're going to acquire every type of brand that sells on Amazon and own them. But just because you have a sales channel doesn't mean that the two companies will work together and you can share resources. It doesn't work that way. And clearly, the thesis that it originally had did not work out. And now they're trying to come up with some new type of thesis. Yeah, it seemed like the turning point was around 2022. At that time, you noted that it had over 1000 employees, of course, to support all that growth. But then the layoffs and the restructuring seemed to have started at the time, you know, well before the bankruptcy filing.

13:57So yeah, can you tell us a little bit about what that looked like? And then what the new plan that they laid out is now? It sounds like they're going to be focusing on the well performing brands, but there are so many of them. So if you can give us an idea of what that is, that'd be great. Yeah. First, let me just like so people can get a sense of how crazy their situation was. So when they filed for bankruptcy, Um, they said that, uh, Thrasio said that it had between$1 billion and$10 billion in assets, which it's a, there's a wide gulf between those two. Um, and between$500 million and$1 billion in liabilities, it owed more than$5 million to us customs and border protection and roughly$2.9 million to GXO logistics among other liabilities.

14:44So pretty much all of these important, like you need to pay customs, you need to pay your fulfillment and logistics partners. They weren't and they owed them potentially billions of dollars. So what we have now is a new plan and it is much more, A, there are a few things that I found interesting. I think I'm going to read this entire quote because I think it helps give a sense for what the company is focusing on and it gives the sense for the type of brands that it has. I will say, I don't know many of these brands. And it also shows that it's focused on the brand side and not the Amazon side.

15:22And so the new thesis from the press release, Thrasio will concentrate on its leading brands with a loyal customer base and potential for product and channel expansion. This focus includes top performers like The Hate Stains Co. Stain Removers, which has grown over 100 % in the last year under Thrasio's leadership, and Angry Orange Pet Deodorizer, which has achieved 21x top-line growth since acquisition. Additionally, brands including Breakout's Chom Chom Pet Hair Remover and Nippy's Bra Alternative are thriving on TikTok shop, top e-commerce sites, and more than 40 ,000 storefronts demonstrating Thrasio's reach beyond its Amazon origin.

16:01So pretty much these are brands that Thrasio has bought over the years that are outperforming. wanted to showcase them. But also it's saying it's not just Amazon. These companies are doing really well on TikTok and other e-commerce sites. And they're going to fit in our portfolio somehow. And we're going to continue growing them. And we're going to make it so that it's not just Amazon. And I'll also add that they just announced a new CEO. Her name is Stephanie Fox. She's been with the company for a pretty long time. I want to say since like 2018. In 2020, I think September 2020 is when she was promoted to chief operating officer, but now she's been promoted to CEO.

16:40And so this is, I guess, her big strategic plan. None of this sounds very different from what we've heard before. The one thing that I would love to know is just what are the types of brands? What are the ones that work together? Is it a certain sector? Is it pet deodorizers and undergarments? What about these work together so that they fit the Thrasio model compared to the other time when the company was acquiring as many as three brands a month just because the economics worked out at the time. So that's the big question that I have. But there's a lot that remains unanswered that we won't know for months, if not years.

17:13Yeah, I mean, you know, it sounds really, every time I think about this, it is crazy. But like, e-commerce is just so different from this time in 2020, four years ago. So this was inevitable, like I said. But, you know, It sounds like Thresher thinks it can rebuild more sustainably. So it has a plan in place like it did a couple of months ago. So we'll see what happens. I do wonder what happened or whether they'll ever grow the roster of brands again at the same rate. Maybe, maybe not. It's hard to tell how big the portfolio is or will be. I don't know how big the portfolio is. And I don't know if they are even acquiring brands right now.

18:00I mean, the business model rests on it acquiring brands. So you would imagine that they are still on the prowl for some, but I don't think we will ever hear a company in this space boast such a rate of acquisition because that ultimately bit them. Like that didn't, that, that, that was something that did not work out. And it was kind of a proof point of a bubble more than anything was not a proof point of a business model. And so if maybe something will happen where we'll have another aggregator saying we're acquiring three to five brands a month, but that should raise some people's antennas, in my opinion.

18:35Yeah. So speaking of troubled e-com, let's move on to direct-to-consumer brand subscription vitamin brand Careof. That's care backslash of. It announced it's shutting down this week. This is a company I've been following for years. It seemed like it was doing well. It had this big splashy acquisition in 2020. It was one of the successful exits. But this week, in a June 25th Instagram post, they told followers that all subscription orders will be canceled as of June 17th and said we unfortunately no longer have funding to operate in the way we have been. and they offered customers 40 % off a multi-month purchase.

19:26But yeah, it's a little confusing because it sounds like obviously the e-com operation is shutting down, but they do have retail presence, which we'll be talking about. And so it remains to be seen how they're going to be handling that side of things. But yeah, it's a fairly young company. It was founded in 2016. And in 2020, Bayer, the pharmaceutical giant, acquired 70 % stake. I think it was like a$225 million deal. It had raised$46 million in VC at that point. So it was growing pretty quickly until, you know, the summer when they started, you know, planning for layoffs and now the shutdown.

20:13But, yeah, thoughts? comments i mean comments no comment no just kidding uh many comments i guess ultimately this is for for companies like this getting an acquirer or someone who will buy a majority stake in the company that like bayern is the ultimate win like that's a successful exit and usually when this happens the the idea is that these bigger these bigger businesses want to acquire hot startups that understand how e-commerce works and be able to at least use their business as a way to think about selling online, subscriptions, that type of thing. And so this is a really interesting example where when Bayer bought it in 2020, the idea was like, this will be a way for Bayer to learn how to do e-commerce, how to do sort of DTC sales.

21:04And now clearly that didn't work out. And the question I have was, is this an issue of Bayer just saying we don't want to invest anymore in this? Or is it because the clear way to success for this type of company is just wholesale? I don't know. But it seems like when you see this type of acquisition happen, the idea is that it's teaching an old dog new tricks. And in this sense, the old dog did not learn any new tricks and instead just shut down that business essentially. Yeah. And there was and still is this rush to wellness products. And we all know there will be winners and losers, but this is probably not a good sign.

21:46I was talking to someone last night about it. I'm like, this probably doesn't bode well for all of the other vitamin subscription businesses. But yeah, you mentioned retail. So they were trying to grow that in the last couple of years. I talked to them about their Sam's Club launch last year. They were in Target as of 2021. But their big emphasis was trying to kind of marry that, yeah the subscription or the digital business with retail and one of the ways they were doing that is through their app which is like this gamified uh platform which really rewards you for taking your vitamins daily obviously that means you know being a subscriber or buying them consistently um but it seemed like maybe that was not enough um and then speaking of bear you mentioned um they did uh their director of strategic communications told uh nutre ingredients earlier this month that they're quote seizing further investment in care of will allow bear to better invest in future innovations and help people manage their personalized health which is interesting because i thought that's what the care of investment was supposed to be so obviously priorities shift.

23:03But yeah, and then, you know, there was this one sort of throwaway line about in the Instagram post that says, we are actively exploring options for the brand, but we don't have anything definitive to communicate at this time. We hope to be in a place to share more soon. So I think that hints at maybe trying to salvage some piece of the business. It'll be interesting to see like, what does salvage the business mean? Is Bayer going to try and offload it and then it will once again, you know, resurrect itself from its roots or yeah, I don't know. There's a lot of questions I have about that. But we will just have to see exactly because I don't think we really have a sense right now of what this news actually means for the business.

23:46Like, is it going is it just the fact that it's ceasing its subscriptions? Will there will we still see it in some of its stores? Like what is that? That's the big question I have is like, how how permanent and big is this change? Yeah, exactly. And then, like you mentioned, I do think, you know, it's so much capital and the support that was poured in. The trajectory does show that a sale to a multinational isn't just a straight slam dunk. We saw something similar. This was obviously more of an offload, but Dollar Shave Club did not work out with Unilever and they sold it in late 2023. Again, it's not a one-to-one, but it does show that these big conglomerates can and do go back on their decisions sometimes.

24:32And they don't have a problem, apparently, selling anything that's not working. Yep, exactly. So we'll keep an eye. But everyone thinks the big exit to the big company is the end, and sometimes it's not. Okay, well, that is a wrap for us this week. You can rate and give us a review anywhere you're listening. And please follow us on social. We're at Modern Retail to read our coverage and follow along. And on Thursdays, come back to listen to Kale interviewing industry executives. Not sure. Kale, do you have someone on next week you want to plug? Sure. Yeah. I spoke with BabyList, which is a company I've been fascinated about for years.

25:17they're just leaders in the baby registry space but they are so much more and just have a really fascinating business model so check it out it was a really fun conversation and thank you as always for listening we will see you back here next week