Modern Retail Rundown: Thrasio struggles, Amazon gets into car sales & retailers expect muted holiday sales

0:02Hello, everyone, and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and I'm here, as usual, with our editor-in-chief, Kale Guthrie-Weissman, to discuss this week's stories. Hello, Kale. Hey, how are you doing, Gabby? Doing good. Yeah, we are in the thick of holiday coverage, our favorite time of year here at Modern Retail. So we'll get a little bit into that later, but some fun stories coming up. Yeah, it's the week before Thanksgiving, so we're thinking about Thanksgiving. But if you're a retail reporter, it means you're thinking about, you know, the Cyber Five, Black Friday, whatever terrible acronym you want to use.

0:42Yeah. Black November. Excuse me. Yeah. Yeah. Yeah. So, yeah. But, you know, there's also some other news. So this week, we are going to start out by talking about the reported bankruptcy that Thrasio is preparing. Next up, we will talk about Amazon getting into car sales. And finally, we will round out the episode by talking about why and how retailers are forecasting for the holidays. I think for the most part, they're trying to tame expectations for a lot of reasons that we'll talk about. So yeah, first up, let's talk about Thrasio. For those who don't know, this is an Amazon aggregator that over the years has raised billions of dollars.

1:33An eye-popping amount of money and was given an eye-popping valuation only three-ish years ago. A really wild thing to watch from the sidelines. Yeah, and we can start by saying this is a Wall Street Journal report, so the bankruptcy has not happened. We don't know for sure if it will happen, but it's still worthy to talk about this is a big deal. Well, obviously, as an Amazon, one of the biggest Amazon aggregators, this is a big bellwether for how sales are going or e-commerce sales are going. So, Cale, do you want to maybe give us a quick history, oral history of where Thrasio is at? Sure. Here's my oral history.

2:16And we have, you know, we've written about this for like nearly four years now. It's been an interesting thing to cover. So first, you know, as exactly as you said, the Wall Street Journal reported that they're allegedly working with a retail turnaround firm called Holly Etlin, potentially preparing for a bankruptcy. That's a very big change from 2021 when it was given between a$5 billion and$10 billion valuation. In total that year, it raised itself more than$3 billion. So this company was just raising an insane amount of capital. The pitch of Thrasio, the pitch of all of these, And we'll talk about this probably in a few minutes.

2:54But during the heyday, there were a bunch of these companies. Was that they would be on the prowl. They would seek out the top performing Amazon brands. Usually it meant that these were the individual sellers who had the category mastered. So if you, for example, this is a bad example. But let's say you searched best blender. If you were an individual blender maker, they would try and buy your brand. Usually it was for more gadgets. It was a lot of tech items, things like that. And they would buy it usually for a one-time sum. And the idea was it would be added to the Thrasio or other aggregator portfolio.

3:32They would grow it, and then they would reap profits. But all of this was predicated on a very 2020-2021 perspective of how the retail industry and the overall business mechanics worked, which was e-commerce was booming. Money was really cheap. The interest rate was insanely low back then. And so that meant two things. One, that a company like Thrasio could tell investors, we're seeing hockey stick growth in e-commerce. It's only going to go better from here. Amazon is the number one platform for buying things. So if we own most of the products there, it's only upside. But also, all of these companies, they raised billions of dollars.

4:16They relied a lot on debt. And so the moment that the interest rates rose, it meant that their bottom lines began to crater. There were a bunch of different mechanics going around that meant that it looked like a bubble. Many people thought it was a bubble. I remember interviewing people, writing stories that said, this is probably a bubble. And now it looks like it very likely was a bubble. A few stats that I just think are really interesting. I was looking at some of our past coverage. I think this story was written in 2021, but it was talking about the average price tag of an Amazon seller.

4:48In 2019, the average price tag, according to this website called Empire Flippers, was$298 ,000. And in 2020, only a year later, it jumped 80 % to$538 ,000. So just the average price tag of these companies were going up and they were being bought by these huge roll-up companies. That also meant that their valuations of these individual companies were probably inflated. So to get a good return on these individual sellers probably became quite difficult, which is why a lot of them started to face major difficulties. But I've talked for a while, so I'll stop now. But I could keep talking about aggregators for literally hours.

5:28Yeah, I think you're more of an expert on this topic, to be honest. So I'm just I like to take it all in. I think the idea that this is I find this number pretty fascinating is that they actually claimed that they were making one point five deals per week on average. That's that's a lot of, yeah, sellers right over the years. But what happens now, I guess, in case there is a bankruptcy? Yeah, I mean, I will say that that claim was made. I'm pretty sure in 2021. And it was when they were trying to show that they were the future of e-commerce. And the idea was that pretty much their pitch back then was a pitch of scale.

6:12We're going to make more than a deal a week. We're going to control most of the inventory that are on these platforms. Now, I think there was a report last year that most aggregators made fewer than 10 deals that year. Like, like, like the the promise that they gave us never really came through. And the last two to three years, or really two years, we've been seeing a lot of these businesses, sort of flail. And so yeah, that was a that was a wild claim that Thrasio specifically gave that it was making nearly two deals per week. I highly doubt that's true right now. Yeah. And then maybe if we zoom out a little bit to what this might mean for aggregators in general on Amazon, obviously, you know, it's I know Amazon is still one of the few companies that's still doing pretty well e-commerce wise, despite the slow down of sales.

7:11But yeah, for an aggregator, it's hard to tell what this will mean other than maybe slowing down on acquisitions, restructuring, all of that. Over the last year and a half to two years, there's been a lot of coverage, a lot of interviews about what does the future aggregator business model look like. And a lot of them have switched gears based on what their original pitch was. Their original pitch was that most of them were Amazon dependent. Most of them would try and find the top performers, buy them, and then profit. But now they're saying, oh, no, some have begun acquiring vendors with the idea that they will be able to better choose acquisition targets when they have data from vendors.

7:51Like one, I think about a year or two ago, bought a review platform. And the idea was if we get really good insights into the brands that have the best reviews, then we're going to buy even better companies. Others have focused on building out their businesses overseas because Amazon is much more of a Wild West e-commerce territory over there. Others have focused specifically on omni-channel growth. And so they've said, we're no longer are just about Amazon. We're about building out brands that can go into other marketplaces and other wholesale retailers, which is a very traditional playbook. Which is to say that there's been a big shift in the pitch that most of these companies are giving, and a lot of them have been focused on figuring out how to turn a profit, which I doubt most of them have.

8:41And I'll also add that I think that your point about it's been really difficult for e-commerce as a whole, but Amazon has generally remained pretty consistent. is true. And it's something that there was a lot of conversation about in the early aggregator days, which is that Amazon's entire platform is about facilitating or it hasn't always been about this. But over the last few years, it's been about facilitating a third party marketplace, which meant a lot of different sellers, many of them mom and pop sellers, people who sell either one product, one brand that maybe only makes, you know, not, you know, a few million dollars, something like that.

9:24And that was what sort of made the Amazon marketplace work was this diversity of choices and different sizes of brands on there. And then all of this money started coming into aggregators, which the idea was that they were going to scoop up them all. And clearly, it showed that after there was a huge growth in e-commerce that then plateaued, that model doesn't work to have a much more centralized force who's owning all of these products on a marketplace. The way the Amazon third-party marketplace likely works best, even in times when there's a lot of economic tumult and e-commerce isn't rising as precipitously as it was before, it's probably when you have a bunch of different smaller sellers who are able to own their niches and not need as good of returns as a company that's trying to mimic P &G does.

10:14Does that make sense? Yeah, yeah, for sure. I think maybe a big question mark is also I'm curious to see what the valuations of a lot of these aggregators will look like because overall valuations have dropped. So I wouldn't be surprised. I think that maybe$50 to$100 billion number may not stay, but we'll see. Yeah, absolutely. And we're going to see, this is a crazy number, and then we'll stop talking about it because I've been talking for far too long about this. But in 2021, there were over 80 active aggregators in the space that collectively raised nearly $11 billion since 2020. So that is only a little less than two years.

11:00They raised$11 billion and there were 80 active companies trying to do this. Now there are much fewer of them. And I'm sure they raised that money. A lot of it was debt, but I'm sure that their valuations have plummeted now. And so it just shows that it really was a bubble and the leader in the space is not doing so well nowadays. Yeah, so just keeping an eye out in case this does happen or maybe, who knows, maybe they'll be able to avoid it. But we shall see. bankruptcy that is. I meant. Okay. So on the topic of Amazon, let's talk about buying cars on Amazon. I mean, it was bound to happen. The day was coming for us one day.

11:44But yeah, this week, Amazon announced that they are going to let car dealerships sell through the website, pretty much just like, yeah, I guess add to cart, whatever. But the first - Buy with Prime. Yeah, buy with Prime. The first partner is Hyundai. And yeah, it looks like it's happening. But I think maybe logistically buying cars online isn't as foreign of a concept as it was a few years ago, thanks to the pandemic. And Carvana, which maybe we should talk about a little bit as an aside. But yeah, I think it's going to be hard to tell whether, I don't know, even the most ardent Amazon shopper will be buying a car this way.

12:30Yeah. And I mean, buying a new car online is actually more difficult than buying a used car online because of the dealership model. And so I think that it's going to be a very interesting thing to see how the Hyundai partnership specifically works out. Because according you know according to the coverage like amazon's working with hyundai to sort of build out this model uh pretty much the way it works is i guess on the amazon marketplace or you know someplace online there will be a way for you to see what cars are available in your area you can you know choose different ways to personalize it for what you want do i want automatic i don't know anyway car things um and then uh you know you will be able to purchase it at the local dealership near you.

13:21And then the end seller is the dealership. So it's not actually Hyundai. And that's because of just how that works, where because of laws, car companies need to sell through dealerships rather than directly. And so it's a whole interesting thing. And I bet you it's going to be very difficult to facilitate, especially for many different automakers, which doesn't mean that Amazon can't do it. If anyone could do it, it's Amazon. But this is going to be a much more difficult thing to get over the finish line and make it into a more ubiquitous practice than, say, CarMax or Carvana. I mean, I guess you could say Tesla is the biggest example of a kind of a direct-to-consumer dealer.

14:02Yeah, exactly. And it had to, like, that was by design, whereas there are a lot of laws that protect franchise dealerships that sell, you know, certain makes of cars, but also they are the ones who have the protections to sell those cars, but Tesla has been able to do quote unquote DTC selling as is Rivian. And so the idea of bringing the, you know, quote unquote normal cars or mass produced cars that rely on this franchise model will be a really big feat to overcome because it is, there are so many different, you know, dealers out there who are in different networks or individual and actually getting them to do that.

14:38It'll, it would just be a headache, but it's really interesting that it's finally happening. Yeah. Maybe we could talk a little bit about the background of how this came to be. So Amazon was already offering digital showrooms that help people research cars. This is part of the endemic network that they run where, I guess, brands that don't sell on Amazon are allowed to pretty much advertise on there. I think, yeah, Hyundai was one of the partners there. So this makes sense that it's sort of an extension of that partnership. Yeah, Amazon has been trying to build out a bunch of different ways for it to be amenable to bigger brands that at the time didn't sell on it.

15:22Like, you know, you mentioned the digital showrooms. That was certainly one way. Hyundai, I remember I was trying to find this while I was researching the story. But like, as Amazon has been building out its, you know, its non endemic advertising platform, meaning, you know, video streaming, all of that things, advertising that's not meant to have people actually convert on amazon.com. Hyundai was an early partner. Hyundai did a sponsored a really big show on Twitch, I remember, I think, like two years ago. And so clearly, they have an existing relationship. But I do think and this is, you know, this is an aside, and it doesn't really mean much.

15:57But there's been a lot of coverage myself, I've been writing a lot about it, about how Amazon is trying to get more brands to do top of funnel, non endemic types of advertising, It was a really big deal when you saw, for example, Geico doing sponsorship on the Amazon homepage because you can't buy Geico insurance on Amazon. But that was just a way to do sort of bigger top of funnel advertising. And it was always said that car dealers were a big non-endemic advertiser. So like Amazon was trying to woo big, big automakers to try and advertise. But now, in some ways, it kind of is an endemic advertiser because people will be able to buy Hyundai.

16:32And so it's just very funny to me that like, you know, ultimately, I don't think this is true for everything. But like the things that were said to not be able to be sold on Amazon are slowly being sold. And so when Hyundai does advertise on Amazon, it's not just about gaining mindshare. It's about actually trying to get people to think about purchasing one of their cars on Amazon.com. I think it's kind of silly. Yeah, I mean, you know, I don't know, like retargeting someone to buy. I don't know if people buy cars like that. No, no, I'm sure it'll be a whole new market of digital marketing. Yeah, as opposed to like, you know, just anything else that you might buy, like a phone charger.

17:13You're like, okay, I guess, you know, I'll just click on this one and grab this one. Yeah. And then also, I think I said endemic before I meant non-endemic. Sorry, it's the morning. But yeah, maybe we could talk a little bit about, you know, this concept having gone mainstream during the pandemic. So obviously Amazon is coming off of that. But I mean, that's also slowed down, right? I mean, we've written about CarMax and Carvana, which are essentially these used car vending machines. I think they refer to themselves. They were in such demand, obviously, a lot of people buying cars. Cale, I believe you're a pandemic car buyer, are you?

17:54I'm a car getter. Oh, okay. Wow, the privilege. Yeah, a family member has given me a car, which is very, very nice. But I did look into for a while buying a used car specifically on both CarMax and Carvana. And so, but yeah, I think that you're right that they have definitely hastened this phenomenon. A couple of years ago, the only way to think about buying a car online would, for the most part, be Craigslist, very peer-to-peer, still very analog. You'd still have to go to a parking lot and awkwardly exchange money while inspecting a car. But like CarMax and Carvana were all about, we can make this digital.

18:32We can get it delivered to you, all these different things. And they saw huge sales rise over the pandemic. A lot of that, similar to Thrasio, was because of low interest rates and high online demand. And so Carvana specifically, like after seeing huge sales reporting gangbusters numbers, saw a lot of things begin to tank, including its stock price. So its stock price fell to$5, I want to say, a year ago. And that was like a big wake-up call for the overall digital used car industry. I will say Carvana specifically has been able to right-side its business mostly because of cost-cutting. And so it does show that there is a way to do digital car sales and you are able to make the business work, but you just have to figure out the best way to balance the business.

19:24And I'll also say, as I said before, CarMax and Carvana are a little bit different than Hyundai selling on Amazon because they're used car businesses. So it's a little bit easier to facilitate, but they also are dependent on like whatever the used car stock is. There are a lot of other things at play. But I think that they are interesting players to watch while this happens. And I'm pretty sure their stock collectively fell like 5 % on this news, which doesn't really mean anything, but shows that Wall Street is interested in what the other players are and how they are part of the overall dynamics.

19:59Yeah, I mean, I think that's to be expected anytime Amazon announces something. So we shall see. I'm really curious to hear whether any real sales are happening at some point. But who knows? Amazon tries a lot of things and then we like don't hear about it for a few years. And then we will wrap up by talking about holiday sales this year. This is actually an area that I have been covering pretty heavily because I find it really fascinating how spending during this time of year can swing so far, you know, year over year, at least in the last couple of years, I feel like I've had a lot of whiplash.

20:38And so this year, of course, with the way the economy is going and slowing sales overall, multiple retailers have announced that they are expecting somewhat of muted revenue from Q4 compared to past years, probably even last year. Yeah. And these include Walmart and Target. So we usually look to them as the big indicators. Yeah, I would say the fact that both Walmart and Target are already trying to prepare Wall Street for less than stellar sales or less gangbusters growth than years past is probably giving smaller retailers pause. You know what I mean? Like this is this they usually these are the two companies that are doing the best.

21:24They're the ones that are talking about how big their Q4s were because of the holidays and the fact that they are trying to set expectations and make it seem like it's not going to be as big as people thought is it's definitely something to keep an eye on. And I think will set the mood of what the following weeks and months are going to look like, because it's all it's all been uncertainty until now. Like it might be OK. It might not be OK. But it certainly seems like Walmart and Target think that holiday sales are not going to be as good as they were before. So that's definitely something to keep an eye on.

22:00And, you know, I think this year, at the very least, the inventory management has been controlled. So there's not as much excess inventory. But I did think it was interesting that, and this seems to be on theme for a lot of companies, is that they know that customers expect really heavy discounts and deals. And they are being picky and maybe waiting even. I think the early sales haven't been maybe as robust as maybe previous years. Yeah, it's really interesting because the coverage on Modern Retail, on every other business website has been deals are early this year. And the idea is they're trying to grow their holiday sales and make it so that they can eke out as much profit and Q4 revenue as they possibly can.

22:42But the fact that I think it was Target CEO pretty much said they're being really choosy and they're going to wait till the last minute shows that this early sales strategy is not working or it's not doing what they hoped it would do. And there's another interesting thing. You mentioned inventory levels. For this entire year, every retailer has been focused on lowering their inventory levels because of how much they were left with over the last few years. They were unable to forecast what they needed, how much they would buy. And all of them in their earnings would say, you know, we're being much more cautious with inventory.

23:16We're being much leaner with it. But a recent Reuters report, which I found really fascinating, said that even though these retailers are not stocking as much inventory, they still have high inventory levels because the product is not turning over. Turnover is much slower than they expected. So the problem is still there. Even though they are keeping a leaner inventory, it's still too much because people aren't buying it. They're also hoping that these heavy promotions in the next couple of months will encourage shoppers. And I do want to point out that I feel like we get these types of warnings every year because maybe there is expectations to be set.

23:59But I remember last year, there were just similar forecasts of kind of like muted sales, but the holiday sales still managed to grow. And everybody is calling Americans as resilient consumers. And this year, NRF says that it will rise to 3 % to 4 % for the November-December period, but compared to 5.4 % last year. So obviously, the growth has slowed down, but it's still growing. Although I think some of that is also due to inflation and higher costs. Yeah, I think that the overall headline has been, you know, holiday sales will probably grow year over year, but they will not grow at the same rate as they did last year.

24:45The question is, what will that growth rate be? And so, you know, if it is 4%, I imagine retailers will be overall happy because it was at the higher end of their estimates. But if it's 3 % or if it's 2%, that won't be good. And these cautions from Walmart and Target and the fact that they're pretty much admitting that, you know, the steep discounts they've been putting on right now, as well as the early holiday sales, like sales are earlier this year than ever before, show that people aren't buying as much as they would like. You know, all of them are saying that they're going to be a bunch of last minute shoppers.

25:20So who knows what will happen? Maybe, you know, post Thanksgiving, you know, we'll see a huge surge in sales because people realize they need to get gifts. But right now, there are a lot of questions about what the numbers will look like after Christmas and the holidays are done. And where the wallet share is gonna land. I think that's the biggest question, where everyone's gonna be shopping. Yeah, so that is our show for this week. Please write and review us on Apple Podcasts, Spotify, or anywhere else you're listening. Don't forget to subscribe to the Modern Retail Podcast hosted by Kale that drops every Thursday.

25:54We will be taking a break next week, but we will see you after the holiday break. Thank you for listening.