Modern Retail Rundown: Warby Parker & Allbirds earnings, Mattress Firm acquired & suburban malls’ revitalization

0:06Hello and welcome to the Modern Retail Rundown. I'm your host, senior reporter, Gabby Barco, and I'm here with editor-in-chief, Kale Guthrie-Weisman. Hello, Kale. Hey, how's it going, Gabby? Great, great. As always, we have a lot to get through. There's a lot of news this week coming out of the retail world. So first off, we're going to be talking about some D2C earnings. So Warby Parker and Allbirds' latest quarterly reports. And then we're going to be discussing a pretty major acquisition in the mattress world where Tempur-Sealy, I almost said Tempur-Pedic, but Tempur-Sealy acquired a mattress firm for$4 billion.

0:51And then we're finally going to be talking about one of our favorite topics, which is how are people kind of going back to shopping in person? There's a lot of different behaviors in the last couple of years. And so there's a story about how the suburbs are perhaps benefiting from hybrid schedules. So let's get started with the Allbirds and Warby Parker news. Some mixed results. I think that's been kind of a pattern in the last few months, pretty much across the board, not just startups. But Kale, why don't you run the numbers? Yeah. So, I mean, mixed results, some better than others. I think by all accounts, Warby's probably doing better than Allbirds, but Warby's been doing generally pretty good.

1:41But they still, and you know, this is the thing we always talk about, none of them are profitable. And so Warby's losses were$11 million, but that's a big decrease. It decreased its losses by$23 million this year. So that's good. Allbirds' net losses, however, increased. So Allbirds' net loss was$24.87 million. dollars. And last year it was 10.44 million. So, you know, we could talk about revenue growth. I'm pretty sure Allbirds revenue decreased. And Warby had some things that went down like it's, you know, we can go into this later. Some things were good. Some things were bad. I would say if we're pitting them against each other, Warby's overall were much better.

2:28But also it shows that it's a bumpy time to be a company in retail, but also these were the much vaunted DTC players that went public. And now we're seeing that they're not having the best time on the public markets. Yeah. Why don't we talk a little bit about Warby Parker? Because I think they did an interesting thing this past quarter, which is kind of reshuffle or tweak their marketing strategy. Of course, a lot of these companies rely pretty heavily on digital ads. They cut their marketing back by 35%, which, of course, led to lower conversion online. But then their in-store sales continue to increase, which I think is interesting because obviously, you know, stores is really where they've been investing pretty heavily in the last couple of years.

3:19And they always talk about how bullish they are on in-store sales. So, you know, that does seem to kind of be chugging along, I guess. Yeah, I would say this is in line, A, with the overall industry. They're cutting back on marketing. I think that's smart. Customer acquisition costs are high. Warby was one of the first companies to really double down whatever like a decade ago on marketing. But now it's focused on in-store sales, in-store expansion. And it shows that while it is true that online sales went down, they dropped by 8%. The fact that in-store sales increased 28%, I think, shows that the strategy as a whole is working.

3:58And this was a smart bet by Warby to do. Yeah. Yeah. You know, Allbirds is also opening stores from the last time we checked. But they've had a little bit of a bumpy year just with a few different approaches. is, so they reported a 13.4 % decrease in revenue. And this was blamed on, you know, the economy being down and a lot of people just cutting back on spending, which is what a lot of retailers have been saying. But, Kel, why don't you tell us a little bit about what Allbirds has tried over the past maybe 12 to 18 months in order to kind of just, you know, generate more revenue beyond their flagship footwear?

4:47Yeah. I mean, Allbirds has been trying to do a bunch of things with varying degrees of success. One of the things is that it's tried to go beyond its well-known, like, cotton, I think they're made out of. Like, recyclable. Yeah. Yeah. Sustainable shoes. I guess not cotton. They'll probably contact me. But, you know, they're soft shoes. And they've gone into other areas like athletic wear and different things like that. But that clearly has not resonated with the customer as much as they wanted. We actually wrote a story about Allbirds earlier this week. They've pulled back on things like leggings because they found out that the customers wanted, quote, classic seasonless items.

5:32They've tried to lean into new areas like running and hiking. That has not really worked as well. And as a result, the company has decreased the amount of new products that it's launched over the past quarter, which is one of the reasons they said sales were slow. I'm trying to find the quote here. Despite industry headwinds and a leaner product launch calendar this quarter, the CEO said, I believe, they said demand was still higher and exceeded their plans, but that still led to less sales. So it shows that they've been sort of throwing things against the wall. They've been trying to go beyond their shoes and that hasn't worked as well as they wanted.

6:13So, you know, Allbirds is a really interesting company because they were really hot. They were really popular for a long time. They were the it shoe to have, but it hasn't been able to prove itself as a full brand in apparel beyond that. And Warby, meanwhile, is another example that has sort of gone beyond what it was. It was a glasses company that you could buy online. And now every city has at least one, if not a few, Warby Parker stores. It's been going into context. It's been trying to form footprints beyond major metropolitan cities. And clearly, this is proving to be a better playbook, at least for the product that Warby has compared to Allbirds.

6:56Yeah, I think Warby has more of the disrupting the lens crafters model. And it's gone beyond millennials. I think there's a lot of data that shows even older people or boomers are now buying their glasses at Warby. Whereas I think it's just interesting to me that they feel like they've been around for so long when they launched in 2016 and basically went public in five years flat. And within that period, they've tried different things. They finally went into, we should talk about wholesale too, which it's kind of hard to tell, right? Like how that's panned out. Usually the wholesale expansion helps kind of bump a lot of those sales or at least decrease acquisition costs.

7:38But not sure that those fruits have bared yet. That has been a big thing, especially for Allbirds. And this has become a big play for most DTC companies, especially now, is that they're focusing on forming those distribution partnerships. But clearly, that is not helping the company grow the way that they want to grow. And so it's, yeah. Yeah. And then another thing I just wanted to follow up on, which is going into different categories. And this feels like deja vu. I feel like we say this every few weeks. But it's funny that, or it's not funny, but, you know, it's interesting that there seems to be this sort of wall that I've noticed that gets hit, which is that if you're trying to go into athleisure wear, it's like, well, there's the big elephant in the room, which is Lululemon.

8:28Like no one's ever going to get really in front of Lululemon. And then with the hiking and sort of, you know, more of the athletic wear shoes, that's like become basically the Hoka and the on cloud territory, at least for, you know, young, hip Gen Z shoppers. So there just seems to be a lot of these categories that are already being cornered and are already very noisy that a company like Allbirds is maybe just it's just not resonating, at least from what analysts have told me. Yeah, no, I think that that's exactly right. And I think Allbirds had a very specific type of consumer. And then it sort of reached its pinnacle a little, not too early, but it people knew what Allbirds was, which it was the cool shoe that you had.

9:15I guess if you were a millennial who worked in a fun hip office, I would say, but people didn't have the connotation for these other things and people never really thought about it for athleisure where the same type of person who would buy Allbirds for one thing would buy Lululemon for the other. And so it's really hard to go into these other places and actually dominate them and show that you have a better product. And so I think that it was just a difficult thing to try and tackle and Allbirds thought it had the brand cachet that maybe it just didn't or it didn't go after it the best way. I don't know.

9:48I can't, you know, I don't, I can't say for sure, but it seems like these attempts at transcending beyond the shoes that everybody knows has not worked in its favor the way that they thought it would. Yeah. And I think, like we said, there's still a lot to be figured out, I think, in the next couple of years. But this always brings us to the same question, which is like, is profitability on the horizon or has it been? I don't know. We've been asking this for a few years. I mean, and that's the big question. If you're a public company, it's a little less of a thing. But, you know, every startup that's private, I always ask, you know, are you going to be profitable?

10:26And usually all of them say we have a path to profitability, but very few of them actually say that they're actually profitable. Warby CAC clearly does seem to be decreasing its losses. That's probably thanks to lowering its marketing spend, all that different thing, all of those different things. But I don't know. I'm hoping that we'll be able to see some really clear financials soon. But they're both still posting losses. So we'll see what the quarters ahead bring. to kind of move on to another pretty public uh news out of this week is uh the big acquisition in the mattress space which is uh tempersili acquiring mattress firm which is the biggest mattress retailer in the country for four billion dollars and it's expected to close sometime next year so it's still a little bit far away but this would basically just be like a huge consolidation in this space.

11:22And it just feels like the latest nail in the coffin, I feel like, where five years ago mattresses were all the rage and now they kind of just have taken backseat to other categories. Yeah, it's a I mean, I suppose it's not surprising that there's consolidation happening. I think that I always look towards Casper as the example of of a boom gone horribly awry. And because Casper was one of the early DTC entrants and then went public and then went private and has had a million things going on, it shows what that overall industry is facing, which is that it's not as, there's not as many fruits available as the executives thought.

12:05And the fact that we're seeing these two companies come together just shows that it's not as robust an industry mattresses as people thought. Yeah. And then with this deal, I think just to kind of show the vast size of it would give the combined company, we don't know, I guess, what it's called yet, but it would give it 3 ,000 stores and 71 manufacturing facilities. So that would basically put it at the top, I think. And I can't imagine any other retailer competing with that. Yeah, that would be a difficult one. And also, both of those companies are pretty ubiquitous as a whole. Have you gone to a city and not seen a mattress firm?

12:53They've already been the incumbents. And so the fact that other companies have been trying to take the wind out of their sails for an already pretty difficult market and they're already seeing lower sails, the incumbents are, it just shows that it's a difficult terrain to navigate. Yeah, and I want to talk a little bit about how this seems like a pretty strategic move by Mattress Firm. They've been pretty public about their plans. They had a bankruptcy in 2018 that they came out of and then had some growing sales, of course, during lockdowns like a lot of brands. But the deal also comes, I remember a year ago, we just kept hearing about a potential IPO for Mattress Firm, but that got scrapped.

13:42And then there was just a lot of whispers about a potential acquisition or looking for a buyer. And so that's kind of the context that it's coming out of right now. Yeah, absolutely. Although, and you know, it seems like Mattress Firm has been trying to regrow its business. Tempur-Sealy did report a better-than-expected profit at its latest earnings. And so maybe with the two, it shows that they probably need to combine forces in order to really grow the way that they need to. But yeah, it shows the fact that Mattress Firm has gone through all these weird turbulent things shows that even they have not been able to really be as successful a company as they hoped.

14:28Yeah. And, you know, of course, because they carry a lot of the brands we all know, they are also just have become a centralized hub as, you know, as opposed to just a retailer. You know, they kind of, I think, now position themselves as you can try literally any mattress brand you want here, including Casper. Well, that's exactly it. And I was thinking of, you know, when mattresses were the really hot thing a couple of years ago, the hope was that these companies, these startups at the time, Casper, etc., were all trying to disrupt mattresses. And they were trying to, A, not be available for sale in mattress firm, which clearly didn't work because now Casper, I'm pretty sure, is for sale in mattress firm.

15:07But also, B, they saw themselves as a bigger category than they actually were. like Casper called itself in the business of sleep. What does that mean? I don't know. And in fact, I've probably told you this story before, Gabby, and maybe even said it on this podcast before. But one of the funniest things that I remember was the Casper CEO last summer in an interview I was giving saying, even I don't know what it means that we're in the business of sleep. We're a mattress company. And so the fact that even the startups that were trying to disrupt the industry had this big turbulent time and they had to completely narrow down, whittle down what it was exactly they were selling, how they were selling, shows that, you know, it's a really difficult market and they probably aren't going to be able to see the growth that investors thought they were going to see in whatever 2016.

15:58Yeah. And just a reminder, this is not a segment about Casper, but somehow all mattress roads lead us back to it. Yeah, sorry. We talk a lot about DTC here. And so So, you know. But the other thing is also, I think this is, and, you know, we repeat this a lot, but the fact that homeware and furniture have slowed down, of course, mattresses were not spared. They were, they're also a big part of that. And it's also, you know, of course, this has always been the case, whereas people just don't buy these products as much as you would think. I mean, I don't know. I think maybe I've replaced mine when I don't want to plug it from one apartment to another because it was not worth the moving.

16:39fees. But otherwise, it's not something people really replenish. The average lifespan of a mattress is between seven and 10 years, according to the Sleep Foundation. And I think that that, you know, obviously mattress stores have been around since, you know, for decades, if not centuries. But also, it shows that if that's all they're selling, it's going to be difficult to post the growth that is necessary, that many of these companies need to survive. And so the fact that there is consolidation, I guess, is not that surprising when it is a product that has such a long life cycle. And I don't go to mattress firm to buy bedding.

17:19And it would take a lot for someone to do that, you know, or to change a brand identity in order for that to happen. Yeah, but it will be interesting to see, you know, of course, if the deal goes through to see where Tempur-Sealy can take mattress firm, because just anecdotally speaking, they have a pretty big cult following and seem to be doing fairly well for the category. So who knows? Maybe this will show some improvements. Yeah, absolutely. I'm excited to see. And maybe there'll be some big new change to the mattress industry and we'll continue talking about these companies that usually people think are quite boring, but I find quite fascinating.

18:01Moving on to another favorite topic of Kale's. is we're gonna be talking about suburban retail, which is pretty ironic because when was the last time you lived in the suburbs, Kale? Never. For somebody who has an obsession with the suburbs. Yeah, I've never lived in the suburbs. I grew up on top of a mountain and then instantly went to a city. So never had that in between. Yeah. And then as somebody who grew up in a very, very mall-centric state and worked at a mall as a teen, this topic is, I don't know, I tend to have an allergic reaction to it, but we're going to get through it. So we can do this.

18:40Yeah. Right now, I thought this was an interesting story in the Wall Street Journal, which is this pattern continues to kind of move back and forth. I think it's just very fascinating, which is that suburban malls, or some of them call themselves lifestyle centers, excuse me, they are getting some traction from people who, and I think a lot lot of us know a lot of people whose schedules have been appended since lockdowns. It's very, very hard to enforce the back-to-office policies, even at companies like Amazon and Apple, apparently. So with that, a lot of people are sort of just staying home in their, you know, more of their suburban or outside the city areas.

19:24And that's kind of changing their daily routine pretty heavily, right? So why don't you take us into why the nine to five office shift going away is just changing the way we all visit stores, restaurants, pretty much everything day to day? Well, I hate to toot mine and your own horn, but I feel like this is something that we have been writing about for literally years. And maybe not with this exact angle, but I do think this is something that if you put the sum of a lot of retail coverage over the last two years, it would point to this happening. So, you know, when the pandemic first hit, a lot of people moved out of cities.

20:08A lot of people began buying homes in suburban areas. People stopped going to offices nine to five, and they started working a more hybrid schedule. And a lot of businesses followed suit. So there was a lot of coverage in 2021, early 2022, about retailers that were looking into either open air malls or looking into new types of developments that they could open into. I remember we wrote a story about Warby Parker, Speak of the Devil, that was focusing on suburban expansion. So it was looking for the suburbs to open its doors. And then there were also, and this is not exactly with the story, but I think it is similar, where there were a lot of companies that were focused less on the major metropolitan areas like New York City or San Francisco and looking for, I've always been trying to find the delicate way of saying this, but like second rate cities.

21:02How about emerging urban areas? Emerging urban areas. I mean, they're very fast growing, right? I think we always hear the, you know, the Miamis, the Minneapolis, you know, the Austin. These are, you know, becoming pretty, pretty up there. But this is really where the, I guess, where a lot of these brands find their future, right, is that they want to be where everybody's moved as opposed to just the big four cities. Yeah. And I think that you could have looked, there were other early entrants. I think the Morbi is interesting, but the fact that Sweetgreen, for example, has been opening up locations and I think the journal story mentioned this in suburban areas just points to the fact that this is it.

21:42There are more people are in these areas and there's a lot more commerce. I also think that there are, we've written a little bit about the Georgetown area of DC, and that is in Washington, DC, or I think it's technically in Virginia. But that's a more suburban area. That's a college area. And that's where a lot of DTC brands have been opening up. And there have been a lot of new mall-like complexes. And I think it shows that there are certain, the pace of life has changed and people are looking to live in less, you know, less busy areas, more pastoral, suburban-like spaces. And I think, so none of this is surprising, but it's super interesting that we're now seeing this.

22:24right and even uh you know written about co-working spaces really finding these uh there you know i think ideally for them people would go co-work at their space and then the uh complex or the mall will get that foot traffic and people will stop by sweet green and then warby parker you know all of these stores all within one day and um spend money there and so So I guess lastly, maybe this just begs the question, and this is more of an aside, but how many people are sneaking out of their office, their virtual office, to run these errands or go do the shopping? Yeah, I don't know. Maybe when you have a hybrid schedule or you don't have to be in the office every day, maybe you can go do more of these things.

23:11One thing that I was just thinking about, and I can't remember if you wrote the story or I think you did. But remember when we wrote a lot about what malls were going to do when malls were really ailing. And a lot of them were about how malls were going to become hybrid workspaces. And so there were like co-working spaces opening up in malls. And clearly, maybe some of them still do exist, but did not reach the point where I'm sure a lot of these developers thought it was going to hit. But I think that in some ways they were correct that people were changing the way that they live. and that they just needed to wait a few more months or a few more years until people did go back to the malls for different types of activities.

23:52Maybe they're not working there, but they are going back and expecting it as a much more centralized commerce hub than before. And so I was just trying to remember all of the revitalization plans that malls were doing because they were doing so poorly in 2020. And they seem to be coming out the other side, especially the ones in these affluent, more suburban areas that have these types of footprints with these smart, you know, these big, expensive stores. Yeah, I think we just find it really fascinating that the fact that malls just continue to get and we use, you know, malls as sort of a catch all, but they all of these shopping centers just continue to reinvent themselves based on whatever's happening.

24:34I mean, even just the idea of anchor stores changing, right? Like the type of store that's an anchor store is now even something like a Whole Foods or a grocery store. So I think that's just very emblematic of the fact that people just need more of one-stop shops to, you know, just get all of their stuff done every day. And yeah, why not? Why not build, I guess, these concepts around that? Yeah, and one thing that was a big theme early on and continues to be a big theme now are the more open the enclosed class a malls are doing fine but the more open ones are also doing really really well um and i think it points to i don't know just an extension of some of the retail trends that we've seen the last three years not not really changing but just evolving even more right great um well that's our show for this week, please rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening.

25:39Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with Kale and industry leaders every Thursday. Kale, do you want to give us a little bit of a preview on who you have on? Sure. I spoke with the founder of Spritz Society, which makes none other than a Spritz, but he's also an Instagram influencer himself. So we talked about being an influencer-led brand and what all of that means. Yes, influencer founders, one of also our favorite topics. So you could look out for that on Thursday and of course come back on Saturdays for the Modern Retail Rundown. And as always, thank you for listening.