Nike's Amazon return, E.l.f's big Rhode bet, and debunking recession indicators

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0:39Hello, and welcome to the Modern Retail Podcast, the show all about the ways the retail industry is changing and modernizing. I am Gabby Barco, and I'm here with co-host and senior reporter Melissa Daniels. Hi, Melissa. Welcome back. Happy belated birthday. How was it? Tell us everything. Thank you so much, Gabby. I had a great birthday weekend traveling with my family to Big Bear Lake and also just received copious amounts of birthday greetings and coupons from brands we know and love. I picked up my Sephora birthday gift online. I missed out on my Starbucks free drink, unfortunately. I did not make it to the drive-thru on the day of, but I got coupons from Kohl's, from Target.

1:27I believe I got a Madewell coupon somewhere in there. I just love it. I love it. no one wishes me more birthday greetings than brands exactly brands are our friends so with that um yeah you you mentioned Sephora beauty uh what what gifts did you did you get I just I need to know oh yeah I picked the summer Fridays kit um it has their jet lag mask and um the little bomb and the tube I'm very excited to give it a try um I had tacked that onto a purchase of some first Aid Beauty cream, that really lovefully oatmeal cream from First Aid Beauty. I got a big tube of and I'm just going to slather myself in rich creams all summer.

2:09And I also got a couple samples of Clean Reserve Beauty perfumes. Yeah, I'm a big fragrance girl. So. Okay, I love it. I ask because it is a little bit of a preview of our segment, actually. So on today's episode, during the rundown, we're going to talk about a couple of brands, including Elf Beauty, which acquired Rode, Hailey Bieber's brand. We will get into that. But they also announced a price increase, which sent a lot of shock across the internet. But, you know, there's tariff-related price increases. We're also going to talk about Nike, which also announced a price increase on footwear, along with returning to Amazon.

2:51So let's get to that first, because this was a pretty big announcement this week. Yeah, this was a big story. Nike confirmed reports from last week that it's returning to Amazon as an official seller after pulling from the platform in 2019. And it's a pretty big move. I mean, that's six years of an icy relationship that Nike is ending. But this also impacts Amazon third-party sellers, right? I mean, there's people who've been selling Nike since the brand pulled off the platform on Amazon, and now their business models are going to have to change, right? Yeah. So, you know, over the last few years, all of these third-party sellers have really built their businesses around being able to sell Nike on Amazon's marketplace because Nike itself doesn't have an official store.

3:40So, you know, naturally right now, they're sort of in the middle of trying to figure out how this is going to impact their business. Our own Alison Smith, a reporter, did this great story and talked to sellers about this. And there was some interesting feedback. So this one seller told MR that 49 of his SKUs on Amazon or 31 % of his Nike catalog were impacted. So he said, this worries me, especially since I'm not going to be able to sell those items after July 19th, which is the deadline. That's when everything, you know, third party Nike listings are going to be taken down and the official Nike store will launch on Amazon after six years.

4:29Wow. So I wonder if those sellers are going to be having some fire sales and now's a good time to to search Nike inventory. Yeah. And it makes sense given that, you know, Nike, we've been talking about this for a couple of years, but they had this sort of turbulent few years of trying to pull out of wholesale, wanting to focus on D2C and in the process, kicking some of their wholesale partners to the curb. Now they're sort of mending the fences again. And I guess Amazon is next up in that lineup. But yeah, an Amazon spokesperson told us that while independent sellers have listed some Nike inventory in our store for many years, Amazon will soon begin sourcing a much wider range of Nike products directly.

5:16So yeah, pretty much wanting to have that official store. They say that we do value independent sellers and we're providing this extended period of time for them to essentially sell through their products. And then Nucky said something similar. It's basically like we're investing in our marketplace and we want people, I'm paraphrasing, but they want people to be able to buy their products everywhere, including on Amazon in the U.S. And, of course, this was, you know, couched in another announcement of price increases. So let's talk about that. Yeah, this week, Nike announced that it's raising prices across apparel and equipment, increases from$2 to$10.

5:58That'll vary by product. Footwear priced between$100 and$150 will get a$5 increase, for example. Footwear priced over$150 will get a$10 increase. Kids products, Air Force Ones, Jordan brand items, and products that cost less than$100 will not see price increases. So it's really just certain parts of their catalog. And the company didn't directly confirm that this is related to tariffs. A spokesperson said that we regularly evaluate our business and make pricing adjustments as part of our seasonal planning. But it's also sort of it's hard to not see this in context, right, of a consumer environment where we see brands doing what they can to preserve their profit margins and, you know, not wanting to give give things away too much too soon.

6:46So yeah, we'll see if that affects consumer appetite for Nike products. Gabby, any thoughts on the price increases? Yeah, I mean, I'm not sure how much it's going to help, but Nike has had a rough few quarters just with general demand dropping across apparel and footwear. They are in the middle of this big turnaround plan. So I guess this is part of that strategy. But I guess I do wonder whether this is going to help with sales. They are one of the largest companies that are impacted by China tariffs. Of course, that's like a big headache for them that they're trying to figure out. So, yeah, I don't have an answer, but I can kind of see the Amazon play actually being a pretty strong one just because Amazon's Amazon, right?

7:34Like everybody who's going there for Nike is probably going to purchase it there because that's the Amazon shopper. Yeah, I think there's just so much spillover effect that they can get from that, too, right? where it's like, you know, maybe you're browsing Amazon because you're looking for a different outfit. I think there's so much influencer and affiliate potential with Amazon storefronts for Nike products that I think there's just a lot of ways that having their products on there will help them show up to the consumer in bigger and better ways. So we'll see. But I do think it is going to be a good move for them in the long run.

8:14And yeah, the price increases, I think, is just really this more contextual thing where, you know, other brands will probably be doing similar moves. Yeah. And it's happening simultaneously with a lot of discounting on markdown. So, you know, the end price that you're paying could vary pretty widely, right? I mean, there's always deals to be had. So who knows whether this is actually going to impact customer sales. Yeah. So from there, let's talk about another company that did price increases this week at a much lower rate, we will say. But Elf Beauty reported its earnings this week and it announced that it's going to raise prices by$1 per product,$1.

8:58So, you know, a little bit easier to swallow, but let's get into what this means for Elf. And the fact that this announcement came alongside the acquisition of Rode, which is a Haley Bieber skincare brand, I thought was really interesting. It's very high-low. It is very high-low. I have never used the Rode products, but I am an Elf Beauty user, an aficionado. And I still think even with a$1 price increase, a lot of their products are going to be hard to beat at that price level in the drugstore or big box cosmetic style, right? There's a few other brands that play in that level. And I think time and time again, Elf products still seem to come out as the best value.

9:42Yeah. And they pointed out that 75 % of the line will be under$10 still. So that's kind of what we're talking about. I think anybody who loves drugstore makeup, including Gen Z, who's this has basically become their favorite brand, they I think more or less, they'll be able to absorb that. I did like the way they announced it on Instagram, the brand itself. They said, quote, not going to lie, inflation and tariffs are hitting us hard, but we're committed to keeping the quality high and prices affordable. So, you know, they're being playful. And from what I can tell, I think a lot of customers took it in stride.

10:24So I think that that's going to be OK. Yeah, I mean, there's a lot of customers who love this brand because of its affordability, right and so i think as long as they're staying in that lane it's it's not going to hurt them too much um it's just one of those things that's a sign of the times right everything's getting more expensive in categories across the board so it's going to go up in your cosmetics aisle too um i will say i did um as part of my birthday shopping uh target had given me a five percent discount and i used that to buy a bunch of household staples yes a generous five percent on top of my 5 % circle.

11:02So, you know, whatever. So I was adding household staples to my cart. And would you believe I also added a couple elf products just for me? You know, because I think this is one of those categories that is a great also buy. It's a great add to cart last minute item. They are one of the only brands that makes a clear mascara that I really like. That's super fun. So, you know, having a couple of those on hand before the prices go up makes me feel pretty good. Yeah. And, you know, this is probably a good time to talk about the fact that they have been pretty proactive about diversifying their supply chain.

11:39We should say, obviously, these price increases are happening because of tariffs. This is, you know, what they did say directly. But in the last year, they've been trying to just decrease their reliance on China specifically. So last November, the company said that it used to source 99 percent of their products from China. But as of November, their sourcing from China has gone down to 80%. So getting lower. And then I think with the price increases, maybe that'll offset some of those losses from tariffs. But speaking of, I think we should also talk about RODE right now, because ELF is also known as like the dupe brand, right, online.

12:22And I guess I just, it is really interesting to square that with a brand like Rode, which is still affordable, still relatively accessible, but nowhere near like a$7 blush, you know, or a$10 mascara. So yeah, what are your thoughts on this latest acquisition? And then we should probably talk about some of the other acquisitions they've made in the last few years. Yeah, I mean, I think it looks like a bigger push into, you know, not just color cosmetics, but skincare, you know, for my impression of Rode is that it's got, you know, very much that sort of like wellness, skincare, wholeness, wellness kind of vibe to it.

13:00And I think that is a good compliment to what Elf does. They had also acquired the skincare brand Naturium in 2023. That helped double their skincare presence. In 2020, they acquired Alicia Keys' Keys Soul Care Wellness brand. And like you said, they are fairly accessible, but they are on the higher end compared to what elf prices are. And so, you know, as a company, I think they're positioning themselves strategically to make sure they can serve different parts of the market, especially as their customer grows in ages, right? I mean, as you mentioned, elf is huge with Gen Z, but as those customers get more income, as they mature, they might want to play in different categories.

13:42Although as an elder millennial who loves elf, I think beauty is for all ages. but it makes sense as a company and as a business perspective, right? To have more, more brands that then you can offer to these consumers as they ladder up. Yeah, exactly. They've made it very clear that they want to be accessible to basically everyone. I mean, last year they launched in Dollar General. That tells you, you know, that they want the physical access to, you know, to be able to even cater to people who don't have a big box store or a drugstore near them. So yeah, really interesting time, a billion dollar deal with Rode for a three-year-old brand.

14:21It's a big investment. So we'll see how that pans out. Okay, now let's turn to the feature segment of this week. Melissa, do you want to TS off? We are going to talk about beauty some more as a hint. So let's get into it. Yes, this week we are debunking recession indicators. Not the many memes that you've seen, but concepts like the lipstick index and the men's underwear index. You know, obviously there's changes in consumer behavior that can be legit predictors of whether we're headed for a recession or not. But sometimes these terms are really compounded by other factors that are impacting people's purchases.

15:00We also chat about what we're going to watch for as informal recession indicators as the year unfolds. So yeah, stay with us and take a listen.

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16:03You only pay when the capital is used. ClearCo has deployed over$2.5 billion into over 10 ,000 e-commerce brands in apparel, beauty, health, and beyond. Ready to fund what's next? Learn more at clear.co. That's C-L-E-A-R dot C-O. Right now, anything and everything can be seen as a recession indicator. Some are obviously just jokes and memes. Lady Gaga making upbeat pop music again. Fifth Harmony reuniting without Camila Cabello. Spring Break in Houston. All these memes just seem to harken back to things that were popular in the mid to late aughts, which makes me feel unbearably old, but was when we went through a recession.

16:50And so now people are making these links. For this conversation, Gabby and I are joined by Modern Retail's executive editor, Anna Hensel. Ana, what are you seeing as some of the silly recession indicators? My personal favorite was the fact that Kesha released a new song this year. Saw a lot of jokes on TikTok about how this feels like 2008 again. Yeah, another one I saw was peanut butter and pickle sandwiches. But, you know, these are all just jokes. And there are some changes in consumer behavior that can be legit predictors of whether or not we're headed for a recession. People obviously make changes to their spending behavior when they're concerned about the economy, whether that's choosing to not dye their hair or buying more frozen pizza instead of opting for takeout.

17:35But are there any particular behaviors that are a telltale sign we're in a recession? In today's episode, we're going to look at two economic indexes that are frequently cited as being early indicators that a recession is brewing. That's the Lipstick Index and the Men's Underwear Index. You might have come across these terms in business news articles, including on our own modernretail.co website. But what's not discussed as frequently is the origin stories of these indexes and how accurate they've proven to be during past economic downturns. So that's what we're going to get into today. Finally, consumer spending in 2025 is dramatically different than in previous cycles.

18:13So we're going to end with a discussion about what might be unique to 2025. All right, let's get into it. Gabby, why don't you kick things off for us? Tell us about the Lipstick Index, also known as the Lipstick Effect. Yeah, so the Lipstick Index is essentially this economic theory that when times are tight, people still want to buy something that makes them happy or treat or hit that dopamine without breaking the bank. hence you know lipstick i guess signifying that purchase the term is believed to have originated in 2001 i believe by leonard lauder of estee lauder who noticed basically that while we were coming out of a recession lipstick prices were still on the rise as opposed to decreasing while he's credited with the observation.

19:09This actually goes back all the way to World War II. You know, a lot of luxury brands, including Chanel and Dior, started creating like fragrances and cosmetics to Lauren customers. I mean, that's actually a tactic that's used to this day, right? If you can't afford the Chanel handbag for thousands of dollars, you could maybe buy makeup. And so that's essentially what this theory is really talking about. But as we've seen over the past couple of decades, since 2001, it's not economically proven by any means. So it should not be used to make any sort of investment decisions or forecasting of the markets or how the economy is doing.

19:54just as an example, like this one was very quickly debunked. But right when COVID hit, when the pandemic started, everybody was inside and all of a sudden, pretty much no one is buying lipsticks anymore, because we're not going anywhere. Not to mention, I know personally, I was not putting a mask over my lipstick. That is a waste. So you know, there was there was a lot there. But I don't know what are what are you guys's thoughts? I mean, in theory, it makes sense. But there are so many ways that the economy ebbs and flows that now that it might not be as indicative as maybe it would have been 100 years ago.

20:31Yeah, I think the main point here is that like, people like to, they like a little treat when economic times are tough. But it really just depends on what environment we're in, what discretionary income people have, and like, how people want to treat themselves changes. I think the point you made about COVID was great. You know, that was another very tough economic time. But obviously, like, just what we were doing, what we were spending our money on was very different. And as I was researching this, I think I saw some, I was reading past interviews with retail analysts, and I saw one who made a point that, you know, so this kind of harkens back to around 2000, 2001, there was a rise in lipstick sales, but this retail analyst basically made a point that there was a lot of innovation in the category that year.

21:29So, you know, when we see sales of a product rise, a lot of it might be due to marketing. And so there's a lot of competing factors at play. It's like what products are on the market at any given time? What do people like to treat themselves to? So I think the essence of the theory is good, but like specifically tracking lipstick sales, not necessarily. I think it's proven that it is not a telltale sign of whether we are in a recession. Melissa, what are your thoughts? Yeah, I would agree with you there. I think there's definitely many factors that go into why someone buys lipstick or not. But I do think there's something to this idea of affordable luxury, right?

22:13And at a time when people are experiencing inflation, when money gets tight in your household, there might be the little treat culture that comes to save the day. You know, you might not be able to afford a new house or a big home renovation, but a$20,$30 lipstick can feel like a real indulgence. And I think that's something we're going to see brands and retailers pay attention to as the year unfolds. Yeah, absolutely. Yeah, I do wonder whether in a couple more decades, people will look back on this period. And I don't know if you guys know, but we're kind of having a little bit of a lip balm, lip oil renaissance right now.

22:51Oh, yeah. So like, you know, you've got your summer Fridays, you've got all these brands that sell pretty much$20 lip balm that are tinted. And that is innovation. I think maybe we'll look back and be like, beauty sales are so strong during this decade. But it's because you got to collect them all. Yeah. Should we change this to the lip balm index now? Should we petition that? Yes, I think modern retail should coin that somehow. But all right, we'll be trendsetters. That's a great rebrand. You know, lip liner too is having a moment, right? Yeah. A lot of a lot of that lately. That's having a big moment on TikTok.

23:27And it's just like, yeah, the ways that we make ourselves look and feel are different than they were 20 years ago. And that'll continue. One thing I did think was really interesting about this topic, though, was this is a very feminine and women-led category, right, in cosmetics. And in a way, that makes sense, because women are responsible for anywhere from 70 to 80 percent of all consumer purchasing decisions. So it makes sense that tracking spending in women-led categories would be some sort of indication of how the economy is doing. But there are potentially some differences in how genders respond to tough economic conditions.

24:02Ana, you looked at a piece of this where declines in men's underwear are considered recession indicators. Tell us more. What is going on there? Yeah. So the men's underwear index is an economic indicator that was born out of something that former Federal Reserve Chairman Alan Greenspan reportedly tracked. And this is where I'm putting on my fact checker hat. We don't have audio of him saying this. Basically, a former NPR correspondent said that Greenspan told him this. So I'm presuming he's telling the truth. But it's kind of funny how the urban legends around these indexes come about. So basically, this former NPR correspondent who interviewed Greenspan said that Greenspan told him that he looked at the sales of men's underwear as an economic indicator.

24:56And so the theory behind this is that sales of men's underwear don't typically change much. I think if you compare it to the women's underwear category, sales can be driven more by the introduction of new styles, new colors. That doesn't really happen as much in men's underwear. The innovations there are boxers or briefs, and it's not something that you really see men, I think I'm stereotyping here a bit, but stocking up on a lot as there's new innovations in the category. So the idea is sales of this doesn't really change that much. So if sales go down, it's probably a sign that shoppers are really pinched.

25:37So we don't have data going back decades on this, but at least in 2008, this was proven to be true. Underwear sales did decline in 2008, according to the NPD group. But now, like many things, I feel like this has become a marketing ploy. And so kind of companies are leaning into this psychology to try to get people to buy more. So I spoke earlier this spring with Mack Weldon, which is a men's activewear brand. They sell underwear. And they said they noticed that people were stocking up more on their underwear in spring. So they said for their particular brand, underwear sales were up 90 % between March 15th and April 15th.

26:23So they kind of leaned into this. And with prices changing because of tariffs going on and tariffs coming off, they said they put a price lock on their underwear until July, telling people recession-proof your underwear drawer. So now what we have is companies kind of taking advantage of this, knowing this is a thing, and running sales to strategically get people to stock up. So I feel like the reliability of this could change over time as like everything, it's become a marketing tactic. That's a great analysis. And I like seeing it through this lens of, okay, is this actually happening because times are tough and people really behave this way?

27:03Or is it that we know marketers are aware of this and leaning into that and people are responding to the marketing more so than the actual behavior change in the first place. Very cool. Well, I'm interested to see what is going to happen with more brands this year with the recession language. I mean, it's such a meme at this point. It's very funny, sure. And as we just discussed, it's not necessarily grounded in any real truth about the economy. But there is something that just resonates gutturally, right, of what you do or do not want to do when times are tough. Right. And I've been thinking about this more.

27:41And I think that it's part of our human nature. We want some neat theory that explains things, but also makes us feel smarter. So there's a lot of obsession over spending and retail data. And it's like, ooh, I know that if lipstick sales go up, that's a sign that we're in a recession that makes us feel smarter. And so I think that there will be no shortage of people trying to dissect all these different indicators. But yeah, the reality is things change a lot. Again, what people want to buy changes a lot. There's a lot of things that exist now that didn't exist in 2008. Yeah, totally. And the way we shop is drastically different.