Rundown: Amazon scraps Style stores, Walmart stores get a facelift & Michaels launches an Etsy competitor

0:05Hello 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-Weissman. Good morning, Kale. How are you? Good morning, Gabby. I'm doing well. How are you? Good, good. Yeah, just adjusting to the weather. You know, every year takes you by surprise, but we're going to get through it. This week, we are going to be talking about Amazon essentially giving up on apparel stores as it focuses more on grocery. Then we're going to be talking about Walmart revamping its stores, making a lot of investments because it's one of the few retailers that's still doing well at the moment.

0:49Finally, we are going to be talking about Michael's competing with Etsy by essentially launching a competitor, which I find really interesting. Dun, dun, dun. Yeah. So first up, yeah, let's get into Amazon style stores. So this week, the company announced that it is closing these stores that it only opened really a couple of years ago. There's two locations in California and Ohio. but yeah it sounds like really they're going to be pushing fashion apparel more online as opposed to the stores and we could probably tell why the stores didn't work I feel like we never really heard about them but we can get we can get into that a little bit later you're completely right it's not surprising and we'll go into one of the main reasons it's not surprising probably later which is that this is something that Amazon does all the time, where it has a big idea, it tests it out, and then anywhere from a few months to a few years later, it says, ah, never mind.

1:54Which often doesn't mean it's the complete end of it, but it does mean that, I don't know, it means that it's retooling a lot of things. But the style was sort of a flashy announcement, and it was part of Amazon's big foray into apparel, and also its big attempt to woo more nicer luxury brands. It was, you know, the idea was Amazon was going to have something akin to like a department store where they could merchandise, you know, their products better. And, you know, it was pretty much like trying to make it into the make that legacy fashion department store experience into something that Amazon could control.

2:33There were always a lot of questions swirling about how that would manifest. invest, how much would Amazon invest in that? What was really the endgame year? And now they're closing up. And I think that the writing might have been on the wall for the last year or so when Amazon said it was opening up a few. And interestingly enough, when Amazon said it was opening up these stores, it was also closing down other experimental stores, which we'll probably get into a few minutes. But then it never really announced much about these style stores after that. They just sort of sat there. We didn't get too many updates about it.

3:11And so when you don't hear Amazon singing a program's praises, it usually means that it's going to try to quietly shutter it sometime in the near future. And that's precisely what happened. I do want to say, just because Amazon changes directions, I guess it doesn't always mean it's a failure. I think they're just, they've become known as the company that just tries everything and then sees what works. And obviously they have the luxury of being able to afford that. So I just want to make sure it's not like we're always saying it in a negative way. It's just what happens. Yeah, exactly. And I think that the one thing that Amazon is most well known for is saying it's going to stop doing something or announce that it's shuttering some project and And then sometimes the same idea or the same program rears its head again a few years later.

4:05So this is not to say that Amazon, like, who knows, maybe a year or two from now, there will be a new iteration of style stores that take the learnings from this past one, that they try to open more of them. But for right now, these physical stores, they're closing. Yeah. And then we should talk about how these fit in with Amazon's overall ambitions to expand physically. I guess when I say physically, I mean actual stores that are shoppable, not warehouses. And so, yeah, with that, you know, they've tried Amazon Go, the four star store and Fresh, which is essentially their grocery store. That's not Whole Foods is the way I always think about it.

4:53But, you know, a lot of these also are some of them also that, you know, they tested them in certain markets, didn't really work, closed them, going back to the drawing board. So it does seem like I think maybe they are still trying to figure out how to build a consumer-facing physical presence. Yeah, absolutely. And I think Go and Four Star stores are perfect examples of what happened here. Four Star specifically, because that was this weird hodgepodge of a store where they were quote unquote well-rated products that would be featured in these stores. Amazon announced them to much fanfare and then I want to say like around at least in the same quarter of when uh the style stores were announced Amazon announced that it was shuttering its four star stores and it was pretty much you know the same reason where it was you know we tried something it didn't work this doesn't mean we're not going to continue investing in physical retail but this one didn't work Go is another one I think there are still a few Go stores open but a lot of them have closed of late.

5:59Go being the store that tested out Amazon's just walkout technology. So, you know, you would scan a QR code when you walked in, put things in a bag and then just walk out. It was kind of a convenience play. And that was one that got a lot of press and was, you know, all questions were about, you know, what's the future of the Go store? And what's interesting is that the future of the Go store, as much as Amazon doesn't seem to be investing as much into it. You know, both Fresh and Whole Foods even are testing out that technology that it used. So clearly it got some, it learned something and then was like, we're going to implement them into these other stores.

6:37And then there's the Fresh thing, which, you know, Fresh has been one of Amazon's biggest physical store ambitions. It opened up a bunch. And then, you know, not that long ago, it shut down a few. And it also stopped investing in the places where it was building it out. And I believe there were some lawsuits associated with that. And everyone was wondering, does this mean that Amazon is no longer investing in, you know, its grocery stores? And the answer is no. Amazon has just been completely retooling the strategy. And that's been a big thread that the company has been talking about during its earnings, that it's been saying in its press releases that, you know, it is still investing specifically in its fresh stores, but it's going about it in a different way and trying to be a little bit more strategic.

7:21And it's a, you know, it's a big overhaul. Like, I think they had some big, brought in some new executives, they had a lot of shuffling around how the teams worked. And now there's a brand new strategy around this physical grocery strategy. You know, the way that it's being portrayed with style is that the real focus right now for physical stores is this fresh, this grocery program. And so, you know, not to keep saying the silver go, it's not a huge surprise. But it seems like Amazon's big focus is on making sure that its fresh strategy at least begins showing signs of growth and is working out.

7:55And these other smaller, more ancillary projects have been falling to the, have been not as emphasized and are now seem to be going away. Yeah. And then just as an aside, I think it's, sometimes it's also interesting to think about these things aren't just happening. I mean, sometimes they're happening in specific markets. I feel like Amazon Fresh pretty much went away here, but they've doubled down on them in Europe, for example. So maybe it's a matter of figuring out what concept works in what market because not everybody shops the same. Yeah. And I also think that a lot of this is about figuring out how to work with brands in both the online and physical sense.

8:42And that's something that it seems like Amazon is still trying to understand exactly how that works. That was the big question with style, actually. I remember when I covered it a long time ago, months if not a year ago, where the question was, what is Amazon promising these brands? And I think the idea was that it was going to be a new way to merchandise and showcase these products. And ideally, Amazon would be able to give insights into how people are shopping for these products in the physical stores that they wouldn't get from their online storefronts. But I talked with some people and they had said, honestly, the relationship we have with Amazon for its style store is pretty much the same as if, you know, I'm working with a Nordstrom or I'm working with a Macy's.

9:26It's that where we'll buy your products wholesale. We'll try and sell them, but we're not going to give you that much data around it. And, you know, it's not surprising that Amazon won't give up too much data, but you would think that the big question that I always had is, you know, A, why would a brand want to work with Amazon on something that only has two locations? And the answer is, well, maybe they'll scale it or maybe there will be some other competitive advantage that they get about, you know, the insights of how the store works and things like that. And it seems like none of that happened.

9:56It just sort of these stores were there. People maybe went there. I don't know what the foot traffic was, but the brands who were featured there, I imagine did not see a huge lift of their products sold in those stores. Yeah, it is interesting you say that about data because I feel like a lot of times brands get on Amazon so that they can leverage that data and see how those shoppers interact with their products. So, yeah, I guess maybe there's just not a lot of upsides to testing it, but I guess, well, you know. I mean, I think the upside to testing it, and this is what everyone told me, is that if Amazon offers you a new product, even if you look in your crystal ball and you say, this won't be around for very long, you still test it out because you want to stay on Amazon's good side and you want to see what types of new programs it has in store.

10:50And so that gives these brands a little bit of information about what might be implemented down the line. I do think there's a really big question with all of this, which is what is the future of apparel and nicer goods on Amazon? This has been a really big focus for Amazon over the last few years. And I do think that Amazon sells more apparel than Walmart. We don't really talk about this, but it sells a lot of those goods on its marketplace. But I think it's still trying to make it so that it can be a branded experience and a more luxurious experience. And this was the big test with style was how can we make this into more of a destination curated type of shopping, you know, store, shopping platform, etc.

11:37And I still think Amazon is trying to figure that out. And it hasn't quite, quite gotten the formula just yet. So we'll see what happens down the line. But I think that this is indicative of there's still a lot of strategic retooling Amazon has to do when it comes to this type of play. Yeah. Speaking of retooling stores, we're going to be talking about Walmart making some investments to a few hundred of its stores. It's essentially doing some remodels. this week they announced that the idea is to bring in more customers and just get them to kind of linger longer into the aisles so just making the stores you know more I guess approachable and nicer to walk around in yeah what do you make of this because right now a lot of these big box retailers are like kind of just hunkering down and trying to keep the profit margins up there, but it seems like Walmart still thinks of its stores as sort of like the forefront.

12:45Yeah. I mean, this is indicative that you and I specifically love to talk about e-commerce and everything digital, but stores are still really important, especially for Walmart. And just to put a little bit of numbers behind it, so Walmart reopened 117 stores in 30 states. for those that have been remodeled, it cost half a billion dollars. And the overall investment it's making for these new stores is$9 billion, which is from the last two years. And it will impact more than 4 ,500 stores nationwide. So that's a lot of money. You know,$9 billion is nothing to sneeze at. And so I think it shows that, you know, Walmart is really focusing on the experience of in-store.

13:31And I think it also is an example that while I think you said this in your intro, a lot of retailers are facing henwoods. They're focusing more on saving costs. We wrote a story at Modern Retail a couple of weeks ago that was pretty much like major retailers are trying to save as much money with their vendors. They're going back to the drawing board when it comes to these negotiations. But Walmart is still doing overall pretty well. It's seeing same-store sales increase. It's seeing, you know, its average ticket price increase or, you know, average ticket value increase. So all of this is to say that this Walmart, given that it's one of the largest retailers in the country, is kind of anomaly in terms of the investments it can make and the moonshots.

14:16I don't know if this is a moonshot, but the big, deep investments it can launch to revamp its overall experience. And this is a great example of that. Yeah, one section that I find really interesting is it's got this sort of dollar shop department that's obviously trying to court a lot of the budget conscious customers. This is a pretty popular section at Target. So I thought it was interesting that they're taking this up to because over the last few years, they've kind of focused more on, you know, trying to carry more premium brands, more organic, all of that. So interesting. Yeah, I think that it's a smart strategic plan.

15:00And the overall thrust of this revamp is to remind customers that Walmart is not just grocery. And so the dollar shop is super interesting just because it's, you know, takes aim at, you mentioned Target. It also kind of takes aim at like Dollar General and Dollar Tree. Like it's trying to show that we can play with the dollar stores as well. It's also focusing, I think it did a really big redesign of the home goods section so that it's more quote unquote inviting. the idea is that Walmart wants its shoppers to know that you can buy literally everything there and now it'll be a nice experience where the at least until the stores get dilapidated over a few months a few years it'll be shiny and new there'll be new ways to walk around things can be featured in in different and fun ways and so this is all about trying to retrain Walmart customers to understand that there are more things to buy there.

15:55Yeah. And then I think one interesting point is, yeah, we read a lot about, I mean, e-commerce is growing pretty consistently for Walmart, but it's still only about 13%, I believe was the last stat I saw of its overall revenue. So it's kind of like the inverse of Amazon with physical, you know, they're still kind of working on that. But yeah, I think most people would still rather the convenience of popping in because they have so much, I hate this. They have so much, you know, omni-channel presence where you can do pick up and you can, and you know, yeah, buzzwords. And yeah, so it's, yeah, it'll be interesting to see whether the stores will continue to grow at the same pace.

16:45Yeah, it'll be something to watch out for. I'm, you know, I imagine they will still do just as well. But I think it is noteworthy to to see such a big store revamp that's going to go to so many thousands of stores. It's going to cost so much money. And, you know, it is anomalous from nearly every other retailer out there. It'll be interesting to see what this means on the brand side. So, you know, if you're revamping your stores, that means there might be new opportunities for merchandising. What will displays look like? Also, if you have new sections, will it mean that Walmart is increasing the types of brands that it works with?

17:23There are a lot of questions about what the store redesign means and how it could trickle down to the overall industry. So something we'll definitely be watching out for. And then for our last story of the day, we are going to be talking about Michael's launching a third-party marketplace for sellers, specifically for handmade goods. It's essentially going to be competing with Etsy, which is really the biggest player. But I think there's some interesting aspects of the design that we can get into. Yeah, what are your thoughts? So, like, for example, if you go to the Michaels website, this hub is actually a tab on the top so people can, you know, find it pretty easily.

18:12And the other thing is that it's not just selling physical goods. They're really encouraging people to book classes, like host classes, how-tos and all of that to earn extra commission. And then, of course, you know, given what's going on with Etsy, they are promising lower fees, at least for now. Yeah, it is. I think the lower fees thing is super interesting. I don't know. When you hear about a retailer going into a new e-com area, you always get a little bit skeptical about it. But if there were, you know, Etsy goes after a very specific type of merchant. And if there were a company that could also go after that specific type of merchant, it's the person who's selling them their raw materials, which is Michael's.

18:58So that's sort of my take on it, where like these people, a lot of them are probably shopping at Michael's anyways. And a lot of them, and we can go into this later, are probably a little bit pissed at Etsy. And so, you know, that's the area that I find so interesting. So who knows what the future holds, but it is interesting that this would be the one retailer that might be able to do it. Yeah, because there are a few things that are very unique to Michael. So for example, sellers get discounts off bulk purchases and supplies and whatnot. Obviously Etsy's not doing that. And then we could get into, I mean, we do have to talk about, this is coming at a really interesting time for Etsy.

19:45I've been talking to a lot of sellers, writing stories about some of the frustrations due to the changes that Etsy has been making for the last couple of years to the structure. In the last couple of years, some of the independent handmade sellers that I talked to have complained that the platform has really been sort of overtaken by these bulk sellers and dropshippers, just kind of essentially turned into an Amazon or eBay. and because there's a lot of pressure to advertise because Etsy is trying to, of course, grow advertising revenue, it's become harder, at least margin-wise, to justify being on Etsy.

20:26And so there has been sort of an exodus already happening. So I wonder how many will actually consider Michaels. I think I'm going to go ask some in the coming days. Yeah, if you're a merchant, talk to Gabby. Yeah, email me. Yeah, so with that said, do you think, right now we don't know how many sellers, actually they didn't say how many sellers they have already on the platform. They've been testing it since the beginning of the year, but they have, I think, something about like hundreds of thousands of SKUs. It's probably around like 750 last time I checked. But it's, this is going to take a lot of marketing for Michaels.

21:10That's kind of why people are on Etsy, because it handles all of that infrastructure. Yeah, and that's the big hurdle for Michaels. Specifically, that is the hurdle for every new platform. And I want to say something like 98 % of them can't do it, which is actually getting people to use your platform to buy the things, the customer acquisition. So how is Michael? People have an idea of what Michaels is. Michaels is where I buy frames. Michaels is where I get yarn, though I don't really buy yarn. But like, you know, like that type of thing. And this is going to have to be a shift where someone's going to have to say, oh, I'm going to go to Maker Place to buy earrings or to buy, as you said, like an online class or something like that.

21:54And I think that that shift isn't there. So it's going to take a lot of marketing and a lot of retraining, I guess. the one thing that Michaels does have going for it is that it already has access to a lot of those merchants ideally or it thinks it does and you know I would be interested to know from Michaels just you know a how it's going to market this to the masses is it only just going to be available on its website is it gonna do you know like actually I don't know I should have asked you like is there an app like it feels like the one thing that people go to Etsy for a very specific reason, they download the app or they go to the Etsy.com because they want to buy a gift.

22:30So how can Michaels try and do that itself is my big question. Yeah, there is a Michaels app. I think that's actually something pretty recent. I'm not sure how much it's going to be integrated into the, how much of the marketplace is going to be integrated, but I think it's safe to assume at some point it will be available on there. I will be interested to see whether the Michaels customer somebody who would actually, I mean, what's the overlap there? Because a lot of them are obviously makers themselves or are DIY hobbyists. So yeah, it'll be interesting to see how well it takes off. Yep. Something to keep an eye on.

23:12We always love a new marketplace here at Modern Retail. We love the marketplace boom, our section. Okay. So that is our show for this week, please write and review us on Apple Podcasts, Spotify, or anywhere else you're listening. And don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders every Thursday. Kale, who do you have on next week? Next week, I do. Next week, I have the president of RNCO, which is a professional hair care company, and we talked all about the state of salons, what's going on. They just launched colors. Super interesting. Who doesn't love talking about hair.

23:54Yeah, very competitive category, but R &Co's been around for a while. And of course, come back on Saturdays for the Modern Retail Rundown. And as always, thank you for listening.