Rundown: Beyond Inc. partners with The Container Store, holiday shoppers take on debt and Urban Outfitters cuts prices

0:05Hey, everyone. Welcome back to the Modern Retail Rundown. I'm senior reporter Gabby Barco and I'm here with our reporter Julia Waldo. Julia, welcome back. How are you? Thank you. It's good to be here. Yeah, excited to be back on the pod. And yeah, it's been a good week. Went by kind of fast. Yes, for sure. It was a shorter week this week. So that was fun. But yeah, we do have a lot to get through, including some apparel coverage, which, you know, you do cover that space pretty extensively. So I'm excited to hear your thoughts on it. But yeah, first up, we're going to be talking about Beyond Ink investing$40 million in the container store.

0:46This is a new partnership that the two retailers just announced. And then we're going to talk about holiday shopping and the fact that consumers are ready to rack up debt to do their shopping this season. So, you know, a lot of credit card and buy now, pay later, talk later. And then finally, we're going to end on why Urban Outfitters is slashing prices on over 100 items. This is part of a new initiative to bring back young price conscious shoppers. But yeah, first up, let's start with Beyond Ink, as it's now called, you know, better known as Bed Bath & Beyond previously before the bankruptcy in 2023.

1:32But yes, it is investing$40 million as part of a new partnership with the container store? Yeah, I mean, I think on one level, this is a really smart deal. You know, this is going to bring Bed Bath's products back to physical stores. I think a lot of people have had an attachment traditionally to the Bed Bath & Beyond name. You know, I remember for years and years and years getting those coupons in the mail, you know, saving them going and purchasing something like a blender, you know, candles or something like that. So I think a lot of people, you know, do have a really strong attachment to Bed Bath & Beyond.

2:11I think just the question will be whether or not people will actually go and buy these products compared to, you know, so many other, you know, competitors on the marketplace who are also selling items like this. Yeah. So as part of the deal, Beyond is also going to be offering, you know, it's got a pretty big suite of e-commerce tools and other growth strategies that it had when it was operating all these big stores. But this will be contingent on the container stores, shareholders basically approving it. So the company is planning to issue about 40 ,000 shares of new stock to Beyond, and then that would convert to common stock.

2:54So that gives Beyond a 40 % equity stake in the container store. So sort of, you know, just converging here. But as we reported, let's start to talk a little bit about what this means for the container store. So like a lot of homeware, furniture, you know, this sort of overall category, its sales have slowed down in the last couple years post COVID. So it has been struggling to generate enough sales and turn a profit. In August, they reported that their Q1 sales fell about 12 % year over year to 182 million, and they lost 14.7 million in the quarter. So that is up from about 11.8. It's not doing well.

3:41So this does come to me a little bit as a lifeline for them. Of course, for beyond, this is also a really big turning point. So yeah, this comes about 18 months from the initial Chapter 11 filing in April 2023 that Bed Bath & Beyond had done. Since then, they had closed a bunch of stores and basically just relaunched themselves as an online-only retailer. But they've done a couple of different things since. Yeah, definitely. So, you know, aside from Overstock, Beyond also acquired Zulily, which is an e-commerce retailer earlier this year. Beyond has not said that it's planning to open big stores again, but it is planning to open stores internationally through a licensing program announced in September.

4:31So, you know, continuing to get its name out there. Yeah. And for context, Overstock last year had bought the intellectual property for Bed Bath and then changed the corporate name to Beyond Ink, as we now know it. But this was essentially a merger. And of course, Overstock is online only. So it's sort of building this portfolio company of all of these homeware brands. But for the container store, like I said, this comes at a time where they really do need the fresh injection of capital and also maybe even resources because, you know, we've covered it here at Modern Retail. The container store has been pretty good about refreshing its offerings lately.

5:18You know, they're working with all these younger direct-to-consumer, like home organization and storage brands that they're bringing on. What are your thoughts on the services being a big focus, even beyond actually mentioned in the release? They think, you know, all of the custom storage that they help people build, that's going to be a big part of the business. Yeah, I think it's a smart play. I think, as you said, you know, they have been focusing a lot on, you know, younger demographics. You know, I know they've done a lot with college and university students and really trying to build out their bases there.

5:57I think custom services is a good time to do this. I think although people may not maybe working on their houses as much as they did during the pandemic, we do still have the need for custom services and storage and organization. So I think it's a good play. Yeah. So like Beyond says that this is a white space, the container store, ironically, you know, their storage services, I think they have these closet systems that are customizable. Those sales are actually outpacing their general retail sales. So there's something there. And then with Beyond, you know, they have just all of this digital customer data from decades and decades that they are going to basically be targeting with these services.

6:42So it looks like they have a plan of action in place. And it sounds like maybe this partnership will be mutually beneficial to both of them. Yeah, because they have all of these online retailers to compete with. So you can't really coast, I guess, on your own merits anymore. And it's just such an expensive operation that it makes sense that they're joining forces. So we'll check in on them back soon. We'll see, you know, how this partnership has been going. But for now, let's move on to the holiday season spending. So this will kind of transition nicely into what we're going to be talking about the rest of the episode, which is that consumer spending, you know, Julia and I, all of us here at Modern Retail, we start our holiday coverage really early in the season, not only because, you know, it's just been happening fast, you know, earlier and earlier, basically September right now, and then with Prime Day with October.

7:42But it's also because a lot of brands sort of have their strategies locked in place months in advance these days. So with that, it's showing promises that people will be buying things. But again, we don't really know what that means. Because I remember last year, there was hesitation over what the spending is going to look like, whether there's enough wallet share to go around to all the retailers that are trying to target the customers. But so far, like I said at the beginning, people do seem they're sort of resolved themselves to knowing that they're going to be going into debt to buy to do their Christmas shopping, their holiday shopping.

8:22So yeah, what are what are your thoughts on these? There's this new NRF and Deloitte data that's showing these? Yeah, so the NRF says that this year holiday spending between November 1 and December 31 1st, you know, the really big period for that, that is expected to hit a record figure. Now, that could be anywhere between$979 million and$989 billion. So, you know, got a$10 million difference, still very high. You know, Deloitte's holiday retail survey found that holiday shoppers expect to spend an average of$1 ,778 this year, up 8 % compared to last year. And this comes at a time when interest rates and credit card debt is also at a nearly all-time high.

9:12So credit card debt has now topped$1.14 trillion. So this raises questions of where the money is coming from to pay for this$1 ,778. So, I mean, Gabby, yeah, what is the data telling us about where that money is coming from? Yeah, well, first off, credit card debt is now topped$1.14 trillion. I think it was at a trillion dollars about a year ago, from what I recall. So that is, you know, just chugging along that number. So of course, a lot is going on credit, it's being charged. But some of it is actually also going on buy now pay later services. services. So people are planning to lean into those, you know, Klarna, Afterpay, Affirm, as those have been growing and taking some market share away from credit cards, because, you know, I guess, young shoppers in particular, and Gen Z, have been using them, you know, as a way to try to avoid credit cards.

10:16Now that has its own issues. We'll talk about that in a little bit. But yeah, I think NerdWallet just came out with a survey I was reading the other day that said that 74 % of the surveyed shoppers are planning to use credit cards. And then 16 % said that they're going to be using the sort of installment payment services. That is a lot. So it sounds like to me there's not a lot of cash being used to buy these products or just these gifts, I guess we should say. But like I mentioned, I think for the last couple of years, financial analysts have been concerned about BNPL, Buy Now Pay Later services, because it's while they do seem a little bit better or safer than traditional credit cards, they do also have some concerns.

11:11Like, for example, if a person makes a transaction and then accrues interest or misses payments, there are pretty large late fees associated with it. So it's not just while it seems to be, you know, zero interest on its face. It's not necessarily that. So there's some, you know, reform happening in that space. But that's a different topic. But, yeah, with that, buy now, pay later is also expected to hit record transactions. I think Cyber Monday is what Adobe is predicting, about$993 million in transactions just in buy, not pay later purchases. So just to preface it, I mean, people have always, you know, charged their holiday shopping.

11:59But the fact that it's just growing and growing every year, especially with inflation, just goes to show that, yes, there is consumer appetite to continue to spend, but it does come at a cost. Yeah. And I mean, for retailers, it's interesting to think about whether they're going to see more people open up credit cards during this season in order to pay for these things. A lot of store branded credit cards will give you extra discounts and perks if you do open a credit card. So we could see, you know, an influx of customers trying that route on the retailer front. That's also really helpful to them because, you know, they get a lot of data from that.

12:43And from the customers opening up the credit cards, they can see what they're purchasing, how often, etc. So, yeah, I mean, it could be interesting to check back in with these numbers in a little bit. Yeah, also with those, we have started to see reports of people defaulting on their store branded credit cards, which is not great, because those are actually really big money makers for the retailers and the card issuers, because, you know, the interest rates tend to be a lot higher than the than just, you know, other types of credit cards. But, you know, we're not a personal finance podcast, but this is just what I usually hear when we are covering, you know, where the actual money is coming from on the spending.

13:28But yeah, with that, I think, you know, we'll probably just continue to see this post holidays. It'll be interesting to see where that number ranks, you know, how much that people have racked up. But speaking of the festive season, let's talk about spending on apparel. So one big retailer, Urban Outfitters, did announce that they are slashing prices ahead of the season. Julia, you've covered them pretty extensively the last couple of years. So this is a story that was sort of spotted by Retail Dive, I believe, where Urban Outfitters just let their customers know via different communication. I think it was their website, probably email marketing that they are dropping prices on more than a hundred styles.

14:18These will be, they arrange everything from graphic t-shirts, pants, dresses. So I think they know that people are really squeezed right now. Yeah. As you said, you know, according to Retail Dive, the company recently ran a banner on the top of its website and they said, you know, quote, we heard you. We were a lot. were lowering prices on over 100 of your favorite styles. So very direct, very colloquial. Yeah, most items are discounted by like$10 to$20 when I looked through this. You know, some of what's available includes, you know, a$29 crop top, a$69 strapless dress. So they are really trying to encourage people to spend their money with them for the holidays.

15:03You know, apparel is a really big category for the holidays. A lot of people are stocking up on various items at that time to refresh their wardrobes. So I think it's an interesting play. But as a brand, it does bring up some questions of why they are doing this. So, I mean, Gabby, what do you think about the reasons why they are doing this? Yeah, I think it's important to think about Urban Outfitters in context of the urban parent companies brands. So these also include Anthropologie, Free People, and Nuuly, which is their rental service that's been doing pretty well. But apparently Urban Outfitters, which is sort of the banner brand that we all know itself, has been underperforming in comparison to the sibling brands recently.

15:55So I think they kind of saw the writing on the wall and realized that while all of the others have been reporting consistent increase in sales, Urban Outfitters has been falling pretty flat. I think, you know, you probably looked over their earnings call from August where Urban Outfitters did admit that it needed to make progress on pricing. I think they realized that maybe they're just not competitive enough for reasons that we've been talking about a lot here on this show in the last few months. Yeah, so it's President for North America on the call, you know, acknowledged that the company has done a lot of research that customers do perceive them as expensive, you know, compared to others on the market.

16:39So the president said Urban Outfitters is going to do more going to be quote attacking that full force. So as part of that, they are bringing down prices to try to convince shoppers to spend their dollars with them. But this is also likely a way to combat these ultra low prices that we've seen from other retailers in the fast fashion space. I know you and I have both talked about Shein and Timu a lot. You know, on there, you can buy a lot of clothes for under$10 and especially$20. And those two in particular are likely to be really big targets for shoppers during the holidays. Urban's base is also really young.

17:17People in their late teens to late 20s, people in those age groups are, you know, commonly buy on Shein and Timu and also tends to have less discretionary income than older groups. So I think Urban's bet here is that bringing down the prices will, you know, make its offerings more attractive to them. I mean, what do you think, Gabby? Do you think slashing prices is enough to really convince people to shop with Urban? Yeah, it's tough because Urban Outfitters is in the spot where it's not positioned as fast fashion, at least not in the traditional sense that she and Timu, not even, you know, maybe H &M or Zara are, you know, it is seen as a little bit more seasonless or permanent collections, I guess.

18:05But that's not to say that they don't have trendy pieces. I mean, if you go on there, you know, they do a lot of private label, but they also carry a lot of, you know, what Gen Z is wearing these days, you know, Levi's, Adidas sneakers, you know, all of the usual suspects. So I think if they're able to at least position the pricing well, maybe they can bring enough people in there. But yeah, I think maybe they're just their positioning where we are today and the way at least Gen Z shopping online with all of these, you know, Timushians where you can get an entire haul of clothes for very, very little, probably under$100 for many, many pieces.

18:45it's hard to compete with that but I think maybe the quality could be one way to position it but that'll be yeah it'll be interesting to see whether it works because the price tag seems to be really what's moving the needle right now for a lot of brands because people I mean just consumers have choice right like you if you right now if you just browse for an item I was doing this last night, you know, across the web, especially if you have an extension like Honey or Capital One Shopping, you do see really, really heavy discounting across different retailers, even for the same item. So I think that's going to be key is how they're able to, yeah, to create value, I guess, for these customers.

19:30Yeah. And I know you mentioned that, you know, Urban Outfitters has really been trying to lean into trends that are, you know, really big on TikTok, social media and such. So I think that that definitely needs to continue to keep happening. I mean, these young consumers, especially Gen Z, which is a really big base for urban outfitters, they're very trend focused. And so, you know, the product, if it is priced lower, that's definitely attractive. But I think that, as you said, quality really, really matters. And so, you know, if your assortment isn't trendy you're fashionable, it's not going to be quote unquote cool and people aren't going to want to buy it.

20:07Yeah, because I'm looking at it and you know, a$29 crop top or$69 strapless dress, I think for, you know, it sounds like a pretty decently priced item. But when you put it in front of something like Shein or even, you know, H &M or one of these other players, you could probably get something like that for half the price. Now, I can't argue with the quality there, But I think most online shoppers, that's kind of where their eye is going. And they want the item fast and they want it while it's trending. We are making a really, really big generalization. But this is just where shopping is today, unfortunately.

20:45I think, you know, we're going to take a look at the Urban's overall financials that are coming out in late November. That's the next time they'll be reporting their earnings. Like you said, I think, you know, the parent company itself seems to be doing pretty well, which I've been finding interesting because like, you know, you've covered this pretty heavily. But apparel in general is just relying so much on discounting right now and is not doing that great that they do seem to be an anomaly, actually, or an outlier within this space. And I think something like Nuuly seems to be doing a lot of the heavy lifting.

21:21So, you know, the parent company overall is doing well, all things considered. Yeah, yeah. To your point, I think Nuuly is definitely a standout for them. And, you know, the overall parent company said that quarterly net sales were actually at a record. So, you know, they seem to be doing well in other parts of their portfolio. It seems like Urban Outfitters is just kind of a sore area for them right now. Yeah, or at least in comparison. Yes, definitely. Yeah, we'll keep an eye out on that. But yeah, I think on that note, that is our show for today. You can rate and review us on Apple Podcasts, Spotify, or wherever you're listening.

21:59You can listen to the Modern Retail Podcast on Thursday. That is to hear interviews with our editor-in-chief, Kale, who interviews CEOs, industry executives on a weekly basis. Also follow us on social. It's at Modern Retail for all of our coverage that we do on these topics. I myself am at Gabriella Varco. So Julia, do you want to plug your social? Yeah, why not? I'm at Julia Waldo. Okay. And come back on Saturdays for more of the Modern Retail Rundown.