Rundown: Brands shuffle import strategies, retail layoffs & Chili's makes a comeback

0:03Hey, everyone. Welcome back to the Modern Retail Rundown. This is senior reporter Gabby Barco. I am back this week and joined by Editor-in-Chief Kale Guthrie-Weissman. Hey, Kale, how are you today? I'm doing well. How are you, Gabby? I'm doing well. Yeah, I am back and I am ready to talk about all the news, all the retail we can fit in one episode. Let's start off by just, yeah, we'll break it down. So first off, we are going to be talking about tariff news. You know, this seems to be a big topic of conversation lately, but the latest impact that's being felt, you know, due to some exemptions, you know, coming in from Asia and Mexico and the factors that are impacting brands.

0:49After that, we're going to be talking about some layoffs across the industry at companies like Amazon and Shopify and Kohl's. And then lastly, we'll wrap up on, I guess, a more positive note, which is that Chili's is having a pretty positive quarter, You know, they are bringing young diners in and bringing, yeah, just more people in. But yeah, let's start off by talking about how brands are being impacted by all the changing policies around taxes and tariffs from, you know, pretty much importing from China and indirectly Mexico. Mexico. So yeah, why don't we start by talking about de minimis specifically and why they've become a problem and how that's sort of dovetailing with all of the other tariff uncertainty that we're seeing right now?

1:46Sure. So there are like, pretty much this is from a Wall Street Journal article talking about all of the crazy tariff things that are going on and how it's impacting brands. And it seems like there is a trifecta of issues that are kind of reaching ahead and bringing a lot of uncertainty for brands. First is De Minimis, which we may have talked about on the podcast, we've definitely written a lot about it. But essentially, De Minimis is the rule that was made so that people who were, say, traveling to China could bring back things and be essentially exempt from any duties or tariffs associated with that.

2:22But it has become really popular as a loophole for brands that are sourcing from China to bring it in. So like Timu, even Amazon, all these companies that use Chinese suppliers, pretty much pay no taxes under the de minimis rules. And then the Biden administration has said over the last many months that it's going to crack down on it. The same time, Mexico, which we'll talk about why Mexico is involved with this, has narrowed the list of eligible goods for duty exemptions. It also placed new levies of up to 35 % on some textile and apparel imports. And then pretty much what you have is that either you have companies who source directly from China, who under De Minimis, where I think De Minimis works, where if the import of goods are under$800, it's valued at tax free, or you have companies that are sourcing from China, but don't want to, you know, higher than that, but they send them to Mexico, hoping that the duties there would be less when they are then transported to the United States.

3:19All of that has been in flux over the last year. But then you have a new thing, which is the Trump administration, which is also going to impose tariffs on Mexico as well. And so pretty much we have the story from the Wall Street Journal, which is saying that all of these companies that have tried to figure out their supply chain are in flux trying to figure out they don't know how much they're going to pay, whether their economics are going to work, all of that. As a result, US brands that import from China and fulfill orders in Mexico are dealing with all of these changing policies. US customs officials say the smuggling of counterfeit goods and narcotics are also using the de minimis exceptions, which is kind of interesting.

3:56So yeah, there's just a lot of things going on here. So I think that gets at it as well as I can totally explain it. Yeah, there's a lot going on, like we said. But just to give context on de minimis by the numbers. So in 2024, US Customs said that there were 1.36 billion shipments using the provision compared to 637 million in 2020. So that has shot up. And like we said, a lot of that is being driven by all of these cheap packages that are coming in from Asia, from all of these online sellers. So and all of the others that we named previously. But this crackdown right now that's happening seems to be specifically indirectly impacting some US based, you know, online retailers, brands sounds like they talked to a lot of like digitally native brands.

4:54Like Fabletics was one of them who said that they're basically reassessing their Mexico fulfillment operations. But yeah, what are your thoughts on I think this is something where whenever we talk to companies, they're like, there's just so many moving parts right now. So what they do is like, they wait and see until the very last possible minute to see like where they should reroute or if they should move a warehouse, for example, in this case, from like Mexico to a US based city. But yeah, it is a lot to deal with in order to, I guess, get around these tax exemptions. Yeah, and I think that all of these businesses, their entire business models, all of their profits and losses are based on what their taxes are and where they can import things in and then how they can get them fulfilled and sent from wherever.

5:45And so if you're seeing a lot of things that are rerouted to Mexico or you're seeing taxes go up in Mexico, that changes things. Like in this article, they talk with the Ministry of Supply, another apparel brand that's based in the US, But pretty much it had to reroute things that it was originally sending to Mexico to the East Coast just because there was such a backup. And it delayed things by over a month. And for this, it was a jacket for the winter. And so it screwed up pretty much the winter planning for this company. And it's also just adding additional expenses if you're fulfilling in Mexico.

6:18But if that's not working out for you and you need to move that to the United States, that's an additional expense as well. And so pretty much it's just showing how everything is very much in flux and none of the brands know they don't have a set supply chain with all of these different rules changing and all of these different exceptions either going away or having different issues. It's just sort of a big unknown what the supply chain, especially for companies that source a lot from Asia and China specifically, are going to be dealing with. Yeah, and so much changes within days, if not weeks.

6:50for example like the Mexico policies have already eased up a little bit or at least they're trying to figure out how to ease them which I guess that's how tariffs work right either it's all about leveraging power but yeah so it and like obviously apparel and textile specifically are being hit hard but it could be really any category at any given moment so this is something that's going to be a big focus of ours this year of course we've already started writing about tariffs But it's such a complicated system. So it's interesting to see, I guess, the brand's reaction at any given time. Yeah, and I think a lot of them are doing the short-term changes they can now because of what they know.

7:34But they're bracing for some big changes, like President Trump has been signing a bunch of executive orders over the last week, as I'm sure everyone has been aware of. There's probably going to be one around tariffs. And that could mean that goods from Mexico shoot up by 25 % because that's the tariff that has allegedly been proposed. And so pretty much the hope with what's going on with Trump, according to his administration, is that more things will be manufactured in the United States. A lot of companies, even if they are US-based, get goods or do manufacturing or do some part elsewhere, and that's going to shoot up their cost of goods.

8:09And so right now you're seeing companies scramble to figure out how they might circumvent it or mitigate their costs. But they've also been doing that to an extent just because of all the flux that's been happening the last six months to a year. So it just seems like a bunch of uncertainties and a bunch of changes are on the horizon. Yeah, and I think this is something we talked about, but it even comes down to things like raw material or one piece. Like even if you are actually technically making your product in the US, like they want you to, if you need like a jar or a bottle that comes in from Asia, you do have to pay those taxes.

8:42So yeah, it is a lot to keep tabs on. So we will be doing that. But yeah, let's move on to some other retailer challenges, which are layoffs. So January is typically a pretty big month for layoffs. And we have a few companies we're going to be looking at. But this week, there's been a bunch of announcements I mentioned at the top, which is first up, Kohl's said that it's going to be laying off about 10 % of corporate workforce. So that's a big number. And we'll talk about why that is. It's part of a bigger sort of turnaround plan that they're under right now. And then Amazon, you know, it does have this tendency to sort of constantly create efficiencies.

9:29This time around, their communications department is being hit. So it's like several dozen people are being laid off. And then Shopify is also reportedly letting go a bunch of customer support members. January is a big month for layoffs typically but according to the Bureau of Labor Statistics this is part of a bigger trend so last January 2024 it was actually the biggest layoffs month in about 15 years I think it sounds like this January might not be as bad but like we're seeing in all of these sort of high profile corporate layoffs we should be expecting some more but why don't we get into what exactly these reductions mean for each company?

10:19Sure. Yeah. And of course, every company has its own reasons. This is also, as you said earlier, just the time when a lot of layoffs happen. Usually it's maybe a company isn't doing well, maybe it's doing a turnaround plan. But also, as with Amazon, as with Shopify, maybe the company is doing fine, but it has a new strategy in place and just wants to reduce headcount in certain areas. It's not emphasizing as much. But I think the Amazon one is interesting, A, because it's the communications team, which is as front-facing as you can get at Amazon. But it said in a statement to Bloomberg, following a recent review, we're making some changes to the communications and corporate responsibility organization to help us move faster, increase ownership, strengthen our culture, and bring teams closer to customers.

11:01So essentially, it's saying it was too, I guess, I don't know if siloed is the right way, but they had too many people and they want to have people work faster and work more efficiently, which is corporate speak for we wanted to save some money and so we're cutting some heads. Yeah. And then we have Kohl's whose announcement, like I said, really has more to do with this overall holistic strategy to improve the business. The company brought in a new CEO just a few weeks back. And also they recently announced a bunch of closures for underperforming stores and its online fulfillment center. So yeah, that one is a little bit different than let's say what Amazon is doing.

11:41Shopify did not give any comment to Business Insider who reported this about why the alleged layoffs are happening. But previously, we've seen that the company has been retooling its customer support division as you know, different programs pop up and they shift their focus on different parts of the business. So So I guess that makes sense. And then VF Corp's layoffs that you guys talked about last week is also similarly to Kohl's, a more of a turnaround strategy. So, you know, reductions are part of that, not surprisingly. But yeah, I mean, it sounds like things are improving, I guess, at least compared to a year ago.

12:26But these do, to me, show that the industry as a whole is still trying to find its footing in this really challenging environment and cutting costs is usually one of the first things they do. Yeah. And I think that this is not a new playbook. Companies have been cutting costs for centuries, but it shows that there's still a lot of uncertainty. I imagine we're going to be hearing more of them down the line the next few weeks. And there are so many companies that we've written about or we've talked about here that are undergoing, quote unquote, turnaround plans. And usually when there is a turnaround plan or a revitalization strategy, it means they're going to be laying off some folks.

13:07And so I think the example of Kohl's is a perfect one where you're seeing a retailer close underperforming stores, lay off hundreds in the corporate department, bring on new top brass leadership. That's a lot of what we're seeing, especially with some of the more ailing retailers. And probably we'll hear more about that down the line. Yeah, for sure. okay well speaking of turnaround plans let's talk about one that did actually uh seem or seems to be working already um but it's uh chile's is kind of having a rebound or a rebrand should i shall i say after a few years of struggling um so you know let's talk about their quarterly uh sales so this is really brinker international which is the parent company of chile's and magiano's restaurants we'll get into that one later.

13:58But it did be estimates for its second quarter, as far as restaurant sales go. And it gave a positive guidance for its full fiscal year. I think it surprised a lot of people. But they have been, like I said, you know, undergoing this big strategy to bring people back in for triple dippers, I believe, right? Is that what it's called? I don't know, you're gonna have tell me, but I might need to try it now if people are going there. So let's just look, the numbers were super interesting. So like its sales hit$1.346 billion, which is up from$1.064 billion last year. Same restaurant sales grew by 31.4 % at Chili's specifically.

14:43Profits also grew, net income went from$42 million last year to$118 million this year, which is a big jump. And then, of course, when that happens, shares spike. The shares grew by 15.6 % when this news hit on Wednesday. And I thought this was really interesting is it's the highest daily percentage jump since April 2020. So everyone remember April 2020? I try not to, usually. But that's pretty much the biggest share jump it's seen since pre-pandemic, essentially. So I'm sure the CEOs are happy about that. Yeah, so the CEO, Kevin Hodgman, he actually outlined all of the things that they've been doing.

15:24So a lot of this I should just emphasize has been driven by Chile specifically. And basically what happened is that all these new customers are coming in and then former diners are also coming back more frequently. So he said that these results would indicate that we were building a much stronger business for the long term. So yeah, let's get into what's driving this. There's a bunch of things that they did that I found interesting. So they did things like they simplified the menu, they cut 13 items, which I think is a thing you're seeing in a lot of these chain restaurants where a lot of the bigger chains have bloated menus.

16:01Think the Cheesecake Factory, think the Olive Garden. And a lot of the focus for many of them has been to really... we can also talk about red lobster. I think that's a prime example. Yeah, I think we talked about that last time. Yeah, exactly. Like they, we had too many things on the menu, too many bells and whistles. Let's just go back to basics. So that's one. I guess the CEO mentioned cooking upgrades using higher quality chicken breast, serving fresh house-made guacamole. You know, everybody goes to Chili's for the guacamole. So that's a great thing. Turbo chef ovens, which combine modern cooking methods to rapidly accelerate cooking.

16:34So they're using that as opposed to conventional oven. So new tech upgrades. And then there's also some marketing things. So do you want to talk about the marketing side? Yeah. So there's this big campaign on social media that's been going on that is promoting the triple dippers appetizer. I feel like that's one of the famous items that Chili's has had for years now. But yeah, he said that this accounted for 14 % of overall quarterly sales. He basically said like this doubled that business. So, yeah, young customers are really looking. I mean, especially right now, we're seeing higher menu prices across the board and all different kinds of dining experiences.

17:16So value seems to be driving a lot of that. And, yeah, I think the social media aspect definitely helped. I mean, they're investing in advertising, of course. So it seems like it's paying off. Yeah, there's definitely more stories to be written and more to be done about just the sort of renaissance that's going on with these restaurants that have been around for decades that used to be really popular in the 80s or 90s. Some are still not doing well, but others are beginning to see a boom again because they've been able to revamp the menu, they've been able to tap into nostalgia, and they've been able to sort of like tap into something, especially on social media with these marketing campaigns.

17:52And I think Chili's is another example of that. So it's really fun and interesting to watch. And, you know, hopefully, you know, we'll see which one is next. Maybe it's the Cheesecake Factory. Maybe it's Olive Garden. I don't know. Yeah, well, you know, next up might be actually Maggiano's, who is also under the same parent company whose sales only grew by 1.8%. So they didn't talk too much about that because they are focused on the glowing Chili's numbers. But they did say that, you know, this is going to be they're going to be turning their attention to that. And then, of course, you know, trying to maintain the Chili's growth at the same time.

18:28So, yeah, it seems like this is, I guess, a success story that, you know, last time we talked about Red Lobster, their young CEO seems to be highlighting a pretty similar strategy as far as modernization. But, yeah, we'll keep an eye out on that. Yeah. And I've never been to Imaggiano's, but maybe I need to go. Yeah. I don't even. Is there one nearby? I have no idea. I've just checked. Modern retail dinner. There are 52 Maggiano's restaurants, which for a national chain does not seem like a lot. Yeah, no, for sure. All right. Well, this week for our wrap up, we do have some sad news or bittersweet news from Kale, who is going to be leaving us.

19:13But, you know, we are excited to see where you land and what you'll be doing. But Cale, why don't you give the listeners just a little bit of a wrap up or goodbye? Yeah, sadly, this will be my last Modern Retail Rundown. It's been great co-hosting this with you, Gabby, but I'm excited to keep listening going forward. I have one more podcast coming up next week, which will be my last one, which is with Modern Animal, which is a fun new next generation veterinary company that we talked about what's going on in the vet space, how it can be disrupted, all that jazz. But it was really fun. Great. yeah and then you can follow us on social media at Modern Retail for more coverage and come back on Saturdays for more rundown thank you