Rundown: Dollar Tree sells Family Dollar, GameStop bets on Bitcoin & H&M's profit plummets

0:07Hello, and welcome to this week's episode of the Modern Retail Rundown. I'm executive editor Anna Hensel, filling in for Gabby Barco, and I'm here with reporter Julia Waldo. Julia, how's it going? Good. Thank you. Yeah, excited to be back. Happy Friday. Happy Friday. So we have an interesting array of news today. So first up, we're going to be getting into why Dollar Tree is selling Family Dollar. Next, we will talk about the latest with GameStop and specifically how it's taking more of an interest in Bitcoin. And then lastly, we're going to be digging into H &M's earnings and what it says about the state of apparel.

0:51But first, let's get into some drama in the dollar department. So Dollar Tree is selling Family Dollar for about$1 billion. Julia, do you want to get into how we got here? Yeah, absolutely. So earlier this week, Dollar Tree announced that it was offloading Family Dollar to a pair of private equity firms. This is about a decade after it acquired Family Dollar for some$8.5 billion. So going from$8.5 billion to$1 billion, it's a pretty steep drop. Originally, when Dollar Tree was acquiring Family Dollar, there was a lot of attention around it because it was competing with Dollar General to get Family Dollar.

1:30There's so many dollar companies in the mix here, which we'll get into later. But basically, Dollar Tree finally bought Family Dollar in 2015. It said that it really thought that the sale would help it kind of build up its assortment and offer better value. But the reality is that Family Dollar's business has been kind of rocky for months. You know, Dollar Tree has already been closing stores for Family Dollar. That's been going on for the past year. And then nine months ago, in June 2024, Dollar Tree said that it was considering some sort of sale or spinoff of Family Dollar. So this new news, now that it is selling Family Dollar, is not totally unexpected.

2:10It is still pending regulatory approval, but it's expected to go through later this year. Yeah. And this is the dollar store space is so interesting to me. The one I'm most familiar with is Dollar General, but there are a lot of other players in the space that I think people forget about. So Julia, what do you know about what makes Dollar Tree different from Family Dollar? Yeah. So there's a few different things that differentiate Dollar Tree from Family Dollar. One of them is the consumer base. So Dollar Tree mostly caters to middle-income consumers in suburban areas. On the other hand, Family Dollar mostly caters to lower-income consumers in urban areas.

2:55You know, research indicates that lower income consumers are more affected by inflation in terms of, you know, their purchase habits and such. So Family Dollar is dealing with that. Another difference between the two of them is merchandise mix. So Dollar Tree has kind of a wider variety of stuff, you know, seasonal goods, party supplies, snacks, kind of more different occasions than family dollar. And then also another thing is pricing. So Dollar Tree has multiple price points, you know, besides the regular dollar. So actually, you know, last year it added about 300 items above$1.25. And those include like frozen items and refrigerated items, things that are more in the$4 to$5 mark.

3:42So definitely, you know, higher price points there. So the two of them, yeah, they're definitely both in the dollar realm, but they differ in some pretty significant ways. Yeah, I think that's something that people forget. And to be honest, at this point, most dollar stores, their entire assortment is not made up of$1 items. And in fact, some of them might be like, a lot of them are like$1.25 now and up. But this also comes at an interesting time because I think that dollar stores are one of those categories that is thought to do better during an economic downturn or during a time when there's less consumer confidence.

4:28But that's not always the case. And I think a lot of it comes down to the fundamentals of retail, of course. But Julia, what do you feel like this reveals about the state of dollar stores? Yeah. So it's kind of a tricky time to be a dollar store because, as you pointed out, there is this perception that if you're a dollar store and it's an inflationary environment, you're going to be fine. But it's not enough to just have lower priced items. People are still making decisions left and right about trading down and what they want to buy versus not buy for the week or the month, depending on when they get their paycheck.

5:02um so with dollar stores that's really when um like value and merchandising mix kind of come into play i know you know we both have you know looked into this before but there's just so many competitors in the market also you know competing with the dollar stores like you've got timu and shein and walmart and all of those offer their own discounts and deals and so that too is creating a kind of a challenge for these dollar stores as well. And the one other interesting piece of news that I saw recently, again, I'm more familiar with Dollar General, but a few years ago now, Dollar General launched this sub-brand called Pop Shelf that was meant to go sell a little, slightly more expensive goods and go after a slightly higher income consumer.

5:53It would sell things like more home decor, they're actually closing most, if not all of those stores right now. And I think it just goes to show that like, yes, even though more customers are looking for deals, this still, it doesn't necessarily mean that this is a great time for dollar stores. And because they serve a lower income consumer, you know, their budgets are going to be stretched more than maybe the customer base of other retails. So I feel like then it's a time, a lot of these dollar stores are kind of like, okay, we kind of need to really focus on the basics and like what's really working well for us.

6:31And it's maybe not a time to experiment with new concepts. Absolutely. Absolutely. Yeah. Like as you talked about, you know, it is, it is difficult to make this work. You know, if you are a dollar store and not everybody has been able to make it work. Like, you know, we had 99 cents only declare bankruptcy last year, which I was sad about because I love the 99 cent company store. But I mean, they and they couldn't make it work. And they specifically said that inflation was a big issue for them and they just couldn't overcome it. And sometimes these macro trends are just they're just too much when you are trying to make your business work.

7:07OK, next, we are going to be talking about GameStop, which has been in the headlines for a variety of reasons over the years. They're once again embracing some unorthodox tactics. So Julia, do you want to talk about what's the latest with the company? Yeah. So there was a regulatory filing from GameStop earlier this week. It caught a lot of people's attention. Basically, GameStop revealed that it's closed a quarter of its stores in the past year, which equates to about 1 ,000 store closures worldwide. As of February 1st, it still had about 2 ,325 stores in the US. So still a pretty significant footprint.

7:45But GameStop now says it plans to close a quote, significant number of additional locations in the coming months. The interesting part of this that we're going to get into a little bit more is that the company said that it plans to basically possibly invest a portion of its cash or future debt or equity into Bitcoin, which is, you know, a buzzy topic for the past several years. So I was looking at a CNN story as I was researching this. And my favorite quote in the story, which comes from perennial retail analyst Neil Saunders, is that he believes the pivot to Bitcoin is really a defense against irrelevance, which is not a great position for a retailer to be in.

8:32So Julia, what else has GameStop been up to over the last few years? Yeah. So GameStop, you all might remember, has had a bit of a wild history over the past few years. In 2021, it was the subject of a short squeeze. They later made a movie about it with Paul Dano, which I did see. I was one of only a few people in the movie theater, so I don't know. Yeah, I actually don't know how well that movie did. It's so funny because it was something that really captured a lot of people's mindshare at the time. And then like, by the time they made a movie about it, I wonder if everyone had forgotten about it or stopped caring.

9:14I know. Like, I feel like if you said like, oh, you know, Roaring Kitty these days, people would be like, what? But yeah. But yeah. So they were, you know, obviously a subject of, you know, the movie, lots of memes. Basically what happened is that GameStop's stock price had fallen. You know, they're primarily a brick and mortar retailer. They were really struggling to adapt to the e-commerce landscape and they were dealing with the fallout of the pandemic. And there was a lot of chatter, particularly on this subreddit called WallStreetBets, that the stock was undervalued. So all of these, you know, investors started buying GameStop stock and it just rose and rose and rose and rose and just took off to levels that people were not expecting.

9:57Yeah. And just some interesting stats I saw as I was researching this, which is around the peak of this mania, which was again in 2021, GameStop's market cap was about$33.7 billion. Today, its market cap is about$9.84 billion. So that is a big, big decrease and I think explains why they are getting into stuff like Bitcoin. But Julia, what's been going on with GameStop since it became a meme stock, like, how do you feel like all of this internet interest has affected GameStop since then? Yeah, it's interesting, because I feel like GameStop, everybody was talking about it for a while. And as you said, it was a subject of many memes.

10:45But ultimately, like, none of the memes helped. It doesn't it doesn't solve the issues. Right. Like they still had the issue in that they are still a brick and mortar retailer predominantly and they had too many stores. And so, you know, over the past several years, GameStop has tried to, you know, fix that by closing stores. It exited operations in overseas markets like Ireland, Switzerland and Australia. but you know it's still struggled to figure out you know exactly how it can compete and also a lot of people are buying video games these days online you know through different platforms and you know I think GameStop has had a bit of a difficult time in trying to get customers to come to it first.

11:38Yeah. Yeah. I feel like it boils down to the issue of, okay, what is exactly its unique value proposition? And I think sometimes when retailers don't know what that is, that's when they start to glom on to kind of these buzzwords like crypto and Web3. And so this isn't the first time that GameStop has gotten into some crypto-related stuff. in 2022. For example, it launched a digital wallet for NFT and cryptocurrencies. I don't know how well that's done, how many people are using it. But yeah, I feel like to sum it up, if GameStop invests more in Bitcoin, it will take more than Bitcoin to help the company establish long-term relevancy.

12:28Yeah. Seems like just putting a band-aid on the issue a little bit. But we'll see what happens. Okay. Lastly, we are going to talk about H &M's earnings. And this has been a very interesting earnings season, I think, because we're all just trying to read the tea leaves and figure out what consumer sentiment is right now. H &M's earnings, the numbers were actually down quite below estimates. So Julia, do you want to get into the numbers? Yeah, absolutely. So H &M's first quarter net profit was down by more than half from a year earlier. So 53 % decrease year over year. Meanwhile, its gross margin lowered from 51.5 % a year ago to 49.1 % a year ago.

13:17So there is one positive in that H &M posted a 3 % increase in same store sales for its most recent quarter, which I should say was from December to February. But the company also acknowledged it still has a far ways to go. And the CEO said this quote in the earnings, which I'll read, quote, our sales and earnings in the quarter were somewhat weaker than planned. But the first quarter is the smallest quarter of the year for us in terms of sales and margin, and we are confident going forward. So, you know, it's optimistic. I think there's a lot going on in the market right now, which we'll talk about.

13:52But it seems like H &M is trying to make it work. Yeah. Was there anything in particular that they pointed to or seemed to blame for why its sales and earnings for the quarter were somewhat weaker than expected? Yeah. So a few different things. Basically, H &M talked about markdowns a lot. They said they were higher than expected. And they pointed to a later Black Friday, which, you know, Black Friday happened later in the calendar year this year. And then also H &M said that, you know, there's a climate of high inflation right now, you know, as we've covered on Modern Retail and just talked about, you know, higher inflation can, you know, deter some people from shopping.

14:36And also H &M, you know, has been investing a lot more in marketing, which is probably expensive. So, you know, last year it hosted Charlie XCX concerts, you know, really getting into the brat summer vibe of everything. And then this year it just brought on like FKA Twigs, the model for its new collection, also brought on Tyla as well. You know, that definitely I'm sure eats into things. And then, you know, in general, H &M also just continues to face competition from these other fast fashion retailers like Zara and Shein. You know, the competition is fierce and the space is becoming really crowded and cutthroat.

15:18And so, you know, it's not as easy as it maybe was a decade ago. Yeah, it's a very crowded space. I don't know if there's one clear winner because I know that Zara's parent company reported earnings not too long ago and those also weren't great. And I think it boils down to, like, I feel like the big challenge a lot of companies face, which we've talked about a little bit, is just there are so many options on the market now, especially for a category like fast fashion. And so it's really hard to convince consumers that you're like the one brand they should buy from. I feel like now, especially as people become more value conscious, they might like bounce around a lot between a few different brands and retailers, just depending on like who has the best sale that week or something.

16:11So it will continue to be more cutthroat, I feel like. But did H &M say anything about what's next for it this year or kind of what else it plans to invest in? Yeah, so H &M, it's kind of in a tricky place right now because it's dealing with tariffs. Yeah. Like a lot of other apparel retailers. Basically, H &M's biggest manufacturing hub is in China and, you know, then Bangladesh. China's already dealing with U.S. tariffs. Bangladesh is one of the countries at risk of these so-called reciprocal tariffs that U.S. President Donald Trump plans to announce very shortly on April 2nd. And actually H &M has said that in the U.S.

16:53it might have to raise prices because of these tariffs, which is a boat a lot of other retailers are in. You know, H &M is also trying to make its stores more up to date. It's been upgrading some of its stores while closing other ones. and it now has about 4 ,000 stores globally, which is actually about the level that it had in 2016. It kind of went up and then now went back down again. So yeah, it seems like they're just really trying to find ways to make it all work. Yeah. Again, it's a tough consumer landscape for everyone. We'll see what happens with H &M. Absolutely, absolutely. Yeah, I think it's really hoping that it's marketing initiatives and, you know, these new store upgrades can help it get back on its feet.

17:41But it's a tough time. I mean, we just had the bankruptcy of Forever 21 as well, you know, so the fast fashion is really, it's really going through right now. Yeah, well, that's all from us this week. You can follow us on socials at Modern Retail for more coverage. On Thursdays, you can listen to the Modern Retail interview show and we'll see you back here on Saturdays for the Weekly Rundown. Thank you so much for listening.

18:10Thank you.