Rundown: Express's financial woes, retailers ban shoppers for excessive returns & Walmart eyes Vizio acquisition

0:06Hello, everyone, and welcome to the Modern Retail Rundown, where we break down the biggest and most interesting retail headlines of the week. I'm senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weisman. Hello, Kale. Welcome back. I've been gone for the last week, but it's good to be back reading the headlines, thinking about all things retail. How are you? Great. Yeah, a week is like a year in retail, so we'll try to catch up. Yeah, we'll do it. Yeah, so we can get started on this week's show. So we're first going to take a look at Express's financial status in light of all these bankruptcy reports that are coming out.

0:48Then we will get into the growing returns crisis, which has been highlighted from a lifestyle standpoint in The Cut this week. And finally, we are looking at Walmart's reported interest in buying the TV company Vizio. So first up, let's talk about Express. So a lot's been happening, so we can maybe just give a little bit of a rundown, if you will, about what the latest report is. So basically, the Wall Street Journal reported this week that Express is working with advisors and law firms about either restructuring its debts or filing for bankruptcy. I mean, we'll get into it later, but they have been on this supposed turnaround plan that we've been writing about for over a year now.

1:43So this comes at a pretty crucial time. Express has been trying to turn around its business for a while now, but it's also not been able to grow its sales, really. And it's also only been increasing its debt load. And so there was even another report. So first, the Wall Street Journal came and said that it hired these advisors, a law firm, etc. Bloomberg also reported, citing unnamed sources that the creditors that Express works with, they're trying to figure out a way to either decrease the debt or the creditors are just pushing them to file for bankruptcy altogether. And so pretty much it seems like the issues that have been slowly mounting for well over a year now, but definitely got more heightened in the last 12 months, are reaching ahead and it might lead to ultimately a bankruptcy.

2:31That seems to be where things seem to be going, I would say. Yeah. Well, let's look at those financial numbers. So right now, the mall retailer is in around$280 million in debt. And over the last three quarters, it lost over$150 million. So obviously not profitable at the moment to be able to turn that around. But yeah, and then late last year, they took out a last minute loan,$65 million that has an interest rate of around 15%. So all of this together, it's a lot of millions, a lot of dollar signs. It's a lot of dollar signs, and it's easy to take up debt, but it's harder to pay that down when sales are not increasing, and that seems to be the issue.

3:24And so a lot of the reporting that's been going on this week is pretty much expressed going back to the debtors it's worked with and saying, hey, can we talk? Let's try and figure this out. And it seems like, at least according to what's out there right now, they're saying no, or maybe you should just file for bankruptcy. And so it's not looking great. Yeah. I mean, who amongst us hasn't called American Express asking for extended credit? Yeah, I mean, at this, we can talk about what really what led up to this moment. Like we said, Express has been trying to reinvent itself for years now. Obviously, it's known as a mall retailer that we grew up going to or passing by at the mall, if you aren't going in there.

4:16But they were trying to kind of get back to basics with their workwear. That's what they're known for. But it was always missing the trends piece. And that's really hard to compete with when you're trying to compete with the Zaras and all the way down to the Sheeans out there. Express still has that sort of like 90s, early 2000s, at least from a fashion perspective, connotation. Yeah, I think that its connotation has always been dated. Its locations have always been dated where it's always been associated as just one of those retailers that's in a mall. And maybe if you're looking for something very specific, you would go there.

4:57I thought it was kind of interesting. And I think you would know more about this than I would. I personally have never bought anything from Express because I believe it's only women's wear. Is that right? Can you correct me if I'm wrong? No, I think they have men's wear. They're known for like button down shirts. Okay. I apologize. I still have never bought anything from Express. But the Bloomberg story mentioned how 10 years ago it had one slight big hit. I think it was called a Portofino, which was a workwear top that seemed to catch the moment. But that was one piece 10 years ago. And when you look at the other, the competitive landscape around, they're launching new types of products, new cuts, new colors every day.

5:39And it seems like Express was never able to sort of do it at that cadence, at that clip. And that is ultimately why it has stumbled where it just hasn't had the, you know, the assortment that its competitors has. Another thing that they're trying to do is grow internationally. They have this partnership with WHP Global where they're trying to do that. Another thing that they did with WHP is acquire Bonobos for$75 million. So kind of going the DTC startup route with that acquisition. And then what we could really get into, which we have covered extensively, is new store formats, which I think they always highlighted as the new go-to strategy, the big piece that they're looking at, which is smaller footprints, opening in more on high streets or downtowns versus in malls.

6:39So trying to get away from that reputation. And they have been. And it's just that these stores obviously haven't necessarily been doing as well as they hoped. Yeah. And I think that it's important to know, just zooming out industry-wide, if you're an ailing apparel retailer who was once in the mall, the drumbeat that you are hitting is that you're updating your store format. you're going more smaller format, which is a way to say that you're more with the times, but also probably a tip to investors, a tip to all the business people that you're spending less on rent, but also that you're looking to be in more high-trafficked areas.

7:17So we've talked about this multiple times, but that's something that Macy's has been doing. Macy's has a bunch of off-mall stores that are a more curated assortment that are meant to tap into other trends. And we have yet to see one of these retailers really hit a home run with this strategy. Like, I'm sure it does help incrementally, and I'm sure it does, you know, do something to turn around the image, but it's yet to be the actual real core piece that will help these brands actually turn business around. And like, you know, I was looking into this, Express's edit store, the small format store, it's in pretty popular places.

7:58I think there are two in Manhattan right now. Like, I think there's one in Soho, if I'm not mistaken. I'll double check that. But like, it clearly, it's a smart move, but it has not moved the needle as much as these companies hoped it would. Yeah. And of course, stores cost money. So this is obviously coming after they had already closed or announced they were closing about 100 stores. So it's sort of like trying to replace those huge locations they used to have. So, yeah, we can get into the next step, which is, is this all due to the decisions that Express is doing? Or it's, you know, of course, what we talk about every day, which is the overall landscape for everybody is just not great right now.

8:42So even if you do have a great turnaround plan, it's not necessarily going to go into effect at this moment. Yeah, and I think that the big elephant in the room with Express, but we should mention that Express's problem predates this phenomenon. But Sheehan is the big elephant in the room. And so when we talk about fast fashion, we talk about these new digital upstarts that have an insane assortment that changes every day that clearly people are turning to to buy their clothes. And a lot of those people are either the customers that Express used to have or the customers that Express hopes it would have, such as Gen Z.

9:21And we're seeing a lot of other competitors try to reformat their business models to compete with Shein. So, you know, you have H &M, you have Forever 21. Forever 21 has a deal with Shein. And, you know, H &M and Zara have also made changes to try and show that they can play ball with these new digital upstarts. But we've not seen that really yet with Express. And so I think that is really the big industry thing that's going on that is leading to a lot of the issues that a company like Express is facing. Right. Especially because it was never known for fast fashion. and that's not where its price points are.

10:03So I think even if it wanted to, that's not really where the category is, at least for Express's items. Yeah, and I think that Express essentially is lost in the middle where it's not high-end and it's not fast fashion. And there used to be a place for that before, but now there really isn't. And you're seeing, you know, you can point to department stores like Macy's and JCPenney and Nordstrom. They're facing the same thing. Theirs are a little bit more heightened because they're more bloated, they're bigger stores, and they're not, you know, they're mostly apparel, but they're not just apparel.

10:37But Express, you know, whenever you're talking with an analyst about a company like Express, even though it's not quote-unquote fast fashion, you still say Sheehan in the same breath. Yep, always. Yeah, so we will look out for that. You know, if they do file for bankruptcy, it will probably be happening very soon. So watch this space. Yeah, and I'll just add one more thing, which I think just shows just how crazy it's been over the last few years. We're not a publication that talks about stock fluctuations, but it does give a sense for what the industry thinks of a certain company. And so Express's stock in 2019 was around$100.

11:21In 2023, so the beginning, a year ago, exactly, it was at$18. And today, it's less than$3. So it's not great. No, 100. That's pretty decent. I mean, that's a lot. A lot more than most retailers. I did not know that. Okay, so from Express, let's talk more about apparel. But this time, reverse logistics or returns, as most of us know them. Yeah, so in this case, there was this story in The Cut this past week that basically interviewed a lot of young women really was focused on about their return habits and the fact that most of them reported being flagged in retailer systems as just making way too many returns that they actually not only can they not return anymore, some of them have been just outright banned from shopping.

12:20So yeah, it's really interesting. It's titled The Return Grift is over. So I guess if you ever thought about buying returning clothes as a grift, then yes. But I think the average consumer is probably not thinking about it that way. So we'll get into why that is. Right now, as we've spoken about a lot, returns have become a really big problem for retailers. So it does make sense why they're doing this. Unfortunately, it is coming at the expense of sometimes loyal customers that are basically being punished for not liking an item and just taking it back constantly. Yeah, I mean, I think there are a lot of issues at play in the story.

13:05And with this overall problem that's going on, returns continue to be one of the major issues that every brand, every retailer deals with. It's especially bad for apparel. But just to give a sense, according to NRF, I'm pretty sure this is, in 2023 alone, people returned$743 billion worth of merchandise. And then if you look at return rates, I was doing some research before, it's a really big problem for online brands and retailers. And so I think the average return rate is a little around 15 % for all types of companies, but then it goes up to above 17 % if it's an online brand. And so pretty much it just means that people are more comfortable buying things online and then being like, no, I don't want this.

13:53I'm going to return it because it's free and fast and I can just send it off to the post office. But that means that A, people can abuse it. But B, companies that are trying to crack down can get a little bit overzealous with how they do crack down, which is the tension that's being talked about in the story. Yeah. So to give an example, one shopper who has been shopping at Urban Outfitters since high school, relatable, has been returning just constantly, you know, probably I think she says pretty much every trip. And her justification was that she lives, I believe, in San Francisco without a car.

14:34It's hard to, you know, go to the store, you know, try things on before, you know, buying and returning. So people do have their reasons for it. But I think what's really interesting is that when Urban told her she's basically banned from shopping there, first of all, it was all of their brands. So that's Anthropologie, Free People, all of them. But with that said, I think what's interesting is that the qualifications of being an, I don't know, doing excess returns or being an offender seem to be pretty subjective. Some of these people, you know, this runs from ASOS, Urban, all the way to Essence, aren't really getting an answer of, you know, is there a certain number of dollars?

15:20Is there, you know, a certain amount of orders that you have to hit to be banned? And I think that's where we kind of get dicey. Yeah, and I think another issue is that a lot of these companies like ASOS, and I'm pretty sure Essence, though I might be incorrect about this, But they have loyalty programs where you pay a yearly fee. And the idea is, we want you to buy a lot of things with us, and then you get free shipping and free returns, or fast shipping and free returns, I should say. And so pretty much a lot of these brands are saying, hey, we want you to do business with us. We're going to make this even more frictionless.

15:55But then if you use these services that they provided for which you're paying maybe$25 a year for, if they think you're going over the line and not really giving a sense for what over the line means, then they'll cut you off for life. And so that's a lot of what's going on. There are people like in this piece, they talk about people who return$15 ,000 worth of merchandise. One person said she returns 99 % of the things she buys. Some of them are stylists who use it to buy things, photograph it, put it on their stylist page, and then return it. But there are other people, like I see on TikTok all the time, a lot of people who just out of the blue return something, then they receive a notification from ASOS saying that they're banned for life and there's nothing they can do.

16:39And so it's sort of this weird, very, it's a blunt force that's being used for all types of what the company thinks is nefarious activity. I could understand, you know, being upset by this because for years, e-commerce retailers boasted about free and easy returns. Like, I feel like that used to be on every landing page until a few years ago. So it was built into the business model. And that was part of what encouraged people to shop online, right? Like most people knowing that you're shopping worry-free is going to encourage you to purchase probably way more than you really intend to keep. Whereas if you know you can't return something or if you have to pay for it, in this case, I think like Zara right now makes you pay for returns online, you're probably going to do it a little bit more considerably.

17:29So it's a two-sided coin in this case. Yeah, and I think that the big trend we've been seeing in the last year is this backlash of the once free returns. Like, you know, you mentioned Zara, I'm pretty sure REI, I think anthropology as well, if I'm not mistaken. Now I'll have some form of a fee or an added stocking fee or something like that, that tries to make it so that it's not just free and easy returns, which is all going towards training the mindset of the online shopper to stop thinking about it of, I'm going to buy$1 ,000 worth of merchandise and then return$850 worth of it. But on the other end, there are people, I don't know, there are people who have done this for years and probably are keeping a lot of the merchandise, but they say that they're now being banned from some of these stores.

18:19In some cases, I think we're ended on a somewhat positive note, the story that is, is that Sephora gave one of the people who spoke to the cut a warning because she was buying makeup and returning it, which they do allow. They say, you know, if you don't like something, even if you use it, you're allowed to return it. But I guess she was doing it often enough that Sephora gave her a warning. And she does say like, now she thinks a lot more deeply about what she's buying before taking it home and opening it. So I don't know. I think it's in this case, to me, I think as somebody who hates returns, it's very much a retraining the customer to not expect it.

19:00And that's going to be really hard to do because it's kind of, like I was saying before, I feel like I'm beating this, but this is really what they built their business on. Like, you're letting us, you know, I don't have to go to a store. I can just wait for my package to come. And if I don't like it, I could return it. So we have to really rethink all of that now. Yeah, and there was one big thing that wasn't really touched on in the article, but I thought is something that should be examined more. And we should be asking brands more about this, which is it's a big issue of customer service. Because my understanding, especially with ASOS, is that there's no course by which you can ask for a trial.

19:41You can appeal it, pretty much. Instead, they just tell you, you're now banned. That's that. and the only recourse that I've seen for customers is they make a TikTok and hope they go viral and maybe that'll catch the eye of someone in the brand, which has happened. Like I've seen an entire saga of one person who did do that or they dispute it with their credit card so that they actually get some of the money back, but then they still can't shop there before. There's no customer service page. There's no way to talk to someone so that you can get an actual clear answer about what was the infraction that you did that led to it or say, maybe can you look at this again because I didn't return that many items.

20:20So I think that's one of the big issues that I think will be a bigger thing that customers will talk about down the line is that they actually don't have a direct line to these brands that are making these pretty harsh decisions. Yeah, I mean, in the case of ASOS, there's no actual number you can call. It's just chatbots. So you can keep, you know, asking them till the cows come home. It's just going to be a final decision, it seems like. And I actually also wanted to mention that this has always been, I guess, an internal or quiet strategy among designer brands. They do have systems that flag people who return luxury items.

21:01So the fact that it's trickled down to fast fashion, really, in this case, I think that's pretty interesting. Yeah, absolutely. From returns, let's move on to the connected TV space. So this is basically just a report that's alleging some acquisition that's happening that hasn't gone into effect yet. But this week, Walmart is reportedly in talks with acquiring Vizio, which makes pretty affordable TVs, really is what they're known for. The Wall Street Journal reported that this deal could be worth over$2 billion. dollars. And we will get into why that is, because that's a lot of money. It's not just buying the TVs themselves, obviously, that they're into.

21:53That's the last of it. No, yeah. It's really, I mean, it is a hardware play because Vizio makes TVs. I bought a Vizio TV, I want to say 10 years ago when I didn't even know what Vizio was, but was told it's fine, buy it. But it's really the tech inside, and that it has a free ad-supported streaming service, which if Walmart owned, would really be a big tectonic shift in the big streaming wars that are going on right now. And so that's sort of the elephant in the room with this one, where if Walmart does buy Vizio, then it will have its hands in another streaming platform that people don't often talk about, but if Walmart is at the helm of it, we will probably be talking about it more.

22:38Yeah, I also have a Vizio and I think I only just recently realized that it's this watch free plus is their built-in streaming service. And I, yeah, I saw the, I was like, oh, there's like stuff on here. Maybe I should look into this. This is something that Vizio has been working on for a couple of years. They have partnerships with entertainment studios to help fill out their programming. But before we get into that, obviously, the big elephant in the room is Amazon, right? I mean, we just talked about this a couple weeks ago. Amazon's very bullish on video streaming. And really what that means is advertising.

23:20Yeah, I mean, that's exactly it, where pretty much the big play for all of these companies has been trying to get its hand into the video space with video advertising, getting more eyeballs, that type of stuff. And so Walmart has made inroads in this world sort of incrementally and in a small fashion, but it hasn't made as big of a splash as Amazon has with Amazon Prime Video, which pretty much over the past year has been dominated the headlines as, you know, Amazon is boosting up its advertising platform. It's, you know, continued over the last many years to get the rights to a lot of TV shows and movies.

24:00And so if Walmart begins making moves that are similar to that, that makes the competition between the two even bigger. Right, exactly. And we should also mention that, interestingly, this is not the first$2 billion Vizio deal to come about. In 2016, the Chinese company LaEco, I think that's how you say it, announced it was buying Vizio for$2 billion. But that fell through because China is obviously trying to harness just Chinese companies buying international companies. So that's more of a political thing. But it just goes to show that obviously this Vizio's business is robust enough that these big corporations want to get in on it.

24:46But we can talk about what this means for Walmart's business in the future. We mentioned And, you know, its ad network has just been exploding like every other retailer that has one right now. But I guess the way I see it, and we don't know, obviously, how this is going to be incorporated, if it even goes through. But it feels like an extension of what they're already doing, at least on the e-commerce side. Yeah, I mean, I think that I think you're you're totally right with that, where pretty much Walmart is trying to expand its domain in different ways. and that, you know, already Walmart is a major hardware seller.

25:25It sells a lot of TVs, but it's trying to get its hands into more areas that it doesn't sell. I'd say another interesting thing is that, like, Walmart sells a bunch of Vizio competitors, and so it could spell a threat for that. So, you know, there's Roku, for example, which is both a piece of hardware that you can plug into your TV and then you have a streaming device, but also has, you know, is also selling ads and building out its media advertising revenue as well. According to Variety, through the first nine months of 2023, Walmart accounted for 40 % of Roku's device sales. But if Walmart suddenly owns Vizio, that might send a shiver down Roku's back, you know, because, you know, that's a direct competitor there.

26:11So I feel like there are a few other things that this could shake up if it does actually happen. Yeah, because you can imagine there will be some favoritism maybe happening once you own your own TV maker. Yeah. So with that said, I think it will be interesting to see first whether this deal will go through. And I think Walmart just getting further into this is such a cross-section between retail and entertainment, obviously. So yeah, it kind of gives it just another piece of a business that just keeps moving further and further away from just their stores. It shows that everyone is watching the strategies that a company like Amazon is taking and figuring out ways to either respond to it or counter it or make something that could potentially be competitive to it in the years to come.

27:09I'll caveat this with that. Right now, Vizio, as a streaming platform, a free ad-supported streaming platform, is nowhere near as competitive as Amazon Prime. And so that would take a lot of work and a lot of changes and a lot of other things. But the fact that there's a hardware component to it also makes it a little bit different than what Amazon has been doing with its forays into, you know, television streaming, etc. So it'll be interesting to watch. Yeah. And of course, you know, I think when I was reading some of the reports, at least from the entertainment side, they just like to point out how hard it is to do streaming in general.

27:50You know, if Disney can't hack it, it's not going to be easy. Okay. And with that, that'll be all from us this week. You can come back on Saturdays to hear more weekly rundowns. And on Thursdays, you can hear interviews of execs by Cale. Cale, do you want to give us a preview of next week's guest? Yeah, so this week I talk with Adriana Kerrig, who is the founder and CEO of Little Words Project, which makes friendship bracelets and has been doing insane business over the last 10 years. Definitely listen to it. We talk about all things Taylor Swift, which I'm sure most people won't be surprised about, but also just what it means to be in the friendship bracelet space, you know, having stores, all that.

28:38It was a really fun conversation. So definitely check it out. Great. We're looking forward to it. And you can rate and give us a review on Apple Podcasts and Spotify. Thanks as always for listening. And we hope you'll come back next week.

29:01Thank you.