Rundown: Flexport C-suite drama, Draper James acquired & Walmart lowers its starting wages

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, who is joining us all the way from Finland. How are you, Kale? I'm good, Gabby. How are you? I hear it's really warm in New York, and it is perfectly temperate in Helsinki right now, so that's nice. Okay, great. I will try to keep my envy at bay while we do this. But yeah, I think we can get into it. We have some drama this week in the e-commerce world with the Flexport CEO leaving. A lot of good reporting on that we'll get into. After that, we will talk about apparel acquisitions, kind of just continuing to roll out with Reese Witherspoon's Draper James.

0:59And finally, we will talk about why Walmart is reducing the, I guess, starting wage, you could say, for its in-store workers compared to a couple years ago. So, yeah. So, first up is FlexPore. Kale, you want to give us maybe like a quick primer over what's going on here and what is the latest up-to-date news with the shuffling that's going on? Sure. So it's been a saga for the last 2.5 days. But Flexport, for those who don't know, it's a supply chain software startup. Not really a startup. Last valuation was worth over$8 billion. But it has its CEO from the last year, like half a year, stepped down.

1:52His name was Dave Clark. He was an Amazon alum. He actually ran Amazon's consumer business for many decades. And so it came as a shock that this really big hire that Flexport made about a year ago suddenly stepped down. There's been a lot of reporting ever since. It turns out, according to Clark, from some new reporting from the information that he was forced out by the board and from Flexport's co-founder Ryan Peterson, or excuse me, Flexport's founder Ryan Peterson. And there's been a lot of questions just about what's going on, who's in charge, what are the business objectives related to Flexport.

2:33And also, it's a really interesting view into some of the industries that really saw a big boom during the pandemic. So Flexport was a real darling because it was in the supply chain. It made supply chain workflows go easier. It had a software platform that made it so that companies could avoid late fees, could make it so that their entire products were shipped in a more streamlined process. That was the idea. And as such, it's a huge boom in sales over the last three plus years. And then in 2023, at the beginning, with interest rates rising and the end of 2022, all of that began to sputter. And that sort of set off this cascading effect with the business that now has led Ryan Peterson, the founder who had stepped down six months ago as CEO, to come back on.

3:24There's more to it, but that's pretty much the long and the short of it where we are right now. Yeah. And, you know, the idea was that he has a lot of Amazon expertise that he was going to bring in to help scale Flexport to the next level. And of course, the last couple of years, you know, investing in logistics and supply chain was the hot thing in venture capital. And as a lot of people may know, that's drying up pretty quickly as people pull back on that. So it all kind of coalesced in this latest update, which even as of this morning, we're seeing some coming out. So yeah, I guess things do seem pretty dire if a company is rescinding job offers in the midst of all of this.

4:12So that's another thing is that, and a lot of this, what's really difficult to detangle or untangle with this entire saga is what of it is a clashing of personalities and what of it has to do with the actual business. And so Ryan Peterson, he's a very charismatic founder. He is known for having a very bright and open and transparent Twitter feed, for example. Supposedly, according to a Forbes profile from a few years ago I was reading, he has rankled a lot of people in the supply chain industry because of his candor and because he kind of has a tech vibrato about him. And so one of the things that came out late yesterday and today is that first, Peterson allegedly fired as many as five people that Clark had brought on from Amazon as soon as they forced Clark to step down.

5:01And also this morning, Peterson sent a tweet saying that there were many job offers that had been made over the last few weeks that Flexport was rescinding, pretty much saying we shouldn't have made these hires. I'm sorry we did. HR will be contacting you soon, but we don't have a job for you right now, which is a crazy thing to do. So pretty much it is, I can only imagine what it's like on the inside of that company, especially since, you know, the company was on a bit of a hiring spree about a year ago, was trying to hire a lot of tech talent. Then in January, it announced it was laying off, I think, 20 % of its workforce, if I'm not mistaken, which, you know, it's many thousands of people.

5:44So it was many hundreds of people who were let go. There have been stories over the last few months about just the internal tumult and the difficult work culture that is at Flexport. And so I imagine this is just adding kindling to that fire. Right. And I think he even himself on Twitter mentioned that there really shouldn't have been hundreds of roles listings on the website or on Flexport to begin with. and that I saw this as a reply to someone that they are going to help some of these people find new jobs, which I don't know. I don't know what's going to happen with that, but I know if that happened to me, I would not be very happy.

6:27Yeah, that would not be great, especially after getting a job offer and then learning. This is what I thought was really interesting was Peterson hadn't let those candidates know yet that they don't have a job. He posted it on Twitter and then was like, we'll let you know soon. So that's a bad public tweet to wake up to, you know? Yeah, or X, sorry. Oh, sorry. Yeah, it's Twitter forever. Yeah, so I think with this just rapid unfolding of updates, we maybe should just wrap up by talking about what does this mean for the big picture for e-commerce? where there are these big players that have become their own ecosystems that a lot of these e-commerce brands rely on.

7:18And I guess the lack of stability really does seem to shake up a lot of founders' confidence in being able to actually work with these. So yeah, what are your thoughts on that? There are a few real interesting lessons that I have taken from this. And we, I imagine that probably by the time this is aired, it's right now Friday morning. This is going to air Saturday morning. There will be some new revelation that we won't be able to put into this episode. But like, which is to say, this is a developing story. So who knows? I might be completely wrong in 24 hours. But there are a few things that I think are interesting where we are right now, which is one, one of the reasons that the Flexport board allegedly wanted to let Clark go for was that he was spending too much and he was focusing on building too many, I guess, extraneous parts of the business.

8:11And, you know, Peterson instead really wanted to focus on its core offering. And so that seemed to resonate with something that had recently happened with Shopify, which Shopify had a lot of moonshot projects. It was going in many different directions. And then it did major layoffs and said, we need to focus on our North Star, our one thing. And to make it even a little bit muddier, one of the ancillary projects that Shopify was working on, its logistics business, it sold specifically to Flexport. And that was Dave Clark's really big, expensive thing that he did. And so there's pretty much one of the big things that happened when you were a pandemic darling is you said, well, we have our core business that did really well.

8:56Now we're going to try and expand into these new services, these new revenue streams. and now that times are tough, interest rates have risen, those aren't panning out as well or the companies don't have enough capital to keep them afloat and those are being cut back. And I think that's one of the reasons why there likely was tension in Flexport. Another thing that I think is interesting is just the overall culture of being a founder-led business. When you're a founder, your business is a reflection of you and a lot of the times when it gets big, it's worth over$1 billion. dollars, you want to grow it, you want to bring in the big guns who can make it into much more of a corporation, but sometimes you don't like where it's going.

9:36And so you need to, you feel like you need to take it back. And that might be what's happened here, where there was a culture that Peterson had at Flexport to begin with, and then he was ready to let go and say, now it'll be the bigger, more scaled version that I want to be with this new executive. But then he couldn't let go completely. And this is just sort of the world of founder-led businesses, which doesn't often happen in the supply chain world. It does happen in tech businesses, but not so much when you're dealing with the logistics side of things. So there are a lot of different things that I think are interesting that we'll be keeping our eyes on, but those are two big lessons that I think I found.

10:12Yeah, and I just wanted to note that we're talking about a company that's raised billions with a B of dollars. Last round was 2022, not too long ago, and it was 935 million Series E. So there's just a lot at stake here. I mean, jobs, the company itself, all of that. So we'll see what happens. Yeah. And just to add to that, it talks about itself like it's a startup. It was pitched as if it's a startup. It's been covered in a lot of tech press, like it's a tech startup, But it is a billion-dollar supply chain business that now a lot of companies use. And so that is an interesting friction to keep in mind.

10:58And I bet you I would love to hear what people in the decades-old legacy supply chain business, the ones who Flexport is supposedly trying to supersede, what they think about all of this. So next up, we are going to move on to what's become a staple of our weekly chats, which is M &A. You know, especially within apparel and fashion, beauty, all that, we are seeing a lot of consolidation. And the latest one is apparel brand Draper James, which was founded by Reese Witherspoon and has been around for quite a while. It sold to a private equity firm called Consortium Brand Partners. And as far as I know, I don't think they have other high-profile brands.

11:54So maybe this is the start of the portfolio, but who knows? This means the company which last raised funding in 2015, so that was quite a while ago, and is mainly direct-to-consumer and is now trying to push into retail, is probably continuing to scale after this. But I think it's just emblematic of a lot of companies willing to sell at this point. Absolutely. Yeah, no, this is another example of, you know, we're probably a little bit of a broken record, but a lot of companies are facing a crossroads where they either need to raise money or they need to get profitable or they need to find a buyer or, you know, last case scenario, they need to file for bankruptcy.

12:39And so we've seen a lot of these over the last few months. This was an interesting one, kind of a surprising one. But I guess when you look at the fact that they raised, the last time they raised money, at least publicly for all we know, was in 2015. So, you know, quite a long time ago, they raised$10 million a Series B. And so, I don't know. It's interesting because this is just sort of the unfolding of the current state of the economy that we're in right now. And so I imagine this isn't going to be the last one we hear of, though, you know, as the IPO market begins to warm up, maybe we'll begin to see the fundraising market begin to warm up too and we'll see less acquisitions and mergers and that type of stuff.

13:23Yeah. I think specifically in this category, we should talk about the fact that we're seeing these fire sales, as you like to refer to them. And they're happening fairly quickly because, at least from the outside, it seems like a lot of the playbook that these brands had planned didn't pan out. I mean, just for an example, we've seen Draper James that was supposed to open, had plans to open 10 stores. At this point, they only have three. And we've seen that with a couple of other brands where suddenly they kind of halt and say, okay, maybe we'll go into a retailer instead. And so that's usually a sign that there's, you know, profitability is sort of the priority.

14:09Yeah, no. And I think that that's a really good point. And it's also one of the big things that about a year ago, even before the pandemic, but definitely a year or two ago, every DTC company that was able to raise money and was focused on growth instead of profits, they were opening stores because that was their big ticket to acquiring customers, etc. etc. But also stores are really expensive. And so, you know, one of the things that we covered a few months ago was the sleepwear company Luna, it filed for bankruptcy a few months ago. And as we covered, one of the major issues why it fired for bankruptcy was that it had a lot of stores and there were a lot of hard costs that it was on the hook for.

14:51And that was ultimately one of the reasons why it had to do that. And so it's really interesting When you look at a company like Draper James, which has talked about opening stores, it does have a few stores, three, as you said. And I found this story from Retail Brew in 2022, I think, where it was saying how it had plans that year to open as many as five to 10 new stores. And clearly that didn't happen. And also clearly like the company is, you know, that was probably good for the company because it didn't have to sign that many leases and be on the look for that much, that many hard costs. And then when you, when you look at what, what Draper James and its new partners, its new owners are saying, one of the things that they really focused on had nothing to do with stores.

15:38It had to do with wholesale. So Draper James, for example, is now in Kohl's. And pretty much the company said, we want to do more partnerships like that. I think the quote was, it intends to extend its presence in premium department and specialty stores. And so I think that that is a really good encapsulation of where retail brands, especially those that haven't hit a certain scale yet, where they are right now, where they were once focused on doing their own owned and operated stores. And now they're like, no, we can't take on those costs. What if we run out of money? We'll do wholesale. We'll do our DTC.

16:14And that's it. Yeah. And I'm sure we will see a lot more examples of this whenever I speak to VCs. They're like, you should just expect more sales to come into the new year. So we'll keep an eye out on that. Next up, we are speaking of scaling back. We will be talking about Walmart lowering their starting wage for new hires. These are specifically to those who shop in store, they stock shelves, or they fulfill Walmart Plus orders, same day delivery, things like that. And so the idea is that are basically starting in July, these types of new hires are making about a dollar less an hour than the ones who started in 2021, which was sort of the peak heyday of Walmart's grocery e-commerce growth.

17:04So, yeah, I think and, you know, at that point, they had actually already increased their rates to 14 an hour, the minimum wage, because they had to compete with Amazon and Target. But in this case, it seems like, okay, well, now you can kind of maybe go back to basics. Maybe they don't need this many employees. Yeah, I mean, it's an interesting move and it's one that's, you know, pretty, you never want to see a wage go down, in my opinion. Like that points to a bad economic environment for when the minimum wage is set lower. but it is also a sign of the times, as you said, with just what was going on with e-commerce.

17:48Back then, two years ago, there was a real shortage of workers, and so a lot of these companies were raising their wages to try and get more people to work. And I think that ultimately that did help. And then also a lot of them were doing new types of labor that had been done before, namely e-commerce fulfillment. And so I think that we're seeing two things come together with this. One is that the e-commerce demand is less than what it was, and probably Walmart realizes that it needs more in-store associates. But also, too, that the labor shortage is not what it was two years ago, and it doesn't need to be as competitive with wages as it had to be before.

18:27And so I think those are probably the two biggest reasons behind this. Right. And I do want to note that just because the sales of grocery and e-commerce, which is what a lot of these employees were helping fulfill, slowed down. But it is still growing year over year. So it's not like Walmart is, you know, suddenly not doing any sales in this category. So and, you know, it's profitable. I mean, we see those numbers every quarter that come out. It's, you know, these record profits. So, yes, like you said, I think when the wages are going the other direction, it's yeah, it's not great to see. No, and it's all, you know, we're probably going to see a lot of responses from labor movements and unions trying to fight this.

19:13I will be personally interested to see what happens, you know, if this will set off movement from competitors, like if Walmart is lowering its wages for workers, what will Target do, you know, and in that case, what will Amazon do? And so it's definitely, you know, it's an interesting move. And the timing is kind of interesting because I would have expected this maybe a few months ago, but not now when supposedly we're seeing better economic indicators and we're seeing, you know, it's not as bleak as people thought it would be the economic situation. But all the same, Walmart is a big enough company that if it decides to do something like that, it likely will be able to.

19:51Right. Yeah. And it is a bellwether. So a lot of economists do watch it for, you know, when it comes to labor and hiring as a sign of what's to come. So, yeah, like the soft landing that we keep being told about that's happening with you. Yes, exactly. And it's like, yeah, it's, you know, we keep saying that there's going to be that we're in a soft landing, supposedly, or we're not, you never, you don't know until it's over and you're looking back. So, so who knows? But I do think this is a really interesting indicator. And I said this before about just the overall employment situation. And it's kind of a whiplash situation, because like, there were so many labor, like, open jobs, every retailer was trying to hire anyone a couple of years ago.

20:37and now things have drastically changed. And so it's just pretty crazy what two years will do. Yeah. All right. Well, that is our show for this week. Please write and review us on Apple Podcasts, Spotify, or wherever you're listening. Don't forget to subscribe to the Modern Retail Podcast to hear interviews every week with industry leaders. That's hosted by Kale. Kale, do you have a preview of who you have on next week? Sure. So for this month, because I'm in Europe, I'm interviewing European founders and executives. So next week, I'm talking to a yoga and activewear brand called Sisterly Tribe.

21:18They are from Sweden, and they're super fascinating. And it's really interesting talking to a DTC startup that's not from the U.S. because it's a very different mindset and a very different playbook. Yeah, very excited for that. And yeah, come back on Saturdays for our Modern Retail Rundown. As always, thank you for listening.