Rundown: Global politics impact retailers, Rite Aid's legal troubles & and the rise of thrifted holiday gifts

0:06Hey, everyone, and welcome to our last Modern Retail rundown of the year. I am Gabby Barko, senior reporter at Modern Retail, and I am here with our editor-in-chief, Kale Guthrie-Weissman. Hey, Kale. Hello, Gabby. It's that time of the year, which is the end of the year. Yes, the most wonderful. So with that, today we have, you know, of course, a lot of holiday-related stories to cover. But first, we're going to start with the global political situation impacting holiday sales, a lot of logistics that's being reported, being disrupted. Then we're going to be getting into Rite Aid's legal troubles.

0:53It's just the latest in Rite Aid's post-bankruptcy issues. And last week, with how thrifting holiday gifts has become the trendy, I guess, trend of the season, you could say. Yeah, this has been reported, I guess, pretty consistently the last few days, but it's really become more of an issue. what's going on globally, politically, is starting to trickle down to, you know, retailers being actually impacted by it. There's two pieces of news, which is first, IKEA warned that some of its products are going to be delayed due to the attacks at the Red Sea by the Houthi rebels. This is Israel-Palestine related.

1:43And after that, VF Corp had a cyber attack earlier this month that the company said may hinder its ability to fulfill products for the holidays. So it's all just kind of coming to a head right before the end of the year. Yeah, it's super. I mean, what's interesting about the Houthi thing is just that this is sort of, but not quite a redux of what we saw with the Suez Canal, whatever, however many years ago that was. It feels like it was decades ago. But it's not the exact same thing, but there's a holdup on the biggest area that companies transport their goods through. If ever there's a holdup, it's going to cause major backups.

2:27And pretty much what's going on now is that IKEA is one of the companies that said, yeah, it's going to be pretty slow. You might not get your things here. And then other companies haven't said exactly that, but they've hinted at that. There was a report from Just Style that said that the issue in the Red Sea could impact many fashion brands. It didn't name any. It had a quote from H &M, I believe, that pretty much said, yes, this could be an issue, but we're not going to talk about it right now. But pretty much what's going on with that is that every major brand, especially ones that manufacture through Asia, are kind of screwed unless they're able to figure out a way to get their goods through other means.

3:03And then the second one, we have the VF Corp thing, which is just a huge cyber attack no one was aware of. but it's saying that it's going to impact its fulfillment. Like a lot of the issues on the backend, they have warnings on the website right now. And I actually checked myself and you can't get any expedited shipping. You can only get normal shipping for the products. So it just seems like there are all these different things that people don't think of as being involved with the holidays. But I guess if there's a cyber attack, that'll impact everything. If there's something that holds up the supply chain, then you can't get your goods to the end consumer.

3:39It's just, it's kind of a mess out there, I guess. Oh, and we should mention VF Group is the Vans and North Face parent company. So obviously a pretty busy time for them to not be able to do overnight shipping. Yeah. But with that said, yeah, I guess we could maybe talk about any sort of counters that we've seen or seen previously. Obviously, I mean, like you mentioned, the Swiss Canal meme was the thing, but we have seen and reported on delays due to obviously global issues previously. I mean, even early COVID essentially was this, right, which is just delays of everything coming in from Asia.

4:23But specifically with the Swiss Canal, it seems like it's obviously not an accidental issue. This is an ongoing conflict that I'm not sure how you deal with as a logistically or as a company. Yeah, I mean, it's a really, I think many people over the last few years are just realizing, and I'm sure people knew this, like the Suez Canal is a very important hub. I believe about - That's why it was built, right? Yeah, about 15 % of the world's shipping traffic is through that area. So like, that's nothing to sneeze at. But, you know, we're hearing major, major companies are saying that they are trying to bypass it to avoid the Houthis.

5:05So like oil, oil company BP, the shipping company Maersk, I don't know if I'm pronouncing that right, but pretty much they're all saying we're going to avoid that hub and try to circumvent it. That will almost certainly take longer. And just to your point, this is very reminiscent of the pandemic, right? When, you know, warehouses were shutting down, people had to diversify and find other ways of either having their goods manufactured or having their goods shipped out. Remember when there were all of these major issues with boats coming in, all of the major ports were completely congested. So a lot of companies invested in air freight, for example.

5:41And so this is, you know, we don't know what's going to happen with this specific thing. But we're seeing companies make quick split-second decisions to avoid one really backed-up area or one very dangerous area so that they're ideally able to get their goods shipped. We'll see if it actually works, though. Yeah, I feel like it'll probably take a few weeks to actually sort of aftermath or fallout from it. But yeah, we'll keep our eye out on that. I think in a way, I was thinking like it was probably inevitable it will happen. I mean, we saw sort of similar disruptions with like the Ukraine side of things.

6:26But obviously that was more so like fuel. But Europe specifically was mostly impacted by that. So, yeah, these things, unfortunately, are just on top of everything else that, you know, retailers and brands are dealing with already. Yeah, and it also just goes to show when they happen during especially this time of the year, the fourth quarter, that's when brands and retailers get especially freaked out and scared and issue either changes in guidance or warnings that something is afoot because they expect to make the most money they possibly can during these three months. And if there are any hiccups with that, then they have to have a really good reason for why they didn't have a record setting fourth quarter, you know?

7:08Yeah, exactly. Okay, so next up we have the FTC is suing Rite Aid over facial recognition technologies. This is obviously already a bad time to be Rite Aid. Sorry, I don't mean to laugh. But it's, Cail, explain to us what this actually is. Because this is actually a really interesting time to be doing this, considering that everyone's talking about retail theft and AI and, you know, all of these tools are going to help us in the future. So I don't know. Is this a hiccup of some sort? Yeah, I guess this is a confluence of buzzwords in the retail space right now. We're just throwing them all in the blender today.

7:50Yeah. I mean, it should be noted that this is about practices that date back, I believe, over a decade, like 2012. And so this isn't something that the FTC investigated yesterday and made a decision on today. But pretty much Rite Aid allegedly had been working with two different facial recognition vendors. The hope was they would, I believe they had maybe cameras in the store. The technology would analyze faces. If it looked like someone who the technology thought was a previous shoplifter, they would get accosted by store employees. The FTC had been looking into this for a while and then pretty much said that not only was the tech ineffective, allegedly disproportionately went against Black and Asian people.

8:41Additionally, it also increasingly went after women, and they were more likely to be misidentified, according to NBC News. And so pretty much the FTC is suing Rite Aid over this. And also, and I think this is of significant note, is barring Rite Aid from using any form of facial recognition technology for the next five years. It's pretty much saying you misused this technology, had deleterious impacts, and now you can't use it again. Rite Aid told NBC News when asked for comment that it only used it in a few stores and it stopped using it in 2020. But I think you're completely right that there are a few things at play here.

9:20One, we've been talking, we've talked on this show, we've written about it on our website, about the rise in retail theft, whether or not it's an actual problem, how it's a real issue with data and how people perceive certain issues. And then there's obviously the issue of AI, which is supposed to be this panacea that will solve every sort of business problem you have. And then you have this where a major retailer allegedly put those two together using one technology to fight the other, and it did not go as planned and in fact got a lot of people wrongfully accused of certain crime. So it's certainly noteworthy, I would say.

9:56Yeah. Yeah, I think the discrimination aspect of it is obviously what the main crux of the lawsuit is about and is already a concern like AI discriminating against certain skin colors, body shapes. I recently learned a lot about this issue that is, you know, probably not the, I mean, everybody talks about AI. It's such like a buzzy, polarizing topic right now. And these things kind of go by the wayside because everyone's focused on like the big tech picture. And then the other thing is that Rite Aid saying that it only used the program in a few stores and stopped in 2020. I don't know if the FTC would launch this giant lawsuit if it wasn't obviously impactful enough or had been over, I guess, eight years before that.

10:51Yeah, I mean, there definitely is a reason why the FTC is going against Rite Aid. And so, you know, I don't know the specifics. I've not looked into the examples that were cited. But my guess is the FTC probably does not agree with that statement. But, you know, I think we'll learn more as time goes on. You know, and I think the big question for this is, given that Rite Aid filed for bankruptcy earlier this year, how does this maneuver fit in with that? Like, will Rite Aid be able to sort of duck out of it because, you know, it's claiming insolvency or whatever? You know, it'll be interesting to see what sort of protections Rite Aid tries to use via its bankruptcy in order to avoid, you know, getting hammered for this.

11:40Yeah. And I mean, to put it in context, this is coming at a time when Rite Aid is still trying to restructure. They're closing a lot of stores. Some stores are having inventory issues because this is something we covered. They are still trying to back pay some vendors, including some big CPG brands. So it's all just coming to a head. And Rite Aid is one of the retailers that filed for bankruptcy and is shut down completely. So this is going to be an interesting next few months for them. Yeah, it'll be interesting to watch to see how they respond. And I think that this is coming at a time, and we didn't really get into this yet, but we talked about it maybe a few weeks ago, just the overall issue of retail theft.

12:30A lot of major retailers like Rite Aid, like Walgreens, have claimed that there's been an increase. A lot of them have cited reports from industry organizations. Now those reports are being re-looked at and edited to say maybe it's not as bad as we thought. And so it'll be interesting to see, you know, given the fact that a company like Rite Aid used these types of measures, you know, tried to, you know, identify people's faces using technology to have them, you know, searched, taken out of stores, etc. And then that proved to not be very effective. And then in addition to that, it also was shown that during this time period, the thefts weren't likely as bad as or were not increasing at a rate that people said they were.

13:17It'll be interesting to see if we'll see more companies try to use this type of technology or not. I imagine it'll have a chilling effect, but I don't know. Yeah, or maybe modification to some of these programs that have already been around. I'm also interested to see if there's going to be, I mean, because RightAid is not the only one using some of these vendors. So is there going to be sort of a widespread issue with all these other retailers that are using it or have been already? Yeah, we should. Yeah, something definitely to keep an eye out for. We can get into the thrifting for holiday gifts.

13:56This is something that we've been hearing about for a few years now, so it's not really anything new. But there are some interesting figures showing that people are actually buying from resale platforms like Poshmark, Goodwill Finds, ThredUp for gifts. Of course, a few different factors. The economy is one of them. trying to save money. And then, you know, wanting kind of like unique items is obviously the biggest draw for thrifting normally or had been normally. And then, you know, sustainability. But I think it's interesting that some of these players obviously caught on to this. And we had actually written last year about how they really have leaned into, you know, the resale platforms really leaned into all of these in their marketing language going into December.

14:46Yeah, I would say this is many years coming. We've seen a renaissance of resale platforms. You know, for many years, definitely the pandemic helped give them a much needed boost. And there's just been a general change in mindset, I guess you could say, with how people think of these resale platforms. It's not the same. It's not just gross used clothes. It's thrifted, sometimes vintage, especially if you're talking about a company like The RealReal or StockX. Those are collectible things that maybe someone owned before but still hold some value. And so we're seeing this overall shift in terms of how people perceive them and think of them as products that can be gifted.

15:26I think that this topic we're talking about was spurred by a Wall Street Journal article just about how thrifting is becoming much more of a holiday shopping experience. But it cited one interesting piece of data, which is, according to Salesforce data, roughly 12 % of gifts this holiday season will be a resold item, which is really, really, you know, that's larger than I would have expected. And so the fact that there's been this mindset shift really shows that the marketing that these platforms have been implementing for the last few years is working. People are thinking about them in a different light than they were in years past.

16:04Yeah. And then the other one is that there's a lot of, well, some of it could also be out of stocks. So, you know, trying to get something that's sold out. Usually the first thing people do is go to a Poshmark. I guess the default used to be eBay, but now we have all these dedicated platforms for that. So it's probably a lot of different things that are accumulating and, you know, contributing to that. 17 % of gifts this holiday season are resold items. Yeah, because on its face, it sounds like a big number, which it is. But, you know, there's a lot of different things going into it. Yeah, absolutely.

16:45And I do think that we're also seeing more intentional efforts by these platforms. you know i think before they were just trying to get people to shop on them now you know you talked about the story last year there was a story this year as well just about how a lot of the resale platforms are really trying to get people to think of it as as a way to buy gifts um and so it's just you know it's interesting i guess yeah uh and then the other thing of course is that the brands themselves in on that so we have seen also a rise of sort of like in-house uh programs One of the first was Patagonia that launched a program and it's actually a dedicated site for that.

17:31We have seen that it's a big investment. It's not necessarily cheap to do that. There's a reason a lot of these big platforms are not profitable. There's a lot of legwork that goes into sifting through all these boxes, posting the listings, cleaning all of that. But yeah, but we're seeing, I think there was a figure showing that since 2018, there's been a huge increase in fashion brands that are offering their own resale programs. So in 2018, there was four. And in 2022, there's now, or as of last year, it was 124. So that's a lot of brands, including, of course, a lot of the luxury brands that want to control that process.

18:17Well, and I think the luxury thing is especially important for us to talk about because, you know, luxury is one of those areas that has not been doing as well this year as I believe people expected. And one of the reasons is because luxury resale has been doing well or people have been more amenable to buying that. There are platforms like StockX, which have talked about the various brands that have been, you know, doing well on that platform. And so I think that the fact that these brands are investing in owning the resale themselves, especially as there's been a switch in how shoppers think about it, you know, people would be, are okay buying a used Birkin as long as it's in good condition as opposed to buying a new one.

19:00You know, things like that. Well, I mean, no, I mean, actually, in most cases, it's actually more coveted. Yeah, that shows how much I know about handbags. I don't, I just. Yeah. Cale, if you get me a new Birkin for Christmas, I'm throwing it right in the trash. Okay. Noted. I'm kidding. I'm kidding. Yeah. But I think these are all very emblematic of what we were saying, which is that because of this market share that's been taken away from these big, you know, your Chanel's, Louis Vuitton's, they obviously know this. And because they keep raising their prices to, quote unquote, I guess, stabilize currency exchanges, people are going to look for alternatives.

19:50So to be and then, of course, you know, protecting the image of the brand, too. You don't want it sold everywhere. So it's all kind of coalescing into this. Yep. Coalescing into this. And don't be surprised if come Christmas Day, you get something that someone else wants more. I'd be fine with that. Well, that is our show, our last of the year. Please rate and review us on Apple Podcasts or else you're listening. And don't forget to subscribe to the Modern Retail Podcast to hear interviews. And also we have our end of the year recap that is going up in the coming weeks. And of course, come back on Saturdays for the Modern Retail Rundown.

20:36And as always, thank you for listening. Thank you.