Rundown: H&M CEO out, TikTok expands Shop & Amazon's ads business grows

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-Weissman. Hello, Kale. Hello, Gabby. On this week's show, we have a range of topics to cover. First up, we're going to be looking at the sudden departure of H &M's CEO, who cited the demanding nature of the job. I thought that was pretty interesting. She got very personal there. which is unusual for CEOs. Next up, TikTok is reportedly testing yet another feature that can turn any user's post into a shoppable video as part of its ploy to grow e-commerce, of course.

0:55And last, we will be talking about Amazon's advertising business, and it just continues to grow, regardless of what's happening, I guess. Yeah. Yeah. So first up, let's talk about H &M CEO Helena Helmerson, who abruptly stepped down as chief executive officer of H &M on January 31st, just this past week. She was at the company for four years as CEO, but 26 years overall with the company. So that's a pretty long time. She's being replaced by H &M veteran exec Daniel Erber, who has already taken on the role. But most notably, you know, she's been there four years and that covers a lot of ground of what everything that's happened, pandemic, economic volatility, all of that.

1:48And so it's an interesting time for H &M generally for all of the shakeup to happen. Yeah, I mean, I would say she's definitely seen a lot of the business changes throughout H &M and also fast fashion as a whole. But it sounds like clearly she's both tired and H &M is in a bit of a not a difficult spot, but hasn't been doing as great. I was just looking at its numbers. Its operating profit margin, which for the fourth quarter just reported, fell 7.2 percent. While sales increased in 2023 as a whole, like for the financial year, the sales dropped 4 percent in the past two months, which included Christmas.

2:32And I think that, I mean, we don't have a crystal ball. We can't say why she left. But I imagine you're supposed to see sales grow during the last quarter. And you're supposed to see sales grow during Christmas. And so if they drop year over year, that is probably a very startling thing to be dealing with as a CEO. Yeah, and we'll get into the fact that H &M is sort of lagging behind even other fast fashion brands. But yeah, I think, like I mentioned what she said earlier, you know, proud of her time. But then she cited the last years we've navigated pandemic, several geopolitical and microeconomic challenges.

3:11And then there was this one quote where she said, it's been a very demanding time for me personally, and now I feel it's time to leave. And then there was this other quote from Reuters where at a press conference she mentioned that basically she doesn't have the energy to be CEO anymore. I think some kind of Swedish transition, perhaps. But yeah, I thought that was interesting because I can imagine it is very draining, probably. Yeah, and it's rare that you hear a CEO just say that. I don't know. Like, I think that in some ways, maybe it's refreshing. But also, when you get an executive who is just being very honest, saying, I'm tired and I don't want to do that anymore, you can only imagine what the actual job had been like for the last however many years.

4:02Like that, I don't know, that is, I can't remember when I heard someone say something similar to that, where they were just like, I'm tired, I don't want to do this anymore. And so that was a very, very telling quote that I think probably a lot of other executives are feeling but have not told Reuters. Yeah, usually, you know, you talk about some kind of moving on to other projects. I don't know. Yeah. So yeah, let's get into the set of challenges that H &M has been going through that probably attributed to all of that, which is right now it is behind, you know, the Zara owner, Inditex, and then Shein also, of course, is always the big elephant in the room.

4:42And so H &M obviously pioneered this fast fashion model, but it hasn't really been able to adapt as well as these other companies. And we could see that in the winter and the holiday performance. The sales were down 4 % over last year during December and January. And like you said, that's not really good for this period when there's usually a lot of promotion going on. And she did say the fourth quarter started with unusually hot weather in European markets. So that's another, you know, I haven't heard that one before, but that's an interesting one. It makes sense, I guess, in theory. Yeah. And I mean, I guess if your entire business model is, you know, quick assortment changes and like trying to have people buy clothing for a certain season, you plan out for that months, if not years ahead.

5:36And so if if it's warmer in Europe, I guess people aren't going to be buying the sweaters that you have in your store right now. I mean, that's essentially what she's saying. We don't know if that's 100 % true. But one of the issues that a lot of the more traditional fast fashion players have is that their assortment is not as quick as the newer players, i.e. Shein, which can launch a new product in a series of minutes, it seems. And so in some ways, this was almost an allusion to that where it was just saying we had no idea that it was the external factors, the climate was going to be this and our assortment did not match up with it.

6:14Yeah, especially because just the nature of the way people shop for these pieces is, you know, I have a party tomorrow, I just have to pop into H &M. I mean, I've done it a million times. So it makes sense that maybe, yeah, they just didn't need it. And they probably had a lot of surplus of merchandise. Yeah, so then speaking of the other stuff that has been impacting H &M, you know, is that it's doing this thing where it's prioritizing profitability over volume grow, which is interesting because that's what we hear a lot from sort of like smaller direct to consumer brands that we cover a lot.

6:51But it just goes to show that, you know, it's really needed at this time. So it's aiming to reach 10 % operating margin this year by cutting costs, including closing stores, layoffs and all that. But there's also been other issues with the supply chain and, you know, just PR, marketing. It seems to be kind of running the gamut with the, yeah, their issues. Yeah. I mean, like, yeah, there was a whole thing last summer where the company said it would stopped sourcing merchandise from Myanmar due to reports of factory labor abuse in the country, which first, H &M is not the only one to have done this.

7:27It's not the only one to reach backlash. I guess Inditex, who owns Zara and Primark, also made similar moves. Should also be said that Shein has gotten a bunch of backlash over the labor concerns of where its products are made. But H &M also had some marketing mishaps. In January, it apologized and removed an ad featuring its school uniform in Australia after social media complained that it sexualized children. And so that was only a couple of days before she stepped down. So clearly there were a lot of, you know, not small things, but individual occurrences that I'm sure mount up to a CEO getting tired, as she said.

8:06So, you know, interesting to see. You know, I guess my big question is, where do you think H &M goes from here? I think that's the big question. I mean, they still seem bullish on this profitability goal. The new CEO, Erber, told Reuters that the goal, the 10 % goal on profitability stays. We will work hard to make that happen. And it seems like the H &M chairman also seems to be optimistic. And he said we're in good conditions. But it seems like analysts aren't completely convinced just looking at where we are right now. And the fact that, you know, there's going to be transition under new leadership.

8:51So I wonder what that's going to look like, because 26 years, I mean, you're talking about like seeing pretty much the entire evolution of H &M, you know, before even e-commerce existed. So, yeah, that's a lot to take on. Yeah. And I will say this is also we talked about this last week. You and I have talked about this week's past. Like we're seeing a lot of major C-suite shakeups. And so this move by H &M has a lot of similarities to what's going on at, for example, Macy's. Macy's CEO is stepping down. Someone else is taking his place. And Macy's entire strategy, for the most part, is focusing on profitability and cutting costs, which, you know, every business is probably working on that.

9:36But it seems like this is the strategy du jour where it's not about growing sales. It's not about gaining mindshare. It's about just getting your financials in order. And the executives who were leading the ship before are now no longer doing it. And they're bringing in kind of a new guard to try and fix it. Well, moving on from traditional retail, let's go into some e-commerce topics. more specifically first we're going to be talking about TikTok shopability update yet another one we get one almost every week it feels like true so yeah there's this new feature that Bloomberg spotted this past week so TikTok is basically testing a tool that automatically identifies products and videos and then offers a little thumb nail that says you know you can buy this on TikTok shop a similar item not the exact same item.

10:32So there's obviously AI ID involved there. But this is not actually the first time this feature has been spotted. It seems like it's been tested on some users for a few months now. But it's just another, it seems, yeah, another sort of test or exploration of what TikTok sees TikTok shop to be because everything seems to kind of bleed back to that. Yeah, I guess I have a bunch of questions about this and a bunch of thoughts as well, as I always do. But I guess my major question is, you know, A, how is TikTok Shop doing right now? And has it become so important and so core to how people use TikTok that, A, is there enough inventory?

11:22Are there enough products on TikTok Shop that it would be able to have a perfect match to match to be able to service something? And I am still not completely convinced that enough people are actually shopping using TikTok. Maybe I'm wrong. Maybe I'm completely out of line here. But I feel like this is a big type of usage shift that TikTok is trying to get people to do. And I mean, I don't know if we're there yet, but maybe TikTok wants to launch all these features early so that they become more ingrained and then the usage will go up. Anyway, but I guess with my first question, how is TikTok Shop doing overall?

11:55Do you have any thoughts? Yeah, so it does seem to be a mixed bag. We're now about six months into the official launch of the U.S. program. It was being tested overseas for a while. But, you know, TikTok said I talked to them right around the Black Friday time and they said that was a really busy time for them. They seem to really be pushing live as a mechanism, and that requires working with their creator program as a brand. And so that can really vary depending on your products, the brand size, who you're working with. But yeah, we have some numbers, at least from the traffic, from over the holidays.

12:37So they said they had over 5 million new customers making a purchase on TikTok shop during that big, really long Black Friday weekend, which is a result of 22.8 billion views across all their shoppable live streams and videos. Because this was pointed out to me while I was reporting the story by the brands, which is that there is a subsidization happening by TikTok. Yeah. Something happening actually on the Flip app also, which is that these platforms are basically giving away vouchers or really heavy discounts to encourage users to use it. And of course, you know, we're early, so people are taking advantage of that.

13:17But I think the marketers are like, is this going to be a long term? Is it going to be working long term when you, you know, you no longer give people discounts to shop through TikTok shop? Yeah, and I feel like that, I mean, that was that's a big problem that a lot of e-commerce companies have faced where the growth was subsidized and they were able to get users because of that. But as soon as, you know, it was as soon as the prices got to what they should be and they needed to pay for fulfillment in some way, that's when it can drop off. And I also think that the fact that, you know, TikTok wants big brands to be selling their products on TikTok, but also I think a lot of smaller players, a lot of dropshippers, a lot of there's a there's a lot of sort of smaller scale businesses that, you know, probably would not don't have the ability to shoulder those costs that the bigger players do, at least, you know, when when the prices start to rise would be my guess.

14:18Yeah, like I said, obviously it's great while they still have it because they are being made whole by TikTok. But we'll see once that starts to phase out eventually. But the other thing, actually, which I looked into, I guess, a month back now, which is the influencer ecosystem also having to get baked into TikTok shop. Because, you know, if you're going to be promoting products through video, you do need people, creators, people with followers to promote them. So then I guess that asks the question of how scalable it is, because, you know, there's thousands of them that do have to be vetted and join the official TikTok creator program.

15:07But it seems like there's a little bit of a slow onboarding process, both actually for brands and some of the influencer agencies. And I'll also add just one note before, you know, we go on to other things. But there's a huge trust issue with TikTok shops still, which, as I alluded to earlier, it's filled with dropshippers, smaller brands. Counterfeit products continue to be a huge problem for it. Like whenever I'm on TikTok, I feel like I'm seeing some product that might be from a brand, might not be from a brand. It looks kind of similar to a brand. And now we have the brands, you know, to their credit, trying to work with TikTok on it.

15:45Like earlier this month or in January, I should say, Bloomberg reported that the LVMH-owned Benefit Cosmetics is in talks to try and work with TikTok to get its counterfeit products off of the platform. but that I bet you not every brand wants to work with TikTok on this and instead would just be like, I don't want to deal with this. And so, you know, it's kind of similar to early Amazon days in that sense, but also it's a problem that it will have to reckon with. Yeah, just because of the fast nature of the platform itself where everything's happening in real time. So I don't know how much you can combat it as a brand, but yeah, it seems like they are trying, but I guess this, you know, with all these reports, it does feel like TikTok is dead set on building out the e-commerce capabilities, even though, you know, some brands, at least the major retailers that they are really courting are slow to adopt.

16:42But yeah, I guess, do you think that this is going to be sort of a plugging away type of thing, or are we going to see it all sort of just mesh together. All of these tests are going to eventually, yeah, just launch a very effective, scalable program. I mean, my thought is that as long as TikTok has the financial ability to continue investing in this, it'll be a chipping away over time and likely it'll hit or I don't know if it'll probably be a slow realization, a slow changing of patterns, that type of thing. But it won't happen overnight. But it's all dependent on whether or not a company like TikTok is willing to make this investment, likely lose a lot of money, and then just hope it someday does make money.

17:31While TikTok is focused on e-commerce, the major e-commerce players are focused on other aspects of their business. That is advertising, of course. So with that, let's get into Amazon earnings. We had a lot of earnings this week, but this one obviously is very closely watched. One thing that jumped out at me was 27 % increase in ad revenue during Q4. Obviously, Q4 is very busy, but that's a pretty big jump. But yeah, can I zoom out and see what the other numbers look like across the board? Yeah, definitely. I mean, things look good for Amazon right now. You know, the time when we're talking about H &M and we're talking about, you know, earlier this month, Macy's, all these other companies that are sort of flatlining.

18:20The results for Amazon were positive. Fourth quarter sales increased 14 % to$170 billion. That's compared to a little under$150 billion the previous year. And it expects that its first quarter sales to be between$138 and$143.5 billion, which would represent about 8 % to 13%. So Amazon's saying its revenue is growing, it will continue to grow. And that's something to really keep in mind because a lot of the outlooks from recent earnings have been like, we saw an okay fourth quarter, but the first quarter is not going to be too good. And Amazon is not saying that. Similarly, Amazon's net income surged to$10.6 billion compared to$278 million a year earlier.

19:07So it's doing well on the profit front. One thing that really jumped out to me, which was a big question that you and I have had, every retail publication has had, which is what was the impact of its very, very early holiday promotions, namely its October Prime Day? And from CNBC, this is a quote from CNBC, the Q4 results reflect results from the holiday shopping season and Amazon's October Prime Day event, both of which the company said exceeded its expectations. So while we were maybe a little bit skeptical, like, are people actually going to buy their items earlier in October? Is it going to actually make people buy more on Amazon?

19:46Amazon saying it did. And that's what led to this being such a huge earnings report. Yeah, and I think with that, there were very specific bright spots, which is why we want to get into the ad business that's just taken off in the last few years. So that revenue, it came in at$14.7 billion versus I think it was expected to be$14.2 billion. Like I mentioned before, that's 27 % over last year. There are a couple of different programs and tools that were rolled out during Q4 that I'm sure helped a lot with this growth. But I think to me, the one thing I think is, I guess, even with all the ad spend being cut that we constantly write about, brands are still advertising on Amazon.

20:36At least that's what the numbers say. Yeah. And this is something I've written about a lot. And I feel like I really beat this drum and maybe people are tired of me saying that. But Amazon strategy has been really, really interesting the past year because before it was your run of the mill retail media advertising platform. So if you're selling on Amazon, you should advertise on Amazon. People you'll get in the search results, higher, you know, higher visibility. People think about your product. But Amazon over the last year has said like, hey, we are not just retail media. We are all parts of the quote unquote funnel.

21:10So you can do a big awareness play. You can advertise on Freevi. You can advertise on Switch. You can advertise on Amazon Prime TV, different things like that. And so this has been a focus on kind of a mindset shift. I hate to say that. That's so buzzwordy. But it's actually, from what I understand, very true, where it's trying to get brands and advertisers to spend more and think of it more as an awareness play, a brand marketing campaign tool. And clearly this is working. It's not only the fact that Amazon has launched more advertising products, capabilities, has more platforms that they can run on.

21:48But it's also just the fact that, I don't know, brands are doing different types of campaigns than they were earlier. They're thinking about it more as a way to, you know, even if you don't sell on Amazon, you can still advertise on Amazon. And I think that has been very successful over the last year. Yeah. And I think another parallel that's running, which I think is really interesting, is that Meta, which also reported on the same day, they're also reporting revenue growing by 23%, which we write a lot about Meta ads, quote unquote, no longer working. But obviously, that's not necessarily true.

22:25Of course, there's a lot of caveats to that. But yeah, grew from$31.25 billion to$38.71 billion just during the October to December quarter. Like I said, this is obviously the holiday period. But I think it just goes to show that these platform advertisers still are sort of the biggest chunk of a lot of companies' advertising mix. But on the other hand, Alphabet, Google, they're kind of having a rough go at it. Do you want to give us those numbers? Yeah, I mean, a rough go at it is, you know, they weren't as happy, but they're still making a lot of money. So ad revenue for Alphabet hit$65.5 billion versus the expected$65.8 billion.

23:15So 0.3 billion difference with what it hit, but still probably not good. I'm sure the stock suffered. There's one thing I want to say, which is going to age myself, which is it is just pretty mind-blowing, at least for me, when you see that Meta's advertising revenue was$38 billion and Amazon's was$14 billion, so a little less than half. The fact that Amazon's advertising was able to become pretty much half of what Meta's is over this short a time. I was covering Amazon's early advertising stuff when it was first just launching it, I want to say, five, six years ago, it was a couple of percents.

23:57And it was always said, yeah, it's going to grow, it's going to become, you know, a bigger part of that chunk. But clearly, this entire bet has paid off and paid dividends for Amazon, and it's only going to grow from here. So it's very interesting to see just how much Amazon represents of the duopolies pie because it is truly eating into it. Yeah, to bring it back to Amazon, I think we are going to keep expecting the same trajectory on the ad business front because they're saying they're going to continue to roll out more capabilities for brands. So I'm sure this made a lot of headlines last month.

24:34They said that they're going to turn Prime Video into an ad-supported platform. So even if you have Prime, you have to pay an extra$2.99 a month to, I guess, watch Saltburn ad-free. So there's that. And then I think, of course, not only is that$3 a month added revenue, but I think the brands do think that this is going to be yet another touchpoint where they could just reach new customers or potential customers. Yeah, and it just goes to my earlier point that Amazon is really trying to show to brands that it can reach customers in different ways. And then there's also the question of what role do these ads play, especially on Amazon's video ads on Twitch, etc.

25:24There are calls to action like QR codes. And so it's sort of this breaking down of the point of a commercial. Usually a commercial is meant to just say the brand exists, do something funny, leave an impression in your head. Now Amazon is trying to get people to think, oh, I like that brand. Oh, I'll use this QR code and maybe I'll buy the product as well. So I think we're going to be seeing more of that. I don't know how I don't think it'll become commonplace. I don't think that'll be like exactly how it works or how every ad will work. But it is interesting just to see the different ways Amazon is playing with TV advertising and how that will bleed into, I don't know, just other platforms elsewhere.

26:08Yeah. And I think, you know, just to wrap it up, it does. This all speaks to just how big of a focus the ad business is for Amazon. And I guess what are your thoughts? Do you think it's just going to continue to go this way or will there be kind of a retrieve? It's hard to say just with the current economy and all that. Yeah, I mean, I think the fact that Amazon is bringing it out to more properties, to more platforms, means that it's going to grow. And also we are seeing very positive signs from the advertisers themselves. They are playing ball with Amazon and doing many more things on it. So I do think it's going to grow.

26:48I don't know how much. And I don't know, who knows what will happen in the future? Things always change. But for the time being, it is looking pretty good for Amazon's advertising business, is what I'll say. That's it for us this week. You can come back on Saturdays to hear more weekly rundowns of the biggest retail news. You can also rate and review us on Apple Podcasts, Spotify, or wherever you're listening. And also visit modernretail.co for more coverage of all the topics we just discussed. and thank you for listening.