Rundown: H&M inches makes profitability progress, Wirecutter reviews & Dollar Tree price hikes

0:06Hello, everyone. Welcome back to the Modern Retail Rundown, our weekly news recap show.

0:24I'm start today's show with a little trivia question. We're going to be talking about product reviews today. So yeah, do you, are you a product review reader? Are you, do you like really read in depth before you purchase anything? I, I do. And I much, yeah, I, the short answer is I do. And I usually cross check reviews and like, I could go into my entire way of doing it and I'm unscientific, But like, and I also feel like most product reviews, with some exception, it always feels like I'm being scammed somehow, but I still do read the product reviews because I feel like I want some external assurance that I'm buying the right product, you know?

1:07Yeah, no, I'm definitely the same. And I also like to go to like the Instagram page and dig really deep in the comments because I want to see what people are complaining about. which is maybe I don't know maybe we're just old-fashioned millennials but I never really understood like the whole clicking on an Instagram ad and just checking out like I know that's a very popular impulse purchase that people do but I don't know if I could ever do that which is why reviews are important but the one reviews that I will never look at and I find it very interesting hearing brands talk about reviews is like your DTC reviews on your site I don't know they like I am sure they are fair and you will post whatever, but also the company that is mediating that is the company selling the product.

1:54So it doesn't really seem impartial, in my opinion. And so I will never, if I'm on a company's website and they post reviews, I'm not going to read those reviews. I'm going to go somewhere else, even if they're the same caliber, you know? Yeah. No, no, no, no, no. If you want reviews, you go to the Amazon page. So that's where we're at. Well, the reason we ask is because today we're going to be talking about product reviews and how they really impact a business, especially in these big publications like Strategist and Wirecutter, because they could really have a big, big effect that trickles down.

2:32But first, we're going to talk about H &M, which is inching towards profitability. They've had some shakeups recently that we're going to go through. And then we're also going to be talking about Dollar Tree drama. There's been a lot of Who Play this week because Dollar Tree is pretty much no longer$1 items. Everything is now$1.25 all the way up to$7. So the internet is mad. So here's my question with that. But if Whole Foods is Whole Paycheck, what is Dollar Tree? Is it many Dollar Tree? Oh, man. Okay. I'm going to have to think about that before we get to that segment. I'll try to think of something.

3:17But yeah, it's tough. Yeah, because you can't do that math quickly in your head anymore. And there's really no, I mean, I mentioned there's really no pure play dollar stores anymore anyway, but Dollar Tree was sort of one of the last few. But anyway, let's get into H &M. So there are early signs that are showing that the fast fashion retailer whose strategy went into effect a little while ago is indeed working. So the company reported its most recent earnings, saying that it is close to profitability. For context, their previous CEO, Helena Helmerson, stepped down earlier this year. I think we talked about it a couple months ago with Danielle Herbert becoming the group CEO.

4:07He was already there as the head of brand. And yeah, I think this is what we talked about, which is that Helmerson mentioned that the job is very demanding. And she just maybe was burnt out and needed to step down for somebody else to take over. So Kelly, do you want to give us a few examples of what the company has been doing for the last couple of years that's maybe bringing them closer to this, you know, going in the black? Sure. So there's a few things. One is looking at what Helmerson was focused on, which was two very, very disparate goals. One was bringing in more, like making H &M as a brand much more sustainability focused.

4:55And honestly, that costs a lot of money and it requires a lot of change to supply chain and backend processes. And so she had been focused on that, but she had also been focused on growing sales and getting towards profitability. And so I found one stat that I thought was interesting was that under her, beginning a little bit before her, but also under her, the overall strategy for H &M was to double sales between 2021 and 2030 while simultaneously having its carbon footprint from 2019 to 2030. And it costs a lot of money to have your carbon footprint. And it also costs a lot of money to double sales, but ideally those sales are profitable.

5:38Anyway, over the last year So the company has said, we just want to make our profitability profile look much better. The major goal is to get a profit margin of 10%. That is what the company has been saying. And this most recent earnings shows that it is definitely going in that direction. A lot of that has been focused on cost cutting. So H &M had, I believe, two rounds of layoffs over the past year. It's been focused on closing stores. It's been focusing on nearshoring some of its production and making its supply chain and logistics a little more efficient. And now a lot of that is beginning to rear its head, specifically as the new CEO, Daniel Erver, takes the reins and begins trying to steer the company even more towards this profitability or profitability margin goal.

6:34So that's what's going on. But if you take a look at this most recent earnings, it gives a sense for how things are going. Gabby, do you want to just give a little lay of the land of the most recent numbers? Yes. So the operating profit rose to$196 million and analysts are expecting$132 million. It's a pretty big jump. And the operating margin rose to 3.9 % from 1.3%. And sales did go down by 2 % year over year. But I think that's probably no surprise. You know, apparel sales have been declining for a couple of years. But still, Wall Street seems to be happy with the results because profitability, it's all the rage these days.

7:23And yeah, so what do you think this means going forward? I mean, obviously, they're going to keep going in this direction. But this whole sustainability multi-year investment is still a big investment. Like, you know, you can't really keep cost cutting for the next decade. So there's going to have to be sort of some sort of balance at some point. But there's this interesting new strategy that they have where their pricing is also sort of changing a little bit, right? Yeah, they are really, and this will actually have some echoes to what we're talking about later on in the show, but they are talking a lot more about the intersection of value and fashion, I guess I would say, which is H &M competes with other fast fashion players.

8:13A lot of them are lower cost. The other similar ones are Zara. But also H &M is competing very heavily with Shein, which is just much cheaper, has a very different supply chain. And so H &M pretty much, like its CEO, talked a lot about how it's trying to seem like a fashionable choice, a more higher end choice, but also keeping the value and the lower price products in mind. is a quote that I thought was interesting from Airevair. He said, this is where we want to make what's inaccessible for many accessible for many. By having that friction between what is premium, but at a very accessible price, we want to build this brand position.

8:57And so it's pretty much saying, we don't want to look cheap, but it will be cheap. Similarly, they're doing some store stuff. So they're opening 100 and they're closing, I think, 40 stores. So it'll be net 60 stores, I believe is what they said. So, you know, closing some opening some. They're also updating as many as 250 of its locations. But really, the point here is that they want to appeal to people with lower price things. They mentioned America specifically. So the US market, I guess, wants cheaper clothes. And so they're going to try and make their the offerings a little bit more value focused while also having the sheen of fashion alongside I guess you could say.

9:37Because H &M is one of the retailers that's been discounting pretty heavily recently just to kind of move products. So maybe this isn't just like a little bit of a shift of positioning, you know, kind of going more value versus just marking things down when they don't sell. but we'll see. I don't know. Yeah, that'll be interesting to see how they do that because Zara, for example, kind of goes a little bit on the other side of the spectrum where they're trying to emulate more of like the high fashion designers, but you're still paying like a pretty decent amount of money for like slacks, for example, like maybe$50, which maybe some people would think is a lot for a fast fashion brand.

10:23Whereas H &M, I think, is maybe going after a different type of shop now Or maybe he's planning to. We'll see. Yeah, it's definitely, it'll be interesting to see how it's able to walk this tightrope of clearly saying it needs to be a little bit more value-based. And it's a very clear nod to the new players like Sheehan, but then also talking a lot about fashion and, you know, the nicer products it wants its customers to wear. So it'll be interesting to watch how this goes. Yeah, because I don't know how you compete with like a$4 dress or shirt because that's just never going to be, you know, H &M.

11:01It also would look really weird in a store, right? Because in brick and mortar things, yeah, the merchandising looks very different price-wise than it does maybe when you're scrolling. Let's move on. So let's take it back to reviews as we previewed earlier in the show. So this week, Bloomberg looked into what it's like when a company, a pretty small company, receives huge demand after getting rave reviews in Wirecutter, which is pretty much the internet's favorite review site. so I think this was years ago but Wirecutter reviewed the best lock pens and they named the writer decided to name this really small shop in San Francisco as the best lock seller it's about like$40, very reasonable, this is something she just stumbled into while browsing in Chinatown but this really small shop obviously then got inundated with just thousands probably of orders from people reading the literal New York Times owned Wirecutter.

12:12And so there's like the ramifications of that, because I think if you're like a little bit of a bigger D2C brand, that's kind of like your golden goose, right? Like this is really what you want is to be named a top product, but maybe it's not always a good thing. Yeah. And I mean, this one was an interesting case because it's a store in San Francisco. It's very regionalized. And I imagine was probably not – maybe I'm wrong, but I didn't get the sense that it was pitching itself to national publications saying we're the best out there. That being said, in the store, the Wirecutter did tell Bloomberg that it always gives companies a heads up when they're going to be featured and does that type of thing.

12:53But this is an interesting thing that I feel like people and companies have been aware of for a while, which is the Wirecutter effect, which is essentially if you're in a top tier review publication and you get a good review, you are going to be inundated with sales very likely. And that can sometimes be a strain. And then you get into issues like customer service. So if you're not prepared for hundreds, if not thousands of orders and dealing with delays and all of that, you might get angry customers who then could have not a great impact on the perception of the brand down the line. And so it's this very difficult thing with the rise of these affiliate-led review sites, especially the ones that are really, really trusted.

13:39It's a double-edged sword, essentially. Yeah. And in this case, I just find it kind of funny that this is an independent retailer that probably doesn't really have e-commerce infrastructure. So it's run by this 86-year-old owner who was not having it. And there were people calling, asking about their orders from months ago. And she was just kind of like, this is not how we do things. You're going to have to wait, which I think is kind of refreshing because you would never probably hear that from an Amazon seller, for example. Yeah, but then, exactly. And, you know, this person, I don't know, it was kind of refreshing to read how she talked about it in Bloomberg, but I'm sure that led to a lot of reviews on, you know, on her webpage.

14:25But also, you know, that's kind of what happens when you're not a multinational or just a national brand, and then you suddenly get an onslaught of demand. And, you know, it's an interesting effect, and it's definitely caused by the new review-based and affiliate-based ecosystem that most brands have to buy into. Yeah. And, you know, this is a space affiliates sort of like, you know, once you know how the sausage is made, you kind of see right through all those reviews, especially on our end with publishers. But it's becoming harder and harder because a lot of these brands hire, you know, or outsource it to these agencies whose job is solely to just pitch affiliates, publishers, all of that.

15:13And so it's just like, yeah, it's become kind of like a whole cottage industry for that. And that makes it even more competitive. So when you have, yeah, this small brand that probably didn't invest anything in affiliate, getting all of this demand, it's kind of an interesting take on that. Yeah. And I'll also say that just the fact that this happened shines a light on the way that Wirecutter works, which is different from many other of the SEO farms where, you know, if there are a lot of publications out there that claim to do reviews, but it's just people who are probably being mailed things from those agencies and then, you know, maybe testing them, choosing what's right.

15:53But the Wirecutter literally, you know, this writer, who's a pretty well-known food writer, tried a lot of the major walks, but also had done her own research and ended up walking into a store that was not pitched to her. And then she said, I like this one the best. And that's what she chose. And I think that that, you know, that is how a review ecosystem should work, where it's a little impartial and you're doing your own research. You're not relying on things being presented to you. So that's one little shining light in this story. Yeah. And it's not a new concept, obviously. We've had consumer reports and good housekeeping for decades that we're doing that.

16:32It's just now it feels more gamified. I don't know about you. Maybe that's the word. And it feels more gamified, but it also feels like even when you're doing it right, there can be deleterious effects involved. And so if you're not prepared for an onslaught, and most companies aren't, you could be screwed with just too much demand, not having things in place, and angry customers. And so, you know, every brand or every company says they want to have more sales, and that's true. But when they all happen at once, and they're because of one specific thing that happened, that can actually have a bad long-term effect.

17:10And that's sort of the interesting phenomenon that's happening with the rise of these sites. Like, I'm sure every company wants to be the number one reviewed on something like the strategist or the wire cutter. But it could actually hurt you down the line, and that's kind of what the story hints at. Mm-hmm. Yeah, I think during COVID, I would hear this a lot, but being sold out, especially on something like Amazon, is actually really bad. It knocks you down, you know, the charts. It could, obviously, you lose sales, but then customers most likely don't come back, you know, they move on to something else.

17:43And so that's why it can be tricky, you know. It's a quote-unquote good problem to have, but not really, kind of. Exactly. Well, now we can move on to other types of internet drama. This week, the Dollar Tree decided to raise their prices. This is the second time in two years, actually. So it is a big deal. But people are upset because the company's raising some of the products for prices all the way up to$7. Like I mentioned earlier, this is going from everything being$1.25 already. That went into effect in 2022. So everything was$1 up until 2022, just to give you context. That's how much of a jump is happening.

18:33And we'll get into why that is. But I do think it's interesting that customers trading down is having this effect on these value-driven retailers. So according to the company, its ability to attract high earners has prompted these spikes. So I think they saw an opportunity there. The company's CEO, Rick Drilling, on the most recent earnings said increase was part of a multi-price point strategy to offer shoppers more, quote, relevant assortment. So I think I reported this when it did happen. But in 2023, a lot of the new customers that Dollar Tree got were from households that were earning$125 ,000 a year or more.

19:23That's a lot higher than their typical customers. So that kind of gives you context into why they're capitalizing on this. Yeah, I mean, it's generally emblematic of just the general shift that it's not just lower income brackets that are seeking out value types of options and value-based retailers. It's pretty much everyone. And so it's not really taboo to buy things at Dollar Tree. And so as they're bringing in more higher earners who are buying more value-based products, that means that they can increase the prices, but that kind of takes away the point of the company to begin with. So definitely interesting.

20:07Yeah, so across the 3 ,000 locations that they're operating, the CEO said that we expect to expand this side of the assortment by over 300 items at a price point from$150 to$700. And a lot of them are going to be focusing on food, snacks, beverage, pet care. And that's been a really big growing area for actually just generally dollar stores in general, because people are shopping for more groceries and household essentials at these stores. So it makes sense that this is sort of where they're moving that pricing to. But they're also closing stores, which I thought was interesting. I think maybe there's some efficiency happening there.

20:50Yeah, I think what we're actually seeing is like a couple of years ago, Dollar Trees and Dollar Stores as a whole were doing pretty well and seemed to be the ones that were able to make things work. I think Dollar Tree is still doing pretty well, but clearly they're trying to figure out, A, what the right assortment mix is and how they can be more amenable to a wider swath of customers. But also, clearly, if they're closing a thousand stores, they're working on trying to make it so that every one of their stores is profitable and working and that they're all as efficient as they can be. And so it seems like we're in not the time of growth that like a few years ago was a huge time of growth for this company.

21:33And now it's a time of sort of resetting exactly what is the offering you have and where are we selling and how does that work? So I think that's super interesting and something to keep an eye on. Yes. We're also seeing it in private label, too. I just wanted to add a lot of these chains are creating their own products specifically for these types of customers. So I think they definitely have their thumb on the pulse when it comes to their new customer base. I think the question will be, will it alienate your existing base, right? That's always the question. And so, especially for households that do actually rely on these retailers.

22:14Yeah, I guess it'll be as long as these are new products that are more expensive and not the old ones. theoretically it wouldn't but you know we'll have to see like what is a seven dollar product at dollar tree and is it actually worth seven dollars because you know i would say that the things that are a dollar there are probably also worth a dollar you know yeah uh i also have been trying to come up with a phrase like you asked me to earlier i can't think of anything other than some kind of play on branch i don't know do you bring like a whole branch when you go So it's a whole branch. OK, I'll wrench.

22:47I don't know. We'll think on it some more. Yeah. All right. So that is all from us this week. Please come back on Saturdays to hear more weekly rundowns of the biggest retail news of the week. You can write and give us a review anywhere you get your podcasts. And on Thursdays, you can listen to Kale on the main feed podcast where he interviews execs. Kale, yeah, Thursday. Who do you have on for Thursday? I have the final interview I had live on the Shop Talk floor. I talk with Suze Dowling, who comes from Pattern Brands. And we talk about what it's like to be a portfolio company of DTC brands, what's happening in the space, all that.

23:34It was a really fun conversation. That's very exciting. I'm excited for that one. All right. And as always, thank you for listening. And we hope you'll come back next week.