Rundown: J.C. Penney merges with Sparc, Amazon's new retail ad service & Target doubles down on wellness

0:03Hello, everyone. Welcome to the Modern Retail Rundown. This is senior reporter Gabby Barcoe And I'm here with Editor-in-Chief Kale Guthrie-Weisman. Hey, Kale, how are you? How was your week? Doing well, Gabby. My week's good. We're now officially full week into January, the new year. I feel like we're brushing off all the dust of the holiday break. And, you know, as usual, there's a lot of news to cover. Yeah, now we kind of get back in this swing of things. It feels like there was a little bit of a slowdown right at the beginning of the month. But there's a lot of news to cover, starting with this new announcement of JCPenney is merging with Spark Group.

0:44So we're going to get to that first. Then we're going to talk about a new CES announcement from Amazon. It basically just has this new advertising toolkit that we will get into. Just the latest of a series, I feel like, that we'll get into. And then finally, you know, very on theme for the month, but Target is launching thousands of new wellness products on its shelf. So, yeah, let's get into it. First up, this new venture where JCPenney is merging with Spark Group. This is the operator of Brooks Brothers. Lucky Brand has been announced, and it's this new super group is called Catalyst Brands.

1:25Yeah, what are your thoughts of this? I mean, just as I was prepping for this, we were saying like, it feels like there's a million brands under this umbrella now, which I guess is the purpose. Yeah, no, and it's kind of what the way it was described in the press release is kind of difficult. And like, I think intentionally, I guess, obfuscatory, but essentially, JC Penney is merging with this other group called Spark Groups. And now the brands and the new thing is called Catalyst, as you said, Catalyst Brands. And just to give a sense of all the brands that will be owned by this umbrella company is Aeropostale, Brooks Brothers, Eddie Bauer, Lucky Brand, Nautica.

2:03Then now it'll have JCPenney's private labels. And so pretty much it's just a big sort of legacy retail entity that adding JCPenney into it will make it even bigger. I think what's super interesting, and we'll probably get to this in a few minutes, but like a JCPenney veteran is now coming in to lead this new group. So Mark Rosen, who was a JCPenney CEO, he's now the chief executive for Catalyst Brands. And so it's sort of like bringing together a lot of these companies before. We're not doing well, as we know, JCPenney has not been doing well for a long time, as with many other department store counterparts.

2:38But there have been these new sort of ventures that have been coming up and scooping them up and trying to make them into bigger IP engines. Yeah, I think, like we said, there's just been a lot of consolidation happening since I feel like it really ramped up in 2021. JCPenney filed for bankruptcy. But, you know, this is a deal that was done in the amount was undisclosed. But I guess we could start talking about like why it matters. I mean, Rosen himself put out a statement, you know, in the release saying that this relationship, you know, there's 60 million customers, I guess, across the board, and they have all of this deep data that we have to create a compelling consumer value prop across our brands.

3:24this kind of reminds me a little bit of like a roll-up company where it's like, okay, we're going to be efficient. We're going to just have, I think, a bunch of executives from JCPenney and the other brands are being promoted to help operate it, I guess, all in one. But to me, that seems very overwhelming. There's just so many different types of retailers here. But yeah, I think that this is a big bet for them. But yeah, maybe we could start talking about why this is coming at a time where JCPenney really needs it. And there's also, of course, the relationship of this is a mall operator that's also the owner of this group now.

4:05Yeah, it's a little convoluted, I will say. Yeah. And I think what's really interesting is up until now, a lot of Sparks' portfolio was more or less brands as opposed to retailers. JCPenney obviously has his own private labels, but it's also a retailer that sells other brands. But Sparks included Eddie Bauer, Lucky Brands, and Annika, and that made it into a much cleaner sort of roll-up group, where the idea was be sort of an umbrella organization with all of these brands. They could share synergies, for lack of a better word. But adding JCPenney to the fold, I think, is super interesting. But as you said, it probably was, you know, we don't know the terms, but it's probably a pretty sweet deal for them.

4:41At its most recent quarter, JCPenney's net sales dropped by 8%. It's EBITDA dropped 64 % as well to only$66 million. And it's, you know, been joining all of the other department store players that have been not doing as well. There's Macy's, there's Nordstrom, you know, we could name the long list of them. But it's just, it's been hard for these companies. And they've all been trying to find new ways to re-energize their business. We talked last week about Nordstrom going private, you know, there are all these different opportunities that these companies are trying to take to grow it. And this is the one that JCPenney seems to be taking.

5:16Yeah. I mean, like I said, this is a struggling retailer, a department store, actually, that is typically an anchor at a lot of Simon Group, the mall operator. It's huge across the country. So of course, they have this vested interest to save JCPenney. But at the same time, I think, for a long time now, it's just not been working for the past four, almost going on five years now. So it seems like... Also, I saw a stat. So far, none of the Simon-owned malls, JCPenney's, have closed in the past couple of years. So obviously, it seems like that relationship is pretty strong. The idea is joining forces, I guess, to help mall-based brands improve sales, bringing in more traffic.

6:06But I do I just keep having to remember that a lot of these brands were plucked out of bankruptcy to begin with by exactly that what is now Catalyst Group, everybody involved. So a lot of them, you know, they're doing okay, some of them, but they don't they're not necessarily like killing it per se. So yeah, I think this is this is something that was going on before COVID. But of course, we're seeing the fallout now even more. And yeah, Yeah, it's interesting to see this direction in such contrast to what Nordstrom is doing, for example. Yeah. And I think it's important to know, just to back up a little bit, exactly what SPARK is.

6:42So SPARK is an acronym for Simon Properties Authentic Retail Concepts. And it's a partnership between Simon Property Group, a major real estate player, Brookfield Corporation, another major real estate player, Authentic Brands Group, which owns a bunch of brands that it's been trying to resurrect for many years now. and then Shein. And so it's an interesting consortium of stakeholders here that now own all of these other brands in addition to JCPenney. So super interesting. Yeah, I guess we'll see what this will bring out, you know, in the coming. I mean, I don't know how much sort of cross pollination there will be across all of these brands.

7:22But it seems like, yeah, at least the operating side will be pretty combined. Yeah. And I'll also be interested to see just how footprints change because with other brands, when you talk about scooping them up, a lot of that focuses on streamlining the business, maybe growing digital sales, et cetera. JCPenney, its core has been its stores and the fact that it used to be an anchor tenant in malls. And so it'll be interesting to see under this new Catalyst group, whether or not it'll change its footprint, how it will rethink the footprint, how that will play into the deals that it strikes with malls, like Simon-owned malls and things like that.

7:57So that'll be something we'll be watching out for is just what is the real estate and store strategy going to be with JCPenney as part of this bigger group? Yeah, for sure. Okay, well, we can move on to another set of pretty big news coming out of this week, which is Amazon announcing this new program called Amazon Retail Ad Service at CES in Vegas. The name itself, I will say, I have to say, I thought this kind of already existed. I'm surprised there's not already a program called Amazon Retail Ad Service, but we will get into that. I think there's a reason for that, which I'm sure you will explain soon.

8:32Yeah, no, I mean, Amazon has a lot of retail ad services. And up until now, that's not been the Amazon Retail Ad Service. But this is actually and it's, you know, when you see the press releases, you're like, is this big? Is this not big? What does this mean? This is actually a very, very big and noteworthy announcement, which we'll explain in a few minutes. But essentially, the new program, Amazon Retail Ad Service, as we've said quite a few times now, it lets retailers use Amazon's ad tech to serve customers contextually relevant ads on their own websites. So that's, you know, their home pages, their search results, their product pages, essentially, the types of contextually relevant ads that you would see on amazon.com.

9:13And so this is pretty much Amazon selling its back end ad tech to retailers themselves, which is maybe it seems like a slight nuance to a layperson, but it's actually a very, very big development. Yeah, maybe it would help to kind of describe what an ad like under this program looks like. So it seems like they had some pilot tests going on already with, for example, Asian grocer, we and wellness store, I herb. So yeah, I you know, Do you want to maybe give us a little bit of a take on what this looks like as opposed to the typical Amazon ad or sponsorship? Sure. So pretty much the big differentiation is that before now, Amazon's ad business has been focused on advertisers.

10:02And so giving them ways to sell ads on Amazon, as well as on other publishers that Amazon has relationships with. It's DSP is a way that advertisers can plug in and then send programmatic ads to other sites that Amazon already has relationships with. The way that this works is it's not the advertisers that Amazon is working with. It's working with the retailers themselves. So if I'm a retailer and I want to be selling ad inventory on my own website, traditionally I would use a company like Criteo or Epsilon. These are all huge players in the ad tech space. There are also other new ones like Kodi that pretty much build out invisible retail media networks that are then put on retailers' websites.

10:45This is Amazon doing the same thing. Amazon has, up until now, never competed in this space. Its world has been offering advertisers different types of inventory. But now it's actually building the infrastructure so that retailers themselves can build their own retail media networks. And it's probably a little bit more interesting for retailers to work with Amazon. We'll talk about why they might not want to work with Amazon. But Amazon is sitting on probably the best trove of customer data in the world right now. So when Amazon says contextually relevant, it is probably more correct than other ad tech places.

11:21And pretty much it is if a retailer wants to sell inventory to the brands that it works with, Amazon will have a sense of, is that person interested in that product? When would be the right part of the website to send that ad? that type of stuff. And so it's sort of a new type of program. Amazon already has this type of infrastructure built out because its entire e-commerce marketplace is built this way. And so it's just focusing on a different type of player and a new way to scale its ad business. And it's competing with some major players. And I bet you, I'm sure Criteo is unhappy about this.

11:55Yeah. I mean, maybe this is a good time to talk about, is this good, scare quotes, or bad for for retailers themselves? Because over the past few years, we talked a lot about how a lot of retailers are already building out their own ad networks. So I guess, is this encroaching on it? And I'm actually kind of surprised it took this long for Amazon to do this. But of course, I feel like they're just scratching the surface when it comes to ads regardless. So I guess it makes sense. Yeah, no, I mean, I'm sure they spent years trying to figure out what would be the best rollout. I imagine some retailers are a little bit wary of working with Amazon because they think of it as more or less a competitor.

12:36Of course, Amazon is very clear that the service operates independently from its own marketplace. So CNBC wrote, quote, Amazon said the service operates on systems that are separate from its own retail business and retailers manage their data via AWS accounts. So pretty much saying like Amazon isn't going to use the data that retailers have for its own uses. The big issue is that if you're a smaller retailer and you want to build out a retail media network, I put in square quotes, pretty much meaning if you want to sell ads on your website, you're not going to build that in house more often than not, like you're probably going to work with some ad tech partner like Criteo.

13:13And so whenever we talk about so and so retailer is launching a retail media network, more often than not, unless it's one of the really, really big players, it's using it's sort of underwritten, it's built out by one of these services. And so with Amazon providing that service, I see why retailers would be wary potentially at first, but I also see why they would probably really like that because it could create a much more unified and interoperable system. Because that way, it's not going to be sort of atomized on the advertising front where they have to deploy campaigns for this retailer and this retailer and this retailer, and they know how that data is interacting with each other.

13:54And this way, it'll be a little bit more robust and potentially more contextually relevant, for lack of a better word. Yeah, it'll be interesting to see what the sort of early tests will look like. But for years now, Amazon has been trying to diversify its revenue beyond just the marketplace play. And so obviously, ads have been a huge part of it. But, you know, up until now, it has been mainly focused on, you know, how to get brands or sellers to advertise on Amazon. Of course, it's become so competitive. But just for context, you know, the current ad business brings in$50 billion in revenue.

14:34Some would argue that's, you know, a drop in the bucket for Amazon. But I do think it's, it is outpacing, I think, right? That's sort of the big context everybody gives is it is outpacing actual e-com sales. So this new program, I guess, makes sense as far as like building on top of that. Yeah. And I think, as you said, advertising is one of its biggest growth engines. It continues to grow. But also, Amazon is limiting its growth when it only focuses on its own properties or just sort of the few partnerships it has. With DSP, you can do bigger top of funnel ad campaigns on Amazon Prime Video, that's very, you know, advertisers love that, you know, it's working on that media side of the business.

15:21But this way, it's a whole new set of customers who are getting something completely different. And that could really grow the ad business a huge amount because it's pretty much been untapped until now from Amazon. So the question is, will these players, will it get new retailers or new companies that want to launch their own ad network? Or is it going to begin getting people to switch over from these other these other ad tech services? And that'll be something we'll be watching out for. Yeah. Okay, well, from Amazon, let's go to Target. I feel like people say that a lot, probably. So Target is expanding into wellness this month, you know, this is coming just in time for New Year's health resolutions.

16:04So basically, they are adding over 2000 products that just span across anything that's now considered wellness, pretty much. As I always say, this could be like everything from hair care to food and beverage. And a lot of them are only at Target. So whether they're exclusives, collaborations with influencers, or, you know, of all of these new products and half of them are going to be priced for under$10, which I thought was really interesting. But we'll talk a little bit later about why Target is leaning towards value now or for a lot of good reasons. But yeah, this is a lot of products. They have been on this sort of run of just newness, constant newness lately.

16:55Yeah. And I think that it shows two things. One thing, Target trying to sort of refresh its image with customers, which we'll talk about, like the values, one part of it. But it's also like Target's business has not been doing as good as it historically done, I guess you could say. But two, like the real areas of growth for a lot of retailers and a lot of the retail industry is health and wellness. So like you've written a lot about how Walmart has been updating its aisles to be focused on better for you and get new products in there, very much on the wellness side. You see players like Sephora and Ulta, which aren't necessarily, that's not all wellness, but a lot of it is like hair care, things like that.

17:35Those companies are doing very well. And so it makes sense that Target would try to recreate its image in this sector because there's clearly demand from consumers. And if it's able to do something that is exclusive, that you can only get at Target and is also pretty cheap, it probably sees that as a win-win. And so it makes sense in terms of where the needle is going and why Target is in need of shaking things up and sort of refreshing its image. Yeah. And like I said, this kind of runs the gamut. So some of these are, you know, new products from emerging brands like Dr. Squatch, you know, their men's body care, for example.

18:14There's also a new hair care line by Ashley Tisdale and a more products from The Rock's men's care line. So I did notice a through line, which is like men's skincare wellness is becoming a bigger focus, at least in this round. But, you know, it's all about like self-care products, nutrition, digestive health, which I've written a lot about. It's, you know, and of course, loungewear, activewear, like wearable techs, all of that. But it does seem like they are betting on people coming to Target for these things because and we'll get into the stats for a second. But these are actually the categories that do drive a lot of targets annual revenue, because it is what you know, it's kind of known for this sort of middle of the road, like a little bit of an upscale assortment, a little bit more than Walmart, which, of course, is is the big elephant in the room.

19:11But yeah, this is sort of what they're known for. You know, they're known for their collaborations. Beauty section, of course, Alta, speaking of, is a big partner. So yeah, it makes sense that they're leaning into it. I guess I just wonder whether cheaper or lower priced items is what they think will actually bring people back because traffic has been a big problem for them for the last maybe what, 18 to 24 months, it seems like. Yeah, no, it's been a big problem. And I didn't even realize it, but you're totally right that a lot of these juicy men focused. And I think that's a big area of growth.

19:46And also on the retailer side, we have not had a clear player who is like, this is the place to get men's beauty and wellness products. As you're seeing more of these products launch, you're seeing men's fragrance be a big thing. And so it makes sense that Target would see that as sort of a hole it could fill. But just to go into it, you're completely right that traffic has been a big problem at Target. and just sales as a whole. So in its third quarter earnings, year over year, sales were down by nearly 1%. The sales were$25.2 billion. CEO Brian Cornell said that Target will continue to invest in, quote, delivering newness and strong value to drive traffic, which it seems like this latest initiative is a way to try and do that.

20:31Yeah, so this began about a year ago when they announced at the beginning of 2024 for that their up and up private label, which apparently has been around for 15 years now, which is just such a long time, I didn't realize is and it's valued at$3 billion. I think it's one of their top private labels. They're reformulating about like 40 % of the products, and they added hundreds of new ones. And pretty much everything is under$15. So again, there's a huge emphasis on price points, because this is the, you know, where they couldn't really up until now compete with Walmart and Amazon really is who it is.

21:10They also just recently unveiled a new private label. You know, people, I will say people do really love the Target private label. So it makes sense that they're doubling down on it. But this one's called Dealworthy. It's kind of in the name, which is just focused on everyday basics for pretty cheap prices. And then of course, you know, we talked about it for the last few months, they've been just cutting prices on a bunch of national and their own branded items. So yeah, I think just sort of reducing prices. I keep saying it over and over, but this is sort of the big emphasis they're trying to make right now.

21:45Yeah. And it seems like this new venture is a confluence of that, which we've talked about a lot. And it's been clear that the strategy for Target to try and regrow sales is to make it viewed less as target, you know, the middle priced higher end price and more as something that people can afford. But then also, as I said in the Cornell quote earlier, the newness. And so this is a mixture of like, these are new products, it's things that people clearly want, but they're also cheap. And so when you when you think about it, the strategy is pretty clear. Yeah. And just to wrap up, I thought you'd find these stats kind of interesting, but beauty and household essentials accounted for 30 % of Target's total sales in 2023, followed by food and beverage, which was 23%.

22:30So I guess when you think about it, like it makes sense that those would be the big categories for Target, as opposed to, you know, some others, but like, you know, grocery is a little bit of a dent there. But yeah, beauty and wellness makes a lot of sense that they're just gonna continue to grow those sections out. Yeah, certainly does. Okay. Well, on that note, I think we could wrap up. That is it for us today. You can rate and review us wherever you're listening to us. And listen to the Modern Retail Podcast on Thursdays with Kale. Usually has a lot of fun guests on. Do you have someone for us to preview for next week, Kale?

23:09Yeah, next week I'm talking with the THC infused drink can. We talk about dry January, why it's big for a brand like that. And then just the overall space of cannabis infused beverages. It was a fun conversation. Yeah, that's exciting. Yeah, they have been expanding pretty rapidly as I've written about. So yeah, and then follow us on social media. We are at Modern Retail. And yeah, come back next week on Saturday for more Rundown.