Rundown: July retail sales bounce back, beauty brands bootstrap their businesses & eTail East comes to Boston

0:05Hello, everyone. Welcome to the Modern Retail Rundown. I am senior reporter Gabby Barco and I I am here with our reporter, Julia Waldo, who is back from eTail. How are you, Julia? And back on the podcast. I'm great. I'm great. Thank you, Gabby. It's good to be back. I enjoyed my time in Boston, but it's nice to be back in New York. Great. Yeah. So let's give a little bit of a preview of what we're going to be talking about, including eTail East Conference, which we will wrap the episode with. So yeah, on today's show, we're going to be talking about retail sales in the US. So the latest report came out in July, and it looks like the numbers are better than expected.

0:49So we'll dive into that. And then there is a new story from the business of fashion that talks about how beauty brands are finding ways to bootstrap their businesses. now that as we have talked a lot about, VC dollars have dried up. And yeah, like I said last, we will have some takeaways from Julia from retail. But yeah, first up, let's talk about US retail sales, which did increase in July. It was better than expected. It was also a bounce back from June where sales had dropped year over year. So I thought it was interesting that analysts noted that the numbers came as a relief because the spending has been kind of volatile among Americans, as we both know.

1:48We've written a lot about that. But there were specific categories that I thought were interesting that did grow, which coincided with the midsummer habits and some of the holidays we had and events we had. So, yeah, spending on electronics was up 1.6 % and grocery was up 1%. I think that's being chalked up to July 4th barbecues and just summer generally. But, yeah, and then even bars and restaurants did well. So, yeah, what are your thoughts? I mean, there's also categories that didn't do so well, which I'm sure you could speak to. Yeah, definitely. So, yes, a lot of this, I think, was due to the activity of the summer months.

2:29you know bars and restaurants I've frequented those a lot more over the summer I think you know just because you can go outside and it's it's nice to you know be able to enjoy the the fresh air but yeah the specialty stores and clothing retailers those did not do perhaps as well as they have in the past one you know good thing is the job market did show improvements so weekly jobless claims totaled 227 ,000, which is actually a drop of 7 ,000 from the previous week. So there's good information there. At the same time, though, this feels like it's showing some confusing data points from shoppers from June to July.

3:11And we will get into why that is. There's some interesting behavior that's developed over the last year or two due to inflation. What are your thoughts on these sudden swings? Yeah, definitely. So I know you mentioned July 4th earlier, that it seems like is a big factor here. We've had different kinds of fluctuations depending on these events, these micro events that consumers are really trying to take advantage of. So we have those Independence Day promos, we had Prime Day, and the variety of copycats of Prime Day. We had TikTok get involved. We had Walmart get involved. Everybody's jumping on the Prime Day bandwagon.

3:54So people were perhaps spending a bit more just to take advantage of those deals. But that can be a little bit confusing because it can create these kind of artificial bumps and spikes. And so Global Data's Neil Saunders, a friend of modern retail, He described this reactionary behavior as creating many ebbs and flows in performance. And I think that's exactly what's happening here. And, you know, another factor, I think, was that some people perhaps delayed their June purchases, knowing they would be discounted in July. So, you know, June maybe was down a bit. July, then people really started to turn out and buy those items.

4:38So that makes July probably more of an exception rather than a rule for spending growth. Um, but yeah, Walmart is, you know, a big bellwether of the economy and we just had earnings from them. So Gabby, what are, what are you seeing there on that front? Yeah, I think it's a great example of a retailer that does continue to draw shoppers in. Uh, so Walmart, uh, this past week said that their shoppers bought a lot more this past quarter compared to last year. Um, we can get into the revenue, uh, grew about 5 % year over year. And then Walmart actually did raise their outlook for, you know, revenue and profitability for the first half of the year.

5:23I thought this growth was significant because for so long we've seen the big retailers and even like the big food manufacturers, CPGs, you know, continue to grow and, you know, generate more revenue. but it was more so due to price increases versus actual units sold, whereas Walmart said that people are actually buying more items. And as we've spoken about a lot, it is due to a lot of the price cuts that it's done. Walmart was one of the first big box retailers to talk about or announced that they're going to be cutting prices on, for them, it was 7 ,200 products and included a lot of grocery and household essentials.

6:12So I think a lot of those deals or what feels like a deal when you've been paying a lot more for an item definitely helped lure people back in. And yeah, I mean, I think it just shows that people are willing to spend when there's competitive of pricing. And I do wonder whether we'll see that across other retailers, because we've, you know, there's a lot more that did also cut their prices. So yeah, Gabby, as you were saying, you know, US retail sales have been kind of volatile, they used to have longer tails, but it seems shoppers are becoming kind of more fickle. They're kind of trying to strategize in terms of the timing of their purchases.

6:52So you know, with that, it kind of makes sense that spending is swinging up and down on a monthly basis. So we'll get new numbers soon and kind of, you know, seek out new trends from there. Yeah, it'll be interesting to see what August brings because I think, you know, the expectations is that it will probably drop back down after all of those sales. But yeah, speaking of changes in the economy, we can talk about beauty brands. There's this pretty good story coming out of Business of Fashion this week that talks, you know, they talked to a bunch of beauty brands and founders about how they're growing their brands under the current circumstances.

7:36Beauty is actually one of the biggest categories. I mean, there's just so many brands. It's still doing fairly okay, at least compared to other categories. But yeah, I think maybe you can give us a little bit of background on how we got to this like focus, increased focus on profitability and maybe like growing slower, even though it is a really competitive climate. Yeah, definitely. So basically, as you said, this story came out this week in the business of fashion about how beauty brands of which there are many, many, many, many always seems like there is more jumping into Sephora and Ulta and I'm seeing more pop up on Instagram, but these beauty brands are really kind of having to get more creative with how they are raising money, how they're running their businesses, as you said, how they're thinking about profitability and growth.

8:27So, you know, a few years ago, Venture Capital used to be a really big go-to funding group for a lot of these brands. You know, they were able to raise millions and millions of dollars through venture capital. One of these brands, it's Glossier, big New York staple. They raised roughly$200 million in funding by the year 2021. And also around this time, you were getting a lot of beauty brands changing hands, getting snapped up in acquisitions. So Drunk Elephant, for example, sold for$845 million in 2019. Yeah, so for years, there was kind of this growth at all costs expectation. And now, you know, there's a bit more economic uncertainty, we had interest rates go up for a period of time.

9:18Now beauty brands are kind of looking for other pathways to growth, and you know, other ways of raising money, building their businesses. Some of this includes like applying for government loans. That's something that the founders of Moose, this prestige skincare brand did. Also, you know, some brands are starting to pull back on how frequently they're rolling out new products. You know, there's this Indian skincare line called DU, and they basically just had one product for 18 months and just really focused on that and building that out and getting demand for that before, you know, investing more time and energy and resources into building out the rest of their portfolio.

10:00And then something that the founders of both of those brands, Moose and DU, did is, you know, they put in their own money too. They, you know, tapped into their savings accounts to really bootstrap their own businesses. So we're kind of seeing brands having to, you know, try out different methods of, you know, getting money, raising money, borrowing money, you know, just to kind of build up their brands at this time of a bit more volatility as as we just talked about. Yeah. And I think, you know, as we've been saying, this is not limited to beauty. We've written a lot of stories recently, or I guess it's been about maybe the past year about how a lot of startup brands, whether they're direct to consumer or just more like digitally native, are just rethinking their model, you know, whether it's just not taking in more venture capital than they need, or maybe not at all, or bootstrapping and cutting back on marketing spend to grow more organically.

11:04There's a couple of examples I can give. So I did the story on D2C jewelry brand Dorsey, which is a few years old, but their founder actually just self-funded the business and was profitable very early. But one of their tactics is actually not offering any discounts really, especially on first order, which is very common among D2C brands. And yeah, I think just kind of using more organic influencer type of marketing that's a little bit more cheaper than just your regular channels. And then more recently, I did one on, I wrote about Styx, which is actually now known as Winx, but it is a sexual health startup that turned a profit earlier this year.

11:54It was after cutting advertising entirely last October and their founders really spoke a lot about how they were able to use content. So they have like a blog and a YouTube channel that has been a really big tool for customer acquisition. And that's how they were able to kind of pretty much cut all of paid, you know, except for maybe a little bit here and there on search. But yeah, I think these stories have become more and more common. I feel like a few years ago, we would maybe see it once in a while or write about a specific company. But now I feel like everyone I talk to is really starting out with this mindset even.

12:35I just did a story on that too. I've been speaking to founders who just launched brands recently. And, you know, they kind of went into it knowing that there's no guarantee for free capital and, you know, cheap ads. So it's just kind of like riding this wave of more sustainable growth. But yeah, I think it kind of just, you know, shows us what all of those years, you know, the 2017, all the way basically through the pandemic, those that the models that kind of or coming out of those years are not realistic anymore. So yeah, I think especially coupled with the habits of consumers being very unpredictable and so many brands, especially in beauty and lifestyle, it seems like, yeah, sort of like conservative growth is the way to go, at least for now.

13:27Next up, we are going to be recapping E-Tail East, which took place in Boston, where Julia was for the last few days reporting for us. So Julia, you're going to give us a quick recap. And by quick, I mean, you know, kind of trying to, yeah, give us a little bit of a preview as much as you can of all of the topics that were covered. But yeah, what were your thoughts? Yeah, how was Boston, all of that? Yeah, it was good. This was the 25th year of the conference. but it was my first time at ETL. I'd been to other conferences before for Modern Retail, but this is my first ETL. So it was exciting to be on the ground there and it was nice to be back in Boston.

14:12I'd only been there one other time before and it was in 2010, so a long time ago. So it was really nice to be back. Gabby, have you been to Boston before? What's your Massachusetts experience? Yeah, no, I'm actually, I'm in Boston fairly often. My brother lives there. So I'm there, you know, at least probably once a year. Yeah, I really do like it. I mean, you know, I don't want to say it's no New York, but it's no New York. Let's not get into, yeah, the rivalry. But no, it's really nice. And, you know, it's great food and everything. But yeah, what was the atmosphere at eTail like? You know, I think there's just so many topics in eCom right now that everyone's curious about.

14:54So we could probably start with the obvious one, which is AI. And then, yeah, we're going to go into three main topics that you saw. Yeah. So the three main things that really stood out to me, number one, AI, as you just said. Number two, brick and mortar retail still being really big at this conference, even though it is called e-tail, has the E in its name and is mostly about e-commerce, but a lot more discussion about kind of omni-channel retail and the different channels that people are doing, including brick and mortar. And then lastly, you know, a discussion of which social platforms are working, which aren't.

15:32So, I mean, I guess to start with AI, you know, we've both written about how retailers and brands have been using AI a lot more over the past couple years. We had, you know, OpenAI launch ChatGPT in 2022. And it seems like that just really opened the floodgates for brands and retailers of all kinds to really start embracing AI and, you know, trying out different cheaper ways perhaps to, you know, bring AI into their businesses. And so in eTail, there was definitely a lot of excitement about AI, but also a bit of a reality check, I would say, about the ways in which it does and doesn't work. One of my favorite sessions was this panel with Gen Zers.

16:13And several of them actually said they didn't trust brands that used images that seemed to be AI generated. So whether that was, you know, pictures of products, whether that was models, you know, if it looked a little bit off, or if it was the same picture of a couch per se, you know, just in different colors, like the exact same image, but it was just the color of the couch that changed. They said they didn't really trust that because they couldn't really tell what something actually looked like in real life, you know, the texture of things, for instance. And then, you know, the CEO of Lucidworks came up, and he talked about, you know, ways of which people are actually struggling to implement some of these generative AI, you know, ambitions plans that they had put into place, you know, a year ago, two years ago, they did this study Lucidworks essentially a year ago, and they did it again now, where they talk to companies about their use of AI.

17:09And essentially a number of companies who said they plan to increase their spend on AI dropped by about a third from last year to this year. So that's pretty significant. Yeah. That was fast. Yeah, I know. I know. It was still around like 60 % or so, but it had been in the 90s. So that dropped significantly. And, you know, only one in four of these generative AI initiatives that, you know, companies said they were going to launch 12 months ago actually came to fruition, according to this research from Lucidworks. So that's a bit of a sobering reality. Yeah, I think it was, you know, like you said, that first in 2022 through 23, there was just, it seemed like everybody was jumping on the bandwagon.

18:00They still are for the most part, but there is a little bit of stepping back happening. But did anybody talk about actually seeing success with using AI tools? Yeah, there were definitely brands who talked about it. And there were some panels in which brands like Hey Dude and Tractor Supply, they talked about what they were doing with generative AI. And definitely there were a lot, a lot, a lot, a lot of AI vendors who were there, you know, at the expo space talking about AI, talking about how their products really stand out and are different. Um, so, you know, AI was definitely still a topic that there was a lot of optimism around, but also a bit of a, as I said, reality check, I guess, just about ways in which, you know, you can be excited about AI and really invest in AI, but you also need to be a little bit realistic about how much money it takes to do these projects.

18:55And also the fact that, you know, if you implement AI, you're going to have to wait a bit of time to see it fully realized, you know, you can't just expect all of your numbers to start bumping up in like a month. And then the second big theme that you saw was talk of brick and mortar retail, which is kind of ironic because this is an e-commerce conference. But yeah, were there reasons or what were some of the reasons that some of the brands talked about the need for physical retail? Yeah, it's funny because basically, so when this conference, you know, first launched 25 years ago, e-commerce was still a very, very, very early business.

19:38You know, you had companies that were definitely starting to make online stores and do more e-commerce. But, you know, the big, big, big driver of a lot of sales was still brick and mortar. And so, you know, it was interesting at this conference to be able to hear about ways in which people were, you know, trying to focus on kind of, you know, having a more seamless, you know, integration of e-commerce and physical retail in their businesses, not just one or the other. But, you know, some people will go in stores and look at products and then look up reviews online and then, you know, buy the thing online or buy the thing on TikTok shop or Instagram.

20:18So, you know, people don't really shop in these siloed channels anymore. So, you know, with brick and mortar, that was something that was still really heavily discussed. And there were a couple, you know, sessions where people talked about this. One of them was IKEA's head of e-commerce. She basically mentioned, you know, how IKEA is opening more small scale stores in the U.S. IKEA, you know, we associate with these ginormous square footage centers. But basically, they are trying to do more with smaller stores, especially in more urban areas where they don't particularly have the land to put in a ginormous store.

21:04And then Brompton Bicycles, their head of North America, she had this really interesting keynote about how Brompton is really using its stores to try and combat, you know, quote unquote, the loneliness epidemic. and so basically they have 15 stores including two in the U.S. They're going to be building a third one on the West Coast and they have really used their retail stores as a place for meetups and other community events. So they've been really reliant on using those as gathering spaces for people to be able to meet other cycling aficionados. so definitely still some optimism for for brick and mortar there uh yeah and then the last uh topic was uh you know uh we could talk about maybe currently as of this moment what are the current social platforms that are actually working as far as marketing or paid ads go uh i feel like you know maybe we could start out asking about tiktok which is the obvious one definitely yeah so brands still seem bullish on tiktok um uh i was able to moderate this panel with cake's body and duolingo um the first of which is a nipple cover brand and the second of which is a language learning platform obviously two very different business models but they both have been leaning a lot more into tiktok um and they actually told me that they're not going to take their foot off the gas for TikTok quite yet, even though there is this potential ban that is looming.

22:45So both brands are still continuing to put a lot of money in TikTok, a lot of time into TikTok, but they're starting to look at ways to repurpose TikTok content in other platforms like YouTube specifically. YouTube, I was hearing a lot about at this conference. People seem really excited about YouTube. I know we've talked a bit about how brands are using YouTube shorts, but also just like long form content, it seems like it's kind of coming back a bit more. So, you know, the early days of YouTube of like, you know, Charlie bit my finger and stuff. I don't think that's exactly what we're talking about here.

23:18But, you know, brands are getting back on onto YouTube to truly connect more with, with consumers and their audiences. And actually Duolingo, they said that growth on YouTube has really surpassed growth on TikTok. So, you know, with that, they're able to kind of have a fallback. If the TikTok ban goes through, they are able to, you know, go back to YouTube and really build that up. But yeah, no discussion of be real, which I know is all the buzz, you know, about a year ago, you know, that wasn't really a discussion. So it seems like YouTube is where a lot of places are putting their attention.

23:54Yeah, I wonder if specifically for somebody like Duolingo, YouTube obviously lends itself better to educational content versus TikTok, which can be a little bit manic to scroll through. So I think when somebody's going to YouTube, usually they're more in the mindset of sitting down and watching a fairly long video, more than 30 seconds or whatnot. So that might be one of the culprits. But yeah, it seems like these are a lot of the topics that we've been covering here at Modern Retail. So no big surprise. But yeah, the AI aspect is pretty interesting, though, because it feels like a little bit of whiplash of how companies are trying to figure out how to use it.

24:40Definitely, definitely. Yeah, I think we're going to see the next ETL conference, which is in Palm Springs, what brands are going to continue to say about all these topics. And I believe it's in a few months from now. So we'll have more reporting on that when that comes out. Yeah. Well, on that note, that is our show for today. Thank you, Julia, for coming back and joining us. This was really fun. Thanks for having me. Yeah, we'll see you next time. But for the audience, you can rate and review us anywhere you get your podcasts and subscribe to the Modern Retail Podcast to hear interviews with industry leaders.

25:19That's the show on Thursday. And you could also follow us on social. We're at Modern Retail pretty much everywhere to read our coverage that we've referenced a lot this episode. Yeah. And then you can come back on Saturdays for the Modern Retail Rundown. Thank you.

25:51Thank you.