Rundown: Klarna preps for IPO, Edible Brands launches edibles marketplace & an update on Nike's turnaround plan

0:04Hey there, welcome to this week's episode of the Modern Retail Rundown. This is senior reporter Gabby Barco. I'm here with Modern Retail's executive editor, Ana Hensel. How are you this week, Ana? I'm good. We just were talking beforehand. We kind of have a wide and random array of news today, but that's how it goes in retail sometimes. Yeah, no, I'm kind of excited because it kind of runs the gamut. You've got like edibles and you've got buy now, pay later and all of it. But So we are going to start out by talking about all the news coming out from Klarna this week. So they struck a couple of really big deals, like with Walmart, with DoorDash, and they had just filed to go public.

0:54So pretty big week. We're going to kind of go into everything that's led up to it. And then the second story of the day is going to be about Edible Arrangements' new edibles venture. If you haven't heard, I think today actually are launching this website, edibles.com, which will sell THC infused treats, I guess, you know, beverages, chocolates, gummies and whatnot. So we'll get into that. And we're going to wrap up by talking about Nike, which also had a lot to share in its latest earnings that happened this week. So basically, they're saying that they're expecting some weak sales in the next couple of quarters.

1:37But their new CEO is just in the middle of leading this big turnaround plan. And it's all these investments in the long term. So, OK, first up, let's talk about Klarna, which, you know, it is this pretty big buy now, pay later player that did just file to go public. But this week, they also struck these deals, one of them being with Walmart, which is really the big one. But yeah, Ana, what are your thoughts? I mean, everybody kind of pointed out the fact that they replaced a firm in this deal, but some drama there in the BNPL world. My thoughts are it's been a couple big weeks for Klarna and it will continue to be because they are hoping to go public soon.

2:22But so as you mentioned, Klarna struck a couple of big deals in the past few days. So first of all, it's a deal with Walmart. However, there's different apps and players here. So it's a little bit complex. So I'm going to do my best to explain it. But basically, Klarna partnered with OnePay, now called One, which is a Walmart-backed fintech loan app that allows customers to finance purchases at Walmart. So that replaces a deal a firm had with Walmart. And CNBC is reporting that Klarna will be the exclusive buy now, pay later partner to Walmart by the end of the year. and yeah this is i think a very big marquee deal for clarna um especially as last week it filed to go public so if you are looking to go public and like want to convince wall street that you are looking to grow um i think that securing a partnership with the largest brick and mortar retailer in the US is the way to go.

3:30And it comes at an interesting time because, as we mentioned, basically Klarna is replacing Affirm. I feel like there's kind of a battle right now between Affirm and Klarna in the buy now, pay later space. And there's so many players in this space, but Klarna and Affirm are the ones I see most often. What's interesting is Klarna, because it's headquartered in Europe. It has a more global network compared to a firm, which is very US centric. Yeah, it's also coming the same week that Klarna struck a deal with DoorDash also. So basically, customers are now going to be able to split their order purchases into these four interest free installments that can even postpone payments to like align with their payday schedules.

4:23This one got a lot of traction on social media, just people kind of pointing out, well, if you have to, you know, Klarna your DoorDash order, maybe it's not the best idea or I don't know, just kind of the sign of the times, I guess. But I saw a meme. I'm not going to explain it well, but it was like something from The Sopranos. And it's like when you fail to pay your chipotle order or something. So yeah, people had a lot of opinions about that one. And I think it happens anytime. Sometimes these buy now, pay later providers announce an unexpected deal. There's always people commenting like, it's just crazy that this is the world we live in now that some people might feel the need to finance their DoorDash order, right?

5:09Right. Yeah. And I mean, for years now, people have been able to do it on like grocery purchases, for example. So really, these everyday purchases now being split up in these installment payments is it just kind of shows how dominant these players have become, especially compared to like the last few years, you know, it kind of to me, it felt like it really took off during COVID when e-commerce was exploding. But maybe this is a good time to talk about, you know, how Klarna has been performing and everything that brought it to its, I guess, potential reported IPO that's coming up. Yeah. So about a week ago now, Klarna filed to go public on the New York Stock Exchange.

5:56And so we got some interesting insight into the state of the business there. So 2024 revenue was $2.8 billion, which is a year-over-year increase of 24%, which is good. And then adjusted operating profit was 181 million, which is also up from a loss the previous year. And that part is really interesting. I have seen a lot of chatter from Klarna about how they've used AI to cut costs and improve operations. I think there's been a lot of reports on that. I mean, one I just remember was like using AI for more of like content creation, for also copywriting, of course. And so I think that is, that's the story you want to tell Wall Street that your adjusted operating profit is up.

6:50And this also comes after a few years of ups and downs, because as we've talked about and written about extensively, a lot of startups were very overvalued in 2021, and they've had trouble living up to that valuation. So Klarna's valuation peaked at 46 billion in 2021. And now with their IPO, they're reportedly trying to get a 15 billion plus valuation, which is still a very good valuation in my book. But yeah, I think that obviously there's going to be people who look at, well, it was valued at this much in 2021. But I think just from my initial glance, like the numbers they're reporting look good.

7:34And I think it could bode well for them on the public markets. Yeah, I mean, you know, of course, with Walmart, for example, this is the biggest retailer in the country. So that's a big one. Although it has been also pointed out that it's interesting where with the one or one pay partnership, the transactions will be done basically through the outside partner. So one is going to be handling the actual, you know, purchases and installments. So Klarna is kind of underwriting them as the loan provider. But I guess this is being considered a big blow for a firm that was getting a lot of sales from Walmart.

8:15I think they accounted for about 5 % of their GMV in the second half of last year. So that's going to have to be replaced, of course, with some other merchants. But yeah, a big week for Klarna. So I guess now we just wait for the IPO. I mean, we're waiting for any IPO, really. I know. Yeah. Yeah, seriously. I think that a lot of people in the industry will just be excited to see a IPO. Yeah. All right. Well, with that, we can move on to edibles, edible brands, which I guess most people know it by Edible Arrangements, is launching this marketplace for THC-infused products. It's coming at a time, obviously, when this is a huge time for the industry, for cannabis in general.

9:10But yeah, they're going to be selling basically just products from all these brands like Can, 1906, Heirloom, like pretty big startups in this space right now that I have covered the last few years. But yeah, legally speaking, it sounds like this is obviously a very lucrative space for them. But a lot of people, I guess it did raise some eyebrows for for a lot of reasons. Yeah, we had actually we had known for a bit that Edible was working on this. And also the company as a whole, it's going with the branding now more of edible versus edible arrangements to denote the fact that they everybody knows them for their like fruit baskets, right?

9:54But they also you can order cookies and flowers through them. And so the company as a whole now is going by this edible brands branding, but there's a few different components within that. So you have ediblearrangements.com, which is, again, where you buy the fruit baskets, the flowers, the cookies. And then now there's this marketplace called edibles.com. We can get into it more, but the website is now live. And I looked at it this morning and it was pretty interesting. They just have a few products on the website right now, mostly beverages like the ones you mentioned, Gabby. But the way that it's broken up is they have products broken up by different benefits.

10:43So like if you want ones for sleep, right? It also has labels about how much THC and CBD is in each product. So I do think it's a white space that people are looking for more of a site that can round up all of these products. But there's so many intricacies in state-by-state laws. So legally, Edible can launch this thanks to the 2018 Farm Bill, which legalized hemp-derived products containing lots of 0.3 % of THC. And the site is launching, starting with states like Texas and others in the southeast like Georgia and Florida joining soon. And according to a press release, select products will be available for nationwide shipping where legally permitted in the coming weeks.

11:36And there are also plans to, I think, launch brick and mortar. So it'll be very interesting to see how this grows. Now we can talk about why a fruit arrangement company that's been around for decades is getting into cannabis like I kind of hinted at before. I mean, the short answer is it's lucrative. This is like a$28 billion. The hemp industry specifically is a$28 billion industry. And they kind of were pretty upfront about that. But they also want to, I guess, put their own twist on this. They're kind of talking about how there's a lot of confusion in this space with people. You know, I think dosages is a big one.

12:16People don't really know what to buy. So hence, a little bit more clear, like wellness focused marketplace is is their way of differentiating. But yeah, what are what are your thoughts on that? Yeah, as I was looking at the website and again, how it breaks up how what benefits different products offer, how much THC or CBD is in each product. I was like, oh, that is nice to have that all laid out. And I think a lot of people will want that, you know, a trusted marketplace that kind of like goes through all of that. I think they'll have to do more with just like branding and marketing and letting people know that this existed.

12:56When I Googled edibles on my work computer right before this, like it's still not the first thing that comes up. And I don't know how clear it is that like this is a marketplace place for you to find trusted CBD products. So there's room for a player like this, but it's such like a fragmented market. I feel like they're going to have to do a lot of like marketing and branding. Yeah, for sure. I mean, I think having the URL is a big one, you know, animals.com. And it is arriving, I have to say, in time for 420. They did not mention that I have to be clear. But you know, it's it's a big couple of months for for this category right now.

13:36But yeah, it's interesting. I mean, I think in the release, they were saying they want to build the Amazon of hemp-derived THC. So it is a marketplace. But it's hard to tell, like you said, whether it's going to take off. But it does have the infrastructure. It's got the delivery methods. So maybe it does give it an edge. Yeah. All right. Well, now we can talk about Nike. There's a lot to get into. So maybe I'll let you start with the fact that they did talk a lot about everything that's going on, all the latest updates from them in their earnings this week. But this is a topic that we talked a lot about since the show started, really.

14:19But yeah, Nike's sort of ups and downs in the last couple of years is all coming to a head. It's crazy. I've been covering Nike now for like six years and I feel like I've seen so many shifts in that time. So yeah, the big news recently, Nike just reported earnings this Thursday and they said that they expect sales to decline next quarter, which they're like, you know, when they report earnings next quarter, which they're in the middle of now. So there's kind of that confusion there. But basically, the decline is worse than Wall Street expected. So Nike expects sales to decline in the low end of the mid-teens range during its fourth fiscal quarter.

15:05Nike's quarterly cadence is a bit different than other companies. So it just reported its fiscal third quarter earnings and its fourth fiscal quarter earnings will end in May. So consensus estimates show that Wall Street expected sales to be down around 11.4%. So yeah, this guidance is worse than some analysts expected. And sales dropped 9 % during the third quarter. So Nike is in the middle of a turnaround, which we'll get into. So it's not surprising that sales have declined. But I think now is the key moment where the company is basically tasked with convincing Wall Street it has the right turnaround plan and not to panic as sales drop.

15:55So the company has been in the midst of a turnaround since it brought on a new CEO, Nike veteran Elliott Hill, last September. And this quote from the earnings report from their CFO basically said, we believe that the fourth quarter will reflect the largest impact from our actions, actions being turnaround actions there, and that the headwinds to revenue and gross margin will begin to moderate from there. So basically, Nike is saying it will get better. Yeah, correct me if I'm wrong, but I feel like we did kind of hear a little bit of this talk over the last few years where there has been plans.

16:37But really, I feel like the big hinge point was that year that they decided they're going to be a D2C brand, right? That's like sort of what we always point back to and everything else seems to have really, I guess, diverged from there. Yeah. So I'm going to recap the last four years of Nike history really quickly. Yeah. So Nike brought on a new CEO, John Donahoe in 2020. He came from a tech background. His push was really to push Nike to be more of a DTC company, to derive more of its sales from its own channels. But now many industry observers believe he tried to push Nike to be too much of a DTC business too soon.

17:25So under his tenure, Nike axed some wholesale partners. They later brought some of them back. And many industry observers just believe Nike lost its way as it lost touch with different sporting subcultures. When I reported this on a bit last year, some analysts pointed out just how much brands like Hoka and On are so active with local run clubs, whereas they felt like Nike hadn't been as active. So that's just one example. But last September, Donahoe was ousted and replaced with Hill, which was surprising because Nike has only had a few CEOs during its tenure. It keeps its CEOs around for a long time.

18:10So that was like a very big deal in the industry. But the Modern Retail team talked to a lot of former employees last year about this. And when we talked to them, they were elated because they felt like Hill was someone who really understood the Nike culture and had a reputation for championing different projects. I remember I talked to one former employee who Hill really championed a project that they specifically worked on. And then when Donahoe came in, he axed it because he thought it was too small. So over the past six months, Hill has been reorganizing, cleaning house, all of the typical things you expect a new CEO to do.

18:53And just this week, Bloomberg got its hands on an internal memo which said that the company's former chief strategy and transformation officer, Daniel Heath, opted to leave after his role was eliminated. And chief communications officer, Kewan Wilkins, also left. So there's a lot of things that have been happening behind the scenes. And Hill also talked more during this earnings call about, you know, his plans for the future, which we can get into. Yeah, I think this is a good time to talk about what's next. And it seems like there's some promising ventures coming down the pike. We talked about it a few weeks back, but Nike X Skims, as it's being called, is going to start rolling out very soon.

19:41It seems like there's a lot of excitement around that. But he also said that during the earnings call, he said that essentially he wants to get back to focusing more on sports and performance, which, you know, I think the Skims collaboration really speaks to. But he said, when we lead with sport, we create impact for Nike. We brought more energy to sports biggest moments. So really kind of a return to form. And then, of course, there was that big Super Bowl ad that aired just a month or so ago. That was its first ad in 27 years. Super Bowl ad, that is, I should say. I was kind of surprised. I just kind of assumed they were doing ads.

20:22But right. Obviously, Nike has been focusing on sports, but I think it speaks to like this quote from the earnings call where he said during this quarter, we brought more energy to sports as biggest moments. I think that's what Nike, when he's saying like, get back to sport, it's more about like showing up for these big moments and also just being involved in like the culture of different sports. I think that's the key issue here. It was like when I talked to people, there was a feeling that Nike had kind of lost touch with these different subcultures. Yeah. But, you know, of course, there are going to be some growing pains along the way.

21:05Hence, you know, these sort of short term week guidance that's happening until they iron some things out. Of course, they also have tariffs in the middle of all of this. So there are a lot of challenges, but it seems like these are all plans being laid for the long term. Yeah. The other thing that Hill talked about on the earnings call is that he just finished a 90 day assessment meeting with wholesale partners, meeting with key factory partners. There's, again, kind of all the key things you have to do during the turnaround. I think just the hard thing for Nike is this comes at a really hard time, depending on what tariffs we see issued in the next few months, like on a macro economic level, there might not be a worse time to try to execute a turnaround.

21:52Yeah, I mean, its supply chain is probably one of the most complex around, right? So this is going to really test it. But yeah, we'll see how it goes in the next few quarters. Yeah, I just feel like Nike is a brand that a lot of people in the industry like to copy Nike. Where Nike goes, so many other brands go. So it'll be really interesting to see how this turnaround goes. Yeah, for sure. Okay, well, that's all from us this week. You can follow us on social media. We are at Modern Retail. And on Thursdays, you can listen to the Modern Retail interview show. And we will see you back here for the Saturday rundown.

22:35And as always, thank you so much for listening.