Rundown: Kroger & Albertsons pause merger, L Catterton interested in Mattel & the rise of 'Amazombies'

0:06Hello, welcome back to the Modern Retail Rundown. I am senior reporter Gabby Barco. I am here with editor-in-chief Kale Guthrie-Weissman. Welcome back, Kale. How are you? I'm doing great, Gabby. Yeah, it's great to be back. I listened to you guys talking about news for the last few weeks, but I missed gabbing about it as well. So it's good to be back in the hot seat. Yeah, I'm so excited. All right. Well, let's talk or let's preview our topics for the day. We are going to start by checking in on the pending merger of Kroger and Albertsons. That seems to have taken a pause this week. And then speaking of mergers, we're going to talk about Al Catterton reportedly approaching Mattel for a potential acquisition.

0:59That one is an interesting one. We'll get into that. And then finally, this one was really interesting, the story from the Washington Post about how Amazon returns have become a really big problem for the retail employees at the drop-off points that a lot of us probably use, you know, like UPS, Staples, Kohl's, I think, is another one. So, yeah, it's a great story and just goes to show, you know, the ripple effects of free returns. All right. So first up, let's talk about Kroger and Albertsons. They temporarily halted their merger. Do you want to give us the latest update, Carol? Sure. So pretty much, we've talked about this probably more times than we can count by now, but Kroger and Albertsons have been trying to merge for the last two years.

1:50The merger was originally proposed in, I think, October of 2022. And a lot of people aren't happy about it. And so the FTC has said that it's looking into the antitrust implications about it. A number of states have filed lawsuits over, you know, the monopoly, the alleged monopoly it could create, it would harm competition, etc. And so there have just been a lot of hurdles. We'll go in later into how Kroger and Albertsons have responded to it. But right now, the news this week is just that they have agreed to temporarily pause the merger until a series of hearings and lawsuits happen. Essentially, what it boils down to is that the FTC is looking into Kroger and Albertsons, and they're going to be talking with a federal judge in the coming weeks.

2:38And also the state of Colorado has its own lawsuit that pretty much this agreement from Kroger and Albertsons is because of the state of Colorado, where they're going to halt any future moves until a hearing that happens in September, but also because there's another hearing that's happening in August with the FTC that can have implications for these other state cases. So pretty much they just said, we're going to wait until we talk with judges, hear what the judges have to say, and then we'll go with our next steps. But that's where we are right now. Yeah, so I think a lot of people are wondering whether this means that the deal is dead.

3:19Apparently not yet, but the two companies are going to be facing a lot of hurdles ahead as they have been right now. They're waiting until the next month to fight one of the many battles in court. Still some view this move as a win for the antitrust proponents. Obviously, that's been a big area of topic for a lot of these mergers. Yeah, the Colorado AG issued this statement on the news of the halt or temporary halt. This is great news for shoppers, workers, farmers and other suppliers who can rest assured that this mega merger will not go into effect during harvest season. And while kids are headed back to school, that's a fun little tidbit.

4:03I thought they added it. Yeah, there was a lot of flourish in what they're saying. It just means they're not going to work for the next couple of weeks on it. And it's not like in a couple of weeks, suddenly everything would go kaput and they could merge. But it is funny that they were like, well, now back to school can happen. Yeah, exactly. Yeah, I mean, I guess we should get into why there is so much pressure to stop this merger. It's, you know, the biggest obvious thing is that these are the two, I believe the two biggest retail chains, grocery chains in the country, right? So it's one of the reasons why it, yeah, that, you know, the sort of antitrust, anti-competition concerns are coming into play.

4:46Yeah. And I mean, they're not the biggest. I believe Walmart is the biggest, but Walmart is the big competitor that they are going up against. And so pretty much what the states are saying, what the FTC is alleging is that if you had two of the biggest national grocery chains come together, that's going to make for much less competition. Another big part of that that a lot of the proponents are saying is that it'll make for less price competition. So essentially, if you have Kroger and Albertsons in the same areas fighting over customers, it means they're going to lower prices. But if you're working together, then you have less of that competition happening.

5:28And that means grocery prices, which, as we have written about at Modern Retail, have already gone up significantly, could go up even more. Of course, if some analysts say, you know, grocery is such a low margin game that this type of move likely wouldn't move the needle a huge amount when it comes to grocery prices, but still any movement of the needle would have an impact on shoppers, especially in this current economic climate. And so that's one thing. But then if you talk with Kroger and Albertsons, they mentioned the other big elephants in the room who they're competing with. That includes Walmart, as I mentioned.

6:02There's Costco. There's Target. There's, of course, Amazon. Amazon's a big one that's trying to grow its grocery game. It has Whole Foods and dealing a lot of other stuff with fresh, etc. So pretty much, if you talk to one side, it's about staying competitive with the other behemoths. But if you talk to the states and the FTC, this would create such a big grocery chain that it would just hinder the competition, especially other mom and pop grocery shops and allegedly consumers who are looking to get the best prices for their groceries. Yeah, I think just specifically to grocery, these are really two big names.

6:41But they're trying to make a case for this by offloading. This is Albertsons and Kroger. They are agreeing to offload a bunch of stores to make it seem like less of a monopoly. I believe they rebranded some and also announced that they're going to sell over 500 locations across the country. So, yeah, I mean, I'm not sure, again, like how much of a difference that's going to make, at least for their case with the FTC. But given that there's multiple lawsuits, everyone's just kind of waiting to see how it's going to unfold. But, yeah, we are going on two years at this point. Yeah, exactly. And it seems like the hurdles keep coming up.

7:26So we will see. I mean, it'll really be dependent on what judges say in the coming weeks and months. And so that's, you know, judges can go in many directions. And so that will really set the groundwork for whether or not this deal will go through. I do find it an interesting time right now of these mergers being halted. We're seeing it also with Tapestry. So yeah, it seems like regulators are really taking this seriously. But I don't know. We'll see if it goes through. But speaking of mergers, Mattel may be getting acquired by private equity firm Alcaterton. That's at least according to a report that came out in Reuters this week.

8:11So, yeah, what are the rumors? I mean, the rumors are essentially that Alcaterton is the latest potential acquirer of Mattel. There have been others who have been potentially interested, according to these sources. Hasbro, a major Mattel competitor, has considered giving a bid, which we'll get into probably in a few minutes. This isn't the first time these types of rumors have come about. There have been activist investors who have come forward. There have been previous rumors that Hasbro wants to buy Mattel. But this is just the latest saga. And it's especially interesting because Mattel makes Barbie, and Barbie was the big hit for the last year.

8:55Though this isn't Barbie summer. Barbie summer was last summer. And so I imagine that now probably investors are feeling the hangover of post-Barbie summer and looking at the actual balance sheets of where sales are going and are like, we need to reinvigorate the brand somehow. And often the way that they do that is by selling off. So that's where we are right now. But yeah, a Mattel spokesperson said that the company does not comment on speculation. They said that we are very confident in Mattel's strategy and our ability to create long-term shareholder value as a standalone company. Hasbro declined to comment and El Caterton did not respond for comment from Reuters.

9:41But yeah, following the report, Mattel shares jumped about 20 % to$19.49 and it hit a market valuation of$6.5 billion. So it does seem like it at least got investors excited. And then Hasbro shares jumped by 4 % to$61.25. But yeah, I mean, I think we'll get into, you know, Catterton specifically and why this might be an interesting ownership. But why do you think investors want to sell Mattel? I think you hinted at it with Barbie being this behemoth has seemingly not really panned out even as much as they would like to, at least financially. But yeah, Mattel has not been doing too hot recently.

10:27Even the success of Barbie last year, you know, a billion dollar, I think almost two billion dollar movie. The company still lost 23 % of its value in the last 12 months. So the big concern is actually about profitability because they have a lot of unprofitable franchises outside of Barbie and Hot Wheels. So that seems to be the big concern. Yeah. And according to my read of the situation is that a lot of investors, the strategy that Mattel has been taking, which if you read the headlines, seems like it's been doing very well, has been focused on the media business. So, you know, they have these franchises and you can sell a lot of media associated with it.

11:09Barbie was a great example. Hot Wheels is another great example. But Mattel is also a huge physical toy company. And a lot of those other franchises have not been doing as well and have been sort of, you know, been laying at the wayside. And so I was reading a report from early, early this year that another activist investor was considering acquiring Mattel. And one of its major points was that some of the big segments that people really associate with Mattel, like Fisher Price and American Girl, that they should just be offloaded because they are bringing the business down. And so what we're hearing from investors is that the toy company hasn't been focusing enough on the toy and the franchises and has instead been focusing too much on the media side, which when it works, it works.

11:56But also when push comes to shove, Mattel is a toy company. And so you've got to focus on those core parts. And so that's my read on why investors are looking for a shakeup right now. Yeah, at its most recent earnings, Mattel's sales fell about 1%, hitting$1.08 billion. I think it's also worth noting that coming off of early COVID when there was a lot of toy buying and at-home activity, that's obviously slowed down a lot. But yeah, this is not the first time that Mattel has potentially sold itself to another company. You know, including Hasbro, I think, was a merger deal that never came through in the past years.

12:46Yeah. And then, as I mentioned, I believe it's the investor Barrington Capital spoke with the Wall Street Journal earlier this year. And it's a really interesting story. People should read it. Just laying out why this activist investor wanted to buy Mattel at the time. And so clearly, this is a company with vultures circling. And the latest vulture that we have right now is El Caterton, which I think is very interesting given the other brands that El Caterton has and who its backers are. Yeah, this is an interesting time for Catterton. I mean, they've been in the news a lot. I feel like we hear about them almost weekly, whether it's a major investment or an acquisition of a brand.

13:25For those of you who don't know, this is an LVMH-backed private equity firm that's been making a lot of deals in the consumer sector. They're, you know, they have Tula Beauty. They have a bunch of consumer brands that have done really well under their portfolio. But Hasbro, I mean, a toy company would be a little bit of a change of pace for them, I would say. Yeah, I mean, it just bought a stake in an outlet mall, I'm reading, in Bloomberg right now. It's bought beauty brands. The portfolio is really interesting, but Mattel would certainly be a noteworthy addition to it. Yeah. And then on the Hasbro front, that's been also a little bit of an agreement or a deal that they've struck with Mattel.

14:14I think last year they agreed to make Barbie branded Monopoly games and Transformers branded Uno games. So sort of like cross promotion of or co-branded products, I guess you could say. So I don't know. Who knows? I mean, again, speaking of monopolies, I don't know if the two biggest toy companies merging is going to fly. But, you know, with Catterton, that could be a little bit of a different story. Yeah, it will be interesting to see how this pans out. And of course, right now, we have multiple reports from unnamed sources. We'll see when an actual press release comes forward saying that L. Catterton has made a bid.

14:53But for now, you know, I guess what I want to see is what would the turnaround plan and strategic shift be that a firm like El Caterton could do for Mattel that would change how things are going now? Yeah, probably a lot of efficiencies people would guess on. Yeah. Okay, well, next up, let's talk about the rise of Amazon zombies. What are they or who are they? We should ask. Yeah, why don't you give us your definition of an Amazonbie, Kale? I'm curious. I mean, Amazon B's, my understanding, it's from this Washington Post report, really good story about Amazon customers who are going to retailers that Amazon has struck a deal with.

15:38So Amazon has a bunch of deals with many, many stores, retailers, etc, where if you want to return a package, you can go to the store and then it'll be a free return. The way it's always been pitched is that it's a win-win. Amazon doesn't have to pay for the shipping of going to someone's house. And then these retailers will get foot traffic. But also, is this usable foot traffic? And if you look at the word Amazon bees, it's not. Pretty much what these stores are saying is that these are people who will just walk in, throw their boxes on the desk, and then leave. They're not actually leading to increase in sales.

16:13And it's making a ton of more work for the workers at these stores. And so now it's grown into this huge problem where these stores are piling up with return boxes. I imagine this is an especially big issue with Prime Day that just happened a few weeks ago. And so what we're, you know, it's funny because this has always been positioned as a huge solution from Amazon where, you know, this will help reduce its logistics costs and it will help other retailers who partner with it. But clearly, according to this report, that's not what's actually happening. Yeah, we can get into some of the issues that the employees and former store associates have reported or told Washington Post about.

16:54So these are Kohl's, UPS, and Staples were the three big retailers that they spoke to who talked about just dealing with hundreds of packages being returned a day. You know, the idea with Amazon was that, you know, they're going to be putting in these drop-off points. And in turn, the retailers will get, you know, all this foot traffic, right? All these people are coming in and making returns. So that foot traffic is really important to retailers that maybe people will make purchases so they would convert them to shoppers. But that's not actually what's happening. Instead, it's actually creating more work for these employees who, you know, obviously the big thing we have to mention is that they have no connection to Amazon.

17:40They're not Amazon customer service reps. So they are the ones who are, quote unquote, I think getting yelled at was the quote. Yeah. So it's an interesting dynamic. Yeah. And I mean, a lot of the things that get returned, this was a point in the article, are really bulky. So someone might be returning a mattress or someone might be returning a TV and then they are pissed off and having to go to the local UPS store and then have to bring that into the store. And then the workers have to deal with that angry customer, but then also with that huge box in a store that only has so much square feet.

18:17So, you know, it just now that we're talking about it, it seems like this was a natural problem to happen. But the way these initial partnerships were pitched, it was like a panacea for for e-commerce returns and to help other retailers. And, you know, a rising tide lifts all ships. But, you know, if you're an Amazon, if you're an Amazon customer who's returning something, are you really going to want to go into a store and then buy something else? Probably not. Yeah, I think one former manager said like there's a reason they did not shop at Staples to begin with. They went on Amazon. So that's an interesting way of putting it.

18:54But yeah, the former employee from a UPS store in Dallas said that he was receiving like 300 to 600 returns a day, which just like you said, like these big chairs, mattresses, bikes, these are really big items for somebody to handle. I mean, if someone handed that to me and it was not necessarily my job to do it, that, yeah, it would be pretty annoying to deal with on an hourly basis. And then the other thing they argued is that they're not actually really getting much sales, even with pressure from their employers to, you know, hand out coupons and all of that. It's just not converting people.

19:33So at Staples, the employees told Washington Post that they hand out coupons with discounts between 15 % and 20%. And apparently, you know, if you don't convert enough of those customers or generate enough sales from the return, returnees, I guess you could say, there is a chance of, you know, being terminated. So that's, yeah, it just seems like a lot of high pressure to bring these customers in and make them staples shoppers. But I think this just kind of goes to show that excessive returns are becoming a problem for everyone, even though, like you said, Amazon, this was supposed to be the fix to the problem.

20:20Yeah, and I mean, this is a cultural problem that has been intrinsic with Amazon since the beginning. Amazon made it really easy and free for Prime customers to get their stuff quickly and then also to return it quickly. It used to be really easy to just slap on a label. Sometimes you could get it picked up and have it sent out. There have been a few more hurdles with sending out returns recently, but it's still a huge problem and it's ingrained in every American that if I buy something, I should be able to return it. And so I think NRF said last year that Americans generated$247 billion in online returns.

20:51It's just online returns. And so, you know, Amazon on one hand wants to try and curb the amount of returns, but it also doesn't want to anger the customer and it wants to create a seamless experience. And so that's one of the reasons it created this program, but clearly it does not seem to be going to plan. Yeah. And Amazon itself says that it has strong relationships with these retail partners by helping them prepare for large volumes of returns. Like I think Prime Day is probably a good example of that. But yeah, it's hard to tell how much it's helping right now. Obviously, the employees don't seem to agree.

21:28But a spokesperson said that customers value the convenience of returning products of partner locations. And our partners tell us that operating these programs boosts their business. So, you know, they're sort of sticking to their stories as opposed to, you know, the Amazon bees being set to be like, you know, wasting staff time, creating long lines, creating a lot of waste. waste. There's a lot of boxes and plastic that's being wasted. So yeah, I mean, at this point, I feel like millions of Americans do rely on these drop-off locations to return their prime, I think, their Amazon orders. But it's an interesting tension that's kind of brewing between Amazon and the retailers because, again, these are not Amazon employees.

22:24Yeah, exactly. So we'll see if some of these retailers cut it off from Amazon, what that will do, whether or not there might be more incentives to get people to shop. I doubt those would work, but maybe. So it'll be something just to keep an eye out, especially with the holidays some months out. Yeah. Okay. Well, that is it from us this week. You can rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening. And don't forget to subscribe to the Modern Retail Podcast to hear interviews with Kale and industry leaders on Thursdays. Kale, do you have a preview for next Thursday?

23:03Yeah, I spoke with Nespresso, their head of marketing about all the things Nespresso is doing. And as you know, I love coffee. So I had a fun time with this one. Yeah. Oh, that's exciting. Okay. And yeah, come back on Saturdays for more Modern Retail Rundown.