Rundown: Levi's weighing Dockers sale, QVC gets into pickleball & PepsiCo acquires Siete

0:05Hello and welcome back to the Modern Retail Rundown. I'm Gabby Barco, and we are back this week with managing editor Anna Hensel. Welcome back to the show, Anna. How are you today? Thank you. I am good. It is starting to finally feel like fall where I am. And so I'm excited for fall. I'm very basic and love all the like apple pumpkin flavored things. So excited to buy all the seasonal varieties that all these retailers are betting on, I'm sure. Yeah, no, same here. I've been really into like cinnamon and apple everything. So getting into that and sweaters and yeah, that crisp feeling in the air.

0:50But speaking of sweaters, let's get into the topics of the day. First up, we're going to be talking about Levi's, which is contemplating selling off Dockers, which is currently underperforming. So we will get into that. Next, we're going to talk about QVC getting just deeper into streaming. Apparently, they are really trying to build out their streaming platform. But more specifically, they're going to be streaming pickleball matches. They have a new partnership. And yes, it will be shoppable. So you are going to be able to buy pickleball merchandise as you're watching the games. So that'll be exciting.

1:31And last, we're going to talk about a pretty big exit in the food world that came out of this week, which is a Siete Foods that was bought for$1.2 billion by PepsiCo. So it's a pretty big acquisition. We'll break that down for our audience today. But first up, let's talk about Levi's because it did report some lackluster earnings this week. And it did say they may be selling one of their brands. Chances are it's probably Dockers. We'll talk about why that is. But yeah, let's talk about the results. Anna, you looked into the numbers. What are your thoughts on this? Yeah, so I think that Levi's is not doing as bad as some of its peers.

2:19I mean, you had Nike also report earnings this week, which were not great. so Levi's didn't report a huge sales decline like they did but overall results weren't great so sales at the company were nearly flat and when you break down so for simplicity's sake the company's name overall is Levi Strauss & Co most people know them for its marquee denim brand Levi's. But Levi's, the conglomerate, also owns two other brands, Dockers, known for its khakis, and Beyond Yoga, which Levi's bought in 2021. So overall, the breakdown was sales were up at Levi's globally, up at Beyond Yoga, but were down at Dockers.

3:07The breakdown was sales were up globally at Levi's 5%, up 19 % year over year at Beyond Yoga, and down 15 % at Dockers. Additionally, Levi's DTC revenue was up while its wholesale revenue was down. The company also noted that sales in China and Mexico were down. So definitely some bright spots in here, but I think Levi's is kind of in a position where multiple parts of the business are down. It has other areas it wants to focus on. So it's kind of thinking through how to do that, which we can get into. Yeah. Like you said, some bright spots. I think the Beyond Yoga acquisition is already proving to be fruitful.

3:52That is a company that, you know, is just continuously performed well. But let's get into Dockers now. So the CEO of Levi's, Michelle Gass, said that Dockers has been underperforming for quite some time now. She also said that Levi's is exploring strategic alternatives, including selling Dockers. So this is the key quote from her and talking about Levi's ambitions, which is that through our transformational pivot to operating as a DTC first company, we are narrowing our focus to realize the full potential of the Levi's brand, as well as accelerate beyond yoga. So, you know, naming the two well performing brands, and I think, you know, we can kind of fill in the gaps there read between the lines that it sounds like Dockers is maybe in trouble a little bit.

4:45But let's talk about you and some of our staff has been covering Levi's strategy for a few years now, which is that they're really, you know, like a lot of legacy brands trying to rely less on their wholesale accounts and, you know, go direct to consumer, you know, for reasons we don't need to get into. I think a lot of our audience knows why that is. So yeah, let's start by talking about some of the investments they've made, Anna. Yeah, so I think the key here is becoming more of a DTC first company, it requires brands to invest in a lot of things. And I think if you are Levi's and you have two brands that are performing well, and like you want to keep growing the DTC business of those brands, you have a lot of investments to make.

5:33And I think it sounds like Levi's is just at the point where, again, we have all these investments we want to make for Levi's and Beyond Yoga. Maybe we can focus on those more if we sell out Dockers. So I would say generally speaking, if you want to become more of a D2C first company, it just requires a lot of investments in things like opening more stores, improving the online ordering experience, which I know Levi's has done over the years. And also just like more brand marketing investments, which can be a myriad of things. But basically it's about trying to, while you're also growing opportunities for people to order directly from the brand.

6:18You also have to boost its cultural relevance and brand affinity, obviously, to make people want to order direct from your site versus, say, going to Kohl's, which is actually where the Levi's CEO came from before. So, for example, Levi's really capitalizing on Cowboy Carter earlier this year unveiled a big marketing campaign with Beyonce ahead of the holidays, which the company said is a step toward reaffirming Levi's place at the center of culture. Gas said she also wants to transform Levi's into like a head to toe lifestyle brand. I think a lot of people know Levi's for its denim bottoms, but obviously it sells a lot more than that.

7:03So needless to say, I feel like this is a lot to balance. And again, it just appears that But Levi's wants to be able to focus more on its top two brands by selling off Dockers versus like investing in all of these other things for Dockers as well, which it has been trying to do and we can get into. Yeah. And, you know, now we can start to look at the what Dockers has been trying to do to turn things around. You know, this is a company that's been around for decades. They are known. They have even spoken to us. I talked to them this past April, and they do really want to court the younger generation like a lot of brands do.

7:43But yeah, over the past four years, CEO Natalie McLennan did tell me that they have been trying to refresh the brand by broadening its appeal just with more young customers. As I mentioned, they did add more products, you know, going beyond just the classic khakis. they did they're doing dress khakis chinos soft tees which is a big focus of theirs you know sort of like the comfort post pandemic dressing and they also did add more wholesale partners like free people for example which they think is a good retailer to be able to you know meet where the younger shoppers are shopping for their maybe perhaps dockers and some other brands But yeah, other than that, you know, I think strategic wholesale combined with just growing their D2C business like Levi's itself, the parent company, they opened 30 new stores last year.

8:43That's a lot of stores in a very short amount of time. So now they have over 100 stores. So really investing in, again, brand marketing, becoming very, very consumer facing as a standalone brand. But I also think it's interesting that a lot of the focus seems to be international because I think, you know, the idea is that that's where a lot of the markets that they haven't tapped yet because there's only so much of the U.S. you can tap are right now. So that's who they're betting on. Yeah, I thought this was really interesting from your story earlier this year that Dockers opened 30 new stores last year, again, for a total of 100 stores, but only five of those stores are in the US.

9:25And I forget where exactly all of those 100 stores are. But I think it's really interesting. Like, obviously, it is a brand that still has appeal. I think the challenge, I mean, apparel is tough. I think it's just hard keeping up with like, all of these, keeping up with like fashion trends. And I think that, you know, Docker still has a fan base. But to your point, like they are trying to court. It's a challenge where you have to both court more younger customers while also like not alienating your existing customer base. And I think that Dockers especially, like they've been known for khakis, but also kind of like utility.

10:05So they were trying to get into more, again, like fashion or catering to the kind of post pandemic, like people looking a little bit for more like comfortable clothing. but all of this wasn't enough to grow wholesale sales in particular which is the reality that's what the bulk of the business still is um and you know if you are traditional apparel brand you like can't continue to grow sales without also growing your wholesale business yeah uh the big markets that they're really infiltrating right now are mexico and southern europe specifically so So Spain, Italy, France, Portugal, you know, I think the correlation there is maybe the merchandise lends itself to the lifestyle.

10:52I don't know. This is just me, you know, speculating. But I think it makes sense. And also the fact that it's almost like you have to start from scratch, I think, with the brand marketing there, because there's not a lot of association with what Dockers is, which is obviously has its advantages. But also, there's still a lot of work to be done, which is what they've said. And I think the question is, do they have that time, considering what Levi's, you know, their ambitions are for the parent company and their portfolio, that remains to be seen. Yeah, I was going to say, I think it's just a challenging time for apparel retailers in general because shoppers are very picky.

11:31They're taking a long time to decide what to buy. And I think just overall, we'll see more conglomerates like Levi's consider selling off underperforming brands. Mm hmm. Yeah. So, you know, we'll we'll watch out and see whether any deals in by Levi's may come in the next coming months. Yeah, we'll keep an eye on it. Well, moving on to pickleball, we are going to be talking about QVC, which is about to become the exclusive broadcaster of USA pickleball. That is quite a jump from just traditional home shopping programming. But yeah, let's get into it. What is the news? So I'll start off by saying, you know, basically QVC is going to become just the official U.S.

12:22Pickleball League's partner, both with airing the actual matches, but also, of course, with shopping and merchandise and collections and everything else that comes with, you know, pickleball fashion. They're going to be sort of, you know, spearheading. But yeah, what are your thoughts on this? I mean, it's interesting because, you know, QVC Plus, HSN Plus, not necessarily household names in the streaming world, but they do have ambitions to make them. So yeah, so to take a step back, it ties into this new brand platform that QVC launched earlier this year called the Age of Possibility, which is geared at women 50 plus.

13:05So I spoke with Annette Dunleavy, who is QVC's vice president of brand marketing, a couple months ago at an event we hosted for Modern Retail. And so I'll get into a little bit of like what this initiative entails and kind of how Pickleball ties into it. But the one thing that stuck with me with her talk is QVC has this whole initiative right now. They kind of did some marketing with brand ambassadors. you know they're rethinking what like products they kind of feature and it's all tied into this idea that like what 50 looks like now does not look like what 50 looks like decades ago so the example Annette brought up during her talk which stuck with me is um if you remember when Golden Girls aired like three of the main characters were in the their mid-50s when they started and were like living, you know, in this retirement home in Florida.

14:04And so her point was, people are much more active now, I think, in like their mid 50s. They are into activities like pickleball, they're traveling more. So like QVC is rethinking what type of products it features in its content to kind of cater more to that audience. So that is why you're seeing them get into pickleball. so specifically this quote from her explaining this partnership when it was announced she said pickleball is the fastest growing sport in america and really resonates with that demographic of 50 plus women we thought what two perfect partners to come together qvc and pickleball we wanted to partner with them to sort of bring the sport to life in a different and unique way for our audience so again like you mentioned this has two components streaming pickleball matches and also kind of tying in pickleball products in shoppable ways and just generally qvc is building out its streaming platform with live shows and events for example they had this ultimate gift wrapping challenge show with uh and then uh actress busy phillips talk show so i think that you're gonna can and the other challenge for QVC is that, you know, cable viewership is declining.

15:24So basically, you're both seeing them experiment with new types of content, and also what type of products to push as its audience, which is still largely 50 plus women are interested in different things. Yeah, no, for sure. Also, sorry, I'm still stuck on the golden girls being in their 50s. I did not know this. Yeah, I fact check it before this, like in the at the beginning of the series, three of them are in their mid 50s. Okay, I remember them being younger, obviously, then, you know, we think of now, but wow, okay, also being able to retire. Okay, no comment on that front. But yeah, no, I think it's definitely that and part of you know, the pickleball aesthetic as somebody who watches a lot of Real Housewives, like, a lot of them are in their 50s and 60s.

16:17But, you know, people in that age demographic just dress younger, they're trendier, they're doing all of these really trendy activities and hobbies like pickleball is a big one. And so it makes sense that they're trying to court this demographic, of course, you know, remains to be seen how well it's going to work. But let's talk about the curated shoppable entertainment aspect, which is what the Hollywood Reporter called it, what QVC plans to do. It remains to be seen since they haven't aired the first match or whatever. But basically, it sounds like they are trying to do, like you said, curated shoppable entertainment during the matches.

16:57So, for example, kind of like tying in shoppable products with behind the scenes programming and content. I imagine maybe like at like a very obvious space level, like highlighting, you know, different paddles or apparel you could buy during a match. The network has already created a pickleball collection featuring equipment, apparel and accessories like water bottles. And the first major tournament to stream exclusively will be in November, which will be the 2024 USA Pickleball National Championships. So I guess we will see then how it manifests. Yeah, I think it's one thing, you know, to buy the rights, which I think they were for sale.

17:41Yeah, it makes sense. And so this is a pretty big investment. But on the merchandise side, I do think it is interesting. And like, you know, part of that live selling, of course, is what's going to be pushing this these products. But at the same time, you know, we've written a lot about pickleball products and how brands are trying to capitalize on it. And it's really everybody from the high end designer brands all the way down to fast fashion that are offering right the same product. So it is a competitive space already. So that'll be interesting to see how they're able to stand out there. QVC did say that 5 million women in the US over age 45 play pickleball.

18:22So that's a pretty big pool for them to tap. So yeah, they seem confident about it. But yeah, it sounds like they're they want to capitalize on the growing popularity and see, you know, the shoppable live games and how they're going to be able to monetize it. that. So from pickleball, let's move on to snacks, which I think we can safely say is both of our faves. Yes. All right. So this week, PepsiCo Frito-Lay announced that it is acquiring Siete Foods. The deal is worth$1.2 billion. This kind of feels like a long time coming. I don't know about you, but I feel like we have been watching Siete for a few years.

19:06They've been just growing exponentially over the last few years. And so I think everybody was kind of waiting to see where their exit is going to land. But yeah, why don't you start by telling us a little bit about the company, which has been around for like, 10 years, like now at this point, right? One funny, so I remember I first interviewed the founder back in 2017, to your point about or one of the founders, to your point about this being a long time coming. And just to illustrate what a different era it was in CPG. Kind of how they got their start was, Whole Foods was founded in Austin. I think when they were a bit smaller, it was much easier for startups to work with them.

19:49So one of the co-founders told me they left a bag of tortillas on the steps of Whole Foods, kind of like Austin office for them to try. And that's how they got into Whole Foods. But they are known for better for you Mexican foods like gluten-free and dairy-free tortilla chips and taco shells. They started with almond flour tortillas. So it was kind of this idea of recreating like staples in Mexican cuisine for people with different dietary restrictions or even just trying to cut out certain products. So it's the latest high-profile acquisition of a young food startup. And the company is owned by the Garza family still.

20:32They have taken on different funding over the years, so I don't quite know what the ownership structure looks like at the time of sale. But it was founded in 2014 and has raised over$90 million, including backing by actress Eva Longoria. Its products are sold across 40 ,000 retail doors, including Target and Walmart. In 2023, Siete's sales hit$400 million, up from$150 million in 2020. And the deal is due to close in 2025 as these things go. So the Pepsi CEO said in explaining this deal, we look forward to expanding our multicultural portfolio with these incredible products and even more consumers discovering and enjoying Siete.

21:21So basically expect more Siete products in more places. Yeah, I remember I think it was maybe around 2020 or 21 was maybe the last time you spoke to them. And that was when they were diversifying, you know, they're known for chips, but I think now, you know, they're doing more sauces and other pantry staples and snacks. So they have a lot of products now on the market. But why don't we talk about what this means for Pepsi's portfolio, right? So Frito-Lay, which it owns, has been overhauling its snacks portfolio for quite some time, you know, like a lot of CPG giants, they are modernizing to be able to meet changing tastes, dietary preferences, all of that.

22:05But this is also partly in response to the growing popularity in private labels among cost conscious shoppers. I think one of my favorite anecdotes I've ever said on the podcast was that time I saw like an $8 Doritos bag, which was the height of the price increases. And at that point, as an analyst told me. It's like, well, you might as well just go for the organic, better for you version. Absolutely. I think that that brings up a great point. It's like, as people are getting more price conscious, right, they're opting for private labels. So if you are a company like Pepsi, I think that means that you really have to make sure your portfolio is focused kind of on the more like trendy things.

22:53And, you know, what are people going to buy basically if they're not just exclusively focused on price? And I think for a lot of people, it's better for you brands. It's trying to buy something with like a little more of a health benefit or caters to whatever dietary restriction they have. So in the past few years, Pepsi has added a bunch of better for you brands. It's acquired a dried fruit brand called Bear Snacks, Health Warrior, and Popcorners in 2019. And then, of course, Pepsi also owns Lay's, Doritos, Cheetos, and they have been focused on launching new flavors. But when you put it together, the snacking business is generally struggling.

23:38Sales of its snacking business in North America fell 4 % in the most recently reported quarter. And the company is scheduled to report its third quarter earnings next week. So we'll see. But it's still just generally like a tough time in the snacking business. And I'd love to ask you, Gabby, since you cover the CPG space a bit more, like, what do you think of this deal? Have you heard anything? What do you feel like people in the CPG world have been saying about this? Yeah, there's definitely a lot of excitement just from looking at my feeds. It's obviously a really big win for the startup world, as you know, and a lot of our readers know.

24:19There's just a lot of brands out there that are all vying to scale, you know, to be big enough to be one day owned or bought out by one of the big guys. So it is a big deal. But I think at the same time, you know, when it comes to PepsiCo, for example, or these, you know, I think maybe some recent whispers of Pepsi and Coke wanting to maybe potentially acquire Olipop and Poppy. Yeah. You know, you could swap those around. There are always rumors swirling that one of the big beverage companies is going to acquire one of those two. Yeah. And, you know, eventually I'm sure it'll happen. But I think these deals are always up in the air until, you know, they do get announced.

25:04But I think for Pepsi itself, though, this whole rejigging its portfolio to match to better match changing taste is really interesting because like you're known for these classic snacks like Cheetos, for example, that are, you know, people still love. But because of the price points over the years, it has really turned off a lot of people. I think we talked about PepsiCo products in Europe, for example, being kind of shunned a little bit by Carrefour, which is one of the big retailers because they're like they just kind of got sick of the constant increases. But anyway, sorry, side tangent. But it is a really fine line to walk.

25:45It's like this balancing act they're doing, which is, well, we have to keep our flagship brands really strong and continue to grow. But at the same time, you're acquiring these really trendy, hip, young startup brands that are going to be basically the future of growth for them. So this explains why a lot of we're seeing a lot of portfolio companies kind of offloading and bringing on new brands constantly, at least in the last couple of years. Yeah. And like, here's what I will say as my armchair analysis as someone who's never operated a CPG business. But I think that, you know, startups will see something like this and get really excited that like one day maybe I can be a Siete that's being acquired by Pepsi for 1.2 billion.

26:32I do think there are a couple of things that they did that were really smart. One, I believe they were bootstrapped or just took on angel investors for a while, like at least the first couple of years. Like they didn't raise a huge amount of venture capital right out of the gate. When they did raise a lot of money, I think was tied to when they really expanded their portfolio and like expanding your portfolio and kind of going beyond your hero. product as a CPG brand, like it's, it could be a dicey proposition. Like it's a way to grow sales, but it's also really expensive. Um, I think the way they went about expansion was really smart.

27:14It was kind of this through line of better for you versions of like staples of Mexican cuisine. Like they started with tortillas. They went into enchilada sauces. They sell like grain-free cookies. They sell different varieties of chips. And I will say like, I personally have bought a decent variety of their products. So I feel like they were really smart about going about portfolio expansion, which is challenging. I feel like that's where a lot of CPG startups get tripped up. So I will be curious to see like how this encourages more investment, but we'll see. Yeah, the skew growth is always a big challenge.

27:55I talk to brands a lot about that. It's always a little bit of a rolling the dice situation because it's almost like trying to capture lightning in a bottle sometimes, even if your product is great. Like maybe you're just in that moment, tastes are not matching or things like that. So I think they definitely made all the right moves and it's paid off. we'll look out for that closing. But yeah, I think we can leave it at that with today's episode, but you can rate and review us on Apple podcasts, Spotify, anywhere else you're listening to us on Thursdays. You can listen to the modern retail interview show with kale, where he interviews industry leaders.

28:36And you can also follow us on social. We're at modern retail, pretty much everywhere to read our coverage. I am at Gabriella Barco. Ana, do you want to plug your social line here? I'm active on LinkedIn these days and also on Twitter at A.H. Hensel. Great. Yeah, LinkedIn is where all the gossip is, we've learned. So fun times there. And yeah, come back on Saturdays for the Modern Retail Rundown. Thank you.

29:14Thank you.