Rundown: Macy's buyout bid, Etsy cuts costs & Farfetch woes

0:05Hello and welcome back to the Modern Retail Rundown. I'm senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weissman. Hey, Kale. Hey, Gabby. How is your Friday morning? It's great. Yeah, very busy. We have a lot to get through, so we can jump right in. First, we're going to be talking about Macy's buyout bid, then Etsy layoffs, and finally, our last story will be on Farfetch's continued woes, getting a little bit more into the luxury category. So first up, yeah, let's talk Macy's. So a group of investors is essentially trying to take Macy's private. That would feel really weird first off, I would say, is having Macy's as a private company.

0:57But yeah, this is coming at a really interesting time, of course, because Macy's has just been on a path trying to recover for years now. Yeah, Macy's is one of the multiple department stores that has been on a road to recovery. I don't know what you'd call it, but saying we're going to fix our business, but the business isn't fixed just yet, but soon. And so it's interesting that there's an investor group that's trying to buy it. Of course, the big caveat is that we have seen investor groups buy out big box and department stores, and that usually does not bode well for their long-term future.

1:40There are a few big examples I can think of, like Sears, for example. But yeah, it's an interesting bid. Some of the people who are in this group already have a stake in Macy's, and so they know the business. But it also it's unclear exactly what they would be doing with the company. But I'll back up and just give the overall news. Investment Group, Arkhouse Management, and Asset Manager, Brigade Capital Management have come together and reportedly made a$5.8 billion bid to buy out Macy's. Of note, that's a huge premium. It's over a billion dollars more than what its market cap was before the news went live earlier this week, or I believe it was last week.

2:22And so it just shows that they probably they think they can make a lot of short term gains to outweigh, you know, buying Macy's at, you know, such a high price. But of course, as soon as this went live, this news went live, the stock soared. And so Macy's stock is doing quite well. Let me just take a quick look at how much it went up from$17 to$20 as soon as the news hit. went down a little bit, but has been higher than it was before. So people are happy about this, I guess. Yeah. And so this is not, I think maybe we can take it back a little bit where, like a lot of retailers, Macy's kind of got a little bit of a lift during COVID, but then very quickly, that last year started to decline again.

3:15That's just part of a bigger you know, apparel decline in sales. So, but this isn't the first time that Macy's tried to do like big restructuring back in 2017, Hudson Bay tried to acquire it. And then in 2021, there was big news that it was trying to spin off its e-commerce business because it's been investing really heavily in its third-party marketplace and all of that. So yeah, it feels like a lot of just ups and downs. And so not sure if this is, you know, we'll see if this goes through. Yeah, I think that that's the big thing where the fact that there was another company trying to acquire it and Macy's considered making another big change like the spinning off of its e-com business, which is a hotly debated strategy in the brick and mortar retail world, which I'm sure we could talk with people for hours about that.

4:11But it does show overall that Macy's is thinking very strategically about its future and trying to be very intentional about what decisions it's made. But I do think it's good to just look at the overall landscape, specifically where Macy's is now compared to where it was even less than a decade ago. So like it reported earnings in November. Its revenue fell from$5.23 billion in 2022 to$4.86 billion in 2023. But interestingly enough, analysts were pretty OK with it. Like they knew it was going to happen and the losses or the sales decrease was not as big as they anticipated. So overall, it was thought to be a totally fine earnings report.

4:58But in 2014, Macy's brought in more than$28 billion in revenue. So like the company has been, you know, seeing a lot of things have not been going as well over the last few years as it was in years past, you know? Mm-hmm. Yeah. And like you said, there's not really a strategy that's been outlined for a plan of what they plan to do if it does go private. But it does seem like real estate, you know, they have this huge footprint. So real estate is going to be a big part of that from the Wall Street Journal. As of this year, Macy's own more than 300 of its roughly 783 stores. Of course, they own Bloomingdale's and Blue Mercury, a beauty store chain also.

5:46And so I think maybe what they're thinking is selling off a lot of this very expensive real estate and then leasing back to, you know, cut costs, save money, all of that. Again, like this is it's hard to tell how long this is going to take. Because Macy's has also been closing stores for years now, I feel like. So, yeah, who knows? Yeah, and I think that definitely Macy's has been trying to focus much more on its footprint and be more, as I said earlier, intentional with it. One of the big focuses and headlines that I think we've written about but definitely has been written about elsewhere is that, you know, it's focusing more on smaller footprints, different types of formats.

6:27This is a story that's the same for many other retailers. But we don't like I'll caveat this was we I don't believe the exact plan from this investor group has been published, but it very likely involves this real estate, which is a short term goldmine. But there, you know, analysts who have reacted to this have all said, I'm sure the investors will make a boatload of money when they sell off all of that real estate and then lease it back to Macy's. But that leaves the actual business model of the of the retailer in huge peril. So it's one of those things like, do you want to make a quick book now or do you want to actually try and reinvent this business if that's at all possible?

7:09Yeah. And I think the biggest thing is going to be trying to actually rebuild the core business, which is, of course, department store, big iconic retailer. And so if going private doesn't do this, then I think it's probably just another Band-Aid is what some of the analysts seem to think. Yeah. And I'll add that like analysts love to talk about Macy's needs to fix its core business. It hasn't been investing in its core business, but it leaves out kind of an existential question of what is Macy's core business and how it resonates with shoppers today. hey, we're in a very different period than we are a decade ago, many decades ago, when these were the shopping plazas of yore.

7:59People would go and buy a lot of things. They enjoyed that experience. That's not how a lot of people shop. Some people certainly still do. And so when we talk about how a company like Macy's or a company like Nordstrom or a company like JC Penney can reinvent its business and invest in its business model, there's never been a clear explanation of what that looks like and how how it can exactly change the offering it has so that it is much more relevant with with how people shop be like beyond just like trying to be i guess an omni-channel higher-end amazon you know like they're like it's they've always talked about assortment and things like that but i've never seen a clear picture of exactly what a company like this could do so that it could reach the heights that it once had.

8:48And so that's the big question that I always ask. And I don't know what that would look like, but maybe one day we'll see. Speaking of restructuring, next up, we are going to be talking about Etsy. This week, they had pretty big layoffs. 11 % of staff were let go. So that's about 225 people. So they're down essentially back to the level of employees they had early 2022. So it's a pretty drastic cutback in a short time. One of them is actually their CMO, which is going to be consolidated into the chief operating officer role, I believe. So a lot of shakeups within this announcement. Of course, they cited very challenging macro and competitive environment for the layoffs.

9:45And yeah, it seems like the CEO told employees in a letter this week that Etsy more than doubled its growth since 2019. Of course, we know a lot of that came during COVID. But the gross merchandise sales have remained essentially flat since 2021. So that kind of gives you an idea of that chart and where they're thinking, you know, they have to kind of switch course now. But yeah, what are your thoughts on the exec shuffle in particular? I mean, yeah. That's a pretty big, I don't know, when I was looking, sorry, when I was looking at it, I was like, that's a really big job to slide over, no? Yeah, no, CMO is a very big job and it's notoriously the most difficult one to have someone in for a long time.

10:34Like, what is it like the average tenure of a CMO is something like 18 months. And so I imagine if you're looking to have a better balance sheet and lower some of the costs of salaries, that's an easy one because they, you know, it's someone who likely would leave in a few months, if not a few years. But it does seem, especially for a platform as big as Etsy, one that is focused so much on new customer acquisition growth, building out its ad offerings. There are so many different elements to Etsy's business that one would want a top-tier marketing executive. So it's very interesting that they think that can all answer to the COO.

11:18And yeah, I will be interested to see how that plays out. Mm-hmm. Yeah. And another one is HR is also being baked into another role, the VP of global people and talent strategy. So just overall getting leaner. One thing that I thought was interesting, which of course is a big topic I constantly write about, Silverman specifically mentioned that they're not bringing more sales to sellers. As mentioned, They've been pretty flat. And that's literally what Etsy constantly has to do, right, is you constantly have to grow the marketplace. That's kind of the challenge of it. And so it seems like cutting back and having, yeah, just an overall smaller staff, they think, is going to help kind of change that trajectory.

12:16And I mean, this is obvious, but I think it is of note and it puts a company like Etsy in a very difficult position where the reason why it saw such big growth between 2019 and 2020 isn't just that it was an online platform and e-commerce blew up during the pandemic. But it's that Etsy sellers were selling something that was in insane high demand, which they were one of the big winners in the mask boom and the PPE things. And so it was one of those weird things where an artisan platform, a lot of its sellers were able to band together and build something that was in very high demand while there was a shortage globally elsewhere.

12:59And so, you know, it would be very difficult to keep up with the momentum that it saw, given that very anomalous moment. And it's probably, I mean, it's impossible to replicate that. So when it talks about that it's looking for growth, to compare it to what happened when there was a pandemic that shut down the world a year earlier, seems like, you know, difficult, if not entirely impossible task for an executive team to do. And now what's specifically of no is that Etsy says it expects its GMS, its gross merchandise sales, which measures the total number of goods sold over a certain period of time to decline slightly on a year over year basis from its fourth quarter.

13:42So saying that this last year, the GMS is going to go down as opposed to up, which is a really interesting change and probably bad news for a platform like Etsy, which just wants to show that, you know, all things are going up, especially in the fourth quarter when it's the holidays. So it does seem like the growth signals are off, especially with that. And when Etsy announced that GMS was going down, I believe that set off alarms for people on Wall Street. So definitely not a great indication. Yeah. Another thing we touched on last week, actually, is analysts sort of whispering that this is also due to a lot of the pressure that Timu and Sheehan are placing on businesses like Etsy, which because, you know, from an advertising perspective, especially.

14:37So that is also, I thought that was interesting because Silverman actually also had mentioned that a couple of weeks ago. I think yes and no. I don't know. I find this all so interesting. Do you really in your heart of hearts that Timu and Sheehan are eating into the same demand as Etsy? Like they are very, very different things. People turn to them for very, very different types of uses. I think that right now, if your business is not doing well, or you're an analyst who's looking for a very clean way to tie the knot on why something's not going well, you're just going to say those two companies.

15:16I don't – this is something that I call into question. Just like, sure, more people are buying more inexpensive goods on these platforms. But I also think the people that were buying on Etsy who were going to buy a handmade tablecloth, who were going to buy a wood figure, who were going to buy things like that, weren't suddenly swayed by a$2 thing from Timu? I don't know. Tell me if you disagree, but I find it very interesting. No, I don't disagree. I mean, we basically talked about this last week. I think what, just because SEO has been on my mind the last few days, but I think maybe what the issue is, is that it's advertising and search engines.

15:59So essentially what happens is that, or what they're saying is happening, which is true. I mean, Timu and Enshian advertise like crazy these days. They are flooding a lot of the search engines or the results. So, and again, it's like, who knows? Is that really deterring somebody who was going to go to Etsy for a handmade thing? Probably not. But I can kind of see that, like, maybe Etsy can't compete with that is what they're saying. I hear that. I think that it is not an apples to apples thing. I do think that Etsy does play in SEO and all of that. But I also, that's the world of being platform reliant.

16:39And so to, I don't know, they just seem like very convenient reasons for why your platform is in less high demand than before. And I think it would be helpful for us to put that in a certain way and problematize it. Because, yes, the landscape has changed, but I'm not convinced that the reason why Etsy's GMS is going down is because she and Intimu have suddenly taken over. But I could be wrong. The other thing is I don't think the seller number has grown either. And like I've been writing a lot about, Etsy right now is having this, I guess, existential crisis with sellers exiting the platform or being just upset about fee hikes and all of that.

17:27And so we're also seeing kind of a lot of competitors trying to lure some sellers away. So I think it's all tying together. And it seems like maybe there's some cracks. And it's no longer just the big go-to platform. Yeah, I think that it's a much more competitive place out there, especially for Etsy. Your story, everyone should read it, was great just about how there are all these new platforms rising up that are trying to sort of eat away at the issues that sellers have had in the past on it. Of course, Etsy does remain the dominant platform out there, even though it's having these issues. But there is definitely a shaking at the foundation that's happening right now.

18:11Okay, let's move on to another struggling marketplace. We're going to be talking about Farfetch. This was one of the big pandemic winners, especially because it's such a big name and luxury. Kale, I think you had reported on them pretty extensively during COVID. And it seemed like everything was going well, going great. But now there seems to be this huge decline and actually so much so that they're in trouble and are looking for a buyout also. Reportedly. Reportedly. Sorry, I should allege, yes. No, yeah, it's a very interesting dynamic that Farfetch is facing right now. It was definitely a pandemic, darling.

19:02It was one at the forefront of luxury and e-commerce. You know, it does a couple of different things. It's both, you know, a platform where people can buy higher-end goods online. It works with most of the major luxury players. It also has an e-commerce tech platform or component to it where it builds out tech stacks for higher-end companies. It owns a bunch of boutiques that they have now digitized. There are a lot of different layers to it. But what's going on right now, which is of note, is that a platform like Farfetch is very reliant on the major luxury houses and how good or not good they are doing.

19:44And so if there is a drop in growth or if the overall industry is not doing well, they'll be the first to feel it probably because they're the ones that – they aren't the luxury houses. They're just a platform that sells it, and they'll be the last to come out of whatever the slowdown is. And so I was doing research for just looking into this, and man, the numbers don't look good. It posted a$281 million loss at its last earnings report, which, by the way, was over this summer because it canceled its most recent one because it didn't want to show its numbers. So$281 million loss was its most recent loss compared to a$68 million loss the year prior.

20:30And then this is from the Business of Fashion, which wrote about Farfetch a few weeks ago. The luxury e-tailer had more than$400 million in cash on its balance sheet at the end of June, but its financial obligations mounted to about$2.8 billion, which includes convertible notes,$1 billion in term loans, and a$200 million credit facility that it took out in September. So, man, it owes a lot of money. It's been posting increasing losses. It does not have a lot of money and it doesn't have a lot of cash in its coffers. It's not looking good. Yeah, and I think they announced a couple different tactics.

21:14One of them is reportedly seeking out selling off its assets like its boutique, browns, you know, physical retail. I don't think that's enough. I mean, we're talking about billions of dollars, including convertible notes. And it doesn't look like, you know, going into this second half of the year, analysts don't expect it to be performing any better. So I think this is hence probably why this scramble is happening right now at the end of the year. But, you know, like we said, it's part of a bigger issue right now in luxury where a lot of the big markets like China and the U.S. that a lot of these brands or platforms rely on also are slowing down.

22:01Of course, people are cutting back on spending, even in luxury, which I've always been told was recession proof, but I guess not. Yeah, no, I think that's the big takeaway is that we've all been, you know, spoon fed this, this statement, luxury is recession proof. I mean, we're not even really in a recession as far as, you know, you know, economic reporters say, but luxury is not doing well. The growth of the major houses like LVMH and Burberry, they've all said that they're seeing a slowdown in sales. And so when they are seeing lessened demand, that instantly hits a platform like Farfetch, because that's where people buy it.

22:45But also, it just shows that if you are reliant on this one area and you don't have much else to go to, you're going to suffer if there's a major industry slowdown. And another thing that's important to note with this slowdown is something I think there was a Reuters report that came out earlier this week that essentially, you know, Farfetch has tried to post discounts. That's especially important during the holiday season. That's one way it tries to get more people to come to its platform. But if you're reliant on the major players like LVMH, Gucci, et cetera, they all— They're not doing— They're not going to do it.

23:26They're not doing Black Friday. Yeah, they're not going to do it. They own their distribution so much more than any other brand out there. And so Farfetch has been, according to Reuters, promoting some deals from smaller brands. There's Diesel, Bauman, Balenciaga. But when most of your income is coming from a brand like Louis Vuitton, you're not going to be able to lower those prices. And that means that probably Louis Vuitton wants to sell it directly. They don't even really want to sell it on Farfetch. And that puts the platform in huge peril. And so the big question of like them trying to discount but being unable to do it, that's a big problem.

24:05Mm-hmm. And then lastly, of course, there is always the resale players that are eating into this. A lot of people are looking to buy pre-owned from sites like The RealReal, Fashionphile. We won't go down that road just because that's not necessarily a segment that's doing that well either, but it does contribute to what Farfetch is going through. And I also do think that the people who are going to Farfetch to buy a handbag are probably now more willing to find a pre-owned bag in very good condition that is a fraction of the price. Just given the stage that we're at and the state of culture, it seems like, you know, those types of items are doing very well.

24:57And there seems to be heightened demand, even if a lot of those resale companies aren't doing so hot, you know? This is a developing story, so we will continue to watch it. But I'm sure there's probably been changes since we started talking already. But yeah, we'll look out for those. But that is our show for this week. Please write 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 industry leaders on Thursdays. Cale, do you have a guest that you'd like to preview for next Thursday? I sure do.

25:35I'm talking with the CMO of ButcherBox, as opposed to Etsy. ButcherBox has a CMO. And she's really interesting and spoke about just the plans. It's a profitable company. It's a fascinating company. We had a great conversation. Yeah, great, great subscription business. And then, yeah, of course, come back on Saturdays for the Modern Retail Rundown. As always, thank you for listening.