Rundown: Macy's turns down buyout bid, Solo Stove's marketing woes, & Etsy's Super Bowl ambitions

0:05Hello, everyone, and welcome to the Modern Retail Rundown, where we break down the biggest and most interesting headlines of the week. I'm Cale Guthrie-Weissman, the editor-in-chief here at Modern Retail. I'm filling in for senior reporter Gabby Barco. This week, we have a bunch of news to cover. First, we're going to talk about Macy's rejecting a takeover bid from an activist investor. Then, we're going to have a fun debate happening in the world of DTC land about a splashy and, I believe, very, very expensive marketing campaign. And it may have gone awry. I think we'll talk about that in the coming minutes.

0:39Last, keeping in the spirit of expensive marketing, we're going to talk about Etsy, who it looks like is going to be doing a Super Bowl ad. I'm joined here with my colleague managing editor, Anna Hensel. Anna, how's it going? Good. I am ready to discuss hot takes on department stores and brand marketing. We love that. Those are two of our most popular topics at ModernRetail.co. So first, let's start. We have Macy's has rejected a takeover bid. This has been, I guess, a few months coming. But first, let's start with some of the backstory. What happened before to lead to this week, Macy, saying no?

1:19Yeah. So with something like this, there's been a lot of stuff happening behind the scenes for a few months. So an investor group that consisted of Ark House Management and Brigade Capital Management, if you know your investor groups, submitted a$5.1 billion deal late last year to acquire Macy's. They already held a minority stake and were trying to buy out the rest of the shareholders for$21 a share. So at the time, that would have been a 32 % premium for Macy's. Other firms have tried to build presences within Macy's shareholders, including Starboard Ventures in 2015 and Jana Ventures in 2021.

2:05And while this has been happening, of course, Macy's over the past few years has been trying to turn out its business. It's tried a bunch of different things. This has included closing hundreds of stores, focusing on smaller format retail locations and investing in its own brands. So yeah, basically Macy's said thanks, but no thanks to this takeover bid. And they are still trying to kind of make their turnaround plan happen and bear more fruit. Yeah. One thing I thought was kind of interesting was, you know, a 32 % premium seems good. I was checking stock prices and Macy's stock. I don't remember what it's at right now, but it's hovered between$15 and say$20 over the last six months.

2:50So, you know, getting a nice premium, that would be good. But like, I think five years ago or something like that, it was Macy's stock was at$70. So clearly, Macy's thinks it's undervalued right now. And this latest value was not what it wanted. But I wanted to ask, you know, if Macy's is saying no, how has business been going? What does its financials look like lately? Yeah, so the short answer is not great. So its latest earnings exceeded expectations. but still the overall trend is revenue is decreasing. So revenue and net income fell year over year during its third quarter. Revenue hit$4.86 billion compared to$5.23 billion a year ago.

3:37Net income came in at$43 million compared to$108 million at the same time last year. Yeah, yikes. So this was in October. Macy's has not reported its holiday Q4 numbers. But I feel like the indications are that those numbers likely aren't going to be great either, because last week Macy's said it was going to cut 3.5 % of its workforce and close five stores. and it attributed these moves to a new strategy to meet the needs of an ever-changing consumer and marketplace. And they've also named a new CEO. They named that last year to replace CEO Jeff Gannett. So they're also in the middle of an executive transition.

4:26Wow, that's a lot of not necessarily great things going on. So this is my number one question, which I don't, I mean, we have the answer and we have what they said, but also I want to understand a little bit more. If things are so bad, why did Macy's reject the bid? Well, I don't have a crystal ball into what Macy's board is thinking. If any Macy's executives want to let us know what they're thinking, email us. Yeah. But this paragraph from the New York Times story about Macy's rejecting the bid kind of sums it up. So from the story, Macy's board questioned whether the investment firms had the money to finance the deal, which it said lacks compelling value.

5:12I was making air quotes there. It noted that the bid had been accompanied by a letter with numerous untraditional stipulations. What's more, Macy's wasn't sure getting the funding would be feasible. Of note, the firm said they would pay 25 % of the deal in equity. The rest would come from, likely come from less than ideal forms like leveraged loans. So with interest rates rising, the prospects don't look great. And yeah, I mean, Macy's is probably holding out in hopes that, you know, again, they can turn things around or maybe that they will get a better deal later down the line, you know, maybe if interest rates or the economy improves in the next year.

5:58Got it, got it. So do you think this is a Macy's problem or a department store problem? I mean, I think both. Yeah, department stores are not doing great right now. Some of them saw some bumps during COVID or the year after, depending on what they sold. But now all of their sales are falling. JCPenney's net sales fell 10.7 % year over year in its third quarter. And Nordstrom, which also had been doing well for a while, reported that its sales dropped 7 % year over year. And something else that's also interesting is that these startups that tried to disrupt the department stores are also not doing well right now or have gone out of business.

6:42We reported over the past few months at Modern Retail that Showfield's filed for bankruptcy and closed all its stores. And now another startup called Neighborhood Goods closed its stores last week. So, yeah, not a great time to be in the department store business. Yeah. So even if you're a traditional department store, your financials aren't great. But because you've been around for so long, you can probably stay afloat at least for maybe the next decade or so. But if you're a startup, you're just closing up shop right now. Yeah. And I think the hard part with department stores is just that like it's they have, you know, many of them have hundreds of stores.

7:20And it's like, how do you kind of how do you write such a big ship like that? Like a lot of them like Macy's. It's, you know, we will remodel this many stores. We're going to try to open this many off price stores. But they just have ultimately still have too many stores that are too big that probably still carry too much merchandise that they don't know what to do with. Yeah, that sort of that was my big question for all of this, which is and this is this has to do with the department stores, but it also has to do with just older retailers that have tried to change their business models. Like what what can they actually do beyond layoffs or beyond cutting out stores?

8:00Or is is there a strategy that's suddenly going to be like, boof, we're a new we're a new thing now? I mean, I do think it having the right merchandise would be helpful. Like, you know, if there was some world where, you know, people were like, I have to get the hottest items at Macy's. You know, it would be a different story. And yeah, I don't know how you do that. Changing your perception is very hard, but we'll see what happens. All right. Well, yeah, we'll see what happens. Maybe one thing that the stories said about Macy's is that usually what happens is when one bid comes in and is rejected, it means that some more might be coming in, too.

8:43So there might be a fight over who will own Macy's or be the majority stakeholder in Macy's over the next few months. But let's move on to the next section, which is the hot debate over Solo Stove. So Solo Stove, if you're on Twitter, X, whatever you call it, or LinkedIn, it's also on LinkedIn. Yes. You're talking about Solo Stove. So why are people talking about Solo Stove right now? Yes. So if you don't know what Solo Stove is, they sell smokeless fire pits, among other devices. So they're a company that saw their sales explode during COVID. So they went out and acquired a bunch of other outdoor focus brands like Chubbies and a kayak brand.

9:25And they formed a company called Solo Brands that then went public. and this year in an attempt to raise its profile and boost sales solo stove invested in a big splashy marketing campaign ahead of the holiday so if you were on social media you may have seen uh snoop dog uh say something about how he was going smokeless and everyone was like what does that mean and then two days later something he posted something else with this brand partnership And he's like, I'm going smokeless with Solo Stove. They also did a bunch of other things like sponsored a float in the Macy's Thanksgiving Day Parade.

10:06And then fast forward to the beginning of January. On January 8th, Solo Brands announced in a press release that its CEO, John Maris, would be stepping down to be replaced by a guy called Christopher Metz. And in that same press release, they included a quote from the Solo Brands CFO, which I I'm going to read in full, even though it has some jargon. So that quote said, our fourth quarter results came in below expectations as we experienced softer than expected sales in our direct channel. While our unique marketing campaigns raised brand awareness of Solo Stove to expanded a new audience of consumers, it did not lead to the sales lift that we had planned, which combined with the increased marketing investments negatively impacted our EBITDA.

10:55Okay, so after that, that created a bunch, yeah, understand it now. But that created a bunch of headlines about how Solo Stove got rid of its CEO because of the poor performance of this campaign. There were a lot of debates on LinkedIn and X and people rising up to defend the honor of brand marketing and saying, you know, it wasn't because this campaign performed poorly. Solo Stove probably measured its effectiveness wrong. And then finally, this week, Solo Stove said in a statement to AdAge that the Snoop campaign did not lead to Maris' departure. Wow, that's a juicy piece of DTC gossip right there.

11:40One thing, when I saw the, before I knew who it was, I remember very vividly, I saw the like teases about Snoop Dogg going smokeless. And I genuinely assumed it was that he was like investing in a vape company. Like I was like, I guess my question is, and I have a lot of thoughts about this and we'll go into this in a few minutes, but how was solo stove doing before all this? Cause it had to have been like really doing great for it to be like, you know, we're going to spend however many million dollars to get this huge celebrity to then juice up our sales even more. Yeah. So they were doing okay.

12:14I think that it also just came at a big inflection point for them when they really wanted to raise their profile. So Solo Stove, like many direct-to-consumer brands, saw a big uptick in sales during COVID. But then the challenge has been that as more people return to shopping and stores, they've had trouble maintaining their growth in that DTC channel. So they've had a few quarters where DTC sales were down. and in turn they've had to grow wholesale partnerships and introduce new products to keep sales growing. They also sell a pizza oven now which I find pretty funny. Still the company was doing pretty well in their third quarter earnings which they reported in November.

12:57They said sales were up eight percent so sales were still growing but obviously they haven't released fourth quarter sales yet, but they have said that they came in below expectations. I do think it was pretty clear even before solo brands came out and said that the Snoop campaign had nothing to do with the CEO's departure, that it did indeed not have anything to do with this departure, just because transitions like this don't happen overnight. But again, the company was at an inflection point. I think they need to get DTC sales growing again. And so they're bringing a new CEO to probably help make that happen.

13:38Yeah. And we should also add, if you read the headlines, and I think we've talked about this in weeks past, but like, not every company, but a fair amount of companies over the last few weeks and months have announced big CEO or C-suite departures. Like, I think this week, Everlane CEO said she was stepping down. They're like pretty much a lot of companies that are trying to either regrow their business or get it into growth mode. You know, like, are there any other examples that come to mind? I feel like we've been talking a lot about this. Let's see here. I know that Rothy's recently named a new CEO.

14:15And yeah, there were a bunch more. But that was kind of the big story in DTC over the past year that DTC sales were down or flatlining. And so then a lot of brands turned to wholesale to grow sales, but then a lot of them have also needed to bring in new CEOs to help with that. Yeah, I would say that you need a certain set of tools to be a CEO who's able to do a full, not just DTC brand expansion business model. And I'm also going to tip a little bit to myself right now and say that if you want to hear from John Maris himself, he is a Modern Retail Podcast alum from not that long ago. So if you want to hear how he approached all of this before he stepped down, you should take a listen.

15:00But I guess I have one last question, which is, this seems so minute and, in my opinion, a little bit dumb. Why did this cause such an uproar? I think that just in marketing, there's kind of some not inherent tension. I'm sure we'll get a lot of feedback from people on this. But between performance and brand marketing, so like performance or direct response marketing, the purpose of that is to like drive sales. That's your main KPI. That's the number one focus. With brand marketing, it's a little more iffy. Like a lot of it comes down to how do you measure the effectiveness of it? Because with brand marketing campaigns, Often the intent isn't to drive sales, but to build quote unquote awareness.

15:48And how do you measure that? There's no one way to measure it. So often companies come up with imperfect proxies like social media impressions, organic search volume, or visits to websites. Solo said the Snoop campaign did drive 1.2 million brand mentions in social media posts and news articles. I'm sure they had their own methodology as to how they came up with that. But 1.2 million is such a crazy number to me. That's why I was laughing. I was like, how did they calculate this? But there are always going to be some people at the company, probably CFOs, who will still push for these campaigns to drive some sales.

16:31So, you know, it's basically like, I think that some people thought that Solo Stove just didn't have the right KPIs or like didn't go into this campaign with the right expectations. And I just feel like it's again, we don't know what the executive team was thinking. We don't know what the goals were of this campaign. I feel like it's probably a little bit of both. Like they maybe had some outsized expectations, but also maybe the campaign didn't drive. I mean, it has been running since like November. So maybe it didn't drive as many sales a month out as it should have. Yeah, and I think this is, and I'll probably get a lot of feedback for this, but I think that this is a problem that is very, very core to specifically online and digitally native brands, where they want to be able to quantify everything and show an if this, then that.

17:27And if you talk to, you know, a 30, you know, a veteran brand marketer, you know, you will get views, you'll get impressions, you will have people talking about you, but it's not measured the same way. And it's, you know, I have talked with many people who speak about TV campaigns, and they say, that takes a year for you to even have a semblance of understanding what type of impact it really had. And it's also, you know, it's the question of art and science. This has been a debate going on for years, but to launch something in November to then expect that it would be the ammunition that's necessary to grow sales at a velocity they weren't going before, I do think is probably not the best way to approach such a campaign.

18:10But that's just my opinion. Yeah, no, I mean, I think a lot of people, a lot of brand marketers would agree with you. Yeah. And I guess I would also say that this is the, you know, it's okay that these two different parts of the marketing departments aren't interoperable and the attempt to make, you know, I don't know, I could go on about this for hours just because there's a lot of discussions in TV advertising about how to make it more conversion focused. And maybe that's an ultimate mistake or we're talking about differently. Or as you said, we're, you know, the metrics just aren't apples to apples.

18:42Anyway, I will stop going into this now, but interesting conversation. Any final thoughts on your end? No, I mean, and we have more brand marketing things to discuss. Yeah, it's true. So let's go to the next one. Etsy is going to run its first ever Super Bowl campaign. So, you know, we're talking about big marketing campaigns. Etsy told sellers this week, I guess, that it's plans to run a Super Bowl campaign. So what did it say to sellers? Yes. So in its community forum for sellers, Etsy staff posted a message from its company's chief operating and marketing officer about how they were going to run a commercial during the quote unquote big game, which means they're running a Super Bowl ad and wanted to, you know, get I think there was maybe some opportunity for sellers to be like featured in it.

19:34Um, but yeah, Etsy was kind of talking about how they're going to have, go do some big marketing campaigns this year. Uh, they also announced a new tool called gift mode that's supposed to help people more easily find gift ideas by allowing them to browse through different personas and find gift ideas matched to each one. And like everything today, it's AI powered. and all of this is meant to grow Etsy's brand awareness and specifically to get people to think of the website during all their gift giving occasions which is a very like corporate way to put it but basically it's like you know Etsy if you're shopping for a Christmas gift a Father's Day Mother's Day whatever they want you to think of Etsy as the place to buy that gift.

20:25Yeah it It seems, I mean, it makes sense that if you want to get into everyone's mindshare, you do Super Bowl ads. But also, there aren't a huge, I don't know, this time of year isn't the best gift-giving occasion. So I guess it's a long-term way to get people to rethink of Etsy as a different type of shopping destination than maybe they thought about it before. But I wanted to ask, is Etsy doing okay? How has it been faring up to this point? So they've been doing okay. It's a familiar story. Sales did well during COVID. and then it became harder for them to exceed that growth in recent years.

20:59So Etsy has tried to grow its business by not only getting people to buy more stuff through Etsy, but also by growing its advertising business. And raising seller fees is also one way Etsy has tried to grow revenue. So in 2022, Etsy increased the cut it takes from each sale from 5 % to 6.5%. And that resulted in some Etsy sellers going on a day-long strike. Um, so basically the idea is, you know, if it's harder to grow, get people to buy more stuff on Etsy, another way to grow our revenue is by kind of taking more money from sellers or convincing them, hey, you should buy ads on Etsy too, or invest in this other paid tool.

21:49uh etsy also did acquire um a couple other startups and uh you know all of this has helped to grow ever new but still in the third quarter of 2023 etsy said that gms through its marketplace only grew one percent year over year um so yeah not great they're kind of in um a little bit of a they're a little bit stuck right now yeah and i would say that etsy like literally every other platform out there is opting. And I don't, it's not like I have any other solutions, but it's a very Amazon solution where the way to do growth is to get more money from your sellers and to have them buy your own services and just sort of create that flywheel.

22:31But I do think an Etsy seller is a little bit different from an Amazon seller just in terms of scale and in terms of what they have at their disposal in order to spend. And so I imagine it would be a more difficult pill to swallow to add those fees or, you know, all that. But let's look into our crystal ball. What do you think the year looks like for Etsy? So I feel like one of the biggest challenges is just keeping sellers happy, just because obviously Etsy depends on them to reach customers. So as Gabby has actually reported over the past year, more Etsy sellers have been trying to diversify away from Etsy.

23:14Some are leaving the platform altogether, although I still feel like that's rare, but it might be that, okay, now in addition to their Etsy storefront, they also have a Shopify storefront or they're trying to build their sales through Instagram and maybe they get their first sale through Etsy. But then if someone wants to come back and buy from them again, maybe the seller is like, hey, why don't you buy through my Shopify storefront instead, which is better for me. So that's one challenge. Also just concerns over counterfeits and the quality of goods is another challenge. So a short seller called Citrone published a report in February that called Etsy a haven for counterfeit goods.

23:59Etsy, I forget exactly what Etsy's response was, but they were basically like, no, not true, overblown, whatever. Something also that I found interesting is that the company said during its third quarter earnings that rising ad costs were a challenge. So specifically, the company's CEO said that Shian and Timu were almost single-handedly having an impact on the cost of advertising, especially when it came to Google and Meta. We published a fun story on modern retail, I think a few weeks ago or a month now or whatever, about how retailers are blaming Shein and Timu for poor performance. That was pretty interesting, I thought.

24:45And especially with running a Super Bowl ad, which Timu has also done. But this is a sign that Etsy is, I feel like, trying to ramp up its investments in other marketing channels like TV as the digital ad market becomes more crowded. Yeah, I was about to say, it's a little bit ironic that Etsy is complaining about digital marketing going up, but then doing an expensive Super Bowl ad, which is also exactly what Timu has done and raised its profile. So it's sort of a, I don't know, you say one thing, do the other. But I mean, I guess, you know, my big question is, do you think doing such a big brand campaign, doing a Super Bowl ad, like, will that change the way people use Etsy?

25:25Do you think how like, I have my answer, but how do you use Etsy? So actually, it's kind of funny. I feel like I may be the target audience for this campaign because I've used Etsy probably three times in my life. And one of those times was I was looking for a very specific holiday gift for a person. And I was like, where can I find this? Etsy. Like, I never think of Etsy, but this would be great for that. And so I'm sure, you know, I'm the type of person that Etsy wants me to think of Etsy more. We'll see if that happens. But yeah, what do you think of it? It's actually very similar. And I've used it probably three or four times for gift giving occasions or like to buy a throw pillow is my memory that I use throw pillows.

26:11But also one of the things is that the way that I've thought of Etsy, and I think that this isn't incorrect, is that it's sort of like an online tchotchke store or thrift store experience. And like I prefer to go into those stores to find those weird goods. But if it like, you know, I would want I've never used Etsy as a destination for discovery. I've only used it because I wanted to get these cups and I want to see if that Etsy and Etsy seller had those cups. So I guess this could maybe make me think of it more in terms of that. But also, I do think it's an interesting thing when you have a platform like Etsy that has so many different types of merchants selling so many different types of things.

26:50and a lot of those things are very, you find them via discovery. You find them because you, oh, that looks cool, maybe I'll get them. And I've never been able to find a good online experience to really do it the same way as going to a weird flea market in like upstate New York or something like that. That's my thought. Yeah, no, that's a very good point. Search is another challenge. Sometimes you don't know what you're searching for until you see it. But yeah, we'll see what happens. We'll see what their Super Bowl ad ends up being. Yep, we will. All right. Well, that's the show we have today.

27:24Please do not forget to rate and review our show on Apple Podcasts, Spotify, or wherever else you get podcasts. And that's it. That's the week. Ana, thanks for joining. Thank you.