Rundown: Malls' Black Friday comeback, a proposed Spindrift acquisition and Foot Locker's lackluster quarter

0:04Hey, everyone. Welcome back to the Modern Retail Rundown. I hope you had a nice holiday weekend and you are ready to talk retail. I'm here with Editor-in-Chief Kale Guthrie-Weisman. Hey, Kale, how are you? Hey, Gabby, doing great. I'm back from Thanksgiving and I'm ready to talk retail. Yeah, same. Yeah, speaking of, I guess, you know, we will do a check-in on Black Friday quickly to start with. But this week, yeah, we're going to talk specifically about how malls performed that past weekend. And then we have some M &A news with Spindrift being acquired, or there's a proposed acquisition by a PE firm that is on its way.

0:48And then lastly, we're going to talk about Foot Locker and, you know, just the sort of the state of footwear and apparel right now, which is it's not great, but that's been a recurring theme this year. But yeah, first off, let's talk about malls on Black Friday. It feels almost like a relic of the past, but apparently there's a little bit of a comeback happening there. Yeah, it's super interesting, because I feel like you and I have talked about this, and I feel like maybe on other shows, or, you know, it seems like we talk about how in-store shopping is not as big as it was for Black Friday. The doorbuster is no longer here.

1:30People aren't waiting, you know, going to a mall at 2am to wait in. But there are some malls who said that they actually got some pretty good foot traffic, right? Yeah. So Simon, in particular, put out, you know, this report, or there was some data that came out from their big, I mean, they are pretty much the biggest, right? Or one of the biggest, definitely in the country. But I mean, they're really a real estate investment trust, technically. But they reported there was a jump in foot traffic across all of its centers during that, you know, big Black Friday through Sunday weekend. And basically, it tracked that it was a 7.1 % increase in foot traffic over the full weekend compared to last year.

2:16So that's a pretty big jump. But we'll talk about why that is they actually have done a pretty decent job at promoting their Black Friday sales or whatnot, just through actual ads, which I don't really remember that I feel like, you know, from a mall, in particular, are ever happening. I feel like Simon has been making a very big sort of case for trying to get people to go back to the mall and trying to go against the claim that in-store sales are dead, malls are dead. And we've said this for years. The adage that malls are dead isn't really true. There are certain malls, especially malls like Simon, the higher end, the class A malls, that have continued to show pretty nice results, continue to bring in very good retailers and brands into their locations.

3:07And so this isn't shocking, but there was some interesting things that Simon said. So on Black Friday alone, the company said that it saw 5.9 % year-over-year bump in traffic. And it said some of its most popular stores at its properties saw a quote, double digit sales increase over the weekend compared to last year. And so I think it goes to show that there's maybe you could call it a bifurcation where it's, yeah, the overall narrative that we've been reading, that people have been telling us, is that this past Black Friday, Cyber Monday weekend, all of that was really a big win for e-commerce.

3:45And there are a bunch of numbers to show that it was pretty record setting when it comes to the digital sales. But some of the players that are doing their in-store correctly and the ones that have been marketing it and really trying to tailor to certain types of customers were able to actually see an increase of physical sales, which I think is something to note and definitely interesting. Right. Like on Black Friday itself alone, there was a 5.9 % bump in traffic, which is a lot. I mean, considering, you know, we keep hearing about how just cautious optimism across the industry about how this season will be slower.

4:20But then we saw that, yeah, the record sales coming out of that weekend. So it sounds like people were ready to shop. Now, you know, you could chalk that up to a lot of different things, maybe retail therapy a little bit going on. I know you and I have been doing a little bit of that. But yeah, I think in the mall specifically, the fact that people did wake up the day after Thanksgiving and hit up the stores is pretty interesting. you know, considering that we were all just really predicting more of a digital lift. But yeah, the other thing is the CEO, David Simon, said that coast to coast, we saw lines prior to opening and throughout the day, many of our centers across the country.

4:58So yeah, it sounds like they're really trying to ride that momentum. I haven't heard the lines prior to opening thing in a while. Exactly. I mean, I would love to see how long those lines are, as you know, and were people punching each other to get that TV? That's the real question. Yeah, that's, you know, I mean, you know, obviously, we should say, like, great that we're not doing that anymore. Yeah, exactly. You know, it's, it's definitely very, very different than, you know, when I was working retail growing up, where you actually did have to wake up to get certain deals. Other than that, you know, we could talk, maybe we'll talk a little bit about the idea that Gen Z, and we've talked about this for a few years now, but Gen Z really is into physical retail or just physical shopping.

5:44And there's a lot of different reasons why that is. I think COVID, anecdotally speaking, always felt like it contributed to that, at least from all the Gen Zers and tweens I know, they just really want to go to the mall just to do something. And yeah, there's a lot of data that showed that Black Friday really benefited from that. Yeah, no, I was looking at some data while preparing for this. And And it's something that as business journalists, retail journalists, we get a lot of pitches being like Gen Z love stores. But there was a July Ipsos consumer tracker I found, which surveyed a bunch of different shoppers of all different ages.

6:2258 % of shoppers ages between 18 and 34 said that they shop at shopping malls often or sometimes. And that's more than people age 35 to 54. That was only 48 % of them. And that's way more than people 55 plus, which I'm kind of shocked by. So 38 % of people 55 and older said they shopped at malls. So clearly, according to this, at least, Gen Z and some younger millennials are shopping at the mall. And you're seeing malls like Simon and others try to capitalize this with their marketing. Simon did a very big ad campaign called Meet Me at the Mall, which was aimed at younger shoppers. We wrote a little bit about it a few months ago when it came out.

7:05And you're also seeing just a big move from these mall players, especially the higher-end ones, to reach shoppers and younger people on the channels where they are. So I'm pretty sure Simon had ads on YouTube, TikTok, Instagram, all of those pretty much saying, come to the mall. We're cool with the young kids. And I'm guessing it did work. Yeah, it looks like it. I'll just add one thing, which is we're talking about how Simon did really great overall. And it sounds like it did. But still, I don't think that was true throughout every store. And so there was some new data that came out that said that overall Black Friday in-store traffic dipped 3.2 % year over year.

7:47That's according to Retail Next. And so pretty much I think it goes back to my earlier point that it's kind of bifurcated where some of the more moneyed players, the higher end players are seeing growth, but not everyone across the space. Yeah. And I think maybe that just goes to show that these malls maybe do need to actually invest in paid marketing. I mean, in this case, there was a 360 campaign, TikTok, YouTube, even CTV, like on Hulu and Netflix. I mean, these are big channels that Simon really pushed the last couple of months to get people out there. So it's not a given anymore, I guess, is really the big theme here that I'm seeing.

8:28Yep. I think you're totally right. All right. Well, from there, let's move on to some M &A news this week. So the Wall Street Journal reported that Spindrift, which is the sparkling water brand, is in talks to be acquired by a private equity firm in a deal that is reportedly worth about$650 million. There's not a lot of details because it hasn't been confirmed necessarily by the parties. But yeah, the Wall Street Journal said that per the report, the interested party is Gryphon Investors, which is a San Francisco based PE firm that wants to acquire Spindrift. Gryphon has some other food and beverage brands in its portfolio, like Dessert Holdings, which makes baked goods and Eight O 'Clock Coffee.

9:18That's a deep cut. I haven't heard about that one in a while. But yeah, the deal is expected to be announced sometime before the end of the year. So probably in the coming months, unless there's some big change last minute. But yeah, why don't we get into the backstory of Spindrift and how we got here? So Spindrift has been very popular. You see it in a lot of stores. It's really kind of an interesting one because it's not new. It was founded in 2010. And its entire thing is that it's infused with natural squeezed fruit juice in a bunch of unique flavors. There's cucumber, blood orange, tangerine.

9:54It even expanded in 2021 to low ABV spiked seltzer. But the point, you know, it first, I always think of Spindrift in terms of like eras of beverage. And it was really fighting against, not fighting against, but competing with LaCroix back in the day, like, say, five to seven years ago, where it was there were these hot new seltzer. companies rising that were becoming really big. And now Spindrift has been going against a lot of other brand new players like Poppy, all of these other sort of new soda concepts. But Spindrift has been popular. The company told Bloomberg, I think earlier this year, that it is profitable and that it is forecasting to bring in$350 million in sales by the end of this year.

10:38And I also found I was reading the Bloomberg profile, and I thought this was kind of a wild claim, but it uses natural real squeezed juice to flavor its seltzers. And the company told Bloomberg that it is purchasing half of all not from concentrate blood orange juice sold in the US. So half of all of the blood orange not for concentrate blood orange juice is in spindrift, and the other half is sold to other people, I guess, which is a crazy stat. Yeah, that makes a lot of sense, actually. I don't know why, because blood orange juice is still not as popular here as maybe somewhere like Europe. But the fact that they're buying so much of it, and their whole thing is the juice infusion, as opposed to just essence, which is what most seltzers use, that is what differentiates it.

11:25So it makes sense that they are buying that. And I think that's also what puts them at a higher price range than, you know, like LaCroix, like bubbly, or I guess the typical seltzer, which is why I do think you're right, like that I kind of eye bucket them more under the, yeah, like the Olipop sort of, you know, natural soda category at this point, now that, you know, we have a developed category as we've been writing about. But yeah, I mean, the fact that they're profitable, they are, they have huge distribution now. It makes sense. I guess I would have guessed maybe like a big beverage company to buy them up as opposed to a PE firm.

12:01But maybe that's just emblematic of where we're going with M &A. Yeah, I think it's probably PE firms are more likely to capitalize where there are fewer big CPG companies and there are so many startups out there. So it's inevitable that some wouldn't get scooped up by the Pepsi Co's by the Coca Colas. And so, yeah, I mean, in many ways, this probably will indicate if it does go through, if it is true, a win for the category, just because the big question for all these startups is what is the exit. And right now, over the last few months, we've been seeing a lot of investments, but not necessarily full-on acquisitions.

12:37And so this would give a sense that there is an exit for these companies. But it took quite a long time for Spindrift to catch the eye of Griffin, you know? Yeah. And, you know, another thing, another point that the report made was that PE firms are really attracted to already profitable, pretty, you know, highly scaled brands like Spindrift. I think actually Nielsen also, and I know you mentioned what Spindrift said about their own profitability, but according to Nielsen IQ, Spindrift experienced$263 million in sales in the 52 -week period that ended in November. So that sounds pretty close to what they were expecting.

13:19That's also, apparently that represents a 22.5 % year-over-year increase in EBITDA. So, you know, it's profitable. It sounds like Gryphon really wants to close in on that, especially because beverage seems to be kind of the anomaly right now when it comes to M &A. I know you said, you know, we're not really seeing a lot of big acquisition deals. But the last one I was looking that we talked about is the Keurig Dr. Pepper acquisition of Ghost, which we talked about like almost two months ago now. So yeah, they are sporadic and they're all pending, I guess, approval too. Yeah, no, it'll be something to keep an eye on.

14:01And I imagine other startups, because there are dozens of them, are waiting to see how this goes through and what multiple they get. And I imagine also, and this is something we haven't really talked about, but a lot of the major startups are spending a lot of money in marketing. And so you're seeing these really glitzy ones. They're paying for really expensive ads, but that almost certainly hurts their profitability, which a PE firm likely wants to see. So that's my thought. All right. Well, on to some apparel earnings news now. This week, Foot Locker reported a weak quarter, and it gave, you know, not great guidance on its holiday sales, which seems in line to, you know, their performance up until this year.

14:45So what were the numbers? Kale, do you want to walk us through them? Sure thing. So Foot Locker, which it was earlier this week, I want to say Wednesday, reported quarterly revenue of$1.96 billion compared to analyst expectations of$2.01 billion. And that's a drop of 1.4 % from$1.99 billion a year ago. It also swung to a loss. So it posted a$0.34 loss per share this quarter. And the same quarter last year, it posted a$0.30 earnings per share. So that's not great. What's also not great is that the fourth quarter is not looking so hot for the company. It expects sales to be down between 1.5 % and 3.5%.

15:30And last year, it gained about 2 % in the same quarter. So pretty much, it saw less than expected sales. And it's also expecting sales to drop this quarter compared to the last quarter, which is not great. Yeah, we can talk about, you know, what are some of the culprits that they blamed. A lot of it seems to be just really deep discounting. You know, their CEO, Mary Dillon, said that consumer spending trends softened following the peak back to school period in August and the promotional environment was more elevated than anticipated. So if we read between the lines, that means everyone's doing a lot of sales and that's obviously contributing to just lower margins across the board.

16:14But yeah, she continued in total. The category is pretty promotional. There's an elevated promotional level in this category that we hadn't forecasted to be as it is. So, you know, that's that's sort of like earnings report talk for we discounted really heavily. You know, it's what we can synthesize it down to. Yeah, exactly. And pretty much her saying we had to do a lot of discounts, but then also the demand during off-peak times, like back to school, was much less. And so that's not good. And there's this other thing that I think is really interesting, which is pretty much Foot Locker blamed Nike, I guess you could say.

16:50So for context, Nike accounts for around 60 % of Foot Locker's sale. And Dylan told CNBC that Nike demand has been dampened. This is her quote. there are definitely some brands that we're seeing comp gains. And then, you know, we're also contending with some more recent softness out of Nike. Given their size and scale, it kind of makes sense that it would have an impact. So pretty much she's saying some brands are doing well, but, you know, the one brand that represents the lion's share of our sales is seeing some softness. So I thought that was super interesting. Yeah, it seems like Nike tends to be the big elephant in the room when it comes to the big footwear retailers like Foot Locker, which really do rely on these big players like Nike in this case.

17:38But the other thing is also that this is coming off of 2023 when Foot Locker had put in place this big strategy to really streamline and close down some of their stores that were underperforming. But obviously, that's still a long ways down the road, you know, it doesn't seem like that's been fruitful as of yet. Yeah, I mean, Dylan did make a point of saying it's still going well, even though these weren't great earnings. What she said in the statement in the earnings report was, at the same time, we continue to demonstrate progress with our lace-up plan. Lace-up plan is the name of this turnaround strategy.

18:16This included further cementing our leadership position at the heart of basketball and sneaker culture. So pretty much what she's saying is the strategy is staying the same. We're still focused on figuring out what works and honing in on our core banners. And even though we posted not great results this quarter, we're still going full speed ahead with this lace-up strategy. Yep. And from there, I guess the last thing we can talk about is what they're saying about their holiday performance, or at least what they're anticipating. So they're basically preparing their shareholders for a less than stellar quarter, obviously coming off of all of these struggles.

18:54So comp sales are going to rise or expected to rise between 1.5 and 3.5%. But that is compared to the expectation was 3.4%. So yeah, there's a pretty big margin of error there, I guess you could say. But yeah, it's a soft quarter. I mean, I think that that seems to be a big thing with Foot Locker in general. But you would think, you know, holiday Q4 is really where a lot of the retailers are counting on strong sales. And they don't seem to think that's going to be the case for them. Yeah, it's also saying that much of what it said about why Q3 was bad, which it's promotional, softer demand. But I thought this was also interesting, which it said in its earnings report directly, which is that it anticipates to lose$100 million this quarter due to the holiday season being shorter than usual.

19:48So because it's about one week shorter than it usually is, it's taken off$100 million because of that, which is a lot of money, I got to say. That is a lot. Wow. Yeah. So despite trying to grow their sales over the last year, especially with that lace-up plan that we're seeing, there's still a lot of work to do. And I guess I do wonder whether Foot Locker is a bellwether to a lot of other footwear retailers, especially when it comes to the sort of the reliance on Nike and what's going on there. It seems to be, you know, in free fall a little bit. But yeah, I guess we'll maybe see with their next earnings, whether this will be on the higher end or the lower end of their expectations.

20:32Yep. We'll have to keep an eye out. Well, we can leave it there for today. That is our show. You can rate and review us wherever you're listening. And on Thursdays, you can listen to the Modern Retail interview podcasts with Kale that's hosted here. Do you have a preview for next Thursday, Kale? I do. I speak with the, I guess, snack meat company Chomps, which has been expanding to convenience stores. We talk about convenience store strategy, all that jazz. It was a really fun conversation. Cool. Yeah. And then you can follow us at Modern Retail across social, and you can come back on Saturdays for more rundowns.

21:15Thank you.