Rundown: Nike shakeups, Rent the Runway restructuring & DTC fire sales

0:05Hello and welcome to the Modern Retail Rundown. I'm Gabby Barco. I'm here with Editor-in-Chief Kale Guthrie-Weissman. Hello, Gabby. And today we are going to start by talking about Nike shakeups, including the departure of their COO and the end of their partnership with Tiger Woods. Next, we're going to be talking about the restructuring of Rent the Runway. That's been happening for a little while now. And finally, we will be talking about potential DTC exits and just the growth of them in 2024. And at the end, we're going to give you a little bit of a preview of our NRF coverage that's coming up this weekend.

0:48So let's get into it. So let's start with Nike. First off, we have the COO leaving and Tiger Woods is ending a 27-year partnership. pretty much as long as we could remember for us. So yeah, let's talk about the last few weeks. We've covered some of this on Modern Retail as far as just kind of like the ups and downs that Nike's had the last month. But let's get into it. Yeah, so it's super interesting. You know, you mentioned the Tiger Woods thing. Tiger Woods has been one of Nike's biggest partners for decades. And they announced a little over a week ago that they're calling it quits, that they're parting ways.

1:33You know, there's a lot of things we can dive into about that. We have a story on modern retail. You all should read it. But like, you know, the most obvious answer is that golf is not a huge business for Nike, though Tiger Woods was a very prominent athlete there. But Nike has been facing a lot of other business troubles. And you sort of tipped to this when you were announcing it. But the big thing that happened this week was one of its longtime veteran executives, uh andy campion he was the coo for many years he actually stepped down as coo last summer and took a more uh strategic role we'll talk about that soon but he was considered to be probably you know in line to be the next ceo and he announced that he's leaving the company um so that that is certainly a surprise i'm sure for many and it points to that uh things are definitely not as rosy as they were, say, a year ago at Nike.

2:30With that cut came, I think this was, to me, even more shocking was we're going to keep seeing more cuts as far as planning and any real, you know, plans that I guess Nike has for the next couple of years. I think they said three years. They plan to cut$2 billion. I'm not really sure where that's going to come from, but I assume it's things like maybe product development or new ventures and all of that, you know, things that maybe we don't need right now. But this is really big because, I mean, it's Nike. It's kind of like one of the perennial winners in retail. So that's why it makes it kind of, you know, scary to see.

3:11But why don't we get, I think maybe transitioning into some of these cracks that began to show, I think maybe a year or two ago when, remember, Nike was really going all in on DTC a few years ago. It was going really well. They really honed in and streamlined the distribution, but then they kind of walked that back, which we've spoken about on the show before. And now it's kind of like this no man's land a little bit where it seems like a little unfocused where their distribution strategy is. It's clear that Nike over the last six months specifically has really shown that its big DTC focus, you could say it was a pivot, but I think that they wouldn't be happy if we called it a pivot.

3:56But, you know, they really wanted to own their distribution. They wanted to focus on their premier, you know, their own app, their own stores, maybe sell in a few premier accounts, but they stopped working with a lot of major footwear retailers. And then earlier last year, they were like, never mind, we're kidding. We want to work with them again. And so slowly, it's been rebuilding these relationships, which of course, these footwear retailers are really happy about because Nike sells quite well in them. But it shows that this big bet it had on trying to own its distribution as much as possible did not work.

4:34And then to quote what you said earlier, now that they're trying to cut$2 billion in three years, it shows that the outlook for this strategy clearly did not pan out. And so it seems like probably at the top and behind the scenes, they're trying to create a long-term plan that is going to work. And now that we have one of the major executives who seem to have been tasked, like I'm pretty sure Campion was called the supply chain guru and the person who was involved with a lot of these deals and a lot of these strategic decisions. And now that he's leaving, it shows that they're sort of going back to basics and trying to regroup and figure out something new about how they're going to position themselves and what the plan going forward is.

5:19Yeah, he's making kind of an interesting move, I thought. He's going to UCLA. Yeah, well, that was something that really stood out to me is that he's going to be leading a business management program at UCLA. Usually if you're a top executive and you leave one of the most important brands in the world, you go to another brand. But that's not exactly what's happening here. So it's definitely interesting, to say the least. Yeah. Yeah. It sounds like maybe like a passion pick of some sort to pivot careers. And then overall, like we said, it seems like maybe we could talk a little bit about how this has been reflected in the performance, especially in earnings the last few quarters, you know, a lot of outlook cuts and all of that.

6:08Just the, you know, typical results that we've been seeing from a lot of retailers. Do you think, are we going to start to seeing like a tightening right now, you know, in the next few quarters? You know, obviously they're making a lot of changes. I don't know if we're going to start seeing that right away or if it's going to take some time, especially because we still don't really know what DTC looks like in the long run. Yeah, I mean, I think that for Nike, we're going to see a lot of things implemented in the coming quarters. I would imagine if you say you're going to cut$2 billion in three years, layoffs are on the horizon.

6:43$2 billion is nothing to sneeze at. And I think that that is going to set the narrative for a lot of other companies and a lot of other business plans because it's been a big question mark of 2023 was a rough year, what will 2024 look like? But if we have one of, as you said, one of the perennial favorites, one of the ones that was always a shining star, I guess you could say, if it's not doing good or says it's doing this, that sets the tone for other brands. All right. Well, next up, we have Rent the Runway. This is unfortunately another sort of like a downbeat news to report. More layoffs here.

7:24The company announced that it is restructuring and some of that will involve reducing employees by 10 percent. And also their COO is stepping down. So seeing this is a little bit of a trend here. And the CEO, Jennifer Hemman, who's the co-founder, of course, will be taking over the responsibility. So it's almost like they're baking those two roles into one. And, of course, you know, we've been tracking Rent the Runway for years now. And, of course, it doesn't really come as a surprise, but it seemed like they were doing a lot in the last couple of years to turn things around. But just with everything else that's happening with the economy and like their subscribers never really rebounded from pre-COVID, I guess this is not maybe a big surprise.

8:16Yeah. And I think that Rent the Runway specifically has been just dealing with a bunch of issues. You know, over the last like the last quarter, its revenue decreased year over year, which isn't good. Its active users have shown a slight decline. It was, you know, earlier in the year showing, you know, somewhat of a bounce, but it clearly did not resonate and something has not been working. The company has been focusing a lot on trying to improve its inventory, make a lot of changes so that it can bring in new customers. It recently launched a new program, which we can talk about later. But I think if you just look at the stock price, it shows that the woes that Rent the Runway has faced.

8:58At the start of 2023, it was around$4. It's now under$1. And so I think the fact that it's cutting its executive headcount by 10 % is indicative of it needs to shave off some costs and really prove to Wall Street that it will be able to at least have somewhat of an ability to turn a profit sometime soon. Yeah. So I think, like you mentioned, the biggest thing really is keeping the subscribers happy. It's a very specific customer that is a recurrent subscriber to Rent the Runway. They're very few in the grand scheme of things, but they're very passionate and loud. Uh, but that's, I just mean like, you know, anytime you meet a rent the runway person, uh, subscriber, it's like the first thing they tell you.

9:47I'm just kidding. Um, but, uh, you know, they, uh, I think for a long time rent the runway maybe didn't exactly know how to deal with assortment. You know, they tried to kind of go into more flex assortments or offerings and then, uh, you know, offer more like kind of value driven plans, you know, adding kind of like free items every month. But the biggest thing that I had always heard was that there seems to kind of be a perpetual shortage of products, you know, whether it's sizes. Like if I have a wedding in a month and I'm just kind of like refreshing, waiting for one dress to get back in stock, that's the type of thing that really affects customer churn.

10:31And so that's one thing that maybe they just haven't cracked as they've tried to, you know, get back into growing the subscriber base. Yeah. And that's something that even Rent the Runway has admitted at its third quarter earnings this fall. Hyman said, the CEO Hyman said, we've made significant strides to improve our inventory in stock position, which we believe represents a turning point for Rent the Runway. We believe nailing our assortment is a key unlocked subscriber growth in 2024 and beyond. And we have data to indicate that the adjustments we've made have already resulted in improved customer retention satisfaction.

11:07So pretty much they're saying what you said, Gabby, is right, and they're working to make it better. They also recently launched, I sort of tipped to this earlier, this Vault Collection, which is the, I think it's like one-off rentals of higher-end products. So if you want to rent a really, really expensive dress just once or an accessory or something like that, this is. And so this is clearly Rent the Runway trying to both find new customers but create new value ads so that they will sort of beat that churn problem. Yeah, it'll be interesting to see what that looks like because that's more of a traditional rental program that, you know, has always pretty much existed.

11:48So yeah, who knows? Maybe people who don't really want to commit to a monthly recurring charge will go for that seasonally. And then I think it would be interesting to maybe juxtapose Rent the Runway with other rental services, which is always an interesting area. I feel like we talk about rental services a lot. And it's interesting to see why one is succeeding over another. For example, I think Urban Outfitters, Urban Brands, Nuuly has been growing just for a few years. I've been watching them really grow and become profitable even recently. They have a different, I would say maybe a different customer or at least different case when it comes to renting.

12:34It's more casual. It pulls from, you know, the Urban Outfitters, Anthropologie, all of their brands, but also actually third party. So you just have like a more wide sort of products to choose from. And it's, I think, a little bit cheaper too. But do you want to talk about maybe why that's succeeding? It's actually like one of the bright spots for Urban versus Rent the Runway, which actually pioneered the model. Yeah, I mean, I think it's just important to note this in general because often people will point to it's an industry problem. rental was big pre-pandemic, but post-pandemic it didn't work.

13:13And clearly, Nuuly has figured something out. So it points to a lot of what you said, where their assortment is different, they're targeting different types of consumers. The fact that they were able to hit profitability is a really important thing to remember when we talk about a platform like Rent the Runways Woes, because it means that it is possible to make gains in this industry. Of course, when I was doing research for this segment, I found this amazing quote from a CNBC article where pretty much CNBC asked Rent the Runway about Nuuly reaching profitability. And I just want to read it because I think it's very, you know, it's a good juxtaposition.

13:52So in response, Rent the Runway told CNBC its definition of profitability differs from Nuuly's and isn't comparable. The company added that it has stronger unit economics than Nuuly and its sales routinely exceeded the newcomers. Further, Rent the Runway said its gross margins are double Nuulys. And so it's clear that there is a growing, you know, quiet fight between the two based on who is performing better. And, you know, we'll see how this shakes out. Rent the Runway is making some changes. It's cutting costs. It's doing all these different things. Maybe it'll be able to turn a corner. But right now, that's the really big competition that's heating up.

14:29And one seems to be inching ahead of the other. Yeah. And of course, you know, this was one of the companies that benefited from this, you know, e-commerce startups, a very, very well funded company that did IPO at the end. It was one of the lucky ones. But of course, you know, now with the way things are going, it kind of I think what it is, is that like just places a bigger spotlight on them. I mean, of course, Nuuly is part of a publicly traded company also, but I think maybe having the backing and the support of a major retailer in that sense also helps. So there's like a little, it's not one-to-one maybe, but it's interesting to compare.

15:12Yeah, absolutely. Speaking of startups and exits, let's talk about 2024, big exit for DTC companies. I did. We started off the year with a story that I wrote about this, which is basically everyone is profitizing that we are going to see more fire sales, more acquisitions. I don't know about IPOs. We'll see about that. Maybe skims. But I think for the most part, the general feeling or vibe I get is that this is what people are bracing for. So, yeah, let's start with a couple of the big names that we're hearing about. Yeah. So there was a business of fashion story that was, you know, looking at what you have been looking at as well and had a few names on the table.

16:02One big one is True Classic, the apparel brand known for its basics like, you know, tees and underwear and things like that. It is said that it's already working with bankers to try and find an acquirer in the year to come. It did caveat it with if it doesn't find an acquirer who meets its valuation goals, it won't work with them. So it's looking for a big exit, so not necessarily a fire sale. Dagny Dover also said that it last year held conversations with acquirers and bankers to establish relationships. So clearly this is top of mind. Another company called Not Standard also said that it is potentially mulling, merging with another brand.

16:41And so it just generally shows that there's a mindset shift that definitely started in 2023, but it's probably going to kind of reach fever pitch in 2024 that brands are looking for some way to exit. Ideally, not a fire sale, though, that certainly did happen in the past year, which, yeah, could potentially keep happening in the next 12 months. So this is, like you said, a continuing trend. We saw companies, most recently, I think the Farfetch case was a really interesting one in a tale, but Parade also was a really big name and relatively young. It was only a couple of years old when it did sell.

17:23I think right now, one day actually I was talking to a founder who said being kind of a middle-sized DTC seems to be kind of like the downside right now. It's like you're too small to IPO, but you're kind of too big to really be, you know, maybe acquired for the valuation at least that you want. So that's kind of, I think, yeah, that's maybe what I'm looking at is trying to think of those brands and realizing like, I mean, who would acquire, you know, a middle? I'm not going to say names because it's just all speculation, but, you know, the types of companies that we do cover normally. Well, I also think, and this is something that isn't new, and I've had VCs talk to me about this literally since 2019, I want to say, but it's that DTC revenue wall where, you know, you're an early stage startup, you're able to reach velocity, you go from$1 million to$5 million to $10 million in sales in three years or something like that.

18:17But then you hit over$20 million. You hit maybe$30 million even. But then that's when it gets difficult to grow. And you're like, what are my options then? Because you're sort of in this middle area where you're not a huge company yet. And so who would buy you? And you're too young or you're not big enough to IPO. And you're sort of left in this middle ground. And it's always about how do you get to that next point? And I think that what we're seeing now are a lot of those brands precisely in that weird spot where they're hitting that revenue wall of what is the next phase of growth? How do I approach it?

18:48And can I at least get an exit that is worthy of the valuation I was once given? Yeah, and I think some of it is also probably a sense of fatigue. You know, this is a very draining industry probably to be in right now. I mean, just writing about it obviously does start to affect your thought process. But yeah, I think being a founder right now is obviously really hard. And so sometimes it's almost like, okay, maybe selling, maybe this is the right time to sell for multiple reasons, personal and business-wise. I mean, on another side note where we don't know what it's going to be like for exits, but I think that another part of this is just fundraising in general.

19:30And I feel like that people are saying that it might be a little bit better for brands to fundraise in 2024 than it was in 2023. And, you know, the reason why there were so many fire sales specifically in 2023 was because they couldn't get a round of funding so that they could get to that next moment and said just had to sell quickly. So do you think that that dynamic might shift in 2024 when there might be some more VCs who are okay in investing in a round? I guess it's yes and no, because as far as bridging that gap and extending the runway, they do want to see a path to profitability or already being profitable.

20:13and then for any sort of seed or early funding, it would have to be a very, very, very compelling product or company or a celeb face, let's face it. Yeah. Things like that. I mean, at least from what I've heard, some of them seem more optimistic than others. They are always ready, of course, to take pitches and to hear out companies. But I think maybe what it is, is that because so many more companies are obviously trying to fundraise, so it's like there's like really fierce competition too just for the dollars going around. With that said, it's probably just not enough to go around for everybody, at least not the ones that just are not big enough yet that they can't sustain.

21:03I don't know if a couple of million dollars is going to help boost that business too much. Yeah, so with that said, like you said, we could just circle back to the beginning, which is that we probably will continue to see more of these sales. And it just seems like in general, more people are open to selling than maybe even a few years ago. Yeah, I think you're right. And I think you're right that probably a lot of it has to do with fatigue. Yeah. Someone needs to open like a DTC therapy group or something. Great. Well, let's wrap up by doing a little bit of a preview for listeners for NRF, Retail's Big Show, that we will be attending and covering and talking to people about.

21:52And Naksha Kale will be moderating one panel there. Yeah, let's get into it. Yeah, no, it's going to be fun. We're going to be there for three days, Sunday, Monday, Tuesday. I'll be on stage on Sunday talking about live shopping with Fanatics, Roku, and HSN. But also, we'll be covering it. You'll be covering it, Gabby. Are there any big topics that you're going to be looking out for or any big themes that you're thinking about? Yes. So the ones I'm going to be mostly focused on is, of course, the food and beverage innovation. It seems like there's more of that this year, kind of, you know, teetering in on the Expos territory.

22:36But other than that, there seems to be also this luring presence of celebrities promoting their own brands. You know, that always gets the traffic flowing, of course. People want to meet the famous people. Martha Stewart will be there. Martha Stewart. Yep. But I think beyond that, we talk a lot about buzzwords and jargon, but I just did a quick search on the NRF agenda and I think there's like 400 mentions of AI alone. So just to give you an idea. But yeah, those, and I think one of the things we're trying to really, you know, echo or trying to figure out is what is the value of this really over, what I find a very overwhelming, really big, physically big show for the types of brands actually that maybe we just spoke about, right?

23:29Like not the Walmarts of the world, like those are going to be on stage. They're going to be everywhere. But for sort of like the SMBs, what does that look like? Like, we'll get into it in our coverage a little bit more. But yeah, it's an interesting place to be in. Yeah, it's definitely overwhelming. It's very big. You know, everyone's having meetings. Everyone's pitching about their various SaaS products. I'll be interested. I'm thinking a little bit about, I think, retail media, I noticed, is sort of a big thing. I think they're having their own breakaway session about it. People have been talking about this for years.

24:00But also, it seems like that is the big topic du jour, especially for major retailers trying to find other revenue beyond just selling goods through stores. And so I'm going to probably be trying to keep an eye on that and see what interesting stories there are to tell that. But also, it'll just be, I guess, fun to be there. It'll be nice to see people. You should reach, if you know any good NRF scoops, you should reach out to Gabby or reach out to me. We'd love to hear all about them. But like actual scoops, not like, you know. Oh, a demo at your booth. Yeah, but it'll be fun. I'm excited. Yeah.

24:34And then I think just like on the more like cultural side of things, we've talked about this, but I think it's interesting that people know, you know, like marketers, founders, like they're more, they seem more interested in like the parties and the after hour events than maybe the actual sessions themselves. Because I think that's where they're hoping to meet retailers, investors, whoever, you know, they're hoping to link up with. And those tend to happen, you know, a little bit offsite. So we'll, yeah, listen out for any gossip there too. Exactly. Well, that is our show. Please write and review us on Apple Podcasts, Spotify, or wherever you're listening.

25:16Don't forget to subscribe to the Modern Retail Podcast to hear interviews with Kale on Thursdays featuring execs every week. Kale, do you have someone fun on next week? I do. I talk with the CEO of Arizona Beverage Co., best known for Arizona Ice Tea. It was a really big moment for me. I've known them for years. Y 'all should listen. Oh, my God. An icon. She's the moment. Cool. And then, yeah, come back on Saturdays for the Modern Retail Rundown. Maybe we will have some fun reviews of NRF next week. We'll see. And as always, thank you for listening. Thank you.