Rundown: Shein & Forever 21 partner up, Subway sells & Rolex buys Bucherer

0:06Hello, and welcome to the Modern Retail Rundown. I'm your host, senior reporter, Gabby Barco, and I'm here with Editor-in-Chief Kale Guthrie-Weisman. Hello, Kale. How's your week going? My week's going okay. How about yours, Gabby? Yeah, it's okay. We obviously, as usual, we have a lot of news to get into, so I was very busy reading up on all of that. This week, we are going to talk about various takeovers, acquisitions, partnerships, and whatnot, which are always fun. We're going to be starting with Shein and Forever 21. That struck a new deal. I feel like the fast fashion worlds are colliding here, so that'll be fun to get into.

0:50Next, we are going to talk about Subway's sale to a private equity firm. And in that case, there's obviously a lot of acquisitions and consolidation happening in fast food and fast fashion. And lastly, this one came as a surprise, but we are going to be talking about Rolex's acquisition of Bukhara, which is the world's largest retailer. This puts it in consumer retail officially. So why don't we start with Shein and Forever 21. This is a deal that we both were trying to wrap our heads around. basically it's kind of like a conversion almost uh where uh sheen is going to be selling at forever 21 stores and then it's also going to be selling forever 21 stuff on its own website so it's like a cross-contamination situation what do you think yeah i mean that part makes a lot of sense because you know sheen sheen is trying to get more mass.

1:57It's done pop-ups. It gets it in malls. And also Shein wants to make itself look more appealing given all of the bad press it's had of late. And so, you know, and Forever 21 is looking for any way that it can stay relevant and with the times. The part that we've been sort of trying to wrap our heads about is this one thing that was mentioned in all the articles where, as part of the deal, Forever 21's operators Spark group takes a minority stake in Shein. And then Shein is also acquiring a third of Spark. And so they're both sort of biting out a bit of each other and taking it to themselves, which is kind of funny.

2:35But I mean, on the whole, you know, if you've read any coverage or talked about Shein and its war with fast fashion, it was always about how it was an existential threat to players like Forever 21 that the two are trying to work together, you know, makes a certain amount of sense. And, you know, we'll see how it all plays out, whether or not the partnerships work, whether people in Forever 21 buy Shein clothing and vice versa. But, you know, it's a big deal given the tenor of the coverage that's been written about these types of companies thus far. Yeah, this is coming on the heels of a lot of Shein coverage and noise.

3:18Of course, it's trying to sort of rehab its image. It's had this negative, you know, rep of its environmental impact and labor practices. We just saw that they flew in some influencers into their factory to show them, you know, that things are great or doing well there. And they also moved their headquarters. So they were headquartered in China, and now they're in Singapore. Singapore, yeah. And so it's a big rehab. And if you want to learn more about it, you should listen to my interview with Sheehan's head of the U.S. from a few weeks ago. But this is clearly part of that entire trudge forward to showing U.S.

4:00shoppers, hey, we're a good company. You know, we're just like the others. Mm-hmm. Yeah, and at the same time, it's essentially acquiring a bunch of physical space because Shein has tried, has experimented with pop-ups in the US. One thing I've always been curious about is that the sheer amount of items on the website, I don't know how you fit that into a store. I guess it's a curated assortment, but I'm interested to see how they're going to be merchandising at Forever 21, which if you've been to a store lately, I mean, those are that retail, They're also trying to essentially rebuild themselves after a bankruptcy in 2019.

4:45And the stores are just very out of day. And some of them are old and not very exciting. Yeah, I think the merchandising is a really great question. Because really, Sheehan's value proposition is that if you're looking for something that is vaguely fashionable and extremely cheap, go on the app and scroll through and you'll find something. and it's sort of like an everything apparel app with that kind of idea. And so to curate that and try to pare that down so that it fits with either... I've never been in the pop-ups. I've meant to, but I've never stopped in. But I've always wondered, what is it that they're featuring?

5:23Is it tailored to that specific demographic of that neighborhood? But then with Forever 21, what are the clothes that it's going to feature there? How does it figure out what it is, given just the vast scale of the amount of inventory it has. Like the entire reason why Shein has risen is because it just like has thousands of SKUs, hundreds added every day. And you can't put that into a retail environment. Yeah. And, you know, it's literally everything you can think of. I mean, you can get like a charger on there or, you know, whatever you want at this point. You know, morphing into like more of a Timu.

6:03But I actually, yeah, as far as the storefront, one more thing I wanted to add was that Shein has been also quietly trying to get into like a sort of this higher end, you know, lines, which, you know, it's still, you know, fairly affordable. But it's more on like the sort of Zara H &M level price point and, you know, better fabrics and cuts and whatnot. So it seems like they're trying to diversify and, yeah, move away from that, you know, super cheap product line. So that'll be interesting. The other thing is that this – how many owners does Forever 21 have now? Oh, my God. Well, because, okay, so we mentioned Spark, and that is already a joint venture between Authentic Brands, which operates brands like Lucky Brands and Brooks Brothers and Nine West and mall operator Simons.

6:58And now it seems like, yeah, also Shein isn't on that deal. So interesting to see how that'll unfold. Yeah, it's a family affair. Or not a family affair, but like a lot of, I guess we'll say a lot of cooks in the kitchen. That'll be the metaphor I'll choose right now. Yeah. Yeah. Yeah. But at the end of the day, like I said, this is sort of like the old guard and the new guard of young women's fast fashion coming together. So we'll see. We'll see where this takes the fast fashion industry. industry. Yeah. And I think one really, and I mentioned this before, but I'll really impress this point now.

7:34I think it's a really interesting moment for Shein specifically because it gives Shein mall area. I don't think Shein has been in a mall yet, has been in sort of a mass sort of retail setting. Up until now, it's had these pop-ups in, I think, more higher-end neighborhoods. They've been trying to get people who wouldn't necessarily think of Shein to think of it as a different type of brand. But now it's in Forever 21. And so this is a real test for, you know, will people still get Shein when it's next to the other types of clothes that people were buying before Shein existed? And so I think that's going to be a really interesting test.

8:09Yeah. And will it drive traffic? I can kind of see that. Yeah. Exactly. To those stores. Next up, we are going to be talking about more on the food side of things. So So, casual slash fast food mergers. It seems like there's only a couple of companies now that own every drive-in place or drive-through. Sorry. Yeah, Subway is officially selling to the private equity firm, Roark Capital. It also sort of operates these other portfolio companies that operate Arby's, Dunkin', Auntie Anne's, and whatnot. And so the rumors started earlier this summer. The price tag was somewhere around$10 billion per The Wall Street Journal.

9:01And it seems like, yeah, Rourke is the one that won the bidding war. Yeah, it's super interesting. They, of course, would not disclose the terms of the deal. According to the Wall Street Journal, it ultimately went for around$9 billion. And then there might be an extra billion thrown in there if Subway is able to reach certain targets over time. But, you know, leveraged buyouts were a really big thing a few years ago, and then they kind of stopped. But now it seems like, you know, they're back. Subway has a new PE owner. and like the fact I don't know there are a lot of things I find super interesting about this but you know Subway was a family-owned brand up until now and now it no longer is and I can't think of another chain of its scale that you know that is anymore you know yeah it always gets me that it's it has by footprint it is bigger than even McDonald's which is kind of crazy to think about So, yeah, which brings us to the next point.

10:02At the same time, it's been in this sort of turnaround plan since 2019 when it brought in a new CEO from Burger King, which had it basically scale back, actually. It had 44 ,000 locations at that point. And in 2023, it's down to 37 ,000. That's still a lot, of course. but this is supposed to, you know, sort of streamline costs and whatnot. And it seems like it's helping. So maybe there's a sense of like a stepping back and yeah, recalibrating. And we'll see how, you know, things go under this new ownership. Yeah. And I mean, I think that Subway probably has needed to sell for a while, but it also needed to prove that it could do, you know, a rebrand and a resurrection.

10:50And the past year is given an inkling that it can. It released some stats at the start of the year to show, hey, our business is doing better. Subway said that there was a 9.2 % increase in same-store sales in 2023 and a very rapid uptake in digital orders. Subway attributed this to the scaling back of underperforming locations. Also, under this new CEO, So the company focused on working more directly with its franchisees and sort of making sure that they were performing up to the standard Subway wanted. And if not, they would cut them. And so this was, I think, you know, every turnaround plan has many steps.

11:32This was the first one, which was massive cutting back, making sure that all areas are performing. And then that's when, you know, a buyer like PE will step in and say, all right, now we can give you this amount of money and you can try and grow the business in this many ways. So, you know, I think Subway has been trying to find a way that it could sell itself. And this was the year it finally was able to do it. But that being said, you know, Subway still has a lot of baggage with it, you know? Yeah, which I thought it was interesting the last couple of years. They've also been trying to refresh the image with like these sort of celebrity athletes campaigns.

12:11they had, which they actually did credit a little bit to some of the sales that they're driving this year. You know, they had like Serena Williams and Steph Curry and Tom Brady. And those can't be cheap advertising methods. But, you know, I mean, it seems like they're maybe like, yeah, long term investments. Yeah, absolutely. And I mean, that's smart. You know, try. Subway had probably one of the biggest PR disasters known to man, if you are, when you have, you know, a spokesperson who then, you know, turned out to be, you know, a child predator, which is not good. And then also, this was a really interesting quote I found in one of the Wall Street Journal articles when I was reading, which is that one of the big issues that Subway has always been hampered with is that it had one deal that it no longer even uses, but it's just like stamped into people's brains, which is the$5 foot long.

13:05And so like, when I read that, I was like, oh, I didn't know Subway no longer does the$5 foot long. And it's so true. Like, there's this, and it's this association with cheap food sort of value base that Subway has been trying to sort of shed itself from. And I think aligning itself with higher tier athletes, these types of influencers is one way to do it. And clearly, it seems to be working, you know? Yeah. And then with that said, the, they will be still expanding, except mostly, actually internationally. So that will be interesting. They already have a pretty big international presence from what I could tell, but it seems like Latin America and Western Europe are two big ones that they want to push further into.

13:51Yeah. One of the things they mentioned when announcing this acquisition was essentially that expansion is the next big step, probably international expansion. I think Marketplace, I was listening to it this morning and an analyst said, like, you know, exactly those two areas, Latin America and Western Europe, are places where it, you know, likely you're going to see more subway locations. So, you know, that makes sense. Find the areas where you're not, you know, subways in a lot of places in the United States, even though it trimmed back its locations. And so you need to find new places where it's not as ubiquitous, right?

14:28Yeah. Yeah. So we'll see what happens when the deal goes through. And speaking of deals, next, we are going to be talking about Rolex's latest acquisition. This one I was browsing a little bit and saw it has the timepiece, people or watchers in a little bit of a tizzy. Watch heads. Watch heads. Yes. Yes. And a little bit of a frenzy because it is a big deal. Rolex announced it's buying a Bucherer, like we mentioned before. It's a 135-year-old Swiss watch retailer, has over 100 stores worldwide and already sells Rolex watches. But this brings these two legacy companies together under one roof, which Rolex has, I think, I said would never really do, right?

15:24Yeah. I think Rolex has since the beginning of time.

15:31Sorry. Pretty much it has said, we're not going to get into consumer sales. We will manufacture the watches. It has one store, I believe, in Switzerland, and that's it. And because there's such a vibrant retail ecosystem with watch retail, Booker is very, very, you know, one of the bigger players, but there are also a bunch of independent watch sellers that, you know, wheel and deal Rolexes specifically. And so Rolex for the longest time was like, you know, that's not the area we're going to get into. But now it has done an about face and it's like, actually, we are. And so I think that's a very interesting and noteworthy move on Rolex's front.

16:13Yeah. So the news also just sent the watches of Switzerland, which is the owner of Rolex, the stock went down. The main concern seems to be that, like you said, this industry is heavily dominated by independent and authorized retailers. And so when you have sort of this direct-to-consumer almost morphing of these two companies, it could maybe hurt distribution to other retailers. So that seems to be maybe the big concern. Yeah, exactly. And I think that like so much of, you know, I don't know too much about the luxury watch scene, but so much of it is based on, you know, the rarity associated with it and finding, you know, having access to specific ones.

17:01And so if you have one of the most important watch manufacturers also in control of one of the biggest retail stores, that's going to be a big issue if you're an independent watch seller in terms of competition. Mm-hmm. And then I think Rolex knows this. So they did put out a statement to suit some concerns. Do you want to read it for us? Yes. Let me read it right now. The Rolex group is convinced that this acquisition is the best solution, not only for its own brands, but also for all watch and jewelry partner brands, as well as for all the employees of the Bukura group. So there you have it.

17:35Yeah. Don't worry if you're... I did think the final, this was sort of a throwaway comment, but Rolex is essentially saying this is an issue of succession within Buker because the chairman is Jörg Buker. He's the grandson of the founder and he does not have a successor. So I thought that was kind of an interesting aside. Like that's the reason they're selling. Yeah. I mean, if you're a family-run company and you don't have a successor, you've got to figure out what to do, I guess. Yeah, exactly. Yeah. So I think that is our show for this week. You can rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening.

18:20Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders. that comes out every Thursday, hosted by Kale, who I think is going to be giving us a preview of next week's episode. Yeah, next week I will be talking with the CEO of Body Health, Yuri Minkoff, who many people might know as the co-founder of Rebecca Minkoff. But he also, as it turns out, has an entire health and wellness and supplement company that's been around for decades. So we talked about all things related to that. Cool. and of course come back Saturdays for the Modern Retail Rundown except there is a programming note for next week.

19:00We will be out for the holiday weekend so come back the following week. Thank you.