Rundown: Shoppers react to price cuts, Peloton capitalizes on secondhand sales & Chick-fil-A gets into streaming

0:05Hey, everyone. Welcome back to the Modern Retail Rundown. I am senior reporter Gabby Barco and And this week, I am here with our editor-in-chief, Cale Guthrie-Weisman, who is back from our Modern Retail Summit from the West Coast. How is everything, Cale? You want to give us a little preview of what to expect from our coverage? Sure, yeah. So we've had some stories go up, but the Modern Retail Marketing Summit was a blast, a whirlwind. We talked with some amazing executives from we had like edible formerly known as edible arrangements there. We talked with Sweetgreen. We talked with Bayes, the the buzzy luggage company, all about marketing, all that jazz.

0:50It was just really fun, really great to chat with all of the different attendees about sort of what they're what's going on. And actually, the first thing that we're talking about today really matches with a lot of the conversations that I had this week. just about consumer sentiment and how no one really knows what's going on and where people are buying and why they're buying things. And so this sort of cemented just a few things that I've been thinking about as an editor in the retail space. So if you attended, you're listening. Thanks for coming. If you didn't, you should come to the next one.

1:22Yeah. So on this episode, we are going to be talking about, yeah, I think pricing and cost is really what's on a lot of consumers' minds. So a lot of the price cuts that have been announced seem to be working or at least showing signs of working at retailers like Macy's and TJ Maxx. And then after that, we're going to be talking about Peloton. We're going to check in on some of the strategies they've been testing out to turn the business around. So that'll be fun to talk about. And then speaking of fun, lastly, we're going to talk about Chick-fil-A's upcoming streaming platform question mark if that's what's that's what it seems like they're uh they're trying to do with uh content yeah so yeah first up let's talk about price cuts um you know kail we've written a lot the last i don't know months maybe a couple years at this point about how uh price conscious a lot of people are i mean i think personally we feel it too everybody does but um in the last couple of months we've seen a lot of these big box retailers announce that they're going to slash prices on all these essentials and grocery items like Walmart, Walgreens, everybody kind of made similar announcements.

2:42And we were curious whether it was going to quote unquote work, like whether it was going to bring people back. And it looks like some of the results show that that's the case. Last week, Julia and I spoke about it a little bit with Walmart, where they saw a similar pattern. So yeah, why don't you give us a little bit of a preview about what some of these retailers saw and why just a little bit of a price adjustment seems to really grab people's attention. Yeah. So we've had a few earnings that highlighted this too in the good bucket in the sense that they're in the values area or they've lowered their prices.

3:24And this past quarter, they saw great results. And then other ones who are, as we've said before, are trapped in the middle. and still not posting the results they want. So on the good side, we have TJX and Target. TJX, which owns TJ Maxx, etc. It saw comp sales grow 4 % year over year and raised its guidance. While it's not that TJX lowered its prices, TJ, this company always has low prices, but it shows that demand for value, especially in the apparel industry, is definitely still high. But then we have Target. And this was the big one. We even have a story about it on Modern Retail this week.

4:04But, you know, Target has had a really rough few quarters over the last year plus. And one of the big things it announced last May, which we'll get into in a few minutes, but it lowered its prices. And so now Target's comp sales grew 3 % year over year. And that really just shows that it was one decision, but it was a strategic decision that then reaped benefits for the company's results as a whole. But then on the other side of things, we have Macy's. And so Macy's, you know, there are some cases where it did drop some of its prices. But as a whole, it's been just a department store sort of stuck with its, you know, pretty good to nice inventory.

4:50And its comparable sales fell by 4 % year over year. and that the company as a whole forecast that net sales for 2024 are going to drop around 2%. And of course, the reason why Macy's says that sales have been dropping is the consumer that people are not buying the things that they want them to buy. So Macy's chief financial officer, Adrian Mitchell, said, quote, on the call with analysts, the context that we are operating under is a consumer that's really oriented on value. So that's pretty much it. We're still in a quarter where everybody is really focused on value and we're seeing the winners and the losers kind of take their place.

5:30Yeah, I think one thing that we also, we can get into where the shoppers are at right now. Some of the July sales reports showed that people were waiting around basically for sales. And in this case, it was Prime Day. So it's not that people don't wanna buy stuff. It's just that they know at this point, I think they've been trained now to expect good deals. And so in that sense, the results aren't surprising. And we can maybe talk about Target, for example. I was actually just reading the release from May when they announced price cuts on about 5 ,000 items, a lot of essentials like milk and fruit, diapers, cleaning supplies.

6:16And so just reading it back, what I found interesting, and I don't know, maybe this is anecdotal, is that, yeah, they cut the prices, but they're pretty much back to maybe where they were a few years ago. Yeah, exactly. So it's not that they're much cheaper. It's just like pre-inflation, quote unquote. So that's kind of a fun detail there. Eggs are only like$7 and not$9 or something like that. Yeah. Yeah, maybe that's the experiment, right, is that you raise the prices and then everything feels like a deal after that. I mean, I think that that is the case. And so it's interesting that at least some prices went down, but they'll never be back to what they were in 2019, I imagine.

6:54But clearly, just the idea that, you know, people notice, especially on household items, that it was getting insanely expensive, and they needed to do something and that, you know, we could have a conversation about the conversations I imagine Target is having with the brands that sells because this wasn't just Target's private labels. This was also for named brands like Clorox. And, you know, we've talked about how all of these bigger brands like Pepsi have been slowly raising their prices over the years. And now they're beginning to hit a wall with that. And the retailers are asking for better prices with that as well.

7:31And so it's an interesting dynamic that we're seeing. Also, just to give some context, because I sort of alluded to this earlier, but like It's been a pretty crazy few quarters for, not crazy, but Target has not been doing great in terms of growth when it came to the quarters. Its net sales in the first quarter, so the quarter before this, dropped by 3%. In that same quarter, customer traffic fell by 1.9%. And the average amount that customers spent on those visits also dropped by 1.9%. And the company blamed it then, people coming back on discretionary goods. And we're seeing, we saw this decision.

8:07You mentioned Walmart. which we've talked about how it lowered its prices. But even Aldi has also lowered its prices. Even Ikea has lowered its prices. And that's sort of the name of the game. And so we're definitely seeing this sort of shift where they're realizing that consumers need just a little bit of a carrot to help them out. And now they're seeing slightly more sales come in. Yeah. And then maybe we could talk about the retailers that are not big box or grocery-focused like Macy's, which we mentioned earlier. So the New York Times reported that the retailer began to cut prices on items and brands that aren't selling well a few months ago.

8:51But the company doesn't anticipate that it'll help that much. So the CEO, Tony Spring, told CNBC, we see that there's definitely a softness, a carefulness, a delay in the conversion of purchasing and people on the things that they want. the things that are priced sharply on the newness, they're responding, but even the affluent consumers not spending like they were a year ago. So it's interesting too, because for a couple of years now, Macy's has been discounting pretty consistently the markdowns, like a lot of apparel retailers. So it seems like they realize that these categories maybe are just not going to draw people back in as quickly as maybe like, I don't know, yeah, like cheaper Clorox or Huggies.

9:40Yeah. And I mean, it's all about the essentials. And that's what Target and Aldi and all those companies focused on is that they realized the products that people need to buy, they need to lower the prices. Macy's is in a different category with that. And a lot of the department stores have been focused on discounting, which many analysts, if you're talking about that, I will just say that that's a race to the bottom. But in this current environment, they have very few levers that they can actually pull to try and drive demand. And so a company like Macy's is kind of stuck, I would say. And yeah, with the July retail sales being a little bit better than expected, like I said, I think it makes sense that a lot of people are holding out but are also willing to spend in certain categories where they see fit.

10:26I mean, right now it's summer. So a lot of that spending was on, you know, like barbecue items and food and all of that stuff. So, yeah. So it'll be interesting to see, I guess, maybe the next quarter might tell us a little bit more on these other categories since it'll be holiday shopping. Yep, exactly. Or, yeah, at least back to school shopping. Yeah, yeah. Well, you know, it's all it's all happening in October now, apparently. More on that later. Oh, yeah. Yeah, yeah. I'm already kind of planning that coverage around it. You know, we have a lot going on this fall. So, yeah. Okay, so now let's move on to another company that's also been in the process of trying to turn its business around for quite a while now, you know, coming off of COVID, peak COVID, I should say, which is Peloton.

11:15So yeah, Peloton reported its financial Q4 earnings. It was slightly better than it had been for the last few quarters. But we will get into maybe some of the things it's been trying to really cut costs and return to profitability. But Kale, do you want to tell us how Peloton's done this past quarter? Sure. So it's gradually trying to move into the black. And so its sales grew 0.2 % year over year. So it's$644 million was its revenue versus$642.1 million a year ago. You know, that is not a huge jump, but it's nothing to sneeze at because this is the first time Peloton posted year-over-year revenue growth since the 2021 holiday period, which is wild.

12:13So I'm sure the company is jumping for joy about this. The company is also ready to shift its focus now on profitability. So its losses narrowed by$30.5 million compared to the previous year. And clearly Wall Street was happy after its earnings posted, Peloton's shares jumped 35%. So, I mean, you know, 0.2 % sales growth, not huge, but definitely directionally what the company has been trying to do for the last many, many years. Yeah. So now on to my favorite part of the story, which is that Peloton realized that the used or the pre-owned sales of their bikes and treads are actually a really big opportunity.

12:57We have written about this on Modern Retailer. People are now finding their Peloton bikes on Facebook Marketplace and Craigslist and all of these peer-to-peer platforms as opposed to going and buying one for about, I think they're about$1 ,500 at this point, the bikes. So you can get one for about a third of that price at this point. You could probably get someone to pay you to take their Peloton out of the apartment. I have seen that. Yes, I have seen that firsthand, too. Well, because moving them, I've done it, and it's really hard. Yeah, so the company has acknowledged it. From what I can tell, I think for the first time officially mentioning that this customer base also needs to be addressed and acknowledged.

13:42So, yeah, in Q4, they saw a steady stream of paid connected fitness subscribers who bought their equipment pre-owned. And the segment grew 16 % year over year. So I think a lot of people woke up to the fact that you can do that. You know, we heard a lot of the jokes about, you know, becoming clothes racks and drying racks, the bikes and whatnot. So, but yeah, obviously this is hurting the new product sales. But still, they said that this is an important source of their new members because obviously the subscription is really where they plan to grow or where they really rely on their, yeah, consistent revenue stream.

14:25So they said that, you know, these are incremental, they exhibit lower net churn rates than the rental subscribers, which I thought was interesting. So with that, what they're doing is actually they're charging anybody with a used or pre-owned equipment a$95 activation fee. So that's capitalizing on that. And they say that this is so that the new customers, quote, receive the same high quality onboarding experience that Peloton is known for. They also get discounts on accessories and shoes and all these other spare parts, which are important when you're maybe getting something pre-owned. So yeah, I don't know.

15:05I thought that was interesting that we did see this behavior for a couple of years, and now they realize, oh, maybe there's something there that we can actually capitalize on. Yeah, it's wild that it took Peloton so long to try and get something out of this. I think it's very funny, the idea that the reason Peloton is doing this is to receive the same high-quality onboarding experience. It's like if you bought a used MacBook on Craigslist and Apple tried to charge you so that you could see the welcome screen for the first time or something like that. I don't know. But this has been something that has been written about a lot.

15:46A lot of people do buy used Pelotons. This is one of the reasons why Peloton sales have been so gnarly over the last few years, is that people have been trying to get rid of them because so many people bought them during the pandemic. And so to charge a$95 fee for anyone who's new and doing it, that makes sense. And so I'm surprised it took this long, to be completely honest. Yeah. And there was a sort of a quote in the CNBC coverage that said that all things considered, $495 is really not that much if you paid a couple of hundred versus almost 2000. Yeah. So I think I'm sure people are going to just kind of eat that and, you know, go with it.

16:25I mean, at least that's what they're hoping for. But yeah, you know, with the subscriptions too, I guess the thinking is that if somebody went through all that trouble to get a pre-owned Peloton, then they're probably going to stick around for at least a while. So yeah, I think the subscriptions where they're really trying to retain them. Yep, exactly. So I will be interested. This will be something I always say whenever we talk about these types of updates. The earnings, maybe not the next earnings report, but the one after that, I'll be interested to see if Peloton has anything to say about the revenue they got from pre-owned bike members because that is smart and maybe we'll get a sense of how it's working out and if it's helping the company's path toward profitability.

17:12All right, well, moving on to another type of subscription. So this week, Chick-fil-A announced that it is going into streaming. You know, this is not an entertainment studio, as we all know. But yeah, there was a lot of sort of raised eyebrows here, or at least online, as to what this is going to entail. So, yeah, maybe we could read a little bit from Deadline, who reported this first this week. Yeah, so Deadline reported the story that the fast food chain from the South is working with studios and production companies to create streaming content. The service is reportedly launching sometime later this year.

17:56We'll focus primarily on, quote, family-friendly, unscripted shows. These are relatively cheap to produce. they range maybe about$400 ,000 per half hour episode, which sounds like a lot, but in the grand scheme of things might not be that much when all is said and done. There are also reports that scripted and animated shows could be added per this deadline story. And Chick-fil-A is also in talks to license and acquire third-party content. But we should add that this is speculation or these are anonymous sources speaking with deadline. Chick-fil-A hasn't confirmed this, but I just thought I think it's very interesting when a brand you know some you know a company in the retail space has ambitions to be more of a media company and this is the latest example of that so we'll see you know hope we'll see if Chick-fil-a will confirm it soon but this seems to be what deadline is reporting yeah and a lot of that came from sources on their partnerships because obviously they have to partner with studios and production companies on it so yeah it seems like there's a couple of reputable companies that are working with them.

19:06That's probably how the info got leaked. But yeah, Deadline also noted that there has been examples of non-media or entertainment companies creating streaming content. Airbnb, Lyft has this sort of like quiz game show that they released a little while ago. So it's not new. Even for Chick-fil-A, They do like these animated shorts on their website. They released that a couple of years ago. But I think maybe we can get into what the actual content is going to be, which is that they claim it's going to be, or not them, but the report claims it'll be quote unquote family friendly given the company's reputation for being this like family values, conservative branding.

19:55So yeah, I mean, that's going to be towing a pretty fine line, no? Yeah, I think that'll be difficult. And there's also just questions of like, how will it like, in what ways will it be shown? Like, like, I don't know, with with Lyft, it had the quiz show with Bob the drag queen. And that was, you know, the point was to have fun content that included like Lyft as you know, Lyft as the background. How will this manifest with Chick-fil-A? If it is going to be its own streaming platform, how will they charge for it? Will it be ad-supported? I just have a bunch of questions about how it will work, who is this for, and is it going to be an overt Chick-fil-A ad, or is it just going to be something nice and breezy that people will somehow know is associated with Chick-fil-A?

20:43Yeah, I think those are the big question marks because I guess when I hear streaming platform, I see monthly subscription. And we don't know if that's necessarily what this is going to look like. Oh, yeah. I mean, I imagine like this, like when I, it'd be funny if there's a Chick-fil-A plus, but I don't think that's probably not the grand scheme. But would they want to have this on YouTube or would they want to have this on Hulu? Like those are the questions that I would be interested to know. Right. And is this meant as a customer acquisition tool, which is also interesting because it's fast food.

21:20I feel like a lot of people already know about Chick-fil-A. But yeah, it's just a completely different model. But my question is that, you know, we're seeing the big studios like Disney and Paramount, even Netflix to some extent, really having a hard time right now with retention and subscription. So I don't know if if there are billions of dollars in the hole on streaming, it's it's really hard to envision what, you know, this is going to look like. But maybe the cheap, you know, reality show route could be the key there. Yeah. And I also think if you are a successful fast food company, this is a marketing expense.

22:00And it's similar. I don't think people talk about companies that make funny YouTube videos like Liquid Death, for example, as having a stream. It's not their original streaming content in the sense that it's a series. It's part of their marketing. And so I imagine Chick-fil-A, this will be similar, but more towards the Siri side where there's a story. But it's also like, this could be just a line item for Chick-fil-A and a way that they can say that they're helping promote the brand. But also, you can only have line items for so long. Soon, it'll have to have some real proof that it's helping grow the business.

22:37And I'll be interested to see how a company like Chick-fil-A does that. Yeah. And then, of course, if they pull this off, If it's successful, I feel like we're going to have a whole new frontier of food brands launching, you know, streaming content, which, you know, they've already done a little bit of. But, yeah, it feels a little bit like a floodgates. So we'll watch it. Or it's just like trying to trying to dive into a hot buzzword in the industry. So I'll be keeping my eyes open for the scripted show that comes out that's from Chick-fil-A and see if it's any good. Yeah. Okay. Well, on that note, we could leave it there this week.

23:19You can rate and review the Modern Retail Rundown on Apple Podcasts, Spotify, anywhere else you're listening. And you can listen to the Modern Retail Podcast on Thursday to hear interviews with industry executives hosted by Kale. I think we have some fun guests coming up, Kale. I don't know if you can say who's on next week. It's one we're excited for. It was a really, really fun session from the Modern Retail Marketing Summit. So definitely check it out. You could also follow us on social and come back on Saturdays for the Modern Retail Rundown. Thanks so much.