Rundown: Target lowers prices, Amazon beefs up Alexa & Macy's earnings

0:05Hello, everyone, and welcome back to the Modern Retail Rundown. This is Modern Retail's weekly news recap show. I am Cale Guthrie-Weisspin, the editor-in-chief here at Modern Retail. And this week, I am joined by our managing editor, Anna Hensel. Anna, how's it going? Good. Excited to talk about all the retail news today. Yeah, all the retail news, even though it's a long weekend. Are you doing anything fun for Memorial Day? Just enjoying the nice weather, hopefully. And yes, taking a few day break from thinking about retail. So I'm going to get all my thoughts out now and then stop thinking about it for three days.

0:43Exactly. This is going to be a marathon of getting all of our retail thoughts out, and then we can take a little breather from it. But on today's show, we have a lot of things to catch up on. Target has a new low-pricing strategy. We'll talk about this more, but clearly it's feeling the heat and wants to bring people back in with lower prices. Then we have some news about Amazon's beefed up Alexa service, which is always interesting and exciting. Lastly, we go into Macy's recent earnings showings, which we talk about Macy's a lot on here, but there's always something new to talk about when it comes to the Macy's business.

1:19But first, let's start with Target. Target has a latest attempt to win back price conscious shoppers involving cutting prices on thousands of items. So, Ana, what exactly is Target announcing? price cuts, essentially. Okay. All right. Not essentially. Literally, they're not some price cuts. All right. Show over. Yeah, show over. But they are cutting prices on up to 5 ,000 items. So if you buy a lot of stuff at Target, it's a good time to take a closer look at prices. they will be cutting prices on 1 ,500 items immediately, and then they're going to roll out more deals over the coming months. The price cuts are in a bunch of categories, ranging from cleaning products to food to pet care.

2:12They're also cutting prices on some national brands as well as some of their private label products. And many of the items that are getting a price cut fall into everyday essentials like diapers, milk, a lot of things that families might have to buy every week. They gave a few examples illustrating how deep these price cuts will run. So the price on a 75-count canister of Clorox wipes, for example, will drop from$579 to $499. I just thought the timing of this announcement was very interesting. it came a few days before Target's earnings. And so that kind of light bulb went off in my mind. I was like, what are Target's first quarter earnings going to be like, which we can get into.

3:03Yeah, well, dun, dun, dun. What were Target's first quarter earnings like? In short, not great. So, and Target is, I mean, Target is a business that just has been doing so well for so long. it saw like one of the biggest sales increases during the pandemic. Like there was bound to be some slowdown, but sales are down, which is not great. So comp sales were down 3.7 % year over year, although Target said that was in line with expectations. Much of the sales decline came from discretionary categories like apparel, although they said beauty was a bright spot, actually, and Target has invested a lot.

3:46They have a shop and shop partnership with Ulta, like they've really invested a lot in their beauty category. So that kind of makes sense. So a lot of the earnings call then was just talking about how they would get back to growth. So in the second quarter, they're projecting up to a 2 % increase in comp sales. So, you know, that should appease some of Wall Street, but that's still not that great of growth when you look at competitors like Walmart, which reported revenue growth of 6 % this quarter. So I think that there's a lot that Target needs to kind of show out still. So yeah, they spent a lot of the earnings call talking about how the company will get back to growth this year, I felt like they, if not, they maybe didn't spend more time talking, but I felt like towards the top of their earnings call, they were highlighting some parts of the business.

4:48They maybe don't talk up as much. Like it highlighted Roundel, it's advertising business, which is an important part of Target's business and has been for a while. But I do feel like it's when retailers kind of, their store sales aren't doing well. They're like, let's talk about our advertising business instead. And Target said that's the fastest growing part of the business right now. It also talked about it's still seeing growth in digital sales in services like pickup. It talked about all of the products it was adding to its marketplace. So pointing to all these other lines of business that are continuing to grow.

5:27And then it also talked up its offerings in categories that are going to be big focuses like over the summer. So for example, travel, outdoor accessories, back to school season, which is very important for Target. And they basically were talking about, you know, here's all these new offerings we have in these categories to help us get back to comp sales growth. Just one stat that one of the executives talked about that I thought was very interesting because the economy is just weird right now. We're still trying to figure out, you know, just what people are willing to spend their money on. And so I don't know where they got this stat, but they said that currently one in three Americans has maxed out or is nearing the limit on at least one of their credit cards.

6:20And for these reasons and more, yeah, we remain cautious in our near-term growth outlook. And I believe specifically what they were talking about is inflation has been sustained for a long time. It's not getting worse, but we're not seeing the price drops we want to. And so people have had, because these high prices have been going down for so long, it sounds like people have had to tap more things to kind of deal with that. And also because prices haven't dropped, you know, that means that like, they can't put as much money maybe towards paying off the credit cards and the debt they've accumulated.

7:02So I thought that was interesting. I mean, I think that it the performance we saw from Target this quarter, it's it's kind of to be expected. Yeah, definitely interesting. But You mentioned this a little bit at the top, but can you give a little bit more context of how the competitors are doing? It sounds like Walmart's doing pretty well. Yeah, I think that, you know, Walmart is a company that's most frequently compared to Target, and they've still been seeing growth this year. I was looking at Walmart's recent earnings transcript as well, and executives were very keen on saying that the sales growth is not inflation driven.

7:42But it's a sign that we have the selection people are looking for, which is a pat on the back for themselves. But it seems like Walmart is it seems like they're focused on attracting more of a high end customer with some of the products they've recently added. They also rolled out a new private label food brand called Better Goods, which embraces a lot of the better for you trends, like has like plant based cheese and other items that cater to certain diet trends or dietary restrictions. But they also these executives also noted in the earnings call, they're like, we're creating products that will resonate with customers across income spectrums.

8:28So they're trying to play it down as like we're not exclusively appealing to high-end shoppers. But that's kind of the reality. And I think it's an interesting contrast to what Target has been doing because they just had these price cuts. And they also released a new private label line this year called Dealworthy. They released it a few months ago. And most of the items in that line were like a lot of them were under$5 or under$10. And so Target has done multiple things this year where it's like we are trying to appeal to people who want to deal, whereas Walmart, I mean, that's just kind of their part of their proposition inherently.

9:11So now they're talking about the things they're doing to appeal to other customers. And other chains like Dollar General are also continuing to report that they are seeing more high-income customers trade down. So yeah, just the reality is that it's a tough operating environment for a company like Target right now. Yeah, there's something we just wrote about something that sort of lends to this, which is that I guess a recent research report from some analysts said that, And this is not with Walmart and Target. It's with Walmart and Amazon. But I guess Walmart shoppers, on average, I need to get this exact, but pretty much it says that they spend more on average than an Amazon shopper.

9:54Like their basket sizes are much bigger. And I thought that that was really, and this is all about online shopping, but it shows that Walmart is able to now get more online shoppers, but also get them to spend more than even Amazon. Of course, Amazon is still the leader when it comes to e-commerce, but this is talking about asset size. One question that I have for you, which I don't know if you have an answer, but I find it really interesting that Target is lowering name brand products like Clorox. Do you think this is the end of shrinkflation? Like PepsiCo has talked about how they've been raising their prices, lowering the sizes.

10:30This seems like the retailers are finally pushing back and saying, no, you need to stop doing this. I think it's complicated. So, yes, we're seeing more retailers like Target lower prices or kind of hold off on price increases. But I think it depends. You have to compare it to what the prices were before all these price increases started happening. That's true. I believe I've read some articles about shrinkflation before that it's like it never gets back to the baseline it was, basically. Like, I think that, you know, prices are being lowered slowly but surely, but there's like not signs that we're getting back to kind of the prices that people expect before all this inflation happened.

11:21So, yeah, it'll be I'll be curious to hear, actually, on like the next earnings call, just how much of a lift in traffic Target sees from these price cuts. Like, is it actually going to do anything or are people kind of like, this isn't good enough? We'll see. Yeah, exactly. Well, you know, Target is certainly not known as the first and foremost place to find good deals compared to some of its competitors. So this is clearly an attempt to change the narrative, I guess. And so we'll see how it how it pans out. All right, let's move on. I mentioned Amazon just a few minutes ago, but we're going to talk about Amazon again.

11:58We always have to talk about Amazon multiple times. If I am hosting the show, we talk about Amazon a lot. So Amazon has reported new plans with Alexa. This comes from CNBC. This has been reported on a little bit before, but we have a few more details. It's essentially making a major tech upgrade to the virtual assistant Alexa. Of course, it has to use generative AI because that is what everything is powered by now. If you are a tech company and not using generative AI, you are not a tech company. But anyway, but what makes it super interesting, at least in my eyes, is that the reported plan is that they will roll out this revamped service potentially in a month or so, a few weeks, but it'll be a standalone subscription.

12:41It will not be, for example, rolled into Prime. So, Ana, what do we know about this so far? So Amazon hasn't officially confirmed anything yet, but CNBC says it spoke to unnamed sources about its plans for Amazon and Alexa. And I think there's been some other news reports that have kind of hinted at this as well. But from the CNBC article, these updates include the Alexa team has been working to update the product and kind of, as you alluded to, basically through the lens of generative AI and how can we compete with like ChatGPT and Google's Gemini. And so when Andy Jassy became the CEO of Amazon in 2021, much of his focus was on cutting back on moonshot investments that weren't making quick financial returns.

13:36But recently, he has reportedly felt Alexa was allegedly underperforming and the team has been trying to beef up the virtual assistant. I think that in this CNBC article, it basically was like the things that people use Alexa for is like as a souped up kitchen timer, alarm clock to ask the weather. It's not really a two way conversation. So that's kind of what they are trying to do. And yeah, a standalone Alexa subscription has been hinted at for the last few months, including reports from Business Insider and The Verge. Amazon hasn't confirmed any plans again, but at its most recent earnings, Jassy told investors that the company was integrating generative AI into multiple applications across Amazon and that this includes coming up with an even more intelligent and capable Alexa.

14:35Yeah, I think this all makes sense. I don't think Alexa has become the like runaway product that Amazon maybe had hoped. And I also think with a like if they make it a subscription offering that might I think that maybe like the hardcore fans of Alexa or like people who are really into those type of gadgets, they might be willing to pay for that. Well, I was actually thinking about this while like researching this. I don't use Alexa. I'm one of those people who I don't want something that's always listening in my house. Although I'm sure many things are. I just don't want to necessarily welcome that in.

15:11But my parents have Alexa because I think they were told on Amazon.com that they should get one. And I feel like many families have an echo or something like that. So if they were prompted, we're making it better, do you want to spend$10 a month? Maybe people would say yes. I don't know. So that's something I feel like it's already become ubiquitous, even if it's not a great product. Do you know what I mean? Yeah. So I also, I forget what I own. It's the alarm clock. I don't know. I bought it back when I was like a tech reporter and I was like, there's so much going on with Alexa right now. I need an Alexa device.

15:46And like, I wouldn't say that I regret it fully, but like, I also don't use it that much. I use it to check the weather as an alarm clock. kind of what was laid out in the CNBC article. And like, yeah, for, I think it's hard if like you are someone who has bought an Alexa device and you really haven't used it over the however many years you've bought it. And even if Amazon is like, hey, we're releasing all these upgrades, but it's gonna cost you a subscription. Like it's already not part of your routine and it would be a little bit of you having to like trust Amazon that these upgrades are worth it.

16:28But I think that if you are, again, like a tech person, if you like using all of these smart devices, then maybe you would pay for a subscription. Yeah, absolutely. What would you say is Amazon's current AI strategy? So a lot of what I have seen is just a focus on actually releasing AI products that kind of focus on its B2B services. One of Amazon's focuses has been around AWS, which is a big like revenue and margin driver for it. So it unveiled Q, a generative AI chatbot for AWS users. I know it's also released some tools for Amazon sellers to help with things like product descriptions. And it's also been investing in startups.

17:18So it invested over 3 billion in the AI startup up anthropic. Many saw this as a move to stay competitive with companies like Microsoft that have also been investing in other AI leaders. I think that this lines up with, you know, just Amazon's strategy in a lot of things is just to like place multiple bets. They've kind of pared back on that a little bit with all the cost cutting that's been going on. But I think, yeah, Amazon's just going to try a bunch of different things and see if it works. Yeah. And that seems to be what's going on. There is one thing I've been looking at when researching this is that clearly Amazon is trying to get ahead with Alexa and it was a little behind what the other competitors are doing.

18:06You mentioned chat GPT, Gemini, etc. But one of the big issues is that because it has its fingers in so many different holes that deal with AI, that it hasn't been able to really come up with a perfect service yet. And I found this BI article that was talking about the Alexa project that they've been working on. I think this was from January of this year. But pretty much it's saying that even Amazon is, at least a few months ago, was unhappy with the strides that it has been able to make with what Alexa is. So here's a quote that I just wanted to read because I thought it was interesting. The people familiar with the matter said that with the limited preview with 15 ,000 external customers discovered that while Remarkable Alexa, Remarkable Alexa is what they are calling the new version, was generally good at being conversational and informative, it was still deflecting answers, often giving unnecessarily long or inaccurate responses.

18:59It also needed to improve its ability to answer ambiguous customer requests that required the engagement of multiple services, such as turning on the light and music at the same time. Ouch. Yeah, I thought that was interesting. And this goes to clearly the company is trying to figure out a way to use this technology to solve many problems. But especially for the one consumer-facing application that's going to be probably used by the most people at least a few months ago. Hasn't looked good. This all leads to a bigger question is, what is the current state of the AI war? Because I feel like all of this is so that Amazon can stay competitive with, you know, fellow tech companies, right?

19:36Yeah. I mean, it is just an AI onslaught right now, I guess. It feels like especially over the past week, because of all that's been going on with Google, Gemini, and Chat, GPT, you know, Google just rolled out its new AI search tool that is supposed to give synthesized answers to search queries. And my social media has just been dominated by screenshots of people putting in certain queries and then Google giving back information that's like wrong. So one search query supposedly suggested people put glue on their pizza. Another AI generated answer allegedly recommended searchers to eat at least one small rock per day.

20:25And it seems like it might have scraped that from an Onion article that was like geologists recommend eating at least one small rock a day, which is, yeah, interesting. Like, how does this distinguish between satire and like legitimate news articles? And then OpenAI has also been getting a lot of heat over its assistant Sky, which had a voice that allegedly sounds a lot like Scarlett Johansson, but OpenAI said that we hired a different voice actress. Yeah. So there, there's a lot going on. I mean, it feels like we're just getting constantly bombarded. And then, yeah, we didn't even get into the stuff that like Apple and Meta are doing because every time I open Instagram and I go to search again, now it's like use Meta AI and we're just getting bombarded by tech companies, uh, trying them trying to get us to use their AI tools.

21:17I personally hate it. I'm like, don't force me into anything. But it's kind of the future. I mean, I do feel like given how much these tech companies are investing it, how much they're pushing these AI search tools, it is inevitable. It's useful for some situations. And like, this is not going to slow down. Yeah. So what would you say this all means, especially in terms of Amazon? basically it's very early days and kind of like i said earlier i think that amazon strategy as it's always been has been to try a bunch of different things see what works um i think the two biggest questions are like will it's revamped alexa actually be good enough to impress customers and how is how is will the alexa business continue to grow um against to the competition?

22:11And then will people really shell out money to pay for an additional Amazon service in addition to Prime? I mean, you know, there's already been the kerfuffle over like video ads in Prime video. And I don't think that that led people to like cancel their Prime subscriptions en masse. I mean, yeah, data didn't show that. But I can see people getting continuously frustrated with Amazon either trying to push subscriptions for more things or maybe paring back some benefits. So I think that is something that Amazon will have to grapple with. Absolutely. Well, I guess we'll have to wait and see until allegedly this new Alexa will be unveiled at a conference, I think, in June.

22:58We'll probably do a segment about it then when it comes out. I'm sure. Yeah. Stay tuned. Let's go into our last topic of the day, earnings, and it's Macy's earnings. So Macy's sales continue to fall flat, but it also said that it's seeing, quote, traction in its turnaround plan. We love traction. So how exactly is Macy's doing, Anna? Not great, but they say they're seeing traction, like you said. All right. Show over. Yes. So Macy's Inc. reported first quarter earnings on Tuesday, and they said that comp sales were down 1.2 % year over year overall at the company, which is kind of the story of Macy's at this point.

23:46they've really struggled to report consistent sales growth over the past five years. They've seen some pockets of growth like during the pandemic or during certain periods, but overall sales are down. That continued this quarter. At its namesake Macy's brand, comp sales were down 1.6%. Sales at Bloomingdale's were up 0.8%. And then sales at the premium beauty chain it owns, Blue Mercury, those were up 4.3%. But the issue with Macy's is that overall, the namesake Macy's brand is the biggest part of the business. So if that's down, sales will be down. Its first quarter profit was also down, but Macy's tried to keep its outlook on the positive side.

24:36So their new CEO, Tony Spring, who was at Bloomingdale's for a long time, officially took over the Macy's Inc. CEO role earlier this year. He said, we are confident in our ability to return to profitable growth. And he said the company is seeing early traction in its bold new chapter strategy. So yeah, the focus for Macy's is on like, we will get there. We are seeing traction in this strategy. I feel like I've heard so many different bold new strategies or different names of new strategies for Macy's. But let's talk about this latest, newest, boldest, newest strategy. So what exactly is the new strategy?

25:18So this strategy was unveiled in February, around the time that Tony Spring became CEO. It consists of three parts. One is strengthening the Macy's nameplate. Two is accelerating luxury growth. And then three is simplifying and modernizing end-to-end operations, which I feel like if you look at this, this is like, it's the strategy of what any retailer that's trying to modernize has to be. It's basically like, they're like, we need to strengthen the legacy part of the business that is not doing so great. But the reality is, is it's very, very important to the business. Number two, we're going to grow the promising part of the business even further.

26:02And then three, simplify and modernize end-to-end operations. To me, Yeah, cut costs. That's what it reads. So it's on the second part that Macy's Inc. is seeing the most promise. Bloomingdale's and Blue Mercury fall into what it considers the luxury part of the business. But again, the challenge is that you need to grow the namesake Macy's brand too. And that part, how it will get there, it remains to be seen. Um, so what Tony Springs said is that Macy's is doing a lot of tests at its first 50. It's designated a group of stores that like, you know, is kind of the test for this new strategy. The first 50 locations, which are presumably some of, if not the best performing Macy's and the stores at which Macy's is trying to test out a bunch of new things.

26:53So they talked about the changes they rolled out pretty broadly. And a lot of this honestly kind of is just like basic retail or like things you always need to be doing, I think. So one is they shifted store staffing to key merchandise departments and to the checkout area and added visual merchandise staffing. So the key metric that Tony Springs cited to say these changes were working, he said the net promoter score improved. And he said that comp sales at the first 50 locations were up 3.3 % and down 4.5 % at all the other locations. So, you know, there is some promise there. Net promoter score, I feel like, you know, retailers are always trying to tout improvements in that.

27:46The fact that comp sales were up at the first 50 locations, that is a good sign. but Macy's still has a long way to go to like prove this is working. Yeah. I love the idea that they're like, we'll make checkout easier, which I will say someone who has shopped at Macy's for decades, checkout has always been very annoying because it would be like just to stand in the middle of a department where there was no one there, but people just standing. Like I have memories of like as being a teen doing that, but it's wild. It took them this long to figure out like, maybe we should fix this. Um, when you have like places like Uniqlo where you just drop all your things in a bin and then they tell you exactly how much it costs.

28:22Anyway, I'll go off on that diatribe. I'll stop that diatribe right now. Do you think these improvements are working? It's so hard because, yeah, I mean, I've been covering Macy's for five years at this point. I remember when I went to the first opening of the story location within a Macy's, which they acquired, and that was kind of going to be the vehicle through which they improved a lot of operations. And that didn't pan out the way that they hoped. So, you know, I'm skeptical at any time Macy's Inc. executives talk about all the changes they're making and saying that we are seeing traction.

29:09The reality is, is that it has not reported a sales increase since the first quarter of 2022. So I think that the business needs to report a sales increase and I would say more than just a one-off quarter of sales increases. Because again, we have seen pockets of that over the years during certain periods, like when people had a lot of money from stimulus checks still. And again, I think that we need to see overall Macy's Inc. sales increasing, but also sales returning to growth at the namesake Macy's brand. I also think I would like to see more growth from Bloomingdale's like 0.8 % sales increase isn't that great.

29:54And with as big of a store fleet that Macy's has, the challenge is that if you're rolling out these changes, like improving staffing levels at key departments, improving checkout, making visual merchandise more exciting, That means you have to roll out changes to a lot of stores and you have to make sure that those stores are consistently implementing those changes. So it's great that the changes at the first 50 stores that seem to lead to a sales increase. But like, can that continuously happen quarter over quarter? And can you do that at your other locations? With a department store, you know, department stores have been on a mission to like lower their inventory levels.