Rundown: Target partners with Champion and Warby Parker, Starbucks overhauls menu & Americans are doom spending

0:03Hey, everyone. Welcome back to the Modern Retail Rundown. I am senior reporter Gabby Barco and I'm here with executive editor Anna Hensel. How are you today, Anna? I am good. Happy unseasonably warm Friday from here in Minneapolis, I'm sure. I think it's the same in a lot of the country. It feels like spring now. Yes, everything feels good after a really extreme couple months there. Ironically, some retailers used as an excuse for traffic. Yeah, that is the funny. If you look at retail earnings, it's always funny when retailers talk about how weather impacts shopping patterns. I'm sure in a few months, we'll see retailers talk about this on earnings calls.

0:49Yes, my favorite is the UK one. They say like whenever it's raining a lot, apparently that hits. But I'm like, isn't it always raining? I don't know. They need to find a new excuse. Yeah. Always, always. But yeah, I mean, we have a lot of news this week, starting with a couple of big announcements from Target. So they have one with Champion and one with Warby Parker, a store within store concept. We'll get into that. And after that, we're going to check in on Starbucks's latest strategy, their big turnaround plan that's in place right now. And the latest step is basically cutting down the menu, like taking away almost a third of the menu items.

1:35So we'll talk about why that is. And then last, we're gonna talk about why Americans are doom spending. That's a little bit of a psychology corner there that we have. But yeah, first up, yeah, let's talk about the new Target partnerships, which are rolling out pretty soon. So like I said, the first is with Champion and then one with Warby Parker. So the Champion one, you know, it's basically an exclusive athletic wear line that's going to have a lot of athleisure, like hats, sweatshirts, bags, skorts, very trendy fashion forward, it sounds like. I haven't worn a squirt in so long. But no, this is really interesting timing.

2:24So Target is set to report earnings next week. I feel like the timing on some of these is curious to just kind of indicate a little momentum, kind of drum up some excitement at a challenging time for Target. So Target as a retailer, I would say they, of course, rely a lot on exclusives to drum up sales. And it seems like with this champion line, like you mentioned, Gabby, the focus is fashion forward, but also affordable. I think most of the items are under$40. I just feel like people right now are looking for very affordable basics, but also very high quality and elevated ones. And then like you mentioned, the other is a shop and shop with Warby Parker, which that was really interesting to me because Warby Parker, as someone who covers a lot of DTC brands, Warby Parker hasn't really had any wholesale partnerships.

3:24As an eyewear brand, there's only so many places you can sell. So this will kick off in five locations just to start. But yeah, basically Warby Parker will do a shop and shop within Target. And both of these partnerships are designed to help Target drive sales in categories I feel like it has particularly struggled with in the past year, particularly apparel and accessories. Yeah, exactly. Yeah, Warby, pretty prominent considering, you know, they are sort of one of the last true pure D2C brands. So this is a big step. But it makes sense because, you know, they have a couple hundred locations, and this is going to expose them to so many more people.

4:09And that's kind of the name of the game, right? It's just traffic driving, including for things like apparel. I think if we circle back to Champion, this is interesting to me because I feel like in the last couple of years, there's been so much emphasis on private or in-house labels. So it's kind of a step back a little bit. But Target did talk about how Activewear, Intimates, like all of these product lines do pretty well for them. So I think maybe they're just trying to push further into diversifying this assortment, including actually, you know, this champion partnership is kind of a callback because they did used to carry the brand a few years ago.

4:52I think what is challenging, if you're a big box retailer like Target that carries multiple categories, I mean, you have to succeed at a lot of things at once. So I think if you're Target, again, you need the basics that are affordable, but also high quality and elevated. As Target announced this deal with Champion, their chief commercial officer, Rick Gomez, He gave an interview with CNBC, and he called out these$25 leggings from Target's in-house activewear brand, All in Motion, like you mentioned, Gabby, that that has been performing really well in particular. And so if you look at All in Motion, this in-house activewear brand, that actually replaced the Champion C9 line that Target carried until 2020.

5:46So with retailers and brands, I feel like deals die and then deals come back. Retailers are already tweaking their assortment. So Target sees more of this moment in time that Champion makes sense to kind of focus on again. And then Rick Gomez also said in the CNBC interview that it's Intimate's brand, Auden, is performing well, which carries affordable underwear and bras. And yeah, there's so much to get into there. With Target, I feel like the focus is on exclusive, again, affordable in-house brands. But then also when it comes to exclusives, I've also seen them, of course, partner with more celebrity brands.

6:33Like a big launch for them last year was the Blake Brown haircare line from Blake Lively. So, yeah, Target's doing a lot of different things, I think, to try to drum up some newness. And similar to standard Warby Parker stores, like these locations will offer prescription glasses, sunglasses, contacts, eye exams. That is something that Target needs to partner with someone that specializes in eyewear, right? That's not something that Target can really do on its own. So given just how much Warby Parker has grown in recent years, that makes sense to me. Yeah, and they are not new to store within stores.

7:13I think they have their Ulta partnership is pretty popular. so I'm envisioning this is something along those lines where it almost operates as like a little bit of a standalone corner yeah absolutely I mean Target Target has done so many things over the years they have had like the Apple shop and shops other smaller branded displays which I wouldn't quite classify as like a shop and shop but I was just in a Target on Monday and I was looking at there like Kendra Scott display. And it's really very elevated. It's not just a few products on shelves. There is a lot of signage to indicate Kendra Scott at Target.

7:58And so again, I think with all of these things, it is a tough time for retailers that sell a lot of discretionary goods like apparel, accessories. You both need a lot of newness to draw people in. And because customers are very picky, they're very value conscious. You also need to convince them that what you are selling is worth. It's the right bang for your buck, right? Yeah. And I think both of these definitely fall within that. I mean, we probably should mention, of course, Warby Parker is known as this direct-to-consumer, pretty affordable prescription eyewear. So bringing that to Target will also help them compete with some of the other big box retailers that have their own, you know, sort of vision centers, if you will.

8:46So yeah, it'll be interesting. They do report their earnings Q4 and 2024 full year next week, as you alluded to earlier. So this seems like a way to sort of set the table of what we should expect this year. Yes, but we will eagerly be watching their earnings next week. Yeah, exactly. All right. Well, let's move on to a company that's kind of doing the opposite by paring back its offerings. Starbucks is pretty much cutting 30 % of its menu items by the fall. So you're going to start seeing a lot of things disappearing. That's about 13 items after years of a lot of complicated drinks that we've heard about on social media.

9:30So a couple of products that are going away. So if you're like an iced matcha lemonade or java chip frappuccino drinker you are gonna have to find a new thing to order yeah um and so you know this comes on the heels of the infamous olive oil infused coffee that they introduced like a year ago and it already went away just uh very recently so yeah a lot a lot changing but we can get into why this is sort of a piece uh in the bigger puzzle Yeah. So like one quote from this announcement that kind of gets at the strategy, it says, by simplifying our menu, we're helping to create a more intentional, thoughtful experience for our customers, one where every drink is handcrafted with precision and care.

10:19This is also meant to ease pressure on store staff, which I think makes a lot of sense. Obviously, if you have fewer drink variations. Ideally, store staff can get through them more quickly. And this can potentially make room for newer products that Starbucks hopes will be hits like the new Cortado. I just think this is really interesting. We'll get into this more. But the big thing I'm wondering right now is I think the Frappuccino was synonymous with Starbucks for a very long time. There is a group of people who go to Starbucks for like the sugary iced drinks. And I think with this transformation, like Starbucks really has to hone in on who is it for.

11:06Yeah, exactly. And this is called the Back to Starbucks transformation plan that was basically kicked off under the new CEO, Brian Nickel, who came over from Chipotle. Obviously, he's lauded for what he's done over there. as far as this is all about creating efficiency, right? It's like, for example, the digital orders aspect, which was really pushed and grown since the COVID times, that has ironically, you know, created a lot of these issues of sort of like tickets piling up and baristas being under pressure. So starting this quarter, it seems like this new sort of pared back streamlined plan is going to alleviate some of that.

11:48But it seems like they're off to a promising start, Although, you know, sales are still flat, but, you know, they're hoping that they'll improve. Yeah, it takes a while, obviously, for these things to take place. So just looking at recent results in Q1, sales remained flat and declined in China, which is the company's second largest market. In China, same store sales decreased 6 % and AOV fell 4%. Starbucks is also having layoffs. So this week they eliminated just over a thousand corporate employees or laid them off. And then they're also not filling some unfilled roles, all part of the back to Starbucks, back to basics plan, as you mentioned.

12:34Mm hmm. Yeah, we can maybe name off some of the other goals that they have for this plan. So reduce wait times by four minutes, add staff to actual stores to help with some of this serve drinks in a mug or glass for dine in customers. So that's a new one. That was a lot of what, yeah, I think a lot of the criticism Starbucks has gotten over the last year is sort of moving into this utilitarian mode of just getting your order through the app, picking it up and leaving like kind of an unfriendly environment for sitting down and lingering. So they are trying to bring that back. The condiment bar, like the milk area was also taken away during COVID and that's coming back.

13:19And then my favorite is names will be written with Sharpie markers again, you know, after the printouts. Apparently we're not popular. Again, going back to the like, who is this for? Starbucks is both trying to improve efficiencies, right? Like get through orders quickly, but also make it a more friendly experience, which it's tough to balance the two. We'll see how they do. Yeah, and I think that's pretty important, especially because they're trying to get back to or step away from discounting. They were, you know, they kind of got into the deals wars that were happening in fast casual. So going more full price high end, I think you do have to offer something other than just the product.

14:07And yeah, this seems like kind of an aggressive new strategy to swing back to growth from some of the flat sales we're seeing. All right. Well, speaking of spending, do you want to start talking about this sort of doom spending that Americans are doing? Well, first, I want to ask, are you doing any doom spending yourself? I wouldn't classify it as doom spending. I do get the phenomenon, though. I thought this was a funny term. So obviously, there's been a bunch of new surveys over the past two months about how Americans are feeling about the state of the economy. and so creditcard.com regularly polls people about their spending habits and this just came out this week and yeah I just thought it was some interesting anecdotes here according to a February 13th survey from them which about 2 ,000 people completed about 19 % of adults say they are doom spending and if you don't know what is doom spending it means that basically people are making impulsive purchases driven by fear and anxiety about the future.

15:14That might mean like, I'm going to treat myself now because I don't know what's going to happen with the economy in the future, or maybe I'm pulling forward spend because I'm nervous about something like tariffs. So the survey also found that around one in four Americans have made large purchases since November in fear of Trump's tariffs. And the survey also found that 23 % of Americans expect to go into credit card debt this year, or for their debt to worsen. So not great. What did you think about this survey, Gabby? Yeah, it makes a lot of sense. I remember like the day after the election, we were already hearing about this phenomenon.

15:58I mean, that also happened around the holidays. So So I think a lot of analysts chalked it up to people are just it's retail therapy, right? It's really what it is. But in this case, we heard a lot of a lot of talk on social media around, oh, well, you should buy an iPhone now or you should buy this big ticket item now before it goes up. I mean, we don't really have evidence that that will happen. But obviously, we know that retailers are warning about price increases. So it makes sense. But I think the idea of pulling the trigger at this moment, it makes a lot of sense. I myself, I guess I've done it a couple of times, but it was more so like things that were sitting in a cart for a few months that I'm like, OK, might as well do it now.

16:44But I think there's a lot of different factors that are going into why people are, you know, quote unquote, doom spending. Yeah. And so like I'm really interested in data around consumer spending right now. And people's attitudes seem to be very bifurcated. A term I've heard thrown around a lot is like the conflicted consumer because people are seemingly still spending on some things but not on other things. But I do think in the past few weeks, we have seen some worrying indicators. So the Consumer Sentiment Index, which is conducted by the University of Michigan, hit a seven-month low in February, though, again, things are bifurcated right now.

17:28Republicans were more optimistic than Democratic respondents. But I still feel like overall consumers are feeling uneasy and uncertain about the economy right now. And all the talk about tariffs doesn't help. I also think people are dealing with their uneasiness in different ways. I think some people are maybe pulling forward spend on a big ticket but necessary item, especially if they think that will be impacted by tariffs. So I don't know if you need a new stove or something might make sense to buy that now. But at the same time, people are cutting back spending in other areas. Another report came out this morning from the Commerce Department that said that consumer spending dropped 0.2 % last month.

18:15So again, another worrying indicator. I think if you are a retailer, it's just things can change very, very quickly, especially with an administration that's seemingly kind of coming up with new policy on the fly. And so I think you just have to keep a really close eye on data and even like how new customer acquisition or like spending, how that is changing week to week. Like, yeah, no, for sure. And I think I'm pretty sure this will continue throughout the rest of the year, but it'll be interesting to see, you know, how that oscillates between people holding off. Like we just saw with Target where people are being very selective, as the company said about what they're buying right now.

19:00Whereas, yeah, maybe some of those items you've been sitting on, you're like, might as well do it now. So yeah, a lot of interesting behavior that's going on. But yeah, I think we can probably leave it there. That is it from us this week. Thank you so much for listening. Please follow us on social. We are at Modern Retail. You can get all of this coverage and more. On Thursdays, you can listen to the Modern Retail interview show and come back on Saturdays for more Rundown.

19:41Thank you.