Rundown: The Body Shop shuts down U.S. business, Outdoor Voices closes stores & apparel C-suite shakeups

0:06Hello, everyone, and welcome to the Modern Retail Rundown, where we bring you the most interesting retail news of the week. I'm senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weisman. Good morning. Kale, how are you? Good morning, Gabby. I'm doing fine. How are you? Good, good. So this week we have a lot of store closing news. Very unfortunate. First, we're going to be starting with the body shop essentially closing down all U.S. operations as part of its bankruptcy. Then we're going to talk about Outdoor Voices closing its standalone stores and just becoming an online-only brand.

0:51And finally, there are a lot of C-suite shakeups among apparel and footwear brands that we're going to be talking about. So first off, let's start with The Body Shop. So this week, The Body Shop, which is UK-based, filed for Chapter 7 bankruptcy and is shutting down all of its US operations, including stores and the e-commerce business as of March 1st. And the stores are expected to close in the next few weeks. This is just in February, the same thing basically happened in the UK in its home market, except over there, I think they're closing about half or a little less than half of those stores.

1:39But as far as the US and Canada, it's a really big scaling back. Yeah, tell us a little bit about Canada. That's also pretty interesting because I didn't realize they had such a big presence there. Yeah, well, as you said, they're closing 33 of its 105 stores. 100 stores in a country, That's pretty big. But also, it seems that it owed a lot of money. So the filing specifically in Canada showed that the body shop owed around$3.3 million. I think exactly it was 1.9 million pounds to landlords, logistic providers, marketing agencies, insurers, utilities, and freight service providers. So they, you know, the body shop clearly, as is the case with companies that expand too big and try to, you know, go international, just owed a lot of money.

2:28And that was probably what led to these, you know, these closures and these bankruptcy filings. And I believe my understanding, according to the reporting, is that the Australian arm of the business as well is facing a similar fate. It owes a lot of debts and it, you know, we could be hearing about its closure soon as well. You know, I think this is one of those cases where when you have a really large international presence, in this case, I think they're operating in about 70 countries and all of these arms operate independently. This is what happens. And I believe some of them are actually franchise stores.

3:05So it's a really complicated setup. So we also have Germany, Denmark, Ireland, and Belgium also have been put into insolvency. And then, of course, the UK has been essentially slashed in half. But all of that to say, I think the body shop, you know, let's talk about how the company got here to begin with. There's been some ownership shuffling in the last couple of months. And, you know, people thought that that was going to help turn around the business. But clearly, that's not what panned out. So it's been turned over to many hands. In 2006, it sold to L 'Oreal from its founders. And that was at a pretty, pretty impressive sales price.

3:51It was over 600 million pounds. So, you know, clearly it was doing well. Later in 2017, it was sold to Natura, the cosmetics leader. And then late last year, it sold once again to the private equity firm Aurelius. This deal valued it at$261 million. dollars. So 2023 value is 261 million, 2006 over a billion. I mean, not even taking into account inflation, that is quite a fall from grace. And so, you know, there's there's been a lot of things going on. I was doing some research about this before. And like, if you read headlines about the body shop over the last five years, everything is about a new tactic to try and drive sales.

4:34A lot of it was focused on e-commerce. They were getting into live shopping in like 2020. I believe 2022, I saw a Glossy article that was just talking about how to get more people to go to its stores, it was focusing on refillables. So keeping with its focus on sustainability and having an okay carbon footprint, it would be refilled products, but these would be refillable stations. But all of these attempts to get people to know what the body shop is, rebrand it, and be part of the the cultural conversation for the products that it sells didn't pan out. And so it's been sold for scraps to PE. Yeah.

5:14And, you know, body shop is founded back in the seventies is really one of the earliest examples of like ethically made eco-friendly products and the company itself, the way it operates too. You know, I think so that transition happened to the PE happened in November. And then, of course, we had a holiday sale, holiday period sale, I should say. That did not go well. It did not perform as well as they had hoped. And then it's now at this point, it's essentially being broken apart and sold for parts. But I think as far as Aurealis, I do think this is an interesting example of this trend of PE firms coming in and buying up struggling companies in hopes of turning them around.

6:05This is a case where that did not happen. And, you know, if you'd like to read about a lot of that chaos that happened with this PE firm, it sounded like there was a lot of internal politics about what they wanted to do with the brand, you know, what operations they wanted to keep, who was in charge of which, you know, countries was also a big thing. So all and then, you know, I think unfortunately that led to a really, really fast collapse within weeks, essentially. And so it just goes to show that a last minute Hail Mary, unfortunately, doesn't always pan out. And also I'll add a PE firm would love to write the press release that it's going to turn a business around.

6:48But the real thing that a firm will do to an ailing company is make deep cuts to try and make it as lean as possible. Like, that's really the trick there. And so when this type of transaction happens, you should, you know, probably not always to this degree, but, you know, it means that they're going to look at what really isn't working and then probably just ax it. That's usually the playbook for a private equity firm buying a nailing asset. Yeah. And in this case, I mean, it sounds like it will have, I mean, we won't have a body shop anymore, but we'll be watching, you know, the UK and at least in some form, Canada, maybe rebuild back up.

7:35I mean, it's possible. But the problem is because they're not generating enough sales and they have such a large amount of debt. I mean, that's why all these, you know, close downs are happening. They just don't have the cadence to pay back a lot of that debt. Yeah, that's the, you know, it's a story that we've heard many times before in many different ways. But it'll be interesting to see what sort of transformation can or might happen in the UK and where the brand will go next. I will be watching. All right. Well, let's move on to another brand that's also closing stores this month. Athletic brand Outdoor Voices, a very, very closely watched D2C brand by our industry.

8:24So this week, the company just suddenly announced that it is, or confirmed, I should say, it's closing all of its stores. And according to its website, it has 16 locations. It'll be closing in the coming weeks. These are all across really large cities across the country, Austin, Denver, Atlanta, Charlotte, New York, Houston, San Diego, in very, for the most part, very expensive neighborhoods. But the way that the Times reported the story is that essentially there was just Slack channels that were discussing it internally, showing that Outdoor Voices is embarking on a new chapter as it transitions to an exclusively online business.

9:10That's very interesting at a time when a lot of digitally native brands are going the opposite direction, opening stores. But I do think it hints at the fact that stores are not as cheap as maybe the way we're usually told or positioned to. Yeah. Yeah. I mean, I think for many companies, they call brick and mortar like a panacea. Like, you know, if it works, you'll be able to scale and go everywhere. But like, you're we will have, you know, hinting to what we're talking about next, we have another example in a few minutes about a company that opened a lot of stores and now is closing them because it didn't work out.

9:49Doesn't mean that they'll be successful as an online only business. But it shows that like, just because you have stores does not mean that you are instantly going to be profitable or like that, those stores, every one of them are going to be profitable. And so So definitely somewhat of a cautionary tale. Yeah, and the closures themselves maybe aren't necessarily a red herring. But I do think the fact that it came as a surprise to even the employees is a little bit telling because it seems to have happened pretty last minute. Some of the retail employees told The Times that they weren't aware and they're not receiving severance.

10:29One manager said that she was laid off but asked to work the rest of the week for about$500. And so it just sounds like a very rough transition, I guess you could say. And everything's 50 % off until Sunday. So if you're listening to this before that, there's a blowout sale happening. Run, don't walk. Yeah, I mean, that's a whole different story. This brand has a really big loyal following and they love collecting the leggings and the crop tops. But lately, there's been a lot of discussion around the quality dropping. And that all ties into the turmoil of the previous or the founder herself leaving.

11:13But what are your thoughts on just not having any physical presence now, just being a true DTC, essentially what it was in 2013 or 2014 when it launched? Which I mean, I will be interested to see how it works when it was much easier to be an online only company back in 2013 because customer acquisition was much cheaper and now it's very expensive. This could we go down a rabbit hole of a conversation of just like, you know, the reason why a company like Outdoor Voices was able to rise in prominence was because there was cheap digital advertising that caught people's eyes. And also, it had a founder who was an influencer and had the aura of someone that people sought to look to or sartorial decisions.

12:04And so I think that we will see if the company is able to actually drive growth and be profitable online only. But also, it's very difficult in this current environment. That being said, if you're laying off everyone at a store, it means that you're cutting back on a lot of costs. So maybe they're going to have a really lean team and be able to grow digital sales. I don't know how they're doing it, but, you know, unclear. Yeah. And to step back, I mean, this is a company that did raise a lot of venture capital. I believe it was a total of$70 million. And it opened its first store in 2014. So it was a D2C brand that did get into retail pretty early on.

12:47For context, between 2018 and 2020, their valuation dropped from$110 to$40 million. And then 2020 was around the time that Ty Haney stepped down and the brand essentially began to decline. And then this is where we are now four years later. I think that there, I mean, we can have a conversation about this and I don't really want to go down this rabbit hole. But there are pros and cons to having a figurehead leading your brand. And I think Ty Haney was someone who people really associated outdoor voices with her. Would you agree? Yeah. She was the face of the brand. She was the face of the brand.

13:32And the fact that there was sort of a falling from grace from her. There were articles that came out about what life was like with her at the company. But then, you know, there were other things I was going through different headlines of late, but like she herself was commenting on Outdoor Voices products last summer of, you know, summer 2023 being like, yikes, y 'all have lost your way, things like that. And so it just shows that like if you do have someone tied to the brand and that is essentially what everyone thinks of it as, you know, if there is a fissure there, things can go south. And so, I don't know, there's, there's a, you know, it's, it's always a big question of, is it, you know, do you want there to be a person, a figurehead who is the brand or do you not, you know, I've talked with brands about this before.

14:21A lot of them oscillate between yes and no, but this shows sort of the potential downfall that can have when a, maybe there's, you know, press about the person that's not great, that leads them to step down or B, even they become critical of the brand that they were once the figurehead form. So it's just a fascinating thing to watch. Yeah, because at the time, you know, the board brought in more experienced retail people to head the brand. And obviously that did not go in the same direction as they were hoping. But I think the idea of closing the physical stores, which as far as I know, I mean, I think they used to be very much a destination.

15:03The customers really did like going to the stores. it means that it's what I wonder is whether it's indicative of the overall performance of the brand, you know, now that they're just really keeping only the core people that are going to be operating the e-com brand. So yeah, it'll be interesting to see whether other D2C brands that are opened, you know, dozen plus stores will scale back in the same way because these are cash burning, as we know. Yeah. And it's also, I can't remember if we said this earlier, but definitely interesting to square this with the announcement in 2021 that it became profitable.

15:43So if you're a profitable, what, like two and a half, you know, three years ago, now you're not, now you're closing all your stores. I don't know, but like, we're about to talk about more store closures. So buckle up. Yeah. So let's move on to the next story that we're going to be talking about, which is bringing in new CEOs. And that coincides with, for one, Allbirds is kind of a parallel story to Outdoor Voices, where they're also closing a lot of stores this month as part of a reshuffle and announced that their co-founder, Joey Zwillinge, is stepping down. Yeah. What are your initial thoughts there, Kale?

16:29I mean, we talk about Allbirds a lot. So So this is maybe a little bit expected. Yeah, I mean, Allbirds has been an interesting company to follow for the last few years because it was such, you know, it is a very similar story in terms of the demand aspect of things where, like, to Outdoor Voices, that is. Where, you know, it was really, really big four or five years ago, the must-have shoe. And then it was just, you know, one thing led to another. Maybe it expanded too quickly. Maybe it made some strategic missteps. but then it has just sort of fallen at the wayside. And so it has been for the last year plus talking about a major turnaround plan that focused on streamlining costs, going back to its core products because it had expanded beyond shoes and was really trying to get into all other sorts of apparel.

17:17Then it was like, no, no, no, we're just going to be a shoe company right now. And then really right-sizing its retail footprint. And so I think it was announced this past week that it had plans to close, I think, between 10 and 15 stores over the next year. Not a huge amount of stores, but also going back to our earlier conversations, stores were usually the thing that these brands pointed to as they're doing really well and they're going to help grow the business, get more people coming in, et cetera. But that clearly did not work out for Allbirds. But then Allbirds also isn't the only one, which is what I thought was interesting.

17:53is there was another big CEO shakeup this week, a day after Allbirds announcement, which is Under Armour, made the announcement that its founder, Kevin Plank, who stepped down as CEO a year ago, is coming back, taking the place of Stephanie Lenartz. And so she was there for about a year. Now Plank is back. He's going to try and fix things. There are a lot of parallels with both these companies in that they're trying to turn around the businesses. Some have been trying to do it for longer than others, But clearly, they think that the way to signal to investors that they mean business is by bringing a new CEO in who will hopefully right the ship.

18:33yeah and uh with under armor i mean they they also have been struggling for years now uh they had a lot of turnaround strategy plans uh in place but yeah this is it i mean it's a tough time for apparel regardless but i think if you're a company that was already struggling uh like this it's probably a lot harder right now to to write that ship yeah i was doing research this morning for this. And I just, it's not funny, but I do think it's interesting. I'll say that if you do a Google search for Under Armour and turnaround, you will find headlines that go back as far as 2018. So the company has been in a turnaround for over a half decade, but has not turned it around yet, I guess.

19:22Yeah, I think it was one of the first stories I wrote on Modern Retail in about four years ago in early 2020. Yeah, and then, you know, on the other hand, with Allbirds, given that they went public a couple of years ago during COVID, this is also a big turning point because they've had pivots like going into apparel and that didn't work out and then kind of scaling that back and then going into wholesale with retailers like Nordstrom, for example. Yeah, and then, of course, this is coming at a time when sales are declining for the brand. Yeah, both companies are not doing amazingly. Auburn specifically reported that its full year revenue declined by 15 % year over year.

20:08And this comes after earlier earnings reports of revenue declines. And so, you know, and it's similar, but probably not as bad, I would say, for Under Armour. It reported earnings last month, and it said that net income dropped from$121.6 million to$114.1 million. So meanwhile, wholesale revenue, which I think that this is actually a really interesting point. And if we go back to the story that you wrote, I bet you when we talked about a turnaround in 2020, they were talking about growing the direct-to-consumer channel. They were trying to emulate Nike. That was the whole big plan. And so wholesale revenue, which is still 60 % of Under Armour's business, dropped by 13 % year over year.

20:53And DTC sales only rose by 4%. And so clearly the DTC focus is not working out. Yeah, so I guess the question is now what is going to be happening going forward for the brands. So they are obviously very different companies. One of them is a legacy athleticwear brand and the other is a D2C footwear startup. But they're both focused on cutting costs and reinvigorating their core customers. But I guess that the question is, who are those customers now, right? Because now you're talking about five, yeah, five, 10 years later, that could look very different. Yeah, I mean, yeah, and it's about figuring that out, figuring out what they want to buy.

21:44I don't know. It'll be a steep task. And so right now we have a bunch of very placid statements from all of the new CEOs saying that, you know, the new CEO of Vernascio said, we plan to remaster our icons and incorporate deep seasonal storytelling to deliver more of what our customers love about Allbirds, which ultimately means nothing. And then Kevin Plank wrote, this was posted to LinkedIn a few days ago, we are continuing to refine our strategy, assess our operations and evaluate the returns on our investments. This will help us make the right choices and put us back on a path to actively build and drive toward our full brand potential.

22:27So pretty much they're just saying, I don't know what they're saying. I mean, we need to go back to basics. We need to find what actually our customers want to buy, and we need to cut costs. You know, with the, I think we mentioned this earlier, but part of that is closing 10 to 15 stores over the next year. And that's a pretty big chunk, right, of the total store numbers. A lot of them, they've opened in the last couple of years. So yeah, maybe swinging back into e-com, similar to what Outdoor Voices is doing and wholesale, of course. So yeah, the company has over 50 stores globally. And so 10 to 15, that's, you know, a real percentage of that.

23:12And so this, you could view this as similar to the outdoor voices thing. But the way that it's being pitched to investors, to people reading, is that it's all about finding what's underperforming and then cutting that out. You know, we'll see in the next year if that actually worked. I don't know. Yeah. And then, of course, Wall Street's response is always fun to check in on. Doesn't seem like they're happy about what's happening at both companies. Give us the stock prices as of Friday, I guess. Yeah, this is coming Friday morning. Under Armour's stock right now is around$7. Always good to do comparison.

23:54So in 2019, which is the highest it got in the last five years, it was$25. But then it's also really important to take into account that Under Armour has been public for a while. And in 2015, its stock was over$50. So$50 then,$7 now, not great. But now we look at Allbirds. Allbirds, its opening price in 2021 was$25. And its stock is right now under a dollar, which is not great. I'm sure the company's not happy about that. Yeah, so we will see whether a lot of these cutbacks will help in the next few months. But also, like I said earlier, I'd be interested to hear who both of these brands' core customers are or who they hoped they would be.

24:44Because there's just more competition now, right, than there was even a few years ago. Yep, it's very, very difficult. And I think, especially for a company like Allbirds, you had one thing that really resonated with people at a specific time. And it seems that thing no longer does. And so where do you go then? You know what I mean? Like they pretty much had a viral product. Every person in a certain socioeconomic strata bought their shoes. And now I don't see them buying their shoes. And so how do you bring that customer back in? And I don't know the answer to that. Yeah. They did relaunch it, right?

25:23The classic flagship. And that was part of this turnaround this past year. You can read about it at modernretail.co. Do it. Okay, well, that's all from us this week. You can come back on Saturdays to hear more of our weekly rundowns. You can rate and give us a review anywhere you're listening to your podcasts. And come back on Thursdays to listen to Kale's interviews with Xaxx. Kale, do you have a preview for next week? Yeah, I speak with the CEO of Ridge, which makes, among other things, a lot of wallets. But it's a really fascinating company that just brought Marcus Brownlee, you know, as a new co-owner.

26:05It has expanded a lot of products. And it's a DTC brand that, you know, seems to be doing pretty well. So it was a fun conversation. All right. Exciting. And as always, thank you for listening. And we will see you next week.

26:28Thank you.