Rundown: TikTok Shop officially launches, Birkenstock files for IPO & Target strikes Kendra Scott partnership

0:05Hello and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and this week I'm joined by Modern Retail's managing editor, Anna Hansel. Hello, Anna. Welcome back. Hi, Gabby. Thanks for having me. Of course. Yeah. Kale is off on his Nordic adventures, so we will be holding down the fort. First up, we will be talking about TikTok Shop, which officially arrived in the U.S. We'll discuss that rollout. And then this week also saw Birkenstock filing to go public. That's been sort of brewing for a little while. And finally, we will take a look at Target's new Kendra Scott partnership.

0:54So, yeah, let's start out with TikTok Shop, which we've actually discussed on the show previously when it was still being tested in the UK and, you know, getting some feedback. But now that it's stateside, you know, we have all these U.S.-based brands that are starting to, you know, use it and test it out. Should we give a little background on why TikTok is doing this and investing a lot of money in it? Yeah, so TikTok has done a lot of things in commerce. And to be honest, it's been hard for me to keep track of all of them. Like when this was launched, I was like, wasn't TikTok shop already live?

1:38Um, but it's something like you mentioned, they've been testing it for about a year in the UK and in Southeast Asia. And with TikTok in particular, you know, it's, there's the hashtag TikTok made me buy it. It's been a place I think since it launched where people discover products or has convinced a lot of people to make an impulse purchase. so I think TikTok has always wanted to do something in commerce but the question is like what is the right method to do that you know do we want to put more of a focus on creating brand profiles that people can shop from do we take more of an influencer-led approach and so I feel like they have been experimenting kind of over the past year plus and then finally settled on this iteration of TikTok shop.

2:33Yeah. And it makes sense because there's been what I feel like a really quick evolution of TikTok. I feel like it was just a couple of years ago that it was a novelty and a lot of companies saw organic virality and their products selling out pretty quickly because people discovered it on TikTok. And then of course, ads were introduced. And so now there's an official marketplace. It's sort of similar to the way Facebook built out Instagram's, or now Meta, built out Instagram's e-commerce capabilities, though that one took a lot more time. And so, I don't know. I think the acceleration of it just goes to show that TikTok saw that, yeah, they were leaving money on the table by having the brands just do all of this themselves.

3:22Yeah, I instantly thought of Instagram and kind of how they have tried to tackle social commerce and getting more people to buy through the platform when TikTok announced this. So Instagram has gone through quite a few variations of this over the years. And what I heard from brands that tried to use Instagram checkout is that they didn't want to give up too much control to Instagram. They were very hesitant to have people buy directly through Instagram versus their own website because then they didn't get access to as much customer data. But what I think is interesting with TikTok Shop is they're taking a much more influencer-led approach.

4:09So basically, businesses can sell up to have their products featured through TikTok Shop. And then based on that, influencers can create this curated assortment of stuff, browse what products are on TikTok Shop and look at, okay, what do I think aligns with my personal brand the most? So I think that that is pretty interesting and makes sense with how people use TikTok. I feel like people aren't really using TikTok for brand updates, whereas maybe people are more likely to follow brand pages on Instagram. But with TikTok, a lot of it is very impulse driven. You might just see a couple videos from an influencer you like and then decide to click on their page and they have links to all of these products and you might spend some time browsing through there.

5:08So I'll be very curious to see how that performs compared to what Instagram has done, because I feel like really no social media platform has kind of taken like that approach to social commerce in the US. Yeah, and it is interesting because over the years, we've seen sort of mixed results of brands that are using TikTok to drive traffic to their sites. You know, I've heard a lot that it's almost like you have to just keep trying, posting and posting, and then maybe once in a while you'll get a viral video. there doesn't seem to be a specific formula the way that maybe, you know, Facebook ads had a couple of years ago where you can just put an X amount of money, get X amount of conversion rates.

5:56And so with that said, and then the algorithm, of course, yeah, I guess how will the relationship between the businesses and TikTok unfold? That'll be interesting to see. Yeah, I think it has been really interesting. One of the things that has struck me the most, which you were kind of alluding to when reporting on TikTok and asking brands, you know, how does TikTok do a driving sales for you is I do feel like the answers can be very varied. I will talk to some brands who say that TikTok drives a lot of engagement and likes and follows for us and zero sales. And then others who have driven like close to hundreds of thousands of dollars in sales from some viral videos.

6:47And sometimes it can be a result of what the brand does. And sometimes like not at all. So I remember one of our reporters talked to Bubble, which is a skincare company. And they drove a lot of sales from someone basically doing like a Walmart call and talking about the products that they could find in Walmart and Bubble was one of them. So I think it's going to be really interesting. And also with the way TikTok is building TikTok shop, it's kind of a two sided thing. So you have to have influencers who are interested in promoting their products on TikTok, but then also brands who are interested in selling their products through TikTok.

7:31And so if TikTok wants to keep brands investing in TikTok shop, they have to prove that like it drives reliable sales over time and that it's not just a flash in the pan thing. Yeah. I wonder how many will wait to see, you know, because people don't have to leave the app to go to Amazon, which is actually a pretty big phenomena. I wonder if the entire shopping journey happening on the platform itself, because it is addicting, people tend to spend hours on there, will affect sales as opposed to, I know I've heard, you know, we get traffic and then people come to our site, but then, I don't know, maybe they leave or leave a cart abandoned or, yeah, sort of like fragmented a little bit.

8:16So. Yeah, it'll be interesting to see for sure. And I just was going to give a plug. If any brands want to tell us how TikTok Shop is going for them, please email us. next up this week Birkenstock filed to go public we will run the numbers first according to its F1 filing which is because it's a foreign company Birkenstock's fiscal 2022 revenue totaled 1.3 billion dollars that's a 70 percent increase from 2020 it's a huge jump so So yeah, they've had a pretty exciting last couple of years. Should we break it down, Anna? Yeah. So I was very excited to see another retail IPO this year because we've had some companies in and around the retail space go public, Klaviyo and Instacart most recently.

9:15But this is a true historic retailer that's going public. Birkenstock was founded in 1774. And I believe actually in their IPO filing, they tried to call themselves the oldest startup, which was pretty funny. But yeah, I was very excited to dig into this all around. I think that Birkenstock has a pretty solid story to tell Wall Street. So like you mentioned, revenue increased 70 % over the past two years, which is pretty crazy given how long Birkenstock has been around. And its performance especially ramped up this past fall and spring. So Birkenstock's revenue for the six months ended March 31st, 2023, was$691.62 million, up from around$583 million a year earlier.

10:10And that's all converted from euros. And as a company that has been around for a very, very long time, Birkenstock is traditionally focused more on wholesale. but it is also trying to grow its DTC business right now, like a lot of other retail brands. So as of 2022, it had 6 ,000 retail partners in more than 75 countries. But DTC accounted for 38 % of Birkenstock's revenue in the fiscal year 2022, up 30 % from 2020. And then Birkenstock is also profitable. So again, I think that this is a pretty good filing. Its business continues to grow, it's profitable, and it is trying to diversify away from wholesale, which I feel like are things all investors want to see right now.

11:08We should talk about the history of the ownership, which sort of coincides with this, right? You mentioned why they go in public now, There's a little bit of a timeline in the last couple of years that's led it to here. So Birkenstock was still family owned up until 2021 when it sold the majority stake to L. Catterton, which is backed by LVMH. And they had a record year in 2022, even throughout the pandemic. but should we talk about some of the investments that the um you know obviously selling to a private equity firm brings to a company like this where traditionally it's really only uh mainly relied on its cult following you know it's the fact that it's just an iconic brand and people just repurchase it all the time and that's sort of what they counted on as opposed to paid marketing yeah so to take a step back i thought it was really interesting that Birkenstock continued to be family owned for centuries.

12:17And it wasn't until 2008 that they brought in Oliver Reichardt to become the CEO who I feel like was really credited with taking Birkenstock, like Birkenstock has always been a solid company, but kind of investing more in the things that make a retail brand really buzzy these days, like collaborations with fashion companies, which we can talk about later. But yeah, and then I think once they brought him on as CEO, that kind of signaled the interest of other outside firms that, hey, maybe Birkenstock is interested in taking on outside funding. So yes, in 2021, it sold a majority stake to El Catterton.

13:04And the IPO could value Birkenstock at over$8 billion, which would mean a huge payday for El Catterton, which has backed a lot of startups. I mean, recently, they invested in Goodles, I believe, which is a better for you mac and cheese brand. They've invested in Everlane. But yeah, this could be a really big payday for them just given how much of an operating track record working stock has. Yeah. Yeah, we should maybe talk a little bit about the fashion collaborations. You know, they've actually they started all the way back from what I remember in 2012. They did this Celine collaboration that kind of put them in the high fashion areas.

13:49And so they've just continually created these sort of limited edition collections that are very sought after. And in that sense, it was able to hit very different customers, right? There's like the luxury, and then there's the just your typical customer that would just walk into a store and buy Birkenstocks. So with that said, they don't really like to credit trends, I guess, which I think is really interesting. Do you want to talk a little bit about their CEO? Yeah, mentioning that? Yeah, well, that is interesting because I was going to, as I was kind of explaining, going to explain the different collaborations, I was going to use the word trend because I feel like Birkenstock hits on a lot of different trends right now.

14:37There's the Gorkor trend. There's just more of an interest in comfy footwear. We've seen this with Crocs too. They've really had a resurgence and have also relied a lot on collaborations. But with that in mind, there's more fashion houses and luxury brands interested in collaborating with a company like Birkenstock. and so last year Birkenstock did a collaboration with Dior and most recently they got a boost from a scene in the Barbie movie which was a boon to the retail industry this year. I thought this was pretty interesting. One of our reporters who wrote about Birkenstock's IPO filing pulled this stat.

15:25So the fashion app list says it saw 110 % increase in searches for Birkenstock Arizonas after a pink pair of Birkenstocks were featured in the Barbie movie. So, you know, again, Birkenstock, it's not a fad, the company has been around forever. But I think it just goes to show how powerful of a boost these types of businesses can still get from collaborations and pop culture mentions. And lastly, let's talk about what this could mean for the IPO market, because this is usually or this is a really good sign, right? Whereas we've had a little bit of a drought in the last year. And so maybe it's a sign that, yeah, things are picking back up a little.

16:13Yeah, I mean, I always think that three is a trend. So just in the past month, we've had Flavio, Instacart, and now Birkenstock filed to go public. And so these companies all operate in and around the retail space, although they do hold slightly different positions. So Flavio is a software company that works with a lot of e-commerce and retail companies. Instacart is grocery delivery, obviously. And then Birkenstock is more of a traditional retail brand. But what I think all of these companies have in common, they really exemplify the types of businesses that are going public now. So they're all profitable, you know, they're all growing, but they've all really taken steps to diversify their businesses, especially Birkenstock trying to grow its DTC business more.

17:05And then also Instacart trying to grow its advertising business. Now about a third of its revenue comes from advertising. And I think it's just so different compared to what we saw in 2021, where it felt like every venture backed e-commerce startup was trying to go public. You know, it was a lot of companies that we feel like had been waiting in the wings, wondering whether or not they were going to go public. and they went public and they were still growing, but maybe they weren't growing as quickly as they were before or they weren't profitable yet and they said they had a path to profitability, but that was kind of unclear.

17:47So again, I think that the types of businesses that are going public now are the Klaviyos, the Instacarts, the Birkenstocks who have much more of a solid story to tell and things might change in 2024, for, but at least for the remainder of the year, I think those diversified, profitable types of businesses are the companies that you will see going public. So next up, we are going to be talking about Target, which is an interesting retailer as usual to talk about, but they have a new partnership with a jewelry designer, Kendra Scott to, you know, I think this is a very popular go-to strategy for Target, where they partner with designers for like diffusion lines.

18:36But yeah, this to me seems like a play to maybe ramp up fashion and apparel sales. What do you think? Yeah, I thought this was a pretty interesting partnership just because I, Target does have jewelry, but it's not like a place I really go to to buy jewelry. And I thought on the face of it, although I do think there's a lot of overlap between Target and Kendra Scott customers, I just was a little bit surprised when I read this news, which is why I wanted to talk about it. But it does make sense with how Target has kind of approached the second half of the year and the holidays for the past few years.

19:21So in 2021, they added, struck a deal with Ulta to add Shop and Shops right before the beginning of back to school season. And they also struck a deal with Apple to add Shop and Shops. So that's kind of Target's playbook, especially when it comes to the holidays. They also take that same approach in toys, which obviously is a category that's very big around holiday. They try to do a lot of shop and shops with very buzzy brands and retailers and add newness and expand their product category, product assortment in categories that maybe they don't invest a ton in. So I think that it makes a ton of sense.

20:07I think that it just is a sign about how critical this holiday season is going to be for Target. And I'm curious to see what else comes down the pipeline from them. I do want to talk about how this comes at a time where Target's sales are declining compared to 2020 and 21, you know, where they were just surging during COVID. But yeah, I think it sounds like they are trying to sort of get back on track with their core assortments. Yeah. So the last earnings report from Target was pretty interesting. Um, so they reported a sales decline, which is a total rarity for them, especially they were one of the biggest beneficiaries during COVID because they still had, um, they had a pretty robust buy online pickup and store network.

21:02So they got the online sales. They got the sales from people panic buying toilet paper. And then the sales from people who, after they got their stimulus checks and had money to spend and also wanted to maybe pick up some more fun home goods and electronics at Target in addition to their Lysol wipes. Um, so eventually Target's luck was bound to run out. Um, they did also run into some trouble last year where they were trying to right size their assortment because, you know, people weren't spending as much money on the home goods and the electronics and the stuff that they did during the pandemic.

21:44Um, but this was the first quarter in a while where they reported a sales decline. They also cut their full year profit and sales expectations. and then allegedly they also were hurt by a backlash to their pride collection in stores although you know they didn't really say exactly how much that hurt sales we just have the whole top line number right so with that in mind I think that the holiday season is really important for Target I think you know they want to make sure that they have the buzzy brands in stores so that people go to Target for their holiday shopping versus maybe some other places, maybe like a Walmart.

22:30Yeah. And then on the other side of it is Kendra Scott and their expansion plan. So they had, they brought on a new CEO in 2021 who took over from Kendra Scott herself. And they said they will be focusing more on physical retail presence and just expanding stores versus mostly selling online. Yeah. Do you think as far as, I think we hear this a lot with jewelry brands that we cover, which is that most people still want to touch and feel the, you know, jewelry before buying them. And so yeah, physical presence is always part of the puzzle there. Right. So when this news was announced, I also was like, what's going on with Kendra Scott?

23:23And so in 2021, they named a new CEO, Tom Nolan, who took over for Kendra Scott herself, who had been the CEO for almost 20 years. And what Tom said in a recent interview he gave is that they are really aggressively focused on pursuing retail. We've been really bullish on retail, even through COVID. And so they now have over 130 stores. They say stores drive 50 % of sales and double as event spaces. And that last year, 128 Kendra Scott stores hosted 20 ,000 total events. So they're really doing a lot with stores. I think that that's definitely a high level of investment. But just what struck me about this Target partnership is that as a result of this deal, they're going to be selling products in 150 stores in time for the holidays.

24:22And presumably, if it does well, they will continue to expand that over time. But that just goes to show how much more quickly you can expand your retail presence by working with wholesale partners versus just trying to open your own stores. Kendra Scott has been opening its own stores for years now, and they're still only at about 130. And then they strike this deal with Target and they get in 150 stores overnight, basically. That's our show for this week. Please rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening. And then don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders every Thursday.

25:06and of course come back on Saturdays for the Modern Retail Rundown. As always, thank you for listening.