Rundown: Trump's proposed tariffs, more bankruptcies & The Children's Place's Shein debut

0:05Hey, everyone. Welcome to this week's Modern Retail Rundown, where we break down the latest industry news from this 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 doing? I'm doing fine, too. So on this week's episode, yeah, we're going to start off with a topic that has surely been on many people's minds in the industry, which is tariff legislations that are being planned right now by the next presidential administration. Of course, you know, with the election, everything, Trump has been speaking a lot about tariffs being implemented.

0:51So we'll break down what that could look like. Of course, this is all a bit speculative. But yeah, and then after that, we're gonna check in on some, you know some of the latest bankruptcy updates so this week we saw the vitamin shops parent company and also blink fitness the gym chain you know seeking buyout or cash injections to to be able to survive their bankruptcies from recent filings and then finally we're going to be talking about Shein bringing in yet another legacy retailer this time is the children's place it's been doing this a lot in the last year or so in order to build credibility.

1:37But first up, let's start with the tariffs. Let's dive into just a quick update on the presidential election, some of the changes it may bring in the coming years. Yeah. So pretty much this past week, Trump defeated Kamala Harris for the US election. And one of the big things he's talked about over the last many months during his election was reintroducing tariffs. And it's unclear exactly how that will manifest, what that will mean. But CNBC said that Trump would impose a 10 % to 20 % tariff on all imports. And this includes tariffs as high as 60 % to 100 % for goods from China. So there are a lot of retailers, a lot of brands that source from China.

2:24And so that has made everyone kind of nervous. In fact, it made people so nervous that the NRF, the National Retail Federation, issued a report before the election happened, literally a day before, and said that such a move with tariffs would cause prices to skyrocket. And it was sort of a cautionary note just saying, don't do this or really think about what you're doing with this. And so now that Trump's in office, we're likely going to see more tariffs. And we're now seeing the fallout from retail executives about what they say they're going to do. Yeah. And again, it's hard to tell how exactly it'll shake out or what the timeline is because the plan itself is a little bit vague.

3:04But this week, we heard from a bunch of different retailers about it already, where Elf's CEO, for example, told CNBC that it may need to raise prices if tariffs do go into effect, since it relies heavily on sourcing from China. I mean, this is a cosmetic company that is actually really well known for its affordable sort of gen z geared makeup and skincare so that that would make a big difference even if it is a couple of dollars you know as far as perception goes and then a bank of america note found that a number of major retailers that do depend on chinese uh sourcing will be at risk for price hikes.

3:49So this includes Five Below, Crocs, Skechers, Amher Sports, and American Eagle Outfitters are at higher risk because 20 % or more of their goods are sourced from China. So it really all depends on how much they do rely on China. And just this week, you know, in passing, I have been asking smaller emerging brands about this. And yeah, those who do source from overseas are worried that just when they were able to get their prices under control, you know, coming out of COVID with the supply chain issues, they may need to raise prices again. So this is maybe where we can get into the sort of promise that this will cut grocery prices, maybe according to the experts.

4:34I'm not the expert. I'm citing the experts that are saying that that's not necessarily true. It actually may have the opposite effect. Yeah. And you're already seeing, I mean, clearly retail executives don't want to raise their prices. And so some of them are trying to be as proactive as they possibly can. Steve Madden this week at its earnings pretty much said it relies really heavily on Chinese manufacturing. And it initially had a plan in place that in this coming year, it would reduce its Chinese manufacturing by 10%. But at its earnings post-election, it said, actually, we're going to reduce our Chinese manufacturing by 40%.

5:11It didn't really say how it would do this, but it said by the end of this year, it will reduce it by 40%. And that's a big increase for a big player. And so you're just seeing a lot of reaction from these major brands. And so how it plays out remains to be seen. I think some of them may wait to see what the actual plan is in place. Others might try and be a little bit more proactive and get their supply chains in order so that they aren't hit with such big increased prices. Also, I thought this was interesting, but there was a Bloomberg story talking about the potential tariffs. And there are two industries, not related, but that could really be hit hard.

5:51One, microwaves. Most microwaves are manufactured in China, so prepare for microwaves to be more expensive. Although I think Whirlpool said to Bloomberg that it's ready and it'll be able to handle it. But then also cat litter. I I believe a major ingredient in cat litter is manufactured in China. And so bad news for me and my cat. So I'll have to figure out what I'm going to do. Find U.S. sourced cat litter, I guess. Yeah. And, you know, we should mention for those unfamiliar, it is that I think the proposal is that China or the countries that the exporting is happening from are paying America or the U.S., sorry, I should say, to be able to export, whereas that's actually not the case.

6:33it is the companies, the retailers, the manufacturer that is paying that. So this, I guess, tax that is being generated that Trump is referring to is not necessarily all being paid by, in this case, the focus seems to be really on China, but really any country that will be affected. So that's where maybe the confusion comes in. And obviously, the voters thought it made sense. So we can maybe we could talk about, you know, just zooming out just with the election itself. There's been other effect. I don't know if you saw, but there's some like doom spending happening. I you know, I will admit I did some online late online shopping.

7:15I don't know. I was just kind of like, what else is there to do? You know, of course, it's coinciding with holiday sales being pushed. But yeah, just it doesn't. We talked a lot the last few weeks about what the outcome or how it would impact holiday promos and retailers' rollouts. But so far, anecdotally speaking, I feel like it's still kind of chugging along. We're still getting emails and notifications about sales. Yeah, it's super interesting. And I just wanted to call this out because it sort of goes to the weird spot we're in economically and kind of the cognitive dissonance in terms of a big issue for this election and what led to what's going on right now with this tariff conversation is that the idea that the economy is bad, prices are too high, we need to fix things.

8:01But then there was this recent survey from Credit Karma that found that 27 % of the, I think, 1 ,001 respondents admitted that they were doom spending. They were spending with abandon in the face of increased economic and political woes, essentially saying, I'm worried about what's going on, and so I'm going to spend irrationally. And I just thought that was kind of interesting because so much of the conversation over the last many months has been about tightening purse strings. And it just shows that there are sort of people say one thing, they feel a certain thing, but they will still act in another way.

8:37And I think that goes to a lot of what's going on just with the world right now. And I thought this was interesting, just part of the same survey. The people who are doom spending, the people who said that, the 27 % said that their top worries were the cost of living and inflation. So these people are feeling the heat, but they're still spending more money. And so in some ways, maybe even if prices do get higher, if there still is economic anxiety, people will continue to doom spend. I don't know. I just think there's an interesting psychology happening right now in terms of how people perceive what's going on in the world, what changes are on the horizon, but that's still where they're spending their money.

9:19Mm hmm. And this wasn't really part of the data. But I guess I do wonder, again, anecdotally, whether whether all of the heavy discounting is also contributing to that. It's like, well, things are on sale right now, and the world is unstable. So maybe maybe just kind of might as well shop. It is a real phenomena. But yeah, I guess I wonder whether you know, the sort of promos are just an extra layer that that's luring people. Yeah, exactly. So I feel like we'll be trying to take temperatures on a what big changes are on the horizon that will impact retail with the new administration, but also seeing how people respond to them or just respond in general to the general economic climate.

10:03And I feel like this is one look in for right now, but we'll be keeping an eye on it going forward. Mm hmm. Yes. And we will be we do have some planned coverage for tariffs, I will say, in the coming weeks. So, you know, come back and yeah, so you can get a sense of, you know, how how retailers and brands are reacting to and what their plans are. From there, let's talk about bankruptcies, another very upbeat, bright topic this week. This week, we saw that Planet Fitness is planning to acquire the gym chain Blink Fitness. And then also the parent company of the Vitamin Shoppe did file for Chapter 11 bankruptcy after just raking in a lot of debt.

10:52This one came to me at a little bit more of a surprise than Blink. But yeah, we'll get into it. I don't know. What are your thoughts? Maybe let's start with Vitamin Shop. Yeah, let's start with the Vitamin Shop. So just to set the table, the owner of the Vitamin Shop is called Franchise Group Inc. It filed for Chapter 11. It had racked up months of losses and had a lot of trouble going on. I believe it had$2 billion in debt, which is a lot of debt. FRG, Franchise Group, says it struck a deal with lenders that owns the majority of its senior debt, and lenders have agreed to swap out debt for 100 % of the equity in the reorganized business.

11:29So essentially, it's filing for bankruptcy, but it's selling it off all of its equity to its debtors. And so it's important to look at the background of how it got here. Franchise Group acquired Vitamin Shop in 2019. In 2023, FRG agreed to go private at a valuation of about$2.6 billion and the new private company would be led by its CEO, Brian Kahn. And the company said on Sunday that the first lean lender group has agreed to provide the company with$250 million in Chapter 11 financing. So pretty much it said it was doing well. It had a$2.6 billion valuation, But then it racked up a lot of debt and now needs to sell itself off.

12:13With the cash, the$250 million, the company also says that these lenders will provide the business with, quote, ample liquidity to maintain operations across the businesses and fulfill commitments to employees, customers, vendors, franchise partners, which is interesting because obviously they're really impacted, and other stakeholders. But yeah, I mean, Vitamin Shoppe has just been not surprised, I guess, at the debt, given just how many investments they've made the last couple of years in trying to sort of refresh and modernize their products. You know, they're bringing in a lot of emerging brands and they're kind of trying to be, you know, more on trend with, for example, earlier this year, they introduced GLP-1 nutritional support.

13:03Or, you know, there's like a whole section now of products and supplements that cater to these users because they think, you know, they'll be able to bring them in. And so, yeah, with all that, obviously, there's a lot of restructuring that still needs to happen. But I guess this ownership is going to be able to handle it because it has changed hands a lot in the last few years. It's a story we've heard before. It has echoes to, say, Rite Aid. You know, it's not as big as Rite Aid, but it's, you know, a company that's been around for a while has tried to figure out how to modernize its merchandising, how to think about being a, you know, a retailer, etc.

13:40And hasn't been able to do that. And so now is filing for bankruptcy. And so it'll be interesting to see both what happens with the vitamin shop with Franchise Group, but also I think this entire sector of retail, you know, supplements. Supplements are very hot online, but I do wonder how these legacy players are going to be doing over the next years. Yeah, because they operate so many stores. And physical retail is very expensive with these really large formats. So we'll see. Maybe I'm sure there will be closures and some streamlining happening. But and then on the other hand, you know, speaking of wellness, I mean, fitness is also seeing a lot of issues with where Blink Fitness, which is actually owned by the Equinox group.

14:29So Blink is sort of like Equinox is, I guess, budget friendly play when it comes to fitness chains. But Planet Fitness, which I guess is somewhat of a competitor. Do you consider them a competitor? Absolutely. Yeah. Yeah, I guess I think of them as like a little bit on the lower end of things. Yeah, I think that they're the ones that can give you$20 subscriptions. And like usually for the most part, Planet Fitness is in most places. But if you're in New York City, and there's a Planet Fitness, there's probably a Blink a few blocks away. Like I think they compete with each other. Yeah. So yeah, with that, I guess it does want to acquire the bankrupt Blink Holdings.

15:08I think it's called officially according to court filings that were viewed by CNBC. And yeah, so Blink Fitness had filed for bankruptcy protection back in August after a failed attempt by Equinox itself to really be able to scale it and grow it. So since the filing has about 100 fitness centers and they are pretty much concentrated in the Northeast, have been tied up in these bankruptcy courts. So there's been some movement like last week, Pure Gym, which is a UK based chain that's really been making, you know, headways in the US. Won bankruptcy auction for blank and its assets for$121 million.

15:52That doesn't seem like a lot. So with that, it's taking over 60 of the gyms in New York and New Jersey. But of course, there's a lot more left. And that's sort of where Planet Fitness is trying to close in on. Yeah, and supposedly Planet Fitness, and this is according to court documents that CNBC saw, they made a proposal of$142 million for Blink's asset, including a$28.4 million deposit. And then there was a second proposal that increased the offer to$155 million with a$31 million deposit. it. So pretty much it shows that Planet Fitness is trying to get these assets, but probably for as cheap as it possibly can.

16:31The proposal includes making select regulatory filings that address anti-drust concerns in advance. So I mean, it's interesting you say that. And this is a big question that I have going forward, but especially under the Biden administration, under Lena Kahn, anti-drust has been a major issue. And so whenever you hear about these big mergers, you see the companies trying to get ahead of that narrative. We'll see if that is going to still be a concern going forward with the new administration? That's a big question mark. But the fact that Equinox is offloading Blink shows that its attempt at being a more budget friendly player didn't work out.

17:04And now it just needs to focus on the luxury market, I guess. Right. Because at the same time, they're trying to really build out Equinox to be just more personalized. Introducing these earlier this year, they introduced this really high end, was it like$40 ,000 a year program of personal wellness. So it seems like Equinox knows that's really where it thrives because Blink on paper should work, but clearly just the demand is not there. I think probably due to pricing is my theory. Yeah, I agree. It just can't compete with the planet fitness of the world. But yeah, I think with that said, of course, I feel like we talk about bankruptcies every few weeks on here, but they're on the rise.

17:48It's nothing new, but there's just a lot of companies right now, especially sort of these more established, very expensive to operate legacy retailers and chains that are trying to restructure with the help of their competitors, I guess, coming in or private equity or whatever it is that is part of the restructuring. But this just feels like a long parade of chapter 11s that we've been seeing in the last couple years. Yeah, I agree. All right. Well, now on to another, I guess, legacy retailer in this case, which is the Children's Place launched a storefront on Shein this week, which I thought was interesting, you know, Children's Apparel on Shein, but we'll get into why that is.

18:31You know, Shein is just becoming sort of the one-stop shop for fast fashion. Although I don't consider Children's Place fast fashion, so that's also interesting pricing wise. But yeah, the retailer said that it's now selling merchandise, merchandise through the online platform, you know, the app, Shein and website, but the deal is going to allow it to reach a broader audience and, you know, obviously diversify its distribution strategy beyond its banner stores. But yeah, I mean, I guess what are what are your thoughts on this? We'll get into this quote by the children's place in a second. Yeah, I mean, Shein has been really trying to get major retailers to sign on.

19:15It's been a big part of its pitch to convince people in the US that it's a real platform that is a major part of the digital retail ecosystem. And so this is a pretty notable addition, given that it has only had a few major other partnerships with big retailers before. And so I think this is a pretty big win for Shein, to be completely honest. And for a legacy retailer like the Children's Place, it makes sense that it would want to find a platform that has a captive audience of people looking for cheaper apparel. And I think the real question will be, can it be branded and explain why it exists on Shein?

19:53Because I think people as a whole use Shein because they're looking for looks they like, but they know they're going to be cheap. And if it's able to compete on the price, then it'll be good, but it will actually increase the branding of it as a retailer or will just be a place where it is another commoditized part of children's apparel on Shein. That's my big question. Yeah. And so all of the merchandise will range from about$7 to$72. So to me, it sounds like, again, a little bit on the higher end compared to what you can get on Shein. But some of the items will also be discounted compared to, you know, if you were to buy it on the children's place.

20:30And then, of course, there's free shipping, which is something that Shein is very well known for. But, yeah, I think this just goes to show that somebody like the children's place, it's over 50 years old, you know, and it has it's basically the parent company to Jim Burry, you know, the baby brand. It's really known as an old school mall retailer. I mean, that's how I grew up familiar with it. It's really been struggling recently, like a lot of mall-based retailers. It's sales declining. So it doesn't surprise me that they are trying things like this to kind of move beyond their core audience.

21:06Yeah, no. So just some sales numbers. In its second quarter earnings, which were in September, net sales fell 7.5 % to$319.7 million. last February. It took on a new majority investor with Mythak Capital. So that helped it avoid completely going out of business. And its CEO, Jane Elfers, stepped down in May. And now I think probably it's just looking for any ways that it can grow sales and reach some sort of growth. There's this quote from its brand president. And so she said, our partnership with Shein allows us to seamlessly meet customers where they are on digital platforms, delivering the convenience, value, and satisfaction they expect from us.

21:48This collaboration reflects our commitment to making shopping effortless, accessible, and exciting for today's family. So essentially, the company has not been doing so hot, and now it's trying to find new eyeballs and grow its sales after, I think, continuing to post dwindling sales quarter after quarter. Yeah. I guess I find it a little bit ironic, maybe is the word, because the children's place says that the dip in sales was actually largely attributable to a decrease in e-commerce because it was doing a lot of free shipping and heavy discounting and promos, spending a lot on advertising. So maybe redirecting that to Shein seems to be the solution, but interesting direction.

22:30Yeah, we'll have to watch out. I mean, I'm interested to see how these bigger retailers perform as retailers on Shein. So the only other one that really is noteworthy is Forever 21. They had that big partnership last year. And I wonder if people on Shein are using Shein so that they can buy specifically Forever 21 or specifically the Children's Place items, or if they're just scrolling on Shein looking for something that looks good and fits their budget. And so that'll be the big question going forward. Yeah. I mean, it's just such a large audience that maybe the thought is that there's got to be someone on there who is interested in in the products.

23:06It's probably a lot cheaper to acquire them than to find their own customers. But with that said, we will see whether these strategies pan out. But in the meantime, that does it for us today. You can rate and review us wherever you're listening. And on Thursdays, come back to listen to the Modern Retail Podcast for interviews with retail executives that's hosted by Kale. I'm not sure if you have a preview for next week, but you can drop it now. Yeah, sure. I speak with the CEO of the children's subscription company, KiwiCo. It was a really fun conversation about the state of subscription brands.

23:47It's been growing, it's profitable, it's a really fascinating company. And going into the holidays, it's always interesting to see what companies are doing to try and grow sales. And so we had a really great conversation about that. That sounds great. I talked to them recently, so I'm excited to hear about all of their expansion. And then, yeah, of course, come back on Saturdays for the Modern Retail Rundown.