The Modern Retail Podcast looks at what's ahead in 2025

0:04Hello and welcome back to the Modern Retail Podcast. This is senior reporter Gabby Barco. I usually host our weekly Saturday Modern Retail Rundown show. And this week I'll be filling in for Kale, who's not with us. But I am joined by our managing editor, Anna Hensel, and my fellow senior reporter, Melissa Daniels. Hello, guys, and Happy New Year. Yeah, Happy New Year to all those listening. Thanks for having us, Gabby. 2025. Let's go 2025. 2025. Here we go. Let's do it. Well, okay. So since we're kicking off a new year, we thought we would do something a little different, which is to kind of give some predictions on some of the big retail stories that we have been monitoring and we'll be keeping an eye out for in 2025.

0:58There are a few different topics that I'll be speaking with both of you guys about today. First up, we're going to talk about just what's going on with mergers and acquisitions. It's been a rough year for them. You know, there hasn't really been many. It's been, you know, far and few in between deals-wise. But we're going to be talking about maybe what we could expect in the next year from that. From there, Melissa and I are actually going to be talking about another topic that's just been on everyone's mind. It's been in the news a lot lately, which is anticipated tariffs, you know, new tariff policies under the upcoming Trump administration, specifically what it will mean for the retail industry, including the supply chain costs that are going up, grocery prices, just general consumer goods prices going up.

1:49That's already kind of kicked off a big conversation this past few weeks. Yeah. And then finally, we are going to be looking at what's next for TikTok Shop. Another big topic for us here at Modern Retail. But first, let's talk about M &A. Ana, this is a space that you've covered pretty extensively this past year. So why don't we talk about maybe more big picture and then talk about specific areas in M &A? I think we're going to probably be talking a lot about CPG and as well as some other adjacent consumer brands that are looking to exit but may not be able to anytime soon. Yeah, so I'll definitely be keeping an eye on the M &A markets next year.

2:36I think we will see more M &A next year. and what I'm watching to see basically is whether it comes roaring or trickling back is how I would characterize it. So my prediction is that we will see more IPOs next year, more M &A in certain areas like CPG, but that by and large, smaller mid-market direct-to-consumer brands won't benefit from it, that it'll still be a tough year if you're looking to sell one of those brands. So to take a step back, It's been a rough few years if you are someone who has been looking to sell a consumer brand at a giant valuation. I just think we certainly haven't seen anything like, I just think back to when Unilever acquired Dollar Shave Club for a huge figure, was really betting on direct-to-consumer as the future of their business.

3:35That's something we haven't seen in a while. But I think even beyond that, there's just a lot of anecdotes that point to that it's been a really tough environment to sell. So there's numbers you can find about how IPOs have decreased over the past three years, how M &A and consumer has decreased. But I think if you look at the anecdotes, it's a market where buyers are really looking for the perfect asset. I recall that there have been stories about, from a few publications, I think, of the information about how there's been kind of a reality check for beauty startups this year. A lot of beauty startups have gone to market, but they haven't really found any buyers.

4:26And then I also think back to their, there's just anecdotes I see. I saw one founder who tweeted earlier this month that when they were talking to an investment banker, they said that 75 % of brands that went out to market have not gotten a deal. And there's a bunch of macro factors we can get into that point to why that is. I think a bunch of it is due to the fact that a lot of startups raised at too high evaluations in 2021 specifically. But there's a lot we can get into there. So I'll pause there for now. Yeah, I think that 75 % figure you mentioned really puts it into perspective is that the odds are really against these brands.

5:17Absolutely. What about some of the other factors that you think have halted M &A? I think, you know, we all talk to analysts constantly about this, and there's sort of like this laundry list now of reasons why a lot of people are either waiting on the sidelines or just kind of waiting to see what's going on with the market. But I feel like it really extends beyond that. Yeah, so there's a few sides to this coin. I think that one, just overall, in a tough economic environment, more acquirers are looking for brands that are both growing and profitable. So that's the standard that brands are being held to, whereas maybe when the economy was better, they were willing to spend more on brands that were fast growing and unprofitable in the hopes they could get to profitability one day.

6:07But when you look at the factors that have halted M &A, I think first there are the macroeconomic factors. So high interest rates, companies raising venture capital at too high of a valuation, like I said, and then also slower sales growth due to inflation. But then there are also regulatory factors. So investors, executives, and more, I think, have been really unhappy with how the FTC has enforced antitrust laws under Lena Kahn's leadership. So during her tenure, the FTC has sued Amazon. It's also blocked to sue big deals like the proposed merger between Tapestry and Capri, two luxury brands, as well as a proposed merger between Albertsons and Kroger.

6:56It's very interesting because I think if you talk to some people. One of our reporters, Mitchell Parton, reported on this. They believe that if the Trump administration names someone to oversee the FTC who isn't as heavy-handed on antitrust enforcement, that that could push through more deals. Basically, they believe that there are floodgates that will open. A lot of people have been waiting on the sidelines. And Trump recently named a guy named Andrew Ferguson to head the FTC. So we'll see kind of how that plays out next year. But I think it's interesting. I think that, again, if you look at the smaller startups that are trying to sell, I don't know how much a new FTC chair is going to change things for them.

7:49I think the reality is, again, buyers are really just looking for the perfect asset right now. And I think when you are a startup founder and you're just grinding through a really tough environment, it might be comforting to think like, well, if only this changed, then I could sell my startup. We'll see what happens. But I don't think on the smaller mid-market side that that's going to change much right now. Yeah, for sure. I mean, I guess we can maybe talk about some examples of attempted deals just pretty recently and see maybe if that's going to give us any hints of what's to come. So yeah, what are you seeing in regard to that?

8:31Especially in food and beverage, it seems like there's some activity happening. Right. We've seen more rumors emerge at the end of the year that some M &A deals are about to happen or that big conglomerates are kicking the tires on deals. And I do wonder how much of that is tied to the fact that these companies are betting there will be a more favorable environment for M &A next year. So it was reported that Mondelez approached Hershey about a takeover offer that would value the combined company at more than$50 billion. And what's also interesting is in 2016, Hershey's board rejected a previous takeover offer from Mondelez.

9:16And so there's a part of me that wonders what is causing Mondelez to rethink that now. Clearly, they think that now could be a favorable environment to push that deal through, and we'll see what happens. It was also reported that Spindrift is nearing a sale to a private equity firm. And so I think it's interesting. I think in CPG, a lot of companies are either looking to consolidation or looking to acquire a startup in a fast-growing category like Better For You Beverages to really kickstart growth. And I think we will see more of that. I think CPG is an area where we'll see more M &A. However, like I mentioned earlier, I don't think that a new FTC chair will really have much impact on smaller mid-market deals.

10:08I feel like consumer startups still face bigger existential challenges. Many of them are still overvalued. Many of them are coming off of a lackluster year where their sales were close to flat. And that may continue into next year if inflation remains high. That's kind of the big, I think, for startups. I'm waiting to see kind of what we've covered a lot this year is like consumers are just pickier because of inflation. I think that's made it harder for brands to grow sales as quickly as they maybe previously had. And so I think that we need to get into a little bit better of a consumer environment where more startups are seeing faster sales growth to really kickstart M &A in that area.

10:58Yeah. So do you think maybe we'll see a couple more deals now that we're in the new year being announced, maybe similar to some of the ones we just talked about? Yeah, if I had to predict, I think, yeah, we might see a couple big deals or two announced in CPG. I also think that we'll see a few long-awaited IPOs come to market during the first quarter of the year. There's been a few, you know, it was reported last year that Harry's confidentially filed for an IPO, but we haven't seen anything from them yet. I'm waiting to see if they come to market. But after that, I feel like how much M &A we'll see will largely depend on how the economy is doing, how much inflation has eased up or not.

11:42All right, well, from there, let's go to Melissa and talk about tariff policies, which, you know, are somewhat related, you know, kind of just waiting to see what this next administration will mean for the industry. But yeah, we're going to talk about, you know, just the tariffs that are anticipated, but also what they could actually mean for retailers and shoppers, of course. I mean, inflation was a big topic coming off the election. So let's see how that will actually fare. So yeah, Melissa, how are tariffs expected to wreak havoc on pretty much every part of the supply chain? I think we both did a few stories on that and talked to a bunch of companies about just everything from like their packaging all the way down to like raw ingredients being impacted.

12:34Yeah, there are so many ways that the potential changes in tariff policy are going to affect brands, retailers and consumers. If you don't know anything about international trade, the first thing to know is that it's a lot to know. It's a very dense area of policy, and it's something that few people really can specialize in. But for companies that are importing goods, it's something that they're now turning over every stone to understand and see how it's going to affect them. So tariffs for the uninitiated are levies that are taxed on the value of goods that are imported. You know, and yeah, as Gabby said, this also includes raw materials.

13:14So if I'm a company who is doing business in the U.S. right now and I'm looking at the policies that the incoming Trump administration has floated around tariffs, I am immediately going to look at where I am making my products and getting my goods from. One of the countries that's most notable for this conversation is China, although we've also seen the incoming Trump administration float ideas for putting increased tariffs on goods coming from Mexico, which also could be very damaging for many companies. If I'm a company that's getting my goods from those areas, I'm immediately going to see if there's another country that I can go to.

13:56So this is where they sort of start looking at the market. it. You know, this is the concept of nearshoring. Is there somewhere closer that I can do it? And will that also help me cut costs? You know, if I don't have to ship anything from China, but I can make something closer to the U.S. here, is that going to help me on the logistics costs and help mitigate any tariff increases that are coming from there? The brands I've talked to about this, they're doing a lot of math, right? Because that suddenly becomes a few different numbers that you have to calculate on how it's going to impact your bottom line.

14:29What is the tariff increase? What are the logistics changes? What are the supply chain cost changes if I am changing my suppliers? I think there's also going to be some people who are just doing a ton of negotiation with their existing suppliers. You know, given that the tariff is on the value of goods, well, what can you do to lower that value and maybe mitigate some of the tariff increase? You know, I think those are going to be a lot of conversations that people are having right now and into the beginning of Q1, you know, just trying to game out what could happen and when. I think there's also some companies in specialized areas of products that are really thinking about exemptions.

15:07I talked to one company who makes clothing meant for folks who have disabilities or are wheelchair bound or have different, you know, physical things that can make apparel, you know, kind of a pain point for them. And he's got this really great adaptive clothing line. Well, does that qualify for a medical exemption? Because if he can qualify for a medical exemption, then he doesn't have to worry about any tariff increases. It's just making sure that that qualification applies and how to, you know, keep that moving forward. Then, you know, you talk about consumers. Are you going to raise prices or are you going to eat it?

15:42And I think that really comes down to how profitable your company is and what your margin looks like, how many customers you have vying from you. And again, every calculus is going to be different for every company. Yeah. And I think, you know, the big issue is that this is really like the categories that are impacted just are so widespread. I mean, we're talking about everything from, you know, vehicles down to food, down to raw material like, you know, cans or bottles or whatever it is that these companies are using. But maybe this is a good time to talk about, yeah, what some of the retailers have said, but also, you know, specific categories that are actually essential to most Americans, like grocery, like household items.

16:28Those are the ones that they're going to maybe feel the most if the retailers actually do end up eventually increasing their prices to be able to offset some of these new additional costs. Yeah, I mean, we're already seeing some companies kind of taking advantage of these headlines by pushing customers to buy, I quote, before price increases. There was a couple of stories I saw in like Wall Street Journal and the Washington Examiner pointing to some of those, you know, ads or marketing material that are showing that. But yeah, I think for the most part, it seems like everyone is just guessing, you know, whether their phone, whether they're, you know, whether apparel, for example, is a big one, of course, that's a big import, will be going up in price after this year.

17:18And to me, it just feels like a big question mark. I think we're all just guessing, right? Because again, everything you just outlined, all of those factors are all being baked into this equation. So no one can just make that conclusive guess right now, at least. Yeah, I agree with you. I think this is all still in a state of grand speculation until we have an administration that is, you know, signing executive orders or changing policy, you know, and until we see it, we shouldn't count on it. And I think that's something we learned from covering the prior Trump administration. For the companies, I saw some of those same stories you were referencing.

17:56I saw a few other outlets like Axios, you know, dig in. And while we do have some bigger companies, Walmart, AutoZone, Lowe's, that have said, you know, hypothetically, yes, If there are tariffs, there may be price increases. We're also seeing some companies just kind of go bold and say, hey, pre-tariff sale, we're stocking up on inventory before it gets more expensive for us to import. Come on and buy it. There was a couple of furniture companies that put out ads about this that got picked up and that folks were talking about. I did a quick little run through the MetaAd library, which is a fascinating, if imperfect, tool for reporting on advertisements.

18:37And I saw a couple really niche companies, particularly a yacht company and a hay baler company talking about to buy and how before tariffs, you know, because if I'm in the market for a yacht, I'm definitely going to get it off a Facebook ad. I think that's another story. Yeah. I mean, maybe we could narrow it down to some essentials, right? Like, let's talk. We could talk about food and beverage, for example. I think you mentioned Walmart, which is a big, yeah, Bellwether. You know, Walmart's already kind of put out the warnings that they may actually end up raising prices. I think in November, their CFO, John David Rainey, said that we never want to raise prices.

19:20Our model is everyday low prices, but there probably will be cases where the prices will go up for the consumers. And then analysts, you know, also expect grocery retailers to pass on these costs to their customers. You know, it's just inevitable, I guess, in some way, especially coming off of this just really long inflationary period from the last couple of years where everybody's already squeezed. You know, I guess from the political side, you know, this was obviously a big topic of conversation during the Trump campaign of we're going to, you know, get inflation under control. So a lot of economics experts, you know, economists are saying that, you know, this could have the opposite effect.

20:05So maybe we could talk about like food in particular. I mean, you know, we both saw in our research that we import a ton of food in this country that I did not even realize. I mean, for example, in particular, I mean, even our neighbors like Canada and Mexico are actually big suppliers of our agricultural food in particular. I mean, you know, things like beef, like avocados, of course, and even tequila, you know, are all going to be impacted. But yeah, I mean, I think fresh fruit and vegetables, I saw like produce in particular is something we import year round, of course, because not everything is grown here.

20:45And, you know, Americans, we want everything throughout every season. But yeah, like, for example, imported fresh fruit made up about 60 % of the overall availability in 2021, and that's up from 50 % in 2013. So that's just one example of how we have just become overly reliant on just bringing in food, you know, across the border from other countries. So, yeah, the USDA has put out a lot of figures about this part of the supply chain and the fact that, yeah, I think maybe we could expect to pay even more than we have been on the shelf in grocery. Yeah, so like we said, you know, not a lot of concrete information right now.

21:30There's also, I will say, if I say so myself, a lot of misinformation on social media about what's going to be impacted. I think my favorite example so far was Botox, which actually turned out to not qualify for tariffs. So the Botox is safe for now. But yeah, I think we will probably know more, of course, after the inauguration, after all of this starts to take effect. But let's move on to our next story. Ana, you are going to be telling us what to expect from TikTok Shop. This is, you know, we're about a little bit more than a year into TikTok Shop's operation. So why do you think brands are still bullish on it, you know, given that there is a potential ban on TikTok in place?

22:16Right. What I'm thinking about a lot at the beginning of this year is I feel like a lot of the elements that TikTok Shop has kind of popularized, specifically social commerce and impulse buying, I feel like that's something that a lot of brands are still going to focus on, and they are going to focus on investing in platforms that fuel that, even as TikTok shop faces an existential threat. So what's really weird, we are recording this in mid-December, and what's weird is TikTok is poised to be banned in January, but no one is acting like it. So here's a primer on what happened so far. In April, President Joe Biden signed a bill saying that TikTok's parent company, ByteDance, had to find a new owner for TikTok to sell off TikTok over national security concerns.

23:17The deadline for a sale was listed as January 19th, 2025, with the possibility of a one-time 90-day extension. So what's important to note about that is on January 19th, Joe Biden will still be president. So if someone was going to grant a one-time 90-day extension, he would have to do it. TikTok has, of course, tried to fight this. They have turned to an appeals court for relief, claiming that the law is unconstitutional. But in mid-December, a panel of three judges from the U.S. Court of Appeals unanimously sided with the Justice Department, basically saying the Justice Department had the purview to do this.

23:59Now TikTok appears poised to appeal this all the way to the Supreme Court. And again, we're recording this in mid-December, so we'll see how this plays out. But what's also interesting is that President-elect Donald Trump promised during the campaign that he would save TikTok, but it's unclear how that would happen. Again, kind of looking at the parameters that I've laid out. Again, legally, I have no idea how this would happen. Maybe President Trump would order Congress to pass a new law. But we are in very uncharted territory. And in the meantime, people are still buying things on TikTok. yep yeah so i guess that that's a good place to start talking about from a retail perspective why is tiktok shop so attractive um you know especially for u.s brands e-commerce direct consumer brands have really been bullish on it for the most part and they're saying that it's performing pretty well we've done a bunch of stories on it but yeah i guess what what is it that they're saying is still worth, I guess, you know, maybe going until told otherwise.

25:09Yeah, I think it's just, I don't know. Again, we're in this weird spot where nobody believes this is actually going to happen. And I feel like a large part of that is because so many people are still using TikTok and so many sales are still happening on TikTok shops. So TikTok has invested a lot this year in trying to grow TikTok Shop to attract more merchants, kind of educating them on the intricacies of the platform. I feel like beauty brands in particular have done really well on TikTok Shop. And so TikTok Shop said it did more than$100 million in sales just on Black Friday this year, which is pretty crazy.

25:53And that is even as a potential ban has been looming. And so it seems like TikTok Shop is trying to position itself as an app that is too valuable to ban because it helps U.S. merchants generate so many sales. Yeah, I think that's sort of the conundrum, right, is that it's just from a commerce perspective, it's just become too much of a playbook for a lot of brands that we talk to and cover. Okay, so yeah, beyond TikTok Shop, I guess, are there other commerce platforms you think will grow and will benefit next year now that the consumer is sort of becoming accustomed to shopping this way? Yeah, I think that, so again, it's hard to know what will happen with TikTok Shop, but I think no matter what happens, a lot of other platforms will seek to emulate the principles of TikTok Shop, and already a lot of them are.

26:48So I've spoken to some brand founders who are pretty reliant on TikTok shop, and they don't seem to be too worried about what will happen with that platform because they think we'll just generally see a big rise in social commerce and impulse buying next year. And I think that will be fueled largely by a few apps. So Shien, Timu, Amazon's new haul platform that it released. And I think at first glance, people might be like, what exactly does this have in common with TikTok Shop? Because a lot of people still think of TikTok as primarily, and it still is, a social first platform, right? But I think that you're seeing a lot of similar behavior on Shein and Timu, as you're seeing on TikTok, which is these are also apps that are still a platform for discovery.

27:45People are kind of like wasting, the power users are kind of like wasting time on them and have been trained to kind of scroll through these apps to see what deals come up. So there's been one stat I've been thinking about recently. Allison on our team recently attended a footwear expo, and we've written about this on Modern Retail, about how Timu is trying to attract more sellers of high-end goods to its platform. So Timu was a sponsor of the event and was using the event to try to pitch more footwear brands on why they should sell through Timu. And one attendee spoke to Allison and said that one statistic Timu shared with them is that Timu customers spend more than 20 minutes on their site, while Amazon customers spend more like 10 to 12 minutes on Amazon's site.

28:35So that's a stat from Timu who knows how accurate that is. But I feel like even if TikTok and TikTok Shop go away, there are these other apps that people are spending a lot of time on that are poised to drive a lot of commerce in the U.S. next year for similar reasons. These are platforms that encourage impulse buying. They're known for kind of low cost goods. And it's there are places where that really focus a lot on discovery and gamification. And people are kind of getting accustomed to just browsing through these sites to see what deals they find. Yeah, that makes sense. Well, it sounds like no matter what happens, to TikTok in the next few months.

29:24Sounds like just the overall space, the social commerce will end up benefiting and maybe some of these other platforms may end up taking market share away from TikTok. But again, we'll see. Okay, well, we can leave it there today. Please write and review us wherever you're listening and come back on Thursdays to listen to Kale's interviews with industry executives. also don't forget you can listen to the modern retail rundown that i co-host with kale on saturdays and follow us on social at modern retail and we will see you next time thank you