This Week in Retail #39
Hey Friends,
Some huge stories this week across retail and tech, with shake-ups in the C-suite and other restructurings, but perhaps the most interesting came from Chili’s and its battle against fast food.
A viral TikTok appetizer, and an ad campaign heavily targeting fast food chains were cited as leading Chili’s to outperform expectations with a 14.8% growth in same-store sales, in their latest earnings call. This puts Chili’s in a strong position alongside Chipotle and Wingstop, which are also seeing robust traffic and sales, despite broader industry challenges due to consumer spending cuts. In contrast, competitors like Applebee’s and Outback Steakhouse reported sales declines. Traffic also increased by nearly 6% in the quarter.
Starbucks has abruptly ousted CEO Laxman Narasimhan, effective immediately, and announced that Chipotle CEO Brian Niccol will take over as the new leader on September 9. This leadership change follows a period of struggling sales in Starbucks' two largest markets, the U.S. and China, with the company reporting a 3% decline in same-store sales in the latest quarter. Following the announcement, Starbucks' stock soared by 24.5%, marking its best day ever, while Chipotle’s stock fell by over 10% due to Niccol's departure. Until Niccol assumes the role, Starbucks CFO Rachel Ruggeri will serve as interim CEO. Narasimhan had only been in the position since March 2023.
In July, consumer spending exceeded expectations, with retail sales increasing by 1% on a seasonally adjusted basis, outperforming the 0.3% increase predicted by economists. June's sales were revised down to a 0.2% decline from an initially flat report. When excluding auto-related items, sales rose by 0.4%, surpassing the forecasted 0.1% increase. This suggests that inflation pressures are easing.
Earnest Analytics' report highlights that Amazon's Prime Day outperformed other retailers' promotional events in terms of customer loyalty and participation. However, Wayfair led in average customer spending at $281, followed by Walmart online ($101), Amazon ($89), Target ($76), and TikTok Shop ($53). Despite Amazon's success, the sales period also boosted other e-commerce platforms, with total online spending reaching a record $14.2 billion during Prime Day, an 11% increase from the previous year, according to Adobe Analytics.
Cisco reported its third consecutive quarter of declining revenue, marking its first full fiscal year drop since 2020. Despite this, the company's earnings and revenue exceeded analysts' expectations. In response to ongoing challenges, Cisco announced a 7% reduction in its global workforce and introduced a restructuring plan expected to result in $1 billion in pretax charges. This plan is intended to invest in growth opportunities and improve business efficiency, with $700 million to $800 million of the charges expected in the current quarter and the remainder spread across fiscal 2025. This is Cisco's second significant round of layoffs this year, following a 5% workforce reduction in February. Prior to this announcement, Cisco's stock had fallen 10% year-to-date, while the Nasdaq had risen by about 15%.
While there is nothing confirmed, The latest news surrounding Mars, the candy giant, involves its potential acquisition of Kellanova, the company behind well-known snack brands like Pringles and Cheez-It. This deal, valued at around $30 billion, would be one of the largest in the packaged food industry this year. The acquisition aligns with Mars' strategy to expand its portfolio beyond confectionery, particularly into the growing snack sector. The deal is expected to be finalized soon, marking a significant shift for both companies​ (PYMNTS.com). This speculation has boosted Kellanova's stock, as Mars' snacking division, led by iconic brands like M&M’s and Skittles, aims to double its revenue to $36 billion in the next decade. More industry consolidation is expected.
I’m a believer in ThredUp, I’ve written about them multiple times on This Week in Retail and believe they are truly disruptive in the retail industry, but some headwy coming from the retailer. ThredUp announced plans to exit the European market after evaluating strategic alternatives due to declining performance. The company is also reconsidering its Remix business, acquired in 2021. ThredUp's Q2 2024 results showed a 4% decline in overall revenue, with European revenue down 18% year-over-year. CEO James Reinhart emphasized a renewed focus on the U.S. market, expecting faster growth, higher margins, and improved cash flow. ThredUp also highlighted new AI-enabled features to enhance customer experience and its ongoing commitment to sustainability. (Yahoo finance).
I’m a little late on covering this story but Etsy announced that it will begin testing its first-ever loyalty program, called Etsy Insider, in September to boost sales and attract more frequent shoppers. The program, initially available to select buyers, will offer free shipping across the U.S. and access to discounts. The company aims to encourage shoppers to start their buying journey on Etsy rather than only visit for specific items. While Etsy did not reveal the exact cost, the monthly fee will be comparable to the price of a latte. A nationwide rollout will depend on the program’s success during the trial.
Instacart has partnered with Ibotta to offer digital coupons to its customers through the cash-back rewards platform. Ibotta will become Instacart's preferred third-party coupon provider for all eligible product categories on its app and website. This partnership enhances Instacart's competitiveness in the grocery e-commerce sector by strengthening relationships with retailers and shoppers. Instacart aims to use its partnership with Ibotta to boost revenue by leveraging its platform and extensive consumer reach. With connections to over 6,000 CPG brands, Instacart expects Ibotta to help rapidly expand its CPG-funded promotions business. The deal also highlights the importance of providing savings opportunities to online shoppers, who are still dealing with the effects of post-pandemic inflation.
In some other retail tech news……
Walmart is reinvigorating back-to-school shopping with a digital approach…..Walmart Realm, an immersive shopping experience focused on dorm room curation for the back-to-school season. In collaboration with virtual reality tech developer Emperia, the "Your Dorm Your Way" experience allows college students to shop from five immersive virtual dorm rooms. Each dorm includes a mini game, social content from Walmart creators, and other surprises.
Best Buy has introduced a new live tracking feature that uses AI to give customers precise, to-the-minute tracking details for the delivery and installation of products like TVs, refrigerators, and washers. This includes a real-time map showing the location of the delivery driver. The company is also utilizing data on predicted demand and real-time traffic patterns to reduce delivery times, optimize routes, and provide more accurate estimated arrival times for customers.
Apple announced that with iOS 18.1, developers will gain access to its NFC technology, allowing them to enable contactless transactions within their own apps using the Secure Element (SE) on iPhones. This access extends beyond Apple Pay and Apple Wallet, enabling features such as in-store payments, digital keys (e.g., car, home, and hotel keys), corporate badges, student IDs, loyalty cards, event tickets, and more. Support for government IDs is expected in the future.
On Holdings, the Swiss athletic shoe company, reported a strong Q2 performance with net sales rising 27.8% year-over-year to 567.7 million Swiss francs (approximately $656 million). The company attributed this growth to record visits to its website, which drove a 28.1% increase in direct-to-consumer (DTC) sales, reaching 209.4 million Swiss francs. Wholesale sales also saw a 27.6% increase, totaling 358.2 million Swiss francs.
The gross profit margin slightly improved to 59.9% from 59.5% the previous year. Net income rose significantly, more than nine-fold, to 30.8 million Swiss francs, although this was below some analyst expectations. On Holdings plans to open 100 new locations in the coming years and anticipates further improvements in its gross profit margin as DTC sales continue to outpace wholesale revenue. As many of you remember, Nike went down a similar path and pulled back on its DTC strategy shortly after. Lets see how it plays out.
That’s all folks - Have a great week.