‘Shark Tank’ star Daymond John on the pivot to the experience model: ‘Retail is changing by the day’
Retail is going through what can be considered a “golden age” as businesses adapt to a new landscape of connecting with consumers, “Shark Tank” star and serial entrepreneur Daymond John said Friday.
Companies such as Home Depot are using the internet to their advantage to thrive, while others that lack the necessary technology are dying, the FUBU clothing line founder and CEO told CNBC.
“Retail is changing by the day,” he said of successful retailers in a “Closing Bell” interview. “[Retailers] are either dying or they’re striving,” and successful retailers are “just finding a new way to get to their new consumer online.”
The necessity for experiential shopping, he said, can be illustrated by the surging stock prices of online-based commerce firms Amazon and Shopify, the latter of whose stock price recently climbed into the four-digit club.
Shares of Amazon, the e-retail conglomerate, are up more than 73% year to date and closed Friday’s session at a fresh high of $3,200. Shares of Shopify, which outfits businesses with e-commerce tools, are up nearly 160% in that same period, closing the session at 1,031.86, which is within $30 of its peak trade earlier this month.
The comments come amid a wave of retail bankruptcies during a coronavirus pandemic response that had left store operations limited or closed and consumers locked down at home for months. Some of the most noteworthy bankruptcy protections in retail came from Nieman Marcus, J.C. Penney, Pier 1 Imports and J. Crew, among others.
“They’re going to close, they’re going to have smaller imprints, and they’re going to have to change around their model,” John said of companies looking to survive the tech-driven disruption. “Their model is going to need to be more of an experience.”
The experiential retail model involves more than marketing products and customers buying goods. Traditional retailing is all about acquiring new shoppers, upselling current consumers and making recurrent customers buy more frequently, John said.
Home Depot pivoted to the new retail environment starting in 2018 by investing $11 billion into its technology infrastructure to fend off brick-and-mortar competition from Lowe’s and establish a web presence to stave off others such as Amazon.
The goal is to find customers online, John said, explaining how a company such as Sephora must train salespeople to track a customer’s buying habits and consult them on future purchases. He contrasted it to FUBU’s heyday, when the product was simply shipped to a department store, such as Macy’s, and the apparel company was unable to document their customers’ interests.
“If your salespeople now are not in the transactional mode of making a quick sale, and they’re in the mode of making a content and a conversion play and following you home and knowing your buying habits, you’re going to be in good shape,” John said. “But if you’re only thinking of your store as a place of transactions, you’re not going to be in good shape.”
Disclosure: CNBC owns the exclusive off-network cable rights to ″Shark Tank,” on which Daymond John is a co-host.
Pandemic deals mightier blow to retail than Great Recession: First-quarter operating income down 58%
Even when the Great Recession dampened consumer confidence and drove up unemployment things weren’t as bad for retailers as they have been during the current Covid-19 crisis, according to a new analysis from Retail Metrics.
Days after the World Health Organization declared a pandemic in March, retailers across the U.S. were forced to shut their doors for many weeks to help stem the spread of the virus. The result: The retail sector’s first-quarter operating income fell 57.7% compared with last year – and 71.1% when not including Walmart, which was allowed to keep operating to sell essential items like food, a new report said Friday.
This marks the worst retail earnings performance since the group began tracking retail earnings in the late 1990s.
According to Retail Metrics, the previous low for retail earnings came during the Great Recession, when earnings landed down 26.6% year over year in the fourth quarter of 2008. The largest quarterly decline that followed the Dot.com Bubble was a drop of 11.7% in the fourth quarter of 2000, Retail Metrics said.
While earnings gaps have been widening in previous years between mall and non-mall retail earnings, the difference grew significantly this quarter as mall-based retailers had to close in many places due to the pandemic. First-quarter earnings for mall chains plummeted 626%, but off-mall companies saw only a 26% income drop.
Given the mandated store closures and revenue drops, many businesses took cost-saving measures including furloughing workers, permanent store closures and expanded curbside pickup. But these cost-savings measures aren’t going to be enough for some retailers.
Prior to the pandemic, many companies were struggling to stay afloat and adapt to new consumer habits. But the current crisis has accelerated the pressure on the industry.
Retail Metrics listed all the companies that have filed for bankruptcy or warned of the possibility since the pandemic began.
Companies that have completed bankruptcy fillings, liquidation or going concern:
- Modell’s Sporting Goods
- True Religion
- Roots USA
- J. Crew
- Gold’s Gym
- Lord & Taylor
- Stage Stores
- JC Penney
- Tuesday Morning
- RTW Retailwinds
- GNC Inc.
- Chuck E. Cheese
- Lucky Brands
- Brooks Brothers
- Sur La Table
Reported as likely to file for bankruptcy:
Retailers issuing going concern notices:
Analysts Gregory Francfort and JonMichael Shekian used aggregated transaction data from Bank of America credit and debit cardholders to analyze consumers’ restaurant spending habits. On July 1, the trailing seven-day average spend at large chain restaurants was down 4% compared with the year-ago period. At small restaurant chains and independents, spending fell 25%.
Small chains and independent eateries tend to be casual dining and fast-casual establishments, while large chain restaurants range from full service to fast food. The closure of dining rooms and the shift to social distancing has hit the casual dining and fast-casual segments harder. According to Francfort and Shekian, that explains “some of the gap between Big Chain and Other in the data.”
In mid-April, the difference in spending between big chains and the rest of the industry was even wider, peaking in the low-30% range. Fast-food CEOs, like McDonald’s Chris Kempczinski, have said that consumers return to their drive-thru lanes looking for familiar comfort food.
Trade groups have issued dire warnings about the future of independent restaurants. A report commissioned by the Independent Restaurant Coalition, which is pushing for a $120 billion bailout fund for independent bars and eateries, found that as much as 85% of independent restaurants could permanently close by the end of the year.
And as coronavirus cases surge in some regions of the U.S., restaurants are once again taking a hit.
“It is quite evident in our industry checks that COVID-19 spikes in key states in the West and Southeast have weighed on industry sales since the third week of June,” Francfort and Shekian wrote.
“These are two companies with strong balance sheets that are flexing capital availability advantages as well as scale advantages,” the research note said.
Darden, which has a market value of $9.2 billion, has seen its stock fall nearly 35% since the start of the year. Chipotle shares, meanwhile, have risen more than 33% since January, bring its market cap to $31.1 billion.
Starbucks shift supervisor Adan Miranda wears a face mask as he serves a drink to a customer while standing behind a plexiglass shield in a booth outside the store in Sacramento, Calif., Thursday, May 21, 2020.
Rich Pedroncelli | AP
Starbucks said Thursday that it will require customers to wear facial coverings at all company-owned locations, starting July 15.
The announcement comes as retailers and restaurants try to navigate protecting their employees’ health during the coronavirus pandemic without agitating customers who do not wear a mask, even if it is required by the state or locality. Social media videos show customers berating or even becoming violent with cashiers, salespeople and baristas who ask them to wear a mask or leave the establishment.
Starbucks is joining the growing list of companies that require customers to wear masks, including Costco and major airliners. On Monday, the Retail Industry Leaders Association urged governors to step in and require consumers not affected by a medical condition to wear masks when shopping or in public spaces.
Starbucks said that customers who are not wearing a facial covering at locations without a local government mandate have other options to order their drinks. Drive-thru ordering, curbside pickup through its app or placing a delivery order will be open for those customers.
Chip Somodevilla | Getty Images
Sandi Adler, who was Starboard’s vice president of legal affairs and human resources, filed the complaint on June 30 under Florida’s whistleblower statute. She also alleges sexual harassment in the suit, filed in state court in Broward County.
The lawsuit alleges that Starboard received about $9 million in PPP loans. The franchisee operates 101 Wendy’s locations across seven states and has 3,200 employees, according to its website.
The federal program was created to help struggling businesses with fewer than 500 employees, but big hotel and restaurant chains won exemptions after the coronavirus pandemic upended their industries. The fast rollout of the program has raised concerns from the Government Accountability Office about fraud. In early May, two New England men were the first to be charged with scamming the program.
According to Adler’s suit, Starboard CEO Andrew Levy told her to list some of his personal employees in Montana as corporate employees.
“The effect of this, in view of the PPP funding, was to defraud the United States and the Small Business Administration,” the complaint said.
Levy also allegedly ordered her to lie to creditors, vendors, suppliers and landlords and tell them Starboard couldn’t meet its financial commitments because it had not received PPP loans.
Adler’s superior Kevin Holbrook fired her on June 1 after she complained to him about Levy’s orders and practices, according to the suit. The complaint also alleges that Holbrook sexually harassed Adler while she was an employee and Levy ignored her complaints about the behavior.
Adler is seeking restitution for her lost wages and compensatory damages for “pain and suffering.”
Wendy’s did not immediately respond to a request for comment, and Starboard could not be reached for comment. No one answered the phone at a number listed for the company and no email address is listed on its site.
Storied apparel brand Brooks Brothers files for bankruptcy, as it seeks a buyer and closes dozens of stores
The coronavirus pandemic has now claimed one of the country’s oldest and most prestigious retailers.
Brooks Brothers — pioneer of the polo and uniform of the polished prepster — filed for bankruptcy on Wednesday, as it continues to search for a buyer.
The retailer, which is more than two centuries old, boasts of having dressed 40 U.S. presidents and countless investment bankers. Early to the office-casual look, it became known for its crisp oxfords and jaunty sports jackets. But rent had become a burden, and the pandemic torpedoed a sale process that began in 2019.
“Over the past year, Brooks Brothers’ board, leadership team, and financial and legal advisors have been evaluating various strategic options to position the company for future success, including a potential sale of the business,” a spokesperson for the retailer said.
“During this strategic review, Covid-19 became immensely disruptive and took a toll on our business.”
The brand has attracted significant interest from potential acquirers, CNBC has reported, but many have preferred to buy the brand with fewer stores.
It began to evaluate which of its roughly 250 North American stores to close in early April. It has already decided to close about 51, a decision it attributes to the pandemic. Most of those store closures have already begun, and the company has moved inventory from the targeted stores to distribution centers. The retailer is proceeding with plans to reopen the majority of stores it shut due to the pandemic.
It has more than 500 stores worldwide and employs 4,025 people.
“We are in the process of identifying the right owner, or owners, to lead our iconic Brooks Brothers brand into the future,” the spokesperson said.
“It is critical that any potential buyer aligns with our core values, culture, and ambitions. Further details on the sale process will be made available in the coming days,” the spokesperson added.
Brooks Brothers generated more than $991 million in sales last year, roughly 20% of which were online. It has wholesale agreements with retailers like Macy’s and Nordstrom, and contracts to manufacture uniforms for NetJets, United Airlines and others.
To support its operations in bankruptcy, Brooks Brothers has secured $75 million in debtor in possession financing from brand management firm WHP Global, which is backed by Oaktree Capital and Blackrock. That comes on top of a $20 million loan it secured from Gordon Brothers in May.
By Aug. 15, it will cease its manufacturing work at facilities in Massachusetts, North Carolina and New York, where it produces suits, ties and some shirts. Those facilities produce about 7% of the brand’s goods.
Brooks Brothers is merely the latest retailer to succumb to the pandemic. It follows on the heels of Neiman Marcus, J. Crew and J.C. Penney, which have all filed for court protection in the last few months.
But unlike many retail trailblazers, Brooks Brothers is not buckling from debt leftover from a private equity-led leveraged buyout that left its owner unable to invest in the storied brand.
Instead, it is owned by its CEO, Claudio Del Vecchio. Del Vecchio, son of the founder of Italian eyewear giant Luxottica, has focused on restoring the brand’s quality since acquiring it from British retailer Marks & Spencer in 2001.
Those efforts appear to have borne fruit. One senior banker who spoke to CNBC said he still wears the brand’s basics under his more expensive suits. He requested anonymity because he did not want to talk publicly about his basic wear.
But leases from the expansion of its footprint have become costly. The retailer had roughly 160 retail stores in the U.S. when Del Vecchio acquired it two decades ago, about two-thirds of the 236 U.S. stores and outlets it currently claims.
And, like every retailer, it has had to rethink its retail strategy as the coronavirus pandemic has forced its stores to close.
Meanwhile, competition from younger brands like Bonobos and Lululemon has cropped up, even as Brooks Brothers has expanded further into sportswear and brought in trendy designer Zak Posen to reach more modern customers.
And as the unemployment rate rises and those who do have jobs continue to work from home, it is increasingly difficult to get Americans to buy nicer clothes, let alone wear them.
Retail traffic declines have accelerated over the past two weeks, as Covid-19 cases surge nationwide, including hotspots in Florida and Texas.
— CNBC’s Lauren Thomas contributed to this report.
A Tyson Foods Inc. facility stands in Lexington, Nebraska, U.S., on Friday, April 24, 2020. Nebraska businesses that have laid off workers during the coronavirus crisis could be forced to repay tax credits and other incentives they have received through the states main business-incentive program, the state Department of Revenue said.
Dan Brouillette | Bloomberg | Getty Images
About 9% of workers at meat and poultry processing facilities across 14 states have been diagnosed with Covid-19, according to the Centers for Disease Control and Prevention.
Meatpacking plants, which were under pressure to produce enough food for U.S. consumers, became early hot spots for the coronavirus pandemic. In April and May, the country’s largest meat producers, like Tyson Foods and Cargill, were forced to close some facilities due to outbreaks. Total production of federally inspected red meat and poultry fell 8% in April and 13% in May, according to data from the U.S. Department of Agriculture.
Lags in production led many farmers to slaughter their livestock themselves. President Donald Trump signed an executive order in late April under the Defense Production Act to compel meatpacking plants to stay open.
The CDC’s report compiles responses from 28 state health departments, five of whom did not report any confirmed cases tied to meat processing workers. As of May 31, 86 worker deaths across 23 states can be tied to Covid-19. Nearly 240 meat processing facilities had at least one confirmed case among its workers, and more than 16,200 workers across 23 states have tested positive for the virus.
The conditions of the meatpacking industry, which requires many workers to be in close contact with each other for long shifts, make social distancing near impossible. The CDC also noted in its report that shared transportation to and from work and congregate housing also increase workers’ risk for exposure to the virus.
Some meat producers have tried to step up protections for their workers, but others fell short. In the CDC’s survey, only 86 facilities out of the 111 plants with information available on their prevention efforts required all workers to wear face coverings. Sixty-nine plants out of the 111 facilities installed physical barriers between workers, and 41 offered Covid-19 tests to workers.
On Monday, a coalition of more than 120 groups sent letters to Tyson’s largest shareholders urging them to ask the meat producer to protect its workers better by offering paid leave, ensuring daily testing and other measures.
A statue of a horse stands at the entrance to a P.F. Chang’s restaurant in Schaumburg, Illinois.
Scott Olson | Getty Images
Large restaurant chains once again received millions in loans from the Paycheck Protection Program, according to data released Monday by the Small Business Administration.
Businesses in the accommodation and food services sector received more than $42 billion in funding from the program, accounting for 8.07% of the round’s total loans. Roughly $130 billion of the program’s $660 billion remains up for grabs.
The federal program was intended to help struggling businesses that had fewer than 500 workers, but big hotel and restaurant chains won exemptions after the coronavirus pandemic upended their industries. In April, Shake Shack, Ruth’s Chris and several other publicly traded companies returned their loans after drawing backlash for taking money from the quickly depleted fund.
Famous Dave’s of America and Granite City Food & Brewery, both owned by BBQ Holdings, received loans of between $5 million to $10 million each. Their parent company, which was one of the few public companies to receive funds this round, has a market value of $30 million.
Other well-known restaurant recipients include full-service dining chains like Ruby Tuesday, Ted’s Montana Grill, P.F. Chang’s and T.G.I. Friday’s.
The full-service industry has been slow to recover, even as many states reopen indoor and outdoor dining. Full-service restaurant transactions fell 25% in the week ended June 28 compared to the year-ago period, according to the NPD Group.
Many of the large full-service chains that received PPP loans are backed by private equity firms. TriArtisan Capital Advisors owns the majority stake of T.G.I. Friday’s, for example. The chain was supposed to go public this year through a merger with a special purpose acquisition company, but the deal fell apart in April.
Fast-casual chains, including Dig Inn, Five Guys, Mod Pizza and Chopt, received PPP loans of at least $5 million. Bluestone Lane, a venture capital-backed coffee chain, also got a loan of at least $5 million.
While large fast-food chains did not apply for PPP funding, their franchisees did. Operators of some McDonald’s, Wendy’s and Yum Brands locations received loans in a range of $5 million to $10 million. The fast-food industry has been quicker to recover than the broader restaurant industry, with transactions declining just 13% in the week ended June 28, according to the NPD Group.
An employee wearing a face mask is pictured inside a shop at Westfield Santa Anita mall during the outbreak of the coronavirus disease (COVID-19), in Arcadia, California June 25, 2020.
Mario Anzuoni | Reuters
Just as shoppers were beginning to inch back to stores, with local economies reopening and malls turning their lights back on, retail traffic declines are accelerating yet again, according to a report.
Retail traffic in the U.S. was down the most so far in 2020, on a year-over-year basis, during the week ended April 18, according to data from the retail consultancy ShopperTrak. It fell 82.6%.
From then, up until the past 14 days, there were slight improvements. Those declines shrank each week, according to ShopperTrak, which is part of part of Sensormatic Solutions. The decline had eased to being down just 34% from the year prior, for the week ended June 20.
But over the past two weeks, retail traffic declines have accelerated once more, as Covid-19 cases surge nationwide with hot spots in states including Florida and Texas. Customers are retreating for a second time. Apple has made one of the boldest moves, so far, closing dozns of stores in malls for a second time.
The week ended June 27, traffic in the U.S. was down 35.7%, according to ShopperTrak. Last week, it was down 39.5% compared with the prior year.
But not all states are looking the same.
Thirty-seven states, plus Washington, D.C., have trended down over the past two weeks on a year-over-year basis, according to ShopperTrak senior director Brian Field. Thirteen states, meantime, have continued to show improvement in traffic, he said.
The divide between the two, according to Field, is largely driven by the safety precautions that are being taken in each of those states. Of the 38 states with traffic falling again, only eight of those are requiring masks statewide, Field said. Of the 13 on the rise, 11 require the general public to require masks, he said.
The biggest growth in retail traffic is happening in states including New Jersey, Maryland, Massachusetts, Rhode Island and New York, according to ShopperTrak data. The biggest drop-offs, meantime, are happening in Mississippi, Texas, South Carolina, Louisiana and Alabama.
“It’s all about consumers feeling confident,” Field said in a phone interview.
Summer vacations used to mean wine tasting in Tuscany, backpacking in Southeast Asia or trips to the Grand Canyon.
“This could take several years before we’re into our new normal of traveling,” said Delta Air Lines CEO Ed Bastian.
Last Sunday, fewer than 640,000 passengers flew out of U.S. airports compared with more than 2.6 million travelers a year earlier.
American Airlines said it expects its second quarter 2020 revenue to be down about 90% versus the second quarter of 2019.
The U.S. airline industry is in turmoil.
“This is the biggest crisis of all, bigger even than 9/11, than SARS and the Great Recession and all of that. Every crisis changes the airline industry, so it’s only reasonable to think that the biggest crisis of all will cause some of the biggest changes of all,” said Seth Kaplan, aviation analyst and principal with Kaplan Research.
To lure panicked travelers back, U.S. carriers have implemented new rules, deep-cleaned planes and waived some fees. Some airlines are also limiting the number of seats they sell.
But analysts argue that even with all the changes, it’s impossible to maintain social distancing rules on airplanes.
U.S. airlines are facing their biggest crisis in a generation and the stakes have never been higher. So will all these changes keep passengers safe? And what can travelers expect in six months? Watch this video to learn more.
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