Walmart Signals Price Increases, Dicks Buys Foot Locker & Target Bets On Rural Growth? | Fast Five
In this week’s Omni Talk Retail Fast Five news roundup, sponsored by the A&M Consumer and Retail Group, Simbe, Mirakl, Ocampo Capital, Infios, and ClearDemand, A&M’s Michael Prendergast and Christopher Disa join Chris and Anne to discuss:
- Walmart signaling that price hikes could begin later this month (Source)
- Target Circle 360 members receiving free same-day delivery from 100+ other retailers via Shipt (Source)
- Dick’s Sporting Goods acquiring Foot Locker (Source)
- The cybercrime wave that has hit European retailers and whether U.S. retailers are prepared for something similar (Source)
- And closed with a look at Target’s new small town store expansion strategy (yes, two Target headlines this week folks!) (Source)
There’s all that, plus RADAR CEO Spencer Hewett stops by for 5 Insightful Minutes to put Chris in his place on his recent comments about his company’s Old Navy store rollout, along with a Favre-filled, Sesame Street lightning round.
Lastly, don't forget to secure your spot now at CommerceNext.com and use code OMNITALK for 10% off general admission. If you’re from a retail brand, you may qualify for a free ticket—but act fast, availability is limited. See you in NYC!
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Transcript
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Speaker A:Learn more@ocampocapital.com hello, you are listening to Omnitalks Retail Fast 5 ranked in the top 10% of all podcasts globally and currently the only retail podcast ranked in the top 100 of all business podcasts on Apple Podcasts.
Speaker A:The Retail Fast Five is the podcast that we hope makes you feel a little little smarter, but most importantly, a little happier each week too.
Speaker A:And the Fast 5 is just one of the many great podcasts you can find from the Omnitalk Retail Podcast Network alongside our Retail Daily Minute, which brings you a curated selection of the most important retail headlines every morning and our Retail Technology Spotlight series, which goes deep each week on the latest retail technology Trends.
Speaker A: ,: Speaker A:I'm one of your hosts, Anne Mazinga.
Speaker B:And I think I'm still one of your other hosts, Chris Walton, and we're.
Speaker A:Here once again to discuss all the top headlines from the past making waves in the world of omnichannel retailing.
Speaker A:And we have a special couple of guests today.
Speaker A:Joining us for their regularly scheduled monthly appearance.
Speaker A:It's the Alvarez and Marcel consumer and retail groups Chris Disa and Michael Prendergast.
Speaker A:Welcome back, you two.
Speaker A:Thanks so much for being here.
Speaker A:Again, I want to kick it off by just having you each share a little bit about each of your backgrounds and the color you're going to provide to today's show.
Speaker A:So let's get started with you first, Michael.
Speaker C:Thanks, Dan.
Speaker C:So, Michael Prendergast, I've been with A and M for about seven years and prior to that I was an industry retail hardened veteran.
Speaker C:I operated for about 20 years out there, so I've seen it all.
Speaker C:I've seen retail, I've seen consulting.
Speaker C:I've seen mix of both.
Speaker C:So great to be here today and super excited to be talking about the subjects we have at hand.
Speaker A:Yeah, you've had a busy last couple of years, Michael, so we are excited to have you back on the podcast because it's been.
Speaker A:It's been a minute.
Speaker A:Um, Chris, let's go to you next.
Speaker A:Give us a little bit of your background too.
Speaker D:Thanks, Ann and Chris, great to be here.
Speaker D:Looking forward to discussing the five topics today.
Speaker D:Similar to Michael, I've been here for seven years at A and M's consumer and retail practice.
Speaker D:Prior to that, I spent most of my career in industry across various leadership roles in merchandising, product development and planning and allocation.
Speaker D:And certainly looking forward to discussing all topics retail today.
Speaker B:Yeah, we are super excited to have both of you and, and Michael for.
Speaker B:To.
Speaker B:To give the, the, the listeners a little bit into why Anne mentioned that you've been a busy guy and we haven't seen you of late is because you were recently the interim CEO at joann Fabrics.
Speaker B:So yes, folks, we've got a big time guest on the show today along with Chris, and both of them bring a ton of operating knowledge, which is why we like partnering with them and why we like having them on the show each and every month.
Speaker B:So, Ange, should we get the show started?
Speaker B:I'm excited.
Speaker B:We got some great topics today.
Speaker A:Yes, yes, we should absolutely get started.
Speaker A:So much to cover, Chris.
Speaker B:So much to cover.
Speaker B:Can't wait to pick these two's brains.
Speaker B:All right, today's headlines are brought to you by Commerce Next.
Speaker B:Don't miss your chance to attend Commerce Next with us.
Speaker B: York Hilton Midtown with over: Speaker B:And do we mention the Yacht Rock?
Speaker B:Yacht party?
Speaker A:Yeah.
Speaker B:To kick things off and can't.
Speaker B:I know, right, Michael?
Speaker B:A yacht rock party.
Speaker E:Yeah.
Speaker C:I mean, can't go wrong with yacht rock, especially this time of year, throughout the summer.
Speaker C:I mean, come on.
Speaker B:Oh, on my plane back from London, the guy was watching the yacht rock documentary and Christopher Cross is playing next to me.
Speaker B:I was loving it.
Speaker B:All right.
Speaker B:I couldn't hear it.
Speaker C:Memorial Day is like the official kickoff for yacht, right?
Speaker C:I think.
Speaker A:Yeah, right.
Speaker B:Yeah, it is.
Speaker B:It is.
Speaker B:So if you're as excited about Yacht Rock as all of us are, secure your spot now at Commerce Next and use code omnitalk, all one word for 10% off general admission.
Speaker B:And if you're from a retail or brand, you may qualify for a free ticket.
Speaker B:But act fast, availability is limited.
Speaker B:And hopefully we'll see you in New York and we all can go sailing together.
Speaker B:All right.
Speaker B:In this week's Fast5, we've got news on target.
Speaker B:Circle360 members receiving free same day delivery from 100 plus other retailers via Shipt Dick's Sporting Goods acquiring Foot Locker, the cyber the cyber crime wave that has hit European retailers very hard of late and whether the US Is prepared for something similar.
Speaker B:Can't wait to talk about that.
Speaker B:Target's new small town store expansion strategy.
Speaker B:Yes, folks, we have two Target headlines this week, not even factoring in their earnings call, which will probably hit next week.
Speaker B:And Radar's Spencer Hewitt stops by to check me on what I got right and what I got wrong about my comments surrounding the company's Old Navy rollout in one of last month's Fast Five episodes.
Speaker B:You're definitely going to want to stick around and hear what he has to say.
Speaker B:But we begin today with big news on the retail pricing landscape.
Speaker B:And do the honors.
Speaker A:Headline number one, Walmart CFO said last week that price hikes could start later this month.
Speaker A:In an interview with cnbc, Walmart's chief financial officer John David Rainey said import duties are still too high, even with the recently announced agreement to lower them on imports from China to 30% for 90 days.
Speaker A:John David Rainey said, quote, we're wired for everyday low prices.
Speaker A:It's more than any supplier can absorb.
Speaker A:And I'm, and so I'm concerned that the consumer is going to start seeing higher prices.
Speaker A:You'll begin to see that likely towards the tail end of this month and then certainly much more in June, end quote.
Speaker A:Michael, we're gonna go to you first.
Speaker A:This is a pretty heavy statement from the U S's one of the US's largest retailers.
Speaker A:How do you expect other retailers to react to Walmart's signal of price increases?
Speaker C:I think it's you, I think it's a huge statement and this is a topic I love talking about right now.
Speaker C:Yeah, you know it's, it is huge and I think if I had a crystal ball right now it would be fabulous.
Speaker C:I think we'd all be billionaires.
Speaker B:Right.
Speaker C:And from what we're hearing from all the retailers and vendors that we're talking to.
Speaker A:Yeah.
Speaker C:Is that it's an absolute free for all what people are doing with pricing.
Speaker C:So I think it was pretty ambitious that Walmart came out and kind of planted the flag and said we are absolutely raising prices.
Speaker C:And I think other retailers are either going to say hey we're going to use this as an opportunity to take market share and sacrifice a little margin or and keep prices where they are or other retailers are going to say well if Walmart's doing it, we have a license to do it.
Speaker C:And then I actually think you'll see a little bit of both of those activities.
Speaker C:So it's going to be very, very interesting to see how other retailers react.
Speaker C:The other interesting thing that no one's really talking about and you hear this a little bit is it's 30% increase on top of the 301 tariffs that on average were 21% increase.
Speaker C:So over a three year basis it's over a 50% increase if you, if you do it on a relative basis.
Speaker C:So it's not for the faint of heart to take prices up.
Speaker C:So very, very interesting for Walmart and it'll be very, very interesting to see what other retailers do with that.
Speaker A:Yeah, absolutely.
Speaker A:I mean and I think you have to think about Walmart's unique position too being a mass retailer and for things like food and other things that just don't have the margins like you're really, they're really going to, there's no way around it, it sounds like, but yes, definitely opening the doors for some other retailers to make, make some concessions to.
Speaker A:Chris Disa, what are your thoughts here?
Speaker D:Yeah, I think, you know, I agree with Michael, I do think that a lot of retailers, you know, for a lot of retailers this is going to bolster their confidence in raising prices.
Speaker D:But I think the watch out for Walmart and other retailers that it has to be done surgically.
Speaker D:There are some categories and items that are inelastic based on utility value or necessity while others are not.
Speaker D:And I think the cautionary tale for other retailers, specifically apparel or non essential merchandise retailers, that if you raise prices and then you have to increase your discount rates to move product in the future, then you're really training your customer to expect a higher promotional value or activity which can have long lasting, long term effects.
Speaker D:So definitely something to watch out for.
Speaker D:There's a ying and a yang to all of this.
Speaker A:Yeah, without a doubt.
Speaker A:Chris Walton, jump in here.
Speaker A:What are your thoughts?
Speaker B:I mean my question for, for Michael since he started out would be do you think the entire retail industry breathed a collective sigh of relief this week with this announcement saying oh thank God Walmart did this because now it gives us some room to move.
Speaker B:What do you think about that?
Speaker C:It's an interesting question.
Speaker C:I don't think so.
Speaker C:I think people are afraid to raise price because there a lot of retailers with the section 301 tariffs and the inflationary environment of COVID raised price and they saw a linear reduction of units purchased and they also saw a red line in the sand of being able to raise price to a certain level.
Speaker C:And then when they got over that, their customers balked at it and said we're not purchasing.
Speaker C:So I think it's sort of an interest.
Speaker C:My point of view is it's an interesting thing that Walmart did and if I was a retailer I'd be saying okay, well glad they're doing it, we can potentially do it, but we're also nervous about doing it.
Speaker C:So I don't think it's giving everyone full license to go out and do it.
Speaker B:Yeah, that's an interesting point.
Speaker B:Yeah, I think initially I thought yes, but now as I'm talking to you and thinking out loud, I'm thinking maybe not.
Speaker B:It kind of depends on what happens from here.
Speaker B:Does Walmart follow through on this or not given the kerfuffle that started there.
Speaker B:But I mean the other point I'd make too is the, the gate, it just gives, it gives license for the game theory to start around this across the industry.
Speaker B:Right.
Speaker B:And you saw Home Depot come out yesterday and be like we're not taking prices up because they're playing on the opposite trend in the media and the perception that they have there.
Speaker B:So you know, but at the end of the day like Walmart sets the prices and the rest of the industry follows.
Speaker B:So if Walmart brings the prices up then I think that gives then the Sigh of relief I think comes.
Speaker B:But the trick is I agree with what Chris said too.
Speaker B:You got to be really smart about how you do this.
Speaker B:You don't want to tell people, I think either.
Speaker B:You just want to let the prices speak for themselves at shelf.
Speaker B:I think that's my big lesson here for all retailers they're going to take away from this past week is like you're not talking about this as much as you can, you know, give, you know, depending on what your legal ramifications are in terms of what you got to report to the financial community.
Speaker B:But.
Speaker B:And curious if you guys have thoughts on that too.
Speaker B:But you know, for the most part you're just going to want to let this sit and let the customers adjust it over time, I would think.
Speaker B:Right.
Speaker C:But the other interesting thing is Walmart is clearly the gorilla in the marketplace, Right?
Speaker C:And the hidden thing in this is Walmart can do whatever they, whatever they really choose to do.
Speaker C:So if they raise their prices and it doesn't work, they will shift and pivot it so quickly it'll make your head spin.
Speaker C:They've got the margin then to cover the markdowns and they'll kind of make the we raised our price mistake go away lightning fast.
Speaker C:Not everybody else can do that and not everybody else has that latitude.
Speaker C:So that's where it's a little scary too.
Speaker C:And I look, I think it's amazing.
Speaker C:I applaud them for doing it, but at the same point like they've got a really easy get out of jail free card and their customer is very reactionary too based on the everyday low value pricing scheme.
Speaker C:If you start promoting on top of that, it will clear goods immediately for them and then so they kind of have a very easy safety backup plan.
Speaker C:So raise prices.
Speaker B:Great point.
Speaker C:Doesn't work.
Speaker C:Pull the trigger, bring it down a little bit and then revenues go through the roof.
Speaker C:We take it on the chin from a margin standpoint a little bit.
Speaker C:But in the quarterly calls we're now talking about a revenue increase with a little bit of margin dilution.
Speaker C:And the street is going to say, oh, that's awesome.
Speaker C:We're super psyched.
Speaker C:So Walmart is kind of insulated, in my opinion.
Speaker A:Yeah, 100%, Michael.
Speaker A:I mean that's what I was just going to jump in and say too.
Speaker A:Like they're also building a moat with retail media.
Speaker A:The recurring loyalty revenue that they're getting from Walmart, plus like all of those things allow them over many of the other retailers that are, are in the industries and in the Space, including Target, you know, who announced earnings this morning.
Speaker A:Like Walmart is in a much better position to be able to weather this storm, I think than a lot of the other retailers out there.
Speaker A:So I don't think it's wrong that they're being transparent with their customers.
Speaker A:Customers saying, look, this is going to happen and customers know they're always going to be able to go to, to Walmart for, for that everyday low price guarantee.
Speaker A:So I think it's just, it's, it's taking a different approach that we're seeing in the market.
Speaker D:I also think that it depends on, you know, the level of which they're taking the prices up, right?
Speaker D:5%, 10%, 20%.
Speaker D:You know, as an everyday low value retailer, taking 5, 10, 15% up on, you know, certain inelastic goods may not be a big deal.
Speaker D:Where other retailers who have a higher baseline, you know, it's much more impactful.
Speaker A:Yeah.
Speaker B:Yeah.
Speaker B:Wow.
Speaker B:Wow.
Speaker B:What a great start to this podcast.
Speaker B:Holy cow, this is.
Speaker C:Buckle up on this one.
Speaker C:This, the story's still yet to be written.
Speaker B:Oh my God.
Speaker B:Yes.
Speaker B:The game theory starts today.
Speaker B:All right, so headline number two, man, and there's some, we got some more meat on the bones and a lot of these headlines too.
Speaker B:Target Circle 360 members can now shop same day delivery with 100 plus retailers according to retail dive.
Speaker B:Through its ship service, the mass retailer will give subscribers access to same day delivery at Petco, PetSmart, CVS and more, all without price markups.
Speaker B:Target Circle360 has a membership price of around $99 annually and new signups for Target Circle360 can get $20 off their first order of at least $75, said Kara Sylvester, executive vice president and chief guest experience officer at Target.
Speaker B:Quote We've built a true digital shopping center experience making your Saturday errand run easier, faster and more affordable.
Speaker B:End quote.
Speaker B:Chris Disa Are you buying or selling the new same day delivery perk for Target Circle360 members?
Speaker D:I am absolutely buying this as a consumer.
Speaker A:You are?
Speaker D:I am.
Speaker D:As a consumer, you know, I have Walmart plus Amazon and Target360 and I.
Speaker B:Would say most of you already have it.
Speaker B:Okay.
Speaker B:You already have it.
Speaker B:Okay.
Speaker D:Most of my same day shopping habit is not solely based on price but availability.
Speaker D:So for me, Target360, you know, in the event, in the opportunity to now provide access and service to products from other retailers as cvs, Petsmart, et cetera, I think it's a huge win and I'm all in.
Speaker C:Wow.
Speaker B:Okay.
Speaker B:Starting off strong and I think you like this too, right?
Speaker A:Look, I love the idea listening to that Target earnings call today.
Speaker A:That is they are pumping this hard as their like growth engine to, to continue to combat the earnings that were announced.
Speaker A:I just don't understand how you make money off of this.
Speaker A:That's my biggest question.
Speaker A:Like with zero markups, you know, you still have to make sure that the ship drivers are doing these one to one, you know, deliveries to homes.
Speaker A:Are, you know, is there a need as Target for you to really like, are you expanding to that many categories that Target doesn't already cover?
Speaker A:Like I just, I think it's, I think it's the right competitive move for Target to make in the play against Walmart plus and DoorDash.
Speaker A:But I just don't know if it's compelling enough to get new subscribers on board because of the limited assortment.
Speaker A:It's not, it's not giving me that much more at this point point to, to drive me to get that, that Target plus membership.
Speaker A:I don't think so.
Speaker A:I have to sell but so you're selling it.
Speaker B:All told, you're selling it.
Speaker A:I have to sell.
Speaker A:I, I, I like the, I, I think it was a strong, it was a strong position.
Speaker A:I just, I don't understand how you make that work financially in the long term.
Speaker A:I, I think it's just not, there's not enough there for me or if.
Speaker B:I read between the lines, you don't think it's going to convert people to target 360 either?
Speaker A:I don't, I don't, I don't think there's enough like you know, people who are using the same day delivery service is a certain demographic of customer who can afford the price increases anyway.
Speaker A:I don't know that you're going to get people to jump ship from a doordash or from an Amazon or something where, or Walmart plus even for that matter.
Speaker B:Yeah, well you got Chris D, a Super Target 360 super fan over here so we're going to let you know the conversation at some point but first I want to get Michael's opinion on this because Michael, Michael seems a little skeptical based on his body language and the looks he's giving.
Speaker C:If I put a CEO hat on for a second.
Speaker C:Love the concept, hate the operational details of this and I can actually envision in that crystal ball I was talking about from Walmart a concept meeting saying we need to innovate.
Speaker C:How do we innovate?
Speaker C:How do we get better?
Speaker C:How do we not let our competition take Share from us and someone raising their hand and saying, oh my gosh, I love Amazon prime and I love yeah, same day delivery.
Speaker C:Why don't we do that?
Speaker C:And this is a concept, in my opinion, that should have never made it out of that innovation room because operationally I just don't get it.
Speaker C:And I also think, and I'm not talking about Target360, I'm talking about the expansion of it in the same day service.
Speaker C:The other thing, I also think of it as sort of have you ever been to a retailer and you go up to the counter and you have a pile of 10 things you're buying and you haven't shopped with a coupon or you haven't shopped with the same sale of the day and the person behind the register goes, oh, here, let me scan the coupons for you.
Speaker C:I almost feel like you think of Petco.
Speaker C:I'm going to buy it from Petco anyways.
Speaker C:And then I get in there and it's like same day service.
Speaker C:Like, sure, why not get it same day.
Speaker C:This is awesome.
Speaker C:I just, I don't get it.
Speaker C:I don't understand how they're going to make margin on it and not only margin, I don't understand how it's not going to be dilutive to their, to their overall operational standards as well as the, the cost of doing business.
Speaker C:So very cool concept but it should have never made it out of the innovation room.
Speaker B:Holly freaking Luya that I 100 agree.
Speaker B:100 agree.
Speaker B:Hallelujah.
Speaker B:I mean I, I would actually add that there's more points to what my.
Speaker B:I agree with everything you said, Michael, but I think there are other points that I don't like about it.
Speaker B:I think I agree with Anne.
Speaker B:I don't think it compels people to, to, to buy a Target360 membership in comparison to every other option that's already out there.
Speaker B:I hate that it's a membership program that's off the actual target platform like that you have to go to ship to that there's still a disconnect in the customer's minds between those two properties.
Speaker B:But here's the thing that really sticks in my craw.
Speaker B:Resources, as we all know, are not infinite.
Speaker B:Capital is finite.
Speaker B:And so, and my thing is, and it shows just how lost Target is strategically.
Speaker B:Like if you want to be a marketplace, why wouldn't you instead invest in your actual third party marketplace and making it much stronger and more compelling so you can get the benefits of things like Ann talked about with Walmart, like retail Media and you guys, that marketplace has been growing at a snail's pace and that's the first order thing that you do here because you can get the benefits of in store returns, you can keep the customers loyal to Target through that.
Speaker B:Like it just makes so much more sense in an order operations standpoint.
Speaker B:So it shows to me like yeah, Michael, you're dead right.
Speaker B:Somebody came up with this idea in a meeting, they went for it.
Speaker B:It's, it's probably not going to move the needle at all in the long run.
Speaker B:And there are much simpler, more ROI producing initiatives on the table that Target has just been missing the boat on for so long.
Speaker B:And this is indicative of that to me.
Speaker B:So I 100% agree, Chris.
Speaker B:I don't know liking this.
Speaker D:I'm still liking this because I think you have to think about who is your customer that's actually paying for this membership.
Speaker D:And if any of you have actually bought anything same day, you may have noticed either through Walmart or Amazon, a lot of products are not offered for same day delivery.
Speaker D:So to widen the aperture for Target to actually partner with other retailers to expand the assortment for customers that want same day delivery, I think could be very beneficial.
Speaker D:Do I think it's a silver bullet and going to help them from a growth perspective?
Speaker D:Maybe, maybe not.
Speaker D:That remains to be seen.
Speaker D:But I do think that the concept is very interesting.
Speaker D:And again from a consumer lens, what I really appreciate is the opportunity to be able to kind of cross shop and actually have products delivered same day that I'm looking for.
Speaker D:Because again, you know, shopping Walmart and Amazon, a lot of the everyday essentials that I'm looking for are not readily available.
Speaker D:So I'm hoping that this, that Target would provide that.
Speaker B:The other point that's interesting to me too is how long the Petcos and everyone that was mentioned in this article let Target continue to do this too because Target is essentially getting the first party data on this purchase, relatively speaking too.
Speaker B:So that's a fear I have over time of how does the market respond to Target trying to do this for their loyalty program, which is something the article didn't talk about.
Speaker B:And did you have a thought you want to say?
Speaker A:I was just gonna, I was just gonna ask Chris Disa quickly like the only counter that I'd have to that is you get that with DoorDash plus you get same day restaurant delivery.
Speaker A:So do you think that Target Circle360 needs to add something else to make that $10 a month or whatever it ends up coming out to be that could get me doordash same day delivery plus restaurant delivery plus, you know, essentials and all the other things that I need.
Speaker D:I mean, I typically, you know, thinking about price, I typically find that doordash is more expensive and there's a surcharge.
Speaker D:So to me, I would rather, again, personalizing this, I would rather stick with Target360 versus having an upcharge.
Speaker A:Sure.
Speaker D:You know, essentials that I want.
Speaker B:Yeah, that's why they were playing that up in the media.
Speaker B:Michael, sounds like you want to say one more thing.
Speaker B:Go for it.
Speaker C:In going back to the operational pitfalls of this, there's a hidden.
Speaker C:There's like two layers hidden in here.
Speaker C:A lot of the feedback that we've heard from the streets in regards to doordash specifically is that it doesn't work the way you would expect it to work as a retailer in that the burden is placed on all of your own store line employees.
Speaker C:So the doordasher shows up, doordash pitches you.
Speaker C:Our people will go in, find the product, scan it, and leave.
Speaker C:What we hear unofficially is that the doordashers go to the person at the front register or manager and say, hi, I'm Mr.
Speaker C:And Mrs.
Speaker C:Doordash.
Speaker C:Can you find this product for me and get it for me?
Speaker C:Because I need to take it out, which is interesting.
Speaker C:The customer is still getting what they want.
Speaker C:However, for the house, like a target that creates store labor hour issues, it actually is the opposite of efficiency that you're looking for.
Speaker C:So I think from an operational standpoint, there's some pitfalls in this move that are going to come back to haunt Target, which is along the same lines of what Chris Disa said is, I think strategically, they're missing the mark.
Speaker C:They're looking at a bright, shiny object, using it to divert away from some challenging earnings.
Speaker C:And they really should be doing different, more macro strategic targeting of some of the opportunities and challenges they have in their business.
Speaker A:Oh, all right, let's go on to the next headline.
Speaker A:Guys, this has been amazing.
Speaker B:We're starting off so hot.
Speaker A:I know.
Speaker C:Gotten it hot today.
Speaker C:Everybody's fully caffeinated today.
Speaker E:Yes.
Speaker B:Yeah, yeah, I'm very caffeinated.
Speaker B:Yes.
Speaker A:All right.
Speaker A:Headline number three.
Speaker A:Dick's Sporting Goods is set to acquire foot locker for $2.4 billion.
Speaker A:According to CNBC, Dick's Sporting Goods said Thursday that it plans to acquire acquire rival Footlocker as it looks to expand its international presence, win over a new set of consumers and corner the Nike sneaker market.
Speaker A:Under the terms of the agreement, Dick's will use a combination of cash on hand and new debt to acquire foot locker for $2.4 billion.
Speaker A:Footlocker shares soared more than 80% after the deal was announced Thursday.
Speaker A:However, shares of Dick's fell slightly, or roughly 15%, as investors worried about the impact the merger could have on financial results.
Speaker A:One analyst from TD Cowan even said that the deal was a, quote, strategic mistake as it downgraded shares of Dick's to hold from buy.
Speaker A:Michael, I'm gonna go to you first.
Speaker A:Are you pro or con on Dick's acquisition of Foot Locker?
Speaker C:So funny.
Speaker C:My.
Speaker C:My thoughts on this evolve almost to the minute.
Speaker C:When I first read the headline, I was actually very surprised, and I hated it.
Speaker C:I.
Speaker C:I really thought, why?
Speaker A:Why?
Speaker C:I think Foot Locker has issues.
Speaker C:I think they're very fragmented.
Speaker C:They're very reliant on Nike.
Speaker C:And you want to talk about a gorilla in the marketplace.
Speaker C:I mean, Nike can seal your fate within minutes, either positive or negative.
Speaker C:And I also think that the sneaker game is a very fickle game in regards to.
Speaker C:To the consumer interaction.
Speaker C:And although there's a lot of spending power behind it, you have to be right with the style, skews direction that you've chosen.
Speaker C:And I think Foot Locker, based on the number of stores, based on the country saturation, I think it's a very, very difficult business to monitor and to manage and to run effectively.
Speaker C:Now, they've done a decent job.
Speaker C:They've had good times, they've had bad times.
Speaker C:But it is a very, very specific type of business to run, which you have these third parties that it's basically out of your control.
Speaker C:Your destiny may be out of your control.
Speaker C:It's been highly publicized when Nike wanted to pull out of the market, Foot Locker's business had a precipitous drop almost immediately.
Speaker C:When Nike wanted to expand the marketplace, and I'll call it use Foot Locker to gain market share, it was great.
Speaker C:But the minute that wasn't great, it was a problem for Foot Lockers.
Speaker C:So I think there's some huge inherent risks for Dicks.
Speaker C:So that's number one.
Speaker C:That's why I hated it.
Speaker C:Then I started doing a little bit more, and I flipped.
Speaker C:So I started doing a little bit more research on the size and scale of Dicks.
Speaker C:And I was a little mistaken in understanding how large they are.
Speaker C:But a pretty big entity.
Speaker C:I think they're approaching $20 billion.
Speaker C:Right.
Speaker C:So at that size, organic growth is difficult.
Speaker C:Right.
Speaker C:One up, 1% comp.
Speaker C:Down 1% comp.
Speaker C:You're kind of happy but if you're down 5% comp in a tough year, that is a massive hit to your revenue.
Speaker C:So I like the fact that they actually acquired an adjacent business that's going to layer in a multibillion dollar revenue stream.
Speaker C:I thought that was a very easy pickup.
Speaker C:And in rereading the releases, either the CFO or the CEO said, we are going to add in, I think, 4.5% comp sales in the first year, which I liked a lot.
Speaker C:So it's so number three.
Speaker C:My conclusion is the only way they will be successful with this is not integrating it into the Dick's business.
Speaker C:It's sort of like a standalone Let Foot Locker run.
Speaker C:If there's some back of the house IT or supply chain efficiencies you could create, great.
Speaker C:If you start to sort of matrix it into the Dick's organization, I think that's a massive disaster.
Speaker C:They should just leave it as its own entity, let it run on its own, treat it as its own thing.
Speaker C:Look for some economies as well scale, but almost insulate and.
Speaker C:And have it do that.
Speaker C:And if they can do that, it may be very successful for them.
Speaker A:Yeah, that.
Speaker A:I think what you're saying makes a lot of sense.
Speaker A:Michael and Chris Walton, I would go to you too and, and.
Speaker A:And ask, like, do you think that this also is helping Dick's kind of eliminate some competition in the field?
Speaker A:And then maybe even if they're a separate entity or they're, you know, Dicks is just able to kind of keep the business separate, but maybe take some of that Nike relationship into Dick's stores.
Speaker A:Like, will that help this position for Dick's Sporting Goods?
Speaker B:Yeah, I mean, that's, that's.
Speaker B:We were joking before we started this podcast that I had kind of a potentially hot take, although I don't think it's that hot that I wanted to get Michael and Chris's opinion to see if they'd laugh me out of the room on this.
Speaker B:But I mean, the thing I like about this deal is like, if I just go with the.
Speaker B:Go into the realm of like, what if Dick's just shut these stores down?
Speaker A:Right.
Speaker B:And the $5 billion in revenue that Foot Locker generates, a portion of that goes to Dick's just through inertia.
Speaker B:Then when I think of the annuity on that volume year over year, the $2.4 billion seems like they got a steal.
Speaker A:Yeah.
Speaker B:So I think minimally you approach it, like Michael said, where you try to operate them.
Speaker B:If it doesn't work, like, I feel like the worst Case scenario here isn't actually that bad in the long run.
Speaker B:So for that reason, I like this move a lot.
Speaker B:But I don't know, I might, I might be crazy in my math on that.
Speaker B:But I'm curious what the A and M guys thing.
Speaker C:It's the old retail holy grail of does 1 +1 equal 2 or 3?
Speaker C:Everybody always tries to say 1 +1 equals 3, but generally when you do that, you don't capture even 1 of the sale.
Speaker C:So that 2, 2 and change billion, 2.4 billion.
Speaker C:Whatever their actual revenue number is, if Dicks did close all their stores could end up being a billion dollars or maybe a little bit even below a billion dollars.
Speaker C:Now if it's profitable and the margin advantages, you get work then sure, it's awesome, but I think it's a little scary.
Speaker C:And the other key piece, I love the hot take, by the way.
Speaker C:I think it's a very interesting thing, but you made me think too.
Speaker C:Dicks now is wildly important to Nike.
Speaker C:But now Nike's wildly or Dicks is now wildly important.
Speaker C:It's like the symbiotic relationship flipped a little bit and it's sort of like whoever is the strongest at the time is going to win.
Speaker C:And if you read the tea leaves, Nike seems like they're going through one of their sort of macro.
Speaker C:Not as strong as they normally are.
Speaker C:So Dick could be sort of pounding their chest saying, we won here.
Speaker C:Now we're going to turn the screws on Nike.
Speaker C:But if history proves anything, nobody's turning any screws on Nike over the long term.
Speaker C:So I'd be a little bit afraid that all of my fortunes as Dicks and Foot Locker now are heavily saturated in Nike.
Speaker C:And oh, by the way, all of the other big sneaker makers have all taken a page out of Nike's book.
Speaker C:Like Adidas, Huma, all of these people are doing the same thing that Nike used to do and it's going to be very interesting.
Speaker C:So I, I mean, yeah, I think that's like looking at the edge of the cliff saying, okay, let's shut Foot Locker down and let's jump.
Speaker C:Love that.
Speaker C:It'll be interesting to see if that, if that would, if that would work.
Speaker A:Well, you also have JD Sports knocking down the door too.
Speaker A:And we just.
Speaker A:Yeah, the CEO Regis Schultz last week at World Retail Congress and they're taking a totally different approach with Nike.
Speaker A:Like they're going the storytelling route.
Speaker A:They're bringing brands in.
Speaker A:Dick's is just going for like, how much can we.
Speaker A:How much Nike.
Speaker A:Can we pound in and out of this store right now?
Speaker A:And how do we get that to expand shoppers into other categories of our store?
Speaker A:And I think JD Sports on the other side here, they're, they're coming in, they're, they have huge US expansion plans.
Speaker A:Like I think this, this, this hopefully will help solidify Dicks and, and Nike together in, in this option of we're ready to compete with you JD Sports.
Speaker A:But Chris Walton, jump in here quick and then we'll go to Chris Disa for the wrap.
Speaker B:I was just going to say like I think the one point that I, that I've been thinking about when Michael said, you know, does one plus one ever actually equal three?
Speaker B:I think the unique, unique thing about this is the shopping experience for at Foot Locker is very different than the shopping experience for Dick.
Speaker B:Dick's is almost a standalone experience where, whereas Foot Locker is that mall based experience and so in theory, where does the volume go over time is.
Speaker B:I've been wrapped, trying to wrap my head around that.
Speaker A:Yeah.
Speaker B:And I think it presents different dynamics than a, than say if the acquirer was basically competing in the same trip and they're not in this case.
Speaker B:But yeah, I don't know.
Speaker A:Yeah.
Speaker A:Okay.
Speaker A:Christ, Issa.
Speaker A:The floor is yours, friend.
Speaker D:All, all very interesting points.
Speaker D:I guess a few things to add.
Speaker D:One is I do think, I do agree with Michael that the businesses should be treated separately.
Speaker D:But I think, you know what is interesting is that while there are some kind of back of the house synergies, I also think because Dick's and Foot Locker have two very different customers, there's opportunity to learn from each other and leverage your customer data and customer insights.
Speaker D:Also what's really interesting is Foot Locker has an international presence which Dick's does not.
Speaker D:So that could be an opportunity for growth.
Speaker D:But I think underpinning all of this is Footlocker saw some major challenges.
Speaker D: w strategy that kicked off in: Speaker D:And two big pillars of that strategy were around supply chain improvement and inventory accuracy as well as the omnichannel experience for the customer.
Speaker D:Two critical pieces into, you know, kind of create long term value.
Speaker D:So the punchline here is that just because they're acquired, there can be a lot of great opportunity for both organizations.
Speaker D:However, they still have to the leadership team still has to fix or improve upon Footlocker's core business.
Speaker B:Right.
Speaker A:Right.
Speaker B:Michael, you want to say something else?
Speaker C:One last quick thing that Chris just made me think of.
Speaker C:The question is, are they going to be on the right side of history?
Speaker C:When you look back with the massive change of the US Department store and mall model, the answer might be yes.
Speaker C:Right.
Speaker C:Because department stores are clear, clearly failing.
Speaker C:This could be the future where you have a huge base, you start to bring in complementary plugins.
Speaker C:You let them do their own thing.
Speaker C:You have them all have unique innovation as well as setting up multiple options, opportunities to shop for the customer.
Speaker C:It'll be very interesting to see how this one really works out.
Speaker B:Yeah.
Speaker B:And that's why I made the point of Dicks could be very surgical about which stores they decide to keep open, given that phenomenon, so that the.
Speaker B:The draft from the sales volume goes from one place to another.
Speaker B:Wow.
Speaker B:And, Chris, you brought up good points too.
Speaker B:Like the retail media angle here.
Speaker B:They can.
Speaker B:That expands, you know, greatly across these two entities.
Speaker B:Dicks is a great omnichannel retailer, so they can probably bring that operational knowledge to Foot Locker as well, so.
Speaker B:Wow.
Speaker B:And I think it's time to bring Spencer onto the show to put me in my place on what I had to say about him and Old Navy a few weeks ago.
Speaker B:Joining us now for five insightful minutes is Spencer Hewitt, the founder and CEO of Radar, whose recent Old Navy partnership we featured in our Fast Five podcast last month.
Speaker B:Spencer, I was pretty direct in my assessment of the likelihood that Radar's RFID platform.
Speaker B: orm will ever roll out to all: Speaker B:So tell us point blank, what did I get right and what did I get wrong in my assessment?
Speaker E:Yeah, I think, you know, I.
Speaker E:I think you're right in the sense that is a.
Speaker E:Is a phased.
Speaker E:It's a phase rollout.
Speaker E:I think that, you know, Old Navy's a gap.
Speaker E:Old Navy, they're.
Speaker E:They're very smart retailer.
Speaker E:They're pretty careful about their decisions.
Speaker E:They have a great vision, I would say, for.
Speaker E:For where they think physical retail can go.
Speaker E:Yeah.
Speaker E:I just say, like, listen, there's a reason why, like, American Eagle rolled it out to almost their entire fleet.
Speaker E:You know, I think you guys mentioned some kind of bet, like, about putting up your house or something.
Speaker E:I was wondering, like, what you might want to bet in case you were wrong.
Speaker B:Oh, man, I don't know.
Speaker B:Let's talk about.
Speaker B:We should talk about that.
Speaker B:The end.
Speaker B:And I had that bet going.
Speaker C:And.
Speaker B:Yeah.
Speaker B:I don't know what you're not.
Speaker C:You.
Speaker B:You and I.
Speaker B:That should be.
Speaker B:But I'll.
Speaker B:I'll buy you a beer next time I see you.
Speaker E:Yeah, I think, I think, I think worst case, like, if you're right, I'll get you a thousand dollar gift card to Old Navy and then if, if I'm right, then, you know, we can come back on the show and talk about it.
Speaker B:Yeah, I will eat crow in front of the entire audience.
Speaker B:100.
Speaker B:100.
Speaker B:And like I said at the end of that podcast too, I hope you are right.
Speaker B:Actually, I hope you are not.
Speaker B:I wish you the most success in, in what you're trying to do too.
Speaker B:Well.
Speaker A:And Spencer, I, I had a different opinion than Chris.
Speaker A:Slightly different here.
Speaker A:But I want to know if you can just tell our audience quickly, like, what is it about your platform specifically and the unique special sauce that you bring to rfid?
Speaker A:And Wild Navy kind of chose you to roll this out in a phased approach, fleet wide.
Speaker E:Yeah, for sure.
Speaker E:So, you know, our approach to RFID actually started with wanting to deliver autonomous checkout as a use case for the industry.
Speaker E:And like, when you look at that use case, it's a lot more stringent in terms of the requirements you need to meet for it.
Speaker E:So it's like your location actually has to be better.
Speaker E:Your latency and speed updates have to be much faster.
Speaker E:Your detect rate has to be super high.
Speaker E:So we've architected our system to have the capability to enable autonomous checkup from the existing infrastructure that we deploy to retailers from today.
Speaker E:And that has really driven core technological improvement.
Speaker E:And one of the things that we've done differently is there were some companies that did this back in the day.
Speaker E:Thingmagic had a software defined radio approach where they could basically deploy hardware, they could update the signal processing remotely.
Speaker E:You weren't stuck with someone's reader chip.
Speaker E:That's more the approach that we've taken.
Speaker E:So we control everything from the ground up, not just the hardware and the signal processing, but also the software layer.
Speaker E:So we really become, you know, superior core technology.
Speaker E:That's really just like one quote, unquote, like throat to choke for the retailer where they don't need to worry about integrating and cobbling together a bunch of different pieces to make a coherent solution.
Speaker E:And that includes deployment and rollout management.
Speaker B:And Spencer, I'm curious too.
Speaker B:You know you mentioned autonomous checkout.
Speaker B:Are cameras and RFID readers a part of the solution as it's currently deployed, or how should the audience think about that?
Speaker E:Yeah, so we are only deploying RFID and other wireless technologies within these sensors.
Speaker B:Got it, got it.
Speaker B:And how robust are the deployments at this point?
Speaker B:So as much as you can Share with us publicly, of course, we want to be sensitive to that, but how many chains, how many stores?
Speaker B:Whatever you can tell us.
Speaker E:Yeah, you guys got that right.
Speaker E:So we're only in about 600 stores.
Speaker E:All of those stores really started rolling out in July of last year.
Speaker E:So we hit about 100 stores a month from July of last year.
Speaker E:And we're going to continue and accelerate that pace.
Speaker E:But yeah, you got it about right in the.
Speaker E:In the last.
Speaker E:Last episode.
Speaker B:And it's currently at American Eagle and Old Navy.
Speaker B:That's what you guys have shared publicly, right?
Speaker E:Correct?
Speaker E:Correct.
Speaker E:Yeah, publicly.
Speaker E:That is the only two that are out.
Speaker E:And then there are many other pilots that are kicking off as well or already in flight.
Speaker A:Spencer, I imagine that, you know, this is.
Speaker A:We've been talk.
Speaker A:We talked to you a long time ago when you kind of started rolling out with American Eagle.
Speaker A:But why have retailers been so slow to adopt rfid, do you think?
Speaker A:And.
Speaker A:And how.
Speaker A:Kind of give us a sense of how you see the future landscape playing out.
Speaker A:Like, will, Will more retailers start using handheld scanners and then move to systems like yours?
Speaker A:Like what?
Speaker A:Where are you placing your bets?
Speaker A:You don't have to give any specific bet that you're going to place yet.
Speaker A:I won't put that on you.
Speaker A:But.
Speaker A:But where are you placing your theoretical bets?
Speaker E:Yeah, I mean, I think handhelds are going completely away, I think.
Speaker A:How come?
Speaker A:How?
Speaker E:Because they're a technology that was driven by technical limitations of RFID tags themselves.
Speaker E:They're no longer necessary.
Speaker E:So it's like, you know, 10 years ago, handhelds were really needed to make RFID work because you had these tags where transistors were larger.
Speaker E:You needed a lot more energy to power them up.
Speaker E:It's get really close to them to read them.
Speaker E:Now you can read these tags from so far away.
Speaker E:It's really about, okay, how far away can you read them from?
Speaker E:How few sensors do you need on the ceiling to cover the store?
Speaker E:And then how accurately can you locate now that you're reading them from really far away?
Speaker E:So that's kind of the dynamic that's shifting.
Speaker E:And I really think handhelds will be completely a thing in the past in the same way, like barcodes will be a thing in the past, you know, in the next five to 10 years.
Speaker B:Wow.
Speaker B:So, Spencer, I want to press you a little bit on that, too.
Speaker B:So, like, one of the things we always hear when we talk to people about RFID is the accuracy.
Speaker B:And one of the good things about the overhead readers is you get the real Time, data flow.
Speaker B:So how are you solving the accuracy problem comparative to others?
Speaker E:Yes, I mean, we've worked really hard on our receiver.
Speaker E:So, you know, I can say that in, you know, stores with, you know, call it 65 to 100,000 items, we're hitting a 99.8% detect rate.
Speaker E:Better than you'll ever get with handhelds because handhelds you have to factor in human error because people don't always use consistently a job every day, day in and day out as a system that's 24, seven counting things like I'll tell you this much, right now we're doing 13 billion tag reads per day in American Eagle.
Speaker E:That's how frequently we're pinging their inventory.
Speaker B:Wow.
Speaker B:Wow.
Speaker B:Well, man, thanks for coming on.
Speaker B:Thanks for, thanks for sharing your insight with us and it's really great to have you and appreciate you taking the time to sit down with us.
Speaker E:Yeah, likewise.
Speaker E:This is fun and I appreciate it and looking forward to circling back and hopefully the near future.
Speaker A:Thanks.
Speaker B:Thanks, Spencer.
Speaker B:All right, headline number four, Google data suggests that that the cyber crime spree that has hobbled British retailers is now aimed at the U.S.
Speaker B:according to NBC News, this time, hackers behind a series of destructive financially motivated cyber attacks against some of the UK's largest retailers are now going after big American brands.
Speaker B:Google said last Wednesday, quote, major American retailers have already been targeted.
Speaker B:John Holtquist, the chief the OF analyst for Google's Threat Intelligence Group, told NBC News at least three top British retailers have experienced cyber attacks in recent weeks.
Speaker B:Marks and Spencers was forced to pause online orders for weeks.
Speaker B:Hackers who contacted the BBC provided evidence of, quote, huge amounts of customer and employee data also stolen from the Co Op Group.
Speaker B:And third Harrods restricted some Internet access at store locations, though a spokesperson told NBC News that it is not seen evidence that customer data was stolen.
Speaker B:Michael, I'm curious how aware, especially given your recent stint as the interim CEO at joann Fabrics, how aware are US retailers of the cyber attacks going on overseas and are they prepared or are they too distracted by everything else going on right now to make them a priority?
Speaker C:Aware, not prepared enough and too distracted on the difficulties in the market.
Speaker C:And I'm speaking from experience at joann as the interim CEO, one of the first questions I asked was how prepared are we for cybersecurity?
Speaker C:And the answer was lackluster.
Speaker C:Within 60 days, we were set up like a Brinks truck picking up a cash delivery.
Speaker C:So we quickly reacted and really protected ourselves.
Speaker C:But it is not if you polled CEOs they would say, of course it's a high priority.
Speaker C:If you poll CIOs in the US it'd be very interesting to see what percentage would say we feel that we are fully prepared and fully protected.
Speaker C:I would only probably gauge it at a 20% mark.
Speaker C:That's fully anecdotal.
Speaker C:I don't have any data to back that up, but I think it is a major concern.
Speaker C:It is, is also a major risk.
Speaker C:I just don't think retailers are as prepared as they need to be and protected as they need to be in a global US Format.
Speaker C:There are retailers out there that are spectacular at this, but there are also retailers that are the opposite end of spectacular.
Speaker C:And in today's environment, being anything headed towards the opposite end of spectacular is a very scary and risky proposition.
Speaker C:I will say once it is a priority, it is generally there's a low barrier of success to getting yourself protected from a cybersecurity standpoint.
Speaker C:Now, depending on your technology stack and what protections you have in place, it may be more expensive than what you would expect it to be, but it's definitely money well spent.
Speaker C:And I think every single major retailer and every single major hybrid wholesale retail omnichannel, provider of product people that we used to refer to as vertical entities, they all need to have this as a top, top operational priority, not just a top strategic priority that someone reports in the board meetings and says, here's.
Speaker C:It's a priority for us.
Speaker C:Here's the five things we've done.
Speaker C:And I also think it comes down to the boards and ownership of companies to be hyper villagent and provide due diligence to it.
Speaker C:Because it is a very scary thing if, when you really get under the covers of it and there have been some highly publicized challenges in the US over the past few years, I think it's a tip of the iceberg and I think everybody needs to be very, very aware and vigilant in protecting themselves.
Speaker B:Yeah.
Speaker B:Wow, that's.
Speaker B:That's really interesting and, and really harrowing in a lot of ways.
Speaker B:And it actually jives very nicely with what we heard at WRC in London.
Speaker B:And I mean, like, yeah, you know, for the, for the most part, you know, the crazy thing was like, people could not get groceries from these stores.
Speaker B:You know, if this was their local grocery store, they couldn't get groceries.
Speaker B:And what I was hearing from sources that I was talking to about this is they told me that this hit the retailers that were not all of them, but some of them were very hubristic about the quality of their tech stack and their cyber security.
Speaker B:So if you're in that position.
Speaker B:Yeah.
Speaker B:I would take what Michael has to say here very seriously.
Speaker B:Chris, are you seeing this in your con?
Speaker B:Like, do you conversations in the boardrooms hit this at all?
Speaker B:Like when you're talking to retailers, what, what, what is your take here?
Speaker D:I think, you know, when I think about cyber security, I think two things are kind of at play.
Speaker D:Right.
Speaker D:It's like one is what is the potential interruption to your business and that's always top of mind.
Speaker D:And number two is what is the relationship with your customer?
Speaker D:Right.
Speaker D: breach for in with Target in: Speaker D:That does have an impact on your relationship with your customer and they go elsewhere.
Speaker D:So I think, I think some of the macro themes from what I'm hearing, are always top of mind.
Speaker B:Yeah.
Speaker B:And anything to add here?
Speaker A:I think my, my only point is just kind of reiterating what Chris just said.
Speaker A:Like, I think that's the big, biggest challenge that we're seeing or we heard from the retailers in the UK who were impacted last week is, you know, when you are walking stores and the inventory is gone, they're going to start going somewhere else.
Speaker A:And now when you look at how highly competitive that market is, especially in the grocery space, like, they may never come back.
Speaker A:And I think that's what the real concern is from the retailers that we talk to who were hit by this is like, you know, they're, they've already joined another loyalty program at this point.
Speaker A:And they're, they're, there's shoppers that you're a competitor now.
Speaker A:And, and there's really not a way to, like Michael said, you, it's a, it's an investment that you should make.
Speaker A:That's a great investment because it protects you against things like that that really could damage your business long term.
Speaker C:I think you're both making a really good point about the customer.
Speaker C:At joann, we had an immaterial service provider.
Speaker C:To us, it was a very small service they provided us.
Speaker C:They were hacked.
Speaker C:And originally they thought it would be days.
Speaker C:It was multiple weeks that they were completely dark.
Speaker C:Completely dark.
Speaker C:So if you go days, the demands of a customer today, it's going to shake your, your confidence as a customer in that company.
Speaker C:If you go weeks, you're definitely going to lose that customer.
Speaker C:For the most part.
Speaker C:And you're going to have to bring them back.
Speaker C:Maybe they'll come back, maybe she won't come back, comeback.
Speaker C:But I think that's the other scary thing in today's cyber attacks.
Speaker C:It's sort of not your parents cyber attack anymore.
Speaker C:When you go down, you're going down and it is long term and it's 3,4,5x as expensive just to get back to baseline and even getting to baseline is very, very challenging and complex.
Speaker C:So I think this is definitely one where you've got to be protected ahead of time.
Speaker A:Let's go on to headline number five.
Speaker A:Wrap this show up.
Speaker A:It's already been so great.
Speaker A:Target has unveiled a new small town store expansion strategy.
Speaker A: its expansion narrative from: Speaker A: omnichannel operations since: Speaker A:Target's growth ambitions remain robust with plans to open approximately 300 new predominantly full size stores over the next decade.
Speaker A: locations in: Speaker A:While Target already reaches roughly 75% of Americans within a 10 mile radius, as CEO Michael Fidelke noted in March, this still trails Walmart's impressive 90% proximity metric.
Speaker A:Christ, Issa, we're going to go to you first on this.
Speaker A:Do you agree that Target will find profitable growth by expanding into rural markets?
Speaker A:I know you have a hot take on this one yourself.
Speaker D:So as bullish as I was about Target 360, I think the jury's out for me on this one.
Speaker D:I think a couple things that I've been thinking about.
Speaker D:One is, you know, when you think about, you know, store expansion, you know, specifically Target in rural markets, it really for me is location specific.
Speaker D:Does a Target store fill the need for a consumer in that market or is it another choice to Walmart, et cetera.
Speaker D:Now if they're looking at it to say, okay, this is going to be a superstore and we can put pull inventory and speed up our fulfillment in some of these markets because we all know that fulfillment times are lower or they're slower, I should say for some of these customers then that could be a really good thing.
Speaker D:But again it really comes down to each market, each specific market and what is the real need.
Speaker D:You know, funny story, you know Kmart, I don't know if you guys know this.
Speaker D:One of the last stores was in the Hamptons, you know, at the eastern end of Long Island.
Speaker D:And now Target is actually filling the space.
Speaker D:So while affluent, it is also, also, it is also rural.
Speaker D:So as I think about, you know, yacht rock and white pants etc going into Memorial Day, I know a bunch of people out there are very, I know a bunch of folks and consumers are super excited that Target is coming to fulfill that need.
Speaker D:But again that is a market specific opportunity that may not translate across the country.
Speaker A:Okay.
Speaker A:Michael, what about you?
Speaker C:Yeah, I think this is another one that, that it probably didn't come up in the innovation lab Target, but it probably should have never made it out of the C level strategic planning meetings and or approve approval for the spend by the board.
Speaker A:Give us your challenges.
Speaker C:Yeah, the challenge I have with this is I like Chris's example of a Target going in near the Hamptons, but clearly that's not very rural.
Speaker C:The rural markets are a challenge.
Speaker C:And all you got to do for the template of the challenge is look at Dollar Tree.
Speaker C:Right?
Speaker C:I mean the, the, that story has been written, the outcome is written and it's not successful.
Speaker C:I also think Target is best when they are sort of the antidote to Walmart.
Speaker C:Like when Target is Walmart, you don't need Target, you have Walmart.
Speaker C:And Walmart is fantastic at it.
Speaker C:Target is, has always been a step, maybe two, maybe three above Walmart.
Speaker C: to the ads in the, the early: Speaker C:Target, not target.
Speaker C:So it was a great access point but it provided a different experience in my opinion than Walmart.
Speaker C:So if they're looking to expand and if you read between the lines, that's basically what they're saying is we want to go more head to head with Walmart.
Speaker C:I think think that's a strategic error.
Speaker C:They need to really separate themselves, do what they do best and is putting a Target in a rural market and I think of a place where we go on vacation sometimes in the summer up in rural Maine.
Speaker C:There's a dollar General.
Speaker C:Are they going to put a Target near there?
Speaker C:That's never going to work.
Speaker C:So I think it's really, it's interesting but without a well thought out plan and to Chris's point, very strategic placement in demographic areas that can support it.
Speaker C:It's not going to work.
Speaker A:Yeah, I would agree with you Michael.
Speaker A:If we were talking old Target, I think now you have to look at current Target and when you put it up against a Walmart, I don't think it provides the same like Walmart's come so far and improved.
Speaker A:It's especially the new locations of Walmarts that they're going to be building as well in these rural communities.
Speaker A:Like, like their, their store formats I think are comparable and if not better than Target.
Speaker A:Plus I think you hit a lower price point.
Speaker A:It gets back to what we talked about in the first headline of you know, you're going to get the everyday low price at Walmart and, and there's no way Target can beat Walmart on price.
Speaker A:And so what, what are you left with for the shopping experience?
Speaker A:And I tried to even go to like to the yes, maybe they could just build store fulfillment centers or something in these areas to just hit on faster delivery.
Speaker A:But you have Amazon coming in and doing rural delivery too.
Speaker A:Everybody knows Amazon already too.
Speaker A:So I think, I think Target's in a, in a tough space here and I also wonder if this isn't a bit of a PR play as well like if they're going to these based on all of the, the footfall drop that they saw from a lot of the DEI initiatives.
Speaker A:I also wonder if this isn't saying okay, we're going to go and try to penetrate a new market here but, but Chris, Chris Disa, you got something to throw in?
Speaker D:I will say their desire is to add 300 stores which is a 15% increase.
Speaker D:If we were talking 50 stores in select locations that you know, services in need all four.
Speaker D:But you know, 300 stores is quite bullish in my opinion.
Speaker A:Totally agree.
Speaker A:Chris Walton, close us up.
Speaker A:What's the, what's your thought here?
Speaker B:Yeah, I've been on my edge of my seat waiting to, to chime in on this.
Speaker B:I think I actually have, I think I actually have first hand experience that's pretty applicable for sure to this discussion.
Speaker B:You know, you know I, and the reason I say this, I ran, I actually was in charge of the stores in Scotts Bluff, Nebraska and Casper, Wyoming and they were some of the lowest volume stores at Target.
Speaker B:And so to Chris's point, if you're going to build 300 of these, there just aren't that many locations that are going to pencil and I can tell you without giving anything away, the volume of those stores is like 50% of what an average target, at least 50% less than what an Average Target store is going to be.
Speaker B:And, and to your point, I think everyone nailed this.
Speaker B:Like, you know, Walmart's already there.
Speaker B:Walmart's better than it's ever been.
Speaker B:Amazon is going there too.
Speaker B:And so for delivery, like if that's why you're building these, why would you build stores just for delivery hubs?
Speaker B:Like that seems like a really expensive proposition.
Speaker B:Target tractor supply is also there.
Speaker B:So how does Target win this?
Speaker B:How does Target win this battle?
Speaker B:You know, that will return the capital that Wall street requires, given the historical performance of Target at a time when the cost of capital is also more expensive than it has been in years past.
Speaker B:So I absolutely don't get this.
Speaker B:It's, it's just another sign of just how lost strategically Target is right now.
Speaker B:Which Michael said right at the outset, like, this is a discussion.
Speaker B:This is just a pivot that should never have gone past anyone.
Speaker B:Like.
Speaker B:And yeah, the city targets didn't work.
Speaker B:No, no.
Speaker B:Crap.
Speaker B:We all knew that going into.
Speaker B:Because you can't build enough of those at a, at a rate that's going to have meaningful comp growth either.
Speaker B:There just aren't that many locations in the US where that's going to play out either.
Speaker B:But they were like they were lined up on that strategy for five or six, you know, 10 years almost.
Speaker B: Cornell's been there since: Speaker B:So.
Speaker B:So when do they get some really concrete growth strategies here?
Speaker B:And I mean I've been ran on this for the hopefully this pulpit forever.
Speaker B:Like, come on, this is not it.
Speaker A:Hopefully the acceleration team, that's that they talked about in the earnings call this morning.
Speaker A:It's all down to the acceleration team, Chris.
Speaker A:Acceleration move forward.
Speaker B:Right.
Speaker B:Man, I feel, and I feel, I feel vindicated by that too.
Speaker B: had the annual Review show in: Speaker B:But I can tell you like, you know, before you announce this, go into the store in Scott's Bluff and see if you want to, you know, absolutely replicate that model throughout the country.
Speaker B:Like get off, get out of the corporate boardroom and see if that's the model that you think's really going to work.
Speaker B:I don't know.
Speaker C:But yeah, I mean, look, retail 101 that is like really, really proven is that these XO Market stores or smaller stores struggle.
Speaker C:So every major retailer expands and then spends years trying to get out of the leases to shut the not profitable doors they're now saying we want to open 300 of these types of stores.
Speaker C:So, number one, that's, that's doa.
Speaker C:Number two, the other one that we didn't talk about is Dollar General.
Speaker C:Dollar General has these markets figured out they are growing their grocery business as well.
Speaker C:Now, that's much to the not, you know, whatever.
Speaker C:They're just growing their grocery business.
Speaker C:So, like, what do these markets really need a target for?
Speaker C:And I, I think the last thing that Target absolutely needs to do, and if we were working with them or if I was the CEO, I would say let's focus on ourselves.
Speaker C:Let's stop, like, these bright, shiny object things.
Speaker C:What do we need to do to be the best that we can be in our own four walls with what we have today and what we can control?
Speaker C:Because it doesn't feel like they're doing that.
Speaker C:And I think that's a huge miss on their part.
Speaker A:Oh, you guys.
Speaker B:You would get my vote, Michael.
Speaker B:Yes.
Speaker B:Honestly, you can't do.
Speaker B:No, I don't think anyone can do a worse job, quite honestly, but you would get my vote.
Speaker A:All right, well, let's wrap up this wonderful show with the lightning round.
Speaker A:Michael, we're going to.
Speaker A:You first.
Speaker A:The Golden Globes are adding a new category recognizing podcast guests this year, if not your episode, this episode of the Omnitok Retail Fast Five.
Speaker A:Which podcast would you put in the running?
Speaker C:Is this like a podcast in general or just one specific podcast?
Speaker C:I forgot to ask that.
Speaker A:It's, it's, it's any podcast from what I understand.
Speaker A:So it could be call.
Speaker A:If it's, you know, call her daddy, whatever you want.
Speaker A:It could be, you know, the, you.
Speaker B:Know, Michael, call her daddy every week.
Speaker C:Yeah, yeah, it's interesting.
Speaker C:I call her daddy.
Speaker C:I have listened to it because I actually think her business story is absolutely remarkable.
Speaker C:So I'm totally intrigued by it.
Speaker A:Absolutely.
Speaker C:And I do think from a, from a target audience standpoint, the content that she produces is dead on.
Speaker C:That podcast is not for me in any way, shape or form, but I think she's a genius at targeting her.
Speaker C:Her, basically her customer base or her demo.
Speaker C:And I saw an interview with her and Dave Portnoy, which obviously she started on Barstool and him being the normal brash person that he said that he is, he said to her, to Alex, he said, well, you're just Barstool 2.0.
Speaker C:But it's, it's pretty interesting because she kind of poo pooed that quickly, but if you step back, you kind of go, it's interesting.
Speaker C:She has now taken over the microphone in sort of the flag of that generation, which there are massive amounts of millennials and gen zers and even alpha that hopefully they're not all listening to that podcast.
Speaker C:Based on the vulgarity of some of it.
Speaker C:But not being political, my choice would be Tucker Carlson.
Speaker C:I find him very interesting, and this may sound crazy, but very.
Speaker C:I don't know if neutral is the right word, but inquisitive.
Speaker C:And I heard a podcast.
Speaker C:I was driving, we were on a long trip, and I heard a podcast that he did about COVID and the COVID virus and the actual components from a biological standpoint.
Speaker C:It was fascinating and it was very educational and I've done research to see, like, if what he was saying was right or wrong.
Speaker C:And he was completely down the middle of the road.
Speaker C:So I, I find him very interesting.
Speaker B:Wow.
Speaker B:All right, cool.
Speaker B:Like to stay informed.
Speaker B:All right, the Fall of Far Back to you, Michael, again.
Speaker B:And then we'll hit Chris with the final two.
Speaker B:The Fall of Farve.
Speaker B:The latest in Netflix's series of sports documentaries retraces the good time gunslinger's arc.
Speaker B:From humble mystery stories, Mississippi Beginnings to his NFL peak to the texting scandal that tarnished his reputation.
Speaker B:Where does Favre rank for you in terms of all time quarterback greats?
Speaker B:Top 10?
Speaker B:Top 20?
Speaker B:Doesn't rank at all.
Speaker B:Where do you, where do you put them?
Speaker C:So weird.
Speaker C:You, you gotta, you gotta judge these guys because they're public figures, I guess, on the whole body of work.
Speaker C:Right.
Speaker C:So based on his sports stats, he's like top three quarterbacks from his stats or top five, I can't remember what it was, but when all the stuff was coming from Tom Brady and when he ranks in all of the stats, whatever they are very, very high.
Speaker C:And his age, he was very old when he was still competing at a very high level.
Speaker C:So he's from a physicality, sports deliverable standpoint, very high.
Speaker C:From off the field behavior, he's like top 100.
Speaker C:I mean, really, like tarnishing his reputation.
Speaker B:Yeah.
Speaker B:Right.
Speaker C:Yeah.
Speaker C:So this one, I've got no vote.
Speaker C:I.
Speaker C:I can't really, I can't really place him because it's too tough to figure out where.
Speaker C:Where do you.
Speaker C:Wait, which.
Speaker C:And you know, how do you, how do you do it?
Speaker C:But he's definitely a Tale of two Cities, so.
Speaker B:And he takes your approach.
Speaker B:He abstains.
Speaker A:That's right.
Speaker A:I support that.
Speaker A:I support that.
Speaker A:All right, Christy, so question number three.
Speaker A:Netflix just picked up Sesame street streaming rights.
Speaker A:Who is your Sesame street spirit animal.
Speaker A:Or I guess puppet maybe is the puppet.
Speaker B:Right?
Speaker B:Good call.
Speaker A:Yeah.
Speaker D:Well, I guess that's pretty easy because when I was three years old, I dressed up as Cookie Monster for Halloween, so I'm gonna have to.
Speaker D:Gonna have to go there.
Speaker D:Perfect.
Speaker B:That's definitely a puppet.
Speaker B:I don't.
Speaker B:I don't think Cookie Monster is an animal.
Speaker D:That's true.
Speaker D:Definitely a puppet.
Speaker B:I like Big Bird.
Speaker B:All right, last one.
Speaker B:Starbucks availed its new summer product lineup yesterday, including a new iced horchata, oat milk shaken espresso, and the return of fan favorite summer Berry Starbucks refreshers.
Speaker B:And a new strawberries and cream cake Pop.
Speaker B:Which of these items do you most want to imbibe this summer?
Speaker B:Christisa?
Speaker D:Probably the summer Berry Refresher.
Speaker D:Low sugar.
Speaker D:The least amount of sugar of all the new items.
Speaker B:Yeah.
Speaker B:Yeah.
Speaker B:That orchard, though, sounds tasty.
Speaker B:I can't wait to get it.
Speaker D:It does.
Speaker D:My nephews like the cake pop, so I'm sure I'll be buying both.
Speaker B:Yeah, right?
Speaker C:Is it me?
Speaker C:Is it me?
Speaker C:Or do you guys feel guilty if you just go into Starbucks and order a regular coffee?
Speaker C:Like, I mean, it's amazing, right?
Speaker C:The lineup they have?
Speaker B:It is.
Speaker B:Yeah, it is.
Speaker B:It is hard not to get swayed by something a little bit extra and a little bit sweeter.
Speaker B:So.
Speaker B:All right, well, that was.
Speaker C:Sorry, one last thing, and then I'll let you close it out.
Speaker C:Chris.
Speaker C:We.
Speaker C:We were on a project, and we had a tried and true Starbucks lover, and he would do whatever crazy drink was out there.
Speaker C:And somewhere around Easter, there was a green matcha with, like, purple foam on the top hop oat milk lavender thing.
Speaker C:And we all made a ton of fun of them, but my wife had one recently, and I drank it.
Speaker C:It was the best drink I've ever had in my life.
Speaker C:So what was it called?
Speaker B:Do you remember, for our fans, what it was called?
Speaker C:It's a matcha lavender oat milk latte.
Speaker B:Okay.
Speaker B:Latte ice latte Ice latte.
Speaker B:Okay.
Speaker C:It's.
Speaker C:It's fabulous.
Speaker C:It's right on the front of all of the.
Speaker C:Of the Starbucks apps.
Speaker C:Now, maybe they're targeting me now because I did that, but I'm now a believer in any in.
Speaker C:In non regular coffee drinks at Starbucks.
Speaker B:Yeah.
Speaker A:Wow.
Speaker B:Wow.
Speaker B:That's awesome.
Speaker B:So, fans, listen up.
Speaker B:Go get one today.
Speaker B:All right.
Speaker B:What a great show.
Speaker B:And this was fabulous, man.
Speaker B:We went a little long, but I think it was worth it, given the topics at hand.
Speaker B:As I told these guys before we started, I think Michael and Chris drew the headline lottery this week because there was, like we said, a lot of meat on the bones with all these topics.
Speaker B:All right, that closes us up.
Speaker B:Happy birthday today to Sarah Ramos, Judge Reinhold, and to clubber Klang himself.
Speaker B:Mr.
Speaker B:T, who if you want to feel old, turns 73 today.
Speaker B:Mr.
Speaker B:T is 73 years old.
Speaker B:And remember, if you can only read or listen to one retail blog in the business, Make It Omnitok, the only retail media outlet run by two former executives from a current top 10 US retailer.
Speaker B:Our Fast Five podcast is the quickest, fastest rundown of all the week's top news and our daily newsletter, the Retail Daily Minute, tells you all you need to know each day to stay on top of your game as a retail executive and also regularly features special content that is exclusive to us and that Anna and I take a lot of pride in doing just for you.
Speaker B:Thanks as always for listening in.
Speaker B:Please remember to like and leave us a review wherever you happen to listen to your podcast or on YouTube.
Speaker B:You can follow us today by simply going to YouTube.com omnitalkretail Michael, final question for you.
Speaker B:If people want to get in touch with you, pick either of your brains at the A and M Consumer and Retail Group, potentially get you as the interim CEO for Target.
Speaker B:What's the best way for them to do that?
Speaker C:Sneeziest is email mprendargastalvarezamarcel.com and Chris, same.
Speaker D:Question, same thing CD said Alvarez and Marcel or LinkedIn.
Speaker B:Awesome.
Speaker B:Awesome.
Speaker B:You can also go to the Alvarez and Marcel Consumer and Retail Group's website and check them out there too.
Speaker B:So until next week, thank you Michael thank you Chris, both for being here and on behalf of all of us at omnitalk Retail.
Speaker B:As always, be careful out there.
