More retailers are pivoting to capture the “thrift shift”

More retailers are pivoting to capture the “thrift shift”

When not just one company but a growing number of them make a conscious decision to pivot the merchandise they offer to consumers, to borrow a term from the game of poker, it’s a pretty big tell. The shift we are talking about is the move to selling used clothing, which takes a page right out of the Poshmark playbook and is in tune with our Middle-class Squeeze investing theme.

The more meaningful question is the why as in why are these companies doing this and doing it now?

We at Tematica have been sharing economic and other data that points to not only the continued climb in consumer debt levels but now banks ranging from Citibank to Bank of America, JPMorgan Chase and Capital One have announced rising credit card delinquency rates. We’ve long said that rising debt levels would sap consumer disposable income as interest costs associated with that rising debt level take hold.

At the same time, retailers of apparel and especially department stores remain under attack from digital commerce as well as private label brand initiatives at not only Amazon, but also Walmart and Target.

As we like to say, a pain point generally gives rise to a solution. Sometimes that solution arises quickly and other times not so much. But in the case of the apparel and our Middle-Class Squeeze investing theme, we are seeing several solutions unfold.

Above we mentioned Poshmark, a company that sits at the intersection of our Digital Lifestyle, Digital Infrastructure and Middle-class Squeeze investing themes and while it has garnered a significant user base and following it isn’t the only company looking to attack the market for monetizing one’s wardrobe. Online marketplace Depop counts more than 15 million users that tap into its marketplace to buy and sell clothes. And for those thinking the used clothing market isn’t for higher-end and luxury items, offerings from TheRealReal (REAL) and Farfetch (FTCH) should get you to think again.

Aside from the business pivot, Macy’s, JC Penney and others could also be looking to get a valuation multiple bump by wading into the used clothing market. Shares of Farfetch are trading at more than 3x expected 2019 sales, multiples ahead of the 0.2x price to sales valuation currently accorded to Macy’s shares. And for those wondering, that valuation is even lower at JC Penney. In order to get that multiple pop, Macy’s and JC Penney will both have to cross the digital shopping chasm, something Macy’s has been far more successful at than JC Penney.

Macy’s Inc. and J.C. Penney Co. this past week unveiled partnerships with resale marketplace thredUp Inc. to sell used clothes and accessories in some of their stores. Outdoor brand Patagonia plans to open a temporary store in Boulder, Colo., this fall dedicated to selling pre-owned goods, its first such location.

Thrifting is gaining traction as shoppers have grown more bargain conscious and concerned about the environmental impact of fashion, particularly the throwaway clothing model popularized by fast-fashion chains.

“We looked deeply at Generation Z consumers, and recommerce came up over and over again,” Macy’s Chief Executive Jeff Gennette said in an interview, referring to theburgeoning resale market. “It’s not a downside that something has been preowned.”

Thorsten Weber, chief merchandising officer of Stage Stores Inc.,

Other chains, including Bloomingdale’s, which is owned by Macy’s, Urban Outfitters Inc.and Ann Taylor, are taking a slightly different approach by launching services that let shoppers rent clothes instead of buying them. Customers can even rent home décor at West Elm, which has partnered with Rent The Runway Inc. for the program.

Source: On Second Thought, Traditional Retailers Make Room for Used Clothes – WSJ

Weekly Issue: The Changing Mood of the Market

Weekly Issue: The Changing Mood of the Market

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Growing focus on Amazon’s private label potential

Growing focus on Amazon’s private label potential

During the summer, we here at Tematica spoke at length on the growing number of private label products and brands at Amazon (AMZN). Having seen the strategy work at a number of other retailers, like Costco Wholesale (COST), Kohl’s (KSS), Wal-Mart (WMT) and even JC Penny (JCP), we see it as “expected” that Amazon would seek to grab a greater slice of profits to be had by offering its own products.

Today, Amazon boasts 34 private label brands in nine categories, and more across Wall Street are starting to realize this is bound to be something far greater than small potatoes or a rounding error for Amazon. Now we’re wondering how long until they realize our Connected Society, Cash-Strapped Consumer and Rise & Fall of the Middle-Class themes are some of the meaningful tailwinds behind this?


In recent Amazon news, an analyst from financial firm Morgan Stanley has predicted the eCommerce platform’s private label retail sales could provide an added boost to its bottom lines.

According to a article published Tuesday (Oct. 10), analyst Brian Nowak has speculated that Amazon’s private label merchandise sales could add $1 billion to Amazon’s bottom line, making up 5 percent of retail sales by 2019.“… for Amazon, it’s all about gross profit dollars: advertising, subscriptions, services … and now private label …” Brian Nowak said.

“We believe it is increasingly important to focus on Amazon’s gross profit dollar drivers. A deepening gross profit pool gives Amazon more dollars to invest and [eventually] allows [funds] to flow down to P&L for shareholders.

”Amazon’s private label goods first launched in 2009 and include thousands of products in a wide range of categories, such as clothing, electronics, industrial supplies and more, the article reported.

“Private label is likely to be the next driver … as our sensitivity shows that even if private label could grow to 5 percent of Amazon’s retail sales by 2019, it would add almost $1 billion of gross profit,” the Morgan Stanley analyst said.

Amazon currently boasts 34 private label brands in nine categories. Private label products are responsible for 0.15 percent of its global merchandise sales. Other major retailers see an average of 18 percent of gross merchandise sales coming from private label profits, reported. For example, Costco gets 20 percent of its revenue from private labels, JCPenney sees 44 percent, Kohl’s gets 46 percent and Walmart sees 15 percent, the article noted.

Source: Private Label Boosts Amazon’s Retail Sales |

Off-price retailers – another thorn in the side of department stores

Off-price retailers – another thorn in the side of department stores

A new report from Moody’s reinforces the negativity surrounding department stores like Macy’s (M), JC Penny (JCP) and Nordstrom (JWN). Unlike most that focus on the shift to digital commerce that is part of our Connected Society theme, Moody’s adds a perspective that meshes extremely well with our Cash-Strapped Consumer and Rise & Fall of the Middle Class investing themes — consumers embracing off-price retailers such as TJ Maxx, Marshalls, and HomeGoods all of which are part of TJX Companies (TJX) as well as Ross Stores (ROST).

One interesting observation is the expanding footprint of these off-price retailers beyond apparel and into home products, which offers additional challenges to Macy’s and other department stores that have home products and furnishings. This move also means additional challenges for Pottery Barn (owned by William-Sonoma (WSM)), privately held Crate and Barrell and Bed Bath & Beyond (BBBY).

Off-price retailers will remain among the top performers in the U.S. retail industry during the next 12 to 18 months.

That’s according to a new report from Moody’s Investors Service. The outlook is not as positive for department stores, which will continue to struggle as they seek to level the playing field with both off-price and online vendors.

Moody’s expects operating income in the off-price sector to grow 6.9% in 2017 and 5.4% in 2018. Department stores will see operating income decline 9.3% this year and 2.7% in 2018.

“Off-price retailers continue to outperform other sectors of the U.S. retail industry largely because they offer the kind of lower-cost, higher-value products and shopping experience many consumers are looking for,” said Moody’s analyst, Christina Boni. “Off-price stores are far outstripping department stores, which in contrast are still struggling with outmoded formats and supply chains that can’t keep pace with customer demand.”

Despite their lack of e-commerce penetration, off-price retailers have succeeded where department stores have foundered due to their focus on delivering major label brands at significant discounts to value-hungry consumers, Moody’s said. Off-price vendors also outperform the broader universe of U.S. apparel-focused retailers.

While apparel sales make up the bulk of their sales, off-price retailers have been increasing their product mix in the higher-growth and less competitive home products category. Moody’s estimates that home product sales at off-price stores grew 9.9% in 2016, compared with 7.8% for the off-price sectors overall growth.

Source: Moody’s: No letup in sight to off-price growth |Chain Store Age

How much time will Wegmans new store buy mall operators?

How much time will Wegmans new store buy mall operators?

Over the last few quarters, we’ve been rather vocal here at Tematica about the “transformation” at malls across the U.S. as part of the headwind that many brick & mortar retailers are facing “thanks” to our Connected Society theme. The move by Wegmans is a new one, but it also underscores the types of changes that we’ll be seeing as mall operators, such as Simon Property Group (SPG) reposition their assets from shopping focused to a different kind of destination focus be it dining, entertainment or in this case grocery shopping. That said, we are well aware of efforts by Amazon (AMZN) and Instacart to leverage Connected Society developments to flip the grocery model by bringing them to the shopper. We’ll see how much time the move by Wegmans buys companies like Simon Property Group as they look to fill what is likely to be a growing number of retail stores.

In a first for the 101-year-old grocer, Wegmans said it will open a two-level store, at Natick Mall, Natick, Mass., with direct access to the shopping center. The 134,000-sq.-ft. store will be located in a building that formerly housed one of the mall’s anchors, J.C. Penney.   The new Wegmans, scheduled to open in spring 2018, will devote 12,500 sq. ft. on the second floor to two restaurant concepts. The grocer is seeking a complementary tenant for the 45,000-sq.-ft. third floor of the building.

Source: Upcoming store will be a first for Wegmans | Chain Store Age

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

May Data From ADP and Challenger Offer Confirmation for Several Tematica Select List Positions

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