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Dan Loney: Well, we have seen our
latest retailer ready to shut its doors for good. Fabric chains
JoAnn Stores announcing
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recently that it's going to
close all 885 of its locations after reaching an agreement for
new ownership that's going to
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lead to a liquidation. But it
also comes at a time when retail is still feeling the pinch from
inflation, and as well, consumer
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decision making. And now you get
to throw in the component of tariffs. Pleasure to be joined
by Cait Lamberton, Marketing
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Professor here at the Wharton
School. Cait, lots to discuss with you. Great to talk to you,
as always.
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Thanks for having me. Let's start with JoAnn, which I
read was entering its second
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bankruptcy within a year. So
obviously, things were not going great for the company to begin
with.
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Yeah, a second bankruptcy is
tough. It's not that you can't survive it. So the famous case
of a firm that did survive a
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second bankruptcy was Sbarro,
the pizza chain that you might be familiar with. They partnered
with private equity, came back
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with a rebrand. They were able
to be resilient to a second bankruptcy, but it's hard, and
that's a different business than
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JoAnn is in. So if JoAnn—
JoAnn has so many things, that— retail is tough, but what JoAnn
does is even tougher, right? So
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they have to carry this massive
amount of inventory, because by its nature, that is a business
where people want extraordinary
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amounts of variety, and every
option matters. You know, it matters whether they get rid of
a velvet or they get rid of a
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lace, or they get rid of a tie
dye, because for somebody, that's the thing they wanted.
And so they need enormous
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amounts of space, and they need
enormous amounts of inventory, and they're often located in
areas that have been— have
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been seeing declines in foot
traffic anyway. So whether it's near a shopping mall or some
area like that, those areas are
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already not seeing the walkers
that they used to. So a lot of things working against them that
make it— made it particularly
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tough for them to stay alive
right now. - And had they been a company impacted by
the wave of e-commerce as well
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in recent years? I mean,
obviously people feel like they can find more options at times
online.
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Yeah, and it's interesting. I'm going
to be curious to see what they're
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doing. So right as of right now,
they still have JoAnn.com open. But previously, the fabric
shopping experience was a very
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tactile experience. You know,
it's not like other things, where it's a pure search good.
Unless you know exactly what you
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want, very often you're going to
go and you need to have an experience with the good. You
need to almost believe that it
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is what it advertises that it
is, to make that purchase. So yes, online retailing affected
them, but it was going to take a
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long time for the traditional
JoAnn shopper to have faith that what they bought online was
going to measure up to their
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expectations. Now,
interestingly, so JoAnn started its going out of business sales
on February 15. February— in the
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month of February, Shopify
reported that actually demand for a lot of the things that
JoAnn sells were through the
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roof. So they saw a quilting
thread up 200%, quilting rulers up 130%, craft cutters 88%,
straight pins 87%. So it's not,
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the demand isn't there. It's
definitely there. It's just that I think their cost structure and
the nature of— of the business
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itself made it very hard to
survive right now. So then what's the benefit for
the new owners of just going
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straight ahead and shutting the
doors and doing the liquidation? I mean, they're going to have
to get some money out of the
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inventory. And they're going to
have to, you know, sort of end these— these enormous leases
that I'm sure are incredibly
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costly. Likely they will find
some kind of online model. Many, many companies are trying that
with mixed success. So you might
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be familiar with Lord &
Taylor, which is trying right now to shift to an online
model. I think it's going to be
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a painful process. Again, because
in part, what people are looking for is a retail experience. And
for some of these brands, it's
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really hard to replicate that
online. Bed Bath and Beyond was the one
that I was gonna bring up. - Yeah.
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That's seemingly the latest one
to try and do that. And Bed Bath and Beyond, again,
did come back from bankruptcy,
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right? They were sold to
Overstock, which helped, because Overstock knew how to do online.
Then Overstock changed its name
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to Beyond Inc. So they took the
brand equity of Bed Bath and Beyond, and the online expertise
of Overstock, and they were able
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to successfully emerge from a
bankruptcy. So what do you think is the
state of retail right now, and I
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mentioned at the top, with all
of these different impacts? And then now we're going to be
talking a lot more about
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tariffs, especially with
companies that have products that are coming from Canada or
Mexico.
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Yeah. I mean, retail is hard.
Retail has always been hard. And so it seems like every year
we're saying it's the end of the
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world for retail, but that's—
retail is just really tough. And I think— but I do think there
are a few new pressures that
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make it— make it particularly
challenging, that are creating threats to these legacy
brands, these older companies
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that are really very good at
what they're good at. You know, you saw Big Lots close, you saw
Party City close. You saw Foot
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Locker closing a bunch of
stores, Macy's closing. These are just huge brands, right?
They're at least closing stores,
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if not closing altogether. One
thing that I think does create a unique new challenge is the
availability of really easy to
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access, easy to buy dupes, and
the rise of what I would call ephemeral brands through social
media. At one point, there was
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an idea that you would want to
buy an established brand, and that that was the signature of
quality. That you were doing the
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cool thing because you had the
established, high quality brand. But now there's more of a cachet
for a brand that's going to be
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gone in a minute. You have the
thing that is of the moment. No one expects it to last, and I
can buy it. I don't even have to
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go to a website. I swipe right
and click a button on my phone, and it's coming to my house. So
the— the amount of friction
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that's been removed, and the
number of options that I have available create a really big
challenge for a brick and mortar
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retailer. So you have this drive
for the removal of friction. At the same time, if you're going
to be a brick and mortar
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retailer, you have to provide
this incredibly rich, expensive experience. So— so that's a tough—
a tough tightrope to walk.
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Now, when you think about that,
when you think about the tariffs, that's an interesting
challenge in a number of ways.
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About a week ago, there was a
survey that said one in five consumers said that they were
accelerating their purchases
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ahead of tariffs. Today, I saw
one that said 32% of people said that they had accelerated their
purchases ahead of tariffs. So
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that kind of purchase
acceleration is a— it's a— it's a supply chain problem in some
ways. But you know, if these are
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durables, it's also a longer
term problem, because now people have stocked up. We don't know
what happens. So that— that's one
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issue. And then the other
question, of course, is how people are going to respond to
those price increases
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that are likely to come. Look, we've been down the road
with supply chain before, so
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it's not the first time and it
won't be the last. It's very true. Thanks, Cait. All the
best.
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All right, take care. Bye. You got it. Cait Lamberton,
who's a Marketing Professor here
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at the Wharton School.