Retail Retold Replay with Simeon Siegel
Guest: Simeon Siegel
Topics: Retail trends, BMO Capital Market
Transcript:
Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.
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Welcome to Retail Retold everyone. Today I am joined by Simeon Siegel. Simeon is a senior analyst at BMO Advisors. And for those who don’t know the episode Simeon and I did last year, it was the number one listened to episode on Retail Retold in 2021. So I am excited for him to be back for a repeat. Welcome to the show.
Simeon Siegel 1:18
Setting a high bar. Wow. Last time I came on, and no one knew any idea. Now I gotta beat the top. Alright, let’s see what you got Chris.
Ressa 1:27
So tell me tell us a little bit more about who you are and what you do. So the audience who missed that episode will know now.
Siegel 1:34
Absolutely. So I am a managing director and retail analyst at BMO Capital Markets. So what I do is I focus on the evolution of retail have, honestly we spent a lot of time on the different channels and the conversations you and I have that are most fun. Make sure to probe things that people think are obvious or are platitudes like retail is dead.
And direct is the only way to go. Anytime we hear the word obvious is when our pins pick up and we start thinking okay, if it’s obvious, if it’s so obvious, it probably actually has a lot of questions behind it. So we try to do that and essentially, chronicle advise and participate where we can on this fun path. That is
Ressa 2:13
Excellent. Well, today, everybody, our episode is going to be the top five retailers that we are higher on than the market. And there will be only Publix retailers. I will go through how I came to my list last year if there was any thought process at all and how you got to yours. But the it is not a stock recommendation.
It is not anything other than we just feel pretty good about these retailers based on some facts and some things we know. And that’s really what it is. Before we get there. We have a section Simeon called Clear the air. I don’t think we had this when he came on. I’ve got three personal questions for you. And audience. He has not prepped for these questions, they will be on the fly. And he’s very nervous pretty hard.
Siegel 3:04
He’s very hard.
Ressa 3:08
So okay, here they go. Question one. What is the last time you did something for the first time?
Siegel 3:14
So I mean, the last? That’s a catchy question, the last time I did anything for the first time, I’m gonna have to say waking up every day during the pandemic probably hit that checklist. But yeah, I think that this idea of trying to work, utilize bandwidth, manage three different zoom classes happening across my house with the boys trying to learn what they were doing was probably a test in and of itself a lot less exciting than maybe some of the answers you probably get. But then again, I haven’t prepped that one. So I’m gonna stick with that for now.
Ressa 3:46
You didn’t go skydiving or anything.
Siegel 3:48
You know what in my mind, I think I was jumping off a plane every time. But that’s the beauty of virtual reality.
Ressa 3:58
For sure, okay.
Two people ever asked you that question. People asked me the last question, which I’ll write. I’ll tell you. So here’s number. Here’s number two. What is one thing most people agree with, but you do not.
Siegel 4:15
Everyone knows direct is the way to go. Wholesale lesson, internalize the fact that there are toll collectors and middle people for a reason. Don’t shun them just because they’re charging you a fee. So one thing we’ve been talking about a lot, and I’m assuming you’re asking this professionally rather than personally, but professionally, I think it’s just so easy to say it’s all about direct and wholesales bad. And I disagree with that wholeheartedly.
Ressa 4:40
Alright, so direct consumer is not the only answer. Okay, last question. What is one skill you don’t possess but wish you did?
Siegel 4:48
jumping out of airplanes? I would love I would love to be able to move things with my mind. But sadly that’s not there. Listen, I think Do that.
Ressa 5:00
Wow, that is a good one. That is a good one. All right, well, then I’ll say that’s a great one because mine is photographic memory. Listen, my photographic memory. So that’s better than that. teleconnection it’s a good blend. That is good.
Siegel 5:14
I can move the photographs in your memory with my mind.
Ressa 5:19
That is a really cool one. I like it. Okay. We’re gonna go into our topic, top five retailers were higher on the market. So once did you have a process by which you went and chose these?
Siegel 5:36
I do have a process, I think have the Venn diagram. Do you want me to jump in first and go through mine? Are we here yours first, I don’t want to I don’t want anyone to kind of think that I am.
Ressa 5:46
To your view, my process was simple. My process was simple. One, they had to be public, too. I decided to take the specialty retail approach, and do specialty retailers in that category. And there are at least specialty retailers in my mind, the market might put them in a different place. But I think they’re all specialty retailers. And three, I chose retailers that don’t get as much headline news as the traditional, like, I’m bullish on Walmart and Target and they’re not.
Siegel 6:21
Great. Alright, so mine, and then and then we’ll move no back and forth, maybe and split the
Ressa 6:26
font. Yeah, that’s what we’ll do. Yeah.
Siegel 6:28
So we just went and you and I had a lot of fun last year talking about stores versus prices being oversaturated on discounts versus oversaturated. On on units. I think we can all finally agree that COVID had some very important Silver Linings for retail. I think we also know that price points went up almost across the board, right? Whether you call it inflation from an economic term, or full price sell through from a retail term, we all raise prices.
What I’m trying to do right now is we watched the rising tide lifts all boats, we watched the rising the waning tide, or whatever the right nautical term is supposed to be pulled the boats backwards. So the receding tide was negative, we now need to look at Winners and losers as opposed to clusters.
And so what I tried to do my team and I have tried to do is think about holistically which retailers and brands actually improved pricing power, versus which simply saw higher prices because of inventory scarcity. Because what’s going to happen now is the companies that just saw higher prices, because no one else was promoting what companies are gonna start promoting and they’re going to fall back to that pricing pressure.
Whereas those that actually said we’re just going to bear hug the really good customers and forget about the dilutive customers, those are going to be the ones that walk out of this with a lot of power. So you’re going to see, I think three of the companies three out of my five are brands that I think actually did something different, and walking out healthy, and will walk out with healthier pricing power, one of my companies is going to fit into have they benefit from those that did not.
And then one of my companies is going to be a little bit of a flyer in terms of a multi year interesting opportunity. So with that, my starting Are you are starting Okay, so we actually just upgraded Under Armour recently. So you and I think talked about Under Armour and Victoria’s Secret last year as being two brands that went way too far, not too fast, just way too far, grew for growth’s sake, started effectively losing money or meaningfully under earning because they were heavily discounting.
I think, Under Armor has had this come to awareness moment where they realize less can be more and profitability is what to focus on. And I think Under Armor is one business that walks out of this pandemic in a much healthier position than it started.
Ressa 8:39
It’s a really interesting one. And one of the things that I think we mentioned Victoria’s Secret, one of the things that happened with them, and it relates to prices, and a little bit at least it feels as a consumer to me, different than Nike is the exclusivity of the product. It seemed like in the beginning of their journey, to becoming a brand and a box. It was really challenging to get the product. It was like really cool and exclusive.
And then it showed up everywhere. And the pizzazz waned a little bit. That’s how it felt to me as a consumer. I think their products are great. I own a lot of Under Armour workout shirts. And by the way, in the beginning, their commercials were like the best commercials known to man, Ray Lewis commercial. They were they were awesome.
So you and you’re coming at it from a pricing angle and being able to hold price. So it seems like their product is flooded in the marketplace over a course of time. And so that’s typically a time where it’s challenging to maintain price typically price goes down.
Siegel 9:55
So totally agree with that. Rewind that comment too. yours though. So the idea here so we actually So same kind of conversation. Yeah, so So I am a little bit referencing the stock, not in terms of the stock call, but just thinking how we think about a company, not simply from its box perspective, but from its profitability perspective. My my team historically had a sell rating on UnderArmour.
We shared all of those concerns of oversaturation. And the reality is, they were one of the beginning of COVID, that realized slapping that UAE logo on every single thing they could was the wrong move. Right, they realized that by becoming big, they became diluted. And so that was this focus of becoming healthier, rather than a louder company, that I think this kind of I think, Under Armor has been very effective out of the last two years.
And just for numbers, they took a 10% margin down to zero. As they were growing, they now brought it back to 10. And there’s more room to go. So I think your point, so you know, is here, here’s actually really interesting. For anyone listening to this, if I were to ask you inventory across broad brands and retailers last quarter, was it up or down? Most people, right, we think about supply chain constraints. What do you think I’m gonna say down?
There were three companies that I look at, that did not have inventory up, everyone in inventory. And we’ll talk about this and you and I have talked about this where supply chain to me in 2020, shut down supply chain in 2021 slowed down, and 2020 No one was making anything in 2021. No one was delivering anything. So you went from this creation issue to a transportation issue, but people didn’t fully internalize it.
So most people have higher inventory, and most people have it through in transit. So it’s stuck somewhere under armour was one of the very few that has gone on this two year inventory recalibration story. And it takes time. And it takes us an emotional way to break that belief to think that Under Armour became the gap hoodie in Disney World, it’ll take time for people’s perception to shift. But the company has been doing a really effective job. And we’ve been seeing it play out in the in the primary
Ressa 11:57
Cool. Okay. Mine is toric. Interesting. So, my experience in talking to people who work at retail companies, especially on the apparel side, when you say like, what do you want in leadership to be focused on, they always say the same thing, which is the merchandise and the brand.
And tore it is super focused on this, they’ve got an interesting niche in the marketplace, that competition has been from the traditional brick and mortar side has been, you know, whether it was dress barn and whomever kind of going away.
And they they have really, from their messaging on the brand, have really dialed it in, they’re super focused on the the product, they are, I think 95% of their customers are loyalty customers, they’ve got really good loyalty in their ICR release, they said that both the online and the physical was profitable. And the market segment that they’re attacking, has a lot of runway for them based on their percentage of the market.
And so based on where we are in the as a culture, based on what they’re doing, from a brand, how data centric they are, and the runway for growth, and that they’re already profitable in both channels, and they’ve seemed got it working from both the online and the physical. The stock has taken a hit. And it was a recent IPO. And then you know, IPOs typically have that pop and they go down.
So maybe this is a layup I got another recent IPO that maybe that’s the same. But I think the the category has a real opportunity. And I don’t know if anyone is poised like them to do it. They do claim they want to be the number one direct to consumer in in apparel and infamous so they aren’t direct to consumer. But you and I have talked about direct to consumer getting to scale.
And I don’t know I can, you know, and you can compare it to the other direct to consumer companies. They don’t get, you know, lumped into that because they weren’t digitally native. But the from a business perspective, you know, they’re larger in in revenue than a lot of these companies. I can’t pull the number don’t have it off the top of my head, but they’re larger in revenue than most of the digitally native brands that we talk about.
And so they I don’t know that I would categorize them already at scale. But they’re more at scale than some of these Other digitally native brands that get all these headline news.
Siegel 15:03
And let me be clear, right? When you and I talked about it, I’m not anti DTC, I’m pro Omni. So my point is, if we think about it, all the brands, right, so we have the digital natives that you brought up on one hand that are just starting. But then we have all the brands that are heralding the story of go direct away from Wholesale, by definition, are the brands that became large and became profitable through wholesale.
So that’s this idea of my thought is like when you and I talk about stores versus EECOM, it’s a similar way. You are supposed to disrupt you’re not supposed to destruct right or not supposed to destroy. So I think that people forget the way that worked in the past actually is the best way. It’s just that now you internalize, how do you add on and evolve and add on this data centric approach and being able to get closer in other ways?
So I don’t think that’s, that’s crazy at all. And I also think people have been talking about that sector as being a completely underserved sector for so long. That if you can get someone who can create a strong brand experience and appeal I mean, there’s no
Ressa 16:04
why not? Right? Yeah. So that’s what I’m higher on in the market.
Siegel 16:09
Like it. Alright, so my second will be quick. My second is similar to Under Armour, it’s the same idea to effected change and who can appreciate that you can do more with less. And that’s Capri, the owner of Michael Kors, Versace, Jimmy Choo. I specifically asked John idle, the CEO of the combined company on the conference call last quarter. What are you going to do, John, when an IF promotions come back across the group.
And he on the public conference call said something to the effect of I don’t remember the exact words but something to the effect of what if they’re already back right promotions are coming back, and they will come back more and we will not participate? Right. We know last time we chased volume. We gave up profitability. It wasn’t the right move. We know we want to be we’re going to stick to that.
And I think that’s what we want to see walking out of the pandemic because I think retail we my team just did a report today actually, on the increase in cash balances. And what we found, over half of the companies that I look at, have almost a between more than 5% of their total market value of their total market cap in excess cash, that in the last few years, they’ve generated cash that they have on their balance sheet right now, that could buy back five to 15% of their entire company, powerful.
So for the companies that walked out healthier by selling less and charging more, those are the ones that I want to know that are going to stick to it. I think Capri is one of those. So that’s Michael Kors still has a little bit of TierPoint a down market, they went too far. But I think they have emerged in a better.
Ressa 17:31
It’s an interesting one. I was just at the NRF. And there was a gentleman from McKinsey who studies the grocery sector. And he said that grocers have 86 billion more in cash on their books than they did pre pandemic today. That is was just staggering, right? And so the conversation was what are they going to do with that cash? Right and so that was staggering. So my next one is city trance.
Again, they have a niche that is very few competitors they’ve been doing nothing but over the last few years of just printing unbelievable comps. So they’ve been growing their comps they’ve been they’ve got a really interesting niche now there’s definitely you know, where the where do they go next, but they have this is a company that has very little if any debt and which is obviously a challenge for retailers.
So you have a retailer that’s popping up that’s in a niche that very few people are playing in at least from a public sector at a chain size this this big, and has the opposite, not leading with debt to be able to continue to grow and do things and so it they get very, they’re small, they get they get very little coverage, but they are public and I think that they are poised to do better than the market thinks they weren’t doing well. They had a recent dip in the market.
And I I think you know, I think it’s a little bit you know, this again might be a little bit of a layup they didn’t take as big of a hit at some of the other companies that I’ll talk and it’s probably you know standard with the dips that have been going in the stock market today. But in general I do think I’m surprised the markets not higher on these guys than I am and I think the it’s a pretty interesting story.
Siegel 19:50
This was interesting about like as we’re looking through your your process so you’re really going you said specialty and you’re really sticking to specialty which is which is interesting and compelling because it used to be we had the big box. And then we had these very unique niche specialty focused on specific customers, and they own their customer, right?
They own them more than that I was having conversation with someone recently, where they were talking about how you think about who complains about iOS and the change Apple and marketing. It’s all the smaller digitally native companies you never hear Ralph Lauren complaining about it, right.
Like the large businesses generating tremendous volume seem to be able to even without knowing their customer seems to be have of every insight, they need to sell a lot of volume. So what’s interesting is like you had these traditional specialty apparel retailers,
Ressa 20:31
What a great point, what a great point, right?
Siegel 20:33
They knew them, they know them, because they sell to them. So you don’t have someone’s iPhone to know exactly what they want. And I think that’s really important as we think through what does it mean to actually know a customer.
And so you’re finding these very rare, like, it’s rare that we still have at scale niche businesses, if you think about gap and limited like the family of brands, they were the the forefathers or whatever the equivalent would be in retail for retailers of what we know, modern day retail to be.
And no one would accuse GAAP of being niche. Yep. So I think that’s it. I like I like where you’re going. So those two are interesting. I’m going to take that and deviate from number three. So number three, I’m going with Bath and Bodyworks. And the reason Oh, no.
Ressa 21:17
Was that yours? Oh, no.
Siegel 21:19
Did you take your buy list?
Ressa 21:20
No, that was both us. So they were my number one. They were my number one. They were my number one.
Siegel 21:27
Like, alright, you want you want it. You want to go with yours? You want me to go with my goal with yours? Man? Listen, I’d say Great minds think alike. But that would be putting me in too high of a class. So what I’ll say here is what’s interesting to me about Bath Body. I’m curious what you think is I think it has all the benefits of what you’re talking about with the niche.
But I think it’s underappreciated, because people still think about it, like the ones you mentioned, or people still think about it like a Victoria’s Secret. And the nature of fashion retail is it goes like this, if you take big risks to get paid for them, and then you have certain seasons where you have to mark down, the beauty of Bath and Body is perceived as being discretionary fashion.
But what it actually is is replenishment, so it gets to exactly what you want. But if you think about it, everyone that bought a pair of leggings during COVID has those leggings in their closet right now. Everyone that bought a candle has burned it five times over. So it’s this great business where once you hook someone, the curve looks like this, not like this.
And so this beauty of having a business that’s perceived to be discretionary and volatile, but actually is just as strong and consistent as TJ X and I’m foreshadowing my next pick. So if you have TJ jump ahead of me, but it for it’s as consistent as an off pricer. That’s a powerful, powerful equation.
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Ressa 23:51
They’re really they’re working on their loyalty program right now. And they believe that’s going to be really a a game changer for them. I would say this is an at scale direct to consumer brands, I think majority of their products are direct consumer, and I believe a lot of their products are made in the US. So that I think that’s obviously in the supply chain world. That’s good. I was talking to buff city soaps, and somebody who was a franchisee from buff city.
They’re obviously going to head to Bath and Body and I interviewed him in the pandemic. He’s a franchisee of a large amount. And, you know, how are you doing? You’re opening stores at a pretty large clip. And he said something interesting, which was people buy a lot of soap in a pandemic, Chris.
And so I said okay, that makes a lot of sense. But I think if I start from the macro, and where Bath and Body like is a little bit of an intersection of two places to me, which is this personal care meeting and which is just like two unbelievable categories to be in, whether it’s the candles for your home, or the fragrances and lotions for personal care, like, what is unbelievable sector to be in. And then to have the brand that they have. And then you translate that into dollars.
And I look at the comps that they had, which were really strong. And then you go to the stock and you’re like, This is wild right now, how is this going posted this fall off a cliff so quickly? And it is, you know, and we’re not talking like, really, into the numbers. But I think there’s from a story perspective, you’re in the personal care, home intersection, which I think is unique.
You have this unbelievable brand. And, you know, brand name, you’re about to do this loyalty members program. You’ve had proven sales history, that’s just, you know, proven and they’ve been, they were comping up and they comped down last year in certain quarters to 2020.
Because this is that was the type of stuff people were actually buying in a pandemic. And so they had this unusual spike. But comparative to previous years, they’re in pretty good shape before 2020. And so I look at it and go, this is a really good story to be moving forward.
Siegel 26:31
But listen, you said it right. Like with this broad sell off. Everyone sold the baby out with the Bath and Bodyworks water. It worked work. I was trying to figure out if the pun can make it. So, so interesting. So I’m not close enough to buff city to opine.
But from what I’ve seen, my impression is that they also give you this artisanal element where you kind of like create it in stores, which is this interesting. So you’re tapping into everything we’re discussing with the experiential nature. And so you can hit on a few different pieces. So it’s an interesting one that you bring up as well.
Ressa 27:03
Yeah, so buff city, you can create your own soap there, which obviously from an experiential nature is really unique. But they sell a lot of things that a bath and body would sell as well. So
Siegel 27:15
I like that you bring them up. I mean, I think like, they’re probably gonna be a conversation that we’re talking about this and I would venture to guess the brand awareness people preyed on. I don’t know if all of your listeners are gonna even know who they are. But I bet they will in the next five years. Yeah, for sure.
Ressa 27:28
I love it. That was my one. So I’ll give you what I was that on my, on my three, which is Joanne stores. Oh, by the way, one other thing with Bath and Body is from a physical real estate. They’ve got a really good mix of malls and open air sites and strip centers.
And they’ve done a really good job pre pandemic, in when an enclosed mall wasn’t working in, in work and operating in an open air center, the strip center, they had a real estate strategy that feels like it was ahead of a lot of the traditional specialty retailers in enclosed malls. And obviously, that is, you know, near and dear to my heart. So that was the other thing that I think is interesting.
Siegel 28:18
Well, and don’t sleep on that, right? Like this is a company with a very strong online business that is still opening up stores and is opening up stores very, as you say, real time like they appreciate that they should pivot off mall when that doesn’t work. And they have some very compelling mall stores as well. So their real estate teams are very in tuned. They’re very much not going with a platitude of the mall or stores are dead. They’re figuring out what stores make sense in which stores do not.
Ressa 28:43
Yeah. Okay, my next is Joanne stores. So this is my other recent IPO. And again, this is one where I looked at their ICR presentation, which was I thought really compelling. But for a recent IPO, totally different than Taurids presentation, what they did during the pandemic to dial in their omni channel. It was really remarkable. They’re, I think 35% of their online orders get picked up in store.
They are they really own a piece of that market. We think about the arts and crafts sector kind of being pretty saturated between Hobby Lobby, Michaels arts and crafts and Joanne and we had AC more fallout pre pandemic, but these, this retailer has an interesting niche is that I think they’re the largest seller of sewing machines, right? They really know their customer. And they are they are dialing in on that customer more and more and more.
They’re doing things I visited their flagship relocation in Columbus, which they had this creative studio inside where you could go and take a class and learn how to make a quilt and do cool things and learn these things. And the store is vibrant and exciting.
And me who knows nothing about sewing, wants to walk in the store and wants to like buy something even though I don’t either, I shouldn’t buy anything in there because I can’t do anything in there. So they had sales rise tremendously in the pandemic, they capitalized on like making your own masks and things like this, they really did a good job. And kids were home and needed projects to do so families are buying things and stuff for their kids to do.
But I don’t think the craft market is going away. They’ve got sales to prove it and the market. You know, they did what a typical IPO does, they came out of the gates hot and they’ve dropped. But I think they’ve got a business that’s at scale, they’re putting money, they’re taking a little bit out of the target playbook.
They’re putting money back into the stores, refreshing them, because they have a lot of old stores that need to be re remodeled. They’re doing it, they’re reinvesting. And when they reinvest, they see a sales lift in that store. And they the margins they give are pretty pretty wide and how big of the lift is in their ICR release. And in in our centers, where we have them as a tenant, we’re seeing traffic up in these stores, and they’re doing really well. So it’s one I’m higher on in the market.
Siegel 31:33
So I like, listen again, as I like hear your approach. And there are certain things that you and I are both in agreement on in terms of the framework. The notion of one experiential is not like this idea of it was all about experience over things before COVID. And then it became all about things versus experiences. And let’s remember that it’s never one or the other.
So this idea of whether it’s Bob city telling you, you can make your own soap, whether you’re learning how to sew inside of a store. And by the way, I’m expecting a scarf this Christmas. So I’m just telling you, at the end of the day, the bringing people into a store, right giving them a reason to want to be there you and I’ve always talked about people don’t love econ, they love convenience, all things considered, you’d much rather be in a store than be in your underwear on your couch.
But the problem is, that’s much more convenient. So if you can offset the drive, with a reason to be, there’s nothing more powerful than that. So I think like I like the way you’re framing it. The other thing that I think you’re hitting on recurringly is this idea that what you and I talked about Under Armor went too far, they diluted their brand, get ahead of that, right. So like I like Under Armor now because they’re working to fix it.
But if you never make that problem in the first place, that’s pretty good, too. So knowing who you are, knowing who your customer is, knowing who you want to be, and don’t chase growth for growth’s sake, don’t just try to sell something else, regardless of what that something else is, is a very, it’s a very easy message to say it’s a very hard message to do.
But if you can find someone that has that level of discipline, and can focus on speaking to their core customer without trying to find another world of opportunity. Listen, I’m not not to not to knock on them, but like Lulu had to severely lower the numbers on mirror, Under Armor had just had to end up selling connected fitness and Nike shut down FuelBand.
Like we watched certain companies believe they’re making a logical move. But then several years later, realize that this was kind of an effort to try and stretch to a different audience. And that’s where you got a little stuck.
Ressa 33:24
Yeah. Okay. All right. So we got two left
Siegel 33:27
Back to me. So this one is going to be, I might get some pushback on this being above or under the market, TJ x, right. Everyone knows that to be a great company. But what I think people miss, the reason I bring it up, is everyone knows TJ is great for the customer, I think what we’re going to increasingly find is increasingly more important for the brand.
And I think that when we you and I talk when we hear Nike talk about focusing on differentiated retail and leaving undifferentiated retail, I think over the next few years, we’re gonna start hearing about visible versus invisible retail. I think that a brand going direct needs to and this was the report that I was referencing, we found that these brands, as they went direct, did not see an increase in revenue not to the increase in gross margin didn’t see any increase in profits.
The gross margin part is shocking. And I think what we’re finding are that brands are going to want to go direct, elevate their brand, control their image, but they’re still going to need the scale, they’re still going to need to sell these units that if they pull out of department stores, they’re going to need to make up.
And I think a company like TJ wins because it doesn’t have online not in spite of it. And I think that if a brand can no they can drop a pallet off at TJ or a pallet off at a Costco, whatever it is a big box, and it just moves and no one knows that it was even there in the first place. That’s a very compelling opportunity. And something that I think will continue in a very big way and accelerate over the next several years as brands focus on invisible retail rather than visible.
Ressa 34:52
So love TJ Maxx, they’re a large tenant of DLCs they’re amazing. And I think a lot of things one, the store experience, I think is fantastic. People call it like just the treasure hunt. One of the things that happens in this treasure hunt is that we we forget is you sometimes get like this one of one of a kind item, there’s only one of it.
And I think that is really, really cool that you’re going to get that at this, you know, value oriented store, I think their stores look great. I think they’ve got great merchandise, they’ve just upped up that level of merchandise that they have in the store, they’ve obviously produced the numbers, and they’ve got from a real estate perspective really solid.
From a retail operations perspective, they are unbelievable, one of the things they don’t get enough credit for is so the Sierra brand that they have, and that’s a tenant of DLCs, which is kind of like the off-price REI. They bought that as an online only retailer. And then they scaled that very prudently. Very smart about the markets they went into, to a very, very large chain.
And so these, this group is unbelievable retail operators. And when let’s not forget about some of the fundamentals of retailing, right, like, you know, you have to have a product and service that have value that people want to buy, you have to have good leadership, we don’t talk about that enough. You have to have a strong balance sheet, obviously, if you want to be at scale. But operational excellence, like matters a lot.
It’s not just stacking high and let it fly. Right. And if there’s any TJ is really good. And then you look at, you know, they were in a different line of business with it when they have the AJ rights a long ago. And they how effectively they disposed of that and continue to still grow because that was a large chain that they just unwound. They are remarkable at what they do.
Siegel 37:18
By the way, I’ll throw in one of the things that I think is also underappreciated, because I agree wholeheartedly with everything you just said. I think people don’t appreciate how good they are at storytelling as well. Because the other big thing about retail traditionally is storytelling. But you and I think about what storytelling is done at a TJ X when all you’re doing is rolling out racks and letting people be your employees for you.
Right it’s it’s operationally economical, and it’s transactionally powerful, but it’s not storytelling, it’s not brand building, furthest from the truth, right? You just brought up the treasure on their ability over the last decade to convince the world that it was not a negative to shop at TJ it was a badge of honor. was very, that was a huge unlock, right. TJ doesn’t sell cheap clothing, they sell expensive clothing cheap.
And this perception of you get the find you get the treasure hunt. And that’s a win is not something that is is was ever accepted before. And I think the beauty is I love every time I hear the treasure and I laugh because they’ve convinced the world to view the treasure hunt as a good thing. No pirate enjoys hunting treasure, you like finding treasure, right? And yet no one says it’s the treasure find. It’s the treasure hunt.
And what they’ve convinced you to do is they’ve convinced you that to be their employee, they’ll roll it out to pick pack and ship your own thing and try to find that one secret pair of whatever LeBron drops that happened to make their way there. You’re convinced that the journey is actually part of the experience. And that I think is powerful and amazing. And I don’t think their storytelling is as appreciated as it should be.
Ressa 38:45
Wow, that’s really cool. Yeah, good perspective. My, my, the one that had it number one’s Bath and Body so I’m just gonna go to two for me, which is blue bar. Again, I focused on specialty here and and it’s a chain of Western wear stores that’s out there style and merchandise over the years. They’ve grown tremendously. It was like, you know, 50% growth in sales over a two year period. It’s been pretty astronomical.
And they have for a chain have that in the sector. And maybe it’s part because it’s so niche but they if you compared it to some of the other specialty chains I’ve talked about Joanne and Taurus who are in the five 600 baffled by 1000 plus stores, they have 278 stores.
And so as they’ve mixed this and their brand, you know if you go to their website because I was looking at this before this what they say on their website, we say that our customers feed America, build America and protect America. As this Western and workwear retailer that’s gone national that’s really focused on the apparel side of it, many of the retailers that have, like played in this area have, like, always ventured into other parts of the segments.
And it’s done. They’ve done well by right, I think. But the this group has been very focused on what they do. And as people want to be outside, you know, this, this total brand about this bringing America together, I think is really interesting story. Their sales have backed it up for years now. And when you look at a retailer of this size, and how much, you know, white space for stores, there are in the country, the growth story, to me is really compelling.
Siegel 41:00
Chris, you have a tie,
Ressa 41:04
Just as it related, I wanted to pick it because I wanted to get to a place where I wasn’t randomly just choosing retailers, because there’s a bunch of retailers that I’m higher on in the market. So I said to myself, let me stick with specialty because I think it’s an interesting category that you know, quite candidly in like the throes of the Great Recession got hit.
And it feels like to me, there’s this huge opportunity for what happened to me with specialty is that was like one of the areas that kind of converted online a lot better coming out of the great recession than in physical retail. And obviously, I focus on physical retail a lot.
And as I looked at the way of the world, there seems to be a resurgence for physical specialty, like I haven’t seen before. And one of the things like you and I talked about is because the direct only i It’s not the answer, right. And so it’s made this unbelievable story for physical, specialty retail. And now all of these brands that I’ve mentioned, aren’t direct to consumer only, right? Like Joanna and group are still other brands.
They’re not their brands, their traditional specialty retailers, but there’s a place for them and there’s runway to grow.
Siegel 42:34
By the way, they are the original direct-to-consumer, right, they’re selling to the consumers and selling them at other people’s things. But But I mean that seriously, like this was part of the pivot of the this idea of DTC, like we’ve insulated what it means to be DTC.
Whereas at the end of the day, no matter what you’re doing, you’re taking someone’s creation, someone’s IP, whether it’s a sweater, or a song or piece of technology, you’re then distributing it trying to find the optimal customer. And there’s a lot of people on that path and whether you’re the one employing them or whether you’re outsourcing it like there’s no company that you and I know that’s vertically integrated as much as they want to believe it right.
Lulu is which is perceived as the vertical integrator doesn’t own their factories. So I think it’s just a question and by the way, on the flip side, the digitally native brands that are like adamant about not doing wholesale pay an advertising agency to tell their story.
So there’s this really interesting idea of partnerships and kind of where we go but I like listen, I think that you create your your model what my team does, when we look when we pick stocks, we try to create our common denominators based on trends we’re seeing and then screen for who falls into them. So I mean, I think what the at least three of the five that you brought up, share a lot of similarities. I think that’s that’s great. Yeah. Cool.
Ressa 43:42
All right, your last one.
Siegel 43:43
To my last one and I wasn’t going in rank order I was more going in kind of like cluster or my last one is a very is a potentially very interesting high flyer with with with a little bit of a different risk profile. So Trager so the wooden pellet smoker, do you know them? Sure. Have you tried them?
Ressa 44:00
I haven’t but I know my my my I literally just got a text from my brother. That said Jill just bought me what so? So
Siegel 44:12
This is you know my views on peloton. So this is going to sound weird, but I think that Trager has a really interesting storyline that resembles peloton, and I mean that in a good way. And if you think about it, it’s a one to $2,000 initial purchase that comes with a recurring spend because unlike a grill with propane, you buy the pellets generally speaking from trigger, so they create this level of attachment but they also have this very strong engagement via their app.
So triggers a business from what I can see and I’ve used that creates this very strong brand evangelist which was what we saw the early days of peloton, but it’s not known in half the country. So the way I look at this business, also one of your recent IPOs that has felt the pressure of being a recent IPO and and a business that sells enormous, very heavy pieces of steel, that I felt commodity inflation.
And as we know, supply chain transportation, inflation, but the stocks taken a big hit, coupled with the fact that people have a general view of debt, anyone who wants to buy a grill during COVID already buy it. So when I look at this, I see a business that in the regions where it’s known, it has phenomenal penetration. So people love it, where they know it.
And it’s just not known on the right side of the United States of America. So I think that if they can get the margins aligned, if they can kind of create that pathway, and work through the externalities that we’re all dealing with on a supply chain side, I think you and I are going to be talking about for a very long time, this brand awareness unlock, which is always a really attractive opportunity for the trader grill.
Ressa 45:46
Totally. It’s an interesting analysis, or interesting comparison to peloton. I hadn’t looked at it like that. But I do find that interesting that the brand is interesting. And as you put it, where there no it’s evangelists strike and they have a little bit for the people who just learn about it.
That peloton it factor like my brother spent the day bragging to me, we have a group chatter of two brothers that it’s just the three of us, bragging to us that he has this thing now. And I clearly, if that takes off, then that story gets told, throughout America, there’s huge runway here.
Siegel 46:35
As someone who sends the pictures, I would be worried you’re about to start getting a lot of brisket and smoked turkey and a lot of pictures of food, you’re gonna get the pictures.
Ressa 46:46
Got it? Yeah, he just went through his whole list of like, what do I do first, blah, blah, blah. So they’re very interesting. So you’ve used it.
Siegel 46:56
I’ve worked more now I’ve cooked more now than I’ve cooked in my entire life. Cumulatively beforehand, it just it gets you it engages you, and it brings you in and I can I can feel his listen, I try not to anecdote allies. But after a 20 hour smoked brisket session, you feel like you’ve accomplished something, or you feel like you’ve wasted a tremendous amount of time. One of the
Ressa 47:20
it is, it is you know, it’s a hobby, it’s not just absolutely an actual hobby and thing to do. It’s not just eating brisket,
Siegel 47:31
It was a beauty is it uses technology to take someone like me who had no idea what he was doing. And allow my kids to now view me as a hero, when I give them their barbecue.
Ressa 47:41
So walk me through, I’m not familiar with that part of it. So give me the how that works.
Siegel 47:46
So because it’s wood pellet, and I’m not gonna pretend to understand the tech, but because it’s wood pellet. So it’s a fire that is created by this kind of administering of the pellets. So they have they have tech built in, that connects to your phone connects through there, they call it wi-fire. So it’s all done via app, if you want it to, that keeps the heat at the same temperature throughout and you can control it.
But so Mike allows you to do a very long smoke because right the ideal smoke is low and low and slow. And it takes someone who knows what they’re doing. It basically gives you a step by step if you want it. Like I bet if you know what you’re doing, you don’t use as much of the training wheels that I use. So it’s like you can do it in all levels. But if you have no idea what you’re doing, it basically says Simeon press this button, wait this amount of time, it’s going to be great. And it is
Ressa 48:30
Interesting. So so slow and low has hasn’t changed. It’s still that’s still the mindset still the process to get a good press good, low and slow.
Siegel 48:41
That part hasn’t changed, as well as far as listen. That’s what I’m told. And it works.
Ressa 48:46
Great. Okay. Well listen, this was great. I want to go through our five in no order. Yours were Under Armor, TJ Maxx, Bath and Body and Capri. Exactly. Mine was Bath and Body, Boot Barn, Joanne city trans and tore it. Love it. So listen, Simeon, this was great. I really appreciate it. I think this would be a fun one. And hopefully we are number one two years in a row.
Siegel 49:23
You know what, it’s always fun, even if we
Ressa 49:29
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