Top 3 Things On Your Mind In Retail
Guest: Simeon Siegel
Topics: BMO Capital Markets, retail trends
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.
Welcome to Retail Retold everyone. Today I’m joined by Simeon Siegel. Simeon has been on before, he is one of our most popular guests. So I am excited for him to be here. So he is the Managing Director, Senior Analyst for retail and e-commerce at BMO Capital Markets. You probably see him on TV from time to time. If this is your first time listening, you won’t be disappointed. Welcome to the show, Simeon.
Simeon Siegel 0:45
I’m glad it’s audio because otherwise you’d see me blushing, so good, man, good to be back.
You’re getting ready for Thanksgiving. What do you got planned for this holiday?
So I currently have a turkey being brined that I’m then going to smoke. So I got tapped, we got into Trager last year. So and so my family and my parents decided to jump on that. And so now I am being tasked with the responsibility of getting this bird through there. I think I’m capable of a lot of things. This is, I’m nervous, man, this is this big one. So wish me luck. What about you?
Hosting, usually a big Thanksgiving this year, it’s 10, including my family, which is for two kids, my wife and I. So it’s only having six people over so. And I’ve already got the tap that some people have a second place they have to get to later. So it’s going to end earlier and it’s going to be an easier.
Is that is that a second meal? Or is that like an early Black Friday lineup to make sure you get the best deals.
It’s like my sister-in-law is coming here. And then she has to go to my brother-in-law’s parents place. They’re doing the splitting. You know, I remember, I remember we used to, I would blame it on work. But I remember when my family, we would leave and then start lining up outside the doors. And those, I’m glad we don’t have to do that anymore. Black Friday.
Yes, for sure.
So Simeon, tell everybody a little bit more about who you are what you do.
Sure. So I am a retail analyst, which means I get to analyze, watch, and assess random descriptors of the ever changing world in retail. What I really like to do is I like to provoke thought, I like to understand and internalize the fact that we are storytellers, we’re not fact communicators. And what that means is in retail, we’re all consumers first.
And that sometimes means that all the things we talked about are actually more of our own biases than what actually is happening with the numbers. So my team and I try to always go back to the numbers, look at what’s actually happening, recreate the story, and then figure out what’s going on in retail. And it ends up being a lot of fun. It’s a good combination of qualitative and quantitative, and every now and then we throw it a thought grenade that you and I love to your cash or dodge.
Yes. For sure. So anything in particular, what are you working on right now?
Yeah, so the interesting thing right now that I’m hoping maybe we can almost put aside is this beautiful thing called inflation, and so I’m sure you and I will get into it but I think the interesting dynamic is none of us are most of us haven’t lived through inflation.
So we don’t necessarily know what it means and I think trying to think through and remember that inflation just means higher prices than what it normally costs comes with higher costs, but what it means is higher prices and that started well before anyone started talking about inflation, so thinking through when apparel is about to enter deflation is our next big question.
Got it. You’ve done a lot, one of the things I think you’ve done recently is I feel like you were right about peloton, that’s one you’ve been all over the news on peloton talking about peloton for a while and you had shared some of your concerns, you love the brand, you think it’s a great brand, you love the product, but you had some concerns about the business model that a lot of people didn’t.
Can you shed some light on how your thought process, how you got to where you got to and the market seemed to like not agree with you, you were kind of left in a corner for a while and then they clearly finally got there?
Yeah, I think the last time we spoke I was, I was having less fun with the peloton call but it, but it was, but again it goes back to the story versus the rhetoric and the numbers, and so I think peloton becomes an excellent example for a lot of different things. Peloton is the epitome of a company that misread the pandemic, and yet spoke so strongly to their consumers that they were allowed to extend much further.
I am firmly, I’m on the public record more times than I want to admit. I’ve stayed in the thought that the pandemic was the worst thing to happen to peloton, and not the best thing. And for a while people would look at me like I was like, I had no idea what I was taught, like it just, it didn’t make sense. Peloton is the number one pandemic darling. And to me all it did was it accelerated, it propelled them onto the stage that they weren’t ready for.
And so if you looked at it as a dangerous phenomenon, when the Venn diagram of people that invest in a product overlaps almost entirely with the Venn diagram of people that use the product, because it got to the stage where we were all anecdotal icing, which I don’t think is a word but we’ll go with it where you’d say or and I saw for peloton vans today, so you’re like well, if I looked at my door and so for peloton vans, and it must be that everyone’s looking at their door and seeing for peloton vans.
That’s dangerous. And the problem that’s why we have to remember that we’re consumers first and that we have our own life stories and let’s just call them baggage. I use the peloton a lot I really liked peloton at the end of every report we published we wrote recommend the bike not the stock because at the end of the day the numbers never actually agree.
Did you really I didn’t know that.
Every time I was a I was an all star bike refer. Okay, let’s think about putting my referral code in the back of every report and like maybe like collecting more I think that’s the lesson I think like there’s a lot of lessons but I think the story is don’t anecdote allies, right? It’s good to bring our own perception. It’s good to bring our own experiences.
But make sure you compartmentalize them. And the numbers that pelo the amount of bikes peloton was selling in the backlog that they were showing, never justified this mega cap platform where they were the winner. And if the pandemic never happened, they just would have continued inching along and we’d be talking about a very different company right now.
Interesting. So fascinating. Okay, so I wanted to bring that one up because I felt like every time I turned on the TV, CNBC, you were on and they always wanted to talk to you about peloton. And so if you’re another hurrah, peloton,
well, you know, it’s actually a great segue into whatever we’re going to talk about because normally the beauty of our conversation or you let me know like, right, right when it happened. So but before we do that, what you’ll love about hilltowns peloton is the e Commerce of the fitness world, right peloton was this story of no one’s going to go to the gym ever again.
You have this brilliant, beautiful thing called at home, which is reminiscent to over many decades ago, we had the introduction of EECOM everyone said ecommerce is going to destroy stores. And everyone said, Well, I don’t think this is gonna destroy gyms, neither of which happened.
It’s Omni, right? It didn’t, but everything has to match in. And once you figure out the appropriate level, that’s where you create a new normal, when we go all exaggerating and say there’s gonna be no such thing as brick and mortar and no such thing as gyms. That’s where these conversations get dangerous.
Totally. Okay. We’re going to go over the top three things on our minds. So I’ll give you you’ll tell me one thing on your mind. We’ll talk about it for a little bit. I’ll give you one thing on my mind. We’ll talk about it for a little bit. We’ll go
back and forth knowing our conversations I wasn’t sure if you were saying we have to guess the top three things on each other’s mind we go back.
So I’ll get started. So I recently posted about this too, on social media, which is I think at some point, we’re gonna get to a place where the cost of online and in a store is going to be like first class and coach on a plane. And because the the just cash burn going through my wife ordering three, returning to pay no shipping, paying no return fee, like they’re losing a lot of money when my life does that.
And therefore, I think you’re going to see this, the carpet to compete with the pricing in the store is going to be really challenging and I think you’re going to see people are going to have to pay for convenience just like if you want a larger seat on a plane you’re going to have to pay for you might get there might be some upgrades. So loyalty member where you get upgraded to convenience, just like you might in a plane, but I don’t know if you’ve flown lately.
Oftentimes you don’t get upgraded and you have to pay for first class. And I did this very, very statistically irrelevant thing, which is, if I want to order a cup of coffee to my house right now, it’s about depending on where you’re getting it from, it’s about two to 5x. Me going to the store and getting it in price, which is about the same price differential from a first class to a coach ticket. And so I think you’re entering this haves and have nots over time.
I don’t know if it’s by 2030 2025. But I think people are going to have to really pay for the convenience to get everything showing up at their door. I don’t think automation, and robots can solve everything, and there’s still gonna be a price difference.
Are you saying you’re charging me to do this podcast virtually unless I start coming to you in person? Isn’t that? Isn’t that where we’re going?
Though? We’ll, we’ll keep that I think.
I think that at the end of the day, what you’re talking about goes to the heart of a lot of what we talked about who has the most leverage, right? If you have what we found, from 2008, until let’s just say mid 2020, the retailers were constantly ceding ground, right? You the brick and mortars were constantly ceding ground in three months, and 2020, and holiday all of a sudden all went backwards, all the pricing power reverted back.
And so I think the question by the way, we saw people not forget about one day versus four day shipping, you had to wait, let’s go with your peloton. Example, how long do people wait to get that bike?
I think we mean, you can train people, if there’s something they really want. You can train people or charge people for services. I mean, let’s go, let’s go. Let’s go to the most basic example. Costco charges you to walk into their store. Right, mind blowing, but it happens. We don’t think about it.
Yeah, I paid him to go shop in your store. So people are willing to pay for things that that you tell them they should if they value them? And the question is, do you feel empowered to do that? So I think I think we’ll see how it plays. But I think the idea makes total sense.
What’s one thing on your mind?
So right now, and I’m gonna say this, and I’m gonna try to say it in the right way, because it’ll come off in the wrong way. But I think that whether we are about to go into a consumer recession or not, I think the biggest thing that I’m focusing on is more of replenishment. I think that obviously inflation hurts lower income more than it hurts higher income. That’s just math. But I think if we look at what’s selling and what’s not, it’s actually much more of a product variance than a people variance.
And what I mean by that is, people are spending thing, people are buying things. And people are not buying things somewhat, regardless of income. And again, that’s the dangerous comment. So I’m not not pretending like that, that there’s not a higher pressure point for inflation. But at the end of the day, quick replenishment items, milk, gas, anything that you need that you couldn’t overstock on last year, you need today, you’re buying today, and it costs a lot of money, that’s inflationary.
On the other hand, you brought them up, so I’ll keep bringing them in peloton, grills, patio, furniture, all these things that are low replenishment, but arguably play income purchases, no one needs anymore. Why? Because they do a lot of them last year. So for me, what I’m trying to think through is this replenishment arc, I think everything on consumer discretionary, and staples is in some form of a continuum, a replenishment continuum.
And the question to me is very simply how many pairs of how many months worth of sneakers that I buy in the last 12 months? Because if I bought 18, then I have six month time period to work through that replenishment. And that to me is I think if you look at what is selling versus what is not selling, it’s more product driven than it is people driven. And I think it’s an important characteristic.
Yeah, that is a important characteristic. And you mentioned replenishment, the way that we used to solve this because this isn’t new, right? You’re you always if you bought a couch, maybe you didn’t need a new couch for a long time. Exactly. The way that people and retailers got over this and got through this in years past is innovation and new products.
That as simple as that to me, right. That’s how the retailer got them to buy more. They don’t need a new couch. Well, let’s create this new thing because they don’t have it and then they’ll need that. And what do you think about I guess the product world as it is today from uh,
yeah, so the interesting thing innovation perspective, yeah, the interesting dynamic is, there’s never been a two year period where every single person bought a new couch, right, or every single person on a bike, or everyone decided I’m gonna become a gardener or get a pet, or buy a bunch of puzzles like there was a colossal pull forward of spending in a coal in a purely concentrated period of time.
Steam LS drove people gave people a capacity to spend pent up demand gave people the desire to spend a lack of inventory meant they spent more per dollar on what it cost. What that means is we don’t have the normal staggered, like, Listen, I’m going to innovate on a couch sale, because I know that there’s a new group of people that are moving into homes or leaving college or whatever it is, right?
The sheer amount of people, those people are lacking right now. And so for right now, and how do I know that right? So normally, and this, we’re gonna, we’re gonna get into, we’ll go, we’ll go back and forth CDs. So I’m going to take number two, because it’s going to lead into my number two. Dealing with this, like, what I’m thinking about now, is this excess inventory, versus normal excess inventory.
Because normal excess inventory speaks to a little bit of what you’re alluding to, I made stuff, people saw the stuff, they didn’t like this stuff. So I have to clear through this stuff. Right, like that’s what normal excess inventory means. That’s why we promote first and ask later. That’s when inventory is up by 5%. Right? I missed a season, when inventory is up 50% No one’s voting against my inventory. They’re voting against all inventory.
And so that means my inventory is actually not necessarily bad. It’s just there’s no appetite for it right now. And so this discrepancy, this kind of nuance of today’s inventory being excess? Versus Is it the same type of excess as before, and I think goes back to emerges what you were just talking about, with every single person what their new couch, I have to internalize, I’m probably not selling couches for a couple of years, even if I have,
Right. That’s scary. That’s scary. But does that concern you?
So here’s the thing, I, I gotta figure out how to like as a human, that’s scary. At the end of the day, if it’s going to happen, it’s better that we recognize it’s going to happen, and build the business accordingly. And so what I mean by that is, there are a lot of promotions going on right now, right, as a consumer, we’re about to walk into the most promotional period of the year. But it’s also going to be the most promotional period of the year that we’ve seen in several years.
So as a consumer, you’re about to get really good discounts. That’s great, right, we’re gonna get good good holiday presents, the problem is doesn’t have to happen. So for the businesses that have the wherewithal on the balance sheet, if you can internalize that I bought 80 months worth of sneakers, random number, let’s pretend 18 months were the sneakers last year. What that means is you need to give me six months before I come back.
If you do that, I’ll come back and pay full price, six months from now, if you don’t, if you discount it, there was no price elasticity on the way up whatever price you threw at me last year I took, I’m probably not going to give you price elasticity on the way down right now. Doesn’t matter how much you, if you bought a grill in the last two years, doesn’t matter if it’s 50 off, you’re not buying another one. So it doesn’t pay to promote.
So it’s sort of Yes, I think you’re right, it is scary. But the reality is, if that’s what’s going to happen, better be aware of it, internalize that the revenues aren’t coming not because you’re doing something wrong. But because you did something to write last year, and then they’ll come back next year, you’ll have a great business for.
Well, that begs a question. Like, if you read through the tea leaves, it’s like, if you don’t have to promote then don’t discount and promote the goods. Yet. Old habits die hard, right? So you, our business has gone to promote a discount, even though they shouldn’t.
So I want to caveat with the most important line that it’s much easier for you and I to say then for the retailer’s to actually do. I understand that, setting that aside, you and I for the last three years, I’ve been talking about one of the silver linings of the pandemic. Too many people understandably, right old habits die or too many people are forgetting the silver linings of the pandemic, too many people are going right back.
And the point that again, you know, my mantra my mantra for the last few years has been sell less charge more, make more. So at the end of the day, yeah, I would say if you have the balance sheet, if you don’t need to move through this product and not everyone has that luxury. I would tell you sit on it. I would tell you for the first time being off price or pack it away, bring it back next year.
If you’ve got scented candles, bring them out next Halloween, right relaible there’ll be fine they still say pumpkin spice whatever it is. So again, easier said than done. And you have to be able to absorb the cost of carry and you have to be able to absorb the fact that you will not gonna have that open to buy. But if you can, I think the cost generating $1 through discounts today will have a very heavy cost tomorrow. After you just spent two years of elevating your brand and regaining pricing.
Well said well said. Alright, you’re out I’m gonna go in a different spot totally that we’ve been talking about beautiful. So you know, Kroger’s, you know, an Albertsons are working in Congress working on buying Albertsons, and it’s, you know, we’ve got retailers who are stronger than they ever were coming out of the pandemic.
You know, they grew top line significantly, some ups and downs on growing top line x inflation now, even though some retailers are doing well, I think there is going to be, I would think, more moves in m&a. I don’t know if they’re as big as Kroger Albertsons, but if you’re looking for growth, and synergies and squeezing that top line, potentially harder ex inflation right now, we’ll see where we shake out at the end of the holiday season, compared to last year compared to 19.
But I would think we’re gonna see some interesting m&a is coming. And this was a huge work to create the, you know, the largest US grocery chain. This is a huge one. And there’s a lot of interesting implications from it.
But I would think, right, if you’re going to see more than more of this, and what I feel like we saw a lot of was people who were buying, like in the pre pandemic, what you saw, were people buying capabilities and skill sets they didn’t have, right maybe that was, you know, Walmart buying jet or Walmart buying bonobo most Yeah, right.
Like, it’s we want to taste this digitally native will do this. Amazon buys Whole Foods, right, and they’re testing the waters. Right? Let’s look over at Albertsons or Kroger. This is like market share driven drive that old school m&a, expense driven, bringing brands they don’t have access markets, they don’t have, I think you’re going to see more of this.
I don’t know if it’s 23. because interest rates, obviously, the these transactions are highly dependent on capital markets and interest rates are obviously making it challenging. But it would seem to be the timing could be interesting for m&a as a growth mechanism. So I think,
I think she’s our mutual friend, Lauren Thomas, formerly of shirtsy. Now of the journal, who today had, I don’t know if it was her first front page article, this may have been her first front page byline and well, knowing Lauren, she’s probably had more. So there’s our shout out to Lauren. But she wrote today, an article that I haven’t fully read yet, so I won’t pretend to synthesize it, where the title effectively said activist campaigns are going to be on the rise now.
And so the premise there was there was it was a regulatory comment. But it was also simply the idea that valuations have come in. And so I think if you think about the fact that what you’re describing, is, there’s a probably a confluence of things, there’s one, we just had a period where VCs could fund anything. So any technological advancement that suggested they were going to be the pickaxe, rather than the miner for retail was was given was flushed with cash.
And all of a sudden, they’re not. And so, and then you also find in a bunch of brands, and you watched all this. So I think that the, you’re mentioning one of the largest ones, but you’re probably on to something with the smaller ones as well. So I think if we take like, sticking with the Venn diagram example, if this won’t be 100% overlap, I’m going to use three circles if I can figure out what the three are.
But number one, low valuations, right, so you have the market doing what it’s doing. Number two, you just had this huge sales growth period over the last two years that’s now stagnating, which means godlike retailers are now confronting their humanity, right like they’re all of a sudden seeing getting peloton was crazy. But you’re watching people that just expected the good times will last forever, and now they’re seeing a ceiling.
So they’re looking at their neighbors that have pressure, they’re looking at themselves with a top line peak. And then let’s figure out if I come up with a third circle. You’re thinking about like in this environment now where it’s this awakening, okay, what do I do right, so to your point, capital markets will be the restrictor, so that might be my opening third circle. But yeah, I think that if you can’t grow after growing, and you’re watching some competition that is now normal.
And refunded that is in trouble. That would seem to be a pretty good opportunity to pick something up. That’s a little bit more of an acquisition and merger. The merger question will be interesting. Do you have two that are just feel like the sum of the parts is better than the whole than each one?
So I think it’s interesting. I think it’s fair. I think you do need the financing to be able to really get this done. So that’ll be relevant. But I think it’s safe to assume a lot of people are looking at it. You also remember that old bankers aren’t really doing IPOs right now. So there’s a lot of people that are definitely crunching a lot of numbers.
Let me who would be an ideal candidate to buy peloton I can’t do that.
Chris, Chris Reza, would would be right there.
Speaker 2 25:48
Right, but So, like I think about this all the time, though, like I’m like, you know, interesting brand interesting. I’m like who should who should pick these this group up whatever it might be so
so there was a time when people were really pushing for peloton acquisition. The three companies that were brought up were most common most frequently were Apple, Nike, Amazon. Okay. Apple is a brand enhancer Apple’s involved in exclusive Apple like peloton and its heyday may have fit really nicely with Apple peloton as a dwindling engagement. losing subscribers elevating churn probably less so as a brand elevator for Apple, Nike.
Nike Under Armour fitness, wellness, fitness, so they will try it. They’ve all tried connected fitness and they’ve all backed away from it. They don’t want equipment, right? Lulu is the latest one that they’re effectively what ready down there. So that leaves Amazon peloton justing, to deal with Amazon. So if you’re thinking about kind of the relationship they’ve done in the past before, like try it before you buy it.
Amazon is involved in moving a lot of units as opposed to brand enhancing. Like there’s definitely you can make an argument as to why that would that would be synergistic. But you have to really ask what are they getting? Because if the goal of Amazon is to bring them into the prime family, then you’re losing the recurring revenue, which is what gives it value in the first place. So just a lot, a lot of questions, I think.
Yeah. The Yeah. The just curious, I don’t know. Have you looked into the Kroger Albertsons wanted? Its peloton bottle? Have you looked into the Kroger
I it’s less my I tend to focus more on the discretionary side. So I haven’t time now a watch it in tangentially. But I think it’s interesting point. I think that if the capital markets were open right now, that’s probably that again, the third circle that you’ll need in the Venn diagram, I think you you probably have a lot of people doing a lot of work right now, to your point. And the question is, what do they need to get the gates to open up?
Yeah. Okay. All right, you’re number three. What’s that? Do you back to me?
So third thing on, on my mind is a little bit of a corollary to the the one I just had, which is, I think, one of the things you’re going to start to see, and I don’t know if it’s 2324, but you’re going to inch inch all the way up, and I think it’ll accelerate is. And I’m going to use a word mature retailers. I don’t know what mature it is, but are going to open up more and more new concepts. I think, you know, we just, I just saw one that I thought was just really it’s interesting to me.
Are you familiar with more Reese’s? Yeah, of course. So they just opened up a new store that is, you know, has it’s called MC. And it’s like a tween brand concept. And it’s been in their stores, and they’re starting to unleash it. And they have more plus sizes for tweens.
And the way I kind of saw it and how it was described, I, I was like, I don’t know if they really have a competitor. I was like, pretty impressed by the concept. And they’re opening a couple of them right now. But I think some of these mature retailers, I don’t know that we’ll get back to the place where like, you know, the gap had gap data or maybe Athleta. They have all these brands.
Yeah, but you know, TJ is TJ Maxx Marshalls home central good seer. But I think we, everyone in the pandemic, like buckled down to like me their existing business better efficiency, focusing on supply chain, the tech side, how do I do buy online pick up in store all these things where I think we took a step back of like innovating new. Yeah. And I’m in this like, I saw this Maurices thing. And I was like, huh, like, I haven’t heard this in a while, like an existing retail opening a new brand.
I’m like, Is this coming back was on my mind? Because I think it should, I think there’s an opening right now in the market for it must much less heavily dependent on capital markets to do something like this.
And so I’m going, I think there’s probably, you know, everyone’s got like, they focused on inventory focused on supply chain focused on tech and buy online pick up in store, you know, outside of figuring out how to staff stores, which is obviously a challenge, I feel like and this organized crime logistics that has to get solved. I feel the wait time for new concepts.
And a lot of retailers are well positioned to do that. haven’t talked to a bunch of that, or ideated or have something on the backburner. But I think we’re probably going to see more than we think and I think it’s going to does
so these interesting, I think, like American Eagle has been doing it slowly with their offline and subscribed concepts. So like they are you are seeing this idea like the push. I think, I don’t disagree with how you’re framing it. Like I think that if I said the last two years were sell less charge more. That inherently is defense is the best offense Right? Like, but at the end of the day even doesn’t win games. Or is it offense is the best defense who knows.
So when so right now, if the idea is buckled down, improve your business get healthy, then at some point, you have to grow. And so you and I have talked about my team has done a lot of work, where we see that for DTC businesses, and I mean, DTC versus wholesale. So digital Andy calm. But if you own your channel, you peak at around $3 billion in North America. If you have wholesale, you can grow five to six.
But the point there is if you internalize that you have hit this peak, then the only way to grow is either your second point of m&a or your third point and introduce a new concept. Right? It gets dangerous when you try to stretch beyond your audience. Whereas if you can actually create a new audience, and that’s, that’s a goldmine.
So, I think that makes total sense. I think if you believe that you’ve cleaned yourself up enough, but you also are self aware enough to realize that you know what the growth level is not going to be what it was, it shouldn’t be that’s how you stay healthy. That’s how you generate cash.
Then I think that becomes successful story at a little bit of a larger spectrum. I think Capri, which owns Michael Kors, Versace Jimmy Choo has been one of the very few John idol the CEO of the combined entity has been one of very few screaming to whoever will listen that he has no plan on chasing market share with margin.
That was the old course the old Michael Kors was let me put a store next every coach and let me try to steal whatever dollar I can get, even if it cost me my margin and ended up diluting the brand. They have since recovered that. So what are they doing? Michael Kors is not supposed to be a big growth vehicle. Michael Kors is supposed to be a healthy cash generator that helps fund for sacis growth.
So I think like this idea of you can have one part of your business, that’s this beautiful material cash machine that you can then plow into a growth vehicle. That’s going to be the winning proposition. Interesting. Very interesting. Okay, so my so my third is a little bit different than stuff you and I normally talk about.
My period is a little bit I’m gonna I’m gonna tap back go back way back into my college days where I half of my me I did major in economics, but also majored in philosophy, so I get to just ramble. So this was a little bit more philosophical. It’s always interesting to me, there are certain things that you and I are never gonna be able to prove, oh, sorry, never gonna be able to predict right? Oma, Pran Ukraine, right?
Certain things that happen that just are outside of the realm of of what you have prediction. On the other hand, you and I knew right the entire consumer and stock market landscape got negative Jan 123. Why? Because we were laughing the amazing involved in the amazing scenario and environment of Jan 122. Sorry, other way around Gen. 122. We got negative Jan. 121. We were we were exuberant. Why? Because one age 21 We got stimulus.
We got pent up and we ultimately got the vaccine we were out and about life was great. And so what was interesting was you knew literally 360 Five days later, you are going to be your own worst enemy, you knew you were going to have to lap that. And yet, it took us all by surprise. And so I look at these things, there are certain things in our consumer landscape that are not just predictable, they’re easy to predict, because they already happened.
And so what’s so interesting, he’s like, it’s very hard for us to embrace the discussion that’s going to happen six months from now, until it does. And so all right now off price is all the rage you and I love off price. It’s great structural, but all prices all the rage, because Nike has to flood the market with all this excess inventory. Six months from now, that is going to be cleaned, we’re going to be back at some normalized level.
And so what I’m trying to think through is are we about to walk into another January, where we’re now lapping the disaster, right? So as our people sentiment about to lift, I know everyone’s focused on the recession. But I’m just wondering, if you and I were to think about what are the negatives been over the last 12 plus months in supply chain, exit, the inability to get inventory, turning it to getting too much inventory, right?
lapping a an amazing year, the year before, and all that stuff goes away, supply chain is easing, inventory will clean up. And so thinking through what we know today, the conversation will be six months from now, barring another huge externality. It’s just something that I think people don’t do enough.
And that’s this fun, interesting conversation that I like to think about, I like to kind of take a step back and say, Okay, you and I know the problems and the good things of today. But the reality is, we also know what there’ll be in three months, if nothing changes.
Yeah, there is the I think, you know, when you’re talking about human emotion and how that gets involved in this, I think it makes it really, really hard. And then you couple that with, there’s a large cohort that tries to be smarter than the market. And you wake up surprised. Right? That’s, that’s, that’s what happens. The thing, what I would say, is interesting, is, you know, we keep were so extreme, it’s going to be great, or it’s going to be terrible. Exactly.
And I think the first thing that comes to mind is like, what if it’s just like, Okay, we don’t ever predict, okay, we’re gonna predict it’s gonna go way up, or it’s gonna go who world’s over. But there’s a part of me that’s like, it might just be okay. Yeah. Which is, you know, interesting. And then the other pieces, you know, is that this was a heavy commercial real estate conference. And, you know, very capital markets driven industry, and people were, you know, concerned.
But it was, I was alarmed by how many people were so I’m using air quotes. They were right. It’s going to be bad. As one person was like, wow. And like everyone was like, you know, can we all be right? It seems far fetched that we’re all right. But what if it’s just not as bad, as everyone says? Like, is that even in the realm of possibilities?
So? Yeah, exactly what you were saying I, you know, we have the ability to, in some regard, see what’s happening based on, you know, the information we have at hand today. And, you know, we don’t always do the right things with that information.
So my bleaker point would be if I could say to you, tomorrow, there is clean inventory across the channel. And you can get however many age facts you want. What would you do differently? And that’s my biggest promise you, right? My prediction is some point next year, I feel comfortable. I said, I promise. So I’m not going to give you the date that I feel comfortable with. But I promise you next year, inventory will be cleaner, and h of x will be easier to come by.
Because that does work. And yet you walk into these rooms. And I was I was recently at a store driven conference. And I’m listening to ever complain about H Vax. And I’m thinking, if everyone’s complaining about and everyone’s trying to grab as many of them as they can, then to go full circle. It’s just very reminiscent of peloton going to their manufacturers and saying anything you can make, I will take because I need to solve my future demand with current supply.
I can’t do that. So let me try the reverse. Let me try to solve create future supply for it doesn’t that’s not how the world works. H max will be available inventory will be cleaner. And to your point. Retail has never dead and it never had its Renaissance. Right. That’s not how the world works. But my point is simply, if we were to take a step back, like if I were to say to you do you think I’m gonna To be wrong, that inventory will be cleaner, and h of x will be in better supply next year.
I’m gonna guess you’ll agree. I agree with you. Yeah. And so the point is, would you do anything different if you internalize that that’s going to happen? And that’s the step that I think we have our time making. And that’s what that’s what I find interesting.
Yeah, for sure that the H back one hits home, I can tell you that it really hits in things us and the retailers are doing, the amount of work it’s causing the friction it’s causing because of that problem, which, by and large, probably will go away sometime soon. Is is fascinating to think about it. And so the question is, if I said to you, you could order as many age facts as you wanted today.
Chances are and you’ll get them, you’ll be the only way you’ll get them. Chances are, you would wildly over order, and you’d be left six months from now having way too many H backs that could break your business. That’s the peloton. Yeah, what I’m trying to encourage people is to everyone knows now right?
Me taught you and I talked about peloton is not contrary anymore. So let’s use it as the example to realize that whatever problem you’re facing now, in terms of supply are nuanced. Will that problem exist six months from now? If it won’t, if you can plan accordingly?
Well, so well. So there’s a retailer I know, who has a less a warehouse with probably way too many H racks way too many. Because they got ahead of this. So we’ll say it’s a great point. It’s a great point. And now they’ve got carry cost exactly which with this. This is T-shirts, this is really expensive equipment, right?
It’s such a great example, peloton is sitting on a ton of bikes in a warehouse that they have to pay for. So that inspires them. There’s a point at which they’d rather give the bikes away than have to pay for them. This is any example of supply-demand mismatch. And it’s just so exaggerated that we can, we can stay attuned to it. So to anyone listening, that’s having some version of this supply chain constraint, make sure you’re not going to chase right into the end of the demand. Yep.
Well, listen, see, and this was great. Thanks for the top three things on your mind. Really appreciate it. Have a great Thanksgiving.
You too, but you wish me luck on my bird.
Good luck on your bird man. I’m so jealous.
You have a trader you know, the whole thing from your phone, everything. It’s beautiful. It’s like, it’s the peloton bike. So let’s go to the other side. It’s like, I don’t have to. I don’t have to know how to do anything and I come out of here. So the problem is that it’s critical, I absorbed, when I say that too many times I find myself brining a turkey with no business doing so. So wish me luck.
Good luck saving me a piece.
Done. Good to see you.
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