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What did Bezos say at the antitrust hearing?
Morning Brew July 31, 2020

Retail Brew

TOGETHER WITH

Listrak

Good morning. Halie is out today so you’re stuck with us, Neal Freyman and Kinsey Grant. We’ll try to make her proud and weave in at least one Folklore reference in the newsletter. 

In today’s edition:

  • Unfixing leases
  • Bezos in the hot seat
  • We’ll always have Q3

REAL ESTATE

Fixed-Term Leases Get the Fix

Mall

Pikist

Legal & General, one of the U.K.’s biggest retail landlords and owner of several shopping centers—excuse me, centres—is scrapping its old leasing model in favor of a more flexible framework based on store performance. 

It could mean a transformation in the long-standing relationship between retail tenant and landlord. 

Breaking it down

L&G presides over a portfolio of nearly $6 billion in real estate assets, and it’s probably even more ticked off than you that your favorite retailer went belly-up during the pandemic. Because now it can’t collect rent. 

So on Thursday, it said it was moving away from long-term, rigid lease structures toward a “fully flexible approach,” which aims to attract startups and big boxes alike through four different variable lease options. 

Legal & General used an “editor” metaphor to describe the move:

  • “Our role as owner is shifting from what was solely ‘the librarian’ (collecting rent, renting shops and cleaning spaces), to becoming an ‘editor’ of the space.” 
  • “We need to ensure we have the right content, at the right time, in the right places, to support both occupiers and consumers.”

This was a long time coming

As Halie has written in these pages before, the pandemic hit fast-forward on movies we were already watching. L&G said the shift to e-commerce was already making life miserable for landlords—retail launches and failures increased 29% over the last five years. 

Then the coronavirus came, which forced flailing retailers and landlords alike to reevaluate the orthodoxy of fixed leases, reports the FT.

  • Chains like Urban Outfitters and Levi Strauss have recently called for variable leases.
  • Capital & Counties, another U.K. property company and owner of London’s historic Covent Garden, is offering some of its tenants variable leases. 
  • AMC Entertainment, Canada’s Cineplex, and fashion retailer AllSaints are working on renegotiating their leases to be linked to revenue.

Looking ahead...realizing the system was broken was easy. Now comes the tricky part: If you’re judging the performance of a store based on revenue, to which physical location do you attribute online sales, if at all?

        

E-COMMERCE

Jeff Bezos’s Least Favorite Party Game? 59 Questions

Spotlight on Amazon

Francis Scialabba

That’s how many the Amazon CEO answered in a nearly six-hour House Judiciary antitrust hearing Wednesday. For a Big Tech showdown, Bezos’s testimony certainly delivered the retail angle. Two major questions...

Question #1: Is Amazon using third-party seller data to create and promote its own competing products?

  • Bezos’s answer: Kind of. When asked by Rep. Pramila Jayapal (D-WA) about the controversial practice (which Amazon bans), Bezos replied, “I can’t guarantee you that that policy has never been violated.”
  • Why it matters: Amazon has cemented itself as the best place for small businesses to sell their wares—for 36% of Amazon sellers, it’s their only sales channel.

Question #2: How are you addressing an influx of counterfeit goods on Amazon?

  • Bezos’s answer: Not my problem. “I would encourage this body to pass stricter penalties for counterfeiters and to increase law enforcement resources to go after counterfeiters,” he told lawmakers.
  • Why it matters: For all its investment in rooting out fake goods, Amazon still makes money when counterfeits sell. “Only in the short term,” Bezos hedged. “I would rather lose a sale than lose a customer.”

+ While we’re here...Amazon crushed earnings, thanks in large part to increased online shopping.

        

SPONSORED BY LISTRAK

Get the Right Holiday Retail Support

Listrak

When it comes to the retail industry, navigating a changing retail landscape requires the right partners with the right know-how.

Listrak has helped 1,000+ retailers—including 7 For All Mankind, Joie, and Kendra Scott—implement ways to accelerate growth, increase engagement, and build significant incremental revenue.

With email and SMS behavioral-based triggers, cross-channel orchestration, predictive analytics, customer insights, and identity resolution, Listrak is providing retailers the support they need to sustain and boost business.

Which will all be critical for the upcoming holiday season—one which will surely be unlike any other. That’s why Listrak has created their Holiday Prep Marketing Guide, filled with strategies and tactics straight from their Client Services team.

It’s another way that retailers gain more than just a tech platform with Listrak; they gain a long-term, strategic partnership with retail marketing experts. 

Be ready for the holidays. Get Listrak’s guide here.

LUXURY

Q2 : Luxury Retail :: Lover : Taylor Swift

The RealReal luxury bags in a pyramid

Francis Scialabba

A more on-brand performance is waiting right around the corner. 

As some of luxury’s most profitable contenders continue to grapple with COVID-19, both Hermès and Prada this week reported significant sales declines during the second quarter. But just as Taylor had Folklore, luxury has Q3.

First, surveying the Q2 damage: Hermès’s net profit plunged 42% during the quarter. Prada swung to a loss as revenue dipped 40%—but that was expected, considering similar bummer reports from LVMH and Kering.

But cause for optimism remains:

  • Hermès thinks the road to COVID recovery is lined with Birkins. Chairman Axel Dumas said the brand has reopened nearly all its stores and hired 300 people, many in production.
  • As for Prada—where sales declined 32% during the coronavirus lockdown—revenge is best served in the form of double-digit growth in Asia-Pacific (excluding Japan) and the Middle East in July.

Our takeaway: It’s hard to say if luxury will be able to break even this year—but any recovery in Q3 and beyond hinges on crucial markets like Asia avoiding another significant COVID-19 outbreak.

        

WHAT ELSE IS BREWING

  • Consumer spending grew 5.6% in June.
  • Coca-Cola is taking on White Claw with its own Topo Chico-branded spiked seltzer.
  • Walmart reportedly laid off hundreds of corporate workers as part of a broader reorganization and consolidation effort.
  • Dunkin’ Brands will permanently shutter some 800 restaurants, or about 8% of its U.S. footprint.
  • Nike announced a new head of diversity and inclusion.
  • JCPenney’s attorney said a liquidation is “not in the cards” for the bankrupt retailer. Well then—a sale it is.

SPONSORED BY NETELIXIR, INC

NetElixir, INC

Pull your 2020 planner from the trash bin. It’s been a tough year to predict, but we know a virtual event that can help your retail biz prepare for the holidays. On August 13th, Connecting the Dots: Holiday Readiness Summit for Retailers will cover crucial topics including key consumer trends, recent market share numbers, how to strengthen your supply chain, and more. Register for free today.

SWAPPING SKUS

Here are two stories we enjoyed reading this week. They have nothing to do with one another.

  1. Everything you need to know about coffee makers. (Quartz Obsession)
  2. We’ve talked a lot about how Amazon dominates online shopping. But in Bangladesh, where there is no Amazon, Facebook is everything. (Rest of World)

RETAIL TRIVIA

No one can do Friend or Faux quite like Halie, so today we’ll just ask you a standard-yet no-less-stimulating trivia question:

This week, one retail company said it was making its own voice assistant technology, called “Ask Sam,” available for employees. What’s the retailer?

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RETAIL TRIVIA ANSWER

If you instantly thought of Sam Walton and his ubiquitous trucker hat, you were right. Walmart is bringing the founder back to life.

Written by @KinseyGrant and @Neal_Freyman

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