What's shaping the e-commerce landscape?

With the start of 2024, the COVID-19 pandemic seems that much farther away. “Post-pandemic” stories were already being written in 2021, after vaccines that were swiftly developed for the devastating COVID-19 disease outbreak eased the threat to human health and allowed a return to some semblance of normalcy to daily life. 

As a global health crisis, the pandemic is ongoing, though the World Health Organization, the U.S. government and others no longer consider it an emergency. That also means that many of the adaptations and innovations that retailers had scrambled to develop amid 2020’s lockdowns are less necessary. 

Still, while many aspects of the retail business have steadily begun to resemble pre-pandemic 2019, there are a few important ways the pandemic continues to affect the industry.

“Rarely in recent history has there been a tsunami-like event that has altered norms to the degree that the pandemic has,” Retail Speak founder Sanford Stein said by email. “The shadow it cast over retail will not likely be lifted soon, if ever.”

1. The hybrid workplace is changing the retail landscape.

Even as offices reopened and companies became stricter about showing up for in-person work, research shows that a hybrid workplace is now the norm for many people in the U.S.

“The biggest change from the pandemic is work from home, inspiring more local shopping or online shopping from home,” Lee Peterson, executive vice president of thought leadership and marketing at WD Partners, said by email.

In a survey of 2,500 consumers by WD Partners, zero respondents said they would ever again work at their office five days a week. That is directly affecting where they go to shop at stores, as nearly 40% said they now frequent retail businesses within three miles of their home, with 10% saying they go to malls. 

Similarly, a Pew Research Center survey found that 35% of those with jobs that can be done remotely now always work from home, with 41% on a hybrid schedule. Consultancy Kearney finds that work-from-home has leveled off at about 30%, depending on the type of job. 

This is ushering in what Stein calls a 21st century version of the post-World War ll flight to the suburbs, this time featuring millennials and their young families.

“Their urban-to-suburban push has only been invigorated by home working dads and moms,” he said. “With it came the flexibility to sneak out between zoom meetings to shop close to home, rather than during office lunch breaks in urban centers.”

In December 2023, visits to buildings in Placer.ai’s nationwide office index were down 36.5% compared to December 2019; foot traffic has fluctuated somewhat but has hovered around 40% of pre-COVID levels, according to the analytics firm’s report. Retailers near corporate centers should expect a gradual decline in foot traffic to continue, as more companies evaluate their downtown office leases, according to Kearney Partner Brian Ehrig.

“Sophisticated retailers are already tracking this with analytics, but smaller retailers, especially mom-and-pop shops, will be at a significant disadvantage due to lack of capabilities to sense the shifts in demand,” he said by email. “I would predict more retail will end up nearby ‘bedroom communities’ as a result of these changes, compared with what we’ve seen in the past.”

2. E-commerce got a lift

The vast majority of retail sales continue to be conducted in stores, and many physical locations like restaurants and stores have recovered nicely in the past company of years as people ventured out again. But while e-commerce sales have dipped from the peaks during the height of the disease outbreak, many consumers have stuck with the ease of shopping online.

E-commerce sales growth is expected to be 10% or less in the coming years, but its growth through 2025 will nevertheless be more than double the rate of store-based sales growth, according to FTI Consulting’s 2023 U.S. Online Retail Report.

“The pandemic actually forced people to shop online, and, like single-malt scotch, once you try it, you ain’t going back to that crap you drank before!” WD’s Peterson said. “Online is just too easy, and getting easier every day, while stores do nothing in terms of attracting new customers.”

David Gottlieb, chief revenue officer at Trax Retail, agrees that an “entirely new cohort of consumers” tried out ordering online from grocers and mass merchants in particular, and that many stores have struggled to meet shoppers’ elevated expectations of offline retail.

“The shift that we are seeing is that the way people shop in physical stores has changed; they now expect more from their in-store experiences, as they've gotten used to the convenient and flexible options offered by digital platforms,” he said by email. “Consumers want to be able to interact with stores in new ways, including the ability to search, filter and find products in the store the same way they do online.”

Generally, websites have long been considered less enjoyable to shop than brick-and-mortar stores. But many retailers during the pandemic made an extra effort to engage people online, which has also made a difference, according to Gottlieb. 

“Retailers and brands made smart moves during the pandemic — especially those who focused on creating engaging shopper experiences,” he said, noting that, for example, beauty retail giant Sephora has used customer data to personalize products and also offers interactive tools for customers to engage and share on social media. “The adoption of digital technology and AI was incredibly helpful for brands throughout the pandemic and will continue to shape the retail industry for years to come.”

3. Inventory remains a problem

There has been significant recovery from the havoc that the pandemic wreaked on supply chains, though retailers have moved from crisis management to a focus on optimization, according to Kearney’s Ehrig.

“Of particular interest at the moment is how to optimize supply chain networks and reduce transportation costs,” he said.

While global supply bottlenecks have eased since the peak of the pandemic, out-of-stock issues persist, according to Trax Retail’s Gottlieb.

“In 2024, AI will play a significant role in creating a leaner supply chain that doesn’t fail consumers,” he said. “Brands and retailers will be able to make more-exact estimates of how many products to order — which will ultimately reduce costs and ease supply chain issues.”

Out-of-stocks aren’t the only challenge, however. Many retailers pulled various levers to ensure they had stock on the shelves, resulting in overabundance in 2023. In 2024, many will continue to be saddled with excess supply, Ehrig also said. 

“There is still too much inventory, and we have a good couple of quarters to get through pushing through this stock before we are back to normal levels,” he said. “This means we should expect continued discounting, especially in apparel.”

4. BOPIS endures

Omnichannel fulfillment like curbside or in-store pickup of online orders were crucial for retailers during the peak of the pandemic, and those services are here to stay, experts said. The service has become handy at the holidays as a way for shoppers to get packages without worrying about shipping delays. Buy online, pick up in store accounted for a quarter online orders in the three weeks after Cyber Monday, according to Salesforce.

“Initially this may have been thought to be a necessary offshoot of the touchless times but has become a time-saving convenience that is not likely to go away,” Stein said.

Target is rolling out a new, larger store format that includes more backroom space for fulfillment. Now, though, many retailers are moving to trim the extra expense of store-based fulfillment, according to Kearney’s Ehrig.

“Generally, retailers can make a profit when consumers walk in the door to pick up, and foot traffic in your store is always beneficial to your brand,” he said. “But curbside and ship from store makes less sense financially unless it’s an unwieldy object or a large basket size. A big reason is that store labor is generally inefficient at picking orders when compared to distribution center labor.”

5. Self-checkout may not

Self-checkout stations proliferated during the height of the pandemic, as retailers sought to address workforce shortages and maximize social distancing. But, as with omnichannel services, retailers are now grappling with the downsides.

The machines became the dominant checkout method at grocery stores in 2023. But they are turning out to be less than ideal as retailers have grown increasingly vocal about shrink and theft; several grocers have been forced to devise ways to deter shoplifting at checkout kiosks.

“Retailers are recognizing that the costs of shrink associated with fewer associates outweighs the value of reducing labor costs,” Gottlieb said. “In 2024, retailers will begin to move away from self-checkout and shift their focus towards loss prevention.”

Setting a “new record for e-commerce,” online consumer spending between Nov. 1 and Dec. 31, 2023, rose 4.9% year over year to $222.1 billion, according to analysis from Adobe Analytics. Consumer spending was driven in part by discounts that “hit record highs” during the season across categories including electronics, toys and apparel. 

Consumers spent $16.6 billion online using buy now, pay later services over the holiday season, a 14% jump from 2022 and an all-time high, per Adobe Analytics. Throughout 2023, consumers spent $75 billion online via BNPL payment platforms, up 14.3% from 2022.

Adobe’s online holiday shopping projection was nearly spot on. In its October forecast for the 2023 holiday sales figures, Adobe Analytics predicted that e-commerce sales between Nov. 1 and Dec. 31 would reach $221.8 billion, a 4.8% increase compared to 2022.

Online consumer spending increased 6% year over year in November to $123.5 billion, driven in large part by the $38 billion spent online between Thanksgiving and Cyber Monday. The following month, shoppers drove a 3.7% year-over-year bump in online spending to $98.6 billion, according to Adobe.

While the overall holiday season drove growth in buy now, pay later sales, Adobe found that Cyber Monday BNPL purchases spiked 42.5% from last year to $940 million, marking the biggest day on record for BNPL purchases. Throughout November, buy now, pay later transactions increased 17.5% from 2022 to $9.2 billion, making it the biggest month on record for the payment method.

The rise in 2023 BNPL sales signals a continuing trend of consumers turning to the installment payment method to finance their holiday purchases. 

“In an uncertain demand environment, retailers leaned on discounting and flexible payment methods to entice shoppers this holiday season,” Vivek Pandya, lead analyst at Adobe Digital Insights, said in a statement. “The strategy was effective, driving record spend online during big days like Cyber Monday and Black Friday, and a record 11 days that surpassed $4 billion in daily spend this season.” 

With more consumers turning to installment payment plans to fund their holiday shopping, BNPL providers have seen a boost in orders. Klarna said that U.S. shoppers placed 29.5% more orders on Black Friday in 2023 compared to 2022.

Adobe also accurately forecast the rise in mobile shopping during the holiday season. More than half (51.1%) of online shoppers transacted via smartphones this holiday season, an increase from 47% a year ago. Consumers spent the most via mobile on Christmas Day, driving 63% of online sales, Adobe found.

For Neiman Marcus and Saks Fifth Avenue, the past few years have brought huge changes (and even a failed push for the two luxury retailers to merge).

In 2020, during the peak of the pandemic, Neiman Marcus filed for bankruptcy, exiting in September that year with a plan to shed $4 billion in debt. The next year, the department store refinanced an additional $1.1 billion in debt.

“If I look back to six years ago when I joined the company, the company was 10 times levered,” CEO Geoffroy van Raemdonck said in a discussion at the ICR Conference in January. “We couldn't invest in the business. We were very focused on transactions, as opposed to driving relationships and gaining share.”

Now, van Raemdonck says the retailer has “a solid balance sheet and strong liquidity.” With more financial flexibility, the retailer has invested in its supply chain, opened a new distribution center, added data capabilities to improve personalization and is in the midst of a $200 million investment in stores, which is partially funded by its brands and landlords.

Saks Fifth Avenue, for its part, split its e-commerce and brick-and-mortar businesses in 2021 as part of a broader push by parent company HBC to unlock value, which established Saks.com as its own stand-alone company. (Neiman Marcus has rejected that very same concept in the past.)

Saks’ online business laid off about 100 people, or 3.5% of its total workforce, in January 2023. And in early 2024, Bloomberg reported the parent company was looking to refinance a $1.3 billion loan ahead of an October due date.

Prior to Saks’ layoffs in 2023, the online arm’s headcount had more than doubled. After the layoffs it remained more than double what it was before the 2021 separation. Digital-only businesses in retail have struggled with profitability, but Saks CEO Marc Metrick said in a separate presentation at ICR that the same isn’t true at the luxury retailer’s e-commerce site.

“It’s important and that’s never changed,” Metrick, who runs the online business, said of profitability. Now, however, “it’s changing for everybody else, and it's sort of leveled the playing field. If you go back in time and think about it, all of us that were running these websites as department stores: We had to be profitable, we had to report quarterly, we had to have sales this year versus last year. And then you have these pure plays that were able to go out there and just trade on growth multiples — or revenue multiples.”

As 2024 starts, here’s what Metrick and van Raemdonck had to say about pure-play luxury and the state of the consumer.

‘Yeah but they don’t make money’

Like much of retail, e-commerce has disrupted the luxury landscape in recent years, bringing a traditionally in-person buying experience online. And much like other digital-led companies, many of those in luxury have struggled to turn a profit. In a dramatic example of that, luxury marketplace Farfetch agreed to sell itself to Coupang, a move one analyst called “shocking.”

“We are extremely surprised that the company had to take such a dramatic step,” Wedbush analysts led by Tom Nikic said at the time of the deal. “Just 4 months ago they … stated that they had ‘strong liquidity’ to last at least 12 months.”

Also in December, Matchesfashion sold itself to Frasers Group for just $63 million. Consolidation is expected to continue in 2024 as smaller players struggle to raise financing and underperformers run out of cash. In the wake of that trend, luxury sales models are once again under scrutiny. But in some ways, that’s just the nature of retail, according to Metrick.

“If you walked down Fifth Avenue 30 years ago, 35 years ago, you had Bonwit Teller, you had Bendel’s … Barneys on Madison Avenue,” Metrick said. “This is natural evolution in our business. And just like everything else, the online version of it happens faster. And I think that's what we're seeing now: We're seeing a little bit of that correction and it's going to be a little bit harder to do business for just anybody.”

The departure of the sky-high valuations and “growth-at-all-costs” mindset for e-commerce brands is arguably a good thing for old school retailers like Saks and Neiman Marcus, who have more pressure to make money without the startup tag applied to them.

“The consumer, by the way, doesn't care what your valuation is, doesn't care what your leverage ratios are,” Metrick said, recalling that his wife once gushed about a digital brand because of its beautiful photography and packaging. “I said, ‘Yeah but they don't make money’ and she said ‘So what?’ The consumer doesn't care. So the best thing that's happening actually for us is: It's been a reset. And not for us cause we’ve always had profitability as a key KPI, but for everybody else.”

For Neiman Marcus, the profitability challenges for pure-play luxury e-commerce mean more business for itself. As growth stagnates, more DTC brands are turning to wholesale for help scaling.

“I think the industry is doubling down on the players that they believe will be the best to provide service and have longevity,” van Raemdonck said. “And so we're gaining a lot of distribution, we’re gaining investment from them and we’re gaining a lot of exclusives. And so when I think about that environment, what's important for us is to continue to lead in relationships with customers, because in a world where the demand is softer, you could capture the demand from the customers you know.”

Van Raemdonck attributes Neiman Marcus’ stability to a variety of factors, including the department store’s omnichannel approach to retail, its conscious curation of product and a team of sales associates that have personal relationships with shoppers. According to van Raemdonck, Neiman Marcus has 3,300 sales associates that have spent more than a decade with the retailer and about 1,100 that book more than $1 million a year.

“That's really our secret weapon,” van Raemdonck said. “And we've really worked hard on equipping these sales associates to reach the customer, to build relationships and to maintain those relationships in moments of volatility.”

The chance to gain access to those customer-sales associate relationships is a big selling point for DTC brands considering who to sell through, the executive noted, especially with customer acquisition as costly as it is. So, too, is the ability to scale quickly, since selling through Neiman Marcus means brands don’t have to figure out building an entire store. Even as brands “powerfully edit” their retail partners, in van Raemdonck’s words, Neiman Marcus says it hasn’t lost any since COVID — and in fact, has gained some.

Neiman Marcus has exclusive distribution globally now with Schiaparelli, for example. Van Raemdonck said the department store has added 800 points of distribution over the years by expanding its assortment with certain brands to include, say, shoes or handbags (that would qualify as two points of distribution). Neiman Marcus also brought in 185 new fashion brands in 2023 and says that 90% of its top brands include something that is unique to Neiman Marcus, whether it’s an exclusive collection or a special activation.

“The brands are looking for insight around what's the white space in the market,” van Raemdonck said. “They know that they're growing, but they don't know if that's the ceiling or if that's only the tip of the iceberg. So we give them a lot of insight on assortment and then they're looking to reach a specific customer and we do micro-targeting to get them to the right customer.”

Another potential benefit to digital-first brands is that, as a department store, Neiman Marcus by definition houses a host of different categories.

“Most luxury brands … are still very focused on one category. But they all aspire to move from handbags to shoes and ready to wear or another permutation of those three elements,” van Raemdonck said. “We are the perfect playground for them to be exposing to categories where they're less known.” 

Partnering with digital brands is one way of defending territory in the luxury space, and retailers shouldn’t be shying away from new competition, according to Metrick.

“This is an industry that constantly innovates and who knew who all these businesses were 10, 15 years ago?” Metrick said. “So there might be a new entrant and a new way of coming into the market whether it's live selling, whether it's through Web3 if that ever really comes back around. I would not be doing my job if I said ‘OK, good. Now things are going to seem comfortable and where they are for the next couple of years.’”

Saks and Neiman Marcus both have their own e-commerce presence as well, which presents them with some of the same challenges as digital-first brands — like returns. Metrick said Saks doesn’t charge for online returns, and that working capital is the real pain point when it comes to returns.

That being said, nearly half of the returns from Saks.com go back to a physical department store, Metrick noted, which represents a large financial benefit compared to DTC brands that have to fund free return shipping on everything.

“However, I don't think it's efficient and really great for the business long term to be running with high return rates,” Metrick said, noting that there are some ways to tackle the issue currently. “If Joe is a high-returning customer, and we know Joe's shopping right now, we might not show him certain things that have higher return propensity.” 

The improvement of sizing technology could also help alleviate the problem. And heavy returners can be treated differently than other shoppers, especially since personalization is getting more sophisticated, according to Metrick.

“The monolithic treatment of the consumer to manage these things — that’s the road to hell. What you have to do over time — personalization is kind of a hacky buzzword that's being overused right now, candidly — but what you have to do is, you have to take an individualized approach to how you're managing your business, even on the nonexciting stuff like returns,” Metrick said. “In the end, there’s going to be returns and we're just going to have to figure out a way to make sure that the consumer is getting what they want.”

The ‘drug’ of promotions and the state of the consumer

Luxury retailers focused on e-commerce may be facing unique challenges, but they’re not alone. The entire luxury sector is experiencing customer demand that is “volatile and promotional,” as van Raemdonck characterizes it. 

There has been a higher volume of promotions in the past year or so and the customer has come to expect discounts, the executive said, especially online. The expectation of discounts was exacerbated, too, by the sector’s efforts to clear inventory in 2023.

“There was too much inventory in the market for the last year, we all lived through that. And now I think everyone, including us, is starting to get their balance sheets in order,” Neiman Marcus Chief Financial Officer Katie Anderson said. “I would say the challenge is that the consumer has been just on a drug of the constant promotions. The consumer isn’t looking at everyone's balance sheets and saying, ‘Hey, everyone’s really balanced, I'm ready to buy only full price.’ And so the market continues to be very promotional. I think it's going to take time to adjust regardless of where the balance sheets are.”

How does one navigate a volatile market? Van Raemdonck hopes the retailer’s model is the answer. Neiman Marcus customers who buy with the help of a sales associate spend 12 times more than those who don’t and customers that shop across two or more channels spend five times more than one-channel shoppers, according to the executive.

“Luxury is a considered purchase and we all want to be inspired, convinced that this is the right product for us,” van Raemdonck said of why its sales-assisted model helps drive purchases. And when it comes to merchandising, “the notion of assortment curation is the opposite of a marketplace where it's an endless aisle — and we've seen the challenge of profitability in that.”

The department store has a team of merchants that choose which brands to carry and what assortment within a given brand to stock. “And then we buy with conviction,” van Raemdonck said.

Still, luxury is also contending with the end of a few consumer behavior tailwinds that were benefiting it from the pandemic era. Saks’ Metrick noted that younger consumers and otherwise nontraditional luxury purchasers were turning to the category more when they weren’t paying for other services, like Ubers or salon blowouts. Since 2023, though, those consumers have “taken a beat.” Indeed, a report from Earnest Analytics in November found that luxury apparel sales dropped 21% early in the month, in part due to “aspirational shoppers” holding back on purchases.

“Your core luxury consumer ... it's entrenched in their life,” Metrick said. “Everything is exactly right out of central casting. We love those people. Then you have a large portion of luxury consumers out there that make choices, right? And for a while, we were benefiting — and everyone was — from the fact that they weren't going to concerts, they weren't traveling, so the ‘or’ just became an ‘only.’”

Then, inevitably, the tide turned back the other direction as consumers cut back on discretionary purchases amid rising headwinds like student loan repayments and the lack of stimulus funding. Credit card debt, too, has grown as shoppers look for ways to support their lifestyles. All of that makes for a tough sell for luxury retailers, but Metrick is hopeful that trends are about to shift again.

“The luxury consumer is going to start off the year slow and I think reemerge as the second half comes around,” Metrick said.

For now, it’s still impacting financial results. According to Earnest Analytics data, luxury spending fell 10% during the holiday period as customers stayed focused on more affordable purchases. Neiman Marcus’ sales during the holiday period declined in the low-single digits, which van Raemdonck attributed to the slowdown in customer demand. He noted, though, that the company grew business with its best customers. 

In recent years, Neiman Marcus has honed in on the top 2% of its customers, which drive 40% of sales and spend an average of $27,000 a year at the luxury department store. The company has refocused around full-price selling, keeping just five off-price locations for “strategic clearance” but otherwise exiting that sales channel. Neiman Marcus ideally wants to broaden its base of customers that can spend that kind of money, but it’s not the only demographic that’s of interest.

“If you look at our customer base today compared to before, the men’s business is significantly bigger,” van Raemdonck said. “Men during COVID discovered luxury and they are in it to stay. And it is the same: We've seen younger customers participate in luxury. They may be part of the normalization, but they are in luxury.”

Saks, too, says it has a “pretty underdeveloped men’s business,” but has worked harder to locate potential customers in recent years. At one point, that even meant buying advertising on fantasy football sites. The intersection of sports and luxury, with star athletes increasingly interested in sporting designer brands, has been beneficial in raising awareness in the men’s demographic, according to Metrick. In one example, Metrick cited John Franklin-Myers, a defensive end for the New York Jets, carrying a Goyard bag into the locker room at a game.

“I think sports was a gateway for men to luxury and I think not only is it a gateway for them to see specific products, but it’s a gateway for them to understand and feel very comfortable with it,” Metrick said. “It used to be sunglasses were the gateway drug for men's fashion. That's where men got their first Prada or Gucci was sunglasses. Then it became sneakers. And that's where the athletes came in.”

Will 2024 be the year that Stitch Fix proves that the online, tech-led, stylist-enabled apparel-box sales model — abandoned by Nordstrom and others a while ago — can succeed long term?

Much of 2023, the company scrambled to arrest declines in its sales, customer base and profits; unwind major initiatives undertaken by a previous chief executive; pull back on some of its ambitions; tighten its belt; and seek out new leadership. C-suite doors revolved every few weeks, as founder Katrina Lake temporarily replaced Elizabeth Spaulding as chief executive a few days into 2023, and David Aufderhaar replaced Dan Jedda as chief financial officer a couple of months later. Matt Baer arrived from Macy’s in June to take over as CEO.

Many changes have been painful. The company laid off 20% of its workforce in early 2023, closed its four-year-old U.K. operation and closed two distribution centers. More recently, the company eliminated full-time work for stylists and laid off some leads.

Now, the company has “set up a Transformation Office focused on identifying foundational and long-term growth opportunities. Fundamental to this is ensuring we have the right team in place to take our business forward,” a spokesperson said by email.

That includes former Amazon Fashion executive Tony Bacos, who joined in November as chief product and technology officer. The question remains whether Stitch Fix can be transformed.

“To be sure, this is a company in transition with a new management slate that is less than a year in,” William Blair analysts Dylan Carden and Alexander Vasti said in a client note in January, based on a meeting with Aufderhaar. “While this creates some uncertainty, alongside limited visibility from the company as to when it expects revenue to stabilize, Stitch Fix has a story to tell that we believe is not widely appreciated.”

In some ways, Stitch Fix is going backward, undoing what William Blair called “the failed pivot directed by prior leadership.” Even before Spaulding left, the company realized that its much-touted and highly marketed move toward more conventional e-commerce in 2021 had confused customers and failed to drive sales. The introduction of its Freestyle website, which was opened to all consumers and not just its box customers, “pitted it against a broader apparel industry set, where it had less advantage and required heightened spending on less efficient marketing,” the analysts said. The Freestyle option is once again only open to those who have signed up for Stitch Fix and received at least one box.

The company realizes that it also at times neglected its apparel merchandising and over-emphasized its tech, according to William Blair’s note. 

Correcting that could set Stitch Fix up for success, because its algorithm is an advantage over more traditional apparel retailers, according to Liza Amlani, principal and co-founder of Retail Strategy Group. Moreover, many of the legacy retailers chasing the same audience not only don’t have such sophisticated tech, but also have failed to offer enticing assortments.

“If you see what the ultra-fast fashion brands are doing, like Shein and Temu, and Amazon Fashion, and anyone who's creating content on TikTok Shop — that is where you're going to find more of the interesting, fun fashion pieces,” she said. “People are moving away from Loft, Banana Republic and all of these brands because they've become boring.”

That includes Stitch Fix, too, which must correct its own inventory issues, something that Bacos in particular may be very good at, according to Amlani. Executives in recent months said the company would expand its private labels, and William Blair analysts said the goal is to have private labels top 50% of its offer.

“If they're looking to build out more relevant product mixes across their private label program, it would make sense to bring in a chief merchandising officer that would have not only insight into merchandising strategies and how to build out a product mix, but how to use that technology in the insights, and close the feedback loop,” Amlani said. “To actually sort product that people want, that they know they’re looking for because they have a ton of data.”

Stitch Fix shouldn’t lose sight of its ultimate differentiation, though, which is the humans who work as stylists, curating the boxes sent to subscribers, who receive as often or as seldom as they wish, paying a $20 “styling fee” each time, Amlani said.

“The whole point of Stitch Fix is to help customers figure out what to wear because they can't do it themselves,” she said. “The stylists should be used for clienteling — to get to know the customer, to drive customer loyalty, to improve the customer journey and the customer experience by providing that one-on-one help. And of course for styling questions, absolutely.”

Stitch Fix has “some positive attributes in the model that are overlooked or misunderstood,” according to William Blair. When it reduced its marketing by 40%, for example, it lost just 13% of its active customers. Its average customer buys four times per year, per William Blair’s note. And even its returns are more valuable than most because the data gleaned from them is richer, according to both William Blair analysts and Amlani.

“For now, we believe we are still a couple quarters out from stability in the model,” William Blair said. “We are more encouraged that the company is returning to its origins, recognizing and reinforcing very real advantages in the model, and adapting for a new marketing climate as opposed to a more dramatic shift in the business, which occurred under prior management.”

About 20 years ago, Jeff Bezos told CNET Magazine that the then-eight-year-old company wanted to become “something completely new” in retail.

“There is no physical analog for what Amazon.com is becoming,” he said. “And our vision hasn't changed at all the last few years.”

In a complaint against Amazon alleging anticompetitive behavior, the Federal Trade Commission and attorneys general from 17 states echo this, but also say those days are gone. Their lawsuit alleges “a set of punitive and coercive tactics to unlawfully maintain its monopolies,” especially toward the marketplace sellers that are responsible for moving 60% of the merchandise sold on the site.

The FTC cites third-party analysis in noting Amazon's control of e-commerce, including eMarketer Insider Intelligence's finding of an 82% share of gross merchandise value among the four top U.S. online marketplaces, (Amazon, eBay, Walmart and Target) in 2022. Amazon has a 37.6% share of the U.S. e-commerce market in general, according to Insider Intelligence research emailed to Retail Dive.

“The early days of online trade were bursting with possibility,” the FTC writes in court documents. “Competition flourished. A newly connected nation saw a wide-open frontier where anyone with a good idea would have a fair shot at success. Today, however, this wide-open frontier has been enclosed. A single company, Amazon, has seized control over much of the online retail economy.”

Just a piece of a massive market

As the e-commerce giant is preparing to face these claims in court, several analysts, and the company itself, seem to be shying away from the idea that Amazon is a unique and powerful player. What the FTC describes as anticompetitive, they argue, is commonplace in the retail industry and has been for decades.

“Amazon may not be the small business it once was, but we’re still just a piece of a massive and robust retail market with numerous options for consumers and sellers,” David Zapolsky, Amazon general counsel and senior vice president of global public policy, said in a blog post on Sept. 26, following up on initial comments on the FTC’s move.

The view is shared by some retail analysts and antitrust experts. Amazon’s retreat from much of its previous brick-and-mortar retail efforts is one example of its weakness in a diverse and cutthroat market, according to GlobalData Managing Director Neil Saunders.

“Retail is buzzing with competition, which is one of the reasons Amazon has to constantly [innovate] and work so hard to succeed,” he said in emailed comments. “It is also one of the reasons why Amazon sometimes fails, as it has done with various store ventures and in some parts of the grocery market.”

Walmart’s recent assertiveness around its own online marketplace and pricing initiatives, which several analysts see as taking share from Amazon, Target and others, is further proof that Amazon has plenty of competition, others say. Arun Sundaram, senior equity analyst at CFRA Research, (like many commenting on the long-anticipated FTC antitrust action), used the words “uphill battle.” Also like others, he predicted little would change at Amazon as a result of it.

"We see evidence to suggest online marketplaces in the U.S. are competitive, with the recent success of Walmart's third-party marketplace as an example,” Sundaram said in a research note. “Additionally, the FTC could have a tough time defending its stance that Amazon's current business practices are harmful to consumers. Overall, we see low risk of major structural changes at Amazon.”

Routine retail practices

It’s not just that the retail environment remains competitive in general, but also that specific conduct targeted by the FTC as anticompetitive is longstanding industry practice, some experts say.

John Mayo, founder and executive director of Georgetown University’s Center for Business and Public Policy and an antitrust scholar, noted that Amazon’s seller fees, pricing requirements, prioritization of its own brands and treatment of search results — flagged in the lawsuit as ultimately harmful to sellers and consumers alike — have counterparts in brick-and-mortar stores. For example, retailers strike favorable pricing agreements with vendors, enjoy greater margins on store brands that mimic name brands, and charge extra for optimal shelf placement and marketing.

“Coca-Cola or Pepsi might pay for an endcap position, or Bush’s Beans or whoever it is. Nobody tells the consumer, when they walk into the supermarket, that Bush’s Beans has paid for that product placement,” he said by phone. “That is a business practice that is employed extraordinarily widely, both online and offline, and it's not routinely thought of as an anticompetitive practice. It is a way to differentiate yourself and to try to attract more business.”

Not all antitrust experts are so dismissive of the FTC’s arguments. Greg Asciolla, partner at DiCello Levitt and chair of the law firm’s antitrust and competition litigation practice, said the complaint is complex, involving “an interrelated web of conduct.” But it also “demonstrates the FTC has a keen understanding of the markets at issue.”

“It lays out a plausible claim that Amazon violated federal and state antitrust laws by engaging in exclusionary, monopolistic conduct that harmed competition in two markets, resulting in injury to sellers and shoppers through higher prices and reduced quality,” he said by email. “While the case may present some complicated issues, the antitrust laws have successfully tackled intricate industries and multi-faceted conduct over the last century, and this case should be no different.”

The antitrust argument

Put simply, the FTC alleges that Amazon exercises power over its marketplace sellers, to their detriment as well as consumers’.

The e-commerce giant locks sellers into its ecosystem — both its Prime membership audience as well as its warehouse and fulfillment network — slaps them with rising fees and hampers their ability to sell via their own websites or other platforms, according to the FTC complaint and some sellers themselves.

All of this hurts sellers, but ultimately shoppers as well, the argument goes. Amazon and some experts see the requirement that sellers offer their lowest price on Amazon as consumer-friendly. However, the FTC and some sellers say it forces higher prices across the board because the high cost of doing business on Amazon’s marketplace means sellers must either raise prices elsewhere or lose money on Amazon.

“What we need to focus on here is that millions of Americans, who were trying to save money by comparing prices on the online shopping platform, were, in fact, cheated out of buying merchandise at a competitive price and higher quality, via a degraded online shopping experience,” Asciolla said. “This is just another example of a corporate behemoth using its market power to enrich itself while blatantly taking advantage of consumers.”

Can other retailers do this?

The case involves not just retail or online markets but “the high-tech arena,” Asciolla noted.

In 2020, Amazon faced questions from Congress over claims that the company would use seller data to copy best-selling goods for its own private labels. Earlier in 2023, the company said it would reduce its number of owned brands to fewer than 20.

Other aspects of Amazon’s high-tech prowess remain mysterious. Heavily redacted portions of the FTC complaint center around a proprietary Amazon algorithm dubbed “Project Nessie.” It’s unclear how many, if any, details will ever be known about this. The FTC says it is a secret algorithm that manipulates price, while the company's burgeoning ad system manipulates search, driving less relevant search results and charging shoppers more.

“In a competitive world, Amazon's decision to raise prices and degrade services would create an opening for rivals and potential rivals to attract business, gain momentum, and grow,” the FTC said in its complaint. “But Amazon has engaged in an unlawful monopolistic strategy to close off that possibility.”

Some sellers say that Amazon’s tight grip on pricing and search limits them drastically on and off the platform. Jason Boyce, a former Amazon seller, founder of seller consultancy Avenue7Media and author of “The Amazon Jungle,” said that sellers face drastic consequences if they attempt to run an omnichannel business.

“According to Amazon's own staff, if you sell your exact same product on Target.com for a penny less than you do on Amazon, your listing on Amazon gets what sellers commonly call ‘buy box suppression,’” Boyce said, speaking at a video press conference on Sept. 26. “Amazon's own people say that you will lose 40% of your regular revenue if your buy box is suppressed. That's one of the areas that the FTC has named, this pricing competition thing, where they're actually raising prices. That change alone, if not just Amazon but if all retailers were not allowed to control the price of a brand, I think that would blast open the doors of competition.”

Sellers also said they are forced to pay exorbitant fees in order to show up in Amazon search results.

The e-retailer has flagged advertising as a rapidly growing and profitable part of its retail business. What Amazon calls “advertising” is more of a search priority, which interferes with organic search results. When search results are “organic,” they are determined algorithmically rather than according to which sellers pay for advertising or some other determinant.

“Amazon's online storefront once prioritized relevant, organic search results,” the FTC said in its complaint. “Amazon shifted gears so that it now litters its storefront with pay-to-play advertisements.”

The FTC isn’t alone in saying this degrades the experience for customers. Evercore analysts in 2022 warned that customer disappointment in Amazon was on the rise due in part to a proliferation of inferior merchandise, delivery delays and the “increasing rollout of advertising inventory in its product search results.”

What’s next

This case will likely drag on for years, and in fact may not even commence for quite some time. But it may be effective nevertheless, and maybe soon.

The European Union has already extracted concessions from Amazon that some sellers say would go far if they could be applied in the U.S. In December 2022, the EU announced new rules restricting Amazon’s use of its marketplace sellers’ data; enhancing their access to Amazon’s “buy box;” and easing sellers’ and shippers’ participation in Prime.

In a video press conference following the FTC’s announcement, Stacy Mitchell, co-executive director for the Institute for Local Self-Reliance, told reporters that the ideal outcome would be for Amazon businesses — which now include cloud services, warehouse and fulfillment services, retail, a streaming service and more — to split into individual components.

That would force Amazon to follow its own rules, including paying the fees it requires of the sellers who use its platform. However, in a 2017 Yale Law Journal article that also argued that Amazon deserved antitrust scrutiny, now-FTC Chair Lina Khan said that breaking the e-commerce giant up along its business lines was likely politically unfeasible.

More realistically, several Amazon sellers joining Mitchell said they would like to see Amazon pull back on some of its more draconian requirements. The lawsuit’s very existence may accomplish that, Mitchell said.

“I do think that the filing of a lawsuit in and of itself, and we know this from history, does tend to put companies back on their heels a bit,” she said. “And so one of the great benefits of this having happened is it is going to make Amazon much more cautious about what it does now.”

IPOs in the retail industry have been few and far between in 2023.

The decision of whether or not to go public has become so precarious that some companies have decided to postpone previously announced plans. Mattress Firm in January announced a pause on its intent to go public, crediting the decision to “ongoing volatility in the IPO market.” Teen accessories company Claire’s in July also announced it would postpone its IPO plans “in light of public equity market conditions.”

IPOs in the U.S. for the first half of 2023 were up slightly at 63 IPOs compared to 51 in the first half of 2022, according to data analysis from EY. 2022 data showed a sharp decline in both merger-and-acquisition as well as IPO activity compared to the year before. Still, the market has slowed significantly from its boom in 2021 — when plenty of online-focused brands capitalized on the renewed consumer interest — with 416 total IPOs happening in the U.S. across industries, per EY.

The unexpected banking crisis, inflation and COVID-19 pandemic volatility have contributed to the slowdown in public offerings, but many of these factors may be starting to subside.

A few IPOs in the consumer and retail sector have brought a smidge of renewed hope in 2023.

Oddity — owner of makeup brand Il Makiage and skin care company SpoiledChild — in July went public, increasing its stock price multiple times before the official debut. Birkenstock in September filed for an IPO, with private equity firm L Catterton expected to control a majority of the combined voting power of its outstanding ordinary shares once the public offering is completed. Instacart made its market debut in September, with its valuation at just below $10 billion.

What do all these companies have in common? A net income.

Instacart reported a net income of $242 million during the first half of 2023, according to SEC filings. Meanwhile, Birkenstock brought in a net profit of 187.1 million euros ($196 million at current rates) during fiscal year 2022 and Oddity recorded  $21.7 million in net income for 2022. 

A focus on profitability — as opposed to a growth-at-all-costs mindset — has worked itself into the industry in 2023. The impact has meant funding for private brands is more competitive, and diversified revenue channels are more important than ever.

So what’s happened to the brands that went public before the market shifted its attitude about the bottom line?

Here’s a look at how some popular brands have performed since their public debut:

Warby Parker

When Warby Parker officially went public in September 2021, its net revenue was thriving. 

Its S-1 filing from the month before revealed that net revenue for the six months ended June 30 was up 53% from the year before at $270.5 million. However, the company maintained an operating loss and net loss in the first half of the year, which were $5.8 million and $7.3 million respectively.

The company went public knowing that it could potentially capitalize on a market where customers often paid high prices for eyeglasses sold through another party.

“By selling directly to our customers and cutting out the middleman, we are able to deliver exceptional value and remarkable customer service while maintaining high gross margins,” co-CEO and co-founder Neil Blumenthal said during the company’s first earnings call with analysts in November 2021.

Since its closing stock price of $53.68 on Oct. 1, 2021, the company’s stock has trended downward, as has the consumer preference for e-commerce with pandemic trends normalizing.

William Blair analysts led by Dylan Carden believe that “Warby Parker has created a strong and lasting brand in the relatively fragmented eyewear market,” according to emailed comments in June — though the picture isn’t perfect.

“At 16 times our initial 2024 adjusted EBITDA estimate, we believe valuation does not fully reflect ultimate earnings power of the model, given lower-than-initially-planned revenue growth and further blind spots from a lack of detailed retail segment disclosure and lower structural gross margins,” Carden said.

Since its public debut, the eyewear company has yet to record an annual net income, though adjusted EBITDA has remained steadily positive since 2018. Warby Parker’s closing stock price on Oct. 2 was $13.27.

On

As a public company, On has been fortunate enough to report an annual net profit during its last fiscal year. 

The athletic footwear brand went public in September 2021 during the IPO boom with an estimated market value of $7.3 billion, according to reporting from Outside at the time. The Swiss brand’s business was predominantly through wholesale — with 37.7% of its net sales through DTC channels the year before — and its Q2 earnings from August showed DTC business share was 36.8%. However, the brand is increasingly focused on owned retail stores for growth.

On has pushed out record quarters, reporting in August that second-quarter net sales increased 52.3% year over year to 444.3 million Swiss francs (about $506.5 million at the time). However, its net income for the quarter dropped 93.3% to 3.3 million Swiss francs.

“We think [On] is one of the strongest growth stories in our space, with great products that are gaining brand awareness, gaining new points of distribution, and selling predominantly at full-price,” Wedbush analysts led by Tom Nikic said in emailed comments after On’s first-quarter earnings results in May. “Though valuation is quite lofty, the company has a tremendous amount of momentum and a long runway for growth.”

The company’s stock price hit a high of around $50 in November 2021, and although it experienced a dip during 2022, its value has been back on the rise throughout 2023. On’s stock price closed at $26.12 on Oct. 2, 2023.

Allbirds

Allbirds’ stock price has plummeted since going public and a rebound has yet to appear. 

When the sustainability-focused lifestyle brand went public in 2021, it had both an annual adjusted EBITDA loss and net loss — two metrics that have since continued to widen. Its latest second-quarter earnings in August showed net revenue continued to drop while its net loss slightly improved year over year.

The recent performance comes as the brand executes a transformation plan, which includes reducing store openings to better focus on profitability. When the plan was announced, the company also revealed that its CFO would exit. At the time of the announcement, the company’s closing stock price dropped more than $1 compared to the day before.

Allbirds in May announced its co-founder and co-CEO Tim Brown would transition to the role of chief innovation officer and that it had recently enacted layoffs.

Allbirds’ closing stock price on Nov. 5, 2021, was $26.03 and has steadily declined. On Oct. 2, 2023, it was $1.15.

Peloton

At its highest, Peloton’s closing stock price hovered around $160. As of Oct. 2, the fitness company’s closing price was $5.39.

The at-home fitness brand has undergone a multitude of changes over the past few years. Several co-founders — including former CEO John Foley — have left the company, hundreds of employees have been laid off and the company entered into its first wholesale deals.

CEO Barry McCarthy joined Peloton in February 2022 and has overseen the company’s new strategic plan. The company’s stock spiked slightly when the executive’s incoming was announced, but it has yet to get close to its high in 2021.

In another strategic shift, Peloton entered into a five-year global partnership with Lululemon wherein Lululemon will exclusively develop co-branded apparel sold through Peloton’s stores and online. The move came after Peloton launched its own private apparel line and settled a lawsuit with Lululemon which accused it of ripping off its designs.

Lovesac

Direct-to-consumer furniture brand Lovesac went public in 2018 prior to the 2021 IPO boom, though the company’s stock did benefit from that year.

Earlier in 2023, the company made some C-suite changes, with its CFO Donna Dellomo retiring to become a senior strategic adviser and Keith Siegner taking over the role. Jack Krause also announced he would retire from the chief strategy officer role.

The furniture brand reported preliminary second-quarter results in August, saying that net sales are expected to be approximately $154 million while net loss is expected to be in the range of $500,000 to $1.5 million.

Lovesac has had to postpone the release of its formal second-quarter earnings as it works to restate previous financial results, which has resulted in a notification from the Nasdaq regarding delayed 10-Q filings. An SEC filing from Lovesac dated Aug. 15 noted that the company identified errors related to last-mile freight expenses that resulted in operating income and net income being “overstated by approximately $1.5 million to $2.5 million and $1.0 million to $2.0 million, respectively, for fiscal year 2023.” As such, the company has determined that several financial statements for fiscal year 2023 “should no longer be relied upon.”

At its high in June 2021, Lovesac’s closing stock price reached over $90. Its closing price on Oct. 2, 2023, was $19.10.

Purple

Mattress company Purple went public through a deal where it merged with an already public company in 2018, allowing it to skip the standard IPO process.

The company’s stock took a dip between 2018 and 2019, but spiked slightly in February 2020, around the time it announced a partnership with Raymour & Flanigan. Purple’s stock reached about $40 at its height in February 2021, shortly after which the company’s fourth-quarter results showed net revenue increased 39.9% year over year to $173.9 million and net loss decreased to $2.1 million from $12.7 million the year before. 

The company has seen net losses balloon, shifted its strategy more toward premium customers and handled a takeover attempt from an activist investor. Purple received an unsolicited takeover bid from investors Coliseum Capital Management in September 2022, which Purple ultimately rejected.

After months of back and forth where Coliseum attempted to replace a majority of Purple’s board of directors and Purple enacted a poison pill, the parties settled the fight in April. The deal involved Purple creating a cooperative governance framework with Coliseum and adding three directors to its board nominated by Coliseum. Purple terminated its poison pill and Coliseum agreed not to exceed 44.7% ownership in the company.

Purple appointed a former Party City executive as its new CFO in September and its closing stock price was $1.65 as of Oct. 2, 2023.

Over the past few years, Walmart has been unfurling its ties to the host of e-commerce and direct-to-consumer companies it acquired several years ago.

Between 2016 and 2018, the mass retailer moved heavily into the e-commerce space by acquiring ModCloth, Bare Necessities, Jet, Shoes.com, Moosejaw, Bonobos and Eloquii. 

When Walmart bought the plus-size brand Eloquii in 2018, it was Bonobos founder Andy Dunn who was leading the retail giant's DTC companies as its senior vice president of digital consumer brands. At the time, Dunn noted how key DTC growth was for the retailer.

“As the retail landscape evolves at light speed, we remain firm in our belief that it’s not just about selling brands, it’s also about building brands and customer relationships,” Dunn said in a statement shared with Retail Dive at the time. “As such, we are laser-focused on developing a portfolio of direct to consumer brands with a unique assortment you can’t find anywhere else.”

But over the course of just two months in 2023, Walmart entered into agreements to sell two direct-to-consumer apparel brands – Eloquii and Bonobos – and the outdoors retailer Moosejaw.

Plus-size apparel company FullBeauty Brands is taking Eloquii for an undisclosed amount, while WHP Global and Express Inc. agreed to buy menswear brand Bonobos for $75 million – a stark drop from the $310 million Walmart purchased it for.

At first glance, the sales may seem like a sudden departure from Walmart’s direct-to-consumer investments. But the retailer has been steadily shifting its focus toward its core business for years, and divesting these companies is just the latest pivot. Here's what it means for Walmart, and the brands it sold.

The bigger picture

Taking a step back, Walmart has been steadily offloading its e-commerce and DTC endeavors over the course of several years as opposed to just the last few months.

Prior to the sale of Moosejaw, Eloquii and Bonobos, Walmart had already sold off several of the companies acquired during its e-commerce push.

Walmart in 2019 inked a deal to sell vintage-inspired online apparel and accessories store ModCloth to Go Global Retail about two years after the mass merchant purchased it. Walmart acquired it through Jet, an online retailer that Walmart bought in 2016 for $3 billion. Jet has since been discontinued, though Walmart noted at the time the company was “critical to accelerating our omni strategy.”

Shoes.com, which Walmart bought in 2017, was sold to CriticalPoint Capital in 2020. At the same time, Walmart announced it agreed to sell lingerie brand Bare Necessities, which it acquired in 2018, to Delta Galil Industries. 

But Walmart’s steady divestment of its non-core retail businesses extends beyond e-commerce and DTC, according to Senior Managing Director Joe Feldman at Telsey Advisory Group.

“If you go back a few years, they exited their Japanese business, they exited the U.K. business, they’ve exited Brazil,” Feldman told Retail Dive. “They got out of countries where they just weren't as profitable as they would like, or they weren’t as effective. I think this is part of that process of streamlining to getting back to where they can be most impactful and most efficient and profitable.”

The mass retailer sold a majority stake in Japan’s Seiyu supermarket chain in 2020 for more than $1 billion and announced a deal to sell its Asda U.K. business for about $8.8 billion the same year. A couple of years earlier, it sold a majority of its Brazil unit to a private equity firm.

Whether Eloquii, Moosejaw and Bonobos were profitable under Walmart is unknown. The retailer has had little to say about the brands on earnings calls over the past few years and a Walmart corporate spokeswoman told Retail Dive that the company does not break down sales or profits of its categories or businesses.

Regardless, the acquired brands were likely never expected to be a large part of Walmart’s business, according to Feldman, and therefore their sale will likely not move the needle much. 

But what Walmart learned from these brands may have contributed to its e-commerce and marketplace growth. On a Q4 earnings call in 2018, CEO Doug McMillon noted the company was focused on expanding its apparel business, and ModCloth and Bonobos could be leveraged to build its assortment. Now that it's selling them, Walmart says it did just that.

“These acquisitions contributed to accelerating our broader assortment strategy with the addition of new brands, more items and expertise in specialty categories ... The partnerships have been mutually beneficial,” Walmart’s spokeswoman told Retail Dive via email. “The acquired brands played an important role in our assortment expansion and expertise in specialty categories, while Walmart helped them drive online growth and expand their retail footprint through our scale and customer reach.”

In McMillon’s annual letter to shareholders in February, the executive said e-commerce sales reached $82 billion and currently make up 14% of Walmart’s total sales.

And although Walmart is selling Bonobos at a lower price than it initially invested, the business may be well-positioned to take such risks, according to Feldman.

“I think that they found that third-party brands can be just as effective and profitable and maybe more profitable than owning the brand themselves,” Feldman said. “Not being afraid to fail is clearly a part of the Walmart culture these days and I think that that's what helps make them a stronger retailer.”

While Walmart has divested from many digital-first brands and e-commerce endeavors, its track record shows it still views e-commerce and technology as growth points.

Investing ‘where Walmart can be Walmart’

Demonstrating the company’s shifted focus, Walmart’s mentions of “tech” and “fulfillment and delivery” on earnings calls more than doubled from Q1 2019 to Q1 2021, according to data from CB Insights.

The newer strategy can also be seen through its more recent investment activity. Rather than acquiring DTC apparel brands, Walmart is buying retail tech companies.

Walmart acquired the robotic fulfillment company Alert Innovation and purchased a stake in Symbotic in 2022. The retailer also invested in or partnered with nine other companies working on fulfillment technology, according to CB Insights. 

The mass retailer invested in three companies and acquired two in the last-mile delivery space since 2020, which includes its work with drone delivery company DroneUp. Furthermore, Walmart has begun eyeing India’s commerce space with PhonePe and Flipkart, and has used technology from the acquisitions of Zeekit and MemoMi since 2021 for virtual try-on.

“I think it's easy to see they continue to invest in e-commerce,” CB Insights Principal Analyst Laura Kennedy told Retail Dive. “They continue to invest in the parts of e-commerce where Walmart can be Walmart ... something that really shows up in the data that we track is how they've invested and acquired and formed partnerships with a lot of tech companies that ultimately point to the fact that they're selling tech services to other retailers.”

Many of Walmart’s acquisitions and investments have helped it build its B2B services, according to CB Insights, such as its white-label ground delivery service Walmart GoLocal, its marketplace seller program Walmart Fulfillment Services and fulfillment management service Store Assist.

Automation has also been a key focus for Walmart, which in April spoke at large about the topic during its annual investors meeting. Although the retailer has recently enacted layoffs across its e-commerce facilities, Walmart said 65% of stores will have automation capabilities and 55% of fulfillment center volume will move through automated facilities within three years.

“A very large part of their strategy today is on leveraging technology to be more efficient,” Feldman said. “Virtually the entire investor conference that Walmart posted a couple of weeks ago in Tampa was all about automating the warehouses ... And there's this flywheel that comes from that because then you can take those savings and reinvest it into lower prices and lower prices can mean people spend more.”

However, automation and robotics, in general, can be an expensive endeavor, Kennedy added.

“Automating fulfillment is a capital-intensive investment,” Kennedy said. “You're still putting in robots and all that. But the fact that [Walmart is] scaling it is significant to me.”

The retailer had been an early partner with Alert Innovation in 2016, but is just more recently working to expand these capabilities.

“They certainly took their time. They're not putting it everywhere, which tells you that maybe it's not a one-size-fits-all or fixes everything that everybody might think,” Kennedy added. However, the company seems to see a future in the automation space and is thinking carefully about its return on investment as it moves forward.

But as Walmart shifts its focus, a fresh start is on the horizon for Eloquii and Bonobos.

Where Eloquii and Bonobos are headed

The new owners of Eloquii and Bonobos are more centered around the apparel industry overall, with the brands likely to account for a larger part of their respective businesses than they did at Walmart.

“We always had Eloquii on a list of brands we would be interested in and had a lot of respect for the brand,” FullBeauty Brands CEO Jim Fogarty told Retail Dive. “If you look at what they’re all about, it’s a similar basic mission to what we’re about ... They, like our brands, are not only just bringing [inclusive] sizes, but they also obsess about fit and our teams do as well.”

FullBeauty Brands went through a bankruptcy over the course of 24 hours in 2019. Its restructuring plan gave the company’s ownership to a group of lenders and cut down $900 million in debt.

Since then, the company has been refocused on growth. It won a $41 million bid to acquire plus-size apparel brand Catherines in 2020, adding to its portfolio that also includes Woman Within, KingSize and Swimsuits For All. And it has addressed some of the challenges that led it to bankruptcy in the first place, Fogarty said.

“The gross margins and the inventory weren’t being managed as well as [we] needed to,” Fogarty said of the business prior to bankruptcy reorganization. “So we sort of did a reset along with the merchandise assortments … And just make better, smarter bets and inventory buys.”

For much of FullBeauty Brands’ portfolio, its target customer skews toward the Gen X and baby boomer-aged demographic, Fogarty added. Eloquii brings a younger demographic to the table that FullBeauty Brands is hoping to target more.

Eloquii will become the anchor tenant in a digital mall run by FullBeauty Brands, with Swimsuits For All and June+Vie joining alongside. 

FullBeauty Brands is very focused on online channels, where it says there is still room for growth, as it allows for a stronger free cash flow compared to brick-and-mortar retail. However, physical presence isn’t out of the question, as Eloquii has operated stores in the past.

“I think the team at Eloquii believes that has potential for them, so we're open to talking about all of that,” Fogarty said. “There are lots of direct-to-consumer folks that have, as they look to find more paths to market, gone and opened brick and mortar. It's not in our near-term horizon, but I suppose never say never.”

While the plus-size company mostly focuses on direct-to-consumer channels, many of its brands – including Catherines and Eloquii – do sell select styles through some marketplaces, such as Walmart’s.

As for Bonobos, going to live under WHP Global and Express may seem like a welcome change, given Express’ history in apparel. Express has bet big on growing its DTC business by launching its UpWest brand in 2019 and looking for growth through expanding its physical footprint.

At the time the acquisition was announced, Express Inc. CEO Tim Baxter said in a statement that “Bonobos is delivering double-digit sales growth and we plan to continue that momentum while also realizing operating synergies and other economies of scale.”

Under Walmart, Bonobos experienced workforce cuts and ended up stepping away from its roots by selling a subbrand through Walmart.

But its new parent companies are not without issues. Express’ sales have declined as of late and it received a delisting warning notice from the New York Stock Exchange in April. 

Express is shelling out $25 million for Bonobos' operating assets and assumed liabilities, while WHP Global is paying the remaining $50 million for the Bonobos brand. Toys R Us owner WHP Global took a stake in Express in 2022 for $260 million, forming a strategic partnership between the companies. WHP Global’s portfolio also includes Anne Klein, Lotto and Isaac Mizrahi. In March, WHP Global received a $375 million investment from Ares Management.

Both WHP Global and Express declined to comment further on the acquisition. 

While Bonobos is being sold at a significantly lower price than what Walmart acquired it for years ago, that lower valuation is consistent with how others in the DTC space are faring.

CB Insights data found that as of April 18, the market caps of DTC darlings Warby Parker and Allbirds have fallen 72% and 91%, respectively, since their initial public offerings.

Global venture capital funding during 2022 was down 35% compared to the year before while VC deal activity in retail within the U.S. decreased 36%, all marking a stark change in capital for an industry that is dealing with macroeconomic pressures.

Digitally native retailers, including DTC brands, sell goods in just about every category, from exercise bikes to lingerie, razors to luggage. But through the years, as they’ve pitched venture capitalists, wooed shoppers, stolen market share and disrupted retail, their basic business models have had much in common.

They operate online, without stores or retail partners. Thanks to that, they easily vacuum up shopper data and keep customer relationships all to themselves. With no rent to pay or physical locations to run, their margins, theoretically, are fatter. And without wholesale, their customers pay full price, directly to them.

But of course, the devil’s in the details. Many digital natives have strayed from their original visions, often in the very ways that purported to make them disruptive in the first place, in an attempt to achieve scale and/or profitability.

“Probably the first domino to fall was ‘you don't have to run stores,’” Rick Watson, founder and CEO of RMW Commerce Consulting, said by phone. “Then the second thing that happens is, a lot of these DTC brands, like Harry’s, have been acquired by bigger consumer product companies. And now folks like Allbirds and others are prioritizing wholesale. Wholesale is cool again.”

Several DTC brands and marketplaces, including Glossier, The RealReal, Casper, Warby Parker, ThirdLove, Peloton, Allbirds, Away, Lively and Wayfair, have opened brick-and-mortar stores. Increasingly, more are also turning to wholesale, which turns out to be an effective channel for boosting sales and margins.

Some continue to change up other aspects of their sales approach. In recent years, for example, Rent the Runway has: introduced various new subscription tiers; dropped unlimited rental; added kids and (with a retail partner) home decor; offered sales of previously rented clothing; opened those sales to non-subscribers; partnered with a retailer to sell those garments; partnered with retailers and hotels for pickup and dropoff; opened then closed its own physical locations; and developed exclusive designs.

Stitch Fix has similarly shifted its approach numerous times. The box e-retailer expanded to the U.K., announced its exit from the U.K., added men’s and kids’ clothes to its offer, allowed box subscribers to buy garments a la carte, provided previews of curated boxes so customers could reject or accept certain items, opened its a la carte website to all consumers, added a search function to that site, then restricted it once again to only those who have ordered a box.

Exercise bike company Peloton has scrambled to adjust prices and make other changes after its pandemic-era boom fizzled. Those that are dependent on clients signing up for a membership are grappling with the decline of that model, according to Watson. ThredUp and Nordstrom appear to have taken that note, as both shut down their curated box services in the last couple of years.

“I think people are subscriptioned out,” Watson said. “So I think they're grasping at straws a little bit. They need to find a next act. That's definitely Stitch Fix. RealReal just has pretty major profitability issues. If they sold higher-margin goods, maybe they can charge more and turn a profit on those things. The challenge is, the site then becomes so exclusive that how many items are those in the world?”

Expanding what turns out to be, for many digital natives, a niche customer base is getting harder as venture capital money has dried up and customer acquisition costs have soared, Watson also said. Fundamentally, more of these companies, including of late Thirteen Lune, Our Place and Vuori, realize the tweak they need most is selling through brick and mortar.

"Regardless of the model that a DTC adopts, the math simply doesn’t support an online pure-play retail model of any kind that can be sustained against those that have a physical presence and can copy whatever someone else does online,” Forrester Principal Analyst Brendan Witcher said by email. "Not enough consumers have shown the propensity to remain long-term, loyal customers of a pure-play, online-only retailer. If they did, these companies would not have to spend the millions of dollars in advertising and marketing that wipe out their profitability.”

While the pandemic super-charged e-commerce, that acceleration will serve to slow its growth somewhat over the next year or two, especially as consumers return to stores, according to Euromonitor Senior Consultant Rabia Yasmeen. The first wave of e-commerce’s disruption is giving way to a new era, she said by email.

“As current trends clear the path ahead for physical retail – we can see the next development of retail would see integration of physical and digital, with one supporting the other,” she said. “Hence, years of dynamic, double digit e-commerce growth are likely to be only seen in the case of unusual circumstances.”

When it comes to earnings results, there are a slew of metrics companies report out.

Net income or loss, revenue, gross margin, operating income or loss – it takes a watchful eye with experience to properly dissect these measures. Is a company performing well or on its way toward profitability? Earnings reports can help shed light on that.

But to make matters more complicated, there’s the existence of non-GAAP (generally accepted accounting principles) financial measures, which are not audited or standardized. Think of these as the chaser to your shot, the supplement to your diet.

“Non-GAAP measures can be a meaningful way to supplement GAAP numbers for a complete picture of business operations and liquidity,” an article from Deloitte said. “Analysts and investors often look at non-GAAP measures for information utilized in their modeling that is not easily or clearly captured from the financial statements.”

Such non-GAAP measures are of increased interest to the U.S. Securities and Exchange Commission due to their growing usage, the potential for them to be misleading and the increasing differences between non-GAAP and GAAP values, per Deloitte. The SEC in December even updated its commonly asked questions webpage regarding non-GAAP measures.

Among non-GAAP measures, one remains king.

EBITDA — or earnings before interest, taxes, depreciation and amortization — and its various sister measures such as adjusted EBITDA, are non-GAAP financial measures commonly used nowadays. The measure allows brands to report their earnings excluding certain factors, such as depreciation. Adjusted EBITDA is simply that – a measure where further adjustments are made to a metric that already has adjustments.

It’s hard to find a company in the retail industry that doesn’t report some version of EBITDA. Warby Parker, On, Purple Innovation, Peloton, Allbirds and more are all brands that report adjusted EBITDA. 

EBITDA has its fair share of both supporters and detractors. So, what exactly is it and why are brands so focused on it?

The ‘Wild West’ of measures

What exactly do EBITDA and adjusted EBITDA allow companies to demonstrate?

In theory, they let companies express earnings results without certain factors they deem irrelevant or circumstantial to how the company is performing overall. For example, a company may use EBITDA to calculate earnings without factoring in interest on certain debts or the depreciation of some hard assets like machinery. 

But EBITDA is no stranger to criticism, given the measure's lack of standardization.

Its most well-known critic is Berkshire Hathaway Chairman and CEO Warren Buffet, who has openly spoken about his views on the non-GAAP measure for years. In the executive’s letter to shareholders in 2001, he noted that references to EBITDA "make us shudder.”

“Too many managements – and the number seems to grow every year – are looking for any means to report, and indeed feature, ‘adjusted earnings’ that are higher than their company’s GAAP earnings,” Buffet added in a letter to shareholders in 2017. “A management that regularly attempts to wave away very real costs by highlighting ‘adjusted per-share earnings’ makes us nervous. That’s because bad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be ‘helpful’ as well.”

The fight against reporting out EBITDA has objectively failed, but Buffet isn't alone in criticizing it.

In 2013, Professor of Accounting Practice at London Business School Chris Higson wrote that EBITDA’s popularity began in the 1990s when “there were many loss-making technology businesses on the market at sky-high valuations. Since EBITDA was more likely to be positive than EBIT, it provided a useful basis for valuation multiples.”

The view that EBITDA represents a better measure of profit is “nonsense,” Higson wrote at the time, adding that depreciation is a real cost and omitting depreciation doesn't adequately measure income.

EBITDA allows companies to freely choose what to include or exclude. What’s more, companies can alter those choices over time.

“The thing about EBITDA is of course that it's the Wild West,” Higson told Retail Dive. “And therefore, the rules you can include or exclude from that particular income measure are whatever you feel like.”

Online retailer Stitch Fix in its 2020 annual earnings report included both adjusted EBITDA and an adjusted EBITDA measure that did not account for stock-based compensation expenses, which the company defined as “a significant recurring expense in our business.”

But in its 2021 annual report, Stitch Fix stopped reporting that second metric and only reported adjusted EBITDA, which does account for stock-based compensation expenses. Stitch Fix did not respond to Retail Dive's request for comment on the change at the time of publication. The company’s stock-based compensation expense increased from $67.5 million in fiscal 2020 to $127.4 million in 2022.

The depreciation costs related to assets can greatly impact earnings results.

Alphabet — the parent company of Google — is part of a group of tech companies that have extended the estimated lifespan of servers and other equipment in a move that can increase profits and reduce depreciation expenses, according to reporting from The Wall Street Journal in May. Alphabet in January adjusted the life of servers and some network equipment from four and five years, respectively, to six years — a move that resulted in a $770 million bump to its net income for the period ended March 31.

The importance of a company’s EBITDA and adjusted EBITDA depends on what is or isn’t added back, Piper Sandler Senior Equity Research Analyst Abbie Zvejnieks told Retail Dive.

"I think it's really important to understand what the add-backs are,” Zvejnieks said. “There are certain companies that you look back at and they're adding in pre-opening expenses for stores or transitory costs in the supply chain. And I think that's where it gets a little bit more hairy because those are real expenses. Like, should we really be adding those back?"

EBITDA can be useful, however, as an internal measure if a company is trying to put pressure on managers to improve margins, according to Higson.

The measure is also sometimes used to compare the performance of a group of similar companies within an industry. 

“If you have two companies and one has a lot of debt, they naturally have more interest,” Julian Yeo, clinical professor of accounting at New York University’s Leonard N. Stern School of Business, told Retail Dive. “So, therefore, their net income will be lower, so the two companies are no longer comparable.”

So what does EBITDA look like in practice across the direct-to-consumer market?

Show me the money

The conversation around EBITDA and profitability can vary based on the age of a company. DTC brands in retail, many of which are still startups, often haven't reached profitability and may use EBITDA as a measure of potential.

From an analyst’s perspective – particularly one that covers companies that haven’t been around for long periods of time – earnings per share tends to be the primary profitability metric, according to Wedbush Senior Vice President of Equity Research Tom Nikic.

“We do also look at a company's enterprise value to EBITDA ratio for your valuation purposes,” Nikic told Retail Dive. “One reason why I think it's become more talked about recently is with the slew of companies that came public in the past five years or so, most of those companies weren't net income profitable.”

EBITDA as a measure has a lot to do with a company’s stage, Warby Parker co-founder and co-CEO Neil Blumenthal told Retail Dive.

“It really comes down to how the investor views a business,” Blumenthal said. “For growth companies, EBITDA and adjusted EBITDA appear to be sort of the best indicators of long-term success for a lot of these investors.”

With such companies losing money and burning through cash, Nikic said that it's important to understand how much longer the brand’s cash would last. 

“There's this sense that EBITDA tends to track with cash flow a little bit more closely than net income does,” he said. “Since you're adding back some non-cash charges … a lot of times you'll hear companies sort of use EBITDA interchangeably with cash flow.”

Ultimately, however, a company’s bottom line is the first indicator of profitability, according to Yeo.

“We're going to always look at the bottom line. If net income is positive, we are profitable,” Yeo said. “If net income is not positive, we may want to look above the net income line.” When placing a valuation on a company with a net loss, for example, Yeo says an expert would next look to see if EBITDA is positive. 

Net income is the most comparable GAAP measure to EBITDA and adjusted EBITDA, according to the SEC. But looking at the numbers side by side can sometimes tell two very different stories. A look at various direct-to-consumer brands shows sometimes significant differences between those metrics. 

Among the companies that have gone public in the last five years is Warby Parker. Warby Parker filed to go public in 2021 through a direct listing. 

The company is in a growth stage and viewed as such by investors, according to Blumenthal, which informs what metrics Warby Parker and its shareholders care about.

The fact that investors show an interest in adjusted EBITDA is reason enough for the eyewear company to continue reporting it, Blumenthal says, despite any criticism of the metric.

“At the end of the day, as an entrepreneur and as an executive, I'm going to manage the business based on the real world,” Blumenthal said. “And so I'm going to always take the perspective of the investor. … I think the idea that EBITDA or adjusted EBITDA is not as pure of a metric almost is neither here nor there. It's about what are investors using to make decisions whether to invest or not invest.”

Warby Parker in August reported its second-quarter net revenue increased 11% year over year to $166.1 million and its net loss narrowed to $15.9 million. The brand touted its improved adjusted EBITDA margin at 8.5%, with adjusted EBITDA increasing to $14.2 million.

Warby Parker’s fiscal 2022 adjusted EBITDA deducted $31.9 million in depreciation and amortization expenses, marking a 47% increase from the year before.

Looking forward, Blumenthal feels positive about Warby Parker’s future as COVID-19 pandemic trends that halted overall growth in the optical industry continue to normalize. The executive expects e-commerce growth to return for the brand even as it continues to invest in its brick-and-mortar strategy.

“I'm still very bullish and excited about e-commerce and it will continue to grow, it just needed to normalize,” Blumenthal said.

One of DTC’s success stories right now is athletics company On, which reported in August that second-quarter adjusted EBITDA nearly doubled from Q2 2022 to 62.7 million Swiss francs (about $70 million at the time of publish). At the same time, net income dropped 93.3% to 3.3 million Swiss francs. On’s net sales increased 52.3% year over year to 444.3 million Swiss francs.

The brand previously told Retail Dive in January that it has been profitable since 2014. A look at its financial filings shows that the company has steadily increased its positive adjusted EBITDA since 2018 (figures dating back to 2014 weren’t readily available), but was pulling an annual net loss from 2019 to 2021.

The amount of costs On deducts when it calculates adjusted EBITDA has grown as well. Depreciation and amortization costs deducted in On’s adjusted EBITDA in fiscal 2022 reached 46.4 million Swiss francs, an increase from 31.4 million Swiss francs the year before.

“Adjusted EBITDA will continue to be an important metric for us, as it’s the best way to measure our profitability on a comparable basis,” On told Retail Dive via email when asked how it measures profitability. “Since 2014, we have consistently increased our adjusted EBITDA margin every year, in line with our strategy to achieve significant growth while increasing profitability.”

On swung to a net income in 2022 when it reported its annual net income reached 57.7 million Swiss francs. But not all companies have been so fortunate.

DTC brand Allbirds has been undergoing a transformation plan, which has so far included executive leadership changes and layoffs, in order to focus on its path to profitability. The company’s latest Q2 earnings beat expectations in that net revenue only fell 9.8% year over year to $70.5 million while net loss improved 1.5% year over year to $28.9 million. Allbirds’ adjusted EBITDA loss for the quarter improved year over year from $20.8 million to $18.3 million.

Since fiscal year 2019, Allbirds’ annual adjusted EBITDA has been in the negative alongside its net loss. 

The depreciation and amortization costs deducted in the brand’s fiscal 2022 adjusted EBITDA loss increased 61% from the year before to about $15.8 million. But the retailer made another significant change in 2022 as well. In calculating its adjusted EBITDA, Allbirds chose to include the costs associated with its discontinued apparel business, which worsened its loss by some $17.1 million. Previously, the retailer had excluded those costs, which “made their adjusted EBITDA look better, because it allowed them to show smaller operating losses,” Nikic told Retail Dive via email. 

“The change that they made is the more conservative stance to take, essentially admitting that they made an operational mistake and allowing the negative impact to show up on the EBITDA line," Nikic added.

When asked how it measures profitability, Allbirds said it has historically “provided financial guidance on net revenue and Adjusted EBITDA. We're in the midst of a strategic transformation, which sharpens our focus on reaccelerating growth with an aim to be free cash flow positive and Adjusted EBITDA positive in 2025.”

Whether or not EBITDA or adjusted EBITDA is an adequate measure of profitability, brands are certainly relying on it to demonstrate growth. Even as it varies, sometimes considerably, from a brand’s net income or loss. And despite discrepancies in how brands report EBITDA, and varying opinions on its usefulness as a metric, it is likely to remain a key piece of brands’ earnings reports.

“Naturally, you're going to be EBITDA profitable before you're net income or EPS profitable,” Nikic said. “It's much easier at a point for a company [to] point out and say, ‘Hey, look like we're going to be EBITDA profitable in two or three years.’ That's a more compelling argument.”

Apparel company Toad & Co. sells almost entirely via wholesale and direct-to-consumer e-commerce, and now is defying the odds in resale.

There's convincing evidence that the only profitable way to sell secondhand goods is through brick and mortar. But the company’s fast-growing “Toad Again” resale effort, run mostly online since April, is making money so far.

Toad is making like the tortoise, taking it slow and steady, and controlling its own secondhand operations. Founded 28 years ago in Telluride, Colorado, as Horny Toad, Toad & Co. is known for its earth-toned sustainable clothing. Before the pandemic, wholesale to retailers like REI, Title 9 and specialty retailers accounted for about 80% of its revenue, but that has fallen markedly in the last few years, according to Sam Cuccaro, operations manager for the company’s two locations in Maine; there is also one each in Golden, Colorado, and Chicago. 

The first Maine store is 6,000 square feet of retail space in Freeport, a small-town shopping mecca anchored by L.L. Bean’s flagship. The Portland location, which opened in May in an industrial area known for its brew pubs, is closer to 9,000 feet. But the retail square footage there is smaller because the vast majority of space is being used to process incoming used items and fulfill resale orders.

Toad & Co. got its start in resale by selling vintage finds, usually from other brands like Levi’s, at its Freeport store. They sold quickly, and once the store expanded its offer with preowned Toad & Co. items, those sales “blew up,” Cuccaro said, speaking at the Portland location. Since April, sales of used goods, which now occurs mostly through a dedicated “preloved” page on the brand’s website, have risen an average 113% each month, and are proving to be a profit center.

“If you claim to be a sustainable brand, you have to be thinking about resale or already doing it,” she said.

Indeed, Toad & Co. is not alone. With sales of secondhand clothing skyrocketing — in the U.S. alone the market reached $39 billion in 2022 and is set to rise to $70 billion in 2027, according to GlobalData and resale company ThredUp — brands of all sizes, across the value spectrum, are scrambling to join in. As Cuccaro notes, many consumers view buying secondhand as a sustainable way to shop, an option that keeps discarded clothing out of landfills and perhaps tamps down demand for new production. Brands from H&M to Lululemon join Toad & Co. in touting their resale programs as key to their sustainability goals.

So far, though, in order to participate in this growing opportunity, most brands have limited sales of used items to e-commerce, partnering with third-party platforms that provide technology and much of the logistics. For Toad & Co., which has so few stores and depends on e-commerce to begin with, selling used items online was also a given. But unlike brands that outsource their resale to firms like ThredUp and Trove, it controls that operation itself.

The company has partnered with resale tech firm Archive to provide the platform — a dedicated resale page that includes a peer-to-peer sales option, forms that potential sellers must complete, payment options and pricing, among other digital necessities. But the receiving, screening, sorting, repair and fulfillment of used items are all completed in the backroom of the Portland location. The brand has created a high standard for anything that’s resold, rejecting even slightly blemished or unwashed items. Though it still sells vintage finds at physical stores, the company takes only its own brand for Toad Again, even prohibiting anything from its Horny Toad era. (The company changed its name in 2015.)

Anything unsatisfactory for resale is scrutinized for potential upcycling — Operations Technician James Fargnoli says the brand’s high quality fabrics allow for that — or donated. Acceptable items either go to the store floor or are photographed and listed online. Sellers are required to note the item number, so the company can locate the original studio photography from when it was sold new, then add current photographs to show its present condition.

Anyone interested in participating in Toad Again can opt for a peer-to-peer model, where they list the items on the Toad Again web page and fulfill any orders with a prepaid shipping label; Toad & Co. takes a 10% cut. For items collected by Toad & Co, sellers can opt for cash or a bit more in store credit, though they receive nothing and lose the garment if Toad & Co. rejects it. The company is also working on an auction feature.

The effort is fairly new, and it remains to be seen if its Maine-based processing and fulfillment can keep up with what is a swiftly expanding business. According to Cuccaro, its explosive growth is bound to persist, considering the popularity of resale in general and Toad & Co.’s dedicated following.

“It’s a treasure hunt that customers love,” Cuccaro said. “And Toad & Co. has really loyal fans.”