2PM - No. 712: The Netflix Playbook 2.0

A. The News / Bloomberg: Authentic is one of a dwindling number of potential saviors for ailing and failed chains. Since last year, Chief Executive Officer Salter has added Brooks Brothers, Eddie Bauer, Forever 21, and Lucky Brand to an eclectic portfolio of more than 30 apparel, celebrity, and sports names that includes Juicy Couture, Sports Illustrated, and Barneys New York. The growth has Authentic considering an initial public offering as soon as this year.

American malls are struggling to maintain foot traffic, digitally-native brands are changing the landscape of retail, and Jamie Salter is rescuing the aging retailers that used to uphold the status quo. 

The CEO of ABG, Salter began acquiring licensing rights and struggling niche brands in 2010. He’s built a diverse and eclectic portfolio since. This portfolio now includes Polaroid, Forever 21, Brooks Brothers, Sports Illustrated, Juicy Couture, and Barney’s New York, amongst around 30 other well known celebrity and brand names. Salter’s strategy in buying struggling but well-respected brands could be the strategy that malls will rely on to survive the next decade of instability: breathing new life into old powerhouses. 

90% of Class A malls are beginning to experience vacancy issues that are creating a vicious cycle for malls owners. Just today, Washington Prime Group filed for bankruptcy protection as a result of these mounting issues: 

• increased vacancies lead to less foot traffic

• which necessitates renegotiation between REITs and their tenants

• which opens up the opportunity for tenants to pay for a lease in the most promising Class A malls, request less expensive leases, or terminate their leases all together

• result: increased vacancies in the sub-luxury malls that were already struggling

To combat this cycle, Salter of ABG partnered with David Simon and Simon Property Group - the owners of the most ‘Class A’ malls in the world. The two joined forces to create Sparc, the joint venture to acquire: brands, intellectual property, and ailing retailers. This is the basic strategy that SPG has relied upon to stabilize vacancies in the short-term and to potentially boost profits in the long-term through the growing market for domestic and international brand licensing. 

Malls may need a safety net in order to survive not only the pandemic but also the impending shift to a digital-first retail economy. With ABG and SPG partnering to create Sparc, Salter and the traditional retail landscape with the safety net it needs to survive. 

The strategy has seen success, so far, as Sparc's many brands have benefited from supply chain and administrative synergies.  Time will tell if Sparc can achieve its projected ROI. But in the meantime, malls are still alive as retail continues to shed its old and bloated ways. That’s an Olympic-sized win if nothing else.

Mall REIT Washington Prime Group lands in bankruptcy court

B. Retail Real Estate / Retail Dive: Washington Prime Group on Sunday filed under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas. Thanks to "extensive hard-fought, arm's-length negotiations," the REIT — which launched when Simon Property Group spun off a collection of properties in 2014 — has a restructuring support agreement in hand, per court documents.

Editor's Note: This Columbus, Ohio-based REIT is the owner to one of the area's two Class A malls. And dozens of others. This is not a great sign for the industry at large and it's partially the reason why Simon Property Group and Authentic Brands Group have been so active in the acquisition market. 

How Trump’s trade war built Shein, China’s first global fashion giant

Economics / Bloomberg: In 2018, as trade relations between the world’s two biggest economies were deteriorating, China responded to a new round of U.S. tariffs by effectively waiving export taxes for direct-to-consumer companies. Because Shein ships most orders from its warehouses in China, it was already in a good position in the U.S., where packages worth less than $800 have been able to enter the country duty-free since 2016. When the Trump administration later imposed tariffs to make Chinese products more expensive, the small-value shipments remained exempt.

Editor's Note: Separately, I spoke with Financial Times about Shein's number one problem, intellectual property thievery. The first 30 clicks should be able to access this premium article. The TLDR: 

Given their growth, [Shein] is probably factoring in that they’re going to likely run into these issues. As long as they have the audience that they do, they’re going to determine that it’s worth their time and energy to move products as quickly as possible — even if some of those products violate intellectual property norms.

Sponsored: There is a lot of competition out there for text-based marketing. Sometimes it's better to let the work speak for itself and Attentive has done that. Linked is a collection of texts that are like a guide to SMS best practices. 

👉🏽 Texts they love

The future of watches: A high stakes DTC shake-up

DTC-fication / Business of Fashion: Consumers are beginning to demand more direct interactions with brands. In fact, globally, the majority of affluent consumers now prefer buying watches from mono-brand stores, according to a consumer survey by Agility. This shift in expectations is enabling brands to take over the reins of the customer relationship by expanding their DTC channels.

Amazon is pushing for cannabis legalization

Sociology / Forbes. Last week, online mega-retailer and all-around internet heavyweight champion Amazon announced that just like you, Amazon likes marijuana. Job applicants for gigs at company offices and warehouses will no longer be drug-tested for cannabis (though delivery drivers are another matter).

What's next for Lululemon's tech ambitions?

Linear Commerce / Retail Dive: While the company has always had a devoted following for its apparel (and, perhaps more importantly, the aspirational lifestyle it represents), its current dreams are reaching beyond its brick-and-mortar stores. Lululemon is looking to become a bigger and more technologically savvy lifestyle company that focuses on wellness.

From the archives: On WFH and Community

From Amazon to Goop: Are headline-making false advertising settlements just a cost of doing business?

Advertising / The Fashion Law: These cases — and others like them — and the settlements that followed have garnered quite a bit of attention, including from the media, and the monetary penalties at play can “act as a deterrent against engaging in deceptive marketing,” according to Truth in Advertising (“TINA”), which recently noted that such settlements are one way that regulators like the FTC “seek to discourage unlawful behavior.” 

One hire can make all of the difference. For Netflix, Josh Simon’s role as VP of Consumer Products is key to the platform’s offense, defense, and long-term viability as studios become self-sustained content fortresses.

The excitement around Netflix’s eCommerce push is palpable. If this project succeeds, the implications are far greater. CEO Ted Sarando and Netflix are resting on dormant potential. With direct-to-consumer retail success, the streaming service and film studio could compete with Disney on another front.

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