Business

IN Thomas Babington Macaulay’s “History of England”, the bustling coffeehouses of the 17th century were “the chief organs through which the public opinion of the metropolis vented itself”. But what happens when the metropolis stays away? Laxman Narasimhan, boss of Starbucks, the world’s mightiest coffee chain, is finding out the hard way.Mr Narasimhan has been in the top job barely a year. He inherited sluggish growth in China and a unionising workforce in America. Since then, things have got much worse. During the first quarter sales in America declined by 3%, year on year, and the firm slashed its profit guidance for the rest of 2024. Long wait-times and unavailable products meant around 15% of customers using the firm’s mobile app did not bother to complete their order. Starbucks’ share price has fallen by a fifth this year. To cap it all off, on May 5th Howard Schultz, the caffeine king who grew the chain from obscurity to ubiquity, condemned the firm’s recent performance in a post on LinkedIn. More

Bestowing a name on a car, as on a child, is not to be taken lightly. By naming his newest progeny X Æ A-XII, Elon Musk has condemned the boy to a lifetime of befuddled attempts at pronunciation (“ex ash ay twelve”, for those wondering). Naming the first four models produced by Tesla, his car company, S, 3, X and Y was equally asinine.Yet model names that provoke derision or outrage are surprisingly common in the car business. The Ora Funky Cat, from a sub-brand of China’s Great Wall Motors, was recently renamed the Ora 03, ostensibly as part of a new global brand strategy but mainly because it sounded daft. Peugeot’s Bipper Tepee, now discontinued, was about as bad. (Peugeot is owned by Stellantis, whose largest shareholder, Exor, part-owns The Economist.) The Nissan Cedric, a large saloon on sale from 1960 until 2004, sounded like it belonged in the previous century. It eventually became the Datsun 200 series in many overseas markets. More

Heat pumps, a type of reverse-refrigerator used for warming homes, are not the type of tech that gets most investors hot and bothered. They were, after all, invented in 1856. Harald Mix and Carl-Erik Lagercrantz, two Swedish financiers, see things differently.The pair, whose investment group Vargas is behind Northvolt, a battery maker, and H2 Green Steel, which uses green hydrogen to produce steel, sense there are a big bucks in replacing Europe’s many oil and gas boilers with heat pumps. Earlier this year Aira, a company founded by Vargas, launched a new product that it hopes will entice more people to make the switch. It is not only profits that are at stake. More

If there is one thing anyone with a job and a pulse needs to learn, it is how to lead. That, at least, is the message from the tsunami of books, courses, videos and podcasts on the topic. Business schools offer all kinds of leadership training. Authors pump out books instructing you to eat last, be daring and take leaps—which risks stomach ache if nothing else. Gurus tell you how to lead without actually being a leader; you might be on the reception desk, but you’re really in charge.Missing in all this is an inconvenient fact. Most people in the workforce are not leaders and pretty much everyone reports to someone else. The most useful skill to have in your current job may well be how to be a good follower. More

It is a time-honoured tradition for bosses to grumble about the supposed laziness of their underlings. Doing so publicly, however, is rarely wise. China offers no exception to this rule. Earlier this month Qu Jing, the head of communications at Baidu, a local tech giant, took to social media to defend the company’s gruelling culture. The resulting firestorm has highlighted the growing dissatisfaction among China’s young white-collar workers with the punishing hours common in the country.In one video, which soon went viral, Ms Qu said it was not her responsibility whether her team’s relationships or health were affected by their jobs, declaring “I’m not their mother.” In another she added that a woman who opts to spend time with “her husband and kids” should not expect a promotion or raise. She claimed that she did not regret forgetting her elder son’s birthday nor which grade her younger son was in at school because she “chose to be a career woman”. “Keep your phone on 24 hours a day, always ready to respond,” was her advice to those lucky enough to find themselves in her line of work. More

Walmart beat quarterly earnings and revenue estimates.
The discounter said it made gains with high-income shoppers, and reported e-commerce growth of 22% for its U.S. business.
CFO John David Rainey told CNBC the gap between the price of cooking at home and eating out is helping Walmart’s grocery business.

Walmart on Thursday topped quarterly earnings and revenue expectations, as the discounter made significant e-commerce gains, drove profits with newer businesses like advertising and won over more high-income shoppers.
The big-box retailer said it now expects to hit the high end or slightly top its previous full-year guidance. Walmart had expected net sales growth of 3% to 4% and adjusted earnings per share of between $2.23 and $2.37.

In an interview with CNBC, Chief Financial Officer John David Rainey said one of the factors boosting Walmart’s grocery business is the widening gap between the price of cooking at home and buying food at fast-food chains or restaurants.
Plus, he added, shoppers – especially with higher incomes – appreciate the convenience that Walmart offers. For the first time, its delivery business surpassed its store pickup in terms of volume, Rainey said.
“We’ve got customers that are coming to us more frequently than they have before and newer customers that we haven’t traditionally had, and they’re coming into a Walmart whether it’s a virtual store online, or whether it’s one of our physical stores,” Rainey said.
Here’s what the discounter reported for the fiscal first quarter compared with what Wall Street expected, according to a survey of analysts by LSEG:

Earnings per share: 60 cents adjusted vs. 52 cents expected
Revenue: $161.51 billion vs. $159.50 billion

Walmart’s net income jumped to $5.10 billion, or 63 cents per share, in the three-month period that ended April 30, compared with $1.67 billion, or 21 cents per share, in the year-ago period.

Revenue climbed 6% from $152.30 billion in the year-ago quarter. That increase includes a benefit of roughly 1% from an additional selling day in the period. 
Walmart shares rose about 5% in premarket trading Thursday.
As the nation’s largest retailer and private employer, Walmart is often viewed as a bellwether for the U.S. economy. Yet it has generally fared better during an inflationary period than other retailers because it sells staples like groceries and has a value-oriented reputation.
Same-store sales for Walmart U.S. climbed by 3.8%, excluding fuel. The industry metric includes sales from stores and clubs open for at least a year. At Sam’s Club, same-store sales rose 4.4% year over year, excluding fuel.
E-commerce sales shot up by 22% year over year for Walmart U.S., fueled by store pickup and delivery of online orders, as well as the company’s growing third-party marketplace. 
Walmart’s customers in the U.S. made more visits to its stores and website in the quarter, but spent roughly the same as in the year-ago period. Transactions rose 3.8% and average ticket was flat compared with the year-ago quarter.
This week brought promising news for Walmart and other retailers: Inflation eased in April, according to the Labor Department data released Wednesday. The consumer price index was up 3.4% year over year. The closely watched number tracks how much goods and services cost at the cash register.
Even so, the discounter has noticed the impact of inflation, as its shoppers have been selective with purchases. Rainey said customers’ “wallets are still stretched.” He said shoppers have bought less general merchandise, such as home goods and electronics, as they prioritize spending on food and health-related items, a trend that the company has seen for the past several quarters.
As Walmart tries to attract and retain more affluent households, it recently launched a new private-label grocery brand, which includes bolder flavors, plant-based items and more.
Still, “even the low-income consumer seems to be holding in there pretty well,” Rainey said. He added that sales even in general merchandise categories improved year over year.
Walmart has looked beyond retail to drive profits higher and fend off rivals like Amazon. Those newer businesses like advertising and its subscription-based membership program, Walmart+, lifted its profit during the quarter and contributed to its operating income growth outpacing its sales growth. The company’s global advertising business grew 24% during the quarter, including 26% growth for the segment in the U.S.
Rainey said a third of the company’s year-over-year operating income gains came from those newer businesses.
Walmart has been slashing spending in some areas and investing heavily in others. Earlier this week, the company said it would lay off and relocate hundreds of its corporate employees, including the transfer of many to its headquarters in Bentonville, Arkansas. That move came on the heels of the retailer shuttering its Walmart health clinics, a network of doctor and dentist offices that had opened next to its stores.
On the other hand, the big-box retailer has poured money into other efforts. As it chases advertising dollars, Walmart announced in February that it will acquire smart TV maker Vizio in a $2.3 billion deal. It is upgrading and modernizing more than 1,400 stores across the country.
Rainey said Walmart’s announcement this week, which will relocate hundreds of people who currently work from their homes or in offices in Dallas, Toronto and Atlanta, is about shifting away from remote work, not about cost cuts. The move also included layoffs. Walmart has not announced a five-day-a-week office policy, but has said it wants employees to work from the office the majority of the time.
“We just feel strongly in the benefit of working together,” he said. “One of our competitive advantages is our culture — and that’s fostered by being together.”
Shares of Walmart closed Wednesday at $59.83, bringing the company’s market cap to $482.22 billion. As of Wednesday’s close, the company’s stock is up nearly 14% so far this year, surpassing the roughly 11% gains of the S&P 500 during the same period.
This is breaking news. Please check back for updates. More

Under Armour said sales in its largest market, North America, fell 10% and the retailer expects them to get worse during its current fiscal year.
The athletic apparel company also announced a broad restructuring plan that will include an unspecified number of job cuts.
Founder and CEO Kevin Plank blamed the rough quarter on “a confluence of factors, including lower wholesale channel demand and inconsistent execution across our business.”

Under Armour clothing is seen for sale in a store in Manhattan, New York City, February 7, 2022.
Andrew Kelly | Reuters

Under Armour announced a broad restructuring plan on Thursday as it said sales in its largest market, North America, plunged 10% and predicted the trend will get worse throughout its current fiscal year. 
The athletic apparel retailer also saw profits plunge by more than 96% during its fourth fiscal quarter, compared with the year ago period. 

It’s unclear how many employees Under Armour will lay off as part of the restructuring, but the plan is expected to cost between $70 million and $90 million, a portion of which will be used for employee severance and benefits costs. The company declined to share more information with CNBC about its restructuring.
Shares dropped about 10% in premarket trading. 
Here’s how the athletic apparel retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

Earnings per share: 11 cents adjusted vs. 8 cents expected
Revenue: $1.33 billion vs. $1.33 billion expected

The company’s reported net income for the three-month period that ended March 31 was $6.6 million, or 2 cents per share, compared with $170.6 million, or 38 cents per share, a year earlier. Excluding one-time items, the company reported earnings of 11 cents per share. 
Sales dropped to $1.33 billion, down about 5% from $1.4 billion a year earlier. 

During the quarter, sales in North America dropped 10% to $772 million, worse than the $780 million that analysts had expected, according to StreetAccount. 
The company said it expects sales to continue to worsen in North America. The company anticipates they will drop between 15% and 17% in its current fiscal year. 
“Due to a confluence of factors, including lower wholesale channel demand and inconsistent execution across our business, we are seizing this critical moment to make proactive decisions to build a premium positioning for our brand, which will pressure our top and bottom line in the near term,” founder and CEO Kevin Plank said in a statement. 
“Over the next 18 months, there is a significant opportunity to reconstitute Under Armour’s brand strength through achieving more, by doing less and focusing on our core fundamentals,” he added.
Across Under Armour’s business, the company is expecting revenue to be down “at a low-double-digit percentage rate” in its current fiscal year, while analysts had expected sales to grow by 2.1%, according to LSEG. 
The company is planning to cut down on promotions and discounting, which it expecting will lead its gross margin to rise between 0.75 and 1 percentage point for the fiscal year. 
It’s expecting diluted earnings per share to be between 2 cents and 5 cents and adjusted diluted earnings per share to be between 18 cents and 21 cents for the year. Analysts had expected earnings per share of 52 cents, according to LSEG. 
Under Armour’s rough quarter comes about two months after the retailer announced former Marriott executive Stephanie Linnartz would be stepping down from her role as CEO after barely a year on the job and Plank would once again take the helm of the company he founded in 1996. 
Linnartz was the second CEO the company has cycled through in less than two years. 
She was hired on a bet that her experience building out Marriott’s renowned Bonvoy loyalty program and driving digital revenue for the hotel giant would offset her lack of experience in the retail industry. Prior to her departure, she managed to overhaul Under Armour’s C-suite, build out its loyalty program. She was attempting to pivot the brand’s assortment to a more athleisure-focused offering that had more stylish options for women. 
Ultimately, she was ousted before those plans could become a reality. Following the announcement of Linnartz’s departure, a number of analysts downgraded Under Armour and lowered their price targets. Shares of the company were down about 23% year to date, as of Wednesday’s close. 
Read the full earnings release here.

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Wayfair is opening its first large-format store because the physical experience can be better for customers than shopping online, CEO Niraj Shah told CNBC.
The online home goods retailer follows a string of other digitally native companies that have opened stores, including Warby Parker, Figs, Glossier and Everlane.
In 2022, for the first time in five years, new retail store openings outpaced store closures, and that trend has continued in 2023 and 2024.

Wayfair store in Wilmette, Illinois.
Courtesy: Wayfair

What retail apocalypse?
Online home goods retailer Wayfair is opening its first namesake store, near Chicago, following a string of other digitally native companies that have turned to brick-and-mortar for growth. 

In an ironic twist for a company that became a $12 billion powerhouse by persuading consumers to buy couches and beds online, Wayfair is leaning into the most basic building blocks of retail. That’s because no matter how far tech has evolved, shoppers still can’t try out a new mattress from their laptops or phones.
“If you think about the categories we’re in, they’re typically very visual categories, or very tactile, or, you know, considered purchases, because it’s reasonably expensive and you’re going to put a lot of care into picking the right item,” Wayfair CEO and co-founder Niraj Shah told CNBC.
“Depending on what purchase someone’s making, they may prefer the in-store experience and getting to work with an associate,” he said. “Or they may want to discuss financing or want design help, and we can provide all of those experiences. We provide them online as well, but sometimes, in-store can be either more pleasurable or more effective.” 
The 150,000-square-foot megastore in Wilmette, Illinois, is set to open May 23. Wayfair follows other direct-to-consumer brands that have opened stores, including Warby Parker, Figs, Casper, Glossier and Everlane.
Wayfair’s retail ambitions come as online-only companies look to plot their next phases of growth in a landscape that has evolved since their companies were founded, making it harder than ever to run a profitable e-commerce business.

Privacy changes on Meta and Apple iOS have made it more difficult for marketers to target customers in advertising campaigns. Companies also face more competition from Chinese-linked upstarts such as Shein and Temu.
Returns and the scams that come along with them are a never-ending, money-losing game. With the proliferation of online marketplaces on Amazon, Walmart and Target, just about anyone can be a retailer — and brands can find themselves competing against their own manufacturers. 
Many companies that started by selling directly to consumers now offer their wares in department stores and big-box retailers, but even that brings pitfalls. Brands that earned their competitive edge by gathering enormous amounts of data on their customers don’t have as much visibility when they’re working with wholesalers, nor do they make as much money.
They’re also subject to the whims of their partners and could be taken off the shelves with little notice or risk losing a primary revenue source if that wholesaler suddenly goes under or sees sales fall. When brands have their own stores in addition to websites, they have a lot more control over mitigating those risks.
Plus, torrid e-commerce growth during the Covid-19 pandemic has moderated and fallen to below its pre-pandemic low, U.S. Census data shows. Given the seemingly inextricable role online shopping plays in most Americans’ lives, some may be surprised to learn that the vast majority of retail sales — about 85% in 2023 — still happen offline, according to Census data. 

“For some of my companies in our various experiences, [stores] can be your very best channel from an economics perspective — if you have a really good brand,” said Larry Cheng, a founding partner at Volition Capital, a technology growth equity fund that invests in software, internet and consumer companies. “It’s not going anywhere, it’s additive to online sales, it’s additive to attracting new customers, the economics can be great.” 

What to expect at Wayfair’s store

Wayfair’s new location will look somewhat like an Ikea in its size and on-site restaurant, but its assortment will offer a range of diverse styles as it works to become a one-stop shop for all things home.
“You’ll see furniture, you’ll see the marketplace, which is very decor centric, but we have home improvement, which includes large appliances, kitchen cabinetry, tile, doors, hardware, you’ll also see housewares, small electric, there’ll be storage and organization,” Liza Lefkowski, Wayfair’s vice president of merchandising and stores, told CNBC. 
“You’ll see a number of categories outside of furniture, but that are very core to your home,” she said.

Wayfair store in Wilmette, Illinois.
Courtesy: Wayfair

Wayfair store in Wilmette, Illinois.
Courtesy: Wayfair

For now, Wayfair is opening just one large-format store to complement a handful of smaller shops it opened under its specialty retail brands All Modern and Joss & Main.
In the future, Shah is envisioning a “whole portfolio of large-format stores” with a nationwide footprint. 

Brick-and-mortar is back 

Wayfair’s physical store ambitions reflect a bigger wave of brick-and-mortar openings.
In the early 2010s, new store openings largely outpaced closures, until the tide turned in 2017. Nearly 8,000 retail storefronts were shuttered and only about 5,000 new ones opened that year, according to Coresight Research’s U.S. and U.K. Store Tracker Databank. 
The spike in store closures sparked headlines about the so-called retail apocalypse and warnings that stores would die off as shopping moved online. 
For a while, that seemed to be true. New store closures outpaced openings until the trend changed in 2022. For the first time in five years, more storefronts opened than closed, resulting in 1,575 net new openings. There were 307 net new openings in 2023, and there have already been 521 net new openings in 2024, as of May 10. 

Discount retailers such as Dollar General, Five Below, Burlington and TJX Companies have fueled a lot of that growth, said John Mercer, Coresight’s head of global research and managing director of data-driven research. But direct-to-consumer retailers are playing their part, as well. 
Take Warby Parker, the glasses company credited with starting the direct-to-consumer movement. In May 2023, the retailer said it believed it could open more than 900 stores in the U.S. It opened about 40 in 2023, and has 40 more planned in 2024. The new store openings contributed to a 12% jump in revenue in 2023 compared with 2022. 

Figs, which sells scrubs and other products for health-care professionals, sold its products exclusively online until it opened its first store in Los Angeles in November. It has another planned in Philadelphia for this summer. CEO Trina Spear told analysts during the company’s first-quarter earnings call May 9 that 40% of the people shopping in the Los Angeles store are new customers. 
“And this is in our most penetrated market of Los Angeles. So, that’s great to see,” Spears said. “Health-care professionals are like everybody else, right? They want to engage with brands both online and off, and we’re seeing that in our Century City store.” 

Shoppers browse clothing inside an Untuckit store at the King of Prussia mall in King of Prussia, Pennsylvania, Oct. 20, 2018.
Jeenah Moon | Bloomberg | Getty Images

Other privately held direct-to-consumer brands have also expanded into retail stores, including bedding company Brooklinen, furniture store Burrow and apparel brands Everlane and Untuckit. 
“Pure plays on [e-commerce] are saying, ‘We’re getting to a certain number, we’re doing fantastic on [e-commerce], but we won’t be able to hurdle this number no matter what … if we don’t turn on another channel,'” said Rebecca Fitts, who previously served on Warby Parker’s in-house real estate team and is now the senior vice president of business strategy at real estate advisory firm Alvarez & Marsal Property Solutions.
“I don’t think every brand is going to get to a store count of a Warby, but they’re certainly looking at those lessons, and it bodes well,” she said.

High cost of entry 

If direct-to-consumer brands could all open stores and suddenly boost sales and profitability, they’d all be doing it. But retail fundamentals can bring a steep learning curve for companies that started out as online disruptors. 
Expanding into physical retail is challenging and expensive.
Companies looking to open stores need to figure out a physical location, along with furnishings and supplies, and the logistics, such as transporting inventory, said Amish Tolia, the co-founder and CEO of Leap, a start-up that helps brands open retail stores. They also need to determine how to drive foot traffic and operate a store, he said.
All those components require “time, energy, budget and resources, right? And so for as long as we can remember, besides a multi-brand department store, if you want to go set up your own fully branded retail environment, the barriers to entry have always been incredibly high,” Tolia said.

Wayfair store in Wilmette, Illinois.
Courtesy: Wayfair

Some direct-to-consumer brands have already been burned after they expanded too quickly and demand fell. 
Allbirds, whose market cap has gone from $4.1 billion following its initial public offering to about $114 million, rapidly opened dozens of stores over the last few years, bringing its total count to about 60, as of the end of March. But the shoe and apparel seller now plans to close 10 to 15 “underperforming” locations in the U.S. in 2024 so it can focus on “maximizing the productivity of our remaining stores,” executives said during the company’s first-quarter earnings call May 8. 

A woman walks past an Allbirds store in the Georgetown neighborhood of Washington, D.C., on Tuesday, Feb. 16, 2021.
Al Drago | Bloomberg | Getty Images

Mattress brand Purple has also opened about 60 stores, but it said during the ICR consumer investor conference in January that its showrooms are perhaps “the toughest part of our model right now” because about a third of its locations “are problematic for one reason or another.” 
“So, we’re going to slow [store openings] down a little bit in the coming year and try to figure out, how do we make sure that we get them to where they need to be so they’re profitable,” said Purple CEO Rob DeMartini. “They’re great brand beacons. But they’ve got to make some money.”
Wayfair, which hasn’t turned an annual profit since 2020, will face the same challenges as it embarks on its retail expansion. 
The company spent about $348 million on capital expenditures in 2023 but has also slashed costs to save hundreds of millions of dollars and strengthen its cash position. 
Wayfair said it’s starting slow and plans to roll out stores carefully, taking time to see what’s working and what isn’t before making future investments. 
“The challenge with it is the capital expenditure upfront,” said Cheng, from Volition Capital.
“But ultimately, all of these brands, there’s not like this one channel that is the silver bullet,” he said. “The good brands, they work across all of them.” More