1) JCPenney banks on babies, but seizing Toys R Us’ market share continues to ignore the company’s endemic problems.

What happened

  • JCPenney is opening 500 baby shops in its department stores, sweeping up market share from the liquidation of Toys R Us and its Babies R Us brand. This will move some previously online-only SKUs—cribs, high chairs, strollers—in store, in addition to an expanded children’s apparel assortment, which currently does $1 billion annually.
  • In the aftermath of Toys R Us’ bankruptcy and the shuttering of its U.S. stores earlier this year, other mass retailers are rushing to fill the void the company left behind. Amazon continues to expand its private-label offerings, which now include a handful of brands for babies and kids, including Moon & Back for baby apparel and Mama bear for diapers and other child-friendly household essentials—Target, Walmart and buybuy BABY are also revamping their stores and sites as baby destinations.

Why it matters

  • In the past few years, JCPenney has taken on various projects for self-preservation, including shop-in-shops for Sephora, its best-performing segment, and the sports retailer Fanatics. While they have brought the company and influx of sales, these tactics are skeptical as they do not constructively evolve JCPenney’s core business.
  • Expanding its baby section may be a positive development for JCPenney, as it wouldn’t be counting on an external player to buoy its department store sales. And while the company is right to seize the opportunity left in Toys R Us’ wake—especially given that competitors are doing the same—the long-term health of the department store is dependent on JCPenney finding a way to differentiate from other mass retailers that’s not just capitalizing on a failed business’ market share. Again, it seems as though JCPenney is pulling itself in too many directions—in July, the company announced it would reverse course, targeting its core customer (middle-aged moms) instead of pursuing millennial shoppers, but it’s not clear how focusing on baby products meets this goal, as millennials begin families of their own.

2) Malls are looking to digitally-native brands and coworking companies to fill vacancies, charting the blueprint of the future.

What happened

  • With mall vacancy rates reaching 8.6% in Q2 2018 and 200 million square feet of retail space already shuttered or expected to close since 2017, malls are scrambling to fill the spaces left behind. Many are now turning to coworking companies and startup incubators, providing ample room for office space. Pennsylvania Real Estate Trust and the incubator 1776 are coming to a 11,000 square-foot space in the Cherry Hill Mall in New Jersey, while ABC Carpet & Home and Lord & Taylor have both sold off floors at their flagship New York stores for offices like WeWork.

Why it matters

  • Reeling in digitally-native startups and coworking companies doesn’t just fill empty retail space, but provides guaranteed foot traffic to dormant mall properties. While many malls are attempting to freshen their atmosphere with pop-ups, coworking companies will sign normal or longer leases, stabilizing real estate for property owners. For digitally-native startups—especially those in the retail sector—malls provide the perfect backdrop to develop and test new products offline, while breathing new life into the mall itself.
  • Both of these strategies can bolster retail sales if done properly—but while mall owners are finding unconventional tenants, they should also be considering what retail and food and beverage tenants could balance out their real estate and maximize foot traffic and sales. More coworking offices mean more employees wandering around on their lunch break, or running errands after work—determining where they are most likely to shop and what they will want or need to purchase will serve these mall owners moving forward, in the same vein as WeWork, which recently debuted a retail concept called WeMRKT at its New York properties. Making connections with startups early on also means that if a digitally-native company wants a physical store in the future, it already has a foot in the door at a mall—a boon to both parties.

3) Casper plans to take mattresses offline with 200 stores—Mattress Firm considers going off life support.

What happened

  • Casper, the digitally-native mattress company, announced plans to open 200 mattress stores in the U.S. in the next three years. Its first brick-and-mortar store opened in New York earlier this year after the company tested pop-ups at malls and other retail spaces. The news comes as Mattress Firm, the largest mattress retailer in the U.S., considers filing for bankruptcy as it drowns in expensive leases and struggling storefronts.

Why it matters

  • Casper was founded in 2014, and for a long time sold exclusively online, aside from the trailers of its cross-country “nap tour” and a handful of pop-ups. Today, the company wholesales at Target, Nordstrom and Amazon, operates 19 stores and recently opened its new napping destination, the Dreamery, in New York. Much of the company’s success is attributed to its upheaval of the mattress industry, adding the major convenience of selling direct-to-consumer and delivering a bulky item in a sleek box to customers’ doorsteps. Still, Casper’s plans for physical expansion will likely require more fundraising—the company’s latest round brought investment up to $240 million.
  • Interestingly, Mattress Firm’s downfall is largely attributed to expanding its physical footprint too quickly and broadly (it currently has 3,000 stores, which are notoriously large-format). A major part of the company’s problem was its lackluster ecommerce approach, but the brick-and-mortar retail issue also raises questions about how Casper can stay afloat in the long term, particularly given the increasingly crowded direct-to-consumer mattress space. Showcasing what makes Casper unique in person is crucial for the company, especially as mattresses are not a frequent purchase and the company needs to differentiate from the rising number of like-minded brands, all of which employ similarly millennial digital marketing techniques. Tactics like the Dreamery are a step in the right direction, as they take Casper out of a digital marketing campaign and let consumers try out the product like they would in their normal lives—it’s just that not everyone can stomach a $25 45-minute nap.

4) VF Corp is ditching quintessential denim brands to focus on activewear.

What happened

  • The apparel conglomerate VF Corp announced plans to spin off Lee and Wrangler jeans, which it originally acquired in 1969 and 1986 respectively. In turn, it will create a new company containing all of VF’s jeans businesses—Wrangler, Lee, Rustler, Rock & Republic—and 80 VF outlets (the equivalent of $2.5 billion in annual revenue).

Why it matters

  • Though Lee and Wrangler once were integral to VF Corp, denim doesn’t have the same hold on consumers today, who are more inclined to shop for activewear or premium brands; in 2013, jeans made up $18.8 billion in U.S. sales, only to plummet to $16.2 billion by 2017. Denim brands at VF Corp contributed $2.66 billion in 2017 sales, but this revenue hasn’t grown throughout the past decade. VF Corp also sold Seven for All Mankind in 2016—as well as the apparel brand Nautica earlier this year—in order to focus on activewear and outdoor brands: the higher-performing North Face, JanSport and Eagle Creek.
  • Looking at the landscape of holding companies, which typically aim to acquire more brands, VF Corp stands out for remaining lean, which will likely pan out in the long run. LVMH has now expanded its portfolio to more than 60 brands—some of which, like Marc Jacobs, are falling through the cracks. Meanwhile, Gucci accounted for 57% of income in Kering’s luxury division in 2017, raising questions about an unhealthy dependence, though the company stated in July that moving forward, it will grow its business organically rather than via acquisitions. With this in mind, it’s curious that VF Corp wouldn’t just sell its denim brands—spinning them off is more work for the parent company, especially when there is a strong likelihood of selling in the future.