Tag: Retail industry

Lululemon shares surge after reporting 24% sales growth, raising full-year guidance

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Lululemon reported earnings that beat Wall Street’s estimates on the top and bottom lines Thursday and raised its full-year guidance, bolstered by improvements in China and freight costs.

Shares of the company surged more than 12% in extended trading.

Here’s how the retailer did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts compiled by Refinitiv:

  • Earnings per share: $2.28 vs. $1.98 expected
  • Revenue: $2 billion vs. $1.93 billion expected

The company’s reported net income for the three-month period that ended April 30 was $290.4 million, or $2.28 per share, compared with $190 million, or $1.48 per share, a year earlier. 

Sales rose 24% to $2 billion, up from $1.61 billion a year earlier.

China revenue alone grew 79% from the year-ago period, when the country was still reeling from Covid restrictions and roughly one-third of Lululemon’s 71 China stores were closed for a period of time.

“Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our better than planned financial performance,” finance chief Meghan Frank said in a statement. “We are pleased with our momentum heading into the second quarter and for the full year as reflected in our revised outlook for FY23.”

The retailer now expects to see full-year revenue of $9.44 billion to $9.51 billion, up from a previous range of $9.31 billion and $9.41 billion, and beating Wall Street’s projections of $9.37 billion, according to Refinitiv. It expects full-year profit of $11.74 to $11.94 per share, compared with a prior range of $11.50 to $11.72. That also topped analysts’ expectations, which called for $11.61 per share, according to Refinitiv. 

Lululemon is expecting second-quarter sales to be in the range of $2.14 billion to $2.17 billion, representing growth of about 15%. Lululemon expects diluted earnings per share to be in the range of $2.47 to $2.52 for the period. That second-quarter guidance was largely in line with Wall Street expectations, according to Refinitiv.

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Lululemon shares surge in extended trading after a strong quarterly report.

The apparel retailer, which sells high-end yoga pants, shoes and other athletic wear, saw a 24% year-over-year increase in sales, even as it lapped strong comparisons in the year-ago period, which came during an easier macroeconomic backdrop.

This time last year, Lululemon had just raised its prices, but shoppers were still flocking to its stores and filling up their digital carts. And they weren’t yet feeling the pressure of persistent inflation.

Total comparable sales, which tracks digital revenue and sales at stores open for at least 12 months, were up 14% in the quarter, which fell short of estimates of 15.1%, according to StreetAccount.

While comparable store sales outperformed expectations in the most recent quarter — jumping 13%, compared with StreetAccount estimates of 8.3% growth — direct-to-consumer revenue fell short of projections, increasing 16% from the prior-year period, compared with the 22.3% jump analysts had expected, according to StreetAccount.

While DTC revenue increased compared to last year, it represented 42% of total sales, compared to 45% in the year-ago period.

Gross margins in the quarter increased 3.6 percentage points to 57.5%, driven by a reduction in airfreight expenses. That was above the 56.7% analysts had been expecting, according to StreetAccount.

By category, women’s sales increased 22%, men’s gained 17% and accessories were up 67%.

Inventory, which has been an ongoing issue for Lululemon, was up 24% at $1.58 billion at the end of the quarter and is expected to be up 20% in the next quarter. During an earnings call, company executives insisted its inventories are in line with sales growth and said they’re “comfortable” with its position.

Still, they acknowledged Lululemon has work to do.

“We will still have opportunities … to get our inventory [turnover rates] back to historical levels. We have seen some material improvements in supply chain and lead times but not all the way back to historical positioning,” said Frank during the earnings call. “So, too soon to say when we’ll move back to those levels, but that would be the goal over the longer term.”

The company expects to open 50 net new company-operated stores in the fiscal year. Thirty to 35 of them will be in international markets, with the majority planned for China.

Discretionary spending

While the company largely caters to higher-income consumers who tend to fare better against macroeconomic pressure, retailers across the industry have cited a pullback in discretionary spending and higher-ticket items. 

During Nordstrom’s earnings call Wednesday evening, executives noted the high-end customer is “pretty resilient,” but they’ve also become more cautious.

Meanwhile, Lululemon said it has seen no changes in its customers’ shopping habits.

“In terms of our guests’ metrics, they’ve remained very strong. We’ve seen no change in our cohort behavior, in terms of frequency of purchase or engagement,” said CEO Calvin McDonald. “In addition, in quarter one, transactions by existing guests increased 22% and our transactions by new guests increased 28%.”

During the current earnings season, some analysts cautioned soft goods retailers, or those that sell items such as clothes and shoes, could see a drop in margins because of increased promotional activity and an overall pullback across the sector. 

The results on that front have been mixed so far.

Many retailers have benefited from supply chain tail winds, such as reduced freight costs, that have boosted their margins. But for some, a lot of those savings evaporated because of increased promotions and upticks in shrink, among other headwinds.

That rang true for Foot Locker, but others in the category, including Gap and Urban Outfitters, were able to hold the line on promotions and saw the benefits to their margins. 

Connected fitness

Last month, CNBC reported Lululemon is looking to sell its at-home fitness business Mirror and has approached competitor Hydrow as a potential buyer.

The company announced it would acquire Mirror for $500 million at the height of the at-home fitness bonanza in June 2020 in a bet that people would continue to exercise at home, even after Covid pandemic restrictions ended and gyms reopened. 

The segment has since rebranded as Lululemon Studio but it has been weighing on its balance sheet. 

During its previous fiscal quarter, the company said it took $443 million in impairment charges related to Mirror and told investors hardware sales have come in below expectations. 

Lululemon acknowledged the at-home fitness market has been under pressure.

Similar to Peloton, Lululemon has begun pivoting the segment away from being solely hardware-focused.

Recently, the company launched a new digital app for Lululemon Studio, which costs the same as Peloton’s starting membership at $12.99 a month and gives customers access to its fitness classes without the need to buy its hardware.

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This startup wants to curb fast fashion by helping you rent out your closet

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By Rotation, a U.K.-based clothing rental app, hopes to eliminate the need for fast fashion by making peer-to-peer clothing rental mainstream in the United States.

The startup expanded to the United States in May. By Rotation aims to grow usage in New York City this year before expanding to two other major U.S. cities next year.

By Rotation may sound like another rental service such as Rent the Runway, Armoire or Nuuly, but its founder and CEO Eshita Kabra-Davies is quick to point out that its peer-to-peer structure more closely resembles sharing-economy companies such as Airbnb and Uber.

By Rotation has taken a social media-style approach to building its community of lenders and renters by encouraging dialogue and giving users the option of receiving notifications when their favorite lenders list new items.

Individual users decide if they are willing to ship their items to users in other states. Some will offer only hyperlocal pickup rentals.

“The vision is really to be able to walk three streets down and pick up a rental, even last minute, because you have a few lenders in your neighborhood that are the same size as you, and we’ve already seen that happen in London,” Kabra-Davies said.

By Rotation founder & CEO Eshita Kabra-Davies

Source: By Rotation

The digital fashion rental market is expected to more than double in value from $1.3 billion in 2021 to $2.8 billion by 2030, according to data from Verified Market Research. Meanwhile, online resale is expected to reach $38 billion by 2027, according to ThredUp’s 2023 Resale Report. 

Despite the expected growth, online fashion rental and resale has proven to be a difficult business, especially on Wall Street. The challenges have come partly because many in the space hold a lot of inventory and spend a lot of money to do so. 

Shares of Rent the Runway, ThredUp and The RealReal are all down about 90% since the companies went public. All three companies have yet to become profitable.

By Rotation does not own a single item listed on its platform, making it a standout among the other major rental and resale players in the U.S. Instead, the inventory and listings come from the people using the app. Kabra-Davies describes it as a “very cost-efficient business model” that is “completely different to what the incumbent players are doing in the U.S.”

“No one is doing what we’re doing,” according to Kabra-Davies. “We don’t need to sell. We don’t need to tell people, like, please list your items, we will give you money for it; nor do we need to buy any items to build up that supply.”

In the U.K., By Rotation has more than 330,000 registered users with more than 68,000 listings. U.S. users have already listed more than 1,800 items across at least 15 states, according to Kabra-Davies.

The growth is happening organically, she said. The startup plans to start marketing in the U.S. this summer.

As the app grows, the startup is taking steps to ensure renters are trustworthy and lenders’ items are protected from damage. For example, a new user cannot rent an item that has a retail value above $1,000 through the app until they have completed several other lower-priced rentals and have been reviewed and rated for those rentals.

By Rotation uses smart pricing to help lenders determine listing fees. It recommends that each item’s daily rental fee be about 3%-5% of the item’s retail value, Kabra-Davies said.

By Rotation has not publicly shared its valuation, but it is actively seeking new investors for its third round of funding. The company raised $3.8 million in prior rounds, according to Kabra-Davies. 

Despite being early in its fundraising, the company is on track to be profitable by spring 2025, according to Kabra-Davies.

Randi Wood, a renter from the Los Angeles area who is using By Rotation to lend out items from her small business, Entre Nous Showroom, recently rented a dress from By Rotation for a trip to Mexico. She described her experience as “really great” and said she appreciates how the user-run app drives interactions.

“The person that I was renting the dress from, she was very communicative, and it was like, right away, we were having a back-and-forth conversation,” Wood said.

‘Racist and broken’ system

The desire to create something different led Kabra-Davies toward her business in the first place. The idea for By Rotation first came to her in late 2018, while she was planning her honeymoon to Rajasthan, the state in northern India where she was born and from where she emigrated.

“I wanted to wear nice clothes on my holiday and I thought about renting but there was no sort of digital fashion rental player here in the U.K. or even Europe,” she said. “I started thinking about how I actually just wanted to reach out to all these women that we see on social media, who seem to wear one outfit once and never repeat them ever again.” 

Kabra-Davies admits the concept of reaching out to someone unsolicited to borrow their clothes is a bit weird, so she did what many people do. She purchased some new outfits to wear while on vacation.

But those outfits took on a new meaning once she arrived in India a few months later.

“There was a lot of textile waste. And I just couldn’t help but feel that I was probably part of this problem. I had bought new clothes for this holiday, and I wasn’t sure that I loved what I was wearing,” she said.

Kabra-Davies was deeply concerned about how one of her passions was hurting people in the country where she was born. In fact, a new report from the European Environment Agency found that 90% of used clothes and textile waste from Europe ends up in Africa and Asia.

“It just kind of felt racist and broken,” she said. “I was investing in all these nice clothes. It was actually very problematic to the entire world in terms of climate crisis.”

Shortly after returning from her trip, while still working in investor relations at Marathon Asset Management in London, she decided she wanted to merge her corporate business experience with her lifelong love of fashion and her newfound concerns about the unintended consequences of fast fashion. So she began By Rotation as a side hustle.

The app officially launched in the U.K. in October 2019, about six months after By Rotation was incorporated, and Kabra-Davies transitioned to running her new company full-time.

A lean business model

As By Rotation moves into the U.S. market, Kabra-Davies hopes the low-cost business model can give it more room to grow — and give the startup an edge over its established competitors.

Martha Petrocheilos, a lender based in New York, said she uses By Rotation because it has “the latest and greatest of fashion.” In the past, she said, she has tried Rent the Runway but found that it had “really old inventory,” which she attributes to the company “[holding] inventory as opposed to individual lenders.”

The lack of inventory also makes By Rotation more sustainable and helps prevent the apparel from ending up in landfills.

Esther Gross holds one of her dresses listed to rent on By Rotation.

Source: Esther Gross

Esther Gross is still setting up her By Rotation closet in New York but has experience using the app from when she previously lived in the U.K. She compares renting out items from her wardrobe to “a new investment asset class.”

Gross started a spreadsheet to keep track of the retail cost and rental revenue of each item in her digital closet. “There were four items that I made the full price back on in the U.K., and then there was another seven that I made over 50% of the price back,” she said.

Over time this revenue became her shopping budget, and she “was never buying more than what I was making on By Rotation.” 

It’s By Rotation’s lean business model that is helping attract attention from competitors.

The startup has “essentially no cost of acquisition,” said Kabra-Davies, who also said she’s been approached by at least two public companies in the rental and resale space.

One of the companies has “looked at our app and also our documents,” she said. Kabra-Davies has met with the other at least once.

When asked if she was open to selling her company, she said, “There’s a price for everything, but I’d love to see the ticker ‘BYRO.'”

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Peloton shares plunge after company reports wider-than-expected loss

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Peloton‘s shares plummeted Thursday after the company reported a wider-than-expected loss for the fiscal third quarter and acknowledged an uncertain economic backdrop.

The company’s shares were down 14% in afternoon trading.

Yet Peloton pointed to signs of progress with its turnaround plan. It said connected fitness subscriptions grew and free cash flow losses declined. It also said new initiatives have resonated with customers, including a push to sell lower-priced, pre-owned bikes and a rent-to-buy program for fitness equipment. 

Here’s how the connected fitness equipment company did in the three months ended March 31 compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

  • Loss per share: 79 cents vs. 46 cents expected
  • Revenue: $749 million vs. $708 million expected

Peloton’s net loss for the period was $275.9 million, or 79 cents per share, compared with a loss of $757.1 million, or $2.27 per share, a year earlier. It marked the ninth quarter in a row of the company reporting losses.

Revenue declined 22% from a year ago, dropping from $964.3 million.

The fitness company has sought to stabilize its business and find a path to profitability again, after seeing a sharp reversal of fortunes. Sales of its bikes and treadmills slowed dramatically after a Covid pandemic-related surge, forcing Peloton to lean into other revenue sources like subscriptions.

The company ended its third quarter with about 3.1 million connected fitness subscriptions, up 5% from the year-ago period. Connected fitness subscribers are people who own a Peloton product, such as its Bike or Tread, and pay a monthly fee for access to live and on-demand workout classes.

Average net monthly connected fitness churn ticked up slightly from a year ago, too. It came in at 1.1% for the quarter, consistent with the prior quarter, but above the year-ago churn level of 0.8%.

Peloton’s overall membership, however, did not grow. It ended the quarter with 6.7 million total members, the same as the end of the prior quarter and down from 7 million in the year-ago period.

In a letter to shareholders, CEO Barry McCarthy said Peloton is looking toward the future. The company later this month will relaunch the brand and introduce a new version of the Peloton app with a tiered membership structure, he said.

McCarthy added the relaunch aims to shake up how people view Peloton, so they think of its wide variety of fitness offerings — not just its well-recognized bikes.

Yet he warned of challenges ahead. He said the company typically experiences a seasonal decline in subscriber growth in the fourth quarter, which stretches across summer months. He said he expects one this year, too.

“Notwithstanding the relaunch, Q4 will be among our most challenging from a growth perspective,” he said.

In the fiscal fourth quarter, Peloton expects connected fitness subscriptions to rise, but revenue to drop. It said it anticipates revenue to decline by about 6% year over year to a range of between $630 million and $650 million, compared with $678.7 million the year-ago period.

It expects to end the fourth quarter with 3.08 million to 3.09 million subscribers, up from 2.97 million in the year-ago period.

On an earnings call, McCarthy said consumers have continued to spend, but he said it’s hard to predict their behavior as economists debate the likelihood of a recession or “soft landing.” He said the debate in Congress over whether to raise the debt ceiling, or risk a first-ever default on U.S. debt, adds to the uncertainty.

Separately, Peloton announced Thursday that it had reached an agreement with Dish Technologies over a patent dispute. The company said it will pay Dish $75 million to settle a U.S. International Trade Commission complaint.

The company had previously said it aimed to reach break-even cash flow on a quarterly basis in the second half of its fiscal 2023. McCarthy said in the letter Thursday that the settlement will significantly pressure free cash flow in the current fiscal quarter.

He added that the temporary hit is worthwhile because it “eliminates a cloud of uncertainty and an enormous distraction to the day-to-day operation of our business.”

McCarthy’s focus on a turnaround follows a tumultuous stretch after the company’s post-pandemic surge.

The struggles forced the company to cut costs last year by laying off thousands of employees, shuttering many of its stores, and outsourcing its last-mile delivery and manufacturing. Its co-founder and former CEO, John Foley, also stepped down last year and later resigned as executive chairman.

As fitness equipment sales continue to lag, Peloton has focused on other ways to drive growth and attract new customers. Under McCarthy, a former Spotify and Netflix executive, the company has emphasized increasing subscriptions.

Subscriptions have become the company’s biggest business driver – accounting for nearly 60% of overall revenue in the three-month period. It was the fourth quarter in a row that subscription revenue surpassed hardware revenue.

The company has tried to nudge sales of equipment by tinkering with prices, offering a rental option and adding rowing machines to its lineup. It got into wholesale by allowing Amazon and Dick’s Sporting Goods to carry its equipment. Peloton also struck a deal with Hilton to put bikes in all of its U.S. hotels.

In the shareholder letter Thursday, McCarthy said those efforts are working.

Since the company began testing its rent-to-buy program in March 2022, it has grown to 47,000 subscribers, he said. It has an average monthly churn rate of 5%, which is higher than Peloton’s overall churn rate.

Yet McCarthy said the option, which allows customers to make rental payments and chip away at the equipment’s purchase price, reduces a barrier to sign-ups. He cited an internal survey, which found that 62% of respondents would not have subscribed if it weren’t for the flexibility of the rental program.

Peloton’s sales of pre-owned bikes have also resonated, he said. The company launched that offering in December and is considering adding its treadmills and rowers to the program later this year.

Together, the two programs accounted for 24% of connected fitness hardware sales in the fiscal third quarter, he said.

He said third-party sales have also gained traction, and the company plans to expand its assortment with Amazon and participate in its promotional events like Prime Day.

Peloton’s stock has risen about 11% so far this year. Yet its shares are still less than half of its 52-week high of $18.86 — and just a tiny fraction of their over $100 highs during the early years of the pandemic.

Peloton’s market cap is $3.06 billion, after reaching as high as almost $50 billion in early 2021.

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Target shoppers can now make a return without leaving the car

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Target is dangling a new perk to get shoppers to swing by its stores: customers can make returns without leaving their car.

The curbside-returns service, which began last week at roughly a quarter of Target’s nearly 2,000 stores nationwide, will be available across the chain by the end of summer. 

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Target is sweetening its curbside-pickup service, Drive Up, to attract and retain customers as the retailer braces for a potential sales slowdown and tries to hang on to pandemic-fueled gains. Total annual revenue grew by about $31 billion – or nearly 40% – from fiscal 2019 to 2022.

Now, as shoppers become more budget conscious and buy fewer discretionary items, Target said it expects comparable sales to range from a low single-digit decline to a low single-digit increase this fiscal year. At an investor day in February, it projected full-year earnings per share of between $7.75 and $8.75, below Wall Street’s expectations of $9.23 per share, according to StreetAccount estimates.

The company hopes convenient perks like curbside returns will boost customer loyalty and jolt sales.

“Any time we remove friction from our guest experience it benefits the guests and benefits Target because they deepen their relationship with us,” Chief Stores Officer Mark Schindele said. “We’ve shown that with Drive Up overall. Guests try that service, they love it and then they shop our stores more often.”

Curbside pickup became a bigger sales driver for retailers’ e-commerce businesses, especially as shoppers tried to avoid crowds during the Covid pandemic. For some shoppers, the habit has stuck as work and home schedules are fuller and commutes are back — and retailers including Target and rival Walmart now aim to capitalize on that.

Click-and-collect, a term used to describe buying online and picking up purchases curbside or in store, grew from 6% of overall e-commerce sales in the U.S. in 2019 to 11% in 2022, according to data from Euromonitor, a market research firm.

Delivery still accounts for the majority of online sales, but click-and-collect drove about $114 billion of sales in 2022 — a jump from $36 billion in 2019, according to Euromonitor.

In the U.S., the vast majority of click-and-collect comes from curbside pickups, said Bob Hoyler, industry manager for retail research at Euromonitor. 

The market research firm anticipates click-and-collect sales in dollars will grow by 8% this year, compared with 2% for delivery. The growth will be fueled by consumers who opt for curbside pickup to avoid delivery fees or shipping minimums at a time of heightened price sensitivity, Hoyler said.

Target debuted Drive Up in 2017 as a test in Minneapolis, where the company is based. It expanded the service to stores across all 50 states in 2019. It added fresh and frozen groceries in 2020, and tacked on wine and beer the following year. 

Last year, the retailer expanded the service to allow shoppers to order a Starbucks drink to retrieve when they pick up their curbside order. The service is available at about 240 stores.

Sales fulfilled through Drive Up grew more than 70% in the fiscal year that ended in late January 2022, on top of a more than 600% boom during the prior fiscal year, the company said. Drive Up sales grew more than 10% in the most recent fiscal year.

Target’s same-day services, which include Drive Up, accounted for more than half of digital sales as of late January as consumers embrace convenience. Same-day services also include Target-owned delivery service Shipt and Order Pickup, which allows shoppers to retrieve an online purchase inside of a store.

The retailer’s average fulfillment cost per unit has fallen by 40% over the past four years as those services grow, Chief Operating Officer John Mulligan said at an investor day in February. More than 95% of Target’s total sales, including digital, are fulfilled in stores.

Other retailers have added to curbside pickup. Walmart rolled out curbside returns at all of its stores ahead of the 2022 holiday season. Dick’s Sporting Goods added curbside returns to its services in 2020 and offers it across all of its stores.

Neither company would quantify the use of curbside pickup or returns, but Walmart said it has seen nearly double the volume of customers using curbside returns from its launch across the chain last fall compared with this month.

At an investor event earlier this month, Walmart CEO Doug McMillon said the retailer is competing on convenience, too. He credited pickup and delivery for driving growth in recent years, and said the company’s recent survey results show customers are choosing the big-box retail giant to save time along with money.

Yet other retailers such as Kohl’s have eliminated curbside pickup. It ended the service last summer, swapping it out for a self-pickup service inside of stores.

The company’s shift to self pickup is part of efforts to cut costs, including by reducing its payroll, Chief Financial Officer Jill Timm said in September at a Goldman Sachs conference. She said Kohl’s is also testing self checkout and self returns.

For some retailers, the time and labor of curbside pickup can be hard to justify — especially since it encourages shoppers to stay in their cars rather than step into stores where they may fill up their carts with more purchases, Euromonitor’s Hoyler said.

Those concerns fueled skepticism of curbside returns within Target, too.

Most Target returns are made at the store, according to the company. Inside of a store, a shopper may swap out a returned product for another or grab an impulse item.

At Target’s investor day in late February, Citibank analyst Paul Lejuez asked if the retailer would ultimately miss out on purchases by adding curbside returns.

Schindele, the chief stores officer, said Target is focused on the lifetime value of a customer, not just the economics of a single transaction. He said allowing curbside returns also helps the retailer get unwanted items back on the sales floor faster and lowers the cost of mail-in returns.

He added that curbside pickup still inspires browsing and other purchases. On average, about 20% of customers who pick up Drive Up orders also make an in-store purchase on the same day, he said.

“What we find is when a guest uses Drive Up — and it could be Drive Up returns, it could be Drive Up purchase — we find that they spend more money in store over the course of the year.”

During tests of curbside returns, some shoppers have stopped by just to return an item, Schindele said. Others have picked up purchases while making a return. Still others have retrieved items they bought, made a return and gotten a Starbucks drink.

For Target, curbside returns could serve as a differentiator and a complement to the merchandise mix it sells, Hoyler said. Target’s sales focus is on general merchandise, such as apparel and beauty products, with only roughly 20% of its annual sales coming from grocery items. That’s much less than Walmart, which draws nearly 60% of its annual U.S. sales from grocery.

That general merchandise tends to be returned much more often than items like milk and bananas, he said.

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How Timberland, Vans, VF Corp. are making sure their cotton isn’t ‘greenwashed’

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Smallholder Farmers Alliance purchase of organic cotton from farmer member.

Norielle Thomas, Smallholder Farmers Alliance

As the harvest season finished at the end of January in Haiti, retail giant VF Corp. made a notable purchase: what is believed to be the first-ever verified regenerative cotton crop grown in the country. 

For the holding company behind brands like Timberland, The North Face, Supreme and Vans, the purchase was significant. For one, it signaled a broader approach to sustainable farming, evolving from an earlier focus on organic cotton — where the emphasis is on the elimination of inputs including pesticides and synthetic fertilizers — to regenerative cotton agriculture practices, which place greater importance on soil health, water retention, and local economic benefits, in addition to the chemical input management.

Timberland had already reintroduced cotton to Haiti following a 30-year absence from the country in collaboration with the Smallholder Farmers Alliance, a nonprofit that establishes farmer cooperatives. After five years of study and field experiments, the company introduced its first products made with Haitian-grown organic cotton in the spring of 2021, including two types of sneakers and a tote bag. But the focus quickly moved to regenerative agriculture, a practice more activist shareholders are pressing with big consumer companies. 

“Regenerative agriculture is really important to Timberland and VF because it’s about restoring the soil,” said Atlanta McIlwraith, Timberland’s director of social impact and activation. “We feel like it’s a way to directly address climate change. I think a lot of brands talk about sustainability, and we do as well, but if you think about sustainability, it’s really about doing no harm and maintaining things as they are. And regenerative is really drawing a line that’s higher.”

Behind the scenes, there is another notable aspect to the agricultural first related to technology. With support for Timberland, VF Corp. and VF Foundation, the Smallholder Farmers Alliance worked with Terra Genesis — a Thailand-based firm that VF just announced this week it has a collaboration with on sourcing regenerative rubber — and the Data Economics Company to create a farm data tracking service to verify regenerative cotton crops.

When a farmer decides to work with the Smallholder Farmers Alliance, a local agronomist will start coming to their farm and collecting data on regenerative farming, as well as establishing the standards that these farms must meet. If a farm passes the survey, farmers profit not only from the cotton sale, but from the data that verifies the cotton is regenerative.

VF Corp’s efforts with regenerative cotton in Haiti come at a time of growing pressure from consumers for companies to adopt more sustainable practices.

Three out of five consumers in a recent survey claimed that at least half of their last purchase consisted of socially responsible or sustainable products, according to the IBM Institute for Business Value. 

“This consumer demand drives the brands and big companies to want to use more of these products produced in that way,” said Jennifer Hinkel, managing director and CGO of the Data Economics Company.

Consumer brands facing greater ‘greenwashing’ scrutiny

But corporate sustainability claims are being more aggressively challenged by regulators and politicians.

Last year, the Federal Trade Commission charged Kohl’s and Walmart with falsely advertising their rayon products as bamboo since 2015, with the companies agreeing to pay $5.5 million in combined penalties.

The FTC is weighing even stiffer penalties for “greenwashing” and is currently contemplating a revised set of rules for environmental marketing claims, with a public comment period set to end later this month.

“If there’s no traceability, there’s no evidence that it is what you say it is,” said Patricia Jurewicz, founder and CEO of the human rights nonprofit organization Responsible Sourcing Network. “People want to know. You don’t want to be saying that there’s better cotton in this product, if in reality, there’s cotton in there that could be contributing to forced labor or other harmful practices,” she added.

This data collection process also gives smallholder farmers a greater say in their relationship with big brands, shifting the balance of power a little in an industry that long favored the consumer companies, according to the Food and Agriculture Organization of the United Nations, especially with food crops. The Rockefeller Foundation is currently looking at similar regenerative verification for food agriculture around the world.

The way that the data is collected and packaged is designed to give ownership to the farmer for licensing. “You don’t actually get ownership of the data as VF or a customer. You get to license it and use it for specific purposes,” said Data Economics Company managing director and CTO Arka Ray. 

Data Economics Company serves as the operating system for the entity managing the effort for farmers, Smallholder Data Services, and the farm level data traceability all the way through to the end purchasers, such as VF, and traceability back to compensating the farmers. Empowering small farms in direct connection with larger brands and markets, will be important to bringing sustainability through to the consumer end market, Hinkel said. 

Taking regenerative agriculture global will be a challenge

Applying this approach to the cotton industry and associated products will be complicated. Most cotton is blended with other cotton crops based on characteristics of the cotton, including color, strength, length, and price point, “and what’s realistic for some of the fast fashion that’s out there,” Jurewicz said. “What’s harder is applying these technologies to conventional cotton, to all the cotton that’s out there, rather than just to the real responsible cotton,” she said.

Even with progress made in recent years on organic cotton production, it’s still a tiny piece of the global industry. The 2020/21 global harvest of certified organic cotton was up 37% year over year, according to the Textile Exchange, but that represents 1.4% of all cotton grown globally. And Haiti, in particular, plays a very small role in global production, having only reinitiated cotton farming in recent years. The top five cotton-producing nations — India, China, the U.S., Brazil and Pakistan — control 77% of the global output, according to OECD data.

Nevertheless, while regenerative agriculture may be an emerging concept in developed markets like the United States and Europe, it isn’t new to Haitian farmers.

“When it’s introduced to smallholder farmers, we don’t really say, ‘Oh, here’s a new thing called regenerative’ because they recognize each of the practices of regenerative agriculture as things they’ve done in the past, things their parents did,” said Hugh Locke, senior editor president and co-founder of Smallholder Farmers Alliance and Smallholder Data Services.

VF Corp. was introduced to Haiti through Timberland, which started its efforts in the country in 2010 when the footwear company became the founding corporate sponsor for the Smallholder Farmers Alliance. Originally, Timberland and the Smallholder Farmers Alliance worked together on a tree planting operation under which smallholders were rewarded with credits for helping to reach the goal of planting 5 million trees, and they could then use those credits in exchange for seed, tools, training and other agricultural services.

McIlwraith says that Timberland and the Smallholder Farmers Alliance saw unexpected benefits from that program back on the farm, producing a 40% increase in smallholder farmers’ organic crop yields and 50% to 100% increases in farmers’ incomes.

“Haiti is so degraded, environmentally talking, and because of that any other project cannot be sustainable. So, we tackle the problem from its roots, which is environmental degradation in the country,” said Timote Georges, executive director and co-founder of Smallholder Farmers Alliance.

Tracking and verifying this data has encouraged more farmers to switch to regenerative cotton farming.

“There is a positive community kind of peer pressure that emerges and encourages farms to participate in this data network. … And which then by osmosis gets more and more farms to adopt regenerative practices because the ROI loop is very clear,” Ray said.

As brands create stricter goals tied to production practices, they will need to be able to demonstrate that they’re meeting them. “So I think all of that together, it will continue to incentivize this type of data tracking traceability,” Jurewicz said.

Sustainable development goals are hopelessly off track, World Bank senior managing director says

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Demand for luxury watches shows no sign of fading, says Audemars Piguet CEO

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The luxury watch market is well-positioned to avoid a crash as tight supply and a new generation of young collectors drive demand, according to the CEO of Audemars Piguet.

Luxury watch prices on the secondary market fell 8% last year, with some top models falling more than 20% from their peak, according to WatchCharts. Experts have been warning that the watch bubble could burst, along with crypto, NFTs and other trendy post-pandemic booms. Yet in the past two months, prices have begun to stabilize on the back of what some see as lasting, strong demand.

“I don’t see prices going much lower,” said Francois-Henry Bennahmias, CEO of Audemars Piguet — one of the so-called Big Three of the luxury watch world along with Rolex and Patek Philippe. “People still want to reward themselves, and when they want to reward themselves, they will look at the most respected companies, in watches, jewelry, fashion, you name it.”

Bennahmias said the luxury watch market is benefitting from a vast and structural shift to younger buyers. During the pandemic, a flood of millennials and Gen Z consumers poured into the collectible watch world, educating themselves online and coveting rare watches worn by sports stars and celebrities on social media.

With the top watchmakers built on the promise of limited production, supply can’t keep pace with demand.

“The quantities from the watch companies didn’t evolve,” Bennahmias said. “And the demand became crazy, because we saw the arrival of young people that just were more and more interested in watches. And some people with money who were not even looking at watches before found out that building a watch collection could be something interesting.”

Audemars Piguet’s Royal Oak Offshore Selfwinding Chronograph in black ceramic, celebrating the 30th anniversary of the collection.

Source: Audemars Piguet

Bennahmias said unlike the fickle meme-stock investors of 2021, today’s young watch collectors are here to stay. The average age of an Audemars customer is now 10 or 12 years younger, he said, than in the company’s recent history. Despite living most of their life online and immersed in digital products, Gen Z and millennials have developed a particular attraction to highly crafted, mechanical watches.

“When the Apple Watch came out in 2014, everyone was telling us that we will actually die,” Bennahmias said. “They said no young person would ever wear a watch again, if they did it would be a smartwatch. The funny thing is, we thought that young people couldn’t appreciate exclusivity, craftsmanship, watchmaking. They did.”

Bennahmias said younger generations are becoming some of the brand’s top ambassadors.

“They are the ones preaching the choir with social media and everything. They are our best advertising campaign, and they are bringing their parents actually to the brand,” he said.

Market markups

The big challenge for watchmakers is the secondary market, where pre-owned watches can sell on any of the dozens of online watch sites.

With demand for watches outpacing supply of new inventory, prices for pre-owned watches have skyrocketed, along with online sites like Chrono24, Watchfinder and Watchbox that buy and sell pre-owned watches. Preowned watch sales reached $22 billion in sales in 2021, accounting for nearly one-third of the overall $75 billion luxury watch market, according to a recent report from Boston Consulting Group.

Prices for pre-owned versions of some of the top “trophy” models — like the Patek Philippe Nautilus, the Rolex Daytona and the Audemars Piguet Royal Oak — can run two or three times their retail price. A pre-owned Audemars Piguet Royal Oak “Jumbo” that retails new for $35,000 is currently listed on Chrono24 for $115,000. Some have listed for over $130,000.

The mark-ups have sparked widespread frustration among collectors, who claim watchmakers are deliberately limiting production to boost prices and resale values — making their watches more attractive as investments. Bennahmias said many of the price corrections are “healthy” and that the watchmakers prefer customers who are true, long-term watch-lovers rather than speculators trying to pump up prices.

“I want this to be very clear for everyone,” Bennahmias said. “We’re not playing the market. We’re not doing anything to make the price go one way or the other. We make a certain amount of watches that we think could be accepted by the world. We say this is the right number, then the market is free and will do whatever they want.”

Audemars Piguet produced only 50,000 watches last year and is expected to produce about 51,000 this year, Bennahmias said. The brand, founded in 1875 and still family-owned, has long championed quality, craftsmanship and exclusivity over revenue growth.

Audemars Piguet is continuing to expand its production and facilities in Switzerland. But Bennahmias said that even if the company wanted to meet demand, which would be well over 80,000 watches a year, the company wouldn’t be able to find and train watchmakers fast enough.

Francois-Henry Bennahmias, CEO of luxury watchmaker Audemars Piguet.

Credit: Audemars Piguet

“The board of directors, meaning the family members, have never ever asked me in my 11 years for any growth in percentage terms, ever,” Bennahmias said. “They have never said ‘Francois, we want 10% or 15% or more.’ No. They say, ‘Francois, we still want to be around 200 years from now.’ That’s a completely different vision on how to build the success of a brand.”

Bennahmias admits the company has “made mistakes” when it comes to handling customers who arrive at their stores only to be told there are no watches available or that the wait time, if they’re lucky enough to get on the list, is up to two years. He said sales staff are now better trained to explain the limited production, the low numbers of each model produced and how many are delivered to each country.

He also said he wants 30% of all watches to go to buyers who have never owned an Audemars Piguet, to keep bringing in new customers.

“We are learning every single day, and it’s not always perfect,” he said. “What we found out through the course of the last three, four years, is that we need to educate people more.”

Audemars Piguet’s Royal Oak Offshore Selfwinding Chronograph in black ceramic, celebrating the 30th anniversary of the collection.

Source: Audemars Piguet

Audemars is now celebrating the 30th anniversary of its popular Royal Oak Offshore model, a larger version of its signature Royal Oak. When the Offshore was first launched, however, the model was widely scorned, according to Bennahmias.

“People trashed it,” he said. “When the watch came out people looked at it and said, ‘You guys are crazy.’ And we were not so confident in launching it. Slowly but surely it took off, to the point where it was a huge success.”

Next steps

Bennahmias, who will be leaving his role as CEO at the end of this year, declined to identify his potential successor or his next position.

He more than tripled Audemar Piguet’s sales during his tenure to over $2 billion and is well known in the watch world for his close ties to Jay-Z and other hip hop stars, as well as Hollywood celebrities, professional athletes and artists.

Some have speculated his next job is as likely to be in sports or music as it is luxury or watches.

“I think I’ve done what I was supposed to do with Audemars Piguet,” he said. “I’ve got so many other things I want to do with my life. I’ve got many different passions. Music is one. Sports is another one. And luxury obviously, and I want to do other things. I’m not done yet.”

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Shrinking food stamp benefits for families mean yet another challenge for retailers

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A worker carries bananas inside the Walmart SuperCenter in North Bergen, New Jersey.

Eduardo Munoz Alvarez | AP

For some shoppers who already struggle to cover grocery bills, the budget is getting tighter.

This month, pandemic-related emergency funding from the Supplemental Nutrition Assistance Program, formerly known as food stamps, is ending in most states, leaving many low-income families with less to spend on food.

More than 41 million Americans receive funding for food through the federal program. For those households, it will amount to at least $95 less per month to spend on groceries. Yet for many families, the drop will be even steeper since the government assistance scales up to adjust for household size and income.

For grocers like Kroger, big-box players like Walmart and discounters like Dollar General, the drop in SNAP dollars adds to an already long list of worries about the year ahead. It’s likely to pressure a weakening part of retailers’ business: sales of discretionary merchandise, which are crucial categories for retailers, as they tend to drive higher profits.

Major companies, including Best Buy, Macy’s and Target, have shared cautious outlooks for the year, saying shoppers across incomes have become more careful about spending on items such as clothing or consumer electronics as they pay more for necessities such as housing and food.

Food, in particular, has emerged as one of the hardest-hit inflation categories, up 10.2% year-over-year as of February, according to the U.S. Bureau of Labor Statistics.

“You still have to feed the same number of mouths, but you have to make choices,” said Karen Short, a retail analyst for Credit Suisse.

“So what you’re doing is you’re definitely having to cut back on discretionary,” she said.

The stretch has made it impossible for some to afford even basic items. It’s still too early to see the full impact of the reduced SNAP benefits, said North Texas Food Bank CEO Trisha Cunningham, but food pantries in the Dallas-Fort Worth area have started to see more first-time guests. The nonprofit helps stock shelves at pantries that serve 13 counties.

Demand for meals has ballooned, even from pandemic levels, she said. The nonprofit used to provide about 7 million meals per month before the pandemic and now provides between 11 million and 12 millions meals per month.

“We knew these [extra SNAP funds] were going away and they were going to be sunsetted,” she said. “But what we didn’t know is that we were going to have the impact of inflation to deal with on top of this.”

Shifting market share

So far, retail sales in the first two months of the year have proven resilient, even as consumers contend with inflation and follow a stimulus-fueled boom in spending in the early years of the pandemic. On a year-over-year basis, retail spending was up 17.6% in February, according to the Commerce Department.

Some of those higher sales have come from higher prices. The annual inflation rate is at 6% as of February, according to the Labor Department’s tracking of the consumer price index, which measures a broad mix of goods and services. That index has also gotten a lift from restaurant and bar spending, which has bounced back from earlier in the pandemic and begun to compete more with money spent on goods.

Yet retailers themselves have pointed out cracks in consumer health, noting rising credit card balances, more sales of lower-priced private label brands and shoppers’ heightened response to discounts and promotions.

Some retailers mentioned the SNAP funding decrease on earnings calls, too.

Kroger CEO Rodney McMullen called it “a meaningful headwind for the balance of the year.”

“We’re hopeful that everybody will work together to continue or find additional money,” he said on the company’s earnings call with investors earlier this month. “But as you know, because of inflation, there’s a lot of people whose budget is under strain.”

Credit Suisse’s Short said for lower-income families, the food cost squeeze comes on top of climbing expenses for nearly everything else, whether that’s paying the electric bill or filling up the gas tank.

“I don’t think I could tell you what a tailwind is for the consumer,” she said. “There just isn’t a single tailwind in my view.”

Emergency allotments of SNAP benefits previously ended in 18 states, which could preview the effect of the decreased funding nationwide. In a research note for Credit Suisse, Short found an average decline in SNAP spending of 28% across several retailers from the date the additional funding ended.

Some grocers and big-box retailers could feel the impact more than others. According to an analysis by Credit Suisse, Grocery Outlet has the highest exposure to SNAP with an estimated 13% of its 2021 sales coming from the program. That’s followed by BJ’s Wholesale with about 9%, Dollar General at about 9%, Dollar Tree at about 7%, Walmart’s U.S. business with 5.5% and Kroger with about 5%, according to the bank’s estimates, which were based on company filings and government data.

Retailers that draw a higher-income customer base, such as Target and Costco, should feel comparatively less effect, Short said. If nothing else, the dwindling SNAP dollars could shift shoppers from one retailer to another, she said, as major players seek to grab up market share and undercut on prices.

Fewer dollars to go around

Another factor could make for a bumpier start to retailers’ fiscal year, which typically kicks off in late January or early February: Tax refunds are trending smaller this year.

The average refund amount was $2,972, down 11% from an average payment of $3,352 as of the same point in last year’s filing season, according to IRS data as of the week of March 10. That average payout could still change over time, though, as the IRS continues to process millions of Americans’ returns ahead of the mid-April deadline.

Dollar General Chief Financial Officer John Garratt said on an earnings call this month that the discounter is monitoring how its shoppers respond to the winding down of emergency SNAP benefits and lower tax refunds.

He said stores did not see a change in sales patterns when emergency SNAP funds previously ended in some states, but he added that “the customer is in a different place now.”

Tax refunds can act as a cash infusion for retailers, as some people spring for big-ticket items like a pair of brand-name sneakers or a sleek new TV, said Marshal Cohen, chief industry advisor for The NPD Group, a market research company.

This year, though, even if people get their regular refund, they may use it to pay bills or whittle down debt, he said.

One bright spot for retailers could be an 8.7% cost-of-living increase in Social Security payments. Starting in January, recipients received on average $140 more per month.

However, Cohen said, the cash influx might not be enough to offset pressure on younger consumers, particularly those between ages 18 and 24, who have just started jobs and face milestone expenses like signing a lease or buying a car.

“Everything’s costing them so much more for the early, big spends of their consumer career,” he said.

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Zipline unveils P2 delivery drones that dock and recharge autonomously

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Logistics startup Zipline has flown more than 38 million miles with its autonomous electric delivery drones since the company was founded in 2014. Zipline put its first fleet to work in Rwanda, delivering blood and other health supplies to clinics and hospitals. Since then, the Silicon Valley startup has expanded its service in six other countries, with limited delivery service and distribution centers in three states.

On Wednesday, Zipline showed off its next-generation aircraft, which it hopes will make rapid aerial deliveries an everyday convenience for customers throughout the U.S., even in densely populated urban areas.

Zipline’s new drone, dubbed the Platform 2 or P2 Zip, is capable of carrying up to eight pounds worth of cargo within a ten-mile radius, and can land a package on a space as small as a table or doorstep.

“The reason that number is important,” says Zipline CEO and co-founder Keller Rinaudo Cliffton, “is that when you look at e-commerce in the US, a vast majority of packages weigh five pounds or less.”

Zipline cofounders, CEO Keller Rinaudo Cliffton and CTO Keenan Wryobek

Zipline

The P2 Zip can travel ten miles in ten minutes, and the company can make a delivery approximately seven times faster than any typical service you may order from today, the CEO said. Rapid deliveries by drone may put an end to “porch pirates,” Rinaudo Cliffton said, referring to the theft of packages left on a doorstep while the customer is away from home.

While Zipline’s original drone, the P1 Zip, features a fixed wing or glider-like design, the P2 employs both lift and cruise propellers and a fixed wing. These help it maneuver precisely and quietly, even in rainy or windy weather.

To deliver cargo to a customer’s door, the P2 Zip hovers around 300 feet above ground level and dispatches a kind of mini-aircraft and container called the “droid.” The droid descends on a long thin tether, and maneuvers quietly into place with fan-like thrusters before setting down for package retrieval.

Zipline’s original P1 drones will remain in production and in wide use, says Rinaudo Cliffton. The P1 Zip can fly a longer distance, delivering up to five pounds of cargo within a 60-mile radius, but it requires a larger space for take off, landings and “the drop.”

The P1 Zip lets cargo down with a parachute attached, so its payload lands within a space about the size of two car parking spots. After a P1 Zip returns to base, an employee needs to disassemble it, then set up a new one, dropping in a freshly charged battery for the next flight.

Zipline’s new P2 Zip can dock and power up autonomously at a charging station that looks something like a street lamp with an arm and a large disc attached to that arm:

A rendering of P2 Zips charging at a docking station.

Zipline

Zipline docks can be installed in a single parking spot or alongside a building depending on zoning and permits. Zipline envisions the docks set up by restaurants in a downtown shopping district, or alongside the outer wall of a hospital, where the droid can be inserted into a window or dumbwaiter, retrieved, and reloaded by healthcare workers indoors.

Setting up one of these docks takes about as much work as installing an electric vehicle charger, Rinaudo Cliffton said.

Before developing the P2 Zip, Zipline had established logistics networks in Cote d’Ivoire, Ghana, Japan, Kenya, Nigeria and Rwanda already. It is operating some drone delivery networks in the US, in North Carolina, Arkansas and Utah — but the P2 will help it expand that network.

Partners who plan to test deliveries via P2 Zip include the healthy fast-casual restaurant Sweetgreen, Intermountain Health in Salt Lake City, Michigan Medicine, Multicare Healthcare System in Tacoma, Wash., and the government of Rwanda.

Zipline is not alone in its ambitions. Zipline is part of a program with other startups like DroneUp and Flytrex to make deliveries for Walmart. Amazon, meanwhile, has been working on making drone deliveries a reality here for nearly a decade, although that business has struggled to overcome a thicket of regulation and low demand from test customers.

Quiet and green is the goal

Zipline head of engineering Jo Mardall told CNBC the company focused much of its engineering on making sure the drones were not just safe and energy-efficient, but also quiet enough that residents would embrace their use. 

“People are worried about noise, rightly. I’m worried about noise. I don’t want to live in a world where there’s a bunch of loud aircraft flying above my house,” he said. “Success for us looks like being in the background, being barely audible.” That means something closer to rustling leaves than a car driving by. 

The droid component of the P2 Zip is designed to enter distribution centers through a small portal, where it’s loaded up with goods for delivery.

Zipline

The P2 Zips have a unique propeller design that makes this possible, Mardall explained, adding, “The fact that the Zip delivers from from 300 feet up really helps a lot.”

Mardall and Rinaudo Cliffton emphasized that Zipline aims to have a net-beneficial impact on the environment while giving business a better way to move everything from hot meals to refrigerated vaccines just in time to customers. 

Unmanned aerial vehicles, they explained, avoid worsening traffic congestion by going overhead. And since Zipline’s drones are electric, they can be powered with renewable or clean energy, without the emissions from burning jet fuel, gasoline, or diesel.

But most importantly, the CEO said, Zipline’s drone delivery allows companies to “centralize more inventory,” and “dramatically reduce waste.”

A study published by Lancet found that hospitals using Zipline services were able to reduce their total annual blood supply waste rate by 67%, the CEO boasted.

“That is a mind-blowing statistic, and a really big deal. It saves health systems millions of dollars, by reducing inventory at the last mile and only sending it when it’s needed.”

Zipline is aiming to bring that efficiency to every corner of commerce, the CEO said. It’s also aiming to keep the cost of drone delivery competitive with existing services, like FedEx and UPS, or food delivery apps like Uber Eats and Instacart.

But first, the startup plans to conduct more than 10,000 test flights using about 100 new P2 Zips this year. With its existing P1 drones, Zipline is already on track to complete about 1 million deliveries by the end of 2023, and by 2025 it expects to operate more flights annually than most commercial airlines.

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Venture capital for Black entrepreneurs plummeted 45% in 2022, data shows

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Bea Dixon, the CEO and co-founder of The Honey Pot Company

Courtesy: Honey Pot Company

In 2016, Beatrice Dixon had finally secured a deal with Target to carry her line of feminine care products. But she had one problem: She was still making them in the kitchen of her Atlanta home, and she needed to scale up — fast. 

The CEO and co-founder of The Honey Pot Company, a vaginal-wellness brand, was faced with the “impossible” task of launching in 1,100 stores and needed funding to bring on manufacturers so she could deliver on the retailer’s orders. 

She managed to secure that crucial round of financing from the New Voices Foundation, a fund led by Richelieu Dennis that’s devoted to supporting women entrepreneurs of color. Using that financing, and some funding from family and friends, Dixon was able to quit her job, move operations out of her kitchen and launch in Target stores nationwide by 2017. 

Some six years later, Dixon’s products are a staple in retailers across the country. 

“It was really hard, man, we weren’t having any luck,” Dixon told CNBC in a recent interview about the struggles she faced securing investors. “I don’t know what would have happened if we didn’t get that money.”

Dixon is one of many Black entrepreneurs who struggled to secure funding for their businesses and relied on venture capital financing earmarked for diverse founders. While Dixon and many others have ultimately succeeded, Black-led businesses and Black founders have historically faced disparities in securing VC funding. 

Overall, Black entrepreneurs typically receive less than 2% of all VC dollars each year while companies led by Black women receive less than 1%, according to data from Crunchbase. 

In the wake of the police murder of George Floyd and the racial justice reckoning that followed, Black founders and Black-led startups saw historic gains in securing VC funding in 2021. However, as momentum around the movement fizzled and market conditions worsened, a lot of those gains were lost by the end of 2022. 

While overall VC funding dropped by 36% in 2022 as inflation and interest rates surged, financing for Black businesses saw a steeper drop of 45%, according to the Crunchbase data. That drop is the largest year-over-year decrease Black entrepreneurs have seen over the past decade. 

“There were a lot of political and cultural strife problems in 2020 and early 2021 that created a higher focus on Black and diverse founders,” said Kyle Stanford, a senior analyst at Pitchbook. “No one wants that to be the reason why they focus on investing in any group, but that did put a lot of focus on the problems that VC has had investing in anyone outside of a straight white male.”

Marlon Nichols, the co-founder and managing general partner of MaC Venture Capital, said diverse businesses tend to take the brunt of VC slowdowns because firms typically resort to the status quo in times of economic uncertainty. 

“We’ve always invested in white men and that’s what we’re going to do right now. That’s where we’re comfortable. That’s where we know and believe that we’re going to get the return,” is how Nichols, who is Black, described the decisions made by some firms. “This diversity thing is cool, we’ll pick it back up maybe, you know, once we’ve weathered this storm.”

So-called ‘risky bets’

In 2014, Dixon was working at Whole Foods and suffering from an ongoing case of bacterial vaginosis that she wasn’t able to shake. Then, she said, her late grandmother came to her with a solution — in a dream.  

“She just told me that she had been walking with me and seeing me struggle and she knew how to fix it, and she basically hands me a piece of paper that has a list of ingredients on it and she tells me to memorize what’s on the paper,” Dixon said, recalling the dream of her grandmother. “I made it within a couple of days, and, basically, this formula actually healed me.”

The mixture, which included ingredients such as lavender, apple cider vinegar, grapefruit seed extract and rose, worked for family and friends, too, Dixon said. Using a $21,000 loan from her brother, she began selling the product and displaying it at trade shows and expositions.

Honey Pot Company products

Courtesy: Honey Pot Company

Using her connections at Whole Foods, she got the product on the shelves of the store but wasn’t able to seriously scale up and attract outside investors until she secured the deal with Target. 

“It was hard. Us being Black-owned business founders, was it harder? Sure, it probably was,” said Dixon. “I think every time we raised money, we had trouble doing it, you know, but I think that the important context to put there is that anybody that raises money, it’s not going to be easy.” 

While he doesn’t invest exclusively in diverse businesses, Nichols said he’s more likely than some venture capitalists because MaC Venture Capital is led by a diverse team unlike other firms that are typically run by white men.

“The investors are primarily white and male and usually come from affluent communities, which means that they have very specific experiences and have been exposed to very specific things and are comfortable with very specific things,” said Nichols, whose latest firm opened in 2019. 

To many firms, investing in founders from diverse backgrounds is considered a riskier bet because the entrepreneurs differ from the norm they’ve become accustomed to, said Ladi Greenstreet, the CEO of Diversity VC, which works to tackle systemic bias within venture capital.

In the aftermath of Floyd’s murder in May 2020, many major banks, corporations and investment firms pledged to change that — and make diversity a top priority moving forward. 

However, the steep funding drop-off Black founders saw in 2022 indicates some of those promises may have been short-lived charity plays rather than investments that firms actually believed would bring in strong returns.

“When you take venture capital financing, the expectation is that, you know, you have a partner now, if you perform, your partner is going to continue to back you, they’re going to help you to raise that next round of funding, right?” said Nichols. 

For white-led teams, there’s no expectation that recipients have to be “extraordinary” in their first two years of operations in order to get follow-on funding, but the bar is far higher for Black entrepreneurs, said Nichols, whose firm manages about $450 million in assets.

“For most of these Black founders, that’s exactly like the expectation, you’ve got to be extraordinarily exceptional in order to get additional capital,” he said. “And if you’re truly treating this like all investments that you make then that shouldn’t be the case.” 

‘Huge blue ocean’

Pocket Sun is the co-founder and managing partner of SoGal Ventures, a VC firm devoted to supporting women and diverse entrepreneurs. Since the firm opened in 2016, it has seeded multiple unicorns, or startups that grew to have valuations over $1 billion. The businesses include Function of Beauty and Everly Health.

“From a financial investment perspective, this remains a huge blue ocean for people to dive in,” said Sun. 

“Venture capital is a very privileged and exclusive industry, and has always been that way. And it has such disproportionate decision-making power on the future of technology, the future of innovation, the future of quality of life in many ways,” said Sun.

While investing in diverse teams can often be seen as a moral imperative and something that’s done because it’s the right thing to do, studies have shown it can lead to higher returns for investors, said John Roussel, the executive director of Colorwave. 

Honey Pot Company products

Courtesy: Honey Pot Company

“And somehow, we’re still stuck in this situation where we’re trying to convince people of that,” said Roussel, whose organization connects early stage founders to mentors and capital. “It really takes, you know, strong players taking a lead and showing people that there is opportunity here and there is generally the same success rates regardless of someone’s skin color.” 

Dixon, the founder of The Honey Pot, pointed to her own success as an example. “Clearly, it’s safe to bet on Black businesses,” she said.

Products from the company are now in 4.6 million homes, nearly double the number from two years ago. They are also sold nationally in retailers such as Walmart, CVS, Walgreens and more. The Honey Pot didn’t share its current valuation or how much it makes in annual sales. 

Dixon called on investors to put their biases aside and see companies for their basics: balance sheets, innovation strategies and business goals, not the skin color of its teams.

“My skin color shouldn’t be a part of the conversation, period,” she said. “And yet, it still is, right?”

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How the job of Amazon delivery has changed with Rivian’s electric vans and routing software

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For the 275,000 Amazon drivers dropping off 10 million packages a day around the world, the job can be a grind. But a lot has changed since drivers in 2021 told CNBC about unrealistic workloads, peeing in bottles, dog bites and error-prone routing software.

Among the biggest developments is the arrival of a brand-new electric van from Rivian.

Amazon was a big and early investor in the electric vehicle company, which went public in late 2021 with a plan to build trucks and SUVs for consumers and delivery vans for businesses. Since July, Amazon has rolled out more than 1,000 new Rivian vans, which are now making deliveries in more than 100 U.S. cities, including Baltimore, Chicago, Las Vegas, Nashville, New York City and Austin, Texas.

The partnership began in 2019, when Amazon founder and ex-CEO Jeff Bezos announced Amazon had purchased 100,000 electric vans from Rivian as one step toward his company’s ambitious promise of reaching net-zero carbon emissions by 2040.

″[We] will have prototypes on the road next year, but 100,000 deployed by 2024,” Bezos said at the National Press Club in Washington, D.C., in September 2019. Amazon has since revised the timeline, saying it expects all 100,000 Rivian vans on the road by 2030.

Rivian has faced several challenges in recent months. It cut back 2022 production amid supply chain and assembly line issues. Its stock price dropped so sharply last year that Amazon recorded a combined $11.5 billion markdown on its holdings in the first two quarters.

CNBC talked to drivers to see what’s changed with the driving experience. We also went to Amazon’s Delivering the Future event in Boston in November for a look at the technology designed to maximize safety and efficiency for delivery personnel.

For now, most Amazon drivers are still in about 110,000 gas-powered vans — primarily Ford Transits, Mercedes-Benz Sprinters and Ram ProMasters. Amazon wouldn’t share how it determines which of its 3,500 third-party delivery firms, or delivery service partners (DSPs), are receiving Rivian vans first. 

The e-commerce giant has been using DSPs to deliver its packages since 2018, allowing the company to reduce its reliance on UPS and the U.S. Postal Service for the so-called last mile, the most expensive portion of the delivery journey. The DSP, which works exclusively with Amazon, employs the drivers and is responsible for the liabilities of the road, vehicle maintenance, and the costs of hiring, benefits and overtime pay.

Amazon leases the vans to DSP owners at a discount. The company covers the fuel for gas-powered vans and installs charging stations for electric vehicles.

The company says DSP owners have generated $26 billion in revenue and now operate in 15 countries, including Saudi Arabia, India, Brazil, Canada, and all over Europe. 

What drivers think

In the early days of testing the Rivian vans, some drivers voiced concerns about range. An Amazon spokesperson told CNBC the vans can travel up to 150 miles on a single charge, which is typically plenty of power for a full shift and allows drivers to recharge the vehicle overnight.

As for maintenance, Amazon says that takes place at Rivian service centers near delivery stations or by a Rivian mobile service team, depending on location.

Julieta Dennis launched a DSP, Kangaroo Direct, in Baltimore three years ago. She employs about 75 drivers and leases more than 50 vans from Amazon. She now has 15 Rivian vehicles.

“It’s very easy to get in and out with all of the different handles to hold on to,” Dennis said. She said that some drivers were hesitant at first because the vehicles were so new and different, “but the moment they get in there and have their first experience, that’s the van that they want to drive.”

Baltimore DSP owner Julieta Dennis shows off a Rivian electric van at Amazon’s Delivering the Future event in Boston, Maryland, on November 10, 2022.

Erin Black

Brandi Monroe has been delivering for Kangaroo Direct for two years. She pointed to features on a Rivian van that are upgrades over what she’s driven in the past. There’s a large non-slip step at the back, a hand cart for helping with heavy packages and extra space for standing and walking in the cargo area.

“We have two shelves on both sides to allow for more space,” Monroe said, adding that she’d prefer to drive a Rivian for every shift. “And then the lights at the top: very innovative to help us see the packages and address a lot easier, especially at nighttime.”

There’s even a heated steering wheel.

Former driver B.J. Natividad, who goes by Avionyx on YouTube, says his non-electric van could get very cramped.

“I remember one time I had 23 or 24 bags and over 40 oversize packages and I had to be able to figure out how to stuff that all in there within the 15 minutes that they give us to load up in the morning,” said Natividad, who now works for USPS.

The Rivian vans have at least 100 more cubic feet than the Sprinter and up to double the cargo space of the Ford Transit vans Natividad drove in Las Vegas. Rivian vans are still small enough that they don’t require a special license to drive, though Amazon provides its own training for drivers.

One driver in Seattle, who asked to remain unnamed, was especially excited about the new Rivian vans. He offered an extensive tour of the new driving experience on his YouTube channel called Friday Adventure Club.

He said one of his favorite features is a light bar “that goes all the way around the back.” He also likes that the windshield is “absolutely massive,” the wide doors allow for easy entry and exit, and the cargo door automatically opens when the van is parked. There are two rows of shelves that fold up and down in the cargo area.

There’s also new technology, such as an embedded tablet with the driving route and a 360-degree view that shows all sides of the van.

Mai Le, Amazon’s vice president of Last Mile, oversaw the testing of the center console and Rivian’s integrated software.

“We did a lot of deliveries as a test,” Le said. “As a woman, I want to make sure that the seats are comfortable for me and that my legs can reach the pedals, I can see over the steering wheel.”

She demonstrated some of the benefits of the new technology.

“When we start to notice that you’re slowing down, that means that we can tell you’re getting near to your destination,” she said. “The map begins to zoom in, so you begin to find where’s your delivery location, which building and where parking could be.”

The new vans have keyless entry. They automatically lock when the driver is 15 feet away and unlock as the driver approaches. 

Workers load packages into Amazon Rivian Electric trucks at an Amazon facility in Poway, California, November 16, 2022.

Sandy Huffaker | Reuters

Cameras and safety

Above all else, Amazon says the changes were designed to make the delivery job safer.

A ProPublica report found Amazon’s contract drivers were involved in more than 60 serious crashes from 2015 to 2019, at least 10 of which were fatal. Amazon put cameras and sensors all over the Rivian vans, which enable warnings and lane assist technology that autocorrects if the vehicle veers out of the lane.

Dennis mentioned the importance of automatic braking and the steering wheel that starts “just kind of shaking when you get too close to something.”

“There’s just so many features that would really, really help cut back on some of those incidental accidents,” she said.

Amazon vans have driver-facing cameras inside, which can catch unsafe driving practices as they happen.

“The in-vehicle safety technology we have watches for poor safety behaviors like distracted driving, seat belts not being fastened, running stop signs, traffic lights,” said Beryl Tomay, who helps run the technology side of delivery as vice president of Last Mile for Amazon.

“We’ve seen over the past year a reduction of 80% to 95% in these events when we’ve warned drivers real time,” she said. “But the really game-changing results that we’ve seen have been almost a 50% reduction in accidents.”

As a DSP owner, Dennis gets alerts if her drivers exhibit patterns of unsafe behavior. 

“If something with a seat belt or just something flags, then our team will contact the driver and make sure that that’s coached on and taken care of and figured out, like what actually happened,” Dennis said.

That level of constant surveillance may be unsettling for some drivers. Dennis said that issues haven’t come up among her staffers. And Amazon stresses it’s focused on driver privacy.

“We’ve taken great care from a privacy perspective,” Tomay said. “There’s no sound ever being recorded. There’s no camera recording if the driver’s not driving and there’s a privacy mode.”

Amazon says the cabin-facing camera automatically switches off when the ignition is off, and privacy mode means it also turns off if the vehicle is stationary for more than 30 seconds.

Safety concerns extend beyond the vehicle itself. For example, an Amazon driver in Missouri was found dead in a front yard in October, allegedly after a dog attack.

Amazon says new technology can help. Drivers can choose to manually notify customers ahead of a delivery, giving them time to restrain pets. Another feature that’s coming, according to Le, will allow drivers to mark delivery locations that have pets.

Natividad said he had multiple close calls with dogs charging at him during deliveries.

“You customers out there, please restrain your dogs when you know a package is coming,” he said. “Please keep them inside. Don’t leave them just outside.”

Optimizing routes

Providing drivers with more efficient and better detailed routes could improve safety, too. Drivers in 2021 told us about losing time because Amazon’s routing software made a mistake, like not recognizing a closed road or gated community. In response, they sometimes tried to save time in other ways.

“People are running through stop signs, running through yellow lights,” said Adrienne Williams, a former DSP driver. “Everybody I knew was buckling their seat belt behind their backs because the time it took just to buckle your seat belt, unbuckle your seat belt every time was enough time to get you behind schedule.”

Amazon listened. The company has been adding a huge amount of detail to driver maps, using information from 16 third-party map vendors as well as machine learning models informed by satellite driver feedback and other sources.

One example is a new in-vehicle data collection system called Fleet Edge, which is currently in a few thousand vans. Fleet Edge collects real-time data from a street view camera and GPS device during a driver’s route.

“Due to Fleet Edge, we’ve added over 120,000 new street signs to Amazon’s mapping system,” Tomay said. “The accuracy of GPS locations has increased by over two and a half times in our test areas, improving navigation safety by announcing upcoming turns sooner.”

Tomay said the maps also added points of interest like coffee shops and restrooms, so in about 95% of metro areas, “drivers can find a spot to take a break within five minutes of a stop.”

In 2021, Amazon apologized for dismissing claims that drivers were urinating in bottles as a result of demanding delivery schedules. Natividad said he occasionally found urine-filled bottles in his vans before his shift in the mornings.

“As soon as I open the van, I’m looking around, I see a bottle of urine. I’m like, ‘Oh, I’m not touching this,'” he said.

Pay for Amazon drivers is up to the discretion of each individual DSP, although Amazon says it regularly audits DSP rates to make sure they’re competitive. Indeed.com puts average Amazon driver pay at nearly $19 an hour, 16% higher than the national average.

Natividad started delivering for Amazon in 2021 when his gigs as a fulltime disc jockey dried up because of the pandemic. He liked the job at the time, generally delivering at least 200 packages along the same route. However, during the holiday season that year, he once had more than 400 packages and 200 stops in a single shift.

“Towards the end of my day, they sent out two rescues to me to help out to make sure everything’s done before 10 hours,” he said.

Amazon is working to optimize its routes. But it’s an unwieldy operation. The company says it’s generated 225,000 unique routes per day during peak season.

Tomay said the company looks at the density of packages, the complexity of delivery locations “and any other considerations like weather and traffic from past history to put a route together that we think is ideal.”

There’s no one-size-fits-all solution.

“Given that we’re in over 20 countries and every geography looks different, it’s not just about delivery vehicles or vans anymore,” Tomay said. “We have rickshaws in India. We have walkers in Manhattan.”

In Las Vegas, Amazon held a roundtable last year for DSP owners and drivers. Natividad says he spoke for 20 minutes at the event about the need for Amazon to improve its routing algorithms.

“I think they should do that probably once a month, with all the DSP supervision and a few of the drivers, and not the same drivers every time. That way different feedback is given. And like seriously listen to them,” Natividad said. “Because they’re not the ones out there seeing and experiencing what we go through.” 

Natividad didn’t get to try out the routing technology in the Rivian vans before he left to deliver for USPS in July. He’s excited that the postal service is following in Amazon’s footsteps with 66,000 electric vans coming by 2028.

Amazon, meanwhile, is diversifying its electric fleet beyond Rivian. The company has ordered thousands of electric Ram vans from Stellantis and also has some on the way from Mercedes-Benz.

Correction: Julieta Dennis launched a DSP, Kangaroo Direct, in Baltimore three years ago. An earlier version misspelled her name.



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