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Hello, everyone.

I am one of your co hosts for today's interview, Chris Walton.

And I'm Anne Mazinga.

And we are pleased to introduce Simeon Siegel, the managing director and Senior Analyst for Retail and E Commerce at BMO Capital Markets.

Simeon, thank you for joining us and welcome to omnitalk.

What's up, guys?

By the way, you listen to it all the time.

Actually, seeing that that's not pre recorded and watching you do that intro, wow, I am impressed.

Well done.

Thank you, man.

Thank you.

Yes, we've been, we've been circling you for a while now.

I think we finally were able to make the calendars and the stars align to get you on the show.

And, and this new series that we're debuting also has helped to make that happen.

So, yes, thank you very much for being here.

I am pumped.

Here we go.

Well, Simeon, you are everywhere.

You were just on one of my favorite podcasts with Lauren Sherman, talking about the state of the industry.

But for those who might be meeting you for the first time, will you tell us a little bit about your background and your role and what a managing director at BMO Capital actually does?

When I figure it out or when someone else figures that, maybe you can let me know.

And totally.

Lauren's the best.

Well, third best.

Third best.

You two are the best.

Lawrence, thank you.

I have the distinct pleasure and privilege.

And I mean, that sounds sarcastic, but I mean that to be able to watch the beauty that is retail.

And I'm supposed to be somewhere in between.

I'm supposed to be either an advisor or a liaison or a publisher or just someone who gets to have fun with friends like this.

In between the smartest retail operators and the smartest retail investors.

And so my job is to Fuse those worlds and to help bring capital to those that need it and maybe keep some away from those that shouldn't get it.

In the meantime, we get to have fun in a sector where it's always changing, which we know.

And figuring out that pulse, figuring out when we can be rational people and irrational consumers, that's, I think, the magic.

And somehow that sandwiched into the title managing director.

Well, and Simeon, tell us a little bit about your background too.

Like how did you become this person that's really the face of.

Or the liaison, I'll say.

I'll use that word instead.

But the liaison between what's going on with the retail industry and then the investors who are looking very carefully at that.

So there's the real version of the origin story, and then there's the version I've fine tuned for the podcast origin.

Story, the one that sounds better.

Okay, yeah, go with that one.

Much better.

Like that one's like, you bring out the tissues and you just get ready for the Hallmark channel.

So the first one is the real one is totally luck.

So I was in school, someone said, hey, why don't you do this?

I tried it.

I loved it.

It was a beautiful fusion, beautiful fusion of quantitative and qualitative, which is what I love.

So you take the quantitative, the numbers behind what actually make these businesses run.

You apply that to businesses that appeal to humanities, all the different human psychology, things that make us decide what we're going to spend our hard on, cash on.

And that's a great blend.

I happen to look into it.

I happen to love it.

I stuck with it.

And here we are.

The more polished version is my grandfather, after coming back from landing at Normandy, came back to a tiny town in Pennsylvania, opened up his own shoe store called Morris Levine Family Shoes.

The nicest man in the world, but the most perfect retailer extraordinaire.

I mean, understood that retail is about people, not about products.

And the lore, I have no idea if it's true, but it's one of those where you don't want to find out.

The law was he knew everyone's shoe size in his town.

And people would come in and sit in his bunny chair, get sized, get a pretzel from the giant Costco sized tub, and you just walked out from that shoe store feeling happier.

And.

And so I grew up amongst retail, didn't realize I was going to be going full circle.

And my one regret in life is not being able to share that with him now and being able to have this conversation with him now because the Amazing conversations on that.

I was fortunate to have plenty of time with him.

But the amazing conversations I'd be able to have him from an industry perspective, those are one of the.

Those are the conversations I play around in my head and those are the ones that I miss.

My oldest son is named after him.

And the best part of this story is the person that he effectively sold his store to to his protege, to his apprentice, ended up taking the store, built it into a 20 store chain, was inducted into their county's hall of fame last year, and he invited us to go see him.

So I brought my son to that announcement and up there, Todd Lewis, the most amazing person out there, thanked my grandfather and then brought it grandfather to his great grandson who was sitting front row.

So that's, that's the more special I wish it was.

Yeah, everything I just said was true, except realizing that's how I got here.

But you know what?

Sometimes the universe makes it work.

Yeah.

Well, way to tear at the heartstrings right at the beginning of the podcast.

I know.

Nicely done.

I know you did.

I do.

I do want to ask you though too, for the audience too, because, you know, I'm curious, what do you spend your day doing too?

Because we see you on TV a lot, we see you on podcasts a lot.

What is, what is the actual day to day of your job look like for those that maybe aren't as familiar with what someone in your role does?

So I love clipboards and I've got, I've got them all over.

I love papers that are marked and.

Right.

I.

So I try to.

That Fusion.

I really do believe that's the right way to do this.

I think that there's, there are people that do what I do, that analyze.

So, so I, I kind of joked around a little bit, but my job is to analyze the stocks, the publicly traded companies, and then decide issue, buy, hold, sell ratings and effectively advise investors whether they should invest in individual publicly traded companies.

The sector I happen to choose is retail.

You can do what I do for anything.

You can do it for biotechnology.

You can do it for financials.

You can do it for tech companies.

You can do it for media.

Every, every sector is blessed and cursed with having some version of Simeon effectively throwing darts and analyzing and critiquing their job from the sidelines.

Multiple versions of Simeon too, right?

Much better version.

But what I joke around with, what I think is that.

I think that the nature of our sector, the sector that we've all picked is.

It's such a difficult sector to either analyze or operate or invest in because it's such an easy sector.

Whereas something like biotechnology is probably a really easy business to run because it's such a hard sector.

And that sounds counterintuitive or dumb, but what I mean by it is we are in a sector riddled with the fallacy of accessibility.

We are in a sector where we are consumers.

And I'm pretty sure no one ever woke up on a Monday and said, God damn, I tried this great drug over the weekend, let me invest in it.

But we do it all the time.

When it comes to consumer products or food and restaurants or trips and cruises, we bring our anecdotal baggage.

And so my job, the way I view it, is to assess that anecdotal baggage is to understand what the consumer is going to want to buy, because we are all consumers and therefore when it comes to want based shopping, we are irrational.

But then the second half of my job is to say, okay, companies like Under Armour, Victoria's Secret get knocked for being dead companies.

That, that is the view.

They are dead businesses.

The best part of my job is I stare at numbers.

Numbers tell me the truth.

Numbers can't lie unless they're fraudulent.

And so when someone tells me Under Armour's dead and I see that it's $6 billion of revenue, I know it's just not true.

Now, it might be sick.

And revenues tell me how big a brand is, but margin will tell me how healthy it is.

And so it might not be healthy, but it's not dead.

And so I splinter my day into both figuring out that qualitative understanding what the latest trend is going to be, or at least trying to.

But then the other 75.

So if half of my day is there, then 70.

The other 75% of my day, for the math, 75% is rooted in playing with the numbers and understanding.

Got it.

And then.

So fuse that and then doing fun hangouts with friends.

Yeah, right.

Awesome.

Awesome.

All right, so.

So the first question we want to ask you then, now that we got that out of the way, is how would you sum up 2024 and what's your take on 2025 as we start the year?

So summing up 2024 in one word is over.

It is over.

Over.

Here we go.

No.

So thank God.

So I think that.

And, and 20.

This will be a good.

It's, it's a fun question, actually.

I didn't, I didn't.

I haven't thought about it.

But 2020-2021-2022-2023 were all cluster years.

We were talking about macro.

It was their stimulus.

There's supply chain issues, there's overabundance of product, there's a lack of product.

It didn't matter.

As an entity, the industry was all playing the same game.

There were no winners and losers in 2024.

That wasn't true anymore because in 2024 we returned to a more normalized environment.

And what does that mean?

It means, I mean 2 of retailers and brands favorite words or release favorite words are market share.

Because in a normal business, there are winners and there are losers.

And that's what 2024 was.

2024 was a return to a sense of if you're really good, you're going to be able to sell a lot of product.

If you're not, you're going to see that go the wrong way.

If you overstretched in your Nike, you're going to have to recreate your brand.

But on the other hand, Hoka and On are doing a beautiful job.

If you're finally reaching a threshold of price capping on the luxury side, like LV or watching Gucci and you all of a sudden we think, okay, luxury is tapped out.

Well, Hermes and Prada are telling us not so much.

And so you see it across the board and there's winners and losers in every sector.

And that's how I would characterize 2024 leading into 2025.

Hopefully that's the resumption.

Hopefully that's what we walk into.

Because I just told you the past three years were all about macro.

And you should reply to me immediately.

Well, isn't everyone talking about interest rates?

And isn't everyone talking about macro?

And isn't that always like, yeah, we always talk about macro.

The question is, is that really what's driving?

And so with a new presence, obviously tariffs are going to come up a lot.

There's going to be a lot of different pieces.

I'm sure we'll get to all of these things.

But I think economists work really apologize to any economists who are watching and listening.

I think economists work really, really hard to predict the past.

And I think that right now we know that this beautiful thing called inflation and deflation, these big words, they just mean higher and lower prices.

And you know, the two of you know it more than ever, like retail, we're going to find out if prices are higher or lower well before the economists tell us we're in an inflationary or deflationary period.

So the micro, I think, is what we Want to focus on.

Well, and Simeon, you know, I've, I've been on earnings calls.

You ask brilliant questions.

I'm curious based on kind of the, the table that you just set as you're listening to upcoming earnings calls or you're reading through companies filings, like, are there specific things that you're looking at to really kind of separate fact from fiction based on what you're hearing people talk about in the media?

And then when you said, you really look at the numbers and that's what tells you, you know, the health of the company.

Is there things that you would call out for the audience to really, you know, be listening to as we start to hear earnings reports from, you know, Q4 last year.

So I love that question, but beforehand we need to throw out the rules here.

You guys are being way too nice to me.

I asked some, plenty of dumb questions.

So I, I appreciate it, very kind.

But you got me on you already.

You'll get me the next time too.

You do not need to be this nice to me.

But, but I appreciate the friendship.

That said, I, I love the question because it is tr.

It is basically, I like to think I'm a moderately nice person, but when it comes to these, when it comes to the analytical part, I get skeptical.

And so I do believe my job is to figure out or, or just I'm pulling effectively polarized to try and figure out how much of what you're saying is true versus how much is propaganda, how much is marketing?

Because let's be honest, we are in a sector of marketing.

We're supposed to market to the consumer.

By the same token, these companies are supposed to market to us.

Yeah.

So they tell stories to us as well.

My.

Without giving away what I believe to be secret sauce, but it's not all that special, so I don't mind giving it away.

I generally try to ask three questions, like go three questions deep because most people prep for one, maybe two.

They don't prep for three.

And so if your logic falls after the third question, I just know it's not true.

And if it's not true, it's either a problem or you're being conservative.

Because one of the knocks, there's many knocks.

One of the knocks on what I do is that we are lazy.

And so what you want to do is you want to convince.

You want to sell us.

Right.

You want us to go along with whatever the trend is going to be.

And ultimately you want to under promise and over deliver.

You want to tell us that you're Going to do five cents and do seven and oh, my God, those two cents, it's going to take your stock so much higher because how could you possibly do two more cents?

It's amazing.

Anyway, rinse and repeat.

So I would like to figure out, are you really going to do 7 cents?

Right.

So if you're telling me a story that is okay, we can take it for granted or we can ask another question.

Tariffs, since I brought it up before, we know, based on the classroom, that if a company has higher costs, they're going to pass them on.

Great.

So costs are going to go higher for every consumer.

Okay.

But we also know that consumers are pushing back on, on in general pricing because they don't think they need to pay that much.

And so promotions are coming down.

Wait, how do we make those two things work?

And so it's just taking that step back and saying, okay, there are certain products that, that companies will certainly be able to pass along costs for because they're already charging full price.

Right.

But if you didn't want to pay full price for that pair of denim yesterday, as soon as the tariff comes, when it's raised another 30.

But like, I'm sorry, I don't think you're getting that price simply because.

And so that's the question where I'll push back and ask.

And ultimately where I'll probably get to is either the question, the conversation will stop because it just we weren't prepped, or they weren't prepped to have that question asked, or we'll realize that, okay, what you're really going to do is absorb the margin.

You're going to try and share it, but feel the pressure yourself, or you're going to figure out a way to cut corners.

Right.

And so that's where the really interesting conversations happen.

And so what I really try to do is I try to not buy into again, try and leave my own anecdotal baggage at the door.

I have plenty of it.

But basically to say, does this logic hold and does it work with the numbers?

I really believe that if everyone knew the incremental sweater that was going to force you, that if you sold that one extra sweater, it was going to force you to mark everything down before at 25%, who would sell that sweater?

No one would sell that sweater if they realized that everything before it.

Because you can't price on the marginal unit.

You don't get to say, no, the 112th sweater will be 75, but everything else 100, you're going to lose it.

All.

And if you knew exactly which pair of shoes that was or exactly what sweater, I don't think most people would sell it.

But we don't have that.

That's not a real.

That's like, that's an imaginary view.

But I think that most people, once they go too far, then instead of rather not juicing, but instead they just feel like they need to hit expectations and they need to constantly grow.

That's where we get to these scenarios where these brands just get too large, but they're just not healthy.

One of the things I love doing, because I'm a weirdo but.

But one of the things I love doing is charting large brands against their margin rates.

And so basically just finding what are my really big businesses that just don't make a lot of money.

Because those, if they want to change, are actually the easiest path up.

I think Under Armour is going through.

I alluded to Under Armour.

I think they're going through it right now.

But if you have, we're talking about shirts and shoes here.

We're not talking about some huge capital intensive business, some big technology, some big, like you sell billions of dollars of stuff, you should make a lot of money on it.

And if you're not, sell less, charge more, you'll make more money.

It's Econ 101 got inch.

Okay, so interesting.

So tell us more.

I want to understand that more actually.

So tell us more about why you just said that.

Like, explain that to the audience more because there was a lot there in what you said and it was very quickly said too.

So explain it a little bit more detail.

Yeah, absolutely.

So I think every second grader in there is just born knowing if you sell, if there's too much of something, it's just not cool.

Right?

That's just reality.

Right.

It's the most simplistic idea out there.

And yet we then spend decades trying so hard to unlearn that we introduce terms like D2C versus wholesale, global versus not adjacencies, diffusion, product.

Like no, if your brand is too overstretched and it doesn't have any segmentation, at some point you're going to sell things that's going to ruin and deteriorate the quality of your brand.

And there's different ways to do it.

If you're, if you have a wholesale partnership, you can stretch your payment terms and so you're selling the same product but you're getting revenues a little bit later or the, sorry, revenues are happening, you're getting cash a little bit later.

So that's one way and try and stretch and to convince yourself you're selling things when you're not.

If you don't and you just have your own product, you can mark it down.

So we'll use your juicing sales.

I can just say I want to sell whatever pair of pants I'm going to mark them down 25%.

I've never done that before.

If Lululemon, I believe Lululemon could triple their business next year if they took their line leggings and their ABC pants down to $40 and then they would die the year after that.

But in that one year they would grow tremendously.

So that's the second way.

A third way is you go lower income or entry level, lower price product.

So think Burberry in their scarf.

Long time ago.

Right.

There's a lot of things where we see question whether Lulu's doing it with their belt bag.

So you're not actually reducing the price of your product, but you're introducing a lower price product that can over distribute CK1.

Right.

So Calvin said you watch that CK logo go much further than it would go with what they traditionally sell.

But you're not discounting it.

But you are right?

You're stretching the brand.

And very politely at the beginning said to me, you're everywhere.

Deep like in my heart.

I cried when I heard that.

Right.

Because that means I'm not scarce.

And so there's a part of it like you want to maintain, you want to not stress.

You are like I'm falling prey to the same thing, I guess and chasing my own incremental sweater.

That's what we do as humans.

We're not hardwired to stop.

But sometimes take the reverse of that sweater conversation.

You work on elevating your brand, you rewind and you sell fewer sweaters and all of a sudden you can charge more for them.

So you walk into econ.

I don't know if it's 101 or 112.

Who, who knows?

Again, we'll stick with the 125% of my time that I gave you before.

Price elasticity is the term.

And so if you have the wherewithal, which is hard, it's so.

I understand this.

It's so easy for me to say because all I'm doing is typing or writing on my clipboard.

But it's much harder to do.

But there we've seen it.

We've seen it happen a lot.

And you know what?

During COVID l brands when they owned Victoria's Secret Bath and Body Works was.

I think I'm going to throw out numbers.

I don't know if they're right, but I think the seventh and fourth best stock in the S and P.

So someone fact check me, please, and write to me and tell me that I'm wrong.

The revenues were down.

Their operating profit dollars were up.

And so it's this idea that there are times where it's hard to believe that revenues are everything.

Right?

We talk about you want to grow or die.

I mean, like, everyone talks about revenues, but I think revenues are a lagging indicator, not a leading indicator.

I think the quality of sale will always, always, always inflect before the actual sale, good and bad.

I think you'll watch the margins tip before the revenues tip because you're forcing something.

And I think when a business on the upturn, I think Bath and Body Works will see its margins improve and stabilize before its revenues follow.

And so that's what I try to watch.

I try to watch for quality of sale changes because I think they will always herald the revenue change.

Wow, this is really great stuff.

All right, so with that said, with that as the backdrop, this is a great backdrop, too.

What do you think is the biggest issue or issues even facing any retail C C suite as we start this year?

What, what, what, what, what does the average C suite.

I'm asking you to conglomerate a lot, but what is the average C suite need to be thinking about to be successful as they head into 2025?

All right, you're hitting a favorite topic of mine.

So good.

In the spirit of how I.

In the spirit of how I framed it before, I'll give you two answers.

I'll give you the easy answer, which is tariffs.

Right?

That's like the easy class.

What is the one.

That's right.

What I think the real answer is, and it deletes 2025.

It's irrespective of the time.

Like, I don't care about what year.

This, I think, is what every core C suite grapples with and they don't realize.

And it's, it goes to the heart of everything I believe in.

I think the answer is subjectivity.

I think that.

I believe as, as we talked about before, this sector is beautiful and glorious and fun because we all know it, because it's accessible.

Accessible, sorry, but that's also its danger.

And so if the whole point of this sector is to convince people that spend every waking minute of their life, hopefully not, but a lot of their time working to generate income, to have dollars for their Family, like, they work really hard to earn these dollars.

And 90% of the job that our companies are supposed to do is convince people to part with those dollars.

You need to embrace and internalize and, dare I say, weaponize marketing.

You need to tell a story.

You need to appeal to human rationality.

That's great.

The problem is you also have to remember that you yourself are a consumer with the same level of irrationality.

And so when you buy into that story, when Peloton drinks their own Kool Aid and believes, hey, you know what?

I'm having a great two years because everyone's trapped at home and it is a great business and I love the product and I have it, but does that mean that we should invest behind it as if it's going to grow forever?

That's the piece where subjectivity gets in the way.

The greatest problems I've personally seen from a lot of my C Suite friends is when they start viewing themselves as the customer, which is what everyone tells them they're supposed to do.

And so I'm not saying discount that, like, obviously understand your customer, but when you're in that corner office, you're not the customer.

You might be the corn, you might be the customer.

And great if you're the customer when you walk out that door, but when you're actually making those decisions, you need to know the customer and you need to know them better than they do, but don't be them.

And I know that sounds trite, but I just think subjectivity is where most things go wrong.

And so use your insider experience.

Understand all that beautiful insight that you have that I don't as an outsider, but know how to embrace and take that step back and say, okay, now that I have all the data, what do I want to do with it?

Sabine, are there any examples of C Suites where you've seen them deploy tools or deploy thought processes in a way that helps them avoid that subjectivity trap or helps them avoid drinking their own Kool Aid?

If I put my own words into that.

So, listen, what's interesting is because we're talking about it right now, I think Under Armour is in process of doing it.

I think that Plank ran this business twice.

I think was the beacon and the per.

Like, he was paradigmatic.

Grow or die, right?

Kevin Plank was, I will grow, I will put my logo and everything.

I will keep stretching, I will win.

Came back.

And this latest go around, his new mantra is actually achieve more by doing less.

That rhymes with the comment I made before of sell less, charge more, make More money.

And so you wonder what changed?

Well, could be any number of things.

I mean, he called it wisdom of age, but he also was detached.

And so I think this idea of taking a step back and taking a breath and actually reevaluating, I think it's okay to have a different view.

And the stock is starting to move with it.

We're now two quarters in, where revenues are down double digits, but gross margins actually up over 100 basis points, up a percentage point each quarter, which means they're moving in that right direction.

And you're watching things like they closed one of their three DCs, not one of 21 of three.

And that was opened in 2013.

We can all rewind back the years where people loved, where we all loved Under Armour.

It was the growth story retail.

Those were the years.

Because he built a dc believing he was an infrastructure at large, believing they were going to be a $10 billion business.

Now that you're watching them close it, I think you're seeing the signal.

I'm a huge proponent.

Watch how I spend.

Don't listen to what I say.

Which.

Which shouldn't sound surprising given everything we're talking about.

And so I do think it happens.

I think every time you and I, I think.

I think every time we watch a collective turnaround, it's likely because someone took a break.

It's either because they lost their job and it's a new CEO making that choice fresh, or it's because they took this fresh look.

It's because they step back right by definition, and said, hey, what I was doing before wasn't really working.

Nike and the two of us talked about this a bunch over the years.

My team did really fun work around D2C versus wholesale.

We wrote a report three and a half years ago called D2C is not all it's Cracked up to Be.

I got into a lot of fight three and a half years ago when everyone wanted D2C, and now people are.

Are on the other side.

But you watching Nike come to the realization that, hey, you know what?

We made that decision.

We don't have to die by it.

So I think that there's, again, there's.

There's probably a lot of instances that you and I that we just don't even hear about.

Right?

I would look at any one of these terms and say, okay, what did someone just change?

Why did they change their perspective?

And I would guess more often than not, it's because they finally they took a breath and strategically detach themselves.

Yeah, I Mean Simeon based on that rubric or that.

That way that you're taking a look at these companies and analyzing kind of where they're headed based on where they're.

They're spending their money, not what they're telling us in their earnings calls.

Are there any retail stocks that you like or.

Or don't like or maybe cautious about going into 2025?

So I normally wear my emotions and my stop calls on my sleeves, so this one shouldn't come as a surprise.

But Under Armour right now is one of my favorites.

Okay, figured as much.

I think they're in the middle of doing this and so I'm not very free with compliments, but I think what they're doing is great.

I really do.

I actually to give because I just implicitly knocked them.

I should also flag that in May we put out a report about Peloton.

When the stock was around $3.

The title was something to the effect of here's how we would generate 500 million of EBITDA of earnings basically of earnings and outlined what they could do to take a different look there you can see it now.

They're actually doing it.

And it was a very similar strategy.

It was they have a great business.

They have 3 million subscribers paying 44amonth to get on a piece of equipment or not in their own home.

And it flowed through at incredible margins.

And so what I tried to help them, what I tried to put out there was focus on yourselves as a brand, not as a service and recognize what we all know.

A brand is not supposed to democratize for everyone.

A brand is supposed to make its group of people, it's tribe, feel great and honestly make the people outside feel a little jealous.

You can't say that.

That's not part of the marketing.

That's what you're supposed to do.

And so we're starting to see a little bit of that.

And Peloton stock has responded in kind.

So I think they are going through again, it was a management change, but I think they're going through one of these pivots as well now.

But I will say I don't wake up trying to be controversial.

I don't wake up trying to like stick my neck out on the riskiest calls.

I also can like a company like tjx.

I also can like a company, I was about to say like Nike, but I guess there's controversy there.

But TJX is a business where the way that I've been thinking about it from a pure stock perspective, my, my risk framework is I either want to take risk on the business, right on Under Armour, I want to believe or make a bet that the company's going to do well or not, or I take a risk on the multiple on the valuation, on what people want to pay because stocks are driven by the numbers, by the earnings and then what, how much, how many years, effectively worth of those do you want to pay for right now?

Companies, good companies cost a lot, a lot, a lot.

And so when I look at tjx, I feel great about the business.

I don't think it's a surprise.

I don't think I'm telling it.

There's no.

People are going to be very polarized by my Under Armour comments.

They're not going to be polarized by the fact that I like tjx, but it's expensive.

And so by owning TJ what you like, you have to understand you're taking a risk that the market's going to say, hey, you know, what do I want to pay 30 times?

Which basically means you don't get paid back for 30 years.

It's not really what it is.

There's a discount, there's a lot of different.

But 30 times earnings means I'm saying I'm going to buy it now so that I can get on the 31st year I'm making money.

That's a lot of time.

But, but I'm okay with that because things like Costco are 60 times and Nvidia is whatever it is.

And so that's that dynamic.

And so I have to like, bifurcate because the part.

One of the fun parts of my job is I speak to all different types of investors.

And there are certain investors that want the compounders, that want the TJX of the world, and they're willing to pay whatever it costs to get them.

And then there's others that are willing to play in the dirt with me.

And that's where the Under Armour.

So that's my, my extremes.

That's kind of how I try and fragment my own framework.

Got it, Got it.

Okay.

And so, so now, so, so we tried to come up with something fun to close out this interview then and going to kind of play off that a little bit.

And so I'm gonna, I'm gonna, I'm gonna give you a list of companies and I just want you to say the first thing that comes to your mind when I say the company's name.

Okay.

And it could be whatever you want.

Yeah, it's dangerous, but it's gonna put you on the hot seat a little bit.

You said we were nice in the beginning, so now we're, now we're turning up the heat a little bit, Putting the screws a little bit.

I like it.

So, all right, so let's start with what.

Let's start with one we haven't talked about yet again.

First thing that comes to your mind, let's start with Gap.

Turnaround in potential.

There's dashes.

So that's one word.

That's one word.

Turnaround in potential with dashes.

Because I.

With dashes.

Okay, awesome, awesome.

And explain a little bit, just a little bit more.

I should have just said, Mickey, what do you mean explain?

You said one word.

Hot seat, action packed.

Well, I want you to start with one word, but then I could ask you whatever questions I want to follow up.

This is our show, Simeon.

We make the rules.

We don't follow them either.

And I make them up as I go along.

I like it was.

You were being nice at the beginning.

I get it now.

Okay, well, well played.

So I think Richard Dixon is doing a very impressive job at telling us a nice story.

And we have to figure out what the legs as do we going to be.

And so I think Gap Inc.

The entity, not the brand, owns a lot and it owns one of the largest.

Nike is the largest footwear apparel brand in the history of time.

Old Navy by certain measures is number two.

And so you have a business that's effectively its own department store.

And we talk about Gap, but the reality is the vast majority of that entity's business is Old Navy.

And so understanding Old Navy, how to make more money.

Old Navy, where does that low income consumer play?

How important is brand?

There's a lot of really interesting stuff in there.

They need to keep that going.

I think they want to.

The goal for that part of the business, which is again, the vast majority of the business should be to make more money on Old Navy.

The Gap business, which is much smaller but obviously much greater halo, and it's the one we all talk about and is actually what their ticker is.

So the company is known now as Gap.

It was gps.

Now they flipped to Gap.

That's a story.

That's a business where we look at Abercrombie, we look at Eagle, we look at all these things that are having their, their moment in the sun.

Can you recalibrate?

Can you bring us back to mellow yellow days?

Can we.

Can Gap mean something again and command full price?

Because again, going back to the point, Gap still does billions of revenue this is not a broken business, but its margin up until recently had been effectively lying in the gutter.

And so that's the turnaround in progress where we need to find out does this continue?

Can you rekindle the gaps People's love for Gap, can it have that brand resonance and get the profitability at the same time that what really needs to happen is Old Navy just needs to be making more money.

I love the mellow yellow drop too.

That was, that's always my favorite ad campaign to go back to for nostalgia.

Very nicely done.

Very nicely done.

All right, next one.

This is one you've mentioned but haven't said that much about yet.

Victoria Secret first thing that comes to mind.

By the way, growth mindset is the first thing that comes to mind because my kids are teaching me you say the word yet at the end of every sentence because we're not there yet.

It's all about growth mindset.

So I love that.

And we can segue into Victoria's Secret, which is all about growth mindset right now.

Right.

It's taking a business that also phenomenal brand, let's say I'm trying to figure what the right word I want to say should be.

Relevance but phenomenal brand reach.

The question is brand equity.

And so exactly the same situation in, in my parlance, Victoria's secret has a mid-30s, 30ish percent gross margin.

So it's in the 30s.

So like whether it's mid-30s or 40, that's too low for a business that is selling intimates cloth.

Again, any version of apparel, they should be making more money on that.

But they are a huge business before you even think about pink.

And so here's a business that like Under Armour, like if on my, my beautiful nerd out matrix, they're right on the bottom where they were a very big business with five plus billion dollars and not making very much margin.

That's now changing.

And so there's a new, so Hillary super.

There's a new CEO in there.

I think she's going to go after pink first.

I think she's going to say, well pink has fallen the furthest and there's a greatest opportunity a la the conversation we just had on Gap.

Like that's a business that probably gets a little bit more apparel centric, a little bit more into fashion and then rises price.

I think that it's a business that should have a lot of potential to potentially sell less and charge more and make more money because that you should be able to drive it.

I think they how Do I know?

Because they did it during COVID Right.

We alluded to the fact that they were the best stock in the S&P7 fourth again, I think for two years running.

But then they started chasing promotions again.

And so what I'm hopeful.

So the stock has been beautiful.

We have again, a buy rating on the stock.

So it's company I've liked a lot.

I would love to believe that there's just a tremendous amount of opportunity in there, but it's more so I think revenue.

Top line is on pink rather than Victoria's Secret.

I think Victoria's Secret.

I want to see margin.

I want to see brand and elevation enhancement.

Makes sense.

Makes sense.

All right.

One that I'm surprised you haven't mentioned yet.

Abercrombie.

So, yeah, so there's.

I don't actually cover Abercrombie, which is.

Which is the reason.

So.

So I used to.

I don't.

But I look at it.

So I will.

I will dodge that because of regulatory concerns.

And I'll flip to American Eagle.

Just.

Okay.

That was gonna be my next one anyway, so that's good.

Okay, so I'll flip to American Eagle, which obviously rhymes with Abercrombie.

And Fran has done obviously, a beautiful job at Abercrombie, which I just can't really comment it on as a stock because I'm not allowed to.

I think that what you have.

Listen, I think a lot of this goes down to size.

So I told.

I mentioned my team.

They are excellent.

One of the things we've done is we found there's a level where brands ubiquitize.

I used to say peak, but that's wrong.

They.

They go higher, but then they come back down.

So they.

That whole second grader comment of where to brand stretch, we found.

And this is interesting, stumbled on it.

This was not a hypothesis.

We stumbled on it, but found that brands in the U.S.

peak or ubiquitized, keep me need to retrain myself at three to four billion dollars.

They go higher, but then they come back down.

Ask Michael Kors, ask Gap, ask Coach, ask, like Ralph Lauren.

All these businesses went too high and came back down.

And what it means also though is if you're a small business, you have an opportunity.

Doesn't mean you're guaranteed to get to three, but you have an opportunity to get there.

Abercrombie in the US As a brand is much smaller.

And so American Eagle keeps bumping up against that three.

And I think the reason I say this is I think what we need to do is I think we need to remember, I think we conflate too easily revenue growth rates and revenue dollars.

And I think you look at a business like Abercrombie that has a tremendous growth rate.

Right.

Birkenstock company I very much love.

I think they're doing a beautiful job is putting up 20% revenue growth.

It's just a smaller business, so they have a lot of room.

But you're able to grow revenues at a much greater percent because you're a much smaller business.

American Eagle keeps hitting that three.

And so I would look at that and I would say, listen, I think that there's an element where obviously new fashion silhouettes trend change.

It trend changes create closet turning events.

And that's great.

But brand resonance, at the end of the day, that second grade rule, it's very hard rule to shake.

It doesn't matter.

It doesn't matter if all of a sudden we're back to a red denim phase with, with the Gap and you need to buy a new red denim.

There's only so much red denim you're going to get before people start saying, hey, that's too much Gap product.

And the same thing, I think, with American Eagle.

I think keep that in mind for Abercrombie and Fish.

Now, to be clear, this is North America and us.

This is not international and it's not a different brand.

So the way to do it is, well, you have Abercrombie and Hollister, you have American Eagle and Airy.

And so now the logical pushback should be, because I told you, you have to ask three questions to find out if people are BSing.

So one of these questions should be, you said companies peak there.

Nike, like, hello.

And it's true.

Right.

I've got my bar chart and Nike on the bar chart.

It's not there.

And in my footnotes, I say, I can't put Nike on the bar chart because you won't be able to see any of the other.

Like, it'll just squash the whole thing.

I have hypotheses, but I think it's all about segmentation.

It's all about brand.

I think part of your goal and your job as a retailer, a brand, is to make sure the consumer doesn't feel like you're ubiquitized.

Yeah, well, and Nike and Abercrombie and American Eagle, they're not necessarily cut from the same cloth either in terms of their business models as well.

So I'd say there's a little bit of a difference there too.

And how I would view them in terms of whether or not that Rubik plays out.

But.

But that actually brings me up to the last one I was going to.

Let me, Let me, Let me write.

Let me write quickly, really quickly.

You're totally.

You're totally right.

But that's the beauty of this bar chart.

Everything.

It applies like, oddly enough, it applies so far to almost everything from Tiffany to Gucci to Abercrombie to Birkenstock to Under Armour to Ralph.

Like, if it's a discretionary brand, I have found this ubiquity level hits.

And so it doesn't really matter on price because if there's.

So Nike's the outlier.

You're saying basically, Nike is far.

Interesting.

That's interesting.

Nike and Vuitton are.

Are the.

Are the outliers.

Got it.

Which is a perfect setup for this last one.

Then.

First thing that comes in your mind and then.

Yeah, let's have you explain it direct to consumer as an idea.

What's all wrapped up in that term?

Dead.

Yes.

No, no, but buzzword.

Buzzword is the right answer.

Yeah.

Past its prime.

Well.

Well, I think it's funny.

I have to give you a lot.

I think buzzword is one.

I think distribution mechanism is really the right answer.

That's all it is, right.

It's not.

D2C is important.

It always has been, it always will be.

But it's not an identity.

Like we start.

It got to the point where we were talking about brands that they were D2C brands like here.

You're telling me very rightly so, that Nike and Eagle are not cut from the same cloth.

And yet companies like Casper and Third Love and I don't know, think of some crazy.

That like probably Ember mug, right?

Like companies that have nothing to do with each other, but because they sold direct, we're all of a sudden the same.

Like, I'm sorry, Abercrombie and Eagle and Nike are dramatically closer to each other than companies that just happened to sell via a website.

But that's not how they became looked.

It was.

Became your identity.

And I think that was the problem.

And so what I would say is D2C is necessary.

Right?

Necessary could be a word as well.

It's not sufficient.

Right.

It's.

It's not who you are.

It's a way to get product to your consumer.

But we need to remember is since the beginning of time, or at least since Disney's Aladdin and that Julianne Fries dish in the Bazaar, like people make, there's an entity that makes Content or product.

There's an entity that absorbs and uses content or product, and then there's a distribution channel in between.

And so there's a role for everything.

But you got to figure out what your role is.

Right.

Are you the creator, are you the consumer, or are you the distributor?

And that's fine.

Right.

But if you're the distributor, you're distributing product like it's just thinking about what it is.

And I think the highest level, because I think this was like the easiest way I synthesized my, that report, I referenced the D2C's knowledge cracked up to be.

I think we got enamored by the idea that if I eliminate the middle person, I make more money.

Yeah.

And I think.

Which is this.

Yeah, I think that was the same issue we saw going back in the early, late 90s, early 2000s.

The same issue.

Right.

And I think what people didn't realize, because again, it was easy not to, was you don't eliminate the middle person.

You don't, you just become them.

And by the way, you have to.

Take on the costs.

Exactly.

And by the way, and you know this obviously dramatically better than I do, Target has a low gross margin.

Macy's has a low gross margin, like Dick's Sporting Goods.

Low gross margin.

The distributor doesn't make much money.

They play the volume game.

And so if they have a low gross margin, the corollary to that is their cogs, their cost of goods are high.

Well, their cost of goods, bear with me here.

Their cost of goods are the vendor's profits.

Right.

And so not only do you become the distributor, you become the middle person.

The middle person doesn't make much money against you.

There are very economically efficient means of distribution.

Let them do their job.

And I think that's the part that I think people missed.

And it just became so easy to go down that rabbit hole.

And I think, thankfully I don't have to fight that fight anymore.

So it's not to say like I, I became known as like this anti D2C guy.

I'm not anti D to C.

I'm anti, anti wholesale.

And I think that's the point of internalize what the right level distribution.

But that's not who you are.

That's just how you play out what you want to be.

Yeah.

And what you.

I 100% agree with what you just said there.

And that was partly why, you know, I railed on the brandless concept for so long, the whole brand tax, where they were forgetting that all those costs still have to be accrued by somebody and it's going to be you yourself as the brand or the retailer that you're trying to put this into play.

The one question I would ask though, and I think Ann might have a question she wants to ask you too.

Um, you said it's a nest.

DTC is a necessary condition.

Is it though?

Because like you singled out TJX before and TGX almost has no traditional direct to consumer presence.

Or.

Or am I using that term incorrectly in assessing them?

Okay, so that, that's a very fair point.

It's a good clarification.

So when I refer.

Thank you.

When I refer to D2C I refer to it as direct to consumer, not as digital.

And so to me and, and I think you asked two different really good questions there.

Great point.

TJX.

So yeah, so every time I use D2C it's.

It's your own stores or your own E commerce as opposed to using a partner using a wholesale plan.

TJX is entirely dtc.

So TJX is selling their product.

So they are selling or other people's product.

But they are the D2C channel.

Macy's is the direct to consumer channel.

Target is the direct to consumer channel.

Now it's a direct consumer channel of brands that are wholesaling through them.

So the question there is like, is it your own brand?

So, so I would say one, I actually think TJ is the MA perfect manifestation of D2C vis A vis your point about digital, which I think was a reference to.

I actually, and this is totally separate.

We could have a whole another show on TJ which is worth doing.

I actually think TJ wins because they don't have ecom.

They have a tiny bit, but I think they win.

They win because they don't have ecom.

Not in spite of it.

Because I think the role that TJ plays very beautifully is they're the invisible way to drop to get rid of stuff.

Like they're.

Instead of Burberry burning.

I don't know who you're on crap, whatever, garbage.

Anyway, instead of Burberry burning and moving on, they just.

You can offload it at tjx and the three of us don't even know they're doing it.

I remember talking to a CEO brand a little bit earlier, a bunch of years ago actually.

And I said to you, I won't say who, but I said, do you sell to tj?

And it was like a luxury ish brand.

And he looked at me and said no.

And for anyone listening, nodding My head.

He's like, listen, when we've got.

And I won't say the product, but when we've got 900 of whatever my product is to move, we just put three in three different.

In 300 different stores and it's gone.

And you didn't know it.

And so I feel somewhere.

Yeah.

And I don't think you.

You don't want that to be searchable online.

Like, the whole point is it's invisible.

So I think that's there.

But you did ask a different question and it's a good question to push on me because I was more probably saying it to market and sound nice about necessary versus sufficient, pretend to sound smart about logic.

You are right.

There are brands that probably can be fully wholesale now.

It's probably very much the anomaly, like to have zero of your own DTC presence.

But there are plenty of brands that you and I have never heard of and will never hear of that do keeping on tj, job their way through TJ and just have crazy amounts of units, make crazy amounts of money and that's fine.

So you're probably right.

It's probably not necessary.

But by all accounts of most businesses, there's going to be some direct representation.

I just.

But.

But yes, I think that is a fair pushback.

I will gladly take that.

Thank you for putting me in my place.

Wasn't my intention.

It wasn't my attention.

My intention was just to make sure we understand everything at play here.

Well, Simeon, I want to thank you.

You've given us so much to think about.

I feel like I just sat through the Econ 101 course that you were just talking about earlier.

If people enjoyed this, which I'm sure they did, what's the best way for them to get in touch with you to find out more or even just to like, follow the work that you're putting out there and similar conversations to this.

So it is great to be here.

I've loved it.

And finally.

I'm glad we finally made it happen.

I look forward to the next one.

I'm probably easiest on LinkedIn.

That's probably the easiest way to find me.

And so my name is hard enough to spell as it is, but it'll be there somewhere.

Yeah, it'll definitely be in the show notes and probably in the title, right?

And yes, absolutely.

All right, well, that wraps us up.

Thank you, Simeon, for sitting down with us, Simeon Siegel of the BMO Capital Markets.

And thanks everyone out there for listening to this episode of our ongoing series on VC Perspectives across the retail and consumer goods industries.

Please let us know what you thought of our interview with Simeon on social media.

Let us know how we can do better.

And as always, on behalf of all of us here at omnitalk, be careful out there.