Morning Brew Daily - Macy's Closing Over 30% of Stores & Are NFTs Back?

Episode Date: February 28, 2024

Episode 268: Neal and Toby explain why Macy's is closing over 150 of their stores and what kind of strategy they are pivoting to for the long-term. Plus, the cyberattack on UnitedHealth that is majorly impacting pharmacies and are NFTs making a comeback? Next up, TikTok's biggest audience are actually millennials and how a $1 billion donation helped a medical school in New York go tuition free. And finally, a college is getting rid of vending machines that recognize your face. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew Daily Show. I'm Neil Fryman. And I'm Toby Howl. Today, Macy's is deflating like one of its balloons after Thanksgiving. Then, is your vending machine spying on you? A scandal involving facial recognition software is rocking one college campus. It's Wednesday, February 28th. Let's ride.

You know, there comes a point in every kid's life when they realize they're not going to be a pro athlete and they start actually doing their homework. Apple just had the same. realization about its own dream of building a car. Yesterday, the company abandoned its goal of developing a self-driving vehicle, putting the kibosh on one of the most ambitious and secretive projects in all of the tech world. Instead of building an Icar, Apple told the 2000 employees working on the program that they're going to be reassigned to work on what else? Generative AI. The company thinks that devoting more resources to AI and improving its new Vision Pro headset

will be more efficient in the long run than developing a car that, while it could be Maybe a major revenue driver is a relatively low margin business. But hey, as Michael Scott said, you miss 100% of the shots you don't take. They certainly missed and they did not even take their shot. It just shows to go you, goes to show you that cars are hard. Elon, of course, came in and started dancing on Apple's grave. He replied to a tweet, explained in the news that the natural state of a car company is dead. And only two U.S. automakers, Tesla and Ford have never gone bankrupt. Also, if I'm Apple, just win the software wars. Cars are hard.

Car companies are really bad at building software. Just get your Apple car play in every vehicle out there and just do what you're great at, which is software. Right. And they do have car play, which is in so many cars. So maybe they'll just try to, you know, conquer that market. But this always kind of felt like a stretch. It felt like a stretch, but I was excited. Like, who wouldn't want to see Apple?

It would have been great for the podcast. It would have been great to talk about. But yes, it is no longer. RIP, the Apple car. Before we jump into our show today, let's hear a quick word from our sponsor, VIME. Neil, it's only fitting that on our second to last VIM advertisement coincides with us talking about another major cyber attack on today's show. I know.

We're not going to spoil the real story, but it is telling that the first thing I thought of when I read a headline like this is, should I use VIME. Same. I started doing that now. It's why I've loved our time with them. Data protection and ransomware recovery are just such relevant services to provide right now. We love a relevant advertiser. If you run a business and don't want to be just another cyber attack headline,

check out VIM.com today. That's VEEAM.com today. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds. Get the Unreal College deal, everything you need, to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 premium, and a year of Xbox GamePass Ultimate with a custom

color Xbox Wireless Controller. Learn more at Windows.com slash student offer. While supplies last ends June 30th, terms at AKA.m.m.m.m.m. Mesiz thinks it's got a plan to turn around its struggling business, and that plan is fewer Macy's. Yesterday, the retailer said it would close about 150 Macy stores over the next three years, reducing its portfolio by 30%. Coming after a first round of store closures announced in 2020, it'll soon have just over half the number of stores it had before the pandemic. But the turnaround plan isn't all about shrinkage. Remember, Macy's also owns the higher-end department store Bloomingdale's and the beauty chain

Blue Mercury. And it's going to open dozens more of those locations, even as it reduces the footprint of its namesake Macy's brand. For new CEO, Tony Spring, who started the job earlier this month, the idea is to focus on quality over quantity. The Macy stores he's closing down considered unproductive locations. account for 25% of its real estate footprint, but less than 10% of its total revenue. And that kind of inefficiency is not going to cut it in the hyper-competitive retail sector.

Yeah, it's trimming the fat right now. And I think it's emblematic of a broader shift we're seeing in retail. The middle class has kind of been squeezed on either side by retail. You have the very cost-saving, cost-forward conscious places such as Walmart, dollar trees of the world that have done well. They've weathered the economic times very, very well. But then you also have the luxury brands on the other side that have also done very well. So Macy's has been caught in, we like to say it, the messy middle. So now this is kind of a rejiggering of their strategy.

They want to go more towards that upper end, upper side of the scale and provide a more luxury experience for shoppers. Yes. Speaking of luxury experience, so Bloomingdale's is their higher end department store. And what they're doing, to me speaks of something we spoke about a few weeks ago, which is the marriage of e-concline. commerce, digital sales, and physical store for print. So they want to put Bloomingdale's in physical markets where they think they could juice e-commerce sales, because studies have shown that when you put a physical store in an area, it also increases the digital sales in that area as well, because people are more likely to go pick up from stores and the delivery is quicker. So that is

something that Macy's is fully leaning into with Bloomingdale. Yeah, anytime you're going to do a retail reinvention, you have to have a plan for your e-commerce sales. That's definitely why they're mentioning that. Also, just through talking with customers over the past year, they found that customers want a lus cluttered shop floor and more salespeople to assist them. If I was in Macy's CEO's shoes, that is what I would be doing is leaning back into the personal side of the retail experience, because that's something that's increasingly lost this days, and Macy can kind of hang its hat on amazing service at their Bloomingdale location. So, again, if I was sitting in the CEO seat, that is something I would double down on. Yes. One other thing we should mention why Macy's is maybe doing such a dramatic, drastic change here is that it is getting heat from some activist investors. There are two Arkhouse Management and Brigade Capital Management that have submitted an offer to take it private for about $6 billion. Macy said no, and now they're launching a proxy fight and trying to get board members on. So this is going to become a potential hostile takeover attempt. And what the CEO is doing with this kind of dramatic plan is to say,

say, look, investors, we're trying to take action here to stem falling sales. Remember, Arkhouse was the one that valued its retail business at essentially zero? They're saying, we think the retail, the real estate footprint is the real value here. So, yeah, there is a lot of different plays going on on both sides. And so Macy's is at the center of one of these, the latest fight. A major cyber attack has made headlines again. And this time, it's an integral part of the U.S. health care system under fire. The target is a unit affiliated with United Healthcare, the nation's largest insurer,

leading to disruptions in the fulfillment of prescriptions at thousands of pharmacies across the country. The system called change acts as the intermediary that helps pharmacies verify a patient's insurance. So with the system going down in spurts, some people have resulted to paying in cash for their prescriptions. And this breach was discovered last Wednesday, too. So it's been going on for a while now. Not good. Neil, this headline reads very familiar. because breaches at hospitals that compromise patients' medical records are all too common these days.

And the scale of this breach highlights just how vulnerable the cybersecurity systems that underpin our health care system really are. Right. This is an attack on the nerve system of the whole medical system in the United States because change handles 15 billion transactions a year, which is representing of one in three U.S. patient records. So they sit at the center of our entire healthcare system, and they've just been hacked, and every single pharmacy has had to kind of pull the plug on working with them and go workarounds. United Health Care said that 90% of pharmacies have workarounds, but some smaller ones are kind of resorting to pen and paper and going back a few decades because this electronics payment system is just completely offline and it has been for the past week. Yeah, again, cash. People are paying in cash, which sounds just kind of crazy these days that you go to a pharmacy and you're paying cash for your prescription. And it works as long as prescriptions are inexpensive, but the more expensive the treatments get, then obviously cash isn't going to work. The big problem here is if medical records were stolen.

Medical records are kind of the pot of gold for these bad actors, these hackers, because, and United touches literally every aspect of health care in the U.S. So if you're going to go after stealing records, you might as well go after the biggest fish in the pond. So United is kind of playing close to the vest on if patients' records were exposed or not. So that's going to be what we're going to be looking forward in like the fallout from this. Right. Large-scale cyber attacks on health care facilities have doubled from 2018 to 2022. And that's because medical data is super valuable. It goes for a lot of money on the dark web.

And at the same time, if you're a ransomware group and it is believed that this is probably a ransomware attack, you encrypt data. And when you attack a health care facility, then the urgency is much greater because this is a life or death situation. What you're trying to do is get the company that you're hacking to pay up. And it is possible that hospitals and health care systems will pay more quickly than other types of companies because of the stakes at play here. Yeah. And federal law enforcement officials have kind of said that it appears that this attack originated from a foreign country. Again, more details will come out here. So, again, we are seeing the next battleground, the next battlefield of kind of modern geopolitical

tension is in the cyber realm and attacking vulnerable places like the health care system. Okay, here are three letters you may not have heard in a while, NFT, which makes sense. NFTs or non-fungible tokens were the poster child of the crypto boom and bust during the pandemic. When people cashed in their Stimmy checks and had nothing better to do than by JPEG's of rocks. But despite being a total laughing stock, NFTs are the recipient of this week's We Are So Back Award, because NFTs might be so back. Sales of the digital assets tripled to 918 million in November from the previous month, then spiked to over 1.7 billion in December. The resurgence comes after a truly spectacular collapse for the NFT market.

Last year, a report found that 95% of those holding NFT collections, 23 million people, had completely worthless investments. However, you can't ignore signs that NFT winter is thawing. Corporations like Nike and Starbucks are using them in their marketing. NFT art is still selling at auctions. And in general, the crypto market is looking as resilient as ever. Toby, are we going to start talking about NFTs again? I certainly hope not.

But here we are, I can't tell you how dead in the water NFTs were. Just from the global perception of them, everyone just kind of looked at them as the antithesis of everything that they wanted in a valuable investment. But NFT volume plummeted 63% last year. Global sales volume did to $8 billion. I think it's crazy still that the NFT market was that big. But I think what you're seeing now is kind of the second wave of also these startup founders trying to paint this picture that we've learned our lessons from the past. We want to make these more than just expensive digital pictures, which, okay, maybe we'll see. That's always been the promise. We'll see if anyone can start kind of fulfilling and acting on those promises.

It does seem like the vibe now and what these founders are saying, what Mark Cuban has also said about the future of the NFT market, is a shift away from the exclusive club aspect of NFTs, this, you know, trying to get only one of 400 board ape yacht clubs and this, you know, this country club vibe that they had, and more into the collectible space, which we are seeing huge numbers from Stanley Cup and scooshers and all of those Squishmallows and all of those plushy toys.

So I think the NFT, the NFT, people in the NFT space are looking at collectibles as maybe more of a model than the country club vibe that they had promoted back in 2021. Yeah, they want to promote fandom in building out these universes. I mean, it sounds crazy, but Pudgy Penguins has done a very good job at building out their kind of physical toy business. It's 10 million, they sold $10 million of physical toys to go along with their virtual. profile pictures. The thing that still gives me pause about NFTs is that the biggest market, the biggest interest of the tokens come from the art market. And if you're trying to paint a picture that these NFCs have more utility than just being fancy pictures that have provable ownership online, but the art market still dominates the NFT market. I don't think you're going

to really convince people that there are anything other than a niche collector's item that certain tech-minded art collectors like. So that's something that gets. gives me pause about crowning NFTs back. It's just crazy that this happened, that in 2021, the artist Beeple sold an NFT for $69 million. It's just, it's actually ridiculous. Yeah. People was, he was the moment during that time, though.

So whoever is the Beeple, lucky people owner. Not lucky people. I do not think that thing is worth $69 million now in 2024. Okay. We're going to hear a brief word from our sponsors, but stick around. because I have a surprising fact about TikTok users to share with you right after this. TikTok, long a safe space for the youth and their silly little dances, is starting to resemble less of a high school student body and more a 20-year high school reunion.

That's right. Everyone on TikTok is kind of old these days. According to data pulled from a Pew Research Survey and analyzed by Garbage Day writer Ryan Broderic, there are less young people on TikTok right now than there were on Instagram in 2014. almost 40% of TikTok users are in their 30s and 40s. Compare that to Instagram in 2014, where that age group only made up 20% of users. But the takeaway from this data that will make your job job is that people in the 35 to 49 age group are also more likely to upload videos than their younger counterparts. So that means not only are more elder millennials consuming content on the app, they are also creating it.

Neil, TikTok was supposed to be for the use, but now it's becoming increasing. recently, dare I say it, middle-aged? It is middle-aged. And I think everything that millennials say is Gen Z culture is actually millennial culture these days. We know almost half of TikTok users are over 30. Average Sheen customer is 35 years old. More than half of Taylor Swift fans are over 35. Tamu, the other Chinese e-commerce, frash, fashion retailer, one of the biggest demographics is moms.

So when we say that, oh, my God, what are the use doing? They're going on Sheen. They're going on TikTok. They listen to Taylor Swift. That is just not true. TikTok is older, and I think it is a existential problem for the platform. It's absolutely existential. And perhaps most damning of all is that TikTok's 30 to 49 demographic is growing faster than that 18 to 34-year-old age group.

So it's actively getting older as we speak. This kind of speaks to a, this process is what's known as an earmuffs here for anyone listening. The insidification, but it is a technical term for. When a platform starts out, it's very good to users. It wants to attract a user base, so it provides a valuable service to users. Then they gradually start being less good to the users in order to attract business customers, like advertisers. Then eventually they start being less good to both their users and their business customers

in order to enrich the company itself. So it's this slow and gradual decline where you start to see these platforms become less good for everyone involved. in this effort to kind of capture more of the value from the Right, perhaps it's happening with Google search, with ads littering the top of your search query, and maybe it's happening with Amazon as well, where ads are now, it seems like a pay-to-play business for merchants, whoever pays the most to populate the top of your search feed.

Do you actually think this is happening to TikTok? Yeah, well, I think the biggest indicator that it is happening in TikTok is that they're throwing everything in the kitchen sink at us, right now. They've gone really heavy on TikTok shop. They've started prioritizing horizontal video. They've started prioritizing longer video. They're even trying to make their search engine a thing. And I think it is one of those things where when you are throwing that many features out there, you're not really thinking about the core user experience anymore. You're trying to make it into, you're trying to capture more of the value for yourself. So I, and I do think that you reach a point

on the platform where you're less incentivized to attract new users versus monetizing the current user base that you have. And I think we are absolutely seeing that right now. The vibes are bad around TikTok. We've talked about it. It is not fun. It's not a joyful experience going TikTok anymore. You get a TikTok shop almost immediately upon opening it, and it just doesn't have the same feel anymore. And you've mentioned you haven't opened the app in months. And I haven't opened the app in months. And you're the target demo. I have the target demo. Exactly. I should be the fastest growing population on that app. But yes, anecdotally from people we've talked to who are in Gen Z and millennials say that they're

has kind of decayed over the past few years and months. So if I'm Biden right now, I'm like, man, this is probably a perfect time to go try to ban it like we've been trying to do for the past few years, but it may have been politically toxic. But I feel like popular opinion may have shifted a little bit because there's large scale disgruntlement with TikTok. Let me give you a hypothetical scenario. Your Wall Street mogul of a husband dies, leaving you with a massive pile of Merkshire Hathaway stock and his only instructions are, do whatever you think is. right with it. What would you do? Of course, this is no hypothetical. It happened to 93-year-old Ruth Goddessman, and what she did with the money will go down in history. On Monday, Goddessman

announced a donation of $1 billion to the Albert Einstein College of Medicine in the Bronx to make tuition free for all students in perpetuity. It is the largest donation ever to a U.S. medical school and among the biggest ever contributions to a higher educational institution. I feel like I haven't given Goddessman her due yet because she's far more than just the wife of a wealthy finance CEO. She spent 55 years as the board chair at Albert Einstein and was a former faculty member who launched an adult literacy program and developed widely used tools to screen children for learning problems. And now she cemented her legacy as an absolute legend. Objectively, a very, very cool thing to do. We're seeing images on the screen right now that you can watch on our YouTube video, our YouTube channel of the students just going nuts.

when she announced it. It must be such an amazing feeling to do that much good for that many people. Also, I'm not sure if we can call this a trend per se, but we are seeing more medical schools go down this route of eliminating tuition. New York University announced in 2018, it would go tuition free. And a Kaiser Permanente Bernard school opened in 2020 with the promise of free tuition for its first five incoming classes. So it's definitely, I don't know if it's a Toby's trend yet, but we are seeing more and more of these schools try to eliminate tuition. And that is because the amount of debt that medical school students take on is kind of mind-blowing. The average amount of medical school grad left owing more than $200,000.

It's a lot of money, and it is why something like this just goes such a long, long way. It's also notable because not just the size of the donation, but because it's going to a school in the Bronx, which is one of the city's poorest boroughs. Bronx has a very high rate of premature deaths and ranks as one of the more unhealthy counties in New York. So, again, when you're donating to a medical school in a place like the Bronx, hopefully that is having an impact that is greater than even it would be in somewhere else. So we probably should expect applications to skyrocket, but the acceptance rate is already just 2% there. Oh, gosh. That is tough. It is definitely going to go even lower from there. The final anecdote from this story that I think is really cool is that the president, first Ruth wanted to donate it anonymously, but then the president kind of convinced her like, hey, you are an inspiration of people. You could inspire others. Let's attach your name to it. But they also said, listen, this is enough to name the whole school after you. But she goes, we've got the gosh darn name. We've got Albert Einstein. So she gave Albert Einstein the respect that he's due. All right, let's move on to our final story. Imagine you are in college.

you're hungry for a snack from the vending machine. You see a pack of peanut M&Ms calling your name, but wait, the vending machine is broken. There's an error message on the screen. Dejected, you prepare to head back to your studies when you take a closer look. Wait a minute. The error code says facial recognition application error. What is going on? I pull you from that gripping tail to let you know.

It's not just hypothetical. It's a real scenario that recently happened to students at the University of Waterloo in Canada. The machines in question are manufactured by a company called InVenda, which markets them as intelligent vending machines. When confronted by the uproar that they were spying on people without their knowledge, InVenda insisted that they only used the technology as a sort of motion sensor to let the machine know that someone is there, not identify individual faces. Still, some students started digging into this, Neil, and it's not exactly comforting what they found out. Toby, first of all, that was like an Oscar animated short there. I got into it. I got into it. Thank you.

Got so into it. Yes. The university is racing to take down these vending machines. I feel like students are completely outraged. They feel like there was a betrayal of trust. You go to a vending machine. You don't exactly feel like your face is going to be scanned for any sort of thing. Never mind that it's for anonymized demographic data. You just feel like you're violated without knowing, you know, there needs to be a disclosure. And even if there is, I'm not sure anyone would go to a vending machine where their face is being scanned. So now they're putting up like Post-it notes so that no one- Placing gum over the sensors. It is interesting, though, because even though it's not identifying actual individual faces,

they can do demographic profiling so you can calculate the age and gender of anyone that approaches via this camera. So I think this is just a classic case of the kind of over-engineering that has gripped our society. Like, why can't we just have a low-tech vending machine? What was wrong with the former system that just allows you to put? it in a quarter, you get the snack, you type in F3, but now these new vending machines use big screens to promote combo deals.

There's AI-powered product recommendations. So it is, not only is there the privacy aspect, this just goes to show that we have reached kind of peak over engineering. And it reminds me of a lot of other gripes people have with modern society these days. Okay, we have to wrap it up there. Have a wonderful Wednesday. And remember, it is not the last day of February, even though it's the 28th, because of the leap year. So let us know your fun leap day plans or send any other feedback to MorningBrewdaily

at MorningBrew.com. There's been lots of great emails over the past week. Let's keep them coming. And let's do the credits as well. Emily Milliron is our editor and producer. Raymond Liu is our associate producer. Eugenwa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is non-fungible. They are truly one of a kind. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show, Daniel. Let's run it back tomorrow.