WEBVTT - Regional Banks Face Heavier Regulation After SVB 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.600 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:20.720 --> 0:00:22.919 It's been another day. Check full of headlines from the 0:00:22.920 --> 0:00:26.599 banking sector, credit suite shut yelling up on Capitol Hill. 0:00:27.120 --> 0:00:30.600 And then you've got you know that the nation's biggest 0:00:30.600 --> 0:00:33.479 banks here, certainly here in the United States, look to 0:00:33.520 --> 0:00:37.120 be close to a plan to deposit about thirty billion 0:00:37.159 --> 0:00:39.479 with First Republic Bank, which has been certainly under a 0:00:39.479 --> 0:00:41.560 lot of pressure. So let's get an update. Where are 0:00:41.600 --> 0:00:44.280 we with us right now? Is Herman Chan He's senior 0:00:44.320 --> 0:00:47.560 Alice for US regional banks with our Bloomberg Intelligence team 0:00:47.600 --> 0:00:50.640 here in our Bloomberg Interactive Broker studio along with Shinali Bossi, 0:00:50.680 --> 0:00:53.440 Bloomberg News Wall Street reporter, who I'm convinced because every 0:00:53.479 --> 0:00:56.240 time I listen to Bloomberg Radio or Blueberg TV, she's there. 0:00:56.280 --> 0:00:59.360 So she's not getting any sleep. I'm sure Herman isn't either. Shinali, 0:00:59.440 --> 0:01:02.160 let's start with because I do feel like the headlines 0:01:02.200 --> 0:01:04.720 just kind of continue to come out. So where are 0:01:04.720 --> 0:01:07.000 we credit suis First Republic? What do we need to know? 0:01:07.080 --> 0:01:09.880 Let's talk about First Republic first, because we are expecting 0:01:09.959 --> 0:01:14.080 this afternoon an announcement and it's in coordination with the 0:01:14.080 --> 0:01:17.160 big banks. We understand that these large banks have really 0:01:17.200 --> 0:01:20.920 brought forth this idea where each of them deposit. The 0:01:20.920 --> 0:01:23.400 biggest ones will depositif five billion dollars each, the smaller 0:01:23.400 --> 0:01:25.679 ones will do less than that. It will be a 0:01:25.720 --> 0:01:29.280 package of nearly a dozen banks. And so it is 0:01:29.319 --> 0:01:32.720 a significant effort from the banking community to put money 0:01:32.720 --> 0:01:36.280 into First Republic, really stave off concerns in the banking system, 0:01:36.319 --> 0:01:39.280 and you are seeing First Republic stock at least upon 0:01:39.360 --> 0:01:42.880 the initial news reports about this. Remember all of this 0:01:42.959 --> 0:01:45.480 is still source material according to people familiar with the matter. 0:01:45.800 --> 0:01:48.920 No official announcement has been made. There's another interesting thing 0:01:48.960 --> 0:01:51.200 about the structure of this deal that if you're a 0:01:51.200 --> 0:01:53.200 stock or bond holder, you would like and it's that 0:01:53.880 --> 0:01:58.640 by infusing this banquet deposits, you're not necessarily eroding the 0:01:58.680 --> 0:02:01.800 equity or debt. And so it's a way to kind 0:02:01.840 --> 0:02:05.440 of find a solution that is approved by the government 0:02:05.680 --> 0:02:08.880 that falls short of a Sale're right, certainly better than 0:02:08.919 --> 0:02:11.440 trying to do an equity offering in this environment, I think, 0:02:11.480 --> 0:02:15.120 which is sort of what undid SVB. But you know, Shelly, 0:02:15.160 --> 0:02:18.720 I look at the KRX, the Regional Bank Index, and 0:02:19.080 --> 0:02:22.320 I see Pac West Bank WRP down fifty two percent 0:02:22.400 --> 0:02:25.320 year to date, Bank of Hawaii down thirty two percent, 0:02:25.400 --> 0:02:28.880 of more than ten bank stocks in that index down 0:02:29.080 --> 0:02:30.919 twenty some percent this year. Is this going to be 0:02:30.960 --> 0:02:33.280 a rolling crisis? Do you think where they just go 0:02:33.400 --> 0:02:35.239 from bank to bank to bank that are looking the 0:02:35.280 --> 0:02:38.239 weakest in the market. Well, we should probably ask Kerman, right, Well, yeah, 0:02:38.320 --> 0:02:41.080 especially because me and him were researching the parallels between 0:02:41.080 --> 0:02:43.560 the F and L crisis, which is what everybody has 0:02:43.600 --> 0:02:47.160 been bringing up. Fewer banks failed, but larger banks are failing. 0:02:47.280 --> 0:02:51.240 Larger banks are failing. Signature and s maybe we're larger 0:02:51.240 --> 0:02:55.120 banks that failed. What I would say is that you 0:02:55.760 --> 0:02:59.480 mentioned Pac West, there's others like Western Alliance that are 0:02:59.560 --> 0:03:02.720 sort of caught up in this vortex. I would say 0:03:02.800 --> 0:03:06.600 that the size of action and the unitsa yesterday or 0:03:06.600 --> 0:03:08.679 somebody came out and said Western Alliance was their top pick, 0:03:08.919 --> 0:03:15.160 right exactly. So, the unique partnership with the government and 0:03:15.280 --> 0:03:18.840 the private banks is essentially putting a line in the 0:03:18.880 --> 0:03:22.760 sand and saying that SVB happened, signature happens. We're going 0:03:22.800 --> 0:03:27.560 to try to prop up First Republic, putting our own 0:03:27.560 --> 0:03:31.440 money at stake into the depository institution so the rest 0:03:31.520 --> 0:03:35.160 of the depositors at FRC First Republic can sleep well 0:03:35.200 --> 0:03:38.880 the night. How does this happen? Notionally, because what happens 0:03:38.880 --> 0:03:42.040 if there's another one? Do the does the private banking 0:03:42.120 --> 0:03:44.960 industry come in and help out? Like you know, like 0:03:45.040 --> 0:03:46.840 I was just surprit you could ask the same thing 0:03:46.840 --> 0:03:49.720 of what happened Sunday night with the FDIC backstop. You're 0:03:49.800 --> 0:03:52.920 hearing today Treasury Secretary yelling kind of telling you that 0:03:52.960 --> 0:03:55.800 if it's a systemically important bank, your deposits are safe. 0:03:55.840 --> 0:03:58.160 I'm really curious about herman things of that as well, 0:03:58.200 --> 0:04:00.560 because you know, anybody who was watching in the market 0:04:00.680 --> 0:04:02.640 and the reason there are so fears under the market, 0:04:03.000 --> 0:04:05.640 there's at no point that the government said we are 0:04:05.680 --> 0:04:08.240 going to save the depositors of every bank. Should we 0:04:08.280 --> 0:04:11.440 have a rolling issue here? And by the way, it's 0:04:11.440 --> 0:04:14.280 funny because I'm answering an email from one of our clients. 0:04:14.320 --> 0:04:16.839 They're like, why First Republic and not all the others 0:04:17.120 --> 0:04:20.160 when you're looking at this deposit infusion. Even probably was 0:04:20.200 --> 0:04:22.680 asking that and a great financial crisis as well, are right, 0:04:22.800 --> 0:04:26.080 it's a great question because First Republic, remember, this is 0:04:26.120 --> 0:04:29.520 something that was a very healthy acquisition target for a while. 0:04:29.560 --> 0:04:31.720 But it's not easy for a large bank to buy 0:04:32.240 --> 0:04:36.320 another bank. There are limits, deposit caps, there's all sorts 0:04:36.320 --> 0:04:39.320 of other issues when they're buying a bank, and basically 0:04:39.320 --> 0:04:42.680 they just kind of want security from the government that 0:04:42.720 --> 0:04:44.719 if they were to buy something it would be okay. 0:04:45.000 --> 0:04:47.120 But right now, this is not a bank that is 0:04:47.160 --> 0:04:49.479 easy to buy by any fashion. And I would say 0:04:49.640 --> 0:04:52.640 to that effect with First Republic, it's not a bank 0:04:52.680 --> 0:04:57.000 that ran into issues when rates were low and then 0:04:57.279 --> 0:05:02.880 subsequently are high. Now you compare that with SVB, and 0:05:02.920 --> 0:05:06.919 they had a very large fifteen billion dollar lost position 0:05:07.040 --> 0:05:12.320 in their security's portfolio and for signature, they were very 0:05:12.400 --> 0:05:15.800 much involved with the crypto business, So two very important 0:05:15.800 --> 0:05:19.359 issues that FRC First Republic just doesn't have. That's what 0:05:19.400 --> 0:05:22.520 I was asking, what's the connective tissue? But it's different cases, 0:05:22.520 --> 0:05:24.680 and we kind of keep pointing like credit suits different 0:05:24.680 --> 0:05:29.520 from SVB, right, different from signature, So I don't know 0:05:29.560 --> 0:05:32.520 how to warm commonalities. I think one, I mean, the 0:05:33.040 --> 0:05:35.279 one of them being that a lot of smaller firms 0:05:35.279 --> 0:05:38.200 were always going to be under stress, given you know, 0:05:38.240 --> 0:05:41.440 their bond portfolios, given the deposited issues they had. I mean, 0:05:41.800 --> 0:05:43.280 we knew this is going to be a problem. We 0:05:43.360 --> 0:05:44.480 knew this from months. We didn't know that it was 0:05:44.480 --> 0:05:46.160 going to beat this much of a problem. And the 0:05:46.200 --> 0:05:48.400 deposit or flighted Silicon Valley, they had a much more 0:05:48.440 --> 0:05:51.160 to the concentrated depositor base. First Republica has a wealthier 0:05:51.200 --> 0:05:53.600 clients by and large. They also have a very attractive 0:05:53.600 --> 0:05:55.600 loan book to a lot of banks as well, so 0:05:55.640 --> 0:06:00.360 again they're they're fine ish, Yeah right, You're still getting 0:06:00.440 --> 0:06:05.240 a thirty billion dollar deposit infusion, so it's a difficult situation. 0:06:05.839 --> 0:06:07.880 Another question I have for you is, you know, to 0:06:08.320 --> 0:06:11.640 mckey's sorry, to um Mike's point here, Sorry McKey and 0:06:11.640 --> 0:06:15.760 I've been only we all look alike customer. No, no, no, 0:06:15.839 --> 0:06:17.560 he's just in my mind because he's a central bank 0:06:17.600 --> 0:06:21.560 to my banks. But you know what about pack West 0:06:21.640 --> 0:06:25.200 and Western Alliance, I think it's just more of an 0:06:25.760 --> 0:06:30.760 implicit vote of confidence for the overall industry if the 0:06:30.839 --> 0:06:35.600 government and the private publicly traded banks will come together 0:06:35.680 --> 0:06:38.599 to save one of their institutions. And I would also 0:06:38.680 --> 0:06:43.479 like contrast with what happened with SBB and the VC community, 0:06:43.560 --> 0:06:47.080 where where they abandoned their own personal bank, whereas these 0:06:48.040 --> 0:06:51.600 the peers of First Republic are banning together to save them. 0:06:51.640 --> 0:06:55.000 So it's an interesting contrast. But with pressure, can we 0:06:55.000 --> 0:06:58.680 assume there was pressure from regulators? I think that's as 0:06:58.680 --> 0:07:02.240 safe as you know. It's an interesting thing because from 0:07:02.240 --> 0:07:04.600 what we understand, it wasn't just the regulators that are 0:07:04.600 --> 0:07:06.839 wanting this for First Republic, it's the banks as well. 0:07:07.080 --> 0:07:10.000 Remember First Republic. Usually what you're seeing when you look 0:07:10.000 --> 0:07:12.720 at these institutions they try to hire boutiques or kind 0:07:12.720 --> 0:07:15.320 of independent bank Silicon Valley Bank and hire its centerview 0:07:15.360 --> 0:07:18.560 for example. But for a while First Republic have been 0:07:18.600 --> 0:07:22.760 working with JP Morgan. Okay, and after that Signature Bank, 0:07:23.440 --> 0:07:26.120 you know, an announcement we had on Sunday after they 0:07:26.120 --> 0:07:28.920 were taken over by regulators, they said they secured additional 0:07:29.000 --> 0:07:31.960 liquidity from the Fed and from JP Morgan. So the 0:07:32.040 --> 0:07:36.040 fates to the tied to First Republic for the biggest 0:07:36.040 --> 0:07:39.040 banks are a little larger now. Silicon Valley Bank is 0:07:39.080 --> 0:07:40.920 another good example, because it's trying to go through this 0:07:40.960 --> 0:07:43.880 process where they're selling assets and they're hitting so many snags, 0:07:44.480 --> 0:07:48.160 and so it was more marginalized to them. This man, 0:07:48.200 --> 0:07:51.800 we know where this ends. Yeah, it's really hard to 0:07:51.840 --> 0:07:54.080 say at this point. Yeah, there could be some more 0:07:54.080 --> 0:07:56.840 twist concerns. But I think today's action really should be 0:07:56.920 --> 0:07:59.320 seen as a photoconfidence. But but Herman, you know what 0:07:59.400 --> 0:08:03.000 I wonder is this crisis is so unique because typically 0:08:03.160 --> 0:08:06.720 a banking crisis is triggered by poor quality credit yea, 0:08:06.800 --> 0:08:11.120 whether it's mortgage delinquencies, whatever on the credit side. I 0:08:11.160 --> 0:08:14.440 wonder if that shoe perhaps is yet to drop for 0:08:14.480 --> 0:08:17.000 the banking sector. You know, is there the chance with 0:08:17.080 --> 0:08:20.640 these this blistering campaign to raise hikes that in a 0:08:20.640 --> 0:08:22.960 few weeks, months, however long, we're going to start hearing 0:08:22.960 --> 0:08:26.040 about credit issues and have another sort of round of 0:08:26.040 --> 0:08:28.119 hair pulling over the banks. Well, we just heard about 0:08:28.600 --> 0:08:31.960 Richard Clareno's comments earlier about a hard landing. I think 0:08:32.080 --> 0:08:34.880 what you've seen over the past week or so is 0:08:34.920 --> 0:08:38.600 that the regional banks are going to contract lending because 0:08:38.679 --> 0:08:42.360 they are really concerned about their deposits, with deposits exiting 0:08:42.400 --> 0:08:44.920 their balance sheets, so they don't have sort of like 0:08:44.960 --> 0:08:49.240 the dry powder to lend, because you're, in essence your 0:08:49.320 --> 0:08:52.880 deposits fuels future lending, and if those deposits are leaving, 0:08:52.960 --> 0:08:56.319 then the lending capacity is diminished and that could hurt 0:08:56.360 --> 0:08:58.640 the overall economy. All right, we need to talk about 0:08:58.640 --> 0:09:00.600 Credit sueee. You know what we need to know about that, 0:09:00.640 --> 0:09:03.080 which has been We've talked about this already. They've had 0:09:03.080 --> 0:09:04.719 problems for a while and they've been trying to kind 0:09:04.720 --> 0:09:06.600 of write the ship, if you will. I think one 0:09:06.720 --> 0:09:09.280 positive sign from Credit Suez is what remember yesterday was 0:09:09.320 --> 0:09:11.720 a lot of panic. But even within the panic, I 0:09:11.800 --> 0:09:13.280 was kind of trying to take a couple of meetings 0:09:13.320 --> 0:09:15.360 out of the office to go into different offices to 0:09:15.400 --> 0:09:18.880 see how folks are feeling. And what they were saying is, listen, 0:09:19.040 --> 0:09:21.680 Credit Suite has been in problems for a long time. 0:09:21.760 --> 0:09:23.920 Many people have reduced risk for a very long time 0:09:24.200 --> 0:09:26.880 as far as counterparty risk and other kind of you know, 0:09:26.960 --> 0:09:30.680 lending arrangements and whatnot. But the general sense was, listen, 0:09:30.800 --> 0:09:33.840 it's still a globally systemic financial institution. The Swiss government 0:09:34.000 --> 0:09:38.360 stepped up at the end of the day. The problem 0:09:38.520 --> 0:09:41.920 if it's Ciffy were to fail, the problem for Wall Street, 0:09:42.160 --> 0:09:47.400 it's investors everybody else. Fewer options are not a good thing. 0:09:47.920 --> 0:09:50.680 When it comes to the banking system. We've learned you 0:09:50.720 --> 0:09:54.320 have to diversify where you keep your money. That is 0:09:54.320 --> 0:09:57.800 certainly true for large institutions. Corporations have learned it the 0:09:57.800 --> 0:10:00.840 hard way. What's the Wilicon Valley Bank? And you know, 0:10:01.200 --> 0:10:07.040 even for an individual depositors, diversifying is how the system works, 0:10:07.040 --> 0:10:09.000 all right, real quickly five seconds each you what are 0:10:09.040 --> 0:10:11.240 you keeping on your radar right now? Deposits It's the 0:10:11.320 --> 0:10:15.960 name of the game. Anything else hitting into a problem. 0:10:16.080 --> 0:10:18.679 I mean, honest way, every day is like you wake up, 0:10:24.000 --> 0:10:25.760 you never know. Listen, look at the market moves every 0:10:25.760 --> 0:10:28.880 single day. I know different day to day. One day 0:10:29.000 --> 0:10:31.440 is bad. It's tough out there, yeah, which is I 0:10:31.440 --> 0:10:33.559 think very telling in its own right, which means it's 0:10:33.559 --> 0:10:36.520 a little bit trickier. I think for Fined Reserve chair 0:10:36.640 --> 0:10:38.840 Jay Powell when they meet next week, UM, thank you, 0:10:38.920 --> 0:10:40.760 thank you. This is how we like to do a 0:10:40.800 --> 0:10:43.360 set up. Herman Chan, senior analysts for US regional banks, 0:10:43.640 --> 0:10:47.000 with our Bloomberg Intelligence Team and the Woman who Never sleeps. 0:10:47.000 --> 0:10:49.679 Shineli bask Our, Bloomberg News Wall Street Reporter. I want 0:10:49.679 --> 0:10:52.199 what she's happening. How do you keep sleeping? Just two 0:10:52.200 --> 0:10:55.160 cups of coffee today? I'm sure there's more, all right, 0:10:55.400 --> 0:10:58.959 Carol Master, Mike Reagan, you are listening and watching Bloomberg Radio. 0:11:00.240 --> 0:11:03.800 You're listening to the Bloomberg Business Week podcast. Catch us 0:11:03.840 --> 0:11:07.240 live week afternoons from three to six Eastern Listen on 0:11:07.280 --> 0:11:10.600 Bloomberg dot com, the ihond Radio app, and the Bloomberg 0:11:10.640 --> 0:11:15.400 Business App, or watch us live on YouTube. We want 0:11:15.400 --> 0:11:18.080 to get to another name that was rolling in today's session, 0:11:18.120 --> 0:11:21.200 following their Ladies poorly update earlier this morning. We're talking 0:11:21.200 --> 0:11:24.000 about lands And which is a great check in terms 0:11:24.000 --> 0:11:26.720 of what's going on in retail and the consumer. The 0:11:26.720 --> 0:11:30.080 company's first Quarternet revenue forecast beating estimates, helping to sound 0:11:30.120 --> 0:11:33.320 the small cap stock rolling around eighteen percent today. So 0:11:33.400 --> 0:11:37.160 let's get to it. We have the company's CEO, Andrew McClean. 0:11:37.280 --> 0:11:41.160 He is with us on zoom in Wisconsin. Andrew, nice 0:11:41.200 --> 0:11:44.400 to have you back with us here on Bloomberg Lot 0:11:44.440 --> 0:11:47.040 going on, Sorry, just trying to keep up here. How 0:11:47.040 --> 0:11:51.000 do you feel about the environment right now? You know, 0:11:51.040 --> 0:11:54.080 I feel pretty good about the environment. We look at 0:11:54.080 --> 0:11:56.880 our customer like in some detail. We got seven million 0:11:56.920 --> 0:11:58.640 of them, so we got a lot of data to 0:11:58.679 --> 0:12:03.120 work with. We're seeing that they're they're relatively robust right now. 0:12:03.120 --> 0:12:06.880 They're sort of weathering inflation, they're weathering the political environment, 0:12:06.960 --> 0:12:10.240 they're weathering the banking issues that we're seeing over the 0:12:10.320 --> 0:12:14.120 last week or so. So no particular cracks yet and 0:12:14.360 --> 0:12:17.240 a little bit of momentum of anything. Well, Andrew, let's 0:12:17.280 --> 0:12:20.400 get into that idea of the inflation. What are you 0:12:20.440 --> 0:12:23.240 seeing in your sort of supply chain. Is there any 0:12:23.440 --> 0:12:27.000 hope that this inflation, especially that cost input that you're 0:12:27.000 --> 0:12:29.440 dealing with, Is there any hope there that we've seen 0:12:29.440 --> 0:12:31.800 the worst of it, or or what what are we 0:12:31.840 --> 0:12:34.679 looking at? I mean, I certainly hope. So, I mean, 0:12:35.160 --> 0:12:38.839 you know, we've definitely we've definitely seen transportation costs become 0:12:38.880 --> 0:12:41.560 more favorable to us than they were last year, and 0:12:41.960 --> 0:12:45.079 hopefully we'll pick that up as a as a tailwind 0:12:45.120 --> 0:12:47.800 for us this year. Um. Some of the prices of 0:12:48.200 --> 0:12:51.400 fabrics have moderated as well, and we're working with our 0:12:51.440 --> 0:12:53.719 factories closely to make sure that you know, we see 0:12:53.760 --> 0:12:56.280 those costs passed on. But you know, we're chipping away 0:12:56.320 --> 0:12:58.760 at it every day. I think everyone's trying to hang 0:12:58.800 --> 0:13:02.640 on so that the extra dollars that they made during 0:13:02.679 --> 0:13:05.320 the pandemic, and you just have to fight your corner. 0:13:05.760 --> 0:13:08.520 Is it easier to be a CEO today versus where 0:13:08.520 --> 0:13:13.080 it was twelve months ago? I think so. I think 0:13:13.120 --> 0:13:16.080 it was more looking at uncertainty twelve months ago. I 0:13:16.160 --> 0:13:20.120 actually felt, and I said this one of the conferences 0:13:20.160 --> 0:13:23.320 earlier this year, I felt that retail went through its 0:13:23.360 --> 0:13:26.920 recession sort of like Q three early Q four. I 0:13:26.960 --> 0:13:29.880 think the sector was in recession. Whether the country was 0:13:30.000 --> 0:13:34.480 or not, it's up for debate, but I'm hoping, I'm 0:13:34.520 --> 0:13:38.800 touching wood here that the worst is the worst is pastors, 0:13:38.880 --> 0:13:41.480 and we can look forward to set ourselves out for 0:13:41.920 --> 0:13:44.120 a decent year. Having said that, you know, we talk 0:13:44.160 --> 0:13:47.560 about customers trading down or looking for bargains. Are you 0:13:47.600 --> 0:13:50.800 seeing any signs of kind of some of the patterns 0:13:50.800 --> 0:13:53.679 in terms of how customers and consumers are shopping. That 0:13:53.800 --> 0:13:56.000 tells you a little bit more about the economic outlook. 0:13:56.920 --> 0:13:59.640 I have an eighteen year life on my customers. I mean, 0:14:00.160 --> 0:14:02.840 they come to us and they stay forever, and so 0:14:02.880 --> 0:14:06.200 we get a good read on them through various life stages. Um, 0:14:06.840 --> 0:14:09.360 you know what we're starting to see if anything is well. 0:14:09.400 --> 0:14:12.720 Actually it's a continuation of a theme. We're leaning in 0:14:12.760 --> 0:14:16.280 more and more to leisure and vacation. Um. You know, 0:14:16.280 --> 0:14:19.400 I've talked a lot today on various calls about Swim 0:14:19.440 --> 0:14:22.680 and you know, we've continued to power ourselves from late 0:14:22.680 --> 0:14:26.080 December through to mid March off the back of Swim 0:14:26.080 --> 0:14:29.440 and really building out the vacation outfit for our customer. 0:14:29.520 --> 0:14:32.720 And I can tell you she's really embracing them. And 0:14:32.800 --> 0:14:36.280 you know, we see that number of cohorts, We sell 0:14:36.320 --> 0:14:39.600 a lot of school uniforms, and we make connections, We 0:14:39.640 --> 0:14:45.440 make connections with with millennial late millennial moms and they're 0:14:45.480 --> 0:14:47.960 buying our swim. You know, she's thinking very much about 0:14:48.040 --> 0:14:51.160 vacation this year. Yeah, Andrew, what is how are you 0:14:51.160 --> 0:14:55.040 thinking about sort of the sales channels these days? Is 0:14:55.640 --> 0:14:58.960 the retail physical stores are they back? Is that is 0:14:58.960 --> 0:15:02.400 that the focus going forward? Or do you still have 0:15:02.560 --> 0:15:08.600 sort of the online hangover from the pandemic. I think 0:15:08.640 --> 0:15:11.280 there's a place for our physical stores in any retailer 0:15:11.320 --> 0:15:13.840 at work for a lot of retailers that had physical stores. 0:15:14.520 --> 0:15:18.440 For Land's end, we have a different physical manifestation of 0:15:19.080 --> 0:15:21.480 our brand and it's through a catalog. We only have 0:15:21.680 --> 0:15:26.560 thirty stores. It's you know, we reported the relatively small 0:15:26.640 --> 0:15:30.840 revenue for us in the scheme of how we approach 0:15:30.920 --> 0:15:34.120 the world. For us, it's about our digital ecosystem. And 0:15:34.520 --> 0:15:37.080 you know we have a we have two businesses, a 0:15:37.080 --> 0:15:39.040 B to B business and a B two C business 0:15:39.120 --> 0:15:42.760 in the digital world. And they're both scaled, scalable and profitable. 0:15:42.880 --> 0:15:45.600 And you know that that's where we're that's what we're 0:15:45.680 --> 0:15:49.640 leaning into and the physical manifestation of the brand that 0:15:49.720 --> 0:15:53.920 supports them kindly gives us that Midden upper funnel marketing 0:15:54.040 --> 0:15:56.760 is really our catalog. Yeah, I think when you've been 0:15:56.800 --> 0:15:59.960 on in the past, I've definitely bought a school unif 0:16:00.040 --> 0:16:04.000 form from you in the past. Remind our audience though, 0:16:04.040 --> 0:16:06.320 and forgive me for not remembering, but your B to 0:16:06.440 --> 0:16:08.480 B or your you know, the school uniforms and the 0:16:08.560 --> 0:16:12.240 uniforms that you provide for hospitality and leisure. That is 0:16:12.280 --> 0:16:16.240 how much of your business, So that out there's business 0:16:16.320 --> 0:16:18.840 which comprises three things. Is the sort of those the 0:16:19.080 --> 0:16:22.280 very large customers, you know, like in American airlines, there's 0:16:22.320 --> 0:16:26.600 small medium businesses in their um you know, autoparts companies, 0:16:26.640 --> 0:16:30.240 hotel chains, and then then we're into school uniforms. And 0:16:30.360 --> 0:16:34.560 then those three businesses together comprised sixteen seventeen percent of 0:16:34.560 --> 0:16:38.880 our total revenue base. Andrew, how is this high interest 0:16:38.960 --> 0:16:42.080 rate environment in affecting you? I mean, I assume it 0:16:42.160 --> 0:16:44.760 must be a headwind to some degree. Is it is 0:16:45.280 --> 0:16:49.320 a huge challenge? Are you able to refinance in this environment? 0:16:49.360 --> 0:16:53.480 I assume that, Uh, you know, we talked about it 0:16:53.480 --> 0:16:55.480 on the call this morning. It's like you definitely saw 0:16:55.520 --> 0:17:00.000 our interest charges tacking up. That was partly driven by 0:17:00.080 --> 0:17:02.960 the inventory receipts that we had last year. It was 0:17:02.960 --> 0:17:06.280 also driven by rising interest rates. And you know, we 0:17:06.480 --> 0:17:09.280 found ourselves in a situation where we had to place 0:17:09.320 --> 0:17:11.360 debt in the pandemic and then had a two year 0:17:11.440 --> 0:17:13.840 no call on it, which left us shut out by 0:17:13.880 --> 0:17:15.400 the time we got around to trying to get back 0:17:15.400 --> 0:17:17.760 into the markets again. And we're going to come back 0:17:17.760 --> 0:17:20.320 to the markets as soon as they open up. And 0:17:23.359 --> 0:17:26.280 it's that debt, and that's that's one of our priorities 0:17:26.280 --> 0:17:28.680 for us, But there's things we're doing to mitigate that. 0:17:28.840 --> 0:17:32.040 You know, we're landing our inventory much more differently. You know, 0:17:32.080 --> 0:17:34.320 we're not holding as much of it. We're going to increaseable, 0:17:34.400 --> 0:17:37.800 we are increasing the turns in our business, and the 0:17:37.880 --> 0:17:40.000 reality is will chip away at that side of it 0:17:40.040 --> 0:17:42.360 as well. I think the question would be is how's 0:17:42.359 --> 0:17:44.280 the consumer doing with it? And it's like, you know, 0:17:44.840 --> 0:17:48.240 she's taken it in our stride. What does that mean? 0:17:50.000 --> 0:17:53.920 What does an inner stride mean? Well, you know, it's 0:17:53.960 --> 0:17:56.480 just like she's I think she's probably finding ways to 0:17:56.520 --> 0:17:59.920 cut corners, but there are certain go tos that she wants. 0:18:00.000 --> 0:18:02.120 So if I look at my business, my best stats, 0:18:02.440 --> 0:18:05.639 or I've got a handful of best stats, and you 0:18:05.640 --> 0:18:07.320 know one of those is swim, one of those is 0:18:07.320 --> 0:18:09.320 out to where one of those is the fit of 0:18:10.119 --> 0:18:13.040 the fit of our product, particularly the bottoms, and we 0:18:13.160 --> 0:18:17.080 see her leaning into those categories in night. She's she's 0:18:17.240 --> 0:18:19.920 still very much inclined to take those on the if 0:18:19.920 --> 0:18:22.600 I if I compare that with my business in Europe, 0:18:23.000 --> 0:18:24.959 it's been a little tougher with the business in Europe 0:18:24.960 --> 0:18:28.000 because you know, once once we got into the war 0:18:28.119 --> 0:18:31.000 with Ukraine. In Europe, we sort of business really sort 0:18:31.000 --> 0:18:33.879 of way back down, and when we felt that, we 0:18:34.000 --> 0:18:37.040 felt that resistance. But most of the last year, Yeah, Andrew, 0:18:37.080 --> 0:18:39.520 I wonder what sort of keeps you up at night. 0:18:39.640 --> 0:18:42.959 As as the biggest risk, I mean, my guess is, um, 0:18:43.520 --> 0:18:47.439 this labor market has proven to be so strong, the 0:18:47.480 --> 0:18:51.040 consumers still remains strong. Is that the main risk? Do 0:18:51.040 --> 0:18:54.560 you think? Just um, a creepier in the in the 0:18:54.920 --> 0:18:58.920 unemployment rate and sort of less confidence among consumers. Is 0:18:58.920 --> 0:19:02.000 that a risk this year? Yes? It is. I mean, 0:19:02.480 --> 0:19:05.399 you know, but I have this amazing trove of data. 0:19:05.520 --> 0:19:07.320 Tropes are funny word, but I've been using that a 0:19:07.320 --> 0:19:09.520 lot to day. I have this, I have this trove 0:19:09.600 --> 0:19:12.240 of data, and that's like I'm looking at my customer. 0:19:12.320 --> 0:19:14.760 You know, there's definitely a customer in there who is 0:19:15.680 --> 0:19:18.600 feeling is feeling the interest rates. But you know, again 0:19:18.680 --> 0:19:21.520 she's switching as I talked about two product categories that 0:19:21.640 --> 0:19:24.280 really work for her, and I can I can see 0:19:24.359 --> 0:19:27.920 the energy through the through the first Quarterman, I passed 0:19:27.920 --> 0:19:29.560 the midpoint of the first quarter, so I can see 0:19:29.600 --> 0:19:31.600 the energy of where she's at in the first quarter. 0:19:31.840 --> 0:19:34.200 That'll carry through to the second quarter, but you know, 0:19:34.320 --> 0:19:36.760 some sort of system shot to that, and you know 0:19:36.880 --> 0:19:39.200 it's harder to see for the back half of the year. Hey, 0:19:39.359 --> 0:19:41.679 one last question, Andrew, if I'm in We've just got 0:19:41.720 --> 0:19:43.960 about thirty seconds. I mean, in an environment where we 0:19:44.000 --> 0:19:45.680 are so focused on what's going on in the banking 0:19:45.760 --> 0:19:48.200 community right now and we've seen it create some stress, 0:19:48.280 --> 0:19:52.520 certainly in financial markets, how do you factor that in 0:19:52.840 --> 0:19:55.920 at all in terms of your job? And again, just 0:19:56.000 --> 0:19:59.040 got about twenty seconds. I'm just going to make sure 0:19:59.200 --> 0:20:03.280 that it's like we're appropriately financed, we have access to 0:20:03.359 --> 0:20:05.960 the capitol we need, and then I'm going to I'm 0:20:05.960 --> 0:20:08.520 going to just tell you the customers. I'm not experiencing 0:20:08.560 --> 0:20:10.920 it through my customer right now. She's not said I 0:20:11.040 --> 0:20:13.919 see a crisis, I'm going to react differently. She's trucked 0:20:13.960 --> 0:20:16.720 on right through that. And I hope that continues. All right. Well, 0:20:16.800 --> 0:20:20.320 really good to get your perspective, really appreciated, Andrew McClean, 0:20:20.560 --> 0:20:24.320 his chief executive officer at LANDS. You're listening to the 0:20:24.400 --> 0:20:28.600 Bloomberg Business Week podcast. Catch us live weekday afternoons from 0:20:28.680 --> 0:20:32.240 three to six Eastern on Bloomberg Radio, the Bloomberg Business 0:20:32.320 --> 0:20:35.600 app and YouTube. You can also listen live on Amazon 0:20:35.640 --> 0:20:39.040 Alexa from our flagship New York station. Just say Alexa 0:20:39.320 --> 0:20:44.359 play Bloomberg eleven thirty. We want to get to another 0:20:44.480 --> 0:20:47.160 name that was rolling in today's session following their latest 0:20:47.240 --> 0:20:50.280 quarterly update earlier this morning. We're talking about lands And 0:20:50.880 --> 0:20:52.760 which is a great check in terms of what's going 0:20:52.800 --> 0:20:56.120 on in retail and the consumer. The company's first quarternet 0:20:56.160 --> 0:20:58.879 revenue forecast beating estimates, helping to send the small cap 0:20:59.040 --> 0:21:02.480 stock rolling around eighteen percent today. So let's get to it. 0:21:03.119 --> 0:21:06.080 We have the company's CEO, Andrew McClean. He is with 0:21:06.280 --> 0:21:09.800 us on zoom in Wisconsin. Andrew, nice to have you 0:21:09.920 --> 0:21:13.520 back with us here on Bloomberg. Luck going on, Sorry, 0:21:13.600 --> 0:21:16.399 just trying to keep up here. How do you feel 0:21:16.400 --> 0:21:20.080 about the environment right now? You know, I feel pretty 0:21:20.080 --> 0:21:23.320 good about the environment. We look at our customer like 0:21:23.480 --> 0:21:25.600 in some detail. We've got seven million of them, so 0:21:25.720 --> 0:21:28.400 we've got a lot of data to work with. We're 0:21:28.440 --> 0:21:32.000 seeing that they're they're relatively robust right now. They're sort 0:21:32.000 --> 0:21:35.920 of weathering inflation, they're weathering the political environment, they're weathering 0:21:36.800 --> 0:21:39.040