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Speaker 3: Today will look at why Capital Ones bid for Discover
Speaker 3: will likely face a rigorous anti trust review by the
Speaker 3: US Justice Department.
Speaker 4: Plus we'll discuss how shrinking advertising on traditional TV channels
Speaker 4: is impacting sales at Paramount Global.
Speaker 3: But first we dive into the retail space. This week,
Speaker 3: Macy's said it plans to close almost a third of
Speaker 3: its US locations. And this comes despite Macy's reporting fourth
Speaker 3: quarter revenue and earnings that exceeded low analyst expectations.
Speaker 4: All right, for more, we're joined now by Mary ross Gilbert,
Speaker 4: senior equity analyst who covers retail for Bloomberg Intelligence. And
Speaker 4: we first asked Mary about her take on Macy's most
Speaker 4: recent quarter.
Speaker 7: The focus really wasn't on how they did in the
Speaker 7: fourth quarter. It's really their new plan that was the
Speaker 7: big focus. The new plan and their guidance for the year.
Speaker 7: So their guidance came in softer than consensus, and I
Speaker 7: guess it's just no surprise just thinking about how department
Speaker 7: stores are under pressure, and we've seen it across the
Speaker 7: board with you know, again, Dillard's showed some weakness. We're
Speaker 7: seeing it with Macy's in their outlook. But Macy's has
Speaker 7: a plan to address the department store model in shuddering
Speaker 7: one hundred and fifty underperforming stores, and then they're going
Speaker 7: to invest in the three hundred and fifty remaining and
Speaker 7: those are going to be primarily an A and A
Speaker 7: plus plus plus malls and what they're going to do
Speaker 7: is increase the service levels. Beauty has been something they've
Speaker 7: been investing in almost every year and expanding the floor
Speaker 7: space dedicated to beauty. You'll see that they have expanded
Speaker 7: the space and who knows, they could expand it again
Speaker 7: this year. We've been seeing it for the last five
Speaker 7: years that that space has been expanded. So there's a
Speaker 7: lot of details in what Macy's is doing. It's something
Speaker 7: they need to do. They really need to up their game,
Speaker 7: and that's exactly how they started their presentation, and that
Speaker 7: includes really making the assortments a lot better than they
Speaker 7: are because if you look at the inline store performance
Speaker 7: at malls, the ones that are executing, such as the Abercrombies,
Speaker 7: the Urban Outfitters, they're outperforming.
Speaker 3: So Mary I was kind of surprised to see this
Speaker 3: number of stores one p fifty because I kind of
Speaker 3: thought that this decade plus long shrinkage of department store
Speaker 3: footprints across the country by a lot of different companies,
Speaker 3: that was more or less kind of we're done that,
Speaker 3: or we're at near the finish line. So to see
Speaker 3: another big round of closings that kind of surprised me.
Speaker 3: Did it surprise the market at all, or is this
Speaker 3: something that analyst and investors have been asking for.
Speaker 7: What Macie's had said is, we don't need to close
Speaker 7: stores except for the usual stores that you close every year,
Speaker 7: which is maybe less than ten per year. But the
Speaker 7: reason that they've decided to close them is because these
Speaker 7: stores were underperforming, but they were still profitable on a
Speaker 7: four wall basis, so historically that their thought was, well,
Speaker 7: if it's still profitable and we're still generating cash, we'll
Speaker 7: keep it open.
Speaker 2: And this time what they.
Speaker 7: Did is they took a more holistic approach and said, Okay,
Speaker 7: even though it's four wall profitable, we could do a
Speaker 7: lot better with the funds that we could generate closing
Speaker 7: these stores, selling the real estate and redeploying it back
Speaker 7: into the existing store base. And for all the initiatives
Speaker 7: that they have going forward, it makes a lot of
Speaker 7: sense because we really need to rethink the department store model.
Speaker 7: It has to evolve.
Speaker 6: Mary.
Speaker 4: Does this do enough to get activist investors off Macy's back?
Speaker 7: That is a good question.
Speaker 1: I think it may.
Speaker 7: I think board has made it very clear that they
Speaker 7: are supporting this plan. Could they enhance the board with
Speaker 7: additional directors. That could be a possibility, so learn more
Speaker 7: about that in the coming months. But I think that
Speaker 7: this plan is it's been decided that this is the
Speaker 7: move forward. And when you think about what's happening with
Speaker 7: the activists, it usually involves the real estate, and what
Speaker 7: we have seen in past transactions is the real estate
Speaker 7: is usually milked and it can be to the detriment
Speaker 7: of the retail operations.
Speaker 3: Talk to us about that, like a relative performance between
Speaker 3: like a Macy's store and a comparable Bloomingdale store. Is
Speaker 3: the Bloomingdale store maturely more profitable?
Speaker 7: I guess yes, they don't disclose the profitability on Bloomingdale's
Speaker 7: versus Macy's, but Bloomingdale's outperforms, as does bloom Mercury. This year,
Speaker 7: their comp sales were down one point six percent because
Speaker 7: the aspirational luxury consumer is spending less and we've been,
Speaker 7: you know, hearing about the overall luxury business being impacted,
Speaker 7: especially after we came off the post pandemic spending from
Speaker 7: stimulus checks that really had that aspirational customer going after luxury.
Speaker 7: So now that that's kind of falling back, we're seeing
Speaker 7: more of a normalization. This is something Nordstrom Asco slided,
Speaker 7: so their sales were just down one point six percent,
Speaker 7: but they think that could probably stabilize and go higher
Speaker 7: next year. And of course, you know what the beauty
Speaker 7: side on luxury, you know that's posting positive comp sales.
Speaker 4: Yeah, Mary, I was going to ask about then the inventory.
Speaker 4: Macy's notoriously last year struggled with inventory. The last quarter
Speaker 4: we saw they really got it together. What did we
Speaker 4: learn this quarter about their inventory?
Speaker 7: Yeah, so even though inventory it was up two percent
Speaker 7: year every year, it's still down over twenty percent versus
Speaker 7: twenty nineteen. So they've really done a great job reducing
Speaker 7: their inventory, and that means that they're having less clearance activity.
Speaker 7: This is something that's going to affect their first quarter
Speaker 7: because last year they had more clearance and this year less.
Speaker 7: So they're doing a great job overall. They've just been
Speaker 7: improving their execution with data technology, logistics, and they're going
Speaker 7: to be even employing some generative AI. They've already been
Speaker 7: employing machine learning, so we'll see more. And they're going
Speaker 7: to be streamlining operations. We didn't talk about that, but
Speaker 7: they're going to be consolidating some of their facilities, so
Speaker 7: they've really and they've reduced layers within the management structure,
Speaker 7: so overall simplifying the operations. So all of these things
Speaker 7: could restore positive growth in twenty twenty five.
Speaker 3: Our thanks to Mary Ross Gilbert, senior equity analysts who
Speaker 3: covers retail for Bloomberg and Eligence.
Speaker 5: We moved now to the auto industry.
Speaker 4: You know, we were told earlier in the week that
Speaker 4: Apple is canceling a decade long effort to build an.
Speaker 3: EV For more on this in the current state of
Speaker 3: the electric vehicle industry, we were joined by David Welch,
Speaker 3: Bloomberg Detroit Bureau chief. We first asked for his take
Speaker 3: on this week's news.
Speaker 8: Look, really, take the airplane up about twenty thousand feet
Speaker 8: on Apple's decision. Their margins are what thirty or forty percent,
Speaker 8: and gross margins for Tesla and General motors about the
Speaker 8: same in these days at about sixteen percent, and you
Speaker 8: have to spend billions of dollars to make this vehicle.
Speaker 8: Why would they do that? So I think that's really
Speaker 8: what this is about. They were looking at an electric
Speaker 8: vehicle that was going to be about one hundred thousand dollars,
Speaker 8: So this was going to be a luxury Apple EV
Speaker 8: and we're you know, we see Rivian, we see Lucid. Yeah,
Speaker 8: you know that's rare.
Speaker 1: Frid Air.
Speaker 8: That's a tough sell. There's just they're just don't that
Speaker 8: many people who can afford one hundred thousand dollars vehicle.
Speaker 8: And then one other thing I'd like to bring up
Speaker 8: with Apple is they talked about Apple TV for a
Speaker 8: long time and everyone thought we were going to have
Speaker 8: this Apple TV hanging on the wall. But eaking television just
Speaker 8: allows you high capital the bow marching business kind of
Speaker 8: like automobiles. And then they gave us a box with content.
Speaker 8: So you know, Apple supplies car plator automakers. You know,
Speaker 8: they may still have an auto play with some kind
Speaker 8: of content sort of thing in their vehicles. But I
Speaker 8: think they looked at the capital side of this and said,
Speaker 8: you know, that's not what they do. They create cool
Speaker 8: stuff and contract someone else to make it. The business
Speaker 8: just never made a lot of sense.
Speaker 3: Hey, David, what's the feeling in Detroit these days as
Speaker 3: to kind of how this EV thing is going to
Speaker 3: evolve going forward? I mean, it seems to have hit
Speaker 3: kind of a lull here in terms of the enthusiasm,
Speaker 3: and I guess a lot of folks are trying to
Speaker 3: get a sense of Is it because the costs is
Speaker 3: just too high? Is it because people just don't like evs?
Speaker 3: Is it because there's not enough choice, there's not enough
Speaker 3: charging stations. What's the feeling in Detroit is how this
Speaker 3: thing will evolve?
Speaker 8: It's all of that, but I would say especially choice
Speaker 8: and price. I mean, look, there's one EV on the
Speaker 8: US market that sells for less than forty thousand dollars.
Speaker 8: Now it's a Nissan a Lead. It's a compact hatchback,
Speaker 8: which Americans hate, that gets about two hundred miles of range,
Speaker 8: and so everything else is much more expensive than that,
Speaker 8: and for most Americans that doesn't cut it, particularly when
Speaker 8: the charging network is bad. It's all these things are
Speaker 8: sort of related. But I think the carmakers are now
Speaker 8: really cautiously watching this and in the vehicle to watch
Speaker 8: in the next year is General Motors is going to
Speaker 8: sell an electric Chevy Equinox. So the Equinox is a
Speaker 8: small crossover reshuerv. It's that's kind of the new family
Speaker 8: car because no one buys Sedanze and they're going to
Speaker 8: sell that EV for thirty five thousand dollars and it'll
Speaker 8: go three hundred and twenty miles on a charge, which
Speaker 8: is pretty good. And that will kind of tell us
Speaker 8: if the mass market is ready to go electric, because
Speaker 8: right now, a lot of the people who buy evs,
Speaker 8: they're not just early adopters and rich people. They are
Speaker 8: early adopters and rich people with three or four other
Speaker 8: cars in the garage. So if they need to drive
Speaker 8: on a long run trip, they pull the land rover around,
Speaker 8: gass it up, and go. And so can the industry
Speaker 8: sell evs to people who have one car in their gage?
Speaker 8: And we'll see. So that's going to tell us a
Speaker 8: lot about what's going to happen with this market and
Speaker 8: how flat the middle of this S curve is in
Speaker 8: order to get to the next.
Speaker 4: Way, David, I'm also wondering just the mood, I mean,
Speaker 4: to Paul's point, the mood in.
Speaker 5: Detroit, Like, how do the workers feel about all of this? Right?
Speaker 4: I mean, we know the shift to evs eventually, when
Speaker 4: you're just making EV's, you need less workers, et cetera.
Speaker 5: And I'm just wondering, kind.
Speaker 4: Of, yeah, like how do they feel right now?
Speaker 8: So I'm not totally convinced by the way that it's
Speaker 8: going to need fewer workers. I think over a long
Speaker 8: period of time maybe, but that's a different issue that
Speaker 8: the union worker does think that, and they also think
Speaker 8: that the engine and transmission jobs will be gone and
Speaker 8: batteries will come in from someplace else.
Speaker 9: And they won't be the ones making them.
Speaker 8: So there is a lot of fear, and I think
Speaker 8: they're breathing some kind of a side of relief that
Speaker 8: maybe a lot of these workers are a bit older,
Speaker 8: they'll be retired before this is a real issue. And
Speaker 8: so I think if you're the union, you're looking at
Speaker 8: this transition as being longer and slower than everybody thought
Speaker 8: probably two years ago, and so to be more manageable,
Speaker 8: you know that the you know, the attrition can be
Speaker 8: just done by retirements and people want to lose their
Speaker 8: jobs and be left with nothing.
Speaker 3: It'll just But it is the commitment from the car
Speaker 3: companies still there, David, because I could make an argument
Speaker 3: I think half of this country will never go electric
Speaker 3: for reasons other than economics, other than powertrain.
Speaker 5: Was it like, look or what politics?
Speaker 3: I'm not going green?
Speaker 8: That's interesting. I've sort of thought for a long time
Speaker 8: that Elon Musk has gone conservative for two reasons. One,
Speaker 8: he's been fighting with the government, so he hates regulators.
Speaker 8: Democrats get pinned with regulation, so he went conservative. I
Speaker 8: think the other is that guy's a brilliant marketer. It's
Speaker 8: the most underrated thing about Elon Musk. He knows that
Speaker 8: EV's have been politicized, he knows conservatives don't like them,
Speaker 8: and so I think he went conservative because maybe they'll
Speaker 8: buy evs from their guy. Right, He's the guy on
Speaker 8: Twitter letting them say whatever they want. And I've always
Speaker 8: sort of thought, with no evidence, that maybe that's what
Speaker 8: he's doing. But eventually everyone's going to go EV because
Speaker 8: that'll just be the powertrain available. Question is how long
Speaker 8: does it take to get there?
Speaker 3: Our thanks to David Welch, Bloomberg Detroit Bureau Chief.
Speaker 4: All right, coming up, we're going to break down why
Speaker 4: a Capital One discovered deal will likely fase a rigorous
Speaker 4: antitrust review by the DOJ.
Speaker 3: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 3: depth research and data on two thousand companies and one
Speaker 3: hundred and thirty industries.
Speaker 4: I'll Paul Sweeney and Am alex deal, and this is Bloomberg.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Effo card playing Enroud
Speaker 2: Otto with the Bloomberg Business App. Listen on demand wherever
Speaker 2: you get your podcasts, or watch us live on YouTube.
Speaker 5: Next, we take a look at the anti trust base.
Speaker 4: So it's likely the Capital Ones bid for Discover will
Speaker 4: face a rigorous anti trust review by the DOJ. And
Speaker 4: this comes as the proposed thirty five point three billion
Speaker 4: dollar mega merger would create the largest credit card lender
Speaker 4: in the US.
Speaker 3: To discuss this and other deals that are facing scrutiny,
Speaker 3: we were joined by Jennifer Ree, Bloomberg Intelligence Senior litigation analyst.
Speaker 3: We first asked Jennifer for her Capital One Discover prediction.
Speaker 1: This one is such a tough one, you know. I
Speaker 1: think that the Department of Justice is kind of in
Speaker 1: a conundrum with this one, right because they're under a
Speaker 1: directive to get tougher on deals, and in particular get
Speaker 1: tougher on bank deals. I mean, this is come from
Speaker 1: back in twenty twenty one when President Biden issued an
Speaker 1: executive order saying, look, you know, we can't just rubber
Speaker 1: stamp these bank deals. We've got these huge banks. We've
Speaker 1: had problems with banking, and we need to get more aggressive.
Speaker 1: And the Department of Justice is on board with that,
Speaker 1: you know, we've heard their statement saying that they're on
Speaker 1: board with that. But we also have a market that
Speaker 1: simply hasn't been competitive for many, many, many years, and
Speaker 1: that's in credit card processing.
Speaker 6: Right.
Speaker 1: We really have just two biggies, Visa and MasterCard, and
Speaker 1: this deal provides an opportunity to really bolster competition in
Speaker 1: an area that's been problematic ever since. I can remember
Speaker 1: when I started anti trust, the very first lawsuit I
Speaker 1: worked on was the Department of Justice versus Visa and MasterCard,
Speaker 1: alleging that they were engaging in conduct that was blocking
Speaker 1: out Discover and American Express. And ever since then, we've
Speaker 1: had allegations of or private litigation public litigation against those
Speaker 1: two companies for anti trust violations, and we've had regulation.
Speaker 1: So this deal does have these strong pro competitive benefits,
Speaker 1: but you've also seen massive political reaction against it. So
Speaker 1: you really have two very strong opposing sides, and I
Speaker 1: think it's just going to come down to the investigation
Speaker 1: and how the Department of Justice views the credit card
Speaker 1: issuing market and the overlaps in the credit card issuing
Speaker 1: market between these two companies, and how out any potential
Speaker 1: for harm it might find against this this pro competitive aspect.
Speaker 3: So, but it seems like a reasonable argument that putting
Speaker 3: Capital One and Discovered together does in fact create a
Speaker 3: viable competitor to Visa master Card. Otherwise there will never
Speaker 3: be a viable competitor.
Speaker 1: Actly Yeah, No, that's exactly right. And that's why this
Speaker 1: is an unusual deal, because you know, all companies with
Speaker 1: deals come in and say, oh, there are all sorts
Speaker 1: of pro competitive benefits that are going to benefit consumers
Speaker 1: and innovation, et cetera. And usually sometimes they're kind of
Speaker 1: lawyer created. Sometimes they're really you know, it's unclear whether
Speaker 1: they're going to come to fruition. And most of the
Speaker 1: time the Department of Justice or Federal Trade Commission are
Speaker 1: going to be very skeptical about those claims. They say
Speaker 1: they don't really ever bear fruit. But in this case,
Speaker 1: it's a much stronger claim, and it is kind of
Speaker 1: obvious to see how there really truly could be a
Speaker 1: very significant pro competitive benefit here, and so it could
Speaker 1: be one of these unique deals where that aspect is
Speaker 1: given more weight than usual by the Department of Justice
Speaker 1: and possibly be considered important enough to allow the deal
Speaker 1: to go through even if there might be some other issues.
Speaker 4: Jen couldn't I have made the same argument with say
Speaker 4: Spirit and Jet Blue, and that definitely didn't work out.
Speaker 1: You know, it's so interesting you bring that up, because
Speaker 1: I see so many parallels between that case and this case,
Speaker 1: even though completely different industries. Because there was a very
Speaker 1: strong argument that those two combined could have bolstered competition
Speaker 1: against the legacy airlines Delta, United, etc. But the problem
Speaker 1: there was that there was a small set of consumers
Speaker 1: that really depended on the unbundled low fares that were
Speaker 1: offered by Spirit and we're going to lose out where
Speaker 1: jet Blue took over those routes and retrofitted the planes
Speaker 1: and created more space but raised fares and a weird way,
Speaker 1: you kind of have the same dynamic here. You can
Speaker 1: create a lot more competition as against the incumbents, the
Speaker 1: big legacies Visa and MasterCard, but you might have some
Speaker 1: sort of a negative effect on underserved consumers. Because Capital
Speaker 1: wanted to discover when they issue credit they tend to
Speaker 1: focus more on underserved populations then do some of the
Speaker 1: other big issuers of credit, so people who are new
Speaker 1: to credit, people who carry a revolving balance, subprime borrowers.
Speaker 1: And it may be that there's a view that this
Speaker 1: impacts a smaller group of subprime borrowers, and in Jet
Speaker 1: Blue and Spirit at the end of the day, that
Speaker 1: one out the DOJ one because of that harmful impact
Speaker 1: on a small set of particular consumers. You have the
Speaker 1: same thing here, but what you might have here is
Speaker 1: a stronger argument on the pro competitive side than you
Speaker 1: had in that case.
Speaker 4: Is there an argument you made for some of these
Speaker 4: potential deals that are getting a hard time from the
Speaker 4: DJ or FTC to kind of bide time till the
Speaker 4: number six of this.
Speaker 1: Year absolutely went off the.
Speaker 5: Clock, Like is this part of a strategy?
Speaker 1: I mean absolutely, And look at Capital one and discover
Speaker 1: they very well are probably going to bleed into the
Speaker 1: next administration, whether it's Democrat or Republican, there is no doubt, Alex.
Speaker 1: I mean, historically Republican administrations have the reputation in the
Speaker 1: merger world of being more business friendly and also being
Speaker 1: far less skeptical of claims of efficiencies, giving them a
Speaker 1: lot more weight, and that's going to be important. As
Speaker 1: I mentioned, in this deal. Right now, it's a little
Speaker 1: bit of a wildcard. It used to be ten years
Speaker 1: ago that whoever came in to run the FTC, if
Speaker 1: we had a Republican president, whoever got appointed as chair,
Speaker 1: the Republican majority there, and whoever came in on the
Speaker 1: DOJ side, we're likely to be more business friendly or
Speaker 1: likely to look at efficiencies in a more friendly manner.
Speaker 1: Right now, though, we have kind of two different kinds
Speaker 1: of Republicans. You have sort of a Josh Holly type
Speaker 1: and that you guys may have seen in the news
Speaker 1: that he's already come out and complained about this deal,
Speaker 1: said the Department of Justice should block it. And then
Speaker 1: you kind of have the Joe Simon's type, who was
Speaker 1: the chair of the FTC in the previous Trump administration,
Speaker 1: a little bit more traditional in the way we think
Speaker 1: of Republicans in the antitrust world. And so I think
Speaker 1: to some extent it might depend on who you get
Speaker 1: at the DOJ, but I would still say that it
Speaker 1: ticks higher. The chances of getting cleared probably tick higher
Speaker 1: if we have a change of administrations next year.
Speaker 3: Our thanks to Jennifer Ree, Bloomberg Intelligence senior litigation analysts.
Speaker 4: All right, let's go to big tech, Paul, because Amazon
Speaker 4: dot Com finally joined the famous Dow Jones Industrial Average.
Speaker 4: So this week the e commerce giant replaced Walgreens Boots
Speaker 4: Alliance in the thirty stockage.
Speaker 3: Yes, Amazon's inclusion in the Dow is another milestone and
Speaker 3: the retailer's rapid expansion. The company already sells goods of
Speaker 3: all kinds and runs the world's largest cloud computing business.
Speaker 3: But Amazon is still working on ongoing initiatives to boost
Speaker 3: market share and profits.
Speaker 4: So discuss all things Amazon and the ladies in the
Speaker 4: retail space were joined now by Punham Goyle, senior US
Speaker 4: e Commerce and retail analysts at Bloomberg Intelligence. We first
Speaker 4: asked her why people are getting so excited about Amazon.
Speaker 6: I think it's all about profits. For a long time,
Speaker 6: Amazon was all about marketshare, and today the story is
Speaker 6: really a profit story. It's the profitability that's about to
Speaker 6: unfold at Amazon that's really getting people excited and interested.
Speaker 6: We wrote about this a few months ago, where you know,
Speaker 6: if you look at their most lucrative businesses and everyone
Speaker 6: knows of the cloud, which generates thirty percent bit margins,
Speaker 6: which we think can go to forty percent. That could
Speaker 6: be a two hundred billion dollar business. So you're looking
Speaker 6: at sixty to eighty billion dollars in profits in the
Speaker 6: coming years. But then if you add advertising to then, Paul,
Speaker 6: you know the space, well, they have fifty percent ebit
Speaker 6: margins and we can see advertising growing to one hundred
Speaker 6: billion dollars in just a few years. So you're talking
Speaker 6: about fifty billion in advertising, plus if you add another
Speaker 6: sixty seventy of cloud, you're talking a big profit number here,
Speaker 6: and I think that's what's getting people excited. Aside from that,
Speaker 6: retail is growing, and part of the reason that advertising
Speaker 6: is doing so well is because people go into Amazon
Speaker 6: as if it was a search engine. Right, You go
Speaker 6: in and you search for something. But the difference with
Speaker 6: Amazon versus a search engine is you go with the
Speaker 6: purchase intent. People go into Amazon looking for something and
Speaker 6: to Colleck that buy button. They already know they want it,
Speaker 6: They just want to find it and get it there
Speaker 6: in two days or less.
Speaker 4: That is such a good point, and this is a
Speaker 4: great example of this story of Amazon replacing one So
Speaker 4: I was talking to an anchor who's been struggling with
Speaker 4: feeling sick and feels like that winter, like you're just
Speaker 4: sick all the time. And I was telling about Airborne,
Speaker 4: which you take if you feel a coming on of
Speaker 4: a cold.
Speaker 5: She's like, oh, where do I buy it?
Speaker 4: Amazon? And I'm like, no, go to your local drug store.
Speaker 4: It's two blocks away. But that idea, right, like walking
Speaker 4: those two blocks isn't going to happen. And I have
Speaker 4: to go to Amazon to buy the thing because it'll
Speaker 4: come in two days.
Speaker 5: And I'm not even worried about it. Where is the downside?
Speaker 2: Though?
Speaker 5: Who know?
Speaker 4: I mean, you laid out a pretty convincing case, So
Speaker 4: how do I I don't know what do I worry about?
Speaker 6: So I think you know the downside? If we enter
Speaker 6: a consumer recession, clearly Amazon will be impacted, right, so
Speaker 6: we'll the rest of retail. But I think that's near term,
Speaker 6: and as we've seen in past cycles, what goes down
Speaker 6: comes up eventually. Amazon is one of those places where
Speaker 6: we think if you view it for the longer term,
Speaker 6: there's just a lot of opportunity across all its businesses.
Speaker 6: We can't control the macro, but with the logistics platform
Speaker 6: in place, and even this example that you gave. You know,
Speaker 6: you need cold medicine, or you need anything, and you
Speaker 6: have to go to CBS or somewhere else because you
Speaker 6: need it. Now you can't wait six hours, twelve hours,
Speaker 6: twenty four hours for it. But I'll tell you that
Speaker 6: Amazon's delivery has gotten much faster. I mean I'm seeing
Speaker 6: stuff at my door that I ordered in less than
Speaker 6: twenty four hours, sometimes eight to twelve hours. And that's
Speaker 6: pretty incredible. And that's really a part due to their
Speaker 6: realignment of their distribution centers, which they're able to infuse
Speaker 6: an even faster delivery.
Speaker 3: See it now, I have a general idea where Punham
Speaker 3: and our family live. It's literally amongst or very close to,
Speaker 3: like I think all these distribution centers in Central Jersey.
Speaker 3: It's unbelievable. I think we've got to be like the
Speaker 3: Central we have to be like the distribution hub of
Speaker 3: the East Coast.
Speaker 5: It seems like I feel like a Jersey primo.
Speaker 3: Oh yeah, wh yeah, I am. So when I see
Speaker 3: the Gove, I tell them, you know, so put them
Speaker 3: let's backway from Amazon talk to us about just retail
Speaker 3: in general. Here how's the consumer doing out there? What
Speaker 3: are you hearing from your companies?
Speaker 6: I think the consumer is very focused on value today.
Speaker 6: If you're seeing the retailers that are actually being able
Speaker 6: to drive the share gains, you'll see that they offer
Speaker 6: some sort of value in their proposition, whether it was
Speaker 6: from Walmart, you know, that's doing well. But then we
Speaker 6: hear from the other retailers, the more discretionary ones, and
Speaker 6: they're struggling. Even the at leisure companies. We heard, you know,
Speaker 6: from Puma and Adidas. We heard from some of the
Speaker 6: other companies where they may have done well in four
Speaker 6: Q because holiday was really strong last year, but when
Speaker 6: they look out for their guidance, it's been conservative for
Speaker 6: the most part from most of the retailers that I've
Speaker 6: heard from, And I think that just goes to show
Speaker 6: you that you have to have what the consumer wants,
Speaker 6: and you have to have it at the price that
Speaker 6: the consumer wants for you to actually succeed in today's environment.
Speaker 3: You know, we talk about inflation. Punum prices buy and
Speaker 3: large in the supermarket don't come down after they shot up. However,
Speaker 3: many per percent here, that's just the inflation rate of
Speaker 3: growth is slowing. How about for like Adidas, do they
Speaker 3: ever cut the price of a shoe because inflation's declining?
Speaker 6: That No, they had discounts, right, So if you want
Speaker 6: to bring prices down, retailers use discounts as a medium
Speaker 6: to do that. But once prices go up, they don't
Speaker 6: come down.
Speaker 3: See that's a problem with inflation. That's why inflation is insidious.
Speaker 5: Yeah.
Speaker 4: But so to kind of Paul's question, but really to
Speaker 4: my question, are we going to see a lot of
Speaker 4: discounting from retailers?
Speaker 6: So?
Speaker 5: I don't know if you guys know this.
Speaker 4: Have we talked about alex as a counter indicator?
Speaker 3: No?
Speaker 4: I only shop on sale, Okay, so where I'm shopping,
Speaker 4: you should be shorting the stocks. So this is a
Speaker 4: joke that winds up happening because I'm shopping there because
Speaker 4: their inventory is bloated and because the sales are so good.
Speaker 4: So am I going to be going to Bluemy's in
Speaker 4: the next couple of weeks or they finally have their
Speaker 4: pricing power and inventory in check?
Speaker 6: I think inventory is getting more in check as we
Speaker 6: move into the spring. So I was in stored. The
Speaker 6: discounts were pretty reasonable. They weren't too aggressive. There were
Speaker 6: some clearance wracks across them all, but I can tell
Speaker 6: you the stores were quiet. So it's it's interesting because
Speaker 6: there's new inventory that's flown in for the spring, and
Speaker 6: as stores put this new inventory out, they're going to
Speaker 6: be a little careful with their discounting and we could
Speaker 6: see more discounts come in in April on the spring
Speaker 6: inventory before now they're being steady and careful with them.
Speaker 3: Our thanks to put them. Goyle, Senior US e Commerce
Speaker 3: and retail analyst at Bloomberg Intelligence.
Speaker 4: Coming up on the program a conversation with Mark Hoplomasian
Speaker 4: President and CEO of Hyatt Hotels in the state of
Speaker 4: the hotel industry.
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Speaker 4: I'm Paul Sweeney and I'm Alex Deeal and this is Bloomberg.
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Speaker 2: Say Alexa played Bloomberg eleven.
Speaker 4: We moved out of the hotel industry, so Highed Hotels
Speaker 4: recently reported net income for the fourth quarter and full
Speaker 4: year twenty twenty three that surpassed analyst expectations.
Speaker 3: For more on this and the state of the hotel industry,
Speaker 3: we were joined by Mark Hopplomasian President and chief executive
Speaker 3: officer of Hia Hotels. When we first asked them about
Speaker 3: Hyatt's most recent quarterly results and the messaging the company
Speaker 3: is trying to get across.
Speaker 9: The clear message was really centered around the fact that
Speaker 9: the transformation of the company to asset lighter platform has
Speaker 9: now shown up in the numbers in a very material way.
Speaker 9: We had the highest pre cash flow that in the
Speaker 9: company's history. We also had the mix of our asset
Speaker 9: light earnings to our total earnings went up to seventy
Speaker 9: six percent five years ago. That was in the mid forties.
Speaker 3: Hey Mark described first, what your asset light strategy is
Speaker 3: is I'm relying more on franchisees.
Speaker 9: Yeah, so it's not really I wouldn't call it an
Speaker 9: asset light strategy. I would call it an asset light
Speaker 9: program where we were selling down we had we had
Speaker 9: two major drivers of our earnings. One was from real
Speaker 9: estate that we own hotels, and the other ones from
Speaker 9: management franchising hotels across the world. We're primarily a management business,
Speaker 9: not a franchise business, but those are the two businesses.
Speaker 9: So as we sell down real estate, the proportion that's
Speaker 9: coming from real estate sourced earnings has been dropping. We've
Speaker 9: concurrently reinvested in buying new platforms and new brands over
Speaker 9: the last five years, and that has driven up our
Speaker 9: management and franchising fees at the same time, so the
Speaker 9: mix has shifted to much more in the management and
Speaker 9: franchise fee driven business, which is very low capital intensivity
Speaker 9: and high margin and high free cash floaks inversion. So
Speaker 9: that was probably the key message. The other thing that
Speaker 9: we did is we simplified our financial presentation because we
Speaker 9: have a business that's a subscription model membership business called
Speaker 9: Unlimited Ucation Club, and we sold the majority interest in
Speaker 9: that business to a third party, which helped us simplify
Speaker 9: how we report our earnings, and that was very well
Speaker 9: received by investors.
Speaker 4: So Mark, that's you and the c suite managing all
Speaker 4: of that. What about the demand side of the business,
Speaker 4: What kind of pricing power do you have per room,
Speaker 4: and what's the demand situation like.
Speaker 9: We think about three different demand drivers. One is leisure,
Speaker 9: which has been the leader of the recovery through post
Speaker 9: COVID period. We think about group business, which is big
Speaker 9: meetings and conventions and things like that, and we also
Speaker 9: have business travel individual business travel. All three are showing
Speaker 9: signs of great momentum and positive outlooks. So starting with leisure,
Speaker 9: in the first quarter of this year, our pace meeting
Speaker 9: our bookings are up eleven percent for our all inclusive
Speaker 9: resorts in the Pervian and also up for our resorts
Speaker 9: in the Americas. But leisure travel has been really, really
Speaker 9: solid in China. We had a record year for Lunar
Speaker 9: New Year. The spending amongst Chinese, both inside of China
Speaker 9: and other destinations in Asia was at them all time high.
Speaker 9: So that's leisure in group Our pace into this year,
Speaker 9: that is forward bookings are up eight percent and so
Speaker 9: we're looking at another solid year of growth in meetings.
Speaker 9: And I think corporations are increasingly resolved to make sure
Speaker 9: that they prioritize those meetings, and then on business transient
Speaker 9: the US is lagging, but the overall business transient category
Speaker 9: demand around the world is about seven percent the low
Speaker 9: where it was pre pandemic, so we're getting closer and
Speaker 9: closer to being a parody. Europe is fully recovered, and
Speaker 9: then some China is fully recovered, and then some the
Speaker 9: United States is still lagging, and we're seeing positive signs
Speaker 9: of business transient travel increasing. So I would say across
Speaker 9: all three major categories, we're seeing positive trends into twenty.
Speaker 3: Four Mark, did you talked to us about M and
Speaker 3: A and kind of growth via acquisition? How does that
Speaker 3: figure into your growth plans? What are you guys messaging
Speaker 3: to the street about your willingness to engage in em Anda,
Speaker 3: because I know you had to buy out recently of
Speaker 3: the Apple Leisure Group. I want to see kind of
Speaker 3: your appetite is going forward.
Speaker 9: In the past five years, we've invested about three point
Speaker 9: eight billion dollars in acquisitions, the biggest one being Apple
Speaker 9: Leisure Group at two point seven billion, and it's been
Speaker 9: tremendously beneficial to us because we've been able to expand
Speaker 9: our customer base and highest growth and most relevant to
Speaker 9: US categories, which is leisure, lifestyle, and luxury, and so
Speaker 9: we've really done this in a very deliberate way to
Speaker 9: move the company in that direction. In the fourth quarter,
Speaker 9: I think we had fifty seven percent of our total
Speaker 9: rooms revenue around the world was leisure focused, which is
Speaker 9: up twenty points from the mid thirties to the mid
Speaker 9: fifties pre pandemics on now, so the mix in the
Speaker 9: company has tremendously shifted, but they're also been very profitable
Speaker 9: and high value acquisitions. The fees per room that we
Speaker 9: are earning are materially higher than they were five years
Speaker 9: ago before we made these acquisitions and evolved the company.
Speaker 9: Even as we have grown our select service brands, so
Speaker 9: we are expanding in lower price points, but our overall
Speaker 9: feed growth per room has been growing, which is really
Speaker 9: I think part of the equation of actually driving share
Speaker 9: holder value on an accelerated basis. I think there will
Speaker 9: be more opportunities for MNA in the future, but probably
Speaker 9: smaller scale.
Speaker 4: Talk to me about how expensive it is to run
Speaker 4: your business, like where costs coming down, where costs going up?
Speaker 9: First of all, let's start with the biggest cost category,
Speaker 9: which is people.
Speaker 5: Yeah, at our hotels in.
Speaker 9: Twenty twenty one non union markets, which is primarily in
Speaker 9: the South, the sun Belt, the smile of the United States.
Speaker 9: Our wage rates went up by twenty percent over the
Speaker 9: course of that year, and that started to mitigate or
Speaker 9: ameliorate in twenty twenty two and twenty twenty three. But
Speaker 9: we experienced a massively ac situation in terms of supply
Speaker 9: of labor.
Speaker 8: That's evened out.
Speaker 9: We were in the mid teams.
Speaker 4: That's evened out in that because we also talked about
Speaker 4: didn't we pall about cleaning services like not staffing housekeeping
Speaker 4: because it just can't find the workers. So do you
Speaker 4: feel like you're at the right spot?
Speaker 9: I would say that there are pockets where we still
Speaker 9: have shortages, and I think part of that has to
Speaker 9: do with the nature of the workforce at this point.
Speaker 9: So we've got a lot of the byproduct of not
Speaker 9: having a really advanced immigration policy in the United States
Speaker 9: and HTB VISA program, is that for at times, especially
Speaker 9: over the summer, where you have peat demand, we don't
Speaker 9: have the right type of labor that's willing to take
Speaker 9: those jobs and be happy to start their careers in
Speaker 9: those jobs. So I think they go together a lot
Speaker 9: of the HTB people that come in on an HDB visa,
Speaker 9: which is a temporary work visa. They come and they leave.
Speaker 9: For the incidence of immigration that allows us to hire
Speaker 9: people who are coming into the workforce in the United
Speaker 9: States for the first time has been under some pressure now.
Speaker 9: Having said that, overall, our vacancy rates have gone from
Speaker 9: mid teens to mid single digits, so down ten points,
Speaker 9: which is extraordinary, and that's over the last eighteen months.
Speaker 9: So we are having a better time finding labor, but
Speaker 9: they're definitely pockets of constraints, all right.
Speaker 4: Thanks to Mark Copplomaisian president and CEO of Hyatt Hotels.
Speaker 3: We now turn to the media and entertainment space. This week,
Speaker 3: Paramount Global, the paramount of CBS, MTV and other networks,
Speaker 3: reported fourth quarter sales below analyst expectations. This is largely
Speaker 3: the result of shrinking advertising on traditional TV channels.
Speaker 4: I heard that before. Still Paramount said it sees profit
Speaker 4: for Paramount Plus domestically in twenty twenty five. So for more,
Speaker 4: we're joined by guitamranghanad than Bloomberg intelligence analyst on US media,
Speaker 4: and we ask Gita about her takeaway on Paramount's earnings results.
Speaker 10: Streaming was definitely a key positive, and subscriber numbers those
Speaker 10: came in slightly ahead of estimates. The bigger positive was
Speaker 10: the RPOO trends. So remember Wall Street has now kind
Speaker 10: of shifted its focus away from subscriber growth to revenue
Speaker 10: growth as well as profitability, and they kind of scored
Speaker 10: pretty well on the revenue growth metrics as well. So
Speaker 10: arpoo increased about thirty percent through the year, and that's
Speaker 10: on the back of a price increase, and then the
Speaker 10: next thing, of course you look at was profitability and
Speaker 10: their narrowed, so they're obviously taking a step in the
Speaker 10: right direction. I think what investors are kind of really
Speaker 10: cheering though, is that they did articulate some kind of
Speaker 10: strategy to kind of get to profitability, and they outlined
Speaker 10: a timeframe as well, so twenty twenty five is when
Speaker 10: they're expecting paramount plus profitability, which is definitely I think
Speaker 10: good news. The question is, I'm not sure whether it's enough.
Speaker 3: What does the ownership here want to do with the company,
Speaker 3: And it appears by all accounts that they're just not
Speaker 3: big enough to compete against some of these big technology companies.
Speaker 3: Some of these big media companies like a Netflix, like
Speaker 3: a Disney, and boy, there's a lot of speculation around Paramount.
Speaker 3: Did they address that at all?
Speaker 10: They didn't. I mean the one thing though, that you know,
Speaker 10: I think Bob Bkish got out of the way was
Speaker 10: they are going to do something that is good for
Speaker 10: all shareholders. He kind of underlined that because there has
Speaker 10: been this constant, you know, question about whether you know,
Speaker 10: Sherry Redstone is kind of just going to cash out
Speaker 10: and leave everybody else hanging, and so he wanted to,
Speaker 10: you know, kind of get that out of the way.
Speaker 10: But again, you know, I think the focus is going
Speaker 10: to come, you know, the M and A options. Paul
Speaker 10: and we've discussed this seem to be shrinking at this point.
Speaker 10: You know, Warner Brothers, Discovery obviously said they're no longer interested.
Speaker 10: Other firms have kind of come taken a look. Apollo
Speaker 10: being one of them, said not interested. The only interested
Speaker 10: party right now is sky Dance, controlled by David Ellison.
Speaker 10: But again, there's really no natural buyer for all of
Speaker 10: the assets. He's not interested in controlling some TV networks.
Speaker 10: He's only really looking at the studio. So again, I'm
Speaker 10: not sure that Paramount Management necessarily wants to do kind
Speaker 10: of parts sale here, so I think they're going to
Speaker 10: kind of go back and focus on fundamentals. I think
Speaker 10: some of the realistic m ANDA expectations are kind of
Speaker 10: going to subside a little bit. We're going to go
Speaker 10: back to fundamentals, I think for the time being.
Speaker 4: Well to that point, then did they buy themselves some time?
Speaker 4: Because I could make an argument that, Okay, well the
Speaker 4: slowing and AD sales and maybe that's then industry wide thing. Okay,
Speaker 4: other players are getting hit. They did as a streaming subscribers,
Speaker 4: so they have some time now.
Speaker 5: Is that a real statement or no?
Speaker 10: I think so. I definitely think so, because with streaming,
Speaker 10: what we're going to see is we're going to see
Speaker 10: some sustained momentum in those ARPO increases, so they're doing more,
Speaker 10: you know, international price increases. They've kind of integrated showtime
Speaker 10: into Paramount and with that they've been able to take
Speaker 10: some price increases. So we're going to kind of see
Speaker 10: that play out so pretty much most of twenty twenty four.
Speaker 10: The question is what happens after twenty twenty four, But
Speaker 10: they definitely have bought themselves sometime.
Speaker 3: What is the outlook for the studio here at Gita Studio.
Speaker 10: Unfortunately, for twenty twenty four looks really really bleak. So
Speaker 10: the big movie, of course that everybody was kind of
Speaker 10: looking at, was Mission Impossible. That's been pushed out to
Speaker 10: twenty twenty five. We do have a few movies here
Speaker 10: and there. I mean, you have Quiet Plays that's coming
Speaker 10: out in June. There's obviously some anticipation building there. But again,
Speaker 10: in general, Paul, the box office outlook for twenty twenty
Speaker 10: four is just pretty weak, and that's just because of
Speaker 10: all of those Hollywood strikes. Has pushed out a lot
Speaker 10: of movies into twenty twenty five. It's kind of going
Speaker 10: to shave off I think at least two billion dollars
Speaker 10: off the box office.
Speaker 4: So presumably we're going to look through that, right, I mean,
Speaker 4: presumably they're going to recoup that and they'll be pent
Speaker 4: up in twenty twenty five.
Speaker 10: That is the big question, right. Yes, we've seen kind
Speaker 10: of box office demand and you know, in general kind
Speaker 10: of come back, but it's still about twenty percent below
Speaker 10: pre pandemic level. So the big question is, Okay, when
Speaker 10: all of those big titles kind of hit the screens
Speaker 10: in twenty twenty five, are we kind of going to
Speaker 10: see a bigger resurgence.
Speaker 6: The jury is still out.
Speaker 10: I think yes, it's definitely going to be better than twenty
Speaker 10: twenty four. Is it going to be as good as
Speaker 10: it was? You know, and it's heyday, I'm not so sure.
Speaker 5: Githa.
Speaker 3: How about the CBS television network and the Viacom cable networks,
Speaker 3: you know, one point that was such a big part
Speaker 3: of this company. Here, talk to us about the advertising
Speaker 3: the television advertising market. What's kind of the forecast for
Speaker 3: the next several years. Is it a growing business? Is
Speaker 3: it a declining business?
Speaker 10: It's a melting ice cube ul just like you know,
Speaker 10: just like the whole PayTV ecosystem. So you know, this
Speaker 10: is this used to be back in the day about
Speaker 10: a sixty billion market. It's shrunk. It's going to probably
Speaker 10: hit about forty five billion by the end of next year.
Speaker 10: And really, you know, this is just kind of a
Speaker 10: progression of where all the eyeballs are moving. So they're
Speaker 10: moving away from the linear TV networks to streaming, and
Speaker 10: so we're seeing kind of those ad dollars follow those
Speaker 10: eyeballs and going from you know, the TV medium to
Speaker 10: what is now called connected TV, which is really all
Speaker 10: the streaming platforms and you know, you're using all your
Speaker 10: connected TV devices, the rokus and the Google Sticks and
Speaker 10: all of that to kind of watch television, and that's
Speaker 10: where all of the advertising is moving as well. Unfortunately,
Speaker 10: Paramount doesn't have too much of a presence there. Yes,
Speaker 10: they do have, you know, Pluto TV, which is their solution,
Speaker 10: but it's not going to be able to kind of
Speaker 10: offset the leakage that we're seeing in the television ecosystem
Speaker 10: and that is really a problem for all of these
Speaker 10: media companies, for Paramount a little bit more so.
Speaker 4: All right, Thanks to geta Maganathan, Bloomberg Intelligence analyst on
Speaker 4: US media.
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Speaker 5: Contint cont