Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Joining
Speaker 1: us now a constructive credit Swiss maintaining a positive view
Speaker 1: on global equities with a preference for emerging markets. Let's
Speaker 1: talk to James Sweeney show we credit Swiss is chief economists.
Speaker 1: Good morning to James. Good morning. Why the optimism, why
Speaker 1: the preference for global equity still because of growth? I
Speaker 1: mean we have we have global growth running above trends.
Speaker 1: It's been doing so for two and a half years,
Speaker 1: and that should continue. I think the big problem has
Speaker 1: been dollar strength and policy concerns and bad Paul see
Speaker 1: in in a bunch of specific countries. To what degree
Speaker 1: do you think the U s economy has decoupled from
Speaker 1: the rest of the world. Well, when you look from
Speaker 1: a short term perspective, industrial production growth recently in the
Speaker 1: US has been running above four and the rest of
Speaker 1: the world, you know, significantly lower. Europe and China have
Speaker 1: slowed a little bit um in the last four or
Speaker 1: five months, but we actually expect them to rebound. We
Speaker 1: expect the rest of the world to rebound. We expect
Speaker 1: the US to actually slow a little bit, so that
Speaker 1: differential that you see in p M I S, for example,
Speaker 1: over the last six months, we actually think it's gonna
Speaker 1: start going the other way now, and that above trend
Speaker 1: global growth as a whole is set to continue. Does
Speaker 1: that shape or define how you allocate capital in the
Speaker 1: back haunt for this year? Yes, it does, I mean
Speaker 1: the yeah, I mean we're we're always thinking ahead on
Speaker 1: where the next turn is on industrial production, in particular
Speaker 1: because we expect all of the lead indicators at the
Speaker 1: market overreacts to p M S and such to move
Speaker 1: that way and the surprise and disease to follow that way.
Speaker 1: So that's very important. We expect positive data surprises from
Speaker 1: the Euro Area. It's just seems that the big triit
Speaker 1: so far in twent is by America, and we saw
Speaker 1: in the Bank of America Mary Lynch survey, the fund
Speaker 1: manager servant that was released yesterday that certainly the fund
Speaker 1: managers are allocating to that story. Do you think you
Speaker 1: need to reallocate elsewhere and drop your exposure to the US.
Speaker 1: I mean, there's the first element of buy America is
Speaker 1: that the tech sector lives here. And when you look
Speaker 1: at what's happening in the tech sector, you're getting explosive
Speaker 1: returns because you're getting explosive earnings and you don't have
Speaker 1: valuations really going crazy at this at this point. So
Speaker 1: if you could look at America X tech, uh, then
Speaker 1: you know, maybe allocating a little bit away from America
Speaker 1: and towards the rest of the world right now would
Speaker 1: would make some sense. But um, but I but I
Speaker 1: think you can't leave tech out. But that gets to
Speaker 1: the FED. Any idea of the meny America's Chery Yelling
Speaker 1: clearly had slack as a lead describer of an American economy.
Speaker 1: We have a FED that has to deal with the
Speaker 1: tech boom and its tangential excellence and the rest of
Speaker 1: America given the political tone, flat on their back. That's
Speaker 1: not in able bernanc or or in uh, you know
Speaker 1: the other core macro textbooks. It's not a manque right. Yeah,
Speaker 1: it's true, but it's also not new. I mean, we've
Speaker 1: had we've had kind of meager wage growth, lower down
Speaker 1: the income distribution for some time and what we've seen
Speaker 1: lately is that the labor market has tightened up at
Speaker 1: the kind of middle and the and the lower ends,
Speaker 1: but it has not led to sharply rising wage growth.
Speaker 1: And if you're getting two three percent wage growth at
Speaker 1: a level of wages which you're not very happy with,
Speaker 1: the chances are you're not thrilled, and that that's where
Speaker 1: it is right now. But income growth, labor income growth
Speaker 1: for the US as a whole, is strong and has accelerated.
Speaker 1: That's very important, and that's what the is gonna respond to.
Speaker 1: This is so important what Dr Sweeney just said. There
Speaker 1: there's this distinction between an aggregate analysis and the individual analysis.
Speaker 1: I think of Jason Furman's wonderful work on this. Explain
Speaker 1: to our audience how we can say wage growth is
Speaker 1: terrible and yet gross labor income is Is it a
Speaker 1: a great vector to and a great level. Yeah, labor
Speaker 1: income is simple. You add up everybody's paychecks and you
Speaker 1: say how much money is the household sector getting paid?
Speaker 1: The the that has been growing at around four point
Speaker 1: four percent nominal terms. Since the audience listening this goes
Speaker 1: you're out of your mind. Well, it's been growing at
Speaker 1: four and a half, as I said, and recently it's
Speaker 1: actually accelerated a little bit. Now, wage growth or or
Speaker 1: aggregate labor income growth comes from wage growth, and it
Speaker 1: comes from growth and hours worked, and hours worked obviously
Speaker 1: is driven mostly by jobs growth. And so what we've
Speaker 1: seen was we've had good jobs growth for a time
Speaker 1: that's now tightened the labor market, including a from low end.
Speaker 1: So you may be expect to see more wage growth,
Speaker 1: but we've seen a little bit more wage growth. We
Speaker 1: haven't seen that wage growth. Just so you know, oh wise,
Speaker 1: one that this is called the pharaoh effect, where hours
Speaker 1: work takes over is a partial differential, and Pharaoh's I
Speaker 1: mean he's working like a ninety two hour week, and
Speaker 1: that alone moves the needle along with you only work
Speaker 1: just just the eighty nine hours. Well, that's because you've
Speaker 1: got other properties, including the real yield. James, James Sweeney
Speaker 1: doesn't care about any of this. Well I do, actually,
Speaker 1: because it's one of the things that happens late in
Speaker 1: the cycle is that ours were working, James, So what
Speaker 1: will happen at at some point you'll get so good
Speaker 1: at your job, you'll have so many job offers that
Speaker 1: you'll just your wages will go up and you're working,
Speaker 1: he'll leave. No, No, you have to give him the race, James.
Speaker 1: You don't have to give him a race because of
Speaker 1: his offers. Hang on a minute, I like where this
Speaker 1: conversations going. You trying to negotiate for you. There's an
Speaker 1: email from the Brooks Falls in Alaska from Alfred new James.
Speaker 1: We should say, don't turn away from the grizzly bears.
Speaker 1: I mean he just dropped his cell phone. Take if
Speaker 1: I could afford to take you away from credit sweets
Speaker 1: and how you was my agent, I would before we
Speaker 1: let you go. I want to give I want to
Speaker 1: get your dollar cool and we're close to a ninety
Speaker 1: seven handle this morning. Want the x Y. What's your
Speaker 1: base case now, James? Yeah. We we actually think that
Speaker 1: the dollar is going to sell off because global growth
Speaker 1: is going to stay strong, and we expect upside surprises
Speaker 1: coming from Europe, and we think European interest rates are
Speaker 1: going to rebound and uh and and that the dollar
Speaker 1: move is basically overshot. We also see this as a
Speaker 1: as a e M crisis. We're in a panic, and
Speaker 1: usually in a panic, you know you're gonna go the
Speaker 1: other way. So the market pressure honor to one to
Speaker 1: make some of the correct economic choices is high. But
Speaker 1: what you just said, they're so important. You're assuming the
Speaker 1: panic gets solved. That has worked before. Stan Fisher's classic
Speaker 1: book Out is an example. Can it get solved now
Speaker 1: given the realities of American politics and their extension abroad. Well,
Speaker 1: I mean, you know this is this is a Turkish issue,
Speaker 1: not not a US issue. I mean, and and really
Speaker 1: what Turkey needs to do is to tighten fiscal and
Speaker 1: monetary policy and take some orthodox policy steps in order
Speaker 1: to step in this crisis. So, um, I'm not sure
Speaker 1: the political theater between our leadership and their leadership is
Speaker 1: the same as what the bond market wants. And I
Speaker 1: think that's a very important distinction. Are you surprised to
Speaker 1: see you wrote dollar down here at one? Yeah, I
Speaker 1: mean I think it's a it's a sharp move, but
Speaker 1: it's it's Um, it's related to the fact that we're
Speaker 1: in a little Turkey crisis at the moment. I'm just
Speaker 1: trying to work out what drives European and Asian growth higher,
Speaker 1: what delivers the upside? Surprise? Is it a policy resol
Speaker 1: when you look organic? Just tell me it's organic. I mean,
Speaker 1: the bottom line is if you look at the underlying
Speaker 1: pace of capex in Europe is in real terms, and
Speaker 1: you look at the underlying pace in retail consumer spending, um,
Speaker 1: they're strong, They're they're strong. And so what we do
Speaker 1: is we compare in detail what's happening to manufacturing activity
Speaker 1: to those sources of manufacturing demand from businesses and from firms.
Speaker 1: If the demand sources are fine and manufacturing activity has
Speaker 1: recently been very weak times out of a hundred, industrial
Speaker 1: production is about to rebound. And so in the three
Speaker 1: months to March or April, European industrial production actually contracted
Speaker 1: by three or four percent. So demand is running well,
Speaker 1: factory activity has slowed. It's a short term moment to move.
Speaker 1: P m I has come down with it. The market overshoots,
Speaker 1: the ECB overreacts and gives you forward guidance for a year,
Speaker 1: and then factory activity picks back up again because the
Speaker 1: consumers are spending money and the businesses are investing, and
Speaker 1: when you look at the hard data, that's what's happening.
Speaker 1: James Sweeney with some real optimism, they're sophisticated optimism, thank
Speaker 1: you so much. With credit sweets. Their chief economist, Stephen
Speaker 1: Cook is at the Council on Foreign Relations out of
Speaker 1: Vassar with parchment from JOHNS. Hopkins and his doctorate at
Speaker 1: the University of Pennsylvania. We are honored to have him
Speaker 1: for a half hour this morning to really dive into
Speaker 1: some of the nuances here Bay, basically to slow the
Speaker 1: show down and actually talk about the underpinnings of what's
Speaker 1: going on in Turkey. His must read is False Dawn,
Speaker 1: just simply because of events, it's become the book of
Speaker 1: the moment. Stephen Cook. Wonderful to have you with us.
Speaker 1: If you wrote False Dawn on this Wednesday morning, how
Speaker 1: would it be different than when you wrote it? Well,
Speaker 1: I couldn't write it in a Wednesday morning, but thanks Tom.
Speaker 1: I think that many of the arguments that I set
Speaker 1: forth in False One, particularly when it comes to Turkey
Speaker 1: and the and the transformation of Turkey into an elected autocracy,
Speaker 1: are our strengthened by what's been happening with the lyric
Speaker 1: crisis and the and the and the related crisis in
Speaker 1: US Turkey relations um. What has happened in Turkey is
Speaker 1: essentially self inflicted wounds as the result of a leader
Speaker 1: whose political calculations and political interests are UH bound up
Speaker 1: in UH pumping up the economy with low interest rates
Speaker 1: and then blaming the United States when the day of
Speaker 1: residing comes. Dr Cook John Ferrell has got all sorts
Speaker 1: of wisdom questions, But I want to cut to the
Speaker 1: American chase. What is different this time is the posture,
Speaker 1: stands cadence dialogue of our American president. What what's the
Speaker 1: change you need to see from President Trump to affect
Speaker 1: a better outcome in Turkey? Well, I think we are
Speaker 1: seeing a change in Cone and Um from one perspective,
Speaker 1: certainly for the better. The previous two administrations, the George W.
Speaker 1: Bush's administration and Barack Obama's administration, had been too passive,
Speaker 1: too willing to overlook Turkish bad behavior for the sake
Speaker 1: of a strategic relationship. I think that President Trump has
Speaker 1: taken a look at the accumulation of things that the
Speaker 1: Turks had done to undermine American policy and in American
Speaker 1: position in the Middle East UH and decided that the
Speaker 1: Turks have gone too far with the taking of Pastor
Speaker 1: Andrew Brunson as well as something that gets lost in
Speaker 1: all the commentary fifteen to twenty other Turkish Americans. Those
Speaker 1: are Turks with American citizenship who are in Turkish jails
Speaker 1: on trumped up terrorism charges. Uh. So, I think that
Speaker 1: this issue has become a flashpoint for the broader relationship
Speaker 1: and the problems in the broader relationships. Steven, is hard
Speaker 1: for some people to reconcile that a NATO ally is
Speaker 1: not a reliable partner. How do you reconcile those two things, Stephen? Well, Uh,
Speaker 1: Turkey is not the only problematic NATO partner, but it
Speaker 1: is I think an outlier in how far it has
Speaker 1: gone in UH development of its relations with Russia, how
Speaker 1: far it has gone to undermine, uh, the American fight
Speaker 1: against the Islamic State in Syria, how far it has
Speaker 1: gone to help the Iranians evade sanctions that are designed
Speaker 1: to contain and arrest the development of its nuclear program. Um.
Speaker 1: Those are just three of larger issues, um that are
Speaker 1: roiling the relationship. I think they're the most important ones,
Speaker 1: but of course there are others. Everyone has been able
Speaker 1: to capitalize in the fact that, because of his rhetoric,
Speaker 1: a stupefying eight of Turks believed that the United States
Speaker 1: was complicit in the failed Coupe Deta in July, and
Speaker 1: large numbers also believe that the current dispute between the
Speaker 1: two countries that in the current dispute between the two countries,
Speaker 1: the United States is engaged in economic warfare on Turkey.
Speaker 1: So to your point, with the last two administrations being
Speaker 1: perhaps far too passive and ignoring the behavior of President Urduan,
Speaker 1: what is the correct tool to use to address the
Speaker 1: behavior of Turkey And does economic sanctions get it done
Speaker 1: or does that just fuel this nationalism that erupting at
Speaker 1: the moment in the country. UH. I think that it's
Speaker 1: important to recognize that aired One responds to pressure. The
Speaker 1: Turks shot down a Russian bomber that had briefly crossed
Speaker 1: its airspace and route to Syria. In President Putin really
Speaker 1: put the screws to the Turks. Angela Merkel, the Chancellor
Speaker 1: of Germany, was quite upset over the arrest of a
Speaker 1: German Turkish journalists and threats to German journalists in Turkey.
Speaker 1: UH and threatened President air Duan with business ties and
Speaker 1: business ties between Turkey and Germany are extremely important. This
Speaker 1: UH encouraged President ed One to do the right thing
Speaker 1: on a variety of issues. I think that with the
Speaker 1: politicking that aired One is doing, he is seeking to
Speaker 1: buy himself some time politically and cushioned himself from an
Speaker 1: insulate himself from these problems. But I think that the logic,
Speaker 1: while the logic of Turkish politics right now is outstripping
Speaker 1: the logics on the market, at some point he's going
Speaker 1: to run out of nationalist rhetoric and the market is
Speaker 1: going to force changes on the Turk. Stephen Cook, with
Speaker 1: as a constant for relations, thrilled to have him here
Speaker 1: for a length the interview this morning, Dr Cook the
Speaker 1: Boss versus twenty miles long. It seems longer than that,
Speaker 1: But it's not if you go out the north side
Speaker 1: that nobody in the West pays attention to. There is
Speaker 1: a black sea. What's the dynamic right now that Mr
Speaker 1: Putin can take advantage of given this crisis? Oh well,
Speaker 1: certainly President Putin has sought to take advantage to the
Speaker 1: tension between US Turkey relations. They've He's been doing that
Speaker 1: for some time, as the as the Turks were forced
Speaker 1: to respond to him after shooting down their plane and
Speaker 1: after the United States made it clear that it wasn't
Speaker 1: going to get more deeply involved in Syria. The Turks
Speaker 1: went to Moscow to secure their interests. Certainly, President Putin
Speaker 1: is seeking to take advantage of the problems in the
Speaker 1: US Church relations as well as problems with the U
Speaker 1: S relations with other countries. Uh. The Black Seed, though,
Speaker 1: is something that makes the Turks very, very very nervous.
Speaker 1: That may still be an area of cooperation between the
Speaker 1: United States and Turkey. I don't think anybody's really looking
Speaker 1: at a breach in the relationship between the two countries,
Speaker 1: but I think a change is uh, and it's it's
Speaker 1: it's it's the kind of relationship where we will be
Speaker 1: able to cooperate where we can get out of each
Speaker 1: other's way in other places and have to avove each
Speaker 1: other when our interests dictate very quickly here and we'll
Speaker 1: come back in a more general discussion to percolating today
Speaker 1: is Turkish capitalism, Turkish business advising. Mr Erta Wad, let's
Speaker 1: get going from where you sit in international relations. What
Speaker 1: is the relation of Turkish big business to the Erduan regime. Well,
Speaker 1: it depends on which big business in Turkey we're talking about.
Speaker 1: If we're talking about the kind of traditional big business
Speaker 1: based in the western part of the country's associated with
Speaker 1: with big families. UH. That is a business community that
Speaker 1: has had UH a wary, mistrustful, more difficult relationship with
Speaker 1: UH with President aired One because they are considered to
Speaker 1: be kind of old establishment and air Duan is distrustful
Speaker 1: of of those people. Then there's a big business that
Speaker 1: has grown up around uh Arduana over the course of
Speaker 1: the last fifteen years or even pre date the emergence
Speaker 1: of the Justice and Development Party. UH. These are the
Speaker 1: kind of core constituency of the Justice and Development Party
Speaker 1: emerging from Central Anatolia. Those people have very good relations
Speaker 1: with the Justice and Development Party. Here's the deal, though,
Speaker 1: you have to have good ties with the government in
Speaker 1: order to do business in Turkey. So everybody, everybody understands
Speaker 1: that they can't openly cross UH one. Well, let's do this.
Speaker 1: Stephen Cook with us with the Council on Foreign Relations.
Speaker 1: I can't say enough about his effort. The False Dawn
Speaker 1: John of a year ago, A long, long, long year ago,
Speaker 1: just a spectacular book, linking all of the Middle East,
Speaker 1: not just Turkey into UH. The disappointments that we've seen
Speaker 1: across the political economics. We'll come back in a broader
Speaker 1: discussion with Dr Cook here. We are thrilled to bring
Speaker 1: you on the Stephen Cook of the Council on Foreign Relations. Stephen,
Speaker 1: at all studies I've seen the Middle East is about demographics,
Speaker 1: in the overwhelming reality of the youth and the lack
Speaker 1: of understanding of history of so many millions in the
Speaker 1: Middle East. Does Turkey have the same problem? Does Turkey
Speaker 1: have the same demographic structure is the other countries in
Speaker 1: your book the False Dawn? Turkey is a very young
Speaker 1: country as well. There are only two countries in the
Speaker 1: region that have average days that is even approaching thirty.
Speaker 1: Uh So, the difference between Turkey and other countries is
Speaker 1: that Turkey actually has a real economy. It has problems
Speaker 1: with its economy, but it does have a manufacturing base.
Speaker 1: It does it is connected and integrated to Europe, which
Speaker 1: is one of the concerns that people have right now.
Speaker 1: A lot of these other countries don't really have much
Speaker 1: in the way of an economy. Thus you have young
Speaker 1: people who who are quite idle. Uh not so much
Speaker 1: the case in Turkey, Okay, but in Turkey and the
Speaker 1: stereotypes here, folks, come on, let's admit it, folks, as
Speaker 1: we talked to Dr Cook. People listening is knowledge of
Speaker 1: Turkey is from Russia. Would love the James Bond movie
Speaker 1: from a few years ago, Stephen, take us away from
Speaker 1: our silly stereotypes of Turkey. If I go west from Istanbul,
Speaker 1: when do I hit Europe? Or is Turkey Europe? Well,
Speaker 1: it depends on where you're standing in is Stumble. You
Speaker 1: can stand in is Stumble and you are in Europe,
Speaker 1: and then you can stand in another place in is
Speaker 1: Stumble and you're in Asia. Istanble is an extraordinarily cosmopolitan city.
Speaker 1: People from all walks, all parts of the world, all
Speaker 1: kinds of cuisines. It is a city of great history.
Speaker 1: It's the former imperial capital of the Ottoman Empire, which
Speaker 1: ruled the Middle East as well as parts of Europe
Speaker 1: for about six hundred years. If you move east, you'll
Speaker 1: see changes in the country. Less development further out east,
Speaker 1: but still more developed than a lot of the other
Speaker 1: countries that are are neighboring Turkey. One of the things
Speaker 1: about the Justice and Development Party era the last sixteen
Speaker 1: years in Turkey is that there has been an explosion
Speaker 1: of development of infrastructure, of transportation, options of business, of
Speaker 1: a development of a middle class, so there has been
Speaker 1: some good economic management. This is a more recent problem
Speaker 1: with an overheated economy. Me based on the fact that
Speaker 1: President air Duan needs low interest rates and growth in
Speaker 1: order to get reelected and re elected and re elected
Speaker 1: so he can affect the transformation of Turkey for better
Speaker 1: or worse, and Stephen, as we know through history, this
Speaker 1: doesn't end well. I think some people sort of waking
Speaker 1: up if they've missed all of this. At one point,
Speaker 1: several years ago, Turkey was on course to being an
Speaker 1: EU member. Something politically went very very wrong. Stephen, what
Speaker 1: was it? Yeah, it's a it's a stunning irony. Um.
Speaker 1: By this time Turkey was to be by Turkey was
Speaker 1: to be on the cusp of European Union membership and
Speaker 1: joining the ultimate club of liberal democracies. Now it looks
Speaker 1: like an elected autocracy, and I think what has happened
Speaker 1: Now there's a debate. There's a debate within the Turkey
Speaker 1: watching community about what happened. Some people will argue that
Speaker 1: this was air Duan's plan all along, that he was
Speaker 1: an authoritarian out to accumulate power from the very beginning.
Speaker 1: Others have a more nuanced view, and I include myself
Speaker 1: in that group, which is that a number of things
Speaker 1: happened around two thousand seven two thousand eight in which
Speaker 1: the Turkish establishment made it very clear they were going
Speaker 1: to try to prevent the Justice and Development Party from
Speaker 1: ruling and governing in the country, and as a result
Speaker 1: you had this very harsh authoritian turn in which everyone
Speaker 1: has tried to pulverize opponents that even one final question
Speaker 1: unfortunately too quick. If I go down to the Mediterranean, ismir,
Speaker 1: what is this depreciation of a lira mean? If I
Speaker 1: walk into the Dennis restaurant, world famous, it's been there
Speaker 1: for thirty years, what is the lyric depreciation meant to
Speaker 1: the people that run and work at the dentist restaurant?
Speaker 1: And Ismir, Well, everything is more expensive for the Dennis
Speaker 1: restaurant owners uh and managers. Everything that they have to
Speaker 1: buy to run that restaurant is much more expensive for them.
Speaker 1: In addition, this, this tension with the United States has
Speaker 1: the potential to depress the number of tours who are
Speaker 1: visiting the Dennis restaurant, and tours to are carrying dollars
Speaker 1: or euros you would buy much much more in Turkey
Speaker 1: these days. But because of this tension, because of tension
Speaker 1: with Europe. Uh, there are a few of you were
Speaker 1: towards in the Turkey these days. See if kindly brought
Speaker 1: that up because Farrell and I are doing a road trip.
Speaker 1: That's what you did. I knew that we're pitching off
Speaker 1: roducers to allow us to go around the world. Stephen Cook,
Speaker 1: two countries where the currency has been battered, So we're
Speaker 1: going to do this food currency tool. This has been wonderful.
Speaker 1: Stephen Cook the concert for Uscis folks. I can't say
Speaker 1: enough about his false tone. I'll put a major push
Speaker 1: on it out at my book side this weekend. Spending
Speaker 1: money to make money, getting ways for people to have
Speaker 1: thirty off their big home and furniture. Let's find out
Speaker 1: more about how Macy's is doing with Sarah Hall zach
Speaker 1: Oar Bloomberg opinion columnists, who knows everything about shopping at
Speaker 1: the flagship store. Sarah, So what about Macy's. What's wrong
Speaker 1: with spending money to make money? Well, I think that
Speaker 1: investors maybe just realized today they got a bit ahead
Speaker 1: of themselves. This stock had been up sixty six percent
Speaker 1: year to day. It was one of the biggest movers
Speaker 1: on the SMP, and you've got to be thinking to yourself,
Speaker 1: this is a company that's right at the center of
Speaker 1: the retail apocalypse. How is this possible? Um? And I
Speaker 1: think it was. They had these improved results in the
Speaker 1: holiday quarter in the first quarter, and investors got a
Speaker 1: little carried away and they realized that today, as you said,
Speaker 1: these improvements that they're making to survive cost money. Uh.
Speaker 1: Free shipping is not free to retailers. It's free to you,
Speaker 1: the shopper, but not to retailers, and they're feeling some
Speaker 1: of the weight of that. And I think what we
Speaker 1: saw today is that Macy's as a company that's making
Speaker 1: modest progress but still has these existential questions about how
Speaker 1: sustainable the department store format is in this retailing era.
Speaker 1: I mean, you don't know whether people are actually going
Speaker 1: to buy things in order to pick them up at
Speaker 1: the store free or get off if you use their app,
Speaker 1: or get off if you use a Macy's charge guard, right.
Speaker 1: And they're trying to do some different approaches to discounting
Speaker 1: and loyalty as well. So for example, they've revamped their
Speaker 1: loyalty program, trying to encourage more people to join that
Speaker 1: and to get discounts in perks through that format, and
Speaker 1: they're trying to get away from this thing where you
Speaker 1: stack coupon on top of coupon on top of coupon,
Speaker 1: because they're finding that people just find that to be
Speaker 1: confusing and befuddling, and and try to go to a
Speaker 1: more clear, value oriented message and hope that that goes
Speaker 1: a long way towards improving sales. Tell us about Macy's backstage.
Speaker 1: So Macie's backstage is their effort to capitalize on this
Speaker 1: real strength that we've seen in the off price retail sector.
Speaker 1: T J Max Ross stores, these have been strong performing
Speaker 1: retailers because we're seeing in the brick and boarder in
Speaker 1: mortar environment, shoppers like this treasure, they like this uh,
Speaker 1: you know, fishing around for a unique find. And this
Speaker 1: is Macy's trying to put a little bit of that
Speaker 1: DNA within their store. So they're seeing stronger spending in
Speaker 1: the backstage departments from their existing loyal customers, and that's
Speaker 1: helping drive comparable sales growth. My question for Macy's is
Speaker 1: is this pulling in any new shoppers? Exactly right? And
Speaker 1: so I worry that while yes, it is perhaps drawing
Speaker 1: stronger spending from the customers they already have, and that's
Speaker 1: improving comparable sales in the near term. If again, ma
Speaker 1: see that's just survived. For the long haul, they're going
Speaker 1: to need to bring in new new people. Sara, as usual,
Speaker 1: you nail it to me. This is a top line exercise.
Speaker 1: The word of the moment for corporate world is scale.
Speaker 1: I don't see any scale here. The way they did
Speaker 1: this was to open stores by other companies, Marshall Fields,
Speaker 1: the whole wrap up, the whole, the roll up thing,
Speaker 1: you know it all. I'm looking on the Bloomberg it's
Speaker 1: zero percent revenue growth blended out. Can they actually a
Speaker 1: legit revenue scale? I think it's going to be really
Speaker 1: difficult to do with the format that they currently have.
Speaker 1: And look, I think there are some interesting weapons in
Speaker 1: their arsenal. They bought this Blue Mercury beauty chain, and
Speaker 1: beauty has been such a hot area. You look at
Speaker 1: the performance of uh Sephora and Alta, really strong performing retailers,
Speaker 1: and I think Blue Mercury could easily play in that
Speaker 1: space if they expand it more quickly. But yes, it's
Speaker 1: really hard to envision a future where they can post
Speaker 1: strong revenue growth based on the traditional Macy's format. Well,
Speaker 1: just here to give you that perspective. In ten, they
Speaker 1: were doing over twenty eight billion in sales. In the
Speaker 1: last twelve months they did five and a half billion.
Speaker 1: Their market cap has been cut in half. This was
Speaker 1: a billion dollar company back in and it is now eleven.
Speaker 1: But and Sarah, the heart of pim's good numbers there
Speaker 1: is this is a four cents on the dollar business.
Speaker 1: This is not Dominion Electric, you know, with a regulated eight, nine,
Speaker 1: ten twelve net clean. I mean you can't, I would suggest, Sarah,
Speaker 1: you can't do this flat revenue, shrinking revenues given those
Speaker 1: ending margins. So then what does the legacy of Mr Lundgren?
Speaker 1: What do they do? Yeah, so I think they're trying
Speaker 1: to become a healthier business in some other ways besides
Speaker 1: growing sales. One is through real estate transactions. So they
Speaker 1: hired a senior executive whose sole focus is to free
Speaker 1: of value from their real estate. In particular that Harold
Speaker 1: Square property in New York is a real Crown jewel
Speaker 1: that they could get a bunch of money for if
Speaker 1: they were to then enter into a sale wee stack agreement.
Speaker 1: So they're trying to do things like that to become healthier.
Speaker 1: But it's all complicated. You know, they've closed a hundred stores,
Speaker 1: and in some ways that makes them more productive, but
Speaker 1: in other ways they say they even see on online
Speaker 1: sales retreat in a given geographic area when they close
Speaker 1: the store, and so it's it's certain be a complicated
Speaker 1: they have at their door right now, Sarah, Now you
Speaker 1: and I are going to listen to this question to
Speaker 1: Mr Pim Fox Pim. What was Harold Square like? Well,
Speaker 1: it had another store across the street called Gimbals, And
Speaker 1: indeed that was always the joke that they both lost
Speaker 1: money on everything they sold because they were in such
Speaker 1: intense competition, but that they made it up on volume.
Speaker 1: What was what was the holiday season? It was like
Speaker 1: was it like that? I mean, Sarah, this it was
Speaker 1: like the movie. It was like that. It was a
Speaker 1: Miracle Street. Isn't that cool? Sarah? Yeah? But that's you know, antediluvian,
Speaker 1: that's like the place the scene era. You know, I
Speaker 1: think they still have one escalator in that Macy's Harold
Speaker 1: Square store that it's from that area, right, the wooden escalators,
Speaker 1: right that she used to get caught on as a
Speaker 1: child or your father would say, if you don't behave
Speaker 1: the escalator will eat you. Right, you were not allowed
Speaker 1: to walk backwards on the exactly precisely what did you
Speaker 1: get beaten at the same point as me? Sarah? Thank
Speaker 1: you so much. Sarah starting off seriously retailer with Macy's
Speaker 1: with a really interesting story. And I believe there's a
Speaker 1: small combody in Arkansas reporting to borrow. Yes there is Walmart,
Speaker 1: but even just to put a little cap on this
Speaker 1: Lord and Taylor, which is also another big flagship store
Speaker 1: up the street. Yeah, you know they're shutting the store.
Speaker 1: I did not know. Yeah, they're shutting the store and
Speaker 1: it's going to become a we work project where people
Speaker 1: can at work. Well the building we're sitting in here
Speaker 1: at the Mr quorback Alexander's all this, Graham and stress. Yes,
Speaker 1: An s Man. Thanks for listening to the Bloomberg Surveillance podcast.
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