1 00:00:02,720 --> 00:00:17,440 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:19,920 --> 00:00:23,160 Speaker 2: This is Wall Street Week. I'm David Weston bringing you 3 00:00:23,440 --> 00:00:27,479 Speaker 2: stories of capitalism this week. As luxury brands fight to 4 00:00:27,560 --> 00:00:31,480 Speaker 2: regain their momentum, does a secondary market help or hurt? 5 00:00:32,360 --> 00:00:36,000 Speaker 2: And what the facts show about deregulation and its effect 6 00:00:36,040 --> 00:00:39,960 Speaker 2: on growth and productivity. Plus when a so called zombie 7 00:00:40,040 --> 00:00:43,200 Speaker 2: company can come back from the living dead. We tell 8 00:00:43,280 --> 00:00:46,120 Speaker 2: you the story of the return of Barnes and Noble, 9 00:00:47,000 --> 00:00:50,760 Speaker 2: but we start with a story of true conflict when 10 00:00:50,760 --> 00:00:53,479 Speaker 2: the approach of the largest country in the world seems 11 00:00:53,479 --> 00:00:57,200 Speaker 2: at odds with the fifth largest economy. When President Trump 12 00:00:57,240 --> 00:01:00,560 Speaker 2: met with Indian Prime Minister Mody earlier this month, the 13 00:01:00,600 --> 00:01:03,840 Speaker 2: tone was cordial, but it was a step back from 14 00:01:03,840 --> 00:01:07,360 Speaker 2: the so called bromance that started in Trump's first term, 15 00:01:07,720 --> 00:01:11,039 Speaker 2: and what the two men said were their core interests 16 00:01:11,080 --> 00:01:16,920 Speaker 2: appeared to be in true conflict. I will very simply 17 00:01:17,480 --> 00:01:24,240 Speaker 2: put America first, Make in India, make for the glow. 18 00:01:25,440 --> 00:01:28,399 Speaker 2: Until now, the Indian growth story has been one of 19 00:01:28,440 --> 00:01:32,080 Speaker 2: the biggest of the post pandemic world. Its growth rate 20 00:01:32,160 --> 00:01:36,440 Speaker 2: touched eight percent. Its benchmark stock index, the Nifty to fifty, 21 00:01:36,959 --> 00:01:39,240 Speaker 2: has outpaced the S and P five hundred since the 22 00:01:39,360 --> 00:01:44,560 Speaker 2: start of twenty twenty one, at least until recently, and 23 00:01:44,720 --> 00:01:49,080 Speaker 2: investors have started to look elsewhere. Indian equities saw almost 24 00:01:49,200 --> 00:01:52,520 Speaker 2: twenty one billion dollars of foreign inflows in twenty twenty three, 25 00:01:53,200 --> 00:01:56,400 Speaker 2: but they plummeted to just one hundred twenty four million 26 00:01:56,480 --> 00:02:00,880 Speaker 2: dollars last year, and investors have withdrawn more than twelve 27 00:02:00,920 --> 00:02:04,360 Speaker 2: billion dollars so far this year. So has something gone 28 00:02:04,440 --> 00:02:08,120 Speaker 2: wrong with the India growth machine? And if so, where 29 00:02:08,720 --> 00:02:12,200 Speaker 2: are we seeing a slowdown or just a blip. Rasher 30 00:02:12,280 --> 00:02:15,920 Speaker 2: Sharma is the chair of Rockefeller Capital Management and author 31 00:02:16,080 --> 00:02:19,880 Speaker 2: most recently of The Rise and Fall of Nations. 32 00:02:20,360 --> 00:02:23,880 Speaker 3: Ever since I've been investing in this country for over 33 00:02:23,960 --> 00:02:25,920 Speaker 3: three decades, which is that this is a country that 34 00:02:26,040 --> 00:02:28,519 Speaker 3: consistently disappoints the optimists in the pessimists. 35 00:02:29,200 --> 00:02:29,880 Speaker 4: Yet over the. 36 00:02:29,880 --> 00:02:33,280 Speaker 3: Long term it's a very good equity market story. In 37 00:02:33,320 --> 00:02:37,480 Speaker 3: particular because even after the Indian stock markets big correction 38 00:02:37,720 --> 00:02:40,760 Speaker 3: over the last few months, the only stock market in 39 00:02:40,800 --> 00:02:43,760 Speaker 3: the world in the last thirty to forty years which 40 00:02:43,800 --> 00:02:47,400 Speaker 3: has produced comparable returns to America has been India. So 41 00:02:47,760 --> 00:02:50,600 Speaker 3: it's this very steady compounding story. But yeah, there are 42 00:02:50,639 --> 00:02:54,200 Speaker 3: times when people get a bit ahead of themselves, the 43 00:02:54,240 --> 00:02:56,919 Speaker 3: excitement gets a bit too much. I think we may 44 00:02:56,919 --> 00:02:59,720 Speaker 3: have reached that point last year when India became the 45 00:02:59,760 --> 00:03:03,040 Speaker 3: most expensive equity market in the world, literally even more 46 00:03:03,040 --> 00:03:05,840 Speaker 3: expensive than America at the top. So that was just 47 00:03:05,880 --> 00:03:08,160 Speaker 3: telling you that the excitement had gone into a head. 48 00:03:08,160 --> 00:03:10,120 Speaker 3: And what we have seen in the last few months 49 00:03:10,440 --> 00:03:13,840 Speaker 3: is a bit of a reset where the optimists are 50 00:03:13,880 --> 00:03:15,080 Speaker 3: getting a bit disappointed. 51 00:03:15,120 --> 00:03:15,360 Speaker 5: Now. 52 00:03:15,400 --> 00:03:18,120 Speaker 3: After sort of thinking that maybe India can break out 53 00:03:18,440 --> 00:03:21,120 Speaker 3: and grow at seven to eight percent, there's a realism 54 00:03:21,160 --> 00:03:23,600 Speaker 3: setting in that India's trained growth rate is closed to 55 00:03:23,639 --> 00:03:26,800 Speaker 3: six percent rather than seven to eight percent, a pretty 56 00:03:26,800 --> 00:03:29,360 Speaker 3: decent growth rate, and that they'd still need to carry 57 00:03:29,400 --> 00:03:32,560 Speaker 3: out some positive reform steps to even keep a six 58 00:03:32,600 --> 00:03:34,639 Speaker 3: percent type growth rate going. So I think what we're 59 00:03:34,680 --> 00:03:38,720 Speaker 3: seeing just now is a return to that old reality, 60 00:03:38,760 --> 00:03:41,240 Speaker 3: so to speak, which has been the case for India 61 00:03:41,280 --> 00:03:43,440 Speaker 3: for thirty to forty years, that it's a country which 62 00:03:43,680 --> 00:03:46,240 Speaker 3: steadily compounds, steadily grows. 63 00:03:46,520 --> 00:03:49,280 Speaker 2: But that might not be enough to reach Prime Minister 64 00:03:49,400 --> 00:03:52,880 Speaker 2: Motive's target of making India a developed nation by twenty 65 00:03:53,000 --> 00:03:56,600 Speaker 2: forty seven. Ragharam Rajan is a former governor of the 66 00:03:56,640 --> 00:03:58,040 Speaker 2: Reserve Bank of India. 67 00:03:58,760 --> 00:04:01,600 Speaker 6: I think we're reverting around the six percent now. The 68 00:04:01,720 --> 00:04:05,440 Speaker 6: blip downwards recently has more to do with the fact 69 00:04:05,520 --> 00:04:09,680 Speaker 6: that we had elections across the board last year and 70 00:04:09,880 --> 00:04:12,920 Speaker 6: spending on infrastructure, which has been a big part of 71 00:04:12,960 --> 00:04:16,479 Speaker 6: the growth story, has sort of faltered over this period. 72 00:04:16,640 --> 00:04:19,719 Speaker 6: I think that will come back, so we'll get back 73 00:04:19,720 --> 00:04:20,320 Speaker 6: to six now. 74 00:04:20,320 --> 00:04:22,400 Speaker 4: The question for India is six. 75 00:04:22,360 --> 00:04:27,039 Speaker 6: Enough, And unfortunately the answer is not, because we're also 76 00:04:27,080 --> 00:04:29,800 Speaker 6: a country that's growing old, and we do want to 77 00:04:29,839 --> 00:04:32,640 Speaker 6: grow rich before we grow old, and that's unlikely at 78 00:04:32,640 --> 00:04:33,280 Speaker 6: six percent. 79 00:04:34,360 --> 00:04:37,919 Speaker 2: The Indian government has stepped up efforts to re energize growth, 80 00:04:38,240 --> 00:04:41,200 Speaker 2: announcing tax cuts in its annual budget in an effort 81 00:04:41,200 --> 00:04:42,960 Speaker 2: to boost middle income spending. 82 00:04:43,320 --> 00:04:46,080 Speaker 6: We have a lot of young people and as a result, 83 00:04:46,160 --> 00:04:49,600 Speaker 6: the dependency ratio, the number of very young people who 84 00:04:49,640 --> 00:04:53,200 Speaker 6: can't work and very old people who can't work, that's falling. 85 00:04:53,680 --> 00:04:54,440 Speaker 4: And this is the. 86 00:04:54,440 --> 00:04:59,080 Speaker 6: Time that every Asian economy has experienced a burst of growth, 87 00:05:00,080 --> 00:05:03,479 Speaker 6: still growing at the old six percent and not enjoying 88 00:05:03,480 --> 00:05:08,119 Speaker 6: that burst. Something is not working as well as it should, 89 00:05:08,200 --> 00:05:09,080 Speaker 6: and that's jobs. 90 00:05:09,520 --> 00:05:12,680 Speaker 4: What you see around India is not enough young. 91 00:05:12,520 --> 00:05:15,880 Speaker 6: People have jobs, not enough jobs are being created, so 92 00:05:15,920 --> 00:05:18,480 Speaker 6: in a sense, we're not making full use of our 93 00:05:18,520 --> 00:05:20,720 Speaker 6: capacity even at six percent growth. 94 00:05:21,880 --> 00:05:24,680 Speaker 2: Some foreign companies have seen potential in the growth of 95 00:05:24,720 --> 00:05:28,640 Speaker 2: the Indian market as an alternative to China. Apple has 96 00:05:28,680 --> 00:05:32,039 Speaker 2: been slowly growing iPhone production in the country, while more 97 00:05:32,040 --> 00:05:35,919 Speaker 2: recently Tesla stepped up hiring in India ahead of a 98 00:05:36,000 --> 00:05:39,960 Speaker 2: possible entry into the market. This so called China plus 99 00:05:40,040 --> 00:05:43,720 Speaker 2: one strategy of India being a substitute for manufacturing in 100 00:05:43,800 --> 00:05:47,160 Speaker 2: China may have worked in the past, but some question 101 00:05:47,240 --> 00:05:51,000 Speaker 2: whether it will in the future. Ridika Bachra is Mahindra 102 00:05:51,080 --> 00:05:55,120 Speaker 2: Group's Vice president of Americas and a senior fellow at 103 00:05:55,120 --> 00:05:56,400 Speaker 2: the Atlantic Council. 104 00:05:56,720 --> 00:05:58,920 Speaker 7: What I have come to realize in the last twelve 105 00:05:58,960 --> 00:06:04,320 Speaker 7: months is there is a strange realization with the Indian 106 00:06:04,320 --> 00:06:09,560 Speaker 7: policy makers that they cannot sell themselves anymore as a 107 00:06:09,640 --> 00:06:14,040 Speaker 7: China plus one strategy. It has to be much beyond that, 108 00:06:14,680 --> 00:06:17,320 Speaker 7: because if you look at it, the Indian consumer is 109 00:06:17,360 --> 00:06:21,719 Speaker 7: not only inclined towards luxury and lifestyle products unlike a 110 00:06:21,760 --> 00:06:25,320 Speaker 7: lot of other emerging markets, but also has a very 111 00:06:25,360 --> 00:06:30,280 Speaker 7: strong middle class consumer base which is also price conscious. 112 00:06:30,520 --> 00:06:34,280 Speaker 7: So if you put these things together, where India is 113 00:06:34,320 --> 00:06:36,679 Speaker 7: trying to sell itself as not just a China plus 114 00:06:36,680 --> 00:06:40,080 Speaker 7: one strategy, but an innovation in manufacturing hub with a 115 00:06:40,120 --> 00:06:44,440 Speaker 7: skilled workforce, with a solid consumer base, and trying to 116 00:06:44,480 --> 00:06:50,520 Speaker 7: differentiate itself with available worker versus available skilled workers. I 117 00:06:50,520 --> 00:06:52,240 Speaker 7: think it's a great story to tell. 118 00:06:53,480 --> 00:06:56,960 Speaker 2: Whatever the theory, foreign investors have not always had an 119 00:06:57,000 --> 00:07:01,440 Speaker 2: easy time investing in India. Just ask Olkswagen. They were 120 00:07:01,480 --> 00:07:04,359 Speaker 2: hit with a record one point four billion dollar tax 121 00:07:04,400 --> 00:07:08,560 Speaker 2: bill from the Indian authorities for alleged tax evasion, and 122 00:07:08,640 --> 00:07:12,360 Speaker 2: the German automaker raised questions about the very survival of 123 00:07:12,400 --> 00:07:13,520 Speaker 2: its India unit. 124 00:07:13,520 --> 00:07:15,800 Speaker 3: Well, because I think it's still a very difficult place 125 00:07:15,840 --> 00:07:18,760 Speaker 3: to do business on the ground. David, this is something 126 00:07:18,800 --> 00:07:20,520 Speaker 3: which you know, we have felt for a long period 127 00:07:20,520 --> 00:07:24,400 Speaker 3: of time that to negotiate the Indian landscape is toff 128 00:07:24,520 --> 00:07:27,960 Speaker 3: given the regulations that you still have in place, given 129 00:07:28,000 --> 00:07:30,880 Speaker 3: the fact that you can have the tax authorities or 130 00:07:30,920 --> 00:07:34,760 Speaker 3: other people come up and present bills to you in a. 131 00:07:34,720 --> 00:07:35,840 Speaker 4: Way that you don't really know. 132 00:07:36,200 --> 00:07:39,960 Speaker 3: A lot of the state chief ministers in India realize this, 133 00:07:40,080 --> 00:07:42,040 Speaker 3: and I think this is something which we need to 134 00:07:42,080 --> 00:07:44,720 Speaker 3: focus on, which is that a lot of the attention 135 00:07:45,080 --> 00:07:49,960 Speaker 3: is on more the center and what DELI is doing 136 00:07:50,320 --> 00:07:54,080 Speaker 3: and what initiatives they're taking. But India is a very 137 00:07:54,240 --> 00:07:58,160 Speaker 3: federal country and you have so many state chief ministers 138 00:07:58,200 --> 00:08:00,480 Speaker 3: with a lot of power to do what they have 139 00:08:00,560 --> 00:08:02,520 Speaker 3: to do on the ground. And I think what we 140 00:08:02,640 --> 00:08:04,800 Speaker 3: need to see in India foreig and we see some 141 00:08:04,920 --> 00:08:09,880 Speaker 3: signs of that is much greater so called competitive federalism, 142 00:08:09,920 --> 00:08:12,880 Speaker 3: where the states compete with each other to get foreign 143 00:08:12,920 --> 00:08:16,760 Speaker 3: investment because a lot of these regulations and the tough 144 00:08:17,280 --> 00:08:20,120 Speaker 3: environment it is to do business in India is something 145 00:08:20,120 --> 00:08:23,000 Speaker 3: that some of these state chief ministers need to make 146 00:08:23,200 --> 00:08:25,120 Speaker 3: friendlier and not just the center. 147 00:08:25,320 --> 00:08:27,760 Speaker 2: Whatever direction it's going right now, what is the current 148 00:08:27,840 --> 00:08:30,720 Speaker 2: state of competitive federalism when it comes to economics? Are 149 00:08:30,720 --> 00:08:34,200 Speaker 2: there certain states that it's more conducive to invest into 150 00:08:34,320 --> 00:08:36,160 Speaker 2: in India today than others? 151 00:08:36,600 --> 00:08:38,480 Speaker 3: Well, that's been the case in India for a while 152 00:08:38,520 --> 00:08:41,160 Speaker 3: now that if you look at India, about twenty percent 153 00:08:41,200 --> 00:08:45,000 Speaker 3: of India's population is in the southern states, and yet 154 00:08:45,080 --> 00:08:49,680 Speaker 3: those states account for more than thirty percent of India's 155 00:08:49,720 --> 00:08:53,520 Speaker 3: GDP and the per capita income is also a lot higher. 156 00:08:53,880 --> 00:08:56,480 Speaker 3: Now there are states in the south, such as Karnataka, 157 00:08:56,760 --> 00:08:59,719 Speaker 3: which we know well because of Bangalore, which is the 158 00:08:59,720 --> 00:09:03,160 Speaker 3: tech capital of India for all practical purposes. And what 159 00:09:03,240 --> 00:09:07,160 Speaker 3: we see there is that places like Bangalore and Karnataka 160 00:09:07,360 --> 00:09:10,720 Speaker 3: tend to attract much greater foreign investment. And generally some 161 00:09:10,760 --> 00:09:17,040 Speaker 3: of the southern states like Karnataka and Telangana and Tamil Nadu, 162 00:09:17,160 --> 00:09:21,480 Speaker 3: those states have attracted much more foreign investment over time. 163 00:09:22,080 --> 00:09:25,840 Speaker 7: There is a historical reason for why South has managed 164 00:09:25,880 --> 00:09:29,600 Speaker 7: to sort of lead from the front, and those reasons 165 00:09:29,600 --> 00:09:33,640 Speaker 7: are the ports that are situated in southern area. They 166 00:09:33,720 --> 00:09:37,400 Speaker 7: were the most important reason for traders to come to 167 00:09:37,440 --> 00:09:40,959 Speaker 7: India to begin with, and that led to a huge 168 00:09:41,000 --> 00:09:45,160 Speaker 7: amount of trading community moving and living in South of India. 169 00:09:45,320 --> 00:09:49,480 Speaker 7: In the recent past, we see inphasis taking a lead 170 00:09:49,679 --> 00:09:52,760 Speaker 7: in ensuring that they become the global service providers for 171 00:09:52,840 --> 00:09:55,920 Speaker 7: technology and that started in South of India and Bangalore, 172 00:09:56,640 --> 00:09:59,560 Speaker 7: and one thing led to another where a huge amount 173 00:09:59,600 --> 00:10:02,880 Speaker 7: of other tech companies started sort of launching based out 174 00:10:02,960 --> 00:10:07,520 Speaker 7: of South India because of the skill availability of engineers 175 00:10:07,760 --> 00:10:09,000 Speaker 7: in the southern part of India. 176 00:10:09,920 --> 00:10:13,000 Speaker 2: But even if India is moving to loosen restrictions on 177 00:10:13,080 --> 00:10:17,319 Speaker 2: foreign investment. It is slow progress and Rajah and warrens 178 00:10:17,360 --> 00:10:20,560 Speaker 2: they might be focusing on the wrong sectors. Prime Minister 179 00:10:20,679 --> 00:10:23,840 Speaker 2: Motor is pushing to grow the manufacturing sector. Does that 180 00:10:23,880 --> 00:10:24,440 Speaker 2: make sense. 181 00:10:24,679 --> 00:10:28,679 Speaker 6: I think the days of growing manufacturing to get strong 182 00:10:28,720 --> 00:10:32,080 Speaker 6: growth in jobs are over. I think it's as true 183 00:10:32,120 --> 00:10:34,640 Speaker 6: of India as it is of the United States. And 184 00:10:34,679 --> 00:10:40,040 Speaker 6: the reason is simply this that increasingly manufacturing is becoming 185 00:10:40,160 --> 00:10:44,120 Speaker 6: much more automated, much more dependent on machines. If you 186 00:10:44,160 --> 00:10:46,800 Speaker 6: look at an assembly plant for cell phones in India, 187 00:10:47,240 --> 00:10:50,240 Speaker 6: it's a sequence of machines, not a sequence of people 188 00:10:50,320 --> 00:10:54,800 Speaker 6: sitting soldiering stuff onto motherboards. So the kind of jobs 189 00:10:54,880 --> 00:10:59,440 Speaker 6: that traditional sort of low skill manufacturing assembly, electronics assembly 190 00:10:59,480 --> 00:11:01,400 Speaker 6: and so on generate. 191 00:11:01,240 --> 00:11:03,920 Speaker 4: They far fewer today. But there are other problems. 192 00:11:04,320 --> 00:11:07,880 Speaker 6: Every country wants to expand its manufacturing and is growing 193 00:11:07,960 --> 00:11:13,000 Speaker 6: protectionist against manufacturing manufactured goods coming from somewhere else. So 194 00:11:13,280 --> 00:11:17,920 Speaker 6: the space for manufacturing exports is also shrinking. India has 195 00:11:17,960 --> 00:11:22,400 Speaker 6: other opportunities in services. It's been a giant in service 196 00:11:22,440 --> 00:11:23,800 Speaker 6: exports in recent years. 197 00:11:24,120 --> 00:11:26,079 Speaker 4: That's where it should focus its attentions. 198 00:11:26,120 --> 00:11:30,560 Speaker 2: More on Modi's push to build up India's own manufacturing 199 00:11:30,559 --> 00:11:33,840 Speaker 2: base comes as President Trump looks to bring back economic 200 00:11:33,880 --> 00:11:39,000 Speaker 2: activity within US borders. It creates a dilemma. Both leaders 201 00:11:39,040 --> 00:11:42,520 Speaker 2: talk up their relationship with one another, but can modis 202 00:11:42,720 --> 00:11:47,680 Speaker 2: made in India and Trump's America first be reconciled and 203 00:11:47,760 --> 00:11:49,760 Speaker 2: if not, which will prevail. 204 00:11:50,880 --> 00:11:56,200 Speaker 6: Every country is turning nationalists now, and everybody is also 205 00:11:56,480 --> 00:12:00,319 Speaker 6: has a certain sense of manufacturing fetishism. They want their 206 00:12:00,360 --> 00:12:03,400 Speaker 6: own manufacturing industries, and of course this collides. 207 00:12:03,880 --> 00:12:04,880 Speaker 4: I think the. 208 00:12:04,880 --> 00:12:09,160 Speaker 6: Way to reduce this gap is by recognizing that each 209 00:12:09,200 --> 00:12:13,839 Speaker 6: country has specialties and by working to ensure that there 210 00:12:13,880 --> 00:12:17,520 Speaker 6: is more trade on those specialties. So, for example, lots 211 00:12:17,520 --> 00:12:21,679 Speaker 6: of oil and natural gas being manufactured in the United States, 212 00:12:21,960 --> 00:12:23,040 Speaker 6: India could buy more. 213 00:12:23,600 --> 00:12:25,400 Speaker 4: There are defense products. 214 00:12:25,000 --> 00:12:28,400 Speaker 6: That are manufactured in the United States, India could buy more. 215 00:12:28,600 --> 00:12:30,760 Speaker 4: So I think rather than seeing. 216 00:12:30,800 --> 00:12:35,360 Speaker 6: Deficits trade deficits as a problem, see it as part 217 00:12:35,559 --> 00:12:38,880 Speaker 6: of a process of collaboration and just make sure that 218 00:12:38,960 --> 00:12:41,120 Speaker 6: the playing field is level for both sides. I think 219 00:12:41,240 --> 00:12:42,720 Speaker 6: that's something that can be worked on. 220 00:12:44,160 --> 00:12:47,520 Speaker 2: Coming up, Luxury brands are looking to get their mojo back, 221 00:12:48,000 --> 00:12:50,840 Speaker 2: but do we have too little of them or too much? 222 00:12:51,559 --> 00:12:53,160 Speaker 2: That's next on Wall Street. 223 00:12:52,880 --> 00:12:57,760 Speaker 1: Week you're listening to Bloomberg Wall Street Week with David 224 00:12:57,760 --> 00:13:06,840 Speaker 1: Weston from Bloomberg Radio. This is Bloomberg Wall Street Week 225 00:13:07,120 --> 00:13:09,840 Speaker 1: with David Weston from Bloomberg Radio. 226 00:13:11,880 --> 00:13:14,840 Speaker 2: This is a story about too much of a good thing. 227 00:13:15,559 --> 00:13:20,120 Speaker 2: Every brand lives and breathes for exposure, but sometimes it 228 00:13:20,120 --> 00:13:23,560 Speaker 2: can be too much. Luxury brands have reaped the benefits 229 00:13:23,559 --> 00:13:27,160 Speaker 2: of consumers the world over seeking them out, but now 230 00:13:27,240 --> 00:13:30,040 Speaker 2: the red carpet may be getting pulled out from under them, 231 00:13:30,360 --> 00:13:33,160 Speaker 2: and my colleague Danny Berger tells us why. It may 232 00:13:33,200 --> 00:13:36,160 Speaker 2: be because they are too available to too many people 233 00:13:36,640 --> 00:13:37,640 Speaker 2: in too many places. 234 00:13:39,880 --> 00:13:43,360 Speaker 8: Luxury brands are everywhere, from the bags we carry to 235 00:13:43,400 --> 00:13:46,000 Speaker 8: the clothes we wear, down to the shoes we step 236 00:13:46,040 --> 00:13:49,880 Speaker 8: into every day, but luxury brands are at a crossroad. 237 00:13:50,480 --> 00:13:53,960 Speaker 8: LVMH seen as a bellweather for the luxury sector, sort 238 00:13:54,040 --> 00:13:57,120 Speaker 8: close to two hundred and fifty percent between twenty nineteen 239 00:13:57,160 --> 00:14:00,880 Speaker 8: and twenty twenty four, but it's since fallen around twenty 240 00:14:00,880 --> 00:14:03,560 Speaker 8: percent from the highs of last year, with a recent 241 00:14:03,600 --> 00:14:07,119 Speaker 8: bounce offsetting some of those losses and leaving investors struggling 242 00:14:07,160 --> 00:14:10,440 Speaker 8: to try a path forward for the luxury brands. Joelle 243 00:14:10,520 --> 00:14:13,600 Speaker 8: Grunberg is partner at Mackenzie who leads the firms apparel, 244 00:14:13,679 --> 00:14:17,000 Speaker 8: fashion and luxury sector in North America and co authors 245 00:14:17,040 --> 00:14:19,000 Speaker 8: a yearly report on the state of Luxury. 246 00:14:19,320 --> 00:14:22,680 Speaker 9: When you look at economic profits of the luxury industry, 247 00:14:23,080 --> 00:14:27,160 Speaker 9: it basically nearly tripled between twenty nineteen and twenty twenty four. 248 00:14:27,600 --> 00:14:31,560 Speaker 9: So it's really been amazing years, and I think at 249 00:14:31,600 --> 00:14:35,240 Speaker 9: some point everybody started believing this was the new normal 250 00:14:35,400 --> 00:14:39,120 Speaker 9: and started to expect that this would continue. But as 251 00:14:39,160 --> 00:14:43,280 Speaker 9: we all know, you know, at some point things stabilized 252 00:14:43,360 --> 00:14:46,400 Speaker 9: or normalize, So as we know, in twenty twenty four, 253 00:14:46,480 --> 00:14:50,280 Speaker 9: things slowed down in a significant way for the luxury industry. 254 00:14:50,880 --> 00:14:53,560 Speaker 9: It has been a tale of different stories. In all fairness, 255 00:14:53,720 --> 00:14:58,520 Speaker 9: not all the rounds, not all the corporations have suffered 256 00:14:58,560 --> 00:15:01,240 Speaker 9: in the same way, and some are doing great in fact. 257 00:15:01,840 --> 00:15:04,240 Speaker 9: But what we think is that twenty twenty five will 258 00:15:04,240 --> 00:15:08,120 Speaker 9: overall be a year of normalization. We obviously see continue 259 00:15:08,160 --> 00:15:10,800 Speaker 9: to see growth, but I would say in a more 260 00:15:10,920 --> 00:15:15,120 Speaker 9: muted way, and it will also significantly depend on the 261 00:15:15,200 --> 00:15:18,200 Speaker 9: region and the market. It would also depend on what 262 00:15:18,400 --> 00:15:22,680 Speaker 9: category you mainly operated, and it also depends, I would say, 263 00:15:22,800 --> 00:15:26,240 Speaker 9: on again the situation of the round overall, because some 264 00:15:26,480 --> 00:15:28,960 Speaker 9: runs are doing much better than the others. 265 00:15:29,560 --> 00:15:32,640 Speaker 8: Armez is one of those brands outperforming its luxury peers, 266 00:15:32,720 --> 00:15:35,920 Speaker 8: but they are very much the outlier. Just last week, 267 00:15:36,040 --> 00:15:39,440 Speaker 8: Armaz reported a jump in fourth quarter revenue, while LVMH 268 00:15:39,520 --> 00:15:43,200 Speaker 8: and Karen posted declines, and Grundberg says there's a range 269 00:15:43,240 --> 00:15:45,680 Speaker 8: of global headwinds challenging the luxury sector. 270 00:15:46,040 --> 00:15:49,040 Speaker 9: Two main factors contributed to the huge growth that we've 271 00:15:49,080 --> 00:15:53,840 Speaker 9: seen since twenty nineteen. One first factor is clearly the 272 00:15:53,960 --> 00:15:57,080 Speaker 9: rise of prices in luxury. Most of the rounds have 273 00:15:57,200 --> 00:16:00,880 Speaker 9: increased prices in a very significant way, more than double 274 00:16:00,960 --> 00:16:05,080 Speaker 9: digit every year, and so that has contributed to eighty 275 00:16:05,080 --> 00:16:08,440 Speaker 9: percent of the growth in revenue of these companies. The 276 00:16:08,520 --> 00:16:12,120 Speaker 9: second factor is the pool of China. As we all know, 277 00:16:12,240 --> 00:16:15,800 Speaker 9: the Chinese customer has been a very very strong contributor 278 00:16:15,880 --> 00:16:19,360 Speaker 9: to the growth of luxury globally, and so that you know, 279 00:16:19,480 --> 00:16:23,160 Speaker 9: pool has been extremely strong and is slowing down right now. 280 00:16:23,840 --> 00:16:25,760 Speaker 9: And what has happened in the past year and a 281 00:16:25,800 --> 00:16:30,280 Speaker 9: half is that the aspirational luxury customer, and more specifically 282 00:16:30,360 --> 00:16:34,640 Speaker 9: in the US, has been challenged because there's been a 283 00:16:34,680 --> 00:16:38,120 Speaker 9: lot of people losing their jobs and so therefore there 284 00:16:38,160 --> 00:16:41,680 Speaker 9: have been much more cautious and on pause. So part 285 00:16:41,680 --> 00:16:45,000 Speaker 9: of the explanation is linked to that aspirational customer being 286 00:16:45,000 --> 00:16:45,960 Speaker 9: a bit more on hold. 287 00:16:48,080 --> 00:16:51,240 Speaker 10: You know, that perfect storm has resulted in some aspirational 288 00:16:51,280 --> 00:16:54,920 Speaker 10: customers being priced out of the first hand luxury market. 289 00:16:55,040 --> 00:16:58,120 Speaker 10: We're very happy to receive them. 290 00:16:58,320 --> 00:17:02,400 Speaker 8: Maximilian Bitner is the CEO a Vestier Collective, a platform 291 00:17:02,440 --> 00:17:05,240 Speaker 8: for pre owned designer and luxury products founded in two 292 00:17:05,280 --> 00:17:08,959 Speaker 8: thousand and nine, aimed at making fashion more sustainable and 293 00:17:08,960 --> 00:17:11,639 Speaker 8: a more strained consumer means. The second hand market is 294 00:17:11,640 --> 00:17:15,439 Speaker 8: seeing significant growth, expected to reach three hundred and fifty 295 00:17:15,480 --> 00:17:18,960 Speaker 8: billion dollars globally in twenty twenty eight. That's up from 296 00:17:18,960 --> 00:17:22,080 Speaker 8: one hundred and ninety seven billion dollars in twenty twenty three, 297 00:17:22,280 --> 00:17:25,720 Speaker 8: with Vestier estimating eighty two percent of its orders prevent 298 00:17:25,800 --> 00:17:26,960 Speaker 8: a first hand purchase. 299 00:17:27,560 --> 00:17:32,520 Speaker 10: We definitely do cater to the demand of the aspirational customer, 300 00:17:33,440 --> 00:17:37,560 Speaker 10: as certain brands are more affordable, more accessible than they 301 00:17:37,600 --> 00:17:39,719 Speaker 10: would be in a first hand store. And I think 302 00:17:39,760 --> 00:17:42,800 Speaker 10: we've especially seen this over the last one or two years. 303 00:17:43,320 --> 00:17:45,879 Speaker 10: You know, in a period of economic uncertainty, which in 304 00:17:45,960 --> 00:17:50,440 Speaker 10: parallel has seen luxury brands increase prices you know, significantly 305 00:17:50,720 --> 00:17:53,359 Speaker 10: over the last four or five years. When I joined 306 00:17:53,400 --> 00:17:56,640 Speaker 10: vis Year at the end of twenty eighteen early twenty nineteen, 307 00:17:56,800 --> 00:18:01,399 Speaker 10: you know, I recognize the incredible brand and community, but 308 00:18:01,480 --> 00:18:04,440 Speaker 10: I also recognized the need for us to build a scalable, 309 00:18:04,560 --> 00:18:08,119 Speaker 10: profitable business you know, for the next twenty thirty forty years. 310 00:18:08,400 --> 00:18:13,040 Speaker 10: Even the last two years, the business has proven extremely resilient, 311 00:18:13,160 --> 00:18:16,720 Speaker 10: growing with more than twenty percent revenue growth. So the 312 00:18:16,760 --> 00:18:20,280 Speaker 10: business has been you know, throughout the up and down 313 00:18:20,359 --> 00:18:25,000 Speaker 10: cycles of pre COVID COVID post COVID remained extremely resilient, 314 00:18:25,280 --> 00:18:27,040 Speaker 10: which is great for us to see. 315 00:18:27,560 --> 00:18:30,080 Speaker 8: Vestier is not alone in writing the second hand wave. 316 00:18:30,440 --> 00:18:34,400 Speaker 8: The Real Real and Rebag offer similar services, and Rebag's 317 00:18:34,400 --> 00:18:36,760 Speaker 8: reach got a lot bigger this year when it partnered 318 00:18:36,800 --> 00:18:39,639 Speaker 8: with Walmart to sell its catalog of about twenty seven 319 00:18:39,680 --> 00:18:44,440 Speaker 8: thousand items on the retail giant's website, targeting the aspirational customer. 320 00:18:44,560 --> 00:18:47,320 Speaker 8: What might seem like a threat to luxury retail, in 321 00:18:47,400 --> 00:18:50,720 Speaker 8: reality could be a mutually beneficial relationship. 322 00:18:51,240 --> 00:18:55,000 Speaker 10: I think overall, the mood and the attitude of luxury 323 00:18:55,040 --> 00:18:59,240 Speaker 10: brands have dramatically improved over the last five six years 324 00:18:59,560 --> 00:19:04,959 Speaker 10: towards secondhand because you know, fundamentally, we are not cannibalizing 325 00:19:05,000 --> 00:19:09,399 Speaker 10: their sales. If anything, you know, we pay homage to 326 00:19:09,960 --> 00:19:13,679 Speaker 10: their brands by showing to the consumers, both the buyers 327 00:19:13,680 --> 00:19:18,480 Speaker 10: and the sellers, how much value is retained in these 328 00:19:18,520 --> 00:19:20,159 Speaker 10: products that they're buying firsthand. 329 00:19:20,720 --> 00:19:23,160 Speaker 8: Norma Kamali rose to the top of high end fashion 330 00:19:23,240 --> 00:19:26,280 Speaker 8: with the iconic Sleeping Bag coat that she designed in 331 00:19:26,359 --> 00:19:29,520 Speaker 8: nineteen seventy three. Since then, the New York based designer 332 00:19:29,600 --> 00:19:33,080 Speaker 8: has proven her ideas fresh and innovative time and time again. 333 00:19:33,760 --> 00:19:36,800 Speaker 8: Like Bittner, Kamali sees the value of secondhand markets in 334 00:19:36,880 --> 00:19:37,760 Speaker 8: luxury fashion. 335 00:19:38,160 --> 00:19:43,840 Speaker 11: I think anything that's a creative process that's fun is 336 00:19:44,119 --> 00:19:48,960 Speaker 11: good for people, right And if in that secondhand you 337 00:19:49,040 --> 00:19:52,719 Speaker 11: get a great better price and you get a brand 338 00:19:52,800 --> 00:19:57,359 Speaker 11: that you haven't been able to buy before. There's a 339 00:19:57,440 --> 00:20:01,640 Speaker 11: whole cult of people who look for Norma Kamali vintage 340 00:20:02,280 --> 00:20:07,760 Speaker 11: and it's fascinating to me. But I see how great 341 00:20:07,840 --> 00:20:12,240 Speaker 11: that is because in that generation, there's something I did 342 00:20:13,560 --> 00:20:17,359 Speaker 11: when I was that age that is connecting with them. 343 00:20:17,480 --> 00:20:20,560 Speaker 8: Would you say, Norma Kamali is also luxury. 344 00:20:20,960 --> 00:20:30,800 Speaker 11: Luxury to me is something that is accessible, affordable, and 345 00:20:31,080 --> 00:20:35,680 Speaker 11: will last in your wardrobe forever. It can't be a 346 00:20:35,720 --> 00:20:40,240 Speaker 11: purse that you spend thirty thousand dollars on and sort 347 00:20:40,240 --> 00:20:43,080 Speaker 11: of collect in a closet with other purses. 348 00:20:43,359 --> 00:20:46,240 Speaker 8: How do you strike that balance then, of being both 349 00:20:46,359 --> 00:20:49,040 Speaker 8: accessible but not oversaturated. 350 00:20:48,280 --> 00:20:48,840 Speaker 12: In the market. 351 00:20:49,080 --> 00:20:53,560 Speaker 11: It's an important thing to do, and I think first 352 00:20:53,600 --> 00:20:59,480 Speaker 11: of all, knowing your distribution, being careful about the distribution, 353 00:21:00,000 --> 00:21:05,080 Speaker 11: make sure the distribution is to your customer, the person 354 00:21:05,160 --> 00:21:10,200 Speaker 11: who connects with you. And we have a global distribution 355 00:21:10,720 --> 00:21:15,600 Speaker 11: and we could still be reaching many, many more people. 356 00:21:16,080 --> 00:21:18,960 Speaker 8: There's no question that more consumers are exposed to and 357 00:21:19,040 --> 00:21:22,040 Speaker 8: have access to luxury than ever before. But at least 358 00:21:22,080 --> 00:21:25,359 Speaker 8: one icon of the industry admits that change is inevitable. 359 00:21:25,800 --> 00:21:26,440 Speaker 4: We start this. 360 00:21:26,400 --> 00:21:30,439 Speaker 8: Conversation with this idea of luxury doesn't mean exclusivity. Do 361 00:21:30,480 --> 00:21:33,080 Speaker 8: you think some of those secondhand apps are also changing 362 00:21:33,119 --> 00:21:34,240 Speaker 8: the conversation. 363 00:21:33,840 --> 00:21:38,760 Speaker 11: That reguly totally. I think the fashion industry clearly is 364 00:21:38,840 --> 00:21:44,000 Speaker 11: going through a huge, huge change, and it's long. 365 00:21:43,760 --> 00:21:46,040 Speaker 3: Overdue, it really is. 366 00:21:46,600 --> 00:21:50,680 Speaker 11: And I think when an industry can have a lot 367 00:21:50,720 --> 00:21:53,560 Speaker 11: of variety and a lot of choices and a lot 368 00:21:53,600 --> 00:21:54,640 Speaker 11: of price ranges. 369 00:21:55,880 --> 00:21:59,840 Speaker 8: Then it's healthy, healthy for the consumer, but a challenge 370 00:21:59,840 --> 00:22:02,760 Speaker 8: for the luxury brands to overcome as they look to 371 00:22:02,800 --> 00:22:05,119 Speaker 8: rediscover the growth of the last five years. 372 00:22:06,560 --> 00:22:11,160 Speaker 2: This is a story about unintended consequences. Sometimes even the 373 00:22:11,200 --> 00:22:15,359 Speaker 2: best intention to government regulations can do more harm than good. 374 00:22:15,920 --> 00:22:19,200 Speaker 2: But then again, cutting back on regulation can also do 375 00:22:19,440 --> 00:22:20,320 Speaker 2: real mischief. 376 00:22:20,560 --> 00:22:22,560 Speaker 13: We did the right thing, that was a very important 377 00:22:22,560 --> 00:22:25,240 Speaker 13: thing to get right finis and it was also a waste. 378 00:22:25,280 --> 00:22:27,240 Speaker 4: I mean, number one, it was a bad group of 379 00:22:27,240 --> 00:22:28,040 Speaker 4: people running it. 380 00:22:28,080 --> 00:22:32,480 Speaker 13: If the CFPB is not there examining these giant banks 381 00:22:32,880 --> 00:22:35,399 Speaker 13: to make sure they are following the laws on not 382 00:22:35,920 --> 00:22:39,040 Speaker 13: cheating consumers, who is doing that job? 383 00:22:39,320 --> 00:22:41,200 Speaker 4: I can say, no other federal regulator. 384 00:22:41,960 --> 00:22:45,400 Speaker 2: So which is it? Is government regulation holding the US 385 00:22:45,440 --> 00:22:48,920 Speaker 2: economy back? Or is it an important foundation for much 386 00:22:48,960 --> 00:22:51,960 Speaker 2: of the economic benefits we've reaped? And if it can 387 00:22:52,000 --> 00:22:55,760 Speaker 2: be both, how can we tell the difference. Jeff Myron 388 00:22:55,960 --> 00:22:59,359 Speaker 2: is Director of Undergraduate Economics at Harvard and the director 389 00:22:59,400 --> 00:23:02,080 Speaker 2: of Economics Studies at the Cato Institute. 390 00:23:02,560 --> 00:23:05,240 Speaker 5: I don't think there is a definitive study on productivity 391 00:23:05,280 --> 00:23:09,800 Speaker 5: and regulation. There are many studies of individual industries, of 392 00:23:09,880 --> 00:23:14,000 Speaker 5: specific time periods, of special cases, but those are all 393 00:23:14,200 --> 00:23:19,960 Speaker 5: relatively small pieces of information. Finding an overall clear assessment 394 00:23:20,040 --> 00:23:23,080 Speaker 5: is pretty hard. I think many people would point to 395 00:23:23,560 --> 00:23:26,600 Speaker 5: key environmental regulation in the United States, the Clean Air 396 00:23:26,640 --> 00:23:30,440 Speaker 5: and Water Acts, as having been quite successful, but even 397 00:23:30,520 --> 00:23:33,720 Speaker 5: those are not without some degree of controversy. One certainly 398 00:23:33,760 --> 00:23:36,639 Speaker 5: finds that as a result of those acts, which are 399 00:23:36,640 --> 00:23:40,000 Speaker 5: passed in the early nineteen seventies, air got cleaner, water 400 00:23:40,080 --> 00:23:42,639 Speaker 5: got cleaner. But if you then go the next step 401 00:23:42,680 --> 00:23:46,840 Speaker 5: and say, were those improvements worth the extra cost, because 402 00:23:46,840 --> 00:23:50,000 Speaker 5: of course putting restrictions on what firms do and what 403 00:23:50,240 --> 00:23:54,520 Speaker 5: cars can do raises the cost, and there the assessment 404 00:23:54,720 --> 00:23:59,199 Speaker 5: is still probably beneficial overall, but not so obviously not 405 00:23:59,320 --> 00:24:03,880 Speaker 5: so dramatic. So even for one of the relatively clear successes, 406 00:24:04,520 --> 00:24:07,960 Speaker 5: I'd say there's still some room for reasonable people to 407 00:24:08,000 --> 00:24:09,640 Speaker 5: disagree about how effective they were. 408 00:24:10,800 --> 00:24:14,920 Speaker 2: Myron has harsher criticism of food and drug regulation, where 409 00:24:14,960 --> 00:24:19,160 Speaker 2: there has been mission creep delays and political and legal tangles. 410 00:24:20,040 --> 00:24:24,760 Speaker 5: So the very first major attempt federal attempt to deal 411 00:24:24,840 --> 00:24:27,640 Speaker 5: with dangers of drugs and food was all the Pure 412 00:24:27,640 --> 00:24:30,639 Speaker 5: Food and Drug Act of nineteen oh three, and it 413 00:24:30,680 --> 00:24:35,119 Speaker 5: did something very mild. It said that medicines and food 414 00:24:35,320 --> 00:24:38,760 Speaker 5: substances had to include a list of the ingredients on 415 00:24:38,800 --> 00:24:40,879 Speaker 5: a label on the outside of the package. 416 00:24:41,080 --> 00:24:42,080 Speaker 4: That's pretty innocuous. 417 00:24:42,119 --> 00:24:44,119 Speaker 5: Even if you're a hardcore libertarian, it's be hard to 418 00:24:44,119 --> 00:24:48,199 Speaker 5: get too exercised about that. But that notion that the 419 00:24:48,240 --> 00:24:52,679 Speaker 5: government was going to protect people from dangerous products evolved 420 00:24:52,720 --> 00:24:55,640 Speaker 5: into creating the Food and Drug Administration in nineteen thirty eight, 421 00:24:56,240 --> 00:24:58,600 Speaker 5: which then had the power to keep things from being 422 00:24:58,680 --> 00:25:01,480 Speaker 5: on the market at all. That's a much higher bar 423 00:25:01,840 --> 00:25:05,160 Speaker 5: Now we have the current system, which involves years of delay, 424 00:25:05,520 --> 00:25:09,520 Speaker 5: sometimes billions of dollars in testing before thinks can go 425 00:25:09,560 --> 00:25:12,920 Speaker 5: on the market, and that probably prevents some bad drugs 426 00:25:12,920 --> 00:25:15,159 Speaker 5: from ending up on the market, but also delays all 427 00:25:15,240 --> 00:25:16,400 Speaker 5: the good drugs from getting on. 428 00:25:16,320 --> 00:25:17,040 Speaker 4: The market. 429 00:25:18,400 --> 00:25:21,879 Speaker 2: Coming up. They are called zombie companies for our reason. 430 00:25:22,320 --> 00:25:24,920 Speaker 2: There are more companies who don't make enough to pay 431 00:25:24,960 --> 00:25:27,760 Speaker 2: their bills than you might think. But we bring you 432 00:25:27,800 --> 00:25:30,160 Speaker 2: the story of one of them that came back from 433 00:25:30,160 --> 00:25:34,280 Speaker 2: the dead Barnes and Noble. That's next on Wall Street Week. 434 00:25:36,680 --> 00:25:40,240 Speaker 1: You're listening to Bloomberg Wall Street Week with David Weston 435 00:25:40,600 --> 00:25:49,040 Speaker 1: from Bloomberg Radio. You're listening to Bloomberg Wall Street Week 436 00:25:49,160 --> 00:25:51,840 Speaker 1: with David Weston from Bloomberg Radio. 437 00:25:53,119 --> 00:25:56,960 Speaker 2: This is a story about the corporate living dead. Companies 438 00:25:56,960 --> 00:26:00,920 Speaker 2: that don't make enough money to cover their debt after year, 439 00:26:01,680 --> 00:26:06,040 Speaker 2: many of them ultimately giving up the ghost end of 440 00:26:06,080 --> 00:26:06,480 Speaker 2: an era. 441 00:26:06,520 --> 00:26:08,560 Speaker 8: Off for retail Giant, bed Bath and beyond. 442 00:26:08,400 --> 00:26:10,320 Speaker 4: We have breaking news the party is over. 443 00:26:10,359 --> 00:26:13,360 Speaker 12: As count retailer Big Loss is closing all of its 444 00:26:13,400 --> 00:26:14,520 Speaker 12: stores nationwide. 445 00:26:14,920 --> 00:26:18,080 Speaker 2: The annals of business are full of stories of companies 446 00:26:18,080 --> 00:26:22,159 Speaker 2: that fought the good fight but ultimately lost. The number 447 00:26:22,200 --> 00:26:25,000 Speaker 2: of business bankruptcies in the United States is on the rise, 448 00:26:25,440 --> 00:26:28,840 Speaker 2: up over seventy percent in the past two years, and 449 00:26:29,000 --> 00:26:32,439 Speaker 2: corporate delinquency rates are the highest they've been in eight years. 450 00:26:33,080 --> 00:26:36,000 Speaker 2: Bankruptcy usually is the end of life, at least in 451 00:26:36,040 --> 00:26:39,480 Speaker 2: the company's current form, but maybe you've noticed that some 452 00:26:39,640 --> 00:26:43,480 Speaker 2: stick around, and there's a term for them, zombie companies. 453 00:26:44,800 --> 00:26:48,720 Speaker 2: Vincenzo Spizato is a partner at Carne, writing a yearly 454 00:26:48,800 --> 00:26:51,760 Speaker 2: report on zombie companies and their effect on the health 455 00:26:51,840 --> 00:26:53,240 Speaker 2: of the overall economy. 456 00:26:53,680 --> 00:26:57,919 Speaker 14: A zombie company, it's fundamentally a financially unsustainable company with 457 00:26:57,960 --> 00:27:01,679 Speaker 14: these are companies that are not producing enough operating profit 458 00:27:01,760 --> 00:27:04,000 Speaker 14: to pay the interest on their loans, and they've been 459 00:27:04,000 --> 00:27:06,800 Speaker 14: in that position for at least three consecutive years. So 460 00:27:07,040 --> 00:27:09,320 Speaker 14: when we talk about a zombie, it's not a company 461 00:27:09,320 --> 00:27:12,000 Speaker 14: that had a bad year or a startup or anything 462 00:27:12,040 --> 00:27:16,320 Speaker 14: like that. We're talking about sustained material underperformance. These are 463 00:27:16,640 --> 00:27:19,159 Speaker 14: publicly traded companies that have been in business for at 464 00:27:19,240 --> 00:27:21,800 Speaker 14: least ten years that have revenue for each of those 465 00:27:21,800 --> 00:27:24,560 Speaker 14: ten years. These are real companies that are having profound 466 00:27:24,800 --> 00:27:25,679 Speaker 14: financial issues. 467 00:27:26,800 --> 00:27:29,760 Speaker 2: You study these zombie companies, how many are there? 468 00:27:30,600 --> 00:27:34,080 Speaker 14: Just looking back to put this in perspective, in twenty ten, 469 00:27:34,240 --> 00:27:38,760 Speaker 14: there were under two percent of publicly traded companies globally. 470 00:27:39,000 --> 00:27:42,399 Speaker 14: We've seen around ten percent annual growth since then, and 471 00:27:42,480 --> 00:27:46,120 Speaker 14: so we're up to around six percent of all publicly 472 00:27:46,119 --> 00:27:49,720 Speaker 14: traded companies globally. Six out of one hundred are currently zombies. 473 00:27:49,720 --> 00:27:52,640 Speaker 14: So we're talking about an not insignificant number of companies. 474 00:27:52,640 --> 00:27:56,880 Speaker 14: It's sort of all industries, all company sizes, they're sort 475 00:27:56,880 --> 00:27:57,440 Speaker 14: of everywhere. 476 00:27:58,000 --> 00:28:01,679 Speaker 2: In twenty twenty three alone, Arney identified eight hundred and 477 00:28:01,680 --> 00:28:05,520 Speaker 2: twenty seven new zombie companies, taking the total number to 478 00:28:05,560 --> 00:28:10,480 Speaker 2: almost twenty five hundred globally, with real estate and manufacturing 479 00:28:10,720 --> 00:28:11,360 Speaker 2: leading the way. 480 00:28:12,359 --> 00:28:14,840 Speaker 14: A lot of zombies are companies that should not have 481 00:28:14,880 --> 00:28:17,800 Speaker 14: gotten financing to begin with, given the sort of easy 482 00:28:17,840 --> 00:28:20,360 Speaker 14: access to capital that we saw coming out of two 483 00:28:20,359 --> 00:28:23,040 Speaker 14: thousand and eight and the financial crisis, and those are 484 00:28:23,080 --> 00:28:25,639 Speaker 14: companies that are going to be very difficult to turn around. 485 00:28:26,000 --> 00:28:28,919 Speaker 2: Normally we think those companies get weeded out, you. 486 00:28:28,920 --> 00:28:31,600 Speaker 14: Would think so, and yet a lot of times they'll 487 00:28:31,640 --> 00:28:34,800 Speaker 14: carry that interest forward, the interest payable as a loss. 488 00:28:35,359 --> 00:28:40,320 Speaker 14: Capital markets are incredibly rewarding and have been very forgiving recently, 489 00:28:40,920 --> 00:28:43,960 Speaker 14: particularly coming out of the financial crisis. There's been just 490 00:28:44,120 --> 00:28:48,240 Speaker 14: real easy access to financing to a lot of companies 491 00:28:48,280 --> 00:28:52,160 Speaker 14: that one may argue shouldn't have actually received that financing 492 00:28:52,800 --> 00:28:55,120 Speaker 14: at such low interest rates that they were able to 493 00:28:55,120 --> 00:28:57,160 Speaker 14: sort of kick the can on the issue and move 494 00:28:57,200 --> 00:28:59,760 Speaker 14: things forward. So a lot of zombies have in fact 495 00:29:00,080 --> 00:29:02,640 Speaker 14: business for a long time. Many of them do ultimately 496 00:29:03,440 --> 00:29:06,680 Speaker 14: they either go bankrupt, they get acquired, or every once 497 00:29:06,720 --> 00:29:08,640 Speaker 14: in a while they're able to turn themselves around. 498 00:29:09,480 --> 00:29:12,320 Speaker 2: One of those so called zombie companies that's come back 499 00:29:12,360 --> 00:29:15,520 Speaker 2: from the dead is the well known bookseller Barnes and Noble, 500 00:29:16,200 --> 00:29:19,560 Speaker 2: back in twenty ten, it teetered on the brink, closing 501 00:29:19,720 --> 00:29:23,240 Speaker 2: hundreds of stores and laying off thousands of workers, and 502 00:29:23,280 --> 00:29:26,840 Speaker 2: then in twenty eighteen became a full blown zombie. 503 00:29:27,640 --> 00:29:30,200 Speaker 15: We've definitely seen an increase in the number of people 504 00:29:30,200 --> 00:29:33,280 Speaker 15: coming through the door, that sense of discovery. You know, 505 00:29:34,120 --> 00:29:37,000 Speaker 15: it's a different experience, you know, to go from table 506 00:29:37,040 --> 00:29:41,080 Speaker 15: to table or day to day and find something new. 507 00:29:41,360 --> 00:29:44,400 Speaker 12: I think people have attachments to to like their neighborhood 508 00:29:44,440 --> 00:29:46,040 Speaker 12: or their corner books. So even if it's like a 509 00:29:46,120 --> 00:29:49,320 Speaker 12: larger company like this, it feels warm to be able 510 00:29:49,360 --> 00:29:52,280 Speaker 12: to come to an actual location and do exploration in person. 511 00:29:53,920 --> 00:29:56,120 Speaker 16: I think there was a number of things that went 512 00:29:56,160 --> 00:29:58,440 Speaker 16: on Amazon came and that took a chunk of the 513 00:29:58,480 --> 00:30:03,560 Speaker 16: easy sales disappeared, a fear that people were no longer 514 00:30:03,600 --> 00:30:05,240 Speaker 16: going to read physical books, they were just going to 515 00:30:05,320 --> 00:30:08,920 Speaker 16: read ebooks, Kendall, Nook and all of that. As people 516 00:30:08,960 --> 00:30:11,800 Speaker 16: lost confident in books, they then started selling other things, 517 00:30:12,160 --> 00:30:14,880 Speaker 16: which then compromised the ability to present. 518 00:30:14,640 --> 00:30:15,720 Speaker 4: Really good bookstores. 519 00:30:16,200 --> 00:30:20,080 Speaker 16: Publishers panicked books. That has panicked, everybody panicked, and I 520 00:30:20,080 --> 00:30:23,840 Speaker 16: think when you lose your compass, then you go off 521 00:30:23,880 --> 00:30:26,920 Speaker 16: in really in the wrong direction, and it was that 522 00:30:26,960 --> 00:30:29,400 Speaker 16: it was a fundamental loss of confidence. And it happened 523 00:30:29,440 --> 00:30:31,320 Speaker 16: not just in the United States, so it happened pretty 524 00:30:31,360 --> 00:30:34,719 Speaker 16: much worldwide, and most large books selling chains got themselves 525 00:30:34,720 --> 00:30:35,400 Speaker 16: into big trouble. 526 00:30:36,720 --> 00:30:39,600 Speaker 2: Elliott Management stepped in with a six hundred and eighty 527 00:30:39,640 --> 00:30:43,960 Speaker 2: three million dollar takeover and appointed James Daunt as CEO, 528 00:30:44,480 --> 00:30:49,320 Speaker 2: and the resurrection began. Since twenty nineteen, foot traffic has 529 00:30:49,320 --> 00:30:52,479 Speaker 2: increased seven percent at Barnes and Noble, and the company 530 00:30:52,480 --> 00:30:56,120 Speaker 2: has opened one hundred and thirteen stores across the United States, 531 00:30:56,520 --> 00:31:00,880 Speaker 2: with another sixty due to open this year. When you 532 00:31:00,920 --> 00:31:03,560 Speaker 2: came in, what did you do? I mean, what were 533 00:31:03,600 --> 00:31:05,080 Speaker 2: your priorities? What did you focus on? 534 00:31:05,160 --> 00:31:05,400 Speaker 4: First? 535 00:31:06,920 --> 00:31:10,040 Speaker 16: Can't sort of dodge around this in any euphemistic way. 536 00:31:10,120 --> 00:31:14,680 Speaker 16: We had to cut costs, and that meant reducing dramatically 537 00:31:14,760 --> 00:31:19,000 Speaker 16: the head office structures healthfully. My other core principle was 538 00:31:19,040 --> 00:31:21,480 Speaker 16: to allow the booksellers in each store to get to 539 00:31:21,520 --> 00:31:23,080 Speaker 16: grips with and start working. 540 00:31:22,800 --> 00:31:23,800 Speaker 4: On their bookstores. 541 00:31:24,000 --> 00:31:25,959 Speaker 16: Now, if you do that, you need far less central 542 00:31:26,000 --> 00:31:28,520 Speaker 16: direction because you're letting the guys in the stores do 543 00:31:28,600 --> 00:31:31,320 Speaker 16: the work. So we were able to reduce our costs 544 00:31:31,320 --> 00:31:36,280 Speaker 16: substantially and then turn to the individual bookstore teams and 545 00:31:36,320 --> 00:31:39,760 Speaker 16: say sort out your stores. And we just started to 546 00:31:39,800 --> 00:31:42,000 Speaker 16: sort of preach that message and put a few practical 547 00:31:42,040 --> 00:31:44,640 Speaker 16: steps in place when COVID came along. So we then 548 00:31:44,720 --> 00:31:48,600 Speaker 16: had a pandemic when all our stores closed. Turns out 549 00:31:48,640 --> 00:31:50,680 Speaker 16: to have being actually a huge stroke of fortune. 550 00:31:50,880 --> 00:31:52,640 Speaker 2: Why was it a huge struggle fortune? 551 00:31:53,000 --> 00:31:55,440 Speaker 16: What we really needed to do was work on the stores, 552 00:31:55,920 --> 00:31:59,400 Speaker 16: and that's quite difficult to do if you're still also 553 00:31:59,480 --> 00:32:02,760 Speaker 16: running your store. It's full of customers. Suddenly we were 554 00:32:03,360 --> 00:32:05,640 Speaker 16: literally having to close our doors, but we kept the 555 00:32:05,680 --> 00:32:07,560 Speaker 16: lights on, we kept the people in the stores. So 556 00:32:07,560 --> 00:32:11,200 Speaker 16: we kept our experienced booksellers and they worked through the 557 00:32:11,240 --> 00:32:14,880 Speaker 16: pandemic inside the stores, moving the furniture around, going through. 558 00:32:14,720 --> 00:32:15,280 Speaker 4: All the books. 559 00:32:15,760 --> 00:32:17,440 Speaker 16: By the time we were allowed to open again, we 560 00:32:17,480 --> 00:32:21,120 Speaker 16: had much better bookstores, just through moving, changing, getting rid 561 00:32:21,160 --> 00:32:24,240 Speaker 16: of the books that shouldn't be there, presenting better. 562 00:32:24,440 --> 00:32:25,120 Speaker 4: Low and behold. 563 00:32:25,200 --> 00:32:28,080 Speaker 16: During provid lots of people discovered reading and the joys 564 00:32:28,080 --> 00:32:32,479 Speaker 16: of reading, and we opened to that re energized customer 565 00:32:32,520 --> 00:32:34,480 Speaker 16: base who were coming back on to high streets with 566 00:32:34,640 --> 00:32:35,680 Speaker 16: much better bookstores. 567 00:32:36,120 --> 00:32:38,120 Speaker 14: The story of Barnes and Nobles obviously a very famous one. 568 00:32:38,120 --> 00:32:40,120 Speaker 14: It's a very popular one, and I think they went 569 00:32:40,120 --> 00:32:42,640 Speaker 14: back to the basics. They looked fundamentally at what customers 570 00:32:42,680 --> 00:32:44,760 Speaker 14: were looking for, They looked at what worked, and they 571 00:32:44,800 --> 00:32:48,480 Speaker 14: spent the time focusing on the areas that were impactful. 572 00:32:48,000 --> 00:32:53,400 Speaker 2: Those keys to success. Understanding customers and individualizing stores was 573 00:32:53,480 --> 00:32:56,800 Speaker 2: something brought with him from his experience owning his own 574 00:32:56,800 --> 00:33:00,880 Speaker 2: independent bookstore in London, and then apply as the recipe 575 00:33:00,920 --> 00:33:04,840 Speaker 2: for success to restore and reinvigorate the Barnes and Noble brand. 576 00:33:05,840 --> 00:33:08,440 Speaker 16: I have the firm belief that if you leave it 577 00:33:08,480 --> 00:33:11,600 Speaker 16: to the books team, and it is a team, they 578 00:33:11,600 --> 00:33:14,920 Speaker 16: will put the best possible bookstore in front of you. 579 00:33:15,040 --> 00:33:17,560 Speaker 16: It is all about recommending the books to the community 580 00:33:17,600 --> 00:33:21,280 Speaker 16: that you know and understand. What we've benefited from is 581 00:33:21,320 --> 00:33:24,000 Speaker 16: because we relaxed and because we've let the store teams 582 00:33:24,040 --> 00:33:27,560 Speaker 16: do pretty much whatever they want, trusted in their common sense, 583 00:33:27,640 --> 00:33:31,240 Speaker 16: trusted in, and we have a vocational group of books 584 00:33:31,240 --> 00:33:34,160 Speaker 16: that's out there. They love books, and they love talking 585 00:33:34,200 --> 00:33:36,640 Speaker 16: about books. They're not selling books, and they also love 586 00:33:36,680 --> 00:33:40,320 Speaker 16: getting on social media and being quite fun and foolish 587 00:33:40,480 --> 00:33:43,440 Speaker 16: about books, and fun and foolish turns out to be 588 00:33:43,680 --> 00:33:45,240 Speaker 16: absolutely what you need to be doing. 589 00:33:45,360 --> 00:33:47,560 Speaker 4: So a lot of our success. 590 00:33:47,200 --> 00:33:49,600 Speaker 16: Has come from us being actually at the forefront of 591 00:33:49,640 --> 00:33:53,120 Speaker 16: things like BookTok and that's our booksellers. As I always say, 592 00:33:53,520 --> 00:33:54,960 Speaker 16: give it to the one with the blue hair. 593 00:33:54,840 --> 00:33:55,600 Speaker 4: And leave them alone. 594 00:33:55,680 --> 00:33:58,440 Speaker 16: It's going to go well. You don't need people with 595 00:33:58,480 --> 00:34:01,000 Speaker 16: gray hair looking like me running a social media and 596 00:34:01,320 --> 00:34:03,800 Speaker 16: that's when you're trying to control things that tends to 597 00:34:03,840 --> 00:34:05,760 Speaker 16: be what it is. When you just let them get. 598 00:34:05,600 --> 00:34:11,640 Speaker 4: On with it, Miss you forgot something, Thank. 599 00:34:11,440 --> 00:34:14,399 Speaker 16: You, now we will have the odd sort of foolishness. 600 00:34:14,480 --> 00:34:17,400 Speaker 16: And again minus, let's not ever react. We know that 601 00:34:17,520 --> 00:34:21,839 Speaker 16: fundamentally our booksellers are hugely motivated in everything they do. 602 00:34:22,200 --> 00:34:24,920 Speaker 16: Support them, encourage them, and when they make us really mistake, 603 00:34:25,040 --> 00:34:27,120 Speaker 16: just get them back into line. 604 00:34:27,360 --> 00:34:30,360 Speaker 2: So if not all zombie companies are headed toward failure, 605 00:34:30,840 --> 00:34:33,919 Speaker 2: if some like Barnes and Noble can not only come 606 00:34:33,960 --> 00:34:37,120 Speaker 2: back but come back strong, how can we tell which 607 00:34:37,160 --> 00:34:40,240 Speaker 2: ones are worth the effort and which ones are better 608 00:34:40,280 --> 00:34:43,560 Speaker 2: off put out of their misery. Angela Demartis is an 609 00:34:43,600 --> 00:34:48,319 Speaker 2: economist who studies zombie companies globally, using machine learning to 610 00:34:48,400 --> 00:34:52,359 Speaker 2: identify zombies and detect patterns in which survive and which 611 00:34:52,440 --> 00:34:52,680 Speaker 2: do not. 612 00:34:53,080 --> 00:34:57,080 Speaker 17: If we compare zombie companies to recover, one of the 613 00:34:57,120 --> 00:35:00,759 Speaker 17: first things that we see is that there are differences 614 00:35:00,800 --> 00:35:04,920 Speaker 17: with respect to leverages, so leverage ratio, but also total assets. 615 00:35:05,000 --> 00:35:08,680 Speaker 17: We see that those are one of the first characteristics 616 00:35:08,719 --> 00:35:13,040 Speaker 17: that change when a company is in the recovery zone 617 00:35:13,120 --> 00:35:16,719 Speaker 17: versus in the zombie in the zombie status. When we 618 00:35:16,760 --> 00:35:21,120 Speaker 17: look at other factors in terms of zombies that recover 619 00:35:21,840 --> 00:35:24,799 Speaker 17: from the zombie status, there are also other characteristics that 620 00:35:24,800 --> 00:35:28,160 Speaker 17: play a role, not only leverage and total assets, but 621 00:35:28,200 --> 00:35:32,799 Speaker 17: also for example, how they use cash, for example, how 622 00:35:32,840 --> 00:35:39,560 Speaker 17: they use equity taxes, working capital, and other characteristics. What 623 00:35:39,640 --> 00:35:42,960 Speaker 17: we find is that the share of zombie companies in 624 00:35:43,000 --> 00:35:47,000 Speaker 17: the United States is much lower compared to zombie companies 625 00:35:47,000 --> 00:35:51,360 Speaker 17: in Europe, so their prevalence is way higher in Europe 626 00:35:51,440 --> 00:35:54,960 Speaker 17: and also emerging countries, and this is mostly relate to, 627 00:35:55,520 --> 00:36:00,120 Speaker 17: for example, differences in the characteristics of these companies. We 628 00:36:00,120 --> 00:36:04,200 Speaker 17: always look at listed firms and we see differences between 629 00:36:04,239 --> 00:36:07,440 Speaker 17: the United States and Europe with respect to, for example, 630 00:36:07,640 --> 00:36:11,920 Speaker 17: their financial structure, but also the capital structure of the company. 631 00:36:12,160 --> 00:36:15,520 Speaker 17: And also what plays a role is differences with respect 632 00:36:15,560 --> 00:36:19,400 Speaker 17: to the institutions, and so this might also explain why 633 00:36:19,480 --> 00:36:23,120 Speaker 17: we see a much lower share of zombie companies in 634 00:36:23,160 --> 00:36:27,160 Speaker 17: the United States with respect to other European countries in 635 00:36:27,200 --> 00:36:29,480 Speaker 17: which the phenomenon is way more prevalent. 636 00:36:30,320 --> 00:36:33,520 Speaker 2: Could a factor be the different ways that companies finance 637 00:36:33,560 --> 00:36:36,680 Speaker 2: themselves in the United States versus Europe. My understanding is 638 00:36:36,719 --> 00:36:39,880 Speaker 2: banks play a much larger role as opposed to capital 639 00:36:39,920 --> 00:36:41,760 Speaker 2: markets in the United States. Exactly. 640 00:36:41,880 --> 00:36:44,520 Speaker 17: Yeah, this is one of the things that we argue 641 00:36:44,640 --> 00:36:46,920 Speaker 17: is one of the main points and one of the 642 00:36:46,960 --> 00:36:50,280 Speaker 17: main difference that we see. So in one of the studies, 643 00:36:50,520 --> 00:36:53,000 Speaker 17: what we do is we look at listed firms in 644 00:36:53,040 --> 00:36:56,640 Speaker 17: the United States and in Europe, and we use machine 645 00:36:56,719 --> 00:37:00,680 Speaker 17: learning methods to sort of develop an early worm system 646 00:37:01,160 --> 00:37:06,200 Speaker 17: that is able to identify zombie companies and also separate 647 00:37:06,280 --> 00:37:09,120 Speaker 17: them from the non zombies and also from the recovered 648 00:37:09,960 --> 00:37:12,480 Speaker 17: and so at the firm level, for example, we see 649 00:37:12,520 --> 00:37:18,080 Speaker 17: that beyond leverage and total assets, there's other characteristics that 650 00:37:18,120 --> 00:37:22,520 Speaker 17: do pray our role, like for example, working capital, for example, taxes, 651 00:37:22,560 --> 00:37:26,600 Speaker 17: for example, shareholders, equity, And we do see differences between 652 00:37:26,800 --> 00:37:30,960 Speaker 17: the United States and Europe that go back to for example, 653 00:37:31,320 --> 00:37:34,520 Speaker 17: differences with respect to capital markets, with respect to the 654 00:37:34,520 --> 00:37:39,240 Speaker 17: financial structure of the company, and also with respect to institutions. 655 00:37:40,239 --> 00:37:43,520 Speaker 2: Back in the United States, James Daunt sees only one 656 00:37:43,680 --> 00:37:47,080 Speaker 2: true threat to his Barnes and Noble falling back into 657 00:37:47,080 --> 00:37:49,520 Speaker 2: its former zombie status. 658 00:37:49,640 --> 00:37:51,920 Speaker 16: For a large book seller. The only thing that we 659 00:37:52,040 --> 00:37:54,640 Speaker 16: can really trip up on is if we lose our confidence. 660 00:37:55,280 --> 00:37:58,919 Speaker 16: That's what happened before, and hopefully it won't happen again. 661 00:37:58,960 --> 00:38:01,239 Speaker 16: But if it did, if you lose your confidence and 662 00:38:01,280 --> 00:38:03,240 Speaker 16: you stop being a really good bookstore, then people stop 663 00:38:03,239 --> 00:38:03,640 Speaker 16: coming to you. 664 00:38:06,239 --> 00:38:08,040 Speaker 2: That does it for us. Here at Wall Street Week, 665 00:38:08,200 --> 00:38:11,399 Speaker 2: I'm David Weston. This is Bloomberg. See you next week 666 00:38:11,480 --> 00:38:28,440 Speaker 2: for more stories of capitalism.