Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Lee. 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 So.
Speaker 1: Trade tensions between the world's two biggest economies intensifying, with
Speaker 1: China vamuy to retaliate forcefully against President Trump's threatened tariffs
Speaker 1: on another two hundred billion dollars in Chinese imports. Is
Speaker 1: it an escalation or is it a war of proposals?
Speaker 1: Joining us to discuss this. Torsten Slock, Deutsche Banks Chief
Speaker 1: International Economists tossing. Always great to catch up with you. So, sir,
Speaker 1: your view and what we're seeing this morning, Well, this
Speaker 1: is basically a game of chicken, and it actually looks
Speaker 1: a little bit difficult at the moment to see who's
Speaker 1: going to deviate. What's pretty clear is that up to
Speaker 1: this point, at least before the latest retaliation announcement, there's
Speaker 1: the latest round, if you will, it has looked like
Speaker 1: this was relatively small peanuts in terms of the awall
Speaker 1: scheme of things. But the risk now with two billions,
Speaker 1: that is, in particular going to be hitting Cochumer products.
Speaker 1: Both opens up risks for equity markets. Equity investors we're
Speaker 1: talking to, of course asking the question which companies will
Speaker 1: get hit, which product groups will beget hit, and that
Speaker 1: uncertainty is just not helpful at all at the moment.
Speaker 1: And on top of that, of course, there's also racist
Speaker 1: the reverse question, well, okay, but what is the Chinese
Speaker 1: retaliation going to look like, which also, of course and
Speaker 1: means and they said they will not only be on trade,
Speaker 1: it could also be other types of retaliation. So the
Speaker 1: game is on and and again the game of chicken
Speaker 1: is the full force ahead towards each other here, and
Speaker 1: it looks very uncertain at the moment, so toast and
Speaker 1: given the price action we're saying this Tuesday morning, I
Speaker 1: think it's always easy for narratives just to sprint away
Speaker 1: with themselves. I want to try and drain some of
Speaker 1: the emotion away from this the story in the United States.
Speaker 1: Does any of this derail the US economic story of
Speaker 1: growth and really strong growth, and does any of that
Speaker 1: any of those concerns make the FED sit there and say,
Speaker 1: you know what, we need to slow down well, the
Speaker 1: important thing here is that the US has still a
Speaker 1: significant tail when from the tax cuts for the corporate sector.
Speaker 1: The Trump tax cuts are going to lift GDP growth
Speaker 1: to about three percent. If you say, e c FC,
Speaker 1: going on your Googberg screen, you look at the quarter
Speaker 1: of the profile, you could see that the consensuous expect
Speaker 1: GDP to essentially be three percent for the rest of
Speaker 1: this year. And with that backdrop, you're absolutely right to
Speaker 1: day John that this is indeed a very very strong picture.
Speaker 1: So for now, this is uncertain stuff where we just
Speaker 1: don't know how it escalates. But the problem is that
Speaker 1: there's no holding back. It didn't take many minutes before
Speaker 1: the Chinese started announcing that they we're going to do
Speaker 1: the exact same amount in return. So what really is
Speaker 1: the becoming more uncertain areas Not so much the GDP
Speaker 1: profile and touch here and now. It's really much more
Speaker 1: the immediate financial marketing impact. And that is indeed the
Speaker 1: risk that if consumer companies in the US, if we
Speaker 1: have a broader impact on equities in the US, then
Speaker 1: of course that would certainly lead the sad eventity to
Speaker 1: look at maybe revising some of their forecasts, including of
Speaker 1: course for what race will do, but it's still very early,
Speaker 1: but so far it looks for a difficult who's going
Speaker 1: to stand down in this standoff that we're having at
Speaker 1: the toasting. It would be disingenuous of me to say
Speaker 1: we don't see signs of fragility, and we certainly don't
Speaker 1: see many here in the United States, but we do
Speaker 1: see a lot abroad in the global equity market and
Speaker 1: perhaps more specifically in emerging markets an emerging market foreign exchange.
Speaker 1: Do you see a feedback loop into the United States
Speaker 1: anytime soon? Toasting? Or is everything okay for now? This
Speaker 1: is not helpful at all for the e M story.
Speaker 1: The e M is always not only in this situation.
Speaker 1: The e M is all always challenged when the raises rates,
Speaker 1: even if it's slow and gradual and coastious. So adding
Speaker 1: on top of that, at trade war, which with China
Speaker 1: is directly related to e M, but also from a
Speaker 1: U S perspective, has been hitting indiscriminately emerging markets and
Speaker 1: also its D countries, is indeed not particularly helpful for
Speaker 1: the e M outlook. So that's also why the e
Speaker 1: M f X going down has been a team for
Speaker 1: a while. It probably will continue as a result of this,
Speaker 1: is it near a trip point? I mean, are we
Speaker 1: at a point? I mean on a large chart, it's
Speaker 1: got convexity, which means a curve, which means acceleration. We
Speaker 1: are accelerating in our EM depreciation. That can't go on forever, Cannon,
Speaker 1: you know. And the problem for E M is that
Speaker 1: they also have their own problems, I mean, forgetting the
Speaker 1: trade war on minute. EM already has some mediosyncratic stories
Speaker 1: with Argentina, Turkey, Indudesia elsewhere. I mean, stories are beginning
Speaker 1: to pop up that do look as slagly more worries,
Speaker 1: and even at a longer term perspective. So you're right
Speaker 1: to say that the tripping point here is probably closer
Speaker 1: in the sense that the risks are higher than what
Speaker 1: they've been for a while. The good news, if you will,
Speaker 1: is that at some point we'll run out of stuff
Speaker 1: to put terriffs on. In other words, there's a a
Speaker 1: finite limit to the size of the U S trade episode.
Speaker 1: So that's then then it will from a political perspective,
Speaker 1: both of the US and abroad, then policy makers need
Speaker 1: to come up with whether they want to take this
Speaker 1: to outside only the trade area or is this just
Speaker 1: gonna stay only inside the trade realm of things? But
Speaker 1: tourist done. This is important and Peter Hooper and your
Speaker 1: work at Deutsche Bank has been frankly with Domini Constant
Speaker 1: and Ellen Ruskin has been legendary on this. All these
Speaker 1: institutional troops are saying, we're in control, we know what
Speaker 1: we're doing. You know, maintain calm, Remain calm, remain, calm, remain, calm, blowny,
Speaker 1: these are big moves that we're beginning to see. Is
Speaker 1: it the same remain calm is six which was before. Well,
Speaker 1: it's clear that the tide is going out, if you will,
Speaker 1: in many emerging markets that have been helped a lot
Speaker 1: by commodity prices being high. Now commodity prices are, thankfully
Speaker 1: for emerging markets because of course slowly moving high again.
Speaker 1: But it's pretty clear that a number of emerging markets
Speaker 1: have significant im balances on top of their political problems.
Speaker 1: So the risks are beginning to appear most significant than
Speaker 1: they have been for a while, which also speaks to
Speaker 1: being all worried as a globally in the time that
Speaker 1: we've got left with you, Torsten Slock, Really nothing matters
Speaker 1: here there's like important trade dates like I think July tenth,
Speaker 1: John Ferrell is an important day. None of that matters
Speaker 1: compared to ten am June, which is next Tuesday, which
Speaker 1: Torsten is Denmark France. Does Denmark have have the chance Towardston?
Speaker 1: Does Denmark you have half a chance against mighty friends?
Speaker 1: I will be sitting with my head and my stamp
Speaker 1: line and cheering them on. I think they did do
Speaker 1: very well against the rule last element. But we'll see.
Speaker 1: It's a very exciting. But even in the World Cup,
Speaker 1: you know it's been games have been surprising both and
Speaker 1: were still surprised to the DW side. So we'll see.
Speaker 1: You see where we're going that front. I literally had
Speaker 1: no idea where you were going with that date. There.
Speaker 1: He was wondering. I was wondering what happens when you
Speaker 1: were also playing John? Oh really, that's true. You did
Speaker 1: see the last few minutes were pretty good. Yeah, well
Speaker 1: against Tunisia, Torsten, you'd hope that England beats Tunisia. I
Speaker 1: think it's gonna be a completely different game against Belgium.
Speaker 1: Does tunis you play Peru? Tunisi is not playing Tom Torsten. Honestly,
Speaker 1: don't get into it with Tom Kane. Otherwise you're going
Speaker 1: to be here ages Torsten's look. It's great to catch
Speaker 1: up with you, sir, Thank you very much. The Tigers
Speaker 1: Banks chief international economist Vincent Reinhardt is a good person
Speaker 1: to speak to. He's with Standish. Part of B and
Speaker 1: Y Melon was Standish as their chief economists and investment
Speaker 1: strategist Vince. The dollar on a blended basis, just one
Speaker 1: quick look, d x Y is now out to standard
Speaker 1: deviations strong, which is a measured move which clearly elicits
Speaker 1: measured conversation from central bankers. And there'll be a point
Speaker 1: where it's not how close are we to where strong
Speaker 1: dollar dynamics begin to affect the model, the forecast, the
Speaker 1: factors that major central bankers look at at this point,
Speaker 1: they always turned to the syllogism, and the syllogism is
Speaker 1: monetary policy has to be forward looking. You make an
Speaker 1: outlook for the ecounomy economy. If you don't like those outcomes,
Speaker 1: you change policy. Any variable that matters for your outlook.
Speaker 1: There for influences policy, exchange rate, equity prices, interest rates,
Speaker 1: they're all things that matter for your outlook for really
Speaker 1: economic activity and inflation and so they have to pay attention.
Speaker 1: At the bottom line is when bull financial conditions actually
Speaker 1: moved from accommodated, there are to tightening. Yeah, but syllogism,
Speaker 1: I mean Miriam Webster's got it as a deductive logical scheme.
Speaker 1: You know, Vince more than I mean. You saw this
Speaker 1: as your as you worked at the FED for years.
Speaker 1: All of a sudden, the deductive logical scheme doesn't work.
Speaker 1: How close are we to wear drag? Your Powell's deductive
Speaker 1: logical scheme doesn't work. So you want to separate management
Speaker 1: of a macroeconomy and management of financial crises. I was
Speaker 1: talking about the management of the macroeconomy. They think about
Speaker 1: their outlook, they think about where they're sitting right now,
Speaker 1: and then they go forward. In terms of management of
Speaker 1: the crisis crisis. The first UH talking point in your
Speaker 1: playbook is try to keep a low profile if you
Speaker 1: possibly can. J Pal has been pretty quiet over his
Speaker 1: tenure in terms of UH intervening verbally to big swings
Speaker 1: in markets. And indeed, you listen to him in his
Speaker 1: press conference, you listened to him in in his congressional appearances.
Speaker 1: He's got a higher hurdle UH for a financial upset
Speaker 1: than I think his immediate predecessors. I think you've picked
Speaker 1: up on something quite important, finns Um. I certainly witnessed
Speaker 1: last week the most bullish, optimistic Fedshan news conference I've
Speaker 1: seen post crisis. Um, do you think that was justified? Fins?
Speaker 1: I think the you know, the plain fact is Jay
Speaker 1: pal is uh overseeing an economy and it's doing better
Speaker 1: than its advanced economy peers. He's looking at a lot
Speaker 1: of domestic momentum. He remember, we have we have considerable
Speaker 1: uh fiscal stimulus uh and uh so there and an
Speaker 1: unemployment rate that is arguably well below its natural rate
Speaker 1: and head and lower with an employment gaining on average
Speaker 1: something close to two hundred thousand, how long can it
Speaker 1: go if the global economy is not doing well? As
Speaker 1: a very open issue, how long can it know? If
Speaker 1: financial conditions tightened considerably, that's an open issue. I think
Speaker 1: the Fed has got a problem, perhaps not for this year,
Speaker 1: unless obviously we go from macro management to crisis management.
Speaker 1: But they got a problem two thousand nineteen about knowing
Speaker 1: when to stop. And how do you think they tackle
Speaker 1: that problem? Vince? I think that you you you nailed it.
Speaker 1: When describing j Palet at the press conference, Well, what
Speaker 1: are what are his favorite phrases? I stick to my
Speaker 1: own lane. And let's not overthink this. Uh, he is going,
Speaker 1: you know, three yards in a cloud of dust. Right,
Speaker 1: He's just got to keep raising rates until uh it
Speaker 1: seems like it's time to stop. And then they're hoping
Speaker 1: that they'll get a sense of what the neutral rate
Speaker 1: is when they're close to it. And and and Vince is
Speaker 1: a chief economist and also an investment strategist and asked
Speaker 1: you to put the investment strategist hand on. Now. Do
Speaker 1: you think therefore there is more juice to squeeze in
Speaker 1: that flat of yield curve that we've just seen throughout
Speaker 1: this year so far? It's there's a lot of reason
Speaker 1: to be short duration. Why because the market hasn't yet
Speaker 1: priced in enough of said tightening. I think they'll go
Speaker 1: four times this year. Jpal T is pretty confident about it.
Speaker 1: I think he owns a December move. He was he
Speaker 1: was the shifting dot between March and in June. Uh,
Speaker 1: And so I think short rates will rise some more
Speaker 1: and more rates rise as much can we sustain that
Speaker 1: you can grows when you look vince right hard at
Speaker 1: the mix of economic growth right now? Is it more
Speaker 1: sustainable than consensus beliefs? Uh So? The first thing to
Speaker 1: remember is as you know come is is expansions don't
Speaker 1: die of old age. The second thing to remember is
Speaker 1: the advantage of having gone through a severe financial crisis
Speaker 1: and the wrenching recession is it takes a long time
Speaker 1: to build up excesses, and we don't really have a
Speaker 1: lot of evident excesses in the domestic economy. So in
Speaker 1: that environment we could go for a while. But again
Speaker 1: we need a stable global backdrop and that and that's
Speaker 1: what's at risk. What's at risk is is how economy
Speaker 1: is intersect the intersect in the foreign exchange market. And
Speaker 1: if we're growing fast and our trading partners, aren't the
Speaker 1: dollars going to appreciate? And I think the lesson the
Speaker 1: two thousands, sixteen and seventeen for both the US and
Speaker 1: Europe is foreign exchange. It really matters. It was bigger
Speaker 1: drag on our activity last year. Who was a bigger
Speaker 1: boost to the euro area last year and we're just
Speaker 1: seeing that swing. Yeah, But I mean, just staying an
Speaker 1: intra vandem at a great article in the Washington Post
Speaker 1: this weekend on the ex percent of Americans who just
Speaker 1: to seeing wages flat. I mean, I get it's to
Speaker 1: make America great again economy, But from where you sit, Vince,
Speaker 1: with your decades of of of of nitty gritty research,
Speaker 1: is the dispersion of those benefits touching Americans. Well, the
Speaker 1: first order problem is we're not generating in a heck
Speaker 1: of a lot of productivity, and productivity allows firms to
Speaker 1: share some of the games with workers. And an environment
Speaker 1: in which output power isn't increase in there no games
Speaker 1: to share. The second part is activity is more concentrated,
Speaker 1: and that that's associated with declining labor share of an
Speaker 1: come that's associated with strong earnings growth. Uh. It is
Speaker 1: kind of striking how much better corporate America is doing
Speaker 1: than than than workers. Uh. That that does suggest we
Speaker 1: have some some medium and longer term problems. Vince, Thank
Speaker 1: you so much, Vince Rhin, I greatly appreciate it. With
Speaker 1: standards today on television and radio where this as well. Uh,
Speaker 1: my interview of the day, without question was the Finance
Speaker 1: Minister of Indonesia. It was important to speak with Mr Rody. Uh,
Speaker 1: given what's going on in China and with trade. This
Speaker 1: is the next one. This is Edward Alden quickly today
Speaker 1: his wonderful book Failure to Adjust on Trade and is definitive.
Speaker 1: And ed Alden just very simply here, what is the
Speaker 1: difference in the scope of four factor I'm planned terrorists
Speaker 1: from fifty to two d How does a guy like
Speaker 1: you synthesize that? Well, I think you know. The key
Speaker 1: thing here is a obviously it's a very big number
Speaker 1: and it's going to force a Chinese response. But you
Speaker 1: have to look at the size of the tariff. T
Speaker 1: What this tells me is the administration very much intends
Speaker 1: to put these tariffs in place and keep them in
Speaker 1: place for a while. If you go back to the
Speaker 1: fights with Japan in the eighties, the threat was always
Speaker 1: a dcent tariffs prohibitive tariff would have blocked exports of
Speaker 1: you know, Japanese machine tools or semi conductors or whatever
Speaker 1: you have you in the United States, and the point
Speaker 1: was to force a negotiated deal. This really appears the
Speaker 1: ten really appears here to be to put that tariff
Speaker 1: and keep it in place in Trump's theory, and somehow
Speaker 1: that will help rebalance the trade relationship with China's a
Speaker 1: different strategy. Chapter one of your book, The End of
Speaker 1: the World's Greatest Autarchy, and the basic idea here is
Speaker 1: America goes it alone. That seems to be a foundational
Speaker 1: belief of the president. Can we go it alone? I
Speaker 1: don't think there's any way we can. But if you
Speaker 1: look at his particular form of nostalgia for a time
Speaker 1: when the United States dominated the world economy and really
Speaker 1: didn't particularly need cooperation from his allies, that's what he
Speaker 1: wants to get back to. It's just the world is
Speaker 1: a very different place than it was fifty sixty years ago,
Speaker 1: were much smaller percentage of the world economy, and our
Speaker 1: ability to tackle these issues depends on working with like
Speaker 1: minded partners. President has decided to go it alone. And
Speaker 1: and and we are, you know, now on the verge
Speaker 1: really of of a trade war with all of our
Speaker 1: major trading partners, not just the Chinese. Edward Alden, How
Speaker 1: does the United States stack up in terms of economic competitiveness,
Speaker 1: You know very well. And some things you look at,
Speaker 1: innovation and particular venture capital sector technology, we still have
Speaker 1: some important advantages where we tend to fall down our
Speaker 1: things that require sensible government of one sort or another.
Speaker 1: You look at infrastructure, UM, you know, we're lagging behind
Speaker 1: a lot of different countries. Our educational system has enormous challenges.
Speaker 1: We're starving, you know, public univer cities increasingly UM places
Speaker 1: where some sort of intelligent kind of government business cooperation
Speaker 1: is needed. We really do lag other countries, and and
Speaker 1: that's a challenge for variety of political reasons we do
Speaker 1: not seem able as a country to address effectively. At
Speaker 1: the moment, you've written about US trade and investment policy.
Speaker 1: Give us an update if you can. Well, the update is,
Speaker 1: you know, we're moving in a very different direction here,
Speaker 1: so obviously much more kind of openly protectionist on trade.
Speaker 1: We haven't really seen the shoes drop yet on investment.
Speaker 1: But the forgotten part of this response to China is
Speaker 1: going to be restrictions on Chinese investments, either through congressional
Speaker 1: action or directly through administration actions. So you know, we've
Speaker 1: kind of moved from a position of pushing for greater
Speaker 1: openness two goods overseas, pushing for greater investment opportunities overseas,
Speaker 1: to restricting access here in the US market. That's a
Speaker 1: big change in direction for the United States sed one
Speaker 1: final question today, how should China respond? I mean, they've
Speaker 1: got a cultural template that they will use to respond.
Speaker 1: But if you were advising President she what would be
Speaker 1: his best practice now? I would advise them to work
Speaker 1: with other countries that fell agreed by the United States.
Speaker 1: Go to Geneva, offered to restart serious talks in the
Speaker 1: w T O say, look, there's got to be a
Speaker 1: multilateral solution to this problem. China's benefited enormously from the
Speaker 1: multilateral system, but so of other countries. We the Chinese
Speaker 1: are prepared to address some of these challenges, but not
Speaker 1: bilaterally with the United States. The problem for my conversations
Speaker 1: with the Chinese is they want to deal with this
Speaker 1: bilaterally with the United States, and I don't think that's
Speaker 1: gonna work out well because I think Trump is going
Speaker 1: to push harder and the Chinese are gonna feel like
Speaker 1: they have to push back just as hard. That does
Speaker 1: not end well. Ted Alden, thank you so much with
Speaker 1: the Console and Foreign Relations. Can't say enough about his
Speaker 1: book Failure to Adjust how Americans got left behind in
Speaker 1: the global economy. It was prescient a year ago, maybe
Speaker 1: it was four teen months ago, And now him it's
Speaker 1: just lights out. It's one of those three or four.
Speaker 1: It's gotta be my next book to read. I mentioned
Speaker 1: earlier our interview of the day was the Finance Minister
Speaker 1: of Indonesia that with all the tariff discussion and that.
Speaker 1: But for our listeners Coast to Coast, Susan Tager is
Speaker 1: probably our interview of the day because she is with
Speaker 1: Baine and Company, like the management consultant crew, not the
Speaker 1: private equity shop, and she is knee deep in the
Speaker 1: Amazon effect. She is senior director Retail and Consumer Product Practices.
Speaker 1: And I want to go to real estate first, Coast
Speaker 1: to Coast. I get tons of mail about all the
Speaker 1: empty real estate. And my econ one oh one, like
Speaker 1: you took a duke years ago, is price adjusts and
Speaker 1: rental prices come down because there's so many vacancies. Why
Speaker 1: isn't that happening? Well, first of all, thank you for
Speaker 1: having me. It's great to be here. And I think
Speaker 1: you're right, and you've asked a great question. I do
Speaker 1: want to step back slightly just to acknowledge that consumer spending,
Speaker 1: consumer sentiment, people are shopping, all of that is strong.
Speaker 1: The stores are vacant New York every every place this
Speaker 1: radio show is the stores are empty. So what I
Speaker 1: was gonna say is the retail and consumer spaces are
Speaker 1: seeing a massive amount of turbulence. Underneath that fairly buoyant perspective,
Speaker 1: there's a lot going on. You mentioned Amazon. We're looking
Speaker 1: at Amazon growing to be about fift of all online
Speaker 1: sales in the US. Uh No, when you look at
Speaker 1: their gross merchandise value, which is the value of the
Speaker 1: products that they're selling, not just the portion that they're
Speaker 1: taking it on, they're probably now in the of online sharing.
Speaker 1: So you've got a model at forty that's amazing. It's
Speaker 1: going to go up to about fifty. We believe they're
Speaker 1: continuing to outgrow other retailers in the online space, and
Speaker 1: as you know very well, they're moving into brick and
Speaker 1: mortar with their acquisition of Amazon, acquisition of Whole Foods,
Speaker 1: they're opening of bookstores, which is rather ironic. But the
Speaker 1: key here is in in Bain's belief is Frankly, stores
Speaker 1: are not dead. The vast majority of retail sales still
Speaker 1: takes place in stores, but the role of stores have
Speaker 1: massively changed. What you're seeing is in retail is not
Speaker 1: Amazon killing retail what you're seeing is lack of innovation
Speaker 1: killing retail. And when you go to many stores today,
Speaker 1: they're the same as when you and I were kids.
Speaker 1: They look the same as many many decades ago. Yet
Speaker 1: the retailers that are ng are thinking about the end
Speaker 1: to end consumer journey shopper journey, which is both online
Speaker 1: and offline, and using both physical and digital assets to
Speaker 1: make that a great experience. Well, you know when Tom
Speaker 1: used to shop, Mr John Wannamaker used to welcome around
Speaker 1: the store, and you know one of the things he
Speaker 1: did was he actually spent time with the customer. And now,
Speaker 1: of course you have the introduction of electronic devices such
Speaker 1: as Alexa with Amazon, and I'm wondering if you see
Speaker 1: that as an opportunity for smaller retailers to now be
Speaker 1: able to have a bigger relationship with the consumer in
Speaker 1: a way that they could never have before. Exactly. There
Speaker 1: is a tremendous amount that we talked about at Banting
Speaker 1: Company in terms of the entitled consumer or the empowered consumer,
Speaker 1: and a lot of that is fueled by technology. On
Speaker 1: the flip side, you also see massive innovation and opportunity
Speaker 1: for retailers to transform how they deliver could get an
Speaker 1: example that because most of the retail cells side we
Speaker 1: talked to it doesn't agree with that. In terms of innovation,
Speaker 1: they retails getting crushed. They've tried this, tried this, tried this,
Speaker 1: try this, and Amazon's cleaning their clock. But products CAI
Speaker 1: come on these niche products. But what's an example of
Speaker 1: a major department store innovation which is allowing them to compete?
Speaker 1: Sure well, let me actually step back a little bit,
Speaker 1: because there are lots of stores that are doing well
Speaker 1: by combining what we could describe as omni channel or
Speaker 1: the best of both worlds in terms of taking what's
Speaker 1: great about digital. Earlier you were describing your experience of
Speaker 1: eight clicks, I found what I wanted, It saved me time.
Speaker 1: That's terrific with the best of physical, which, to to
Speaker 1: your point, is sometimes that personalized service, that experiential opportunity,
Speaker 1: that community environment. And so you do see a lot
Speaker 1: of stores thinking about how do I use my space differently,
Speaker 1: how do I create that relationship with a customer. We're
Speaker 1: early days. Is anybody doing everything right? Absolutely not, but
Speaker 1: we're working with lots of retailers that are taking small
Speaker 1: bites at the Apple and truly transforming lots of different things. Okay,
Speaker 1: I wanted to focus and I have no relationship with
Speaker 1: the company. I don't even own their shoes. But All Birds,
Speaker 1: I'm sure you're familiar with All Birds, and if people
Speaker 1: are not familiar with All Birds, they should check it
Speaker 1: out because if you go anywhere in Silicon Valley, this
Speaker 1: is the shoe of choice. Correct, lots of people are wearing. Okay.
Speaker 1: The reason I bring this up is because every sale
Speaker 1: that they make is a sale that a major department
Speaker 1: store didn't make with their own generic brand. It's a
Speaker 1: different brand. You know that this All Birds is an example.
Speaker 1: We recently did some research more in the consumer products side,
Speaker 1: but the same is happening in apparel and footwear into
Speaker 1: what we call insurgent brands. And insurgent brands are in
Speaker 1: the consumer products world. They're only about two percent of sales,
Speaker 1: yet they're capturing of that growth and when you project
Speaker 1: that forward, we think that that's only going to increase
Speaker 1: and capture about of growth. And part of what's happened
Speaker 1: is some of the traditional barriers to entry or traditional
Speaker 1: scale advantages that companies had, particularly in the consumer products space,
Speaker 1: have changed. You no longer need scale advertising budgets to
Speaker 1: reach consumers. You no longer need the the uh you know,
Speaker 1: massive budgets to get the secure shelf space. To secure
Speaker 1: you give them an email newsletter and you offer teen
Speaker 1: percent off for the first purchase, and then you know,
Speaker 1: you say, Tom, all right, you like these issues, will
Speaker 1: sell you, will sell you some more. The trick here, though, is,
Speaker 1: you know, all is not lost. There are new advantages
Speaker 1: of scale that are emerging, and there are new opportunities
Speaker 1: for some of the bigger brands to survive. So, for example, data,
Speaker 1: you know, some of the larger companies have more access
Speaker 1: to consumer data than you could ever imagine, and the
Speaker 1: ability to use that technology to customize the experience is unprecedented.
Speaker 1: So retail in particular has always been a blend of
Speaker 1: art and science. That has always been the case. But
Speaker 1: what we're seeing today is the science has elevated and
Speaker 1: become more accessible and that's what's really going to make
Speaker 1: a winning retailer. On an income statement of a major retailer,
Speaker 1: where's their biggest headache right now? It's a great question,
Speaker 1: I think, um I'd say it's actually perhaps on their
Speaker 1: balance sheet in terms of capital interests that they need
Speaker 1: to think they too much capital, They've got to go
Speaker 1: more to invest in technology versus the more traditional Amazon
Speaker 1: out spends most traditional retailers in terms of technology by
Speaker 1: a factor of five or six to one, and that
Speaker 1: is creating a competitive advantage that retailers. I'm just gonna
Speaker 1: ask one quick question that if you were reading a
Speaker 1: due diligence report on any retailer, whether it's an established
Speaker 1: retailer or someone that's brand new, if they don't have
Speaker 1: a page that is specific to how they respond to
Speaker 1: Amazon or deal with an Amazon world, do you kind
Speaker 1: of give it back to them and say, go go
Speaker 1: do your homework. I would do that homework for them,
Speaker 1: to be honest. You know, Amazon is a big threat,
Speaker 1: but let's face that they're not winning everywhere, and there
Speaker 1: is a very proven understanding of where they are a
Speaker 1: threat versus where they're not. You mentioned earlier, so of
Speaker 1: of the market, and you're extrapolating out. We did that
Speaker 1: on Google Search a million years ago and Google just
Speaker 1: kept on going, granted incrementally, what's the ability to Amazon
Speaker 1: to go? You know, it's a great question, and I
Speaker 1: think the two things are happening. Um, in their early days,
Speaker 1: they did not have the wrath of many other players,
Speaker 1: and many of the big companies are are making bold
Speaker 1: moves order to catch up, so there is more competition.
Speaker 1: The second thing is they're moving into categories that are
Speaker 1: traditionally more difficult. Susan Tager think please come back again.
Speaker 1: She does a retail uh as the Salvation of retail.
Speaker 1: She's vice President's Salvation of retail for Bain and Company.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
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Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio two.