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Speaker 2: What I learned from our next guest years ago, which
Speaker 2: shocked me and still to this day amazes me. The
Speaker 2: largest supermarket chain in the United States is.
Speaker 3: Walmartmart.
Speaker 2: I never would have guessed that, And now that I
Speaker 2: think about it, of course it is Jen Bartasha. She's
Speaker 2: the one that kind of enlightened me on that. When
Speaker 2: she's Bloomberg Intelligence Senior animost, she covers the retail staples
Speaker 2: and the package goods companies. So, Jen, I'm thinking in
Speaker 2: a world of tariffs, and I'm worried about if I'm
Speaker 2: a retail investor, kind of the margins my retailers like
Speaker 2: a Walmart might have having the grocery store business as
Speaker 2: a traffic driver. That's got to be a good thing,
Speaker 2: is Did we see that in Walmart's numbers today?
Speaker 1: Yeah?
Speaker 4: Hi, Paul absolutely saw that in Walmart's numbers. You know,
Speaker 4: their growth in consumables and grocery mid single digit growth.
Speaker 4: That means people keep coming back to Walmart to buy
Speaker 4: their staples, and you know, that's a that's a foundational
Speaker 4: type of thing because for Walmart, as they get these
Speaker 4: customers doing that regular, repeat shopping and coming in consistently,
Speaker 4: it really bodes well for how well they'll be able
Speaker 4: to retain those customers once all of this market volatility
Speaker 4: fades and people become a little less price sensitive.
Speaker 5: How does Walmart just really in general raise the pressure
Speaker 5: for competitors? We have Home Depot and Target reporting out soon.
Speaker 5: How do you think they will fare well?
Speaker 4: You know, I think that Walmart is really uniquely positioned
Speaker 4: because it arguably has the best view into mainstream America
Speaker 4: consumer of any retailer out there, because they touch such
Speaker 4: a huge.
Speaker 3: Number of households.
Speaker 4: And so when somebody the size of Walmart says that
Speaker 4: even their scale is a big enough to fully offset tariffs,
Speaker 4: the read through on that is with for other retailers
Speaker 4: who are smaller and have bigger exposure to imported goods
Speaker 4: is rather dire because you know, you know, Walmart is
Speaker 4: is the one that is probably best position to whether
Speaker 4: it because of its scale. But that just means for
Speaker 4: the smaller guys, it's going to be a really difficult battle,
Speaker 4: and that there's going to be a lot more price
Speaker 4: that has to be taken and a lot more operational
Speaker 4: maneuvering to try to stay competitive in that in that
Speaker 4: particular set. So Target has a lot of discretionary exposure.
Speaker 4: Home depot lows they both do as well, So you
Speaker 4: know it could be difficult season for those retailers.
Speaker 2: All right, full disclosure, And John Socker knows this. My
Speaker 2: last job in this illustrious career of mine will be
Speaker 2: as a greeter at Walmart. We hope to see. I
Speaker 2: have never been in one because they don't have near me.
Speaker 2: Root seventy in Brick that's going to be. It's far
Speaker 2: the next stop here on this one. Hey, Jen, you
Speaker 2: mentioned it, and that's kind of where I wanted to go.
Speaker 2: I can see wal Bart dealing with higher tariffs in
Speaker 2: pricing because they're Walmart. But how about the mom and
Speaker 2: pop retailers out there on Main Street USA? How tough
Speaker 2: is it going to be for them?
Speaker 4: Do you think it's It's incredibly tough, Paul, because you
Speaker 4: know the mom and pop retailers, it's usually only a
Speaker 4: handful of employees. It's a very set type of inventory
Speaker 4: that they carry. They don't necessarily have the ability to
Speaker 4: flex in and out of different product categories to to
Speaker 4: lessen the impact of tariffs, because they're usually known for
Speaker 4: a particular type of product, which is why their customers
Speaker 4: come to them, and so you know, they're also they're
Speaker 4: very reliant also on getting goods either directly or through
Speaker 4: third parties that are that are imported, and so there's
Speaker 4: just very little room in there in their operations to
Speaker 4: be able to offset the power of what's come the
Speaker 4: pricing that's going to come with these tariffs. And we've
Speaker 4: heard anecdotally small businesses that are just saying they've had
Speaker 4: to lay off employees already. You know, there could be
Speaker 4: greater ramifications, you know, in terms of unemployment and things.
Speaker 4: If small businesses are impacted to a large degree, Should
Speaker 4: this tariff situation persist for longer than we're expecting?
Speaker 5: Yeah, bring up a good point because they have CFO
Speaker 5: John David Rainey saying the rage of outcomes is pretty
Speaker 5: quote extreme, and it is. How has Walmart have they
Speaker 5: hinted on how they're preparing for it? I mean, we
Speaker 5: know that they're a good barometer of the US economy
Speaker 5: and they're really really huge, but they must still be
Speaker 5: impacted by tariffs.
Speaker 4: Absolutely, they definitely will be impacted. But part of where
Speaker 4: their advantage is is that the company has been investing
Speaker 4: for some time behind technology like AI, and AI has
Speaker 4: across retail, but especially for those retailers who have had
Speaker 4: the time and the balance sheet to invest in it
Speaker 4: gives them a lot of flexibility in their tools for
Speaker 4: predicting what their need is going to be and for
Speaker 4: responding quickly to changes in their supply chain. So you
Speaker 4: know that investment in AI will actually pay some dividends
Speaker 4: and probably help them navigate the tariff situation more easily.
Speaker 4: And again that goes back to the smaller players who
Speaker 4: don't have that kind of technology support or haven't been
Speaker 4: able to make those investments. Will it'll be harder for
Speaker 4: them to maneuver in that environment.
Speaker 2: So Jennifer Kroger are some big, you know, grocery store,
Speaker 2: and I don't know, craft Food comes in and says,
Speaker 2: cheese Whiz is going to be ten or fifteen percent
Speaker 2: higher price to you Kroger because of teriffs. How does
Speaker 2: that conversation go? Who's got the leverage there? Who eats it,
Speaker 2: who takes it?
Speaker 6: Is it?
Speaker 3: How does that go?
Speaker 4: Yeah, it's it's usually a combination of a couple of things.
Speaker 4: So the first thing is that because the grocers all
Speaker 4: have private label programs, they are very very well in
Speaker 4: formed on what cost of ingredients are, which ingredients are
Speaker 4: being imported, you know, packaging costs. So when a counterpart
Speaker 4: from a package food company comes to them and says
Speaker 4: we need to increase prices because of X, Y, and z,
Speaker 4: the retailer can call them out if they don't see
Speaker 4: the same pattern that they're being given as an excuse. Now,
Speaker 4: then there's a collaborative, a collaboration where ultimately both the
Speaker 4: retailer and the food package the package foo company want
Speaker 4: to you know, increase the volume sold and make sure
Speaker 4: that their products are getting in the hands of customers.
Speaker 4: So when it comes to pricing, usually there can be
Speaker 4: a bit of a sharing in terms of cost, but
Speaker 4: most of it does fall into the package food company
Speaker 4: itself and that comes in the form of having to
Speaker 4: do promotions you know, or or you know, offering discounts
Speaker 4: and things like that to make sure that their products
Speaker 4: are actually moving and that they're generating turnover and that
Speaker 4: they're then getting some profit out of it.
Speaker 2: Jen, thanks so much for joining us always appreciate it.
Speaker 2: Always learned something speaking to you. Jen Bartash's senior retail
Speaker 2: analyst from Bloomberg Intelligence. I mean Jen had a real
Speaker 2: career at Bloomberg. She was managing departments, managing a bunch
Speaker 2: of people in global data. And then we asked her,
Speaker 2: like fifteen years ago, hey, come to Bloomberg Intelligence, that
Speaker 2: we think you'd be a really good analyst. And she
Speaker 2: did come over, she accepted, and she's been great, and
Speaker 2: now she's one of the leading voices on retail. So
Speaker 2: another success story coming out of Bloomberg Intelligence.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Checking with Mariy Shore. She's a senior Ecodana's a Columbia threadneeder.
Speaker 2: She's up in Boston. We'd love to talk to he
Speaker 2: ed when we get the retail sales on her because
Speaker 2: she really spends a lot of time looking at the retailers,
Speaker 2: the consumer, that kind of thing, so a real helpful
Speaker 2: voice to us. Mari what did you make of the
Speaker 2: retail sales here. I mean, I guess there's some noise
Speaker 2: here about you know, tariffs, and did that impact kind
Speaker 2: of how consumers are spending money these days? What did
Speaker 2: you make of the retail sales number today?
Speaker 6: Yes, thanks Paulin Isabelle, thank you for having me. Absolutely
Speaker 6: you said it better than I could have. The tariffs
Speaker 6: are definitely creating some monthly noise.
Speaker 3: When we look year over.
Speaker 6: Year, the growth has been a little more consistent and
Speaker 6: actually showed acceleration in April versus March.
Speaker 3: But on a month over.
Speaker 6: Month basis, we did see softness in April versus March,
Speaker 6: given the pull forward that we saw in March ahead
Speaker 6: of some tariff driven price increases that the consumer anticipated
Speaker 6: in some big ticket categories like autos. And you know,
Speaker 6: when I look and really step back and just getting
Speaker 6: off of Walmart's earnings call, I think their tone on
Speaker 6: the consumer is very consistent. Obviously, tariffs are creating a
Speaker 6: lot of noise in the spending trends, but you know,
Speaker 6: in their words, the consumer is still very focused on
Speaker 6: value and speed of delivery, and that is what we've
Speaker 6: been seeing for years now coming out of the pandemic.
Speaker 5: I'm glad you brought up consumer because for Walmart, we
Speaker 5: saw traffic, which is the number of shoppers less of
Speaker 5: a boost to the figure than ticket. What does that
Speaker 5: tell you that maybe there are less shoppers, but they're
Speaker 5: buying more expensive things or at least higher amount of tickets.
Speaker 6: Well, right, So that could either say they're coming in
Speaker 6: less frequently and when they are in, they're buying a
Speaker 6: lot more, right, they're stalking up more or to your point,
Speaker 6: they're buying more expensive things. But we did see relative
Speaker 6: weakness in their general merchandise category. We saw like their
Speaker 6: you know, food categories up mid single digits, Health and
Speaker 6: wellness was up high teams. A lot of that is
Speaker 6: GLP ones, and general merchandise for them was actually down slightly,
Speaker 6: which is worse than what we saw in.
Speaker 3: Q four. And so I think it's a us that
Speaker 3: the consumer is you know.
Speaker 6: Coming to Walmart for their stock up trip, which is
Speaker 6: typically what we've seen with Walmart.
Speaker 3: But you know, I think a lot of that.
Speaker 6: Intra week spend, those like fill in trips that we
Speaker 6: talk about, you know, I think that the consumer may
Speaker 6: be doing less of that just given their general caution
Speaker 6: and uncertainty over what tariffs are going to do to
Speaker 6: their spending ability in the future.
Speaker 2: Hey, Mari, wh when you speak to the retailers that
Speaker 2: you talk to across your coverage area, Let's see what's
Speaker 2: the feeling today in terms of how much they want
Speaker 2: to pass through to customers versus how much they're willing
Speaker 2: to kind of take in their margin here.
Speaker 6: Yeah, it's a great question, and it's so interesting seeing
Speaker 6: like the uh, you know, the commentary from the retailers
Speaker 6: versus what we see in the stock market is very different, right,
Speaker 6: I mean, the stock market is acting as if these
Speaker 6: tariffs are no big deal. We got some resolution, things
Speaker 6: are going to be fine. Then you listen to the retailers.
Speaker 6: I mean you listen to Walmart today. They're talking about,
Speaker 6: you know, starting now, there will be less product on shelves.
Speaker 6: They're going to do all they can to try to
Speaker 6: protect pricing in their value position in faster turn categories
Speaker 6: like food.
Speaker 3: But there's certain.
Speaker 6: Categories like toys, electronics, even some of the textile categories
Speaker 6: like apparel and soft home where it's going to be
Speaker 6: really hard for them to absorb the full impact of terraft.
Speaker 6: So I think, you know, the ten percent rate for
Speaker 6: a lot of companies is a lot more manageable. When
Speaker 6: you talk to them about the ten percent we see
Speaker 6: globally x China, they seem to feel a little bit
Speaker 6: better about that. I think, you know, the thirty percent
Speaker 6: in China is still too high, and the margin levels
Speaker 6: and a lot of the categories that come out of
Speaker 6: China are very low, and they just do not have
Speaker 6: the ability to absorb that pricing themselves, share it with
Speaker 6: their vendors who or their vendor partners, their manufacturing partners.
Speaker 3: We're also operating on very low margin.
Speaker 6: And so it's inevitable that some of that is going
Speaker 6: to have to come through to higher prices. It's just
Speaker 6: a question of you know, I think what the retailers
Speaker 6: are really trying to they're really struggling with now how
Speaker 6: to think about that trade off between price and volume.
Speaker 3: You know, I mean.
Speaker 6: During the pandemic, as everyone took pricing, we did not
Speaker 6: see the kind of elasticity of demand that you would
Speaker 6: typically expect to see when prices move up. And I
Speaker 6: think how the retailers manage their unit inventories is going
Speaker 6: to be a huge area of focus for them and
Speaker 6: for investors during this really volatile period.
Speaker 5: One thing that also caught my edw with Walmart is
Speaker 5: it said it's online business posted a quarterly profit for
Speaker 5: the first time. Are you seeing the same trend across
Speaker 5: the board and what does that tell you?
Speaker 3: No, this is very Walmart specific.
Speaker 6: We have seen in the e commerce space Amazon and
Speaker 6: Walmart taking incredible share. And so when you listen to Walmart,
Speaker 6: and they've been kind of alluding to the fact that
Speaker 6: they were nearing this inflection and profitability for some time,
Speaker 6: I think it's really coming from two things. That's coming
Speaker 6: from the scale that they are now seeing as that
Speaker 6: business has grown so much. And also they've talked about
Speaker 6: how consumers are increasingly willing to pay for delivery for
Speaker 6: expedited shipment. So if you're making dinner tonight and you
Speaker 6: realize you forgot a certain spice, you know, you could
Speaker 6: pay five dollars to have Walmart deliver it.
Speaker 3: To you in the next hour.
Speaker 6: And in those cases, the consumer is more willing to
Speaker 6: pay for delivery, and I think that's something Walmart had
Speaker 6: not expected, but it is a key I think part
Speaker 6: of the reason why they are able to achieve e
Speaker 6: commerce profitability. They also have, of course, the benefit of
Speaker 6: the growth in the marketplace and addizing and fulfillment services
Speaker 6: and membership.
Speaker 3: All of which are higher margin and are.
Speaker 6: Really starting to move the needle for them as we
Speaker 6: see with Amazon. But I think Walmart and Amazon are
Speaker 6: in a league of their own as it relates to
Speaker 6: what they're seeing in e commerce, both in terms of
Speaker 6: the growth that they're putting up in that business and
Speaker 6: the profitability that they're able to achieve.
Speaker 2: Mari, thank you so much for joining us. As always,
Speaker 2: Mario Sure, Senior Equity aas for Columbia Threadneedle Investment, she's
Speaker 2: up there in Boston and she joined us. View that
Speaker 2: zoom thing.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Colocklay, and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: President Trump making lots and lots of news in his
Speaker 2: trip to the Middle East, lots of economic deals of
Speaker 2: being announced, big big dollar amounts as well. All that
Speaker 2: is good for the companies involved, but it does call
Speaker 2: out Apple a Tim Cook not there with him, as
Speaker 2: Jensen Wang is in Nvidia also suggesting that Apple should
Speaker 2: stop moving iPhone production to India. What is that all about?
Speaker 2: Anurag Rana technologychannels for Bloomberg Intelligence, he covers Apple, he
Speaker 2: covers all this tech stuff for us in the burgeoning
Speaker 2: tech capital Chicago, Illinois, anurag Apple computer. They're trying to
Speaker 2: diversify their supply chain, maybe get a little bit less
Speaker 2: reliant on China taking some of that over to India.
Speaker 2: There's a president not like that.
Speaker 7: Yeah, we just heard that. In fact, it looks like
Speaker 7: Apple cannot you know, catch a break right now. We
Speaker 7: thought that the US China deal would probably put a
Speaker 7: lot of those fears to rest. But you know, it
Speaker 7: just looks like that. You know, it's not He's not
Speaker 7: happy with the Apple moving some of that iPhone facilities
Speaker 7: to India. Now that is the case because you know,
Speaker 7: frankly speaking, you do need a low cost labor setup.
Speaker 7: You do need really large factories and the amount of
Speaker 7: labor to assemble some of these products. Remember, even in
Speaker 7: an iPhone, you know, the chip can come from a
Speaker 7: you know, high cost region, but the assembly of the phone,
Speaker 7: you know, cannot be done in a high cost region.
Speaker 7: So I think they are in a bit of a
Speaker 7: jam as to what to do because we have Bloomberg
Speaker 7: News reported that they wanted to double their capacity in
Speaker 7: India to ensure that they don't have to pay the
Speaker 7: high tariff strate coming out of China. But you know,
Speaker 7: let's see what Apple does to counter that. You know,
Speaker 7: our best gut feeling is that they will ramp up
Speaker 7: the investments in the US and perhaps target more on
Speaker 7: the higher margin items such as chips or really expensive
Speaker 7: max But it will be tough for them to do
Speaker 7: this on the on the iPhone level, frankly.
Speaker 5: But that's the thing. Apple already promised to hire more
Speaker 5: workers domestically here in the US and spend five hundred
Speaker 5: billion over the next four years. So you think they
Speaker 5: will need to add more to that.
Speaker 7: Either they need to add more to that or support
Speaker 7: some of the local manufacturing, perhaps in the chip capacity,
Speaker 7: or explain to the president how they're doing it in
Speaker 7: the US a lot more benefits to you know, the
Speaker 7: local workers, because you know, for President Trump to call him,
Speaker 7: call him out, you know, out in the open, you know,
Speaker 7: dost put him in a tough position.
Speaker 2: Right now, What is the Apple strategy here? Because again,
Speaker 2: we think of some of the quote unquote China exposure.
Speaker 2: The company that comes to the top of most people's
Speaker 2: list is Apple because they get twenty percent of their
Speaker 2: revenue from China. Their supply chain is fully enmeshed in China.
Speaker 2: And I know we've talked to you, you know, for
Speaker 2: the last several years about how they can diversify. Here
Speaker 2: what is the reality in today's world for Apple?
Speaker 7: See, the reality is the higher value products. So let's
Speaker 7: say that the chip that they do or they make,
Speaker 7: you know, those are all designed in the US. It's
Speaker 7: made by TSMC. Those plants have been shifted, some of
Speaker 7: them to Arizona. So the higher value products can be done.
Speaker 7: But frankly speaking, think about it, you know, lower whether
Speaker 7: it's an air pod or whether it's just an assembly
Speaker 7: of the phone, it's not that easy to just you know,
Speaker 7: come up and then make those things in the US.
Speaker 7: I mean it's they've been trying to perfect that over
Speaker 7: a twenty year period, across different parts that they get
Speaker 7: from China. The factories that employs you know, hundreds and
Speaker 7: thousands of people. You know, it's just not easy to
Speaker 7: move those I think they will be pushing a lot
Speaker 7: more on the R and D front over here hiring
Speaker 7: more local workers to offset some of that actim which means,
Speaker 7: on the at least over the next few years, there
Speaker 7: could be some downward pressure on their gross margins, you know,
Speaker 7: in order to you know, showcase that they are investing
Speaker 7: heavily in the US.
Speaker 5: How has it been like as an analyst covering all
Speaker 5: the tire flip flops and all these big tech companies
Speaker 5: that are at the mercy of some of Trump's pronouncements
Speaker 5: that are sometimes really unexpected.
Speaker 7: I mean, really listen, it is very tough, and frankly,
Speaker 7: we're going to see how and if this leads to
Speaker 7: some kind of demand destruction on any of the you know,
Speaker 7: and markets we cover. So so far, it doesn't look
Speaker 7: like it's having an impact on the cell phone market,
Speaker 7: it doesn't look like it's having an impact on the
Speaker 7: cloud market. But when you look at something like consulting market,
Speaker 7: I mean it is having a second degree impact because
Speaker 7: people or companies are not sure how they're going to be,
Speaker 7: you know, what kind of economic environment they will see
Speaker 7: down the road, whether they'll be a recession or not.
Speaker 7: So there has been an absolute stop and a lot
Speaker 7: of the consulting work and a consulting related you know,
Speaker 7: bookings or contracts out there, and I think that's kind
Speaker 7: of what we are seeing, you know, at least in
Speaker 7: the overall tech space right now.
Speaker 2: And Ron, thanks so much for joining us. Always appreciate
Speaker 2: getting a couple of minutes of your time. On aur Agrana,
Speaker 2: he's a senior technology analyst for Bloomberg Intelligency and Mandeep saying,
Speaker 2: kind of lead our global technology research. It is a
Speaker 2: global technology research team. We've got analysts on the ground
Speaker 2: North America, Europe and most importantly Asia given where that
Speaker 2: is in the supply chain there. So on Aurono Mende,
Speaker 2: manage that business for us. What are you looking at?
Speaker 5: I'm just really kind of I'm surprised because imagine Apple,
Speaker 5: You're a big company, trillon dollar market cap and the
Speaker 5: president said shift out of China, so you do that
Speaker 5: and you go to India and now they saying why
Speaker 5: are you in India? And I just don't want to
Speaker 5: be Tim Cook right now.
Speaker 2: Yeah, it could be a tough situation, but all companies
Speaker 2: are dealing with and trying to adapt. And what thing
Speaker 2: Tom Keen always says is companies adapt, whether it's a
Speaker 2: global pandemic, or whether it's trade tensions. Companies adapt, consumers adapt,
Speaker 2: and that's arguably what the tech industry and global trade
Speaker 2: will do as well.
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