WEBVTT - Walmart Falls After Warning Price Increases Are Coming 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, and Android auto with

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<v Speaker 1>the Bloomberg Business appum listen on demand wherever you get

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<v Speaker 1>your podcasts, or watch us live on YouTube.

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<v Speaker 2>What I learned from our next guest years ago, which

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<v Speaker 2>shocked me and still to this day amazes me. The

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<v Speaker 2>largest supermarket chain in the United States is.

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<v Speaker 3>Walmartmart.

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<v Speaker 2>I never would have guessed that, And now that I

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<v Speaker 2>think about it, of course it is Jen Bartasha. She's

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<v Speaker 2>the one that kind of enlightened me on that. When

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<v Speaker 2>she's Bloomberg Intelligence Senior animost, she covers the retail staples

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<v Speaker 2>and the package goods companies. So, Jen, I'm thinking in

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<v Speaker 2>a world of tariffs, and I'm worried about if I'm

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<v Speaker 2>a retail investor, kind of the margins my retailers like

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<v Speaker 2>a Walmart might have having the grocery store business as

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<v Speaker 2>a traffic driver. That's got to be a good thing,

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<v Speaker 2>is Did we see that in Walmart's numbers today?

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<v Speaker 1>Yeah?

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<v Speaker 4>Hi, Paul absolutely saw that in Walmart's numbers. You know,

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<v Speaker 4>their growth in consumables and grocery mid single digit growth.

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<v Speaker 4>That means people keep coming back to Walmart to buy

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<v Speaker 4>their staples, and you know, that's a that's a foundational

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<v Speaker 4>type of thing because for Walmart, as they get these

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<v Speaker 4>customers doing that regular, repeat shopping and coming in consistently,

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<v Speaker 4>it really bodes well for how well they'll be able

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<v Speaker 4>to retain those customers once all of this market volatility

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<v Speaker 4>fades and people become a little less price sensitive.

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<v Speaker 5>How does Walmart just really in general raise the pressure

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<v Speaker 5>for competitors? We have Home Depot and Target reporting out soon.

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<v Speaker 5>How do you think they will fare well?

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<v Speaker 4>You know, I think that Walmart is really uniquely positioned

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<v Speaker 4>because it arguably has the best view into mainstream America

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<v Speaker 4>consumer of any retailer out there, because they touch such

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<v Speaker 4>a huge.

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<v Speaker 3>Number of households.

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<v Speaker 4>And so when somebody the size of Walmart says that

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<v Speaker 4>even their scale is a big enough to fully offset tariffs,

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<v Speaker 4>the read through on that is with for other retailers

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<v Speaker 4>who are smaller and have bigger exposure to imported goods

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<v Speaker 4>is rather dire because you know, you know, Walmart is

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<v Speaker 4>is the one that is probably best position to whether

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<v Speaker 4>it because of its scale. But that just means for

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<v Speaker 4>the smaller guys, it's going to be a really difficult battle,

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<v Speaker 4>and that there's going to be a lot more price

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<v Speaker 4>that has to be taken and a lot more operational

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<v Speaker 4>maneuvering to try to stay competitive in that in that

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<v Speaker 4>particular set. So Target has a lot of discretionary exposure.

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<v Speaker 4>Home depot lows they both do as well, So you

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<v Speaker 4>know it could be difficult season for those retailers.

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<v Speaker 2>All right, full disclosure, And John Socker knows this. My

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<v Speaker 2>last job in this illustrious career of mine will be

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<v Speaker 2>as a greeter at Walmart. We hope to see. I

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<v Speaker 2>have never been in one because they don't have near me.

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<v Speaker 2>Root seventy in Brick that's going to be. It's far

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<v Speaker 2>the next stop here on this one. Hey, Jen, you

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<v Speaker 2>mentioned it, and that's kind of where I wanted to go.

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<v Speaker 2>I can see wal Bart dealing with higher tariffs in

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<v Speaker 2>pricing because they're Walmart. But how about the mom and

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<v Speaker 2>pop retailers out there on Main Street USA? How tough

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<v Speaker 2>is it going to be for them?

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<v Speaker 4>Do you think it's It's incredibly tough, Paul, because you

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<v Speaker 4>know the mom and pop retailers, it's usually only a

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<v Speaker 4>handful of employees. It's a very set type of inventory

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<v Speaker 4>that they carry. They don't necessarily have the ability to

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<v Speaker 4>flex in and out of different product categories to to

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<v Speaker 4>lessen the impact of tariffs, because they're usually known for

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<v Speaker 4>a particular type of product, which is why their customers

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<v Speaker 4>come to them, and so you know, they're also they're

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<v Speaker 4>very reliant also on getting goods either directly or through

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<v Speaker 4>third parties that are that are imported, and so there's

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<v Speaker 4>just very little room in there in their operations to

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<v Speaker 4>be able to offset the power of what's come the

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<v Speaker 4>pricing that's going to come with these tariffs. And we've

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<v Speaker 4>heard anecdotally small businesses that are just saying they've had

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<v Speaker 4>to lay off employees already. You know, there could be

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<v Speaker 4>greater ramifications, you know, in terms of unemployment and things.

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<v Speaker 4>If small businesses are impacted to a large degree, Should

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<v Speaker 4>this tariff situation persist for longer than we're expecting?

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<v Speaker 5>Yeah, bring up a good point because they have CFO

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<v Speaker 5>John David Rainey saying the rage of outcomes is pretty

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<v Speaker 5>quote extreme, and it is. How has Walmart have they

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<v Speaker 5>hinted on how they're preparing for it? I mean, we

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<v Speaker 5>know that they're a good barometer of the US economy

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<v Speaker 5>and they're really really huge, but they must still be

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<v Speaker 5>impacted by tariffs.

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<v Speaker 4>Absolutely, they definitely will be impacted. But part of where

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<v Speaker 4>their advantage is is that the company has been investing

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<v Speaker 4>for some time behind technology like AI, and AI has

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<v Speaker 4>across retail, but especially for those retailers who have had

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<v Speaker 4>the time and the balance sheet to invest in it

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<v Speaker 4>gives them a lot of flexibility in their tools for

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<v Speaker 4>predicting what their need is going to be and for

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<v Speaker 4>responding quickly to changes in their supply chain. So you

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<v Speaker 4>know that investment in AI will actually pay some dividends

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<v Speaker 4>and probably help them navigate the tariff situation more easily.

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<v Speaker 4>And again that goes back to the smaller players who

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<v Speaker 4>don't have that kind of technology support or haven't been

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<v Speaker 4>able to make those investments. Will it'll be harder for

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<v Speaker 4>them to maneuver in that environment.

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<v Speaker 2>So Jennifer Kroger are some big, you know, grocery store,

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<v Speaker 2>and I don't know, craft Food comes in and says,

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<v Speaker 2>cheese Whiz is going to be ten or fifteen percent

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<v Speaker 2>higher price to you Kroger because of teriffs. How does

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<v Speaker 2>that conversation go? Who's got the leverage there? Who eats it,

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<v Speaker 2>who takes it?

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<v Speaker 6>Is it?

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<v Speaker 3>How does that go?

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<v Speaker 4>Yeah, it's it's usually a combination of a couple of things.

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<v Speaker 4>So the first thing is that because the grocers all

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<v Speaker 4>have private label programs, they are very very well in

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<v Speaker 4>formed on what cost of ingredients are, which ingredients are

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<v Speaker 4>being imported, you know, packaging costs. So when a counterpart

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<v Speaker 4>from a package food company comes to them and says

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<v Speaker 4>we need to increase prices because of X, Y, and z,

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<v Speaker 4>the retailer can call them out if they don't see

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<v Speaker 4>the same pattern that they're being given as an excuse. Now,

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<v Speaker 4>then there's a collaborative, a collaboration where ultimately both the

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<v Speaker 4>retailer and the food package the package foo company want

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<v Speaker 4>to you know, increase the volume sold and make sure

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<v Speaker 4>that their products are getting in the hands of customers.

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<v Speaker 4>So when it comes to pricing, usually there can be

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<v Speaker 4>a bit of a sharing in terms of cost, but

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<v Speaker 4>most of it does fall into the package food company

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<v Speaker 4>itself and that comes in the form of having to

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<v Speaker 4>do promotions you know, or or you know, offering discounts

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<v Speaker 4>and things like that to make sure that their products

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<v Speaker 4>are actually moving and that they're generating turnover and that

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<v Speaker 4>they're then getting some profit out of it.

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<v Speaker 2>Jen, thanks so much for joining us always appreciate it.

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<v Speaker 2>Always learned something speaking to you. Jen Bartash's senior retail

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<v Speaker 2>analyst from Bloomberg Intelligence. I mean Jen had a real

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<v Speaker 2>career at Bloomberg. She was managing departments, managing a bunch

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<v Speaker 2>of people in global data. And then we asked her,

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<v Speaker 2>like fifteen years ago, hey, come to Bloomberg Intelligence, that

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<v Speaker 2>we think you'd be a really good analyst. And she

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<v Speaker 2>did come over, she accepted, and she's been great, and

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<v Speaker 2>now she's one of the leading voices on retail. So

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<v Speaker 2>another success story coming out of Bloomberg Intelligence.

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<v Speaker 1>You're listening to the Bloomberg Intelligence podcast. Catch us live

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<v Speaker 2>Checking with Mariy Shore. She's a senior Ecodana's a Columbia threadneeder.

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<v Speaker 2>She's up in Boston. We'd love to talk to he

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<v Speaker 2>ed when we get the retail sales on her because

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<v Speaker 2>she really spends a lot of time looking at the retailers,

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<v Speaker 2>the consumer, that kind of thing, so a real helpful

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<v Speaker 2>voice to us. Mari what did you make of the

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<v Speaker 2>retail sales here. I mean, I guess there's some noise

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<v Speaker 2>here about you know, tariffs, and did that impact kind

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<v Speaker 2>of how consumers are spending money these days? What did

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<v Speaker 2>you make of the retail sales number today?

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<v Speaker 6>Yes, thanks Paulin Isabelle, thank you for having me. Absolutely

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<v Speaker 6>you said it better than I could have. The tariffs

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<v Speaker 6>are definitely creating some monthly noise.

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<v Speaker 3>When we look year over.

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<v Speaker 6>Year, the growth has been a little more consistent and

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<v Speaker 6>actually showed acceleration in April versus March.

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<v Speaker 3>But on a month over.

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<v Speaker 6>Month basis, we did see softness in April versus March,

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<v Speaker 6>given the pull forward that we saw in March ahead

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<v Speaker 6>of some tariff driven price increases that the consumer anticipated

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<v Speaker 6>in some big ticket categories like autos. And you know,

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<v Speaker 6>when I look and really step back and just getting

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<v Speaker 6>off of Walmart's earnings call, I think their tone on

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<v Speaker 6>the consumer is very consistent. Obviously, tariffs are creating a

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<v Speaker 6>lot of noise in the spending trends, but you know,

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<v Speaker 6>in their words, the consumer is still very focused on

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<v Speaker 6>value and speed of delivery, and that is what we've

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<v Speaker 6>been seeing for years now coming out of the pandemic.

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<v Speaker 5>I'm glad you brought up consumer because for Walmart, we

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<v Speaker 5>saw traffic, which is the number of shoppers less of

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<v Speaker 5>a boost to the figure than ticket. What does that

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<v Speaker 5>tell you that maybe there are less shoppers, but they're

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<v Speaker 5>buying more expensive things or at least higher amount of tickets.

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<v Speaker 6>Well, right, So that could either say they're coming in

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<v Speaker 6>less frequently and when they are in, they're buying a

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<v Speaker 6>lot more, right, they're stalking up more or to your point,

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<v Speaker 6>they're buying more expensive things. But we did see relative

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<v Speaker 6>weakness in their general merchandise category. We saw like their

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<v Speaker 6>you know, food categories up mid single digits, Health and

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<v Speaker 6>wellness was up high teams. A lot of that is

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<v Speaker 6>GLP ones, and general merchandise for them was actually down slightly,

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<v Speaker 6>which is worse than what we saw in.

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<v Speaker 3>Q four. And so I think it's a us that

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<v Speaker 3>the consumer is you know.

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<v Speaker 6>Coming to Walmart for their stock up trip, which is

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<v Speaker 6>typically what we've seen with Walmart.

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<v Speaker 3>But you know, I think a lot of that.

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<v Speaker 6>Intra week spend, those like fill in trips that we

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<v Speaker 6>talk about, you know, I think that the consumer may

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<v Speaker 6>be doing less of that just given their general caution

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<v Speaker 6>and uncertainty over what tariffs are going to do to

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<v Speaker 6>their spending ability in the future.

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<v Speaker 2>Hey, Mari, wh when you speak to the retailers that

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<v Speaker 2>you talk to across your coverage area, Let's see what's

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<v Speaker 2>the feeling today in terms of how much they want

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<v Speaker 2>to pass through to customers versus how much they're willing

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<v Speaker 2>to kind of take in their margin here.

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<v Speaker 6>Yeah, it's a great question, and it's so interesting seeing

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<v Speaker 6>like the uh, you know, the commentary from the retailers

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<v Speaker 6>versus what we see in the stock market is very different, right,

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<v Speaker 6>I mean, the stock market is acting as if these

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<v Speaker 6>tariffs are no big deal. We got some resolution, things

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<v Speaker 6>are going to be fine. Then you listen to the retailers.

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<v Speaker 6>I mean you listen to Walmart today. They're talking about,

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<v Speaker 6>you know, starting now, there will be less product on shelves.

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<v Speaker 6>They're going to do all they can to try to

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<v Speaker 6>protect pricing in their value position in faster turn categories

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<v Speaker 6>like food.

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<v Speaker 3>But there's certain.

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<v Speaker 6>Categories like toys, electronics, even some of the textile categories

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<v Speaker 6>like apparel and soft home where it's going to be

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<v Speaker 6>really hard for them to absorb the full impact of terraft.

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<v Speaker 6>So I think, you know, the ten percent rate for

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<v Speaker 6>a lot of companies is a lot more manageable. When

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<v Speaker 6>you talk to them about the ten percent we see

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<v Speaker 6>globally x China, they seem to feel a little bit

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<v Speaker 6>better about that. I think, you know, the thirty percent

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<v Speaker 6>in China is still too high, and the margin levels

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<v Speaker 6>and a lot of the categories that come out of

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<v Speaker 6>China are very low, and they just do not have

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<v Speaker 6>the ability to absorb that pricing themselves, share it with

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<v Speaker 6>their vendors who or their vendor partners, their manufacturing partners.

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<v Speaker 3>We're also operating on very low margin.

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<v Speaker 6>And so it's inevitable that some of that is going

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<v Speaker 6>to have to come through to higher prices. It's just

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<v Speaker 6>a question of you know, I think what the retailers

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<v Speaker 6>are really trying to they're really struggling with now how

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<v Speaker 6>to think about that trade off between price and volume.

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<v Speaker 3>You know, I mean.

0:12:22.320 --> 0:12:25.320
<v Speaker 6>During the pandemic, as everyone took pricing, we did not

0:12:25.600 --> 0:12:28.800
<v Speaker 6>see the kind of elasticity of demand that you would

0:12:28.800 --> 0:12:33.040
<v Speaker 6>typically expect to see when prices move up. And I

0:12:33.080 --> 0:12:36.920
<v Speaker 6>think how the retailers manage their unit inventories is going

0:12:36.960 --> 0:12:39.240
<v Speaker 6>to be a huge area of focus for them and

0:12:39.360 --> 0:12:43.360
<v Speaker 6>for investors during this really volatile period.

0:12:44.040 --> 0:12:46.200
<v Speaker 5>One thing that also caught my edw with Walmart is

0:12:46.240 --> 0:12:49.040
<v Speaker 5>it said it's online business posted a quarterly profit for

0:12:49.080 --> 0:12:51.720
<v Speaker 5>the first time. Are you seeing the same trend across

0:12:51.720 --> 0:12:54.599
<v Speaker 5>the board and what does that tell you?

0:12:54.640 --> 0:12:56.719
<v Speaker 3>No, this is very Walmart specific.

0:12:57.160 --> 0:13:01.120
<v Speaker 6>We have seen in the e commerce space Amazon and

0:13:01.240 --> 0:13:07.240
<v Speaker 6>Walmart taking incredible share. And so when you listen to Walmart,

0:13:07.240 --> 0:13:09.360
<v Speaker 6>and they've been kind of alluding to the fact that

0:13:09.360 --> 0:13:13.120
<v Speaker 6>they were nearing this inflection and profitability for some time,

0:13:13.440 --> 0:13:15.520
<v Speaker 6>I think it's really coming from two things. That's coming

0:13:15.559 --> 0:13:18.880
<v Speaker 6>from the scale that they are now seeing as that

0:13:18.960 --> 0:13:22.280
<v Speaker 6>business has grown so much. And also they've talked about

0:13:22.280 --> 0:13:27.200
<v Speaker 6>how consumers are increasingly willing to pay for delivery for

0:13:27.600 --> 0:13:32.000
<v Speaker 6>expedited shipment. So if you're making dinner tonight and you

0:13:32.120 --> 0:13:35.760
<v Speaker 6>realize you forgot a certain spice, you know, you could

0:13:35.760 --> 0:13:38.360
<v Speaker 6>pay five dollars to have Walmart deliver it.

0:13:38.240 --> 0:13:39.439
<v Speaker 3>To you in the next hour.

0:13:39.880 --> 0:13:43.960
<v Speaker 6>And in those cases, the consumer is more willing to

0:13:43.960 --> 0:13:47.200
<v Speaker 6>pay for delivery, and I think that's something Walmart had

0:13:47.240 --> 0:13:51.120
<v Speaker 6>not expected, but it is a key I think part

0:13:51.160 --> 0:13:53.800
<v Speaker 6>of the reason why they are able to achieve e

0:13:53.840 --> 0:13:57.400
<v Speaker 6>commerce profitability. They also have, of course, the benefit of

0:13:57.760 --> 0:14:02.400
<v Speaker 6>the growth in the marketplace and addizing and fulfillment services

0:14:02.400 --> 0:14:04.040
<v Speaker 6>and membership.

0:14:03.880 --> 0:14:06.080
<v Speaker 3>All of which are higher margin and are.

0:14:06.000 --> 0:14:09.280
<v Speaker 6>Really starting to move the needle for them as we

0:14:09.360 --> 0:14:13.120
<v Speaker 6>see with Amazon. But I think Walmart and Amazon are

0:14:13.160 --> 0:14:15.480
<v Speaker 6>in a league of their own as it relates to

0:14:15.520 --> 0:14:18.000
<v Speaker 6>what they're seeing in e commerce, both in terms of

0:14:18.040 --> 0:14:20.400
<v Speaker 6>the growth that they're putting up in that business and

0:14:20.440 --> 0:14:22.600
<v Speaker 6>the profitability that they're able to achieve.

0:14:23.320 --> 0:14:25.080
<v Speaker 2>Mari, thank you so much for joining us. As always,

0:14:25.080 --> 0:14:29.120
<v Speaker 2>Mario Sure, Senior Equity aas for Columbia Threadneedle Investment, she's

0:14:29.200 --> 0:14:31.400
<v Speaker 2>up there in Boston and she joined us. View that

0:14:31.880 --> 0:14:32.360
<v Speaker 2>zoom thing.

0:14:34.120 --> 0:14:37.800
<v Speaker 1>You're listening to the Bloomberg Intelligence Podcast. Catch us live

0:14:37.880 --> 0:14:41.000
<v Speaker 1>weekdays at ten am Eastern on Apple, Colocklay, and Android

0:14:41.000 --> 0:14:44.320
<v Speaker 1>Auto with the Bloomberg Business App. Listen on demand wherever

0:14:44.360 --> 0:14:47.640
<v Speaker 1>you get your podcasts, or watch us live on YouTube.

0:14:48.040 --> 0:14:50.520
<v Speaker 2>President Trump making lots and lots of news in his

0:14:50.720 --> 0:14:54.000
<v Speaker 2>trip to the Middle East, lots of economic deals of

0:14:54.000 --> 0:14:56.800
<v Speaker 2>being announced, big big dollar amounts as well. All that

0:14:56.840 --> 0:14:58.680
<v Speaker 2>is good for the companies involved, but it does call

0:14:58.720 --> 0:15:02.440
<v Speaker 2>out Apple a Tim Cook not there with him, as

0:15:02.520 --> 0:15:07.000
<v Speaker 2>Jensen Wang is in Nvidia also suggesting that Apple should

0:15:07.040 --> 0:15:10.560
<v Speaker 2>stop moving iPhone production to India. What is that all about?

0:15:10.680 --> 0:15:14.160
<v Speaker 2>Anurag Rana technologychannels for Bloomberg Intelligence, he covers Apple, he

0:15:14.200 --> 0:15:17.600
<v Speaker 2>covers all this tech stuff for us in the burgeoning

0:15:17.640 --> 0:15:23.240
<v Speaker 2>tech capital Chicago, Illinois, anurag Apple computer. They're trying to

0:15:23.240 --> 0:15:26.440
<v Speaker 2>diversify their supply chain, maybe get a little bit less

0:15:26.480 --> 0:15:29.720
<v Speaker 2>reliant on China taking some of that over to India.

0:15:30.080 --> 0:15:31.440
<v Speaker 2>There's a president not like that.

0:15:32.800 --> 0:15:34.920
<v Speaker 7>Yeah, we just heard that. In fact, it looks like

0:15:34.960 --> 0:15:37.480
<v Speaker 7>Apple cannot you know, catch a break right now. We

0:15:37.560 --> 0:15:41.040
<v Speaker 7>thought that the US China deal would probably put a

0:15:41.040 --> 0:15:44.040
<v Speaker 7>lot of those fears to rest. But you know, it

0:15:44.240 --> 0:15:47.240
<v Speaker 7>just looks like that. You know, it's not He's not

0:15:47.360 --> 0:15:50.720
<v Speaker 7>happy with the Apple moving some of that iPhone facilities

0:15:50.720 --> 0:15:53.240
<v Speaker 7>to India. Now that is the case because you know,

0:15:53.240 --> 0:15:56.960
<v Speaker 7>frankly speaking, you do need a low cost labor setup.

0:15:56.960 --> 0:16:00.480
<v Speaker 7>You do need really large factories and the amount of

0:16:00.520 --> 0:16:03.840
<v Speaker 7>labor to assemble some of these products. Remember, even in

0:16:03.880 --> 0:16:06.160
<v Speaker 7>an iPhone, you know, the chip can come from a

0:16:06.600 --> 0:16:09.600
<v Speaker 7>you know, high cost region, but the assembly of the phone,

0:16:09.720 --> 0:16:11.600
<v Speaker 7>you know, cannot be done in a high cost region.

0:16:11.640 --> 0:16:13.120
<v Speaker 7>So I think they are in a bit of a

0:16:13.200 --> 0:16:16.320
<v Speaker 7>jam as to what to do because we have Bloomberg

0:16:16.360 --> 0:16:19.120
<v Speaker 7>News reported that they wanted to double their capacity in

0:16:19.120 --> 0:16:21.120
<v Speaker 7>India to ensure that they don't have to pay the

0:16:21.160 --> 0:16:24.080
<v Speaker 7>high tariff strate coming out of China. But you know,

0:16:24.240 --> 0:16:27.120
<v Speaker 7>let's see what Apple does to counter that. You know,

0:16:27.160 --> 0:16:30.600
<v Speaker 7>our best gut feeling is that they will ramp up

0:16:30.640 --> 0:16:33.760
<v Speaker 7>the investments in the US and perhaps target more on

0:16:33.800 --> 0:16:37.240
<v Speaker 7>the higher margin items such as chips or really expensive

0:16:37.600 --> 0:16:39.720
<v Speaker 7>max But it will be tough for them to do

0:16:39.760 --> 0:16:41.920
<v Speaker 7>this on the on the iPhone level, frankly.

0:16:42.120 --> 0:16:44.280
<v Speaker 5>But that's the thing. Apple already promised to hire more

0:16:44.320 --> 0:16:47.080
<v Speaker 5>workers domestically here in the US and spend five hundred

0:16:47.120 --> 0:16:49.080
<v Speaker 5>billion over the next four years. So you think they

0:16:49.120 --> 0:16:51.000
<v Speaker 5>will need to add more to that.

0:16:52.400 --> 0:16:54.520
<v Speaker 7>Either they need to add more to that or support

0:16:54.560 --> 0:16:57.760
<v Speaker 7>some of the local manufacturing, perhaps in the chip capacity,

0:16:58.200 --> 0:17:01.600
<v Speaker 7>or explain to the president how they're doing it in

0:17:01.640 --> 0:17:04.760
<v Speaker 7>the US a lot more benefits to you know, the

0:17:04.800 --> 0:17:09.080
<v Speaker 7>local workers, because you know, for President Trump to call him,

0:17:09.240 --> 0:17:11.439
<v Speaker 7>call him out, you know, out in the open, you know,

0:17:11.520 --> 0:17:13.399
<v Speaker 7>dost put him in a tough position.

0:17:13.560 --> 0:17:17.359
<v Speaker 2>Right now, What is the Apple strategy here? Because again,

0:17:17.440 --> 0:17:20.679
<v Speaker 2>we think of some of the quote unquote China exposure.

0:17:21.160 --> 0:17:23.000
<v Speaker 2>The company that comes to the top of most people's

0:17:23.040 --> 0:17:25.800
<v Speaker 2>list is Apple because they get twenty percent of their

0:17:25.880 --> 0:17:30.960
<v Speaker 2>revenue from China. Their supply chain is fully enmeshed in China.

0:17:31.160 --> 0:17:33.239
<v Speaker 2>And I know we've talked to you, you know, for

0:17:33.359 --> 0:17:36.360
<v Speaker 2>the last several years about how they can diversify. Here

0:17:36.440 --> 0:17:39.639
<v Speaker 2>what is the reality in today's world for Apple?

0:17:40.840 --> 0:17:44.080
<v Speaker 7>See, the reality is the higher value products. So let's

0:17:44.080 --> 0:17:46.520
<v Speaker 7>say that the chip that they do or they make,

0:17:46.600 --> 0:17:49.160
<v Speaker 7>you know, those are all designed in the US. It's

0:17:49.160 --> 0:17:53.320
<v Speaker 7>made by TSMC. Those plants have been shifted, some of

0:17:53.320 --> 0:17:57.920
<v Speaker 7>them to Arizona. So the higher value products can be done.

0:17:57.960 --> 0:18:01.160
<v Speaker 7>But frankly speaking, think about it, you know, lower whether

0:18:01.200 --> 0:18:04.360
<v Speaker 7>it's an air pod or whether it's just an assembly

0:18:04.400 --> 0:18:06.639
<v Speaker 7>of the phone, it's not that easy to just you know,

0:18:06.720 --> 0:18:08.840
<v Speaker 7>come up and then make those things in the US.

0:18:08.880 --> 0:18:11.280
<v Speaker 7>I mean it's they've been trying to perfect that over

0:18:11.320 --> 0:18:14.640
<v Speaker 7>a twenty year period, across different parts that they get

0:18:14.680 --> 0:18:18.119
<v Speaker 7>from China. The factories that employs you know, hundreds and

0:18:18.160 --> 0:18:20.879
<v Speaker 7>thousands of people. You know, it's just not easy to

0:18:20.920 --> 0:18:23.600
<v Speaker 7>move those I think they will be pushing a lot

0:18:23.680 --> 0:18:26.040
<v Speaker 7>more on the R and D front over here hiring

0:18:26.080 --> 0:18:29.879
<v Speaker 7>more local workers to offset some of that actim which means,

0:18:29.880 --> 0:18:32.560
<v Speaker 7>on the at least over the next few years, there

0:18:32.600 --> 0:18:36.199
<v Speaker 7>could be some downward pressure on their gross margins, you know,

0:18:36.280 --> 0:18:38.800
<v Speaker 7>in order to you know, showcase that they are investing

0:18:38.840 --> 0:18:39.680
<v Speaker 7>heavily in the US.

0:18:40.400 --> 0:18:42.880
<v Speaker 5>How has it been like as an analyst covering all

0:18:42.920 --> 0:18:45.440
<v Speaker 5>the tire flip flops and all these big tech companies

0:18:45.520 --> 0:18:48.120
<v Speaker 5>that are at the mercy of some of Trump's pronouncements

0:18:48.160 --> 0:18:49.720
<v Speaker 5>that are sometimes really unexpected.

0:18:51.080 --> 0:18:53.520
<v Speaker 7>I mean, really listen, it is very tough, and frankly,

0:18:53.600 --> 0:18:56.560
<v Speaker 7>we're going to see how and if this leads to

0:18:56.640 --> 0:19:00.439
<v Speaker 7>some kind of demand destruction on any of the you know,

0:19:00.480 --> 0:19:03.200
<v Speaker 7>and markets we cover. So so far, it doesn't look

0:19:03.240 --> 0:19:05.920
<v Speaker 7>like it's having an impact on the cell phone market,

0:19:06.240 --> 0:19:08.240
<v Speaker 7>it doesn't look like it's having an impact on the

0:19:08.240 --> 0:19:11.760
<v Speaker 7>cloud market. But when you look at something like consulting market,

0:19:12.200 --> 0:19:14.840
<v Speaker 7>I mean it is having a second degree impact because

0:19:15.200 --> 0:19:18.000
<v Speaker 7>people or companies are not sure how they're going to be,

0:19:18.840 --> 0:19:21.120
<v Speaker 7>you know, what kind of economic environment they will see

0:19:21.240 --> 0:19:23.280
<v Speaker 7>down the road, whether they'll be a recession or not.

0:19:23.680 --> 0:19:25.720
<v Speaker 7>So there has been an absolute stop and a lot

0:19:25.760 --> 0:19:29.239
<v Speaker 7>of the consulting work and a consulting related you know,

0:19:29.440 --> 0:19:32.200
<v Speaker 7>bookings or contracts out there, and I think that's kind

0:19:32.240 --> 0:19:34.679
<v Speaker 7>of what we are seeing, you know, at least in

0:19:34.720 --> 0:19:36.120
<v Speaker 7>the overall tech space right now.

0:19:36.640 --> 0:19:38.679
<v Speaker 2>And Ron, thanks so much for joining us. Always appreciate

0:19:38.720 --> 0:19:40.919
<v Speaker 2>getting a couple of minutes of your time. On aur Agrana,

0:19:40.960 --> 0:19:44.760
<v Speaker 2>he's a senior technology analyst for Bloomberg Intelligency and Mandeep saying,

0:19:44.800 --> 0:19:49.080
<v Speaker 2>kind of lead our global technology research. It is a

0:19:49.119 --> 0:19:52.560
<v Speaker 2>global technology research team. We've got analysts on the ground

0:19:52.960 --> 0:19:57.239
<v Speaker 2>North America, Europe and most importantly Asia given where that

0:19:57.400 --> 0:19:59.920
<v Speaker 2>is in the supply chain there. So on Aurono Mende,

0:20:00.160 --> 0:20:01.720
<v Speaker 2>manage that business for us. What are you looking at?

0:20:02.240 --> 0:20:05.600
<v Speaker 5>I'm just really kind of I'm surprised because imagine Apple,

0:20:05.720 --> 0:20:08.320
<v Speaker 5>You're a big company, trillon dollar market cap and the

0:20:08.320 --> 0:20:10.480
<v Speaker 5>president said shift out of China, so you do that

0:20:10.600 --> 0:20:12.240
<v Speaker 5>and you go to India and now they saying why

0:20:12.280 --> 0:20:14.760
<v Speaker 5>are you in India? And I just don't want to

0:20:14.760 --> 0:20:15.600
<v Speaker 5>be Tim Cook right now.

0:20:15.680 --> 0:20:18.440
<v Speaker 2>Yeah, it could be a tough situation, but all companies

0:20:18.480 --> 0:20:20.919
<v Speaker 2>are dealing with and trying to adapt. And what thing

0:20:20.960 --> 0:20:26.320
<v Speaker 2>Tom Keen always says is companies adapt, whether it's a

0:20:26.359 --> 0:20:32.480
<v Speaker 2>global pandemic, or whether it's trade tensions. Companies adapt, consumers adapt,

0:20:32.520 --> 0:20:36.840
<v Speaker 2>and that's arguably what the tech industry and global trade

0:20:36.880 --> 0:20:38.000
<v Speaker 2>will do as well.

0:20:38.720 --> 0:20:43.399
<v Speaker 1>This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,

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0:20:51.160 --> 0:20:55.040
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<v Speaker 7>YAHM