Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought
Speaker 1: you'd be interested in a sponsored podcast called The CEO Radar,
Speaker 1: produced by BCG and Bloomberg Media Studios. It analyzes more
Speaker 1: than forty five hundred Q two earnings calls worldwide to
Speaker 1: assess what topics merit a CEO's time and attention. Here's
Speaker 1: a recent episode. Discussions about tariffs have masked growing concern
Speaker 1: by both CEOs and analysts about a possible economic downturn.
Speaker 1: The CEO Radar has found The Radar is a tool
Speaker 1: for chief executives to compare their own agendas to those
Speaker 1: of their peers, as well as the market as a whole.
Speaker 1: To do so, it took a look at the topics
Speaker 1: that were discussed on more than forty five hundred earnings
Speaker 1: calls in the second quarter of twenty twenty five. I'm
Speaker 1: Edward Adams of Bloomberg Media Studios. On this episode, I'm
Speaker 1: joined by BCG Global Chair Rich Lesser and Migret Poulson,
Speaker 1: Global leader of BCG's Consumer and Retail practice. Rich and
Speaker 1: Mygrit Welcome to the podcast.
Speaker 2: Thanks, it's great to be with you again.
Speaker 1: So to no One's surprised. This quarter, the topic of
Speaker 1: tariffs dominated the conversations during earnings calls. The number of
Speaker 1: mentions of it by both CEOs and by analysts, which
Speaker 1: is our proxy for the market, rose by triple digits.
Speaker 1: But we also saw this interesting other trend occurring, which
Speaker 1: was CEOs were mentioning uncertainty and synonyms for that at
Speaker 1: an all time high over the past decade, higher even
Speaker 1: than they did during COVID. And when we saw the
Speaker 1: mentions by analysts of things like economic slowdown, those rose
Speaker 1: by four hundred and fifty percent quarter on quarter this year. Rich,
Speaker 1: I'm curious whether the CEOs that you're speaking to are
Speaker 1: saying to you that they think tariffs may tip us
Speaker 1: over into a recession.
Speaker 2: Well, so, first I have to say the uncertainty that
Speaker 2: came up in the analyst calls is completely aligned with
Speaker 2: what I hear in private discussions. The focus on uncertainty
Speaker 2: when you talk to CEOs. Of course, the tariffs themselves
Speaker 2: have a challenge, but just trying to navigate what is
Speaker 2: going to happen, what does it mean, and what does
Speaker 2: it mean for their business? It comes up all the time,
Speaker 2: and I do think that CEOs are more anxious about
Speaker 2: the economy. Honestly, I do think it's moderated a bit
Speaker 2: in the last month or two, particularly as things with
Speaker 2: China are not to the levels they were before, but
Speaker 2: are now on a level that I think people can
Speaker 2: plan and navigate around. But the level of economic uncertainty
Speaker 2: is higher. Our own chief economists would say the odds
Speaker 2: of a recession still remain well below fifty percent, but
Speaker 2: the odds of a slowdown I think are quite likely,
Speaker 2: assuming that the tariffs remain in force to some degree,
Speaker 2: you know, in a way that's meaningfully higher.
Speaker 1: Than for migrant What does BCG's recent survey of consumer
Speaker 1: sentiment tell us about which direction the economy has.
Speaker 3: Had so recently we have looked into the US consumers
Speaker 3: and also we have surveyed consumers in nine different European markets.
Speaker 3: Let me start with the European sentiment compared to last
Speaker 3: year at the same time last year, consumers are turning
Speaker 3: more cautious and they're worried about economic uncertainty. And you
Speaker 3: see they are hunting much more. For Bardians, they want
Speaker 3: a good deal, so they are trading down in the
Speaker 3: market across many categories. Of course, there are some variants
Speaker 3: between the European markets. The UK consumers are worried, France
Speaker 3: the same, whereas the Scandinavian consumer are more optimistic or
Speaker 3: we have less consumers that are worried. In the US,
Speaker 3: we also had recently a survey. We also looked at
Speaker 3: actual spent data, so we looked at whether what consumers
Speaker 3: are telling us mirrors how they spent their money. What
Speaker 3: we can see is the US consumers also worried. They
Speaker 3: talk about job certainty, economic certainty, They quote inflation as
Speaker 3: a key reason for more cautious spending, and they are
Speaker 3: trading down. They are looking into private label, their own
Speaker 3: label from the retailers, and also looking into two badgins.
Speaker 3: They still spend on travel and technology that it has
Speaker 3: not changed, but on other household purchases there is a
Speaker 3: tendency to trade down.
Speaker 1: That's interesting because in the radar this quarter we found
Speaker 1: that mentions of consumer sentiment and topics like oil prices
Speaker 1: and margin rate were increasing. So that gives me an
Speaker 1: indication that at least in the C suite and on
Speaker 1: Wall Street, there's concern at least about whether or not
Speaker 1: things are moving in the wrong direction economically. Rich I'm
Speaker 1: curious what are some specific moves that CEOs can take,
Speaker 1: say three things that they can do to try and
Speaker 1: insulate themselves to a degree from the uncertainty that we're facing.
Speaker 2: I think you need to think short, medium, and some
Speaker 2: longer term. In the short term, this idea of a
Speaker 2: tariff command center to build a muscle in an area
Speaker 2: that historically you didn't think you needed muscle, I think
Speaker 2: is now not just a no regret move. It's sort
Speaker 2: of a requirement to be able to navigate a word
Speaker 2: of heightened uncertainty and a new part of a cost
Speaker 2: structure that historically didn't exist before, and one that we
Speaker 2: don't know if it'll stabilize or it won't. So that's
Speaker 2: almost immediate and most and it is both looking for
Speaker 2: scenario planning and no regret actions, but it's also looking
Speaker 2: deeply at supply chain and deeply at go to market.
Speaker 2: I think the second thing that's more medium, but medium
Speaker 2: meaning one to two years, is what can we do
Speaker 2: to drive as much productivity as we can and to
Speaker 2: develop the deepest customer relationships that we can the tools
Speaker 2: with AI and analytics to build deeper customer relationships, to
Speaker 2: build stickiness, to build trust, to bring new value to customer.
Speaker 2: And then I think slightly longer term, but two to
Speaker 2: five years, not ten years plus, is how do we
Speaker 2: embrace AI, How do we think about where it's going
Speaker 2: to add the most value. How do we take on
Speaker 2: a couple really big things and really make them happen
Speaker 2: and show that we can drive business value with it
Speaker 2: and build a confidence and a muscle and an understanding
Speaker 2: so that then we can take on more and more
Speaker 2: areas over time, rather than saying we're going to do
Speaker 2: everything at once, or we're just going to throw the
Speaker 2: tech out there and see if it works. And I
Speaker 2: think companies are going think in those three timeframes. I
Speaker 2: think they're going to be in the best position and
Speaker 2: navigate a challenging period. It's not a guarantee. There are
Speaker 2: no guarantees, my Brad.
Speaker 1: This is particularly important for consumer products company. I was
Speaker 1: going to say, what are you seeing there?
Speaker 3: Yeah, And I would argue, building on Rich's point, in
Speaker 3: the pandemic, supply chain diversification already started. I think there
Speaker 3: was a big wake up call to many companies, whether
Speaker 3: it's a consumer products company or a cross sectors right,
Speaker 3: so already then we saw a lot of work by
Speaker 3: C putting this on the agenda, optimizing the footprint dual
Speaker 3: sourcing as a minimum and not only optimizing a global
Speaker 3: supply chain for cost. So it has been on the
Speaker 3: way for a long time. If you look at both
Speaker 3: the retail segment and also consumer goods companies, there's a
Speaker 3: lot of dual sourcing diversification of sourcing strategies taking place.
Speaker 2: And the other supply chain topic that I do here
Speaker 2: talked about in private that doesn't get as much discussion
Speaker 2: in the public domain is the challenge of navigating the
Speaker 2: US workforce environment because we focus a lot on what's
Speaker 2: happening on the tariff and trade side, But the other
Speaker 2: big change that's happening has been, you know, the President
Speaker 2: coming through on his commitment to both stop illegal immigration
Speaker 2: and to put people out of the country who were
Speaker 2: here in an undocumented way. And I think that there
Speaker 2: was already a pressured US workforce situation. This is not
Speaker 2: a new issue. But I think many companies who know,
Speaker 2: based on tariffs they want to put new production capacity
Speaker 2: in the US that that's almost a no regret move.
Speaker 2: Even if we don't know exactly where tariffs land, it
Speaker 2: is hard to feel confident you're going to be able
Speaker 2: to source the workforce quality you need, that you'll get
Speaker 2: the workforce productivity you need when there's so much uncertainty
Speaker 2: on the workforce side as well. So when I talk
Speaker 2: in private to CEOs that issue around workforce challenges, they've
Speaker 2: already experienced them tell really passionate stories about how hard
Speaker 2: it's been to get a workforce that they need, particularly
Speaker 2: for more classic blue collar jobs or infrastructure jobs, and
Speaker 2: how they're worried about that going forward, and how that
Speaker 2: adds complexity to an investment decision that might otherwise seem
Speaker 2: pretty straightforward.
Speaker 1: Rich I wonder whether there's anything positive that can come
Speaker 1: out of this era of uncertainty.
Speaker 2: So I continue to believe one of the biggest opportunities
Speaker 2: in the business world is personalization. And I mean that
Speaker 2: in a business to consumer relationship and in a business
Speaker 2: to business relationship, the tools to do that have never
Speaker 2: been more powerful. And actually, in an uncertainty we all
Speaker 2: value relationships more, not less so not the main driver,
Speaker 2: but the technologies that exist. I'm really excited about what
Speaker 2: we can do on that front.
Speaker 1: Is there any way in which you can use these
Speaker 1: uncertain times perhaps to grow market share?
Speaker 3: For instance, there's also a lot of opportunity pricing strategies.
Speaker 3: AI and GENAI powered gives an enormous competitive advantage if
Speaker 3: you get it right. So the insight from having enormous
Speaker 3: amounts of data analyzed real time allows companies to price
Speaker 3: in a very different way than before.
Speaker 1: There were some regional differences in the radar when it
Speaker 1: comes to trade and tariffs. We saw that mentions increased
Speaker 1: three times as fast in Asia this quarter as they
Speaker 1: did anywhere else in the world. Some people lay that
Speaker 1: off to the idea that Asia will be more negatively
Speaker 1: affected by US terraff regime than other places will.
Speaker 2: There is a.
Speaker 1: Bloomberg US tariff Impact Matrix which found that the average
Speaker 1: Asian company will see its profits cut by about ten
Speaker 1: percent under what at the beginning of June was the
Speaker 1: US teriff regime in that region. My brit I'm wondering
Speaker 1: whether or not you're seeing anything regionally different about tariffs
Speaker 1: when it comes to Asia versus the rest of the world.
Speaker 3: I think we need to diaverage the Asia question. It
Speaker 3: is true if you look at consumer goods companies, there
Speaker 3: is who has a high exposure to raw materials and
Speaker 3: packaging from China. They are looking into diversifying sourcing, but
Speaker 3: not necessarily away from Asia. India is being mentioned, Vietnam
Speaker 3: is being mentioned. So there are many other opportunities in
Speaker 3: Asia to source where you're not necessarily hit by the
Speaker 3: current thinking on the tariff regime. So I think we
Speaker 3: need to de average the impact.
Speaker 1: All three of us are old enough to have lived
Speaker 1: through some business cycles and periods of uncertainty. I'm curious
Speaker 1: for both of you, what are periods in the past
Speaker 1: that remind you of what we're going through today.
Speaker 3: So I think what makes this situation different than before
Speaker 3: if you look at the dot com bubble, if you
Speaker 3: look at the financial crisis in two thousand and eight,
Speaker 3: is that there are so many factors at play. So
Speaker 3: we look at energy prices, inflation, climate change, do you
Speaker 3: political uncertainty, economic uncertainty, So there are many variables that
Speaker 3: you need to navigate in as a CEO, and that
Speaker 3: makes the situation complex, that's for sure.
Speaker 2: I would say for me, this latest challenge is really
Speaker 2: reflective of the decade we're living in. I mean the teens.
Speaker 2: You know, we got through the Great Financial Crisis more
Speaker 2: or less by twenty ten or whatever, When that decade started,
Speaker 2: it was a relatively stable period. It wasn't a particularly
Speaker 2: exciting economic period. Growth wasn't great. We had challenges, but
Speaker 2: the amount of shocks or uncertainty not system more relatively low.
Speaker 2: And this decade that literally started in January twenty twenty
Speaker 2: when COVID first started expanding around the world, has been
Speaker 2: one challenge for resilience after another after another. COVID is
Speaker 2: supply chain shocks, inflation wars we hadn't seen happening in
Speaker 2: a very long period of time. That created other uncertainties,
Speaker 2: and of course now all the challenges of tariffs and
Speaker 2: trade that we also hadn't seen for decades. What I
Speaker 2: observe in CEOs is building a resilience muscle that I think, frankly,
Speaker 2: people were ready to run their businesses in a very
Speaker 2: brittle way at the end of the teens, meaning push
Speaker 2: for performance, performance, performance, the risk of activist investors coming in.
Speaker 2: Everybody was on the gas pedal as much as they
Speaker 2: could to drive performance, and the threat felt like if
Speaker 2: you didn't optimize for performance, your company could be really pressured.
Speaker 2: This whole decade, I think has taught CEOs and leaders
Speaker 2: and boards that yes, you need performance. Of course, everybody's
Speaker 2: watching you. Guys are monitoring everything, but if you're not
Speaker 2: also building for resilience, and you are actually taking more
Speaker 2: risk than you realize. And I think whether we talk
Speaker 2: supply chain earlier, I think we're going to see it
Speaker 2: in other ways playing out about how you think about
Speaker 2: your investment footprint, your business footprint to create a broader
Speaker 2: base of revenues. I just think companies are thinking about
Speaker 2: resilience and leaders to a much higher degree. And so
Speaker 2: this is new in many ways, and we've talked about that,
Speaker 2: but it also builds on a trend that is very
Speaker 2: unique to this decade versus the decades that came before.
Speaker 3: Yeah, what I also think is different rich that I
Speaker 3: thought about is the speed of change driven by technology.
Speaker 3: So if we look at just the last eighteen months
Speaker 3: and what has happened with open Ai Jenai. Now we
Speaker 3: talk a lot with CEOs around agents and how to
Speaker 3: build agents, and how agents is going to change vertical
Speaker 3: workflows across the organization, which roles will be obsolete. It's
Speaker 3: a big struggle both to perform in the current environment,
Speaker 3: as you say, with all the variables and continue to
Speaker 3: win market share and transform the business, and the speed
Speaker 3: of change is enormous because of technology. How do you
Speaker 3: make sure you change fast enough entire functions as we
Speaker 3: talked about before in multinational companies spanning many, many different
Speaker 3: countries from around the world. The level of disruption also
Speaker 3: from startups, especially driven by new technology, is It's an
Speaker 3: enormous opportunity, but it's also a thread for an established player.
Speaker 1: It seems like the only thing that was certain in
Speaker 1: this last quarter was uncertainty, and it's going to be
Speaker 1: interesting to see whether or not that changes in the
Speaker 1: quarter upcoming with yet new terror decisions on the horizon.
Speaker 1: So Rich and my brit thank you very much for
Speaker 1: your insights today.
Speaker 2: It was a pleasure to be with you.
Speaker 3: Great to be here with you today.
Speaker 1: Those of you who'd like to learn more about the
Speaker 1: CEO Radar, you can read the full report at Bloomberg
Speaker 1: dot com slash CEO Radar. If you've liked what you've
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Speaker 1: episode will drop an early e Q four with a
Speaker 1: whole new batch of data. I'm Edward Adams of Bloomberg
Speaker 1: Media Studios, thanks for listening,