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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Katherine Cowdery and Bloomberg Taking Stock is brought to

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Speaker 1: you by the American Arbitration Association. International Trade or Business

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Speaker 1: the leader in alternative dispute resolution around the world i

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Speaker 1: c d R dot org. The September jobs report is

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Speaker 1: fueling losses on Wall Street. Employers added one hundred fifty

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Speaker 1: six thousand jobs last month, and their speculation that the

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Speaker 1: report will keep the Federal Reserve on track to raise

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Speaker 1: its short term interest rate by December. The market has

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Speaker 1: narrowed its earlier decline, yet is still lower, extending the

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Speaker 1: week's losses, which at the markets every fifteen minutes throughout

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Speaker 1: the trading day. Dow Industrial leverage is down fifteen points

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Speaker 1: a tenth of a percent at eighteen thousand, two hundred

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Speaker 1: fifty three. Smp F I foundered down six points a

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Speaker 1: quarter percent at four. The NAZDAC is down fourteen points

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Speaker 1: a quarter percent at fifty nine two West Texas intermediate

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Speaker 1: crude oil down seventy one cents a barrel one percent

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Speaker 1: to forty three s about gold up three dollars fifty

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Speaker 1: cents an ounce at twelve fifty six fifty ten. Your

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Speaker 1: treasury of three three seconds with the yield of one

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Speaker 1: point seventy two. And that's a Bloomberg business flash. You're

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Speaker 1: listening to taking stock with Kathleen Hayes and Pim Box

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Speaker 1: on Bloomberg Radio. Shares of Walmart are lower by four

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Speaker 1: percent over the last three trading sessions. This week also

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Speaker 1: happens to be the Investor Annual Investor Media in Bentonville, Arkansas,

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Speaker 1: which Doug McMillan, the chief executive of Walmart, laid out

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Speaker 1: an e commerce strategy for the world's largest retailer. And

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Speaker 1: here tell us more is Craig Johnson. He is the

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Speaker 1: president of Customer Growth Partners. They are based in New Canaan, Connecticut,

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Speaker 1: and he joins us in studio. Craig, always a pleasure,

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Speaker 1: Thank you for to see you all right, So tell

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Speaker 1: me I I read a lot of the stories and

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Speaker 1: the reports and the transcripts of the meeting, and they

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Speaker 1: really focused on, as I said, e commerce what can

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Speaker 1: you tell us about those goals? Um, the the objective

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Speaker 1: and the goals are great. The question has always is

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Speaker 1: how do you get their timing, etcetera? And what do

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Speaker 1: you sacrifice? So what do you pull back on to

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Speaker 1: do that there? Walmart has been late to the to

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Speaker 1: the e commerce dance for a couple of decades, and

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Speaker 1: they tried to fast forward things by buying Jet as

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Speaker 1: three billion dollars three billion dollars um jet dot com,

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Speaker 1: Jet dot dot dot com, who's not making a lot

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Speaker 1: of money, but they do have some expertise there. They

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Speaker 1: could have spent a fraction of that if they bought Amazon,

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Speaker 1: you know, uh, ten or fifteen years ago, which which

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Speaker 1: they didn't obviously, And it goes Amazon by year end

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Speaker 1: will be the second largest retailer in the world, a

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Speaker 1: passing even Costco. So this is an interesting time that

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Speaker 1: we're in. Uh. They have recognized the importance of it,

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Speaker 1: and they've also throttled back on the growth of the

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Speaker 1: core supercenter Stories, which is the primary format, but even

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Speaker 1: slowed down a little bit the neighborhood Stories, which is

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Speaker 1: the newer sort of small to mid size format. How

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Speaker 1: much is Amazon making now? How much they're actually profitable

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Speaker 1: because of their cloud business are because of their retail.

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Speaker 1: The AWS is an important part of the Amazon work

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Speaker 1: the world services, which is more of a B two

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Speaker 1: B product that that is profitable. Um. But the the

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Speaker 1: traditional retail business is not making a lot of dope,

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Speaker 1: meaning making money on the retail market. But over half

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Speaker 1: of their retail sales now are done on a third

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Speaker 1: party basis, so they're making money on a fee basis,

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Speaker 1: which is actually that's that's a great little business, and

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Speaker 1: so they make more money on that. They make a

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Speaker 1: little bit of money on on the actual retail But

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Speaker 1: the core of the basically the legacy business, uh, the

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Speaker 1: AWS is profitable and growing very rapidly. Uh So they're

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Speaker 1: doing a number of things, right, Well, I mean I

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Speaker 1: give you the detail here, right, So here's here's the number. Right.

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Speaker 1: They Amazon a hundred and seven billion dollars last year

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Speaker 1: for the twelve months. Right, so a hundred and seven

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Speaker 1: billion dollars thirty five billion and gross profit without margin

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Speaker 1: of thirty three percent. Obviously they spend it internally the

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Speaker 1: way they want to. Um net income almost six hundred million.

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Speaker 1: It's not so bad, it's it's better than a one

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Speaker 1: point nine billion. But but but again, it's a company

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Speaker 1: that for years never made any money. Now that at

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Speaker 1: least make a little bit of money even in the

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Speaker 1: in the legacy business, the fee business. And they're doing

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Speaker 1: a fourth thing in addition to the aws and that

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Speaker 1: they they've gotten much more into the original content business.

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Speaker 1: Content creation like a studio, the movies, the TVs and

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Speaker 1: of course the distributionuld cost for those since it's all

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Speaker 1: lives is streamed is you hit the sin buttons. It's

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Speaker 1: the artificial intelligence that that is that as well. The

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Speaker 1: problem with the content business is it's difficult than to

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Speaker 1: create a business to control costs. So that's an issue there.

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Speaker 1: That's so, but it's it's heading in the right direction.

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Speaker 1: So they're doing a lot of smart things. I'm surprised

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Speaker 1: nobody has ever gone off after Amazon. And a couple

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Speaker 1: of things. One would be, uh, no tax on internet purchases,

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Speaker 1: because if I'm a brick and mortar, that's always been

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Speaker 1: a rip off, but we've accepted it. And number two,

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Speaker 1: has anybody ever tried to go after Amazon as a monopoly? Uh?

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Speaker 1: Never teach them to any of the above. On the

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Speaker 1: first part, people have criticized him. There's a number of

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Speaker 1: initiatives and difference. Amazon's fault they do. It's a government's fault.

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Speaker 1: They don't have to absolutely, but nobody has um and

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Speaker 1: the effort to address that has been that's been been

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Speaker 1: long running, but so far, you know, in most states

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Speaker 1: where they don't have physical facilities, they escape that. Jet

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Speaker 1: dot Com is in a sense kind of going after

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Speaker 1: them for the kind of the legacy business. But Jet

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Speaker 1: dot Com West I checked, wasn't the can a lot

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Speaker 1: of money. But again they do have technical expertise. So

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Speaker 1: the question is if you, if you were from a

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Speaker 1: use of capital, whether the best bet was well, if

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Speaker 1: you're buying them for the expertise of the people there,

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Speaker 1: well want to hire a head hunter and get the

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Speaker 1: four or five people you want to get. And you know,

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Speaker 1: it's a lot, a lot cheaper than spending three billion dollars.

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Speaker 1: But that's what they've done, and they've added to it.

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Speaker 1: It will be on net additive and will provide a

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Speaker 1: new energy and also provides a signaling aspect. But for once,

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Speaker 1: Walmart is really really serious about e commerce, and again

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Speaker 1: it's taken a twenty years for them to get really

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Speaker 1: serious about it. That's a pause. I think that e

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Speaker 1: commerce accounts for about three percent of Walmart sales right,

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Speaker 1: and total sales last year four two billion. Okay, can

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Speaker 1: I want to you mentioned Costco? Tell me about tell

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Speaker 1: us all about Costco and and traffic and such, because

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Speaker 1: I want to get to that fast fashion comment that

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Speaker 1: you want to. Absolutely, Costco is one of the great

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Speaker 1: companies in the world. Wherever sets its flag by the

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Speaker 1: Taiwan On or Ausie or Korea, everybody loves it. Everybody

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Speaker 1: gets it immediately. The the issue though, the sales growth

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Speaker 1: has been slowing down just a little bit quarter by quarter.

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Speaker 1: The traffic growth, which has always been three and a

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Speaker 1: half four pc plause, which is the real driver and

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Speaker 1: hallmark of all grade companies, has been gradually ebbing down.

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Speaker 1: And that's a real issue there. So that's what that's

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Speaker 1: the thought on Costco. Otherwise, a great company, a scale,

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Speaker 1: the model, everybody loves them. You'll find very few Costco detractors.

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Speaker 1: So they do they not need to become an e

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Speaker 1: commerce giants because they're a smaller scale, a different kind

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Speaker 1: of stores. They don't have to worry about. It's part

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Speaker 1: of the issue because one of the reasons they have

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Speaker 1: have loss of growth. Is they also relate to the

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Speaker 1: dancer very much a store centric enterprise. And because they

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Speaker 1: became the prisoner of their own success. They were so

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Speaker 1: successful with that warehouse format that they kind of pooh

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Speaker 1: pooed the Internet. So they're a little bit slow on that,

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Speaker 1: all right, Fast the fast, the forward fashion for Matt.

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Speaker 1: What's you said that that's lagging? Yeah, fast fashion fading fast.

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Speaker 1: But at any rate, the issue there is it for

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Speaker 1: years and MS twenty one, there was something called love

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Speaker 1: culture for a while, UH Root twenty one, which just

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Speaker 1: changed management. UH fashions itself as a fast fashion fire.

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Speaker 1: The problem is huge growth for many, many years, huge

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Speaker 1: square footage growth. The problems that began peeking out a

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Speaker 1: couple of years ago. Now it's actually in decline. It's

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Speaker 1: H and M soft for every twenty one, very slow,

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Speaker 1: you know, negative double digit comps. UH. And the only

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Speaker 1: one that's standing out right now is Zara. Zara is

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Speaker 1: much smaller in the US, UH and it's a little edgy,

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Speaker 1: a little more euro than the than each of the

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Speaker 1: other companies I mentioned, and that seems to be right

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Speaker 1: in a sweet spot. But other than Zara, which is

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Speaker 1: the smallest of the of the majors and fast fashion

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Speaker 1: everybody else's. I wonder how much it has to do

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Speaker 1: with if you've been around for a while, you just

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Speaker 1: don't have that. I'm kind of cool and new and

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Speaker 1: people get used to and they're waiting for the next,

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Speaker 1: the next thing. Every thing's going. Cycles performance were very

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Speaker 1: very hot for years now. That's kind of starting here

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Speaker 1: is going. When you start to see a bunch of

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Speaker 1: performance for a stop at at Cole's, etcetera, then you

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Speaker 1: know things are starting to slow down. Christmas New Year's

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Speaker 1: sales holiday is going to be challenging this year. Not

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Speaker 1: a disaster, but we see things as slowing. Back to

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Speaker 1: school came in and around three percent and change, you know,

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Speaker 1: pretty close to our annual forecast. There will be issuing

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Speaker 1: our our holiday forecast towards the end of this month,

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Speaker 1: um and we see it as as a you know,

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Speaker 1: kind of a below average, not not a disaster, but

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Speaker 1: kind of like a C plus C C plus back

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Speaker 1: to excuse me holiday season. Craig Johnson. That's uh, that's nothing,

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Speaker 1: nothing to look forward to. Thanks a lot for that one,

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Speaker 1: connect right, You see like you see it well, But

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Speaker 1: when you talked about Christmas and the holiday shopping season. Uh,

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Speaker 1: what areas are going to do? Well? We talk in

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Speaker 1: electronic I mean is what where's the money gonna go?

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Speaker 1: Or is it not going to be spent at all?

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Speaker 1: Interesting enough, we actually see a little bit of a

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Speaker 1: bounce back and something that's been in the ditch for

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Speaker 1: for a couple of years now, and that's consumer electronics.

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Speaker 1: Um So another ways best buy we see is having

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Speaker 1: an Okay sees Now, there's tremendous price compression and that

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Speaker 1: particularly on the big big six seventy inch dvs, but

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Speaker 1: they are getting sold. But there's finally going to be

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Speaker 1: a little excitement in and about three days the new

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Speaker 1: VR technology comes out, the virtual reality. And the great

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Speaker 1: thing about the virtual reality is it allows you to

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Speaker 1: catch onto the PlayStation for which might be a couple

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Speaker 1: of three years old that you bought it, and allows

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Speaker 1: you to have that dr experience. That's that's that new.

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Speaker 1: I'm waiting for Google's Pixel phone, but that's gonna be

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Speaker 1: a while. That will be a little while. Okay, Well,

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Speaker 1: Craig Johnson come back before them with any phone you've got, Okay.

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Speaker 1: He's president of Customer Growth Partners, joining us to talk

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Speaker 1: about Amazon's rise and Walmart's challenges. I'm Kathleen Hazlam with

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Speaker 1: pim Fox. This is Bloomberg