WEBVTT - Customer Growth's Johnson: Fast Fashion is Dying (Audio)

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

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<v Speaker 1>listening to taking stock with Kathleen Hayes and Pim Box

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<v Speaker 1>on Bloomberg Radio. Shares of Walmart are lower by four

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<v Speaker 1>percent over the last three trading sessions. This week also

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<v Speaker 1>happens to be the Investor Annual Investor Media in Bentonville, Arkansas,

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<v Speaker 1>which Doug McMillan, the chief executive of Walmart, laid out

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<v Speaker 1>an e commerce strategy for the world's largest retailer. And

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<v Speaker 1>here tell us more is Craig Johnson. He is the

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

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<v Speaker 1>and he joins us in studio. Craig, always a pleasure,

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<v Speaker 1>Thank you for to see you all right, So tell

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<v Speaker 1>me I I read a lot of the stories and

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<v Speaker 1>the reports and the transcripts of the meeting, and they

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<v Speaker 1>really focused on, as I said, e commerce what can

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<v Speaker 1>you tell us about those goals? Um, the the objective

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<v Speaker 1>and the goals are great. The question has always is

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<v Speaker 1>how do you get their timing, etcetera? And what do

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<v Speaker 1>you sacrifice? So what do you pull back on to

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<v Speaker 1>do that there? Walmart has been late to the to

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<v Speaker 1>the e commerce dance for a couple of decades, and

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<v Speaker 1>they tried to fast forward things by buying Jet as

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<v Speaker 1>three billion dollars three billion dollars um jet dot com,

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<v Speaker 1>Jet dot dot dot com, who's not making a lot

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<v Speaker 1>of money, but they do have some expertise there. They

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<v Speaker 1>could have spent a fraction of that if they bought Amazon,

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<v Speaker 1>you know, uh, ten or fifteen years ago, which which

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<v Speaker 1>they didn't obviously, And it goes Amazon by year end

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<v Speaker 1>will be the second largest retailer in the world, a

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<v Speaker 1>passing even Costco. So this is an interesting time that

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

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<v Speaker 1>and they've also throttled back on the growth of the

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<v Speaker 1>core supercenter Stories, which is the primary format, but even

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<v Speaker 1>slowed down a little bit the neighborhood Stories, which is

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<v Speaker 1>the newer sort of small to mid size format. How

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<v Speaker 1>much is Amazon making now? How much they're actually profitable

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<v Speaker 1>because of their cloud business are because of their retail.

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<v Speaker 1>The AWS is an important part of the Amazon work

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<v Speaker 1>the world services, which is more of a B two

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<v Speaker 1>B product that that is profitable. Um. But the the

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<v Speaker 1>traditional retail business is not making a lot of dope,

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<v Speaker 1>meaning making money on the retail market. But over half

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<v Speaker 1>of their retail sales now are done on a third

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<v Speaker 1>party basis, so they're making money on a fee basis,

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<v Speaker 1>which is actually that's that's a great little business, and

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<v Speaker 1>so they make more money on that. They make a

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<v Speaker 1>little bit of money on on the actual retail But

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<v Speaker 1>the core of the basically the legacy business, uh, the

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<v Speaker 1>AWS is profitable and growing very rapidly. Uh So they're

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<v Speaker 1>doing a number of things, right, Well, I mean I

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<v Speaker 1>give you the detail here, right, So here's here's the number. Right.

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<v Speaker 1>They Amazon a hundred and seven billion dollars last year

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<v Speaker 1>for the twelve months. Right, so a hundred and seven

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<v Speaker 1>billion dollars thirty five billion and gross profit without margin

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<v Speaker 1>of thirty three percent. Obviously they spend it internally the

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<v Speaker 1>way they want to. Um net income almost six hundred million.

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<v Speaker 1>It's not so bad, it's it's better than a one

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<v Speaker 1>point nine billion. But but but again, it's a company

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<v Speaker 1>that for years never made any money. Now that at

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<v Speaker 1>least make a little bit of money even in the

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<v Speaker 1>in the legacy business, the fee business. And they're doing

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<v Speaker 1>a fourth thing in addition to the aws and that

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<v Speaker 1>they they've gotten much more into the original content business.

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<v Speaker 1>Content creation like a studio, the movies, the TVs and

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<v Speaker 1>of course the distributionuld cost for those since it's all

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<v Speaker 1>lives is streamed is you hit the sin buttons. It's

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<v Speaker 1>the artificial intelligence that that is that as well. The

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<v Speaker 1>problem with the content business is it's difficult than to

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

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<v Speaker 1>That's so, but it's it's heading in the right direction.

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

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<v Speaker 1>nobody has ever gone off after Amazon. And a couple

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<v Speaker 1>of things. One would be, uh, no tax on internet purchases,

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

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

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<v Speaker 1>has anybody ever tried to go after Amazon as a monopoly? Uh?

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<v Speaker 1>Never teach them to any of the above. On the

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

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<v Speaker 1>initiatives and difference. Amazon's fault they do. It's a government's fault.

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<v Speaker 1>They don't have to absolutely, but nobody has um and

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<v Speaker 1>the effort to address that has been that's been been

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<v Speaker 1>long running, but so far, you know, in most states

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<v Speaker 1>where they don't have physical facilities, they escape that. Jet

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<v Speaker 1>dot Com is in a sense kind of going after

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<v Speaker 1>them for the kind of the legacy business. But Jet

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<v Speaker 1>dot Com West I checked, wasn't the can a lot

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<v Speaker 1>of money. But again they do have technical expertise. So

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<v Speaker 1>the question is if you, if you were from a

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<v Speaker 1>use of capital, whether the best bet was well, if

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<v Speaker 1>you're buying them for the expertise of the people there,

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<v Speaker 1>well want to hire a head hunter and get the

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<v Speaker 1>four or five people you want to get. And you know,

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<v Speaker 1>it's a lot, a lot cheaper than spending three billion dollars.

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

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<v Speaker 1>It will be on net additive and will provide a

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<v Speaker 1>new energy and also provides a signaling aspect. But for once,

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<v Speaker 1>Walmart is really really serious about e commerce, and again

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<v Speaker 1>it's taken a twenty years for them to get really

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<v Speaker 1>serious about it. That's a pause. I think that e

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<v Speaker 1>commerce accounts for about three percent of Walmart sales right,

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<v Speaker 1>and total sales last year four two billion. Okay, can

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<v Speaker 1>I want to you mentioned Costco? Tell me about tell

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<v Speaker 1>us all about Costco and and traffic and such, because

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<v Speaker 1>I want to get to that fast fashion comment that

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<v Speaker 1>you want to. Absolutely, Costco is one of the great

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<v Speaker 1>companies in the world. Wherever sets its flag by the

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<v Speaker 1>Taiwan On or Ausie or Korea, everybody loves it. Everybody

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<v Speaker 1>gets it immediately. The the issue though, the sales growth

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<v Speaker 1>has been slowing down just a little bit quarter by quarter.

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<v Speaker 1>The traffic growth, which has always been three and a

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<v Speaker 1>half four pc plause, which is the real driver and

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<v Speaker 1>hallmark of all grade companies, has been gradually ebbing down.

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<v Speaker 1>And that's a real issue there. So that's what that's

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<v Speaker 1>the thought on Costco. Otherwise, a great company, a scale,

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

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<v Speaker 1>So they do they not need to become an e

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<v Speaker 1>commerce giants because they're a smaller scale, a different kind

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

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<v Speaker 1>of the issue because one of the reasons they have

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<v Speaker 1>have loss of growth. Is they also relate to the

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<v Speaker 1>dancer very much a store centric enterprise. And because they

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<v Speaker 1>became the prisoner of their own success. They were so

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<v Speaker 1>successful with that warehouse format that they kind of pooh

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

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<v Speaker 1>all right, Fast the fast, the forward fashion for Matt.

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

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<v Speaker 1>But at any rate, the issue there is it for

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<v Speaker 1>years and MS twenty one, there was something called love

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<v Speaker 1>culture for a while, UH Root twenty one, which just

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<v Speaker 1>changed management. UH fashions itself as a fast fashion fire.

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<v Speaker 1>The problem is huge growth for many, many years, huge

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<v Speaker 1>square footage growth. The problems that began peeking out a

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<v Speaker 1>couple of years ago. Now it's actually in decline. It's

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<v Speaker 1>H and M soft for every twenty one, very slow,

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<v Speaker 1>you know, negative double digit comps. UH. And the only

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<v Speaker 1>one that's standing out right now is Zara. Zara is

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

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<v Speaker 1>a little more euro than the than each of the

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<v Speaker 1>other companies I mentioned, and that seems to be right

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<v Speaker 1>in a sweet spot. But other than Zara, which is

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<v Speaker 1>the smallest of the of the majors and fast fashion

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<v Speaker 1>everybody else's. I wonder how much it has to do

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<v Speaker 1>with if you've been around for a while, you just

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<v Speaker 1>don't have that. I'm kind of cool and new and

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<v Speaker 1>people get used to and they're waiting for the next,

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<v Speaker 1>the next thing. Every thing's going. Cycles performance were very

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<v Speaker 1>very hot for years now. That's kind of starting here

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<v Speaker 1>is going. When you start to see a bunch of

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<v Speaker 1>performance for a stop at at Cole's, etcetera, then you

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<v Speaker 1>know things are starting to slow down. Christmas New Year's

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<v Speaker 1>sales holiday is going to be challenging this year. Not

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<v Speaker 1>a disaster, but we see things as slowing. Back to

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<v Speaker 1>school came in and around three percent and change, you know,

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<v Speaker 1>pretty close to our annual forecast. There will be issuing

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<v Speaker 1>our our holiday forecast towards the end of this month,

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<v Speaker 1>um and we see it as as a you know,

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<v Speaker 1>kind of a below average, not not a disaster, but

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<v Speaker 1>kind of like a C plus C C plus back

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

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<v Speaker 1>nothing to look forward to. Thanks a lot for that one,

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<v Speaker 1>connect right, You see like you see it well, But

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<v Speaker 1>when you talked about Christmas and the holiday shopping season. Uh,

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<v Speaker 1>what areas are going to do? Well? We talk in

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<v Speaker 1>electronic I mean is what where's the money gonna go?

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<v Speaker 1>Or is it not going to be spent at all?

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<v Speaker 1>Interesting enough, we actually see a little bit of a

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<v Speaker 1>bounce back and something that's been in the ditch for

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

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<v Speaker 1>Um So another ways best buy we see is having

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<v Speaker 1>an Okay sees Now, there's tremendous price compression and that

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<v Speaker 1>particularly on the big big six seventy inch dvs, but

0:10:33.400 --> 0:10:35.760
<v Speaker 1>they are getting sold. But there's finally going to be

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<v Speaker 1>a little excitement in and about three days the new

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<v Speaker 1>VR technology comes out, the virtual reality. And the great

0:10:43.360 --> 0:10:46.040
<v Speaker 1>thing about the virtual reality is it allows you to

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<v Speaker 1>catch onto the PlayStation for which might be a couple

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<v Speaker 1>of three years old that you bought it, and allows

0:10:52.040 --> 0:10:54.480
<v Speaker 1>you to have that dr experience. That's that's that new.

0:10:54.559 --> 0:10:56.720
<v Speaker 1>I'm waiting for Google's Pixel phone, but that's gonna be

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<v Speaker 1>a while. That will be a little while. Okay, Well,

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

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<v Speaker 1>He's president of Customer Growth Partners, joining us to talk

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

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<v Speaker 1>pim Fox. This is Bloomberg