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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple Coarclay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: Regulatory news coming out for our friends at Amazon, Amazon

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Speaker 2: and the Federal Trade Commission. They reached the two and

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Speaker 2: a half billion dollar deal in that prime subscription case.

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Speaker 2: Let's bringing Spencer Soper. He is a Bloomberg Tech reporter.

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Speaker 2: Spencer remind us of what this case is and then

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Speaker 2: what the settlement does.

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Speaker 3: Yees.

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Speaker 4: So this this is about Amazon making, you know, kind

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Speaker 4: of duping consumers into paying for Prime memberships. So the

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Speaker 4: FTC alleged that, you know, they trick people into signing

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Speaker 4: up through free trials and then made it difficult for

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Speaker 4: them to.

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Speaker 3: Cancel their Prime memberships.

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Speaker 4: If they wanted to. Internally at Amazon, they even had

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Speaker 4: a term for this cancelation process called the iliad, which

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Speaker 4: kind of referred to Homer's epic odyssey. So there was

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Speaker 4: some pretty damning findings about how Amazon handled this. The

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Speaker 4: settlement is two point five billion dollars one billion dollars

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Speaker 4: will go to the US Treasury, and one point five

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Speaker 4: billion dollars is for consumer refunds. People will be refunded

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Speaker 4: automatically if it was found they were affected by this case.

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Speaker 4: And you're looking at about fifty bucks per affected consumer.

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Speaker 4: So it's no huge windfall for consumers, and even for

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Speaker 4: Amazon two and a half billion dollars. It's probably like

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Speaker 4: a parking ticket for you and me. But it puts

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Speaker 4: this thing to bed and prevents Amazon from going to

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Speaker 4: a trial, which probably would have been pretty embarrassing.

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Speaker 3: Okay, so that's what they want to avoid.

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Speaker 5: Just give us some context here about how valuable the

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Speaker 5: Prime program Prime membership is to Amazon. I know that

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Speaker 5: they don't always give a lot of numbers. The numbers

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Speaker 5: that we do get have to do with how much

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Speaker 5: it costs members, but in terms of the actual number

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Speaker 5: of members and the amount that they spend, aside from

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Speaker 5: knowing that they spend more than regular Amazon customers, we

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Speaker 5: don't have a sense of how much they contribute to

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Speaker 5: margins for instance.

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Speaker 4: Well, it's a huge part of Amazon, and the financial

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Speaker 4: nitty gritty I really don't have. But you know, you're

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Speaker 4: talking huge penetration in the US. You know, more people

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Speaker 4: are living a home that has a Prime membership that don't,

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Speaker 4: you know, so they've got a majority of the country.

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Speaker 4: And then to your point, if you have a Prime membership,

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Speaker 4: you're paying Amazon one hundred and forty dollars a year

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Speaker 4: or fifteen dollars a month, and so you're more likely

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Speaker 4: to buy things on Amazon. And so Prime members spend

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Speaker 4: about twice as much on Amazon as non Prime members.

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Speaker 4: So it's a critical part of the success. It's also

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Speaker 4: very stick. People tend not to cancel, which is why

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Speaker 4: this uh uh. I don't see this as being a

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Speaker 4: huge deal, this settlement. It's kind of like Amazon puts

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Speaker 4: it to bed. But by and large, most people who

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Speaker 4: join Prime are happy with it and stay with it.

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Speaker 4: This was this was just kind of more of an

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Speaker 4: embarrassment for them.

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Speaker 3: Yeah, I think it's a I don't we find it

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Speaker 3: a huge value in our home.

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Speaker 2: President Trump is still speaking with President Edwin in their

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Speaker 2: bilateral meeting there in the Oval Office of the White House.

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Speaker 2: We will bring you headlines and the red headline just

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Speaker 2: across the Bloomberg terminal here. According to President Trump, Trump,

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Speaker 2: we want Arawan to stop buying oil from Russia. So

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Speaker 2: that's consistent with what the President has said.

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Speaker 3: And we'll bring you more reporting on that. Spencer. What's

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Speaker 3: the what else is in front of Amazon? Just in

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Speaker 3: terms of some of.

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Speaker 2: The regulatory issues facing it, It's really hard to keep

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Speaker 2: track of what's going on with some of these big

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Speaker 2: tech companies and the regulative headwinds.

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Speaker 4: Yeah, that's that's a that's a good point and people

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Speaker 4: should know this is this is an FTC case against Amazon.

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Speaker 4: Was that was specifically against prime membership. There's still this

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Speaker 4: whole question this big antitrust lawsuit against Amazon, which is

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Speaker 4: basically saying, you know what, this company is so big

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Speaker 4: and has so much control and so much power that

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Speaker 4: it's impossible for for other companies to compete. That's still

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Speaker 4: that's still pending, and that's really the big threat to Amazon.

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Speaker 4: And that's a holdover from from the Biden administration. So

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Speaker 4: a lot in terms of the regulatory framework. The significance

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Speaker 4: of this Prime settlement is largely like a lot of

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Speaker 4: people are wondering, Okay, President Trump took office and there

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Speaker 4: are a lot of these FTC cases pending against big

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Speaker 4: tech companies like Amazon. You know, from from the Biden administration.

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Speaker 4: What does the new administration mean for these cases? And

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Speaker 4: so that that's really the big question here that we're

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Speaker 4: still wondering about. Is Amazon was able to put this

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Speaker 4: this kind of smaller prime investigation to and pay a

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Speaker 4: little fine. But what is the you know, what is

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Speaker 4: the outlook on these bigger cases that are that are

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Speaker 4: more of an existential threat to Amazon?

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Speaker 2: So what is kind of the what's the feeling out

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Speaker 2: there and out there in the west there with the

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Speaker 2: Silicon Valley up there in Seattle area.

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Speaker 3: About this administration?

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Speaker 2: Is this administration that can ultimately be continue the light

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Speaker 2: regulatory touch that the tech industry is always enjoyed, or

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Speaker 2: maybe they.

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Speaker 3: Won't be able to deliver on that.

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Speaker 2: How concerned is greater Technology, greater Silicon Valley about the

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Speaker 2: regulatory environment.

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Speaker 4: Well, I think that they're all trying to very delicately

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Speaker 4: figure out how to finesse their way through this administration.

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Speaker 4: I guess I. I I think if there if, if, if

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Speaker 4: Trump is anything, he's unpredictable. So I don't think that

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Speaker 4: they take anything for granted. And uh, you know that

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Speaker 4: that that is a good question, and I wish I

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Speaker 4: had a nice simple answer for you.

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Speaker 3: Stay with us. More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, cocklay and Android

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Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube

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Speaker 1: through Starbucks.

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Speaker 5: And this is round two of layoffs under new CEO

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Speaker 5: Brian Nicol. Although can we still call him new? No?

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Speaker 3: I don't know. No, he's like one. He owns it.

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Speaker 5: Okay, he owns it. So let's bring in Michael Halen,

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Speaker 5: who owns the restaurant and news coverage for us here

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Speaker 5: at Bloomberg Intelligence. He is our senior research and food

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Speaker 5: service analyst.

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Speaker 3: Michael.

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Speaker 5: When you hear the news about Starbucks closing stores, cutting jobs,

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Speaker 5: nine hundred jobs, one billion dollar restructuring effort, it feels

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Speaker 5: like deja vous.

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Speaker 6: Yeah, but you know what, this was very clearly communicated

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Speaker 6: to the street back in April on their fiscal call,

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Speaker 6: Management said that, you know, we expect more restructuring charges.

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Speaker 6: We're going to continue to evaluate our store base. Really,

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Speaker 6: management wanted new ce CFO Kathy Smith to be involved

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Speaker 6: in the process, so this was not a surprise. If

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Speaker 6: we hear about some more store closures and restructuring, you know,

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Speaker 6: than then maybe you'll see a bigger reaction in the stock.

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Speaker 2: All right, A shout out to my Starbucks on Route

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Speaker 2: thirty five in Wall Township, New Jersey. They do a

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Speaker 2: great job, great folks, very efficient, very good Mike. What

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Speaker 2: does this company need to do? What do they say

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Speaker 2: is on their to do list to turn this company around?

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Speaker 2: What are you looking for?

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Speaker 6: Yeah, it's more operations in marketing, and we're starting to

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Speaker 6: see things kind of inflect here. We think fiscal twenty

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Speaker 6: six should be a nice back bounce back year. So

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Speaker 6: you know, first it's with the operations, right, so it's

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Speaker 6: eliminating menu items, increasing labor, which baristas. We're very happy about,

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Speaker 6: creating a smart queue for mobile orders, right, so, so

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Speaker 6: the stores aren't as chaotic and baristas aren't serving you know,

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Speaker 6: mobile orders for somebody thirty miles away before helping someone

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Speaker 6: inside the store. And then service standards, right, they're rolling

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Speaker 6: out these green Apron service standards this year. It's a

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Speaker 6: big investment on training and really nailing the consumer experience

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Speaker 6: in the store. And then from there it's the marketing

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Speaker 6: and marketing seems to be working. They pulled back on

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Speaker 6: discounts and what they're doing is more marketing. You'll see

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Speaker 6: some TV ads right. They're doing more digital marketing, and

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Speaker 6: we think that's a smart move. It seems to be

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Speaker 6: paying early dividends. Starbucks non rewards member transactions are up.

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Speaker 6: Non discounted rewards members transactions are up, and we think

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Speaker 6: these are a sign that sales are going to inflect

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Speaker 6: higher in the coming months.

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Speaker 5: Okay, but this is taking a while. Paul and I

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Speaker 5: were just saying that Brian Nickel owns this. Now he's

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Speaker 5: been CEO for a year and they're still in turnaround mode.

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Speaker 5: They're still in kind of like let's figure out our

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Speaker 5: path forward. Investors, please be patient. Are investor is going

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Speaker 5: to continue to be patient for another six months to

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Speaker 5: one year.

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Speaker 6: I don't think they're going to be patient for six

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Speaker 6: months to one year In terms of the stock price.

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Speaker 6: I think Brian Nichols job is very much safe. You know,

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Speaker 6: you can't turn around an aircraft carrier on a dime, right,

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Speaker 6: This is a massive organization. Eighteen thousand stores just here

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Speaker 6: in North America, over forty thousand globally. So yes, this

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Speaker 6: is taking longer than a lot anticipated, you know, myself included.

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Speaker 6: You know, our investor is going to be happy if

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Speaker 6: they don't see same store sales inflect here in the

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Speaker 6: first quarter of fiscal twenty six. No, they're not going

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Speaker 6: to be happy, and you're going to see it reflected

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Speaker 6: in the share price, right. So, yeah, I mean I

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Speaker 6: think they're they're making the right moves. This has been

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Speaker 6: a longer turnaround than most had expected. But you know,

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Speaker 6: I think Brian Nichols pressing all the right buttons right now.

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Speaker 2: Yeah, I just got back from some vacation time in Italy.

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Speaker 2: I don't think I saw too many Starbucks is in Italy.

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Speaker 5: I think they have a Starbucks reserve somewhere. It looks

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Speaker 5: different than.

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Speaker 3: The Starbucks store, all right.

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Speaker 2: So, Mike, I mean you said they have forty thousand

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Speaker 2: stores on this planet.

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Speaker 3: Is that enough for it? Are they still going to

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Speaker 3: be putting more out there?

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Speaker 6: They're still going to be building, you know, I think

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Speaker 6: they need to. You know, they're going to have to

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Speaker 6: nail this US operation and remodel, and they're going to

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Speaker 6: spend a little bit less on building stores in the

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Speaker 6: US a little bit more on renovating them. Okay, and

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Speaker 6: then China. They really want to get that market nailed

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Speaker 6: before they accelerate accelerate growth. So those are their two

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Speaker 6: main markets for growth. They've been the company's to major

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Speaker 6: markets for growth for growth for.

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Speaker 3: A long time.

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Speaker 6: But management's doing the right thing. They pulled back on

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Speaker 6: growth to kind of nail the operations marketing. Once they

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Speaker 6: get same star sales and traffic trending back up strongly again,

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Speaker 6: you'll see reaccelerate development.

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Speaker 3: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Coarcklay, and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Boy, so big news today if you're in the used

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Speaker 2: car business. Carmacks, Richmond, Virginia based company, stock down twenty

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Speaker 2: percent today. Some disappointing results and guidance here. Let's get

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Speaker 2: the bottom line here, what's going on? Steve Mann, Bloomberg Intelligence,

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Speaker 2: Global Autos and Industrials Research Channels joins us here. Steve

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Speaker 2: just tell us what's going on with CarMax is stock

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Speaker 2: down twenty percent today.

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Speaker 3: What's the news.

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Speaker 7: Yeah, significantly down today for a couple of reason. One

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Speaker 7: is the auto sales used car sales wasn't as good

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Speaker 7: as expected in the second quarter. And then second, it's

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Speaker 7: really on the uh right down on some of their loans.

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Speaker 7: And the first item is, actually it's not that surprising

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Speaker 7: because there's been a lot of poll for demand. Remember

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Speaker 7: in the first quarter when Trump announced uh these taroffs

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Speaker 7: on autos, a lot of the consumers actually went ahead

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Speaker 7: and bought by a lot of cars, uh in you know,

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Speaker 7: concern that prices will go up. So the pull for

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Speaker 7: demand really dent it second quarter sales.

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Speaker 2: Then talk to us about the other side of the equation,

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Speaker 2: kind of the rate office. Some of these auto loans

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Speaker 2: are is that ax?

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Speaker 1: Uh?

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Speaker 7: Well, I mean this is because this is on the

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Speaker 7: back of the Tricolor Holdings bankruptcy if you remember, you know,

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Speaker 7: they actually went bankrupt because they wrote a lot of

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Speaker 7: subprime loans that potentially undocumented the allegedly undocumented UH buyers.

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Speaker 7: But this seems to be more of a unique for

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Speaker 7: tri Color Holdings. So the right down is a little

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Speaker 7: bit kind of special given the coincidence that's with the tricolor.

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Speaker 7: But it's not really out of the ordinary for these

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Speaker 7: auto companies to actually write down some of the loans.

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Speaker 7: The interest rate has been high, right, I think the

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Speaker 7: bright spot now is that the interest rates are coming down,

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Speaker 7: so we don't actually see that is an industry issue,

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Speaker 7: but it does cost for concern. It's not a red flag,

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Speaker 7: I would say, it's more of a yellow yellow light,

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Speaker 7: yellow flag.

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Speaker 3: Talk to us, just let's step back a little bit.

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Speaker 2: Talk to us about where we are in the auto

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Speaker 2: business with just how many cars are being produced these

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Speaker 2: days in the US and what does that mean for

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Speaker 2: the used car market, like the car Maxes of the world.

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Speaker 7: Where are we today, Yeah, I mean it's about the

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Speaker 7: annual sales in the auto industry today. In the US

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Speaker 7: it's around sixteen million, and if you include Canada, Mexico

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Speaker 7: is around eighteen nineteen million. The used car markets actually

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Speaker 7: bigger than the new car market. Is very vibrant market.

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Speaker 3: And look, it's.

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Speaker 7: It's an interesting market. There are a lot of used

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Speaker 7: cars that's coming back from leases. I remember during the

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Speaker 7: COVID era, you know, we had quite a bit of

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Speaker 7: a vehicle sales, you know, and prices were really high

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Speaker 7: and so there's quite a few used car used cars

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Speaker 7: coming back in the market, and that's impacting prices as well.

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Speaker 7: So even with lower prices, used car sales was down

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Speaker 7: the second quarter, but then again it's a function of

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Speaker 7: the pre buy that happened in the first quarter. So

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Speaker 7: I actually feel that we're probably near the trough, given

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Speaker 7: that interest rates are actually coming down.

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Speaker 2: So, you know, we talked about this SAR, the season

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Speaker 2: adjusted rate of sixteen million. I remember back in the day,

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Speaker 2: seventeen seventeen million was kind of the norm. Here, is

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Speaker 2: this a new lower normal level of production from the

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Speaker 2: US OEMs.

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Speaker 7: Yeah, you're absolutely right. We haven't really gotten back to

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Speaker 7: the pre COVID days of you know, seventeen million stars,

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Speaker 7: but I think this is a new normal of sixteen million. Look,

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Speaker 7: the average price for a vehicle has actually gone up

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Speaker 7: quite a bit today. It's about forty eight thousand dollars

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Speaker 7: per vehicle. You know, before COVID, I think we were

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Speaker 7: you know, around forty so significant increase since then. So

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Speaker 7: there is some concerns about affordability. You've seen financing terms

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Speaker 7: being extended. Car buyers actually can get loans for seventy

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Speaker 7: two month loans up to eighty four months loans just

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Speaker 7: to make the vehicles more affordable. So I do believe

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Speaker 7: this is a new normal. I don't see prices coming

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Speaker 7: back down. Prices don't usually come back down once they

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Speaker 7: go once they're increased. So I think this is going

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Speaker 7: to be the new normal.

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Speaker 2: So does that mean people are staying in their cars

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Speaker 2: longer because the affordability of getting a new car is

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Speaker 2: that much more difficult.

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Speaker 7: Yeah, that's a great question. I think they are going

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Speaker 7: to stay in their cars a little bit longer. Look,

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Speaker 7: the cars today are much more reliable, much more durable

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Speaker 7: than they have in the past, so they do last

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Speaker 7: a little bit longer. And if you throw in evs right, EV's,

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Speaker 7: it's probably around six, you know, four or five percent

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Speaker 7: of the total fleet today. Those you know require those

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Speaker 7: lasts also a lot longer with less moving parts. So

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Speaker 7: what who really benefits are actually the aftermarket retailers like

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Speaker 7: O'Reilly and AutoZone. You know, as people keep their cars

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Speaker 7: a little bit longer, they were gonna do probably gonna

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Speaker 7: either you go get it repaired by the dealer or

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Speaker 7: the mom and pop shop, or they do it themselves.

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