WEBVTT - Amazon, FTC Reach $2.5 Billion Deal in Prime Subscription Case 

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

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<v Speaker 2>Regulatory news coming out for our friends at Amazon, Amazon

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<v Speaker 2>and the Federal Trade Commission. They reached the two and

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<v Speaker 2>a half billion dollar deal in that prime subscription case.

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<v Speaker 2>Let's bringing Spencer Soper. He is a Bloomberg Tech reporter.

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<v Speaker 2>Spencer remind us of what this case is and then

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<v Speaker 2>what the settlement does.

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<v Speaker 3>Yees.

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<v Speaker 4>So this this is about Amazon making, you know, kind

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<v Speaker 4>of duping consumers into paying for Prime memberships. So the

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<v Speaker 4>FTC alleged that, you know, they trick people into signing

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<v Speaker 4>up through free trials and then made it difficult for

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<v Speaker 4>them to.

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<v Speaker 3>Cancel their Prime memberships.

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<v Speaker 4>If they wanted to. Internally at Amazon, they even had

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<v Speaker 4>a term for this cancelation process called the iliad, which

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<v Speaker 4>kind of referred to Homer's epic odyssey. So there was

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<v Speaker 4>some pretty damning findings about how Amazon handled this. The

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<v Speaker 4>settlement is two point five billion dollars one billion dollars

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<v Speaker 4>will go to the US Treasury, and one point five

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<v Speaker 4>billion dollars is for consumer refunds. People will be refunded

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<v Speaker 4>automatically if it was found they were affected by this case.

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<v Speaker 4>And you're looking at about fifty bucks per affected consumer.

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<v Speaker 4>So it's no huge windfall for consumers, and even for

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<v Speaker 4>Amazon two and a half billion dollars. It's probably like

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<v Speaker 4>a parking ticket for you and me. But it puts

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<v Speaker 4>this thing to bed and prevents Amazon from going to

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<v Speaker 4>a trial, which probably would have been pretty embarrassing.

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<v Speaker 3>Okay, so that's what they want to avoid.

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<v Speaker 5>Just give us some context here about how valuable the

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<v Speaker 5>Prime program Prime membership is to Amazon. I know that

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<v Speaker 5>they don't always give a lot of numbers. The numbers

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<v Speaker 5>that we do get have to do with how much

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<v Speaker 5>it costs members, but in terms of the actual number

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<v Speaker 5>of members and the amount that they spend, aside from

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<v Speaker 5>knowing that they spend more than regular Amazon customers, we

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<v Speaker 5>don't have a sense of how much they contribute to

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<v Speaker 5>margins for instance.

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<v Speaker 4>Well, it's a huge part of Amazon, and the financial

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

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<v Speaker 4>talking huge penetration in the US. You know, more people

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<v Speaker 4>are living a home that has a Prime membership that don't,

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

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<v Speaker 4>And then to your point, if you have a Prime membership,

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<v Speaker 4>you're paying Amazon one hundred and forty dollars a year

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<v Speaker 4>or fifteen dollars a month, and so you're more likely

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<v Speaker 4>to buy things on Amazon. And so Prime members spend

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<v Speaker 4>about twice as much on Amazon as non Prime members.

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<v Speaker 4>So it's a critical part of the success. It's also

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<v Speaker 4>very stick. People tend not to cancel, which is why

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<v Speaker 4>this uh uh. I don't see this as being a

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

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<v Speaker 4>it to bed. But by and large, most people who

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<v Speaker 4>join Prime are happy with it and stay with it.

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<v Speaker 4>This was this was just kind of more of an

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<v Speaker 4>embarrassment for them.

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<v Speaker 3>Yeah, I think it's a I don't we find it

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<v Speaker 3>a huge value in our home.

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<v Speaker 2>President Trump is still speaking with President Edwin in their

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<v Speaker 2>bilateral meeting there in the Oval Office of the White House.

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<v Speaker 2>We will bring you headlines and the red headline just

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<v Speaker 2>across the Bloomberg terminal here. According to President Trump, Trump,

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<v Speaker 2>we want Arawan to stop buying oil from Russia. So

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<v Speaker 2>that's consistent with what the President has said.

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

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<v Speaker 3>the what else is in front of Amazon? Just in

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<v Speaker 3>terms of some of.

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<v Speaker 2>The regulatory issues facing it, It's really hard to keep

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<v Speaker 2>track of what's going on with some of these big

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<v Speaker 2>tech companies and the regulative headwinds.

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<v Speaker 4>Yeah, that's that's a that's a good point and people

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<v Speaker 4>should know this is this is an FTC case against Amazon.

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<v Speaker 4>Was that was specifically against prime membership. There's still this

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<v Speaker 4>whole question this big antitrust lawsuit against Amazon, which is

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<v Speaker 4>basically saying, you know what, this company is so big

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<v Speaker 4>and has so much control and so much power that

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<v Speaker 4>it's impossible for for other companies to compete. That's still

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

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<v Speaker 4>And that's a holdover from from the Biden administration. So

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<v Speaker 4>a lot in terms of the regulatory framework. The significance

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<v Speaker 4>of this Prime settlement is largely like a lot of

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<v Speaker 4>people are wondering, Okay, President Trump took office and there

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<v Speaker 4>are a lot of these FTC cases pending against big

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<v Speaker 4>tech companies like Amazon. You know, from from the Biden administration.

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<v Speaker 4>What does the new administration mean for these cases? And

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<v Speaker 4>so that that's really the big question here that we're

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<v Speaker 4>still wondering about. Is Amazon was able to put this

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<v Speaker 4>this kind of smaller prime investigation to and pay a

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<v Speaker 4>little fine. But what is the you know, what is

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<v Speaker 4>the outlook on these bigger cases that are that are

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<v Speaker 4>more of an existential threat to Amazon?

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<v Speaker 2>So what is kind of the what's the feeling out

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<v Speaker 2>there and out there in the west there with the

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<v Speaker 2>Silicon Valley up there in Seattle area.

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<v Speaker 3>About this administration?

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<v Speaker 2>Is this administration that can ultimately be continue the light

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<v Speaker 2>regulatory touch that the tech industry is always enjoyed, or

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<v Speaker 2>maybe they.

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<v Speaker 3>Won't be able to deliver on that.

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<v Speaker 2>How concerned is greater Technology, greater Silicon Valley about the

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<v Speaker 2>regulatory environment.

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<v Speaker 4>Well, I think that they're all trying to very delicately

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<v Speaker 4>figure out how to finesse their way through this administration.

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<v Speaker 4>I guess I. I I think if there if, if, if

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

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<v Speaker 4>they take anything for granted. And uh, you know that

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<v Speaker 4>that that is a good question, and I wish I

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<v Speaker 4>had a nice simple answer for you.

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<v Speaker 3>Stay with us. More from Bloomberg Intelligence coming up after this.

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

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<v Speaker 1>weekdays at ten am Eastern on Apple, cocklay and Android

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<v Speaker 1>Auto with the Bloomberg Business app. Listen on demand wherever

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

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<v Speaker 1>through Starbucks.

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<v Speaker 5>And this is round two of layoffs under new CEO

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<v Speaker 5>Brian Nicol. Although can we still call him new? No?

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

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

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<v Speaker 5>who owns the restaurant and news coverage for us here

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<v Speaker 5>at Bloomberg Intelligence. He is our senior research and food

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<v Speaker 5>service analyst.

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<v Speaker 3>Michael.

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<v Speaker 5>When you hear the news about Starbucks closing stores, cutting jobs,

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<v Speaker 5>nine hundred jobs, one billion dollar restructuring effort, it feels

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<v Speaker 5>like deja vous.

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<v Speaker 6>Yeah, but you know what, this was very clearly communicated

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<v Speaker 6>to the street back in April on their fiscal call,

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<v Speaker 6>Management said that, you know, we expect more restructuring charges.

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<v Speaker 6>We're going to continue to evaluate our store base. Really,

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<v Speaker 6>management wanted new ce CFO Kathy Smith to be involved

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<v Speaker 6>in the process, so this was not a surprise. If

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<v Speaker 6>we hear about some more store closures and restructuring, you know,

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

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<v Speaker 2>All right, A shout out to my Starbucks on Route

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<v Speaker 2>thirty five in Wall Township, New Jersey. They do a

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<v Speaker 2>great job, great folks, very efficient, very good Mike. What

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<v Speaker 2>does this company need to do? What do they say

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<v Speaker 2>is on their to do list to turn this company around?

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<v Speaker 2>What are you looking for?

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

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<v Speaker 6>see things kind of inflect here. We think fiscal twenty

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<v Speaker 6>six should be a nice back bounce back year. So

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<v Speaker 6>you know, first it's with the operations, right, so it's

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

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<v Speaker 6>creating a smart queue for mobile orders, right, so, so

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<v Speaker 6>the stores aren't as chaotic and baristas aren't serving you know,

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<v Speaker 6>mobile orders for somebody thirty miles away before helping someone

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

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<v Speaker 6>out these green Apron service standards this year. It's a

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<v Speaker 6>big investment on training and really nailing the consumer experience

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<v Speaker 6>in the store. And then from there it's the marketing

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<v Speaker 6>and marketing seems to be working. They pulled back on

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

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

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<v Speaker 6>we think that's a smart move. It seems to be

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<v Speaker 6>paying early dividends. Starbucks non rewards member transactions are up.

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<v Speaker 6>Non discounted rewards members transactions are up, and we think

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<v Speaker 6>these are a sign that sales are going to inflect

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<v Speaker 6>higher in the coming months.

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<v Speaker 5>Okay, but this is taking a while. Paul and I

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<v Speaker 5>were just saying that Brian Nickel owns this. Now he's

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

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<v Speaker 5>They're still in kind of like let's figure out our

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<v Speaker 5>path forward. Investors, please be patient. Are investor is going

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<v Speaker 5>to continue to be patient for another six months to

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<v Speaker 5>one year.

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<v Speaker 6>I don't think they're going to be patient for six

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<v Speaker 6>months to one year In terms of the stock price.

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<v Speaker 6>I think Brian Nichols job is very much safe. You know,

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

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<v Speaker 6>This is a massive organization. Eighteen thousand stores just here

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<v Speaker 6>in North America, over forty thousand globally. So yes, this

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<v Speaker 6>is taking longer than a lot anticipated, you know, myself included.

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<v Speaker 6>You know, our investor is going to be happy if

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<v Speaker 6>they don't see same store sales inflect here in the

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

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<v Speaker 6>to be happy, and you're going to see it reflected

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<v Speaker 6>in the share price, right. So, yeah, I mean I

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<v Speaker 6>think they're they're making the right moves. This has been

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<v Speaker 6>a longer turnaround than most had expected. But you know,

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<v Speaker 6>I think Brian Nichols pressing all the right buttons right now.

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<v Speaker 2>Yeah, I just got back from some vacation time in Italy.

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<v Speaker 2>I don't think I saw too many Starbucks is in Italy.

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<v Speaker 5>I think they have a Starbucks reserve somewhere. It looks

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<v Speaker 5>different than.

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<v Speaker 3>The Starbucks store, all right.

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<v Speaker 2>So, Mike, I mean you said they have forty thousand

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<v Speaker 2>stores on this planet.

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<v Speaker 3>Is that enough for it? Are they still going to

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<v Speaker 3>be putting more out there?

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<v Speaker 6>They're still going to be building, you know, I think

0:10:20.120 --> 0:10:22.600
<v Speaker 6>they need to. You know, they're going to have to

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<v Speaker 6>nail this US operation and remodel, and they're going to

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<v Speaker 6>spend a little bit less on building stores in the

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<v Speaker 6>US a little bit more on renovating them. Okay, and

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<v Speaker 6>then China. They really want to get that market nailed

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<v Speaker 6>before they accelerate accelerate growth. So those are their two

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

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<v Speaker 6>markets for growth for growth for.

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<v Speaker 3>A long time.

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<v Speaker 6>But management's doing the right thing. They pulled back on

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<v Speaker 6>growth to kind of nail the operations marketing. Once they

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<v Speaker 6>get same star sales and traffic trending back up strongly again,

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<v Speaker 6>you'll see reaccelerate development.

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<v Speaker 3>Stay with us more from Bloomberg Intelligence coming up after this.

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

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<v Speaker 1>weekdays at ten am Eastern on Apple, Coarcklay, and Android

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<v Speaker 1>Auto with the Bloomberg Business App. Listen on demand wherever

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<v Speaker 2>Boy, so big news today if you're in the used

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<v Speaker 2>car business. Carmacks, Richmond, Virginia based company, stock down twenty

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<v Speaker 2>percent today. Some disappointing results and guidance here. Let's get

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

0:11:39.600 --> 0:11:43.800
<v Speaker 2>Global Autos and Industrials Research Channels joins us here. Steve

0:11:43.880 --> 0:11:45.560
<v Speaker 2>just tell us what's going on with CarMax is stock

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<v Speaker 2>down twenty percent today.

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<v Speaker 3>What's the news.

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<v Speaker 7>Yeah, significantly down today for a couple of reason. One

0:11:53.040 --> 0:11:56.280
<v Speaker 7>is the auto sales used car sales wasn't as good

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<v Speaker 7>as expected in the second quarter. And then second, it's

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<v Speaker 7>really on the uh right down on some of their loans.

0:12:05.679 --> 0:12:08.239
<v Speaker 7>And the first item is, actually it's not that surprising

0:12:08.400 --> 0:12:11.960
<v Speaker 7>because there's been a lot of poll for demand. Remember

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<v Speaker 7>in the first quarter when Trump announced uh these taroffs

0:12:15.559 --> 0:12:18.680
<v Speaker 7>on autos, a lot of the consumers actually went ahead

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<v Speaker 7>and bought by a lot of cars, uh in you know,

0:12:22.720 --> 0:12:25.599
<v Speaker 7>concern that prices will go up. So the pull for

0:12:26.280 --> 0:12:28.720
<v Speaker 7>demand really dent it second quarter sales.

0:12:29.960 --> 0:12:31.920
<v Speaker 2>Then talk to us about the other side of the equation,

0:12:32.040 --> 0:12:34.600
<v Speaker 2>kind of the rate office. Some of these auto loans

0:12:34.600 --> 0:12:37.000
<v Speaker 2>are is that ax?

0:12:38.000 --> 0:12:38.520
<v Speaker 1>Uh?

0:12:38.559 --> 0:12:41.040
<v Speaker 7>Well, I mean this is because this is on the

0:12:41.040 --> 0:12:46.240
<v Speaker 7>back of the Tricolor Holdings bankruptcy if you remember, you know,

0:12:46.320 --> 0:12:49.440
<v Speaker 7>they actually went bankrupt because they wrote a lot of

0:12:49.920 --> 0:12:56.920
<v Speaker 7>subprime loans that potentially undocumented the allegedly undocumented UH buyers.

0:12:57.800 --> 0:13:00.360
<v Speaker 7>But this seems to be more of a unique for

0:13:00.440 --> 0:13:07.200
<v Speaker 7>tri Color Holdings. So the right down is a little

0:13:07.200 --> 0:13:12.360
<v Speaker 7>bit kind of special given the coincidence that's with the tricolor.

0:13:12.480 --> 0:13:16.199
<v Speaker 7>But it's not really out of the ordinary for these

0:13:16.240 --> 0:13:19.040
<v Speaker 7>auto companies to actually write down some of the loans.

0:13:19.240 --> 0:13:22.120
<v Speaker 7>The interest rate has been high, right, I think the

0:13:22.160 --> 0:13:25.160
<v Speaker 7>bright spot now is that the interest rates are coming down,

0:13:26.160 --> 0:13:29.760
<v Speaker 7>so we don't actually see that is an industry issue,

0:13:30.000 --> 0:13:33.280
<v Speaker 7>but it does cost for concern. It's not a red flag,

0:13:33.679 --> 0:13:35.839
<v Speaker 7>I would say, it's more of a yellow yellow light,

0:13:35.920 --> 0:13:36.520
<v Speaker 7>yellow flag.

0:13:38.000 --> 0:13:39.640
<v Speaker 3>Talk to us, just let's step back a little bit.

0:13:39.640 --> 0:13:41.640
<v Speaker 2>Talk to us about where we are in the auto

0:13:41.720 --> 0:13:45.160
<v Speaker 2>business with just how many cars are being produced these

0:13:45.240 --> 0:13:47.520
<v Speaker 2>days in the US and what does that mean for

0:13:48.000 --> 0:13:50.360
<v Speaker 2>the used car market, like the car Maxes of the world.

0:13:50.360 --> 0:13:54.000
<v Speaker 7>Where are we today, Yeah, I mean it's about the

0:13:54.040 --> 0:13:58.120
<v Speaker 7>annual sales in the auto industry today. In the US

0:13:58.640 --> 0:14:01.840
<v Speaker 7>it's around sixteen million, and if you include Canada, Mexico

0:14:02.000 --> 0:14:06.679
<v Speaker 7>is around eighteen nineteen million. The used car markets actually

0:14:07.320 --> 0:14:12.120
<v Speaker 7>bigger than the new car market. Is very vibrant market.

0:14:12.600 --> 0:14:13.440
<v Speaker 3>And look, it's.

0:14:15.200 --> 0:14:18.320
<v Speaker 7>It's an interesting market. There are a lot of used

0:14:18.320 --> 0:14:23.120
<v Speaker 7>cars that's coming back from leases. I remember during the

0:14:23.160 --> 0:14:26.720
<v Speaker 7>COVID era, you know, we had quite a bit of

0:14:27.520 --> 0:14:31.480
<v Speaker 7>a vehicle sales, you know, and prices were really high

0:14:31.880 --> 0:14:34.920
<v Speaker 7>and so there's quite a few used car used cars

0:14:34.960 --> 0:14:38.320
<v Speaker 7>coming back in the market, and that's impacting prices as well.

0:14:39.080 --> 0:14:42.400
<v Speaker 7>So even with lower prices, used car sales was down

0:14:42.480 --> 0:14:45.520
<v Speaker 7>the second quarter, but then again it's a function of

0:14:45.560 --> 0:14:48.040
<v Speaker 7>the pre buy that happened in the first quarter. So

0:14:49.000 --> 0:14:54.320
<v Speaker 7>I actually feel that we're probably near the trough, given

0:14:54.360 --> 0:14:56.320
<v Speaker 7>that interest rates are actually coming down.

0:14:57.200 --> 0:14:59.960
<v Speaker 2>So, you know, we talked about this SAR, the season

0:15:00.040 --> 0:15:02.720
<v Speaker 2>adjusted rate of sixteen million. I remember back in the day,

0:15:02.800 --> 0:15:05.920
<v Speaker 2>seventeen seventeen million was kind of the norm. Here, is

0:15:05.920 --> 0:15:09.960
<v Speaker 2>this a new lower normal level of production from the

0:15:10.080 --> 0:15:11.080
<v Speaker 2>US OEMs.

0:15:11.640 --> 0:15:14.360
<v Speaker 7>Yeah, you're absolutely right. We haven't really gotten back to

0:15:14.400 --> 0:15:20.080
<v Speaker 7>the pre COVID days of you know, seventeen million stars,

0:15:20.800 --> 0:15:24.320
<v Speaker 7>but I think this is a new normal of sixteen million. Look,

0:15:24.480 --> 0:15:28.000
<v Speaker 7>the average price for a vehicle has actually gone up

0:15:28.080 --> 0:15:32.000
<v Speaker 7>quite a bit today. It's about forty eight thousand dollars

0:15:32.080 --> 0:15:35.640
<v Speaker 7>per vehicle. You know, before COVID, I think we were

0:15:35.880 --> 0:15:40.640
<v Speaker 7>you know, around forty so significant increase since then. So

0:15:40.760 --> 0:15:45.640
<v Speaker 7>there is some concerns about affordability. You've seen financing terms

0:15:46.480 --> 0:15:51.600
<v Speaker 7>being extended. Car buyers actually can get loans for seventy

0:15:51.600 --> 0:15:54.280
<v Speaker 7>two month loans up to eighty four months loans just

0:15:54.840 --> 0:15:58.640
<v Speaker 7>to make the vehicles more affordable. So I do believe

0:15:58.680 --> 0:16:02.120
<v Speaker 7>this is a new normal. I don't see prices coming

0:16:02.160 --> 0:16:05.640
<v Speaker 7>back down. Prices don't usually come back down once they

0:16:05.680 --> 0:16:09.800
<v Speaker 7>go once they're increased. So I think this is going

0:16:09.880 --> 0:16:10.720
<v Speaker 7>to be the new normal.

0:16:11.160 --> 0:16:14.560
<v Speaker 2>So does that mean people are staying in their cars

0:16:14.800 --> 0:16:18.760
<v Speaker 2>longer because the affordability of getting a new car is

0:16:19.280 --> 0:16:20.520
<v Speaker 2>that much more difficult.

0:16:21.120 --> 0:16:23.280
<v Speaker 7>Yeah, that's a great question. I think they are going

0:16:23.360 --> 0:16:26.280
<v Speaker 7>to stay in their cars a little bit longer. Look,

0:16:26.320 --> 0:16:29.680
<v Speaker 7>the cars today are much more reliable, much more durable

0:16:29.720 --> 0:16:33.080
<v Speaker 7>than they have in the past, so they do last

0:16:33.120 --> 0:16:36.600
<v Speaker 7>a little bit longer. And if you throw in evs right, EV's,

0:16:36.760 --> 0:16:41.120
<v Speaker 7>it's probably around six, you know, four or five percent

0:16:41.160 --> 0:16:45.680
<v Speaker 7>of the total fleet today. Those you know require those

0:16:45.800 --> 0:16:50.120
<v Speaker 7>lasts also a lot longer with less moving parts. So

0:16:50.360 --> 0:16:54.800
<v Speaker 7>what who really benefits are actually the aftermarket retailers like

0:16:55.240 --> 0:16:58.440
<v Speaker 7>O'Reilly and AutoZone. You know, as people keep their cars

0:16:58.480 --> 0:17:01.680
<v Speaker 7>a little bit longer, they were gonna do probably gonna

0:17:01.720 --> 0:17:05.119
<v Speaker 7>either you go get it repaired by the dealer or

0:17:05.160 --> 0:17:07.680
<v Speaker 7>the mom and pop shop, or they do it themselves.

0:17:08.320 --> 0:17:13.040
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