Latest / Bloomberg Intelligence / Bond Selloff Forces Funds to Reassess Strategy: FTN's Vogel

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Bond Selloff Forces Funds to Reassess Strategy: FTN's Vogel · Bloomberg Intelligence

0:05
Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
0:08
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
0:11
Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: you and your money, whether you're at the grocery store
0:17
Speaker 1: or the trading floor. Find the Bloomberg p m L
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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. It
0:33
Speaker 1: feels like something has shifted pretty significantly in the US
0:38
Speaker 1: treasury market. Here to talk about that with us is
0:40
Speaker 1: Jim Vogel, an interestrate strategist at FTN Financial based in Memphis, Tennessee. Jim,
0:46
Speaker 1: thank you so much for joining us. You've absolutely nailed
0:50
Speaker 1: this market again and again. So right now we are
0:53
Speaker 1: looking at ten year treasury yields that are two point
0:57
Speaker 1: eight five creeping up from the highs of last week. Um,
1:03
Speaker 1: how much more do we have to go? Here? We're
1:05
Speaker 1: looking at the highest ten year treasury yields since January
1:08
Speaker 1: two tho. We've compressed about into three weeks what many
1:13
Speaker 1: people thought the market would do in terms of um
1:16
Speaker 1: increasing rates by say the third quarter. So where we
1:21
Speaker 1: continue to go, it's it's easy to see that the
1:24
Speaker 1: ten year could head towards to nine or so before
1:26
Speaker 1: it begins to even catch a breath. We see um
1:30
Speaker 1: really about the next two to three weeks people redoing
1:33
Speaker 1: their strategies and thinking through where do they want to
1:36
Speaker 1: be buying tens and thirties in particular, So, Jim, why
1:39
Speaker 1: are people going to be reassessing their strategies strategies? Now?
1:43
Speaker 1: What changed? There's so many things changed about the yield curve.
1:47
Speaker 1: It had been flattening very hard. The thirty year was
1:50
Speaker 1: a star last year and you returned nine in a
1:53
Speaker 1: thirty year government. Now everything is turning in the opposite
1:57
Speaker 1: direction without any bond aim to come in at these
2:01
Speaker 1: new higher levels. Yet, So in that kind of perspective,
2:05
Speaker 1: you've got to sit back and look at your strategy
2:08
Speaker 1: not only in treasuries but also in corporates. Well, Jim,
2:11
Speaker 1: what would just suggest given what you know about people's positioning,
2:14
Speaker 1: And I'm just curious if you can also add in
2:16
Speaker 1: the supply and demand of treasuries absolutely right now, in particular,
2:22
Speaker 1: what the seven year part of the curve has been
2:25
Speaker 1: hurt because they've just been trading almost one for one
2:28
Speaker 1: with tens, but nobody really trades the seven years a
2:32
Speaker 1: hot item. It just follows so for in particular retail
2:37
Speaker 1: investors intermediate bond funds, if they want to take advantage
2:40
Speaker 1: of this move, that's a great place to try. In
2:44
Speaker 1: terms of supply and demand, we've got the next three
2:48
Speaker 1: months is going to see are going to see progressively
2:51
Speaker 1: hired treasury supply and then the treasury where we ass
2:55
Speaker 1: asked probably with at least one more um significant increase
2:59
Speaker 1: when they announced the May refunding in three months. So, Jim,
3:04
Speaker 1: you said that people should reassess their strategies, not only
3:08
Speaker 1: for US government pown markets, but also for corporates. Uh,
3:12
Speaker 1: if you look at spreads, the extra yield that investors
3:14
Speaker 1: earn over the benchmark rate, you could see that it
3:17
Speaker 1: really has not increased for investment grade corporate bonds, but
3:20
Speaker 1: it has increased for high yield bonds. Do you think
3:24
Speaker 1: that that actually makes sense and that you should expect
3:27
Speaker 1: the sell off to continue there with both the spreads
3:30
Speaker 1: rising in tandem with rising benchmark rates. So far, the
3:35
Speaker 1: sell off and high yield is taking back a lot
3:37
Speaker 1: of the profits that were generated just last month. So
3:41
Speaker 1: we won't know until we get a little bit higher.
3:43
Speaker 1: In terms of the high yield spreads before we know
3:46
Speaker 1: whether that's a trend or just a bounce. Sorry, beg
3:50
Speaker 1: your pardon? Go ahead? No please, no, no, go ahead?
3:53
Speaker 1: Finished your thought? I've now lost the question. I beg
3:59
Speaker 1: go ahead, It's save me. Well, no, Jim, you know,
4:02
Speaker 1: I'm just thinking, what is sort of the threshold yield
4:06
Speaker 1: for ten year treasuries that you would recommend people start buying.
4:11
Speaker 1: There isn't one yet, and and that's exactly what we've
4:14
Speaker 1: learned the last couple of weeks. Until you begin to
4:17
Speaker 1: see any sign that people are not have stopped moving
4:22
Speaker 1: and racing ahead in terms of their inflation expectations, there
4:26
Speaker 1: is no place to necessarily immediately stepping in by the tenure. Instead,
4:31
Speaker 1: we have it's much easier to see fair value relative
4:35
Speaker 1: to what the said might do and say the five
4:37
Speaker 1: year or the three year. So we've got to wait
4:40
Speaker 1: for We've got to wait a week two weeks just
4:44
Speaker 1: before people really can start doing that strategy on tens
4:47
Speaker 1: and thirties. All right, So if people really can't do
4:50
Speaker 1: that strategy yet and they aren't necessarily going to come
4:53
Speaker 1: in and buy, what does that mean for equity markets?
4:56
Speaker 1: Because we've seen a whole host of analyzes them out
5:00
Speaker 1: over the weekend talking about just what the rise in
5:04
Speaker 1: treasury yields means for stock markets, right because a lot
5:07
Speaker 1: of people were talking about the FED model, A lot
5:09
Speaker 1: of people were talking about how, uh, the dividend yields
5:12
Speaker 1: were paying more at one point than you could get
5:16
Speaker 1: on benchmark treasuries. So if that equation changes, are you
5:21
Speaker 1: really going to see selling continue in the U S
5:24
Speaker 1: stock indices despite the fact that earnings have actually come
5:26
Speaker 1: in pretty pretty good. It depends. If the equity market
5:32
Speaker 1: slows down in terms of volatility um you will not
5:37
Speaker 1: see people really you will not see the bond market
5:40
Speaker 1: herd stocks. So as soon as we can pause in
5:42
Speaker 1: stocks and people can catch their breath there as well, Uh,
5:46
Speaker 1: the stock market remains largely unrelated to rates for the moment.
5:52
Speaker 1: Think about last year, UM income grew four point one percent,
5:56
Speaker 1: spending grew four point seven That was cond evidence in
6:00
Speaker 1: all sorts of different things, including the stock market, that
6:03
Speaker 1: confidence is not going to leak out that quickly in
6:06
Speaker 1: terms of the drivers of the economy until stocks really
6:10
Speaker 1: begin to disappoint for perhaps several weeks in a row.
6:14
Speaker 1: Jim at the three percent level at least for the tenure.
6:18
Speaker 1: We're now at two point eight five. At that point,
6:20
Speaker 1: aren't you going to see big demand from pension funds,
6:23
Speaker 1: life companies, other firms. I mean, because don't they have
6:25
Speaker 1: to immunize themselves against liabilities. Uh? They do, But I
6:30
Speaker 1: don't think there's necessarily one particular level where they will
6:33
Speaker 1: begin to come in with enough strength to overcome the
6:37
Speaker 1: selling At some points. Last week, you know, particularly right
6:40
Speaker 1: after don farm payroll reports on Friday, the selling volume
6:45
Speaker 1: was two times the busiest that we've seen over the
6:48
Speaker 1: past couple of years when we had a surprising payroll number.
6:51
Speaker 1: So there's one group of people that are selling bonds
6:55
Speaker 1: extraordinarily fast. The buyers that will be coming in or
6:59
Speaker 1: want to pick up um bonds at a higher interest rate,
7:02
Speaker 1: they're going to move much more slowly. I want to
7:04
Speaker 1: thank you very much for joining us. Jim Vogel is
7:06
Speaker 1: interest rate strategist of FT and Financial. They're based in Memphis.
7:24
Speaker 1: What if money fell from the heavens, what would be
7:28
Speaker 1: the effect on growth and inflation? Well, here to help
7:31
Speaker 1: us answer this question is Joel Stern. He is the
7:33
Speaker 1: chairman and the chief executive of Stern Value Management, and
7:37
Speaker 1: he joins us here in our eleven three oh studios,
7:39
Speaker 1: Joel Stern, thank you very much for being here. So, indeed,
7:42
Speaker 1: if money were to drop from the sky, what would
7:46
Speaker 1: happen to growth and inflation? People would in the initial
7:52
Speaker 1: expectation strong profits, strong growth. It looks like paradise. But
7:59
Speaker 1: I have to admit to you, Pam. My teacher Milton
8:02
Speaker 1: Friedman asked us that question on the first day of class.
8:06
Speaker 1: He said, if money reigned down from the heavens, what
8:10
Speaker 1: would happen? And of course he got the right answer,
8:14
Speaker 1: the rest of us did not, because he said companies
8:18
Speaker 1: would compete against each other with this additional moneys and
8:22
Speaker 1: they would lower prices to the consumer in order to
8:26
Speaker 1: try to gain market share. And I believe that's going
8:29
Speaker 1: to happen here too. Don't get me wrong. The size
8:32
Speaker 1: of it is so huge, there's enough to go around
8:34
Speaker 1: for everybody. Uh So my answer to you is that
8:38
Speaker 1: I don't think we would have inflation from it. I
8:40
Speaker 1: think what we would do is we would have lower
8:42
Speaker 1: prices to the consumer. So can you connect this, Joel,
8:46
Speaker 1: to markets, to to to sort of how you invest.
8:50
Speaker 1: Because I was struck by a statistic that of S
8:53
Speaker 1: and P five hundred companies that have reported so far,
8:56
Speaker 1: eighty percent have beaten Wall Street expectations for revenues, which
9:02
Speaker 1: is the biggest beat going back in data to at
9:05
Speaker 1: least two thousand and eight. So is that already baked in?
9:11
Speaker 1: For sure? The price today is the present value of tomorrow.
9:15
Speaker 1: What's actually happened. What's interesting about the the the economy
9:19
Speaker 1: right now is the economy is poised to grow at
9:22
Speaker 1: at least three. I believe it's going to be a
9:25
Speaker 1: lot higher than that. I think it will be close
9:27
Speaker 1: to four. And when people say, oh that we don't
9:30
Speaker 1: have enough people coming into the workforce, remember they talk
9:33
Speaker 1: about productivity and population growth. Do me a favor. Relax
9:37
Speaker 1: would your place? You'll be really fine? What's what's the
9:39
Speaker 1: answer to this? So many people left the workforce during
9:44
Speaker 1: the last ten, twelve, fifteen years. Right now, the participation
9:49
Speaker 1: rate is only around six. Think about it. I believe
9:54
Speaker 1: it's going to move up over and that will be
9:57
Speaker 1: the equivalent of immigrants coming into the country and journing
10:00
Speaker 1: the workforce. So what I'm hearing from you is dampened
10:04
Speaker 1: inflation expectations. Frankly, because even with all this money you're
10:08
Speaker 1: going to have more competition on both sides, both with
10:11
Speaker 1: employees coming into the workforce as well as companies that
10:13
Speaker 1: are competing with each other. This does not our scream
10:17
Speaker 1: of of runaway inflation out. It occurred to me that
10:22
Speaker 1: maybe when you said all of this, I should have said,
10:26
Speaker 1: very nice, Lisa, I think we should go on to
10:28
Speaker 1: the next topic. But we cannot do it. And what's
10:30
Speaker 1: the reason. The reason is that the gold price is
10:34
Speaker 1: still sitting at thirty four dollars or thereabouts as interest
10:39
Speaker 1: rates rise. If the interest rates that are rising are
10:43
Speaker 1: because of higher real rates, not inflation, that's good for
10:47
Speaker 1: the economy because that's a signal to the rest of
10:49
Speaker 1: the world. Hey, come onto the United States. High rates
10:52
Speaker 1: of return are available here. That's what you would expect
10:55
Speaker 1: to have happened. But you see, what's happened is that
10:58
Speaker 1: with the rates rising, by this time, the gold price
11:01
Speaker 1: should be down around twelve fifty. How do I know
11:05
Speaker 1: it happened before? When Trump won, interest rates rose dramatically,
11:09
Speaker 1: and I had the pleasure of talking to him, not
11:13
Speaker 1: to you, unfortunately at that time. But he asked me
11:15
Speaker 1: this question, and I said, I got news. Take a
11:18
Speaker 1: look at what's happening to the gold price? As the
11:20
Speaker 1: rates went up, the gold price went down. That meant
11:24
Speaker 1: inflation was tame. We wouldn't have to worry. But if
11:28
Speaker 1: interest rates rise and the gold price does not fall,
11:31
Speaker 1: it must mean that there is some inflation in there
11:35
Speaker 1: that we're going to see at the end of this year.
11:38
Speaker 1: Can we just assume for a moment that there is
11:40
Speaker 1: going to be an acceleration and inflation just kind of
11:43
Speaker 1: to be the devil's advocation? But what is a good investment?
11:45
Speaker 1: Is it gold? Yes, it would be it would be
11:48
Speaker 1: gold would be a good investment. But real estate is
11:50
Speaker 1: always a good investment unless it has already reflected all
11:55
Speaker 1: of this and so it's already in the price. But
11:57
Speaker 1: I believe that real estate it is just a fantastic
12:01
Speaker 1: investment if you think the inflation rate is coming back.
12:05
Speaker 1: I'm surprised to hear that, given the fact that Janet
12:07
Speaker 1: Yellen over the weekends pinpointed commercial real estate values in
12:10
Speaker 1: particular as being a particularly frogthy or hetty invaluation. It's
12:15
Speaker 1: a good thing she's going back to academia. Huh, you
12:18
Speaker 1: can pontificate a little bit. She is a lovely, lovely
12:21
Speaker 1: human being. Her position, though, on how markets work, is
12:26
Speaker 1: not the same as my own. I am a true
12:29
Speaker 1: blue Chicago boy. I'm a I was bred by Milton
12:34
Speaker 1: Friedman and Merton Miller, and I believe that markets actually
12:38
Speaker 1: do work. What we have to do is develop models
12:41
Speaker 1: that replicate what the markets are doing so we can
12:44
Speaker 1: see it clearly before it actually happens, instead of waiting
12:47
Speaker 1: for it to happen and then everybody else is telling
12:50
Speaker 1: the same story. Talk if you can about regulations and
12:54
Speaker 1: how regulations or the lack of regulations can spur economic growth.
12:59
Speaker 1: I spoke of people in the current administration before they
13:02
Speaker 1: were the current administration, way back two years ago, this
13:05
Speaker 1: coming July. I was teaching in Brazil at that time,
13:09
Speaker 1: and I had questions coming in from people who now
13:11
Speaker 1: have very authoritative positions in the administration, and I said,
13:15
Speaker 1: you gotta do three things. Just three. Number one, slash
13:19
Speaker 1: the regulations. Why because regulations not only lower the rate
13:23
Speaker 1: of return on investment, they increase the risk of investment.
13:28
Speaker 1: Because today's regulation becomes tame compared to what they'll do
13:31
Speaker 1: to us tomorrow. In other words, when when when Hillary
13:34
Speaker 1: Clinton was running, she said, you think the regulations under
13:37
Speaker 1: the Obama administrations. Only wait to like, get in there.
13:40
Speaker 1: I'm gonna really wet Okay, set number two, slash the
13:43
Speaker 1: marginal tax rate. Our trait twenty six major trading partners
13:48
Speaker 1: had an average tax rate of only two when hours
13:52
Speaker 1: was in the high thirties. If you include city and state,
13:55
Speaker 1: you can compete that way. By the way, I have
13:58
Speaker 1: three firms that I'm involved, okay, and one of our
14:01
Speaker 1: firms is headquartered in Singapore. The tax right there is
14:04
Speaker 1: around what should I do bring the money back to
14:07
Speaker 1: the United States and get hit a second time? So
14:10
Speaker 1: real quick, I want to get your take on Wells Fargo,
14:13
Speaker 1: because we have this feeling that regulation is moving in
14:16
Speaker 1: the opposite direction. Then what the Fed seems to have
14:18
Speaker 1: done with Wells Fargo. Do you think that this is
14:20
Speaker 1: sort of the opening salvo or sort of the I
14:22
Speaker 1: am so disgusted. I don't know what to say to you, Lisa. Look,
14:26
Speaker 1: when people do things that are what shall we call
14:29
Speaker 1: them fraudulent, they should be banished from the industry. Remember
14:35
Speaker 1: when Michael Milken was told his infraction was minor. These
14:40
Speaker 1: people created things that didn't exist, and they seem to
14:43
Speaker 1: have gotten away with it. I was. The thing that
14:45
Speaker 1: I was unhappy about with Janet Yellen is that she
14:47
Speaker 1: should have acted on this as soon as he found
14:50
Speaker 1: it out, as soon as they verified it, and using
14:53
Speaker 1: my vocabulary, they should have been speked. All right, Jill
14:58
Speaker 1: Stern from your words, from your lips to perhaps the
15:02
Speaker 1: new fed chairs ears Joelster, chairman and chief executive officer
15:06
Speaker 1: of Stern Value Management. Always a pleasure speaking with you. Uh,
15:10
Speaker 1: this is Bloomberg market Time is money, especially if you
15:27
Speaker 1: have airtime during the Super Bowl. And here to talk
15:30
Speaker 1: to us a little bit about the advertisements that you
15:33
Speaker 1: saw last night during the fifty second Super Bowl is
15:36
Speaker 1: John Swallen, chief Research officer of Cantor Media, which is
15:40
Speaker 1: based in New York. John, I want to start with
15:43
Speaker 1: the price tag for thirty seconds more than five million dollars?
15:48
Speaker 1: Was how much companies paid for that time? Is it
15:52
Speaker 1: worth it for many companies? It is yes, UM companies
15:57
Speaker 1: are not just paying for the prety seconds of at time,
16:01
Speaker 1: They're actually rolled up in that in the value of
16:03
Speaker 1: that five million dollar investment. UM is are some other
16:06
Speaker 1: things that I think brands considering that helped justify UM
16:10
Speaker 1: for what I'm sorry, just give us some some figures
16:13
Speaker 1: if you can just in terms of the actual total
16:15
Speaker 1: amount that's been spent. Sure, UM, So the total we
16:18
Speaker 1: asked me that the total amount of money spent on
16:20
Speaker 1: the game last night was approximately four fifteen million dollars
16:24
Speaker 1: for the commercials that aired between kickoff and the final whistle,
16:27
Speaker 1: which would make it the second highest Super Bowl of
16:29
Speaker 1: all time after two thousand and seventeen. Is that considered
16:34
Speaker 1: to be a win for NBC? UM, Yes, it is. UM.
16:39
Speaker 1: It's a win every year for whichever network gets to
16:41
Speaker 1: carry the game. UM. And NBC also was able to
16:44
Speaker 1: use that as a platform to promote their upcoming Olympics telecasts,
16:48
Speaker 1: which will also be a financial windfall for them, So
16:51
Speaker 1: they had a nice synergistic effect there. John one thing
16:55
Speaker 1: that I noticed. I was looking over some of the
16:57
Speaker 1: notes that you put out just sort of some conclusions
17:01
Speaker 1: from the Super Bowl and the advertisements, and there was
17:05
Speaker 1: a pretty notable drop off in the number of companies
17:08
Speaker 1: that were advertising during the Super Bowl for the first time. UH.
17:12
Speaker 1: The percent of first time parent companies dropped just eleven
17:16
Speaker 1: percent this year from last year. What happened why so
17:20
Speaker 1: many fewer entrants to this field? UM? I think parlates
17:24
Speaker 1: the price tag UM five million dollars for a thirty
17:27
Speaker 1: second spot, plus the additional costs for creating a commercial,
17:30
Speaker 1: promoting it on social media and so forth, is a
17:33
Speaker 1: big hit for many of the small companies that make
17:36
Speaker 1: up those first time advertisers. UM. So I think this
17:39
Speaker 1: year there was perhaps a little bit more price sensitivity.
17:42
Speaker 1: UM that can you know that that can happen. It's
17:45
Speaker 1: a it's a big investment for small companies. Who do
17:48
Speaker 1: you think was the most successful at their advertising? UM?
17:54
Speaker 1: I think everybody has a different metric. UM. If you
17:57
Speaker 1: take a look at the consumer popularity polls, I'm sure
17:59
Speaker 1: that the Amazon Alexa ad and the NFL AD with
18:03
Speaker 1: Eli Manny and O'Dell Beckham doing their version of dirty Dancing,
18:07
Speaker 1: I'm sure those will end up on the you know
18:09
Speaker 1: its probably the top two in terms of consumer popularity.
18:13
Speaker 1: But in terms of long term payout UM and brand effectiveness. UM.
18:17
Speaker 1: I actually think that a brand like UM tied um
18:21
Speaker 1: had a very interesting media strategy running one commercial in
18:25
Speaker 1: each of the four quarters, and they weren't obvious commercials
18:28
Speaker 1: when they started out to heay this is a commercial
18:30
Speaker 1: for Tide, it wasn't until sort of the end of
18:31
Speaker 1: the commercial that it all came together and tied together. UM.
18:35
Speaker 1: I think that was a very effective strategy for PNG. John.
18:39
Speaker 1: There was a lot of talk leading up to this
18:41
Speaker 1: Super Bowl about the politicization of football and how viewership
18:48
Speaker 1: had actually gone down as people view the sport is
18:52
Speaker 1: becoming increasingly political. Do we have any preliminary assessments of
18:58
Speaker 1: what viewership was like last night or whether some advertisers
19:02
Speaker 1: shied away from, uh, perhaps participating this time around because
19:07
Speaker 1: of all that drama. Um, the viewership figures won't be
19:11
Speaker 1: enough until won't be out until later today. UM. So
19:15
Speaker 1: I can't tell you how many people watch the game.
19:17
Speaker 1: In terms of the advertisers and their approach. UM, there
19:20
Speaker 1: certainly was less advertising of a political or social issue
19:24
Speaker 1: nature this year as compared to last year. UM. And
19:27
Speaker 1: I think that reflects the fact that in our increasingly
19:30
Speaker 1: polarized environment, UM, taking any kind of of a stand
19:33
Speaker 1: pro or con and any sort of an issue, UM,
19:36
Speaker 1: it's just a landline that marketers don't want to get
19:38
Speaker 1: involved with, particularly on a stage as public as the
19:41
Speaker 1: as the Super Bowl, and so the big corporate ads,
19:45
Speaker 1: the you know, the the as it weren't plugging brands
19:47
Speaker 1: per se um like the bud Wiser at promoting their
19:50
Speaker 1: water relief efforts, were taking things of a more humanitarian approach, UM,
19:55
Speaker 1: kind of a safe issue that nobody can object to. UM.
19:58
Speaker 1: So I think that was the strategic to this year. John,
20:01
Speaker 1: I have to wonder whether you're seeing an increasing number
20:04
Speaker 1: of ads direct viewers to their websites to watch longer
20:09
Speaker 1: saga as I saw that. It was certainly a part
20:12
Speaker 1: of some of the strategies, but is that an increasing one. Um,
20:16
Speaker 1: It's not increasing only because it's been a very common
20:19
Speaker 1: tactic for you know, for the last ten years or so. UM.
20:22
Speaker 1: You know, many companies are putting their commercials out online
20:27
Speaker 1: uh up to a week in advance of the Super Bowl,
20:30
Speaker 1: promoting them through YouTube, promoting them through social media, UM,
20:33
Speaker 1: and leaving them there after the game so people can
20:35
Speaker 1: go back and watch them the second time. UM. So
20:37
Speaker 1: the social media wrap around UM is very well integrated
20:41
Speaker 1: into brand strategy for Super Bowl advertising. Thank you very
20:45
Speaker 1: much for joining us. John Swallen is the chief research
20:47
Speaker 1: officer for Kantar Media. He joins us from New York,
20:51
Speaker 1: giving us his perspective on Super Bowl Advertising. Well, a
21:07
Speaker 1: lot has changed in the retail world since nine and
21:11
Speaker 1: here to tell us more. As Lindsay Rupper, specialty retail
21:14
Speaker 1: reporter for Bloomberg News. Lindsay can be followed on Twitter
21:18
Speaker 1: at l c Rupp and you can listen to her podcast,
21:22
Speaker 1: Lindsay's Material World Podcast. It is at Bloomberg dot com
21:26
Speaker 1: Slash podcast Material Slash rather Underscore World. All right, Lindsay,
21:32
Speaker 1: thanks for being being here. Um, I just want to
21:34
Speaker 1: start off with a little news about Bontage stores because
21:36
Speaker 1: I was looking today bankruptcy doesn't look like anyone's gonna
21:39
Speaker 1: come and really throw them a lifeline. And they if
21:42
Speaker 1: you go to their website up to seventy percent off,
21:46
Speaker 1: what happens when they get to a cent off? Does
21:48
Speaker 1: that mean they start to sell things? You know? I
21:51
Speaker 1: don't know what it's going to take for them to
21:53
Speaker 1: sell things. The problem is for all these retailers, they're
21:56
Speaker 1: just too many stores, and people have more options than
22:00
Speaker 1: ever for places to shop. And so if it's not
22:02
Speaker 1: a great experience, or it's not on trend, or it's
22:04
Speaker 1: not the right product, you have other options. You're not
22:07
Speaker 1: loyal anymore. So, Lindsay, you wrote a piece, and I
22:10
Speaker 1: found it fascinating about how this sort of death of
22:14
Speaker 1: retail has been a long time coming. Can you explain, Yeah, absolutely, so.
22:20
Speaker 1: Apparel retail specifically is plagued by a myriad of issues,
22:24
Speaker 1: and it's you know, it's really easy to say, oh,
22:26
Speaker 1: it's Amazon, Amazon's killing these apparel retailers and companies like Bontan,
22:30
Speaker 1: but it really is so much more than that. You know, it's, Uh,
22:33
Speaker 1: it's that these apparel retailers got really slow in terms
22:36
Speaker 1: of it takes a long time for them to get
22:38
Speaker 1: product to market, and then you've got H and M
22:40
Speaker 1: and Zara who can get on trend styles to you
22:43
Speaker 1: in weeks. Or uh, it's the fact that people have
22:46
Speaker 1: more options of places to shop. Or it's the fact
22:49
Speaker 1: that prices have been driven down by discounters and by
22:52
Speaker 1: fast fashion companies, and so you don't want to pay
22:55
Speaker 1: full price for a white T shirt because you can
22:57
Speaker 1: get it almost anywhere for less. Um it's it's just
23:01
Speaker 1: so many different factors that are really hurting the apparel
23:04
Speaker 1: industry and they've been really slow to transform. And I
23:07
Speaker 1: think we're starting to see and will continue to see
23:09
Speaker 1: the fallout from that. Well, Lindsay. You mentioned that there
23:12
Speaker 1: are a variety of things that are contributing to this.
23:14
Speaker 1: No one needs to buy a separate wardrobe for their
23:17
Speaker 1: workplace anymore. You also mentioned that things such as neckties
23:21
Speaker 1: seemed to be disappearing from at least the most heavily
23:25
Speaker 1: purchased of items, as well as the introduction of sort
23:30
Speaker 1: of new trend setters who are not celebrities. They're all
23:34
Speaker 1: over social media, right, I mean, the societal and cultural
23:38
Speaker 1: shifts in the way that we think about fashion, uh,
23:41
Speaker 1: is a huge problem for the apparel industry. So it
23:44
Speaker 1: used to be that you'd spend money on your wardrobe
23:46
Speaker 1: because you know, the fashion industry was telling you these
23:49
Speaker 1: things are on trend, you need to have them. You know,
23:51
Speaker 1: you wanted to look yeah, exactly, you wanted to look
23:54
Speaker 1: good in your workplace, but then you had a different
23:56
Speaker 1: look for the weekend. None of that's really true anymore.
24:00
Speaker 1: I mean, people really can kind of wear what they
24:01
Speaker 1: wear to work out. Casual Friday is not just Friday anymore,
24:06
Speaker 1: So you don't need to buy two different wardrobes, and
24:08
Speaker 1: you can look online to celebrities or people who you
24:11
Speaker 1: find interesting and see what they're wearing. You don't have
24:13
Speaker 1: to look to the magazine. So if you look at
24:15
Speaker 1: from a market's perspective, this has been going on for
24:19
Speaker 1: a while, and this has sort of been a slow
24:21
Speaker 1: moving destructive train. How can retailers assess what a right
24:29
Speaker 1: sized retailer looks like now and when we've moved past
24:33
Speaker 1: the sort of carnage stage into one where you can
24:36
Speaker 1: rebuild for a modern era. I think that's the question
24:40
Speaker 1: everyone's trying to answer right now. And it's expensive to
24:43
Speaker 1: close stores if you have a lot of stores. But
24:45
Speaker 1: you know, we've also seen these e commerce only retailers
24:48
Speaker 1: pop up and well, well to some extent, right, they
24:52
Speaker 1: reach a certain size and then they kind of stopped
24:54
Speaker 1: growing and so they need to get to that next
24:56
Speaker 1: level of growth and they open some stores. But you know,
24:59
Speaker 1: but Albost sold to Walmart for for less than the
25:01
Speaker 1: money they raised. Guess the the key question is what's
25:04
Speaker 1: the model now? Who who's doing it right? Uh? You
25:07
Speaker 1: know a lot of people think that CSAR is doing
25:09
Speaker 1: it right. They're you know, owned by a Spanish company
25:12
Speaker 1: into texts, and they're expanding really quickly all over the world.
25:16
Speaker 1: They can get product to market really quickly, and it's
25:18
Speaker 1: on trend and it's uh really cheap frankly, um, and
25:23
Speaker 1: that seems to be working really well for them. But
25:25
Speaker 1: you know, H and M was of that same model.
25:28
Speaker 1: H and M just announced that it's going to have
25:30
Speaker 1: the slowest store opening rate in two decades. Um. People
25:33
Speaker 1: really weren't thrilled to hear that, you know. They they're like, oh,
25:36
Speaker 1: the H and M model, it might be stumbling. So
25:38
Speaker 1: I don't think that there's anyone you can look to
25:40
Speaker 1: and say they're doing it right. I mean, there are
25:42
Speaker 1: a lot of people who are doing pieces of it right.
25:44
Speaker 1: There are a lot of niche brands who you know,
25:46
Speaker 1: own one piece of your wardrobe and they're doing that
25:49
Speaker 1: really well. But I think gone are the days of
25:52
Speaker 1: the giant retail behemoths of the past. You know, I
25:55
Speaker 1: don't know that we're going to see another gap, another
25:57
Speaker 1: ubiquitous company that's going to clothe you from top to
26:00
Speaker 1: bottom anymore. Having said all this, and maybe you can
26:03
Speaker 1: just help me because of course here in the Northeast,
26:05
Speaker 1: who have been going through winter weather and no really
26:07
Speaker 1: across the country in some areas you have inclement weather.
26:11
Speaker 1: All I see your Canada Goose down jackets and Montclair
26:17
Speaker 1: down jackets, And I think to myself, who needs to
26:21
Speaker 1: spend a thousand dollars on Parka right or five on
26:27
Speaker 1: a three year old outfit to stay warm? And yet
26:31
Speaker 1: you seem to see them everywhere? Is that just anecdotal? No?
26:34
Speaker 1: I think that that's that's very true. And there are
26:36
Speaker 1: some trends that are that are definitely sticking out, so
26:39
Speaker 1: like people will spend up for that jacket with that
26:42
Speaker 1: brand name, or they'll buy the Lulu Lemon pants, but
26:45
Speaker 1: they're they're mixing those with lower end things, you know,
26:48
Speaker 1: so they're they're also going to t J max and
26:50
Speaker 1: and buying cheaper, you know, jeans or it's it's sort
26:54
Speaker 1: of like a high low you you decide where you
26:56
Speaker 1: want to signal. Yeah, Lindsay Rob, thank you so much
26:59
Speaker 1: for joining us, because truly it was a fascinating story.
27:02
Speaker 1: I definitely recommend reading. And it's on Bloomberg dot com
27:05
Speaker 1: or on the Bloomberg Lindsay Rupp is a specialty retail
27:09
Speaker 1: reporter for Bloomberg News. Thanks for listening to the Bloomberg
27:16
Speaker 1: P and L podcast. You can subscribe and listen to
27:19
Speaker 1: interviews at Apple podcasts, SoundCloud, or whatever podcast platform you prefer.
27:24
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
27:27
Speaker 1: on Twitter at Lisa Abramo. It's One before the podcast.
27:30
Speaker 1: You can always catch us worldwide on Bloomberg Radio