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Customer Growth's Johnson: Fast Fashion is Dying (Audio) · Bloomberg Intelligence

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  Speaker 1: listening to taking stock with Kathleen Hayes and Pim Box
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  Speaker 1: on Bloomberg Radio. Shares of Walmart are lower by four
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  Speaker 1: percent over the last three trading sessions. This week also
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  Speaker 1: happens to be the Investor Annual Investor Media in Bentonville, Arkansas,
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  Speaker 1: which Doug McMillan, the chief executive of Walmart, laid out
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  Speaker 1: an e commerce strategy for the world's largest retailer. And
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  Speaker 1: here tell us more is Craig Johnson. He is the
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  Speaker 1: president of Customer Growth Partners. They are based in New Canaan, Connecticut,
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  Speaker 1: and he joins us in studio. Craig, always a pleasure,
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  Speaker 1: Thank you for to see you all right, So tell
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  Speaker 1: me I I read a lot of the stories and
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  Speaker 1: the reports and the transcripts of the meeting, and they
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  Speaker 1: really focused on, as I said, e commerce what can
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  Speaker 1: you tell us about those goals? Um, the the objective
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  Speaker 1: and the goals are great. The question has always is
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  Speaker 1: how do you get their timing, etcetera? And what do
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  Speaker 1: you sacrifice? So what do you pull back on to
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  Speaker 1: do that there? Walmart has been late to the to
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  Speaker 1: the e commerce dance for a couple of decades, and
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  Speaker 1: they tried to fast forward things by buying Jet as
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  Speaker 1: three billion dollars three billion dollars um jet dot com,
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  Speaker 1: Jet dot dot dot com, who's not making a lot
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  Speaker 1: of money, but they do have some expertise there. They
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  Speaker 1: could have spent a fraction of that if they bought Amazon,
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  Speaker 1: you know, uh, ten or fifteen years ago, which which
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  Speaker 1: they didn't obviously, And it goes Amazon by year end
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  Speaker 1: will be the second largest retailer in the world, a
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  Speaker 1: passing even Costco. So this is an interesting time that
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  Speaker 1: we're in. Uh. They have recognized the importance of it,
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  Speaker 1: and they've also throttled back on the growth of the
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  Speaker 1: core supercenter Stories, which is the primary format, but even
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  Speaker 1: slowed down a little bit the neighborhood Stories, which is
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  Speaker 1: the newer sort of small to mid size format. How
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  Speaker 1: much is Amazon making now? How much they're actually profitable
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  Speaker 1: because of their cloud business are because of their retail.
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  Speaker 1: The AWS is an important part of the Amazon work
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  Speaker 1: the world services, which is more of a B two
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  Speaker 1: B product that that is profitable. Um. But the the
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  Speaker 1: traditional retail business is not making a lot of dope,
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  Speaker 1: meaning making money on the retail market. But over half
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  Speaker 1: of their retail sales now are done on a third
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  Speaker 1: party basis, so they're making money on a fee basis,
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  Speaker 1: which is actually that's that's a great little business, and
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  Speaker 1: so they make more money on that. They make a
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  Speaker 1: little bit of money on on the actual retail But
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  Speaker 1: the core of the basically the legacy business, uh, the
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  Speaker 1: AWS is profitable and growing very rapidly. Uh So they're
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  Speaker 1: doing a number of things, right, Well, I mean I
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  Speaker 1: give you the detail here, right, So here's here's the number. Right.
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  Speaker 1: They Amazon a hundred and seven billion dollars last year
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  Speaker 1: for the twelve months. Right, so a hundred and seven
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  Speaker 1: billion dollars thirty five billion and gross profit without margin
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  Speaker 1: of thirty three percent. Obviously they spend it internally the
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  Speaker 1: way they want to. Um net income almost six hundred million.
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  Speaker 1: It's not so bad, it's it's better than a one
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  Speaker 1: point nine billion. But but but again, it's a company
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  Speaker 1: that for years never made any money. Now that at
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  Speaker 1: least make a little bit of money even in the
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  Speaker 1: in the legacy business, the fee business. And they're doing
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  Speaker 1: a fourth thing in addition to the aws and that
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  Speaker 1: they they've gotten much more into the original content business.
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  Speaker 1: Content creation like a studio, the movies, the TVs and
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  Speaker 1: of course the distributionuld cost for those since it's all
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  Speaker 1: lives is streamed is you hit the sin buttons. It's
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  Speaker 1: the artificial intelligence that that is that as well. The
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  Speaker 1: problem with the content business is it's difficult than to
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  Speaker 1: create a business to control costs. So that's an issue there.
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  Speaker 1: That's so, but it's it's heading in the right direction.
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  Speaker 1: So they're doing a lot of smart things. I'm surprised
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  Speaker 1: nobody has ever gone off after Amazon. And a couple
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  Speaker 1: of things. One would be, uh, no tax on internet purchases,
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  Speaker 1: because if I'm a brick and mortar, that's always been
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  Speaker 1: a rip off, but we've accepted it. And number two,
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  Speaker 1: has anybody ever tried to go after Amazon as a monopoly? Uh?
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  Speaker 1: Never teach them to any of the above. On the
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  Speaker 1: first part, people have criticized him. There's a number of
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  Speaker 1: initiatives and difference. Amazon's fault they do. It's a government's fault.
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  Speaker 1: They don't have to absolutely, but nobody has um and
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  Speaker 1: the effort to address that has been that's been been
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  Speaker 1: long running, but so far, you know, in most states
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  Speaker 1: where they don't have physical facilities, they escape that. Jet
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  Speaker 1: dot Com is in a sense kind of going after
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  Speaker 1: them for the kind of the legacy business. But Jet
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  Speaker 1: dot Com West I checked, wasn't the can a lot
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  Speaker 1: of money. But again they do have technical expertise. So
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  Speaker 1: the question is if you, if you were from a
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  Speaker 1: use of capital, whether the best bet was well, if
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  Speaker 1: you're buying them for the expertise of the people there,
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  Speaker 1: well want to hire a head hunter and get the
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  Speaker 1: four or five people you want to get. And you know,
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  Speaker 1: it's a lot, a lot cheaper than spending three billion dollars.
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  Speaker 1: But that's what they've done, and they've added to it.
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  Speaker 1: It will be on net additive and will provide a
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  Speaker 1: new energy and also provides a signaling aspect. But for once,
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  Speaker 1: Walmart is really really serious about e commerce, and again
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  Speaker 1: it's taken a twenty years for them to get really
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  Speaker 1: serious about it. That's a pause. I think that e
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  Speaker 1: commerce accounts for about three percent of Walmart sales right,
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  Speaker 1: and total sales last year four two billion. Okay, can
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  Speaker 1: I want to you mentioned Costco? Tell me about tell
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  Speaker 1: us all about Costco and and traffic and such, because
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  Speaker 1: I want to get to that fast fashion comment that
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  Speaker 1: you want to. Absolutely, Costco is one of the great
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  Speaker 1: companies in the world. Wherever sets its flag by the
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  Speaker 1: Taiwan On or Ausie or Korea, everybody loves it. Everybody
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  Speaker 1: gets it immediately. The the issue though, the sales growth
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  Speaker 1: has been slowing down just a little bit quarter by quarter.
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  Speaker 1: The traffic growth, which has always been three and a
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  Speaker 1: half four pc plause, which is the real driver and
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  Speaker 1: hallmark of all grade companies, has been gradually ebbing down.
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  Speaker 1: And that's a real issue there. So that's what that's
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  Speaker 1: the thought on Costco. Otherwise, a great company, a scale,
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  Speaker 1: the model, everybody loves them. You'll find very few Costco detractors.
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  Speaker 1: So they do they not need to become an e
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  Speaker 1: commerce giants because they're a smaller scale, a different kind
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  Speaker 1: of stores. They don't have to worry about. It's part
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  Speaker 1: of the issue because one of the reasons they have
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  Speaker 1: have loss of growth. Is they also relate to the
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  Speaker 1: dancer very much a store centric enterprise. And because they
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  Speaker 1: became the prisoner of their own success. They were so
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  Speaker 1: successful with that warehouse format that they kind of pooh
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  Speaker 1: pooed the Internet. So they're a little bit slow on that,
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  Speaker 1: all right, Fast the fast, the forward fashion for Matt.
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  Speaker 1: What's you said that that's lagging? Yeah, fast fashion fading fast.
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  Speaker 1: But at any rate, the issue there is it for
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  Speaker 1: years and MS twenty one, there was something called love
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  Speaker 1: culture for a while, UH Root twenty one, which just
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  Speaker 1: changed management. UH fashions itself as a fast fashion fire.
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  Speaker 1: The problem is huge growth for many, many years, huge
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  Speaker 1: square footage growth. The problems that began peeking out a
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  Speaker 1: couple of years ago. Now it's actually in decline. It's
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  Speaker 1: H and M soft for every twenty one, very slow,
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  Speaker 1: you know, negative double digit comps. UH. And the only
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  Speaker 1: one that's standing out right now is Zara. Zara is
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  Speaker 1: much smaller in the US, UH and it's a little edgy,
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  Speaker 1: a little more euro than the than each of the
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  Speaker 1: other companies I mentioned, and that seems to be right
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  Speaker 1: in a sweet spot. But other than Zara, which is
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  Speaker 1: the smallest of the of the majors and fast fashion
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  Speaker 1: everybody else's. I wonder how much it has to do
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  Speaker 1: with if you've been around for a while, you just
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  Speaker 1: don't have that. I'm kind of cool and new and
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  Speaker 1: people get used to and they're waiting for the next,
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  Speaker 1: the next thing. Every thing's going. Cycles performance were very
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  Speaker 1: very hot for years now. That's kind of starting here
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  Speaker 1: is going. When you start to see a bunch of
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  Speaker 1: performance for a stop at at Cole's, etcetera, then you
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  Speaker 1: know things are starting to slow down. Christmas New Year's
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  Speaker 1: sales holiday is going to be challenging this year. Not
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  Speaker 1: a disaster, but we see things as slowing. Back to
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  Speaker 1: school came in and around three percent and change, you know,
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  Speaker 1: pretty close to our annual forecast. There will be issuing
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  Speaker 1: our our holiday forecast towards the end of this month,
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  Speaker 1: um and we see it as as a you know,
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  Speaker 1: kind of a below average, not not a disaster, but
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  Speaker 1: kind of like a C plus C C plus back
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  Speaker 1: to excuse me holiday season. Craig Johnson. That's uh, that's nothing,
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  Speaker 1: nothing to look forward to. Thanks a lot for that one,
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  Speaker 1: connect right, You see like you see it well, But
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  Speaker 1: when you talked about Christmas and the holiday shopping season. Uh,
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  Speaker 1: what areas are going to do? Well? We talk in
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  Speaker 1: electronic I mean is what where's the money gonna go?
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  Speaker 1: Or is it not going to be spent at all?
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  Speaker 1: Interesting enough, we actually see a little bit of a
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  Speaker 1: bounce back and something that's been in the ditch for
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  Speaker 1: for a couple of years now, and that's consumer electronics.
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  Speaker 1: Um So another ways best buy we see is having
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  Speaker 1: an Okay sees Now, there's tremendous price compression and that
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  Speaker 1: particularly on the big big six seventy inch dvs, but
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  Speaker 1: they are getting sold. But there's finally going to be
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  Speaker 1: a little excitement in and about three days the new
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  Speaker 1: VR technology comes out, the virtual reality. And the great
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  Speaker 1: thing about the virtual reality is it allows you to
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  Speaker 1: catch onto the PlayStation for which might be a couple
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  Speaker 1: of three years old that you bought it, and allows
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  Speaker 1: you to have that dr experience. That's that's that new.
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  Speaker 1: I'm waiting for Google's Pixel phone, but that's gonna be
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  Speaker 1: a while. That will be a little while. Okay, Well,
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  Speaker 1: Craig Johnson come back before them with any phone you've got, Okay.
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  Speaker 1: He's president of Customer Growth Partners, joining us to talk
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  Speaker 1: about Amazon's rise and Walmart's challenges. I'm Kathleen Hazlam with
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  Speaker 1: pim Fox. This is Bloomberg