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Now Is The Time To Disrupt Your Business Model: Travelocity Founder · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:18
  Speaker 1: at Bloomberg dot com. Paul, We've heard from a number
• 0:21
  Speaker 1: of analysts how the COVID nineteen pandemic has accelerated trends
• 0:26
  Speaker 1: already in effect ahead of this virus, and it's a spread.
• 0:31
  Speaker 1: There's a question of what things will look like and
• 0:33
  Speaker 1: how quickly these transformations can occur. Terry Jones the perfect
• 0:37
  Speaker 1: person to address this. The founder and former chief executive
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  Speaker 1: officer of Travelocity dot com, founding chair of Kayak dot com,
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  Speaker 1: current author of Disruption Off The Technological Disruption Coming for
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  Speaker 1: Your Company and What to Do About It, a new
• 0:51
  Speaker 1: book that's out. I'm wondering, Terry, from your perspective, what
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  Speaker 1: do you think is the main change that's being accelerated
• 0:59
  Speaker 1: right now that we should really keep an eye on. Well,
• 1:03
  Speaker 1: certainly e commerce shipment's up um and survey show people
• 1:07
  Speaker 1: aren't going back. Uh. Instagart hiring three thousand people, so
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  Speaker 1: food delivery looks like isn't going back. A Gardner survey
• 1:15
  Speaker 1: showed almost companies say even after a vaccine, many workers
• 1:21
  Speaker 1: will still say home. So we're continually become more digital.
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  Speaker 1: Tele medicine got approved right, people are doing it. I'm
• 1:28
  Speaker 1: on the board of a remote education program that gives
• 1:31
  Speaker 1: second chances to workers to train them out to be engineers.
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  Speaker 1: Our business is booming, um. Other other things are tough.
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  Speaker 1: I'm a public speaker. Events are gone right, So I'm
• 1:41
  Speaker 1: building a TV studio in my office and hopefully I
• 1:44
  Speaker 1: can become virtual. Um. So we're seeing I think the
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  Speaker 1: digital part of this change is going to be the
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  Speaker 1: biggest part of it. So, Terry, how about some of
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  Speaker 1: the I don't know, more existing or traditional lines of business,
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  Speaker 1: whether it's bricks and more to retail or leisure, you know,
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  Speaker 1: restaurants and things like that. What are some of the
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  Speaker 1: risk associated with some of those business Do you think
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  Speaker 1: is it's just kind of an acceleration of maybe what
• 2:08
  Speaker 1: was already happening. I think so, Um, you know, I
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  Speaker 1: suspect some restaurants will come back as ghost kitchens, right,
• 2:14
  Speaker 1: and just those those kitchens that just deliver um. Retail
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  Speaker 1: obviously is taken a hard hit and we're seeing some
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  Speaker 1: bankruptcies there. Um. I think other traditional businesses may we
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  Speaker 1: look at their supply chains and go back to something
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  Speaker 1: from the nineteenth century stockpiling, right. Instead of long supply chains,
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  Speaker 1: people are moving to three D printers uh to get
• 2:36
  Speaker 1: around supply chain issues. Um, and we're seeing traditional businesses.
• 2:40
  Speaker 1: I have a friend who's getting his groceries delivered by
• 2:42
  Speaker 1: a little drone that drives down the street. That was
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  Speaker 1: prohibited before. Now it's allowed. So regulations are changing to
• 2:50
  Speaker 1: allow business to change because of social distancing. I've went
• 2:54
  Speaker 1: a little drown delivering my grocery there. I'm wondering cool
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  Speaker 1: it can by. It depends what the drone looks like
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  Speaker 1: and what it does to my home. But Terry, I
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  Speaker 1: am curious, um about your experience with Travels dot Com
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  Speaker 1: and Kayak Kayak dot com. At a time and a
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  Speaker 1: lot of people don't want to get on an airplane,
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  Speaker 1: are not going very far from home. What kind of
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  Speaker 1: transformation do you expect. They're at a time of possibly
• 3:21
  Speaker 1: the biggest disruption ever seen in the travel industry. Well, absolutely,
• 3:26
  Speaker 1: you know I was ran after nine eleven and that
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  Speaker 1: was extremely difficult. Travel came back, people got used to security.
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  Speaker 1: I think they're going to need trust, and airlines and
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  Speaker 1: hotels are working hard on that in terms of cleaning,
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  Speaker 1: in terms of social distancing, contacting masks. It's all a
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  Speaker 1: big hassle. But I think as the airline's build trust
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  Speaker 1: and just announced Delta's putting on more flights, people will
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  Speaker 1: come back. We're already seeing that in China. It's gonna
• 3:52
  Speaker 1: take time. I think we'll see more road travel this year,
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  Speaker 1: much more r V Reynolds are up because it's your
• 4:00
  Speaker 1: own hotel, in your own restaurant. Um. So I think
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  Speaker 1: we'll see close to home travel first. And plus a
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  Speaker 1: lot of countries are still closed to uh to US.
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  Speaker 1: You know, Canada, we can't go to Europe. He was
• 4:11
  Speaker 1: closed right now. So until those countries open and they
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  Speaker 1: open convinced that you know, America is safe to travel,
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  Speaker 1: we're going to see some restrictions we didn't see before.
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  Speaker 1: It's going to be very difficult for some hotels and
• 4:25
  Speaker 1: certainly for cruise lines. So terry about just in terms
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  Speaker 1: of consumer behavior, do you expect consumers to be, you know,
• 4:33
  Speaker 1: similar to maybe what was experienced after the depression. I
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  Speaker 1: know my parents generation their children of the depression, and
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  Speaker 1: I think they that infused with them for their entire lives,
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  Speaker 1: a real sense of fiscal conservatism. Do you think we
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  Speaker 1: might see something like that in terms of consumer behavior
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  Speaker 1: and consumer spending going forward. Well, I ran a survey
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  Speaker 1: recently that said we might. That people are saying they
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  Speaker 1: would save more UM, which which would be difficult for
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  Speaker 1: us as a as a consumer nation. We don't to
• 5:00
  Speaker 1: become a nation of savers necessarily like Japan, because our
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  Speaker 1: economy isn't set up that way. Um. However, we're seeing
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  Speaker 1: in in Singapore and China, you know, shopping is coming back,
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  Speaker 1: albeit slowly. So I think businesses have to take this
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  Speaker 1: time to look at their business model and say, you know,
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  Speaker 1: those changes I've been putting off, maybe I need to
• 5:18
  Speaker 1: make them. Maybe I need to go online more, Maybe
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  Speaker 1: I need to look at some of these new technologies.
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  Speaker 1: Principally need to experiment in this new world and see
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  Speaker 1: what works, because what worked before won't necessarily work now.
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  Speaker 1: And this is a very good time to look at
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  Speaker 1: your business model, look at new technology and say what
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  Speaker 1: might change and how should I change. One change that
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  Speaker 1: a lot of people have been talking about is the
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  Speaker 1: shift away from the office. Everyone's working from home. There
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  Speaker 1: has been a lot of discussion about commercial real estate
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  Speaker 1: and what that means there, as well as a shift
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  Speaker 1: away from urban centers. As a former chief executive officer,
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  Speaker 1: how much credence do you give these proclamations that the
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  Speaker 1: office is going to be substantially smaller and possibly outside
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  Speaker 1: of cities. Well, I think it really depends on the industry.
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  Speaker 1: My son is in the video game business. There are
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  Speaker 1: five thousand people. They had a prohibition against working from home.
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  Speaker 1: Now they're all working from home and say they're more productive. Um,
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  Speaker 1: call centers are shifting home permanently. Other creative businesses, I
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  Speaker 1: don't think it will happen. Plus, remember, even if you
• 6:24
  Speaker 1: keep some of the workers home, you're gonna need twice
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  Speaker 1: as much space to go into the office for the
• 6:29
  Speaker 1: workers you have because of distancing. So at least in
• 6:32
  Speaker 1: the near term, I don't think we're going to see
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  Speaker 1: hit to real estate because people need the space and
• 6:38
  Speaker 1: some businesses are doing well because of this. I'm on
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  Speaker 1: the board of Sonic Wall which sells firewalls and internet security.
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  Speaker 1: Our business doing very well because people at home need security,
• 6:48
  Speaker 1: so they're buying more products. Uh So those kind of
• 6:52
  Speaker 1: businesses telemedicine, remote education are doing well. I think it's
• 6:57
  Speaker 1: a trend though. I think many people are saying, hey,
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  Speaker 1: this works for many of my employees. I may not
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  Speaker 1: go back to the office over time. Terry, thanks so
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  Speaker 1: much for joining us. Fascinating discussion here as we think
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  Speaker 1: about how the world may change as on the back
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  Speaker 1: end of this pandemic, including the consumer. Lots to talk
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  Speaker 1: about there, Terry Jones. He's a founder and former CEO
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  Speaker 1: of travelocity dot com, also the founding chairman of Kayak,
• 7:21
  Speaker 1: and also the author of the latest book Disruption off
• 7:25
  Speaker 1: joining us here at least, I think it's fascinating here
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  Speaker 1: to think about really how or if and how and
• 7:32
  Speaker 1: to what degree the consumer behavior is going to change
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  Speaker 1: on the back end of this. Will we go to restaurants,
• 7:36
  Speaker 1: Will we go to movie theaters? You know, will we
• 7:38
  Speaker 1: get on planes? It's gonna be fascinating to see how
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  Speaker 1: this evolves, you know, over the next year or two.
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  Speaker 1: I would argue, just based on anecdotal experience, the working
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  Speaker 1: from home experiment really breaks down into several different camps,
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  Speaker 1: mainly those with children and those without children, And I
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  Speaker 1: do have to wonder how much that's going to act
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  Speaker 1: the conversation around whether people go back to the office
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  Speaker 1: or not. Yeah, exactly, I think I know which camp
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  Speaker 1: you fall in, UM, personal experience, exactly. Right At one
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  Speaker 1: pm Wall Street time today, the US Treasure Department is
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  Speaker 1: going to sell twenty billion dollars of twenty year bonds
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  Speaker 1: for the first time since Nighties six. The question is
• 8:25
  Speaker 1: how much demand there will be for these securities, as
• 8:28
  Speaker 1: well as what trading will be like going forth in them.
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  Speaker 1: RJ Gallow joining us right now, senior portfolio manager and
• 8:35
  Speaker 1: head of the Municipal Bond Group and head of the
• 8:37
  Speaker 1: Duration Committee it federated Hermes uh seeing overseeing more than
• 8:41
  Speaker 1: eleven billion dollars over seven funds. R J. I'd love
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  Speaker 1: to just get started with how important today's twenty year
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  Speaker 1: bond sale, in your opinion, is going to be. Well,
• 8:53
  Speaker 1: good morning, and thanks for having me, Um. I think
• 8:55
  Speaker 1: it's particularly important in a number of ways from a
• 8:57
  Speaker 1: market standpoint. You just touched on how long it's been
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  Speaker 1: since the Treasury is auction to twenty year UM. So
• 9:02
  Speaker 1: from that novel standpoint, it's particularly interesting. I think it's
• 9:06
  Speaker 1: substantially much more important because this represents, in terms of
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  Speaker 1: a new security, a new on the run, if you will,
• 9:12
  Speaker 1: the fiscal manifestation of what we're going through, a massive
• 9:16
  Speaker 1: deficit spend requiring the issuance of a whole new security,
• 9:20
  Speaker 1: not just the upsizing of all the other securities, which
• 9:22
  Speaker 1: is also happening as well. And I think that the
• 9:24
  Speaker 1: demand in the very near term is going to be
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  Speaker 1: reasonably strong. I I see no reason for investors, many
• 9:32
  Speaker 1: of whom are confronting lower rates and other parts of
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  Speaker 1: the world amid a pandemic related economic slowdown, to back
• 9:40
  Speaker 1: away from buying treasuries in the very near term. I
• 9:43
  Speaker 1: think over time you look out twelve months, he also
• 9:46
  Speaker 1: will probably be higher than here, but that's not without
• 9:49
  Speaker 1: risk and uncertainty. So I think the demand will still
• 9:50
  Speaker 1: be there. So r J. We've we've had the FED, uh,
• 9:55
  Speaker 1: you know, step in early, step in fairly aggressively. UM.
• 9:59
  Speaker 1: And I think that most accounts doing a very good job,
• 10:02
  Speaker 1: but clearly that's not going to be enough for this economy.
• 10:06
  Speaker 1: How important is it to get another round of fiscal
• 10:09
  Speaker 1: stimulus done in the near term. Well, you're talking to
• 10:14
  Speaker 1: somebody who's primarily most of my time is spent on
• 10:18
  Speaker 1: US rates and municipals, and on the latter municipals. UH,
• 10:22
  Speaker 1: those in the munity market overwhelmingly including issue within investors.
• 10:27
  Speaker 1: Look at the constraints under which state governments lives so
• 10:32
  Speaker 1: balanced budget amendment. They have to pass a balanced budget.
• 10:35
  Speaker 1: They don't always get to stick to it in terms
• 10:36
  Speaker 1: of actuals, but the spirit of a balance budget amendment
• 10:39
  Speaker 1: is very strong. UM. The federal government clearly does not. UH.
• 10:44
  Speaker 1: There's a strong precedent in periods of economic shock or
• 10:46
  Speaker 1: downturn for the federal government to take advantage of its
• 10:49
  Speaker 1: long fiscal and financial rope to assist within the federal
• 10:53
  Speaker 1: system the state governments, and they need somewhat more help.
• 10:57
  Speaker 1: I don't want to be alarmist. I don't believe states
• 10:59
  Speaker 1: are going to be fault on the debt unless we
• 11:00
  Speaker 1: get more fiscal relief. I like to call it relief,
• 11:03
  Speaker 1: not stimulus. UM, that's not going to happen. States are
• 11:07
  Speaker 1: good credits, but they will be cutting a lot of
• 11:10
  Speaker 1: expenditures to try to balance their stress budgets, and they'll
• 11:13
  Speaker 1: be raising taxes that doesn't help an economic recovery, and
• 11:16
  Speaker 1: the federal government has the wherewithal to prevent those outcomes.
• 11:20
  Speaker 1: So I do think along Chairman Powell's vein of thinking
• 11:24
  Speaker 1: that more should be done. Although I don't think he
• 11:26
  Speaker 1: was particularly adamant yesterday when he testified in front of
• 11:29
  Speaker 1: the Senate Committee along those lines. I think he has
• 11:32
  Speaker 1: clearly suggested that's where he thinks the markets should go
• 11:36
  Speaker 1: and where the policymakers excuse me should go. R J.
• 11:39
  Speaker 1: Which states do you think are going to have to
• 11:41
  Speaker 1: raise taxes in the light of the financial burdens their
• 11:43
  Speaker 1: experience right now, at least if they don't get fisical support.
• 11:48
  Speaker 1: I can't. I wouldn't feel comfortable with giving you specific
• 11:50
  Speaker 1: state governments that are going to necessarily go that rat
• 11:53
  Speaker 1: But I'll tell you basically basically, I'm asking you, are
• 11:55
  Speaker 1: my taxes going on substantially? I mean, do you have
• 11:59
  Speaker 1: a Manhattan right? Yeah? Well, maybe I hate to say it,
• 12:06
  Speaker 1: but it's very true that that this COVID nineteen pandemic
• 12:10
  Speaker 1: and the economic challenges that we face, which are profound
• 12:14
  Speaker 1: um are not homogeneous across the country. Obviously, the tri
• 12:19
  Speaker 1: state in New York metro area and I used to
• 12:20
  Speaker 1: live there, so it's got a soft spot in my heart.
• 12:23
  Speaker 1: It's also a huge economic engine for the United States,
• 12:25
  Speaker 1: so it's very important. UM heavily afflicted by COVID nineteen
• 12:29
  Speaker 1: in so many ways, cost deaths, and the challenges of
• 12:33
  Speaker 1: the situation they're they're profound there. You go to many
• 12:36
  Speaker 1: other parts of the country and it hasn't been nearly
• 12:38
  Speaker 1: as bad. UM. I think every economy went through, every
• 12:41
  Speaker 1: state economy went through some degree of a lockdown, shutdown,
• 12:44
  Speaker 1: shelter in place, whatever you wanna call it, and that
• 12:47
  Speaker 1: is going to knock state revenues ten twenty maybe even.
• 12:50
  Speaker 1: But it varies across these states. And I do think
• 12:54
  Speaker 1: that the initial Cares Act response, which was bipartisan and
• 12:57
  Speaker 1: should be praised because it was the right thing to do, UM,
• 13:01
  Speaker 1: gave an initial significant amount of money to state government,
• 13:05
  Speaker 1: but more does need to be done, and it probably
• 13:08
  Speaker 1: should be scaled more directly to the need. Under the
• 13:13
  Speaker 1: Cares Act, the state of Wyoming is actually getting more
• 13:16
  Speaker 1: money from the Cares Act then they're ever gonna lose it.
• 13:21
  Speaker 1: I was almost equal to their operating budget, if I recall,
• 13:24
  Speaker 1: so that's not the case in New York, for example,
• 13:27
  Speaker 1: or New Jersey. So I do think that the policymakers
• 13:30
  Speaker 1: in Washington need to be particularly sensitive to where the
• 13:32
  Speaker 1: challenge has been felt the greatest, and to try to
• 13:35
  Speaker 1: tailor the next installment, if you will, of federal financial
• 13:40
  Speaker 1: aid to the states somewhat by those needs. R J. Gallow,
• 13:45
  Speaker 1: thank you so much for joining us. We appreciate your
• 13:47
  Speaker 1: thoughts and perspective. R J. Gallo, Senior portfolio Manager, head
• 13:51
  Speaker 1: of the US Bond Group in the head of the
• 13:52
  Speaker 1: Duration committeeet Federated Hermes joining us from Pittsburgh. So at
• 13:57
  Speaker 1: least I think you know, as r J was suggesting,
• 13:59
  Speaker 1: this next round fiscal stimulus, as we've heard really clearly
• 14:02
  Speaker 1: from Governor Andrew Cuomo, really needs to address state, local municipalities. Yeah,
• 14:07
  Speaker 1: although I don't know that I feel the urgency right now,
• 14:09
  Speaker 1: certainly not um among Republicans, and I'm hearing the conversation
• 14:13
  Speaker 1: turn much more toward tying it to employment, such as
• 14:17
  Speaker 1: a payroll tax cut UH in order to help support
• 14:21
  Speaker 1: workers on the back end of this crisis. Yeah, it's
• 14:24
  Speaker 1: interesting just to see how this plays out, but clearly
• 14:27
  Speaker 1: the expectations are that more fiscal stimulus is needed. The
• 14:30
  Speaker 1: question is how much goes directly to consumers and how
• 14:34
  Speaker 1: much goes to state and local governments to support teachers
• 14:37
  Speaker 1: and firefighters and the like. So that is being debated
• 14:40
  Speaker 1: as we speak in the halls of Congress. There's been
• 14:46
  Speaker 1: a lot of concern about the consumer here on the
• 14:48
  Speaker 1: heels of the pandemic, and we're seeing that in some
• 14:51
  Speaker 1: of the retail numbers coming out. Some brutal retail sales,
• 14:54
  Speaker 1: but certain retailers are actually doing quite well. We have
• 14:57
  Speaker 1: some really solid top line numbers out of Target and
• 14:59
  Speaker 1: Lows today. The breakdown what's going on in the world
• 15:02
  Speaker 1: of US retail. We welcome Sema Shaw. She's a director
• 15:05
  Speaker 1: of consumer and retail Trends at Credit Intel based in
• 15:08
  Speaker 1: New York. Seema, thanks so much for joining us again.
• 15:11
  Speaker 1: Let's just start with the big box great, appreciate it.
• 15:14
  Speaker 1: The big box retailers, Target and Lows. What did you
• 15:17
  Speaker 1: take away from there? What should investors really be focusing on.
• 15:21
  Speaker 1: I think what we saw from Target, Lows and Walmart
• 15:24
  Speaker 1: and Home Depot yesterday is that the essential retailers, the
• 15:27
  Speaker 1: ones that were able to keep their doors open even
• 15:30
  Speaker 1: if they had to meet their customers in and manage
• 15:32
  Speaker 1: their store traffic. We saw their comps go up a
• 15:35
  Speaker 1: low double digits, let's say ten to twelve across those names,
• 15:39
  Speaker 1: and significantly, they saw a huge surge in their online tales.
• 15:44
  Speaker 1: So these guys tend tended to do well because they
• 15:46
  Speaker 1: were open and they were selling with customers needed at
• 15:48
  Speaker 1: that time, which was essential merchandise. And I would say
• 15:52
  Speaker 1: all of them commented on the fact that sending April
• 15:54
  Speaker 1: and going into Q two they saw an acceleration in
• 15:57
  Speaker 1: their sales, likely due to some of the stimulus money
• 16:00
  Speaker 1: hitting consumers wallets. But that trend has sort of continued
• 16:04
  Speaker 1: the first two weeks of May. But the retailers that
• 16:07
  Speaker 1: weren't essential, like Coals and Urban Outfitters, you know, the
• 16:10
  Speaker 1: story was much different. So there seems to be a
• 16:12
  Speaker 1: consolidation of power among these big retailers, and they're continuing
• 16:16
  Speaker 1: to branch out into an increasing number of avenues. I'm
• 16:19
  Speaker 1: just wondering if you can give some insight into the
• 16:22
  Speaker 1: costs that they are bearing in order to continue business
• 16:26
  Speaker 1: right now, in other words, either paying some of their
• 16:29
  Speaker 1: employees more, whether it's an increasing charge for deliveries, what
• 16:33
  Speaker 1: are we saying there, you're definitely seeing a huge investment
• 16:36
  Speaker 1: I would say across the board by these retailers into
• 16:40
  Speaker 1: their workers, their associates, and that includes you know, maybe
• 16:44
  Speaker 1: you know, temporary increase in health benefits, paid time off,
• 16:48
  Speaker 1: higher wages, so that definitely impacted the margins um I
• 16:51
  Speaker 1: would say of these retailers across the board. The total
• 16:54
  Speaker 1: value vary depending on the retailer, but I would say
• 16:57
  Speaker 1: a lot of the cost that you saw Que One
• 17:00
  Speaker 1: really had to do with making sure employees and customers
• 17:03
  Speaker 1: were safe and healthy. And I think going forward, as
• 17:05
  Speaker 1: things open up, some of those costs will remain, particularly
• 17:08
  Speaker 1: the cost to keep the stores clean and safe and
• 17:12
  Speaker 1: whatnot as people come back to the stores. So there
• 17:15
  Speaker 1: is that shift and there is a lot of costs.
• 17:16
  Speaker 1: But the other costs they face is the acceleration of
• 17:19
  Speaker 1: certain omni channel investment. They're certain initiatives that maybe they
• 17:23
  Speaker 1: were going to do in two to three years that
• 17:24
  Speaker 1: they had to accelerate, like curbside pick up or you know,
• 17:28
  Speaker 1: trying to maybe same day delivery, things like that that
• 17:33
  Speaker 1: they wanted to offer to their customers in order to
• 17:36
  Speaker 1: get that sale. And for customers who are uncomfortable about
• 17:39
  Speaker 1: going into the store semen, what's the status of the
• 17:42
  Speaker 1: supply chain here? There were some concerns that you know,
• 17:46
  Speaker 1: supply a product from certain parts of the world and
• 17:48
  Speaker 1: transportation would hamper some of the retailers. What are they
• 17:51
  Speaker 1: seeing or what are they telling you about their supply
• 17:53
  Speaker 1: chains now and going forward? So, going now, things seem
• 17:57
  Speaker 1: to have normalized a bit. Product and let's say like
• 18:00
  Speaker 1: something like electronics or products that's still coming from China.
• 18:03
  Speaker 1: There's still a little bit of a lag, but I
• 18:05
  Speaker 1: think most of the retailers have been saying that their
• 18:07
  Speaker 1: vendors have been working with them to increase production and
• 18:11
  Speaker 1: work on improving in stock levels, particularly for high demand items.
• 18:15
  Speaker 1: So it is slowly getting better as things have sort
• 18:19
  Speaker 1: of calmed down and stores are reopening. There's definitely less
• 18:22
  Speaker 1: out of stocks you're seeing across the board. But going forward,
• 18:26
  Speaker 1: it might have implications as to where these companies source
• 18:29
  Speaker 1: some of their products, even their vendors. Right, maybe you
• 18:31
  Speaker 1: don't want to have everything international. There might be more
• 18:35
  Speaker 1: thought to have some domestic production. So I think we
• 18:37
  Speaker 1: might see changes over the long terms how people think
• 18:40
  Speaker 1: about their supply chain. So moving away from the big
• 18:43
  Speaker 1: mainstay retailers that sell what everybody needs. Let's go to
• 18:47
  Speaker 1: some of those that have really been struggling, the brick
• 18:49
  Speaker 1: and mortar that are filing for bankruptcy. And even Marcus
• 18:52
  Speaker 1: perhaps exemplifies it the best. We were talking last year
• 18:55
  Speaker 1: about how they were investing in the experience of shopping.
• 18:59
  Speaker 1: They are now bank crapt. I'm wondering whether the experience
• 19:02
  Speaker 1: is dead. Um, it's not. I don't know that the
• 19:06
  Speaker 1: experience is dead as such, but I think some of
• 19:09
  Speaker 1: these guys got into the experienced business too late, and
• 19:12
  Speaker 1: many of them were already sort of on very fragile
• 19:15
  Speaker 1: ground before COVID hit, and they's just accelerated that. J. C.
• 19:18
  Speaker 1: Penny is another example of one which had been sort
• 19:21
  Speaker 1: of hanging out hanging out and then just couldn't go
• 19:24
  Speaker 1: any longer when they finally had to shut down their
• 19:27
  Speaker 1: stores for an extended period of time. And I think
• 19:28
  Speaker 1: that's what you saw across the department store space, and
• 19:31
  Speaker 1: even with some specialty guys um Pure One did file
• 19:34
  Speaker 1: for bankruptcy, but it's now closing a bunch of their
• 19:36
  Speaker 1: stores and liquidating because it's not likely that they'll be
• 19:39
  Speaker 1: able to come out so I think there's situations like
• 19:42
  Speaker 1: this that were companies specific because they were too slow
• 19:46
  Speaker 1: to catch onto what consumers wanted ahead of time. I
• 19:50
  Speaker 1: think they're slip demand for luxury product and specialty merchandise.
• 19:54
  Speaker 1: But the experience has to be good, and I think
• 19:56
  Speaker 1: now you have to be top of You had to
• 19:58
  Speaker 1: have been top of mind before this hit in order
• 20:01
  Speaker 1: to not end up for Name and Marcus and some
• 20:03
  Speaker 1: of these other guys did just twenty seconds. Who's getting
• 20:07
  Speaker 1: experience right right now? Uh, well, it's most stores open.
• 20:10
  Speaker 1: I'm not sure that anybody has a good experience right now,
• 20:12
  Speaker 1: but I would think that some of them math guys
• 20:15
  Speaker 1: and you know, who have already worked on their stores
• 20:19
  Speaker 1: um and have added different kinds of features and different
• 20:23
  Speaker 1: fulfillment options, are probably providing the best experience for customers.
• 20:26
  Speaker 1: But I think as a whole it is a different
• 20:28
  Speaker 1: experience because of limiting of how many consumers are in
• 20:31
  Speaker 1: the store, want different closure time, so the whole thing
• 20:35
  Speaker 1: is different. But I think those retailers that have already
• 20:38
  Speaker 1: been investing over the long term on fulfillment trying to
• 20:41
  Speaker 1: understand what their consumers wanted an omnichannel, they're providing the
• 20:44
  Speaker 1: best experience as we speak right now, Director Consumer and
• 20:48
  Speaker 1: Retail Trends at Credit Intel, Thank you so much for
• 20:51
  Speaker 1: being with us. The experience is currently walking from the
• 20:55
  Speaker 1: bathroom to the bedroom to the kitchen at least Abrahm
• 20:58
  Speaker 1: wad looked my coast and like Paul, sweetie, this is
• 21:01
  Speaker 1: Bloomberg Markets. In this pandemic era, there has been a
• 21:07
  Speaker 1: growing focus on private equities involvement in the healthcare and
• 21:12
  Speaker 1: hospital sector in terms of its normal business model and
• 21:16
  Speaker 1: how that affects the delivery of care. Joining us now
• 21:20
  Speaker 1: is Heather Pearlberg, private equity reporter for Bloomberg, who wrote
• 21:24
  Speaker 1: a story about some of the consequences of that. Heather,
• 21:27
  Speaker 1: can you just start off by giving us a sense
• 21:29
  Speaker 1: of how significantly private equity has invested in the healthcare
• 21:33
  Speaker 1: space over the past few years. Hi, Yeah, I mean
• 21:38
  Speaker 1: private equity is poured billions and billions of dollars into healthcare.
• 21:43
  Speaker 1: Broadly mean they're buying up position staffing companies, hospitals. There's
• 21:48
  Speaker 1: been lots of reporting about that. As far as medical
• 21:51
  Speaker 1: practices go, that's been a little quieter, but an estimates
• 21:56
  Speaker 1: are around ten billion dollars just in that space. So Heather,
• 22:00
  Speaker 1: you know, I just when I first saw this, I said,
• 22:02
  Speaker 1: there's gotta be a lot of conflicts of industryre the
• 22:04
  Speaker 1: private equity companies really looking to maximize returns. Often they
• 22:08
  Speaker 1: do that by really pressuring revenues, cutting costs, that type
• 22:12
  Speaker 1: of thing, but that necessarily isn't in the best interests
• 22:14
  Speaker 1: of patient care. Is this a good idea or not?
• 22:19
  Speaker 1: A lot of doctors would tell you it's probably not
• 22:22
  Speaker 1: a good marriage. It's not a good fit for the
• 22:25
  Speaker 1: most hard t does what they do in other industries,
• 22:28
  Speaker 1: and that can work spectacularly in medicine, you know, there's
• 22:32
  Speaker 1: something particularly problematic when you're dealing with people's health and lives.
• 22:37
  Speaker 1: Although when you take a look at some of the investments,
• 22:40
  Speaker 1: it's in very specialized areas that have been highly profitable,
• 22:43
  Speaker 1: including dermatology, with a lot of cosmetically driven types of
• 22:47
  Speaker 1: procedures driving profits. So you could say it's a business
• 22:50
  Speaker 1: like any other. And I'm wondering how they have operated
• 22:54
  Speaker 1: through this period of time as selective or sort of uh,
• 22:58
  Speaker 1: selective surgeries have been prevent it, as people are prioritized
• 23:02
  Speaker 1: for their COVID symptoms. Yeah, that's that's a great question.
• 23:06
  Speaker 1: And these guys are hurting. UM revenue is down as
• 23:12
  Speaker 1: some of these practices offices have been shut down. I mean,
• 23:16
  Speaker 1: in some cases people stay open, but they're seemed not
• 23:20
  Speaker 1: essential by a lot of government officials and doctors individually
• 23:25
  Speaker 1: or just making decisions not to stay open, and that
• 23:28
  Speaker 1: will that will pressure them. All right, So what's it when?
• 23:33
  Speaker 1: And I think private equity, I think debt are the
• 23:35
  Speaker 1: are the private equity companies loading these companies up with
• 23:38
  Speaker 1: debt and now they may face some challenges here given
• 23:41
  Speaker 1: what's going on in the market right now. Absolutely they're
• 23:45
  Speaker 1: sattled with pretty big debt loads a lot of them.
• 23:49
  Speaker 1: You know, we'll get money from b dcs or other
• 23:51
  Speaker 1: private lenders, and that's going to be trickier to pay
• 23:57
  Speaker 1: off if money is not coming in, So they're gonna
• 24:00
  Speaker 1: have to figure out different ways out of this. Some
• 24:03
  Speaker 1: of them are getting money from the Cares act Um,
• 24:07
  Speaker 1: but we'll probably see some more of these companies really
• 24:10
  Speaker 1: struggle or go under. I guess. On the other hand,
• 24:12
  Speaker 1: there is um a big opportunity for private equity and
• 24:18
  Speaker 1: other investors who have been just kind of sitting on
• 24:19
  Speaker 1: the sidelines waiting to invest. When you know, there's distress
• 24:24
  Speaker 1: in the market, and you could say doctors will be
• 24:27
  Speaker 1: more financially strained than they've ever been. Uh, And that's
• 24:31
  Speaker 1: a buying opportunity doctors who have turned private equity down
• 24:34
  Speaker 1: six months ago or coming back and saying, hey, wait,
• 24:38
  Speaker 1: you know, can we talk about that again. But that's
• 24:40
  Speaker 1: actually surprising to me given the fact that we've seen
• 24:43
  Speaker 1: an increasing amount of regulatory pushback, or at least political pushback.
• 24:47
  Speaker 1: I believe Senator Warren has come out and talked about
• 24:49
  Speaker 1: private equity investments in particular and hospitals that have received
• 24:53
  Speaker 1: money to stay afloat during the pandemic. I know Carlisle
• 24:57
  Speaker 1: had an investment that became uh what controversial, But I'm
• 25:01
  Speaker 1: trying to figure out how that plays into the calculus
• 25:05
  Speaker 1: of whether private equity is willing to swoop in and
• 25:07
  Speaker 1: try to pick up bargains when the equation may change
• 25:10
  Speaker 1: significantly due to political pressure. Yeah. I think that's definitely
• 25:15
  Speaker 1: in the backdrop. Um. I mean a lot of the money,
• 25:18
  Speaker 1: the money coming from Health and Human Services was really
• 25:21
  Speaker 1: intended for healthcare workers directly, So I think that's that's
• 25:26
  Speaker 1: a little bit different than the payroll protection program with
• 25:29
  Speaker 1: some of the others. But um, there's a lot of criticism.
• 25:34
  Speaker 1: I think the largest firms take that harder than some
• 25:38
  Speaker 1: folks in the middle market who you know, don't have
• 25:43
  Speaker 1: the same kind of communication operations and are dealing with
• 25:48
  Speaker 1: investors more than they're dealing with reputation risk. Frankly, so,
• 25:52
  Speaker 1: have we had any successful um, I guess you know,
• 25:57
  Speaker 1: kind of spinouts or sales here by the private equity
• 25:59
  Speaker 1: folcuses are the generating good returns for them? Do we
• 26:01
  Speaker 1: have any evidence on that? Yeah? Um, you know, Varsity
• 26:06
  Speaker 1: Partners is one of these middle market firms that did
• 26:08
  Speaker 1: an early deal. They made more than think. There was
• 26:14
  Speaker 1: an Audact Group presentation on the Advanced Dermatology deal saying
• 26:19
  Speaker 1: that they had quadruple revenue to two million dollars in
• 26:23
  Speaker 1: the time they were in that business. So the early
• 26:26
  Speaker 1: firms say that they're doing really well, it's sort of
• 26:30
  Speaker 1: on the second or third private equity owner comes into
• 26:33
  Speaker 1: the picture, it seems they're squeezing something that's already been
• 26:37
  Speaker 1: made as efficient as it can be at times interesting.
• 26:41
  Speaker 1: Heather Purp Broke, thank you so much for joining us.
• 26:44
  Speaker 1: We really appreciate that. Fascinating UH news coming out calm
• 26:48
  Speaker 1: from you a news story. Heather pearl Book, pearl Berg
• 26:51
  Speaker 1: Private Equity reporter for Bloomberg Private Equity. There's so much
• 26:55
  Speaker 1: cash on the sidelines, Lisa, that you know, I guess
• 26:57
  Speaker 1: it should not be surprising to see them getting to
• 27:00
  Speaker 1: the healthcare spaces typically, you know, pretty solid place for
• 27:05
  Speaker 1: revenue growth. A couple of questions that I have about
• 27:07
  Speaker 1: private equity right now. First comes to that cash pile.
• 27:10
  Speaker 1: I believe it's one point for trillion dollars. They talk
• 27:13
  Speaker 1: about the dry powder on the sidelines, and I do
• 27:15
  Speaker 1: wonder when we're gonna start to see it deployed, how
• 27:18
  Speaker 1: low valuations have to go before they actually say, okay,
• 27:22
  Speaker 1: we're getting a good deal now. And then the second
• 27:25
  Speaker 1: question that I have emerging from this entire era is
• 27:28
  Speaker 1: whether they emerge as sort of the lost child of
• 27:33
  Speaker 1: the financial system. Right it was the banks the last
• 27:35
  Speaker 1: time around that took the brunt of the heat. Our
• 27:37
  Speaker 1: private equity firm is going to be the bad boys
• 27:39
  Speaker 1: this time around? And are people going to point to
• 27:41
  Speaker 1: them and the excessive amounts of leverage that some of
• 27:45
  Speaker 1: their companies have taken on as being a part of
• 27:48
  Speaker 1: the problem. I don't know the answer. I know, politically,
• 27:50
  Speaker 1: there is a lot of push toward that level, and
• 27:53
  Speaker 1: we're seeing the p p P for example, was those
• 27:56
  Speaker 1: loans were not allowed to go to certain private equity
• 28:00
  Speaker 1: companies because of this type of pressure. But I wonder
• 28:03
  Speaker 1: what that will mean in terms of regulations, in terms
• 28:06
  Speaker 1: of money flows coming out on the other side of this. Yeah,
• 28:09
  Speaker 1: that'll be very interesting to see. I think, you know,
• 28:10
  Speaker 1: if you're a private equity you can certainly say, hey,
• 28:12
  Speaker 1: this is a once in a you know, literally a
• 28:14
  Speaker 1: hundred years uh issue of pandemic, government ordered shut down.
• 28:19
  Speaker 1: Everything was great going into the pandemic, and uh, you know,
• 28:22
  Speaker 1: it's you know a lot of these things are just
• 28:24
  Speaker 1: beyond our control. But clearly, I think we're already starting
• 28:27
  Speaker 1: to see at Lisa, I think really over the last
• 28:29
  Speaker 1: several weeks, when certainly in the retail space with Demon
• 28:31
  Speaker 1: Marcus and and J. C. Penney and and Jay Crew,
• 28:34
  Speaker 1: I mean, the the challenge businesses with challenging and leverage
• 28:39
  Speaker 1: balance sheets, those are the ones up most at risk here. So, um,
• 28:42
  Speaker 1: we'll have to really see how this goes. But a
• 28:45
  Speaker 1: lot of pain likely to come across a number of
• 28:47
  Speaker 1: industries as this economy slowly starts to open back up
• 28:53
  Speaker 1: after what has been a two two and a half
• 28:54
  Speaker 1: month lockdown. That'll be it for us. For Lisa Brahmo,
• 28:58
  Speaker 1: It's on Paul Sweeney. This is Bloomberg Markets. Thanks for
• 29:04
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 29:06
  Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
• 29:09
  Speaker 1: podcast platform you prefer. I'm Paul Sweeney, I'm on Twitter
• 29:12
  Speaker 1: at pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter
• 29:15
  Speaker 1: at Lisa abram woits one before the podcast. You can
• 29:17
  Speaker 1: always catch us worldwide on'm Bloomberg Radio.