Latest / Bloomberg Intelligence / Philip Morris Bets The Company's Future On Vaping Products

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Philip Morris Bets The Company's Future On Vaping Products · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg pien L podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits. 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
• 0:17
  Speaker 1: at Bloomberg dot com. Well, tobacco companies around the world
• 0:22
  Speaker 1: have been dealing with declining smoking rates for years. As
• 0:25
  Speaker 1: a result, many of the companies are undergoing a transformation
• 0:28
  Speaker 1: from traditional cigarettes to less harmful alternatives like vaping and
• 0:32
  Speaker 1: heated tobacco. To help us kind of get up to
• 0:34
  Speaker 1: speed on what's happening in the tobacco business, we welcome
• 0:37
  Speaker 1: Yasik al Sak. Yasik is, the chief operating officer for
• 0:40
  Speaker 1: Philip Morris Internationally, joins us on the phone. Yasick, thanks
• 0:43
  Speaker 1: so much for joining us. I wondering if you could
• 0:45
  Speaker 1: just give us a sense for what Philip Mars inter
• 0:48
  Speaker 1: National's trying to do here to kind of make that
• 0:51
  Speaker 1: transition from complete reliance on cigarettes to vaping and heated
• 0:55
  Speaker 1: tobacco and other products Hi, thank you for having me. Look,
• 1:00
  Speaker 1: I mean we started years ago with you know, once
• 1:03
  Speaker 1: we developed the product, you know, developed the science around
• 1:06
  Speaker 1: the product to substantiate and be sure really that the
• 1:09
  Speaker 1: product is a better alternative for you know, those who
• 1:12
  Speaker 1: don't don't quit. We'll answer so far in a forty
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  Speaker 1: eight market. So this is I think the best testimony
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  Speaker 1: how serious we are about essentially one day stopped selling
• 1:23
  Speaker 1: a compastible product and I go to the smoke class
• 1:26
  Speaker 1: of noncompastible alternatives. Forty eight markets. Markets are in. This
• 1:31
  Speaker 1: market is well about a five percent now and continue
• 1:35
  Speaker 1: and and and and it's growing. Um, we allocated most
• 1:39
  Speaker 1: of our resources, more more than a sixty percent of
• 1:42
  Speaker 1: our resources and now for the alternative product. And I
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  Speaker 1: think we'll make this very wise decision. And I am
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  Speaker 1: very proud for you know, this company, the boards that
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  Speaker 1: we could stood up and say, look, there is a problem.
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  Speaker 1: Let's solve the problem. That offer those who you know,
• 1:58
  Speaker 1: don't switch, don't quit, sorry, offer a better alternatives. And
• 2:01
  Speaker 1: we're very committed one day to you know, have Philip Morris,
• 2:05
  Speaker 1: who will be just remembered that you know, this was
• 2:07
  Speaker 1: the company in the past Coal used to sell compostible cigarettes.
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  Speaker 1: I think it's for the benefit of a billion people
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  Speaker 1: and and many other smokers and many other people even
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  Speaker 1: get around them. So we are very excited about this
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  Speaker 1: whole of thing and we will not stop. Yes, like,
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  Speaker 1: how conclusive have your studies been about the degree to
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  Speaker 1: which these heat not burn products are safer or less
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  Speaker 1: cancerous than than smoked cigarettes. Look, it's very much ultimately
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  Speaker 1: to the to the authorities or organizations like f d
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  Speaker 1: A in a case of a US to to make
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  Speaker 1: the final assessment. If you would ask my scientists, we
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  Speaker 1: are we are very very sure that this products are
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  Speaker 1: better alternative as safe for product than a than a
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  Speaker 1: compastible cigarette, but to a degree that would actually have
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  Speaker 1: it doesn't mean does meaning allow mean it doesn't mean
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  Speaker 1: that the product is safe. Okay, the product is safer.
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  Speaker 1: I mean so today, based on this knowledge, we know
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  Speaker 1: that if you want to continue smoking, this is not
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  Speaker 1: a great idea, you should diver quit. If you can't quit,
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  Speaker 1: going a switch to this product, you have a very
• 3:15
  Speaker 1: significant reductions in exposure to the most harmful toxicons in
• 3:20
  Speaker 1: the smoke because we eliminated combustion, et cetera. Obviously, smoker
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  Speaker 1: while switching to this product to reduce the significantly the
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  Speaker 1: exposures so one would expect, and some of our our
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  Speaker 1: studies actually concluded that as much as you can obviously
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  Speaker 1: conclude based on a clinical status that this has a
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  Speaker 1: positive impact very similar in many occasions to to to
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  Speaker 1: to the same things as you would quit smoking. But
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  Speaker 1: as I said, it is up to the regulators of
• 3:51
  Speaker 1: d A issued very recently our PMT A authorization order,
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  Speaker 1: were awaiting every d A decisions with regards to the
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  Speaker 1: modified risk application, and I'm very helpful, I'm very hopeful
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  Speaker 1: that you know, so they will to reach that conclusion.
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  Speaker 1: So so yes, so generally, just clearly clarify a little
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  Speaker 1: bit for me, just what has the FDA ruled about
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  Speaker 1: your products to date and what else are you awaiting
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  Speaker 1: from them. The authorized US to the start commercialization of
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  Speaker 1: hicles the product on the US in the US based
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  Speaker 1: on the assessment that from the public health per perspective,
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  Speaker 1: this is a right thing to have that product in
• 4:39
  Speaker 1: the market, which means that the product has to prove
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  Speaker 1: that not only obviously worse than all is not worse
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  Speaker 1: than a cigarette, but the product and this is in
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  Speaker 1: a statement coming from DA significantly reduced the human potential
• 4:56
  Speaker 1: human exposure to a number of the very harmful constituents
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  Speaker 1: include think the carcinogens. This is not conclusive from every
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  Speaker 1: d A at this stage over the product. The usage
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  Speaker 1: of this product will reduce that risk. That's the subject
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  Speaker 1: of the second applications which is now pending with every
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  Speaker 1: d A. But as the first step, I think a
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  Speaker 1: statement from EVERYDA were very clear it is better, frankly speaking,
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  Speaker 1: for smokers if they don't quit to switch to this product. Yes, yes,
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  Speaker 1: I want to shop gears a little bit. Because you're
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  Speaker 1: talking about diversifying away from just cigarettes that are traditional
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  Speaker 1: in the way that they're smoked. What about the cannabis industry.
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  Speaker 1: Do you foresee a time when that will provide a
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  Speaker 1: significant portion of Philip Morris revenues? Definitely not that the stage.
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  Speaker 1: Our focus is entirely on eliminating the combustion from the
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  Speaker 1: from the tobacco, and I think if we really want
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  Speaker 1: to be successful in a in a shorter period of time,
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  Speaker 1: I'd rather have our company being focused just on the
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  Speaker 1: tobacco and the problem of smoking and the cigarettes, etcetera.
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  Speaker 1: I think any diversion at this moment of time, which
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  Speaker 1: is elude our resources. Having said so, while developing these products,
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  Speaker 1: we have developed a tremendous scientific and technological capability at
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  Speaker 1: Philip Moore's International. And as we know, many other products
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  Speaker 1: are also being used for the combustion, etcetera. And you know,
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  Speaker 1: based on our knowledge, this is not necessarily the best
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  Speaker 1: thing one could do. But as I said, from a company,
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  Speaker 1: from a corporate perspective, from the corporate objective perspective, for us,
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  Speaker 1: we just focus on solving that problem first and you know,
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  Speaker 1: then we'll see what the future will will bring up. Yes,
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  Speaker 1: like ol Sack, thank you so much for being with us.
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  Speaker 1: Yessa Ozaki is chief operating officer at Philip Morris International,
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  Speaker 1: joining us by phone. Interesting to see how they are
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  Speaker 1: shifting gears to try to increase, uh, the proportion of
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  Speaker 1: their business that is the heat not burn a product,
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  Speaker 1: the vaping products, and Bloomberg Intelligence estimates that about five
• 7:02
  Speaker 1: percent of the revenues and eighteen came from these products. Uh.
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  Speaker 1: The goal is by so just to give you a
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  Speaker 1: sense of how much they're hoping to ramp it up,
• 7:13
  Speaker 1: we've been talking about jobs all morning. After that disappointing
• 7:16
  Speaker 1: us Payrolls report, it was below all the estimates, including
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  Speaker 1: the lowest, with both the headline number coming in weaker
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  Speaker 1: than expected as well as wage gains. Here to look
• 7:26
  Speaker 1: under the hood of the US jobs market is Tom Gimble,
• 7:30
  Speaker 1: founder and chief executive officer of LaSalle Network based in Chicago,
• 7:34
  Speaker 1: but joining us here in our Bloomberg Interactive Broker Studios. Tom,
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  Speaker 1: You've been very bullish on this bond, on this job's
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  Speaker 1: market for a while, and I'm wondering, does this job's
• 7:43
  Speaker 1: report some of the other data we've seen make you
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  Speaker 1: change your view? You ready for this? I'm ready. It's
• 7:49
  Speaker 1: not a bad report today, Okay, later, grow down. If
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  Speaker 1: it's not a quarter of a million jobs every month.
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  Speaker 1: People are unhappy. We added seventy jobs, unemployment stayed flat.
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  Speaker 1: We've been going for what a hundred months in a
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  Speaker 1: row of job creation, and it's not and it's not.
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  Speaker 1: This is actually the argument, right, This is full employment, right,
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  Speaker 1: this is what happens. But but then my question is,
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  Speaker 1: if this is full employment, why are we not seeing
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  Speaker 1: wages increase at a faster pace. Because it's a global
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  Speaker 1: economy and we're not competing against the guy down the street.
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  Speaker 1: We're competing against people in China and India and Mexico
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  Speaker 1: and all tear. I would say that before the tariff
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  Speaker 1: conversation that when jobs can be done. Thirty years ago
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  Speaker 1: it was a call center for minimum wage being shifted overseas.
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  Speaker 1: Today it's legal work, accounting work, i T work, high
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  Speaker 1: salary jobs being shifted overseas. If you can have somebody
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  Speaker 1: who's got a PhD in a master's degree doing i
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  Speaker 1: T work or accounting work for of the cost, people say, oh,
• 8:51
  Speaker 1: that's not being patriotic. That's the exact same thing as
• 8:55
  Speaker 1: saying you don't hire you hire a freelancer to paint
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  Speaker 1: your house because you say fifty, Why don't you support
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  Speaker 1: the economy and give it to the person who's employing
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  Speaker 1: thirty people as a painting company. So what do you
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  Speaker 1: think the new kind of normal is in terms of
• 9:07
  Speaker 1: job creation given where we are in a cycle, And
• 9:10
  Speaker 1: you know it is because I guess the three months
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  Speaker 1: run right is still a hundred fifty jobs. But job
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  Speaker 1: creation is supply and demand right, So so demand is high,
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  Speaker 1: supply is low, and you can get what you can get.
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  Speaker 1: So you'd say, why isn't wages going up? If that's
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  Speaker 1: the case. They are going up a little bit. But
• 9:27
  Speaker 1: we're in a situation also that there isn't a new
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  Speaker 1: skill set that's being created. This isn't the mid two
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  Speaker 1: thousands when no one understood e commerce, no one understood
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  Speaker 1: data analytics. We're a more sophisticated employer market than we've
• 9:40
  Speaker 1: ever been before, and so things have just stabilized from
• 9:43
  Speaker 1: a standpoint of Companies aren't throwing crazy money out there anymore.
• 9:47
  Speaker 1: They understand how to drive revenues and profits ability, profitability,
• 9:51
  Speaker 1: and the biggest thing is the economy. It's interesting, it's
• 9:55
  Speaker 1: I don't believe it's as tied to the stock market
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  Speaker 1: as it used to be. And when I say used
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  Speaker 1: to be maybe a year or two years ago, where
• 10:01
  Speaker 1: the volatility on the stock market used to drive the
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  Speaker 1: job numbers a little bit. The c suite would get
• 10:06
  Speaker 1: a little bit nervous if there was vat Now the
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  Speaker 1: stock market volatility is the same way of global volatility
• 10:11
  Speaker 1: with Trump. Okay, well, it's put us putting aside stock
• 10:14
  Speaker 1: market volatility. There's been a lot of volatility and discussions
• 10:17
  Speaker 1: about trade. Uh. There was a great story on Bloomberg
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  Speaker 1: dot com this morning talking about how CEO s. Even
• 10:23
  Speaker 1: though they don't necessarily think that some of the worst
• 10:26
  Speaker 1: case scenarios with the trade wars will come to pass,
• 10:28
  Speaker 1: they have to start preparing for that. So, given the
• 10:31
  Speaker 1: fact that you're talking with chief executive officers about their
• 10:34
  Speaker 1: hiring plans, are they pulling back some of their plans
• 10:37
  Speaker 1: because of this uncertainty? No? Not not as of now.
• 10:40
  Speaker 1: I mean, the Mexico thing is so new, right, I
• 10:43
  Speaker 1: mean that was the window on that was was was
• 10:46
  Speaker 1: so short. But with with China, there's a short term
• 10:50
  Speaker 1: and there's a long term view, and a lot of companies,
• 10:53
  Speaker 1: especially small to mid sized companies that have always been
• 10:56
  Speaker 1: the job hotbed for where where jobs are creating in
• 11:00
  Speaker 1: this country, they do realize that there may be a
• 11:02
  Speaker 1: short term six to twelve months of a dip. But
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  Speaker 1: the whole goal of doing it is you either drive
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  Speaker 1: costs down because of the tariffs that that China will renegotiate,
• 11:12
  Speaker 1: or manufacturer will come back here and their businesses will
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  Speaker 1: increase eventually. That is the point. No one talks about
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  Speaker 1: it a lot. But if the price is even out,
• 11:20
  Speaker 1: if salaries overseas rise and the price to import, where
• 11:24
  Speaker 1: are you gonna do it? You're gonna build it in America.
• 11:27
  Speaker 1: It's a long term play, but that is the goal.
• 11:29
  Speaker 1: Are you Are you seeing any signs? I mean, as
• 11:32
  Speaker 1: you talk to I guess some companies that you know,
• 11:34
  Speaker 1: you guys are one of the biggest recruiters and staffers
• 11:36
  Speaker 1: around all right, our companies actually thinking that? Are they
• 11:40
  Speaker 1: investing in for that? Are they just saying, listen, let's
• 11:42
  Speaker 1: see how this plays out over the next you know,
• 11:44
  Speaker 1: could be a year two. The biggest difference between now
• 11:47
  Speaker 1: and the bull market of the mid two thousands is
• 11:50
  Speaker 1: it's not mass hiring, right that you don't see people
• 11:53
  Speaker 1: going out and signing a lease for another hundred thousand
• 11:55
  Speaker 1: square feet and hiring two people. But you do see
• 11:59
  Speaker 1: consistent hiring. You see companies back filling attrition, and that
• 12:03
  Speaker 1: where you're gonna start seeing things towards the latter half
• 12:06
  Speaker 1: of the year. I feel in in wage growth to
• 12:08
  Speaker 1: an extent is companies are now giving money to their
• 12:12
  Speaker 1: employees in advance of them having to leave and get
• 12:14
  Speaker 1: a counter offer. It's a really interesting phenomenon. They're giving
• 12:18
  Speaker 1: salary increases ahead of schedule so people won't go look
• 12:22
  Speaker 1: and leave in what areas of work, maybe not in broadcasting.
• 12:27
  Speaker 1: With the look you just give me, I will say that. No.
• 12:32
  Speaker 1: The reason why I say that is because if that's
• 12:34
  Speaker 1: the case again, it goes back to why we're not
• 12:36
  Speaker 1: seeing it in the average numbers. Well, the average numbers
• 12:38
  Speaker 1: are skewed two across the board with service workers and
• 12:41
  Speaker 1: different things. We've also see you see that the boost
• 12:43
  Speaker 1: minimum wage has a boost when they do that municipalities
• 12:46
  Speaker 1: and there's those issues. So I mean, sometimes the numbers
• 12:49
  Speaker 1: are the numbers, and you guys have economists on here
• 12:51
  Speaker 1: all the day. They're the ones to tell you why,
• 12:53
  Speaker 1: how the numbers can be manipulated. I'm telling you that
• 12:55
  Speaker 1: companies are hiring. It's a great job market if you
• 12:58
  Speaker 1: have the skills, and they're really other interesting fact is
• 13:01
  Speaker 1: employees aren't leaving to get more money elsewhere at other
• 13:03
  Speaker 1: companies because they don't want to be the lowman on
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  Speaker 1: the totem pole, because they're afraid, just like you're saying,
• 13:09
  Speaker 1: you think companies are afraid. So it's a really interesting
• 13:11
  Speaker 1: sociological dynamic and business. Tom gimble thanks so much. Tom Gimbell,
• 13:15
  Speaker 1: founder and CEO of LaSalle Network, one of the leading
• 13:17
  Speaker 1: staffing and recruiting firms in the country joining us in
• 13:20
  Speaker 1: our Bloomberg Interactive Broker Studio. We are trained on the
• 13:27
  Speaker 1: FED today and whether we're going to get rate cuts,
• 13:30
  Speaker 1: but trade is very much on the forefront for both
• 13:33
  Speaker 1: companies and traders. Enjoining us here to talk about what
• 13:37
  Speaker 1: big companies are doing, particularly the industrial space, with respect
• 13:41
  Speaker 1: to the threat of tariffs is our own of course.
• 13:43
  Speaker 1: Brooks Sutherland, Bloomberg opinion columnists joining us here in our
• 13:46
  Speaker 1: Bloomberg Interactive Broker Studios broke how much action have industrial
• 13:52
  Speaker 1: companies taken to immunize themselves from some of the tariffs
• 13:55
  Speaker 1: that have been threatened so far. So they've all been
• 13:58
  Speaker 1: talking about it in awful lot, and they've all been
• 14:01
  Speaker 1: looking at particularly minimizing their exposure to China. That could
• 14:06
  Speaker 1: mean sourcing products from different places, that could mean even
• 14:09
  Speaker 1: doing something as drastic as moving a manufacturing facility. Um.
• 14:14
  Speaker 1: But you know, in terms of actually limiting their exposure
• 14:17
  Speaker 1: to China, it's a little bit tricky because they all
• 14:19
  Speaker 1: evoke these localized manufacturing strategies that are meant to sort
• 14:23
  Speaker 1: of insulate them from the trade where fallout. And I
• 14:25
  Speaker 1: think what we've really seen is that you can have
• 14:28
  Speaker 1: a localized manufacturing you know strategy, but you're never going
• 14:31
  Speaker 1: to have your entire supply chain concentrated in an individual
• 14:35
  Speaker 1: country anywhere where you sell your products. And so I
• 14:37
  Speaker 1: think you see these manufacturers continually keep getting tripped up
• 14:41
  Speaker 1: in the trade war, and I think part of the
• 14:43
  Speaker 1: difficulty is there's just so much uncertainty that even making
• 14:46
  Speaker 1: these kinds of changes just gets very tricky. I think
• 14:50
  Speaker 1: you have to make a bet on first of all,
• 14:52
  Speaker 1: do you think Trump's going to get reelected? Are we
• 14:54
  Speaker 1: still going to be talking about this in a few years,
• 14:56
  Speaker 1: or do you think this is going to peter out? Um,
• 14:59
  Speaker 1: you know, these very expensive decisions, and I just don't
• 15:02
  Speaker 1: think that a lot of CEOs know where to go.
• 15:05
  Speaker 1: And the other thing is that you may make a
• 15:07
  Speaker 1: move that that ends up looking very stupid later on
• 15:10
  Speaker 1: down the road. Go pro s that it was moving
• 15:12
  Speaker 1: its facilities in China to Mexico, and now of course
• 15:15
  Speaker 1: we have terroriffs being put back on Mexican goods, and
• 15:19
  Speaker 1: who knows how long that will last. So it's just
• 15:20
  Speaker 1: I mean, it's a very dicey environment to make any
• 15:23
  Speaker 1: types of changes to your supply chain, but you have
• 15:25
  Speaker 1: to do it. At the end of the day, if
• 15:27
  Speaker 1: you want to try to protect your business from these
• 15:29
  Speaker 1: increased costs. It's interesting you raise a good point at
• 15:31
  Speaker 1: I think about some of these global industrial companies based
• 15:33
  Speaker 1: in the US, and I think about their supply chains,
• 15:36
  Speaker 1: and they're just you know, mind, they're so incredibly complex.
• 15:41
  Speaker 1: I want to realistically what they can even do at
• 15:44
  Speaker 1: the end of the day. It's mentioning to see, um,
• 15:46
  Speaker 1: you know, how much they just pass along or take
• 15:49
  Speaker 1: into the margin. Are you hearing anything from the companies
• 15:51
  Speaker 1: about any kind of percentages they think they can pass
• 15:54
  Speaker 1: long versus mitigate through you know, relocating some some suppliers.
• 15:59
  Speaker 1: So right now, the industrial sector has actually been very
• 16:02
  Speaker 1: successful at passing on price increases, but that is based
• 16:05
  Speaker 1: on the tariffs that we've seen thus far, and you
• 16:08
  Speaker 1: are starting to see some cracks in the industrial economy.
• 16:11
  Speaker 1: We had obviously those not great numbers from I S
• 16:15
  Speaker 1: M earlier this weekend from I H S Market on
• 16:17
  Speaker 1: the manufacturing activity in the U S sort of teetering
• 16:20
  Speaker 1: on the brink of slipping into a contraction. So I
• 16:23
  Speaker 1: don't know how much demand there is to soak up
• 16:25
  Speaker 1: another round of price increases. And that's why it gets
• 16:28
  Speaker 1: really problematic when you start talking about putting tariffs on
• 16:31
  Speaker 1: the remaining three billion dollars of goods from China or
• 16:35
  Speaker 1: you know, following through on this Mexico threat. So one
• 16:38
  Speaker 1: argument has been that these tariffs, should they go into effect,
• 16:42
  Speaker 1: could be a short term pain for these companies and
• 16:45
  Speaker 1: for the broader U S economy, but down the road
• 16:48
  Speaker 1: it will actually be a benefit for the United States
• 16:50
  Speaker 1: because a lot of these companies will just simply bring
• 16:53
  Speaker 1: their supply chains back to the US and that will
• 16:57
  Speaker 1: add to the economy. Here. Have you seen any evidence
• 17:01
  Speaker 1: of companies looking to do that to simplify their supply
• 17:04
  Speaker 1: chains perhaps bring more back to the United States. No,
• 17:08
  Speaker 1: And I think part of the issue is that most
• 17:11
  Speaker 1: of the companies that I cover are multinational and sort
• 17:14
  Speaker 1: of the flip side of the argument that you're making
• 17:16
  Speaker 1: is that you can see a lot of these companies
• 17:17
  Speaker 1: find themselves shut out of China because China is increasingly
• 17:22
  Speaker 1: realizing it probably needs to develop its own homegrown technologies.
• 17:25
  Speaker 1: You see this in aviation, where they're investing very significantly
• 17:29
  Speaker 1: in developing a rival to Boeing and Airbus jets. Now
• 17:32
  Speaker 1: there's still a few years away from that, but I
• 17:34
  Speaker 1: think the trade war has probably reinforced how important that
• 17:37
  Speaker 1: is to them. Similarly, in gas turbines, they're investing significantly
• 17:41
  Speaker 1: and having technology that competes with the highest level of
• 17:44
  Speaker 1: the g and Siemens produced and Semens CEO s just
• 17:47
  Speaker 1: the other day he expects them to have that capability
• 17:49
  Speaker 1: by so, how much market share or GE and Siemens
• 17:52
  Speaker 1: going to be able to get in the gas turbine
• 17:54
  Speaker 1: market in China, which is expected to be the biggest
• 17:57
  Speaker 1: market for gas turbines for the foreseeable few Sure, so,
• 18:00
  Speaker 1: I think if you make too drastic of a move
• 18:03
  Speaker 1: and try to refocus yourself on the US, you do
• 18:06
  Speaker 1: risk being cut out of some of these other markets
• 18:08
  Speaker 1: that realistically are going to be growing a lot faster
• 18:11
  Speaker 1: than the U S, which is fairly mature at this point.
• 18:13
  Speaker 1: It's interesting. I think a lot of industrial companies are thinking,
• 18:16
  Speaker 1: I've I've read a lot about our work, and it
• 18:18
  Speaker 1: we can maybe pull our production or sourcing out of China,
• 18:21
  Speaker 1: maybe put in some other countries that might be you know,
• 18:24
  Speaker 1: almost as good, almost as efficient. Have you heard any
• 18:27
  Speaker 1: particular countries or regions that might benefit from the change
• 18:30
  Speaker 1: in supply chain. Yeah, I think people are looking at Vietnam,
• 18:34
  Speaker 1: They're looking at Indonesia, They're looking at those areas. But
• 18:37
  Speaker 1: of course those countries can be economically linked to what
• 18:41
  Speaker 1: ultimately happens with China. If you see a drop off
• 18:44
  Speaker 1: in demand in China, that can sort of make its
• 18:46
  Speaker 1: way throughout the Southeast Asian economy. And so I think
• 18:50
  Speaker 1: there are risks to that as well. Obviously there are
• 18:52
  Speaker 1: some political questions with those economies as well. And the
• 18:56
  Speaker 1: other thing is just that this is very expensive. You
• 18:58
  Speaker 1: just can't do this over night. And so I think
• 19:00
  Speaker 1: that gets back to the question of how long do
• 19:03
  Speaker 1: you think we're going to be in this mess for?
• 19:05
  Speaker 1: And you know, do you think that the dynamic has
• 19:08
  Speaker 1: now shifted so much that China is completely unsafe to
• 19:11
  Speaker 1: use as a as a sourcing for your products or
• 19:13
  Speaker 1: do you think that you're going to wait this out?
• 19:15
  Speaker 1: So what other levers do these big industrial companies have
• 19:19
  Speaker 1: that are multinationals? Can they? I mean, is it just
• 19:22
  Speaker 1: cutting jobs and cutting costs? I think a lot of
• 19:26
  Speaker 1: it is going to be cutting jobs and cutting costs.
• 19:29
  Speaker 1: I mean, I think you've already seen a pretty significant
• 19:31
  Speaker 1: move in the industry toward automation, towards robotics, and I
• 19:34
  Speaker 1: think if you think that this is the new normal
• 19:37
  Speaker 1: of having higher costs that you have to deal with
• 19:39
  Speaker 1: in your business, that's only going to incentivize these companies
• 19:41
  Speaker 1: to invest even more in that technology and sort of
• 19:44
  Speaker 1: intermediate some of these other cost pressures. Um Now, of course,
• 19:48
  Speaker 1: you know, it's sort of an ironic twist for a
• 19:50
  Speaker 1: president who really campaigned on increasing manufacturing jobs and instead,
• 19:55
  Speaker 1: you know, one side effect that we are already seeing
• 19:58
  Speaker 1: from the trade wars that there's been a lot of
• 19:59
  Speaker 1: cut to the manufacturing sector. Challenger Gray had numbers out
• 20:03
  Speaker 1: earlier this week that showed a six increase in manufacturing
• 20:07
  Speaker 1: job cuts so far this year relative to this period
• 20:09
  Speaker 1: last year. So you're already feeling the pain there. The
• 20:12
  Speaker 1: jobs report today only three thousand manufacturing job gains. That's
• 20:16
  Speaker 1: very weak numbers, sort of consistent with the trend we've
• 20:18
  Speaker 1: seen so far. And so you know, I do think
• 20:21
  Speaker 1: ultimately manufacturing companies aren't passing costs on directly to the
• 20:24
  Speaker 1: consumer because they don't sell necessarily to you and me.
• 20:28
  Speaker 1: But the consumer, the ravage American, is going to feel
• 20:31
  Speaker 1: it in one way or another. Brook Sutherland, Thank you
• 20:34
  Speaker 1: so much. Brooks Southerland, Deals and Industrials columnist for Bloomberg Opinion,
• 20:38
  Speaker 1: joining us in our Bloomberg and Reactive Brooker studio. She
• 20:40
  Speaker 1: covers all things industrials and I think that was very
• 20:42
  Speaker 1: interestingly say that Brooks comments about how we are really
• 20:45
  Speaker 1: seeing it in the manufacturing numbers starting to come out
• 20:48
  Speaker 1: over the last couple of months, a little bit of
• 20:49
  Speaker 1: you know, a crack in the industrial story. Well, to me,
• 20:53
  Speaker 1: my big takeaway is they just don't have that many lovers.
• 20:56
  Speaker 1: They don't have the ability to bring a lot of
• 20:59
  Speaker 1: jobs back here because they cater to all of these
• 21:01
  Speaker 1: other countries. It's not so simple, but it's interesting. Yeah,
• 21:05
  Speaker 1: and and and it goes back to the you know
• 21:06
  Speaker 1: what has happened really over the last couple of generations,
• 21:09
  Speaker 1: which is a really a global supply chain across many industries.
• 21:12
  Speaker 1: The questions can you unwind that? Very difficult appears. This
• 21:16
  Speaker 1: is Bloomberg. So we've talked a lot about the macro economy.
• 21:22
  Speaker 1: Let's take a look at specific companies that are actually
• 21:25
  Speaker 1: tapping the market and doing wonderfully. Online fashion retailer Revolved
• 21:29
  Speaker 1: Group jumped it's in its trading debut after raising two
• 21:32
  Speaker 1: d and twelve million dollars in its I p O.
• 21:35
  Speaker 1: Joining us now is the CFO of that company, Jesse
• 21:37
  Speaker 1: Timmerman's from Cerritos, California. Jesse, congratulations on the I p O.
• 21:42
  Speaker 1: It does seem to be well received. Uh, increase in
• 21:47
  Speaker 1: the share prices after the I p O. Just give
• 21:50
  Speaker 1: us a sense? What is Revolve Group? Yeah, and thanks
• 21:53
  Speaker 1: for having me. Revolved Group is really you know, what
• 21:55
  Speaker 1: we believe is that the leading fashion destination for this
• 21:59
  Speaker 1: next generation can humor that millennial female that's looking for
• 22:02
  Speaker 1: the latest and greatest fashion. So, Jesse, so how do
• 22:06
  Speaker 1: you target your customers? Like, how do you attract your customers?
• 22:10
  Speaker 1: Per Se? Yeah, it's a it's a combination UM of
• 22:13
  Speaker 1: our data driven merchandising strategy and you know, bringing the
• 22:16
  Speaker 1: latest and greatest style, but combined with a very social
• 22:20
  Speaker 1: media brand marketing, influencer led marketing strategy that really speaks
• 22:24
  Speaker 1: to this millennial consumer. You know, where we want to
• 22:27
  Speaker 1: be where she is and right now she is on
• 22:28
  Speaker 1: her phone and UM constantly UM looking for the latest
• 22:32
  Speaker 1: and greatest and discovering. So, but what does that mean, Jesse?
• 22:36
  Speaker 1: Because I think every retailer wants that, right, So is
• 22:38
  Speaker 1: this advertising on Instagram and Facebook and uh you know
• 22:41
  Speaker 1: that that which is which is what every retailer is
• 22:44
  Speaker 1: trying to do or is it uh something different? Yeah,
• 22:48
  Speaker 1: about of our our marketing budget goes towards influencer led
• 22:53
  Speaker 1: brand marketing, so that means influencers will wear our clothes
• 22:58
  Speaker 1: and speak about our brand on on Instagram and their
• 23:01
  Speaker 1: followers then see that, um and react. The other our
• 23:05
  Speaker 1: marketing strategy is the more you know, what we call
• 23:06
  Speaker 1: today is a more traditional digital based advertising, the Googles
• 23:10
  Speaker 1: and facebooks of the world. So give us a sense, um,
• 23:13
  Speaker 1: kind of how the competitive landscape for you? Who do
• 23:16
  Speaker 1: you really compete against? Uh, for these consumers and their dollars. Yeah,
• 23:21
  Speaker 1: it's really tough, um, you know to call out a
• 23:23
  Speaker 1: single competitor. We feel like we're well positioned, um in
• 23:26
  Speaker 1: this intersection of the landscape moving towards e commerce from
• 23:31
  Speaker 1: the traditional department stores and also the millennial purchasing power
• 23:34
  Speaker 1: increasing over time. You know, there's a lot of uh,
• 23:37
  Speaker 1: you know, good companies out of Europe that are doing
• 23:38
  Speaker 1: well in connecting with this consumer. There's some some in
• 23:41
  Speaker 1: the private markets, um, you know, if we look, if
• 23:44
  Speaker 1: we look to the traditional department stores, we found they haven't,
• 23:46
  Speaker 1: you know, they haven't been able to connect with this
• 23:48
  Speaker 1: millennial consumer the way we have. I think it's really interesting.
• 23:52
  Speaker 1: I'm looking right now at some of the offerings and
• 23:55
  Speaker 1: the concept of using influencers is something that has been
• 23:58
  Speaker 1: gaining steam and is really compelling to me. So is
• 24:02
  Speaker 1: it something where an influencer can wear something and then
• 24:06
  Speaker 1: you can click in and buy it? In other words,
• 24:09
  Speaker 1: is there some kind of linking of your website to
• 24:13
  Speaker 1: some of these Instagram posts or other things? Yeah, you know,
• 24:18
  Speaker 1: there's a very what we believe, you know, creates a
• 24:20
  Speaker 1: brand halo, so more than anything, that creates that connection
• 24:23
  Speaker 1: with the consumer. And she's seeing our our influencers and
• 24:26
  Speaker 1: our clothes UM every day as she as she looks
• 24:28
  Speaker 1: for the latest and greatest. Now that said, there are
• 24:30
  Speaker 1: ways to go from Instagram to our website and then
• 24:34
  Speaker 1: most recently, we were chosen as one of the UM
• 24:37
  Speaker 1: twenty first partners with the Instagram Direct Checkout, which creates
• 24:40
  Speaker 1: another avenue for for that customer to check out directly
• 24:43
  Speaker 1: from Instagram. All right, Jesse, you're the CFO, you're the
• 24:46
  Speaker 1: money person. You just got two twelve million dollars in
• 24:49
  Speaker 1: your account? How are you going to spend it? Yeah,
• 24:53
  Speaker 1: and and maybe I will clarify that, Um, most of
• 24:56
  Speaker 1: that was secondary, So not much going on the balance
• 24:58
  Speaker 1: she were. You know, we're We've been profitable for fifteen
• 25:02
  Speaker 1: out of sixteen years. We have cash on the balance
• 25:04
  Speaker 1: sheet with no debt, so you know, we're well positioned. Um.
• 25:07
  Speaker 1: You know, there's there will be opportunities to you know,
• 25:10
  Speaker 1: expand in the future, but um, you know, a big
• 25:13
  Speaker 1: piece of this was secondary. Jesse, I want to pick
• 25:16
  Speaker 1: up what where you're talking about the Instagram check out,
• 25:18
  Speaker 1: because that's sort of where I was heading, and that
• 25:19
  Speaker 1: seems to be an increasing push by some of these
• 25:22
  Speaker 1: big social media companies, with Facebook starting to sort of
• 25:25
  Speaker 1: play around with payments. Also. I'm just wondering how much
• 25:28
  Speaker 1: do you think that is the future in some ways
• 25:31
  Speaker 1: of social media and how it interacts with its advertisers
• 25:35
  Speaker 1: and its retail brands. Yeah, it's um, you know, we're
• 25:38
  Speaker 1: in the very early stages, so it's hard to tell
• 25:41
  Speaker 1: at this point. Um Um, but I think it is
• 25:44
  Speaker 1: interesting and consumers are looking for, you know, new ways
• 25:47
  Speaker 1: to transact, you know, whether it's you know, outside of
• 25:50
  Speaker 1: the more traditional credit cards into the alternative payments or
• 25:53
  Speaker 1: installment plans UM. So again very early we think it.
• 25:57
  Speaker 1: You know, it could be powerful, but um, you know,
• 25:59
  Speaker 1: too early to call so jess it give us a
• 26:01
  Speaker 1: sense of where you get your product, the clothing that
• 26:05
  Speaker 1: your suppliers. How do you keep on keep in front
• 26:07
  Speaker 1: of what is a fickle uh consumer segment? Yeah, that
• 26:11
  Speaker 1: is one of the core pillars to the company. Mike
• 26:14
  Speaker 1: and Michael are co founders, were not fashion guys. Um,
• 26:17
  Speaker 1: they were you know, one was an engineer, one was
• 26:20
  Speaker 1: a finance major. So from day one they approached this
• 26:24
  Speaker 1: UM this proposition very differently, and it's been data driven
• 26:27
  Speaker 1: from day one. So we look at data UM and
• 26:30
  Speaker 1: we read the latest and greatest and then drive behind that.
• 26:33
  Speaker 1: So we carry a very broad and shallow inventory base.
• 26:36
  Speaker 1: If the data tells us something hits, then we'll go
• 26:39
  Speaker 1: deep on that. But it's a constant iteration. We have
• 26:41
  Speaker 1: over forty styles on the site and constantly gathering data there.
• 26:45
  Speaker 1: We also have developed a portfolio of over twenty of
• 26:48
  Speaker 1: our own brands and we use that data to tell
• 26:50
  Speaker 1: us where we need to go and develop additional brands
• 26:53
  Speaker 1: or additional styles within those own brands. Very interesting. Jesse
• 26:56
  Speaker 1: Timmerman's chief financial officer Fort Revolved grew at the company
• 26:59
  Speaker 1: went public today. The stock is a fifty and fifty cents,
• 27:04
  Speaker 1: so a fantastic first day of trading for the company
• 27:08
  Speaker 1: Revolved Group. Jesse, thanks so much for joining us. It's
• 27:11
  Speaker 1: interesting how they're you know, the retail industry continues to evolve.
• 27:14
  Speaker 1: You know that the traditional bricks and mortar in the
• 27:16
  Speaker 1: mall that seems to be a thing in the past,
• 27:19
  Speaker 1: and we're seeing new models come into the retail space
• 27:21
  Speaker 1: in this one obviously extraordinarily successful in the stock market.
• 27:24
  Speaker 1: Day one. Thanks for listening to the Bloomberg P and
• 27:28
  Speaker 1: L podcast. You can subscribe and listen to interviews at
• 27:31
  Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm
• 27:35
  Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on
• 27:39
  Speaker 1: Twitter at Lisa abramowits one before the podcast. You can
• 27:42
  Speaker 1: always catch us worldwide on Bloomberg Radio.