Latest / Bloomberg Intelligence / Tesla Growth Story May Be Shifting To Solvency Story

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Tesla Growth Story May Be Shifting To Solvency Story · 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 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. Tesla's shares absolutely tumbling to the
0:25
Speaker 1: lowest levels since two sixteen, tumbling below two dollars for
0:29
Speaker 1: the first time in more than two years. A former
0:32
Speaker 1: Tesla bulla said that Frankly, Elon Musk faces code read
0:36
Speaker 1: Joining us now is David Coudla, his chief executive officer
0:39
Speaker 1: in chief investment strategist at Mainstay Capital Management. I want
0:44
Speaker 1: to start with Tesla just to get your sense. Do
0:47
Speaker 1: you think right now that Tesla faces a tipping point
0:51
Speaker 1: where we really are going to see the shares going
0:54
Speaker 1: to free fall. I think they're already in free fall.
0:57
Speaker 1: Good morning. I think that, uh, you know, there's a
1:01
Speaker 1: couple of factors impacting the stock right now that have
1:04
Speaker 1: caused really a precipitous free fault from the two sixty
1:10
Speaker 1: seven level that that it was holding at several weeks ago.
1:15
Speaker 1: But the you know, when they came out with the
1:19
Speaker 1: kind of pull out all the stops cost cutting plan,
1:22
Speaker 1: that was kind of the code read condition. I think
1:25
Speaker 1: that the web Bush Securities uh letter or report referred
1:30
Speaker 1: to and and it's uh, it's I think that we're
1:34
Speaker 1: really just seeing the story continue to unravel. Uh, it's
1:39
Speaker 1: more than just the demand uh that continues to demand
1:44
Speaker 1: diminish for all models of the of Tesla vehicles that
1:48
Speaker 1: we talked about earlier this year. We're just we're just
1:52
Speaker 1: seeing that, you know, the liquidity and solvency issues, you know,
1:56
Speaker 1: coming back to the floor. So, David, are you of
1:59
Speaker 1: the opinion that Tesla is going to need to come
2:01
Speaker 1: back for more capital, maybe sooner rather than later. Well,
2:07
Speaker 1: you know they just did, right, they just had become
2:11
Speaker 1: in addition to that two point three billion that they
2:13
Speaker 1: just read, they say that's going to get into free
2:15
Speaker 1: cash flow positive. Are you in that park? Are you
2:17
Speaker 1: in that uh? Do you think that's correct? Or do
2:20
Speaker 1: you think they're gonna have to even come back again? Well,
2:23
Speaker 1: they probably will. You know, there's there's the school of
2:27
Speaker 1: thought out there that uh, they may they may be,
2:31
Speaker 1: if they may be constantly coming back to the capital
2:34
Speaker 1: markets to stay in business, if they can't build and
2:38
Speaker 1: sell enough vehicles to to achieve profitability, and that's the
2:42
Speaker 1: real question at this point. We question if they'll have
2:45
Speaker 1: a profitable quarter anytime this year and if if they
2:49
Speaker 1: can't achieve profitability at some point. Um, you know, it's
2:54
Speaker 1: not about a growth story anymore, it's about a solvency story.
2:58
Speaker 1: Tesla shares are currently down four point six per cent,
3:02
Speaker 1: so off the earlier lows, but still a pretty pretty
3:05
Speaker 1: rough day, especially after Friday's decline of seven point six percent.
3:09
Speaker 1: I want to shift gears to Ford because they announced
3:12
Speaker 1: that they were cutting seven thousand jobs in order to
3:16
Speaker 1: right size its business model or basically cut some of
3:19
Speaker 1: its management trim costs to increase profitability. Does this cause
3:23
Speaker 1: a surprise, especially given the fact that this is part
3:26
Speaker 1: of the restructuring announcements that they made last fall. No,
3:30
Speaker 1: not at all. It's it's interesting, Um, you know, we
3:36
Speaker 1: we had last fall a big announcement by General Motors
3:41
Speaker 1: of what was coming when they had their head count reduction.
3:46
Speaker 1: We didn't have that out of Ford. We had they
3:50
Speaker 1: had UM made reference to it, but we didn't have
3:53
Speaker 1: the detail. But that has been an evolutionary process. We've
3:57
Speaker 1: been talking about this with clients for months and working
3:59
Speaker 1: with our ants. It started at the highest tiers of management,
4:04
Speaker 1: uh several months ago, and they've been working through each
4:07
Speaker 1: each of the tiers of management down to the rank
4:10
Speaker 1: and file workers in the in the salary workforce. And
4:13
Speaker 1: we're actually now in the final stretch of that. Uh.
4:17
Speaker 1: You know, when this letter came out from Jim Hackett,
4:19
Speaker 1: when we've seen all the details as part of their
4:21
Speaker 1: global restructuring plan, you know, a multi year plan uh
4:26
Speaker 1: two of globally restructuring the corporation that in that seven
4:32
Speaker 1: thousand jobs cut globally, those in North America. Uh, some
4:40
Speaker 1: of those already accomplished fifteen hundred through the voluntary buyouts
4:43
Speaker 1: last year, and now these layoffs that have been happening
4:48
Speaker 1: through through this year already really really now it's just
4:52
Speaker 1: now we're hearing this big announcement of five hundred people
4:55
Speaker 1: that will be notified tomorrow. But this has been an
4:58
Speaker 1: evolutionary process that's been ha for months. So David, you know,
5:02
Speaker 1: there's only and there's obviously I'm sure a fair amount
5:05
Speaker 1: of costs that can be cut across you know, the
5:07
Speaker 1: global auto industry. But at some point they're gonna have
5:09
Speaker 1: to really start driving top line growth. Where do you
5:12
Speaker 1: think growth for Ford and maybe for GM can come from.
5:16
Speaker 1: Is it simply new products or do they have to
5:18
Speaker 1: go to new markets? Do you see a top line
5:20
Speaker 1: growth story for Ford? I think there is a top
5:24
Speaker 1: line growth story. I think that they've demonstrated that they
5:27
Speaker 1: continue to do well in the legacy business, and we
5:30
Speaker 1: we separate the business now the auto industry into two,
5:34
Speaker 1: the legacy business and the future of mobility and the
5:37
Speaker 1: legacy business of crossovers SUVs. In in the segments of crossovers, SUVs, trucks,
5:45
Speaker 1: they've done very well UH this year and their stock
5:49
Speaker 1: price reflects that with the gains in Ford stock in teen.
5:54
Speaker 1: It's been an outperformer in the UH in the segment
5:57
Speaker 1: and relatively S and P five, it's been a tremendous performer.
6:02
Speaker 1: And if we look at, you know, what's coming in
6:04
Speaker 1: addition to this global restructuring, what's coming in terms of
6:07
Speaker 1: autonomous UH, their UH, their investment in riviewing, their investment
6:13
Speaker 1: in their own investments and autonomous and some of the
6:15
Speaker 1: partnerships that they're working with Toxic UH, other automakers we're seeing.
6:22
Speaker 1: We're seeing that the some vision, that strategic vision out
6:26
Speaker 1: Afford UH and Auto two point out that we think
6:29
Speaker 1: the growth is there as they shore up their operations
6:32
Speaker 1: around the world for profitability and that davidising Business David Goodla,
6:36
Speaker 1: thank you so much for being with us, chief executive
6:38
Speaker 1: officer and chief investment strategistic mainstay Capital Management. Let's turn
6:55
Speaker 1: our focus to Deutsche Bank shares now at an all
6:58
Speaker 1: time record low. UH. There are a lot of reasons
7:01
Speaker 1: why people downgrading their profitability forecasts, the Commerce bank tie
7:05
Speaker 1: up that failed, but there also are some regulatory issues,
7:10
Speaker 1: money laundering concerns, management issues with how these issues are treated.
7:16
Speaker 1: And joining us here is Elliot Stein. He's senior litigation
7:19
Speaker 1: analyst for Bloomberg Intelligence. So Elliott I want to start
7:22
Speaker 1: with his New York Times story outlining how there were
7:26
Speaker 1: some bank who are tasked with the anti bank staff,
7:29
Speaker 1: who are tasked with the anti money laundering responsibilities, that
7:32
Speaker 1: flagged suspicious transactions related to President Trump and his son
7:35
Speaker 1: in law Jared Kushner, and that senior management didn't take
7:39
Speaker 1: them up on it. What did you make of the story. So,
7:43
Speaker 1: I think it's important to remember the context here in
7:46
Speaker 1: Deutsche Bank has been under cloud of money laundering investigations
7:51
Speaker 1: for a while. UM. They settled in seen with the
7:56
Speaker 1: New York Department Financial Services and the Federal Reserve over
7:59
Speaker 1: money launder issues, including transactions in Russia. UM. But what's
8:04
Speaker 1: interesting is that they did not settle with the Justice
8:06
Speaker 1: Department at that time, and so when that happened, UM,
8:09
Speaker 1: we expected that there would be continued investigations by d
8:14
Speaker 1: o J and ultimately settlements or fines at some point.
8:17
Speaker 1: What's happening now is that every time you see more
8:21
Speaker 1: links between Deutsche Bank and Trump related investigations, it adds
8:25
Speaker 1: a further cloud to those ongoing investigations, and as we
8:29
Speaker 1: saw the market react today, it adds to the headline
8:32
Speaker 1: risk for the bank. So what is the materiality in
8:35
Speaker 1: your perspective of some of these continuing money laundering issues
8:39
Speaker 1: for the company. Well, so overall, we based on their
8:43
Speaker 1: UM find the amount of their fins in tween UM
8:47
Speaker 1: and UM when they settled UH investigations related to sanctions
8:51
Speaker 1: violations which are similar but not exactly the same, we
8:56
Speaker 1: expect their ultimate UM exposure at this point to be
9:00
Speaker 1: to a billion dollars based on the amounts they paid
9:02
Speaker 1: to New York authorities. And we looked at um how
9:05
Speaker 1: much d J settlements usually are as a ratio compared
9:08
Speaker 1: to the New York settlements. Um, it could be a
9:11
Speaker 1: little lower than that. But you know, there's additional materiality
9:14
Speaker 1: going to your question, Paul, Um, if management in the
9:17
Speaker 1: bank intentionally suppressed suspicious activity reports because they wanted to
9:23
Speaker 1: keep Donald Trump's business, it does raise questions of intentionality.
9:28
Speaker 1: Um and uh, that could make an ultimate penalty worse.
9:34
Speaker 1: Just to put this in perspective, because you bring some
9:36
Speaker 1: really interesting insights here, the idea that the d o
9:39
Speaker 1: J did not sign off on an anti money laundering
9:42
Speaker 1: type of settlement with Deutsche Bank. How long has this
9:46
Speaker 1: gone on and when do people expect that to wrap up? Well,
9:50
Speaker 1: that's a great question, and as with almost all d
9:53
Speaker 1: o J investigations, you never really know what the timeline
9:56
Speaker 1: is because there's just not a lot of transparency. So
9:58
Speaker 1: I'm a little surprised that it's been going on for
10:00
Speaker 1: this long. I do think that maybe the Trump related
10:02
Speaker 1: investigations add a complication to these investigations that we haven't
10:07
Speaker 1: seen in you know, ever before when you have the president,
10:10
Speaker 1: um as part of these probes as well. UM, So
10:13
Speaker 1: we don't have a firm timeline. UM. So unfortunately I
10:16
Speaker 1: can't give you a better answer. So what's what's been
10:18
Speaker 1: the response from Deutsche Bank? It just seems like it's
10:21
Speaker 1: been years and years. I mean, you know, do they
10:24
Speaker 1: have any specific response to the latest allegations or is
10:26
Speaker 1: it just like we're trying to get our house in order.
10:29
Speaker 1: You know, yeah, I know a lot of it is that,
10:31
Speaker 1: and that they have taken remediation measures UM, and they've
10:34
Speaker 1: bolstered their compliance UM procedures. Uh. Their response in the
10:39
Speaker 1: New York Times article was that, UM, no person was
10:43
Speaker 1: ever restricted from escalating the issue. Further, of course, that
10:47
Speaker 1: doesn't necessarily absolve them if management decided to suppress the
10:52
Speaker 1: s a R S for nefarious reasons. We should just
10:55
Speaker 1: note that President Trump did tweet about the story this morning, uh,
11:00
Speaker 1: saying basically that it is fake news and talking about
11:05
Speaker 1: how the mainstream media is the true enemy of the people. Uh.
11:09
Speaker 1: So he was just saying, you know, the failing New
11:11
Speaker 1: York Times keep writing phony stories about how I didn't
11:14
Speaker 1: use money banks because they didn't want to do business
11:16
Speaker 1: with me. Wrong, it is because I didn't need money
11:18
Speaker 1: very old. So he is coming out against it. Just
11:21
Speaker 1: real quick, just your real quick here, Elliot. I'm wondering
11:24
Speaker 1: from your perspective, do you actually think that the shares
11:27
Speaker 1: are falling in light of this story or is it
11:29
Speaker 1: other issues? Well? I think there are multiple issues going
11:33
Speaker 1: on in the news. Um. You you alluded to some
11:35
Speaker 1: of them at the outset um. But I do think
11:38
Speaker 1: that every time you see these stories surface about Deutsche
11:41
Speaker 1: banks money laundering risks, it reminds the market that these
11:45
Speaker 1: issues are still outstanding, that we still expect a pecuniary
11:48
Speaker 1: fine at some point, and that there may be ongoing issues.
11:52
Speaker 1: Elliot Stein, thank you so much for joining us. Ellie
11:54
Speaker 1: is a senior litigation animals for Bloomberg Intelligence, joining us
11:57
Speaker 1: here in our Bloomberg eleven three oh studio. Well, we
12:14
Speaker 1: saw it beyond meat. The fact that there shares absolutely
12:19
Speaker 1: skyrocketed more than doubling after the initial public offering recently,
12:23
Speaker 1: it just shows how much demand there is for alternative
12:27
Speaker 1: food sources, for new ways to think about what we
12:30
Speaker 1: eat and how we eat. Joining us now is someone
12:33
Speaker 1: who invests in early stage companies that are trying to
12:36
Speaker 1: rethink the food that we eat here in America and worldwide.
12:40
Speaker 1: Jordan Gasper, she's managing partner of Excel Foods based in
12:43
Speaker 1: New York. Jordan, thank you so much for joining us
12:45
Speaker 1: here in a Bloomberg Interactive broker Studios. So why don't
12:47
Speaker 1: you just tell us what kinds of companies you actually
12:50
Speaker 1: invest in? Great, thank you so much for having me. UM.
12:53
Speaker 1: So we are a venture fund that's solely investment package
12:56
Speaker 1: food and beverage brands that are better for you, so
12:57
Speaker 1: all healthy living directed brands. UM. We have thirty six
13:01
Speaker 1: active portfolio companies and we typically invest in eight to
13:04
Speaker 1: ten new companies a year, and we can participate as
13:07
Speaker 1: those companies raise capital many times over as they grown. UM.
13:12
Speaker 1: The companies range in size from pre revenue to over
13:15
Speaker 1: a hundred million revenue UM and so it's a wide
13:17
Speaker 1: range of the different types of companies that we see. UM.
13:20
Speaker 1: All of them are available in distribution. They can be
13:23
Speaker 1: purchased at Whole Foods or car Toss Costco or Target
13:27
Speaker 1: or Walmart UM. But all of the usual places that
13:29
Speaker 1: we would hope to see great products like this. So
13:32
Speaker 1: what's maybe one of the cool one or two companies
13:35
Speaker 1: that you think is really kind of a unique story
13:38
Speaker 1: in your portfolio. Family Foods. You know, it's a company
13:42
Speaker 1: that's a Mexican American brand that has come up very
13:45
Speaker 1: quickly in the space. UM. It's a family owned company
13:48
Speaker 1: that recently took in its first investors. UM. We're very
13:51
Speaker 1: proud to be part of the company, and they really
13:54
Speaker 1: have an authentic story as they're creating the next generation
13:58
Speaker 1: of Latin foods. UM. And we think about, you know,
14:01
Speaker 1: products like chips and tortillas and taco shells. We haven't
14:06
Speaker 1: seen that much innovation in those categories. And so here
14:09
Speaker 1: we have grain free chips, we have dairy free casos,
14:13
Speaker 1: we have grain free taco shells. It's a totally different
14:17
Speaker 1: spin on what are staples that are in all of
14:19
Speaker 1: our diets. One thing that you were just saying off
14:21
Speaker 1: air was that those processed foods and the foods that
14:25
Speaker 1: we grew up with are not going to exist in
14:28
Speaker 1: the near future. What do you mean by that? So
14:31
Speaker 1: I think that it's important to understand that there's two
14:33
Speaker 1: different types of changes that are happening simultaneously in the space.
14:37
Speaker 1: The first is is we have a huge amount of
14:39
Speaker 1: authentic young brands that are coming into the space very
14:41
Speaker 1: quickly and scaling, and they're they're the the companies that
14:45
Speaker 1: are securing the shelf space at the major retailers. So
14:48
Speaker 1: those are you know, young brands that are telling different
14:51
Speaker 1: stories and have unique products. On the flip side, the
14:55
Speaker 1: incumbents are reformulating their holdings and so we're seeing the
14:59
Speaker 1: organic version of this or the better for you version
15:02
Speaker 1: of that, and their substitutions and the basic ingredients that
15:05
Speaker 1: processed foods are coming out as we're seeing um, you know,
15:10
Speaker 1: sort of better quality ingredients substituted. So you're talking about
15:14
Speaker 1: the cokes, the pepsis the proctor gamble is whoever creates
15:19
Speaker 1: food and puts it out their craft craft highs. You
15:22
Speaker 1: said also that some of the end games for some
15:25
Speaker 1: of these companies that you invest in might be acquisitions
15:27
Speaker 1: by some of these larger companies. How quickly is that happening,
15:31
Speaker 1: because it seems like right now there's still are a
15:35
Speaker 1: lot of processes, there's still are a lot of foods
15:37
Speaker 1: that you know, are familiar from ten twenty years ago
15:40
Speaker 1: still on the shelves. So it's happening very quickly. UM,
15:43
Speaker 1: and I think that from our perspective, our hope is
15:45
Speaker 1: is that all of our companies get acquired. So I'd
15:48
Speaker 1: say that, you know it, there's been more capital direct
15:51
Speaker 1: into the space than ever before. You know, we've seen
15:54
Speaker 1: a lot of institutional capital coming very quickly, which is
15:56
Speaker 1: a good sign that will have more and more brands
15:58
Speaker 1: that will grow larger because they'll have this sufficient capital
16:01
Speaker 1: to do so. UM. The strategics are more inquisitive, they
16:05
Speaker 1: are more excited and interested in partnering with young brands. UM.
16:08
Speaker 1: We certainly hear from most of them, and they all
16:11
Speaker 1: know let us know that they're excited to get involved
16:13
Speaker 1: in the space with earlier stage companies in a variety
16:16
Speaker 1: of different ways, whether it be funding them, acquiring them,
16:19
Speaker 1: or operationally assisting them. There's been the launch of many
16:22
Speaker 1: of these accelerator programs UM the venture capital arms. But
16:26
Speaker 1: there's also behind the scenes, there's the use of their resources,
16:29
Speaker 1: which is something that's pretty unique. And so some of
16:32
Speaker 1: these strategics will say, I've got trucks that can be
16:34
Speaker 1: used for distribution, or i have line time and manufacturing
16:37
Speaker 1: that can be used. So they're getting creative because they
16:40
Speaker 1: recognize that that the future of their businesses is in
16:43
Speaker 1: these young brands. Are there any food or maybe what's
16:45
Speaker 1: the next food category, or are there any food categories
16:49
Speaker 1: that haven't really innovated that we're there. You know, there's
16:53
Speaker 1: no new products, there's nothing there that you kind of
16:55
Speaker 1: think it might be interesting that it may be kind
16:57
Speaker 1: of approaching your firm for funding. UM. So we're big,
17:01
Speaker 1: big believers in grain free right now. It's the next
17:03
Speaker 1: evolution of gluten free and obviously the nutritional panel is
17:07
Speaker 1: just better for you UM, particularly in baked goods. UM.
17:10
Speaker 1: One of the things that you know, we've been excited
17:11
Speaker 1: about is, you know, baked goods have been pretty stale. UM.
17:14
Speaker 1: They haven't been good for you. I'm highly processed a
17:17
Speaker 1: lot of sugar, and we're seeing companies like Susie's, which
17:20
Speaker 1: is one of our portfolio companies that actually is a
17:23
Speaker 1: more paleo minded product, but it's almond based and so
17:27
Speaker 1: the panels actually clean UM and you know, there's better
17:30
Speaker 1: quality ingredients, more mindfulness in it, and so it's reflected
17:33
Speaker 1: and even in the way that the product has to
17:35
Speaker 1: be distributed, it's a frozen product because the ingredients aren't
17:39
Speaker 1: able to sit on shell for many, many weeks. Is
17:42
Speaker 1: this a regional issue? In other words, are these products
17:45
Speaker 1: being adopted on the coasts and then everywhere else in
17:48
Speaker 1: the United States? Not so much. I would have said
17:50
Speaker 1: that a couple of years ago. But if we look
17:52
Speaker 1: at one of our companies, Alpha Foods, which is our
17:55
Speaker 1: own plant protein company UM they launched last year as
17:58
Speaker 1: their first year, and all of the major retailers came
18:01
Speaker 1: in quickly, so it was Walmart, Target, Costco, Kroger, and
18:06
Speaker 1: it was all at once. So we saw mass and
18:09
Speaker 1: conventional move faster and natural then fascinating story. It's not
18:12
Speaker 1: just the uh the I p O of beyond meat,
18:15
Speaker 1: it's kind of all across the food spectrum and lots
18:18
Speaker 1: of cattle being allocated to that. Jordan Gaspar thank you
18:21
Speaker 1: so much for joining us. Jordan's managing partner of US
18:23
Speaker 1: Sell Foods based here in New York City, joining us
18:26
Speaker 1: in our Bloomberg Interactive Broker studio. Well. As a trade
18:45
Speaker 1: war escalates and terrorists flight back and forth between China
18:48
Speaker 1: and the US, China's textile industry looks particularly vulnerable, as
18:52
Speaker 1: the US is its biggest buyer. To get a sense
18:55
Speaker 1: of how big a deal this possibly could be. We
18:57
Speaker 1: welcome our next guest, Edward Hertzman. Word is the founder
19:01
Speaker 1: and president of Sourcing Journal, based here in New York City.
19:03
Speaker 1: He joins us in our Bloomberg Interactive Broker studio. Edward,
19:07
Speaker 1: thanks for joining us. When I think terrorifts on clothes
19:10
Speaker 1: and apparel, I'm thinking this is a big deal potentially. Yeah.
19:15
Speaker 1: I don't think anyone really realizes how um significant this
19:18
Speaker 1: can be. Too. Already a very fragile industry. Um, you're
19:23
Speaker 1: talking about when when we look at China, Uh, it
19:26
Speaker 1: accounts for almost fort of the exports of clothing, almost
19:30
Speaker 1: seventy of the exports for footwear, and and roughly around
19:34
Speaker 1: the exports for accessories coming into this country. So you're
19:38
Speaker 1: talking a lot of product made by a lot of retailers,
19:42
Speaker 1: which there isn't really a lot of places for people
19:46
Speaker 1: to go in a short you know, in a short
19:47
Speaker 1: period of time to mitigate this risk. So, um, this
19:51
Speaker 1: is going to have a real big impact Q three
19:52
Speaker 1: in Q four if it does happen. So how how
19:54
Speaker 1: big of an impact? I mean, how how substantial will
19:57
Speaker 1: the tariffs essentially be and how much will they be
20:01
Speaker 1: unable to pass on? To consumers. Well, if we look
20:04
Speaker 1: at it, we're just talking about top line, right, we're
20:07
Speaker 1: adding to the product coming into the country. Um. A
20:10
Speaker 1: lot of the orders for back to school and holiday
20:12
Speaker 1: have already been placed, so the wholesales and the retailers
20:15
Speaker 1: already have margin in mind that they're playing with. To
20:18
Speaker 1: add on that is something that the industry doesn't even
20:22
Speaker 1: have to work with. So the question is who can
20:25
Speaker 1: absorb some of it in the short term? Who could
20:27
Speaker 1: who's gonna have to pass it along. I mean you
20:29
Speaker 1: already have retailers like Walmart saying hey, we're gonna have
20:32
Speaker 1: to increase prices on things like furniture because that that
20:35
Speaker 1: just got hit. Um. I think the more price sensitive
20:39
Speaker 1: you are, the more of an impact that's going to
20:41
Speaker 1: have in the short term because you just don't have
20:43
Speaker 1: the margin to play with. And I think that the
20:46
Speaker 1: idea that we have these alternative sourcing destinations. Yes, we're
20:49
Speaker 1: going to see a migration to Vietnam, we're going to
20:51
Speaker 1: see more people going to places like India, Indonesia, Bangladesh.
20:56
Speaker 1: But let's not forget they're not foolish either. They only
20:58
Speaker 1: have so much capacity and with that comes and baked
21:00
Speaker 1: in inflation because there's gonna be a rush to go there.
21:04
Speaker 1: And a year ago, you know, we had the same
21:06
Speaker 1: conversation although nothing happened, people already started migrating, but a
21:10
Speaker 1: year over year still we're talking about very, very small
21:13
Speaker 1: percentage of migration out of China. And the the issue
21:18
Speaker 1: is that we've we've come to a period of time
21:20
Speaker 1: where people have stopped chasing the cheapest needle and they're
21:23
Speaker 1: now chasing the smartest needle. Because the conversation is kind
21:26
Speaker 1: of migrated to speed and flexibility and lowering inventory, which
21:30
Speaker 1: China is really the perfect place to be. So if
21:33
Speaker 1: we start moving to countries like Bangladesh, while we may
21:36
Speaker 1: save money, we lose the flexibility and quick turn replenishment.
21:41
Speaker 1: So there's a lot of factors that are gonna that
21:43
Speaker 1: are gonna hurt this industry. So give us a sense
21:44
Speaker 1: of kind of where we are with these tariffs here,
21:47
Speaker 1: that these are proposed tariffs coming up and we don't
21:49
Speaker 1: even know what retail goods are, which clothing and apparel
21:53
Speaker 1: goods will potentially be subject to these terroriforts. Correct, Yeah,
21:56
Speaker 1: So the you know, the technical term the tranche for
21:59
Speaker 1: if this goes into effect to technically hit all the
22:02
Speaker 1: remaining imports from from China, and included in that list
22:06
Speaker 1: would be apparel, footwear, and some textiles. Um, So in
22:10
Speaker 1: that case, it would be you know, all the products
22:12
Speaker 1: that we're talking about right now. Um, the point you
22:17
Speaker 1: made is it's suggested that this will come up in
22:20
Speaker 1: the summer. If it does pass, it will probably hit
22:23
Speaker 1: around Labor Day and so the goods that are coming
22:25
Speaker 1: into the country around that time will be affected. We're hoping,
22:29
Speaker 1: you know, that this is posturing. Um, we're in a
22:34
Speaker 1: situation where, uh, you know, I'm not a political analyst,
22:37
Speaker 1: so I can't say for sure, but the economy still
22:40
Speaker 1: is showing strong signs of things are pretty positive. Why
22:44
Speaker 1: does he want to mess around and create a global
22:46
Speaker 1: you know, trade war which will negatively negatively impact the economy.
22:51
Speaker 1: So some people are hoping that somehow this will be
22:53
Speaker 1: resolved before the summertime. A lot of people are pricing
22:56
Speaker 1: that in currently to markets certainly that it will be
23:00
Speaker 1: resolved at some point before this goes into effect. I'm
23:03
Speaker 1: just wondering which areas of retail are the most price sensitive,
23:07
Speaker 1: because you were talking about how that matters here. Well, obviously,
23:10
Speaker 1: you know, when you talk about you know, commodity goods, UM,
23:13
Speaker 1: things that are well, first we talk about like perishable goods,
23:16
Speaker 1: things like that that that don't have a long life
23:19
Speaker 1: life sheelf that have to be replenished quickly. Um. You know,
23:22
Speaker 1: when you talk about retailers that are selling things for
23:26
Speaker 1: you can imagine what impact of that would be. And
23:30
Speaker 1: the consumers that are purchasing from there don't have a
23:33
Speaker 1: lot of discretionary income. Some of the luxury retailers are
23:36
Speaker 1: concerned that when things like this happen, it trickles down right,
23:39
Speaker 1: so you go from luxury to aspirational luxury, aspirational luxury
23:42
Speaker 1: down to the mid stream you know, you know, mid tier,
23:45
Speaker 1: mid tier down to you know, off price and discount.
23:47
Speaker 1: So it could potentially hit every single facet of retail.
23:51
Speaker 1: And then when it when you're talking about discretionary uh
23:55
Speaker 1: income and discretionary products, um, these are tend to be
23:58
Speaker 1: the things that are affected uh first when it comes
24:01
Speaker 1: to purchasing decisions. Well, it's interesting we did hear Walmart
24:05
Speaker 1: in the last quarterly earnings talk about, you know, suggesting
24:08
Speaker 1: that there might be some some issue with terms of
24:10
Speaker 1: raising prices and inflation. What is your sense of how
24:12
Speaker 1: much just real quickly the you think that the consumer
24:15
Speaker 1: will have to bear if in fact this does go through.
24:18
Speaker 1: I think what the retailers are saying is that in
24:20
Speaker 1: the short term they're going to try to work um,
24:24
Speaker 1: They're gonna try to work through it. Um. But that's
24:27
Speaker 1: just a short term solution. So some people what they're
24:29
Speaker 1: going to do, whether that's the right or wrong decision,
24:32
Speaker 1: is they're going to try to maybe UM, move some
24:34
Speaker 1: goods in pre labor day and try to that. This
24:38
Speaker 1: is what happened before G twenty, a lot of people
24:40
Speaker 1: started airing goods in and hoping that it would um
24:43
Speaker 1: avoid the increased tariffs. Now the problem there is again
24:46
Speaker 1: it's counterintuitive to keeping your inventory levels low. UM. But
24:50
Speaker 1: these are only short term solutions. I mean, you're gonna
24:52
Speaker 1: see anywhere from a ten to twenty pc increase at retail,
24:55
Speaker 1: depending on the on the product. Edward Hurtsman, thank you
24:58
Speaker 1: so much for being with us. Thank you. Edward Hertzman
25:00
Speaker 1: is founder and president of Sourcing Journal, based in New York.
25:05
Speaker 1: This is one of the the biggest trade publication catering
25:10
Speaker 1: to the sourcing, apparel and textile industry. Thanks for listening
25:14
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
25:16
Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
25:19
Speaker 1: platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney.
25:23
Speaker 1: I'm Lisa A. Bram Wits. I'm on Twitter at Lisa Bramwoits.
25:26
Speaker 1: One Before the podcast, you can always catch us worldwide
25:29
Speaker 1: on Bloomberg Radio