Bloomberg Businessweek Weekend - July 15th, 2022

edition of Bloomberg Business Week. We got another red hot inflation print for the month of June that has sparked talks of a possible one hundred basis point interest rate hike when the fo MC meets towards the end of July. Tim coming up on the broadcast today, We're going to explore the impact of those rising prices on the luxury goods market. We do that with the CEO of Sacks and then find Dining. We talked about that with chef

Richard Sandoval. Plus our cover story details a five billion dollar calamity in the desert of Saudi Arabia just a mere half a trillion dollars. It is all of that to come first up. One big reason that consumer prices continue to soar steep energy prices and all they have come down from recent highs they're likely to remain elevated for months, if not years. Bloomberg's Will Kennedy writes about it in the Economic section a Business Week. Lyn Duan

edited the piece. She's Bloomberg News Managing editor of Energy and Commodities here in the Americas. We spoke to Lynn on Wednesday, just as President Joe Biden was beginning his trip through the Middle East to meet with the region's leaders, with energy security high on the agenda. I don't know how you can look at the supply and demand fundamentals of this market and think that we can continue downward in either oil or gas. But the traders are thinking

that right now. Traders. You know, we just had a story yesterday that I will highlight. It's a bit wonky, but if you read it, it's a scoop about the fact that traders are paying some of the highest premiums for physical barrels of oil in Europe than they have in years. So if you want to ask the traders, who probably know more about this than the economists and the politicians out there, they might tell you that oil

is actually still very expensive. Here's the thing that I think about land and I think about supply demand, and I think okay, first of all, we continue to grow in terms of population, we continue to be a fossil fuel based economy globally, and yes, there's a lot of talk about alternatives, but we ain't there yet. So to me, that just says, of course, energy prices are going to stay high. That is correct. We're only halfway through the summer. We have hundreds of millions of people out there on

the roads and in the air. We are so close to already passing pre pandemic demand levels, and the International Energy Agency is saying that we're only going to grow more. In Sure, a possible recession, Sure some inflation could could eat into demand growth, but I'm not sure there's anybody projecting that demand is going to fall well. And isn't that too like you were talking about traders, that we're

talking about traders? I mean, isn't some of We were just talking about this with some other members of our Bloomberg team, and that what we've seen in terms of oil prices come down, that's just a trader's market because it concerns about a recession, but it's not necessarily the fundamental story. So we're talking about a difference between the macro and and and and market traders versus the physical oil traders, right, and so you know on a macro level, yes,

there are recession fears. Yes, there is a fear that you know, a recession is going to drive the oil market lower because of a drop in demand. But remember that, aside from the pandemic lockdowns in and the demand that dropped, then the only economic downturn in modern history that is actually lowered oil demand was in two thousand eight. Every other recession has actually just slow demand growth. It's really

interesting to hear Lynn. I wonder though, when it comes to what Mike McGlone of Bloomberg Intelligence tells us all the time, the cure for high prices is high prices. What about the ability of producers to come in and say, hey, we want to take advantage of these high prices, so we're gonna flood the market here? Not so right? So the question is if demand is inelastic and it's going to stay where it is, then where does supply budge?

And that's a bigger question. And Will Kennedy actually does a good job of laying out the prospects of oil production growth. I mean, really, the power of rests in the hands of Saudi Arabia and the UAE, and they are the the only world producers who may be willing and have the capacity to raise it. And that's why you have Biden going out to Saudi Arabia for a visit, because he realizes that the world realizes that, and there is a lot of pressure on OPEC plus right now

to be the saviors of the oil world. I love this line. It's it's not clear how much more cruise Saudi Arabia or the UAE has to give. As you said, a Ramco, Saudi Arabia state oil giant claims he can pump twelve million barrels a day. He has hit that rate only on so bring it back home. And we've heard from u S domestic producers in the big oil conglomerates that they're like, they've seen the booms and bust. They're not quick running to ramp up production and and

Wall Street doesn't want to want them to. I mean, honestly, for two three years now, what Wall Street has been drilling into the shale drillers in Texas is that they need to stop spending so much money, stop going after growth, rain it in and try to make more money out of the production that they have on already. So something's got to give here, because this is not sustainable for not the world and not for American consumers. What gives?

I mean, I've got to think that if we see a prolonged period of high oil prices in this way, supply gives before demand gives, because that's like a more permanent price signal that some of these industries and world producers can live off of and invest in. But also, you know, we we touch on the energy transition and say do we ramp up the alternatives? We exactly, I mean,

we we we touch on it. It's you know, the argument that we make is a really huge surge, an abrupt one like this can actually be incredibly disruptive for the energy transition, not just because of you know, high oil prices raising inflation, thus prompting federal policymakers to raise interest right, but also because uh governments tend to buckle under the pressure of inflation and create a lot of

subsidies for fossil fuel industries as opposed renewable energy. But if you see it for a prolonged amount of time, then you can really incentivize it. That was Linda on She's Bloomberg News Managing editor of Energy and Commodities. In the America's Coming Up, we hear from an executive at retail giant American Eagle on building a more responsive supply chain. When the pandemic hit us, it was also a route awakening that, like you know, the distribution centers were very fragile.

You're listening to Bloomberg Busy this week. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovik from Bloomberg Radio. We talked a lot about retail this past week. Even got an economic data point on retail. It's a sector, as you know, that went through a lot of disruption and innovation during the pandemic. With e commerce reigning supreme. Well today, retailers continue to face questions about consumer demand and of course

those rough supply chains. One company is rethinking the way it distributes it's goods. Shaker not Rogen is executive vice president and Chief Supply chain Officer at American Eagle Outfitters. He joined us in the studio to help break down

the company's collaborative approach. Even before like pandemic hitos. We started envisioning the future of the supply chain, how it's going to look very different and so um if you look at where there was a lot of costa escalation in you know, doing business, it was really like from what I call the middle mind the time the product enters into the country to the time it actually gets to the doorstep. And that was the fastest growing expense

that we saw. And it's across the board. Like every industry, every retailer says that the shipping expenses, transportation, transportation expenses, they were like they were not leveraged. And so we

wanted to change the game. We wanted to change the game, and we started thinking about what would the disruption look like, because we wanted to disrupt ourselves before the industry disrupts us, right, So we started laying out a strategy, and that strategy was all about getting the inventory closer to the end consumption point and doing it in an omni channel fashion so that you could you could maximize the value of

the inventory, reduce the transportation cost. And the minds traveled hold on, how do you how do you get the inventory closer to the place of consumption, especially when this stuff is created half a world away. Yes, so what we talked about it is once it actually comes into the country, the time basically, like let's take an example, right, like if a pair of American Egan jeans was actually sold in a store, um, it would be sold on

a Sunday, read on a Monday. The allocations would happen on a Wednesday, like you would actually pick back on a Thursday. It would show up like that, the trucks would leave on the following Monday. It would show up in the in the customers, in the stores like two weeks later pretty much. And so the time it takes was about like fourteen days the worst case scenario. And so what we wanted to do is how do we

get to daily replenishment of the stores. And also, like you know, when you when you allocated the store, the product in the store is like literally like two and a half days away, right, So that like that compression of the time was what we were trying to aim for. And so what we did is basically we created a

lot of decentralized locations. Instead of shipping from halfway across the country, we started putting distribution centers closer to where people live, started holding the inventory like the Amazon in terms of other distribution, absolutely like the Amazon model. And when we presented this, people thought I was crazy because it works for like you know, diapers and and soda, not necessarily for fashion because fashion change is pretty fast.

And so what we had to do was really power our systems with a lot of advanced like thinking from a perspective, and that drove the inventory decisioning and the sciences associated with it, which really helped us like transformative. So basically, all of a sudden, tims really into yoga pants and they're like, you know, he lives in New York. You get kind of a spike there, you know, and others right, and the data says, we gotta get more yoga pants to New York. Yes, it's as simple as that.

It's as simple as that, and like you know, creating a responsive supply chain. And when the pandemic hit us, it was also a rude awakening that like, you know, the distribution centers were very fragile, like you know, we have two distribution centers, one in Ottawa and one in Hazelton, and the population was was affected there, and so we were we were at the risk of actually like shutting down the business because if those two facilities go down and the stores are not available, then you run the

risk of actually not having any any of these operations at all. You don't have the flexibility to move to something like one too. That's it, That's exactly the point. But even the increased overhead of having more logistics centers that makes effort by having them closer to where the demand is. What we did was actually addressed that increased overhead. So we went into a sharing model instead of us

owning the facilities. We started like doing that with like fifteen other brands, fifty other brands, and that helped us like actually make the supply chain much more variabilized. As you said, you guys are doing more distribution centers more

closer to where people are buying, and that's changing. How much of that has to do with carbon footprint, Well, it has everything to do with regenerative networks, because I I think, like people talk about sustainability, sustainability just acknowledges the fact that we have screwed up the world, right, and so we're saying that we want to be carbon neutral but what we intend to do with this new model that we're building out is to create a regenerative business,

which means that giving it back, giving back to the society. So as an example example, so when we built out this distribution network that we did, American Eagle grew the business by right, but we reduced the number of parcels which are actually going to the doorstep by and it was less tough because exactly because instead of having stores like you know, do all of your shipments, we were consolidating them into fewer locations which could do the shipments.

And so the number of packages which are ending up at the doorstep were much much lesser than what it was, though the volume grew. The second thing, it actually reduced the number of miles because like you're that much closer to the end consumer. So we reduced the number of parcel miles by billion miles. That's a number. What percentage is that, Well, it sounds like a lot, but you know what I mean. Like so for for for us itself,

it was about right. And and then let's take like you know, the cost of doing business, because we were sharing our network with other brands through this, through the consolidations sharing economy models. So the cost was much lower, so we were able to deliver packages cheaper and a day and a half faster. Right, So it's better for the planet, it's better for profits, it's better basically because you're tapping into the local economy. Right, So it was

better all the way around. And so we thought this is a fundamentally a good business model that we should now begin to scale and democratize access for everyone. And and that is the mission of this company. And to just to give you some context, I come from, and I'm proud to say that on radio that I come from slums in India where access to funerals, paying for funerals or paying for education, paying for electricity was a

big thing. And all we know is how to share and supply chains is anything but going to be an abundant resource going forward. We don't have enough people. Where do we find all the people? Like it's going to the price escalation is here to stay from a supply chain perspective, right, And so so that and so the notion of sharing right opens up capacity everywhere in the network. That was Shaker, not Rogen. He's EBP and chief supply chain officer at American Eagle Outfitters. More later on retail

when we talk to the SAX CEO. Coming up next, Why Wells Fargo is spending millions to help pring diversity to the housing development business. This is Bloomberg Broadcasting from the financial capital of the World, Bloomberg eleven Frio in New York to Washington, d C. Bloomberg one to Boston, Bloomberg one oh six one does San Francisco, Bloomberg Name sixty to the country Sirius xm Jeddo one nine team, and around the globe the Bloomberg Business app and Bloomberg

Radio dot Com. This is Bloomberg Business Week. As you know, Wells Fargo has been dealing with a series of scandals and regulatory issues for years, and it's operating under a growth cap imposed by the Federal Reserve. A last week, we even had Congresswoman Maxie and Waters say that the bank should faced an investigation by US regulators into allegations at the bank denied black refinancing applicants and hosted mock

interviews to fulfill diversity numbers. To be fair to signs to every coin, we should point out that Wells Fargo tim has been working to make some changes, including awarding a forty million dollar grant to help cultivate diverse housing developers. We've got with us Gina Marriott, whose principle at Northern Real Estate Urban Ventures. It's a community development organization that's

engaged in a holistic approach to real estate development. Gina joins us from Washington, d C. Gina, how are you. I'm thank you. How are you all doing. We're doing well. Thanks so much for joining us. Talk to us about how you're gonna use this forty million dollar grant. It's

called Growing Diverse Housing Developers. Well, the funds were awarded by Wells Fargo to three regional c d f ies community development Financing institutions, and they have selected a cohort of twenty seven diverse developers to provide funding support both for their enterprise as well as their real estate projects. Well and talked to us about a little bit about what kind of impact this could do, the money itself

and really changing the system. And I know, Gina, you know, I kind of laid it out because Bloomberg viewers they know Wells Fargo and they're not alone in terms of the banking society and banking industry and leaving out, you know, minorities and being more inclusive, especially when it comes to housing. So tell us how you think this money can help move the needle. Well, this money is certainly going to

help my organization. I've been in business for more than twenty years and have more than twenty seven years of experience developing affordable housing for other people, never having enough capital to be able to develop my own projects, and so the funds well Spargo has provided will allow me to one UM leverage their grants to hire people and to support my balance sheet and will it will also allow these c d I fies to create products that

will help diverse developers UM develop their their projects. It's been very challenging going to conventional banks to try to get funds both early funding, the early stage funding for development projects as well as construction and permanent financing. So this this program helps provide the kind of support developers need in order to get their projects done on their own. If I can just follow us the word challenging, it's got to be even harder than challenge, right, is it? Okay? Listen?

I was almost put out of business actually by one of these large institutions. UH, I was working with a smaller institution that was bought by a larger, you know, brand name financing organization, and that organization would not honor the deal that the smaller organization made to me. Right, smaller uh, smaller financing entity. So the the eight thousand pound guerilla basically took over this company and wouldn't honor

the deal, almost put me out of business. So we need organizations like Wells Fargo to fund the c d fies that will provide financing for people like me, because the major institutions won't do it. GA, How how do you build affordable housing right now? I mean, construction costs are high, materials costs are high, land is high, interest rates are going up. How do you do it? It's

very difficult. I mean I have a couple of projects right now in development UM that are about to close that just experience these kinds of things, both an increase

in interest rate and an increase in construction costs. And you know, I would say, luckily, there was also luckily and not so luckily, there was an increase in the rental rates because HUD issues new rents every year for affordable housing, developments and those two went up, so that helped absorb some of the increase in interest rates and

construction costs, but not all of it. So then what you have to do is really go back to these municipalities that provide what we call gap funding, which is, you know, all of the private money you can get, all of the low income housing tax credit investment you get, there's usually still a gap, right, There's still some some chunk of money that the private institutions can't fund. And so really what we look to now is those states and cities to provide additional support to these projects so

they can get them done. Is this about also um genior creating projects? You know, if we're gonna really embrace as a world diversity inclusion, that means these kind of projects and maybe a traditionally white neighborhood. Is that part

of this. Yes, especially in the district of Columbia. Actually UM the basically the financing programs that support affordable housing, UH give you a higher score if you're in a neighborhood that has higher incomes, and so you know that's just that just happens to be, you know, neighborhoods that are whiter in terms of its population. That was Jinna Merritt, principle at Northern Real Estate Urban Ventures on the Growing

Diverse Housing Developers Grant program. You're listening to Bloomberg Business Week. Up next, the CEO of a robotic startup tells us about his vision for a human machine team and why savage droids don't mean you'll be out of a job. Still a little nervous Newsky, I'm not so sure about this one. All right, this is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and bloom were quick

takes Tim Stinovik from Bloomberg Radio four. Robotics closed another round of funding earlier this week million dollars in a Series B funding led by Tiger Global that brought the company's total funding raise to over one million dollars. We sat down with Samuel Reeves. He's the company's founder and CEO for Robotics, it's a safety and security platform for autonomous machines. He told us how that money will be deployed in What it's like raising capital in a tough

macro environment. It's certainly a challenge, but we're attached to a big macro trend. We're we're a part of the fourth Industrial Revolution, and regardless of what happens in in any momentary downturn um, this is a generational shift in

the way the world works. So there's still a lot of money out there, and if you look at there's there's still a lot of dry powder, so there is But was it was it noticeably different raising this round in terms of how long it took, the conversations you had to have, the time it took from you know, talking to the x LPs to actually get him to sign on the dotted line. Give us some color there.

I mean, I think automation is unique. So what what What was noticeably different for us is that the world is now bought into the idea that everything is going autonomous, So we're kind of special in in that way. Robotics funding is still going strong, so I think a lot of folks are seeing a turn down. But but we actually had had a lot of interest in the round and ultimately came on a set of partners we're really happy about. We'll tell us a little bit more about

your business. You guys have been around, correct, so tell us because it's not like you're creating the cool elon Mosk Cuminoid robot. You're stuff, but you're controlling the devices and you're also playing into the security side of this. Explain a little bit about what you guys do. Who are some of your big customers? Sure, sure, we're a

fork is a communications platform for smart machines. So we have this unique fusion between safety and security that enables us to deliver information to these machines that they can trust, and so that lets them address what what globally we term as the huge risk of the next generation of automation. So just come out and say it. They're they're going to kill us. They're not gonna kill us if they

have the fourth platform. But this is the this is the you know, So it's nothing you're making the robots, right, No, no, no, we were to help other people make them. Yeah, you have the platform that helps people program them, communicate, communicate with them. Right. And And the fact is autonomous robotics are still is still a developing field. I mean, ai is has has reached a great point of development, but

it's still in development. And these machines are still perceiving the world and and acting in the world in a way that UM is in progress, and so if they're going to be moving around in unstructured environments around people, that poses a huge amount of safety risk. Conversely, if they're connecting the internet, they're all connect to the internet and so they're all exposed to huge already risk. So whether it's safety risk or security risk, there's a lot

of risk on this this mega trend. So that's that's what we're out here to help people address. Well, tell us a little bit about some of your major customers, right, you play in the O E M market. I mean, I'm thinking warehousing, agriculture, construction, manufacturing, mining, transportation, delivery. I mean, you play into so many aspects of our world. Tell us about some of the customers, what kind of demand you're seeing, and what it tells you maybe about our

you know, our macroeconomic environment. Sure, so, so we have about three customers about those are really big, big companies. So fortunate with thousand sized customers. Um. Oh, so so you're when your public I'll be able to actually put up on Bloomberg function right. So, so, so it's interesting we're integrated into everybody's technology roadmap. So so we hold a lot of proprietary information about what all these companies are doing, so they get really touchy about us talking

about them. But a few that have that have been public about about using forder. Toyota Material Handling. They're the biggest forkliff manufacturer in the world. Boston Dynamics. You probably seeing very YouTube friendly, right, So they did to sixty minutes where one of our products had a little cameo appearance. Hexagon, big Swedish conglomerate. They make control systems for pretty much

every production environment like that. So tell me about the demand you know that you're seeing from such a cross section of so many different industries that play into our global economy. What's the demand that you're seeing and what does it tell you about We're all at this juncture right of trying to figure out, okay, recession, what's next. Europe's dealing with problems. Asia's dealing with problems. We are

dealing with problems. What does the outlook and the demand based on what you're seeing, what does it tell you about the economic outlook? Well, I mean I think everybody, um, everybody that makes a machine and everybody that uses a machine is thinking about automating it um And this this came from the labor shortages that were that were pre COVID.

I mean, there are a lot of discussions of labor shortages now in the post COVID world where you know, like Heathrow Airport today saying they're curtailing flights because they can have enough workers to move the luggage around, right, But this was a fact of life for people in farms and warehouses and factories, welders, you know, pre COVID. So the automation journey has been something that has been happening for decades, and so I think macroeconomically, people are

still investing in this. They see it as a way to smooth production. They see it as a way to bring back production into their their home area. Talk to us about when you, you know, make your trip here today on the train from Philadelphia, and you look around and you see where are the areas that stick out for you that are just right for automation. So when you when you when you drive to the train station,

you could be in an autonomous car. When you get on the train, you could be in an autonomous train. When you pass the warehouses on the way to New York, you you're passing autonomous warehouses. You're passing autonomous factories, you're passing autonomous farms, when you pass a golf course, turf care is going autonomous. When you're in an office, I bet your cleaning machines here are are either autonomous or

thinking about become autonomous. Retail stores are becoming autonomous. And that's but that's, you know, before we get to the really visible things, like like the cars that have gotten a lot of attention lately. We hear robotics or we hear autonomous, and we're like, okay, what does that mean for global workforces? How do you see it in terms of what you're doing and how this might play out well. As we talked before the break, labor shortages. Labor shortages

are nothing new to the economy. Um COVID accentuated it and made it, made labor shortages really on the front of a lot of people's minds. But farming and manufacturing and warehousing and retail have all been dealing with labor

shortages for a really long time. So when we talk about this new generation of automation where machines are really thinking and acting on their own, what the promises is that you can create a human machine team where together the production is a lot more safe, and the corporation that uses this this human machine team is a lot more active. So we're not talking about replacing tons of workers.

Were talking about taking an existing bunch of workers in any given scenaria and making them a lot more productive with the human machine team, which allows them to basically segregate what each party is good is good at. I mean, the humans are good at interacting with each other and interacting with other people and making critical thinking decisions and things like that, and so we should enable them to

do the things that make them human. And then machines are very precise and predictable, and they should do things like that. But it's not only about productive right or

the right mix. But you also, you know, it is interesting what you said to Tim and I in our break is that you know, this is a way of kind of leveling out labor costs globally, right, right, Absolutely so, So as as the cost of production rises in some of the global places where production goes now and automation over here automation capability increases, I think we'll be able

to increasingly move production back to localize. There is in the United States where consumption can be right down the road from the factory and the warehouse that distributes the good. And what that could do is make companies more responsive to local populations. UH. Could create jobs UH in places where there there weren't jobs, could make our manufacturing and

warehousing work um workforce a lot more competitive globally. And so I think we've just discovered how brittle supply chains are when they're spread stretched out globally, and we've just discovered that that their massive labor shortages. And I think automation really addresses both of those, Samuel, I want to get more into the technology here, and specifically, if you allow companies to operate robots in a safe and efficient way,

how do you do that better than other companies? Like how do you create a system And I want to use the term unhackable because you never want to say that, but but how do you create a system that keeps out bad actors and that also allows these things to operate in a way that's safe to the people around them. Sure,

so we've really focused on communications. So we've we've invented a way to fuse what's called functional safety and cybersecurity to create a way of that these machines can communicate in a way that they can trust the information that they're getting. So what they get on the safety side is super highly reliable information like ten nines of reliability, so that they can use that information to make decisions about how they move. And on the security side, you know,

we start with identity. We started. We use the identity to create authentication and then make sure that they're authorized to talk with only certain parties. We borrow a lot of the techniques that have already been created in the human world. I mean a lot. A lot of these techniques have already been established to make humans secure in their activities on the Internet, but they haven't really been

applied to machines yet. So we took we took that paradigm, we applied it to machines, We fused it with safety, and we created this unique fusion of safety and security so that all information that machines process can be trusted. Big thanks to Samuel Reeves, founder and CEO at First Robotics. That wraps up the first hour of the weekend edition of Bloomberg Business Week from Bloomberg Radio. I'm Carol Messer

and I'm Tim Stanovic. Ahead in our next hour, a biotech startup thinks artificial intelligence can predict the next COVID variant. Bring it on. Plus the CEO of saxon why the market for luxury goods remains so strong despite soaring inflation in our Business Week cover story, It's all about Saudi Crown Prince Mohammed Ben Solomon's billion dollar desert disaster. That's some real money. Yuh, all right, that's coming up. This

is Bloomberg. This is Bloomberg Business Week Inside from the reporters and editors who bring you America's most trusted business magazine, Plus global business, finance and tech news as it happened Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes

Tim Stinovic on Bloomberg Radio. Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including this week's cover story, how the Saudi Crown Prince's vision for a revolutionary new model of urban life is falling far short of his expectations. Plus the CEO of Sacks on why the luxury goods market remains so resilient and which demographic has been the driving force m Tick Tick Tic Dick, is it you so somewhat I have something

to do with it? First, up this hour, some COVID news from this past week, and it's a bit sobering. The Biden administration is now urging more Americans to get their second coronavirus booster shot. This is the amicron B

A five variant continues to spread across the country. Wouldn't it be great, though, Carol, if we could actually get ahead of the virus, get ahead of these variants, please please please, Well, someone who just recovered from her second coronavirus infection, I'm talking about me cases back to back, I would say, yes, let's get ahead of this and the next variant. Well, this story should give us a little bit of hope. It's in the Solution section of

the magazine Bloomberg News. US healthcare reporter Riley Griffin reports on a startup that's using artist facial intelligence to help drug makers develop better vaccines and treatments. She and Business Week editor Joe Webber give us the details. The player at hand is a Priori Bio. They're actually backed by a company called Flagship Pioneering, which was the incubator behind Maderna.

A name you might hear no UM, and they've developed this technology that they say can be used to vary improve vaccines and therapeutics, or provide an early warning to governments about the dangerous mutations are to come, just like a hurricane alert. UM. They've spent two years in stealth mode building out this technology and trying it against COVID, and they suggest it works UM, and they aim to partner not just with the pharmaceutical industry, but with public

sector partners like the CDC. UM. So we still have to see what products they might bring to bear or what information they've been sharing. UM. But they launched just today with fifty million in funding from Flagship Riley. I gotta ask a path. Two years seems like a time that you might not have wanted to be so quiet about this. So you know, there's the pandemic that like, uh so, so why the why the the really long

quiet period? Yeah, just to hone the technology. This has been something they've been looking at with each COVID nineteen variants. So basically they take the sequence of the virus and they can plug it in and assess what they describe as synthetic variants. So using the computer they're trying all these different potential variants out and assessing how they would

bind to human antibodies. And as we know over the last two years, violence viruses are widely things they mutate order and to survive, and these mutations can evade the defenses we've either created via natural infection or by vaccines. So it's really important to not just know what viruses and variants could exist, but know how they will behave and that's how they ultimately will design these vari improve

drugs and vaccines. Um why have they been operating installed to really ensure that that technology is up to the task and that they can apply it not just to COVID but to other viruses like HIV and influenza. So that's where there are at this point, correct, That's exactly where they're at at this point. They're certainly going to be looking for more funding down the line. But this is Flagships are really interesting company and they're known for

doing this. They take uh, you know, twenty fifty million dollars, they deploy it to a company they've created, and then they watch it flourish. And we've seen that prove successful in the case of Maderna. I think now will be a test for a priority. We're gonna have to see where they go. But this is just the beginning. If this can be used for good to help us predict where viruses are going, could there be biosecurity threats with this type of technology as well? It's the very same

question I had for the co founder and CEO. I think we all need to be a tuned to these questions of biosecurity risks. As we enter this biotech revolution with more information than ever and the ability to essentially come up with a synthetic variant that could be dangerous and damaging, You've got to wonder if that were in the hands of a nefarious actor, what what could happen?

Um A Priori says that they've been focused on that question from the very beginning, since the time they realized they could make these biologically meaningful predictions, and that they've partnered with external experts to implement tests and stand up that security. And they caution to me again and again, remember we're not working with viral material. We're not in a lab with the literal virus itself. They are plugging these data points into a computer and assessing and modeling

with machine learning. It feels like we've been playing from behind for oh, I don't know, two and a half years now. Is there a chance that the UM, this company couldn't maybe help us from ahead for once. I think that's the hope, And we got to see what the government does that as well, because at the end of the day, a lot of our response comes through public private partnership UM. Right now, we're seeing a stalling of interest from Congress in the immediate pandemic response UM.

There's been quite a debacle between the White House and Congress over funding to do this kind of work really, pandemic prep, not immediate deploying of vaccines to people, but thinking through what could come next, and all the demands for billions in funding UM to do that longer term pandemic prep really hasn't gotten much UM momentum. So we're

seeing UM efforts come out of the private sector. But I think we really got to ask ourselves is the public sector bought into That was Bloomberg News USL Care reporter Riley Griffin, joined there by Business Week editor Joe Weber. More variants are coming, huh. I mean that's like, you know, death taxes, invariants, oh no, all right, Well you're listening to Bloomberg Business Week coming up. Our cover story takes us to the Arabian Peninsula and the planned city Neom.

It's the Saudi Crown Prince's grand vision for a so called smart city. Stick around to find out why it's still far from Finnish nearly five years after breaking ground. This is Bloomberg. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovik from Bloomberg Radio. We turned out to our cover story, the tale of

a half a trillion dollar mega project gone wrong. It began when Saudi Arabia's Crown Prince Mohammed bin Salmon set out to build the city of Naom in an effort to revolutionize urban life. But five years in, the project has been plagued by financial waste and setbacks, much of it because the prince is inner circle just won't tell him no. Bloomberg News Saudi Arabia correspondent Vivian near Rhyme and a Business Week editor Joel Weber join us now

to help us understand this massive desert disaster. So Joel, I can just imagine the pitch here um tell us a little bit about what you wanted to know about this and how it laid out. Well, I mean, Vivian basically was like, hey, how about we go big on Niom and try and learn how to learn everything we can?

And and you know, Neiom, if you followed the story at all, has been a huge curiosity ever since NBS first announced it, but then it's been pretty opique and it's been really hard to get meaningful information about it. So this basically is the most thorough story anyone's ever published about the project. So so, Vivian, what what is the project? And how far along or is it? Yeah? Well, I mean what is the project? It's a great question, and I think it's one that I went in thinking

we might be able to answer. And then the sort of interesting thing was that even the people inside the project can't often answer that themselves. So it's become this sort of massive, brawling ambition that keeps going in different directions, and that was kind of what was really interesting to discover it. And essentially it's it's a new region now.

It began its life as this idea to build a city from scratch, and now it's morphed into an entire semi autonomous region full of different cities and different towns, and there's a tourism component to it. There's an industrial city that's going to you know, float on the Red Sea according to the plans, and there's even a ski resort up in the mountains and what is essentially the middle of the desert. What is this area of Saudi Arabia like and who lived there before NBS set on

on this ambitious project. Yes, I've been up to the area that they're calling them now maybe three times over the past few years. It is really remote. I mean you basically have to like from Ria, the capital, you take like a two hour plane ride and then you also drive for another two hours. So it's it's a place that most youse haven't been either. It's it's right on the border with Jordan's across the Red Sea from Egypt, very close to Israel, which is something a lot of

people point out about this project. And it's very beautiful, like you know, there's this gorgeous sort of like you know, pristine beaches and these really dramatic mountains. But it wasn't super populated. There were, however, several towns along the coast where members of a tribe called the Choice Pot live and had been there for generations, So it wasn't an empty area, which is what sort of the crowd Prince and other people who promote NEOM have promoted as a

sort of blank slate. To invent the blank slate, they essentially began to remove those people who had lived there. And there were initially a lot of investors, and then there was a killing of a prominent journalist. What happened to Neom's trajectory after that? Yeah, well so so Jamal Session. He was an American resident. He worked for the Washington Post, which is obviously a major American publication writing opinion column.

And his murder Ineen was a huge shock to Saudi Arabia overall, to all of its projects and all of

its plan NEO took a huge knock. There was this huge advisory board that they had basically um just announced that was like all these kind of high profile figures all the way from sort of starchitects like Norman Foster to you know, x US officials earnest monies sort of the former US Energy Secretary, and a lot of those people did actually pull out of the project after or the murder came to light essentially, and there was sort of a lot of pressure to back off of doing

business with the crowd print doing business of Saudi Arabia. The really interesting thing that I found is I started looking into this, is that a lot of companies and architects and consultants are still doing business with Neo under the radar. You know, they're still doing plans, they're still doing projects, they're still working with them, and it's essentially almost the largest construction project in the world at this point.

Like it's it's become quite massive. You know, they have ambitions to have four d fifty thousand laborers on on the site within a couple of year, which is basically the population of Miami. Just the scale of it must be something to behold. They you actually have been up there before, right, so so tell us about that. And also, you know, if foreign money is not involved anymore, this is all being done how exactly. I think that's something

they're still trying to figure out itselves, you know. Is I think the five billion dollar number that they threw out there is like a starting budget. At this point. They still don't even know what a lot of this is going to cost They could end up costing more, and where is that money going to come from. They still wanted to come from outside, but right now it's pretty much fully backed by the Public Investment Fund, which is Saudi Arabia's sovereign wealth funds. So they're spending you know,

they've already spent several billion on it. You know, they're

spending pretty pretty prolifically. I did go up there and sort of do a tour of the site officially, you know, I went to visit their main camp, which is this very sort of strange place in the desert, surrounded by barbed wire, heavily secured, where they've got sort of hundreds and hundreds of you know, high powered executives and professionals from all over the world who are working on this camp essentially, which is like very much felt like a

cross between like something from Silicon Valley and like maybe like a minimum security prison. Um And even the employees make a lot of jokes about that. They're like, oh, you know, the wall, We're not sure if it's to keep people out or to keep us in. So it's a very strange atmosphere. There's not a ton of visible construction going on now. It's a lot of preparatory work. It's like groundwork. You know, they're digging big tunnels, they're

moothing out ground. But it's not like you can go there now and like see a city or see you know, any of the things that they've been planning. There's still a pretty big gap between what they're talking about and what's happening on the ground. It sounds like they start things, they start working on it, and they back off of it. It sounds like a lot of you know, starts and stops. Who does seem to be winning though, all in is if you're a consultant or anybody involved in the project.

I love the line you talk about two buckets for those who work on the project, and one of it is a bucket just to hold all the money that they're making. Don't mention the other bucket. Bucket, Well, you can for number two. But people are making a ton of money off of this. Are a lot of people who have found this to be an incredibly lucrative project, and that is predominantly the consultant and the people who

come from outside to work. There was was something that sort of came up again and again, and my conversations with people was that this is basically like a life changing job for a lot of people, Like they can come and make so much money that they can essentially, you know, it makes a easy difference to their life. They can finish putting their kids through college, they can

you know, save up for retirement home. And so many of the people who come to do that are basically coming to earn that giant paycheck and they don't all necessarily actually have an investment. And what actually happens once they're gone, which of course is the recipe for disaster. You know, people who don't necessarily have a stake at the success of the project. Um sort of coming for a couple of years and then leaving, and there is quite a lot of turnover going on, and the atmosphere

inside is pretty chaodding. Um. They've brought in, you know, pretty impressive talent from all over the world. You know, you have former executives from companies like Ge and Borrow, Happled, you know, working on the project. But there's also a lot of people leaving. Well. It's an incredible story. Vivian the overt story of this edition of Bloomberg Business Week Bloomberg New Saudi Arabia correspondent Vivian Knee Rhyme, also with US Business Week editor Joel Weber on this week's cover story.

Check it out on newsstands, now online at Bloomberg dot com, slash business weekend of course on the Bloomberg terminal. All right, still to come on Bloomberg Business Week Epinadas tunas Vich and slow roasted Cornidas From New York City to Istanbul Chef Richard Sandoval telling us how he's kept cooking in

a world of rising costs and slower supply chains. This is Bloomberg Broadcasting from the financial capital of the World, Bloomberg eleven Frio in New York to Washington, d C. Bloomberg to Boston, Bloomberg one O six one to San Francisco, Bloomberg nine sixty to the country Sirius XM Chado one nineteen and around the globe the Bloomberg Business app and Bloomberg Radio dot Com. This is Bloomberg Business Week, Biblio Teca Toro. Maya hear those names and you will think

of our next guest, Chef Richards Sandoval. He is founder of the Sundaval hospitality group with more than fifty locations spanning four continents, ten countries and ten U s states. His company is facing the dual challenge of rising prices along with decreased foot traffic and the ones bustling urban areas where his restaurants are located. The renowned chef went in depth with us on the long road back to business as usual, a place that appeared unreachable back in March.

He joined us from rural Tuscany, and you'll hear it in the cell phone connection. Obviously. You know, we had to furrow everybody when the pandemic hit. I mean, we closed every restaurant around the world, so it was very impactful. And as you know, luckily, you know, the government helped us with p P money, so it helps us stay afloat.

And then all of a sudden, I mean, you know, as the pandemic started to go away, I mean just the numbers and people you know, wanting to get out into into the restaurants and get out of their homes with staggering so you know, our numbers just skyrocketed. Um as you were saying that, you know, we you know, we had our challenges with labor, with supply chains. So it's been you know, it's been a balancing act. But

you know, luckily that the numbers are there. People are back, you know, going to the restaurants, and you know, the numbers are looking very good. Well, you've got a great view because you've got four different continents, more than fifty restaurants around the world. And I'm wondering what you can tell us about regional differences when it comes to the bounce back that you've seen in recent months, Chef, what are you seeing that? What are you seeing differences? And

what are those differences? Right? Well, I think the biggest differences, you know, I mean the bigger cities were much more impacted. I mean, for example, in New York, you know was you know, it has been more challenging. I think a lot of people left the big cities. And also, you know, people are working from you know, these new uh you know, hybrids of you know, two days um, you know at the office, three days at home. So you're not seeing the density in the in the big city as far

as you know, lunch business. But for example, I mean the tourist destinations, for example, the mountains, uh, you know, you know, the resources like for example, the rich Cross and Laguna. I mean, just I mean, we've never seen this kind of business. Richard. How much of your business is tourism? How much is business? I mean, I don't know how much of the demographics you guys are able to analyze. Well, I think it depends on the destination,

right I said, I mean New York for example. You know, if you're in midtown, you obviously depend you know, their lunch business. How you dependent on on businessmen? But again for example, you know the risk Carlton, the mountains, um, you know it's it's mostly tourism, Denver, Um proper, Downtown. You know, you know, we haven't seen our lunch business come back as strong as we have our our business

dinner business. So I think every you know, every area is different, um and for us, and we'll win so many different places that you know, we have different challenges in different locations. How did coming out of the pandemic, how did it, if at all kind of shape maybe what you wanted to do next? Well, you know, I mean I think it helped us, uh you know, I mean almost you know, like like sessions, I mean, it helps you make adjustin as you have to you know,

react quicker. You know, we had a big problem with supply change, which was a big challenging challenge for openings that we had coming along. So a lot of our openings have been delayed. So you know, I think what what we did is, you know, we reacted and started going towards you know, more local products. For example, Marrakesh, you know are os and me which is our china. You know glass where silver where was on a boat? You know, it was three weeks delay, So we went

actually to local marks and started by local products. And even in the US, I mean because of inflation, you know, we've had to go more towards you know, you know, local um, you know, seasonal products and to help you keep our costs costs down because you know, you can't you know, just cost you know, transferred all the costs to your to your guests. I mean, like I said, you know, we've also had to you know, work with smaller menus because of the labor issues that that that

are happening in the country. So you know, we turned our menus down, um, you know, to be able to cut you know, some of our labor in the in the back of the house. Again, I think right now. It's very important to be very reactive to these things are going on because it's just too many things happening and very fast. You have to be very, very, very reactive. So, Chef, I'm wondering you mentioned inflation. Help us understand how much

prices have gone up. It is very challenging. Um As you know, we've seen them Government party, I mean in place at nine So yeah, I mean two years ago. You know, we're seeing on some sort of products. So you know, the only way we're able to make up for that is and I'm sure you're seeing it wherever you're at, I mean restaurant. You know, many prices have significantly over the last two years, so I think what

were we're being able to make it? Also adjustment is by using a lot more local, um, you know, purveyors, local farmers, you know, a lot of you know, more seasonal ingredients and and worked with that to be able to have some containment that. Chef Richard Sandoval, a pioneer in contemporary Latin cuisine and the founder of the Sandoval Hospitality Group. I'm hungry. Yeah, let's go, let's get in the cook Okay, I mean I think we'd have to go to one of the restaurants. All right, I'm in

for that. All right. You're listening to Bloomberg Business Week. Coming up next beach trips, five star dining. The end of lockdowns have left luxury buyers in need of new clothes. That's meant some big bucks for Sacks. I'm glad for you to take a vacation because you're gonna buy a lot of stuff to wear on that vacation. I'm glad that you're going back to the theater. I'm glad that you're meeting friends and going to weddings. This is all good for SAX and for luxury. SAX CEO Mark Metrick

joins us. On the other side, this is Bloomberg. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovich from Bloomberg Radio, coming off Amazon's Prime Day or was it Days this week? Tim? Wasn't it?

It was Days? It's an event, Carol's shopping event. Stopping is always an event, right, all right, Well, we figured we'd finish up our broadcast with a little bit of shopping and retail therapy, and we're talking about the high end of the market in two very distinct areas, fashion

and personal transportation. First up, a Bloomberg Pursuits auto columnist Hannah Elliott always gets to test out the coolest new rides, and this week she only needs two wheels to bring us up to speed on a series of electric motorcycles that she says you need to know about. Electric means even less maintenance on your on your bike. I mean you don't have to change the oil, you don't have

to worry about fears, you just go. Um. Also, there are a lot quieter I mean some people say it's a safety hazard to have a quiet bike, but actually you're more connected with nature. There's no sound, you're just out in nature, which is awesome. And then of course the efficiency thing. I mean, yes, motorcycles are very efficient already, but of course if you didn't have to buy gas at all, even better. Um, it's kind of a win win. So is it a combination of the establishment as well

as startups that are really out there doing this? Hannah, Yeah, that's a great, uh, great observation. We have Harley Davidson, of course, which is probably the most well known motorcycle company that is now developing electric motorcycles. Um, they've started this new brand called live Wire, which is a separate brand that's mostly owned by Harley Davidson, which makes right now an electric motorcycle called the live Wire one that's

about a twenty three thousand dollar bike. UM that I've written a couple of times, and I really like it. It's not gonna feel like a hob, you know, with the type. UM, but it does feel weighty, it does feel very cool. It's fast, it's powerful, it looks kind of like a Harley. And then you've got yeah, you've got other things. BMW is developing electric uh motorcycles. Of course, they've got electric scooters already on the market. UM. They've teased us with a couple a couple of concepts for

electric motorcycles. We have yet to see that, but I think it's coming. Um. And Kawasaki of course, has also announced that they will be developing up to five new electric motorcycle models in the coming years. All right, So let's talk range and charge. What what are the stats that we're seeing on some of these So, first of all, the charging on electric motorcycles is awesome, where on electric cars you might have to wait a couple hours, even

up to eight or ten hours to charge it. Electric motorcycles can charge to about in forty minutes on fast chargers, which is awesome. I mean that's like, you know, you can get a coffee somewhere in forty minutes. UM. That's about the going rate. And then for range, UM. One that I really like is the Zero the motorcycles from a company called Zero, which is a California company, and they can go a hundred twenty miles or so and combined riding UM city and highway. And that's a pretty

good range for an electric bike. UM. Some of the smaller ones, like if we talk about electric vest Buzz, they might only get around fifty or sixty miles of riding on a charge. UM. But for the actual bike, if you can expect around a hundred miles of range. Some of the higher ones like Zero, like I said, we'll get up to one one thirty UM, and you know we have some for improvement. Are these things as as quick as their car counterparts? Yes, it's they feel awesome.

It's it's the same as the car. It's instant towards the minute you twist the I'm going to call it the accelerator on the right side. The minute you twist you go, you're instantly off the line. Um, there's no waiting to put anything in gear because there are no gears, which is kind of awesome. It feels very futuristic and fun. That's Bloomberg Pursuits Autocolumn. This Tannah Elliott just the tip of the iceberg on these new e bikes. Check out her full piece online at Bloomberg dot com or on

the Bloomberg terminal. Go online because the pictures are pretty amazing. I know this is radio, you're listening to our podcast, but man it is. You got to see these bikes. They're like futuristic. Like she said, they are quick. All right. Right now, we're going to turn their attention from ev motorcycles to luxury fashion. Mark Metric is the CEO of Sacks. It's the digital spinoff of the popular department store and

upscale Shane. We're talking about Sax Fifth Avenue. The company's new Luxury Pulse survey has some surprising findings on its resilience in the face of inflation, as well as the demographics driving the business. I'm just gonna put it out there. Tim and his wife I think they're shopping. Yeah, but I mean that sex is expensive. All right, here's what

he had to say. We feel very good about the core luxury consumer, just both from how they're showing up and how they're shopping, and and also they've indicated, you know, seventy of respondence to the survey that I would categorize in the in that core luxury consumer, uh said that they will they would spend the same if not more over the next three months in the prior three You're talking about people, just so we can have these definitions

for our audience. These are people who have an income of two dollars per year plus yes, okay, so not so like a household income or an individual household. And are they younger, older? What are they? I love knowing the demos when it comes to retail. Well, it's about stage, not age. These are people that are luxury consumers that are they love fashion, they're aspirational their core Uh so

you know, they're they're it all over. But if you if you really want to dig down and look at it, you're actually seeing a little bit on the response side, more positivity. And it's probably from a recency bias because the younger uh consumer hasn't seen one of these moments before. They're feeling a little bit more bullish than the boomers or the silent uh so UM interesting, but again, the overall response has been positive on on on what they're

thinking from a luxury standpod. So, from a luxury standpoint, are they buying luxury clothes, luxury stuff for the house, luxury you know, cosmetically what specifically luxury can cover a lot? Yeah, So for us, it's really it's about it's about accessories and apparel. Okay, that's where we center. Now. They're they're they're still looking at home and and other UM and

other types of luxury products inside of their lifestyle. But the core business for us UM is around that apparel and and accessories and leather good what kind of luxury apparel like is it? Have people moved away from all of the comfy where you know and listen, I love a great pair of yoga pants. They're not inexpensive, So I consider that kind of luxury as well. But are people trading up, They're going out, they're going to places, and so you can see that it reflected in what

they're buying. Absolutely, and that's and you know what we're seeing in in A great indicator of that is sneakers became It's like you almost only wore sneakers for a while, and now we're seeing shoes make a big comeback. Uh and and that's been good. Guys are getting dressed up again. Um, she you know she's getting dressed up. It's a dressy sandal. It's not just a sandal, it's a shoe. It's not

a sneaker. There's a lot of hell coming back. Um. Platform heels are going to be one of our biggest trends as we come into the next couple of months. So it is about getting dressed, it is about going out, it's about traveling, and it's good for business. Can I let's say I love me some platforms at the tim I'm just gonna put that out there, Okay, I got

I got nothing to follow up on that, Carol. I do want to mar I want to know about how spending has shifted, because if I think about what we're you know, what we've been talking about for the past two plus years, the idea that people filled their homes with stuff and then it got stuck on ships so they couldn't do that then they started buying things as they got back to the office. But but now it

seems like demand for vacations and experiences is back. This idea of stuff we were talking about back in twenty nineteen, especially when it comes to millennials spending their money on on not on stuff, but on doing things. How did that factor into your research? Yeah, so the research came back and look, you know, when asked, uh, respondence number

one on their list is traveling leisure. And that's fine because with luxury and again being a goat, so being that go out and travel, I'm glad for you to take a vacation, um, because you're gonna buy a lot of stuff to wear on that vacation. I'm glad that you're going back to the theater. I'm glad that you're meeting friends and going to weddings. Uh. This is all

good for SAX and for luxury. So that's okay. But right on the heels of that response again was leather goods and necessaries right there behind that UM for this you know, high end luxury consumer on where they and how they want to be spending Mark help me out here, because you know, when we talk retail and the consumer world. We constantly talk about and we often have heads of companies talk to us about this seamless omni channel experience. So you guys are focusing on e commerce, how do

how do you guys do it? How do you make sure that you're covering how the consumer wants to shop? Yeah, you know and not We do focus on e commerce, but we focus on the consumer. And that's really you know, what we've been what we've done with this split is just enabled um my company to focus on the digital experience, but it's focusing on the brand experience. You know, first and foremost. We haven't stopped with the omni channel connected

experience for our consumer. Our exclusive partnership with the s f A stores enables us to execute, uh, this all channel experience seamlessly. You can you know, the returns that came in from sacks dot com went into the stores just this past quarter. Uh, so you're still you can buy online, it can ship from a store. So what we've done is really just given ourselves the ability to build two strategies, but those two strategies connect through the consumer.

Give us an update on the supply chain and give us an idea of if you're able to stock shelves, if you're able to actually get consumers what they want. Yeah, the luxury supply chain, you know, probably on a relative basis, hasn't been interrupted. I'm sure it's a little bit slower than people wanted to be, but comparatively to what we'll be hearing, we haven't had any issue with that. What's the last thing you bought in a retail environment, you're

asking me? Yeah, I just bought a suit. How's that all? Right? Back to work? You go? That sounds yeah? That isn't like athleaser work at way? Is that? Is that? Is that for Mark? For for hanging out or for working? To be fair, it's a suit, but it's got draw string pants. How about that? A suit with draw string pants. I mean that sounds pretty nice, like luxury but casual, and I could wear that to the office that he was saying, comfy clothes. We're kind of going way. No,

this is like a mix of formal and comfy. Party on party on the What is it like business on top party? I don't know. All I know is stretch, put stretch in everything. I'm down with that huge thanks to Mark Metric. He's CEO at SAX, and that raps up the weekend edition to Bloomberg Business Week from Bloomberg Radio. Thank you so much for joining us. I'm Carol Masser and I'm Tim Stanevik. Be sure to tune into Bloomberg Business Week Monday through Friday. It starts at two pm

Wall Street Time on Bloomberg Radio. You can also watch our daily broadcast on YouTube. Just search Bloomberg Global News and check out our Bloomberg Business Week podcast. You can find that at Bloomberg dot com, Apple, or wherever you get your podcast. Bloomberg Business Week is available on newsstands now, at Bloomberg dot com and on the Bloomberg Terminal. Have a good and safe weekend everyone. This is Bloomberg