This is Bloomberg Business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom Ole Business Finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast. Well, a lot going on, and this week we found ourselves at Schwab Impact twenty twenty three. It's a gathering of investment professionals catering to the advisory world in Philadelphia. So we were really surrounded by registered investment advisors trying to assess today's market environment as geopolitical conflicts in global economic
uncertainty just seemed to be deepening. It was such a great environment to be dropped into with so much going on, trying to figure out the way forward for the world broadly, but certainly for the investment world.
Carol.
It was also the biggest earnings week of the quarter, now behind us, as we saw nearly forty percent of S and P five hundred companies were And at this hour we're going to talk to a pair of CEOs about their latest results and what they tell us about the health of the American consumer. We're going to talk to the heads of Mattel and Whirlpool in just a few minutes.
Before we get there, we do want to start with a look at what's going on in Israel, Gaza and in Europe as well. The war between Israel and Hamas is now into its fourth week, while the war in Ukraine is now staggering twenty months old, and our first guest helps us understand the historical significance of what is playing out overseas.
Ed Price is a former British trade official who represented the UK government to Wall Street, who has also now advised members of the European and British parliaments, and who now serves as principal for Geopolitical Forecasting at Ergo. It's a global intelligence consulting and forecasting firm, and it correctly predicted a Russian invasion back in early twenty twenty two. We spoke with him Monday from New York.
I've been thinking about the First World War, and whenever you study the First World War, of course you have to remember that people were surprised and that the alliances that were underpinning the relationships between states were invisible before nineteen fourteen, before the conflict began, but then very rapidly became clear. And so what I'm thinking about is what are the alliances? What are the fault lines between powers?
And if you go around your mental mapp of the Middle East, Israel is in a bit of a pickle.
Right.
You've got Oman and Yemen. I don't think that they're friendly. You've got Lebanon, You've got Syria, You've got above that Turkey, who knows what they'll do in this situation. They don't seem like they want to do anything to offend wider Muslim opinion. You've got Saudi Arabia now, which of course has said that it's not going to do this deal or we hear that it might not want to do this deal with Israel. And then of course behind everything Iran.
So what's the question with Iran? I mean, how does the US navigate.
That US has to look at Iran now as essentially a franchise of Russia, because the way that the Iranians have timed their support for Hamas and who knows also possibly his BLA can only be something that benefits Putin and the Kremlin and their endeavors in Ukraine. I mean, let's look at this rationally, all of our attention has shifted away from the European to the theater in the
Middle East. And whilst I can't prove any collaboration between Russia and Iran, I would bet my bottom dollar that there is one.
I want to go to this piece you did in Barns, which you've you've touched on some of this, but this idea of this democracy trap and talk to us a little bit about it, because it sounds like what happens is then we kind of really do miss either the development of certain strategic alliances, and it can obviously run a foul as maybe we're already seeing as it's played out in this world, and then maybe the last couple of years or so.
Well, you know me, Carol, I'm always desperately seeking some sort of analytical fame and make furtive efforts at catchy articles and titles and so on. The democracy trap is simply the idea that you're damned if you do and you're damned if you don't. When you're a democracy, if you do not punish your enemies in a way that other empires and other autocracies in the past have shown as effective. Then you are, on the one hand, maintaining your morality as democracy, but on the other hand, you're
letting them go. You're letting them get away with things. And flip that around. If democracies do go ahead and apply firepower to their blood enemies, people turn around, as I said before, and say, well, what kind of democracy are you if you don't care about human rights? And I'm afraid we've now tangled ourselves up, as the West, as democracies more generally, into a position. And perhaps this is a legacy of the Vietnam War. Perhaps it's a
legacy of the Afghan Afghanistan War. I don't know, but we don't seem willing to really hit our enemies hard. Now that's a problem because at some point we're going to have to, and very unfortunately, it appears that the next time that we're going to have to will be her mass Har mass has edit itself in a civilian population. Some of those people support Hamas, a lot of them don't, and half of them are children. So again let's go
back to Putin. He would like nothing more than to see Israel, the US, the UK and others, whether in reality or in perception, doing things that he is doing in Ukraine so that he can point to us and say there's no difference.
So here I want to take the step of you know some of your past history where you represent represented the UK government to Wall Street and the US, and I think about ed the tricky relationship of global companies to China, to the Middle East, Saudi Arabia. Right, we know the atrocities that have happened, and yet we continue to do business. And I understand the thinking of well, if we're involved, we can help make things better, Okay,
but that doesn't often happen. So I'm thinking about our investment audience who are listening to you, and I'm just thinking, okay, So are companies doing what they should be in terms of standing up for democracy if we really believe in it? Or will they never because they have business interests in so many of these difficult regions of the world.
Well, I don't know if they will or not ever, but right now they're not. And sometimes I scratch my head in the wee hours when I think about the blood, sweat and tears that's gone into ESG and wonder to your point, Carol, about where the equivalent is for human rights and democracy. I mean human rights and democracy scores, right, we have that around the edges. We have a sort of center left tradition of protests in some Western countries.
We have Amnesty International. A lot of business leaders themselves, regardless of their politics upright, have integrity and want to do the right thing. But we are exposed to countries that mistreat their populations. We purchase things that were possible made in circumstances that we shouldn't really accept. That's the old Nami climb book no logo. But moving on from that, we now know about the wigas and other egregious human rights issues in the world. So but look, it's very difficult.
I mean, if we've got, for example, Western financial services positively exposed to Chinese growth, if we've got other firms in the world, I mean, look at semiconductors that are essentially just trying to do business to keep them modern economy running. I imagine that they're hoping that the international geopolitical outlook will calm down somehow. My fear is that it won't, Carol.
Yeah, I mean I think that's a valid fear given what we're seeing, Carol.
Yeah, it feels like it's just going to get work. When you talk about, you know, some similarities from the First War World War, like, I just think we're just at this very what go ahead to me?
Well, I was just going to say, and just to piggyback on that, Carroll, I mean, it seems like the US. You know, some people would argue that the US is engaged in a proxy war with Russia. I've heard that, and again not necessarily my view, but I've heard that argument, and then I would I've heard the argument too, that the US is finding itself drawn into this latest conflict in the Middle East by actually having a carrier, I should say, a military presence there just off the coast, right.
Right, you are, So maybe we should be talking about Bush, right, and both Bush. It's the point because you go for War three, maybe just throughround the corner.
Do you believe that though are you are you being facetious or do you believe that.
I'm not being facetious at all? Now I'm sitting here on your radio show. I think that that's absolutely possible. I'm very concerned, and you know, you have to be careful with these things because like I said in these articles, if you're someone who worries, then you're going to get accused of crying wolf, and rightly so if you know, if things don't go the way that they look, they might be going. But let's play it out quickly. You know,
Israel goes into Gaza, Hisbrala thrusts into the North. There's a second, third, four whatever anti fighter it is in the West Bank. At the same time, Iran decides, now's a good time for some sort of global activation of any terror networks they have. Bob's your uncle, right Immediately, you've got to get the only real cop in town, the only real cop in the world, which is the
United States involved somehow in the Middle East. Now again, if I was an adversary of the United States, I'd be thinking, well, all I need to do is a third one someplace, and you know I can go and take Taiwan.
That was that Bracey's principle of geopolitical forecasting at ERGO.
As we mentioned and as you can probably hear from the background. This week we broadcast from the Schwab Impact twenty twenty three conference in Philadelphia. Coming up, investors juggling geo politics with earnings this week, and on that front, we talk quarterly results with the CEO of Mattel Inon Crist, who also had some thoughts about his native Israel.
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All right, everybody, as promised, we do have the Mattel's CEO, in On Christ, joining us from El Segundo, California. On zoom in On, Let's get Barbie because I bet she could fix zoom, don't you think so? How are you all right?
Carol's great to be with you.
It's so great to be with you. I feel like I have a million questions. I feel like I want to go to a bar, I have a drink with you and just sit and talk. I want to start with the Israel Hamas conflict. You're born in Israel, studied at Tel Aviv University before heading to the West Coast of the United States of America. I hope your family and friends are safe. I pray that they are safe. How are you thinking about all of this right now in this conflict? And is there a way to peace in that region?
Yeah, thank you for asking my family. My family is okay. My immediate family is okay. But and you know of courses in Israeli. This is very personal to me and I know too many people who lost loved ones or have relatives that have been kidnapped and are now being held hostage in Gaza. You know, on behalf of Mattel, we condemn the terrorism and atrocities perpetrated by Hamas and stand against hate and violence in all forms. We express hope for the safety of Israelis and Palestinian children and
families part in the Israeli Hamas war. As a company. Since the Hamas attacks on October seventh, the Mattel Children's Foundation has been focused on who many arian work, including cash and toy donations with shelters and hospitals who support children who are suffering. And we're sitting here all wishing for a swift resolution to the war and more peaceful times in the future.
Well, you know, and it's something that you know, people who are wow, gosh I mean up to eighty years old at this point have dealt with their entire lives in that area of the world. And I'm wondering to you and not speaking on behalf of Mattel, but just getting your thoughts personally, how this ends, if a two state outcome is the only solution to ending the conflict there once and for all.
You know, it's a complicated conflict, and we're now sitting at a time that is very volatile. We see risk of escalation and we just hope for a swift, swift resolution and wishing peace for everybody as soon as we can.
I want to talk about Mattel. I have one more questions for you. Do you think Prime Minister Benjamin Netanyah, who is not going to be the leader that brings lasting peace.
And this is not the time to get into the political discussion right now. Everyone is focused on resolving the situation. Israel articulated its priorities. We're all really looking forward for
the release of the hostages. There are thirty children under the edge of sixteen that are being held a captive right now, about half the hostages of women, and we really believe that this should be resolved as soon as possible, and we pray for the release, safety and release of all the hostages that are now being held captives.
You are absolutely right, but we do appreciate you weighing in on this because we have talked to you about serious issues in the past, so really appreciate this. No easy segue, but I do want to talk about the business of Mattel. Talk to us about last quarter and the outlook. It was a tough day in the equity market for you guys. You did talk about tougher industry conditions. What are those tougher industry conditions that you guys are worried about?
Or we did see the industry being shot in the third quarter and year to date, and as a result, we adjusted our expectations and expect and believe the industry will decline midst in a digit for the full year. But don't you need to remember that this is after the industry was up twenty two percent from twenty nineteen
to twenty twenty two, reaching an all time high. So coming off after such a strong increase, especially in a challenging microeconomic environment, we believe that this is a reasonable situation and doesn't reflect on the strength and resilience of the industry long term. This to industry has been growing for over ten years and it's a growth category. So we feel very good about the industry needs to growth process, and even in that environment, even in a softer market,
Mattel performed very strongly. Our quarter exceeded, our quarterly results exceeded expectations. We showed manyful sales boat margin expansion with very strong free cash intercourse, we saw consumer dement increasing and we continue to outfress the industry.
I think a lot of investors today, at least sending shares down about seven percent, were concerned that you guys maintained your full year sales outlook despite all of the success of the Barbie movie. So what would have to happen inon to bring in more than the one hundred and twenty five million dollars expected from the Barbie movie and related products? What needs to happen at MATEL or in the industry for that to happen or for the consumer?
I should say, well, while we maintain the top line expectations, we increased our outpook for a gross margin for our EPs and EBIDA and still expect a very strong free cash flows to float through. What the change is that relative to our initial expectation at the start of the year is that the industry we believe will now decline
amidst of the digits, but the fundamentals are strong. We do expect an accelerated growth rate in the fourth quarter and significant expansion and growth margin compared to the prior year, and for consumer demands to be positive for Mattel in the holiday season, in the fourth quarter.
And the full year.
So we are performing strongly. We're heading into the fourth quarter seeing stronger support from retailer, more shelf space, more representation in major holiday catalogs, and overall a strong position with a very broad based offering, a product across pay patterns, fresh points, and we believe we're very well positioned competitiors.
So just to follow up there, the one hundred and twenty five million that you put out there, the estimate from the Barbie movie and related products, would you say it might be even conservative.
A little bit?
You know, Well, we did say it's at least one hundred and twenty five million dollars revenue at sixty percent operating income margin. But the takeaway from this is that this is one movie in one year, and as we continue to scale our strategy and have more movies, more executions, and not just in film, but also in television, in location based entertainment, them parts, consumer products, digital experiences, music, and other verticals in some cases that are actually bigger
than the toy industry. We believe that we have opportunity to capture significant value from our franchises. And we're not saying that everything. So let's go there A successful as Barbie, yeah, but we absolutely believe that in the aggregate there's a meaningful opportunity for us.
Well let's go there. And I've got to say, you know, I remember when we started talking to you or you was it the early days of the Barbie movie or you started filming. So it was kind of fun to be along for that process. But it was a movie that made us laugh, made us cry, and like I said, it appealed to a lot of different ages, which was pretty pretty wild. So what are the key brands that you think have life beyond a kid's toy chest and that you think we should be all kind of waiting for.
I don't know whether it's six months, twelve months, the next couple of years that are going to be brought to life in different ways.
Well. The division of Mattel's Films is to collaborate with leading filmmakers to create stand out quarterly movies based on our iconic brand that will resonate in culture and appeal to global audience. And the Barbie movie and I'm glad you you you enjoyed it as much as you did, is a clear show dead and.
We have brought me back to the theater for the first time.
I'd love to hear that. And we have fourteen other movies in development right now, different demographics, different genres. We have Hot Wheels in development with j. J. Abrams as Warner Brothers, Matchbox in development with sky Dams, which, as you know, produced the Mission Impossible movie that did very well, and Topdan We have a movie in development with Vin Diesel around Rocking Stock and Robots, Uh, Polly Pocket with
Lena Danham and Lily Collins. We have Wishbone in development with Pitt Farley major Matt Mason with Tom Hanks as a star, Thomas the Tank with Mark four there as director, and the list goes on and on. So we really.
Well, you know, it's very good that you're so close to Hollywood out there. Yeah, it's good that you're so close to Hollywood out there. Nel Segundo. Hey, we only have about thirty seconds left. I'd love to hear comments on the consumer going into the holiday season. Are you seeing signs of weakness in the consumer.
Well, we expect the strong holiday season for Mattel. We believe our retail partners and the industry as a whole is well prepared for this season, and we're very excited to be able to cater consumers of all ages with a great product for in the holiday.
I'm going to get yelled at, but I'm going to ask twenty seconds, what's the hot toy for Christmas and the holidays and for Hanukah? What is the hot toy?
Well, anything Barbie is a hot toy, especially even before the holiday. For the spirit Halloween Barbie costume, watch out for that. But of course the hot Wheels is always the winner. The basic car assortment and the five car pack assortment, and look out for the Monster High four Daughter assortment, and you know that will it will be very will be hot selling toys for the holiday season.
God, you're speaking my language. I love Uno and I love Barbie in on christ Thank you so much. Truly, your friends and your family are on our minds and our thoughts. Cheering see have Mittel.
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World Fool and on the last seventy five years becoming laundry experts. No, that make it easy for everybody, all.
Right, who doesn't have a vintage commercial a whirlpool, of course, and they are front and center today we're watching the share price down about fourteen percent here. What we love about these kinds of companies is they can tell us so much about what's going on, certainly in the minds of the US consumer and what's going on in the US economy. And this is a great conversation, especially tim
if you think about it. On a day where we got GDP, we expected it to be hot, and it came in even hotter than expected.
In fact, Dreasury Secretary Jenny Yellen just in the last couple of hours telling Bloomberg exclusively that the surge that we're seeing in longer term bond yields in recent months, that's a reflection of the strong US economy, not of a jump in government borrowing driven by that widening fiscal deficit.
All right, so good to know. And that GDP report for the third quarter, it was fueled by surge and consumer spending. So let's get to our guests worl Pool Corporation, Mark Bitzer, he is with us. He is chairman, he is president and CEO of Worldpool, and he joins us on Zoom from Benton Harbor, Michigan. Mark, it is good to have you back with us. Your company. You came out and you trimmed your full year profit outlook, amen,
and uptick in promotions. Investors noticed, and the stock is down the most and to the lowest since twenty twenty. So investors definitely, you know, are upset about what they heard from you guys. First of all, let's take the big picture. What's it like operating in today's environment right now?
Yeah, first of all, Krolyn and thanks for having me back on the show. I mean, what we basically communicate. Today is a third quarter which I would still describe as pretty solid results that we year were year we.
Grew our business.
We hadn't grown our business for six quarters in a row, and now we grew our business movement three percent revenue growth, We expanded market share, and we expanded our marchs and by about one hundred basis points. But yes, we trimmed our forecast. Technically not on my ongoing EPA because we also had some text benefits, but we as opposed to seven point seven and a quarter EBIT margin, we lowered it to six and a quarter to six and a half.
So that is trimming the EBIT margin, and the market reacted. You could in many ways argue probably overacted, but it is what it is. But I think that's the essentially what happened. The underlying results which we had I would still consider very solid and particularly compared to the pre COVID levels and also compared to Q two where we essentially went sideways. But in all transparency, we expected our margins to continue to improve and instead of that, by
basic move sideways. And I think that's what we see today. A lot of reactions out there underneath that that's probably getting to your broader question about the consumer. You know, the consumer right now in our industry we see strong replacement demand I even products breakdown and you have more applients usage to post COVID. But the discretionary side of a consumer, which is so much driven by consumer confidence,
that is the soft part of a business. That is also the inherently more attractive part of a business because it comes with higher march in the higher mix. So we see right now a pretty heavy shift of consumer spending towards replacement side and lesser to a big discretionary purchase.
That's interesting and that that makes sense given you know what else we're hearing with the economy mark. Where else are you seeing when it comes to the consumer in the US weakness when it comes to consumer spending? Is there certain categories that you can outline for us where you're seeing weakness? Are there geographies? Is it the higher end consumer that's that's actually struggling more than a consumer
you know in the middle or lower end. Tell us, tell us what you're learning and what you're seeing.
Yeah, and again it comes back to my early comment about replacement demand. You know, a replacement demand, just put yourself in consumer shoes, if you have a washer or refugeral breaking down, you want to have it replaced with two days. You don't do a big shopping around. Then a mix up you want to replace. So that is just one on one sale, which again is typically not
a very mixed or margin tractive business. The discretionary side, where people plan for a new kitchen or remodel house, is the soft part right now, and that's the much richer part of it. So in general terms, you could say, yeah, there's a little bit of a trading down on a consumer landscape. There's a segment of call it a premium consumer, which is pretty resilient, but it's kind of a big mass in between where you just don't see trading up.
If it all right now, you just see more trading down coupled with, you know, a promotion environment which we described as return back to pre COVID levels.
Well, as a consumer, I'm saying, yay, promotion it, Mark, I'm going to be quite honest with you, but it does say something to kind of move the needle right to get consumers kind of off the thinking area into the actual you know, buying of something. So how aggressive are your promotions, and are you anticipating that in terms of maybe some weakness and the need for promotions, that this continues into well into twenty twenty four.
Yeah, And Inurnes called what we refer to is we consider a promotion environment as having normalized, ie call it past tense, which also implies we expected stabilized going forward. So in terms of the depth of a duration of promotion, this is not any different from pre COVID and frankly, it is something which we expected, but it happened and occurred maybe one or two quarters early when we were
originally anticipated. And that again comes fully back to the discretionary side of the demand, post mortgage rate increases, post abvious horrible world news messages that tumbled pretty much call it in Q two, and consumer confidence ultimately drove that lower discretion of demand, which in turn drove a higher promotion intensity and the environment.
What about the other part of your business, the part about workers attracting and retaining talent costs that you have in terms of buying the equipment necessary to build these machines. How are wages for whirldpool workers right now? Are they up yere overy year?
Yeah?
So, first of all do to put in a broader context. As you know, over the last three years, we were not only concerned about costs, we were also concerned about resilience and the strength of our supply chain. The latter part we basically have I would say pretty much fully resolved. Our supply chain is intact. We don't have major availability issues to that make a check mark behind it. On the cost site, Over the last couple of years, we saw the biggest increase of cost on basically raw material
and transport. Transport has come down quite a bit, and raw materials are starting to trend down and that is a favorable trend which we observe particular second half of ISSUA, and we also expect into next year well wage side, and again that is more driven by of our US factories. One is unitize me once are non unitied, we basically have every year wage adjustment, and we in phase of a labor shortage.
In particular in.
Twenty one and twenty two, we did already fairly significant moves on that wage side. So I would say this year we're not confronted with a massive wage increase. We still of course do year we year increases and that kind of helps us dealing with a labor shortage, and right now, I would say across the board, maybe with some fewer region exception, we're pretty well staffed. And the labor shortage it's a lot less of a nasue than it was, for example, two years ago.
Hey, Mark, So what do you make of when we get the retail sales numbers that come out and it shows a really strong consumer and which kind of surprises everybody because we keep talking about student loan payments or car payments that are going to slow down the consumer. I see what you said about replacement versus discretionary, But does that retail sales data sometimes surprise you? Do you when people say resilient consumer, does it kind of say, well, resilient, but maybe not so much.
Yeah, And Carol, I mean I would say, I think you need to move from a headline into the details. And yeah, with consumer spending, and that's confirmed. The question is on what is with consumer spending? And we saw there's a lot of spending on services. Restaurant courts have gone up, traveler has gone up quite a bit.
Our part of a business consumer durable.
And again I'm talking about discretionary side, not the replacement site. For most families, buying a washing machine or remodeling kitchen is a very significant part of a disposable income. You only do this expenditure if you have confidence in your economic future and a broader environment and consumer confidence, and you can look at whatever index that is one which kind of call it. April may dropped off pretty sharply.
So yes, I do CBO for consumer spending. I think more durable categories is a slightly different picture on the long term, big disposable items of big ticket items, where's some reluctance of the discretionary side. Again, replacement site is very solid, but on a discretionary side is soft.
Do you guys talk a lot about a recession coming, you know, it's been you know, coming for two years, and some would say, listen, we've already had you know, certain parts of the market have seen you know, or certain parts of our economy have seen it. But what's your best guess as someone who runs a company, You've seen so many different you know, we've gone through a very tough market cycle, certainly coming off the pandemic that was bad and then.
It was actually pretty good.
People were doing things, especially on their homes. So do you think a recession is likely in the United States, your biggest market here, certainly by revenue.
Yeah.
First of all, I would start with a cabin There's probably a lot more people more confident about that subject than I am. So the way I would look at it, our company in many ways is a cannery in the coal mine, or we see certain trends earlier.
What I mean with that, we saw the.
Cost inflation in our business a lot earlier when most companies saw it the same time. We saw the beginning the cost deflation a little bit earlier, and we probably also see the kind of a normalized consumer promotion environment a little bit early. So most of the broad economy sees we tend to see maybe call it three to six months earlier. With that in mind, you know, it's kind of I think broader terms, the US economy is
more resilient that most people thought. So from that perspective, I personally do not see as an air for deep recession. Couper be is something shallow. Yes, I think the key element will be going forward to is you know, when when will the FED signal kind of a stabilization of a plateau of interest rates that is a big element. And then, of course, what is a little bit more difficult to answer when do you when do all the horrible world news become a little bit more less or
or are we getting number against it? So that's for consumer confidence part of it. But again from a person perspective, we don't expect a big boom, but we don't expect the scenario for deeper sessions. We're prepared to very small, modest growth in our industry, but we're also prepared to deal with a shallow recession.
Mark on that subject of everything that's happening around the world, our focus certainly not nom Yeah, and our focus certainly on the Middle East in addition to other parts of the world. But there's also the business side of this, which is oil prices. And I'm wondering how you're watching energy markets, how you're watching oil prices, and if we do see a spike in oil price, is what that does to your business?
Yeah?
And then and let me maybe a radio cause maybe not a perfect form to comment on this horrific attax, and the subject can subsequent human tragedy coming out of this one. So it's kind of difficult to move from that to economic impact.
Having said that, of course varies.
You know, the entire Middle East situation if it would further escalate, has some risk on the oil prices. Again, where's a big if it further escalates in an uncontrolled manner, as you've seen the last two days the oil price from initial spike that came down a little bit and right now in our internal forecast. But again there's people
who probably know a lot more about it. We expect also stabilization sideway to move off the oil, but it's a lot depends on will there be stability in what is an extremely difficult Middle East environment.
No, absolutely, Mark, We so appreciate your time. You've always been so generous, especially throughout the pandemic coming off of it, trying to help make sense of that cycle. And we really appreciate your time trying to understand what's going on and really appreciate it. Mark Bitzer. He is chairman, president and CEO of World Fool, joining us on Zoom from
Benton Harbor, Michigan. A great gauge on what's going on in the economy at a time when there is so much heavy news, so much on really appreciate wat's more to come. Right here on BusinessWeek.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube today.
It's a gift go to Schwab because this is where we find ourselves at Impact twenty twenty three. There's so much going on, a good reason why investors are maze that something hasn't broken in the economy yet because the last time US government bond yields climb so far, so fast, the nation plunged into back to back recession. So that is part of kind of our backdrop. Let's get to
it though. We are here at Philadelphia, at the Philadelphia Convention Center, at Schwab Impact twenty twenty three and with us as Rick Worster, he's president of Charles Schwab. I want to say thank you for joining us, but thank you for having us.
Welk, thank you for having me on. It so delightful to be here.
It's great to have you here in a day where I kind of laugh with you. It's a shame nothing's going on, but it's a really interesting environment geo. Politically, obviously we're front and center watching what's going on around the world, but also within the investment environment, how do you make sense you and your team back at SWAB about kind of how to prioritize what investors are going to care most about and what's going to impact your world specifically.
Sure well, certainly when we think about the global events, the first thing I think about is the human suffering and the difficulties that a lot of people have had to endure recently. From a market standpoint, we want that volatility can be challenging to clients, and one of the things that we say in an environment like this is seek out an advisor. And we're sitting here, of course, at our thirty third annual Impact Conference for advisors, and
they help clients thrive through environments like this. So it is a challenging environment for the world. Certainly, it creates uncertainty and some volatility, but I think advisors can help a lot of our clients through periods like this.
What are you hearing from advisors right now about the questions that their clients have. I mean, we're not only in a challenging world for financial markets, but we're in a challenge world for advisors. They're robo advisors. I mean, SCHWAP has its own robo advisor with shrob intelligence portfolio. What are you hearing from these people whose businesses are being challenged right now?
Well, the thing I would say about the advisor market is that there's a bull market for advice more and more clients because of everything that's going on in the world, because of what's happening in markets, because people are trying to integrate markets into taxes and their trusts, their states, passing wealth along. There is a bull market for help and guidance, and so it's a market in which advisors are thriving and the area is really growing.
Rick, what's the most interesting demographic in terms of the investing public right now for you guys, Well.
To me, it's got to be the baby boomers. The baby boomers have amassed a lot of wealth, and more and more are retiring every day, and they want that help and guidance to help them get through retirement and navigate all the things in front of them. So, to me, that's the most interesting demographic. But at SCHWAB, we want to meet the needs of every demographic. Whether it's a young investor, a baby boomer, we need to be exceptional at meeting the needs of all of those different demographics.
Yeah, it's kind of interesting, right for like a younger investor. We talk a lot about We had a guest on this past week of just you know, trying to assess are we in a recession? And you know, while technically the numbers that we've got growth in the US, you know, strong consumer spending numbers, still, retail sales numbers, employment is strong, employment is strong. Having said that, she said, you know,
I'm coming from Wisconsin again, somebody who manages money. She said, Yep, they're working, but folks can't buy a home because they can't afford it with the mortgage rates. They've got a thousand dollars a month car payments. So they in essence feel like it's a recession for them. So I'm just curious from your people who want to invest with you
guys and work on your platforms. You know, what is it that they're doing looking to save money, conserve principle, or be more aggressive in this environment because they see some opportunities amid the volatility.
Well, first, the first part of the question there's no question this environment has been difficult called for investors and difficult for people trying to live in the world. There's been a lot of inflation the uh you know, the FED has raised interest rates dramatically and quickly, but that was after letting inflation run a little bit, and so it has squeezed individuals. At the same time, markets are not that far away, particularly the S and P or
the NASTAK not far away from all time high. So there is a lot of wealth being created along the way. And from our perspective, we're here to solve to serve all investors. Our goal is to help clients navigate their financial life, to make them better off and help them get to where they want to be.
Do they want to be more conservative in this like, I'm just curious in an environment where we talk, you know, a money market pays you, you know what everybody keeps.
Saying more than five percent?
Why not put it there right without the risk? I'm just curious what you're seeing in terms of those trends.
I would say that the call volumes on our fixed income line have gone up ten times what they were about eighteen months ago. So there's no question that there's a lot of interest in yield right now, and why not you can get a two and a half percent really on the twenty year now on I think you have to go back quite a while before that was the case.
Kind of folts perfectly into my next question, which is about the business and about cash in the business. Schwab recently reported earnings deposits down twenty eight percent in the third quarter, was better than analysts forecast, still though a drop of more than two hundred and eighty four billion dollars. How much money do you see staying in the Schwap ecosystem right now, even if you know cash sleep is occurring, but people can get you know, more than five percent in money markets.
Well, what I would say is we want clients to do the right thing for them in their situation. We bring all you know, the clients leave cash in their accounts, We leave it there until we know what they want to do with it, and so they make a decision that they want more yield, they should go and do that. So the money leaving our bank, it's staying at SCHWAP, it's going and buying government bonds, or it's going into
a money market fund. But that money is staying at Schwab and it's going to places where it can earn a higher yield.
Then why were deposits down so much if it's staying at Schwab.
Because it's coming out of our bank and finding it's into higher yielding money market funds or fixed income investments. And that's exactly what we would want for clients. It's not the best thing for our profits, but we want the best thing that's for our clients, and so that money movement is healthy for our clients.
Great banking key to revenue. Right, we know that right from the last earnings report, is money still continuing to come out of that unit?
Well, what I would say is that if you think about what's happening, clients are looking at you know, if you went back to when interest rates were quite low, they would have a lot of cash in their portfolios and they would say, there's no need to move this cash. I'm just going to leave it here. It's going to earn zero here, it's going to earn zero anywhere else.
As the Fed has lifted interest rates and yields are now more attractive, people have looked at their balances and said, well, gosh, why would I leave it here earning earning less unless they need it to transact or they know they're going to spend it on something. But for the portion of their cash that they know is longer term cash, they can get a better they can get more yields somewhere else.
So it's moved. And I would just wrap up by saying, we think a lot of the movements occurred because that yield's been high for a while, so people have made that transition, and we're starting to see a strong deceleration of the pace of cash realignment.
So it's still coming out, but at a slower pace, much slower pace.
And in fact, last month was the first month where in our bank sweep we saw a positive growth in bank some more money coming into the bank than leaving the bank for the first time in a while. So from a business standpoint, that's positive. But again, what we want is clients to find the right investment for them.
Does it make you nervous though, as we get ready for a GDP report that's backward looking, mind you another read on inflation that in terms of what that could mean for monetary policy, we do think we're getting close to our peeking rates. But nonetheless, whether again, if we see signs of inflation, if we see more signs of growth, whether or not that that means ultimately you're going to see more money coming out because the money markets just kind of get more and more attractive.
Yeah, it could be we're back in one of these cycles where bad news is good news. You know, I feel like we might be back in that because good news may lead to the higher rate environment. That could be you know, it could hurt the economy certainly.
Okay, So what about creating new products that help people keep their cash at SCHWAB. I'm wondering if there are so many high yield accounts available at other financial institutions right now, what are the conversations happening behind the scenes about creating those sorts of products at Schwab.
Now, what I would say is we have all kinds of cash products for clients, and we're not having an issue with cash leaving the firm. We've we've brought in over two hundred billion dollars of net new assets to the firm, and a lot of it has found its way into fixed income or money funds. The issue is just where they're saving it. But it's not leaving the firm. So I think there's no better place and no broader array of fixed income and money funds than we have
at Schwab. So that certainly we always want to bring out new and relevant products, but we're doing a really nice job today of keeping those clients here at Schwab Impacts.
The top line growth happy with this environment is.
Over well, I don't two and a half percent, really. I feel like you know that's that's not a bad deal for savers and investors.
I want to ask you about your tenures so far. Right, you came in around twenty seventeen, twenty eighteen. I'm just thinking about kind of where the world was at that point. Not too shabby, right, and then all of a sudden, we move into a FED starts to raise rates, the pandemic hits. It's a whole other world, right, The FED cuts dramatically, we have the economy, everything just shuts down, and then we see markets bounce back in a big way. I mean, how do you think about kind of our
visibility going forward in terms of the market environment. Do we really have a good grasp or is it hard to considering that trajectory and trying to figure out kind of what happens after a pandemic and all of the stimulus and crazy activity that went on.
Well, we've certainly seen a lot in the last five or six years, haven't we. Yeah, you know, a pandemic. Timing was good, Yeah, all kinds of different market environments. Our advice to clients at SCHWAB is to come up with a plan, stick to that plan, and if you need to help, seek the help of an advisor who can help guide you through it. But we believe it's hard to time the markets to outthink you know, what's going to happen. Are we going to be in a recession?
Not in recession? Of course we have an opinion on those things, but we're not always right, and we want investors to stay the course, have a plan, stick to it, and work with an advisor if that makes sense for them.
What's your opinion on where we're going.
On the on the markets. Yeah, I mean, I think at some point monetary policy has to lead to a more restrictive economy.
But ressie recession or soft landing.
I am not an economist. I'm not going to make that call. But you know, listen to Liz Anne Saunders or Jeff clientob they do a really nice job of calling the markets and the economy as someone.
Who manages though it is very part of the c suite right here, who covers you know, and runs this company. What's top of mind for you guys, whether it's employees, whether it's cost cutting, what is it to be?
It's opportunity. We have so much opportunity to light our to delight our clients and make them better off in their financial life. But what I worry about at night is are we doing enough? And are we doing it fast enough? I just think we are blessed to have thirty five million clients that we serve on a daily basis, and I want to make sure we do everything in our power to make them as well off as they can be.
Can you talk a little bit about customer service? I have, you know, full disclosure. I'm a Schwab client, so I've experience. Thank you for your business, and one thing that is notable. It's like to me, it's like Carol, when we talk about American Express. You call Schwab and the person answers. You call American Express and a person answers. Can you talk about the investments that you make in customer service so people have those interactions just in the last minute that we have.
Yeah, client service is critical to us. It's one of the things that really differentiates Schwab from some of our Vermar competitors. We've answered the phone this year, on average in less than thirty seconds. I can't get anyone to pick up my phone call in thirty seconds, certainly not my teenage daughters. So we ext her.
Yeah, we make it.
It's really important to us that we answer the phones, that we're there for the clients and that we're delivering what they need. We are a client focused business. We only succeed when our clients succeed.
So nowhere about AI taking over.
Hey, it's going to be really helpful to all those people answering the phones. I think they're going to make a more fish They're going to help them get an answer.
This assist as an.
Assist, they're going to help you get an answer more quickly. They're going to help you get a better answer. But they'll be in the background supporting that person you're talking to.
All right, love to hear that, rather than taking over, Rick, thank you so much, really appreciate it.
Thanks for having me on.
Thank you for having us. Rick Wurster, He's a president of course of Charles schwab onsite at Schwab Impact. We're just getting started though. On this Wednesday, Carol Mass along with Tim Stenevick, and you're listening and watching Bloomberg Business Week.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa, play Bloomberg eleven thirty plenty ahead.
In our second hour of the weekend edition of Bloomberg Business Week, It's some lighter fare after another jam and very heavy week. Coming up. A conversation with Forward Space founder Kristin Sedakis, yes, Jason's sister. I'm building a unique brand in the ultra competitive group fitness market.
Plus the CEO of language learning platform Babbel on the trends that you're keeping the company at the front of the pack, and find out where to hit the slopes this winter with the annual Bloomberg Pursuits Ski special.
I've never seen Tim sohack. That's a fun one, all right. We mentioned earlier that we are coming to you from the Schwab Impact twenty twenty three conference in Philadelphia this week. Plenty of talk about the US economy and inflation, and first up this hour, we look at a prime example of rising prices in the auto sector, a one hundred thousand dollars jeep suv.
Bloomberg News Auto reporter Gabrielle Coppola writes about the unusual stalantist offering in the current double issue of the magazine. It's down now on newsstands, it's online and of course on the Bloomberg terminal. Gabby and Bloomberg BusinessWeek Assistant Managing editor Jim Ellis have more.
We've been talking about the affordability issue for a while now, that cars continue to go up despite the pandemic, despite the fact that a lot of people seem to be worried about employment, and despite interest rates which has made financing cards much more expensive than even just a year ago. And so I would have thought that means that anybody who's out there, you know, sort of hawking vehicles, was
having a hard time doing anything with pricing. And it turns out and talking to one of our reporters in Detroit, you know, Gabby Coppola, that that's not the case. That actually, you know, Jeep has been extremely aggressive at raising prices and that's been great news for Stilantis, which used to be, as you said, you know, a sort of an also ran.
It's the parent of what used to be Chrysler. It's part of Fiat Chrysler, and sort of people thought forever that they were sort of behind the guys like GM and Ford, and instead now they are a profit leader and they have basically done what I wouldn't have thought was possible, which was to basically raise prices. And people still want you so much more that they're willing to pay not only higher prices, but prices that are going up faster than the overall already super charts auto market.
So you mentioned Gabby Coppola, and she is with us. She is auto reporter at Plomberg New She's there with us in our Detroit bureau. Gabby, come on in on your story. I can't tell you how much we've all been talking about it throughout the day because we're like, what one hundred thousand dollars for Jeep. Help me, help me build on what Jim has been saying about the story that you wrote.
The interesting thing about Jeep as a brand is that it's always been like this incredibly coveted thing in the auto industry because people love their Jeeps. The only other thing you can compare it to in terms of a brand and like a transportation brand that has a real authentic community around it would be like Harley Davidson or something. So yeah, so like that's always been this great thing, but the question is, well, how do you milk that? You know, how do you make more money off that?
And Jeep decided to say, you know, like like I honestly all of Detroit did, let's get out of these like loan margin commodity cars. They'll focus on, you know, the most profitable trucks and SUVs and Jeep. You know, they've added to their lineup to do that. They added the Gladiator, which is like a Jeep truck, like a mid sized truck. And then they did this sort of extension of the brand, which was they brought back the wagon ear, you know, which is a nameplate people identify
with from the Pascal on nostalgia. But they made it this super luxury you know car that starts out or you know, just under one hundred thousand dollars.
Like mind blowing. But but you writing your story that overall unit sales for the Jeep brand fell four percent in the third quarter, of the ninth consecutive quarterly decline. Uh, this is coming from the company reporting out numbers earlier this month. That can't be good. That's not a good trick line.
That is not a good trend line. And you know, Jep will say that they're starting to turn it around and that they're sensitive to this, and you know, they're also a brand in transition, because it is true they discontinued the Cherokee, which is kind of like that's the biggest segment that that size suv and they basically have a big hole right there. So sure there's some you know, temporary things, but I'm not so sure it's just temporary.
You know, the most interesting conversation I had reporting the story is with this guy Alexander Edwards, who's like a brand researcher, and he said the most fascinating things to me about Jeep. You know, when you look at car companies, there are really any brand you're thinking about what is that company doing to build equity in that brand. He gave the example of say, you know, Hyundai has like this warranty, you know, ten years, whatever it is. You know,
we are so confident in our quality. If you buy our car, we're going to deliver that quality to you. Wrangler brings authenticity, you know, great capability, handling, all that kind of stuff. But they feel he feels like they've been kind of resting on their laurels a bit. And I think that is why you see them their sales suffering more than others in the industry because everybody's raised their prices, right, everybody. We had the tip shortages of pandemic,
So why is the jeep brand suffering? And there's some interesting kind of psychology brand dynamics going there. It's just really interesting, like a corporate strategy aspect and like a brand strategy aspect.
So Gabby is that the in the end is that the price one has to pay to get higher earnings is basically to say, maybe I'm not going to think as much about maintaining my volumes and instead, you know, raise prices while I can and basically just work about margins, which makes Wall Street happy, but might not be the best thing longer term for.
A brand, which is so interesting on a moment where we're talking so much about Tesla marg Margins after they report it's obviously something we also come on in get it.
Yeah, no, you're that's a great point, Carol, Like Tesla is kind of doing the opposite. They're saying, we're going to go the auto industry. You know, I've talked to a former Chrysler executive. We said this funny thing to me. He said, uh, let's see. He said, market share is vanity, profitability is sanity is like, this is like the choice that every auto executive, every car company has to make do you go for volume or do you go for profits?
And it's kind of like a dial you have to adjust to keep a healthy brand and a healthy company. And I think Jeep has gone very far into the profitability dial. I don't think I seriously did. Reporting the story was like guys, this is this the plan? Like is this on purpose? And they're like no, no, no, no no, like they do they don't like obviously they don't like what's happening, and they want to bring it back.
And nobody likes nobody likes a lower, downward moving trend line.
Come on, like, get real right, and you can't say, oh, yeah, we don't care, like you can't say that yeah.
I mean, Gabby, I have to say I love this story because I was pretty shocked a little over a year ago when I saw the Grand Wagoneer. And you know, it's funny because my grandparents had one of these Wagoneers back in the day, and like, I have memories of when I was a kid being in this wood paneled like nineteen eighties Wagoneer. I mean, it looks nothing like
the Grand Wagoneer today. When you approach ninety one thousand dollars is the base price and get up, you know, easily over one hundred thousand dollars when you do add ons. What's the competition on the on an suv basis that starts to come in that could pull away potential buyers?
Well, so that segment, you know, it's not like Jeep invented this idea, Okay, Like look at the Cadillac Escalade that you know, Ford U or has the Lincoln brand, the Lincoln Navigator. They're going up and get like a Mercedes G wagon. You know these are so it's really like Jeep was. You know, the company was trying to get in on some of that. They're late to the party. They have, you know, the merger happened, they have more resources.
They wanted to say, why were we leaving this money on the table, Let's do this.
But the question is they put.
It under the Jeep brand because that is their most popular, right That's that was kind of the easy way to go to the point that Alexander Edwards made was was that the right place to put a vehicle like that because it has to live in the same tent with the wrangler, with the people who are all about authenticity, all about realness, all about you know, get out there in the woods or on an off road trail and you know, screw your boss and.
Your crabby job.
You go out there with your wrangler, like you know, it's a Jeep thing.
It's a it's a deep thing.
I mean I was going through like social media looking at like Reddit threads of communities around Jeep and the community is very strong. People put these little rubber ducks on their cars, you see, even to try I see people a Jeep will have a bunch of rubber ducks on the It's like this kindness, it's this community. It's like we're all the same tribe kind of thing. Again, it's like a Harlowe group of harlet It transcends class, right like I think it's the same with her.
One of the things that really surprised Gabby uh Stillenttis is calling and they'd like you to write their next commercial off the Jeep because that was like prices anyway, jip, go.
Ahead, Gebby. One of the things that I found really interesting in your story was that even though you know Jeep is trying to sort of deal with this issue by coming out with some lower priced offerings, the starting price, the price that we all see on websites and whatever, is not what people pay for a Wrangler for example. I mean, there are just it's sort of like a Chinese menu. There's so many add ons here that really make these cars very expensive.
That's exactly right. So when they say, oh, but we have an entry level two door ragtop Wrangler for only thirty two thousand, you know that is very very basic in the stuff you're going to I mean, Jim and I were going through some of these options last night and we were putting the story together. You know, Oh, okay, you want to have a color other than white on your wrangler. Okay, that's another six hundred books. You know, the stuff, you know, and it's fine. It's the wrangler
is a toy. It's a big toy for people.
That was Bloomberg News Auto reporter Gabrielle Coppola and Bloomberg Business Week Assistant Managing editor Jim Ellis.
As we mentioned, as you can probably hear from the background. This week, we broadcast from the Schwab Impact twenty twenty three conference in Philadelphia. You're listening to Bloomberg Business Week coming up creating a new niche in the health and wellness space with the CEO of New York City's Forward Space, Kristin Sudeikis. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from read Is six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or wants us live on YouTube.
Well, the fitness market few starts to throw out at you from various research groups virtual the virtual fitness market to be worth about one hundred and six point four billion by twenty thirty and then you got Gym membership that market to reach over seventy billion globally by twenty thirty two. People work at you love working out?
I do, yeah, when I can certainly find the time. It's good for us. We have to do it as people. I mean, this is like es Central stuff in general. The fitness sector roared back after being devastated by the pandemic. It also changed a lot during the pandemically the virtual stuff people working out at home. It continues to provide different offerings as a way to work out. Enter Forward Space Carol about five years ago. That was back in twenty eighteen.
And great to have with us on zoom in New York. Kristin Sadeikas she's found her CEO and creative director of Forward Space. Kristin, so great to have you here on Bloomberg Business Week. First of all, how are you? And tell us about your world and Forward Space and how it all came to be.
Thank you for having me. How did it come to be? Human connection?
Very much in the business of human connection by way of movement and music. So I've been doing that as a choreographer and artistic director for a lot of my life and started to really notice a high demand and high just request of me personally. Where can I just
go move, go dance connect myself? And there just wasn't quite a space that merged the serious side of dance, technical side of dance, the social side of dance that's so essential to human connection and to what we're needing as social beings, you know, to be in a room together, the resurgence of how potent that is that people want to be in a room with other people working out and not just at home. And then the sweat side, which is the cardio workout side.
So it bridges the three together.
The serious side of dance or this technical side that a lot of people really want, the training of how can I be better at dancing but in an accessible, non intimidating way, the social side, which is, you know, people are probably out doing somewhere right now, and then the sweat side where people could get a workout and not just for their bodies, but for their minds and their emotional health and their energetic health.
What's interesting, and we talked over the summer. You know, I am from a large family we love to dance, whether it's a wedding whatever, it's like it's such a great workout, but you know, throw some music on and we're like all over the place.
I want to go to one of these you see the master plan, do the thing.
But it sounds like that's what you you know, you've really kind of you know, tapped into something of you know, you throw in some great music, you post your playlist, you curate them, and then you combine it with a workout like it's just I can I can get it?
Yes?
Yes, And the human connection part of it all, you know, I mean, that's really the genesiss of it is creating a space where people could connect not just to others, first to themselves, then to those around them, be it at a wedding, that same feeling where you you know, you meet people on the dance floor, but then also the greater world around us in that order again again and again in a dark room, should I should you know, share that part because we keep the lights very low
because many people are very very nervous coming in. They have wanted a space to try to dance or use some have There's one class that's a fire class, so there's free weights and a lot of sculpting exercises with little mini dance breaks in between. And that's for people that are all the way backed up, you know, all our style.
Yes, so you guys have an actual physical space in Soho here in New York, but you can also do this virtually. How do you create recreate virtually what you create in the space and Soho? How do you actually do that?
Yeah, yeah, great question. It's similar to what we're doing right here right now. While we're not in the same room. It feels different, yet I can feel connected to you all. It to create a precise, precise portal going through the camera so that people receive the information in their homes. I think there's something really special about the fact that we have now expanded into the virtual and the many people that are doing it that also have a physical space, those of us.
That have the boats and because people either come.
To our home if you will, and Soho, and then we also have the opportunity to be in people's homes, you know. And that that's a key element I talk about when we're getting ready to film and things like that. It's to just take a moment and know that we're entering their space now, But how do you do it where it still feels electric? And it's in the delivery, it's in the professionalism, it's in the training of it all, it's and making it look effortless and the music.
You know, it's really kind of interesting. I love the workout space and we've covered a lot here at Bloomberg and certainly at Bloomberg Business Week, and it really has taken off in so many different iterations. How do you think about differentiating yourself. I mean, you've laid it out, but it's a competitive field. I'm just curious if that's the top of mind that understand that you're competing for people's time how they want to work out. I get
the component, but how do you think about that? Because you do think about growing your business and throwing some business metrics, because we are curious about how much the business has grown in the past five years.
Sure, twenty twenty three alone, in our one flagship space, we've seen twenty three hundred new clients. Wow, okay, and we have very minimal I'm just giving.
Kind of makes my chest still address a bit because.
It's just affirming the demand that I saw traveling in the country and outside of the country creating dance concepts. But that's just in our soho space, in the physical space, and absolutely to the expansion. And do I worry about the competition apps? I mean no, you know, absolutely no, because this is the grace of being a working dancer and choreographer first and foremost, you know, professionally starting to teach when I was thirteen.
I was given the opportunity to do so.
In even moving to New York from Kansas City, people would say, You're worried about the competition, you know, in the arts and things, and no, I was driven by the connection and how it shifts people's worlds individually and collectively.
So the competition, like you know, kind of fires me up. I'm good to go with all that.
As you know, we are Bloomberg. So I am curious about, you know, are you profitable, what's the plan? Like, do you want to how do you want to grow the business? Do you want to stay private? I'm just curious because you do have investors, you know AVC, You've got able partners, You've got G nine Ventures, You've got a bunch of people who've definitely ponied up money to back you.
They did, they did, and brilliant people and we are very intentional with who we said yes to being a part of this with Forward Space, how do we plan to expand? Soho's our flagship space, will continue to do activations. We've done them in London and out east in the Hamptons for five six weeks. We've got our eyes on the Upper east Side West Hollywood, LA. So these are the other physical spaces that will open. Chicago's in the mix. Yeah,
and then partnerships. Brand partnerships has been one of the large lanes, you know, if you think of Ford Space. Obviously in the center here we've got our virtual our flagship space are varying spaces that will open around ten or twelve in the next five years.
And then the brand partnerships.
We've done things with a number of notable brands, large brands, and so building those relationships out further six K relationships, you know six.
What about potentially franchising like Orange theory is.
Done right, I don't think we'll go that route, and that was early on when we were first building out the plan and doing as doing the first round of investment, a non a convertible for good convertible note, and so in the convertible note. That was a large conversation I had in a few of our key investors.
We had some really strong meetings.
About knowing this fload will explode in all the ways, wanting to be intentional with it and to not Some of them had taken the franchise route and learned, and we don't think that would be the route for Ford Space.
It's not an absolute no, but it's likely not.
Kristen really quickly thirty seconds, your brother is Jason Sudeikis, so did you ever give him advice on Ted Lasso? Does he ever give you advice on a playlist?
And just quickly, oh gosh, I mean we're passing music back all the time and talking life and talking all the things. But I mean, I know, never gave him advice on his body of work, his show I called the body of work that's been exhaled, that's brought such joy and talk about connection, human connection. But I mean, he's an amazing big he's an older brother, you know, my only brother, very close and feel very lucky to talk music and playlists and life and all these things.
It's a yes, Well, listen so much fun. Next time, come join us. We'd love to have you in studio.
Come back.
We'll talk a little bit more about the business too. Dancing, Yeah, I do some dancing. Christ And Zadaikas she's found her CEO and creative director of Forward Space.
You're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. You can also listen live on Amazon on Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty time Now for.
A bit of luxury with our friends from Bloomberg Pursuits and This week's issue of Bloomberg Business Week Magazine includes the long awaited return of the annual ski special.
Tim.
It's almost ski season and you're pretty excited.
I'm excited, but you know, thinking back to my glory days of living in the mountains after college, skiing is just not the same when you have two kids, and you know in New.
York City there are places that will take them all day, so you have to You know.
That cub med all right, club mad, That's true, It's true, all right. You guys doing your club med though you guys are hearing shelps were hearing the voices of Bloomberg Pursuits editor Chris Rouser and Bloomberg News travels are Nikki Eckstein. So let's get into it, all right. I always like to ask, We like to ask, how do you guys approach this? Like, yeah, I mean there's people who have kids, there's people who like So how did you approach it this time around?
Well, we do this every year and Nicki and I are both skiers, so we love working on this section. And what we try to do is combine news like stuff that you may not know about, So developments in hotels or resorts, news ki terrain, along with service. So what's some of the gear you might need? Where are some of the places you might want to stay? Like newsplus fun.
I was gonna say, I think we're like very much guided by our own hearts, right, since we care about this industry, we always try to feature the things that are really exciting to us because we think that that's what we'll excite other people too.
Well.
Speaking of the industry, it's undergone some serious consolidation over the last decade or so, Nikki. When we think about independent ski resorts, we think about those that aren't owned by the big players Bell Resorts and Altera, which own almost half the ski areas here in the US, and they're continuing to buy more. You dedicate a big section of this issue to what you call the independent resorts.
Yeah, you know, we're thinking about the trends for the year ahead, and this is something where for the last I don't know, ten years, maybe we've been seeing the demise of independent resorts. They all get scooped up by the corporate companies that strip them of character and flavor and make them, you know, available to people on epic passes and so on and so forth, which is its own service. But this year we're seeing something different. We're
seeing independent mountains come into their own. Many of them are actually being acquired by major entrepreneurs and people from the finance world, not from the ski industry itself.
I have to say, I love this. I had no idea. I feel like for years we're like, isn't this great? These like big corporate groups creating these passes where you scause of these give places. It helps users for sure, right, Okay, so but talk to us about these the independence here, Chris and who's doing some of the who's getting involved because there are names that certainly our audience is going to know.
Yes.
So with like a lot of things that you want to survive and love, sometimes it does require, like media for example, it does require a billionaire to come in and invest, well said, and in some of these places that's exactly what happens. So read Hastings, who is the co founder of Netflix, who we all know, came in and bought Powder Mountain and has announced one hundred million dollars in commitment to improving it. And that's the kind
of thing is going to keep Powder Mountain independent. And he says he's going to keep the appeal that that mountain has for the current users and maybe bring in some new people.
What's interesting is about how he found it. So it sounds like he found this mountain after being kind of frustrated by some of the more populated and it sounds like he wants to keep it that way for.
Himself as others.
So the story is that he lived in Park City, he had a house there, he had his kids.
Were living there.
You know, they all would go skiing as a family in Park City all the time, and one day it dumped snow. He piled his family into the car, was like, let's all go powder chasing at Park City and they get to the mountain and it's all been packed over. He says it was like skiing on a sugar cube, as on a sugar pants on a sugar cube. Yeah, that was the exact quote. And so he got fed up and he literally put his family back in the car. The same day, He's like, I heard of this place
ninety minutes north driving let's go. Let's see what happens. They were there by lunchtime at Powdered Mountain, and within like weeks he ends up buying a house there. Later on buying the resort, he wants to preserve it. He wants to preserve his own special place.
I mean, who hasn't gone on vacation somewhere and then him and decided to buy it. I will say I was surprised to read that about Read Hastings, because you know, you think, okay, it's Read Hastings. He's worth more than four billion dollars according to Bloomberg Billionaires Index, and he skis just like normal people, Like I thought he'd be, you know, helicopter skiing and you know, going to these
resorts all over the world. But I guess he piles the kids in the car and does his thing and millionaire.
Sort billionaires us.
The other one who got involved, which I thought was interesting, was a former City of City group.
Yeah, Mike Corbett.
Yeah, so Jackson Hole is another one.
So this is another funny story where quite a few years ago, a bunch of people who make these like indieeski ski videos out of Jackson Hole posted something saying that Veil had bought Jackson Hole, and the entire internet goes a flame.
Saying, not my mountain, April fools. It was a literal April fools.
But the family that owned that resort, the Kemer family, decided, you know, we have to take this seriously. We're not going to sell Jackson Hole unless it's to another independ an entity. And they spent years and years debating whether they should keep it sell it after they proudly built it up to what it is now, and finally after the pandemic, the Khmer family decided maybe now is the time to back out.
They approached Mike Corbett.
Love It, and he said yes, and as of August, the resort has new ownership. I don't think it had been previously reported actually, at least the terms of the deal.
So we are very I feel.
Like it's a story we would have done. Is like one of our you know, like, hey, did you see this story? Because it's just kind of interesting. Yeah, these big names, I just want to just real quickly do Windham. I had a sister who taught on Wyndham for a long time. It was such a family mountain. Yes, but it's really gone a makeover. I love that, you know it, I used to ski.
There are a lot too, and people have been really up in arms in recent years because in order to make the economics of that mountain work, the day passes have gone as high as one hundred and seventy five dollars a day, which for East Coast skiing is ludicrous.
But now the proposition is that the family that owns BlackBerry Farm in Tennessee and credible, culinary driven, five star super lux resort has taken over Windom along with another family, and they are hoping to bring that same sensibility of like four seasons, great food, you know, operate ski.
Culture, wait one hundred and seventy five thousand initiation fee.
Yeah.
Yeah, there's a little aspect of a little right.
Skiing is still going to be open to the public.
Okay, there has been uproar because they're turning it into a member's club as well, but skiing will remain.
Open to Okay, I'm just going to say, you know, and I think it's like Sesame Street, one of these things does not belong Windom, along with Jackson Hole out of the Mountains.
Kay, you're not wrong.
I know what I'm talking about. It's a crazy number.
No, No, it is a crazy number. And you know, we're not there yet, Like they're just starting this now. So what they're trying to do is really build up the amenities, make it like feel maybe as posh as a Yellowstone Club silo Ridge, but not you don't have to buy a house to be there. So we don't really know what they're going to offer to try to make that scene valuable.
Make it you around too, right, Yeah, and there's actually they're opening they're talking about opening a property in the Catskills as well for summertime.
So it could really be an.
Asset to New Yorkers who want that kind of BlackBerry farm experience closer to home.
All Right, I don't ski as much as you guys. I used to ski, but I don't as much, so I kind of got into some of the gear. Can I be quite honestly, let's talk about the gear, Chris.
So, you know when you go backcountry skiing, especially if you're going helly skiing, you need to take certain things with you in case there's an avalanche, and so you have to have a beacon, a shovel of probe so people can track where you are. Yeah, but now there's a lot of stuff that takes that safety to the next level. This is not something that I personally do. So I also read this and was like, yeah, give me all of this.
Do any of you do this?
I do.
I have an avalong in my clock.
I do.
Yeah.
But the technology, it's interesting, is about fifteen years old. And this the product that I have is a backpack with like a breathe ability thing built into it. It's a lot different than what's available now where you have airbags, you have assisted breathing. Best it's essential stuff if you're going into the back country.
Nikky, I wouldn't know, but I'm really glad to hear this because I find this to be so terrifying and I want people to stay safe.
Anythink that has gear that you need to take that has the word lung in it, the trees, the.
Tree oxygen in like it like a couple of minutes.
Just going with people who know what they're doing. I mean, these are people who know how to read snow and understand where it's safe to ski and where it's not safe to ski.
And some of this gear.
And one of the things that I think is actually really cool about this is that there's this app. And you know, when we were working on the story, Chris was really skeptical about this and we really had to
dig in and figure out what the deal was. But there's this app that uses light our mapping technology which basically scans the Earth's surface for evenness of snowpack, for density, for tree cover, for how foot traffic affects the snowpack, and the other factors believe and uses all that combines it into historical data to predict which which weighs down the mountain will have greater avalanche risk than others, also factoring the day's forecast, the day's avalanche forecast all of it,
and it makes predictive recommendations to you.
Really smart. Right, it's in the self driving vehicle.
It's really cool.
I'm just gonna say, I want to go to the puff puffer coats. I will upset you didn't bring any for us to try on, because you've done that in the past.
You would take a monk cler.
I would ors are a pretty cool brand. Anything we should know about that.
If you want something that's like so hot that you're like a furnace, Nobus is really the brand for you. We also say Patagonia is you can't go wrong with Patagonia if you don't want to spend a crazy amount of money.
Guys, thank you so much. Often running for the new ski season our thanks to Bloomberg Pursuits editor Chris Rouser.
And of course Bloomberg News Travels are Nikki ck Stein looking forward to hitting the slopes a safe I think I'll go check it out this year. Bring the little guy, take the little critters, take the critters.
All right, you're listening to Bloomberg Business Week, guys, thank you so much. And if you're traveling abroad for your next ski trip or any sort of trip, for that matter, you might want to stick around for our next guest, Julie Hansen, us CEO of Babbel, the world's best selling language learning platform. She stops by next. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
We've got with us Julie Hansen. She's US CEO of Babel. It's a privately held company, and it's a role that she's had since twenty seventeen. Julie also we should notice the former COO and president at Business Insider. She was there when Axel Springer bought BI in a deal that valued the company for four hundred and fifty million dollars back in twenty fifteen. Julie joins us on Zoom from New York. Julie, good to have you with us this afternoon.
How are you good, Thanks Jim, Thanks Cheryl, thanks for having me.
Yeah, it's good to have you with us. Talk to us a little bit about the growth that you've seen on the platform, because I got to tell you there is no shortage of places where you can go online to learn languages.
True, but we've seen I mean, Babel was the originator of the category of online language learning some seventeen years ago when it was founded in Germany. And we've seen double digit growth growth really boom during the pandemic, but then it's stayed at very elevated double digit rates ever since,
and we've been able to sustain that growth. And part of what drives it is what you said at the top of the program that you know, multi language families are growing in this country, but it's also just become something that's somehow more appealing to do in our culture and we're benefiting from that.
So Jillie, wait, help me out here. You said obviously makes sense. Right, A boom during the pandemic, Right people are at home. They wanted to learn to knit, learn to make sour dough bread, and learned to speak another language. Like that's what it was about and stay healthy, no doubt about that during the pandemic. But you've held on to those levels of growth as well as subscribers give us. Are you saying that you've maintained those levels in the gains.
Yeah, I mean not quite at the pandemic levels, but we've grown double digit ever since the pandemic, so very strong growth. I mean, Babel is the most sold language learning platform ever. We've sold more than sixteen million subscriptions over time. So so yeah that I don't I can't tell you all the reasons why, but it just seems like something about the language learning boom during the pandemic validated that as an activity, and people have stayed with it.
I'm curious, like, how does it work if you become you know, you sign on and you become a customer of your services, do you become a repeat customer? Is that what often? Or is it all about new customer acquisition?
That so interesting? Actually, in Europe, especially in Germany, we do see quite a bit of repeat purchases, whether people are coming back to a language after a pause or often there like learning the next language, which of course is very impressive.
Who are these people very languages?
Over Here in the US we tend to see that people take a pause and then come back. But language learning is, you know, a long term activity. You can make progress in a short time period, but you don't become fluent without you know, a considerable long term effort, so people know that, and there's actually one of the reasons why lifetime subscription is a very popular option.
Talk to me about the strategy here with Babel in terms of learning and how Babel teaches in a way that's different from other platforms and compare with dual Lingo. I know, doual Lingo is a company, it's publicly traded, it's got a market cap of about six point nine billion dollars. It went public just a couple of years ago, and that one certainly gets a lot of mind share with especially millennials and gen z yep.
Definitely different learning approaches. You know, at Babel, we use a lot of learning science and frankly a lot of AI embedded in the product. But we do believe that human led teaching. We have something like one hundred and fifty didactics experts on staff who've created our courses that we need.
We need to.
Marry their knowledge with technologies basically the essence of what we do. We also believe that, you know, you're not going to become perfectly fluent from any app, so that's why we've created other products to support and round out the language learning experience. So it might be a bunch
of podcasts. I think we're up to twenty three different podcasts, but we also have live teacher led you know, virtual classes, and those are an important part of you know, really we care about learner success, so we believe that to get learners to succeed, you have to combine learning methods. I mean, there's scientific research behind that. It's not just
our belief. So so it's that combination of human and technology, especially AI, but other technologies too, and the idea of creating a whole surround sound of learning experiences.
It's really interesting how much of your business is B to B business to business I'm always curious about or is a lot of it just individuals who want to learn a language.
Well, the B to B is the fastest growing segment of our business by far. It's the newest compared to the consumer though, so it's not nearly as big, but growing fast. And those are very interesting use cases.
We started that business in Europe.
We found, you know, international companies, multinational companies needed help. And then we came to the US and it took a while to sort for the use case to become clear.
Here but we.
Believe the growth opportunity is massive in the US based on just migration patterns, because often babble is brought in for language teaching in situations where there's workplace safety at risk. Yeah, we have a very diverse group of clients here from a bunch of MLB teams. Maybe safety isn't quite the thing there, it's excellence. But you know, down to meat packers, landscapers, I mean places where that where language barriers create safety issues and there's a big opportunity in that.
Talk to me about mobile versus desktop right now? What's the share on mobile?
You know, when I started here, if you can imagine people, actually there was a lot of desktop usage. That was just six years ago, and I thought it was really peculiar, frankly coming from the US.
But now it's we're a mobile app.
There are still some people who use the product on their desktop or maybe their iPad, but it's a mobile world.
What is it typically cost for somebody who wants to subscribe or learn a language.
I mean, you can start in the US if you want to just try a one month subscription for about fifteen bucks. If you want to subscribe for the year, more like ninety dollars, you can pick up a lifetime subscription for call it three hundred bucks. So in that range.
And your biggest market or biggest or fastest growing market, is it the US? Just got about thirty seconds left here.
Yes to both.
The US was late, the last one that we were found success in and it took a very dedicated approach. But it's now the biggest market, the fastest growing. You know, it's all about learning Mexican Spanish in the US market, but we teach all of our fourteen languages, but that's the popular language here.
Really interesting. Thanks for the insight, really fascinating. Julie Hansen, US CEO Babbel and joining us of course on zoom in New York City.
This is the Bloomberg Business Week podcast of a Little Apple, Spotify and anywhere else you get your podcast. Listen live weekday afternoons from three to six easterning on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminale