Customer Growth's Johnson: Fast Fashion is Dying (Audio)

c d R dot org. The September jobs report is fueling losses on Wall Street. Employers added one hundred fifty six thousand jobs last month, and their speculation that the report will keep the Federal Reserve on track to raise its short term interest rate by December. The market has narrowed its earlier decline, yet is still lower, extending the week's losses, which at the markets every fifteen minutes throughout

the trading day. Dow Industrial leverage is down fifteen points a tenth of a percent at eighteen thousand, two hundred fifty three. Smp F I foundered down six points a quarter percent at four. The NAZDAC is down fourteen points a quarter percent at fifty nine two West Texas intermediate crude oil down seventy one cents a barrel one percent to forty three s about gold up three dollars fifty cents an ounce at twelve fifty six fifty ten. Your treasury of three three seconds with the yield of one

point seventy two. And that's a Bloomberg business flash. You're listening to taking stock with Kathleen Hayes and Pim Box on Bloomberg Radio. Shares of Walmart are lower by four percent over the last three trading sessions. This week also happens to be the Investor Annual Investor Media in Bentonville, Arkansas, which Doug McMillan, the chief executive of Walmart, laid out an e commerce strategy for the world's largest retailer. And here tell us more is Craig Johnson. He is the

president of Customer Growth Partners. They are based in New Canaan, Connecticut, and he joins us in studio. Craig, always a pleasure, Thank you for to see you all right, So tell me I I read a lot of the stories and the reports and the transcripts of the meeting, and they really focused on, as I said, e commerce what can you tell us about those goals? Um, the the objective and the goals are great. The question has always is how do you get their timing, etcetera? And what do

you sacrifice? So what do you pull back on to do that there? Walmart has been late to the to the e commerce dance for a couple of decades, and they tried to fast forward things by buying Jet as three billion dollars three billion dollars um jet dot com, Jet dot dot dot com, who's not making a lot

of money, but they do have some expertise there. They could have spent a fraction of that if they bought Amazon, you know, uh, ten or fifteen years ago, which which they didn't obviously, And it goes Amazon by year end will be the second largest retailer in the world, a passing even Costco. So this is an interesting time that

we're in. Uh. They have recognized the importance of it, and they've also throttled back on the growth of the core supercenter Stories, which is the primary format, but even slowed down a little bit the neighborhood Stories, which is the newer sort of small to mid size format. How much is Amazon making now? How much they're actually profitable because of their cloud business are because of their retail. The AWS is an important part of the Amazon work the world services, which is more of a B two

B product that that is profitable. Um. But the the traditional retail business is not making a lot of dope, meaning making money on the retail market. But over half of their retail sales now are done on a third party basis, so they're making money on a fee basis, which is actually that's that's a great little business, and so they make more money on that. They make a little bit of money on on the actual retail But the core of the basically the legacy business, uh, the

AWS is profitable and growing very rapidly. Uh So they're doing a number of things, right, Well, I mean I give you the detail here, right, So here's here's the number. Right. They Amazon a hundred and seven billion dollars last year for the twelve months. Right, so a hundred and seven billion dollars thirty five billion and gross profit without margin of thirty three percent. Obviously they spend it internally the way they want to. Um net income almost six hundred million.

It's not so bad, it's it's better than a one point nine billion. But but but again, it's a company that for years never made any money. Now that at least make a little bit of money even in the in the legacy business, the fee business. And they're doing a fourth thing in addition to the aws and that they they've gotten much more into the original content business. Content creation like a studio, the movies, the TVs and of course the distributionuld cost for those since it's all

lives is streamed is you hit the sin buttons. It's the artificial intelligence that that is that as well. The problem with the content business is it's difficult than to create a business to control costs. So that's an issue there. That's so, but it's it's heading in the right direction. So they're doing a lot of smart things. I'm surprised nobody has ever gone off after Amazon. And a couple

of things. One would be, uh, no tax on internet purchases, because if I'm a brick and mortar, that's always been a rip off, but we've accepted it. And number two, has anybody ever tried to go after Amazon as a monopoly? Uh? Never teach them to any of the above. On the first part, people have criticized him. There's a number of initiatives and difference. Amazon's fault they do. It's a government's fault.

They don't have to absolutely, but nobody has um and the effort to address that has been that's been been long running, but so far, you know, in most states where they don't have physical facilities, they escape that. Jet dot Com is in a sense kind of going after them for the kind of the legacy business. But Jet dot Com West I checked, wasn't the can a lot

of money. But again they do have technical expertise. So the question is if you, if you were from a use of capital, whether the best bet was well, if you're buying them for the expertise of the people there, well want to hire a head hunter and get the four or five people you want to get. And you know, it's a lot, a lot cheaper than spending three billion dollars. But that's what they've done, and they've added to it. It will be on net additive and will provide a

new energy and also provides a signaling aspect. But for once, Walmart is really really serious about e commerce, and again it's taken a twenty years for them to get really serious about it. That's a pause. I think that e commerce accounts for about three percent of Walmart sales right, and total sales last year four two billion. Okay, can I want to you mentioned Costco? Tell me about tell us all about Costco and and traffic and such, because I want to get to that fast fashion comment that

you want to. Absolutely, Costco is one of the great companies in the world. Wherever sets its flag by the Taiwan On or Ausie or Korea, everybody loves it. Everybody gets it immediately. The the issue though, the sales growth has been slowing down just a little bit quarter by quarter. The traffic growth, which has always been three and a half four pc plause, which is the real driver and hallmark of all grade companies, has been gradually ebbing down.

And that's a real issue there. So that's what that's the thought on Costco. Otherwise, a great company, a scale, the model, everybody loves them. You'll find very few Costco detractors. So they do they not need to become an e commerce giants because they're a smaller scale, a different kind of stores. They don't have to worry about. It's part of the issue because one of the reasons they have have loss of growth. Is they also relate to the

dancer very much a store centric enterprise. And because they became the prisoner of their own success. They were so successful with that warehouse format that they kind of pooh pooed the Internet. So they're a little bit slow on that, all right, Fast the fast, the forward fashion for Matt. What's you said that that's lagging? Yeah, fast fashion fading fast.

But at any rate, the issue there is it for years and MS twenty one, there was something called love culture for a while, UH Root twenty one, which just changed management. UH fashions itself as a fast fashion fire. The problem is huge growth for many, many years, huge square footage growth. The problems that began peeking out a couple of years ago. Now it's actually in decline. It's H and M soft for every twenty one, very slow, you know, negative double digit comps. UH. And the only

one that's standing out right now is Zara. Zara is much smaller in the US, UH and it's a little edgy, a little more euro than the than each of the other companies I mentioned, and that seems to be right in a sweet spot. But other than Zara, which is the smallest of the of the majors and fast fashion everybody else's. I wonder how much it has to do with if you've been around for a while, you just don't have that. I'm kind of cool and new and people get used to and they're waiting for the next,

the next thing. Every thing's going. Cycles performance were very very hot for years now. That's kind of starting here is going. When you start to see a bunch of performance for a stop at at Cole's, etcetera, then you know things are starting to slow down. Christmas New Year's sales holiday is going to be challenging this year. Not a disaster, but we see things as slowing. Back to school came in and around three percent and change, you know,

pretty close to our annual forecast. There will be issuing our our holiday forecast towards the end of this month, um and we see it as as a you know, kind of a below average, not not a disaster, but kind of like a C plus C C plus back to excuse me holiday season. Craig Johnson. That's uh, that's nothing, nothing to look forward to. Thanks a lot for that one, connect right, You see like you see it well, But when you talked about Christmas and the holiday shopping season. Uh,

what areas are going to do? Well? We talk in electronic I mean is what where's the money gonna go? Or is it not going to be spent at all? Interesting enough, we actually see a little bit of a bounce back and something that's been in the ditch for for a couple of years now, and that's consumer electronics. Um So another ways best buy we see is having an Okay sees Now, there's tremendous price compression and that particularly on the big big six seventy inch dvs, but

they are getting sold. But there's finally going to be a little excitement in and about three days the new VR technology comes out, the virtual reality. And the great thing about the virtual reality is it allows you to catch onto the PlayStation for which might be a couple of three years old that you bought it, and allows you to have that dr experience. That's that's that new. I'm waiting for Google's Pixel phone, but that's gonna be

a while. That will be a little while. Okay, Well, Craig Johnson come back before them with any phone you've got, Okay. He's president of Customer Growth Partners, joining us to talk about Amazon's rise and Walmart's challenges. I'm Kathleen Hazlam with pim Fox. This is Bloomberg