Philip Morris Bets The Company's Future On Vaping Products

have been dealing with declining smoking rates for years. As a result, many of the companies are undergoing a transformation from traditional cigarettes to less harmful alternatives like vaping and heated tobacco. To help us kind of get up to speed on what's happening in the tobacco business, we welcome Yasik al Sak. Yasik is, the chief operating officer for Philip Morris Internationally, joins us on the phone. Yasick, thanks

so much for joining us. I wondering if you could just give us a sense for what Philip Mars inter National's trying to do here to kind of make that transition from complete reliance on cigarettes to vaping and heated

tobacco and other products Hi, thank you for having me. Look, I mean we started years ago with you know, once we developed the product, you know, developed the science around the product to substantiate and be sure really that the product is a better alternative for you know, those who don't don't quit. We'll answer so far in a forty eight market. So this is I think the best testimony how serious we are about essentially one day stopped selling a compastible product and I go to the smoke class

of noncompastible alternatives. Forty eight markets. Markets are in. This market is well about a five percent now and continue and and and and it's growing. Um, we allocated most of our resources, more more than a sixty percent of our resources and now for the alternative product. And I think we'll make this very wise decision. And I am very proud for you know, this company, the boards that we could stood up and say, look, there is a problem.

Let's solve the problem. That offer those who you know, don't switch, don't quit, sorry, offer a better alternatives. And we're very committed one day to you know, have Philip Morris, who will be just remembered that you know, this was the company in the past Coal used to sell compostible cigarettes. I think it's for the benefit of a billion people and and many other smokers and many other people even get around them. So we are very excited about this

whole of thing and we will not stop. Yes, like, how conclusive have your studies been about the degree to which these heat not burn products are safer or less cancerous than than smoked cigarettes. Look, it's very much ultimately to the to the authorities or organizations like f d A in a case of a US to to make

the final assessment. If you would ask my scientists, we are we are very very sure that this products are better alternative as safe for product than a than a compastible cigarette, but to a degree that would actually have it doesn't mean does meaning allow mean it doesn't mean that the product is safe. Okay, the product is safer. I mean so today, based on this knowledge, we know that if you want to continue smoking, this is not

a great idea, you should diver quit. If you can't quit, going a switch to this product, you have a very significant reductions in exposure to the most harmful toxicons in

the smoke because we eliminated combustion, et cetera. Obviously, smoker while switching to this product to reduce the significantly the exposures so one would expect, and some of our our studies actually concluded that as much as you can obviously conclude based on a clinical status that this has a positive impact very similar in many occasions to to to

to the same things as you would quit smoking. But as I said, it is up to the regulators of d A issued very recently our PMT A authorization order, were awaiting every d A decisions with regards to the modified risk application, and I'm very helpful, I'm very hopeful that you know, so they will to reach that conclusion. So so yes, so generally, just clearly clarify a little bit for me, just what has the FDA ruled about your products to date and what else are you awaiting

from them. The authorized US to the start commercialization of hicles the product on the US in the US based on the assessment that from the public health per perspective, this is a right thing to have that product in the market, which means that the product has to prove that not only obviously worse than all is not worse than a cigarette, but the product and this is in a statement coming from DA significantly reduced the human potential human exposure to a number of the very harmful constituents

include think the carcinogens. This is not conclusive from every d A at this stage over the product. The usage of this product will reduce that risk. That's the subject of the second applications which is now pending with every d A. But as the first step, I think a statement from EVERYDA were very clear it is better, frankly speaking, for smokers if they don't quit to switch to this product. Yes, yes,

I want to shop gears a little bit. Because you're talking about diversifying away from just cigarettes that are traditional in the way that they're smoked. What about the cannabis industry. Do you foresee a time when that will provide a significant portion of Philip Morris revenues? Definitely not that the stage.

Our focus is entirely on eliminating the combustion from the from the tobacco, and I think if we really want to be successful in a in a shorter period of time, I'd rather have our company being focused just on the tobacco and the problem of smoking and the cigarettes, etcetera. I think any diversion at this moment of time, which is elude our resources. Having said so, while developing these products, we have developed a tremendous scientific and technological capability at

Philip Moore's International. And as we know, many other products are also being used for the combustion, etcetera. And you know, based on our knowledge, this is not necessarily the best thing one could do. But as I said, from a company, from a corporate perspective, from the corporate objective perspective, for us, we just focus on solving that problem first and you know, then we'll see what the future will will bring up. Yes, like ol Sack, thank you so much for being with us.

Yessa Ozaki is chief operating officer at Philip Morris International, joining us by phone. Interesting to see how they are shifting gears to try to increase, uh, the proportion of their business that is the heat not burn a product, the vaping products, and Bloomberg Intelligence estimates that about five percent of the revenues and eighteen came from these products. Uh. The goal is by so just to give you a sense of how much they're hoping to ramp it up,

we've been talking about jobs all morning. After that disappointing us Payrolls report, it was below all the estimates, including the lowest, with both the headline number coming in weaker than expected as well as wage gains. Here to look under the hood of the US jobs market is Tom Gimble, founder and chief executive officer of LaSalle Network based in Chicago,

but joining us here in our Bloomberg Interactive Broker Studios. Tom, You've been very bullish on this bond, on this job's market for a while, and I'm wondering, does this job's report some of the other data we've seen make you change your view? You ready for this? I'm ready. It's not a bad report today, Okay, later, grow down. If it's not a quarter of a million jobs every month. People are unhappy. We added seventy jobs, unemployment stayed flat.

We've been going for what a hundred months in a row of job creation, and it's not and it's not. This is actually the argument, right, This is full employment, right, this is what happens. But but then my question is, if this is full employment, why are we not seeing wages increase at a faster pace. Because it's a global economy and we're not competing against the guy down the street. We're competing against people in China and India and Mexico and all tear. I would say that before the tariff

conversation that when jobs can be done. Thirty years ago it was a call center for minimum wage being shifted overseas. Today it's legal work, accounting work, i T work, high salary jobs being shifted overseas. If you can have somebody who's got a PhD in a master's degree doing i T work or accounting work for of the cost, people say, oh,

that's not being patriotic. That's the exact same thing as saying you don't hire you hire a freelancer to paint your house because you say fifty, Why don't you support the economy and give it to the person who's employing thirty people as a painting company. So what do you think the new kind of normal is in terms of job creation given where we are in a cycle, And you know it is because I guess the three months

run right is still a hundred fifty jobs. But job creation is supply and demand right, So so demand is high, supply is low, and you can get what you can get. So you'd say, why isn't wages going up? If that's the case. They are going up a little bit. But we're in a situation also that there isn't a new skill set that's being created. This isn't the mid two thousands when no one understood e commerce, no one understood

data analytics. We're a more sophisticated employer market than we've ever been before, and so things have just stabilized from a standpoint of Companies aren't throwing crazy money out there anymore. They understand how to drive revenues and profits ability, profitability, and the biggest thing is the economy. It's interesting, it's I don't believe it's as tied to the stock market

as it used to be. And when I say used to be maybe a year or two years ago, where the volatility on the stock market used to drive the job numbers a little bit. The c suite would get a little bit nervous if there was vat Now the stock market volatility is the same way of global volatility with Trump. Okay, well, it's put us putting aside stock market volatility. There's been a lot of volatility and discussions

about trade. Uh. There was a great story on Bloomberg dot com this morning talking about how CEO s. Even though they don't necessarily think that some of the worst case scenarios with the trade wars will come to pass, they have to start preparing for that. So, given the fact that you're talking with chief executive officers about their hiring plans, are they pulling back some of their plans because of this uncertainty? No? Not not as of now.

I mean, the Mexico thing is so new, right, I mean that was the window on that was was was so short. But with with China, there's a short term and there's a long term view, and a lot of companies, especially small to mid sized companies that have always been the job hotbed for where where jobs are creating in this country, they do realize that there may be a

short term six to twelve months of a dip. But the whole goal of doing it is you either drive costs down because of the tariffs that that China will renegotiate, or manufacturer will come back here and their businesses will increase eventually. That is the point. No one talks about it a lot. But if the price is even out, if salaries overseas rise and the price to import, where are you gonna do it? You're gonna build it in America. It's a long term play, but that is the goal.

Are you Are you seeing any signs? I mean, as you talk to I guess some companies that you know, you guys are one of the biggest recruiters and staffers around all right, our companies actually thinking that? Are they investing in for that? Are they just saying, listen, let's see how this plays out over the next you know,

could be a year two. The biggest difference between now and the bull market of the mid two thousands is it's not mass hiring, right that you don't see people going out and signing a lease for another hundred thousand square feet and hiring two people. But you do see consistent hiring. You see companies back filling attrition, and that where you're gonna start seeing things towards the latter half

of the year. I feel in in wage growth to an extent is companies are now giving money to their employees in advance of them having to leave and get a counter offer. It's a really interesting phenomenon. They're giving salary increases ahead of schedule so people won't go look and leave in what areas of work, maybe not in broadcasting. With the look you just give me, I will say that. No. The reason why I say that is because if that's the case again, it goes back to why we're not

seeing it in the average numbers. Well, the average numbers are skewed two across the board with service workers and different things. We've also see you see that the boost minimum wage has a boost when they do that municipalities and there's those issues. So I mean, sometimes the numbers are the numbers, and you guys have economists on here all the day. They're the ones to tell you why, how the numbers can be manipulated. I'm telling you that

companies are hiring. It's a great job market if you have the skills, and they're really other interesting fact is employees aren't leaving to get more money elsewhere at other companies because they don't want to be the lowman on the totem pole, because they're afraid, just like you're saying, you think companies are afraid. So it's a really interesting

sociological dynamic and business. Tom gimble thanks so much. Tom Gimbell, founder and CEO of LaSalle Network, one of the leading staffing and recruiting firms in the country joining us in our Bloomberg Interactive Broker Studio. We are trained on the FED today and whether we're going to get rate cuts, but trade is very much on the forefront for both

companies and traders. Enjoining us here to talk about what big companies are doing, particularly the industrial space, with respect to the threat of tariffs is our own of course. Brooks Sutherland, Bloomberg opinion columnists joining us here in our Bloomberg Interactive Broker Studios broke how much action have industrial companies taken to immunize themselves from some of the tariffs that have been threatened so far. So they've all been talking about it in awful lot, and they've all been

looking at particularly minimizing their exposure to China. That could mean sourcing products from different places, that could mean even doing something as drastic as moving a manufacturing facility. Um. But you know, in terms of actually limiting their exposure to China, it's a little bit tricky because they all evoke these localized manufacturing strategies that are meant to sort

of insulate them from the trade where fallout. And I think what we've really seen is that you can have a localized manufacturing you know strategy, but you're never going to have your entire supply chain concentrated in an individual country anywhere where you sell your products. And so I think you see these manufacturers continually keep getting tripped up in the trade war, and I think part of the difficulty is there's just so much uncertainty that even making

these kinds of changes just gets very tricky. I think you have to make a bet on first of all, do you think Trump's going to get reelected? Are we still going to be talking about this in a few years, or do you think this is going to peter out? Um, you know, these very expensive decisions, and I just don't think that a lot of CEOs know where to go. And the other thing is that you may make a move that that ends up looking very stupid later on

down the road. Go pro s that it was moving its facilities in China to Mexico, and now of course we have terroriffs being put back on Mexican goods, and who knows how long that will last. So it's just I mean, it's a very dicey environment to make any types of changes to your supply chain, but you have to do it. At the end of the day, if you want to try to protect your business from these

increased costs. It's interesting you raise a good point at I think about some of these global industrial companies based in the US, and I think about their supply chains, and they're just you know, mind, they're so incredibly complex. I want to realistically what they can even do at the end of the day. It's mentioning to see, um, you know, how much they just pass along or take

into the margin. Are you hearing anything from the companies about any kind of percentages they think they can pass long versus mitigate through you know, relocating some some suppliers. So right now, the industrial sector has actually been very successful at passing on price increases, but that is based on the tariffs that we've seen thus far, and you are starting to see some cracks in the industrial economy.

We had obviously those not great numbers from I S M earlier this weekend from I H S Market on the manufacturing activity in the U S sort of teetering on the brink of slipping into a contraction. So I don't know how much demand there is to soak up another round of price increases. And that's why it gets really problematic when you start talking about putting tariffs on the remaining three billion dollars of goods from China or

you know, following through on this Mexico threat. So one argument has been that these tariffs, should they go into effect, could be a short term pain for these companies and for the broader U S economy, but down the road it will actually be a benefit for the United States because a lot of these companies will just simply bring their supply chains back to the US and that will add to the economy. Here. Have you seen any evidence of companies looking to do that to simplify their supply

chains perhaps bring more back to the United States. No, And I think part of the issue is that most of the companies that I cover are multinational and sort of the flip side of the argument that you're making is that you can see a lot of these companies find themselves shut out of China because China is increasingly realizing it probably needs to develop its own homegrown technologies. You see this in aviation, where they're investing very significantly

in developing a rival to Boeing and Airbus jets. Now there's still a few years away from that, but I think the trade war has probably reinforced how important that

is to them. Similarly, in gas turbines, they're investing significantly and having technology that competes with the highest level of the g and Siemens produced and Semens CEO s just the other day he expects them to have that capability by so, how much market share or GE and Siemens going to be able to get in the gas turbine market in China, which is expected to be the biggest market for gas turbines for the foreseeable few Sure, so, I think if you make too drastic of a move

and try to refocus yourself on the US, you do risk being cut out of some of these other markets that realistically are going to be growing a lot faster than the U S, which is fairly mature at this point. It's interesting. I think a lot of industrial companies are thinking, I've I've read a lot about our work, and it we can maybe pull our production or sourcing out of China, maybe put in some other countries that might be you know,

almost as good, almost as efficient. Have you heard any particular countries or regions that might benefit from the change in supply chain. Yeah, I think people are looking at Vietnam, They're looking at Indonesia, They're looking at those areas. But of course those countries can be economically linked to what ultimately happens with China. If you see a drop off in demand in China, that can sort of make its way throughout the Southeast Asian economy. And so I think

there are risks to that as well. Obviously there are some political questions with those economies as well. And the other thing is just that this is very expensive. You just can't do this over night. And so I think that gets back to the question of how long do you think we're going to be in this mess for?

And you know, do you think that the dynamic has now shifted so much that China is completely unsafe to use as a as a sourcing for your products or do you think that you're going to wait this out? So what other levers do these big industrial companies have that are multinationals? Can they? I mean, is it just cutting jobs and cutting costs? I think a lot of it is going to be cutting jobs and cutting costs.

I mean, I think you've already seen a pretty significant move in the industry toward automation, towards robotics, and I think if you think that this is the new normal of having higher costs that you have to deal with in your business, that's only going to incentivize these companies to invest even more in that technology and sort of

intermediate some of these other cost pressures. Um Now, of course, you know, it's sort of an ironic twist for a president who really campaigned on increasing manufacturing jobs and instead, you know, one side effect that we are already seeing from the trade wars that there's been a lot of cut to the manufacturing sector. Challenger Gray had numbers out earlier this week that showed a six increase in manufacturing job cuts so far this year relative to this period

last year. So you're already feeling the pain there. The jobs report today only three thousand manufacturing job gains. That's very weak numbers, sort of consistent with the trend we've seen so far. And so you know, I do think ultimately manufacturing companies aren't passing costs on directly to the consumer because they don't sell necessarily to you and me. But the consumer, the ravage American, is going to feel it in one way or another. Brook Sutherland, Thank you

so much. Brooks Southerland, Deals and Industrials columnist for Bloomberg Opinion, joining us in our Bloomberg and Reactive Brooker studio. She covers all things industrials and I think that was very interestingly say that Brooks comments about how we are really seeing it in the manufacturing numbers starting to come out over the last couple of months, a little bit of you know, a crack in the industrial story. Well, to me, my big takeaway is they just don't have that many lovers.

They don't have the ability to bring a lot of jobs back here because they cater to all of these other countries. It's not so simple, but it's interesting. Yeah, and and and it goes back to the you know what has happened really over the last couple of generations, which is a really a global supply chain across many industries. The questions can you unwind that? Very difficult appears. This is Bloomberg. So we've talked a lot about the macro economy.

Let's take a look at specific companies that are actually tapping the market and doing wonderfully. Online fashion retailer Revolved Group jumped it's in its trading debut after raising two d and twelve million dollars in its I p O. Joining us now is the CFO of that company, Jesse Timmerman's from Cerritos, California. Jesse, congratulations on the I p O. It does seem to be well received. Uh, increase in the share prices after the I p O. Just give

us a sense? What is Revolve Group? Yeah, and thanks for having me. Revolved Group is really you know, what we believe is that the leading fashion destination for this next generation can humor that millennial female that's looking for the latest and greatest fashion. So, Jesse, so how do you target your customers? Like, how do you attract your customers?

Per Se? Yeah, it's a it's a combination UM of our data driven merchandising strategy and you know, bringing the latest and greatest style, but combined with a very social media brand marketing, influencer led marketing strategy that really speaks to this millennial consumer. You know, where we want to be where she is and right now she is on her phone and UM constantly UM looking for the latest and greatest and discovering. So, but what does that mean, Jesse?

Because I think every retailer wants that, right, So is this advertising on Instagram and Facebook and uh you know that that which is which is what every retailer is trying to do or is it uh something different? Yeah, about of our our marketing budget goes towards influencer led brand marketing, so that means influencers will wear our clothes and speak about our brand on on Instagram and their

followers then see that, um and react. The other our marketing strategy is the more you know, what we call today is a more traditional digital based advertising, the Googles and facebooks of the world. So give us a sense, um, kind of how the competitive landscape for you? Who do you really compete against? Uh, for these consumers and their dollars. Yeah, it's really tough, um, you know to call out a

single competitor. We feel like we're well positioned, um in this intersection of the landscape moving towards e commerce from the traditional department stores and also the millennial purchasing power increasing over time. You know, there's a lot of uh, you know, good companies out of Europe that are doing

well in connecting with this consumer. There's some some in the private markets, um, you know, if we look, if we look to the traditional department stores, we found they haven't, you know, they haven't been able to connect with this millennial consumer the way we have. I think it's really interesting. I'm looking right now at some of the offerings and the concept of using influencers is something that has been

gaining steam and is really compelling to me. So is it something where an influencer can wear something and then you can click in and buy it? In other words, is there some kind of linking of your website to some of these Instagram posts or other things? Yeah, you know, there's a very what we believe, you know, creates a brand halo, so more than anything, that creates that connection with the consumer. And she's seeing our our influencers and our clothes UM every day as she as she looks

for the latest and greatest. Now that said, there are ways to go from Instagram to our website and then most recently, we were chosen as one of the UM twenty first partners with the Instagram Direct Checkout, which creates another avenue for for that customer to check out directly from Instagram. All right, Jesse, you're the CFO, you're the money person. You just got two twelve million dollars in

your account? How are you going to spend it? Yeah, and and maybe I will clarify that, Um, most of that was secondary, So not much going on the balance she were. You know, we're We've been profitable for fifteen out of sixteen years. We have cash on the balance sheet with no debt, so you know, we're well positioned. Um. You know, there's there will be opportunities to you know, expand in the future, but um, you know, a big

piece of this was secondary. Jesse, I want to pick up what where you're talking about the Instagram check out, because that's sort of where I was heading, and that seems to be an increasing push by some of these big social media companies, with Facebook starting to sort of play around with payments. Also. I'm just wondering how much do you think that is the future in some ways of social media and how it interacts with its advertisers

and its retail brands. Yeah, it's um, you know, we're in the very early stages, so it's hard to tell at this point. Um Um, but I think it is interesting and consumers are looking for, you know, new ways to transact, you know, whether it's you know, outside of the more traditional credit cards into the alternative payments or installment plans UM. So again very early we think it.

You know, it could be powerful, but um, you know, too early to call so jess it give us a sense of where you get your product, the clothing that your suppliers. How do you keep on keep in front of what is a fickle uh consumer segment? Yeah, that is one of the core pillars to the company. Mike and Michael are co founders, were not fashion guys. Um, they were you know, one was an engineer, one was

a finance major. So from day one they approached this UM this proposition very differently, and it's been data driven from day one. So we look at data UM and we read the latest and greatest and then drive behind that. So we carry a very broad and shallow inventory base. If the data tells us something hits, then we'll go deep on that. But it's a constant iteration. We have over forty styles on the site and constantly gathering data there.

We also have developed a portfolio of over twenty of our own brands and we use that data to tell us where we need to go and develop additional brands or additional styles within those own brands. Very interesting. Jesse Timmerman's chief financial officer Fort Revolved grew at the company went public today. The stock is a fifty and fifty cents, so a fantastic first day of trading for the company

Revolved Group. Jesse, thanks so much for joining us. It's interesting how they're you know, the retail industry continues to evolve. You know that the traditional bricks and mortar in the mall that seems to be a thing in the past, and we're seeing new models come into the retail space in this one obviously extraordinarily successful in the stock market. Day one. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at

Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio.