We Still Need Brick & Mortar Says Former Hudson's Bay CEO

vice chairman. Is it like a big deal to people like you? It can be a big deal. Yeah, I think the who the vice chair is will very much set the tone for the committee. Um, we know. And and the other important position is of course the President of the New York Fed, which we know that President Dudley will be uh, you know, stepping down and handing over the reins to somebody in mid year next year. So there's going to be a lot of change in

the key leadership positions. And yes, it does matter, matters a lot in terms of how they will work with Chairman Powell, uh and what their views will be on monetary policy. Do you worry, Julie about communication that because you have so many new kids on the blog. I'm sure talk, you know, not too much or not enough. Sure. Well, look, the FED is still committed to transparency and I don't

expect that to change. But as you say, just the fact that the cast of characters is changing could make it more of a cacophony and harder to sort through the tea leaves. So I think it is going to be you know, there was sort of a sigh of relief when when Powell was announced as as the successor to chair yelling Um on the idea that we we would have continuity and policy and communication. I think that is true for Powell himself, but for who will the

vice chair be? Who will be the New York Fed press it in That will also be very important to setting the tone, and we just don't know. We just don't know who those people will be and what issues they'll be confronting. As unfolds, Julie, does the yield curve just keeps on getting flatter and flatter? H Yeah, And I think you know that's the current issue on the table. We saw that in the minutes last week that uh, one of The potential drivers of this is persistently low

inflation and what should the FED do about this? So far, the choices have been easy because it's about getting off zero. It's about getting away from you know, ultra accommodative polity policy to something that's more neutral. But once you get there, or once you get closer, how much attention should you pay? How much weight should you put on persistently low inflation?

The FETE seems like they're starting to rethink this notion that oh, this is all good, just transitory and going to go away, and and and starting to prepare a potential policy response if it sticks around. You really brought up and Francine frankly brought up something that that was a big it last week and I just in the blur this morning, folks missed it, which is the flatter yield curve. Does anybody in the profession worry that we're

getting near the recession signal? I mean, you've got a run rate g d P under two percent, right, I'm gonna call that wicked gloomy, good morning, wicked gloomy, but but realistic, realistic, not wicked gloomy. But we also are getting towards a wicked flat yield curve or are we not? Ye? Know, well we are? I mean and and uh, the ten years seems very stuck below two fifty And if in lesson until that changes, uh, then the FED is going to be flattening out the yield curve even further as

they proceed with normalization. We've heard a few FOMC members express concern about that. Now, I don't necessary I don't necessarily subscribe to the yield curve being a signal of

impending doom. That might surprise you, since you think I'm so gloomy, but I actually don't think it's necessarily sending a recessionary signal so much as a signal of structurally low inflation and lower growth globally, meaning that you know, the ten year at two fifty two or close to there is not that bad a deal, Julie, Are you gloomy about inflation expectations? What do they do from here? So that's I think the key challenge for the FED. I think if you look at all measures, there is

evidence of a break lower somewhere around. We just got settled into lower expectations, whether it's survey market um or or forecasters everybody sort of shifted down to a new paradigm. It's been stable since then. These measures, UH, and the Fed's challenges to keep them where they are and keep core inflation where it is and not lose further ground, because that is I think the key for them and

the challenge for the next downturn. Can you keep inflation and inflation expectations anchored if we get hit by another recessionary shock, Julie, if we get the tax cuts where the tax cut posal plan, does that help with inflation expectations? It probably does. I mean, it probably will give a near term push to growth at least for a while, and that will probably you know, since we are at full employment, that will only pressure the labor market further

and potentially bring forward some more wage growth. So it is inflationary in that sense, and the Fed UH may want to accommodate it to some agree to to get that inflation higher. Uh. There of course weighing all of this against concerns about market bubbles and and financial instability concerns. But um, but yeah, I think at the margin that it helps probably inflation and inflation expectations more than it

does growth itself. Yes, So how do you get that three percent growth that that we know the administration wants look sustained three percent growth would require, given you know the building blocks of growth, our population growth and productivity. I am relatively optimistic that will see some better productivity numbers after a very very lethargic period. But we're looking at population growth that's projected to be about half a percent a year, and that's assuming no reduction in immigration.

If we get a reduction in immigration, it will be even lower. So what are you looking at? Three percent productivity growth? That just doesn't seem realistic under any kind of investment boom that we might imagine. Is this eurosclerosis by any other name? It is a global phenomenon. You know, this is a population growth is slowing, populations are aging. Um, there is some tie between that and productivity. There's been sort of a mystery as to why all of this

technological change has shown up in productivity numbers. But if you actually one of the implications could be that real growth is higher, but inflation is actually even lower than we're currently measuring, and so that's an even bigger problem. The nominee speaks this week, what will you listen for from future Chairman Powell. I think that uh. I think the current Governor Powell will keep it very close to the vest I think he's uh, he's got one of the best poker faces on the f O m C

for sure. Always worth so much money. I saw a beautiful chart. I can't remember who bother me, not at all. Do we need a fed chairman that you know? It was like Trump has got more money than God. Does it make a difference. No, I don't think it really makes a difference. Um, I think I think what I am happy about is that Governor Powell has a healthy respect for the institution, has a deep understanding of the process. Uh. And and and he's committed. I think he's committed to

getting the job done right and not playing with matches. Julia, thank you so much, Julia Cortonada. She brought in leftover Turkey which is just killer as well. Macro policy personpectives as well. This is a joy with us now the president First Data Corporation, Guysarillo with us as well, First Data of course thousand large out of New York and and and Guy, I want to go back to your

storied career, it Chase. You were chief information officer, and you are widely accredited with hurting the cats into a room and creating the retail visibility of Chase. What was the first meeting like where you took Chase from an also ran to the retail juggernaut. It was when you left for First Data. You know, it was a great team there and Jamie led a great company and we decided very early on in my time there that we were going to be a digital leader. And at that point, uh,

we didn't really have the branches fully digital. We didn't have a t M S fully digital, and we didn't have you know, a website, didn't while we had a website, but it was it wasn't what you would want it to be. And I think from that day in two thousand and seven when I started to the time I left in two thousand and thirteen, the focus was really

to be digital everything and to iterate, iterate, iterate. And I see that now at First Data you've got the Clover system in that to to iterate, what do you iterated into? Are you iterating into charge cards being dead? You know? I think charge cards people will use a variety of formats as a combination of generational activity as well as just ease of use. So I think you're gonna see people tapping terminals, You're going to see people who are swiping cards. They're gonna be you know, transacting

on their phones. It's pretty it's pretty natural at this I got the new toy, got it like three days ago as well. Is Tim Cook's no wonder child, your friend or enemy? You know, you never know at the end of the day. But they are really a consumer company and they are focused on ease of use in every way possible. I think payments integrated with a phone is a very is a very positive aspect. It's also

a safer transaction in many different ways. And uh, and it's hard to know in this payments business who is your friend or not, but we are the collaborator, guys. Sharrolla with this with first day at Francy Loquix and London Francy. Yeah, guy, it was interesting too. You know what comes afterwards when you look at the kind of you know, the big takeaways. Um, and if you look at Thanksgiving like Friday, so overall spending was up at

eleven point nine percent. Is it just because there's cheap and it's too much stock or is it actually a healthy consumer? No, I think it's healthy consumer. We saw that ten days prior to Thanksgiving and Black Friday being

very robust. We've seen different things in different years, but it took nothing away from the holiday weekend that that activity was robust across retailers, electronics and appliances in a very very healthy way and carried forward right into the holiday weekend where we saw uh, you know, nine percent increase in total spend in retail eighteen percent and electronics uh and you know, a very robust spending year over year,

no matter what category you looked at. Do you assume guy, And I don't know if it's wrong, just human that just e commerce. I think making up some twenty of Thanksgiving Black Friday will just continue so every year, if I speak to in one or two years, it's going to be up thirty percent and then and then it will finally reach that fifty percent mark. You know, I don't know where it levels off, but it's definitely has a lot of room to grow, a phenomena we saw

all over the last couple of years. I've studied this pretty deep in a detailed way. In two thousand and fifteen and two thousand and sixteen. We saw these bumps and e commerce traffic during the holiday season, but it normalized when you went back into the first quarter. We didn't see that in two thousand and seventeen. What we saw that happened during the holiday season continued right through two thousand and seventeen. So people are more comfortable now.

Your website always has the touchy feely little shop somewhere where first day of saving the day within transaction costs, I get, I get the you know that's what you do. How are you greeting Amazon when first data shows up at Amazon? What do you in team Bezos talk about? You know, there's a lot of there are a lot of different opportunities. It's and it's not just Amazon. It could be Ali Pay, Apple Pay, Google Pay. It doesn't matter where we show up our ability to process transactions

in a secure and safe way around the world. So what do you do for Bezos? Actually, what we do for Bezos is process a lot of the Amazon transactions that come through the website, for Amazon Prime and all that, for a range of Amazon. We're not the only we're not the exclusive to Amazon, but we are a provider of those services in a variety of different ways, and you know, very successfully I hope to continues. Does Amazon

try to get market share at all costs? I I don't know whether they're actually making you know, losses and some of the products that they sell just to make sure that people get addicted to their service. You know that we don't see. I think that Amazon is a is a great provider of products and services to uh, you know, two people around the world. And I think we see that again with a variety of our other

large scale retailers and providers. So you know, they're they're a fierce come editor too many and you know, from our perspective, we will work to continue to provide safe commerce and transactions for Amazon and all the other companies we do business with around the world. Who can survive Amazon. So Toma disclaimer, I'm definitely a better mother thanks to Amazon because I pre buy everything it's waiting for me. But there must be things that people are too shy

to buy on Amazon. You know, It's hard to tell. I you know, I don't look inside the Amazon baskets, but I believe that people are just getting comfortable in general, they order their food in advance and pick it up in a line. They order their retail in advance and have it shipped. As you know, it's a way of life. I mean, you and I are old enough. Francy's way too young to remember this. Where you bought American Express traveler checks and Carl Malden said, don't leave home without them.

And you were a kid and your parents sent you out with this little lot of paper. I mean that was a transaction that disappeared. Is your world gonna disappear? I mean, are you staying up night looking at the College of New Jersey, Penance, You've got right on the bedroom. Are you staring there, going, Oh, one day they're not going to use the visa card of the master. No. You know, we love commerce. It's whether it's Visa, Amex, MasterCard, Discover,

whether it's gift or EBT. We have one of the largest gift businesses in the country, and digital gift cards are are very robust. Um in from a euro excuse me, Francine. Those are exclusively used to purchase slime and slime materials. Caught. You buy like kilos of slim kilos. You can buy Elmer's. I wish I had the Elmer's Glue franchise for we love commerce. I think we love commerce and all and all formats. You'll take slime sales, not slime sales, but

we love commerce. I mean, we're within this is the pressure to perform financially. What are you gonna do to really jumps? I mean you've come out of the bottom and all that and done better. But given a d P and the challenges with Mr Ackerman and all that, is there a pressure to goose the financials? You know. Look,

I think in every business you have this pressure. This company is a huge transformation if you think about where we came from with billion dollars of that significant losses in the private equity space for a long time, one of the largest I P O. Still since October two thousand and fifteen, have transformed the company financially, growing the top line, improving the bottom line, expanding margins. I mean,

we're going to continue to do what we have been doing. Fritzy, we don't care, we just want Are you going to create jobs in Manhaman? We're going to create jobs around the country and around the world. Yeah, oh see how he missed that? Did that? Frenzy? Where where guys, there is it? You know? Is it back office? Is it? What kind of jobs will you create? Are the quality jobs? You know? I'm hoping that the cyber related profession is a definitely an opportunity to create jobs. We are actually

helping all of our merchants do the same. I think operationally, there are ways to continue to do things more and more efficiently. So I think that you know, those are those are opportunities to eliminate roles, while on the other side, the front end of the house their opportunities to expand. I had been three bad uber charges on my Chase account this weekend. I was going to call Jamie Diamond and complaint. Could you get it fixed for him? I

think you should call Jamie, He'll help you. Call Mr Diamon. Very good, Thank you so much. Guy Ciarello with us with first day of Corp their president, moving the ship forward and really interesting within all the bitcoin and cyber currency is well to a great part of the Keene family. Francine September nine, two thousand and six was one of the darkest days in the history of mankind. This is when Marshall Field and the name went away of a building that was the fabric for part of my family.

We're on it to bring you on this cyber what was it Cyber Wednesday, Cyber Monday. It reaches Monday branding, Geared Storage, Gerald Storch, which was if you know its history, Toys or Roast, Target and Hudson Bay and the rest of it. Stop it. Did you ever walk around the Marshall Field store at night when the lights were out? What a wonderful storage. You described the experience of the third largest thing in the world. Amazing, amazing building on

State Street in Chicago. There and we bought it when I was at Target, and we set about to renovated extensively, bring back the old heritage. We hung the largest American flag in the world in the atrium because that's what they used to do. Bring We brought back all the traditions. What a beautiful, beautiful old building and what an enormous place.

And talk about experience in retail, that was an experience that that's a nostalgia GM and you know the the just the Midwest retail, the Christmas Story, the comedy about the department, that's a nostalgia. It's all gone. I'm on my iPhone X buying something right now, do we need your world of nostalgia anymore? Well, my world includes the Internet and the Internet. It's a technology just like electricity, and we all use electricity in our businesses. It isn't

just the exclusive domain of the electric utility companies. And so we're just at the very beginning of e commerce and of the Internet. It's going to change dramatically. So what we see is the traditional venerable bricks and mortar companies are doing a pretty good job of starting to bring the Internet into their businesses. Commerce is still done

in the physical location. So what's gonna happen in the future is every transaction will have an Internet component, Internet enabled to one or the other, or you'll buy in line, pick it up in the store. But it doesn't mean we don't need bricks and mortar locations. We just don't need as many of them as we have now. So Jerry, when you good morning first of all from London, more you say we we still need bricks and mortars. This

is what kind of like a showcase, you know. So I went to a supermarket for like the first time in like three years yesterday, um, and it was a lovely experience because everything I do is online. But do I have time to go back? Probably not so, Jerry, Is this when when people want to just, you know, do something different with the family. Is it a kind of show and tell? Or do you think people at some point will be fed up of shopping online and go back to bricks and mortars. Oh, I don't think

it's getting fed up. I believe the internet is is revolutionary and it's transformational, but it's not transcendent. It doesn't mean it has to replace everything. So it's not just going to have a good time. It's also going to try it on to make sure that it fits before you buy it, so you don't have to go through buying twelve different sizes and returning the ones that don't fit. It's going to learn new things that you might not

think about unless you walked in there. It's going to get a media gratification to have the product instantly able to walk out with it, and don't forget it still has superior economics to the online channel. This is what people forget when you when you buy something online and ship it to the home for home delivery, it's enormously expensive and this is why most companies do not make money on the physical home delivery of goods that are ordered on the Internet. This is kind of the dirty

little secret of the Internet right now. But Jerry fits luxury. I mean, if you need a shop on you know here Old Bond Street or New Bond Street or Oxford Street in the US on Park Avenue, it's going to be more expensive than certainly getting a warehouse in New Jersey where you can just keep the stuff and ship it out. Yeah, but those luxury products are not going

to sell online in that fashion. They want you to have the whole surround, have the high service, and you're gonna want the service to If you're going to spend a lot of money for something that's high luxury, you certainly want to know the person you're buying it from, have that kind of service, have someone who knows you who can help you pick it out. But the Internet is amazing, it's fantastic, and it will grow, but it

will be integrating everything. Okay, down the income statement and now we're talking to Jerry Storg financial guy, which is really what he's famous for. Mr Londgren down in the Herald Squares making eleven twelve cents in the dollar he's cleaning basis, his clock basis is lucky if he's making nine sense, but as well, nobody cares since when is your business based on this sales growth fiction of Amazon versus valuing companies based on cash flow or something that

on the income. There's no doubt that that Jeff has done an amazing job at Amazon, and people are betting on the future and what he's done, and so at some point, though, everybody has to make money. Now he's making a ton of money on the cloud. In other ways, it's helping to sort of cross subsidize what's going on in retail. Eventually, though, the bricks and watar retails will

be smart. He'll be smart. You know, he bought Whole Foods, And you're gonna have these combined models of bricks and mortar and the Internet that are economic to operate, both for Amazon and for others. Is Huts is Hudson Bay's company and the others. Are they going to eventually make revenue growth? I mean at the top line. That's as you just mentioned, that's the great differential. How do we

get back to nominal GDP growth in retail? You know, retailers in general can grow and it will be a mixture of traditional bricks and mortar sales and online sales, and it won't that we are in the Roman normal numbered pages of the book. On the internet, it will not look anything like it does today. There will be so many different combinations and integrations of the Internet with the stores that you will not recognize it. This notion that the Internet is for home delivery will look as

antiquated as wearing a ruffled shirt. No wig does today. Do you have a Hudson's bade brain blanket on a bed at home? Do you like you have like a ginormous king size Jerry Storge badd and you've got like the green, the red, deal orange, the yellow and the black stripe. By my secret is that we don't use a blanket. You don't use a blanket. But you know, the the uh, the future is very bright for retailers

who make rapid change in this environment. And you see a lot of successful retailers, even those that are principally bricks and mortar, who they're offering the right value property. Someone like t J Max with a forty five billion dollar market cap, it's worth more than the entire department store sector combined Costco doing very very well. Is it on Canadian that the Hudson Bay blankets made in England. I don't know what that's about. Thank you so much.

We have to do this again. Don't be a stranger. Jerry Storch with the Storch Advisors this morning on his Hudson Bay on his martial fields. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio