tv Market Makers Bloomberg August 13, 2014 10:00am-12:01pm EDT
10:00 am
♪ >> live from bloomberg headquarters in new york, this is "market makers" with erik schatzker and stephanie ruhle. >> king digital are plunging. we will tell you why gamers don't have that sweet tooth anymore. a warned buffett calls it financial weapons of mass destruction. >> salad chain wants to expand beyond the east coast but with american scope or green?
10:01 am
-- but will americans go with green? >> i thought whence they was hump day. is that weird? >> these are the top business stories from around the world. ukraine says it will block the convoy russia says is carrying humanitarian aid. it is headed for areas in eastern ukraine that are controlled by pro-russian rebels. ukraine is concerned that they might really be carrying weapons. farmers are spending less. makerggest farm equipment is cutting its full-year forecast. they said that sales may fall 10% in north america. the second largest health insurer in america is changing its name. the company has been doing more direct marketing to consumers because of obamacare. 14 of the new health-care exchanges. >> if you're looking for a
10:02 am
retail recovery, you were a bit disappointed. macy's cut their sales forecast for the year. julie hyman covers detailed. we are hearing about how it will detract some fourth-quarter sales. the fourth quarter, even better. what happened? report, they this were relatively optimistic about where the numbers are going to be. people grasping to try to figure out what happens in july. i was just looking at a report from a bank of mitsubishi economist. maybe they were not spending as much. about thee talking wage inflation problem. that wages aren't rising fast enough. differenta lot of explanations as economists trying to figure out exactly -- >> we did see personal health
10:03 am
4/10 of alothing up percent. >> apparel has been a weaker spot. you saw general merchandise, department stores not doing well. mentioned,hat i websites, internet retail, which is a bit surprising. you think that it would be taking market share. at that point there were a lot of different pockets that created the weakness on the drag and the number and created no change for the headline number in the retail sales. >> it really comes through strongly in the numbers that we saw from macy's. >> yes, macy's has been a standout within retail. when you look at relative to their competitors. even this quarter is not terrible, it is just not great in terms of what people have become accustomed to, particularly the earnings-per-share number coming
10:04 am
in a low estimates and they cut their comparable sales forecast for the full year. what is going on in particular, it seems like sales, discounts, promotions are part of the problem. >> they are doing too much of it? >> air doing too much of it to get people in the door. the gross margin shrank. this is best in class when you look at department stores. it is a bigger year over year decline than had been predicted. that seems to be part of the issue at macy's. when you look at the consumer right now, they are struggling with their purchasing choices. they are feeling cautious about what they want to spend on. >> macy's is being dragged into this sort of discounting downward spiral that many have had. >> that is improving to some extent. that is something we will be scrutinizing during this reporting. we are not only getting macy's,
10:05 am
tomorrow we're getting nordstrom, coles, they see penny, walmart. we will be looking at the sales to inventory. in recent quarters we have had a buildup in inventories and the ratio of inventory to sales has been widening. that is not something that you want to see. you want to see them more closely in line. we will see if they are coming a little bit more closely. >> will receive some sort of payback later on in the coming months? you were talking about the overall sales environment. i expect you like to be revised upward. it doesn't match with what we have seen in same-store sales. the second quarter is typically not very strong for the retailers. coming out of it, there has been a lot of optimism.
10:06 am
given these numbers, you might .uestion those assumptions of course, tomorrow's numbers will be important, not just for the second quarter but like macy's. >> now, when sweet returns to sour, that is the story today of king digital, maker of the game can be crushed. crusher of the game candy . they are developing some new games in an effort to try to players. by our internet media analyst who will explain what is happening in the social gaming business. where do we begin with king digital? over fourt with it is candy crush?
10:07 am
been expecting this decline. it has been two years at the top. casual games actually don't monetize as well and it has been the big exception. can they develop games to offset such a megahit? >> this is free to play and then you can pay extra for extra live and stuff like that. do they need to rethink the entire business model? >> the thing with the premium model is when you look at 90% of the apps out there, they are rhenium. if you look at what has made the most money, it has been the premium apps. but they are really doing now is they are keeping the premium model. people spendtting one dollar on life, they are making that hard currency. -- buying gold
10:08 am
bars within the portfolio so you can use for other games. >> why does it seem as though in the world of social gaming, so the of which is mobile that stickiness, if you will, is so much harder to maintain. is it because of many of the players are kids and kids interest in anything is often very fleeting. they are onto the next thing and what the next thing is is often anybody's guess. >> when you look at the mobile attentionverse, your span for these games is much shorter than pc games. when i am playing candy crush, very different from one i spent two hours playing half-life at home. a game has to keep me interested. the second thing is when you look at the cost of developing these games, it is much lower
10:09 am
than like an nfl madden or half-life which takes hundreds of millions of dollars to develop and several years in the pipeline. more games out there. the competition is much higher for these games then anything. >> is that to say that a company like king digital shouldn't have gone public? >> that is one thing that investors will be looking at. only three companies have been successful with multiple hits in the top 10 and king has been only one of them. who are the other two? >> softbank and mobile. is it that hard to make popular items, will we see massive consolidation? zynga has the same issue. >> what they started doing once their farm world started declining, they went out and bought the words with friends game. they will spend hundreds of millions of dollars acquiring a
10:10 am
studio. so, i think the problem with these companies is to turn out hits one after another, >> it seems like candy crush is blaming the new kim kardashian game for distracting users. crush, i would never play a kardashian game. >> the problem is that they have talked about a greater competition. that there was the step down in the usage of mobile games. i don't know people are watching a lot more soccer. i think that gaming is fickle. a third of cap usage is games. >> i talked myself back from the wall from candy crush because it addicting.
10:11 am
i have to talk myself off of the ledge. >> is the comparison, you drew a comparison to movie studios. the scope back what you're saying about barriers to entry. the bigmore like for established console gamers like takeision, for example, or two. releases,predictable they invest hundreds of millions of dollars and you can determine how successful or not they are. harder in the social games, you have no idea where the next it will come from. lot moreeed to be a tighter over the release schedule. one of the reasons they cited for the u.s. users declining was this large gap between game releases. for a company like king.com, it is important for them to manage
10:12 am
that release schedule and keep these new games come expecting that they will not perform as well, still try to offset candy crush. >> another lesson to be learned. thank you so much. >> coming up, are you hungry yet? what is on the menu at the salad restaurant chain chopped, we will talk to their ceo. >> it is a new generation of derivatives. this is making the financial crisis a great deal worse.
10:15 am
10:16 am
destruction in the wrong hands. wall street is rearming investors with a new generation of derivatives, are we being set up for another crisis? has 52 billion under management. good morning to you. us begin with this. the appearance of new credit riveted's, total return swaps on loans, forleveraged example, is drawing comparisons thee pre-crisis period, appearance of credit default swaps on credit indices. is this a fair comparison? >> is not necessarily fair to say that because the word derivative is being used. see an unfunded position which could allow the investor to employ some leverage in the strategy.
10:17 am
that is not inherently systematic risk being driven into the marketplace if used appropriately. the fact that it is referencing an index that we called leveraged loans does not mean that there is embedded leverage. it is all matter of how the issue it is used and ultimately what the objective is trying to be. i don't see this as a huge innovation that leads us down a very disastrous path. there was the synthetic cdo in the marketplace. the news that was taking place around that was saying, here we go again, we forgot our old ways. what happened was that there was a one-off transaction and i am not aware of there being another one in the marketplace. just because something smells like you crisis doesn't mean we are headed the same direction.
10:18 am
>> banks are trying to create new credit derivative products and sell it to firms like yours. >> correct. let's go back to the motivation. if you look at what is taking , impacting then banks and their trading facilities. let's go back to the root of what investment banks do. they are trying to facilitate trading. it does not come as a shock to me that you were seeing innovation and product and indices that would facilitate this trading. the fact that it references a notit derivative itself is inherently dangerous to the system. >> it was scary. is there any kind of catalyst on the horizon could facilitate that? biggestusly, the concern on a low volatility right now where is their
10:19 am
complacency in the marketplace and complacency freed itself to people getting comfortable in the position and inherently as those prices appreciate to get future returns. they start to employ a bit of leverage. if you look in the root of the word liquidation, it is the root of the word liquidity. the biggest risk that overhangs the market is that if investors rush to the exits, you mentioned the loans. has historically been a more illiquid asset class. i'm saying that in terms of trading. they're obviously price on a daily basis. they are over the transactions. once we have intraday liquidity on something that perhaps the underlying assets is kind of liquidity. we continuemething
10:20 am
the funds within the space. is a nicere there balance. today, i don't see that being there but it is obviously on our list of concerns. >> the risk is that everyone runs for the exits at the same time. the question is, who? is the risk being distributed broadly or do you see concentrations building up in very large funds who cannot take enough risk in the underlying product and as a result have to result to derivative products which in some cases carry counterparty risk which adds another player of risk into the discussion. walk us through that if you don't mind. are we talking about the new intervention of the products that are taking place and those new products, are they leading to this new level of credit risk? i think the answer is no.
10:21 am
anre talking about investment bank making markets in the total return swap. does this require institutional investors? you were talking about and experienced investor base when it comes to that. out there andds etf posterity or derivatives because they cannot get access to the cash market? absolutely so. is it a commission to convenience or the fact that asset classes are too big? i cannot discern the difference between those. i cannot speak to their strategy. on the other side of the equation, when you talk about is retail involved, is there the corner office, the wire houses doing these transactions, i think they are trading through the etf and mutual fund market. there was an innovation with powershares where they lost an etf. they cleverly titled tight and wide if you speak out the
10:22 am
absolute tickers of those. i don't think that someone wants to necessarily go along with the baskets when they can buy the underlying credit but perhaps the wide instrument may have some following as investors look to go after that. these things just lost the last week or so so it is hard to gauge what that sentiment is going to be. >> what about the banks? are they keeping this risk to themselves? >> the idea, coming back to an earlier comment, is that they are there to facilitate trading flow. the banks would love to match up both sides of the equation. we do a double line on counterparty risk. if one will take counterparty risk, there should be some compensation. we are stewards of capital, these are our investors. if we're going to put investors risk in transactions, we want to make sure that it is doing something beneficial.
10:23 am
coming back to the investment banks, i don't think that they are out there trying to take on new risks in the marketplace, they are trying to sit there in their role of facilitating training and they are being innovative and trying to create new ways to get investors to trade with them. if you look at volumes of trading. they are a really decade kind of lows. >> i'm afraid we have to run but thank you so much. a very thorough and expert view. ownering up, the newest in the nba.
10:27 am
10:30 am
live from bloomberg headquarters in new york, this erikarket makers, with schatzker and stephanie ruhle. >> good morning. >> how is this for a business strategy, turn what is on your side plate into the main course. it is working for a chain of salad restaurants that is so popular, i regularly see lines of more than 50 people long outside my local shop. the ceo is planning to expand beyond its current market in new york and washington, d.c. he is here to tell us all about it. where? >> so, yes, we do have big
10:31 am
goals. our mission has been to help americans eat better. is to makeur mission money, don't be ridiculous. >> unfortunately now, there is so much demand that we are able to create a profitable business. >> even though some of your salads can be 800 calories. choose a lot of calories or you can choose not a lot of calories. you can be healthy or you can indulge. how to it is all about make festival at eating easy for people. as you pointed out, the vegetables, maybe the broadly pushed over here and maybe there is a little side of salad. we try to answer is how do we bring faraway flavors, how do we visit different
10:32 am
regions and understand different cultures and the food that comes from their and integrated into local ingredients. you can eat a healthy lunch or a healthy dinner. >> what other markets do you believe that the chopped model will work in? >> here's what has been amazing over the readers or so, we get tons of feedback to a website and one of the most common comments we got is, hey, i visited your restaurant and when will you open one in my hometown, i think three or four years ago, that always came from los angeles or san francisco. it was sort of a coastal phenomenon. over the past two years, it is no longer driven by the coast. what we are getting now is from people in town and cities in the midwest, in the south in places where they're saying, i cannot get what you do. >> there is tremendous competition in that space, particularly in major cities in
10:33 am
new york. you have places like sweet greens that pride themselves on local sourcing. how do you distinguish when it seems like everyone is doing it? >> the competition goes way beyond the other solid players. you have two of the greatest .hefs of our generation still, with the same concept of helping people get better. that was really sort of the first time or early on when the idea of bringing salads to the side dishes came. we are still an entrepreneurial driven company. those guys have a theory clear vision of where we want festival eating to go. you have a few changes and surprising us coming. >> is that mean different ingredients? >> is a salad have to have lead us? >> i actually don't love the fact that there's a lot of
10:34 am
lettuce. so, i always order half lettuce. in fact? before, just tell them it's too much lettuce. >> i think that is a question that we asked him a when does it become a salad or not. we are introducing a line that we call warrior bowls. it is grain-based. so, we continue to explore ideas like that. >> other restaurant chains have tried to go big on salad. mcdonald's, for example, with mixed results. is it a better business selling the salads for $12 and it is for six dollars? >> the bar certainly higher. one of the things that comes , first of all, the fact that mcdonald's tries to do that and wendy's tries to do that demonstrates to me that there is nationwide demand for this, if it was only a coastal issue, you would not see the super big chains getting into salad.
10:35 am
this is the product that people are demanding. at the $12 price point or we really try to shoot for the $10 price point. some of it is related to rent in manhattan. constantly trying to evolve and surprise people with the quality of what we do. >> what is your margin goal? i have to think that sourcing locally can get very expensive. >> so, i tell the story to people all the time, if you think about the product that we serve, the lettuce that we serve, it has to be planted by a person. it has to grow when the field. picked and truck hopefully not too far. the amount of economic input that goes into the ingredients in our bowl, and makes it a very very challenging business to deliver the quality that we want at the price point that consumers are willing to pay. >> so, what about margins? what is the goal? >> the goal for us is that we
10:36 am
of run and generate north 20% margin at our restaurants. >> operating margin? >> yes. used to have this loyalty card, now you have migrated the loyalty aspect of your business to the iphone. this annoys some people. you're trapped in the apple world and they wondered to themselves, what are they doing with the data? >> it is also on android. it is still annoying to some people who say that i don't want to deal with the phone. we do believe that one of the things that we're trying to do is that we believe we are a modern company. we believe we are forward-looking. we believe that history will be on the side of this move from plastic cards to the phones. right now what we use, we give you more stuff. if you are on our app, we send you, come in and try this, we will give you two dollars off if
10:37 am
you do this. overall, it has been pretty well received. >> some say you don't go mobile, you die. >> in our restaurants in new york city, 25% of our transactions are now on the phone. >> what is the winning ingredient that you cannot get right now? you could argue, like a year ago , quinoa. >> if something doesn't happen with the weather in california, there will be a lot of things we will not be able to get. right now, avocados are scarce. as people of avocados. what is the single biggest challenge to running your business and expanding it to where you want to be five years from now? >> in the restaurant industry, massively people intensive business. when you talk about growth, you have to remember no matter what you do, no matter how many great things i can tell you, we need a great restaurant manager to at the storeision
10:38 am
level. for us, what we found was sort of a 25% unit growth rate is where we can be expanding the brand, feeling good about our timeh, but also have the and the stability to make sure that our managers are properly trained. what we have added to that is we have a managing partner program, so the managers earn a percentage of cash flow of the restaurant that they operate and it helps to maintain that entrepreneurial spirit. have two requests. one is from one of our viewers who says, please bring back the saigon summer roll salad. the second is from me. lately it hashat become more form over function. the benihana stuff going on. i just want the stuff to be chopped. >> that is a great point. that speaks to what we talked about. we will try to make sure that
10:39 am
10:42 am
>> israel's dome has protected local businesses in the border but others are not so safe. we look at how the conflict is affecting business. firedund 3200 rockets are out of the gaza strip over the past five weeks. with residents of southern israel often the intended target. the iron dome defenses that may protect most people here but the impact this so still damaging local business.
10:43 am
>> is not easy, you can see the parts. >> this is an israeli american father of three. he lives a 10 second rocket flight in the village where his employer was founded for the ages return to the main plant where his colleagues have been struggling to fulfill the daily quota. ,> we are doing 100 mattresses instead we do 50 or 60. you don't work as quickly. five or six times a day you run for the shelter. >> one consequence of the conflict is that orders are falling. the company's sales dropped around 30% compared to last july. they're looking to spend around 2 million dollars to renovate this whole factory but when comes to investing in business here in southern israel, there are some unusual factors including security. one, numbers of the military can take over your building. >> people are struggling with cash flow, with the payments,
10:44 am
with tax payments. this is a plastics manufacturing firm that is a little farther south. the industry year played historically important role and despite the cost of keeping the company cash rich, national politics play a role in the decision. >> it is the combination of trying to be very competitive on one end and on the other end, it is a long-term view about the -- that israel should >> they have cut some shifts. the costs have risen. >> we are paying extra salaries to the employees, providing like a risk premium. >> there is some things that money cannot buy for those that live and work in this part of israel and that includes peace of mind. >> my wife asked me, what are we doing here, why can't we move?
10:45 am
and it is hard. >> what did you say? >> you don't want away from your home every time it gets hard. so, we will give it another go. >> we are joined now from tel aviv. you asked the most question, why did the company stay where they are, why don't they pack up and move to a safer place? the history of that part of israel. lots of committees were established there in the last 50 years. industry asrned to opposed to agriculture, they had theseat they had within their communities. for these businesses to leave, the idea of doing that is difficult for many of these. families, that is a separate issue. some of them to move away during the conflict. >> even if those factories
10:46 am
aren't going to leave israel, is it possible that at the margin theymay move additional or may initiate additional production outside of israel? well, the plastic manufacturers, they do in fact have facilities elsewhere and if need be they will start producing that product elsewhere. are payingthey storage fees. they are taking measures. when they do have an international presence, they are looking for shift and you factoring elsewhere. >> you mentioned that there out put is less and the expenses they are responsible for. what about on the demand side? this decreases demand for any kind of product. >> a lot of business owners said that consumer spending tends to drop pretty precipitously during this time.
10:47 am
they operate in the domestic market. he tend to try to get support from israeli customers. they take their inventory earlier. international customers obviously don't have such pressures. >> can i return to what is the evergreen question in this discussion of israel versus gaza? that israelis have lived through this several times before and so while this particular entanglement is lasting longer than it has the it has the resigned to living with things the way they are. do you get the sense that that is changing? >> no, i think it depends on who you talk to. some of the older men down there i'm that said they are really used to this.
10:48 am
i don'tg children said, want my kids growing up in this environment and usually they are the ones sending their families off to the north of israel. >> thank you so much for joining us. good to see you. >> coming up, it is a special. steve ballmer is the owner of the most expensive team in nba history. to dick parsons, the interim ceo of the clippers.
10:51 am
>> the los angeles clippers have a new owner and it is a you thought it was going to be. steve ballmer. oflley sterling, the wife donald sterling had the authority to sell the team on behalf of the sterling family trust. regan spoke with both steve ballmer and the clippers interim chief executive dick parsons. let's begin with steve ballmer.
10:52 am
>> my gosh, $2 billion for this team, it is absolutely incredible. he was elated, just absolutely thrilled. they have a propensity to get very excited. you can think about that one video clip that we have developed. you can see him screaming clippers, clippers, clippers. >> i am looking forward to seeing steve ballmer's halftime show. >> he said, i am thrilled, i'm here to support the team. he said, i'm going to figure out how to support the team and take it to the next level. you have got to be tenacious and keep pushing, pushing, pushing. he said, i will enthusiastically support this team.
10:53 am
he said, i will be ready involved. i am not a micromanager and i certainly would not get involved. i am not just the basketball expert, i will not be designing plays but i am definitely enthusiastic at the end of the day. >> it sounds like he will be playing a role not unlike mark cuban and the dallas mavericks. is very much there. >> when you put in a billion dollars, you want to be involved in some ways. did he mention overpaying? >> i said, come on, $2 billion? this is four times the amount that any other team has sold for in the league taking a lot of league owners very very happy. he said, it is the price i paid
10:54 am
and he let out a huge laugh and said, i am thrilled. he wanted to own this team. >> what did dick parsons have to say? this wentlled that through. it took about three and a half months. he thinks that steve ballmer will be phenomenal owner him and not just because he will rally the troops with enthusiasm but pretty bigs some pockets. is goingk his energy to be somewhat infectious and of everyoneporting will saysire and i that steve will just sit and opened his checkbook because he and b has rules and terms of how much you can spend anywhere, she can pay to keep some kind of parity within the league. fail for aill not
10:55 am
lack of resources. said, i amhim and he really looking forward. she them all promised to guide me through the next couple of months. said, he is looking forward to being a grandfather again. he was spend some time with his grandson and maybe take it easy. he has been a big part of this as well, just helping to see this whole deal through, this sales process. don't forget, he is actually a former basketball player himself. the law asy knows well. it is kind of a good combination. >> and a good issue for clippers fans, doc rivers is staying on as coach. >> absolutely, 100%. aslooks like he will stay on
10:56 am
coach. >> trish regan spoke not just to dick parsons but the new owner of the clippers, steve ballmer. >> it is time for bloomberg's on the markets. >> overall, the broader markets are trading higher. rebounding after yesterday's flight the client. the s&p is up over a quarter. trading is 1941. the nasdaq is up the most. strutting off a disappointing retail sales, showing a slowdown and really putting geopolitical concerns about iraq on the back burner. macy's numbers coming up soft, and looks like discounts have been eating into profit margins. they cut their full-year forecast. today afternging
11:00 am
>> live from bloomberg headquarters in new york, this is "market makers." needs therapy. july was the worst month for retail sales in half a year. >> this time, it is personal. cyber thieves have a new target -- you and your mobile device. >> sprint dropped out of bidding, who is the new favorite to acquire t-mobile? >> this is "market makers," 11:00 in new york city. >> happy wednesday.
11:01 am
for the newsfeed. the top business stories from around the world. alibaba setting the stage for what may be the biggest ipo in u.s. history. it will kick off a two week, three, roadshow on september 3. the ipo may take place the middle of next month. a new arrival for uber and lyft. haseli startup gettaxi funding that will start a service in new york and expand in europe. macy's had a sluggish first half of the year. looks like back to school and the holidays will not turn that around. macy's cut its annual sales forecast and posted quarterly profits that missed estimates. >> macy's is the beginning. a slow start the third quarter for american retailers. for july were unchanged. it has not been this low since january.
11:02 am
statistics always obscure some success stories. what is and is not working, founder and chairman of the boutique advisory firm that has clients including neiman marcus and forever 21. what is working? easy to dwell on bad. there. maxx and ross, prices are working. >> thanks to my mother. across, hard to tell. the teenage retailers are suffering. >> forever 21, abercrombie & fitch? >> abercrombie, american eagle, aeropostale. kids today have five categories hone.eir cell po second, athletic shoes. that is one of the reasons why foot locker and some of the
11:03 am
other shoe retailers have done well. shoes. third, games. they spend a lot of money on games. fourth is accessories. last comes a barrel. -- last comes apparel. there is no loyalty, nowhere near the loyalty to the brands we know the way they are. cheerful, themost cheapest, they do not care as much about quality as they had done before. >> why? where did the shift come from? >> one, the other preferences are taking a lot out of their pocket book. second, newness. is alldrexler says it about merchandise. unless you give the consumer something new and different, they will go into their closets and find something that had before. you have to innovate and change and bring the consumer into the market. >> what is innovative in retail today?
11:04 am
>> they have got flowing skirts as opposed to straight skirts. >> no, no. from an operating standpoint. different, better, changing the experience? >> the biggest thing is e-commerce and the internet. 10% oftill only 5% or sales, companies are growing their internet businesses 25% or 30%. look at the base. the stores themselves, the retail marketplace, that is where the consumer is still going for the most part. >> customization -- we have seen a lot of online stores, up with a personal stylist that will send you clothing and then you can send them back if you do not like it. it seems like that is where the industry seeo wanto go. idea.is a great it is costly. there is a lot of returns. it is still not the biggest percentage in the world.
11:05 am
personal shopping is very, very good. especially in the luxury area where people are picking out the styles and giving the woman or the guy a number of choices. that is not where the action is. the action is still in the mass in the department stores. look at the problems that walmart, target, even macy's have been doing. if you look at the problems with lululemon, it is amazing. you look at michael kors, it has done phenomenally well. they slow down a little bit and the stock plummets. kate spade today is the same thing. you cannot grow at 30% a year. >> does that mean that they need to value sales versus margins? it seems like the strategy, we saw it with kate's painful stop cut margins enough to get sales up. the stores are doing everything to get the consumer in to buy.
11:06 am
they're trying to clean inventory, they are lowering prices. when the next corner earnings come out in the middle of august or the beginning of september, you are going to see a drop in earnings. while the sales may be there, the gross margins are not going to be. >> there's only so much you can do at the storefront, physical or digital. you can have the right products, promote it well. if the people do not come, the people do not come. are we going to see more consolidation, like we saw with men's wearhouse edges of a guy -- men's wearhouse and joseph a. bank. >> an interesting six months. >> some might say nonsensical six months. >> we had the financing and we were ready to go. it is a whole another story. go.olidation continues to we have never been busier.
11:07 am
we have more mandates, large and small. the other investment banking firms are saying the same. >> what's driving it? --number one, interest rates they are dirt cheap. so easy for a company, a strategic buyer as well as private equity firm, to borrow money at very good rates. the leverage is not that bad. that's the first thing. also, they need to save on expenses because when you consolidate, you are able to draw a lot of expenses down to the bottom line. that is only a one-time thing. that may happen over a year or two years. long-term, you have to have some form of a plan for growth and continued growth. " growth is another reason why we are seeing a lot. >> who is going to be more important to retailers: ford? -- to retailers going forward, me or erik? have surged,s
11:08 am
but in terms of pure dollars, women spend most. >> i am doing better on a relative basis. >> men's business has been very good. retailers like nordstrom and walmart and others report, they are very different businesses. on the whole, the weakness we saw in macy's today, if that is replicated across the american retail spectrum, is that going to speed the pace of consolidation --multiples will come down? >> who can macy's consolidate with? >> 840 stores. >> they need to trim down and said. >> their effort will be in growing the e-commerce business and also doing the personal shopping, doing exclusive products for the store to get the consumer in. >> you are staying around, looking for to continuing the conversation with founder and chairman of financo. >> back to school.
11:09 am
11:12 am
11:13 am
process transactions. activision has an edge into the holiday shopping season, two "destiny" and the latest "call of duty." rivals have pushed back competing games until next year. rush"aker of "candy c plunged as much as 23%. fewer people are playing. newer games are not attracting as many players. >> what is wrong in retail? we talked about it with financo 's gil harrison. the container store ceo kip us from dallas. good morning. we know something is happening in retail that is not so great. july retail sales were unchanged. the worst performance since january. you have seen some of this
11:14 am
yourself at the container store. look at your stock price, down in excess of 50% this year. days stock is down a bit, we came out with an ipo eight months ago. 36 dollars the first day. we are still at about 40 times 2014 estimates. the multiple is still about 40 is significant. i think retailers are seeing a little bit of a tough time with traffic. traffic is kind of flat, down for some people. it has been that way for a year or two. we have to figure out ways to get that 1% traffic declined to a 1 percent traffic increase. at the container store, we have most of our significant initiatives focused on average ticket. only two components to comp store sales, traffic and average
11:15 am
ticket. we have a program where we come into your home and organize your closet, your pantry. moreso organize a solid, of a built in closet organization system people have asked for for 20 years or 30 years. programs have average tickets in the thousands of dollars. we expect that to lift our $60 overall average ticket greatly as we go into the third quarter and fourth quarter of this year. we are rolling out these programs now and they are being tested in several markets. one way to attack sluggish traffic is to know your average ticket. that is what we are optimistically focused on. >> does that mean you are moving away from a lower end consumer and targeting the higher end? >> no. the container store has always enjoyed a pretty high disposable income customer. the top 30 percent of our customers give us 83% of our sales. $125,000ortable,
11:16 am
household incomes. we are targeting the customer that is there in the store. years, we have provided the best organization system for your closet in elfa. some customers want more of a solid, wood-look closet. system is even a little bit more higher end t han elfa. the average ticket with that. us to have been asking come to their home and do it for them for years. we also are attacking the slight traffic declines most retailers are doing by finally, after 36 years, starting a frequency program. we call it pop -- perfectly organized perks. we are up to about 600,000 customers. sign up forustomers
11:17 am
that. i do not think a retailer can sit there with a 1% traffic decline, you have to make that an increase. at that to your average ticket increase. >> how are you? >> how are you? was telling the people here that you were a true merchant era.e of this >> that is awfully kind of you. >> now he will hit you with a question. >> tell us what you are doing with expansion and how you are going into your plan to go into smaller markets, which is one of the very exciting things that we talked about in the past. >> thank you. we did the ipl about eight months ago, we said we would have square footage growth in minimum 10%. we've raised that to 12% and we
11:18 am
are going to achieve that with the addition of our eighth store in the phoenix area. footagethe square growth for the container store will come in at 12.2% or 12.3%. there is not that much retail development going on, retail real estate development. 12.2% or 12.3% is a leading number in the sector. we are very excited about that. we are achieving what we call eight four walls -- a four walls ebitda. -- >> how long does it take new stores to turn profitable? >> 22% of four walls ebitda the first year, we have spent much of our history growing more than 12%. time withing a good that. we have been expanding faster and faster. what you alluded to, we used to think we had to be an ally.
11:19 am
we just opened a store in l.a. indianapolis-ing of the container store, we are having huge success with stores in raleigh, charlotte, indianapolis, metropolitan areas of about 1.5 million. it is less expensive to get the best location in indianapolis than the plan or l.a. to thees are close same. we are recouping our capital years withat about 2 a 23% -- >> fabulous. kip? kip? secondshave about 90 left. you were talking about raising your average ticket. that makes a lot of sense. so much of what you are describing involves
11:20 am
customization and human capital. one of the things that people recognize about your store is the customer experience, people are really good and they take good care of you. >> the service is fantastic. youru are asking more of people if you are going to send them into my home to organize my closet or take out california closets by coming and building a new set up. how do you maintain the high-quality you have established with the salespeople inside the actual stores? easier to lot organize someone's closet or pantry in the home than in the store. you are there with the closet, you are there with the pantry. the container store has always -- to bed to employee an employee first culture. if you take better care of your employee, she will take better care of the customer. if you have an ecstatic employee, you will have an ecstatic shareholder.
11:21 am
about both excited of these programs. i am excited about the pop program. the program directly attacks nationwide retailers, national parks, season-ticket holders, everybody is so busy. we're doing our favorite things a little less often. for most retailers, that is a tiny traffic decline. let's say that you get a 3% average ticket increase. if that traffic is plus one rather than minus one, you have a 4% comp store increase. through perfectly organized perks, we are trying to get the traffic a little the positive. what we are best at is raising the average ticket. last year we did in the neighborhood of 6% average ticket increase. this year, we think we can do enough to get our comp store sales where they expect to be. we are looking for to the third and fourth quarters. the good thing about the weather
11:22 am
that retailers encountered at the holiday season is that this year we cannot have a worse -- >> no question you will do what you need to do to keep growing the company the way you have in the past. >> i'm afraid we have to leave it there. kip tindell, an internal optimist for the container store, he is the ceo. gil harrison of financo. >> coming up, either way for cyber thieves to make your life miserable. right to hack your mobile device. ♪
11:26 am
square is going public. not clear how the billionaire hedge fund maker is quare to take pershing s public. is not takingbill his management company public. blackstone has done. an effort to raise permanent equity, which would be more akin to what phil falcone did with the harbinger group or did einhorn with greenlight. >> is this a surprise? >> i recall hearing that something like this might happen. it is coming from activist investor. activist strategies can blow hot and cold. you hope your investors are committed and willing to stay with you for a long time.
11:27 am
11:30 am
>> live from bloomberg headquarters in new york. this is "market makers." ," goodket makers morning. it is almost noon. is a buzzword. it is a top priority for businesses. harriet is a reminder of how much of a priority it needs to be. hackers are getting more personal these days. yourng their sights on mobile device, smartphone, or tablet. here to talk about how to protect yourself is the cofounder of a mobile security company that just announced a million round of
11:31 am
financing, one of the largest ever for a security computer from. talk about the worst thing that can happen to you via your mobile phone. identified, this is not just a board level issue. we are seeing this impact individuals. over one billion passwords getting compromise. we have seen these threats shift towards the mobile environment. a great example is something we have seen, a threat category called ransomware. hacked,device will be take control of your phone and control it so that if you do not pay money or take the action of the attacker's request, you have zero access to your phone. >> ransomware. >> let me be a cynic here. your business is trying to get people like me to hire you to protect my mobile data on my phone. isn't it good for you the more freaked out i get? goal is to solve
11:32 am
cyber security problems on a fundamental level. what you have identified is a relic of legacy cyber security companies. how many people do you meet that her like i am so psyched i have security software on my computer? how do we build products people want? where ifed a feature someone tries to get into your phone and mistyped the password three times, we will take a front facing photo of the person and e-mail you to know that the person is trying to steal your phone. people love that feature. the product has gone viral, almost 50 million people have chosen to download the service. >> what should mobile security cost? to get an iphone, all i have to do is go to the apple i can back, everything up in the cloud. those are the things that matter
11:33 am
the most. be willing to i spend on something that really just gets my phone working again? >> for most people, security should be fundamentally free. our strategy is to build product that enable most people to have free security, that provides them protection they need. advanced functionality does for power users, there are many who will upgrade to the .remium version governments who need sophisticated security and services areremium available. we think security should be free at the fundamental level. >> how do you build a business on a free product? with have designed this the intent of disrupting how .ecurity is done
11:34 am
historically, it was very people centric. we want to use the network of users to aggregate threat intelligence to solve these problems. a user in china might download a piece of malicious software, i am sitting in san francisco, i would benefit from that. the more for users that showing, the safer it gets. a premium version, three dollars a month for our service. you can build a large business on top of that. monetizing us an enterprise is a huge focus going forward. securitylike mobile has become a hot phrase over the last year or so. what is the competition like for a business like yours? >> competition is a signal of the market being something that is very important to users. at the end of the day, we have two camps. the traditional legacy, public market competitors like symante c.
11:35 am
they are having a hard time moving into the post-pc era. we have a number of upstarts who are directly competitive with us. at the end of the day, we win or lose based on our losers and we focus on building the best all caps and the best user experience and the best solutions. with 50 million users that have downloaded us, including at&t, sprint, and t-mobile, really an example of the attraction and leadership that we have in the market. >> what do you do with the $150 million you just raised? the salt that go towards marketing? -- does some of that go towards marketing? the network effect makes sense, but you have to build awareness and get people to sign up. >> that 50 million users that i talked about will go to hundreds of millions of users. internationally,
11:36 am
we will open international offices around the world. we will be deeply investing in our enterprise expansion. we have been building this business for years. we are just getting started. >> is there one country in particular that you think is more vulnerable? look at threat statistics based on our threat networks, here in the u.s. for malware, the average person has likelihood of encountering malware. it is possible that not every day. the statistics we see in russia, upwards of 60% of devices will encounter something militias over the course of a year period. 30% in china. is threat landscape different. internationally there are huge opportunities. >> people of gotten used to the idea overtime that the apple environment is more secure than the indoor environment or the or event environment
11:37 am
the blackberry environment. blackberry had a strong security reputation for many years. in your experience, are they all equally vulnerable? are some more vulnerable than others? >> look at the differences in types of threats. application-based threats have historically had a greater impact on android. that does not mean it is less secure. google has done a phenomenal job of improving the security model of android. something we have been very impressed with. apple, we have seen more targeted attacks. web oriented threats. i do not think it is fair to say that one platform is more secure than another. you have to really look at is the trends and where the attackers are going. there is a host of things that influence that, ranging from the scale of targets, meaning mass targets, down to the people themselves. for example, there is a target of government or corporate espionage. it is not about the platform, it is not the target.
11:38 am
11:41 am
>> highly unusual for an ipo to fail, that is what happened with an israeli biotech company that cancel its ipo after six days of trading. a world of pain for the company and its underwriters, which are eutschebank and wells fargo. >> a highly unusual situation, a company allocated its shares -- some investors bought in. an insider agreed to by in awe
11:42 am
half of the offering side. after the shares had already started trading, the insider decided i do not like how things are going, the shares plummeted 15% on the first day. they said i do not want to buy more shares. >> to ipo investors have the right to do that? >> it is not about the a right, it is about the ability. the terms of the agreement enabled him to back out. it is very uncommon. the incentives do not align with backing out of a deal. woulds why an underwriter not assume or need to find a back up investor to support this if they back out. >> why wouldn't they buy the shares to support the ipo? a they cannot hold them as proprietary measure, they would be allowed to hold them in a block trading capacity with the assumption that they can sell it off to someone else. the thing about biotechnology investing, you look at these
11:43 am
companies, they are pre-revenue and it is difficult to model them. the models are based on a small group of investors that know the status of investments. if one of them backs out, difficult to find a substitute. bank and wells fargo or to acquire about $3 million worth of stock, it would be difficult to offer it back -- to offload that. >> any underwriter involved with this has egg on his face. what can we say about what they should've done differently? >> over the last decade or so, there's been a change in the rules for underwriters, they have to do best efforts. the underwriting agreement is not signed -- >> it is not real underwriting. >> they will have already received commitments from investors before agreeing to underwrite shares. a de-risks the role of the underwriter and places risk on the issuer. ipo process inhe
11:44 am
general, isn't this the point? the company talks to investors and places the risk out there and then investors feel comfortable signing on? is not the point? >> the person that has been the loss here is the issuer. here they are, they need this capital to operate. drugs to creekng cancer. one insider, one single entity decided they did not like the way the shares were trading. that is a black spot on the ipo process. for everybody involved. does not happen very often. thank you. field ipo. ," coming up on "market makers the fight for t-mobile. who is the favorite to acquire the nation's fourth biggest wireless carrier stop ♪
11:48 am
sprint ended its courtship last week. you expect t-mobile to stay single for very long. is centering on a tie up between t-mobile and dish network. m&a, why islecom speculation on dish and charlie ergen? >> it has been rumored for 18 months or so, maybe even two years, that dish wants to get into wireless. they own all this wireless spectrum, the frequency airwaves that many of these companies need to own in order to have a robust service, basically the signal that when you talk on the phone -- >> does t-mobile need spectrum? company needs spectrum. that was the whole purpose of the at&t-t-mobile deal in 2011. >> it was busted up by the doj. part of a termination fee,
11:49 am
at&t needed to give up mobile spectrum. that shows how important this is. this has a lot of spectrum but no network to use that on. that is where they would want to buy t-mobile. >> regulatory wise this would not be a big issue, you are not merging three and four. moneywise, what does it do? sprint was set to offer about $40 a share. roughly a 50-50 split between cash and stock. you would think dish would not need to offer quite as much as $40 because they do not have the regulatory risk. that pushed up the price. share. down to $35 a if you do a 50-50 cash stock split, that will push dish pre-up into the levy -- push dish pretty high up into the leverage ratio, 5.5 times. the area where companies become a little iffy. the satellite television business pumps out a ton of cash
11:50 am
flow. that is why at&t wanted to buy directv, billions of dollars of cash flow even if it is not growing. >> should we look at the t-mobile stock price right now, , and draw the$29 conclusion that investors see it as a low probability scenario. >> the overriding probability is that t-mobile stays a standalone company. drives me crazy, . am not a t-mobile customer hisid john legere -- stock was trading north of $34, thanks in large part to your great reporting. with share agreement little hope of going up on -- hing other
11:51 am
>> in the near term i do not expect t-mobile to be popping anytime soon. there is a possibility the french government can boost your offer. they are still periodically involved here. that might be the first near-term step. >> thank you. covering m&a. >> the big headline, no consumer. adam johnson joins us with a little insight and action on where the consumer is. dowe're going to try to later in the next hour is try to figure out how bad it is and whether there are any other companies that might present some problems. >> a lot. into earnings reporting season. the news cannot of macy's -- disappointing earnings, foot
11:52 am
11:55 am
crush. >> and i do not carry cash. trying to get cisco going again. sales are currently projected to shrink 3% this year. earnings out earlier today. the ceo of cisco will be with us on "market makers." >> 56 pass the art, bloomberg is "on the markets." olivia has more. >> stocks trading higher today. rebounding after yesterday's decline. investors shrugging off the slowdown in retail sales we saw earlier this morning. thinking the fed will not be in a hurry to raise rates if the consumer environment is slowing down. joining me is strategist at baycrest partners. thank you for joining us. what are we seeing in the options market? how is the vix at 14? >> it will stay below 14.
11:56 am
if you understand earnings this being the expiration week for artists, maybe there is a little bit of volatility market for friday. next week, volatility comes in even more. we are seeing that -- >> more volatility next week? >> volatility coming in, selling off more. the next -- >> why? >> earnings season is over. unless we see escalation and geopolitical risks from here. does not seem like there are many catalysts a big one could be mid-september for the next fomc meeting. >> when we are expecting the fed to phase out the final stimulus. bondg the last tranche of purchases. cisco reporting after the bell.
11:57 am
we have a story on the bloomberg terminal about how john chambers is under pressure to step up the push into software instead of just out of hardware. what is the options market telling us? >> options have been playing a 5% move in the stock. see activity and calls more than puts. 3.5 calls for every put. activity is concentrated in two -- september 27 calls. i suspect this is the strike own was sold by people who the stock, they are selling some capture theer to call premium. they are discovering some of that ahead of earnings. august a big trade in 25 calls. bettingns traders are we are going to see an upward move about 5%. stock is return on the
11:58 am
skewed towards the upside. >> another stock is tencent holdings. asia's largest internet company has shares hitting an all-time high. you have a trade on the chinese etf. tencentthe etf of which is the largest holding. a lot of bullish potential in the chinese market. the confluence of factors that are going to push the market higher, you have the market reforms by the government, foreign investors can now invest in chinese domestic shares as well as the chinese domestic investors who can invest in hong kong shares. devils advocate, we got members today out of china showing that industrial production slow. >> retail sales at 12%, where
11:59 am
12:00 pm
>> welcome to "money clip," where we tie together the best stories, interview, and business news. the deal for a sports franchise is finally done, what is steve ballmer going to do? attention, shoppers, where are you? new numbers show that consumers are staying home and not spending. around the world, bank of england chief mark carney elaborates on the state of interest rates in his uk. antivirus pioneer john mcafee built a fortress around data. the mo
107 Views
IN COLLECTIONS
Bloomberg TV Television Archive Television Archive News Search ServiceUploaded by TV Archive on