tv The Exchange CNBC February 11, 2019 1:00pm-2:01pm EST
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intel, because she knows hips. >> you by use the term royale, and not casino we're out. >> thanks, kell. >> thanks, kell. no words thank you, scott welcome, everybody here's what's ahead this hour. what is better for the imply corporate investment or buybacks we're going to look at the numbers. plus making a comeback, how with you -- and from cold to piping hot, the one stock that many had given up with is back with a vengeance i thinkdom knows what it is already. we are looking like we're treading water this morning. right now you can see the dow industrials just off a hair, about 0.1.
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and you just heard the halftime crew and jim cramer talking about video game stocks, because activision reports tomorrow. a bloomberg report says they could be laying off hundreds of employees. meanwhile, electronics arts one of the best performers, thanks to an upgrade by analysts over at bank of america merrill lynch. one of the best, one of the worst, and then another thing to keep an eye on the stellar performance of small caps out the gate in 2019 year to date. you can see the russell 2000 beating out the s&p's 8% gain, so that white line there, certainly one to watch in this trade. welcome to "the exchange" everybody, i'm kelly evans, morgan stanley is declares the earnings recession is here, and
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more slowing economy news out of the china. spending growth fell to the lower left since 2005. seema mody is down at the new york stock exchange with a look at the slowdown concerns, seema? >> it's becoming increasingly clear that the global economy is slowing down, first china, now there's further evidence of europe feeling the pain, the uk posting the slowest growth rate since 2012 the imf coming down. that's boosting safe haven demand for the u.s. dollar, which is now on track for the eighth consecutive -- but tech weigh on global stocks, which have done pretty well this year, up over 10%, in fact reporting that they brought in about 9 billion in equities in the month of january, the highest on record kelly, back to you. >> that's why we talk so much about how europe has been weak, how italy -- the uk gdf number
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was awful. does it keep getting worse >> and the big question is how bankers will respond saying, yes, despite the slowdown, we are here to provide the help if nieces the biggest questions is are there stimulus tools in its box? >> thank you, seema. the debate over buybacks isn't a new debate, but it has been picking up steam after chuck schumer and bernie sanders wants to limit the programs. steve liesman joins us steve, set us you can't. >> so it's a lot of misconceptions these are the economists, instead of, say, for example
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what the politicians say, number one, buybacks enrich the wealthy. sorry, that's wrong. it's an equality exchanges of shares for cash. we can talk more about that later. buybacks are good for the economy? well, that's really deposition they can be used for consumption, savings or investment or to a tech company that goes belly up number three, buybacks come tess expense of cap ex and workers' salaries that's true, but not precisely so worker pay is based on the labor market, based on expected returns and demand for what's being produced could be the corporate executives have incentives to do buybacks or paying workers more, but that's the fault of the board of governor, corporate governance and the shareholders. >> and actually the next segment we'll talk about some changes in
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corporate governance coming, too. jim, this is causing some of the confuse. if you look back at the biggest buyback since '209, the ones that have outperformed the s&p, including appear the, home depot, but then citigroup, aig, exxon mobil, and those are the worst of the bunch. >> look, as steve was saying, it's no one size fits all. i have to start from the macro side i define value as increased produ productivity, not just increased share price. there are times when you can issue duty add lower your overall cost. >> and a wave of companies have done that. >> that's why corporate leverage is so high you getting penalized for that
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in the markets, so now we're at that point where, yes, we've had a lot of -- we've played that trick at this point, but matures that are very long and the cost of that is very, very low. there was a period of many years where buybacks -- that started to turn over the past year or so, sometimes even turn negative. >> and i think a lot of that goes back to leverage. i would argue that cap ex is really what you said you get good product tiff, higher sustainable levels of growth, better cash flowing into the future that's the daisy chain we need to fall. >> the point being it's far more
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nuanced. no one is saying they're all bad. he says tell me the price, they did 80%sh when it was far higher they're historic buybacks do not raise prices of shares if they don't at all i want to give you a very good example. they went and bought back one share. look at the next screen. there is no increase in share volume
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>> except what happened to the risk of the company. widget making is up. >> if it's one then, they're using -- >> then you did that, and you reduced cash and raised buggy making, you badly increase risks to that. >> so if you're doing buybacks for the right reason to reinvestment in your company and get bert widgets at better price, then i think that's okay. >> i know we have to run, but this was a great item that jason ace -- the late chief executive of pen zeile likes to he believes in the bladders theory. companies should pay out as much as possible, so managers
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couldn't -- all the money away the share price falls, because the cash has come out of the peeve. >> would it be bad for capital markets? >> i think it should be. >> sometimes these are good, and sometimes it's a good opportunity. i don't think outlawing them is the right answer, this is a tool >> too nuanced jim karen, steve liesman. we're just a couple days away from another potentiality
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shutdown ylan mui is on capitol hill with the latest all eyes are on the meeting this afternoons it's supposed to be the top two republicans and top two democrats coming together. as the debate has moved beyond just the border wall, and i just spoke to one top lawmakers he said it was time for the committee to put up or shut up and if there's no great, he's going to do what he's going to do and that includes another government shutdown. back over to you ylan, when this was first
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announced, the odds of another shutdown looked low. what would you say today >> reporter: it's really unknowable i'm loathe to handicap after getting burned i think it's a good sign they're meeting t. however, there is really little appetite for some rank-and-might -- has a wait while the bock loom is there is still no solution to the fundamental question of money for a border wall and for imgrace. ahead elizabeth warren thinking employees should have a say in a company's board, a big say. a smart move or could it lead to bad
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management decisions. plus, u.s. delegates are heading to china as the trade war rules. we'll talk to an insider who recently advised the administration on what to do and could you once again be a toys "r" us kid in . >> announcer: this is "the exchange" on cnbc. no matter where you are in life or what your dreams entail,
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welcome back should the employees be allowed to vote on who sits on the employees' board is it a good idea? leslie pick ar getting to the bottom of it for us. >> kelly, that's right, senator warren believes that company with his more than a billion dollars with revenues should let workers -- warner, her et supporters of so-called codetermination, can give workers more input on the boardroom. opponents believe this would prevent companies from responding to market precious making the u.s. economy as a whole. now, the plan is not exactly unique, though about two dozen countries already require some form of employee participation, where about half of the directors on supervise sore boards are worker representatives.
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this was actually once quite a popular concept here in the u.s. in 1926 there were 432 companies with could employee representation it was yow lewd in is the 35 as seen as undermining independent unions, kell >> right in the middle of the great depression. >> exactly i want to bring in bill george, a cnbc contributor bill, this is great. >> what do you think would happen >> well, i think they could be represented by the management and the board. and as the germans have done,
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you find a way to work around it with the premeet before hand >> a lot of formalities. i sad on a board like this in france it was a disaster. >> why did that happen the companies effectively just get around it, why is that >> they've had 30, 40, 50 years and very mature. if you mix the two, you will not
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have an effective board. as an executive, i spend 40% of my times with employees. the board should be kernel, and they're fairly paid. as we do on the boards that i have served. we review that material ever year, and they come forward and say here's what we're going to do about it. >> the sumps here is that management is at war with the employees, saying they're not aligned. i think even starbucks might be an example of this, could companies go more in that
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direction to align incentives? >> there are companies that their interesting are aligned with shareholders. there is, to some extent a misalignment employees, customers, and shareholders there's always going to be a sort of tension there. but at the end of the day, i remember when jack ma was taking alibaba public, first are our customers, second employees, third shareholders people still bought into the ipo, knowing that at the end of the day he believed that the customer should take priority and employees should take second. >> how have you seen boards resolve that tension
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s. >> >> if you understand it, the employees' role is to serve customers. if the customers are ahead, the company will do well, and the shareholders will do well. i don't buy all this split between because if family bet focused on the shareholders first, ute start taking advantage. >> the thing is we have made agreed price you look at what doug has done at walmart i think it's a good way, and they get the benefit
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>> so i believe in that, but that's the job of the executive, and every chief executive should be -- so let's not interrupt it. >> bill, leslie, thank you both. coming up. trade talks are under was with the march 1 deadline fast approaching. will the u.s. and china get any closer to a deal plus good news for all you kids at heart out there, and those who buy toys for them. is toys "r" us about to make a comeback that story is ahead.
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here's what's happening at this hour. against making a deal with the labor party on brexit, says the opposition would try to trap her in a, quote, toxic deal. italian farmers are still producing. the prices haven't been seen since the 1970s. phil mickelson winning the pebble beach pro-am this morning
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after final-round play was suspended on sunday due to darkness he beat paul caseyably three strokes, his record-tying fifth victory at beautiful pebble beach. you're up to date. kell, back to you. thank you very much, sue just about 30 minutes to go under "power lunch." i'm joined by tyler. >> we're going to speak with former snort heidi heitkamp. she's written an op-said where he pinpoints the retirement savings deficit, very few of us have enough put aside. she makes the argument we need to put aside more, and that more companies need to give access to retirement savings plans of one sort or another in the workplace, because it's something like only 40% of american workers have access we will, of course, also talk do her about the topics du jour washington -- the possibility of another shutdown and talk to her
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about some of the tax proposals that have come out from the flurry of new democratic candidates now. >> 11 now for the 2020 race. here's what's coming up? coming up, could apple's chinaproblems be getting worse the gaming stock that's crushing everyone. >> and aipg pinhot play >> and aipg pinhot play it's all in "rapid fire. hi. this is the man that's going to check your eyes grandma. cognizant ai solutions are helping healthcare companies advance diagnostics and prevent blindness in patients with diabetes.
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dropped just one point, which is kind of in line with what we've been seeing. more than half a recession is very likely or somewhat likely in the next year, but what's interesting -- >> are they always this dour >> this is the first time in eight quarters we have asked that specific question, but we always ask them how they feel about durant business conditions that number is the a 52% they're concerned about a potential recession, but more than half say business conditions are currently still good. >> not to call into question the premise of the survey, but i think it's a mugs game to ask if anybody a recession is coming? >> oh, they're closer to the ground, you ask any small business person how's business, they will tell you down to the penny how how it is. but i'm always questioning, when they try and aggregate it out to
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says a recession is comes. >> so interesting that it gives pause as a political point of view >> and overall 63% said a resense is coming. those are consumers that would seem glynn patronize their businesses labor quality and finding new customers, top two issues. let's talk about the other slowdown, according to the latest figures, apple's iphone chimts in china fell almost 15%. is that already priced into the -- >> when you saw tim cook's face, it's a crisis for them the chinese economy definitely is slowing down, but i think
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it's very clear that apple has hit a price wall going to four digits on an iphone price is not the way to go when you look at the sales numbers in china, you know, apple is number four in market share in china the chinese consumer for the most part is very price conscious, just as the american consumer is and they're going more for you lower price-point phones. >> they are, being there's an anotherside, the budget phone also suffered even worse than apple. that's because in china people are very status conscious of their phone. so -- >> and we're not -- >> even mo so that us. it suffers from the perception it's the cheap phone for losers in china. >> so who is the goldilocks? >> huawei is the one that
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benefited. >> maybe they're glad to have another leg to rely on, but let's talk about one place where business is doing good it's starbucks hitting all-time highs today the stock was not loved by wall street for a while, trading back in the 30s, was under $5 during the financial crisis does the stock still have buzz left kate, it's amazing, with all the distraction about howard schultz's independence campaign for president, this is -- >> they've two really strong quarters, 4% comps back to back, two quarters ago that was their best quarter in five so that's really, really impressive kevin johnson has been doing a lot to streamline the business, they're trying to remove some tasks to after-hour, and focusing on beverage innovation. they're not pulling back, and they're not seeing a slowdown.
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china comping were up 1%, but they're certainly not pulling back, and you're not hearing from executives that they're concerned about it. >> and we saw that dunkin' just launched is espresso beverages. >> when i asked them about that, they're not worried about dunkin' necessarily. they know their customers love the innovation they're working on, so eyes on the prize. >> my neighbor just told me about the medicine ball, and jenna bush was talking about it, you mix like -- i'm going to get it wrong, but there's two teas i don't know oh, google it. >> it sounds heavy >>. early data from the internal revenue service is some americans may get a nasty surprise in their tax returns. the average refund is down about 8% so far this year.
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it's about 1,865, by the way, a sizable. one group that hates to see a smaller refund are the retailers. this is usually a huge part of their spring season. this was just 10% of returns, so it's really just the first weeks. >> it's actually behind schedule. >> exactly. >> but one thing that's important, there's a difference between what you receive and what you expect to receive and your reaction. most americans are expecting a bigger refund, because they heard they just got a tax cut. most of your tax cut you received it, because it was through declining withholding from your paycheck, so a lot of people will be surprised, they'll be expecting a refund that's even greater, so the psychological of that as behavioral economics tells us, they feel like they got less than one >> two things. first, it makes sense that the returns we're getting right now are going to be involved with some sort of a refund.
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you don't -- you wait until the end -- you wait until the end of the tax season if you're going to owe money so that makes sense. two, a close friend works for a tax preparation service. she's going crazy right now, because of the number of people who came in who didn't adjust their w-4 are now getting this sticker shot of finding out that not only do they not get a refund, but they owe maybe a couple thousand dollars to the i.r.s. >> that happened to someone on our team you can say net-net you've come out ahead, but at this point in time that's a lot of money to come up with >> i'm surprised you may hear small business, i don't know where exactly we're going to hear about this first, but it's definitely going to start to show up. >> in valentine's sales. >> and what that means for main street and their bottom line i also think it will be interesting for the perception of this.
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>> it's definitely going to -- >> starbucks will sell fewer medicine balls. >> kelly's favorite. >> i think it's a medicine ball. anyway. let's mention zynga. we know it had been a approve period for the very i don't game giants, but meanwhile, zynga has managed to get an extra life it's up 24% year to date the struggle that is going on right now is against fortnite. farmville and words with friends are old fogey games. totally different demographics we have love our games i don't play them, but i know plenty of people who do. you're not going to get them out of their hands fogeys are the futures. >> i like that
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>> i don't know how to respond other than i'm surprised no one else is come fog that audience. >> wait until they come up with a game called medicine ball. [ laughter ] >> it would just take off. >> zynga is off to the races thank you, guys, very much coming up, trade talks are continuing will anything get accomplished before march 1 and without trump and xi meeting face-to-fa face-to-face could toys "r" us be making a comeback "the exchange" is back in two. we see access to fresh food being the global norm, not the exception. we see homes staying cooler, without the planet getting warmer. at emerson, when issues become inspiration, focusing core strengths to create a better world isn't just a result, it's a responsibility.
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closer to a deal despite big differences remaining. china has agreed to help the u.s. close the trade deficit, which is so important to president trump, but structural reforms to china's economy remain elusive some of the proposals have already been in the work and might not move needle both sides agree the deal should be enforced, though they have differences over how that would work it would take concessions to remove all of the tariffs as china has been asking, but in addition china wants recognition as a market economy and for chinese companies to do more business in the u.s. it is on those last two points where the u.s. is actually moving in the opposite direction based on recent action, not closer to what china wants we are still crashing our heads as to what exactly we could get out of this week. >> that's a good way to put it last week we have such conflicting messages from u.s. officials.
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i think wall street still expects there's going to be some kind of deal, but yet the receipt ricks doesn't sound like that it is alternates hard to understand right now. >> i think what's so hark to understand is rectifying these ideas that on one hand the message from the administration is that don't lose hope just yet, a deal could still be in sight, a deal is still in the works, and the president is still very much wants one, but on the other hand you hear this pes same about exactly what china is putting on the table. it makes you wonder what exactly the deal would be that the u.s. would agree to, and how the situation has changed so much over the last two years, despite the fact that the u.s. would arguably have more leverage now than at any other point previously. >> thank you, kayla. john rutledge is a cnbc contributor. what do you think the chinese are putting on at the table here what questions are they asking
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you? >> well, you know, the issue here is if you're going to try to get the other side to do something, you have to understand the institutions and the people and the politics. so really i spent so much time in china, i'm really a helper on understanding all of that, how the pboc operates the currency, and so forth but kelly, i'm, for the first time, more optimistic. i've always been a critic, but i think there may be some ground here that will allow some pretty good things to be said, maybe not for march first. >> as you're watching, you're talking about them opening up their markets to these kin of american companies >> you have to understand what the other guy needs out of the deal and what he can give you. what the chinese need out of
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this deal really is recognition that they're a peer and they're sitting at the adult table in the global economy it's more a matter of face than practicality at this point it's easy for them to give us promises to buy soybeans, cars, aluminum, whatever else they want to buy. those are all fungible, easy to deliver. it's easy to deliver tariffs you can see them in fact he they haven't done anything at this point, because they've been entirely offset by the weakening of the currency. so it didn't affect the prices here, what is much more different is when you tell the other guy, i have you to change the entire structure of your economy and political system forget about it. my advice is there will be no change in chinese industrial policy that's fixed there is change happening in the most important issue, which is intellectual property. there's a huge lobby inside
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china that wants intellectual property protection. the visual image is jack ma sitting in -- that's an easy one. china promised in the wto agreements they would open their markets. at this point china has accepted an application from ubs, but not jpmorgan that's an easy give for the chinese, as well as on other financial firms. it doesn't hurt anything inside china. i think you'll see people more sensible about asking for things that the other guy can actually give. >> if that's the case, john, it's interesting, you say it's an issue over technology people have even called it a tech cold war, and yesterday ittents with u.s. financial companies and visa and mastercard benefiting. you know, obviously everybody win they feel like their
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property is being protected, but is there anything specific or intangible >> for tech companies, you big game is the telecom game huawei has the most patents of any company in the world china has twice the patents than the u.s. but china uses huawei as a way the extending their political reach. they use zte the same way, so finding a way to blunt that political influence is important. it was very revealing that the-to-busted huawei on the same day that vice premier showed up in washington for the trade talks. so this is a pretty big slap in the face, and the u.s. companies like qualcomm and intel and others, are huge suppliers to huawei, so we are joined at the
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hip in technology. we have to solve that. >> i think they're going to hope something more comes out of this thank you very much for joining us today >> you bet. coming up, a new c report says e-cigarettes are not that feivin reducing using in the young. quite the opposite in fact we'll have more after this i know what it means to have reliable support.
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. welcome back to "the exchange." tobacco use among teens is actually on the rise >> a new report finds current tobacco use amongst middle schoolers to high schoolers increased 36% in 2018 and cdc says e cigarettes are to blame they found nearly 5 million middle and high schoolers used tobacco products in 2018 up from 3.6 million the year before. they say e cigarettes are driving that
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the fda has cracked down on e-cigarette makers like juul they say they are committed to fighting underage use of vapie ing products under the action plan they have stopped flavored sales at some stores and beefed up age verification last week they were questioned whether juul and it's new partner are following through. >> this has been a big mission of his at the fda is to crackdown on health and cigarette usage and tobacco uses aimed at underage kids juul would say that it tried to explain that its products help people quit smoking more than they create new smokers. while we're trying to solve that, is the charge that at least this is getting more kids into using tobacco -- can we at
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least say that is true that that piece seems true >> basically between 2011 and 2017, use was declining among high schoolers but e-cigarette use was going up and between 17 and 18 you saw a sharp increase which juul dominates that market right now. what it's done is it cut into the overall progress that agencies and anti-tobacco use amongst kids efforts have made in getting kids to stop smoking. so they are really, really cracking down on e-cigarettes. last week they went after retailers like walgreens for breaking certain restrictions on selling to minors. >> it does seem like it helps a lot of people move toward maybe a less harmful version of smoking once they're older thank you. some good and some bad in this one right now for juul
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jeffrey the giraffe may be coming back. toys "r" us execs are looking to bring back the retailer. how? welcome to you both. lauren, who is getting together to try to bring back toys "r" us here >> it's a bunch of former toys "r" us executives. one of them was the former chief merchandising officer of toys "r" us and he's going to be the new ceo of this new entity the other key party is the creditors of toys "r" us, which continue to own the intellectual property, jeffrey the giraffe, the toys "r" us brand, all of the important essentials >> i know there were reports that executives have been named in groups that were possibly going to revitalize toys "r" us
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>> there was a toy company owner that wanted to buy the whole company. this is not what that is they are not trying to buy all of toys "r" us they had 700 stores when it liquidat liquidated there are several discrete pieces of toys "r" us that remain the intellectual property which i mentioned. there is the global franchising business that generated 3 billion in sales and there's a private label business there's the toy brands that they manufacture itself and toys "r" us executives are trying to combine those three and make a new company out of it. >> not necessarily the stores. >> exactly >> lauren, what would your advice be to them if they would say what should toys "r" us 2.0 look like to succeed in this retail climate >> they are focused on the right things from what the press release says they are talking about customer experience, they're talking about technology, customer service. i think it's very important to engage with consumers and the
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problem with toys "r" us was they had so much debt and very high rent, it made it difficult to invest in the brand and difficult to invest in customer experience i think focusing on product and customer experience is sort of the way to go. >> lauren, are we talking about seeing toys "r" us stuff on amazon is that what this is going to look like? >> i asked the executives last night when i spoke to them it is possible nothing is ruled out but also nothing is definite so maybe but maybe not. >> what happens to the real estate should anyone want the 700 locati locations? >> those have been up for sale i believe some have been purchased. it's possible they fill one of those empty stores much more likely you're going to see a pop-up shop or a partnership or some sort of seasonal store you're less likely going to see the giant big boxes they used to have >> should anyone look at that real estate or leave it? >> it might be appropriate for someone. i don't think it's appropriate for a big box toy retailer
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i very much agree they should look at pop-up shops and smaller retail formats and i think in terms of the amazon thing, it's important to think about partnering because it's very difficult tofill that business from ground up and that's kind of where they are with these new brands >> thank you both. great stuff. speaking of toys, don't miss the ceo of hasbro on "mad money. i'll go join tyler on "power lunch" which begins right now. >> we'll see you in just a moment welcome. new at 2:00 on "power lunch," get ready to shutdown 2.0 and possibly a pivotal week for those trade talks. the risks that are facing the market and underlying today's downward move for the dow. s at the -- tesla on an upgrade. and america's looming retirement crisis on the threats facing the
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