Fan Favorite: Staying Above Water

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1:46This is Wall Street Week. I'm David Weston bringing you stories of capitalism. This week, as luxury brands fight to regain their momentum, does a secondary market help or hurt? And what the facts show about deregulation and its effect on growth and productivity. Plus, when a so-called zombie company can come back from the living dead, we tell you the story of the return of Barnes & Noble. But we start with the story of true conflict, when the approach of the largest country in the world seems at odds with the fifth largest economy. When President Trump met with Indian Prime Minister Modi earlier this month, the tone was cordial.

2:29But it was a step back from the so-called bromance that started in Trump's first term. And what the two men said were their core interests appeared to be in true conflict. I will very simply put America first. Make in India, make for the globe. Until now, the India growth story has been one of the biggest of the post-pandemic world. Its growth rate touched 8%. Its benchmark stock index, the Nifty 50, has outpaced the S &P 500 since the start of 2021, at least until recently. And investors have started to look elsewhere. Indian equities saw almost$21 billion of foreign inflows in 2023, but they plummeted to just$124 million last year.

3:25And investors have withdrawn more than$12 billion so far this year. So has something gone wrong with the India growth machine? And if so, where? Are we seeing a slowdown or just a blip? Rusear Sharma is the chair of Rockefeller Capital Management and author, most recently, of The Rise and Fall of Nations. Ever since I've been investing in this country for over three decades, which is that this is a country that consistently disappoints the optimists and the pessimists. Yet over the long term, it's a very good equity market story in particular, because even after the Indian stock market's big correction over the last few months, the only stock market in the world in the last 30 to 40 years which has produced comparable returns to America has been India.

4:14So it's this very steady compounding story. But yeah, there are times when people get a bit ahead of themselves. The excitement gets a bit too much. I think we may have reached that point last year when India became the most expensive equity market in the world, literally even more expensive than America at the top. So that was just telling you that the excitement had gone into a head. And what we have seen in the last few months is a bit of a reset where the optimists are getting a bit disappointed now after sort of thinking that maybe India can break out and grow at 7 % to 8%. There's a realism setting in that India's trend growth rate is closer to 6 % rather than 7 % to 8%, a pretty decent growth rate, and that they still need to carry out some positive reform steps to even keep a 6 % type growth rate going.

5:01So I think what we've seen just now is a return to that old reality, so to speak, which has been the case for India for 30 to 40 years, that it's a country which steadily compounds, steadily grows. But that might not be enough to reach Prime Minister Modi's target of making India a developed nation by 2047. Raghuram Rajan is a former governor of the Reserve Bank of India. I think we are reverting to around the 6%. Now, the blip downwards recently has more to do with the fact that we had elections across the board last year. And spending on infrastructure, which has been a big part of the growth story, has sort of faltered over this period.

5:44I think that will come back. So we'll get back to six. Now, the question for India is, is six enough? And unfortunately, the answer is not, because we're also a country that's growing old. and we do want to grow rich before we grow old, and that's unlikely at 6%. The Indian government has stepped up efforts to re-energize growth, announcing tax cuts in its annual budget in an effort to boost middle-income spending. We have a lot of young people, and as a result, the dependency ratio, the number of very young people who can't work and very old people who can't work, that's falling. And this is the time that every Asian economy has experienced a burst of growth.

6:26But if we're still growing at the old 6 % and not enjoying that burst, something is not working as well as it should. And that's jobs. What you see around India is not enough young people have jobs, not enough jobs are being created. So in a sense, we're not making full use of our capacity, even at 6 % growth. Some foreign companies have seen potential in the growth of the Indian market as an alternative to China. Apple has been slowly growing iPhone production in the country, while more recently Tesla stepped up hiring in India ahead of a possible entry into the market. This so-called China plus one strategy of India being a substitute for manufacturing in China may have worked in the past, but some question whether it will in the future.

7:16Ritika Batra is Mahindra Group's Vice President of Americas and a senior fellow at the Atlantic Council. What I have come to realize in the last 12 months is there is a strange realization with the Indian policymakers that they cannot sell themselves anymore as a China plus one strategy. It has to be much beyond that, because if you look at it, the Indian consumer is not only inclined towards luxury and lifestyle products, unlike a lot of other emerging markets, but also has a very strong middle class consumer base, which is also price conscious. So if you put these things together where India is trying to sell itself as not just a China plus one strategy, but an innovation and manufacturing hub with a skilled workforce, with a solid consumer base, and trying to differentiate itself with available worker versus available skilled workers, I think it's a great story to tell.

8:20Whatever the theory, foreign investors have not always had an easy time investing in India. Just ask Volkswagen. They were hit with a record$1.4 billion tax bill from the Indian authorities for alleged tax evasion. And the German automaker raised questions about the very survival of its India unit. Well, because I think it's still a very difficult place to do business on the ground, David. This is something which we have felt for a long period of time, that to negotiate the Indian landscape is tough, given the regulations that you still have in place, given the fact that you can have the tax authorities or other people come up and present bills to you in a way that you don't really know.

9:03A lot of the state chief ministers in India realize this. And I think this is something which we need to focus on, which is that a lot of the attention is on Modi, the center, and what Delhi is doing and what initiatives they are taking. But India is a very federal country. And you have so many state chief ministers with a lot of power to do what they have to do on the ground. And I think what we need to see in India for, and we're seeing some signs of that, is much greater so-called competitive federalism, where the states compete with each other to get foreign investment, because a lot of these regulations and the tough environment it is to do business in India is something that some of these state chief ministers need to make friendlier and not just the center.

9:52Whatever direction it's going right now, what is the current state of competitive federalism when it comes to economics? Are there certain states that it's more conducive to invest into in India today than others? Well, that's been the case in India for a while now, that if you look at India, about 20 percent of India's population is in the southern states. And yet those states account for more than 30 percent of India's GDP. And the per capita income is also a lot higher. Now, there are states in the south such as Karnataka, which we know well because of Bangalore, which is the tech capital of India for all practical purposes.

10:30And what we see there is that places like Bangalore and Karnataka tend to attract much greater foreign investment. And generally, some of the southern states like Karnataka and Telangana and Tamil Nadu, those states have attracted much more foreign investment over time. There is a historical reason for why South has managed to sort of lead from the front. And those reasons are the ports that are situated in southern area. They were the most important reason for traders to come to India to begin with. And that led to a huge amount of trading community moving and living in south of India. In the recent past, we see Infosys taking a lead in ensuring that they become the global service providers for technology.

11:20And that started in south of India and Bangalore. And one thing led to another where a huge amount of other tech companies started sort of launching based out of south India because of the skill availability of engineers in the southern part of India. But even if India is moving to loosen restrictions on foreign investment, it is slow progress. And Rajan warns they might be focusing on the wrong sectors. Prime Minister Modi is pushing to grow the manufacturing sector. Does that make sense? I think the days of growing manufacturing to get strong growth in jobs are over. I think it's as true of India as it is of the United States.

12:02And the reason is simply this, that increasingly manufacturing is becoming much more automated, much more dependent on machines. If you look at an assembly plant for cell phones in India, it's a sequence of machines, not a sequence of people sitting, soldering stuff onto motherboards. So the kind of jobs that traditional sort of low-skilled manufacturing assembly, electronics assembly, and so on, generate, they're far fewer today. But there are other problems. Every country wants to expand its manufacturing and is growing protectionist against manufactured goods coming from somewhere else. So the space for manufacturing exports is also shrinking.

12:44India has other opportunities in services. It's been a giant in service exports in recent years. That's where it should focus its attentions more on. Modi's push to build up India's own manufacturing base comes as President Trump looks to bring back economic activity within U.S. borders. It creates a dilemma. Both leaders talk up their relationship with one another. But can Modi's made in India and Trump's America first be reconciled? And if not, which will prevail? Every country is turning nationalist now, and everybody also has a certain sense of manufacturing fetishism. They want their own manufacturing industries, and of course this collides.

13:31I think the way to reduce this gap is by recognizing that each country has specialties and by working to ensure that there is more trade on those specialties. So, for example, lots of oil and natural gas being manufactured in the United States. India could buy more. There are defense products that are manufactured in the United States. India could buy more. So I think rather than seeing, you know, deficits, trade deficits as a problem, see it as part of a process of collaboration and just make sure that the playing field is level for both sides. I think that's something that can be worked on. Coming up, luxury brands are looking to get their mojo back.

14:15But do we have too little of them or too much? That's next on Wall Street Week. You're listening to Bloomberg Wall Street Week with David Weston from Bloomberg Radio. Are unicorns old news? I'm Jacob Greaves, host of Economy of Scale, a series exploring how innovators and investors are transforming growth in key global sectors. and in this episode we're diving into the world of SMEs and startups. Sandeep Sani, co-founder of Dubai-based Valio Health, has this to say on the evolution of unicorns. A billion dollar was a great deal I think up until two years ago. Now it's all about the trillion dollar startups, right?

14:55In this year alone there are two trillion dollar IPOs that already happened and two more that probably will happen. I would say a billion today in the world post 2025 is an average. Raman Asan Saur, managing partner at early stage VC firm Antler, has this to say. I think this is for you as a founder, but also for the team to say, how can we shoot for the stars if we have a 50 % likelihood to happen? But that create that element of drive and intensity, which is extremely important. Listen to the full episode of Economy of Scale wherever you get your podcasts. Some people treat ChatGPT like some kind of smart search engine and some use it to get work done.

15:34ChatGPT work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting work mode available on plus and pro plans you already know how ai is changing how everyday work gets done how much ground you can cover and how fast a team can scale to stay ahead you need the tools that give you a competitive advantage built for this new era welcome to agentic revenue adio is the crm for this world it meets you where you work compounds every customer signal into context then acts on it across your pipeline to let you move it on match speed and scale.

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17:16This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This is a story about too much of a good thing. Every brand lives and breathes for exposure, but sometimes it can be too much. Luxury brands have reaped the benefits of consumers the world over seeking them out. But now the red carpet may be getting pulled out from under them. And my colleague Danny Berger tells us why it may be because they are too available to too many people in too many places. Luxury brands are everywhere. From the bags we carry to the clothes we wear, down to the shoes we step into every day. But luxury brands are at a crossroad.

18:03LVMH, seen as a bellwether for the luxury sector, soared close to 250 % between 2019 and 2024. But it's since fallen around 20 % from the highs of last year, with a recent bounce offsetting some of those losses and leaving investors struggling to chart a path forward for the luxury brands. Joelle Grunberg is partner at McKinsey, who leads the firm's apparel, fashion, and luxury sector in North America and co-authors a yearly report on the state of luxury. When you look at economic profits of the luxury industry, it basically nearly tripled between 2019 and 2024. So it's really been amazing years.

18:43And I think at some point, everybody started believing this was the new normal and started to expect that this would continue. But as we all know, you know, at some point things stabilize or normalize. So as we know in 2024, things slowed down in significant way for the luxury industry. It has been a tale of different stories in all fairness. Not all the brands, not all the corporations have suffered in the same way. And some are still doing great, in fact. But what we think is that 2025 will overall be a year of normalization. We obviously continue to see growth, but I would say in a more muted way.

19:24And it will also significantly depend on the region and the market. It would also depend on what category you mainly operate in. And it also depends, I would say, on, again, the situation of the brand overall, because some brands are doing much better than the others. Hermes is one of those brands outperforming its luxury peers, but they are very much the outlier. Just last week, Hermes reported a jump in fourth quarter revenue, while LVMH and Caring posted declines. And Grunberg says there's a range of global headwinds challenging the luxury sector. Two main factors contributed to the huge growth that we've seen since 2019.

20:03One first factor is clearly the rise of prices in luxury. Most of the brands have increased prices in a very significant way, more than double digits every year. And so that has contributed to 80 % of the growth in revenue of these companies. The second factor is the pull of China. As we all know, the Chinese customer has been a very, very strong contributor to the growth of luxury globally. And so that pull has been extremely strong and is slowing down right now. And what has happened in the past year and a half is that the aspirational luxury customer, and more specifically in the U.S. has been challenged because there's been a lot of people losing their jobs.

20:49And so therefore, they have been much more cautious and on pause. So part of the explanation is linked to that aspirational customer being a bit more on hold. You know, that perfect storm has resulted in some aspirational customers being priced out of the first-hand luxury market. We're very happy to receive them. Maximilian Bittner is the CEO of Vestiaire Collective, a platform for pre-owned designer and luxury products founded in 2009 aimed at making fashion more sustainable. And a more strained consumer means the secondhand market is seeing significant growth, expected to reach $350 billion globally in 2028.

21:30That's up from$197 billion in 2023, with Vestiaire estimating 82 % of its orders prevent a first-hand purchase. We definitely do cater to the demand of the aspirational customer, as certain brands are more affordable, more accessible than they would be in a first-hand store. And I think we've especially seen this over the last one or two years, you know, in a period of economic uncertainty, which in parallel has seen luxury brands increase prices, you know, significantly over the last four or five years. When I joined Vestier at the end of 2018, early 2019, I recognized the incredible brand and community, but I also recognized the need for us to build a scalable, profitable business for the next 20, 30, 40 years.

22:21Even the last two years, the business has proven extremely resilient, growing with more than 20 % revenue growth. So the business has been, you know, throughout the up and down cycles of pre-COVID, COVID, post-COVID, remained extremely resilient, which is great for us to see. Vestiaire is not alone in riding the secondhand wave. The RealReal and Rebag offer similar surfaces. And Rebag's reach got a lot bigger this year when it partnered with Walmart to sell its catalog of about 27 ,000 items on the retail giant's website. Targeting the aspirational customer, what might seem like a threat to luxury retail, in reality could be a mutually beneficial relationship.

23:03I think overall the mood and the attitude of luxury brands have dramatically improved over the last five, six years towards secondhand because fundamentally we are not cannibalizing their sales. If anything, you know, we pay homage to their brands by showing to the consumers, both the buyers and the sellers, how much value is retained in these products that they're buying firsthand. Norma Kamali rose to the top of high-end fashion with the iconic sleeping bag coat that she designed in 1973. Since then, the New York-based designer has proven her ideas fresh and innovative time and time again. Like Bittner, Kamali sees the value of secondhand markets in luxury fashion.

23:50I think anything that's a creative process, that's fun, is good for people, right? And if in that secondhand you get a better price and you get a brand that you haven't been able to buy before, there's a whole cult of people who look for Norma Kamali Vintage. and it's fascinating to me, but I see how great that is because in that generation, there's something I did when I was that age that is connecting with them. Would you say Norma Kamali is also luxury? Luxury to me is something that is accessible, affordable, and will last in your wardrobe forever. It can't be a purse that you spend$30 ,000 on and sort of collect in a closet with other purses.

24:56How do you strike that balance then of being both accessible but not oversaturated in the market? It's an important thing to do. And I think, first of all, knowing your distribution, being careful about the distribution, make sure the distribution is to your customer, the person who connects with you. And we have a global distribution and we could still be reaching many, many more people. There's no question that more consumers are exposed to and have access to luxury than ever before. But at least one icon of the industry admits that change is inevitable. We started this conversation with this idea of luxury doesn't mean exclusivity.

25:42Do you think some of those secondhand apps are also changing the conversation in that regard? Oh, totally. I think the fashion industry clearly is going through a huge, huge change. And it's long overdue. It really is. And I think when an industry can have a lot of variety and a lot of choices and a lot of price ranges, then it's healthy. Healthy for the consumer, but a challenge for the luxury brands to overcome as they look to rediscover the growth of the last five years. This is a story about unintended consequences. Sometimes even the best intentioned government regulations can do more harm than good.

26:28But then again, cutting back on regulation can also do real mischief. We did the right thing. That was a very important thing to get rid of. And it was also a waste. I mean, number one, it was a bad group of people running it. If the CFPB is not there examining these giant banks to make sure they are following the laws on not cheating consumers, who is doing that job? I can say no other federal regulator. So which is it? Is government regulation holding the U.S. economy back? Or is it an important foundation for much of the economic benefits we've reaped? And if it can be both, how can we tell the difference?

27:07Jeff Myron is Director of Undergraduate Economics at Harvard and the Director of Economic Studies at the Cato Institute. I don't think there is a definitive study on productivity and regulation. There are many studies of individual industries, of specific time periods, of special cases. But those are all relatively small pieces of information. Finding an overall clear assessment is pretty hard. I think many people would point to key environmental regulation in the United States, the Clean Air and Water Acts, as having been quite successful. But even those are not without some degree of controversy.

27:45One certainly finds that as a result of those acts, which were passed in the early 1970s, air got cleaner, water got cleaner. But if you then go the next step and say, were those improvements worth the extra cost? Because, of course, putting restrictions on what firms do and what cars can do raises the cost. And there the assessment is still probably beneficial overall, but not so obviously, not so dramatically. So even for one of the relatively clear successes, I'd say there's still some room for reasonable people to disagree about how effective they were. Myron has harsher criticism of food and drug regulation, where there has been mission creep, delays, and political and legal tangles.

28:32So the very first major attempt, federal attempt, to deal with dangers of drugs and food was called the Pure Food and Drug Act of 1903. And it did something very mild. It said that medicines and food substances had to include a list of the ingredients on a label on the outside of the package. That's pretty innocuous. Even if you're a hardcore libertarian, it'd be hard to get too exercised about that. But that notion that the government was going to protect people from dangerous products evolved into creating the Food and Drug Administration in 1938, which then had the power to keep things from being on the market at all.