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First Move with Julia Chatterley
UK Intelligence: Russia Struggling to Provide Basic Services; Rent Increases Squeezing Seniors Toward Homelessness; Rising Inflation Raising Recessionary Concerns; Rent the Runway Works to Survive Through High Inflation; Stew Leonard's & Suppliers Work to Keep Costs Down; U.S. to set end COVID Testing Requirements for Travelers. Aired 09-10a ET
Aired June 10, 2022 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move"! I'm Julia Chatterley in New York. And for many around the world summer is just
around the corner for U.S. consumers the heat is already on.
Red hot inflation numbers just released in the United States U.S. consumer prices rising a worse than expected 8.6 percent on a year-over-year basis
driven by continued spike in food and energy prices, the core rate of those inflation numbers which strip out volatile food and energy also coming in
higher than expected.
These are the highest CPI numbers in over 40 years and they suggest the United States is far from hitting peak inflation, as some had hoped. Let me
give you a look at what we're seeing it for U.S. Futures?
The stock market futures sharply lower, as you can see in response with all the major U.S. averages set to extend Thursday's losses. Rahel Solomon
joins me now, Rahel walk us through these numbers three words energy, energy and energy. But there's a lot of ouch in this.
RAHEL SOLOMON, CNN CORRESPONDENT: Energy is a big part of it to your point, Julia, but yes, this report is not what any consumer or certainly not the
Fed wants to see the number coming in hotter than expected if you take a look under the hood in the report saying that the increase was broad base
with indexes for shelter, energy, gasoline and food being the largest contributors.
Take a look at the price difference in food, those prices went up 1.2 percent inflation went up 1.2 percent compared to the prior month, energy
3.9 percent and airfares 12.6 percent, Julia. So what's happening here?
If you think about the top line, food and energy, of course being hit very hard by the war in Ukraine, and its impact on commodity markets but if you
look under in terms of core inflation, well a lot of that was a supply and demand imbalances of the pandemic, and there was some hope that even in the
midst of this war, Julia, that with a supply chain starting to improve and perhaps demand cooling, that maybe we would see some slowing and inflation,
but it doesn't appear to be so at least not yet.
CHATTERLEY: Now, and it's going to be a driver of behavior of consumer sentiment and therefore broader markets as well, which is the reaction I
think that we've seen in stock markets. And that ties to the actions that the Fed has to take now in order to try and bring that inflation rate down.
We were already expecting to half a percentage point hikes over the next few months. The big question was what do they have to do if anything in
September? And when you look at these numbers, it seems probably have to do more rather than less?
SOLOMON: Yes, exactly right. So the expectation was maybe 0.25 in September and that September meeting, this perhaps leading some to believe that we're
going to see another half a point in September. So three half point raises.
Look, this essentially this report, lending some support to the idea that the Fed will have to do more than it will have to be more aggressive to try
to rein in inflation. I think there are two camps here. There are those who believe that once the Fed puts its foot on the brake, it has to keep going
until inflation starts to cool.
There are others, however, that I've spoken to like David Kelly of JP Morgan who says, look, he's more concerned that the Fed will overshoot
right that it will do too much and really tip us into a recession. So as we have talked about a lot, Julia it is a very delicate balancing act made
even more delicate and tricky after today's report.
CHATTERLEY: Yes, Rahel Solomon, great to have you with us and thank you for the analysis there challenges ahead for everyone. To Ukraine now, where the
battlefield Eastern City of Severodonetsk continues. Officials say Ukrainian Armed Forces control just one-third now of the city. British
intelligence, meanwhile, sees Russia is struggling to provide basic services in occupied territories, including access to drinking water.
Salma Abdelaziz joins us now, Salma, as we've been discussing on a daily basis, the battle for Severodonetsk continues the challenge of course, for
Russia, it seems when they take these places they then can't provide basic resources because so much damage has been done and explain where you are
because I think that's a perfect illustration?
SALMA ABDELAZIZ, CNN REPORTER: That's true, Julia. We're really seeing a tale of two Ukraine's at least that's what I'm witnessing here in Kyiv. In
the one hand, of course, you have this raging battle in Severodonetsk where President Zelenskyy says the fate of the Donbas is being determined.
They are now fighting street by street inch by inch for that city. It is extremely symbolic because it's one of the last strongholds in the Luhansk
region in the larger Donbas region and Ukrainian troops are out manned they are outgunned. They are running out of artillery in what is an artillery
war?
And it's hard to imagine how they can turn the tide unless western weaponry shows up unless the long range weapons that have been promised by the west
show up. This is a superior military force in Ukrainian troops are simply struggling to hold them back. But here in Kyiv, where Russian troops have
of course, withdrawn for weeks now volunteers are trying to rebuild.
[09:05:00]
ABDELAZIZ: I'm in a residential building I'm just going to start walking you through it so you can get an understanding of the devastation caused by
an artillery war because that's what this is. Residents tell us that when troops enter, they shelled this residential building indiscriminately, and
you can see how damaged it is behind me the roof has been blown off.
It's absolutely uninhabitable, of course. And that means that it is communities that have to rebuild because of course the Ukrainian government
is mired in the east of the country all day volunteers have been real barreling as you can see the rubble that's here, which is going to let this
gentleman pass through I'm sorry.
And what the hope is, again, for the volunteers who are working here who are doing this on their own time with their own money is that families will
come back Julia, because that's who lived here. There's kids' books on the ground everywhere we see you know, bits of kitchens in normal life and that
this devastation caused by this war it happens in an instant but rebuilding Julia that takes much, much longer.
CHATTERLEY: Yes, it does. Salma thank you for being there and showing us that Salma Abdelaziz there! OK, let's move on a U.S. House Committee has
released what it calls new evidence that Donald Trump led in a coordinated effort to overturn the 2020 election.
In the first of several public hearings, the panel showed new graphic footage of Trump supporters attacking the U.S. Capitol on January 6th last
year. The committee chair says they were directly motivated by the Former President and his false claims of voting fraud. And Bennie Thompson fears
it could happen again.
(BEGIN VIDEO CLIP)
REP. BENNIE THOMPSON (D-MS): The conspiracy to prop the will of the people is not over. They're those in this audience who thirst for power, but have
no love or respect for what makes America great.
(END VIDEO CLIP)
CHATTERLEY: Elie Honig CNN's Senior Legal Analyst and Former Federal and State Prosecutor and joins us now Elie, great to have you with us. I know
you are a super tough critic, and it's that that I'm playing to in this when you analyze what we saw last night, but my bigger question is, who are
we messaging to? Who is this committee messaging to?
Is it the American people? Is it an attempt to make Donald Trump look unelectable in the next election? Or is it to those that could actually
take action, like the Department of Justice, for example.
ELIE HONIG, CNN SENIOR LEGAL ANALYST: So I think there are two audiences here, Julia, first and foremost, the American public, this needs to be told
for history. This is an important passage in our history. And the American electorate needs to be fully informed as we head into the 2024 election and
ask the question, is this a person if he seeks reelection, who's worthy of the office?
But also Julia, as you say, this is aimed right up Pennsylvania Avenue at the United States Department of Justice, Congress ultimately can't do
anything other than hold these hearings at the end, if there's going to be meaningful consequences. They have to come for prosecutors, it's clear that
the committee is trying to make the case and increase political pressure on DOJ to take action.
CHATTERLEY: I mean, you said it's a matter of record for the American public too. But do you think it can, the number of days that we're about to
see in the presentation that we get can change hearts and minds in terms of perceptions, particularly those that staunch Donald Trump supporters, for
example?
HONIG: Without question, there's a healthy portion of the population that's fully entrenched on either side. I still do think there's a middle I still
do think people here in the United States care about the facts and are making judgments, most importantly, about if Donald Trump does run again,
and it seems increasingly likely that he will.
Is this a person whose actions make him deserving of the highest office in the land? So I do think the facts matter. And I do think there still are
people who want to give this an objective look and know all the facts and reach their own judgments.
CHATTERLEY: And what are we looking for, ultimately, next week, for that deciding factor?
HONIG: Yes, the big question to me is what did Donald Trump know about the election? I think they made a good case last night that he knew he had lost
and hence this was a fraud.
But the biggest remaining question, Julia is those 187 minutes from 1:10 pm when the Capitol was breached till 4:17 pm when Donald Trump issued a video
statement saying go home; we still don't know much about what Donald Trump was doing?
We know he wasn't doing a lot. But we what was he doing inside the White House that day? What was his reaction? And I think we're going to get into
that. Liz Cheney said last night, we will hear more about that in the upcoming hearings. I think that's going to be really telling.
CHATTERLEY: Monday morning 9 am Eastern. Elie, great to have you on the show thank you! Alright, straight ahead we're all in a Stew over inflation,
the CEO of grossers Stew Leonard's on what he's doing to keep prices down. And from the checkout to the catwalk, the CEO of Rent and Runway explains
why Runaway inflation doesn't mean compromising on style and choice still coming up, stay with us.
(COMMERCIAL BREAK)
[09:10:00]
CHATTERLEY: Welcome back to "First Move"! And we are turning now to today's critical U.S. monthly inflation report and CNN has just learned that
President Biden will address inflation concerns and supply chain issues during his visit to the Port of Los Angeles today. CNN's Gabe Cohen takes a
look at the impact of pricing pressures on the more vulnerable in society.
(BEGIN VIDEOTAPE)
GABE COHEN, CNN CORRESPONDENT: 72 year old Joyce Silla has seen inflation eat through her fixed income $1,700 a month of social security.
COHEN (on camera): What is that done to your savings?
JOYCE SILLA, SENIOR IN WASHINGTON, D.C.: Its gone is depleted no save that's it - if I can make it from one month to the other month as good.
COHEN (voice over): She was the Assistant Director of Housekeeping at a large D.C. hotel before retiring 10 years ago. Now a widow she's relying on
food banks for the first time and watching her power bills pile up.
SILLA: It is not a good feeling. I know I worked and take shortcuts.
COHEN (voice over): While inflation is hitting most Americans, many retired seniors face an added squeeze for 10 million of them Social Security on
average just over $1,600 a month is at least 90 percent of their income and inflation is far outpacing this year's cost of living increase on those
benefits though it was the biggest raise in 39 years. It's not just food and gas prices. Health care costs are rising and many retirement accounts
have taken a hit.
DAVID CERTNER, AARP: That is just a burden that's very difficult to bear for some of these people. And that's when they have to make tough choices.
CYNTHIA TILFORD, SENIOR IN HOUSTON: We've gone through our retirement savings more quickly than we had anticipated.
COHEN (voice over): 70 year old Cynthia Tilford returned part time to a clerical job at a University in Houston to stop draining her accounts.
TILFORD: The thought of retirement right now is really scary.
COHEN (voice over): But were income seniors are facing more food insecurity "Meals on Wheels" has struggled to keep up with high demand.
BILL: It's not good.
COHEN (voice over): 73 year old Bill a Retired Phone Technician is skipping three meals a week to save on food.
BILL: It wouldn't last a whole month if I didn't.
COHEN (voice over): He says Social Security pays him $1,400 a month and his rent in Sacramento just raised to $1,240.
BILL: I couldn't be on the street if it goes up too much higher.
COHEN (on camera): You're worried you could end up homeless?
BILL: It keeps me awake sometimes.
COHEN (voice over): Seniors are becoming homeless at a faster rate than any other age group and skyrocketing rent costs could make it worse.
UNIDENTIFIED FEMALE: It's a bit of a crisis.
COHEN (voice over): A Culpepper Garden a nonprofit affordable senior living community in Virginia, the weight list is growing.
UNIDENTIFIED FEMALE: It's doubled almost tripled within the past eight months I'd say.
COHEN (on camera): Have you ever seen this many seniors applying for affordable housing?
UNIDENTIFIED FEMALE: We have not. We have not.
[09:15:00]
COHEN (voice over): Hundreds of these communities nationwide are seeing the same surging demand.
UNIDENTIFIED FEMALE: And we think it's because of the inflation surges and rent surges.
COHEN (voice over): Seniors can expect a near record Social Security increase next year to combat this inflation. And for now, they can go to
benefitscheckup.org to see what help is out there?
RAMSEY ALWIN, NATIONAL COUNCIL ON AGING: We find that your average older adults often leaving $7,000 worth of assistance on the table.
COHEN (voice over): Assistance Programs have kept Silla afloat this year. She fears one more price hike could break the bank.
SILLA: So it's kind of hard to do what you have to do.
(END VIDEOTAPE)
CHATTERLEY: We're focusing on America of course today, but it's a global story. China's economy also facing pricing pressures too at the moment
they're showing signs of a revival imports and exports jumped in May, after slumping during the April lock downs.
Tech stocks gained after report suggested an easing of the tech sector crack down too. Selina Wang joins us on this story. Selina, great to have
you on the show today! It was in many ways the self-inflicted slowdown the crackdown on some of these big growth names trying to restrain some of the
lending in the real estate sector zero COVID policy. Have they turned a corner or is it too early to say?
SELINA WANG, CNN CORRESPONDENT: Yes Julia, that's exactly right. I mean, the economy is still in pain. But a lot of that pain is in fact self-
inflicted, as you say, but we are starting to see this zero COVID policy, we're starting to see the worst of that Omicron outbreak starting to ease
off in Shanghai, the city after a two month hard brutal lockdown finally reopening.
So the Port of Shanghai this is the world's busiest port that is finally reopening. So that is really boosting the trade data with exports in May
jumping nearly 17 percent from a year before compare that to in April when it grew less than 4 percent.
On top of that, according to shipping firm Value Vessels average waiting times at Shanghai support have shortened to just 28 hours. Compare that to
66 hours in late April. And also while inflation continues to surge around the world in Shanghai in China will prices they are cooling. That's because
these lockdowns have had this dampening effect on factory activity on consumer retail activity as well. So as a result, analysts say that China's
central bank is able to continue to increase stimulus to help boost the economy.
Now contrast that to many other central banks around the world that have to hike these interest rates to try and reduce that inflationary pressure. Now
also, the economy however, in China is still being held hostage to these lockdowns.
So investors, they cannot completely repair their confidence over in Shanghai, there are many more communities that are continuing to go under
lockdown. Here in Beijing, we are seeing the largest district habits, large entertainment venues now going back into shut down just days after they
were finally allowed to reopen. So this relief, it could just be temporary, Julia.
CHATTERLEY: And that's the critical question. Selina Wang, great to have you with us thank you so much for that. Now as we've been discussing high
U.S. inflation means weak U.S. Futures. U.S. stocks set to open sharply lower after the release of another red hot consumer inflation report
inflation rising at 8.6 percent year-over-year, thanks in part to soaring food prices and record U.S. gas prices.
The average price of a gallon of gas in the United States is just pennies away now from a milestone of $5 a gallon. Also that Friday feeling over in
Europe too is the European majors are all down by around 2 percent as you can see stocks they're extending their losses. After Thursday's week close
following the European Central Bank's announcement of its upcoming rate hike plan. Lisa Shalett joins me now she's Chief Investment Officer of
Wealth Management at Morgan Stanley, great to have your perspective on the show very much needed. Lisa, talk to us about this inflation number
slightly hotter than expected? How concerned are you?
LISA SHALETT, CHIEF INVESTMENT OFFICER OF WEALTH MANAGEMENT, MORGAN STANLEY: Well look, this is a definitely a concerning number. I think that
you know the market certainly, since May 20th when we kind of hit a bottom and had been trying to rally off of it. I have been assuming that inflation
in the U.S. was peaking, especially on the back of potentially, you know, building inventories and in general merchandise and at retail.
And I think one of the big surprises in this report is that good's inflation, which a lot of folks thought was really going to roll over hard,
did not.
And, you know, you put that together with some of the other components that feed into the headline. And this 8.6 percent number is not something you
know that the Fed is going to like they're going to have to stay quite hawkish. And they're really going to have to you know probably execute on
what their telegraphed plan has been thus far which the market interprets as 50 basis 50 basis points in June 50 basis points in July.
[09:20:00]
SHALETT: And potentially, you know, more in September at the same time, that they're going to ramp up the balance sheet reduction. So this is not
good news for the bond market yields are probably moving higher here, which means lower price earnings ratios and big headwinds for stocks.
CHATTERLEY: The shift is going to be dramatic. As you point out, we've gone from this easy monetary period. And now I think both investors and
consumers have been grappling with a situation that's been quite plentiful in terms of cash availability in terms of liquidity in the system, and now
it's going to be socked away.
And we've all been trying to understand what the impact of that is going to be. I think perhaps the message in you're saying it in this report is that
even if we see a slowdown, and consumers do start to show that they're feeling it more materially, the Fed still has no choice that the solution
to the problem of high prices here is more pain.
SHALETT: Absolutely, I mean, look, we got so far "Behind the curve", investors need to remember that typically, typically, the Fed funds rate is
above your core inflation rate. And we, you know, have gotten ourselves into a scenario where, you know, when we had zero Fed funds rate at the
beginning of the year, and our core inflation rate was, you know, teetering on 6 percent I mean, that's a 600 basis point gap to make up.
And so, you know, we know that the Fed funds futures are discounting a very aggressive path here, you know, that's already been priced. But look, the
risk is that even with those hikes, we don't make a dent. And certainly we, you know, the Fed has done 75 basis points so far. And the message is it
hasn't made a dent.
CHATTERLEY: And just for my audience, you might not understand basis points, when we're talking about 600 basis points, we're talking about 6
percentage points, just to be clear. Yes, Lisa, how high is that risk, as you say that the Fed is doing what it can it's doing what it feels it
comfortably can without causing too much pain in a very short space of time, and actually doesn't make a dent? How high is that risk?
SHALETT: So look, I think that that in, all likelihood that the Fed has had to acknowledge that they've made some mistakes that they were late, you
know, obviously, you know, no one can fault them for not understanding or forecasting the dynamics that have emanated from, you know, the Russia
Ukraine war.
And that's impact on you know, energy, gas prices, food prices. But I think where, you know, we can fault them are some of the other structural
disruptions most specifically in the labor market. And so, you know, I do think that the Fed is going to have to fall on their sword a little bit,
their credibility is on the line. And that means they may have to "Overdo it".
And so right now, you know, the market, as we talked about was pricing about an additional 8.25 or quarter point rate hikes over the next, you
know, 12 months to take us to about 2.5 percent on that Fed funds rate. I mean, maybe we're going to have to go, you know, up closer to three or
higher. And that's the riskier, and I think that's what the markets going to have to experiment with pricing over the coming weeks.
CHATTERLEY: It's interesting Lisa, because coming into this, you of all the analysts that I read, you are one of the most calm and quietly, I think
confident that the consumer can manage this, that the Fed can manage this, that we also weren't exactly in your - I completely agree with you on this,
that we were coming off a strong V shaped recovery.
And we have to put that into perspective too in terms of the timing of this is as crazy as this period has been. Does looking at this report today and
admittedly, it's just one data point, sort of changed your mind a little bit on that and that, actually, the stakes and the risks are higher here
and the recession risk, simply because the Fed has the battle to get this under control is perhaps high enough too?
SHALETT: It does. You know, look, I think we you know, really, you know, had focused on some of the constructive messages that were coming out of
the inventory data that we were seeing, you know, certainly some of the news from the retailer's, you know, that they felt that supply chain
problems had cleared that maybe they had excess inventory.
And that perhaps they were even beginning to prepare for some discounting and we were really counting on goods prices which have been a key driver of
this inflation problem coming down.
[09:25:00]
SHALETT: And so the big shocker to me in this report is that goods prices did not roll over. And so you say to yourself, well, goodness, if those,
you know, pullbacks in general merchandise categories, and some of the pressures we've seen in semiconductors, and some of the pressures we've
seen in autos, aren't taking the edge off.
Wow, you know, what is this going to take? And so this is this is a concerning report. And I do think that the market, unfortunately, is
reacting rationally to that. And you know we're certainly going to be going back and looking at our numbers and saying, look, is the consumer really
hurting? More than we originally thought?
CHATTERLEY: Yes, some great points Lisa, fantastic to get your wisdom and insights on this. Thank you, Lisa Shalett, there Wealth Management's Chief
Investment Officer at Morgan Stanley, thank you.
SHALETT: Thank you.
CHATTERLEY: OK, up next, saving the checkouts. Stew Leonard's CEO on keeping your food shop costs down the question is how, that's next?
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back! A Ukrainian agricultural officials warning that next year's green harvest could be cut nearly in half because of the war.
He said about 25 percent of Ukraine's farmland is now under Russian control.
[09:30:00]
CHATTERLEY: And even though Turkey is trying to facilitate safe passage of Ukraine's grain exports, no deal has been struck. CNN's Clare Sebastian
reports.
CLARE SEBASTIAN, CNN CORRESPONDENT: Just a day after talks between Russia and Turkey seems to lay the groundwork for at least some kind of
negotiation, perhaps even just on a temporary solution to the problems of Ukraine's grain exports more and obstacles now seem to be getting in the
way of that.
One is that Russia may already be putting in place deals to sell Ukrainian grain from occupied areas. On Wednesday, the Head of the Russian Military
Administration in occupied parts of Ukraine's Zaporizhzhia region said the first rail shipment of grain had departed the town of Melitopol for Crimea
to be loaded onto ships to Turkey and the Middle East.
Kremlin Spokesman Dmitry Peskov said no agreements had been signed yet with Turkey or the Middle East. That work was underway. Ukraine, meanwhile, is
accusing Russia of stealing grain to sell for its own gain. This is what the country's Deputy Agrarian Minister told CNN's Julia Chatterley.
(BEGIN VIDEO CLIP)
TARAS VYSOTSKY, UKRAINIAN DEPUTY MINISTER OF AGRARIAN POLICY AND FOOD: Unfortunately, we have the situation where about half million tonnes of
grain has been stolen by Russians on the partly occupied territories of Ukraine. We do know this because we have received their information from
the people on the elevators.
That Russians came just took this grain came with military power. And also we have video on photo fact of cars and rail cars bring this grain towards
the direction of Russia or occupied Crimea.
(END VIDEO CLIP)
SEBASTIAN: Elevators are of course storage facilities for grain. The minister also said he had seen satellite images of the grain leaving Crimea
for other countries. CNN has also uncovered evidence of this.
Secondly, Ukraine is stepping up the rhetoric President Zelenskyy calling for Russia to be expelled from the United Nations Food and Agriculture
Organization, accusing Moscow of potentially causing the starvation of at least 400 million people.
And thirdly, there are still fundamental disagreements about how to unravel this situation? Russia which has blockaded Ukraine's ports claims it's
ready to open up grain shipments. But first it says Ukraine needs to de- mine the coastal waters around its southern ports.
Ukraine says the real threat to world food security comes from Russia and is wary of any Russian talk of humanitarian maritime corridors. And
meanwhile, time is not on their side. An estimated 20 million tonnes of grain are stuck in Ukrainian storage facilities.
And the UN warned this Thursday that the situation could tip 47 million more people into acute hunger this year than previously estimated. Clare
Sebastian and CNN, London.
CHATTERLEY: And all of this of course feeding into the inflation data that we got from the United States today and U.S. investors reacting negatively
to that worse than expected inflation report stocks sharply lower - that consumer prices rose at a worse than expected 8.6 percent year-over-years
last month their fastest pace since 1981. Stocks falling as investors begin pricing in an even more aggressive Federal Reserve as we were discussing
with Lisa Shalett Market now pricing in three half percentage point Fed rate hikes at the Central Bank's upcoming meeting. And the U.S. 10 year
bond yield even higher to reflecting fears of those higher rates.
Now the pandemic has changed the way millions of people shop for clothes ecommerce platform "Rent the Runway" allows users to rent and return
designer brands for less. The company concept was born out of a recessionary period in 2008-09 and a realization that women still buy
clothes, they just make different choices.
In light of that and in part its CEO sees high inflationary environment as an opportunity rather than a challenge. And Jennifer Hyman joins us now.
She's the CEO and Co-founder of Rent the Runway. Jennifer fantastic to have you on the show! For those that might not know, the brand represents just
explain in your own terms, what Rent the Runway offers to women, and why you see the inflationary environment as an opportunity?
JENNIFER HYMAN, CEO AND CO-FOUNDER, RENT THE RUNWAY: So really simply, for basically all of history, we've been buying a lot of clothes 50 percent of
which we really don't use. So 50 percent of the closet is more than three times or less.
What Rent the Runway does is it enables women to rent designer clothes that are aspiration to them, either for one off special events or via a
subscription to fashion where she pays a monthly fee. And she gets a rotating assortment of items of her choosing.
CHATTERLEY: And how much do you pay for that and through what access do you get because I think this goes to the point about the offset to inflation?
There are ways around having a great wardrobe and it doesn't involve so splurging?
[09:35:00]
HYMAN: Yes, so first if you're renting for a special event, you're renting it about 10 percent of the retail price. So even as we see kind of
promotional activity in retail stores as kind of, maybe shoppers may be shifting into off price or value driven retail.
We're still the most value oriented way to get dressed for a wedding or a holiday party or a date that you might be going to. Subscription is even
more value oriented. So our subscription plans, you're receiving each item for about 20 bucks, our most popular plan costs $140 a month, and for that
she receives $4,000 worth of designer clothing on average per month.
So it really gives her access to the variety that she wants in her wardrobe. But in a really affordable and sustainable way you know, one of
the most interesting things about the 2008 recession is that Americans continue to buy 65 articles of clothing per year, even in a recession.
So really, what they did is they traded down to, you know, off price to value oriented stores. And we hope to be now in that consideration set of
how they think about getting the variety and the quantity that they want, but doing it in a smarter way.
CHATTERLEY: Yes, it's fascinating, isn't it? And I know the pandemic period where a lot of people stayed at home and perhaps didn't do the events or go
out to work was an incredibly challenging period for you.
But I was just looking at your earnings and looking at the resurgence in terms of the number of active users the number of days, on average, where
women are actually wearing something that they've rented from the website, just talk me through that and sort of forecasting progress for the
resurgence of Rent the Runway?
HYMAN: So we're really proud of our strong Q1 performance. We exceeded Q1 guidance against all key metrics, both on the top line and the bottom line.
And I think that it really shows that we're an experienced, driven product.
So our business accelerates when customers travel, when they eat out at restaurants, when they attend events when they head back into an office and
when they generally go out which is why our business suffered so much when people were sheltering at home during COVID?
We're finding that despite the environment right now, which is highly uncertain, that the customer continues to want to show up in her life and
use fashion for self-expression. She's certainly dating, she's certainly going to parties, and she wants to be happy.
And Rent the Runway is enabling her to do that in a really cost conscious way. So we're feeling really good about both our Q1 results, but we gave
up, you know, positive outlook for Q2, and finding that this kind of reemergence into the world is certainly been great for our business.
CHATTERLEY: Yes, I suppose it ties to what we're seeing in the travel industry as well. It's like come what may, people want to get back out
there and live life. And that certainly, I think reflected in what you're talking about here.
Very quickly, I want to ask you about something that I think just from reading about the companies perhaps misunderstood and that's where the
inventory of clothes comes from, and the relationship that you have with the designer brands that provided what you pay, or perhaps more
specifically, what you don't pay up front to get these products?
And then the fact that it sort of knocked out from the seasonality that we see oh, this is in fashion this month or in this season, and then it's
gone. The beauty, I think, that I certainly hear from my friends and people that I know that use this is, you know, new to me is a concept here, even
if it's been used many times on the website. This is important, I think, an important part of the business and the premise of the business?
HYMAN: You know, thank you for bringing that up. I think the most important part of our business is how we monetize inventory over time. So there's
this myth that exists in fashion that things go out of style really quickly.
And what we find over the past 12 years is that what our customer cares about is wearing a new outfit every time she comes to Rent the Runway. But
that new outfit doesn't have to necessarily be something that walked the run-way yesterday.
So we really utilize personalization to ensure that her storefront is new and fresh to her every single time she comes. But we find that we're able
to actually monetize this style over many years. And it's our job to restore it to perfect condition every time and ensure that it is of the
highest quality even 2,3 and 4 years later.
So we're able to kind of use the long tail like for example, in the middle of the country. Women don't want new trends when it just comes off the
runway until it seeps into the mainstream they're not comfortable in kind if accessing that new product.
[09:40:00]
HYMAN: So we're really able to benefit as well from geographic diversity in our customer base. Now in terms of the value that we provide to the 800
brands that we work with, we've become one of their most powerful marketing engines.
So our customer is younger than the traditional luxury customer. So she's between 20 and 45 years old and she's more affluent. So 80 percent of our
customers have household incomes above 100K. And when she comes to Rent the Runway, she is trying new brands, because she has the freedom to experiment
without having to own it.
And that brand discovery is critically important for brands and a time when retail stores are closing and the cost of marketing is really skyrocketing.
So we've become this extremely important marketing channel.
And as a result, we get a significant portion of our inventory from brands on consignment, meaning we don't pay for it upfront, and we revenue share
with our designer partners, as that inventory is utilized over time.
CHATTERLEY: Yes, it's critical for managing costs. Jennifer, I'm getting shouted up for taking too much time. But it would be remiss of me not to
discuss very briefly the IPO. Your IPO did $17.25 it's now $3.53. And we've had the pandemic as we've mentioned, in the interim, some questions and
challenges.
What's the message to investors today that have perhaps been through that pain with you have stuck with you maybe have walked away and said, hey,
this is not the right time now to be an investor? What's the message to them about the return?
HYMAN: I think the message is that we're going to keep on performing or driving this business to free cash flow profitability. We feel really good
about getting to profitability with the cash that we have on hand. And we're going to build a track record over time.
I think that in this market environment, it makes sense that people are more skeptical of unprofitable companies like Rent the Runway. That being
said, we're going to show in our performance quarter-over-quarter that we're growing, we're providing an incredible customer experience and we're
driving the business to profitability.
CHATTERLEY: Jennifer great to chat to you. Let's chat again soon please and track the progress.
HYMAN: Thank you.
CHATTERLEY: Jennifer Hyman there CEO and Co-Founder of Rent the Runway. Thank you for your time more "First Move" after this.
(COMMERCIAL BREAK)
[09:45:00]
CHATTERLEY: Welcome back to "First Move". As consumers feel the pinch of inflation CEO is under increasing pressure to explain why the weekly shop
is costing so much more? Some are resisting the rises like the maker of AriZona Tea, who told our Richard Quest it's famous 99 cent drink, haven't
gotten - hasn't gone up in price, since it launched in 1992.
(BEGIN VIDEO CLIP)
DON VULTAGGIO, CEO, ARIZONA BEVERAGES: I don't think our customers need another price increase. And we're just fighting hard to maintain that
price. So we give consumers a reason to buy us and give consumers a visa company recognizes the pain that everybody's gone through. And if everybody
pulls together, maybe we get through it together.
(END VIDEO CLIP)
CHATTERLEY: And U.S. grocery stores Stew Leonard says it's working with suppliers to keep costs down the familiar and brand has been providing for
American shoppers since 1969. And Stew Leonard Jr., is the CEO and joins us now.
Stew, always great to have you on the show. Have you seen ever actually seen anything like the price pressures that we're seeing? And how are you
managing it? What extend do you - on?
STEW LEONARD JR., CEO: Well, first of all Julia, before we do that, we've been trying so hard to get this product in the square, we just got 11,000
baby-formulas into Stew Leonard's in Yonkers right now. And we're selling to the cost. I'm so happy because our customers obviously need a baby
formula. That's the first thing we're excited about.
As far as the markets go, right now, I've never seen anything in the 50 years I've been doing this I started as a kid. And it's been wild out
there. But I would say there's a little bit of a hangover and all of the numbers that you're seeing right now. I know today - index the inflation
and terrible that was the past.
We were just in Kansas City with Ranchers. The beef market seems to be calming down. I was talking to a lot of our fishermen up in Maine along the
coast New Jersey. And it seems like lobster prices now are coming down again. So we're starting to hear echoes out in the market right now the
market stabilizing? And I think the worst is behind this right now.
CHATTERLEY: Is that just from those conversations that you were having with the Ranchers just to go back to the farms, which obviously is something
that you're very famous for just understanding not just about how the supply chains working, but right back to the farm to get a sense of that,
because it's this price pressures all along the chain.
LEONARD: Well, I know it. And I'm - we're sort of on the store floor kinds of people. So all these statistics people are writing and reading about and
no, there are great people out there, but I get a lot of like our customers asking me what's happening on the Stew floor?
And I can tell you right now, the store for basically are talking to our suppliers and everything every day. They've seen fuel prices go up for
their tractors or boats. You know, transportation costs have been skyrocketing as everybody knows, but seems like things are settling down
just I can't give you like, like, numbers, statistics or anything, but I can tell you what we're hearing here on the floor on Stew Leonard's.
CHATTERLEY: How much of the price increases that you're talking about here? Are you passing on to consumers and how much are you wearing yourself
because clearly, that's a cost to you too. But for some families, it's you know, it makes the difference between meals size of meals?
LEANARD: Yes, I know it. You know - we've had customers for years and years and we know a lot of them come into the store. It's a tough time right now.
And what we've done with our suppliers is trying to split it 50/50.
I guess we're sort of like Target a little bit we're behind in our earnings and our margins and everything but you know, we're holding on certain
products like rotisserie chickens, butter, eggs, ground beef is still the same price we're trying to even though our costs have gone up a little bit,
we're still trying to hold the price and something that make it easier on our customers that are shopping at the store.
You know, Julia the problem I have my 92 year old dad came in the store and he goes put more pepperoni on the pepperoni pizza. You know so we're not
cutting back as far as making packages smaller we're putting fewer ingredients into something we're trying to give customers what they always
wanted.
OK, we you know, here near is at a bump some prices especially on things we make fresh here at Stew Leonard's because we have a labor component to it.
We've had a raise our starting rate like most companies up to that $16 number and so that puts obviously a dent on earning.
[09:50:00]
CHATTERLEY: This is such a great point. And it's something that's not even captured in the data that we've been talking about today. And that's not
just getting people through the door hiring, but the compression effect of people that already work for you and the like.
Hang on a second you're paying him now or her that I want - I want to pay because I'm sure you're getting that kind of pressure to and on the farms
as well that you're visiting. It's, again, it's all part of the pressure in the chain?
LEONARD: Yes, well, you know, you have to look at labor as an investment. Because you want great people, if you are a great customer service, you
have to have great people and train them well, and everything.
And there is tremendous compression of the line. And now we've had some people, when we first started raising the starting rate, they said, I'm
training somebody who's making more than I'm making. So you got to start raising people all the way up the chain.
And the other thing, I can't roll that back in a year, I can't go to somebody and say, hey, we're going to now trim your hourly pay $1. Those
are baked in prices that are going to be around for the future.
CHATTERLEY: Yes, as you said, labor is an investment. But it's the combination of a lot of things that make it pretty challenging at this
time. You have a great sense given your experience. And obviously people still have to eat no matter what the economic environments like and the
recessionary behavior, but you understand what people do and the choices that they make when they start to really feel the pinch?
Does this feel recessionary to you even if we're not talking about it yet for the consumer, because a lot of people are saying, hey, the consumer is
incredibly resilient? Is that what you feel?
LEONARD: Well, I think people the first part of this is they're going to trend back and look at the amount they spend on food. I heard the clothing
person earlier it's almost like buy what you need and not what you want.
CHATTERLEY: Right.
LEONARD: The other thing you can do is we noticed a lot more people gravitating to our specials and I would recommend everybody watching look
for any food storage specials. They usually have them. We were just in rent in Kansas as I said with Ranchers.
We got a great deal on New York strip steaks and porterhouse steak, I would stock up on those countries. And the other thing is these apps that that
everybody has that went in and got at Starbucks this morning, you know I use my app.
And I get all these points and I get a special on a coffee coming up so every store has them including Stew Leonard's. And also look for the
private label in the store rather than national brands are many times are made by the same manufacturer. And they're the same quality.
CHATTERLEY: Yes, the price can be lower. Two things Stew, I have to let you go. The first one is great work on the baby food the formula you can hold
that up again just to remind our viewers that you have some great work on that. You see I do help you. And the second thing is get say hi to your
father for me please and gives him his pepperoni. He deserved it.
LEONARD: My mom is turning 90 on Monday.
CHATTERLEY: Wow, happy birthday to your mother.
LEONARD: Thank you. I will pass that along. Thank you very much.
CHATTERLEY: Stew Leonard Jr., there CEO and President of Stew Leonard's and happy birthday to your mother.
LEONARD: Thank you.
CHATTERLEY: More "First Move" after the break.
(COMMERCIAL BREAK)
[09:55:00]
CHATTERLEY: Breaking news just into CNN, U.S. announcing that it's ending its requirement for inbound travelers to test negative for COVID-19 that,
according to a senior administration official. The move will go into effect for U.S. bound air travelers at midnight on Sunday.
And finally, it sounds like a scene out of Charlie in the Chocolate Factory. But it happened in Pennsylvania two people fell into a tank of
chocolate at the Mars M&M factory on Thursday, fire crews had to cut a hole in the tank to rescue them.
They were taken to hospital there's neither word on their extent of their injuries nor how they actually fell into the chocolate tank? We hope them
well. It sounds more like an intervention than a rescue to me. That's it for the show. "Connect the World" with Becky Anderson is up next. We'll see
you next week.
(COMMERCIAL BREAK)
END
