Motley Fool Hidden Gems Investing - TikTok's 1st Ban

Episode Date: May 18, 2023

Is Montana's move against TikTok a speed bump or the start of a trend? (00:21) Bill Mann discusses: - How Snap, Meta Platforms, and Alphabet are watching the latest act in the TikTok drama - Shares of Bath & Body Works popping 10% on its latest earnings report - Names for scented candles (14:15) As the retail landscape continues to evolve, Motley Fool contributor Rachel Warren talks with Anjee Solanki, Director of Retail Services at Colliers, about one category that's holding its own. Companies discussed: META, GOOG, GOOGL, SNAP, BBWI, DG, ELF, ULTA Host: Chris Hill Guests: Bill Matt, Rachel Warren, Anjee Solanki Producer: Ricky Mulvey Engineers: Dan Boyd, Kyle Carruthers Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. We've got TikTok and the latest on specialty retail. Motley Fool Money starts now. I'm Chris Hill. Joining me in studio today, Motley Fool Senior Analyst, Bill Mann. Thanks for being here. Bill Mann. How are you doing, Chris? It's good to see you. Yeah. I'm doing all right. A little bit of silliness before we start. All right, let's start with TikTok. We talked earlier in the year about this influential private company, the ripple effects for businesses like Alphabet and Meta Platforms. And the latest twist is that Montana has become the first state to ban TikTok. The enforcement appears to be a bit fuzzy. It's going to take effect on June 1st. I'm guessing there

will be at least one other state, or possibly more, who will follow suit. But we talked about this earlier today. I'm not sure where this is going. I'm not sure how effective this is going to be. And there will be an appeal at some point. But tell me where this story is going, because this is an important story. Again, well, important in the sense that some of the biggest tech companies in America that are publicly traded are paying very close attention to this, and they stand to benefit if, in fact, for some reason or some set of circumstances, TikTok just went away. You get the feeling that the state of Montana is feeling that its profile is dropping in authoritarian countries following the hunt for red October, it being a byline story there.

So, Governor Greg Gianforte has announced that they will be banning TikTok. I mean, this is, to me, this is virtue signaling at its worst. I don't know how it is that they're going to do it. Now, they have said a couple of things, the first of which is that the Communist Party is using TikTok to spy on Americans, which may be happening. I'm not quite sure how the governor of Montana got to be the lead sled dog on that particular piece of information. But really, more importantly, we've had hearings about TikTok, and some of the big American social media companies, Snap, for example, were saying, hey, we provide a service that's similar to TikTok. We don't need them. And by the way, we are banned in China. So, why should we allow them

to be banned here? Now, I don't know, but I get the feeling that Montana isn't going to be the The big event that we might be making it out to be, like, there's three TikTokers in Montana, roughly. I totally understand why, as we talked about previously, if a state government wanted to say, hey, we're not going to let state employees with their state government-issued laptops, et cetera, to have the— Also, it's like, hey, TikTok is for fun. We want you working. So, even putting aside the safety concerns or the cybersecurity concerns, I understand that. But this one, employers, yes, on state facilities, absolutely.

In schools, absolutely. But a blanket ban of something? I mean, think about this. Again, pointing to the fact that China bans a bunch of our companies there. To be clear, Google tried to make a go of it and pulled up stakes and said, we're leaving. We're leaving. But as the country with a lot of the largest social media and web companies in the world, do we really want to go down the path of being the country that follows China and begins banning

companies from operating on our shores? Because if we do that, if that is something that we are willing to do, why wouldn't India do that to Facebook? Why wouldn't Indonesia do that to Snapchat? Why would any host of countries, including the European Union, in a way to protect their home companies, why would that not be a tool that they would pull out because the Americans have done it? One of the things we've seen over the last few years, and it's not new, states in America compete with one another all the time to bring business, to incentivize businesses to, hey, come to our state, you'll get tax breaks, all that sort of thing. Do you think there are some states that are sort of looking at what Montana did and sort

of saying, hey, this is an opportunity to just further incentivize businesses to move here as opposed to, like, I can see this being a thing where other states and their business development organizations are going to be using this. Maybe. I mean, quite frankly, there's going to be a constitutional challenge of this to start with. But maybe more importantly, keep in mind that this has come from the governor of Montana. So every other governor or person in competent jurisdiction is licking their finger and sticking it in the air to see where the wind blows. Because if there is a sufficient amount of blowback, like what is it that you think you are doing here? I don't know that too many other politicians are going to wade into that same

argument. But to me, yes, it's absolutely possible. And you have seen over and over jurisdictions and politicians competing with each other to try and get benefits for their states. I don't know what the next step after this is, unless it is a step towards, you know, a stalking horse towards banning TikTok throughout the United States. We're going to move to retail. We'll hit Walmart on the show tomorrow. But specialty retail is getting it done today. Shares of Bath & Body Works up 11%. First quarter profits and revenue were higher than expected. They raised guidance. CEO Gina Boswell highlighted the loyalty program that Bath & Body Works rolled out last August. So, this is a loyalty program they've had in

place for less than a year. They have 37 million members in it. She said it accounts for roughly two-thirds of sales in the U.S. And this is a loyalty program that other retailers should be studying because it's everything, apparently, you want. A lot of people in it and those that are in it are spending more and more frequently. Sure. But at the same time, their overall earnings dropped. So, when you say there are now two-thirds of the revenues are coming from this loyalty program, either they are supplanting sales that they already had, which is fine. I mean, And that is an okay thing for a loyalty program to do, because you could either self-supplant or you can see them go other places, right?

So, I don't really have a problem with that. I view this more as Bath & Body Works, oh, my gosh, about the eighth straight time I've almost said Bed, Bath & Beyond, just because that's been a big news story. Maybe we should just call it Bed, Bath & Beyond Body Works. It's not fair to Bath & Body Works. I don't think the lawyers would like that. No, they are 100% less in bankruptcy than the other guys. Let's wind that back. In the case of Bath & Body Works, I think really the headline, because their stock is up double digits at the

time of the recording, it's almost like they said, okay, look, things are terrible. Our numbers are down, top line, bottom line. But remember, we told you before that things were really terrible? They're not really terrible. They're just terrible. So, there's that. Also, AI. Did they hit that? Why wouldn't you at this point?

Look, we've talked historically on this show and on MarketFoolery about the candles. That's right, yeah. The $30 three-wick candles with the creative names. And if you go to the Bath & Body Works website, they're right there, front and center. Gosh, some of those names are incredible. I could make some up. Some are like Booger Pie, like whatever. I haven't looked that deeply for that. But yeah, there's a lot of beach-themed ones, Firecracker Pop. They also have a candle. I swear, this is true. The name of the candle is Love Always Wins. I think that was probably greenlit by someone who's never actually had

an experience with love. It smells of loneliness. Possibly. Sounds like you're not a fan. It's not that I'm not a fan. No, no, no. In all seriousness, and we've seen this with other companies this earnings season, this is like, okay, this is better than expected, but the expectations were low. Yeah, exactly. Thank you for not collapsing. I mean, it really was. It was not a great quarter. it was a fine quarter, and sometimes a fine quarter is good enough. I did love that they called out that one of the things that has helped were men's grooming products and a renewed interest. Like, you've met men, right? Like, I find it hard to believe that we suddenly have

gotten super excited about new scents, including, what was it, beach loneliness? What was the scent you were... Love always wins. I give him credit for the different names. No, it will be sort of interesting to see where it goes. Look, there's a market there. And again, to me, the loyalty program thing, and this is something we've talked about on the podcast programming team as we talk about different segment ideas, and something we've talked about recently is things looking into loyalty programs, because anytime a business rolls out a loyalty program, the prime directive right out of the gate is getting people in it. So, whatever other weakness is going on at Bath and Body Works, they got 37 million people in this loyalty program, and now they just need to

figure out, like, okay, we got these people here, it's a captive audience, we've got this data on them, how do we get them spending even more? $37 million, and we glossed over that number a little bit. That is massive. I mean, do you suppose that you have to roll up your window when you drive past a Bath & Body Works for want of getting hit by a membership? I mean, $37 million, I'm making a little bit of fun. It is impressive. Full stop. Full stop. So, So, you know, they do actually have some opportunity as some of their larger competitors who are more under distress are now pulling back. They're in bankruptcy.

So, I think that there really is an opportunity for Bath & Body Works. All right. Before I let you go, this is not my last show. This is not your last show. This is, however, our last show together. And selfishly, our friendship extends well beyond the walls of this studio. But before I cede the floor, I just wanted to say thank you for more than a decade of coming in this room, sharing your expertise, analysis, commentary, and attempts at humor. My base attempts.

Well, thank you, Chris. And, you know, it has hit me like a ton of bricks, the fact that you are leaving. And it now really starts to feel real, you know, every day I've come in, it was like, yeah, he's going to change his mind. It's going to, you know, but I go back to a story and this may, this is a story that is within the lore of, of the Motley Fool. It was the day that I went on CNBC and I froze and you were the person who was my media guide at that point.

I froze so badly because I forgot the word reserves that three days later, Liz Klayman left the network. I'm not saying that the two things are related, but I think she was done dealing with jokers like me. And so your job at the time was just with us getting used to being on TV was to coach us up. And you were relentlessly positive, but there was very little to be positive about after that time. and you said something that I will never forget. And it was this. That could have done better. Could have been better. And to me, I mean, that was just the essence of you, right? Like, obviously, it didn't go well. I am not here to stick the boot in right now and tell you how badly that went in front of millions of people. But I appreciated it so much. And I've appreciated

your friendship and working with you. You are a dear, dear friend of mine. And I can't wait to see what your next adventure is like. Bill Mann, always great talking to you. Thanks for being here. Thank you, Chris. As retail continues to evolve, one category is looking good. Motley Fool contributor Rachel Warren caught up with Angie Solonke, Director of Retail Services at Colliers, to talk about how post-pandemic shopping habits are shaking out. I know that Collier's recently released its 2023 Spring Retail Report, and the report highlighted retail spend across a range of categories, including storefronts, restaurants,

grocery stores. Based on the findings of this report, what are the categories that seem to be really winning in the current environment and posed for greater resilience over the long term? Definitely. we're calling 2023 the year of the store again. As we look at this year, the number of closings is far, far less than the net new openings. And when we look at the year of the store, the categories within that that are doing very well, of course, is going to be grocery. So we stop again and we look at, you know, the impacts due to inflation, which is also softening,

as we know, there's still very, you know, important critical attributes we need to keep in mind. Number one, we have these three categories of income earners. Of course, you have, you know, the high income, middle income, and low income. And of course, each group is going to shop and behave slightly differently. So if we stop and focus, all three groups nonetheless really do still require to eat. Whether they eat at home, grocery spend will continue to increase. Eat out, maybe less so. Again, grocery sales continue to increase. So where we see a category winner is definitely in that grocery segment. And that's going to be what we're really tracking at this point is we know that's a category that will continue to see growth as they have been. But

I'm now curious, or we are all curious at Colliers, as it relates to how is that going to impact the consumer behavior? Will they shop both value? So will the high-income earner shop value as well as call it the more premium grocery stores? Or will we start to see different shifts? we do know at this time, the average person typically will shop to grocers. So knowing that, how will that start to shape, you know, the type of stores or the different brands of grocers that are out there? That to me is going to be really interesting. I think you may have read in the report, you know, Dollar General has seen a 30% increase in their sales. And it makes sense when we start to see kind of this shift where people are much more conscientious about how much they're

spending, how much they need to save, et cetera. Yeah. And kind of conversely to that, are there any particular categories that you feel are showing more vulnerabilities in the current environment? It makes sense that there would be a certain level of that given the inflation we're still seeing, even though that is kind of slowly tamping down. But do you see this as being kind of durable headwinds, or do you think these are categories that can also recover? Definitely. So the categories that, you know, definitely seeing a softening, of course, is going to be in your furniture, large home goods. There was that, you know, what we were calling revenge spend occurring a couple of years back as it relates to the fixturizing,

remodeling refurbishing etc both the you know inside of your home the exterior of your home you know people spend quite a bit electronics is another is that going to go away no look technology plays a significant significant role right in electronics and so when you think about electronics and you think about you know the next wave the next generation there is that FOMO that people still have where i want the best and newest and latest technology and that translates into electronics both small and large well they may maybe not say okay i need a tv in every room maybe i just need that one tv and we'll compromise and keep the other you know two or three which i'm not a big tv person so excuse me for that um but um you know maybe we're not gonna buy three new

TVs. We might just buy one. So I think you're just going to see a shift where there will be kind of a compromise in how people are spending. But those are segments or categories that we'll start to see kind of consumers rethinking. Is that going to completely change? No. As we start to see the purchases of homes coming back at a stronger level, there's still this demand for for homes. And because we're, we, as we know, um, in the U S we have, you know, a low supply in, in, in that sector and housing, um, there's going to still be a need for that, whether it's, you know, as, as I said, um, it's just, it just might be slightly tampered at this point. You know, another industry as well that I think bears a bit of discussion is the beauty space,

The beauty industry was mentioned in this report as well, but it has proven over the years to be pretty resilient, including in periods of economic difficulty. There's, of course, the famous lipstick index as a bellwether of consumer confidence. The report noted that consumers are seeing beauty buys as affordable luxury. You've got brands like Elf Beauty, Glossier that are benefiting. Of course, that brings to mind some of those bigger names like the Ulta beauties of the world, that idea of the beauty industry being really Brazilian, does that thesis seem to be bearing out in the current market environment? It is, um, you know, even though we were, you know, on virtual platforms, having meetings and

conversations, you know, people still want a little something, something to add and, Um, and, um, you know, whether it's hair products, skin products, uh, or just, you know, makeup products, I think there's, there's still continued growth. You know, the latest we're seeing, um, you know, Sephora again, saw 32% increase in terms of foot traffic. Ulta has seen the same. Um, it's not a big spend because you can buy something that makes you feel good or, or you're looking at, you know, I want a product that's, that's, you know, a clean product that is

cruelty free, et cetera, because there's just, you know, a lot of mind awareness around that. And I was actually chatting with someone who shared with me, she had gone to, you know, a conference specifically around the entire beauty arena. And what she came back to me and she said, you know, Angie is fascinating. It's, it's really about today. Um, beauty is focused on, uh, the, the clean environment and, and the different ingredients that it goes into the product has become much more important to the consumer. Uh, and so I don't see this going away because you have different segments of the population and don't forget, we have, you know, all the TikTok videos that are out there and influencing people as well. Beauty will continue to be

resilient in that space because it's been influenced by money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.