TheChek News Flow

EU set to clash with member states over ‘defining’ budget overhaul

Commission says era of ‘funding with no conditions’ is gone

Brussels is set to push EU member states towards a radical overhaul of its €1.2tn common budget, tying payments to economic reforms instead of automatically compensating poorer countries.

Talks on the next long-term budget round will start in the autumn, kicking off one of the EU’s most complex and fraught policy negotiations.

One of the most contentious changes sought by the European Commission will be to revamp rules governing so-called cohesion funds, which distribute tens of billions of euros a year to close the economic gap between richer and poorer parts of the union.

Advocates of the changes argue attaching reforms — such as changes to pensions, tax or labour laws — to payouts will make spending more effective and impactful.

One EU official briefed on initial work for the 2028-34 budget said so-called net recipient countries — member states that receive more from the budget than they put into it — “need to understand that the world where they get an envelope of cohesion funding with no conditions . . . is gone”.

A second EU official acknowledged the shift would be “a pretty defining moment”.

But such a change is likely to provoke intense disagreement among the EU’s 27 member states, who must now spend years attempting to reach unanimous agreement on the size of the common budget and what it should be spent on.

Beset with challenges ranging from the war in Ukraine to retooling its economy to compete with China and the US, Brussels is already struggling to stretch its current budget, which runs until 2028.

Under the existing budget, about a third goes towards closing gaps between poorer and richer regions and another third is paid out in agricultural subsidies. The rest is divided between research funding, development aid and the cost of running the EU’s machinery.

The proposed conditionality clauses would mimic those attached to the EU’s pandemic-era €800bn fund, which disbursed money based on countries implementing pre-agreed reforms and investments. Those included a labour market reform in Spain, changes to Italy’s justice system and adapting Belgium’s pensions system.

But access to cohesion funds is seen as sacrosanct by many states in central and eastern Europe that joined the EU in the early 2000s with the promise of payouts in exchange for opening up their economies to western European investors.

Hungary, Slovakia and the Baltic states are the top five net recipients of cohesion funds as a percentage of national income, according to a study by the German Economic Institute.

Governments in these countries are likely to oppose any moves that they see as potentially limiting their payouts. Countries that pay in more to the EU budget than they get back are more supportive, however.

“Pretty much the only way you can convince net payers to contribute more is to put more strings attached on recipients,” said a senior EU diplomat.

Talks over the common budget begin in the autumn, with a formal proposal expected in 2025.

The European Commission could also impose big changes to the way funding streams are bundled, switching from a multitude of programs into a single country “plan”. It is considering other changes, including whether to shorten the duration of the common budget from seven years to five.

Proponents in the commission said the sweeping reforms would make the budget more efficient at meeting priorities such as climate change, boosting homegrown industry and reacting to unexpected crises.

“The way we agree on the EU budget has way too much inertia built in,” said a third EU official. “We need to be closer to reality,”

However, several special interest groups and regional authorities believe the changes constitute a mission creep by the commission.

“There are widespread concerns among many of the EU’s regions about what this kind of shift could mean for their critical funding,” said Ľubica Karvašová, vice-chair of the European parliament’s Committee on Regional Development, in response to plans for changes to funding streams.

“No local mayor wants their EU financial flows to rely completely on their central government enacting a reform plan, especially given how that leaves it open to domestic political leverage.”

At the moment, the EU budget is largely financed by countries according to their economic weight, split between net payers and net beneficiaries. Historically it is worth about 1 per cent of EU GDP.

Some EU officials argue the budget is not sufficient to deal with the bloc’s myriad challenges and requires more money from capitals.

“There is nothing, legally speaking, preventing the EU budget to be bigger than 1 per cent [of EU GDP],” commission executive vice-president Valdis Dombrovskis told the Financial Times.

Several countries have expressed interest in their commissioner heading the budget department of the commission.

Poland’s Prime Minister Donald Tusk this month nominated Piotr Serafin, now Warsaw’s ambassador to the EU, as the country’s candidate for commissioner. Tusk said it was “very likely” that he would end up with the budget portfolio.

However, richer countries are skittish about handing oversight over the EU’s purse to a net beneficiary such as Poland.

“To be frank, the big contributors would be far more comfortable with one of their own managing the overhaul,” said a second senior EU diplomat.

Hoxton hotels owner is betting on Americas and Middle East as it plans to open 27,000 new rooms

Ennismore, the group behind the Hoxton hotel chain, is betting on the Middle East and the Americas for its growth after warning that Europe is becoming “challenging” for hotel development.

The company, which is backed by hotel group Accor, operates more than 37,000 hotel rooms in more than 170 hotels around the world and plans to add a further 27,000 in the next few years. It has 17 hotel and restaurant brands including Mondrian.

The Middle East, which accounts for 43 per cent of its rooms now will take the lion’s share of this growth — 70 per cent — while room numbers in the Americas, which currently account for less than a fifth of the total, will grow 61 per cent.

In Europe, whose 13,000 rooms account for about a third of the present total, the number of new rooms will grow by about 35 per cent.

“Europe generally is a lot more challenging than perhaps some of the other areas,” Sharan Pasricha, founder and co-chief executive of Ennismore, told the Financial Times.

The group, which already had offices in New York and Dubai, set up earlier this year new teams in Cancún and Riyadh to expand further in the regions.

In Europe, Ennismore has “smaller properties . . . sometimes they take a bit longer to develop than other regions and other jurisdictions, versus properties that we have in the Middle East and in the Americas that are considerably bigger, develop a lot faster and have some strong feeder markets attached”, added Pasricha, the son-in-law of Indian billionaire businessman Sunil Bharti Mittal.

Ennismore, which also runs Scotland’s Gleneagles resort, does not own any of its hotels but instead partners with “sovereign wealth funds, family offices, high net worth individuals [and] real estate developers to manage their real estate” using its brands, Pasricha said.

The company said in June that it would take over management of Our Habitas, a wellness and experience-driven hotel company which runs 10 resorts in places such as Mexico’s Tulum and Saudi Arabia’s AlUla oasis.

Co-chief executive Gaurav Bhushan said that under Ennismore’s operation, Our Habitas “should be able to add 20 to 30 new properties over the coming years” predominantly in these regions.

Ennismore merged with some Accor brands to form a joint venture in 2021, with the latter taking a majority stake. Ennismore is now also backed by a Qatari consortium which acquired a near-11 per cent stake from Accor the following year in a deal that valued the company at more than €2bn.

Accor does not disclose Ennismore’s financial performance. When asked if Ennismore needed more funding for the expansion, Pasricha said: “Our business is asset light, so it’s incredibly cash generative. We don’t need the capital for running the business as it’s more than profitable.”

Global hotel chains are seeking ways to expand to tap into booming tourist demand but room growth has been muted.

The number of rooms in construction has declined nearly 8.5 per cent from its 2019 peak driven by higher costs, ongoing supply chain disruption and lack of land, said Zach Demuth, property group JLL’s global head of hotels research. He added that Europe had also been affected by labour shortages and long planning permission times.

Global hotel supply is expected to grow an average of just 2.4 per cent over the next five years, significantly down from its long-term average of 4.2 per cent, according to JLL.

The Middle East is one of a few areas where hotel development is accelerating, thanks to its availability of capital and labour. The Saudi Arabian government, which has increased its target to lure 150mn visitors by the end of the decade, is using the kingdom’s more than $900bn Public Investment Fund to develop new tourist attractions such as AlUla and the futuristic city of Neom.

“The amount of money that’s been spent on how they create tourism demand is staggering,” said Demuth.

In the Americas, Bhushan said the company would particularly focus on Mexico and the Caribbean to “capture the American customer” including in all-inclusive luxury hotels. It will open the SLS Playa Mujeres Cancún in November as its first all-inclusive resort in the region.

The region is witnessing tourism growth helped by US visitors. Juan Pedro Sáenz-Diez, head of hotels for Mexico and the Caribbean at CBRE, said the company expected “strong consumer interest in the region”, with US visitors to Mexico and the Caribbean surpassing pre-pandemic levels.

A new airport in Tulum and the newly opened Maya Train are “poised to support incremental growth for years to come”, he added.

The Durov case is not about free speech

Telegram’s stand against censorship should not mean allowing criminal content

The hashtag #FreePavel, launched by Elon Musk, spread quickly after Pavel Durov’s recent arrest in Paris. Many of those who reposted it portray the Telegram founder’s detention as an assault on free speech. In any direct sense, it is not. Durov faces preliminary charges in a French probe of Telegram’s alleged failures to address criminality on its platform, including drug peddling and child sexual abuse material. A court may ultimately have to decide whether the app broke French law, and whether its Russian-born CEO can be held responsible.

US conservatives and Silicon Valley entrepreneurs have found themselves in strange concert with Russian bloggers in alleging that Durov’s detention shows European tech regulation — certainly more hands-on than the US variety — is on the road to censorship. Senior Russian officials, among Telegram’s most avid users, claim Paris is trying to force Durov to hand over the app’s encryption keys. Top marks to Moscow for gall: Durov has said he fled Russia in 2014 and sold his VKontakte network to Kremlin-friendly buyers after refusing demands to share Ukrainian user data. Russia tried to ban Telegram in 2018.

The app’s distinctive ethos and structure reflect Durov’s Russian experiences, and explain the scrutiny it is now under. It rejects anything it sees as censorship or interference, resulting in much lighter content moderation than most counterparts and a resistance to answering regulators’ or legal agencies’ inquiries — which forms part of the French prosecutors’ complaint. Telegram’s privacy policy says it would disclose user details if a court order confirmed they were a “terrorism suspect”, but adds: “So far, this has never happened.”

These principles have made Telegram an important haven for citizens and beleaguered political opposition groups under authoritarian regimes such as Belarus or Iran. They have also made the platform attractive to extremists and, say monitoring groups, those engaged in criminal activity.

Telegram has called it “absurd to claim that a platform or its owner is responsible for abuse of that platform”. Yet the law and most of society have for decades expected traditional telecoms networks to allow wiretaps under court order for law enforcement bodies pursuing crimes. Online networks should be expected to do the same, in clearly rule-of-law states such as France.

This is complex when data may now be held in servers across multiple jurisdictions. But the nearly 70 countries, including the US, that have ratified the Budapest Convention on cyber crime are already committed to harmonising laws and facilitating co-operation against electronic offences including the spread of child sexual abuse material — which extends to allowing foreign law agencies to directly query internet service providers. China and Russia are not members.

Given the scope for online platforms to act as hubs for illegal activity or content it is fair, too, to expect them to play their part in curbing such activities. Telegram says it observes EU laws and its moderation is in line with industry standards. Online researchers allege Durov’s platform has become a breeding ground for criminal and extremist groups largely because its restrictions are less tight than US rivals (though they have not entirely solved the problem either).

Free-speech advocates argue that acquiescing to law enforcement requests from democracies would open Telegram up to nefarious requests and threats from autocracies, which often call political opponents terrorists or criminals. But the platform would only enhance its credentials as a haven of free speech if it purged the content that any civilised society abhors. Even the US First Amendment, which gives broad protections to free speech, does not shield content or activities that break the law.

Market Questions is the FT’s guide to the week ahead

The monthly US jobs data are always closely watched, but interest in Friday’s report is even more intense than usual. At stake, investors believe, is the likely size of the Federal Reserve’s first interest rate cut later this month.

Economists expect 163,000 jobs to have been added to US payrolls in August, according to a poll by Reuters, but individual forecasts range widely.

Last month Fed chair Jay Powell made it clear at the central bank’s annual symposium in Wyoming that he was focused on the risks of a weaker labour market, although he cautioned that the timing and pace of rate cuts still depended on future data.

“Payrolls are going to be a huge number for the markets as well as the Fed,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “The way that Powell framed things at Jackson Hole has now put payrolls front and centre.”

Investors are still unsure whether there will be a quarter-percentage point, or a half percentage point cut, at the Fed’s mid-September meeting. Futures suggest a quarter-point cut is most likely, but pricing implies a 30 per cent probability it will be deeper, according to the CME’s FedWatch tool.

Friday’s reading also takes on further weighting after July’s report undershot expectations. Then, payrolls rose by 114,000, far below forecasts of 175,000 new jobs, triggering a brutal market sell-off around the world. 

Another number that deeply undershoots expectations could once more fan fears the economy is slowing more sharply than thought and would boost market bets on a half-point cut later in the month. Jennifer Hughes

Will the FTSE 100 hit a record high?

Several European equities indices hit record highs in August and investors are expecting London’s FTSE 100 to join the club shortly.

The index of UK blue-chip stocks closed down by a couple of points at 8,376.6 on Friday, but it is just 70 points, or 0.8 per cent, shy of the record high of 8,445.8 set in May.

The benchmark has risen 8.3 per cent this year but languished in the past three months. However, sentiment is beginning to turn in its favour, ushered in by investors’ conviction that July’s general election marks the start of political calm and further signs that inflation is beginning to slow.

“After the recent elections, the UK is now among the countries with lower political uncertainty in Europe while having a similar growth outlook,” said Maximilian Uleer, head of European equity at Deutsche Bank. The bank has the FTSE down as its most favoured European index.

UK markets have narrow exposure to technology stocks, which has lessened the blow of recent volatility following earnings from US chipmaking giant Nvidia that triggered a pullback in Wall Street at the end of August.

The optimism has been boosted by the pound strengthening against the dollar, up 3.1 per cent year-to-date, helping allay fears for overseas investors that money into the market could quickly be eroded by a weak currency, according to Tineke Frikkee, head of UK equity research at Waverton Investment Management.

However, Frikkee cautioned that although the FTSE 100 was proving “more defensive” than US equities, it was still unclear over the pace at which interest rates would come down in the UK and how companies would react to a potential slowdown in major economies. Rafe Uddin

Will Turkey’s inflation rate continue falling?

Turkey’s inflation rate is forecast to have fallen sharply in August, bolstering policymakers’ confidence that a broad economic reform programme is slowing runaway price growth.

Consumer prices are expected to have risen at an annual pace of 53 per cent in August from 62 per cent the previous month, according to a FactSet survey of economists.

Price growth is also expected to have cooled significantly on a month on month basis after accelerating to 3.2 per cent in July as electricity price rises filtered through Turkey’s $1tn economy, economists said ahead of the report from the country’s statistical institute on Tuesday. 

Turkey has sharply tightened monetary policy as part of an effort to restore rational economic policymaking, which began after President Recep Tayyip Erdoğan was re-elected in May 2023.

The central bank has increased its main interest rate from 8.5 per cent in June 2023 to 50 per cent in an attempt to cool overheating consumer demand, which had led to severe economic imbalances, including a swelling current account deficit.

The new measures, which have also included tax rises, have shown early signs of success, narrowing the current account deficit and rebuilding central bank reserves that had been severely depleted by the previous unorthodox economic policies. Still, economic officials privately concede that much of the fall in inflation, which registered 75 per cent as recently as May, has been the result of last year’s very high baseline in prices.

The true test will come in the coming months, when investors will get a clearer picture of whether the policies are working. Turkish market participants expect inflation to fall to 43 per cent by year-end, according to a central bank survey. However, consumer expectations remain unanchored, with a separate poll by Istanbul’s Koç University showing households expect inflation of 96 per cent at the end of 2024. 

On Monday, Sept. 2, director Claude Lelouch, best known for his romantic 1966 film Un homme et une femme (A Man and a Woman), will receive the Cartier Glory to the Filmmaker Award at the Venice International Film Festival for his contribution to the film industry. The award ceremony will take place at the Palazzo del Cinema before a screening of his latest feature film, Finalement, starring Kad Merad, Michel Boujenah and Sandrine Bonnaire.

Cartier has been sponsoring the Venice International Film Festival since 2021. This allows it to hold glitzy parties attended by celebrities, or “friends of the maison,” as well as some of the jeweler’s best clients.

“This collaboration with one of the most renowned international cultural events builds on the Maison’s long-lasting commitments to preserve cultural heritage and support contemporary artistic creation,” Cartier says on the Venice film festival’s website.

Cartier’s ties to art go way back. In 1984, it became the first luxury brand to create a major art gallery with the launch of the Cartier Foundation for Contemporary Art. At the time, CEO Alain-Dominique Perrin was worried the brand could be nationalized by France’s socialist government. His idea was to use art to shield Cartier from leftist politicians who attacked it as a symbol of the rich and the elite. Every other major brand would follow in his footsteps.

From Louis Vuitton to Prada and Hermès— today most big megabrands have an art foundation. Not only does it elevate their status — from a commercial venture to that of patrons of the arts — it reduces their tax bills, since donations to foundations are tax deductible.

After art, now comes film. The film industry is where luxury brands are investing a lot of money these days. The success of a brand has become tied to the strength of its relationship with major actors, producers and film festivals. Together with art, the film world now forms the bedrock of a brand’s soft power.

DESIRABILITY

As the luxury industry navigates its worst downturn in decades, the battle for visibility is greater than ever. Desirability is the name of the game. Sponsoring or co-producing feature films, dressing actors on the red carpet at festivals, creating so-called branded entertainment and investing in the production of films about the brand, its products and its history is all part of a multi-pronged strategy to use the film industry to feed that desirability — and hopefully lift sales.

This summer’s set of half-year results showed a continued polarization of the luxury sector. Only ultra-desirable brands such as LVMH’s Loewe, Prada’s Miu Miu and Kering’s Bottega Veneta continued to grow or remained stable. Weak ones such as Gucci and Ferragamo with unclear stories and inconsistent product assortments and pricing policies suffered a massive drop in sales. In the current tough environment, only the strongest brands survive.

According to data analytics company Launchmetrics, the ceremony for the Oscars this year generated 12% more MIV (media impact value) than all four Fall/Winter 24 fashion weeks combined. Cannes 2024 generated almost the same amount of MIV as the same four fashion weeks, which generated only 2% more.

Zendaya’s attendance at the Met Gala wearing Maison Margiela by John Galliano made waves on social media, but the star attending the Oscars generated 48% more MIV. Margot Robbie’s appearance at the Barbie Los Angeles film premiere, wearing Schiaparelli, generated over $2.1 million in MIV in 24 hours. This is more than half of the entire Schiaparelli FW23 show with $4.1 million in MIV.

Fashion and luxury brands know that if they build a closer relationship with the film industry, they will have an easier time recruiting actors and actresses who can act as ambassadors and boost visibility.

If a brand co-produces or sponsors a film, its “friendship” with the actors and actresses involved becomes stronger. The brand gets to direct some of the content as well dress the film’s heroes at red-carpet events such as the Cannes or the Venice film festival, invite them to events and sit on the front of their shows.

Investing in Hollywood also carries risks. “What if the film turns out to be terrible,” points out Georges Kern, CEO of independent watch brand Breitling. “Then you are stuck with your products featuring in a film that got bad reviews and that’s not good for the brand,” Kern told Miss Tweed on Friday at Geneva Watch Days.

“I get one email every day from Hollywood. They are all looking for money to produce films,” he said. For the moment, he said he had not received an offer worth the investment. Producers tend to ask for big amounts, usually at least $500,000 for a product to appear in a film. This is no small investment for a brand. Omega has had a long-running deal to feature in James Bond films and this has paid off for the watchmaker over the years. “If you are part of a Netflix series that is popular, then you know what you are dealing with. Otherwise, it’s difficult to tell what the future of a film will be,” Kern explained.

On top of having a person in charge of relations with VIPs, most brands including Chanel, Miu Miu and Dior now have a person who coordinates the brand’s relations with the film industry.

This person plays a key role in fueling a brand’s desirability. Take Chanel for example. The French megabrand recently supported Marcello Mio by Christophe Honoré, which was in the official competition at the Cannes Film Festival this year. They created costumes for the role played by Catherine Deneuve, in collaboration with costume designer Pascaline Chavanne, and provided financial support to the production. In 2023, Chanel provided some of the costumes for the film Barbie by Greta Gerwig.

Chanel is also accompanying the production of Lisa Immordino Vreeland’s next documentary dedicated to French artist Jean Cocteau. It includes a part on the friendship between Cocteau and Gabrielle Chanel.

This year, Chanel backed the restoration of Wim Wenders’ 1984 film Paris, Texas broadcast at the festival, creating an occasion for a soirée with clients around the event. It published an exclusive interview with Wenders for its own website and social media accounts. The brand has financed the restoration of many films and is the official partner of several festivals including the Deauville American Film Festival, the Villa Medici Film Festival in Rome, the Tribeca Festival, the Busan International Film Festival in Korea and the Biarritz Film Festival.

Chanel has a webpage called Chanel and Cinema on which it publishes interviews “in conversation with” famous actors like Catherine Deneuve and film directors such as Francis Ford Coppola.

SAINT LAURENT

Saint Laurent, owned by Kering, is another brand building a major presence in the film industry. Like Chanel, it sponsors films but it also has its own production arm called Saint Laurent Productions. In 2023, Saint Laurent was the associate producer of a spaghetti Western featuring Ethan Hawke and directed by Pedro Almodovar. The half-hour film did not generate much enthusiasm among film critics but the costumes designed by Saint Laurent creative director Anthony Vaccarello got a lot of praise.

This year, Saint Laurent backed three films presented at the Cannes festival: Emilia Perez by Jacques Audiard with Selena Gomez, Parthenope by Paolo Sorrentino with Celeste Dalla Porta and The Shrouds by David Cronenberg with Vincent Cassel and Diane Kruger.

American freelance film critic Benjamin Croll who writes for Variety and other film trade publications has noticed that luxury brands such as Saint Laurent tend to only co-produce films by celebrity directors and featuring popular actors. It is unlikely you will see the luxury brand backing a documentary film or a film with actors people don’t really know.

“These are the films that would have that kind of red carpet exposure for the house,” Croll told Miss Tweed about the three films Saint Laurent presented in Cannes this year.

Since 2019, Kering has secured its place in Cannes by setting up the Women In Motion Emerging Talent Award which includes a grant of €50,000 to support a film project. During the festival, Kering competes with Chanel and other major luxury sponsors like Chopard for hosting the most glamorous parties with the most “in-demand” celebrities whose photos and videos will go viral on social media.

Last year, the Pinault family who control Kering went up the value chain by acquiring a controlling stake in CAA, one of Hollywood's most powerful talent agencies. This strategic purchase — spurred by the Kering CEO’s celebrity actress wife Salma Hayek — gave Kering’s brands unparalleled access to a wide array of talent. Equally important, it allows Kering to tap into actors and filmmakers who can help it better compete in the new era of branded entertainment where brands create TV shows and films to market their products instead of using traditional film or photo ads.

Celebrity stylist Phillip Bloch, who has worked with Hayek and Halle Berry, watched how fashion and Hollywood have become increasingly intertwined over the years. In the 1990s, he recalls how luxury brands were not as organized as they are today. Back then, stars were doing their own shopping. Only a few brands like Prada, Valentino, Armani and Jimmy Choo had representatives in Los Angeles. “They didn't pay celebs to begin with. It was an honor,” Bloch said. “Now celebrities all have deals with brands.”

The CAA deal for Kering “was the thing to do,” Bloch argues. “Why don't we buy the agency? Then we own the talent. Then the money we give them comes back. How can you not get the celeb you want if you own the agency? It's a way for the money they are paying talent to come back to them,” added Bloch.

Fashion houses are also getting involved in financing films at an earlier stage— sometimes when the script has just been finished and the production and actors chosen. It gives them even more sway over the content. “Film is the ultimate medium for a designer because it shows the clothes in action,” said Bloch, who has made several films.

Mayhoola’s Balmain co-produced a TV series for Channel 4 in Britain called Fracture. The French brand provided all the costumes and the series carried the Balmain logo on the bottom right of the screen.

MEDIA COMPANIES

The coproduction of feature films is just one part of luxury brands’ marketing strategy. They also spend vast amounts on producing long and short films about their products and their designers, their craftsmen and their heritage. “Many have only one story to tell and it is about the beauty and the heritage of the brand,” says Clement Boisseau from creative agency BETC.

Films also allow brands to better control the narrative and feed the beast of social media.

Statistics show people spend more screen time watching videos than looking at photos or reading texts. Video is THE medium that is the most reposted and shared on social media platforms. Therefore, they impact a brand’s visibility the most. Some of the best in the field of short films for self-promotion include Celine— thanks to Hedi Slimane’s strong photographic eye – and Simon Porte Jacquemus, known for his zany adverts such as films of giant handbags rolling through the streets of Paris. Chanel and Dior have also produced numerous films to promote their products and their history. This year, Chanel released an ad directed by Inez and Vinoodh featuring Brad Pitt and Penelope Cruz to promote its 2.55 handbag inspired by Lelouch’s Un homme et une femme film.

In February, LVMH set up 22 Montaigne Entertainment to create short films and feature films about the heritage and stories behind the French group’s many brands.

“Luxury brands have become entertainment companies,” says Boisseau. “They publish their films on their own social media platforms and this has allowed them to create their own community with high engagement levels.” Indeed, today people spend more time browsing social media platforms than reading glossy magazines or watching television.

“Typical marketing avenues for luxury brands have been in steady decline over the past few years; , think full-page ads in glossy physical magazines, or well-respected newspapers,” said Matthew Bailey, Senior Principal Analyst Advertising at the global analyst and advisory firm Omdia.

Luxury and fashion brands have become an area of interest for many young consumers. “Actually, if you remove fashion and luxury from Instagram— you only have cats and dogs,” Pierre Denis, Jimmy Choo’s former CEO and fashion tech investor, said at Miss Tweed’s Luxury at the Summit in Val d’Isère in April.

AMAZON, NETFLIX

The arrival of the streamers like Netflix and Amazon has shaken up Hollywood and provided new opportunities for creating content. The parent of Saks Fifth Avenue recently acquired department store Neiman Marcus with Amazon's help. It plans to leverage the U.S. giant’s e-commerce technology but also its powerful content distribution. The deal could accelerate the move towards branded entertainment from luxury houses, argues Soumya Sriraman, the former head of Amazon Prime Video Channels.

“This next phase of brands, retail and advertising will determine how customers interact with their fix of luxury, and we can buckle up for a ride of shows that are brand luxuriant versus product nods and brand stories versus commercial ads,” said Sriraman.

With the current boom in ads created by generative AI software — as Miss Tweed reported in July, — creating exceptional films will become even more crucial to stand out from the crowd, media experts predict. Many brands also like to broadcast the “making of ” a short film or a photo shoot. Hermès was one of the first big luxury brands to exploit that genre.

Fashion and luxury’s love affair with the film industry looks here to stay. Not only does it increase visibility and desirability through highly “Instagrammable” parties during film festivals, it also gives privileged access to the most “bankable” stars. Connecting with the movie world allows brands to stay connected with popular culture and keep track of social change.

“It’s all about culture,” says LVMH boss Bernard Arnault, who was the first to coin the term two years ago during his group’s results presentation. Brands don’t sell products, they sell culture, a certain worldview, he argued. Many luxury bosses would agree with him.

Since 2012, Miu Miu has sponsored two women who make short films. The brand says its goal is to showcase women’s talent and creativity – just like Kering with its Women In Motion Emerging Talent Award. The two films, part of the brand’s Miu Miu Women’s Tales film series, were shown on Saturday during the Venice International Film Festival, with their directors and casts in attendance.

After creating art galleries, publishing books, sponsoring music, ballet and other forms of performing arts, forming literary circles (Chanel and Miu Miu), generating podcasts (Chloé and Chanel), film is what brands are spending increasing amounts of marketing money on. “Follow the money,” so the adage goes, to find out what’s really going on. These days, a lot of luxury money is going to Hollywood.

Temu owner PDD builds $38bn cash pile as it denies investors payouts

Chinese online retailer accumulates biggest net cash position of any listed group not to pay dividends or buy back shares

The Chinese ecommerce group behind Temu, whose stock plunged this week after it ruled out investor payouts, has accumulated the largest cash pile of any listed company that does not pay a dividend or buy back shares

US-listed PDD Holdings is sitting on a $38bn net cash position, according to FT analysis, more than twice the size of the nearest contender, Elon Musk’s Tesla.

While PDD has soared in value as it expanded from China to at least 49 markets in the past two years, its hoarding of cash is regarded as a “red flag” by some investors, who say its financial statements are opaque and its communications sparse.

The Shanghai-based company’s share price fell 31 per cent this week after it warned that record profitability was likely to decline and ruled out dividends or buybacks “for the foreseeable future” in a conference call during which it took questions from only two analysts. 

PDD has attracted controversy for the rapid worldwide expansion of ultra-low-cost online flea market Temu, its treatment of staff and suppliers, and its limited financial disclosures as the group grew in size and stock market valuation to rival Alibaba. 

Most of the world’s large companies pay dividends or buy back shares, with even the acquisitive and dividend-averse conglomerate Berkshire Hathaway repurchasing billions of dollars in stock this year. 

In MSCI’s Investable Market Index, composed of about 2,800 constituents from 47 countries, there were 151 companies with more than $5bn of net cash on their balance sheet as of Wednesday, according to Bloomberg.

Of that cash-rich elite, only five do not pay dividends or buy back stock, an FT analysis found: PDD, Tesla, Chinese electric-car maker Li Auto, European payments group Adyen and GE Vernova, the electric turbine group spun out of GE in April.  

Large Chinese companies announcing new buybacks this week include a $5bn programme at JD, a long established rival to PDD, $1bn worth at food delivery group Meituan, and a $1.3bn facility at sportswear group Anta. 

PDD generated $6bn of operating cash flow in the second quarter, taking its holdings of cash and short-term investments to $39bn.

The company also has a further $9.3bn of longer-term investments, said to mainly include time deposits and debt securities that PDD declined to detail further. The total for cash and long-term investments is equivalent to 36 per cent of PDD’s $133bn market capitalisation. 

Following this week’s results, analysts at JPMorgan wrote in a note to investors that “disclosures by the company remained too limited to understand the drivers behind the financial numbers”, and that “investors are confused by PDD’s unclear guidance and investment strategy”. The bank retained its “overweight” recommendation towards the stock.

Two hedge fund investors with positions in other ecommerce stocks but not PDD both said they considered its lack of share buybacks a “red flag” that could signify potential issues with accounting or the quality of balance sheet assets. 

PDD told the FT that “each company makes decisions based on its unique circumstances and strategic considerations. To imply that there is a ‘red flag’ simply because Company A does not follow the same approach as Company B is, quite frankly, absurd.”

A spokesperson added that PDD encouraged investors with specific concerns to reach out to the company, and drew the FT’s attention to a letter to shareholders published in its 2018 prospectus. 

The letter said: “It is not easy to take the leap of faith believing in such an unconventional company, which strives to meet both economic and social needs of users, and to make a positive impact to the society.”

When Barney Kroger opened his first store in Cincinnati in 1883, people needed to make multiple stops to complete their grocery list—butcher, baker, cheesemonger. He put them all in one place, a super market.

Today, Kroger is America’s largest supermarket chain. And its proposed $24.6 billion takeover of No. 2 Albertsons, forming a 4,000-store, 48-state giant, would stifle competition and hurt both consumers and workers, the Justice Department argues in its lawsuit to block the merger.

Kroger says it’s a grocery small fry just trying to compete with the big boys.

That both sides have a point is a testament to the changing nature of America’s shopping habits. The once-dominant supermarket, that ubiquitous downtown presence that filled a family’s entire food needs, is now just one of numerous shopping options.

The beefed-up new Kroger would account for 13% of U.S. grocery bills, behind the 22% of market leader Walmart, a big-box store that sells a lot more than just food. Amazon, which doesn’t even rely on bricks-and-mortar stores, is the No. 2 food-seller. There are also drug, dollar and convenience stores to compete with.

A Kroger-Albertsons merger would be the latest and largest in an industry consolidation that has swallowed up so many of the nation’s beloved regional stores. Like the department store and the mall, the supermarket is becoming a niche player in America’s ever-changing retail landscape.

Barney Kroger played a key role by slowly converting his Great Western Tea Co.—for “persons hard to suit in teas and coffees”—into a one-stop store that included a bakery and butcher. He added private-label goods, including his mother’s homemade sauerkraut, and soon operated an expanding chain of Kroger Grocery and Bakery stores.

In 1929, Kroger peaked with 5,575 stores across Kentucky, Missouri and Indiana—more locations than the new combined Kroger-Albertsons would have. But, back then, Kroger wasn’t even the big fish of grocery. That was A&P.

“The Great Atlantic & Pacific Tea Co. has built up the greatest cash business in the world,” Barron’s wrote on Feb. 20, 1922, reporting that A&P’s $200 million in sales topped those of any other retailer—not just food-sellers—including Sears, Roebuck and Woolworth.

“In any sizable town or city east of the Rockies,” Barron’s wrote, “the A&P store may be found.”

A&P would remain America’s top retailer into the 1960s, as supermarkets covered the country. Safeway dominated west of the Rockies, but many regional chains and even single stores, like Kilroy’s Wonder Market of Glen Rock, N.J., thrived.

King Kullen of Queens, N.Y., founded in 1930 by a former Kroger employee, is often cited as the first true supermarket by providing five key features: separate departments, self-service, discount pricing, chain marketing; and volume dealing. Billed as “the world’s greatest price wrecker,” King Kullen fit the tight family budgets of the Great Depression.

Joe Albertson got into the grocery game late, in 1939. But already 32 and a veteran of more than a decade at Safeway, where he had worked up to regional supervisor, Albertson knew exactly what he wanted—“Idaho’s largest and finest food store,” as he billed it.

The first Albertsons, in Boise, was joined by two more within a year, and the name soon spread throughout the Northwest. Then it got acquisitive, buying 14 Greater All-American Markets in Southern California in 1964, bringing its store count to 116. By 1967, Albertsons was up to “196 stores, with another 18 planned to be opened before next April,” reported the The Wall Street Journal.

But, even as the supermarket was extending its dominance across America, a new competitor was arising. The first Walmart Discount City opened in Rogers, Ark., in 1962.

Walmart “is the most consistent growth company around,” John Tilson of the Pasadena Growth Fund told the Journal in 1988, when the retailer was pushing for growth in groceries. “I have a lot of confidence that they’ll be able to succeed in it,” Tilson said.

By 1990, Walmart was the country’s most profitable retailer, and big-box stores like it and Costco had become the one-stop shop for a new age, stealing customers from retailers of everything from clothes to auto parts, sporting goods and much more.

Amazon, founded as an online bookseller in 1994, was just “taking small steps toward grocery-delivery service,” the Journal wrote in 2007. Small steps became a leap in 2017 with Amazon’s purchase of Whole Foods, and the Covid pandemic pushed more people into online shopping. It now sells as much food as Kroger and Albertsons combined.

Kroger and Albertsons are dinosaurs, remnants of an earlier age, when mom drove down to the supermarket and fit her whole family’s culinary needs in the back of the station wagon. Ralphs, Dillons, Harris Teeter, Vons, Safeway and even A&P have all been swallowed up. Kroger and Albertsons are among the last ones standing.

“Supermarkets are losing this food fight,” Kroger lawyer Matthew Wolf said in his opening statement at the antitrust trial. In the larger scheme of things, at least, he’s right.

VF Corp. stock has recovered from 2024 lows, and its chair recently bought shares of the apparel firm.

VF shares set a 2024 low of $11 in late May after reporting a disappointing quarter. Shares have rallied more than 50% since, after VF hired Lululemon Athletica’s former chief product officer and arranged the sale of its Supreme brand, albeit at a loss. The surge hasn’t made up for ground lost in recent years. Shares of the parent of The North Face lost their footing in 2022 when they dropped 62%. VF stock lost another 32% in 2023.

VF Chair Richard Carucci paid $250,500 on Aug. 22 for 15,000 shares, an average price of $16.70 each. He now owns 230,178 VF shares, according to a form that Carucci filed with the Securities and Exchange Commission.

VF and Carucci declined to comment. A former chief financial officer of Yum! Brands, he has been a VF director since 2009. He has been a regular buyer of VF shares, most recently paying $345,000 in June for 25,000 shares, an average price of $13.78 each.

VF CEO Bracken Darrell has also made big bets on the company’s turnaround, making $1 million purchases of shares in February and June.

Inside Scoop is a regular Barron’s feature covering stock transactions by corporate executives and board members—so-called insiders—as well as large shareholders, politicians, and other prominent figures. Due to their insider status, these investors are required to disclose stock trades with the Securities and Exchange Commission or other regulatory groups.