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AI-powered coding pulls in almost $1bn of funding to claim ‘killer app’ status
Software engineering attracts investors but making money from generative artificial intelligence still eludes many
AI-driven coding assistants have amassed nearly $1bn of funding since the start of last year, a signal that software engineering is becoming the first “killer app” for generative artificial intelligence.
Companies such as Replit, Anysphere, Magic, Augment, Supermaven and Poolside AI raised $433mn so far this year alone, bringing the total since January 2023 to $906mn, according to Dealroom.
The rush to pour money into AI coding assistants is an indication that computer programming is the first job function to be transformed by the latest wave of AI technology.
“Today, software engineering and coding is the number-one area impacted by AI,” said Hadi Partovi, chief executive of education non-profit organisation Code.org and a long-time Silicon Valley investor and adviser to Airbnb, Uber, Dropbox and Facebook. “At this point, software engineering without AI is a little bit like writing without a word processor.”
Growing conviction in Silicon Valley of the benefits of AI coding stands in contrast to questions among some investors about the economic benefits of generative AI and likely returns on Big Tech’s projected trillion-dollar investment into computing infrastructure to support the technology over the coming years.
Hannah Seal, a partner at Index Ventures, which has invested in start-up Augment, alongside Eric Schmidt and others, said it was “much easier to monetise AI if you can embed your product into an existing workflow, and make the benefit instantly visible”.
For AI tools to make money, the questions for Seal are: “What is the time to value, and how meaningful is that value-add?”, while she added that “with coding co-pilots, the answer is very clear”.
AI enthusiasm has prompted start-ups and tech giants Microsoft, Amazon, Meta and Google to vie for dominance in a crowded sector, building AI assistants and agents that can write and edit computer code.
An executive on Code.org’s board, which includes David Treadwell, Amazon’s head of ecommerce, and Kevin Scott, Microsoft’s chief technology officer, recently told Partovi their company would stop hiring people who code without AI by the end of the year, he said.
“The easier [programming] becomes, the more demand goes up, because so much more technology can be built,” Partovi added.
Microsoft-owned GitHub, the world’s biggest software development platform, was one of the first to turn a large language model — software that underpins ChatGPT, which can generate text, images or code — into a coding assistant.
“When using GPT-3, OpenAI’s first major model, we figured out relatively quickly that it was so good at writing code that we could build a product around this,” said Thomas Dohmke, chief executive of GitHub, which was acquired for $7.5bn by Microsoft in 2018.
The prototype turned into GitHub Copilot, an AI coding assistant that was launched widely in 2022 and has nearly 2mn paying subscribers. “Now, the model writes better code than the average developer,” Dohmke said.
As of April, GitHub’s revenue was up 45 per cent year on year and, according to Microsoft chief executive Satya Nadella, its annual revenue run rate was $2bn at the start of this month.
“Copilot accounted for over 40 per cent of GitHub revenue growth this year and is already a larger business than all of GitHub was when we acquired it,” he said on a July 30 earnings call.
More than 77,000 organisations — from BBVA, FedEx and H&M to Infosys and Paytm — had adopted the two-year-old tool, Nadella said, a figure that showed a 180 per cent rise year on year.
IT departments of large companies nonetheless retain some reservations around the security implications of using automated programming tools to produce production-grade code.
Dohmke said though that he would not expect AI-generated code to be deployed without manual checks and balances.
“In general, we see between 20-35 per cent productivity gains from enterprises that have reported internal statistics,” Dohmke said, referring to customers such as Latin American ecommerce giant Mercado Libre and professional services group Accenture.
A McKinsey analysis from last year found that the direct impact of AI on the productivity of software engineering could range from 20 to 45 per cent of current annual spending on the function, with benefits including generating initial code drafts, code correction and refactoring.
“By accelerating the coding process, generative AI could push the skill sets and capabilities needed in software engineering toward code and architecture design,” McKinsey said.
Software engineers say they have already integrated AI assistants into their daily workflow, and it helps not only to be quicker but also more creative.
“I personally code every day with GitHub Copilot, oftentimes alongside ChatGPT,” said Marc Tuscher, a deep learning scientist and chief technology officer of Sereact, a German robotics start-up.
GitHub’s tool is most useful for “repetitive tasks”, such as for user interfaces and the back end of products, he added, while he uses ChatGPT to help with more abstract problem solving.
“ChatGPT will come up with some classical ideas, some new papers and then you can ask, ‘how would this be done in Python?’ and it produces code,” Tuscher said. “Both tools are very, very cool.”
While all programmers he knows use these products, and “it changes fundamentally how we work”, Tuscher said the tools were no more than powerful helpers, rather than replacements, for coders.
“No GenAI knows about good software architecture, or how to put systems together,” he added. “That’s still the thing we have to think through ourselves.”
>>> Up
* BW LPG Raised to Buy at SEB Equities; PT 225 kroner
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* Fondia Raised to Accumulate at Inderes; PT 7 euros
* Fondia Raised to Accumulate at Inderes; PT 7 euros
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>>> Down
>>> Down
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* K+S Cut to Sell at Baader Helvea; PT 7.50 euros
* K+S Cut to Sell at Baader Helvea; PT 7.50 euros
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>>> Initiation
* Lyko Rated New Buy at Pareto Securities; PT 140 kronor
>>> Initiation
* Lyko Rated New Buy at Pareto Securities; PT 140 kronor
* Smiths Rated New Hold at Berenberg; PT 1,850 pence
>>> Call
>>> Call
The yen rose after Bank of Japan Governor Kazuo Ueda signaled it’s still on the path to raise interest rates. Asian equities erased losses with a boost from Chinese shares, as traders wait on Federal Reserve Chair Jerome Powell’s Jackson Hole speech later Friday. The Japanese currency rose as much as 0.7% versus the dollar, while government bond futures fell. In replies to lawmakers, Ueda said the BOJ’s stance hadn’t changed, provided inflation and economic data continue in line with its forecasts. The comments come after his deputy had sought to reassure markets that further hikes would also depend on the state of the market, after the central bank’s increase in July trigger a massive selloff in global equities. Ueda’s comments in parliament “put an end to speculation that the BOJ could back off from hiking again due to the market turmoil seen,” said Charu Chanana, head of currency strategy at Saxo Markets. “Keeping the door open for further rate hikes is positive for yen and negative for stocks at the margin.” Earlier, Japanese inflation data exceeded forecasts. Consumer prices in July rose 2.8% from a year earlier, the same as the prior month and higher than the 2.7% expected by economists. Chinese shares gained, helping a regional stock index erase earlier losses. The country will speed up purchasing of unsold homes and turn them into affordable housing, Vice Minister of Housing and Urban-Rural Development Dong Jianguo said. Equities in Hong Kong, Australia and South Korea declined, echoing Thursday’s selloff in US stocks where both the S&P 500 and tech-heavy Nasdaq 100 indexes retreated. Elsewhere, Alibaba Group Holding Ltd. shareholders have approved a plan to upgrade its Hong Kong listing to primary status on Aug. 28, a maneuver expected to attract billions of dollars in investment from mainland China. Meanwhile, shares of Chinese companies NetEase, Baidu and Bilibili dropped as these tech firms reported weak earnings. The 10-year Treasury yield fell one basis point to 3.84%, while the policy-sensitive two-year yield dropped two basis points to 3.98%. The latter has fallen seven basis points this week. An index of dollar strength slipped after a Thursday advance. Australian and New Zealand bond yields climbed. Swaps traders pulled back marginally their expectations for US rate cuts this year, though still broadly priced in almost 100 basis points of cuts through December. The focus is now on Powell’s address later Friday at the annual Jackson Hole symposium in Wyoming. Investors waded through a raft of remarks from US policymakers, with Fed Bank of Kansas City President Jeffrey Schmid saying he wants to see more data before supporting cuts. His Boston counterpart Susan Collins said “a gradual, methodical pace” is likely to be appropriate. Her comments were echoed by Philadelphia Fed President Patrick Harker in a CNBC interview. On the economic front, the latest figures were mixed. Jobless claims data showed the labor market is cooling only gradually — rather than rapidly slowing amid elevated rates. US manufacturing activity shrank at the fastest pace this year. And existing-home sales increased for the first time in five months. In commodities, oil headed for a weekly loss — after hitting the lowest close since January midweek — on a challenging demand outlook, sinking product prices, and US efforts to secure a cease-fire in Gaza. US After Hours WDAY +10.3%, CAVA +7.7%, ROST +5.6% higher on earnings; INTU -2.9% lower on earnings.
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Macro :
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- Yen Gains as Ueda Refuses to Soften Policy Stance: Macro Squawk
- BOJ Gov Ueda: 2Q GDP, Wage Data Show Econ Moving in Line With BOJ Forecast
Keep an eye on :
Keep an eye on :
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The M&A Matchmaking in VC Portfolios
A merger in the works between two struggling startups, online pharmacy Truepill and health test provider LetsGetChecked, signals a growing trend in an era of tough financing: deals between companies that share major shareholders.
Dublin-based LetsGetChecked has offered to buy California-based Truepill for $500 million in stock and $25 million in cash, according to merger documents sent by Truepill CEO Paul Greenall to investors.
The venture capital arm of UnitedHealth Group, the biggest health insurance firm in the U.S., and its affiliates are “significant stockholders” of the soon-to-be-merged startups, according to private merger documents.
These kinds of deals aren’t unusual but happen more frequently when funding and business strains mount, as venture capitalists try to minimize losses by consolidating two bets that could end up leading to a better outcome.
One early-stage venture capitalist, Masha Bucher of Day One Ventures, told me she’s actively trying to get the firm’s portfolio companies to merge to increase their chances of survival and fund returns.
“If you can merge two to three companies outside the 40 companies that aren’t going to be your fund returners but get a chance to get another fund returner by merging them, you should do it,” she said. “They get more capital if they merge, more energy in the founding team, hopefully higher chances of getting funded.”
We saw this phenomenon a few years ago when fast-delivery firms were faltering. In particular, Mubadala Investment Co., the United Arab Emirates sovereign wealth fund, encouraged merger discussions between delivery startups Flink and Getir, we reported early last year. A sale never happened, though merger talks resurfaced this year, Bloomberg reported.
Details of the Truepill takeover show one path startups can end up taking after they make the bruising valuation adjustments known as down rounds.
Last year Truepill raised an additional round of capital that reduced the value of early investors’ shares by more than 90%, known as a cram down, resulting in a new valuation of about $540 million. The financing essentially wiped out some early investors, as I reported last year. This new acquisition offer—first reported by Axios—values the shares at a range of prices similar to the ones in that offering.
UnitedHealth Plans
There’s another wrinkle: It turns out UnitedHealth has had its eyes on Truepill for a while. In 2021, UnitedHealth tried to buy the startup for $1.6 billion, according to a person who saw proposed merger documents from that time. The conversations lasted several months, and Truepill’s board voted in favor of the acquisition, but it ultimately fell through.
Instead, one of UnitedHealth’s affiliates offered a term sheet to invest in Truepill’s Series D round, according to the same person. When the funding round later came together, Optum Ventures—UnitedHealth’s VC arm—also put money into the round, the person said.
Investors responded by offering term sheets of their own, leading to a 2021 round that valued Truepill at $1.6 billion. Given the valuation drop since then, UnitedHealth dodged at least some pain by not acquiring the company outright when it had the chance. (Optum and Truepill did not respond to requests for comment.)
These deals tend to involve inherent conflicts of interest. Larry Renfro, managing partner of Optum Ventures and former CEO of UnitedHealth’s health services platform Optum, is on the board of both startups, according to the documents.
Renfro recused himself from voting and negotiations on the takeover, the documents say. But some investors privately griped that his recusal was just symbolic.
Truepill was clearly struggling and needed to do something. The nine-year-old startup had raised more than $300 million from investors including healthcare specialist Oak HC/FT, Initialized Capital and Y Combinator. It benefited from a swell of consumer demand for online pharmacies such as Hims and GoodRx, shipping drugs on their behalf.
But rising competition, high costs and federal drug agency charges over its business supplying Adderall prescriptions to telehealth firm Cerebral hurt the business after the 2021 capital raise.
Last year, co-founder Sid Viswanathan stepped down as Truepill CEO, following co-founder Umar Afridi out the door. The startup tried to stem losses with at least two rounds of layoffs.
Still, the company was burning about $4 million a month as of April while generating about $20 million in revenue a month, documents sent to investors show.
In March, the company started hunting for buyers, hiring boutique bankers MTS Health Partners to shop it around. The bankers approached 17 potential buyers; 15 declined. The Truepill board then picked LetsGetChecked’s offer over that of another unnamed party.
The Irish buyer looks like it’s in even more wobbly shape than Truepill. As of May, it was burning about $8 million in cash a month on monthly revenue of about $6.6 million. In fact, as part of the deal, LetsGetChecked is taking out $150 million in debt that can convert to equity.
Together the startups just got an extended lease on life.
How Shoppers Get Luxury’s Most Exclusive Products
Shoppers are finding alternative ways to get their hands on the unattainable bags, shoes and watches, from auction houses to specialised fashion sourcers.

Top luxury products like Birkin bags are notoriously hard for shoppers to get their hands on. (Getty )
Key insights
- Demand for luxury’s most exclusive, notoriously hard-to-get items is on the rise.
- Shoppers have found new ways to purchase top products, including through curated resellers and Instagram sourcers.
- Many brands are falling short on service, shoppers say.
When Angela Hwang, a consultant for private equity companies based in Carmel, California, decided she wanted a Hermès Birkin bag, she watched YouTube videos and read the forums on the handbag website PurseBlog for tips. Hwang, who had previously purchased plates, silverware and scarves from the brand, had her heart set on a Birkin 35 in a neutral hue.
But she couldn’t just walk in and buy it. Hermès is known to offer its Birkin and Kelly bags intermittently, and usually to its most loyal clients. Analysis of how to play the “Hermès game” — going to a less trafficked store, forming a relationship with a sales associate or making the seemingly necessary purchases to be offered a bag, often not in a colour or size of your choosing — proliferate on Reddit and TikTok. Disdain for the selling practices even prompted two California residents to file an antitrust suit against Hermès in March. (Last year, Hermès told BoF it “strictly prohibits any sale of certain products as a condition to the purchase of others.”)
Hwang eventually decided to buy the exact item she wanted secondhand, despite the fact that it meant she might end up paying double the retail price.
“People were like ‘you weren’t patient enough,’ ‘why didn’t you do the journey?’ But it’s like, I just wanted the bag, I really like it, I want to buy it,” she said.
Hwang is part of a growing cohort of shoppers that’s going outside traditional channels to get their hands on fashion — and are willing to pay a premium to have what they want when they want it. Luxury runs on exclusivity, and because many brands produce their most covetable products in small quantities or save them for their most loyal shoppers, inevitably, not everyone can have what they want.
“The demand for a lot of these luxury products has escalated meaningfully, and the process by which a customer is able to walk into a store has changed,” said Geoff Hess, Sotheby’s global head of watches. “Buying those coveted models at retail has gotten very challenging and difficult across luxury.”
But shoppers are increasingly finding alternative ways to purchase luxury’s most coveted items. There are the big box resale shops like Fashionphile, Vestiaire Collective, Rebag and The RealReal; sector-specific stores like the watch-centric Watchfinder and Chrono24; and boutique sellers like Privé Porter and Jane Finds, both of which focus almost exclusively on Hermès. Meanwhile, auction houses are upping their investment in fashion, hosting events to sell rare handbags and watches to elite shoppers. Plus, a new wave of social media-native dealers, personal shoppers and self-described fashion “sourcers” are using their Instagram DMs to get shoppers not only storied bags, but the in-demand items of the moment like Alaia’s mesh flats and The Row’s Margaux carryall.
All these options cater to a consumer that can’t get access on their own or “can’t be bothered to go to a store and grovel to a salesperson,” said Privé Porter founder Michelle Berk. They’re a response to a growing sentiment among consumers who feel the traditional luxury purchasing experience is lacking in convenience and personalisation.
“[These shoppers] don’t care about spending the premium to get exactly what they want right now,” Berk said.
The rise of alternative paths to purchase also could have greater consequences for the industry at large. Luxury brands are facing competition in selling their own wares, as well as exposure in more channels. Brands need to find ways to engage new consumers after years of focusing on their top clients, said Joelle de Montgolfier, Bain & Company executive vice president, luxury, retail and consumer.
“[As a luxury brand] the less exclusive you are, the more problems you will have … The more you control your distribution, the more you work on the excitement for the brand, the more you work on luxury experiences, the easier your job will get,” said Frank Müller, founder of luxury consultancy The Bridge to Luxury.
What’s Driving Demand
Frustration with the luxury shopping experience has propelled the popularity of the fashion middle-man for everyone from aspirational shoppers to the top echelon of buyers.
This shift ramped up during the pandemic, as stores closed and shopping became more difficult, according to fashion sourcer Gab Waller. After stores reopened, shoppers found themselves having to queue outside — sometimes for hours — only to find that what they wanted wasn’t available, she said. Plus, forming relationships with various sales associates can be taxing, and sometimes intimidating.
“A client may go into a boutique and ask for something, and they get laughed at like ‘There’s not chance of [you] having that,’” said Waller. That sort of response leads people to think “why bother?” she added.
For others, doing the shopping themselves — whether scrolling online or working with sales associates in store — just isn’t appealing.
Some sourcers have built a celebrity clientele: Waller works with stars including Sofia Richie Grainge and Rosie Huntington-Whiteley.
“My clients prioritise privacy above all else, especially with their shopping record” said Nicole Pollard Bayme, a stylist and sourcer who goes by Lalaluxe on Instagram. She said her client list includes celebrities, heads of state, CEOs and even royalty. “They don’t want to be in stores, they don’t want the VIC experience. Their biggest luxury is their time and energy.”
For some shoppers, the reason to seek out alternative purchasing avenues is simple: They’re not getting what they want at retail.
That might be because they’re after something that’s popular at the moment, like Miu Miu’s sneaker collaboration with New Balance.
But they could also be a collector that is buying so much — Berk has a select few clients who spend upwards of $2 million a year on bags — that the brand alone can’t satisfy the demand. Privé Porter saw revenue rise 40 percent last year and opened a new store in Las Vegas in February. Berk said as bags get harder and harder to come by at retail, shoppers continue to pay higher and higher prices at resale.
“I don’t know where the limit is,” said Berk. “People that were paying $18,000 in 2018 are willing to pay $28,000 today for that same bag.”
Sourcing Ramps Up
There’s also more ways than ever for shoppers to get their hands on hard-to-get products, going beyond more traditional channels such as auction houses and resale sites like The RealReal. Most recently, a new generation of Instagram-native fashion sourcers and personal shoppers has sprung up to serve eager consumers after all sorts of items.
For most sourcers — who charge a finder’s fee — the journey begins in their Instagram DMs. When it’s an in-season item, they will reach out to a network of sales associates and stores to check back shelves. If it’s a piece a shopper can’t just buy at retail, like a Birkin, vintage piece or rare watch, they go out to a network of dealers, individual sellers and consignment shops. Some will acquire items they know will become popular ahead of time, like a Chanel flat with a distinctive texture or colour, said Christina Samano, a former Neiman Marcus sales associate.
Sourcers aren’t just hunting down Birkins and Rolexes. Waller says Chanel, Hermès and Miu Miu footwear are in demand, as is Loro Piana and The Row — particularly the Margaux bag. At one point last year, requests for Alaia flats made up 70 percent of requests on Sourcewhere, a UK-based app for finding top pieces, and Phoebe Philo-era Celine is always popular, said founder Erica Wright. New arrivals that bubble to the surface and sell out do so after a few influencers start posting them, they say.
Waller, who counts over 81,000 followers on Instagram, gets a minimum of 50 requests a day. Samano has 31,000 followers and says she can’t step away from her phone without being flooded with DMs. Sourcewhere is set to expand into the US in October.
The growing popularity of fashion sourcers — and the fact that Instagram is their place of business — has meant the sourcers themselves have become public figures. Michelle Lovelace, a stylist and personal shopper for celebrities, rose to fame securing the Birkin bags Kanye West gifted to then-girlfriend Julia Fox and her friends in 2022 while Waller signed with IMG earlier this year and contributes to Vogue.
Waller says she couldn’t do her job without strong relationships with brands; still, there’s a bit of resistance — especially among those who don’t distinguish between sourcers and resellers. Sourcers are filling a white space, said Wright, adding shoppers want more service when it comes to fashion.
“The luxury experience has become quite disjointed and more of a gamble,” said Wright. “A curated approach is what shoppers are seeking. They want to feel heard and to have a personalised experience.”
On Heats Up Sneaker Competition in Milan With First Italian Flagship
The Milan unit is the second the brand has opened in Europe this summer, following a new store in Paris.
MILAN — On’s on a roll and ready to bag the rapidly growing community of fans in Italy as it opens its first flagship in Milan.
The Swiss running brand, which continues to gain steam and popularity in and outside the running community, is cutting the ribbon Friday of its new megastore on Milan’s central thoroughfare Corso Vittorio Emanuele II, heating up the sportswear competition on the street, which already hosts flagships from the likes of Nike and Adidas, for example.
Although Italy has been an historically relevant market for the brand, which boasts a widespread network of specialty stockists, On is committed to scaling up its direct-to-consumer presence to enhance the customer journey, explained Bianca Pestalozzi, On’s general manager for the Europe, Middle East and Africa, or EMEA, region.
“We’ve seen good growth in the levels of brand awareness for On, maybe more so in Milan than in cities like Rome, but we’re definitely seeing a lot of growth and brand momentum in the market,” she said.
The Milan store bows a month after the opening of the second Paris flagship on the Avenue des Champs-Élysées. Both cities and countries have huge potential, according to Pestalozzi. “We’ve definitely invested in connecting with [local] communities, with the running community and we plan to continue to do so over the coming years,” she said.
“I think Italy is a little bit unique… in northern parts of Italy the brand is landing with a younger audience, but probably from an ‘all-day performance’ and lifestyle appeal [perspective]. And we definitely want to anchor the brand in the running communities and the performance communities…. that’s a big focus for us in the Italian market,” she explained.
“At the same time, Milan is a key destination — and alongside Paris maybe — the hot spot from a fashion and luxury and lifestyle point of view in Europe,” she continued.
To be sure, after reclaiming the top spot in Lyst’s hottest products list for the second quarter of 2024 with the On x Loewe Cloudtilt 2.0 sneakers, the company is also increasingly leveraging its growing appeal to fashion-savvy consumers.
“With the opening of the Corso Vittorio Emanuele II flagship store and then also by building a stronger presence through digital channels, we plan to deliver a really premium and elevated experience to fans, both locals and also tourists traveling to the city,” Pestalozzi explained.
“We want to continue building strong desirability of the brand in that performance-meets-fashion and culture space,” she noted.
The 5,166-square-foot unit was redesigned by Milan-based architectural studio BBPR to maintain the unit’s historical blueprint, which is defined by strong interaction between the indoor space and the outdoors with its floor-to-ceiling windows overlooking the street’s arcaded walkway. The space previously housed a Gap store.
“We definitely think about our retail stores and the flagships in particular as an experience, and being able to see the best of the brand,” Pestalozzi said, acknowledging the need to tailor experiences catering to communities in specific locations to fuel “desire for uniqueness at the retail store,” she said.
The Milan flagship carries men’s and women’s sneakers and apparel collections as well as limited-edition launches and collaborations. The in-store experience is poised to be further enhanced through the On member’s app launched in 2023, which will be instrumental in getting access to benefits, early product releases and more.
The ground floor displays running gear, sneakers, and new arrivals, with other sports and activities including tennis, as well as the lifestyle selection taking over the lower floor.
In sync with its community-building ambitions, the basement floor features a central square, or piazza in Italian, dedicated to community gatherings, conversations and activations intended to lure brand fans and customers into the store via non-transactional activities.
Building on the retail lessons learned elsewhere, including at Paris’ two units on the Avenue des Champs-Élysées and in the Marché Saint-Germain, On has fine-tuned its customer’s journey, for example displaying total looks which include apparel, a burgeoning category since last year, Pestalozzi explained.
Although the social media-fueled, short-cycle trends tend to flatten customers’ desires and behavior, Pestalozzi believes that “there’s a lot of local nuances in terms of who people look to for influence, and what’s important culturally, in the different markets. So, in Italy you maybe have more of an eye for design, and the color palettes, and I would say the creative direction in the product,” she said.
In the second quarter of 2024 On’s revenues in the EMEA region increased 21.8 percent to 138.4 million Swiss francs. In the quarter overall sales jumped 27.8 percent from the same period a year ago to of 567.7 million Swiss francs.
“Europe is the most mature region in a way because the markets that we’re in… are those where the brand started, where we started our expansion journey and where we had the very first fans when the brand started back in 2010,” Pestalozzi offered.
In addition to Germany, where brand awareness and penetration have continued to pick up since the brand’s foundation, the U.K. has become a relevant market in the region, hosting two of the six retail outposts the company has in the EMEA region. Albeit smaller in volumes, Austria and Switzerland are also in advanced stages of development.
Central Europe is in a transformation stage, Pestalozzi said, focused on “shifting distribution and making sure that the brand is positioned within performance and within the relevant lifestyle and sneaker channels.”
The Milan opening, following the retail rollout in Paris, suggests instead On’s renewed focus on Southern Europe including Spain, Italy and France, the executive explained. “I would say they’re a little bit the next chapter of On’s expansion within Europe. Because we’re still growing from a lower base in in those markets,” she offered mentioning activations such as the Barcelona Marathon that On sponsored this year.
The Middle East is similarly enjoying good momentum, the executive said, with plans to build a more meaningful and multichannel presence in the coming years.
In the most recent quarter, direct-to-consumer sales made up 37.5 percent of On’s total business, with wholesale accounting for a little less than two thirds of the business.
Pestalozzi said On does not plan to streamline its wholesale footprint in the EMEA region but rather “focus on the right partners that help us reach the communities we’re going after.”
“I think the strategy of On has always been to basically go to market direct-to-consumer to reach those communities through our own channels, but at the same time to partner with these different community champions on the wholesale side to be credible with those consumers,” she said.
How Lidl accidentally took on the big guns of cloud computing
A unit of Europe’s largest retailer is offering IT services to companies wary of big providers such as Amazon and Google
Selling bread, butter and other staples at cut-throat prices has made Dieter Schwarz one of Europe’s richest men.
Now the 84-year-old founder of discount retailer Lidl, who according to business magazine Manager Magazin has amassed €40bn in personal wealth, is branching out into a very different staple of the modern world: data services.
Starting with a system built for internal use in 2021, Lidl owner Schwarz Group now offers cloud computing and cyber security services to corporate customers.
Its IT unit, Schwarz Digits — which became a standalone operating division in 2023 — has signed up clients including Germany’s biggest software group SAP, the country’s most successful football club Bayern Munich and the port of Hamburg. Last year, the unit generated €1.9bn in annual sales and it employs 7,500 staff.
“We did not start with a commercial motivation in mind but just wanted to address our own needs,” Christian Müller, co-chief executive of Schwarz Digits told the Financial Times in a rare interview. “We’re on a very steep growth path.”
A main selling point of its service is that all client data is processed and stored exclusively in Germany and Austria, which have stringent privacy and data protection laws.
When Schwarz, a privately held business with €167.2bn in annual sales, was first exploring new options for storing data, it “did not want to be dependent on third parties,” Müller said.
And if there was no German option, it wanted at least to use a European provider and avoid storing data in other jurisdictions. After concluding that no existing provider could meet its needs, the company decided to set up its own cloud service.
“We have loads of highly sensitive data,” said Müller, such as sales patterns for individual stores, pricing calculations, customer information from Lidl’s loyalty programme and details of the group’s 575,000 employees.
When Lidl had its own cloud up and running, it soon discovered that other German businesses were asking themselves the same questions about whether they wanted to use the biggest cloud services based in the US and China.
“It is extremely important that Europe is on top of state-of-the art information technology and able to provide such services,” said Johannes Helbig, professor for digital sovereignty at Erlangen-Nürnberg University, adding that Schwarz Group’s approach was “important and much welcome” and “a highly encouraging role model”.
A precondition for an interview at Schwarz Group’s IT control centre in its sprawling headquarters was not to disclose its precise location on the estate. The group worries about the security of the nerve centre that is vital to the running of its 14,000 Lidl and Kaufland stores globally, as well as 220 warehouses and a growing number of factories that churn out products including bottled water, pasta and ice cream.
Before entering the premises, visitors must leave their mobile phones and all other electronic devices in a locker outside, and access is controlled by staff on a desk, as well as an automatic door controlled by a palm vein scanner.
The business is notoriously publicity-shy and only a few years ago started to hire media relations staff. It is based in the outskirts of Neckarsulm, a small town of 27,000 in Germany’s wealthy south-west, and has slowly opened up in recent years. It now sponsors the Lidl-Trek Tour de France cycling team and was a high-profile partner of the Euro 2024 football tournament, with the children who walked the players to the start wearing Lidl-branded kit.
Last year, Schwarz decided to dip its toe in artificial intelligence, acquiring a minority stake in German AI start-up Aleph Alpha.
Dieter Schwarz is taking this opportunity to pursue broader goals in the fast-developing technology: his charitable foundation is working with the company’s home state of Baden-Württemberg to fund an AI campus in the city of Heilbronn. The campus aims to become “the global home” of applied AI and is partnering with Aleph Alpha.
Schwarz Digits’ focus on cloud computing, cyber security and AI was “well thought through”, said Axel Oppermann, owner of German IT consultancy Avispador, because all three areas were “highly relevant for clients”. The size and financial power of its owner made Schwarz Digits more attractive to external clients who “are looking for an IT partner who won’t be gone within two years,” he added.
While Schwarz Digits had become “a credible regional challenger” to large incumbents such as Amazon Web Services, Google and Microsoft, Oppermann said the firm was at competitive disadvantage because it lacked their wide networks of external service partners, which market cloud products and help with the implementation and management of services. Amazon Web Services, for example, has a network of 130,000 partners in 200 countries.
But for regional companies with a close eye on data privacy and control, Schwarz Digits is an attractive option. “The key reason for us [to use Schwarz] was the offer’s digital sovereignty,” Bayern Munich told the FT, adding that Schwarz Digits’ focus on data protection and privacy stood out. “There is no comparable product available on the market,” the club said.
Its cyber security products have also convinced software juggernaut SAP, which became a client in 2023. The Schwarz cyber security platform “is showing us our IT systems from the perspective of a potential attacker,” SAP told the FT, adding that this was useful for identifying weak spots and analysing potential threats.
Schwarz built up this expertise in 2021 when it bought Israeli cyber security company XM Cyber for $700mn. Initially it had wanted only to become a client of the firm, which was co-founded by a former boss of Israel’s secret service Mossad.
“We evaluated every available cyber security product and concluded that XM Cyber’s was the best by far,” said Rolf Schumann, Schwarz Digits’ other co-chief executive. But the group then discovered XM Cyber was considering a stock market listing and worried that this could lead to the departure of key staff. “Hence we decided to add the whole company to our group.”
Schwarz’s investment in AI was “the next logical step” in broadening its tech expertise, said Müller. When Aleph Alpha raised more than €100mn in fresh equity last year, Schwarz Digits took part in the funding round, which also included research grants and business commitments worth close to €400mn.
But just as caution about security and privacy has shaped Schwarz’s approach to cloud computing, its use of external AI is being guided by similar principles.
While the company views it as a crucial emerging technology, it is wary about internal data being used with AI tools that are outside its control. “We did not want to run into this trap,” said Müller. Hence it decided to block access to ChatGPT for staff “on day one” when the chatbot was launched.
London landlords leave the market in increasing numbers
Buy-to-let property sales are on the rise
An increasing number of buy-to-let properties in London are coming up for sale, limiting the availability of rental homes for tenants, research has found.
The share of properties in inner London that were rented at some time within the past 10 years reached 22 per cent of all homes newly listed for sale in the capital in data in July 2024, according to consultancy TwentyCi. A 10-year high, this compares with a share of just under 9 per cent across the UK.
The upward trajectory in the proportion of landlord sales has been substantial over the past five years, going from 15.6 per cent in July 2023 and 12.9 per cent in July 2019 — the last year of “normal” market conditions prior to the pandemic.
Colin Bradshaw, chief executive of TwentyCi, said factors behind higher sales included lower yields, fears around the risk of Labour raising capital gains tax, and an expected wave of measures such as the requirement for a minimum emissions rating of “C” for rented properties by 2030.
“If you think about it in the round, there is a lot more for landlords to comply with compared with where we were 10 years ago.”
The rapid pace of house price rises over the past decade has slowed recently, curbing capital gains, while higher mortgage costs have eaten into profits. Conservative chancellors looking to support first-time buyers introduced measures from 2016 designed to damp growth in landlord sales, limiting tax relief for higher rate-paying landlords and bringing in a stamp duty surcharge on buy-to-let and second homes.
Now the Labour government has said it will press ahead with amended plans for rental reform, under which tenants will have greater protection from “unreasonable” rent rises, while the “no-fault” eviction arrangements currently used by landlords will be scrapped.
A slowdown in the market for landlord investment was suggested last month by data on mortgage volumes. In the first three months of 2024 more than 41,000 buy-to-let loans were advanced in the UK, totalling £7bn, according to industry group UK Finance. This was a 16.7 per cent drop in the number of loans and a 17.3 per cent decline by value, compared with the same quarter in 2023.
Property site Zoopla said that, in spite of a recent easing of the strains on supply, the average letting agent still has a third fewer homes to rent compared with the pre-pandemic average.
This shortage of available property has driven higher rents. Growth in London rental costs soared by 17 per cent in 2022, with UK rents rising 11.9 per cent, according to Zoopla.
This has now softened to 5.7 per cent in the 12 months to June, the lowest UK growth rate for nearly three years. In research this week, Zoopla also recorded slight falls in rents in cities such as Nottingham, London, Brighton and Glasgow, as demand has eased.
In several places near major conurbations, where renting is better value for money, however, rents continue to rise. Rochdale added 6.9 per cent in the first half of 2024, with 5 per cent growth in Doncaster and Southend.
Zoopla said: “A small, but not insignificant, number of private landlords are continuing to sell rented homes in the face of a changing business environment and higher mortgage rates. This is acting as a drag on the total number of properties available to rent.”