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The current formulaic, corporatised, anodyne approach to fashion is not working. The industry needs to find its courage to be creative again, writes Imran Amed.

LONDON — Lately, something has not been feeling quite right in luxury fashion. First Kering, and now LVMH and Chanel, seem to be creeping into crisis management mode.

As has been well documented, Sabato De Sarno’s creative directorship at all-important Gucci has not yet ignited industry interest. Meanwhile, customers haven’t had the opportunity to see much new product in store, hobbling Kering’s post-Covid performance. None of the other Kering brands are registering meaningful growth that can make up for this, leaving the group with a very complex multi-faceted turnaround to execute.

Over at LVMH, things are getting more challenging too. According to market sources, sales at Dior are flagging, which perhaps explains why the house’s March 23 men’s show in Hong Kong was “indefinitely postponed” just a few weeks before it was due to take place. Meanwhile, Fendi and Givenchy seem to be in stasis mode, while reports that Hedi Slimane is about to leave Celine following “thorny contract negotiations”with his bosses at LVMH further complicates matters.

And then just last week, Chanel suddenly lost its creative director, Virginie Viard, and in a not very Chanel way, especially for someone who had dedicated 30 years to the house. The fact that Viard’s exit happened so quickly with no succession plan in place makes it clear that neither side had planned for this to happen now. Chanel’s creative conundrum comes amid market reports that sales are down in almost every market this year.

But it’s not just these designers and these houses that are troubled. Burberry’s mooted elevation strategy is not yet delivering results and Lanvin, which has been without a creative director for more than a year, seems to be languishing even if CEO Siddartha Shukla is working hard to keep the brand relevant. After John Galliano wiped his Instagram account, the rumour mill started whirring that he would be leaving his creative directorship at Maison Margiela.

Meanwhile, a number of talented designers remain without big jobs. Pierpoalo Piccioli suddenly exited Valentino in March and Sarah Burton announced last autumn that she was leaving Alexander McQueen. Both designers had worked with their respective houses for more than 20 years and haven’t popped up anywhere else, in spite of their talent. Neither have Riccardo Tisci or Claire Waight Keller who left Burberry and Givenchy several years ago.

What explains this pattern of events? There are a variety of forces at work, but I think it has something to do with a gradual breakdown of the social contract between creatives and their corporate bosses, who are not championing creativity in the way they once did.

Once upon a time, people like Bernard Arnault and Francois-Henri Pinault were willing to take creative risks to boost the fortunes of small-ish fashion brands. When Arnault appointed Marc Jacobs to become the first creative director of Louis Vuitton in 1997, the brand had no ready-to-wear collection. Arnault knew Vuitton could benefit from an injection of creative energy, just as he did with John Galliano at Dior that same year.

Now, the sheer scale of these businesses means there is a lot more at stake. And as luxury brands brace themselves for an extended ‘normalisation’ period, it seems the mantra is to take the safe route — even if that means appointing no creative director at all. Chanel is unlikely to have a new creative director for sometime, and LVMH-owned Berluti has been operating without a creative director for several years.

There are exceptions to this fashion monotony, of course. Jonathan Anderson’s Loewe manages to both surprise creatively and create commercial impact. Prada and Miu Miu are also creative highlights that are driving commercial success. Both Anderson and Miuccia Prada have a proven ability to push things forward, while also finding ways to ensure the business is still growing. These brands may soon face a different challenge. They need to carefully balance growth with over-exposure, as if growth happens too quickly, it may not be sustainable over the long-term.

Most of the brands that compete with Prada and Loewe for attention have backed away from high-risk, high-reward fashion driven by creativity. Now the approach is more formulaic, akin to selling luxury merch in an overpriced supermarket. Karl Lagerfeld may have predicted with his Autumn/Winter 2015 Chanel show.

This is a world where one brand’s $1,000 hoodie is indistinguishable from another’s. Where it is easier to copy the shape of a box bag with gold logo hardware that is working at another brand, than coming up with a unique shape of your own. Customers have cottoned onto this, and would rather spend their money on one-of-a-kind experiences or hard-to-find vintage pieces than have the same thing as everyone else.

But the lack of creativity and magic does not end there. The fashion system has also been buffeted by the sudden collapse of Matches and Farfetch, and the slow but steady decline of the once-dominant luxury e-commerce behemoth Yoox Net-a-Porter, which is a shell of its former self. The experience and assortment at Farfetch was not so different from Matches which was not so different from Net-a-Porter. This is in part because the people who bought or invested in these companies had no real. understanding of the creativity and taste required to create world-class retail. (Some of them did not understand how to manage technology either, but that’s a whole other analytical exercise.)

This meant the only way to compete was on price, which led to a downward spiral of discounting, training customers to wait for discounts, making profitability almost impossible to achieve. Sadly, the collateral damage has been independent fashion businesses that dependend on these platforms in the early stage of growth. Independent brands on both sides of the Atlantic are now on the brink, further diluting the creative lifeblood of fashion.

The result of all this is a fashion industry that fails to inspire customers, and not even ourselves. The current formulaic, corporatised, anodyne approach to fashion is clearly not working. This leaves me with the sinking feeling that things are about to break down. Maybe that’s what fashion needs to find its courage to be creative again.

Tempus, a genomic testing and data analysis company started by Eric Lefkofsky, who previously founded Groupon, debuted on Nasdaq on Friday, rising about 15% on the opening.

The company priced its IPO on Thursday at $37 apiece, at the top of its $35 to $37 price range, raising nearly $411 million at a fully diluted valuation of over $6 billion. Tempus’ last official private valuation was $8.1 billion, however, and PitchBook data estimates that the company was valued at $10.25 billion in late 2022. Shares closed the first day of trading at $40.25, up nearly 9% from the IPO price.

Despite the substantial discount from its previous valuation, the IPO is a feat for an unprofitable company during what’s considered to be a lukewarm time to launch public offerings. Tempus’ revenues were $531 million in 2023 with a net loss of $290 million. But the company’s operating losses have shrunk from 83% in 2022 to 37% in 2023, and Lefkofsky told CNBC that he expects Tempus to be cash-flow and EBITDA positive in 2025.

Lefkofsky founded Tempus in 2015, after noticing that doctors didn’t rely on data during his wife’s treatment of breast cancer. He said he set out to build a company that uses technology and data derived from genomic sequencing.

Tempus is now trying to position itself as an AI company, even though AI revenue accounted for only $5.5 million of revenue, approximately 1% of its 2023 revenue. The company said in its prospectus that its AI product line is nascent, but it intends “to embed AI, including generative AI” in every aspect of its diagnostics tools.

Lefkofsky is by far the largest shareholder in the company. According to the S1, he holds 30.1% of the company and 65% of shareholder voting power, due to the dual-class share structure. A firm controlled by Kimberly Keywell, the former wife of Brad Keywell, Lefkofsky’s longtime business partner, owns a 10.2% stake in Tempus. Scottish asset manager Baillie Gifford, holds 5.9% of the company, worth $350 million at the IPO price.

Early shareholders in Tempus include NEA, Revolution and T. Rowe Price. The company raised a $200 million Series G5 from SoftBank in April. Tempus is the fourth company Lefkofsky is taking public. He is most known for having founded Groupon, which went public at a valuation of nearly $13 billion in 2011 but now trades at under $600 million.

Broadband groups Netomnia and Brsk agree tie-up as ‘altnet’ M&A continues

Deal is latest example of consolidation in fast-growing sector providing alternative full-fibre networks

UK broadband providers Netomnia and Brsk are merging in a deal that marks the largest consolidation of alternative network providers yet, as the sector attempts to challenge BT and Virgin Media O2 in the rollout of full-fibre across the country.

The companies agreed the tie-up on Wednesday, which will create one of the largest so-called “altnets”.

Investors have poured billions of pounds into altnets, which position themselves as alternatives to the incumbent providers of full fibre. Consolidation in the sector has been widely anticipated as the industry turns its attention from laying fibre to signing up customers, with backers hoping to recoup their investment in the digital infrastructure upgrade.

Other mergers and acquisitions in the sector have included leading altnet CityFibre in March announcing it would acquire Lit Fibre and Virgin Media O2 in September agreeing to acquire Upp, which the Russian oligarch-backed investment company LetterOne had been forced to sell on national security grounds.

The deal will involve Brsk moving under the umbrella of Netomnia’s parent holding company, Substantial Group, but it will be run as a separate entity with Giorgio Iovino, Brsk’s chief executive, remaining in the role.

A new wholesale company will also be created, which will aggregate the two networks and eventually seek to acquire other altnets.

No financial details were disclosed. Substantial Group will be valued at £1.1bn after the merger with Brsk, according to people close to the matter.

Jeremy Chelot, chief executive of Substantial, Netomnia and sister internet service provider YouFibre, told the Financial Times the tie-up was “one big step towards [the] goal” of becoming the third-largest full-fibre network in the UK to rival BT’s Openreach and Virgin Media O2.

He added that fragmentation in the market — which includes dozens of altnets — had created “uncertainty”, and the deal could contribute towards an “environment which is sustainable from a competition standpoint”, with the company also interested in further consolidation.

The full-fibre services provided by the two companies will be available to 1.5mn premises with 140,000 customers connected already. The group plans to use up to £900mn of debt to reach 3mn premises and about 500,000 customers by the end of 2025.

Iovino said the pair would break even on earnings before interest, taxes, depreciation and amortisation “a lot sooner by coming together” and the group was positioning itself as an “attractive consolidator” and an alternative to other dealmakers in the market.

The Netomnia-Brsk deal is set to be finalised in the coming weeks, subject to regulatory approval. No job cuts are expected.

The collective altnet footprint reached 12.9mn premises and 2mn customers at the end of 2023, according to the Independent Networks Cooperative Association.

Incumbent BT is investing £15bn in its own full-fibre project and in May said it had reached more than 14mn homes and 4.8mn customers. The FTSE 100 company reported broadband line losses of 491,000 in its 2024 financial year and warned of “moderately higher competitor losses” if the market remained weak over the next 12 months.

NextEra’s Rebecca Kujawa warns clean energy duties are raising costs for US consumers

The largest US renewables developer has warned President Joe Biden not to impose more trade tariffs on Chinese clean energy technologies, saying it risks slowing the green transition.

Rebecca Kujawa, chief executive of NextEra Energy Resources, told the Financial Times that tariffs were raising costs for consumers and making it “more difficult” to accomplish the country’s clean energy goals.

“It adds to the level of uncertainty,” said Kujawa.

“Any uncertainties in the development process can definitely create higher costs for customers and make it more difficult to get some of the clean energy goals that the Biden administration has over the finish line.”

The statement from NextEra adds to a chorus of complaints from industry groups and developers, warning new duties will slow and increase the cost of decarbonisation.

Last month, the Biden administration introduced a round of tariffs on Chinese clean technologies to protect the nascent US industry after warnings that cheap imports have made it difficult for manufacturers to operate, even with subsidies from the landmark Inflation Reduction Act.

On June 7, the US International Trade Commission voted unanimously to continue investigating a petition filed by a group of solar manufacturers, including First Solar and Qcells, calling for anti-dumping duties on Chinese solar cell producers in south-east Asia, where the US sources the bulk of its panels.

“Trade relief is vital to the burgeoning growth in the industry. Without it, subject imports will take over the US market,” said Laura El-Sabaawi, a partner at Wiley Rein representing the petitioners at an ITC hearing in May.

The potential new tariffs have sharply divided the industry between large domestic manufacturers, who argue they are necessary to compete with cheap imports from Asia, and operators, who warn tariffs will raise the prices of renewables due to the limited domestic supply.

“If solar is deemed to be a product that has a very uncertain cost, it’s hard for customers to make commitments to utilise that technology,” said Jim Murphy, chief executive of Invenergy, a US renewables developer that produces panels with Chinese manufacturer Longi in Ohio.

“We don’t have domestic manufacturing here, so why should we be tariffing the imports?”

The tariffs splitting the clean energy industry underscore the difficult balancing act facing the Biden administration as it vies to green the world’s largest economy while building out a supply chain for clean technologies, the bulk of which is produced in China. 

“There is a natural tension between China policy and climate policy at this point in the US,” said Herbert Crowther, an analyst at Eurasia Group, adding that tariffs would result in “slower, short-term deployment” until a domestic industry was developed.

“In the US political context, ultimately, China policy sells much more than climate policy.”

Expectations of soaring power demand from data centres for artificial intelligence and manufacturing have added pressure on the US grid to decarbonise. The US installed 5.6GW of new solar, wind and battery systems in the first quarter of 2024, up 28 per cent from the same period last year, according to the American Clean Power Association.

The White House has set a target of 80 per cent renewable energy generation by the end of the decade and 100 per cent by 2035, compared with just over 20 per cent last year.

Kujawa also warned lawmakers against the politicisation of clean energy, highlighting its role in economic development. Headquartered in Juno Beach, Florida, NextEra has transformed into a renewables behemoth over the past decade in a Republican-governed state that has rallied against prioritising climate change mitigation. Earlier this week, NextEra announced it would double its existing renewables capacity by 2027, deploying 37GW-47GW.

“Renewables have spurred economic development in local communities,” said Kujawa. “If we don’t feed into the politicisation, the reality of the real economic development, the real value to customers is able to shine through.”

Stephen Lansdown says he wants to know what any new owner would do with the retail investment site

One of Hargreaves Lansdown’s co-founders and top shareholders has warned that “price is not the main consideration” if private equity firms make a firm takeover offer for the investment platform this week.

Stephen Lansdown, who co-founded the UK’s largest retail investment service with Peter Hargreaves more than four decades ago, told the Financial Times that he would want to know what private equity firms would do with the business if they bought it. He owns a stake of nearly 6 per cent.

A group of private equity firms, led by CVC Capital Partners, made a £4.67bn offer for Hargreaves Lansdown in April, which the board rejected in the view that it “substantially undervalued” the business. Shares rose more than 15 per cent after the approach emerged.

The private equity firms, which include Nordic Capital and Platinum Ivy, a wholly owned subsidiary of the Abu Dhabi Investment Authority, are now considering whether to make a firm offer by the deadline on Wednesday — or to walk away.

“The conglomerate — and we’re waiting to see if they come back — has given no indication of what they want to do with the business and how they see the business developing,” Lansdown said. “I would want to know what their plan is for looking after clients and staff in particular. Price is not the main consideration if it’s not taking on the business in the right way.

“I’d be very surprised if they didn’t come back with a further bid; it’s then up to the board of HL whether they bring it to the shareholders or reject.”

He added that the approach had relieved “pressure” on Hargreaves Lansdown’s share price, which had fallen from £24 in 2019 to as low as £7 this year. He said that the company had also become one of the most shorted stocks on the London market.

One top 20 shareholder said that “hedge funds [shorting the stock] have completely missed the wood for the trees, ignoring the growth in customer numbers and assets that HL is consistently achieving”.

He added that other companies, such as banks, could make an approach, given Hargreaves Lansdown’s dominance of the retail investment market. “It would be impossible to build HL’s market share from scratch, so I would expect any US or European bank to be looking closely at HL if they have any ambition to build a position in one of the world’s largest pools of household wealth.”

Hargreaves Lansdown oversees £150bn in customer assets for some 1.8mn customers.

Nick Train, another top shareholder with a holding of nearly 13 per cent according to Refinitiv, said that the private equity approach was unsurprising because the stock was undervalued.

“Its prior stock market valuation had seemed exceptionally low,” Train said. “But many UK-listed asset and private wealth management franchises seem exceptionally lowly valued, too.”

Hargreaves Lansdown and the private equity consortium declined to comment.

FTC Chair Lina Khan was the youngest person appointed to her position when she assumed the job in 2021. But once her term ends in September – after which she’ll stay until a successor is named – her age might be the last thing that people remember about her reign.

It’s more likely that Khan’s legacy will be taking on Big Tech – and doing it very publicly. Unlike her decidedly low-flying predecessors, Khan talks routinely with the media about how the FTC executes on its mandate of both enforcing antitrust laws and protecting consumers, putting today’s tech giants on constant notice.

The strategy is all the more notable given how small the FTC really is, with just 1,300 employees who work roughly 150 cases simultaneously and are backed by an annual budget of just $400 million. That’s a drop in the ocean for some of the outfits the agency investigates.

We talked with Khan about her approach – and what she thinks Silicon Valley misunderstands about it – in a sit-down earlier this week at one of TechCrunch’s more intimate StrictlyVC events, this one held in Washington, D.C. Outtakes from that conversation have been edited for length below. You can listen to the talk in its entirety here.

Over the last two decades, Washington has become dominated by massive players like Google and Microsoft. I was hoping we could start with the Wall Street Journal’s report that federal regulators are moving forward with an investigation of some of these big players – Microsoft, OpenAI, and Nvidia – if there’s anything you can say about your plans.

You’re right that there is a lot of interest across D.C. and making sure that we are able to harness the opportunity and potential that these tools present while also making sure that these markets stay open and fair and competitive, rather than allowing certain types of bottlenecks or choke points to emerge in ways that could undermine that competition and that opportunity and that innovation . . . I was out in Silicon Valley a few months ago, and it was really interesting to hear from those founders in particular about how right now there is a whole lot of opacity around who’s getting access to some of these key inputs, be it compute, be at the models, be it whether there is any guarantee that you’re not effectively feeding back proprietary information. And so I think, there’s a lot of excitement, but we’re also hearing some weariness that can emerge when you realize there’s a lot of power already concentrated, and then that power being concentrated could foreclose innovation and competition.

It also seems like some of the people that you are trying to regulate are getting more creative about the deals that they’re striking, like Microsoft’s deal with Inflection AI, an AI company whose co-founder and employees were hired by Microsoft back in March and that is now being paid a $650 million licensing fee by Microsoft so it can resell [InflectionAI’s] technology. It’s not technically a merger. Did they talk to your agency or other regulators about what they were doing?

I’m limited in what I can say about some of these specific deals or specific potential matters. I will say that we are interested in being vigilant to make sure that we’re not seeing evasion of the existing laws. We’ve been really clear that all of the existing laws still apply: the laws prohibiting mergers that may substantially lessen competition, the laws that ban price fixing and collusion. Whether you’re doing that price fixing through an algorithm or through a handshake, both are still illegal. So across the board, we’re trying to scrutinize and make sure we’re not seeing some of these innovations in potential lawbreaking. We want to make sure that everybody’s playing by the same rules.

I will say that earlier this year, we also launched an inquiry into some of these strategic partnerships and investments to make sure we were understanding what was really going on here. We’d heard some concerns about, for example, whether some of these partnerships and investments could be resulting in privileged access for some or exclusionary access for others . . and that work is still ongoing as well.

Apple also made a lot of announcements [this week at WWDC]. It said it’s integrating OpenAI into some of its offerings; it said it is also open to working with other third parties, including potentially Google Gemini. It seems like a lot of the partnerships are among the same players that are probably a bit concerning to you right now. What did you think of what came out of that event?

We’ve seen that some of the most significant breakthrough innovations have historically come from the startups and the entrepreneurs and the small guys who are able to just see things differently, see an opening in the marketplace, and really disrupt in ways that disintermediate the big guys . . .

It’s true that right now, what we could be saying is that some of the existing incumbents may be controlling access to the inputs and the raw material that’s needed for some of these innovations. And so we need to be vigilant to make sure that that moment of competition and innovation and disruption is not going to be coopted by the existing incumbents in ways that we’ll close off the market, and prevent us from really enjoying the innovations and competition that have historically kept our country ahead . . .

I know you don’t buy this argument that these companies have to be protected [from antitrust action] because if they’re slowed down in any way, it weakens the U.S. as a country. And on the one hand, plenty of people agree; they want to see things broken up so that startups can breathe. Others might say, ‘This technology moves much faster than anything we’ve ever seen before. Autonomous weapons can incorporate this technology.’ How do you lay out the case for breaking things up while also not putting the country at any risk?

Even 40 or 50 years ago, as the Justice Department was investigating AT&T, it was the Defense Department that stepped in and said, ‘Hey, we really need to tread carefully here because taking antitrust action against AT&T could pose a national security risk.’ And so even back then, we were hearing a lot of these analogous arguments.

There are some natural experiments. At various moments, we faced a choice as to whether we should protect and coddle our monopolies or instead whether we should protect the laws of fair competition. And time and time again, we chose the path of competition. And that is what ended up fueling and catalyzing so many of these breakthrough innovations and so much of the remarkable growth that our country has enjoyed and that has allowed us to stay ahead globally. If you look at some other countries that instead chose that national champions model, they’re the ones who got left behind. I think we need to keep those lessons of history in mind as we again choose a path.

There are founders and VCs in this audience who have mixed feelings about you because they want their companies to thrive, and they’re worried that you’ve been so vocal about having your eye on Big Tech that companies aren’t making any [acquisitions]. Exits are a huge path for VCs and for founders; how do you make them comfortable that you’re doing what’s best for them in both the short and long term?

Certainly, we understand that for some startups and founders that acquisition is a key exit path that they’re interested in. Really, what the law prohibits is an exit or an acquisition that’s going to fortify a monopoly or allow a dominant firm to take out a nascent threat and a competitive threat. . . Just to step back, in any given year, we see up to 3,000 merger filings that get reported to us. Around 2% of those actually get a second look by the government, so you have 98% of all deals that, for the most part, are going through.

I’ll also say that if you are a startup or a founder that is eager for an acquisition as an exit, I would think that a world in which you have six or seven or eight potential suitors is a better world than one where you have just one or two.

There are 1,500 people at the FTC?

Around 1,300, which is actually 400 fewer people than in the 1980s, even though the economy has grown 15 times over so . . we’re a small agency, but definitely punch above our weight.

I don’t know if you’re taking more actions than your predecessors, or if you’re just more visible about it. Do you know if you’re moving at a faster pace than your predecessors in the role?

You can look at the numbers and there are some upticks there. But to my mind, counting the number of lawsuits or the number of investigations is only one way to try to capture impact. The types of cases you’re bringing is also important. One thing that’s been important for me is to make sure that we’re actually looking at: where do we see the biggest harm? Where do we see players that we think are more systematically driving some of these problems in illegal behaviors? So in the same way that being able to go after the mob boss is going to be more effective than going after some of the henchmen at the bottom, you want to be effective in your enforcement strategy. That’s why we have been looking upstream and taking on lawsuits that can really go up against some of the big guys; we think if we’re successful, [it will] have a really beneficial effect in the marketplace.

When it comes to deterrence, I think we’re already seeing some of that. We hear routinely from senior dealmakers, senior antitrust lawyers, who will say pretty openly that as of five or six or seven years ago, when you were thinking about a potential deal, antitrust risk or even the antitrust analysis was nowhere near the top of the conversation, and now it is up front and center. For an enforcer, if you’re having companies think about that legal issue on the front end, that’s a really good thing because then we’re not going to have to spend as many public resources taking on deals that we believe are violating the laws.

To scale your relatively small office, which has a fairly constrained budget, are you using AI?

We are thinking about: are there ways, especially with some of our economic analysis, to be benefiting from some of these tools? Obviously, being able to do that requires pretty significant compute upgrades, which we’re asking Congress for more funding to be able to [secure].

Nike faces uphill climb in sneaker wars

Overreliance on retro brands, insufficient innovation and neglecting the athletics market have hampered the shoemaker

Nike has lost its stride. Once the pace setter in the $150bn a year global trainers market, the US sportswear giant is in the midst of its worst sales slowdown in decades. The company is expected to eke out only a 1 per cent increase in annual sales when it reports its fiscal 2024 results this month. Excluding the pandemic and the 2009 global financial crisis, that would be the company’s worst showing since 1999. Nike needs to return to its roots as a maker of innovative footwear.

The stock, down nearly 50 per cent from their 2021 peak, shows how far Nike has veered off track. A valuation of 25 times forward earnings is also well below its five-year average of 33 times.

Competition is one problem. Cautious consumers in its two key markets — North America and China — are another. But Nike has also made plenty of strategic mistakes of its own: chief among them is an overreliance on retro sneaker sales, insufficient investment and innovation in new products and neglecting the athletics market.

Under John Donahoe, chief executive since 2020, Nike leaned into the retro trend. It has substantially increased the number of new Air Jordans and Air Force 1 releases in recent years. The strategy worked to the extent that the Jordan brand pulled in $6.6bn in wholesale revenue in fiscal 2023, a 29 per cent jump from the year before.

The flipside is that Nike runs the risk of saturating the market. Jordan-driven sales growth has blinded Nike to growing competition in the performance products category that caters to casual and serious athletes.

In running, Nike has lost ground to Hoka. The high-performance running shoes, with their signature giant sole, generated more than $1.8bn in sales last year for parent company Deckers Brands, a 28 per cent increase from the previous year.

At On, an upstart running brand from Switzerland, sales grew by nearly 50 per cent to SFr1.8bn ($2bn) last year. Shares in Deckers and On are up 103 per cent and 44 per cent over the past year, compared to Nike’s 17 per cent decline.

Peddling in-demand brands to affluent customers means Deckers and On command pricing power. Gross margins at the two increased to 55.6 per cent and 59.6 per cent, respectively, last year. Nike’s margins hover around 45 per cent.

This battered stock offers plenty of potential. With annual revenues of $51bn, Nike remains one of the world’s most recognisable consumer brands. Profit is growing again thanks to cost cutting. But confronting new upstart rivals will require a faster pace of change.

Luxury ecommerce platform’s decision comes at a time of weaker economic momentum in the mainland

Luxury clothing sales platform Yoox Net-a-Porter is closing its China operations, highlighting its struggle to compete in a vast ecommerce market where high-end retailers face a weaker economic backdrop.

The decision was made “in the context of a global Yoox Net-a-Porter plan aimed at focusing investments and resources on its core and more profitable geographies”, said a spokesperson for Richemont, the Swiss luxury group that owns the retailer.

Yoox Net-a-Porter operated in China under a joint venture with Chinese ecommerce group Alibaba, which will be liquidated, according to a person familiar with the matter.

Profitability in China’s luxury market, a crucial source of sales for big international groups, has come into sharp focus this year as a prolonged property slowdown and lagging consumer demand have weighed on the world’s second largest economy. 

François-Henri Pinault, chair of French luxury group Kering, in April pointed to “sluggish market conditions, notably in China” as a factor in its worsening performance in the first quarter.

Gucci, one of the group’s main brands, has suffered flagging sales in the mainland, where growth at LVMH, the world’s largest luxury group, has also come under pressure, though other brands such as Hermès have defied the gloom.

Net-a-Porter, which launched in London in 2000 and became well-known in Europe as an online platform for luxury clothing, merged with Italy’s Yoox in 2015. It entered China in 2013 and the combined group’s owner, Richemont, in 2018 entered a partnership with Alibaba to “bring its retail offerings . . . to Chinese consumers”. At that time, it said it distributed 950 luxury brands in the country.

A year later, YNAP launched a store on Tmall, an ecommerce platform owned by Alibaba and the largest of its kind in China.

Jacques Roizen, managing director at Shanghai-based consultancy Digital Luxury Group, said that the business model “never really made sense in the Chinese consumer market dominated by Tmall and JD[.com]”, referring to Alibaba’s chief competitor, adding that Alibaba “invested in the joint venture to enhance its luxury credentials”.

Richemont has been seeking to offload its majority stake in YNAP for years, but a sale to online rival Farfetch fell through at the end of 2023.

The world is not just China and the US’: luxury industry confident despite headwinds

Last month, the Swiss luxury group, which also owns brands such as Cartier and Van Cleef & Arpels, said that “discussions are ongoing with potential buyers” and that it “expects to be in a position to disclose more before the end of the year”.

China’s wider retail market has also showed signs of pressure. Uniqlo, which has grown dramatically in the mainland over recent years, is scaling back new store openings from 80 to 55 this financial year, its parent company Fast Retailing said.

In the luxury market, Roizen suggested that ultra-high end brands were more resilient to economic pressure.

“The brands that have been fuelling their growth with the rise of the middle class are the ones that are exposed to the current economic environment in China,” he said.

Starbucks is growing at a rapid pace, and continues to adapt with greater efficiency and diverse products.

Starbucks is brewing plans for a turnaround after surprisingly weak second-quarter earnings.

Same-store sales at the world’s largest coffee chain declined 3% in North America and 6% in international markets, the result of soft demand and more competition in China.

The stock, which has slumped almost 17% this year, now looks oversold. Starbucks is still growing at a rapid pace and continues to adapt through smaller stores, greater efficiency, and diverse products to attract new customers. If those measures are successful, the stock could see a big bounce.

Americans are also drinking coffee more than ever. The National Coffee Association reports that two out of three adults in the U.S. this year had coffee in the past day. The share of consumers who bought from coffee shops in the past day nearly doubled to 15% in 2024 from 8% the year before.

The U.S. coffee shop market grew 8% over the past year to nearly $50 billion, now standing 4% above prepandemic levels, according to the Project Café USA 2024, an industry report from coffee consulting firm World Coffee Portal. And Starbucks, with more than 16,000 outlets in the U.S., remains the leader, with a 40% market share.

“It’s tough to keep growing the same-store sales, but Starbucks remains a formidable brand that’s operating at an unprecedented scale in the global coffee market.” says Jeffrey Young, CEO of Allegra Group, the parent company of World Coffee Portal.

But Starbucks is facing some headwinds. Inflation has curtailed consumers’ willingness to spend. Boycotts stemming from its position on the Israel-Hamas war, and workers’ unionization efforts are taking a toll. Boutique coffee shops and smaller chains like Dutch Bros and Scooter’s Coffee are growing quickly, elbowing in on Starbucks’ business.

Instead of getting a cheaper item on the menu, consumers often stop buying from Starbucks entirely and get their fix at convenience stores or at home. And, Starbucks doesn’t get the trade-down business from higher-end brands because it’s already the premium player in the coffee market.

“The casual drinker who might stop by for an afternoon cold brew or weekend Frappuccino has fallen off the map,” says Morningstar analyst Sean Dunlop.

Still, Starbucks continues to grow. In the past four quarters, it added nearly 600 new stores in North America and 1,700 overseas. In emerging markets like India, Southeast Asia and Latin America, penetration is still low, presenting room for growth.

This could help buffer any short-term weakness in the domestic market. Despite the expanding footprint, there is little sign of cannibalizing. Average annual sales for company-owned stores continue to rise, reaching $2.3 million in fiscal 2023.

“They are the dominant player of an addictive product. You really can’t get a better business model than that,” said Burns McKinney, a portfolio manager at NFJ Investment Group , which owns the stock.

Beyond the unparalleled scale, what’s kept Starbucks ahead is its ability to continuously innovate its business model and products.

The company has gone through a major shift toward cold beverages in the past decade; those now accounts for over 60% of its drink orders. Many are customized with flavored syrups and extra espresso shots, which not only differentiate the brand from competitors but also are more expensive.

And Starbucks continues to roll out new products to attract younger customers, who are increasingly looking for interesting flavors and textures. Lavender-flavored drinks, which made their debut this spring, have been hits, according to the firm.

Starbucks also has launched drinks with soft jelly balls—so-called “pearls”—and new energy beverages are on the way. Those could help boost sales in the afternoon, says Eric Strange, a portfolio manager at Bahl & Gaynor, whose fund owns the stock.

While Starbucks prides itself as a “third place” outside of work and home for social gatherings, it’s quickly turning into a convenience-focused brand. Much of its new stores in the past few years came with drive-through lanes, and mobile orders now make up 31% of total transactions.

The ballooning number of orders and special customer requests have brought some operational challenges. In the latest earnings call, management noted that a midteens percentage of Starbucks’ mobile orders weren’t completed, likely due to long waiting time.

The company is taking steps to become more efficient, adopting, for instance, a compact workstation that eliminates the need for baristas to move back and forth when making a cold drink. It’s also rolling out machines to brew coffee more quickly and keep food warm and ready for pickup.

“As consumers start to feel better, Starbucks will get a transaction lift from some of these investments they’re making now,” says Morningstar’s Dunlop.

“Our team is working hard to reaccelerate growth and momentum in our U.S. business,” Starbucks told Barron’s.

A social media boycott, which stems from Starbuck’s dispute with the Workers United union, hurt sales, according to the company, which maintains that misinformation was a cause of the boycott.

But management has been negotiating a contract with the union since April, and thawing relations could help quell some of the negative media sentiment about the company. “It looks like Starbucks and the union have come to an agreement not to drag each other through the mud in public,” says BTIG analyst Peter Saleh. “Instead, they’ll negotiate privately, which is probably a good thing for sales in the near term.”

The stock is down to around $80, 29% below its recent peak in April 2023. Shares are now trading at 20 times next fiscal year earnings, much lower than the five-year average of 28 times. It’s a rare opportunity for investors to buy now.

Among analysts polled by FactSet, the average target price is $88, indicating a 9% gain. But the upside can be much larger: Earnings are estimated to grow 13% year-over-year to $4.07 per share in fiscal 2025. If the valuation recovers to the five-year average, the stock could breach $114.

The headwinds likely won’t disappear in one or two quarters. Flattish sales and elevated capital expenditures could squeeze earnings and cash flow in the short term, but the issues seem more transitory than structural.

“You have to be patient, but if you can, you’re getting a premium brand name at a discount,” says NFJ Investment’s McKinney.