Business Off Fashion : How Nike Ran Off Course

How Nike Ran Off Course
The American sportswear giant is experiencing its worst slump in a decade. New competition is part of the problem but according to industry insiders and athletes, many of Nike’s wounds are self-inflicted: the results of disruptive restructurings, stalled innovation and uninspiring marketing.

KEY INSIGHTS
  • John Donahoe’s appointment as chief executive in 2020 came amid an exodus of experienced Nike design staff, marketing gurus and executives responsible for the brand’s golden era.
  • Since then, costly internal restrucuturings, an over-reliance on soaring sales of retro sneaker models and the threat of fast growing rivals have all hampered the sportswear giant.
  • Meanwhile, Nike’s once culturally resonant marketing no longer convinces consumers of its prowess and swagger.

It’s fair to say the launch of the Book 1, Nike’s latest basketball shoe and NBA star Devin Booker’s first signature sneaker, was a botched job. Fans ridiculed that the first release of 500 sneakers took place in Miami, on the other side of the country from where the Phoenix Suns guard played. Then came criticism of the shoe itself: Many called its colourways limited and unoriginal, saying it looked like a casual sneaker rather than one designed for a professional athlete.

Booker himself appeared to agree. Under a Complex Sneakers social media post on Jan. 20 that asked, “Is Nike fumbling the D Book 1 launch?”, he commented: “A lot of people feel the same way,” with a crying-face emoji. NBA legend and president of Reebok basketball Shaquille O’Neal seized the opportunity to attempt to recruit Booker to his brand via a cheeky Instagram post.

The Book 1 launch strikes at the crux of Nike’s predicament. The brand remains the undisputed leader of the sportswear category, boasting annual revenue of $51 billion, including $6 billion from Air Jordan, after nearly 40 years the most successful athlete endorsement deal in history. Nike maintains a hefty roster of the world’s elite athletes and sports teams, who break records, win medals and lift trophies wearing the “swoosh” logo.

But after decades of rapid, almost uninterrupted growth, there’s an emerging consensus among analysts, industry insiders, loyal customers, athletes and employees past and present that Nike is fast becoming just another sneaker brand.

In December, Nike slashed the outlook for its fiscal year ending in May, predicting sales would grow 1 percent. That would mark the company’s worst performance since the late 1990s, other than the pandemic year of 2020 and the 2009 recession.

Sales have disappointed quarter after quarter in the US and China, Nike’s two most important markets. The brand has re-entered wholesale partnerships it walked away from a few years ago, a tacit acknowledgement that efforts to drive more sales through its own channels haven’t paid off as hoped. Investors aren’t betting on a rebound anytime soon. Nike shares are down 20 percent in the last year, while the stocks of rivals, including Adidas, Lululemon and Hoka-owner Deckers, have soared.

It’s hard to pin Nike’s problems on any one cause. But sneaker industry insiders trace many of the brand’s shortcomings to decisions made early in the tenure of John Donahoe, who was named chief executive in January 2020. His arrival came amid an exodus of veteran designers, marketing gurus and executives. Several waves of restructuring caused further upheaval. Decisions once left to the heads of categories such as basketball or running were centralised. The company invested ever-more design and marketing resources into its booming retro sneaker business, capitalising on seemingly bottomless demand for iterations on vintage Jordans and Air Force 1s.

These strategies initially boosted the business. Nike’s sales shot up 19 percent in its fiscal year ending in May 2021, and two years into Donahoe’s tenure, gross margins climbed to a six-year high of 46 percent. But even as Jordans were dominating the StockX sales charts and Dunks were flying off the shelves in their millions, it was rapidly losing ground in another category where the Nike name was once dominant: performance products.

Shoes, apparel and other gear for elite athletes and amateurs alike were not all that long ago the core of the Nike brand. Performance prowess and association with superhuman athletes were hammered home by culture-shaking ad campaigns like the iconic Air Jordan commercials by Spike Lee in the 1990s and the “Just Do It” slogan. In recent years, however, you’re just as likely to run into campaigns on Nike’s Instagram promoting easy slip-on shoes for children alongside content featuring Olympians and all-stars. The brand has also pared back its culturally savvy, on-the-ground teams in key cities around the world, instead trying to dictate culture out of Beaverton.

In a move symbolic of Nike’s new direction, Tiger Woods, the athlete most closely identified with the brand after Michael Jordan, left in December after 27 years. He’s expected to announce his own sportswear line next week.

“The Donahoe era feels like to me it’s on shaky ground, marred by layoffs, a lack of ingenuity in terms of product and innovation — something that people at the brand itself complain about,” said Mike Sykes, sneaker expert and founder of The Kicks You Wear newsletter. “Product has felt repetitious. There’s a sameness about it, where other brands have brought new things to the table.”

Executives in Beaverton have acknowledged they’ve hit a rough patch. Publicly, they blame an uncertain economy and newly cautious consumers for slow sales, while promising to step up innovation in fast-growing categories such as running. The company in December announced it will cut costs by $2 billion, with more layoffs expected.

“Areas of potential savings include simplifying our product portfolio, increasing automation and the use of technology and streamlining our organisation,” Donahoe told investors at the time.

Nike is still the biggest sportswear brand by a wide margin, and its swoosh logo still adorns the clothing and footwear of everyone from elite athletes to city commuters and streetwear cool kids. Recapturing the magic is high on the agenda for Donahoe, who has placed the need for innovation and fresh products at the heart of his turnaround plan for the brand.

“Some of the greatest legacy brands in the world are facing an identity crisis as we undergo massive social, economic and cultural change,” said John C Jay, former global executive creative director for Wieden+Kennedy, the Portland-based agency behind “Just Do It”. “Whatever challenges that Nike may face today, I have complete faith in its ability to meet the zeitgeist.”

A Troubled Reign
For almost all of its first six decades, Nike was run by lifers: The CEO role was held by founder Phil Knight until 2004, and by Mark Parker, who joined the brand as a footwear designer in 1979, from 2006 until 2020. (In between there was William Perez, the only outsider before Donahoe to have the top job. He lasted less than two years.)

Donahoe wasn’t entirely new to Nike, having served on the company’s board since 2014. But the former eBay CEO came from a consulting background, where Parker and Knight were laser-focused on product and brand marketing.

An exodus of key staff closely associated with the brand’s golden era soon followed Donoahoe’s arrival. Among the leavers were Sergio Lozano, a Nike employee since 1990, credited for the creation of the Air Max 95 sneaker, Nate Jobe, who oversaw Nike’s “The Ten” collaboration with Virgil Abloh’s Off-White, and Tom Rushbrook, global senior design director.

Donahoe set about driving a transformation of Nike’s business that relied on data-driven insights rather than cultural and creative nous. At the time, this was cheered by investors keen on making the brand more efficient, protecting margins and creating a seamless experience for consumers moving between the brand’s websites, social media, SNKRS app and retail stores.

Internal corporate restructurings rarely get much attention from the outside world, but it’s reflective of Nike’s role in the culture that these moves were dissected far and wide. Crucially, they displeased influential types who Nike has always relied on to build the brand mythos.

“Donahoe era: Alienated retail partners from mom and pops to Foot Locker Inc. Fired employees with decades-long experience that understood Nike secret sauce. Took the fun out of a lot of their advertisements. Became too reliant on retro. Ended sport categories,” Nate Jones, an NBA agent at leading athlete management firm Goodwin Sports, wrote on X in January.

The changes were felt most in parts of the Nike business most closely associated with the “Just Do It” ethos. Nike Basketball — a relatively small contributor of sales that plays an outsized role in the brand’s marketing and in establishing its performance credentials — in particular has taken several hits in recent years, with Booker’s shoe launch the latest.

In December 2022, the brand terminated its deal with Kyrie Irving — one of Nike Basketball’s highest-profile athletes at the time, whose top-selling sneaker was worn on-court by 50 NBA players — after the star shared a link to a film containing anti-semitic views. The partnership was fraught well before them: Irving in July 2021 described the upcoming Kyrie 8 sneaker as “trash” and claimed to have had no input over its design or related marketing.

Nike Basketball still has a deep roster of NBA superstars, including LeBron James, the only athlete other than Michael Jordan to have a lifetime deal with the brand. But the brand’s struggles on and off the court have opened the door for Adidas. Largely an afterthought in the basketball category since the rise of Air Jordans in the 1980s, its Anthony Edwards signature sneaker is now considered by sneaker experts to be one of the best performance basketball shoes on the market.

“Basketball used to be one of the brand’s strongest points and now I’m not sure where it’s even at,” Sykes said. “There’s a lot of sameness coming out of the brand. Every single signature shoe they have looks like a different iteration of the Kobe sneaker.”

Turning to Veterans
Nike doesn’t deny something has to change.

“We’re prioritising getting back on our front foot and identifying our key areas of growth: innovative product, distinctive storytelling and offering differentiated marketplace experiences,” said Nike chief communications officer KeJuan Wilkins.
The restructuring announced in December is the latest in a series of moves to shake up the culture in Beaverton. The brand has promoted executives associated with the good old days into key roles overseeing innovation, design and marketing. Among them was John Hoke, a 31-year Nike veteran, who now heads innovation under Heidi O’Neill, president of consumer, product and brand and who has been with the company since 1998. Craig Williams, a relative newcomer but who has been fundamental to Jordan brand’s roaring growth in recent years, was promoted in May to oversee matters such as supply chain and distribution on the Nike side of the business.

Reviving innovation at Nike will take more than a few executive appointments.

One of the brand’s last transformative breakthroughs was “Flyknit,” first introduced in 2012, a fabric that allowed Nike to create a super-lightweight upper — the entire part of the shoe covering the foot — with less material waste in production. Flyknit became an essential component in everything from running shoes to football boots to lifestyle sneakers.

But since then, Adidas launched its Boost technology, On released CloudTec and Hoka’s arched Meta-Rocker sneaker design has changed the face of performance running and premium lifestyle footwear. Nike’s Pegasus and other running shoes remain top sellers, but the momentum is clearly with its rivals.

“It’s such a competitive market right now — far more so than years gone by,” said senior research analyst Jessica Ramirez of Jane Hali & Associates.

Consumers and investors will be able to judge for themselves when products from the next phase of Nike’s turnaround hit the market later this year. The Air Max Dn lifestyle sneaker, for example, set to launch in March, is billed by Nike as a futuristic silhouette that carries its most advanced “Air” technology yet. Rumours are already swirling in sneaker forums about a potential Air Max Dn tie-up with streetwear giant Supreme.

“The second half of fiscal 2024 represents the start of a multi-year product innovation cycle that will introduce new franchises, concepts and platforms,” Donahoe said in December.

Nike’s Identity Crisis
Shiny new footwear technology will only go so far in solving Nike’s woes. The company needs to recapture its original secret sauce: the allure of its brand, amplified by marketing moments that double as cultural touchstones.

“I’ve missed more than 9,000 shots in my career; I’ve lost almost 300 games; 26 times I’ve been trusted to take the game-winning shot and missed; I failed over and over and over again in my life… and that is why I succeed,” said Michael Jordan in “Failure,” Nike’s 1997 ad campaign, considered to be one of its greatest of all time.

For decades Nike was known for its reactive, inspirational and sometimes controversial campaigns, which flexed its unapologetic “Just Do It” mentality along with its association with serial winners like Michael Jordan, Serena Williams and Kobe Bryant, linking their status as superhuman athletes with the Nike swoosh and the products it adorned. The Air Ship sneaker (a precursor to the Air Jordan 1), after all, was famously worn by Jordan in his rookie season despite breaking NBA rules. Nike paid fines from the league every time Jordan stepped on the court, knowing the value of the publicity and notoriety the shoe would receive.

A more recent example is the Weiden+Kennedy-produced “More Than a Londoner Campaign” in 2018, which celebrated the brand’s role as a status symbol among London’s gritty urban culture, booming grime music scene and its African diaspora, years before it was seen as “cool” or commercially advantageous for brands to do so. The campaign is still revered as a case study by marketing experts and appears in countless #sportsmarketing LinkedIn ramblings to this day, dissecting how Nike once again was able to lead cultural discussion through authentic and fearless marketing.

There are also weird and wonderful examples of Nike’s out-of-home advertising tactics. For example, the brand stunned shoppers and passers-by outside a busy Bangkok shopping mall by crushing a BMW sports car with a supersized Nike swoosh-branded football to publicise the brand’s role at the upcoming Euro 2004 football tournament.

Today, Nike ads often embrace the mundane, promoting neighbourhood running clubs. Recently, influencers shared photos and videos from Nike-sponsored line-dancing sessions on Instagram. This isn’t to say the brand no longer flexes its association with the likes of LeBron James, Serena Williams or Cristiano Ronaldo. But Nike’s tone has changed since its heyday, becoming more mass-market focused — perhaps a reaction to its competitors’ success in courting regular consumers with inclusive, aspirational marketing that didn’t focus on being the fastest, fittest or strongest.

It’s also partly an acknowledgement from Nike that since the rise of social media, ad campaigns tend to have lesser impact or reach. As a result, Nike marketing now comes across as safe, working with local influencers or pop-culture figures to target micro-communities of consumers — in the absence of its city-specific culture marketing teams — a far cry from the brand’s association in years gone by with the crème de la crème of athletic greatness.

“I don’t think Nike leads culturally as much as it used to,” said Christopher Morency, former editorial director of Highsnobiety and founder of brand consultancy Edition+Partners.

But the old formula still works, only now it’s often in the service of Nike’s competitors. When Adidas launched Anthony Edwards’ sell-out AE 1 performance sneaker in December, a month later it came out with a campaign straight out of the old Nike playbook. In the video, the NBA youngster is with a friend looking over a duffel bag, pulling out competitors’ signature basketball shoes, including Ja Morant’s Ja 1 (Nike), LeBron James’ Air Zoom Generation (Nike) and Puma athlete LaMelo Ball’s MB.01 sneaker. He discards shoe after shoe with remarks like “These ain’t nothing, hell no,” until he pulls out the final shoe, his AE 1.

“Oh yeah, these the ones. The colour, the feel, the look. These the ones for sure. You know how I know? Cause they mine, crazy man,” he says, as the video ends.

The confidence of an up-and-coming NBA star, Adidas’ underdog status in the basketball world and a compelling product instantly won over consumers, sending the campaign viral and drawing comparisons to the brashness of Nike’s early Air Jordan campaigns.

The Adidas commercial laid bare how, more so now than ever before, Nike needs its swagger back.

“It’s what so many brands seem afraid of doing these days. They go out of their way to not mention the competition as if it just doesn’t exist,” Sykes wrote in his newsletter, reacting to the commercial. “No, fam. It’s there. Acknowledge it. Tell us why your thing is better than their thing. That’s the name of the game here.”

FT : German opposition to reforming EU fund risks delaying arms to Ukraine

German opposition to reforming EU fund risks delaying arms to Ukraine
Berlin wants different rules on how €5bn funding for Kyiv-bound weapons should work

German opposition to the proposed overhaul of an EU military support fund risks delaying arms deliveries to Ukraine, officials have warned, amid intense pressure on Kyiv’s allies to respond to a step up in Russian attacks.

The European Peace Facility is a €12bn fund set up outside the shared EU budget and is based on contributions from member states depending on the size of their economies. It has been depleted after reimbursing €5.6bn to EU capitals for arms they have shipped to Ukraine in the nearly two years since Russia’s full-scale invasion.

The EPF needs additional funding so that capitals can be partly reimbursed for their weapons shipments, but a proposed €5bn injection is being held up as countries argue about how to reform the fund to better fit Ukraine’s needs and help Europe’s arms industry meet them.

“Brussels says: ‘pay first, get refunded later’,” said one EU official involved in the negotiations. But Germany and other countries favouring a pivot away from the reimbursement model “are arguing they shouldn’t need to”.

EU leaders last week overcame Hungary’s objections and agreed to pay €50bn over four years to keep Ukraine’s economy and budget afloat, but the issue of military funding was not resolved. The US, which has been the largest donor of weapons to Ukraine since 2022, has yet to secure congressional approval for fresh military and economic aid to Kyiv.

The delays come as officials in Kyiv become increasingly concerned about the gap between Russia’s munition replacement rate and Ukraine’s. Ukrainian troops have started rationing their arms in what Nato’s secretary-general has called a “battle for ammunition”. Brussels last week admitted it would fail to meet a pledge to send 1mn artillery shells to Kyiv by March.

Berlin is under intense fiscal constraints after a constitutional court ruling against its budget arrangements. It is demanding that the value of the weapons it supplies bilaterally to Kyiv should count against its share of the fund. Smaller countries say that would drastically shrink the fund’s size.

“They don’t want to say yes to the money or no without being certain that the [terms] are in line with what is acceptable for them,” said a senior EU official involved in discussions with leaders last week, referring to Germany’s stance.

At the summit, German Chancellor Olaf Scholz insisted that agreement on the proposed EPF reform should include “suggestions” made by member states, according to people briefed on the discussions.

“We did not even talk about the issue of the European Peace Facility,” Scholz said after the summit. “That was also not the intention to talk about this in more detail.” Germany’s solution, he added, would “take into account the national contributions that are delivered . . . to Ukraine”.

Separately from the dispute over the future format of the EPF, Budapest has been blocking a €500mn tranche of reimbursements to EU countries for the past nine months. Its move comes as a protest after Kyiv put Hungarian bank OTP on a list of companies it claims are helping Russia. The bank has since been delisted, but Hungary is demanding further reassurances such a move will not be repeated.

Despite that hold-up, Hungarian leader Viktor Orbán has not signalled that he will block the EPF top-up or its reform, as long as his country’s contribution to the fund is used only for non-lethal aid, according to EU diplomats. The fund allows countries, including Austria and Ireland, to pay for equipment other than weapons.

The EPF reform as circulated ahead of the summit aims to achieve “a more structured, efficient and pragmatic” way of funding weapons for Ukraine, according to a document seen by the Financial Times.

Large contributors to the fund claim that smaller countries such as the Baltic states secured large reimbursements from the EPF for sending outdated Soviet-era weapons to Ukraine, and used the money to upgrade their own kit.

Those countries have argued that Ukrainian forces needed Soviet-era equipment at the beginning of the war as they already knew how to use those weapons.

A second sticking point is the speed with which the EPF will shift from reimbursing countries to funding arms contracts. Countries with large weapon industries, such as Germany and France, are pushing for a speedy change and “will be the biggest beneficiary”, said the EU official. “The others are very much aware of this.”

The current proposal says “reimbursement of bilateral deliveries will be gradually phased out after a transition period.” One official said the majority view was for the existing model to apply in 2024, at least, and for financing of joint production to scale up next year.

Officials involved in the negotiations say that they are working to find a compromise solution by the end of February.

Josep Borrell, the EU’s chief diplomat who oversees the EPF, last week said that he would “urge [leaders] to reach an agreement as soon as possible, because there is no more time”.

“In the next month we have to increase our military support to Ukraine . . . I don’t think we have the sense of urgency when we deal with that.”

FT : Bill Gates-backed mining company discovers vast Zambian copper deposit

Bill Gates-backed mining company discovers vast Zambian copper deposit
KoBold Metals’ discovery comes as US steps up African metals push to rival China’s dominance

A mining start-up backed by Bill Gates and Jeff Bezos says it has discovered a vast copper deposit in Zambia, offering a potential boost to the west’s efforts to cut its reliance on China for metals that are vital to decarbonise everything from cars to power transmission systems.

KoBold Metals said on Monday that it had found Zambia’s largest copper deposit in a century, estimating that the Mingomba site in the northern Copperbelt province will become one of the world’s top three high-grade copper mines.

The discovery comes as the US government embarks on a charm offensive and infrastructure push in Africa in an effort to compete with China’s control over minerals that are critical for defence, renewable power and electric vehicles. The US government is backing the development of the Lobito railway, a line to transport metals in the region connecting the Democratic Republic of Congo and Zambia to the Lobito port in Angola.

While demand for copper is forecast to soar as countries set up efforts to electrify their transportation systems and pivot to renewable energy, the world’s largest mining companies are struggling to find high-quality assets.

Copper, which is widely used in construction and industry, is expected to undergo a boom in demand as it is heavily used in power transmission lines, electric vehicles and wind turbines.

“We’ve spent a year with the largest fleet of drilling rigs in Southern Africa,” Josh Goldman, founder and president of KoBold Metals, told the Financial Times. “We now know that Mingomba will be one of the very highest grade large copper mines when put into production and it’s very much like Kakula in scale and in grade.”

KoBold expects Mingomba will rival output at the deposit that is part of US billionaire Robert Friedland’s giant Kamoa-Kakula project in the Democratic Republic of Congo.

Backed by Breakthrough Energy Ventures, a climate change investment vehicle founded by Bill Gates, KoBold deploys artificial intelligence to scrape historical geological archives — including old PDFs and even maps hand painted on linen — and uses algorithms to help decide where to explore for minerals.

The California-based company is valued at $1.15bn, and also counts BHP, the world’s largest mining group, and oil major Equinor, as investors.

KoBold aims to start producing copper at the $2bn underground mine by the early 2030s.

The project is yet to conduct a pre-feasibility study, which provides early estimates of project costs and how economically the metal can be extracted.

If successful, the project would play a big role in meeting Zambian president Hakainde Hichilema’s ambition to more than treble the country’s copper output to 3mn tonnes by 2032, and help the nation dig its way out of debt.

Spending by the world’s biggest mining companies on copper exploration was small relative to volume of the metals the world was expected to need, Goldman said. Exploration companies, meanwhile, were struggling to raise capital because of interest rate hikes, he added.

“Exploration is where babies come from. You can help babies grow but you’ve got to get the birth rate up,” said Goldman. “That’s the hardest part: how do you find things in the first place.”

Goldman added that the company was evaluating a public listing in the next three or four years.

WSJ : Chinese Shares Extend Losses Despite Regulator’s Pledge to Shore Up Market

Chinese Shares Extend Losses Despite Regulator’s Pledge to Shore Up Market
The declines came despite regulators’ latest vow to stabilize the market

Chinese shares extended declines on Monday despite a series of stimulus measures and the securities regulator’s latest pledge to shore up the market. The U.S. Federal Reserve’s careful stance on rate cuts, China’s persistent property woes and overall tepid investor sentiment all cloud the Chinese equity market.

The Shanghai Composite Index was 0.8% lower at 2707.56 recently, after touching a low of 2635.09. The Shenzhen Composite Index fell as much as 6.7% before paring losses to trade 3.0% lower at 1447.17.

The stronger-than-expected U.S. jobs report for January “pushed down expectations of the first Fed rate cut in March to May,” which triggered a resurgence of dollar strength and dragged down Asian indexes, Oanda senior market analyst Kelvin Wong said.

A slightly weaker Caixin services purchasing managers index, a private gauge of China’s services activity, also contributed to the weakness in Chinese shares in the session, Wong said.

Property shares were among the top losers in the mainland. China Vanke declined 1.6% and Greenland Holdings was 3.9% lower.

Chinese developers’ January contracted sales data were quite weak, said Shujin Chen, head of China financial and property research at Jefferies. Meanwhile, home prices will likely decline faster this year than previous years, Chen said.

After China Evergrande’s liquidation order last week, buyers may become more selective and stick to state-owned names with reputable brands and guaranteed project delivery, said Jeff Zhang, equity analyst at Morningstar. “Therefore, it remains difficult for debt-laden builders to turn around their muted growth.”

The declines came despite regulators’ latest vow to stabilize the market after Shanghai’s benchmark index suffered its worst week since 2018.

The China Securities Regulatory Commission said Sunday that it will prevent abnormal market fluctuations, guide more medium- and long-term funds into the market and crack down on illegal trading, according to a statement. The regulators didn’t specify what measures they will implement.

China should set up a stock-stabilization fund “as soon as possible” to boost investor confidence, Liu Yuhui of the Chinese Academy of Social Sciences, a state research institute, told state media 21st Century Business Herald in a recent interview. The size of the stabilization fund should be 2 trillion yuan to CNY3 trillion in the short term, with a goal of ramping up to CNY10 trillion ($1.4 trillion) in the long term, Liu said.

While there has been chatter about a stabilization fund, China hasn’t announced any concrete plans besides some piecemeal support for the economy and markets.

“The latest stimulus measures didn’t bring fundamental changes to China’s economy, especially the worsening property sector,” said Sonija Li, head of retail research at Maybank.

Chinese investors are lacking confidence as they try to reduce their positions before the Lunar New Year, Li said.

Miss Tweed : Time of Reckoning for Kering

Time of Reckoning for Kering

Kering will publish its annual results on Thursday that will reveal the extent to which the group is underperforming compared to peers Richemont, LVMH and Zegna Group. The miracle investors had hoped for with Gucci under designer Sabato de Sarno has not happened yet.

Since the former Valentino ready-to-wear designer took over Gucci’s creative leadership in May, there’s not been a huge buzz around the brand. It may take two to three years before it really takes off again – if it ever does, industry experts predict.

The group’s poor performance adds pressure on CEO François-Henri Pinault, 61, to pass on full executive powers to deputy CEO Francesca Bellettini, 53, the former Saint Laurent boss who runs all of the group’s fashion and jewelry brands. Pinault gave her the operational reins as part of a major group reorganization following the abrupt departure of Gucci CEO Marco Bizzarri last summer.

Some investors argue Pinault needs to become non-executive chairman to clarify the lines of command and the group’s corporate governance. Several industry sources say Pinault is planning to leave his post as CEO in the near to medium term to focus on the family investment company Artemis. François-Henri Pinault co-heads Artemis with his 88-year-old father François who founded the company and built Kering, previously a retail group called Pinault Printemps La Redoute (PPR).

Artemis owns the auction house Christie’s, cruise line Ponant, fashion brands Courrèges and Giambattista Valli as well as several French winemakers and magazines including weekly Le Point. In September, Artemis bought a majority stake in Los Angeles-based CAA (Creative Artists Agency) which represents hundreds of famous actors and athletes.

Over the years, Pinault has become less and less involved with the day-to-day management of Kering’s brands. Currently he looks after the group’s eyewear and beauty operations. He’s also in charge of sustainability policies, human resources, communication and audits. You do not see him often visiting boutiques or hear of him breathing down the neck of his CEOs like does his archrival Bernard Arnault, CEO and controlling shareholder of LVMH, industry sources say.

Pinault is known for letting his CEOs get on with their jobs. While he takes pride in the freedom he gives them, this is not without consequences. One of them is that Pinault does not fully control what is going on at his brands. That’s one of the main issues plaguing Kering, sources close to the group say. Somebody needs to be in charge and hold everyone accountable for their performance.

Such lack of control is starting to show in the numbers. Broker HSBC sees Kering’s luxury brands reporting a 5 percent drop in revenue in the three months to Dec. 31. The comparison between Kering and its rivals this week risks being brutal. In the fourth quarter, sales from LVMH’s fashion and leather were up 9 percent, Richemont’s turnover rose 8 percent and Zegna Group saw a 19.6 percent increase.

Kering shares are down 38 percent in the past year and the stock is trading at a discount to its rivals. Kering’s “low PE (price-earnings ratio) of 13.4 times 2024 expected earnings is a 35% discount to soft luxury peers,” HSBC explained. “We believe visibility on an improvement at Gucci and other brands is still limited and we do not see any short-term catalysts.”

Kering’s poor share price performance is making some senior managers think about pursuing other opportunities elsewhere, several industry sources told Miss Tweed. “Frankly, Kering’s two-year option plan is not looking particularly attractive,” one of the sources said. If Kering starts losing executives, that’s not a good sign.

So why is Kering is doing so badly compared to its competitors? One explanation is that Pinault is having a hard time imposing his will on the group’s brands, several industry analysts and sources close to the group say. “Kering’s main problem is the lack of control the shareholder has over all of the group’s brands and particularly Gucci,” another senior source close to the group said. “Management knows and understands what needs to be done but does not do much about it.”

Another important issue is that Pinault does not appear to be au fait of everything that’s going on at his group. He relies on his first circle of lieutenants and it’s likely they don’t tell him everything. This first circle is made up Jean-François Palus, who was managing director of the group and now runs Gucci. There is also Bellettini and Cédric Charbit, CEO of Balenciaga. One joke Pinault may not be aware of is that some staff call Kering by its old name PPR, which stands for “Pinault, Palus and the Rest,” highlighting the extent to which Pinault, Palus and a few other executives are seen as disconnected from the reality of how some of the group’s brands are faring.

Sources close to the group have been saying for years that Pinault’s lack of control over his CEOs and brands was a problem. Several of them believe he would benefit from appointing external controllers to ensure the consistency of the figures presented by his group’s various brands.

Kering’s managers are remunerated depending on a brand’s sales growth. This creates incentives to inflate that number – at the expense of the brand’s image. Rival groups such as Richemont also use other performance indicators such as return on net assets to calculate executives’ bonuses. Kering’s remuneration policy encourages CEOs to artificially boost growth with outlets – stores that sell items at a discount. That has been an issue plaguing the group’s brands for years. While the market was strong, it could get away with it. In the current downturn, it’s a real problem.

Outlets are great for lifting sales, but they are deadly for brand desirability and the perception of exclusivity. The good news is that under Palus, Gucci has started downsizing its network of outlets, sources close to the brand have said. Investors may want to grill Pinault and Palus on that point.

PALUS TO STAY AT GUCCI
Another question investors may want to ask Kering is about the search for a new CEO for Gucci. Palus is in no hurry to hire a replacement, as Miss Tweed reported. He was named interim CEO following Bizzarri’s exit last summer. He intends to remain in charge for at least two years and retire afterwards. “Palus is part of the old guard,” one source close to Kering said. “You can’t build something new with someone like him who’s been part of the group for more than 30 years. Gucci needs a new drive, a new vision and it’s not going to happen with Palus.”

Kering declined to comment on the matter.

When Palus, 62, moved to Milan in September, he benefited from the flat tax Italy has introduced to encourage high earners to move to the country. That’s another reason why Palus is not in a rush to leave, industry sources say.

Since he’s arrived, he has been working hard on improving the company’s processes. He’s hired a new brand image director and a new head of production. Palus is a great manager and a fantastic troubleshooter, but he has no track record in brand building and storytelling: what Gucci needs to reconquer the hearts and minds of customers.

Its Christmas ad campaigns were sparkling and elegant but lacked originality and audacity, experts say. Sabato has been asked to turn Gucci into a timeless, chic brand, but after the maximalism and zany creativity of his predecessor Alessandro Michele, it looks plain and institutional. It will take time for consumers to adopt the brand’s more subdued aesthetic and for sales to pick up again – if they do, fashion experts predict.

MISSED OPPORTUNITY
Another frustration investors have about Gucci concerns the brand’s missed opportunities in watches, jewelry and beauty. Pinault has publicly complained about the inability of license partner Coty to bring Gucci’s beauty revenues beyond the €1 billion mark. They are currently estimated at around €700 million and Kering gets a small percentage of that amount in royalties. It’s hoping to take Gucci’s beauty business in-house once it has built a strong presence in that field. But that will take a few years.

Rivals Chanel, Louis Vuitton, Dior and Hermès have built much bigger businesses in beauty, watches and jewelry, as Miss Tweed reported in 2021. In watchmaking, these four brands have become respected players with sharp designs and innovative movements. At Hermès, watches represent one its fastest-growing product categories. The brand makes around €800 million in annual sales and looks set to join the watchmakers’ €1 billion club soon, like rival Breitling, industry experts predict.

Gucci could have capitalized on its fashion edge to produce original collections. But that side of the business appears to lack momentum. Gucci’s watch sales are estimated to be around €200 million.

Gucci has launched a new collection of watches for women that features steel bracelets and pastel tinted dials similar to some Rolex models. They are sold on the brand’s website next to models that were launched more than two years ago featuring Michele’s trademark bees.

Then there’s jewelry. Gucci has a tiny jewelry shop at Place Vendôme. Its collection is limited to a few chains and ultra-thin necklaces, matching bracelets and few earrings. Nothing to brag about. Like watches, Gucci has not been actively promoting that business.

Everyone knows that hard luxury is not Kering’s forte. Best not remind the group of its misadventures with watchmakers Ulysse Nardin and Girard-Perregaux, which it sold to management in 2022 after financing losses for many years.

BALENCIAGA
Another mystery at Kering: why is Cédric Charbit still CEO of Balenciaga? Sources close to the group say he has Pinault’s support, but they wonder for how long. Bellettini and Charbit are said to be at loggerheads. Pinault’s father François Pinault has long been in favor of sacking Charbit for what happened, as Miss Tweed first reported last year. In October, Laura du Rusquec, a former Morgan Stanley analyst and Kering veteran, was appointed deputy CEO of Balenciaga. At the time, the group said we should not read anything into this nomination.

Balenciaga’s annual sales are estimated to be around €1.8 billion or 15-20 percent below their peak from two years ago. It has not recovered from the PR fiasco of December 2022. There seems to be fatigue around the provocative creations of Demna Gvasalia. The talented Georgian designer tried to reburnish the brand’s aura with an Haute Couture collection in July and a ready-to-wear one in October featuring some of his best-selling outfits. But the story remains the same, one that has been tarnished by the absence of moral filter that the brand displayed when it put out an advertising campaign a little over a year ago involving toddlers dressed in what looked like BDSM attire. And it handled the debacle disastrously. Balenciaga blamed the photographers and threatened to sue them, a threat it later retracted.

For investors, it was yet another sign that there was a lack of control at Kering, a point already raised by Miss Tweed a year ago. Since that communications mishap, luxury leaders such as Richemont Chairman Johann Rupert and LVMH’s Bernard Arnault have commented publicly on how such a thing would never happen at their group since every ad and move was vetted by several people. Kering said at the time it would hire someone in charge of “brand safety” but it never gave his or her name afterwards.

Kering has been building internally what it calls a “Brand Book,” a sort of creativity map to set in stone its brands’ DNA and heritage. That may sound like a good initiative, but the group needs to be careful that it does not kill good ideas or alienate designers like Sarah Burton, who left Alexander McQueen in September after more than 20 years. Kering has denied there was any falling out between the group and the designer. It will be interesting to see what the new creative director Seán n McGirr, coming from JW Anderson and previously Dries Van Noten, produces for McQueen at Paris Fashion Week on March 2.

Gucci, McQueen and Balenciaga – that’s a lot of brands on which investors have little visibility. It’s a time of reckoning for Kering.

FT : Iran used Lloyds and Santander accounts to evade sanctions

Iran used Lloyds and Santander accounts to evade sanctions
Tehran-backed Petrochemical Commercial Company operated from office near Buckingham Palace

Iran used two of the UK’s biggest banks to covertly move money around the world as part of a vast sanctions-evasion scheme backed by Tehran’s intelligence services.

Lloyds and Santander UK provided accounts to British front companies secretly owned by a sanctioned Iranian petrochemicals company based near Buckingham Palace, according to documents seen by the Financial Times.

The state-controlled Petrochemical Commercial Company was part of a network that the US accuses of raising hundreds of millions of dollars for the Iranian Revolutionary Guards Quds Force and of working with Russian intelligence agencies to raise money for Iranian proxy militias.

Both PCC and its British subsidiary PCC UK have been under US sanctions since November 2018. 

Documents, emails and accounting records show that during this time PCC’s UK division has continued to operate out of an office in Grosvenor Gardens in Belgravia by using a complex web of front entities in Britain and other countries.


Revelations about the Iranian sanctions-evasion operation in the heart of London come after the Royal Air Force recently joined US air strikes against Iranian-backed Houthi rebels in Yemen. This week the UK and US placed under sanctions what they called a “transnational assassinations network” overseen by Iranian intelligence that has targeted activists and dissidents, including British residents.

Documents analysed by the FT show that since being placed under US sanctions PCC has used companies in the UK to receive funds from Iranian front entities in China while concealing their real ownership through “trustee agreements” and nominee directors. 

One of these companies, called Pisco UK, is registered to a detached house in Surrey and used a business account with Santander UK. 

According to the UK corporate registry, Pisco UK is fully owned by a British national called Abdollah-Siauash Fahimi. However, internal documents, some of which have been leaked online by the Iranian opposition website WikiIran, show that Pisco is fully controlled by PCC and that Fahimi signed an agreement to own the company in trust on its behalf. 

Fahimi has used a PCC email address for correspondence with company officials in Tehran. He was a director of PCC UK from April 2021 until February 2022, according to UK corporate filings.

In 2021 Pisco’s Santander account received a transfer from a Chinese company called Black Tulip, which internal PCC records show is another trustee company controlled by a PCC employee. The US Treasury last year accused Iranian petrochemicals companies of using multiple front entities to evade sanctions by routing sales through Asia.

Santander said it was unable to comment on specific client relationships but was “highly focused on sanctions compliance”. A person familiar with the situation said the bank has closed Pisco’s account.

Another PCC front company in the UK is Aria Associates, which has an account with Lloyds. It is officially owned by Mohamed Ali Rejal, who according to internal emails is the deputy chief executive of PCC UK and has regularly communicated with company officials in Tehran.

Emails show that in July 2021 a PCC accounting official in Tehran emailed Rejal about a planned payment from China, telling him, “Please send us the safe account No. For payment.”

Rejal instructed the accounting official to transfer the money into Aria Associates’ Lloyds account, writing: “Please make sure that there should not be any indication of PCC or PCC (UK).” 

PCC UK, Rejal and Fahimi did not respond to requests for comment.

Lloyds Banking Group said it could not comment on individual customers but complied with sanctions laws, adding: “In addition, due to legal restrictions, we cannot comment on the submission of suspicious activity reports to relevant authorities when and if they occur.”

Alicia Kearns, Tory chair of the Commons foreign affairs committee, said: “For years I have repeatedly raised my concerns about our need to shut down cut-outs of the IRGC operating in the UK. This investigation proves once again that more needs to be done.”

Liam Byrne, Labour chair of the Commons business and trade committee, said: “This is, frankly, a shocking failure to act in lockstep with our allies to shut down the financing of a hostile regime. It beggars belief that a business sanctioned by the US is freely trading in London.”

David Asher, a senior fellow at the Hudson Institute and a former US state department official who has worked on sanctions and counter-terrorism operations relating to Iran, said the scheme showed how IRGC-connected entities “continue to use London as a financial centre”.

“For UK banks to continue doing business with them is not only a major risk but is inconsistent with stated policy towards the Iranian regime,” he said.

European banks found to have breached US sanctions on Iran have been hit with large penalties, with Standard Chartered paying more than $1bn and UniCredit $1.3bn in 2019.

Other documents seen by the FT show that as PCC continued to operate in the UK it also entered into contracts for equipment procurement with a Turkish company called ASB, which last year was placed under sanctions by the US government for working with senior IRGC officials.

Audit reports for PCC UK from 2021 seen by the FT also show the company has maintained large trading balances with PCC in Iran since being placed under sanctions by the US, allowing it to continue operating in spite of western banks being blocked from doing business with the company. 

PCC UK’s Belgravia office is also the registered address for NIOC International Affairs (London) Ltd, a division of Iran’s US-sanctioned national oil company, which Washington has for years claimed directly finances the IRGC and Iranian military activity.

Le Monde : En mer Noire, la Turquie et la Russie en voisinage en eaux troubles

En mer Noire, la Turquie et la Russie en voisinage en eaux troubles
Depuis le début de l’invasion russe en Ukraine, Ankara joue une partition délicate. Forte de son droit de contrôle des détroits du Bosphore et des Dardanelles, elle tient à l’écart ses alliés de l’OTAN et s’affirme face aux ambitions de Moscou.

The information : Larry Ellison Invited Musk to Hawaii to ‘Dry Out’ From Drug Us

Larry Ellison Invited Musk to Hawaii to ‘Dry Out’ From Drug Use

Elon Musk’s drug use was widely known among some current and former board members at Tesla and the other companies he controls, according to The Wall Street Journal. His use of illegal drugs such as ecstasy led Oracle founder Larry Ellison to invite him to his residence in Hawaii to “dry out” in late 2022 after some friends encouraged him to go to rehab, according to the report.

During that period, Musk attended a party in the Hollywood Hills where he used liquid ecstasy, said the report, which cited a person who was there. He also took ketamine recreationally through a nasal spray bottle while partying at the Austin Proper Hotel, said the report.

The allegations, which build on the newspaper’s previous report of Musk’s drug use, could threaten federal contracts held by Musk’s rocketship company, SpaceX. Musk’s attorney Alex Spiro has disputed the reports, saying he has never failed a random drug test at SpaceX.

Spiro declined to comment, and Musk and an Oracle spokesperson didn’t immediately respond to a request for comment.

WSJ : Severe Storm Threatens California

Severe Storm Threatens California
State officials warn of flooding, mudslides amid heavy rains

A massive storm system is hitting much of California, bringing prolonged downpours and high winds to the nation’s most populous state.

The deluge was expected to grow with intensity Sunday and last through at least Tuesday, causing widespread flooding to neighborhoods and roadways and raising the threat of mudslides across parts of the state. Officials in the state of 39 million people have issued evacuation orders and warnings for numerous areas, and they urged people to stay off roadways if possible. Schools and government offices have been closed in many areas.

“This is a particularly dangerous situation,” Ariel Cohen with the National Weather Service said at a Saturday press conference in Santa Barbara County. “I can’t stress enough the importance that everyone be at a very high state of readiness.”

Storm warnings have been issued from San Diego up past the San Francisco area. The National Weather Service for the Los Angeles area issued a warning Sunday morning stating, “All systems are go for one of the most dramatic weather days in recent memory.”

The heaviest rainfall is expected late Sunday and overnight into Monday, but high wind and precipitation will continue with varying intensity into Tuesday, according to Marc Chenard, a meteorologist with the National Weather Service’s Weather Prediction Center.

This is the second atmospheric river—a flowing column of condensed water vapor that can produce significant rain and even snow—to pummel California in recent days. The most powerful atmospheric rivers can generate extreme rainfall and damaging floods. Around 30% to 50% of the annual precipitation on the West Coast occurs in just a few atmospheric river events, according to the National Oceanic and Atmospheric Administration.

Meteorologists predict the storm will bring 3 to 6 inches of rainfall in the coastal and valley areas of south and central California, and 6 to 12 inches of rain in the foothills and mountains of the state, especially from Santa Barbara south.

California Gov. Gavin Newsom activated the state’s emergency operations center. Thousands of state workers, including national guard units, have been placed on alert.

“If you don’t need to be on the roadways during this storm event, we’re asking you please, please postpone any nonessential travel,” Tony Tavares, director of the state’s department of transportation, said at a briefing Saturday.

Bill Brown, sheriff of Santa Barbara County, said at that county’s press conference that the storm in expected to be “one of the largest and most significant in our county’s history.” Strong winds likely will knock down power lines, he said. He urged people with cars in low-lying areas to move them to higher ground.

About 36,000 customers were without electricity early Sunday, according to PowerOutage.us.