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Creative director Pelagia Kolotouros and CEO Thierry Guibert are banking on a retail-driven strategy and fresh focus on fashion and tennis to power the brand’s growth.

KEY INSIGHTS

Lacoste is returning to fashion week for the first time since 2021, staging a runway show on the main court of French Open stadium Roland-Garros.

New designer Pelagia Kolotouros plans to advance a contemporary, gender-neutral take on sport and elegance, as well as highlighting its tailoring business.

After crossing €2.5 billion in 2022, Lacoste’s sales grew by double-digits last year despite a slowing fashion market, CEO Thierry Guibert said.

PARIS — “Lacoste is tennis, tennis is Lacoste” has long been a key marketing mantra at the iconic French sportswear label. But as more brands ramp up their efforts in tennis marketing, with the likes of Louis Vuitton and Gucci signing top next-generation players Carlos Alcaraz and Jannik Sinner, Lacoste is aiming to defend its dominant position on the court.

New creative director Pelagia Kolotouros is set to show her debut collection for the brand Tuesday at Roland-Garros, the tennis complex famous for its clay courts and namesake tournament (also known as the French Open), rivalled in prestige only by Wimbledon.

Roland-Garros is, after all, Lacoste’s home turf: the venue just a few blocks from the brand’s headquarters was built in honour of founder René Lacoste, so that he and his fellow French players could defend the Davis Cup after a historic win in New York in 1927.

Kolotouros has taken that journey and triumphant return as the key inspiration for her collection. The Olympics are coming to Paris this summer, so sport and the ceremony that surrounds it are very much in the air. And as she and chief executive Thierry Guibert aim to diversify and elevate Lacoste’s offer, they’re turning to the blazers and travel coats worn on winners’ podiums — and during play in the early days of racquet sports — to push the brand in a more sartorial direction.

Tuesday’s show will be Lacoste’s first catwalk since 2021 and if the brand’s link with tennis is unshakeable, its approach to runway fashion is fuzzier. Previous iterations of the brand’s fashion week efforts include Felipe Oliveira Baptiste’s ready-to-wear collections, which captured the spirit of Lacoste by celebrating colour and movement but had little to do with what the brand actually sells. His successor Louise Trotter was more product-focused, working to refine and elevate the brand’s wardrobe propositions, but her ideas also trickled into the broader business only in a limited way.

Under New York-born designer Kolotouros, Lacoste hopes to open a new chapter in which ready-to-wear collections will play a bigger role in steering the brand’s offer. There are still show pieces, but the designer has been careful to make sure enough of the collection can be produced at a saleable price. Here, her experience at VF Corp’s The North Face and Adidas and Beyonce’s Ivy Park venture is likely to have helped.

Giving ample space to a creative director’s vision has also become more feasible for Lacoste in recent years, Guibert says, as the company embarked on a programme of sprawling flagship store openings — the fourth of which is set to open in New York next year — as well as following a push to take back control of categories like underwear and shoes from licensees. The brand now operates 1,100 stores where it can show off a broader range of products. Footwear has grown to account for 25 percent of sales.

Meanwhile, wholesale has fallen to less than 35 percent of revenues, compared to a majority of the business when Guibert arrived a decade ago. If polo shirts and athleisure ensembles still drive the business, opportunities to keep hitting other notes abound.

Lacoste, which is privately owned by Swiss holding Maus Frères, also finds itself in a stronger position to take a risk on a new aesthetic. The group hasn’t officially reported figures for 2023, but Guibert says sales grew by “double digits” last year after crossing the threshold of €2.5 billion in 2022.

Lacoste’s challenge in France has long been that it tries to be everything to everyone: selling bourgeois elegance to some, and streetwear extravagance to others. The brand has tried to embrace that perception in recent years with campaigns that poke fun of how colourful characters ranging from provincial grandmas to urban teenagers can all wear the brand as a badge of honour with their crew.

Appealing to those tribes in a single store is already a challenge — not to mention a single collection. At a visit to the brand’s studio last weekend, elevated urban silhouettes, like black logo blazers and rubberised two-tone shoes, were mixed with the sort of tennis-inspired, neo-preppy pieces that have captured many post-streetwear clients in recent seasons. Easy wardrobe items were also present, like a long, body-hugging polo dress and a sartorial camel overcoat: the sort of items which bridge the gap between the commuter client Lacoste has and the more high-end shopper it has always hoped to recapture.

“Sport, elegance, refined but approachable — and gender fluid,” Kolotouros says, when asked what key ideas she hopes will come across in her debut collection.

As for Guibert, he hopes that buyers and press will see “that the brand is moving up — we’ve done so much research to elevate the materials, the fit.”

Your move, Microsoft.

Amazon’s cloud computing subsidiary AWS has revealed that it will allow customers to transfer their data out of its ecosystem with no so-called “egress fees” attached.

The news follows some two months after Google announced similar plans, though in Google’s case as the third-biggest player in the public cloud triopoly after AWS and Microsoft, it was heavily incentivized to “lead by example” — if it’s cheaper to leave AWS or Azure entirely, then a company might just be more inclined to jump ship to one of the other players.

However, these decisions follow provisions set out in the European Data Act which came into force in January, and which are designed to promote competition by allowing cloud customers to switch providers more easily — either to an entirely different cloud; through adopting a multi-cloud approach; or pulling all their data back in-house to an on-premises infrastructure.

While AWS already allows customers to transfer up to 100GB of data per month off its servers for free, this won’t cover companies looking to “lift and shift” their entire data stores to another provider — and that is what is effectively changing for AWS customers as of today.

It’s also worth noting that while the European Data Act is entirely concerned with promoting competition in Europe, AWS’s move applies to its operations globally (similar to Google’s announcement earlier this year).

Companies that want to move their data off of AWS are requested to contact AWS, which will then apparently issue credits for the data being migrated. Though AWS principal developer advocate Sébastien Stormacq says that he “sincerely hopes you do not.”

Microsoft will likely follow suit now that Google and AWS have announced these plans. TechCrunch has reached out for comment, and will update when (or if) we hear back.

But what they should be thinking about are the consequences

It feels like a long time since we last had a proper bond market liquidity freakout. For anyone hankering for their fix, the International Capital Market Association is out with a new report.

Last year ICMA set up a Bond Market Liquidity Taskforce — which is probably as glamorous as it sounds. The BMLT has now published its first report, examining the health of the “core” European government bond markets, in Germany, France, Italy, Spain and the UK.

Anyone who has followed this debate over the past decade will be unsurprised by ICMA’s “key findings”. Bond market liquidity has become more procyclical as banks retrenched — and is particularly and scarily flighty at times of extreme stress — so regulators should “review” their post-crisis rule books.

• Liquidity in the core European bond markets is generally good, as defined by the ability to execute larger than average transactions, relatively quickly, without significantly moving the market.

• However, in recent years liquidity has become much more sensitive to both episodes of unexpected volatility and regulatory reporting dates (ie year-end and some quarter-ends).

• This can be roundly attributed to the combination of a significant increase in the outstanding stock of government debt while primary dealer balance sheets and appetite for risk, on aggregate, have reduced markedly.

• Applying modelling on historical bid-ask spreads, it becomes clear that at certain points these widen significantly, and this cannot be explained by volatility alone. Rather, volatility is the catalyst for a discernible retreat from liquidity provision.

• Furthermore, the speed at which markets become volatile (the ‘volatility of volatility’) has increased, possibly aided by greater transparency and more dependence on e-trading and automation.

• Repo markets function well, even in times of heightened stress, but are also subject to sharp drops in liquidity around reporting dates.

• Liquidity in the sovereign bond futures markets is generally good, although limited to a few contracts, and again prone to a rapid thinning and widening of prices in times of stress.

• Market participants accept that episodic heightened volatility, with rapid evaporation of liquidity, and a sharp repricing of risk, is the new normal.

• Participants also believe that central banks will be required to intervene in bond markets more frequently and systematically to restore stability.

• The consistent recommendation from market participants, both sell side and buy side, to make sovereign bond markets more resilient, is that policy makers and regulators should review the design and calibration of prudential regulation as it applies to primary dealers. They suggest that there is a trade-off between high levels of bank capitalization and liquidity and bond market resilience.

Basically what everyone in the finance industry has been saying for over a decade, In other words. As well as, to be fair, many central banks, think-tanks, financial regulators and even the IMF. They just think the price of more fickle bond market liquidity is worth paying if it results in a much stronger banking sector.

However, Alphaville still wants to dwell a little on ICMA’s penultimate point, because it touches on an important subject that probably doesn’t get discussed nearly enough (and when it does get discussed it tends to get very emotional, very quickly).

One of the consequences of a financial system where banks are losing ground to shadow banks/non-bank financial institutions/capital markets (delete according to preference) is that the traditional lender-of-last-resort function of central banks will inevitably have to evolve and be widened.

Historically, the focal point of most financial crises has always been banks. Given how disastrous their mass failure can be, central banks therefore almost always (if reluctantly) backstop the industry. But now that markets do more of the heavy lifting, central banks will increasingly have to wade in there to keep the financial system from imploding and damaging the real economy in the process. What was once considered unorthodox monetary policy is now strikingly orthodox.

This was abundantly apparent in March 2020 and 2022’s LDImageddon, even if has never been formally articulated. But as Dan Davies noted on FTAV a couple of years ago, even the BIS — the cathedral of central banking orthodoxy — has floated a new “backstop principle”, which stipulates that:

. . . In situations where it appears likely that market dysfunction will have a material adverse impact on the real economy, central banks should consider using their ability to expand their balance sheets and provide liquidity in order to mitigate this impact.

Quite a lot of central bankers AND market participants are extremely hostile to the idea that being a lender of last resort in the modern era might mean becoming a dealer of last resort.

But as the ICMA report very gently hints, “central bank interventions to stabilise markets [will become] increasingly inevitable and less extraordinary.”

A handful of deep-pocketed investors distorts the market, fueling a race for monopoly that inhibits product-market fit.

The economic problem of society…is a problem of the utilization of knowledge which is not given to anyone in its totality.”

—Friedrich A. Hayek, “The Use of Knowledge in Society”

The Takeaway

• Large infusions of capital can distort markets

• Uber and Lyft used rich venture funding to subsidize fares and drive out competitors

• OpenAI and other well-funded startups are repeating the pattern

Silicon Valley venture capitalists and many entrepreneurs espouse libertarian values. In practice, they subscribe to central planning: Rather than competing to win in the marketplace, entrepreneurs compete for funding from the Silicon Valley equivalent of the Central Committee. The race to the top is no longer driven by who has the best product or the best business model, but by who has the blessing of the venture capitalists with the deepest pockets—a blessing that will allow them to acquire the most customers the most quickly, often by providing services below cost. Reid Hoffman called this pattern “blitzscaling,” claiming in the subtitle of his book with that name that it is “The Lightning-Fast Path to Building Massively Valuable Companies.”

I disagree. It is a dark pattern, a map to suboptimal outcomes rather than the true path to competition, innovation, and the creation of robust companies and markets. As Bill Janeway noted in his critique of the capital-fueled bubbles that resulted from the ultra-low interest rates of the decade following the 2007–2009 financial crisis, “capital is not a strategy.”

Venture capitalists don’t have a crystal ball. To the extent that entrepreneurial funding is more concentrated in the hands of a few, private finance can drive markets independent of consumer preferences and supply dynamics. Market discipline is significantly delayed—until the initial public offering or later. And of course, today IPOs are delayed, often precisely because companies can get all the capital they need from a small number of deep-pocketed investors. Founders and employees are even able to cash out some of their shares without having to face the scrutiny of public markets, much as if bettors on a horse race could take their money off the table as the horses round the first turn. Thus, far from finance being an extension of the market (with lots of independent signals aggregated to ensure competition and consumer choice), capital can ignore the will of the market.

How Capital Distorts the Market

The ride-hailing business offers a classic example of the distortive over-reliance on capital rather than consumer choice. It began with bold prophecies of ride-hailing replacing not just taxis but all private vehicles, and ended with a national duopoly of on-demand taxis at prices no better and often worse than those of the previous over-regulated local taxi market. In a well-functioning market, many startups would have explored a technology innovation like on-demand transportation over a much longer period. In that alternate history, entrepreneurs would have competed with different pricing strategies, different rate structures for drivers and perhaps even completely different business models. Eventually, those that survived would have done so because they were delivering the service chosen by the most customers and the most drivers. That is true product-market fit.

But in the Central Committee version of Silicon Valley, Uber and Lyft, backed by billions of dollars of venture capital, drove out the competition rather than defeating it, subsidizing customer acquisition with an unsustainable business model—and in the case of Uber, continuing to attract new capital with promises of speculative future cost savings via self-driving cars. Instead, once the market had consolidated, Uber and Lyft only reached profitability through massive price increases. What might have happened if there had been true competition in this market? We will never know.

By contrast, during the dot-com bubble, most companies consumed tiny amounts of capital by today’s standards. The funding was spread across thousands of companies, and it took a decade or more of relentless innovation and competition for the industry to become dangerously concentrated. This is a classic example of what Janeway calls a “productive bubble.” Remarkably, most of the winning companies were profitable in only a few years, and eventually they became hugely profitable. Google raised only $36 million in venture capital on its way to dominance. Facebook raised billions, but it did so only to fund faster growth for a business model that insiders have told me was very close to profitable the entire time. They weren’t buying users with subsidized prices; they were building data centers. Even Amazon, long unprofitable, took in very little investment capital, instead funding itself with debt supported by a business model that produced previously unprecedented levels of free cash flow.

To be sure, sometimes companies do require a lot of capital to lay the groundwork for a possible future. Tesla and SpaceX are good examples. They used their funding to do serious research and development, to build factories, cars, batteries, rockets and satellites. This is using capital properly: to fund the hard costs associated with creating something new until the projected unit economics lead to a self-sustaining business. It’s also worth noting that in those cases private funding was powerfully augmented by state support: carbon credits and electric vehicle incentives for Tesla, and NASA progress payments for SpaceX.

That kind of investment was unnecessary in the case of ride-hailing. The startups simply used the money to amass market power by subsidizing blitzscaled growth. Others had already deployed the capital to build the infrastructure for ride-hailing—GPS satellites and GPS-enabled smartphones. Even the innovation of using GPS to match passengers and drivers was not developed by the VC-backed market leaders, but by the true market pioneer, Sidecar, which was quickly sidelined when it failed to raise enough capital to gain a leading share in the market it had first envisioned.

Expecting Big Returns

In the case of artificial intelligence, training large models is indeed expensive, requiring large capital investments. But those investments demand commensurately large returns. The investors who pile billions of dollars into a huge bet are expecting not just to be paid back, but paid back a hundredfold. The capital-fueled race to build the largest models has already led to bad behavior. OpenAI, for example, has trained not just on publicly available data but reportedly on copyrighted content retrieved from pirate sites. This has led to lawsuits and settlements. But even those settlements are likely to be bad for the development of a healthy entrepreneurial ecosystem. As Mike Loukides points out, “Smaller startups…will be priced out, along with every open-source effort. By settling, OpenAI will eliminate much of their competition.”

Meanwhile, the largest models’ absorption of all content into “the Borg” of AI data will eliminate opportunities for the owners of specialized content repositories to profit from their own work. Innovators are already finding that much can be done at lower cost with smaller, more targeted open-source models. They can fine-tune these smaller models for specific problem domains, allowing trusted content providers (like my own company’s O’Reilly Answers and related AI-generated services) to profit from our own expertise.

OpenAI is making an effort to create a platform on which entrepreneurs can build vertical applications, but only if they pay tribute to the centralized business model in the form of API fees. OpenAI is also skimming the cream, quickly dominating some of the most profitable categories—image generation, video generation, speech synthesis, computer programming—that in a well-functioning market would be explored by dozens or hundreds of competing efforts, until one or two find the winning combination of product and business model. If entrepreneurs discover other profitable categories, giants such as OpenAI will move quickly to dominate these as well.

The capital-fueled AI land grab is of course only one axis of premature market concentration. As Max von Thun points out in “Monopoly Power Is the Elephant in the Room in the AI Debate,” much of the investment to train models is coming in the form of strategic partnerships (including both cloud computing credits and potential revenue deals) with existing industry giants Microsoft, Amazon and Google (and in the case of open-source models, Meta Platforms). As von Thun notes, “These partnerships appear to be serving the same purpose as ‘killer acquisitions’ in the past—think of Facebook’s acquisition of WhatsApp or Google’s purchase of YouTube—raising serious concerns about fair competition in the fledgling AI market.” The risk of these deals is, again, that a few centrally chosen winners will quickly emerge, meaning there’s a shorter and less robust period of experimentation.

And, at least based on recent reporting by The Information about Anthropic’s operating margins, it may be that, like Uber and Lyft, the overfunded AI market leaders may only be able to deliver on investors’ heated expectations by crushing all competition. That’s not betting on the wisdom of the market and what Hayek called “the utilization of knowledge which is not given to anyone in its totality.” That’s betting on premature consolidation and the wisdom of a few large investors to choose a future everyone else will be forced to live in.

Rival offer by GXO almost certain to succeed after French company withdraws

French container shipping group CMA CGM abandoned its pursuit of UK logistics company Wincanton on Tuesday, making it almost certain that a rival bid by GXO would succeed.

The French company, which operates the world’s third-largest container ship fleet, announced it was pulling out of the contest after US group GXO on Thursday trumped CMA CGM’s 480p a share cash bid.

GXO is offering 605p a share in cash, valuing the company’s equity at £762mn.

CMA CGM, which made the offer through its Ceva logistics subsidiary, originally offered 450p a share for Wincanton on January 19. It improved its offer to 480p on February 26 after Wincanton announced it had received an approach from a potential competing bidder.

The UK’s Takeover Panel had given CMA CGM four business days following the GXO offer to decide whether to increase its offer further. It announced on Tuesday that it would instead allow its offer for Wincanton to lapse.

“Ceva felt that the increased and final offer represented a very attractive opportunity for all Wincanton stakeholders,” said CMA CGM.

The abandonment of the bid is a setback for CMA CGM’s efforts to develop a stronger logistics function to complement its core shipping business. It has been on an acquisition spree in logistics in recent years, helped by massive profits earned during the pandemic.

The group said on Tuesday that it would “continue deploying its growth road map . . . and very robust balance sheet, while always maintaining a clear focus on value creation”.

GXO’s bid is now highly likely to succeed. Announcing it last week, the company said that buying Wincanton would boost its position in a key market in the UK and Ireland. Wincanton’s board on Friday withdrew its previous recommendation of the CMA CGM bid.

Wincanton’s shares were down 4.3 per cent on Tuesday at 597p in response to CMA CGM’s withdrawal. However, they are still more than twice what they were as recently as January 18, the day before the announcement of the initial CMA CGM bid.

GXO, which is based in Greenwich, Connecticut, specialises in providing supply chain services including customer deliveries. Wincanton specialises in providing distribution and other supply-chain services directly to companies.

Wincanton did not immediately respond to CMA CGM’s announcement.

Amazon Web Services is paying up to $650 million for a Pennsylvania data center campus next to a nuclear power plant, according to the seller, Talen Energy. It’s one of the first data center sites with direct access to nuclear power.

The Information first reported that the site had been drawing interest from cloud providers, which all rapidly needed to expand their data center capacity to handle AI, which consumes more energy than traditional computing.

AWS’ interest in the site is significant because cloud providers have been struggling to find enough power for their AI data centers, which contain Nvidia’s graphics processing units. Several people with knowledge of the Talen nuclear site said cloud providers in the past have hesitated to put data centers directly next to nuclear power plants for safety reasons. The AWS deal shows that the increasing need for power might outweigh those concerns. AWS plans to build multiple data centers on the campus, which could eventually use just under 1 gigawatt of power over the next several years.

Activist organisation claims responsibility for ‘sabotage’ that set fire to nearby electricity pylon

Tesla has paused production and evacuated its only European car manufacturing plant after a suspected arson attack on a nearby electricity pylon caused widespread power cuts.

The US company told the Financial Times there had been “no attack on or fire at the factory”, which is situated in the Brandenburg region south-east of Berlin and produces 6,000 cars a week. A spokesperson added it was unclear when production would restart.

Vulkangruppe, an activist organisation that three years ago carried out sabotage attacks while Tesla was building the factory, on Tuesday claimed responsibility. “We sabotaged Tesla today,” the group said, according to German news agency DPA.

Police said they had been informed of the fire, in the district of Gosen Neu Zittau, at 05:15 local time. Firefighters were also called to the scene.

The Tesla factory in Germany, which opened in 2022, has been controversial among environmental campaigners and locals, who two weeks ago overwhelmingly voted against a major expansion plan that would have involved clearing hundreds of hectares of forest to build a railway station and warehouses.

The interior minister of Brandenburg, Michael Stübgen, on Tuesday said there would be consequences if the police discovered arson, adding that thousands of people had been affected by resulting power outages.

Tesla’s plans to double its annual capacity at the plant to 1mn cars have also faced stiff opposition from environmental activists. The factory is in a water conservation zone bordering a nature reserve and the area around it has struggled to cope with falling groundwater levels and frequent droughts in recent years.

It is not the first time Tesla has had to temporarily stop production in Europe. In January, it sent home workers after Houthi missile attacks on ships in the Red Sea caused containers to be rerouted, leading to parts shortages.

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