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Celebrity brands are gravitating to New York City for their pop-up stores but shifting to Los Angeles when it comes time to open a permanent location.

When Khloé Kardashian and Emma Grede launched their Good American brand in 2016, one of the first things they did a year later was plant their first pop-up store inside VFiles’ outpost in New York City.

Seven years later, the famous duo branched out with their first permanent Good American store, which opened in June at the Westfield Century City mall in Los Angeles.

And more stores are on the way. “We’re scaling quickly. There will be a lot more stores opening next year,” Grede, the company’s chief executive officer, said during the opening of the 3,000-square-foot space. Two more stores are scheduled to open later this year at Fashion Island in Newport Beach, California, and The Forum Shops at Caesars Palace in Las Vegas.

Good American followed the path that many celebrity brands have taken. A recent study by commercial real estate and investment management company JLL shows that celebrity brands tend to place their first pop-up store in New York but opt for Los Angeles when they establish their first brick-and-mortar outpost. In the last decade, the report said, celebrity-backed retail brands have opened more than 300,000 square feet of retail space.

“When it comes to where pop-ups decide to open, New York has been a breeding ground for this retail concept,” said Ebere Anokute, the report’s author and a research manager in retail for JLL, also known as Jones Lang LaSalle.

The researcher noted that New York has more foot traffic than most urban areas, which is a plus for attracting customers, and is populated with a number of prime retail streets. “There are a lot of developers and landlords in New York that are really devoted to testing out new retail concepts, whether you look at the shops at Hudson Yards and their entire Floor of Discovery or you look at what has been done on Bleecker Street. It’s a breeding ground for digital-native concepts to test out opening physical stores.”

SoHo is probably one of the most popular areas for pop-ups, he noted, and Brooklyn’s Williamsburg is emerging as a new hot pop-up store spot because of lower retail rents and younger customers living in the hip neighborhood.

Pop-up stores are cheaper to set up than permanent units, help brand owners test consumer response to their products and provide experiential marketing opportunities.

When it is time to leap into permanent retail, celebrity brands often opt for Los Angeles, where neighborhood outdoor and indoor malls attract shoppers from various locations and rents are cheaper than in New York. “The focus on L.A. has a lot to do with a better deal in rents, and the preponderance of people in the entertainment industry living there who can promote their brand,” Anokute said.

Skims, cofounded by Kim Kardashian, is opening its first brick-and-mortar location next year on Sunset Boulevard in West Hollywood. Other celebrity brands that opened their first stores in Los Angeles include Gwyneth Paltrow’s Goop, Tyler, the Creator’s Golf Wang, and Mary-Kate and Ashley Olsen’s The Row.

The rise of celebrity brand stores is becoming the silver lining for malls and retail streets that have been struggling to fill vacant storefronts. Fabletics, the athleisure brand cofounded 10 years ago by actor Kate Hudson, now has 13 of its 95 stores in Los Angeles-area malls.

These kinds of retail stores are coveted by shopping malls. Late last year, mall owner Simon Property Group teamed with Leap, a company that brings online brands into the brick-and-mortar retail world, to help populate their nearly 100 malls. Simon and Leap began by bringing four stores — True Classic Tees, ThirdLove, Sugarfina and Goodlife — to the Del Amo Mall in Los Angeles and Town Center in Boca Raton, Florida.

In the JLL report, researchers found that when it comes to starting a brand, most celebrities gravitate toward the beauty category, which can turn a profit quickly. Kylie Jenner had a lucrative return on investment when she started Kylie Cosmetics in 2015. Five years later, she reached a deal to sell a 51 percent stake in her company for $1.2 billion to legacy brand Coty. And Rihanna launched her Fenty Beauty brand, with a 40-shade foundation range, in 2017. LVMH Moët Hennessy Louis Vuitton backs the brand, which Forbes now values at $1.4 billion.

Since 2017, 53 percent of celebrity brands have been in beauty while 41 percent have been in apparel. “I think a lot of these brands end up in beauty because there is a lower barrier to entry,” Anokute of JLL said. “When it comes to apparel and other categories, you have to focus on having a really wide size range, returns and people coming in to feel the clothes.”

Opening stores is also becoming a cheaper way to attract customers. Celebrity brands, which emerged in 2017 and took off during the pandemic in 2020, are discovering that retail might be a more economical way of acquiring customers. The JLL report noted that the average cost to acquire an online customer in 2023 was about $70 compared with $58 in 2021 and $25 in 2018.

“Right now, we’re seeing that celebrity brands are very bullish about opening physical stores,” Anokute said. “They’ve seen that malls are a great place to market to consumers. I also see a bit of symbiosis going on between mall operators and these digital brands to resolve vacancies.”

"Living in the world we live in, in which Elon runs this company and it is a private business under his control, we are living off his good graces."

SpaceX's Starlink satellite terminals have quickly become an essential tool in the arsenal of soldiers on the front lines in Ukraine. The small dishes allow them unfettered lines of communication, despite Russia's attempts to dismantle their networks.

The development has thrown SpaceX CEO Elon Musk right into the middle of a political crisis — worrying, considering the mercurial CEO's unpredictable and often brash nature.

And that has Pentagon officials quaking in their boots, as journalist Ronan Farrow writes in a sprawling new feature for the New Yorker.

"Even though Musk is not technically a diplomat or statesman, I felt it was important to treat him as such, given the influence he had on this issue," former Under-Secretary of Defense for Policy at the Pentagon Colin Kahl told Farrow.

Musk's stance on the war in Ukraine has changed considerably since SpaceX initially started handing out terminals to soldiers in early 2022.

At first, his commitment to supporting the Ukrainian cause was palpable, seemingly celebrating the delivery of hundreds of terminals.

But over the coming months, and around 20,000 terminals later, Musk became weary of the costs SpaceX was accruing, tweeting that it was "unreasonable" for the company to keep supporting the growing data usage.

His purported meetings with Russian president Vladimir Putin also raised eyebrows, crystalizing Pentagon officials' concerns over Musk's involvement in the war.

At the time, Starlink communications broke down, throwing Ukrainian lines into chaos. According to the New Yorker's sources, the outages were likely the result of SpaceX intentionally cutting the cord via geofencing.

Meanwhile, in a particularly brazen Twitter thread on October 3, Musk suggested that Ukraine should surrender and give up Crimea as a peaceful outcome of the war.

"My inference was that he was getting nervous that Starlink’s involvement was increasingly seen in Russia as enabling the Ukrainian war effort, and was looking for a way to placate Russian concerns," Kahl told Farrow.

Roughly a week after his controversial outpouring on Twitter, Musk denied having ever spoken to Putin about Ukraine, saying he'd only spoken to Putin roughly "18 months ago," and that the "subject matter was space."

Kahl, however, has a strikingly different recollection of events, with Musk reportedly looking at a Starlink activity map on his laptop during a meeting.

"This was, like, three minutes before he said, 'Well, I had this great conversation with Putin,'" Kahl told Farrow. "And we were, like, 'Oh, dear, this is not good.'"

Fortunately, for the front lines in Ukraine, Starlink connectivity has largely been stable with no major interruptions. On October 15, a clearly annoyed Musk announced that SpaceX would "just keep funding Ukraine govt for free" despite SpaceX "still losing money," a promise he has seemingly upheld ever since.

And it's not just Musk's tenuous relationship with Russia. SpaceX's decision to provide Ukrainian soldiers with Starlink has also come to alienate China — which is complicated, considering Musk's close business ties with the country. Tesla has made considerable investments in China and runs a massive Shanghai-based plant.

The very existence of Musk's Starlink constellation has even raised concerns among Chinese officials, particularly when it comes to the possibility of unrestricted connectivity within the country's borders.

Seemingly in response, China has since announced it's working on its own competing satellite network, which could allow it to rival Starlink's.

"The Starlink constellation has finally shown its military colors in the Russia-Ukraine conflict," one Beijing academic familiar with the project, told The Washington Post back in April. "The focus now is to accelerate the development of China’s own constellation... and explore defensive measures against Starlink-type foreign satellites."

In short, Musk's tremendous influence on the international geopolitical stage has clearly rattled world powers, forcing them to contend with a billionaire business magnate the likes of which the world has never seen before.

Yet despite becoming a "hyper-exposed pop-culture figure," the scope and nature of his "power are less widely understood," Farrow wrote.

"Living in the world we live in, in which Elon runs this company and it is a private business under his control, we are living off his good graces," another Pentagon official told Farrow. "That sucks."

Server production hampered by tight stocks of Nvidia processors and other components

Investors are set to assess whether enormous demand for artificial intelligence products can help offset a slump in global sales for computer hardware when Nvidia reports quarterly results on Wednesday.

The US group said in its previous earnings report that demand for its processors for training large language models, such as OpenAI’s ChatGPT, would drive up revenues by nearly two-thirds and help quadruple its earnings per share in the three months to the end of July.

The world’s most valuable chipmaker now plans to at least triple the production of its top H100 AI processor, according to three people close to Nvidia, with shipments of between 1.5mn and 2mn H100s in 2024 representing a massive jump from the 500,000 expected this year.

With AI processors already sold out into 2024, the massive thirst for Nvidia’s chips is hitting the broader market for computing equipment, as big buyers pour investment into AI at the expense of general-purpose servers.

Foxconn, the world’s largest contract electronics manufacturer by revenues, last week forecast very strong demand for AI servers for years to come, but also warned overall server revenues would fall this year.

Lenovo, the biggest computer maker by units shipped, last week reported an 8 per cent revenue drop for the second quarter, which it attributed to soft server demand from cloud service providers (CSPs) and shortages of AI processors (GPUs).

“[CSPs] are shifting their demand from the traditional computers to the AI servers. But unfortunately, the AI server supply is constrained by the GPU supply,” said Yang Yuanqing, Lenovo chief executive.

Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker by revenues and exclusive producer of Nvidia’s cutting-edge AI processors, predicted last month that demand for AI server chips would grow by almost 50 per cent annually for the next five years. However, it said this was not enough to offset downward pressures from the global tech slump caused by an economic downturn.

In the US, cloud service providers such as Microsoft, Amazon and Google, which account for the lion’s share of the global server market, are switching their focus to building up their AI infrastructure.

“The weak overall economic environment is challenging for the US CSPs,” said Angela Hsiang, vice-president at KGI, a Taipei-based brokerage. “Since in AI servers every component needs to be upgraded, the price is a lot higher. The CSPs are aggressively expanding in AI servers, but that was not on the cards when capital expenditure budgets were drafted, so that expansion is cannibalising other spending.”

Globally, CSP capital expenditure is expected to grow by just 8 per cent this year, down from almost 25 per cent growth in 2022, according to Counterpoint Research, as interest rates rise and businesses cut back.

Industry research firm TrendForce expects global server shipments to decrease by 6 per cent this year and forecasts a return to only modest growth of 2 per cent to 3 per cent in 2024. It points to a decision by Meta Platforms to slash server purchases by more than 10 per cent to channel investment towards AI hardware, and delays in Microsoft upgrades to its general purpose servers to free up funds for AI server expansion.

Besides the Nvidia chip shortages, analysts point to other bottlenecks in the supply chain that are delaying the AI harvest for the hardware sector.

“There is a capacity shortage both in advanced packaging and in high-bandwidth memory (HBM), both of which are limiting production output,” said Brady Wang, a Counterpoint analyst. TSMC plans to double its capacity for CoWoS, an advanced packaging technology needed to make Nvidia’s H100 processor, but warned the bottleneck would not be resolved until at least the end of 2024. The two main suppliers of HBM are South Korea’s SK Hynix and Samsung.

The Chinese market faces an additional hurdle. Although Chinese CSPs such as Baidu and Tencent are allocating as high a proportion of their investment to AI servers as Google and Meta, their spending is held back by Washington’s export controls on Nvidia’s H100. The alternative for Chinese companies is the H800, a less powerful version of the chip that carries a significantly lower price tag.

A sales manager from Inspur Electronic Information Industry, a leading Chinese server provider, said customers were demanding quick delivery, but manufacturers were experiencing delays. “In the second quarter, we delivered Rmb10bn ($1.4bn) of AI servers and took another Rmb30bn of orders . . . the most troublesome thing is Nvidia’s GPU chips — we never know how much we can get,” he said.

But once the global economy improves and the shortages abate, companies in the server supply chain could reap massive benefits, corporate executives and analysts said.

The KGI brokerage predicts that shipments of servers for training AI algorithms will triple next year, while Dell’Oro, a California-based tech research firm, expects the share of AI servers in the overall server market to rise from 7 per cent last year to about 20 per cent in 2027.

Because of the markedly higher cost of AI servers, “these deployments could constitute over 50 per cent of the total expenditure by 2027”, its analyst Baron Fung said in a recent report.

“For the supply chain, it’s just multiples of everything,” KGI’s Hsiang said. With eight GPUs in one AI server, the demand for baseboards, on which the GPU modules sit, is bound to soar compared with general servers, she said. AI servers also need larger racks on which to position the processor modules.

Why China remains hungry for AI chips despite US restrictions

The much higher power consumption of generative AI servers compared with general purpose ones also creates the need for different cooling systems and new specifications for power supplies.

Foxconn could be among the main beneficiaries of the shift because the group offers everything from the various components to final assembly. Its affiliate, Foxconn Industrial Internet, is already the exclusive provider of Nvidia’s GPU module.

For WiWynn, an affiliate of Foxconn competitor Wistron that specialises in servers, AI orders are already accounting for 50 per cent of revenues, more than double the proportion seen last year, according to Goldman Sachs.

Analysts also see a strong upside for providers of components. Taiwanese printed circuit board (PCB) maker Gold Circuit Electronics could see AI servers jump from less than 3 per cent of its revenues this year to as much as 38 per cent, Goldman Sachs said in a report in June — an expectation driven by the sevenfold increase in PCB content in AI servers over general purpose servers.

Universal Music artists, songwriters to explore royalties and content-creation tools in age of generative AI

YouTube has recruited Frank Sinatra’s estate and other Universal Music Group UMG 0.09%increase; green up pointing triangle acts to influence how artists are paid when their work is used by artificial-intelligence tools.

Universal artists including country singer Rosanne Cash, composer Max Richter and rapper Yo Gotti will work with Google’s YouTube on an effort to explore the future of music royalties and creative expression as generative AI tools make it easier than ever for internet users to manipulate art.

The partnership is an attempt by Universal to ensure its artists are compensated appropriately as the technology develops, after the music industry found itself at a disadvantage during the rise of streaming and other new services.

Creative professionals in fields ranging from film and music to book publishing have begun advocating for compensation from AI-generated content providers such as Alphabet’s GOOG 0.59%increase; green up pointing triangle Google, setting up often-tense discussions between their representatives and tech companies.

Universal and YouTube plan to collaborate on product development, principles guiding the use of music in AI programs and new ways to pay artists whose work is used in AI-generated content. Artists in the YouTube program will get early access to AI products under development and provide feedback to the video service.

“This is about having the option to design how their music is actually used,” said Universal CEO Lucian Grainge. “Artists have never had that before, to this extent, leaning into a new technology.”

The Financial Times reported earlier that Universal and YouTube were discussing ways to collaborate on generative AI products.

OpenAI’s ChatGPT bot became wildly popular when it was made available to the public last year, giving consumers access to systems that can produce passages of text in response to human prompting. Companies such as Google and Facebook owner Meta Platforms have developed other generative AI tools that help users create sounds and images from brief written descriptions.

In February, the day YouTube promoted Neal Mohan to CEO, Grainge called him, asking to talk about his approach to generative AI. They spent the following months developing guidelines for how the video service would work with artists on content and products using generative AI.

As part of principles released Monday, YouTube said it would embrace AI responsibly together with music partners, include appropriate protections when designing products, and invest in systems to fight misuse of the technology.

Any agreement between Universal and YouTube, the largest online video-hosting provider, has the potential to create standards for the rest of the music industry and other creative fields dealing with the spread of generative AI products.

YouTube has a mixed history working with music labels, which for years accused the video service of unfairly profiting from artists when their music was included in user-generated content. The Google unit said last year it paid the industry more than $6 billion from advertising and subscription fees during a recent 12-month period.

Universal in April lodged a copyright-infringement complaint with YouTube and other streaming platforms for hosting a song that replicated Drake and The Weeknd’s vocals.

The incident highlighted how AI-powered tools have made it easier for consumers to create credible songs and videos drawn from artists’ work. A YouTube spokesman said the company removed the video in question after receiving a valid takedown notice.

Universal said the training of generative AI using its artists’ music on streaming platforms was a breach of its agreements with the services and a violation of copyright law. Tech companies have a “legal and ethical responsibility to prevent the use of their services in ways that harm artists,” it said at the time.

Private-equity firm Roark Capital poised to clinch deal with $9.6 billion bid

Roark Capital is nearing a deal to buy the Subway sandwich-shop chain for about $9.6 billion.

After a long, heated auction, a deal for the closely held company could be finalized this week, people familiar with the matter said. Roark has been battling it out with a group of rival private-equity firms including TDR and Sycamore, and in recent days pulled ahead.

It is still possible the other group could come back with a higher offer and prevail.

Milford, Conn.-based Subway, known for its foot-long sandwiches and quick-service restaurants, has been owned by its two founding families for more than five decades. The Wall Street Journal reported in January that the company was exploring a sale. In February, Subway announced it had retained advisers to help run the process.

Subway is the eighth-largest U.S. restaurant chain, with $9.8 billion in domestic sales across 20,810 locations last year, according to market-research firm Technomic. It has around 37,000 restaurants globally.

Subway became one of the world’s largest restaurant chains by aggressively building new locations, but stumbled in the last decade. The chain’s global sales peaked at $18 billion in 2012, Technomic said. Stores closed and franchisees exited the system, while new sandwich-shop rivals expanded.

Late co-founder Fred DeLuca ran the chain for decades before he was diagnosed with leukemia, and his sister Suzanne Greco took the reins of the company. (She retired in 2018.) Peter Buck—who lent DeLuca $1,000 to open a sandwich shop in Bridgeport, Conn., in 1965 and helped co-found the chain—died in 2021. The DeLuca and Buck families still have interests in Subway.

John Chidsey, the chain’s first CEO from outside of Subway’s founding families, has worked to turn around the chain since taking the helm in 2019.

Subway has steadily closed U.S. locations, but is expanding abroad. It has signed 15 deals with international franchisees since 2021 and aims to open around 9,000 restaurants through the agreements. Subway said its deals include one to open nearly 4,000 locations in China in the next 20 years.

Subway has also updated its U.S. menus to try to appeal to new customers. The chain said in July that it installed deli slicers in all of its U.S. restaurants to offer freshly sliced meats for the first time. The company said it spent $80 million to provide the slicers to franchisees.

Roark, based in Atlanta, is no stranger to restaurant and food investing. Its portfolio has included pretzel purveyor Auntie Anne’s, sandwich chains Arby’s and Jimmy John’s, as well as ice cream brands Baskin-Robbins and Carvel.

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