TheChek News Flow

Billionaire investor’s backing values luxury UK brand at more than £100mn

Billionaire hedge fund manager Bill Ackman has taken a minority stake in luxury British watch brand Bremont after he became one of its customers, providing financial backing as the company plans to bring large-scale watch manufacturing back to the UK.

Ackman has invested in the UK-based group alongside existing investors Hellcat in a funding round worth £48.4mn, which gives Bremont a valuation of more than £100mn, according to the company.

Brothers Giles and Nick English founded Bremont in 2002. The brand is best known for watches marketed to pilots and members of the military. In 2014 the company created a number of limited-edition watches containing a piece of muslin used to wrap the Wright brothers’ plane in 1903.

Ackman said he got in touch with the English brothers last summer after buying several watches at the company’s shop in London’s Mayfair.

“I wrote a handwritten note to the founders saying, ‘I admire your company, I love watches and I would love to learn more’,” Ackman told the Financial Times. Nick English contacted the investor and they closed the deal in October.

The founder of Pershing Square Capital Management has invested in privately held Bremont is with his own funds, not Pershing Square’s. He said he views himself as a long-term shareholder and will now help the company find a chief executive as it grows.

“There is a benefit to having us invest versus private equity or a sale,” Ackman said. “Bremont has a very long mandate and we can be a forever investor.”

Ackman said he believed Bremont could reach the scale of Swiss watchmaker Breitling, which was valued at $4.5bn late last year when private equity firm Partners Group took control of the company.

Ackman built a fearsome reputation as an activist investor on Wall Street, amassing positions at public companies and agitating for change. Pershing Square last year embraced a more low-key approach.

Bremont’s biggest undertaking has been to bring watchmaking back to Britain with a 35,000 sq ft wing-shaped facility in Henley-on-Thames that opened in 2021 and is reported to have cost the company £20mn. Now it has hired headhunters Egon Zehnder to help find a chief executive who can help the company’s global expansion.

Ackman has made several venture investments with his own funds and money from his family foundation, including in South Korean ecommerce company Coupang and Winner’s Alliance, a subsidiary of the Professional Tennis Players Association co-founded by Novak Djokovic.

Ackman said that he has one golden rule when it comes to personal investments: “If it takes more than 15 minutes, I won’t do it,” he said. “Investing in great companies is my version of art collecting.”

Treasury Secretary says the Federal Reserve would likely not agree to such a scheme

LUSAKA, Zambia—Treasury Secretary Janet Yellen said the Federal Reserve likely wouldn’t accept a $1 trillion platinum coin if the Biden administration tried to mint one to avoid breaching the debt limit, dismissing an idea that has been floated to circumvent Congress on the issue.

Some Biden administration officials and Democrats on Capitol Hill have discussed the possibility that the Treasury could use an obscure law authorizing platinum coins in the event of a potential default. Under the proposed scheme, the Treasury would mint a $1 trillion coin and deposit it at the Fed, and then draw the money to pay the country’s bills.

Ms. Yellen, who is a former chair of the Fed and meets regularly with current Fed chair Jerome Powell, said the central bank may not go along with such a plan. Fed officials have previously raised concerns about being relied upon to resolve fiscal debates in Congress.

“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” she said in a Sunday interview with The Wall Street Journal onboard an Air Force plane traveling to Lusaka, Zambia, where she is traveling as part of a multicountry tour to bolster U.S.-Africa ties. “The Fed is not required to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”

A spokeswoman for the Fed declined to comment.

Ms. Yellen’s comments come as Congress gears up for a difficult battle over raising the roughly $31.4 trillion debt limit. House Republicans, newly in control of the chamber, are pushing for Democrats to agree to unspecified spending cuts in exchange for authorizing more debt. Democrats, who control the White House and Senate, have rejected that trade, calling for Congress to raise or suspend the debt limit on its own.

The Treasury Department last week began using so-called extraordinary measures to manage the government’s cash flow as the U.S. neared the debt limit. Those measures are expected to give the Treasury the ability to pay all of the nation’s obligations to bondholders, Social Security recipients and others on time for at least five more months.

The impasse between Republicans and Democrats over raising the debt limit has renewed interest in both parties about what contingency steps the Treasury could take if Congress fails to raise the debt ceiling. Another such idea, floated by Republicans, is that the Treasury could prioritize payments on the debt if it can no longer borrow enough funds to cover all of the nation’s bills.

While Treasury and Fed officials in 2011 discussed a plan to make on-time payments on Treasury debt and delay paying other government bills if no deal was reached on the debt ceiling, Ms. Yellen said that such a plan may still not be feasible. She said earlier that Treasury’s systems weren’t built to prioritize certain payments over others.

“You should not assume it’s operational and feasible to prioritize,” she said. Ms. Yellen doesn’t want to clearly state whether the Treasury would prioritize interest payments, according to a senior Treasury official, as some Republicans view prioritization as a way to reduce the stakes of a potential debt-ceiling default.

“Even the prioritization of interest in debt I think it’s fair to say is not a foolproof way by any stretch of the imagination for avoiding economic and financial bedlam,” she said Sunday.

UK electricity network operator has emergency coal-fired plants warm up on expectations of tight supply and demand

Britain’s electricity system operator will pay households to use less power during early Monday evening and has also put three emergency coal-fired power units on standby as large parts of the country are gripped by freezing weather.

National Grid said on Sunday that it would activate a new service introduced this winter, through which households and businesses are paid to reduce their consumption during crunch times when the electricity grid comes under strain.

The so-called “demand flexibility service” will be activated between 5pm and 6pm on Monday, National Grid said, warning that its forecasts “show electricity supply margins are expected to be tighter than normal on Monday evening”.

If activated, it would mark the first time the new service has been used in a “live” situation, although National Grid has tested it multiple times with participating suppliers, including Octopus Energy, Centrica and Eon. Households with smart meters have been able sign up to the service if their supplier is taking part.

The electricity system operator has also asked two coal-fired units at the giant Drax power station in Yorkshire, plus a third at the West Burton plant in Nottinghamshire, to warm up in case they too are required to help meet demand on Monday, when wind speeds are also forecast to be low.

All three coal units had originally been due to close permanently in September last year but have negotiated contracts with National Grid to remain on standby for emergency use this winter at the request of the UK government.

Both the coal plant extensions and the demand flexibility service are part of the government’s contingency plans for possible energy shortages, which were drawn up after Russia’s full-scale invasion of Ukraine triggered fears of possible blackouts across Europe.

National Grid insisted on Sunday evening that the measures did not mean there would be power cuts but said they could be used to increase the cushion between electricity supplies and demand to a more comfortable level.

“This does not mean electricity supplies are at risk and people should not be worried,” National Grid ESO, the part of the FTSE 100 energy group that oversees Britain’s electricity system, said. “These are precautionary measures to maintain the buffer of spare capacity we need.”

Energy consultancy EnAppSys said power prices for peak hours on Monday indicated tight margins between supply and demand but they were “not as bad as previous days this winter when [National Grid ESO] chose not to dispatch contingency coal plants”. It added in a tweet that the decision to warm the coal-fired units showed an “abundance of caution” on National Grid’s behalf.

The Met Office has warned that southern, eastern and central England will continue to experience very cold temperatures on Monday and it has issued a weather warning for freezing fog earlier in the day, which could cause travel disruption including possible flight cancellations.

National Grid in December put some emergency-use coal units on alert during a previous cold snap, only to stand them down when it managed to secure sufficient supplies. It also did the same with the demand flexibility service in November.

Traders had recently been more optimistic that Europe would be able to survive the winter without blackouts after unseasonably warm weather over the festive season and early in the new year allowed countries in the EU to generally refill their gas storage facilities rather than withdraw from them. This is also relevant to Britain as it traditionally relies on electricity and gas imports from the continent during particularly cold periods.

While the iPad Pro lineup has gotten a few minor revisions recently, things have largely stayed the same since the current-generation design language was introduced in 2018. According to a new report, however, this could be about to change as Apple readies a “major iPad Pro revamp” for next year…

‘Major iPad Pro revamp’ slated for next year

In the latest edition of his Power On newsletter, Bloomberg’s Mark Gurman reports that this year is going to be a “light year” for the iPad lineup. Gurman says that we shouldn’t expect “anything of note” for the iPad Pro,” nor are any “major updates” coming to the entry-level iPad, the iPad mini, or the iPad Air.

Looking ahead to 2024, however, things get more exciting. Gurman reports that Apple is readying a “major revamp for the iPad Pro” that could debut in the spring. This revamp should offer an “updated design” as well as an upgrade to OLED displays for the first time.

Gurman reports:

As for what this new iPad Pro might look like, we’ve heard a few different rumors recently. Reports have suggested Apple could update the iPad Pro design to use a glass back, instead of the current aluminum unibody design. Apple has also considered bringing MagSafe charging to the iPad Pro lineup, similar to the MagSafe technology used on the iPhone.

This also isn’t the first time we’ve heard of Apple’s goal to transition the iPad Pro to OLED displays as soon as next year. Analyst Ross Young recently reported that the first iPad Pro with OLED is on track to debut in 2024 alongside a MacBook Air with OLED.

There have also been reports that Apple is considering expanding the iPad lineup to larger screen sizes, such as 14 inches or even 16 inches. Whether or not these new screen sizes will debut as part of this iPad Pro overhaul is unclear.

As Apple advances towards its targeted spring 2024 launch for the new iPad Pro, we expect additional leaks to emerge. In the meantime, what are your best guesses on what’s coming with this iPad Pro revamp? Share with us down in the comments.

The takeovers of Tiffany and Twitter reveal vast differences between the businessmen

Both Bernard Arnault, newly crowned the world’s richest person, and Elon Musk, his predecessor at the top, have overpaid for acquisitions and then regretted it. But what happened next reveals their vast differences as businessmen.

In short, Arnault is a savvy and clever dealmaker who has built his Paris-based LVMH into a luxury-brand behemoth, worth more than $400bn, and his own fortune to more than $180bn. By contrast, Musk’s poor judgment when it comes to doing deals has cost him billions although he still commands a net worth of more than $130bn.

Let’s compare each man’s last big deal. In November 2019, Arnault’s LVMH agreed to pay $135 per share, or $16.2bn for Tiffany & Co, the crown jewel of American luxury. The agreement followed by a few weeks LVMH’s $120-a-share unsolicited offer for Tiffany. It was nearly a perfect fit with LVMH and Arnault decided he had to have it, after he lost previous battles to acquire both Gucci and Hermès.

The purchase price was a hefty 37 per cent premium to where Tiffany’s stock was trading before the deal was announced and the value of the deal, including net debt, was nearly 17 times Tiffany’s earnings before interest, tax, depreciation and amortisation. When the Covid-19 pandemic hit four months later, though, the pricey Tiffany acquisition did not look so smart. Arnault started backtracking. After a back and forth between the parties, duelling lawsuits were filed in Delaware.

But then cooler heads prevailed. In October 2020, the two sides re-cut the deal. Arnault agreed to pay $15.8bn for Tiffany, a saving of a rather modest $420mn. It was clearly a face-saving measure for Arnault. When the Tiffany deal closed, in January 2021, Arnault axed Tiffany’s top executives, including its chief executive, its chief artistic director and its chief brand director and installed his own team, including one of his sons, Alexandre, as executive vice-president of product and communications. Tiffany’s employee numbers are still around the 14,000 level at the time of the buyout.

If any of this sounds familiar to Musk’s 2022 assault on Twitter, it should. After building a 9.2 per cent stake in the company, Musk last April made an unsolicited offer to buy Twitter for $54.20 a share, or $44bn. His offer was a 38 per cent premium to where the stock had been trading and a whopping 44 times Twitter’s ebitda. Given the huge price, the Twitter board of directors had little choice but to accept it.

Nearly immediately, Musk had buyer’s remorse. He tried nearly everything to get out of the deal. Like Arnault and Tiffany, the two sides took their dispute to the Delaware courts. But as the evidence began trickling out, in the form of damning emails, texts and documents, the prospects of Musk’s court case seemed dim. He tried, unsuccessfully, to cut a new deal with the Twitter board. But it refused to budge. Musk agreed to close the Twitter deal in late October at his original $44bn price.

Then all hell broke out. Musk quickly dispensed with Twitter management and then more than half of its 7,500-person workforce. He alienated advertisers and many users with erratic tweets and botched product changes. Musk has warned Twitter is losing $4mn a day and the company might have to file for bankruptcy.

If he has a master plan for Twitter, it is not clear what it is. Musk’s inexplicable flailings have eroded a considerable amount of the $31bn of equity he and his partners invested in the Twitter deal and some of the value of the $13bn of debt held by Twitter’s Wall Street banks.

Meanwhile, over at Tesla, the source of much of Musk’s wealth, shares in the electric vehicle company have plunged. Part of this is due to a wider sell-off in tech and growth stocks. But Musk’s preoccupation with Twitter and the management dramas at the social network has also spooked some Tesla investors. The Tesla stock lost 70 per cent of its value in 2022. According to Bloomberg, Musk’s fortune has declined about $130bn from a 2022 peak last April. All in all, the Twitter deal is clearly a self-inflicted disaster.

Meanwhile, the Tiffany deal has turned into a smashing success. The demand for luxury goods remains robust as does Arnault’s deft touch with them. At the LVMH annual meeting in 2022, Arnault called bringing Tiffany into LVMH “the highlight of the year” given its outstanding financial performance, including higher revenue, profits, and cash flow. At the 2022 annual meeting Arnault boasted that if Tiffany were still a public company, its share price would be double what LVMH paid. Arnault has been called the Sun Tzu of Luxury. It’s not hard to see why.

- It is too early to tell if the ECB could slow down the pace of its rate increases by the summer 2023

- At some point, of course, the risks surrounding the inflation outlook will become more balanced; That would also be a time in which we could make a further step down from 50bps to 25bps, for instance. But we are still far away from that

Sharp about-turn in sentiment comes as IMF indicates it will upgrade its global economic forecasts

The eurozone will avoid a recession this year according to a widely-watched survey of economists which illustrates the sharp about-turn in global economic sentiment in the past couple of weeks.

As recently as last month, analysts surveyed by Consensus Economics were predicting the bloc would plunge into recession this year. But this month’s survey found that they now expect it to log growth of 0.1 per cent over the course of 2023. This is thanks to lower energy prices, bumper government support and the earlier-than-anticipated reopening of the Chinese economy, which is set to boost global demand.

The upgrade comes after officials and business leaders at this week’s annual World Economic Forum in Davos also embraced a more upbeat outlook, and the IMF signalled that it would soon upgrade its forecasts for global growth.

Economists had feared that Europe would be among the hardest-hit areas of the global economy this year due to its exposure to the economic consequences of Russia’s war with Ukraine. Just weeks ago IMF managing director Kristalina Georgieva said that “half of the European Union will be in a recession” during 2023.

Carsten Brzeski, head of macro research at ING Bank, described the about-turn in economists’ forecasts as “a recession that never came”.

Susannah Streeter, analyst at Hargreaves Lansdown, said: “The threat of the feared energy crisis [is] retreating, and inflation [is] climbing down more rapidly than expected.”

“Our perceptions have changed quite radically since October,” said Andrew Kenningham, chief Europe economist at Capital Economics, adding government support had been more generous than expected, while the auto sector has rebounded more strongly than predicted.

There is now less than a 30 per cent chance of a recession, down from the an estimated 90 per cent last summer, according to Anna Titareva, economist at UBS. She said that the easing of supply chain disruptions, a strong labour market and excess savings explain the eurozone’s economic resilience, and Europe has been successful in filling its gas storage in recent months, which has greatly reduced fears of gas rationing.

The recent sharp fall in wholesale gas prices back to levels last seen before Russia’s invasion of Ukraine has also helped boost the economic outlook. JPMorgan this week raised its 2023 eurozone GDP forecast to 0.5 per cent after anticipating natural gas prices would be about €76 per megawatt hour, rather than its previous expectation of €155.

Speaking at Davos this week Christine Lagarde, president of the European Central Bank, said the economic prognosis was looking “a lot better” than feared. Gita Gopinath, the IMF’s deputy managing director, said China’s decision last month to ease Covid-19 restrictions was one reason why the fund had become more optimistic.

Sven Jari Stehn, economist at Goldman Sachs, said firmer demand in China would “boost European trade significantly, especially in Germany”.

German chancellor Olaf Scholz said this week he was “convinced” Europe’s largest economy would not fall into a recession. Banque de France governor François Villeroy de Galhau said: “For Europe, we should avoid a recession this year, which I wouldn’t have said with such confidence three months ago.”

Some economists do still expect a recession. Silvia Ardagna, economist at Barclays Bank, said that while the downturn would not be as deep as previously thought, the eurozone economy would still contract for two successive quarters — meeting the technical definition of a recession.

Kenningham warned aggressive rate increases by the ECB could lead to a weak recovery.

Lagarde signalled in Davos the ECB would raise rates by 50 basis points at its February and March meetings. The deposit rate has already increased by 2.5 percentage points to 2 per cent since June last year, a pace of tightening that eurozone economies have not experienced before.

“The eurozone economy may avoid a recession but interest rates may need to stay high for a prolonged period,” said Kenningham. “It looks like we may get — at worst — a mild recession, but that will be followed by a weak recovery.”

At this point, the test network for the Norwegian CBDC uses not the public Ethereum ecosystem, but a private version of the enterprise blockchain Hyperledger Besu.

The small Nordic country of Norway may not be particularly notable on the global crypto map. With its 22 blockchain solution providers, the nation doesn’t stand out even at the regional level.

However, as the race to test and implement central bank digital currencies (CBDCs) accelerates every day, the Scandinavian nation is taking an active stance on its own national digital currency. In fact, it was among the first countries to begin the work on a CBDC back in 2016.

Dropping cash

In recent years, amid a rise in cashless payment methods and concern over cash-enabled illicit transactions, some Norwegian banks have moved to remove cash options altogether.

In 2016, Trond Bentestuen, then an executive at major Norwegian bank DNB, proposed to stop using cash as a means of payment in the country:

“Today, there is approximately 50 billion kroner in circulation and [the country’s central bank] Norges Bank can only account for 40 percent of its use. That means that 60 percent of money usage is outside of any control.”

A year before that, another large Norwegian bank, Nordea, also refused to accept cash, leaving only one branch in Oslo Central Station to continue handling cash.

This sentiment came in parallel with Bitcoin

BTC

tickers down

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enthusiasm, as DNB enabled its customers to buy BTC via its mobile app, local courts demanded that convicted drug dealers pay their fines in crypto, and local newspapers widely discussed investments in digital assets.

Recent: Bitcoin mining in a university dorm: A cooler BTC story

Last year Torbjørn Hægeland, executive director for financial stability at Norway’s central bank, Norges Bank, outlined to the project’s goal of replacing cash use in the country:

"With this background, the decline in cash use and other structural changes in the payment system are key drivers for the project."

The experimental phase of the Norwegian CBDC will last until June 2023 and end with recommendations from the central bank on whether the implementation of a prototype is necessary.

Ethereum is the key

In September 2022, Norges Bank released the open-source code for the Ethereum-backed digital currency sandbox. Available on GitHub, the sandbox is designed to offer an interface for interacting with the test network, enabling functions like minting, burning and transferring ERC-20 tokens.

However, the second part of the source code, announced to go public by mid-September, has yet to be revealed. As specified in a blog post, the initial use of open-source code was not a “signal that the technology will be based on open-source code,” but a “good starting point for learning as much as possible in collaboration with developers and alliance partners.”

Earlier, the bank revealed its principal partner in building the infrastructure for the project — Nahmii, a Norway-based developer of a layer-2 scaling solution for Ethereum of the same name. The company has been working on this scaling technology for Ethereum for several years and has its own network and tokens. At this point, the test network for the Norwegian CBDC uses not the public Ethereum ecosystem, but a private version of the enterprise blockchain Hyperledger Besu.

In late 2022, Norway became part of Project Icebreaker, a joint exploration with the central banks of Israel, Norway and Sweden on how CBDCs can be used for cross-border payments. Within its framework, the three central banks will connect their domestic proof-of-concept CBDC systems. The final report for the project is scheduled for the first quarter of 2023.

Local specifics, universal problems

In terms of hopes and fears, what defines the Norwegian CBDC project among others is the national regulatory context. Like its geographical neighbors, Norway is known for its cautious approach to the digital assets market, with high taxes and the relatively small scale of its domestic crypto ecosystem — a recent study by EU Blockchain Observatory estimated its total equity funding at a modest $26.9 million.

Norwegian serial entrepreneur Sander Andersen, who has recently moved his fintech company to Switzerland, doubts that the upcoming project will co-exist peacefully with the crypto industry. There are already more than enough problems for tech entrepreneurs in the country, he said in a chat with Cointelegraph:

“Despite the country's strong infrastructure for entrepreneurs in other industries, such as low energy costs and free education, these benefits do not extend to the digital realm. The tax burden faced by digital companies makes it nearly impossible to compete with businesses based in more business-friendly jurisdictions.”

As central bank digital currencies have the potential to compete with private cryptocurrencies, and the goal of any government is to control financial transactions as tightly as possible, Andersen doesn’t see Norway among the exceptions:

“The Norwegian central bank's CBDC project can also pose a threat to the legal status of private stablecoins in the country. The introduction of a CBDC may prompt increased regulation and oversight of private stablecoins, making it harder for these companies to operate.”

Speaking to Cointelegraph, Michael Lewellen, head of solutions architecture at OpenZeppelin, a company contributing its contracts library to the Norges Bank project, doesn’t sound so pessimistic. From a technical perspective, he emphasized, there is nothing stopping private stablecoins from trading and operating alongside CBDCs on both public and private Ethereum networks, especially if they use common, compatible token standards such as ERC-20.

However, from a policy perspective, there’s nothing that can stop central banks from performing financial gatekeeping and enforcing the Know Your Customer (KYC) standards, and this is where the CBDC looks like a natural development. Banks will not sit idly by as the blockchain ecosystem grows, as there is a lot of shadow-banking activity happening on-chain, Lewellen specified, adding:

“CBDCs offer central banks the ability to better perform gatekeeping and enforce KYC rules on CBDC holders, whereas enforcing the same standards against entities using non-governmental stablecoins is far more challenging.”

Recent: Ava Labs and Amazon’s partnership could ‘expand the pie’ for blockchain

Could Norway’s CBDC offer anything reassuring in terms of users’ privacy? It’s hardly possible from both technological and strategic points of view, Lewellen said. Today, a mature solution doesn’t exist that would allow privacy in a compliant manner regarding the use of CBDCs.

Any national digital currency would almost certainly require every address to be linked to an identity, using KYC and other means we see in banks today. In fact, if done on the private ledger, like the one that Norges Bank is testing right now, the CBDC will offer not only less privacy for a single customer, but at the same time less public transparency with regard to blockchains.

Since December, LVMH has announced new CEOs for Louis Vuitton, Dior and the family holding company that controls the world’s largest luxury conglomerate itself. It has installed a mix of next-generation Arnaults and industry veterans in key roles. And there may be more change to come, as some of the group’s most trusted managers approach retirement.

The market took this month’s reshuffle in stride. Last week, shares hit a record high.

It’s not hard to see why investors are confident in LVMH’s future. On Thursday, LVMH will report its 2022 results. While it typically doesn’t break out individual brands’ sales, the group’s financials should give analysts confidence to declare LVMH flagship Louis Vuitton luxury’s first brand to record €20 billion in annual sales (HSBC and others have previously estimated 2022 sales crossed that threshold). A looming recession, China’s Covid outbreak and the lack of a permanent menswear designer don’t seem to have hurt the brand much at all (though it’s worth keeping in mind that LVMH shares also started last year at an all-time high, only to tumble amid doubts about whether wealthy consumers would keep up their pandemic-era spending).

For now at least, the challenges facing new Louis Vuitton CEO Pietro Beccari are mainly about how to grow a brand that’s already operating at an unprecedented scale. As BoF’s Robert Williams wrote shortly after his appointment, “shock and awe” marketing tactics helped get Vuitton where it is today, but it’s no longer the only brand staging large-scale travelling shows or tapping renowned artists to create installations for its stores. A €20 billion brand can’t be niche, but going too broad carries risks of its own.

For the first time since the pandemic, LVMH executives will meet financial analysts in person after releasing their earnings. The event has typically served as a forum for Bernard Arnault to articulate his vision for the group in the coming year. If he speaks he’ll have plenty of past accomplishments to brag about, but we’ll be more interested in hearing about what’s coming next.

Lunar New Year begins

Modefabriek trade show in Amsterdam

Sacai, Maison Margiela and others close out Paris Fashion Week, Men’s

Couture Week begins in Paris: Schiaparelli, Iris Van Herpen, Dior, Giambattista Valli are among the day one highlights

Eurozone consumer confidence data released

Swiss watch exports for December released

Chanel, Ronald Van Der Kemp, Alexandre Vaulthier, Giorgio Armani show couture

Texworld trade show begins in NYC

Levi’s, Zegna report results

Jean Paul Gaultier, Valentino couture shows

LVMH reports fourth-quarter and full-year results

Mugler, Robert Wun, Fendi couture shows

H&M reports results

Today marks the start of the Lunar New Year of the Rabbit. As the Chinese holiday season kicks off, luxury shoppers are expected to rush back to luxury stores with the same speed as the lop-eared animal they are fêting. After three years of lockdowns and repeated restrictions on personal freedoms and movements, they are eager to travel again and spend money.

That’s the expectation of a dozen investors, store managers and luxury goods executives who spoke to Miss Tweed in the past week. Since China announced in December it was putting an end to its zero-Covid policy and re-opened its borders on Jan. 8, luxury shares have rallied. LVMH stock reached an all-time high this week. The giant that owns Louis Vuitton, Dior and more than 75 other brands became the first European company in history to be valued at more than €400 billion. It is now the 12th most valuable company in the world, according to Bloomberg. LVMH CEO Bernard Arnault, who owns just under 50 percent of the company, is now the world’s richest man. However, Arnault’s elevation has also been aided by the wealth tumble taken by Elon Musk, the former world’s richest man, as a result of his takeover debacle at Twitter.

But the long Covid lockdown in China has meant that while the luxury goods industry is hopping with anticipation about the expected surge in spending, there will be obstacles to overcome for Chinese luxury shopping to return to its 2019 levels. From curtailed airline travel to a lack of Mandarin speaking sales staff in luxury boutiques, the road to Chinese luxury sales recovery will be a bumpy one.

“It’s going to take us at least a year to be completely up and running vis à vis the Chinese clientele,” the CEO of one of the biggest luxury brands told Miss Tweed on condition of anonymity.

Still, the new year of the Rabbit is expected to serve as a starting gun for luxury sales in a way it has not done since before the pandemic.

Jonathan Siboni, CEO of the luxury data analysis firm Luxurynsight, said that his firm’s data shows business in China has already picked up for many luxury brands since the beginning of the year. Next week is when the rush should start as the Chinese are on holiday. “I think business for luxury brands in China is going to be very brisk over the next few weeks,” Siboni said. Those Chinese coming to Europe this month have been mainly professionals with easier access to visas, like wholesale dealers buying products for department stores and online retailers in China, he said.

What is certain is that, as was increasingly clear before the pandemic, the winners in the race to bring Chinese shoppers back into stores are likely to be the biggest brands with the strongest financial firepower. At the summit sits LVMH. When LVMH publishes annual results next week, analysts expect weaker sales growth than earlier in the year, but the group should cheer up investors with upbeat comments about business in China gaining momentum.

Having a store network in China has again become crucial. Many Chinese over the holidays are expected to travel domestically to see family and friends. Only a minority intend to leave the country during the festive period, China-based English-speaking media have reported. Louis Vuitton has 50 shops in mainland China and around 7 in Hong Kong.

Less than one million passports in China were issued in 2022 compared to dozens of millions pre-Covid, according to official statistics. Chinese authorities have warned those who wished to leave the country that if they did, members of their family who stayed behind could get into trouble. Chinese officials are not allowing entire families out of the country. They want to make sure they come back, local sources have said.

“It’s like the Berlin Wall that has just opened for the Chinese,” explains David Baverez, a China columnist for several media such as France’s L’Opinion. “China will open internationally but those trying to leave will have strings attached.” Baverez expects China’s regime to harden in the coming months. “The Chinese do not like seeing capital leaving and not coming back,” he said.

Regardless of whether their store network is ready for Chinese visitors, luxury brands have been seeking to wet their appetite by printing rabbits on every type of product to mark the new year. Mulberry is selling handbags with prints of Miffy the Rabbit on them. Hugo Boss sweaters feature Bugs Bunny. Versace sells T-shirts with its own character Biggie Bunny.

The importance of Chinese shoppers remains crucial for brands. The dependence of Richemont on China became evident again this week when the group that owns Cartier and Van Cleef & Arpels blamed the country’s zero-Covid policy and store closures for weaker-than-expected sales for the three months to Dec. 31. “The impact from China is massive, but we see it as temporary,” said Jean-Philippe Bertschy, luxury goods analyst at Swiss brokerage Vontobel. “The catch-up from Chinese consumers will come as strong as sales decelerated in the (fiscal) third quarter, as they were able to save money during the lockdowns.” Richemont’s investor relations office told analysts: “Following the peak of the massive Covid wave in the major cities in China, stores have reopened, traffic has come back and we are experiencing a strong retail rebound pre-Chinese New Year.”

Burberry, which also published a trading update last week, said it had seen a drop in traffic in stores in China in December, but those recovered in January. “We've had more Chinese consumers that are moving into Hong Kong, and also Macao is showing very good signs, very good green shoots,” Burberry CEO Jonathan Akeroyd said in a conference call with analysts. “These tend to be the first areas that will improve. Hainan is another one. And then, it usually goes into the rest of Asia, and then it goes into Europe.”

Gucci owner Kering publishes its annual results on Feb. 15. As well as anticipation over its China outlook, there’s also high expectation about whether the French group will name a replacement for Gucci’s star designer Alessandro Michele who abruptly departed end-November. Investors expect a new design-led renaissance at the brand could be another attraction for Chinese shoppers as they make their way back to European stores.

In the 1990s, the Japanese were luxury brands’ biggest customers. Twenty years later, they were outnumbered by Chinese nouveaux riches eager to show off their wealth and success. Before the pandemic, luxury brands constantly tracked and analyzed Chinese tourists’ whereabouts and travel patterns. With the country’s re-opening, those studies will resume.

Many store managers and industry experts contacted by Miss Tweed do not expect Chinese shoppers to arrive in Europe or the United States before the early spring due to airline capacity constraints and waiting times for visas and passport renewals. Luxury boutiques in Milan, Paris or London may have to wait until the summer to see a strong inflow of Chinese tourists, those people told Miss Tweed. Global air traffic will take up to a year to come back to its 2019 levels and for China, international traffic will lag the busy domestic market as airlines gradually restore service, say airline industry analysts.

The airline industry has been shattered by the pandemic. Even if there is demand and the airlines want to expand capacity quickly, they cannot because there are not enough planes. Too many have been grounded and now the industry is struggling to get them to fly again and source all the spare parts they need due to supply chain disruptions. China ending its zero-Covid policy from one day to the next has taken the industry by surprise, airline industry experts say.

Luxury industry analysts forecast that after travelling within China, the next stop for Chinese shoppers will be places like Hong Kong, Macau and South Korea. Dior and Louis Vuitton have been pulling all the stops in China and South Korea. Dior this week replicated the Avenue Montaigne flagship in ice in the upmarket resort at Lake Songhua Seibu Prince Hotel in in Jilin province, China, not far from Harbin and Vladivostok. Dior did its first show in South Korea last year and opened a new concept store in the capital where it has built a futuristic-looking flagship.

Japan is also high on Chinese shoppers’ wish-list as the weak yen has made luxury goods cheaper than at home. Louis Vuitton has been rolling out an impressive worldwide campaign with Japanese artist Yayoi Kusama, decorating entire buildings with her work in many big cities. Doubtful of the efficiency of the home-made vaccine, affluent Chinese are also traveling to Thailand where they can get a Pfizer shot for $400. The first Chinese tourists back to Bangkok this month were greeted with flowers and welcome packages in front of government ministers, international media reported.

This week in Europe, in spite of the cold wave, there were many tourists queuing in front of luxury shops. Only a handful spoke Mandarin.

“I think the Chinese consumer will not come back to Europe in droves but in small numbers,” said Antoinette Lemens, founder and head of the head-hunting and retail specialist firm Lemensearch. “However, department stores and flagships should get ready for their return.”

Paris department store Galeries Lafayette, who did great business with Chinese shoppers before the pandemic, said it was too early to get prepared for their return. Meanwhile rival Printemps said they were not planning anything specific to welcome more Chinese customers. London-based Selfridges declined to comment.

Managers of luxury boutiques are starting 2023 in a relatively serene state of mind, having enjoyed a bumper year in 2022. They worked well with the local clientele and with U.S. and Middle Eastern tourists. But this aloofness may play against them as they need to prepare for the inflow of Chinese shoppers. Many boutiques in the West have lost their Mandarin-speaking staff during the pandemic. It will take them months to recruit new ones.

Bulgari is one of the few luxury brands that does not force customers to wait outside in a line. The brand’s flagships are spacious enough to welcome many guests. “Making someone wait outside in the cold is not really providing a luxury service,” said Jacopo Facchetti, manager of Bulgari’s Rome flagship housed in an 18th century building in the heart of the Italian capital. “If you have the space, it’s so much better to invite customers to come in, especially when we have a museum inside like in Via Condotti.”

Facchetti is of many luxury store managers who have adopted a “wait-and-see” attitude regarding the return of the Chinese. “We are not planning on making any major organizational changes,” Facchetti said. “For the moment, the reality is that Chinese customers are not back yet, partly due to lack of air connections. But if traffic comes back to 2019 levels, then of course we will need to recruit more sales advisers.” He said the boutique was hosting an event for Chinese customers on Friday and Saturday in honor of the New Year. Despite the absence of Chinese customers since 2020, Facchetti said his boutique had managed to roughly double sales last year thanks primarily to local customers and more recently foreign shoppers from America and the Middle East.

Nicolas Rebet, head of the consultancy Retailoscope specialized in luxury retail and customer experience in-store, just came back to Paris from a week in New York. He said he did not see many Chinese shoppers there either. As in Paris, London or Milan, the only ones to be seen are mainly local Chinese.

DON’T FORGET LOCALS

However, once Chinese tourists do return to Western shopping meccas, Rebet said luxury brands would be well advised not to forget their local clients who supported their business in the past three years. If they do, they will regret it as foreign customers come and go. And for sales assistants, tuning back into the specific needs of the Chinese clientele is not going to be that easy. “Chinese customers are known for being quite transactional in their approach. They do not have much time. Therefore, product availability will be key.”

Jonathan Siboni from Luxurynsight, believes there is a lot of room for improvement in the way luxury brands welcome Chinese tourists. There are many things they can do,” he said. “Simple things like offering them a cup of warm water as they enter and giving them a Wifi code so they can connect on WeChat and check what products they want.” Many flights from Asia arrive in cities like Paris, Milan or London early in the morning, Siboni remarked. But most luxury shops do not open before 10:30. If they welcomed Chinese shoppers an hour earlier, they would do solid business during that one extra hour, he argues.

With the Chinese consumer so crucial to the luxury industry, an earlier wake up seems worth it.