TheChek News Flow

Administrators end lawsuit that alleged negligence in audits of café chain

The administrators of Patisserie Valerie have settled a £200mn lawsuit with accountants Grant Thornton that alleged negligence in its audits of the café chain, which collapsed after a suspected fraud.

FRP Advisory, which is liquidating the failed group, sued Grant Thornton in 2020 in one of the biggest High Court claims ever to be brought against a mid-tier accounting firm.

The bakery group was put into administration in January 2019 after discovering potentially fraudulent accounting irregularities that led it to overstate its financial position by £94mn. The failure wiped out hundreds of millions of pounds of shareholders’ investments and sparked a string of legal and regulatory cases. Although some shops found buyers, most were closed and 900 jobs were cut.

In identical statements, the companies said: “The [Patisserie Valerie Group] and Grant Thornton confirm that in 2021 they resolved the claims brought against Grant Thornton by PV Group. The terms are strictly confidential.”

FRP pursued Grant Thornton for £200mn, alleging it was negligent in the preparation and conduct of financial statements between 2014 and 2017. It turned to law firm Mishcon de Reya to bring the claim.

It said “large accounting misstatements” had resulted in Patisserie Valerie’s board “being unaware that the group has insufficient funds to continue to trade”, in a report to creditors last year.

Grant Thornton had audited Patisserie Valerie for 12 years but failed to spot an alleged manipulation of its books.

According to representatives for both companies, the parties resolved the claims last year in a confidential settlement that came to light on Sunday. The news was first reported by the Sunday Telegraph newspaper.

The settlement comes after Grant Thornton was fined more than £2.3mn by the Financial Reporting Council in September for “a serious lack of competence” in its audits of the café chain.

If the auditors had done their job properly they should have “identified clear indicators of the risk of material misstatement [of Patisserie Valerie’s accounts] due to fraud”, the FRP said.

The regulator also imposed a £87,750 fine on David Newstead, who led Grant Thornton’s audit, and banned him from carrying out statutory audits for three years. The fines related to Grant Thornton’s clean audit opinions on Patisserie Valerie’s accounts for the three financial years to 2017.

The Serious Fraud Office has also opened a criminal investigation into Patisserie Valerie’s collapse and made several arrests, including one rearrest. However, no charges have been announced.

Tech companies let you set up digital-legacy contacts who can, upon your demise, gain access to your accounts, password managers and other data

Just as you set up a living will or a power of attorney, it’s a good idea to set up your online accounts so that someone else can access them after you’ve passed on.

It’s no fun to think about a day when we’re no longer here, but facing reality can save work and heartache for relatives and heirs. If you haven’t set up digital-legacy contacts or other means to share accounts after your death, your heirs typically have to go through a lengthy process to gain access to your data. In some cases, such as with some password managers, there may be no way for heirs to gain access unless you take steps in advance.

“When you don’t personally set up who has access to your accounts, you’ll be leaving behind a big mess and a lot of stress for your family,” said Bill Gaggos, an estate-planning attorney in Troy, Mich.

Mr. Gaggos, who helps clients store their valuable documents online, says he saw the problem become more common during the pandemic, as people fell ill and died suddenly without granting anyone access to their online accounts.

Apple, Google and Facebook parent Meta Platforms are among the tech companies that provide digital-legacy tools to let users bequeath account access to others. They work by letting you designate who can download your data or access your profiles after your death. The legacy-contact tools typically don’t require you to share your passwords with your heirs, but you can also set up password managers to share your account credentials, and other private information, upon your death.

The catch is that you must enable the tools before you’re gone. You can set them up in your app and device settings, which we will walk you through. Here is how to ensure your loved ones have access to all the necessary accounts after your death.

Apple, Google and Facebook users can set up legacy contacts in account settings. Such a designation doesn’t give heirs your passwords, but can grant them access to text messages, photos and other data in the event of your death. While making someone your legacy contact doesn’t automatically give them any access to your accounts while you’re alive and active, it’s always important to choose your designees wisely.

Meta provides a couple of options for Facebook accounts after death. You can select a legacy contact to look after your “memorialized” account, or choose to have your profile deleted after someone informs the company of your death. In both cases, the fastest way to notify Facebook is with a death certificate that your heirs upload. (You can’t set a legacy contact in Instagram to ensure your account is memorialized; your loved ones must upload a copy of your death certificate to the service to memorialize your profile.)

To add a legacy contact on Facebook’s mobile app, go to: Settings & privacy > Settings > Personal and account information > Account ownership and control > Memorialization settings > Choose Legacy Contact.

Google’s Inactive Account Manager setting lets you decide what happens to your data after you have stopped using your account for a certain period. You decide how long that is, such as three months or 18 months, and you choose up to 10 people that Google will email when your account reaches that inactive time limit. You also decide what data those people get access to, such as YouTube videos, photos, emails and other documents. They won’t be able to send emails from your account.

To set up the Inactive Account Manager, go to myaccount.google.com, scroll to More options > Make a plan for your digital legacy. If you don’t do this, your loved ones must upload a death certificate to close the account and receive any of its content.

Apple also has an option to add people as legacy contacts, who would be able to request access to most of what’s in your iCloud account.

You can set up legacy contacts on an iPhone by going to Settings, tap your name at the top then Password & Security > Legacy Contact. People you add are given an access key. After you die, they can go to digital-legacy.apple.com, log in with their iCloud account or provide other contact information and upload a death certificate. Once Apple’s staff reviews it and accepts the request, the contact can log in online or on an Apple device to view your call history, health data, Notes and iCloud backups. Legacy contacts won’t have access to passwords stored in your iCloud Keychain.

If you don’t designate a legacy contact, Apple requires a court order to give someone access to your Apple ID and data.

1Password, LastPass and some other password managers—which store your current logins and can generate unique, complex passwords for all accounts you link to the service—let you designate digital heirs who can access your account information.

1Password’s “shared vaults” are like shareable folders that only friends or family members with granted access can view. The service also lets users print out an Emergency Kit document with space for login information and a QR code that sends your heirs to 1Password’s website where they can sign into your account. Share it with your heirs or save it in a place where they can find it. On LastPass, you designate a list of people you trust and invite them to create an account. If something happens to you, your trusted contacts can request emergency access to your vault. You set a wait time, during which you can deny access to your emergency contacts if you’re still alive and capable of accessing your account. No death certificate is necessary. There is a wait time during which you can cancel false-alarm requests from your loved ones.

No matter the password-storage method you use, experts say you shouldn’t make it too difficult for your trusted contacts to know what accounts you have, and how to log in. It’s also important to share your phone passcode, because many accounts are now protected by two-factor authentication, often a code generated in apps or sent via text message. If you use a hardware security key such as Yubico’s Yubikey or Google’s Titan Key, make sure it’s in an accessible place.

Millions of people are poised to change how they log into accounts over the coming years as

Apple, Google and Microsoft begin to replace long, complex strings of characters with fingerprints, face scans or on-device passcodes. Such password-free technology is designed to be faster, easier and more secure than traditional passwords.

But those passkeys aren’t set up yet for sharing with heirs or next of kin. That limitation is part of the reason why password-free technology won’t become ubiquitous overnight, said Andrew Shikiar, executive director at FIDO (aka the Fast Identity Online Alliance), an industry organization working with Apple, Google and about 250 others to create password-free online authentication.

“Not only do consumers need to learn and embrace new behaviors, but their service providers also need to contemplate new back end identity and authentication policies,” he said. Such policies, including digital legacy, are outside of FIDO’s purview, Mr. Shikiar added.

Companies have some latitude in how they implement FIDO sign-ins. In the future, they could allow users to designate emergency contacts who can access your accounts through their own unique passkeys after verifying their identity. Alternatively, apps and websites may let you keep a traditional password as a backup.

And there’s still the old-fashioned approach. Jotting down a list of your accounts and passwords on a piece of paper and storing that in a fireproof safe—or even the freezer—with other important documents is one way to do it.

“Tell them to look for that little black box if anything were to happen to you,” Mr. Gaggos said.

As the cruise industry recovers, debt that buoyed business during the pandemic now could sink stocks

Cruise ships, it seems, are like ducks—elegant and effortless above the water, fighting like crazy to stay afloat beneath.

On the surface, the industry is finally steaming ahead after over a year at bay: The world has reopened, occupancy limits have relaxed and bookings are at or above prepandemic levels. Carnival Corp., CCL 12.44%▲ Royal Caribbean Group RCL 15.77%▲ and Norwegian Cruise Line Holdings NCLH 15.36%▲ are all eyeing a near-term return to profitability this year—a milestone they are hoping will reignite investor interest, with their shares down an average of over 45% over the past six months.

On Friday, Carnival said it was still on track to see profits in the current quarter on the basis of adjusted earnings before interest, taxes, depreciation and amortization, sending shares of the entire sector up an average of nearly 15% on the day.

But for an industry just regaining its sea legs, the unfortunate reality is that it is sailing into a possible recession, with inflation and higher interest rates pinching an already cost-conscious consumer. Carnival, for example, also said Friday that cumulative advance bookings for the second half of the year are at lower prices compared with 2019 sailings, in part because of capacity increases—a change from higher prices on that basis as of March.

Tracking from multiple sell-side analysts shows weakening travel trends over the past few weeks, perhaps the first signs that economic pressures are beginning to damp what has been hyped as an especially strong summer travel season.

What is more, cruise companies are carrying boatloads of new debt taken out over the past two years to make ends meet. Despite a likely return to quarterly profits over the next few months, all major cruise lines’ debt-to-income ratios will soar to eye-popping levels in 2022 and are forecast to remain well above prepandemic levels even next year.

Earlier this month, a German shipping magazine reported that one of the world’s biggest cruise ships on order for Asia-based Dream Cruises could be scrapped before ever setting sail. Its parent company, Genting Hong Kong, ran out of cash earlier this year.

Such a scenario isn’t likely for U.S.-listed cruise lines which, thanks to significant pandemic fundraising, seem confident in their multibillion-dollar liquidity positions. But risks abound. Forecasts earlier this month from Truist’s Patrick Scholes show Carnival, which started the pandemic better-capitalized than peers, ending next year with a net debt to Ebitda ratio of around 4.6 times, versus 6.4 times for Norwegian and 5.5 times for Royal Caribbean. Spreads on Royal Caribbean’s credit-default swaps have more than doubled in six months, according to FactSet, even though occupancy was still significantly capped at the end of last year.

All that could be for good reason: As of the end of March, Royal Caribbean had roughly $8 billion in scheduled principal repayments through the end of next year, according to Truist—some 77% more than Carnival had at the time—despite Wall Street forecasting Royal Caribbean to earn over 30% less than its competitor on an adjusted Ebitda basis over the course of this year and next.

It isn’t all a result of the pandemic. Carnival, Royal Caribbean and Norwegian each have several ships on order for future delivery. Running hundreds of millions of dollars each, the majority of payment for these ships will come due upon delivery, according to UBS analyst Robin Farley. If only they could have waited for Genting to sink and taken that ship off the scrapyard.

The good news, according to Ms. Farley, is that, given early timing and the ability to leverage government subsidies from shipbuilding countries, U.S.-listed cruise companies were able to borrow significantly below current market rates to finance new ships. New builds will add capacity—helpful, assuming demand returns as hoped. They are also often faster, typically more fuel-efficient and can offer differentiating features such as roller coasters.

Based on each company’s latest quarterly report, Carnival had $7.5 billion in liquidity, including cash, short-term investments and borrowings available under the company’s revolving credit facility, to Royal Caribbean’s $3.8 billion, despite the fact that Carnival had fewer total ships on order as of last month.

Cruisers rarely venture below the waterline, but that is where investors should dwell.

By Jen Wieczner

Photo-Illustration: Intelligencer; Photo: Jeenah Moon/Bloomberg via Getty Images

A little over a year ago, when I interviewed Mike Novogratz, a veteran hedge-fund manager and crypto billionaire, I asked him what he was excited about. The CEO of Galaxy Digital, a blockchain-focused investing firm, had a short list to tout that included “luna, my new favorite coin.” By January of this year, after luna’s price soared to $100, Novogratz had celebrated the cryptocurrency with a tattoo on his shoulder, depicting a wolf howling at the moon:

When I spoke with Novogratz this week — in the wake of the stunning $50 billion collapse of the luna cryptocurrency and its blockchain ecosystem — I reminded him of that earlier conversation and his plug of luna. “Yeah, erase that one,” he said ruefully. (To be fair, in our last conversation, around cryptocurrency’s peak last year, he did advise newly rich crypto investors to “be prudent, take some chips and buy yourself a house if you can afford it.”) The crypto crash, in luna and the industry more broadly, has burned Galaxy’s portfolio and, presumably, a chunk of Novogratz’s net worth. (In recent days, the price of bitcoin fell below $20,000 from a high of nearly $70,000, while ethereum — the second-largest cryptocurrency — fell under $1,000 after topping out at almost $5,000.) The wipeout led to mass casualties in crypto funds, spreading a dangerous contagion throughout the industry akin to what the financial crisis did to Wall Street in 2008. The pain is particularly severe in some decentralized finance, or DeFi, companies, such as Celsius, which lent out their crypto assets only to have to freeze withdrawals as investors came rushing back to pull out their money. Novogratz has been on Wall Street long enough to know how this happens, yet he admits even he took on too much risk. In an interview, he reflected on what happened this time around and what he might do differently ahead of the next crypto bubble and crash — because in crypto, there is always a next one not too far away.

You have to put things in perspective. If I told you at the beginning of the pandemic you could buy Zoom stock or bitcoin — today you would have doubled your money on bitcoin and you’d have made nothing on Zoom. So that’s what I think is hard for people to get their heads around. This has been a complete and total old-school ass-beating. But it’s important not to throw the baby out with the bathwater because we had a speculative mania in lots of asset classes. Bitcoin is not going away as a macro asset. Web3 is not going away. We’ll spend more time in the metaverse, therefore companies will sell digital assets, and for digital assets to have value, they have to be unique, and to be unique, they have to live in a blockchain.

Now, is crypto criticizable? Well of course it is because it’s such an amazing mechanism that if you own a token in an ecosystem, you benefit by more people buying into your ecosystem. And so it gets very tribal. I was loved by some ecosystems and literally despised by others. Because I’d say “Hey, I think this is overvalued,” and just making that comment was like a declaration of war against their mother. And so, to this day, I get trolled just for making what seemed like rational statements. And I don’t think tribalism leads to great investing decisions long term.

It’s like in Beauty and the Beast — “Tale as old as time.” In an asset bubble, which we obviously had, when it crashes, you always find far more and bizarre pockets of leverage than you had expected. And even though you kind of know there’s leverage in the system, when it breaks apart, you’re like, “Oh, there was gambling going on here?”

I’m hoping we saw the worst last weekend. I’d be more confident of that if I knew where inflation was going to be in the next two quarters. But if you had a sell order, you most likely sold — ethereum went down to $890, bitcoin went down to $17,900. And so I think now you’re going to see the triage you see after big crashes, where people are a little less risky or a lot less risky. And so in all likelihood, we have a big recession coming. And that’s not terrible for crypto, but it’s terrible for the economy. And it’s not good for the stock market.

It’s not great for crypto, but crypto also needs a pause. The lead horse that pulls the sled in crypto is bitcoin. And bitcoin is one of the only scarce things we have on the frigging planet. If the Fed is going to have to pause its rate hikes because the economy slows down, and we know there are still inflationary pressures, crypto takes back off or bitcoin takes back off. And that fuels the rest of the industry.

Is there anything in crypto that you’re still worried about right now? We keep learning about new casualties of this contagion in crypto, like the hedge fund Three Arrows Capital, which seems to have imploded and created various cascading effects.

I think people have their arms around the worst situations, at least understanding where things stand. It will take a while for these things to be either put into bankruptcy or sold off. Just like after ’08, there was a whole industry of Lehman claims and buying broken hedge funds or the assets of broken hedge funds. That’s going to happen. But the biggest worry everyone had was that the largest stablecoin, tether, would collapse. And the best I can tell is that it doesn’t feel like it’s a category-five worry right now. Those guys, for lots of different reasons, seem pretty stable (though there’s not transparency there as much as we’d like — we’d love more transparency). But I’m hoping that we’re somewhere between 90 and 100 percent through the forced-liquidation game. It doesn’t mean you won’t have liquidations, but it’s forced liquidations that cause that sheer fear in markets, and that’s what we saw last weekend.

They have a bunch of cash on their balance sheet. They have a burn rate that’s way too high. And so my guess is CEO Brian Armstrong will cut that burn rate over the next quarter or two pretty immensely. They have a great brand. I think their worst-case scenario is some big traditional finance guy comes and partners up or buys them. I think Coinbase is a foundational asset for the space. And so I’d be very surprised to see Coinbase not exist in some form. They’re going to most likely try to run it on their own. But if they can’t pull that off because the crypto winter gets too grim, I’m sure someone would step in and buy them.

I was worried about the macro environment. But I was hoping bitcoin would stay in the $30,000 to $50,000 range. We weren’t invested in any of the credit shops like Celsius. We had been invested in their competitor BlockFi, but we exited that over a year ago because I worried about that business model. We had at times been big investors. And in terra, we scaled back our holdings — that’s what we do with most positions when things kind of go to the sky. With hindsight, looking at luna, you can’t offer people 18 percent interest, as they did with Anchor, and not have the world all run into yours. And so they grew their ecosystem too fast — before they grew the rest of the use cases. And I think that’s one of the lessons of crypto. With this bull run, with the money printer goes brr — everything kind of went up. And the speculative mania that took place in baseball cards and fine wines and watches and tech stocks also happened in crypto. I think the speculative frenzy part is over for the time being. So it becomes a much more sober business of having to build shit that people use.

In some ways, the regulators are going to lick their chops and say, “Oh my goodness.” But DeFi, for the most part, has worked. It just is worth a lot less. Where the big losses are, it’s really in this weird combination of CeFi (centralized finance) and DeFi. Celsius and BlockFi were black boxes that investors put their money in and then they did whatever they wanted with it. It wasn’t on-chain. You didn’t know what the leverage was unless you got under the hood. You didn’t know what their asset-liability mismatch was. They borrowed short and they lent long. Those are the two ways you die a sudden death in markets. You see financial services companies like the European banks in 2008, like Lehman Brothers, like Merrill Lynch, in bull markets take a bizarre amount of leverage and think they’re geniuses. And that’s what happened.

Luna and terra are a little different because it was completely transparent. So that was a combination of greed by the investors, and it was a very charismatic founder. The stablecoin was a peg based on bullishness, and when the market turned, the mechanisms to create that peg just didn’t withstand the pressure. But that was the biggest black eye because it was transparent. You’re going to have failures, but broadly, DeFi lending systems have worked — projects like Compound, Aave, MakerDAO, and Uniswap. But they’re going to have a whole lot fewer assets on them.

The market will grade me. We did some things very, very well. If you look back on the last year, we sold crypto, we sold some private equity and some of our venture stuff. We took a lot of chips off the table, but we left a lot of chips on the table. And if I was that smart, I would have sold more. As a trader, it’s tough to not be tough on yourself. If you’re in the job I’m in for 30 years, you don’t like to lose. I think we get a good grade on having taken a lot of chips off the table, thinking that the Fed was going to get aggressive and that some valuations didn’t make sense. And I wish we’d done that more aggressively.

We never got net short, or I would have a much bigger smile on my face. Our investors bought us to be long crypto. They also bought us to be good risk managers. And so there’s that tension. Like I said earlier, I wish I had been less long even though we did sell a lot. I’m positive there are some people out there and they will stay very quiet and make lots and lots of money being short crypto. You could have shorted Coinbase, you could have shorted futures — there are plenty of ways to do it. But we only use those tools to hedge our business. For companies like ours, it’s Let’s just make sure we have runway to survive and thrive over the next 18 months.

Well, so to be fair, we never really participated in algorithmic stable coins. We looked at them and we didn’t participate. We’re not in staked ETH. But I do think staked ETH is going to be a big business. And so my sense is we will be in that business. The mistake we made is we were still too long crypto assets — you’re never happy when you lose money. The mistake other companies in the space made is they took more credit risk than they should have.

You can look at the “GDP” of the crypto space as the total value of the coins plus the value of the public companies plus the value of private companies — it’s about a trillion dollars. I think the industry was built for at least a $2 trillion GDP, and so we’ll get back to $2 trillion. It’s going to take a while and then, in time, will be far, far higher than the old high.

Yes, crypto is in a recession. The rest of the economy is also going to get a recession.

I wish I had that crystal ball. My instinct is 18 months, maybe even a little shorter because I think the Fed is going to have to pause hiking rates by the fall, and I think that’ll get people comfortable to start building again.

You could blame the Fed. You could blame COVID, and you can blame the Russian war. I say all that kind of tongue in cheek. You put all those together and it just forced a much faster unwinding of the bubble. There are lots of people that took too much leverage, and they’re suffering immensely. BlockFi raised money at a $5 billion valuation last year; it basically just sold for zero. Celsius was valued at more than $3 billion and it’s in all likelihood going bankrupt. And so people that took too much leverage have paid the price already.

But I do think it’s important for people to understand that the investments they make change in character; they change in valuation. Buying Tesla when it was $100 is a far different bet than buying it when it’s $1,300. And so we have too many people that kind of think, Oh, you buy a stock or you buy a coin, and it’s yours forever. They’re cheap at some levels, and they’re rich at some levels.

This week, everyone will be talking about labour talks at US West Coast ports, and Nike’s outlook.

The news has been buried amid increasingly dire inflation reports, but fashion’s logistics nightmare appears to be easing. Container shipping costs are down by more than one-third from their peak last fall (though still more than double pre-pandemic levels), according to freight marketplace Freightos. But supply chain managers can’t breathe easy just yet. While the pandemic’s effects on garment factories and shipping are easing, labour strife at US West Coast ports is threatening to throw the crucial trans-Pacific trade route into chaos once again. Barring a last-minute breakthrough, unionised dockworkers at 29 West Coast ports from Southern California to Seattle will be working without a contract. Both labour and management say they’ll continue normal operations as they negotiate. But last time the two sides were at an impasse, in 2014, a months-long slowdown culminated in a strike the following February. Much like with Covid, the ripple effects on global supply chains lasted for months, with retailers struggling to keep shelves stocked and then facing a flood of out-of-season merchandise when ports worked through their backlog. In recognition of the high stakes, President Joe Biden met with representatives from the union and the ports in a visit to Los Angeles earlier this month, and recently signed into law a bill that aims to reduce ocean shipping costs.

The Bottom Line: It’s too soon to know whether the region’s ports will see a repeat of 2015 — labour negotiations regularly stretch past the previous contract’s expiration without serious disruption. However, brands should watch the talks closely, and dust off the stockpiling plans and alternate shipping routes they may have last used in 2015.

Regent Street, London’s premier shopping thoroughfare, is struggling to shake off the lingering effects of Covid-19.

Store vacancy levels, at a record 12 percent, are almost twice what they were at the end of 2019, while asking rents for the best space on the street have fallen by more than 30 percent during the pandemic, according to Savills Plc.

Shoppers who stroll along the curving avenue, passing through Oxford Circus and Piccadilly in London’s West End, may notice the absence of familiar brands. J Crew, Brooks Brothers, Desigual and Zara Home all closed stores during the two years of on-again off-again lockdowns that battered brick-and-mortar retailers and accelerated a shift to online shopping.

“We aren’t out of the woods by any means,” said Simon Harding-Roots, managing director for London at The Crown Estate, which counts Regent Street among its £7.7 billion ($9.5 billion) of holdings in the capital.

“There’s work to be done to get vacancies back to pre-pandemic levels,” he said in an interview. “We’re well aware we’ve got some tough times ahead.”

The Crown Estate — which traces its roots to the Norman conquest in 1066 — owns a range of assets, from shops, offices and rural lands to the seabed around England. Now an independent company established by an Act of Parliament, its proceeds go to the UK treasury, which in turn sets aside a portion of the profits to fund the monarchy. It owns most of Regent Street along with Norway’s Sovereign Wealth Fund, which has a 25 percent stake.

‘Stubbornly Down’

The number of visitors to the West End collapsed during the pandemic as shoppers stayed away. Now people are returning, but with many still working part of the week at home, real wages falling and tourism not yet recovered, the shopping district hasn’t bounced all the way back.

“Footfall is stubbornly down,” said Harding-Roots. “We’ve got to entice people back into London.”

Britain’s biggest rail strike in a generation — and the prospect of more labour unrest this summer — aren’t helpful. Nor is the exponential growth of e-commerce companies, like China’s Shein. Even Primark, which has steadfastly resisted moving online, said Monday it will start a trial selling children’s products through its website for in-store collection.

Purveyors of luxury goods have been hit as the government’s decision to abolish tax-free shopping in the UK sends the well-heeled to boutiques in cities like Paris, Madrid and Milan. Those hubs are gaining £5 million a week from high-earning British spenders who can make cheaper purchases on the continent, said Helen Brocklebank, chief executive officer at Walpole, which represents the UK luxury industry.

“Has Regent Street lost its iconic status? No not at all,” Brocklebank said. “But is there a fight for wallet share post pandemic? Yes absolutely.”

It’s not just Regent Street where the shine seems to have come off. Vacancies have been rising on neighbouring Oxford Street too, and rents have also fallen. More broadly, the problems affecting London’s prime shopping district are similar to those facing high streets across the UK. Chief among them: surging inflation, a shift to internet shopping and staffing shortages.

Retail leaders need to consider where best to invest money and many will think the digital world is a safer bet, said Peter Williams, the chairman of Mister Spex SE and former chair of Boohoo Group Plc. “Many will ask ‘do I really need to invest in a store on Regent Street, when the West End is not looking as good as it once did? Probably not.”’

Mixing It Up

That said, churn is hardly new in Britain’s dynamic retail industry. As some brands have left the area, others — like Uniqlo — have moved in. The Japanese clothing seller opened a new Regent Street store in April.

The Crown Estate is reviewing its retail properties to mix flagship stores with smaller shops and pop-ups. Its ownership of Regent Street as a whole gives it the flexibility to break up large retail spaces and vary the type of tenants, said Harding-Roots.

“It’s been around 300 years, it’ll be around another 300 years,” he said. “Global success stories want to be on Regent Street, still.”

Gymshark, the workout-wear brand, plans to open its first permanent store there. Skincare brand Aesop, apparel maker Armani Exchange and fashion label Marc Jacobs also have new shops in the offing.

Footfall has grown to 88 percent of pre-pandemic levels, higher than the West End’s average of 81 percent, according to the New West End company, which represents businesses in the area. The opening of the new Elizabeth Line at Bond Street station in the autumn may bring in more visitors.

Gymshark likens Regent Street to New York’s Fifth Avenue or the Champs-Élysées in Paris. It has a history of attracting the most exciting new brands, said Mitch Healey, who heads physical retailing and events at the company. Gymshark customers want to “hang out” and touch and feel products in real life, he said.

The sportswear brand had a pop-up store in Covent Garden in 2020 and the “data we gleaned from those 11 days of trading showed we were onto a good thing,” he said.

But for Superdry Plc, Regent Street has lost its appeal. The fashion brand closed its store last year in favour of a newly fitted-out flagship across three floors on Oxford Street.

While the tech gadgets of Apple Inc. and colourful toys of Hamleys of London Ltd. pull in customers at the upper end of Regent Street, there isn’t an anchor store at the bottom end to keep shoppers interested, Julian Dunkerton, CEO and co-founder of Superdry, said by phone. Department store Selfridges & Co. provides that attraction on Oxford Street, he said.

“You’ve got a real determined shopper on Oxford Street and you’ve got a sort of lost tourist at the bottom end of Regent Street,” he said. “You need a really strong flagship that is going to give people a reason to go.”

Well-known mass-market brands are no longer enough in an industry now shaped by independents and influencers

In Revlon’s 1980s heyday, supermodels Cindy Crawford and Claudia Schiffer appeared in television and magazine advertising that promised to make women “unforgettable” with the brand’s bright red lipsticks.

Today, consumers scout out cosmetics on social media and a flood of buzzy independent brands fronted by celebrities like singer Rihanna and influencer Kylie Jenner that have sidelined the likes of Revlon. Saddled by high debts, the 90-year-old US group, which is majority owned by billionaire Ron Perelman, filed for bankruptcy last week.

The high-profile casualty shows how competitive and fast-paced the beauty sector has become, requiring heavy investment in digital marketing and product innovation to prevent brands from fading into irrelevance. Unlike other staples like food or household products where brands can survive decades with minimal tweaks, consumers’ desires in beauty evolve rapidly, often under the influence of culture, fashion and art.

“The indie brands are constantly taking risks and starting trends,” said Stephanie Wissink, an analyst at Jefferies. “It is as if the big established beauty companies are like a tortoise, who is racing not against one hare, but against hundreds of them.” 

Industry leaders L’Oréal, Estee Lauder and Shiseido have learned to thrive in this new landscape by playing on their global reach and scientific knowhow, and snapping up the most promising indie brands to stay relevant.

But the likes of Revlon and Coty have struggled because their cosmetics are more mass-market and they lacked scale in the fastest-growing category and market — skincare and China. Both were constrained by debts racked up from acquisitions, although Coty has made progress in paying it down so analysts say it is unlikely to suffer Revlon’s fate.

The Covid-19 pandemic pushed the less agile companies further on to the back foot, as lockdowns and mask wearing hit demand for beauty products while also sending more consumers online. Supply chains for everything from plastic to pigments have been snarled, another advantage for the bigger companies that carry more sway with suppliers.

Global make-up sales have not yet recovered to their 2019 levels, although some categories like skincare and luxury fragrances have done so, according to McKinsey data.

The strongest players L’Oréal and Estee Lauder have already exceeded their pre-pandemic sales, helped by their large presence in the booming Chinese market and strength in skincare with brands like Lancôme and La Mer. L’Oréal has predicted that its revenue growth will outpace the 4 to 5 per cent expansion of the global beauty market this year.

In contrast, sales at Revlon, Coty and Shiseido are still languishing at pre-pandemic levels.

Even the beauty industry’s winners have had a bad run on the stock market this year, as a combination of Covid-19 restrictions in China and fears of a global recession alarm investors. Estee Lauder is down 30 per cent, L’Oréal has fallen 22 per cent and Shiseido is off 18 per cent — all underperforming Dow Jones Industrial Average and global consumer staples indices. Coty has fallen 30 per cent this year, and Revlon has tumbled 38 per cent.

Although China has proved a boon over the past decade for some beauty companies, Beijing’s zero-Covid policy has curbed its attraction this year.

Estee Lauder in particular has been hard hit by recent lockdowns in China, triggering a profit warning in May. China accounts for about one-third of its sales and its main distribution centre is in Shanghai, the epicentre of the recent Covid-19 outbreak, leaving it unable to supply the rest of the country.

Given China’s role as the second-biggest cosmetics market after the US, Wissink of Jefferies said that China would continue to hang over the sector unless authorities shift away their strict Covid-19 policy.

But in Paris, a destination for Chinese tourists when travel was easier, there was little sign of a slowdown at the city’s high-end Bon Marché department stores this week where indie brands like Charlotte Tilbury vie for attention alongside mainstays Dior and Chanel.

A sales clerk who declined to be named said that it had been busy since international tourists were back and the wedding season was in full swing. “People want to indulge, so they’ve been snapping up beauty products that make them feel good,” the person said.

Elena Boulard said she had come to the store on the hunt for new lipstick and bronzer since she planned to go to the office more this summer after a long stretch working from home. “I haven’t bought make-up in a while and there is so much new stuff,” she said.

High-end beauty products have fared better emerging from the pandemic than cheaper brands. In the US, the “prestige beauty” market, which includes products sold via specialists like Ulta and department stores, grew robustly last year to $22 bln, or 7 per cent above 2019 levels, according to market researcher NPD.

Luxury fragrances, including new brands that offer bespoke blends for an individual, have also enjoyed a renaissance. “Consumers are trading up to treat themselves to a $300 bottle of perfume instead of the $80 one,” said NPD’s Larissa Jensen.

For Revlon, the nascent recovery has come too late. But its problems stretch back far longer: sales stagnated for much of the past two decades save for a bump in 2016 when Revlon bought Elizabeth Arden and it has posted losses for the past six years.

Analysts said Revlon’s brands did not keep up with changing consumers’ tastes, which began to emphasise self-expression and embracing flaws over unattainable beauty norms. Revlon’s weakness in skincare also meant it failed to benefit from that category’s boom.

A stretched balance sheet left the group unable to acquire indie brands to refresh its product lines. Following its bankruptcy court filing, the company will continue trading while it works out a creditor repayment plan.

The way beauty’s indie brands often emerge from unexpected places underlines the scale of the challenges a flat-footed Revon faced.

Take Half Magic, a brand started in May by Doniella Davy, a make-up artist who shot to fame by creating “emotional glam” looks for the actresses on the hit US television teen drama Euphoria. On TikTok, the hashtag #EuphoriaMakeUp, where people post videos of themselves putting on brightly coloured eye shadow, glitter, and neon face gems inspired by the show, has racked up 2.1bn views.

While Half Magic may well fizzle out, it is emblematic of how new brands and trends flourish on social media. To monitor the changes, big beauty companies have increased their spending on digital marketing both to advertise their brands and seize on trends when they emerge.

“If you want to run a successful cosmetics business nowadays, you have to pay an army of 20 somethings to be on TikTok and Instagram all day to monitor trends and engage with people about your brands,” said Iain Simpson, an analyst at Barclays. “It’s not a business you can run lean and mean with a lot of debt on it.” 

Coty chief executive Sue Y Nabi said in an interview that the group had “made a lot of progress” on using social media to renew its storied mass-market brands, which include CoverGirl and Max Factor. “Staying relevant is the most important thing,” she said, including jumping on consumers’ desire for so-called “clean beauty” products that strip out harsh chemicals or by using TikTok to attract Gen Z consumers.

An example of how Coty tries to refresh older names came with a recent launch of a new mascara under its Rimmel brand. It enlisted a UK TikTok influencer Olivia Neill to help design and promote the product called Thrill Seeker.

“It’s the first time we’ve done something like this,” said Nabi. “Companies like ours have learned how to create viral products just as the indie brands do.”

Well-known mass-market brands are no longer enough in an industry now shaped by independents and influencers

In Revlon’s 1980s heyday, supermodels Cindy Crawford and Claudia Schiffer appeared in television and magazine advertising that promised to make women “unforgettable” with the brand’s bright red lipsticks.

Today, consumers scout out cosmetics on social media and a flood of buzzy independent brands fronted by celebrities like singer Rihanna and influencer Kylie Jenner that have sidelined the likes of Revlon. Saddled by high debts, the 90-year-old US group, which is majority owned by billionaire Ron Perelman, filed for bankruptcy last week.

The high-profile casualty shows how competitive and fast-paced the beauty sector has become, requiring heavy investment in digital marketing and product innovation to prevent brands from fading into irrelevance. Unlike other staples like food or household products where brands can survive decades with minimal tweaks, consumers’ desires in beauty evolve rapidly, often under the influence of culture, fashion and art.

“The indie brands are constantly taking risks and starting trends,” said Stephanie Wissink, an analyst at Jefferies. “It is as if the big established beauty companies are like a tortoise, who is racing not against one hare, but against hundreds of them.” 

Industry leaders L’Oréal, Estee Lauder and Shiseido have learned to thrive in this new landscape by playing on their global reach and scientific knowhow, and snapping up the most promising indie brands to stay relevant.

But the likes of Revlon and Coty have struggled because their cosmetics are more mass-market and they lacked scale in the fastest-growing category and market — skincare and China. Both were constrained by debts racked up from acquisitions, although Coty has made progress in paying it down so analysts say it is unlikely to suffer Revlon’s fate.

The Covid-19 pandemic pushed the less agile companies further on to the back foot, as lockdowns and mask wearing hit demand for beauty products while also sending more consumers online. Supply chains for everything from plastic to pigments have been snarled, another advantage for the bigger companies that carry more sway with suppliers.

Global make-up sales have not yet recovered to their 2019 levels, although some categories like skincare and luxury fragrances have done so, according to McKinsey data.

The strongest players L’Oréal and Estee Lauder have already exceeded their pre-pandemic sales, helped by their large presence in the booming Chinese market and strength in skincare with brands like Lancôme and La Mer. L’Oréal has predicted that its revenue growth will outpace the 4 to 5 per cent expansion of the global beauty market this year.

In contrast, sales at Revlon, Coty and Shiseido are still languishing at pre-pandemic levels.

Even the beauty industry’s winners have had a bad run on the stock market this year, as a combination of Covid-19 restrictions in China and fears of a global recession alarm investors. Estee Lauder is down 30 per cent, L’Oréal has fallen 22 per cent and Shiseido is off 18 per cent — all underperforming Dow Jones Industrial Average and global consumer staples indices. Coty has fallen 30 per cent this year, and Revlon has tumbled 38 per cent.

Although China has proved a boon over the past decade for some beauty companies, Beijing’s zero-Covid policy has curbed its attraction this year.

Estee Lauder in particular has been hard hit by recent lockdowns in China, triggering a profit warning in May. China accounts for about one-third of its sales and its main distribution centre is in Shanghai, the epicentre of the recent Covid-19 outbreak, leaving it unable to supply the rest of the country.

Given China’s role as the second-biggest cosmetics market after the US, Wissink of Jefferies said that China would continue to hang over the sector unless authorities shift away their strict Covid-19 policy.

But in Paris, a destination for Chinese tourists when travel was easier, there was little sign of a slowdown at the city’s high-end Bon Marché department stores this week where indie brands like Charlotte Tilbury vie for attention alongside mainstays Dior and Chanel.

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A sales clerk who declined to be named said that it had been busy since international tourists were back and the wedding season was in full swing. “People want to indulge, so they’ve been snapping up beauty products that make them feel good,” the person said.

Elena Boulard said she had come to the store on the hunt for new lipstick and bronzer since she planned to go to the office more this summer after a long stretch working from home. “I haven’t bought make-up in a while and there is so much new stuff,” she said.

High-end beauty products have fared better emerging from the pandemic than cheaper brands. In the US, the “prestige beauty” market, which includes products sold via specialists like Ulta and department stores, grew robustly last year to $22 bln, or 7 per cent above 2019 levels, according to market researcher NPD.

Luxury fragrances, including new brands that offer bespoke blends for an individual, have also enjoyed a renaissance. “Consumers are trading up to treat themselves to a $300 bottle of perfume instead of the $80 one,” said NPD’s Larissa Jensen.

For Revlon, the nascent recovery has come too late. But its problems stretch back far longer: sales stagnated for much of the past two decades save for a bump in 2016 when Revlon bought Elizabeth Arden and it has posted losses for the past six years.

Analysts said Revlon’s brands did not keep up with changing consumers’ tastes, which began to emphasise self-expression and embracing flaws over unattainable beauty norms. Revlon’s weakness in skincare also meant it failed to benefit from that category’s boom.

A stretched balance sheet left the group unable to acquire indie brands to refresh its product lines. Following its bankruptcy court filing, the company will continue trading while it works out a creditor repayment plan.

The way beauty’s indie brands often emerge from unexpected places underlines the scale of the challenges a flat-footed Revon faced.

Take Half Magic, a brand started in May by Doniella Davy, a make-up artist who shot to fame by creating “emotional glam” looks for the actresses on the hit US television teen drama Euphoria. On TikTok, the hashtag #EuphoriaMakeUp, where people post videos of themselves putting on brightly coloured eye shadow, glitter, and neon face gems inspired by the show, has racked up 2.1bn views.

While Half Magic may well fizzle out, it is emblematic of how new brands and trends flourish on social media. To monitor the changes, big beauty companies have increased their spending on digital marketing both to advertise their brands and seize on trends when they emerge.

“If you want to run a successful cosmetics business nowadays, you have to pay an army of 20 somethings to be on TikTok and Instagram all day to monitor trends and engage with people about your brands,” said Iain Simpson, an analyst at Barclays. “It’s not a business you can run lean and mean with a lot of debt on it.” 

Coty chief executive Sue Y Nabi said in an interview that the group had “made a lot of progress” on using social media to renew its storied mass-market brands, which include CoverGirl and Max Factor. “Staying relevant is the most important thing,” she said, including jumping on consumers’ desire for so-called “clean beauty” products that strip out harsh chemicals or by using TikTok to attract Gen Z consumers.

An example of how Coty tries to refresh older names came with a recent launch of a new mascara under its Rimmel brand. It enlisted a UK TikTok influencer Olivia Neill to help design and promote the product called Thrill Seeker.

“It’s the first time we’ve done something like this,” said Nabi. “Companies like ours have learned how to create viral products just as the indie brands do.”