Looking back to when I started this blog, it would have been reasonable to expect an inevitable march of retailing from offline to online. Amazon was on a tear and search advertising volumes were increasing year on year. By the time I was at Yahoo! search advertising (focused on online retailing) counted for about half of all revenue for the company.
At that time Yahoo! had a Spotify-like subscription streaming music service that was viewed as a threat to Apple’s iTunes download only offering. When I worked there Yahoo Music was the number one online music site in terms of audience reach and total time spent by consumers on the site. Also display advertising was much bigger for brands than it is today and Yahoo! was guaranteed a good share of the online marketing spend from any movie launch at the time.
The reality of online retailing, was slower than our expectations. While COVID drove an increase in online retailing there has also been corresponding innovations in retailing as well.
Amongst the pioneers in this change have been luxury brands like Burberry and Nike, who brought digital into their stores to provide a superior customer experience.
Adidas brought manufacturing into its stores with its speedfactory experiment, allowing for fast time to market and customisation.
Supreme changed the cadence of retailing with the Thursday morning ‘drop’ which saw queues outside stores. Every Thursday became a launch day as far as their customers where concerned. The queue has moved from Apple’s annual cadence, to every week.
I had this copy of Deluxe on my shelf for a while and finally managed got round to reading it. Deluxe – how luxury lost its lustre was written by Dana Thomas. Dana knows the subject that she’s talking about.
Dana Thomas
Dana Thomas is a Paris-based journalist who covered the fashion industry. Thomas started her journalistic career writing for the ‘style’ section of The Washington Post. For a decade and a half Thomas was a cultural and fashion correspondent for Newsweek in Paris. She has contributed to The New York Times, The New Yorker, The Wall Street Journal, the Financial Times, Vogue, Harper’s Bazaar and Architectural Digest. Deluxe is one of three books that she has written, the other is Fashionopolis, which focuses on the fast fashion industry and Gods and Kings covered the career of fashion designers Alexander McQueen and John Galliano.
Deluxe – How Luxury Lost its Lustre
In the introduction starts with a scatter gun approach. She bemoans Gucci and Burberry factory seconds on sale in China, revealing the global supply chain used by luxury brands now. She also criticises that luxury goods are used as currency by some sex workers from compensated dating to ‘returning gifts’ and pocketing the difference minus a restocking fee.
I get the sense that Thomas would like to see these companies remain small ‘secrets’ only known by a cosmopolitan cognoscenti, obviously including herself. What my younger peers would call ‘gatekeeping’ in a derogatory way.
Parasite singles
Most of Thomas’ ire focuses on Louis Vuitton early on. She describes Bernard Arnaud in unflattering terms and makes the globalisation of the brand sound like a mix of a happy accident and opportunity. Along the way she critiques the weakness of Japanese society’s love for luxury goods down to subtle social signalling and ‘parasite singles’ – young women living at home with their parents who spend their disposable income on luxury goods.
(The reality is that could be young people with a job in Spain or Italy either as east Asians and Southern Europeans tend to only move out of home to marry or to follow work or education.)
Japanese tourists took their luxury shopping abroad, taking advantage of duty-free shopping. It’s no coincidence that LVMH owns DFS (Duty Free Shopping) outlets across America and the Pacific rim. Some of the lessons that DFS and LVMH learned selling to Japanese luxury buyers, such last late closing, you can still see in showrooms across the Asia Pacific region.
Jumping from Japanese duty free shoppers in Hawaii, Thomas moves on to the connection between a generation of Italian designers and Hollywood. Richard Gere’s star power was as much down to his styling making him look the part by Giorgio Armani as it was to his considerable acting prowess.
From Hollywood, the book delves into the perfume operations of the design houses. It highlights how perfume formulation moved from being an in-house activity for design houses to being outsourced to a few specialists companies who work with a ‘creative brief’.
Quality issues
The area where I can agree most with Thomas is around the decline in quality of luxury goods. Deluxe approaches this from the different tactics that luxury companies have used to conceal their use of Chinese factories. However as Apple has shown, made in China doesn’t necessarily mean cheap or poorly made. Indeed, a decade and a half after Deluxe was written, we’re seeing local luxury brands displacing international luxury brands in the Chinese market for several reasons, usually explained using the term ‘guo chao‘.
Thomas estimates that there at least four factories in China who manufacture most of the luxury industry’s handbags and leather goods – alongside private label brands for department stores and supermarkets. I was surprised that even back in 2004, manufacturing in China only saved 30 percent of the bill of materials.
The book goes on to cover the cost cutting that has gone into luxury products, from clothes with cheap stitching, skipped tailoring such as no lining in jackets and dresses. Thomas highlights that these changes happened to allow luxury to go mass market. Luxury then followed customers out of the office or the salon into all aspects of their life including sportswear and ‘streetwear’. What my friend Jeremy calls the ‘Supremification’ of luxury.
The reliance on the mass market bought about two challenges in Thomas’ eyes:
Counterfeit products that are almost indistinguishable from the real thing by experts
Rockier finances for the large luxury corporates who are no longer sheltered from economic cycles by the continued spending of ultra high net worth individuals.
The future
Thomas left us with two parts to what we saw the future of luxury looking like:
The continued pursuit of emerging markets with India replacing China due to demographics.
The new luxury of industry specialists spinning off and creating new houses, because they were jaded with the existing business practices and structures. The book highlights Tom Ford; who recently gave up his label and sold it on in November 2022 to cosmetics business Estée Lauder and fellow fashion house Ermenegildo Zegna.
In summary
Dana Thomas’ Deluxe is a book of its time in the early to mid 2000s. Thomas clearly has some bias’ due to history with some of the protagonists, which is worthwhile bearing in mind. The historical part of the book is useful; but the luxury industry has moved on and in some ways the problems are now much worse. With those provisos in mind, I can recommend the book as a background read on the luxury sector.
TikTok quacks is a bit of a harsh label for TikTok content. The reality is that similar content to that turned out by various TikTok quacks appear on YouTube, Instagram and other social media channels. Quack and quackery are synonyms for medical false claims or a ‘snake oil salesperson’.
Social media not only spreads misinformation and false hope across a range of medical conditions, it allows the perpetrators to profit directly from their work. The rise of dodgy health businesses with commerce integrated into their social posts by the likes of TikTok (and Instagram) facilitates TikTok quacks.
Below are just some of the content currently exposing this intersection between health, wellness, beauty and dishonestly obtained profits.
Hong Kong’s corporate lawyers test boundaries as Beijing’s influence grows | Financial Times – legal practitioners, including corporate lawyers, are concerned the broadening scope of a sweeping national security law could jeopardise the independence of the city’s legal system, a legacy of British administration, as Beijing tightens its grip. “There is general concern . . . that people are not fully understanding where the boundaries lie,” said a senior corporate lawyer with a global firm who has worked in Hong Kong for more than two decades – not entirely unexpected and a great opportunity for Singapore
Digital materials look to use different geometry of materials to replace other materials with special properties like foams. It does this through 3d printed lattices.
Sweden Is Not Staying Neutral in Russia’s Information War | New York Times – The Psychological Defense Agency also raised political concerns when it was proposed, but its leaders have emphasized that mandate allows it to address only foreign sources of disinformation, not content generated in Sweden. The challenge is one facing all democracies that, as a matter of principle, decline to enforce official ideologies, allowing divergent points of view of what is true or false. “The government can’t control the truth if it’s going to be a democracy,” said Hanna Linderstål, the founder of Earhart Business Protection Agency, a cybersecurity firm in Stockholm, and an adviser to the International Telecommunication Union, part of the United Nations. “The government can’t control the truth if it’s going to be a democracy,” said Hanna Linderstål, the senior cybersecurity adviser of Earhart Business Protection Agency.
ChatGPT In Trouble: OpenAI may go bankrupt by 2024, AI bot costs company $700,000 every day – not terribly surprising, it’s computationally intensive and hard to monetise. Look at how Google and Facebook have looked to squeeze computing power per watt out of their data centres, along with squeezing cost per server right down as well – they did this to reduce operating costs versus income. ChatGPT hadn’t gone there on design and instead uses 10,000 plus servers based around power-hungry top-of-the-range Nvidia graphics processors
I wish gatekeeping was a thing back in 2005 and 2006 when I was working on the international launch of Yahoo! Answers. The problem that we had was getting people to contribute answers to questions. Gatekeeping and the exhortation to not gate keep is about sharing knowledge and opinions freely – an in real life version of what we saw in early social publishing. Ironically gatekeeping stands in sharp contrast to oversharing as a social faux pas. The kind of knowledge that concerns about gatekeeping is particularly opposed to is opinion based knowledge or NORA.
Now ‘your jam’ is no longer your jam, but instead offered up to be other people’s jam instead. Your individuality ready to be cloned at a moments notice. Will everything descend to being ‘basic’ or mainstream? Does it disincentivise possessing good taste?
What the Internet’s Use of ‘Gatekeeping’ Says About Power – The rise of “Don’t gatekeep” has reframed keeping things to yourself as a selfish act. But not everything is for everyone! And sometimes the act of sharing does more harm than good. I’m thinking of how Anthony Bourdain felt conflicted about sending droves of tourists to mom-and-pop restaurants. I’m thinking of gentrification and what happens when certain neighborhoods are positioned as hidden gems.
Study Times op-ed shoots down new policy options | Pekingology – translation from an article from the Study Times. Comments on infrastructure are particularly instructive in terms of the view point that they reflect: To debunk views such as “infrastructure overcapacity is wasteful,” “promoting infrastructure equates to taking the old path that’s inconsistent with high-quality development,” and “limited space,” it’s crucial to fully understand the role of infrastructure investment from a holistic perspective of national economic development. Infrastructure investment doesn’t only interact with the expansion of aggregate demand to stabilize economic operations, but also enhances macroeconomic efficiency, improves people’s living standards, and robustly supports high-quality development. Overall, there’s no issue of excessive infrastructure. On the contrary, there are areas that hinder the efficiency of the national economy and the improvement of people’s living standards. China’s per capita infrastructure capital stock only accounts for 20% to 30% of the developed countries, and public facility investments per rural resident are only about a fifth of an urban dweller, indicating potential for investment
McDonald’s Hong Kong and Kevin Poon “Coach McNugget Art World” Exhibition | Hypebeast – via Ian at Deft. This was to celebrate 40 years of the McNugget. McDonald’s have always done some smart cultural marketing work in Hong Kong (such as an McDonalds Big Mac themed issue of Milk magazine). Hong Kong seems like a natural home for these things, I remember activating a Coke Zero x Neighborhood collab while there.) But it isn’t only a Hong Kong thing, McDonalds has done some strong cultural marketing internationally as well: from the Cactus Jack happy meal to a bounty programme for rappers that namedropped McDonalds on their mixtape over the years. As my friend Ian observed this is at odds with their current UK positioning ‘ McDonalds is the perfect place for estranged parents to meet their kids for awkward conversations’. The implication in that McDonalds restaurants are a lower rent third space (than Starbucks or Costa) positioning. I have welcomed their value-priced coffee and breakfasts at the end of an all-nighter on a pitch or a long drive. But the UK’s the third space aspect loses all the joy that McDonalds manages to imbue in their children experiences – the treat, the birthday party, the expectation of picking up a much wanted toy in a happy meal. The child to adult disconnect in the experience is something cultural marketing like this can help bridge if done in the UK.
Hong Kong’s corporate lawyers test boundaries as Beijing’s influence grows | Financial Times – legal practitioners, including corporate lawyers, are concerned the broadening scope of a sweeping national security law could jeopardise the independence of the city’s legal system, a legacy of British administration, as Beijing tightens its grip. “There is general concern . . . that people are not fully understanding where the boundaries lie,” said a senior corporate lawyer with a global firm who has worked in Hong Kong for more than two decades
Daring Fireball: ‘Changes to U.K. Surveillance Regime May Violate International Law’ – As I see it, the most likely outcome is that the U.K. passes the law, thinking that the grave concerns conveyed to them by the messaging services are overblown. That the platform providers are saying they can’t comply but they really just mean they don’t want to comply because it’s just difficult, not impossible. And when it becomes law, the platforms will hand it off to the nerds, the nerds will nerd harder, and boom, the platforms will fall into compliance with this law. That’s what they think will happen. What will actually happen, I believe, is that E2EE messaging platforms like WhatsApp (overwhelmingly popular in the U.K.), Signal, and iMessage will stop working and be pulled from app stores in the U.K., full stop. The U.K. seems to think it’s a bluff; I don’t
Singapore
Money Laundering Bust Puts Foreign Wealth in Singapore on Notice | Asia Sentinel – if that occurred at the behest of the China then we’re likely to see flight overseas from Singapore. It’s also interesting that these raids have come soon after China arrested a Shanghai immigration consultant to get hold of their database of UHNWI overseas (predominantly in the US). They second question I had would be why Singapore would cooperate with China on this?
Software
Now is the time for grimoires – by Ethan Mollick – With the rise of a new form of AI, the Large Language Model, organizations continue to think that whoever controls the data is going to win. But at least in the near future, I not only think they are wrong, but also that this approach blinds them to the most useful thing that they (and all of us), can be doing in this AI-haunted moment: creating grimoires, spellbooks full of prompts that encode expertise. The largest Large Language Models, like GPT-4, already have trained on tons of data. They “know” many things, which is why they beat Stanford Medical School students when evaluating new medical cases and Harvard students at essay writing, despite their tendency to hallucinate wrong answers. It may well be that more data is indeed widely useful — companies are training their own LLMs, and going through substantial effort to fine-tune existing models on their data based on this assumption — but we don’t actually know that, yet. In the meantime, there is something that is clearly important, and that is the prompts of experts.
Trybals is a YouTube channel that features people from the less developed parts of Pakistan and asks their reactions about different aspects of the modern world. It’s an interesting bit of anthropology. In this episode the panel gets to try a VR experience.
The luxury sector was surprised by the acquisition of Bucherer AG by Rolex. Bucherer was founded in 1888 by Carl F. Bucherer. Over time, it grew to be a 100 store international network of watch and jewellery shops. In addition, the company owns a watch brand called Carl F. Bucherer. The chairman Jeorg Bucherer is the last of Bucherer family. His lack of a successor and the family’s close connection to the Rolex Foundation were given as a reasons for the sale.
Bucherer in Lausanne
Why should Bucherer sell?
Bucherer pivoting to a sale was surprising. Part of this is down both companies being private. Neither publicly disclose finances or appear regularly in the media. We don’t know if the offer came from Rolex or if Bucherer approached Rolex with a view to sell.
If Rolex made the first move
If it was Rolex that made the move, then saying no would put the 100+ strong Bucherer retail showroom network at risk. While Bucherer represents 5 percent of Rolex’ global sales. Rolex means much more to Bucherer; 53 of their stores are Rolex authorised dealerships and 48 are Tudor authorised dealers. Having a Rolex franchise increases footfall and likely boosted sales of other brands in Bucherer stores.
If Rolex were invited to make an offer
If, like it was claimed that Bucherer’s decision was down to the lack of succession, why did Bucherer conduct a lot of activity to grow its business internationally?
Bucherer has continued to expand its retail and service network. It reputedly spent up to $350 million buying US luxury watch retailer Tourneau five years ago.
The Carl F. Bucherer (CFB) watch brand has put a lot of effort in terms of expanding its watch line-up, which are made in its own factory in Lengnau, Switzerland. This watch range uses some movements that are based on La Joux-Perret or ETA movements and some which seem to be complete in-house designs that look to mirror the kind of horology that the likes of Patek Philippe are better known for. A good example of this is the minute repeater below.
Watch featuring their inhouse M3000 movement.
The watch making side of the business has continued to design innovative movements including novel technology designs.
The brand has worked on marketing its watches globally from a roster of Chinese and western actors as brand ambassadors, movie product placement including Deadpool 2 and the John Wick series. In 2018, they worked with JD.com to establish a watch brand-specific online storefront for the China market. Marketing activity continued through the COVID pandemic.
At the beginning of July this year they launched a new watch model: the Heritage Chronometer Celebration in rose gold.
This doesn’t sound like the brand was preparing for a sale due to a lack of family members to take over the reins. So why the sudden change?
Why should Rolex buy Bucherer?
Vertical integration?
Bucherer apparently counted for five percent of Rolex’ global sales, but had showrooms in strategically important markets like Geneva, London, New York and Paris.
Bucherer was the pioneer retail partner for Rolex’ CPO (certified pre-owned) programme; so their relationship was already very close. The programme was suspected to be rolled out for a number of reasons:
To try and deal with authorised dealers shortage of new Rolex stock, that had driven ‘watch flipping’ and allegations of corrupt sales practices at Rolex authorised dealers. If customers leave the authorised dealer network, Rolex loses control of the customer experience.
To allow Rolex additional profits from the inflated pre-owned watch market driven by pre-owned watch dealers catering to massively increased consumer demand.
More on the allegations of corrupt sales practices
While the CPO programme arrived just as the pre-owned watch market peaked (and at the time of writing its now at a two year low), it hints at the benefits to Rolex of having both circular and vertical integration.
Buying Bucherer potentially gives Rolex 100+ owned outlets. Why would Rolex want to own its retail outlets? Let’s go back to 1977 and a seminal event in the current luxury industry history. Madame Renée Vuitton asked her son-in-law to take over the family business. Henry Racamier got under the hood of the business and found that franchisees were making the bulk of the profits. So, slowly but surely Racamier set the business on the path to vertical integration. Racamier’s only business mistake was getting involved with Bernard Arnault, who took the Racamier formula and built LVMH into the giant that it is today.
Racamier, set a path that Audemars Piguet would eventually follow. Vertical integration would mean control and increased income for the Rolex Foundation.
For Rolex, owning its showrooms is not without risk. The reactive statements by Rolex that the brand shops would maintain their brand and management seems to be designed to placate Swiss competition authorities. What the subsequent integration into Rolex Group operations would look like may depend on regulatory concerns.
Swiss competition authority COMCO confirmed that was was analysing the deal. It accesses impact based on size and its possible effect to eliminate effective competition.
Bucherer is a sales agent for much of the luxury Swiss watch industry
Baum & Mercier
Bell & Ross
Blancpain
Bregeut
Bulgari
Cartier
Chopard
Frederique Constant
Girard-Perregeaux
Hublot
IWC
Jaeger LeCoultre
Longines
Maurice Lacroix
Montblanc
Omega
Oris
Panerai
Piaget
Rado
Roger Dubuis
TAG Heuer
Tissot
Ulysse Nardin
Vacheron Constantin
Zenith
Secondly, being a retailer and being a manufacturer is a very different business. If Rolex is going to learn about retail, it needs to spend years understanding Bucherer’s current business. Even then, there is no guarantee that it will follow the owned single brand showroom network model.
CPO and circular economy
The idea of the circular economy is now a big idea in the luxury sector and fits into the ‘Perpetual Planet’ tenet of the Rolex Foundation and at least part of the thinking behind the CPO programme. The idea is that a product can be serviced and or resold from its first owner to successive owners. This would require less new materials to be mined and less energy expended on the manufacturing process. The customer would end up with a product that is long-lasting and better for the planet.
Rolex watches like the 1960s era 5513 Submariner are still worn as everyday watches and will likely outlast you and I, if they are serviced once every five years and parts replaced on an as-needed basis. Secondly, there is a premium set on authenticity – vintage items that may have already lived an interesting life. You see this desire for authenticity from fashionistas thrifting to Rolex collectors prizing COMEX and military-issued models.
Finally, there is precedent for watchmaker participation in the circular economy; Richemont are already in the pre-owned market with their ownership of WatchFinder.
Avoiding a retail power shift?
Bucherer is the largest of independent privately owned Rolex authorised dealer networks. Rolex has about 2,000 outlets worldwide. If a rival or a private equity company bought Bucherer on its own, it wouldn’t be a big deal. But if the private equity buyer used Bucherer as a hub and bought up:
Wempe – which has a multi-country footprint (Austria, France, Germany, Spain, USA and the UK). Like Bucherer, Wempe is also a watch brand.
David Rosas that has a network of seven stores in Portugal.
Emperor Watch and Jewellery that has a footprint in Hong Kong, Macau, the Chinese mainland, Malaysia and Singapore.
You then have a private equity run authorised dealership network that would be a substantial part of Rolex Group sales and more likely to try and dictate terms to the watch maker. Often this doesn’t work, a classic example of this is how Phones4U went under after trying to dictate terms to the mobile networks. Regardless of whether Rolex fended this off or were enthralled by the dealer network, it would be damaging for the Rolex brand, its global reach and customer experience.
Realistically, Rolex dealers whilst profitable miss out on some of the things that private equity firms look for:
Huge cost-cutting potential – this might happen if you can scale to a dominant position in the Rolex dealership network and leverage it to get costs reduced. Stores tended to be staffed pretty lean already with Bucherer using one sales manager for three London showrooms. There would be limited scaling benefits for business functions.
Huge growth potential – maybe, but you’re still constrained by the nature of the luxury market and the complex eco-system of grey market and pre-owned specialists.
All of this would take time, likely longer than the 4 to 6 years that private equity investors typically look for their return. But that doesn’t rule out sovereign funds from the likes of the Gulf states.
Taking Bucherer off the table means that the notional private equity firm would likely need to buy a larger publicly listed partner like Watches of Switzerland. This would likely cost more on a store-for-store basis and be less attractive to private equity.
Watch servicing
Bucherer has provided Rolex with watch servicing capability through its retail network, which gives you the high level of trust that Rolex had in the brand. Having greater service capacity would be beneficial as waiting times can take as long as six months for a Rolex service. At best this is a secondary benefit for the Rolex organisation. Purchasing it would be beneficial to prevent it falling into the hands of LVMH who have increasing ambitions in watchmaking.
Manufacturing
Rolex is building three temporary manufacturing units, for use until its new factory comes online in Bulle, Switzerland some six years from now. This will be the fifth Rolex-owned factory in Switzerland. The Lengnau factory would their add to the existing manufacturing capacity or offer additional capability. Lengnau manufactures a range of movements and complications with COSC chronometer certification. The question would then be, what would Rolex do with the additional manufacturing capacity and how would it fit into the Rolex system?
In addition to manufacturing capacity, the brand brings innovation in movement design to the table from a novel balance wheel driving an automatic movement to a minute repeater movement.
if Carl F. Bucherer were kept as a separate brand it would likely benefit from being part of Rolex’ larger materials purchases from suppliers and transfer of process technologies to further improve its own manufacturing line. Scale has its advantages.
Rolex multi-brand strategy
Rolex has more demand than it’s prepared to supply for its own brand watches and the brand has been moved upmarket into the luxury space by management since the 2000s. Its second brand Tudor has been reinvigorated through the use of innovative watch materials and playing on both the Rolex and Tudor brands heritage. Tudor seems to be moving into Rolex’s classic brand positioning, while Rolex moves its price and positioning even further upmarket. But both of these brands sit firmly in the tool watch space, despite Rolex being available in precious metals.
Having a third brand would allow Rolex to move in a number of directions:
Have a brand that could slot in below Tudor, which the CFB Pratavi models could do.
Allow Tudor to go exclusively heritage in their design language. The CFB Pratavi models would represent a more contemporary looking alternative.
Go after the non-Rolex space of horological designs from the likes of Audemars Piguet, Blancpain, H Moser, Patek Philippe or Vacheron Constantin. Rolex hasn’t committed to going after this part of the market previously because of its Lexus-like reputation for reliability, even in their most expensive models. This could be done with the CFB Manero and Heritage ranges which have similar complications.
Rolex has shown for decades with the Tudor brand that it was prepared to take its time, so reinventing and repositioning another watch brand isn’t out of the question.
Watches of Switzerland
The long squeeze?
As news of the acquisition got out Watches of Switzerland (WoS) shares plummeted almost 30 percent. Rolex represents about 50 percent of WoS sales. So investors were concerned about the impact that this might have in the watch market.
What if Bucherer represented, just a first move by Rolex? What if Rolex wanted to get a readymade wholly owned global footprint. Buying WoS at a depressed price would provide the ideal footprint. Porsche very nearly succeeded in a buy out of Volkswagen in 2008 that riffed on this approach.
Like the Bucherer deal, it may receive competition scrutiny. However such an approach would likely face action from the Swiss regulator COMCO, even if the UK’s CMA didn’t step in.
A second reason not to do an intentional long squeeze on WoS is that it might attract institutional investment from deep pocketed hedge funds and private equity firms who previously wouldn’t have looked at WoS as a target, to build a dealer network and in turn squeeze Rolex.
Preference
Rolex wouldn’t need to get rid of Watches of Switzerland in order to do damage to the brand. Just the perception that Bucherer had a more favoured status for Rolex availability would be enough to adversely affect footfall to its showrooms.
This is something that could happen even if Bucherer remained an independently operated multi-brand watch retailer.
A story caught my eye in Hong Kong’s English language establishment paper related to Chinese bank risk. Goldman Sachs issued a report on (maybe) five Chinese banks, changing their ratings to neutral and sell. Eastmoney.com is a subsidiary of government newspaper People’s Daily, came out to stoutly defend the banks against concern about Chinese bank risk.
Ping An Bank and China Merchants Bank have the largest exposure to real estate, accounting for 8% and 6% of total assets which the report authors are flagging as a canary in the coal mine for Chinese bank risk
CMB real estate loans accounted for 5.61% of about of total loans and advances
Ping An Bank real estate-related business bearing credit risk totalled 322.093 billion yuan, also down from the end of the previous year, and if this is taken as the numerator and divided by its total assets of 5.456 trillion yuan, it yields a share of about 5.9% – interesting choice of wording
Overall, the non-performing rate of the mainland real estate industry is still in a period of accelerated exposure in 2022, and the overall non-performing rate of listed banks for public real estate continues to rise to over 4.3%
There was a reference to “Industrial Bank” that has “deteriorating assets and liabilities” – I think that this is Industrial and Commerce Bank of China better known as ICBC. ICBC is recognised as a systemically important bank
Systemically important bank means that Chinese bank risk becomes global economic risk. While it is state-owned (being one four original institutions that spun out of the Bank of China in 1979), it still exposes retail shareholders and bond holders around the world. Word on the grapevine is that a number of Goldman Sachs partners had long term holdings in ICBC for well over a decade, which explains the banks irrational exuberance for China AND means it would have been extremely hard for the analysts to name check ICBC in this kind of report. During the 2006 IPO, Goldman Sachs purchased a 5.75% stake for US$2.6 billion, this apparently was the largest sum Goldman Sachs has ever invested at the time.
ICBC. Foggy night. – QuantFoto released under a CC licence
Of course issuing this kind of report in China means that they can’t talk about associated Chinese bank risk. For instance:
Local governments depend on property development for their main source of revenue and have issued a lot of debt which they may now find harder to pay off resulting in further Chinese bank risk. Given that this is more directly linked to government, it may get less scrutiny
Finally China’s industrial and services economic growth seems to be an issue with youth unemployment running very high at 20%
Trying to get reliable economic data on China as the government data tends to ‘harmonised’. Part of the problem is the information that local governments provide the central government and part of it is central government choosing to ‘tell the best China story’.
Expect China to increase solar panel dumping due to massive over-capacity. In addition these panels seem to be of low quality with a lower than expected panel life. Given the challenges that the Chinese are experiencing recycling the materials, they represent an environmental problem with a substantial risk of pollution.
Beyond belt-tightening: How marketing can drive resiliency during uncertain times | McKinsey – interesting read that’s about 50 percent right, probably too much of a bottom funnel focus and a more critical consideration of the marketing technology stack McKinsey are about 50 percent right. One thing that they haven’t done is leverage the marketing science research supported by the Institute of Practitioners in Advertising on relative marketing spend and relative impact on market share. Also in-house agencies have serious problems due to cultural issues in clients.
The Eagles Announce ‘Final’ Tour Dates – Variety – following the lifecycle of their customer base. The Eagles attitude to covers, remixes and sampling always sat badly with me which is why I never bought any of their music new. I am sure this tour will keep them wealthy for the rest of their lives however
Interesting YouTube clip about how open source software is being used to extend the lives of Nissan Leaf electric cars. It raises interesting points for consideration about the right to repair debates that have been happening in areas like agricultural machinery through to Apple smartphones.
The devil is in the details of the claims and the research with regards ChatGPT driven trading. TL;DR ChatGPT didn’t trade any better and ChatGPT 4 did worse than earlier versions, implying random chance rather than ability
