1. Market concentration fact of the day - English Premier League edition
During a frantic January transfer window in Europe, English clubs spent €830mn, almost double the previous record. Chelsea alone spent more than all the top-tier clubs in Italy, Spain, Germany and France combined, a sign of the Premier League’s increasing financial dominance over the world’s most popular sport. Of the top 10 biggest spenders in Europe this season, all but one play in England... Deloitte’s league table of the 20 wealthiest teams in Europe now includes 11 English clubs, up from seven a decade ago... Only one French team and three Italian clubs make it into the top 30 clubs by revenue, according to Deloitte...
Javier Tebas, chief of Spain’s La Liga, accused the Premier League of allowing its wealthy club owners — from Middle Eastern petrostates to US private equity billionaires — to weather “barbaric” losses, which put the health of the broader game at risk by driving up costs for everyone else. “It is quite dangerous that the [transfer] markets are doped, inflated, as has been happening in recent years,” he said. “That can jeopardise the sustainability of European football.”
This comes even as a recently released report of a four year investigation by EPL found that Manchester City, the current champions and the richest club, and owned by the Abu Dhabi royal family since 2008 had indulged in more than 100 breaches of the League's financial rules. This adds more fuel to the perception that English clubs have enjoyed an unfair advantage due to light-touch regulation, which allows it to attract wealthy Middle Eastern and American owners who have the deep pockets to absorb large losses.
Club owners include a Serbian-born media tycoon, a Greek shipping magnate, the Saudi sovereign wealth fund, and several American billionaires, making ownership something of a status symbol for the mega-rich. “Owning shares in IT companies and property in Manhattan is not as sexy as owning a Premier League club,” says Francis. Without billionaire benefactors, other leagues in Europe have chosen to implement stricter financial standards. The idea is to stop teams living beyond their means in pursuit of glory. In Spain, La Liga’s economic controls require clubs to submit regular updates on their revenue, which the league then uses to calculate pre-determined spending limits. Last summer, those rules briefly barred FC Barcelona from registering new signings, before the Catalan club used asset sales to boost its balance sheet. The league has since tweaked its controls to make that harder to do. In Germany, ownership of clubs is guarded by the so-called 50+1 rule, which prevents outside investors from acquiring controlling stakes in most teams, leaving clubs to rely on their own income to fund themselves. The Bundesliga says these rules help protect German football from “reckless owners”.
2. FT writes how the B Corp, an ESG certification benchmark widely recognised as the gold standard, is being abused in the form of green washing. In order to achieve B Corp status firms have to ostensibly "meet high levels of overall social and environmental performance, public transparency and legal accountability to balance profit and purpose".
There are now over 6400 companies across 158 industries certified as B Corp, including several multinational companies with deeply questionable ESG claims. The certification is done by a non-profit network B Lab Global and its national chapters.
There are limits to the certification. A company may commit to paying its own employees a fair wage but there is no requirement to extend this further down the supply chain. If a company makes increased profits, how it deploys those funds is not for B Lab to dictate. It could invest in growers or farms, increase staff wages, install solar panels — or just ramp up dividends or executive pay. For these and other reasons, questions linger over whether B Corps are enacting truly meaningful change internally and whether the effects of that change is being felt more widely. Another UK executive says that while the certification helped show the company in a good light when pitching business to clients, beyond that he does not really think about the larger purpose of the movement. “Companies are keen to say we have a social purpose, therefore we have a good company,” says Mark Goyder, a corporate governance expert and founder of business think-tank Tomorrow’s Company. “But they don’t emphasise the how. Here are the ways we underpin this, how do you ensure values are upheld and how do you govern things like culture?”...
Companies gain B Corp status based on how they score out of 200 on a variety of metrics across governance, treatment of workers and customers, community and the environment. The process can be long and expensive — anywhere between $500 and $50,000 each year — and this has to be reappraised every three years. Companies, which have to get at least 80 points, are also required to legally cement the B Corp commitment into the mission statement of their company... the points system allows companies to pick and choose which criteria apply to them, usually with the help of sustainability consultants, and focus on meeting them.
3. Supply chains relocating out of China
The shift away from mass textile production in the country, albeit still in its early stages, marks the reversal of years of outsourcing to a region that has come to dominate the textile supply chain. Big names such as Mango and Dr Martens have recently cut or signalled their intention to shift manufacturing out of China or south-east Asia... Dr Martens (the bootmaker) has moved 55 per cent of its total production out of the country since... 2018. Just 12 per cent of its production for the 2022 autumn/winter collection was manufactured in China compared with 27 per cent in 2020 and it estimated this will drop to 5 per cent this year... The relocation was also being driven by stricter laws being introduced in the US and Europe against labour abuses, she added, following the alleged use of forced labour in the cotton-rich territory of Xinjiang in China... According to statistics from China’s National Bureau of Statistics, the average factory wage doubled between 2013 and 2021, from Rmb46,000 ($6,689) per year to Rmb92,000.
For all such talk China remain the export behemoth in sectors like textiles
4. McKinsey is the latest to announce mass layoffs.
McKinsey & Co. plans to eliminate about 2,000 jobs, one of the consulting giant’s biggest rounds of cuts ever... Under a plan dubbed Project Magnolia, the management team is hoping the move will help preserve the compensation pool for its partners, the people said, asking not to be identified discussing non-public information... Companies in industries from finance to technology to retailing are reducing staff amid a slowdown in demand and predictions of a looming recession. Tech giants including Amazon.com Inc. and Microsoft Corp. have announced plans for deep cuts, and Goldman Sachs Group Inc., Morgan Stanley and other top banks have been eliminating thousands of positions.
I have been thinking about this. I wonder how much of the spate of layoffs in corporate America has been triggered by Elon Musk. Musk culled the vast majority of Twitter workforce after takeover and that does not, at least till now, have had any major adverse impact on the company. For businesses waiting to seize any opportunity to cut costs, this would have been the trigger. Besides, they could use the excuse of the pandemic hirings etc to justify the layoffs.
5. Good FT article on how Apple has hooked Gen Z consumers and entrenched itself
Gen Z users — those born after 1996 — make up 34 per cent of all iPhone owners in the US, versus 10 per cent for Samsung, according to new data from Attain, an adtech data platform... As Gen Z is the most online of any age group — spending up to six hours a day on their smartphones — the iPhone’s dominance is shaping the social circles of young Americans... The propensity of Gen Z to purchase iPhones — or convince their parents to — comes even as the average price of an iPhone approaches $1,000, roughly three times the average Android device globally, according to Counterpoint. The Gen Z preference for iPhone is more pronounced in the US than elsewhere, but when market intelligence group Canalys did research in western Europe it found that 83 per cent of Apple users under 25 years of age planned to keep using iPhone. The percentage of Android users of the same age who plan to stick with Android was less than half that.
The sharp difference between return on capital employed and stock market returns over the last three years
And that over this year till date
7. In the context of talking about Elon Musk, Palanivel Thiagarajan, the Finance Minister of Tamil Nadu, has this piece of eternal wisdom,
"... if you get successful very quickly, and very successful, it's a very dangerous thing because it starts putting the notion in your head, that somehow you exist in a different plane than the rest of us. And I don't mean that in terms of racism and classism. I mean, you start thinking that you're such a genius that you can't get anything wrong... that you have this unique ability to always see everything perfectly, and predict and manage and run all the stuff. And I've seen it before in large hedge funds, in large banks, in fact at Lehman, we saw some of that. And that almost always ends one way. Or, in fact, every time it ends one way. The only question is how long. It ends with you getting way ahead of your abilities. Because the reality is, and I'll say this in a very very important message to the youth. The reality is that you could be successful 100 different ways through a different combination of circumstances, and you could lose or fail at something a 100 different ways. So it's very hard when you're successful to either assume that you are very smart or very good or uniquely qualified. And the same way just because you fail at something you shouldn't let that failure determine your self worth or your self understanding or realisation... Everything is redeemable. All failures are redeemable, all success is temporary. There is no guarantee of any of this stuff. But most people who get really successful really fast forget that."
I'm also reminded of this in the context of this article in The Economist about the new tech and self-centric worldview of the technology billionaires of Silicon Valley.
8. The Ken examines the economics of fashion e-commerce sites in India (Mantra, Flipkart, Amazon, Jabong etc) and finds that their commercial viability is questionable.
These companies have done almost everything they can to squeeze profits. They’ve created private labels, resorted to favourable terms of sale, and achieved reinventorisation. Most recently, they’ve even started charging some customers for returns—something unheard of so far. And yet, profits continue to elude them. So it’s time to ask—will profitability ever come?
Despite the much higher margins of 35-40% these sites demand from sellers, the biggest challenge for fashion e-commerce sites comes from the very high percentage of sale returns. Typically fashion and apparel have return rates of 35-40%. This from an article in The Economic Times
There’s bad news for fashion retailers hoping to cut real estate expenses by venturing into ecommerce — running an apparel business online is almost just as expensive as running a brick-and-mortar store in any mall... Some fashion brands that entered the online space in the past five years claim to be paying 30-40% commission to ecommerce platforms such as Jabong, Flipkart, Amazon, Myntra and Koovs for sales and product delivery... This is almost as much as they would pay to run a physical retail store, which includes costs like rental (15%), staffing and utilities (8-10%) and maintenance and discounts (5-6%), according to Arvind Singhal, chairman of retail consultancy firm Technopak Advisors.
9. Some snippets on bank credit growth which points to the lop-sided nature of India's economic growth
Six of every ten personal loans were for homes and vehicles as of 31 January 2023, according to the RBI’s latest bank credit data. The two categories combined have surpassed the loan amount given to the entire agricultural sector. The real-estate sector is also observing some unprecedented developments: residential properties priced above Rs 1.5 crore (~US$181,300) accounted for ~30% of total sales—the highest ever proportion—across the country in 2022, according to a 2023 report by Knight Frank, a global property consultancy. This share was ~23% in 2021, similar to pre-pandemic levels... Overall, the launch of luxury properties priced above Rs 2.5 crore (US$302,000) doubled in 2022, said Mumbai-based real-estate-services company Anarock Property Consultants in its report... “Sales of apartments priced over Rs 1.5 crore (US$181,300) doubled in 2022 in India. Luxury projects priced above Rs 2.5 crore (US$302,000) in tier-1 cities are getting sold out at the pre-launch stage. Inventory overhang for such projects is at a decadal low,” said a senior employee at JLL India, a real-estate services company.
Similar trends of higher growth at the premium segments are visible in vehicles market.
... domestic sales of utility vehicles outpacing that of passenger vehicles (PVs) by more than 185,000 was witnessed in 2022, showed data by the Society of Indian Automobile Manufacturers (Siam)... A Siam official broke down the data. “While compact SUVs (sport utility vehicles) were the go-to option in 2021 and for the most part of 2022, cars priced well above Rs 15 lakh (~US$18,000) drove the growth in the later half of the year and the first month of 2023.”... Audi reported a 27% year-on-year (y-o-y) sales growth in 2022 on the back of newer launches. Meanwhile, Mercedes Benz and BMW have registered a y-o-y growth of 41% and 37%, respectively, largely driven by the demand in tier-1 cities... outstanding car loans have spiked by ~25%, according to the RBI’s data.
Another aspect of the credit growth story is this
In the one year from 30 December 2021, retail loans grew over 20%, while trade advances rose ~14%. During the same period, loans to industries grew by ~9%.
10. An example of the hypocrisy on climate change is the passenger vehicle ownership and usage patterns in the US.
The average new American car purchased in 2021 weighed 1.94 tonnes, fully half a tonne more than the European average. Purchases of SUVs and “light” trucks together now account for four out of every five new vehicles bought in the US, up from one in five 50 years ago. The pattern of car purchasing maps on to the US political divide. Republicans are more likely than Democrats to buy a new vehicle of any kind, and vastly more likely to buy a big one. About 65 per cent of buyers of the largest pickup trucks, utility vehicles and SUVs last year were Republican, compared with just 15 per cent bought by Democrats, according to a survey by the research company Strategic Vision. And this isn’t driven by America’s political geography. Whether you look at buyers in dense urban centres or isolated rural areas, trucks and SUVs are red, small hybrids blue. The divide becomes even more stark when Americans are asked to pick which attributes they look for in a new car: “aggressive”, “powerful” and “rugged” all rank among the top five selected by Republican-leaning purchasers. The US fleet of huge vehicles is down to identity, not necessity: individualism on wheels.
The heavy vehicles coupled with excessive individualism also takes its toll in the form of accidents,
Almost one in 10 drivers and passengers in the front seat of US cars do not wear a seatbelt, and 45 per cent say they often drive at least 15 miles per hour above the speed limit on motorways. In the UK, both measures are way lower, at 3 per cent. The grim result is that half of the car occupants killed in the US in 2020 were not wearing seatbelts vs 23 per cent in the UK. Speeding is implicated in 30 per cent of fatal crashes in the US but just half of that in Britain. All told, 43,000 people died on America’s roads in 2021, the highest mortality rate in the developed world by some margin. By my calculations, a fifth of those could be averted every year if rates of speeding and seatbelt-wearing matched peer countries.
No comments:
Post a Comment