☀️☕️ Fast Fashion, Slow Death (ASOS)

📊 Also: Microsoft and Activision are Game On again?; German offices, Hopeful Yellen 🎓 Trust Busting

Happy Tuesday!

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📝 Focus

• Fast Fashion, Slow Death (ASOS)

📊 In the Markets

• Microsoft and Activision are Game On again?

• German offices, Hopeful Yellen

📖 MoneyFitt Explains

🎓 Trust us on Trust Busting

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📝 Focus

Fast Fashion, Slow Death

At its 2021 peak market valuation (share price X number of shares), online fashion retail pioneer ASOS was worth US$7.3 billion but has since crashed down to $630mn after again getting pummelled in trading in London. It dropped 11% on Monday, the exact same amount that it fell last Wednesday as investors tried to digest the first-half results (UK sales fell 15% and the company lost £272mn) and then apparently threw up after the company projected an even worse than expected "low double-digit" sales decline for the second-half.

..... ▷ The fast fashion industry was among the big winners during the pandemic lockdown given the large captive customer base, but shoppers are now buying fewer clothes online, have little brand loyalty and have been returning more of their purchases, which is very costly for retailers. Competition remains fierce, with new entrants like Shein ("She In") from Singapore (actually, China) and even second-hand clothes vendor Vinted, piling the pressure on incumbents like ASOS, Boohoo and Germany’s Zalando, which not too long ago, had been industry disrupters.

..... ▷ ASOS was founded in 2000 in north London with the name ASOS an acronym for “As Seen On Screen”. The original idea was to sell clothing and accessories that copied the styles and designs worn by TV and movie celebrities. It soon shifted its focus to selling fashion for twenty-somethings but also eventually managed to dress the likes of Rihanna, Jessica Alba and Michelle Obama, and became the UK’s largest online fashion retailer. At the height of its powers in 2021, ASOS bought the Topshop, Topman and Miss Selfridge brands from the collapsed Arcadia Group for £265mn, but didn't take any of the physical stores, leaving 70 outlets to close.

Confessions of a Shopaholic (2009) / Disney via Tenor

..... ▷ Longer term, fast fashion clothes are increasingly recognised as unsustainable, encouraging excessive consumption and waste, with consumers lured by cheap prices and constantly changing trends. The industry contributes about 10% of global CO2 emissions (more than international aviation and shipping combined), generates huge amounts of wastewater, and uses massive amounts of chemicals and fertilizers. Over half of fast fashion items are dumped in under a year, with under 1% of clothes recycled into new clothes, driving the estimated lifetime of all clothing produced down by 40%. Overall, the textile industry also uses enormous amounts of non-renewable resources like oil to make the ultra-cheap synthetic fibres used in the industry.

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📊 In the Markets

German offices: European stocks rose on German wholesale prices (what retailers pay to get what they then sell to end-consumers) going down 0.4% in April compared to March, though other data showed the eurozone economy cooling faster than expected. March industrial production fell by a larger-than-expected 1.4% compared to a year ago, after rising 2% the previous month.

..... ▷ Not much better in German office space, with a survey showing vacancies based on on-site workstations have tripled to 12% since before the pandemic, as remote working has increased. In the services sector it's up to 17% while in manufacturing it's about 10%. Another poor sign for commercial real estate and the banks that lend to the funds (e.g. private equity, REITs) that own them.

Hopeful Yellen: Later, US stocks moved slightly higher on a little optimism that negotiations in Washington to raise the government’s debt ceiling and avoid a catastrophic default are actually progressing ahead of President Biden’s meeting with Congressional leaders on Tuesday. Treasury Secretary Janet Yellen reaffirmed in a letter to Congress on Monday that the United States could default on its debt as early as June 1, though over the weekend she did say in an interview with the WSJ that negotiations were making progress: “I’m hopeful... I’m told they have found some areas of agreement.” Let's hope she heard right.

..... ▷ Meanwhile, New York State's influential manufacturing index plummeted from plus 11 to minus 32 in May showing that the economy is possibly cooling slightly too much, though it could have been partly influenced by the weather. (Analysts were expecting minus 4.)

Microsoft and Activision are Game On again?

EU regulators have cleared Microsoft’s $75bn acquisition of Activision Blizzard, less than a month after the UK seemed to have scuppered the deal (see MFM) which was priced at $95 per Activision share. The EU said that Microsoft had made enough concessions, including allowing Europeans to stream Activision games on all cloud game streaming providers for 10 years. It's not clear whether Microsoft will be able to go ahead with the deal, though, and somehow carve out the UK and US from the combined businesses.

Satya Nadella now needs to decide whether or how the deal can proceed
- Image credit: Crash Bandicoot / Activision Blizzard via Tenor

..... ▷ The UK's Competition and Markets Authority🎓 had pointed to Microsoft's market strength in the fast-growing cloud gaming space, but the EU take on it is exactly opposite, with the deal representing a "significant improvement for cloud gaming as compared to the current situation" since Activision currently has NO games on the cloud.

..... ▷ To recap, the US's trustbusting🎓 Federal Trade Commission is more focused on console market share, which the EU is also comfortable with, considering the market share of Sony's Playstation business (see below.) It noted that even if Microsoft decides to limit all Activision Blizzard titles in the future to the Xbox platform, it "would not significantly harm competition in the consoles market."

Margrethe Vestager, the EU's competition chief, leaps into action
- Image credit: Call of Duty / Activision Blizzard via Tenor

..... ▷ ​​The deal, first announced in January 2022, would mark the largest-ever in gaming and in consumer tech if completed, and hand Microsoft control over leading video game franchises such as Call of Duty and World of Warcraft, though Microsoft has defended the acquisition as benefiting gamers. ​​It's a huge business: In 2021, global video game sales came to US$180 billion, more than double the music industry and cinemas (globally, pre-Covid) combined, and the gaming consoles market is expected to register a CAGR of 18.4% from 2023 to 2028 according to Mordor Intelligence. (CAGR = Compound Annual Growth Rate, meaning that it's what it would grow in each year over that period, taking into account the higher base thanks to growth in the previous year. Compound growth is extremely powerful as a result!)

GAMING GEEK CORNER

- PlayStation 5 from Sony: 1.26 million units sold year-to-date, up 77.5% year-on-year. The global installed base of PS5 is estimated at 32.7 million units as of January 2023.

- Xbox Series X|S from Microsoft 0.46 million units sold year-to-date, down 24.5% year-on-year. The global installed base of Xbox Series X|S is estimated at 14.8 million units.

- Switch from Nintendo: 1.14 million units sold year-to-date, down 14.2% year-on-year. The global installed base of Nintendo Switch is estimated at 117.4 million units.

📖 MoneyFitt Explains

🎓️ Trustbusting! Antitrust, monopolies, competition and consumers

• While it may seem anti-capitalistic for a government agency to stop one private company from buying or merging with another on either agreed or hostile terms, there are strong reasons for it to happen!

• Competition or antitrust laws exist to protect consumers from unlawful monopolies or unfair business practices which would harm them through higher prices and less competition, while benefiting certain powerful companies.

• The stated mission of the US Federal Trade Commission (FTC) is to protect the public from deceptive or unfair business practices and from unfair methods of competition. The European Competition Commission and the Competition and Markets Authority in the EU and UK have similar mandates.

• Preventing mergers and acquisitions from resulting in monopolies is perhaps the easiest part of the job, but firms that have become monopolies or overly concentrated market power can also be broken up.

• Collusion between several companies in formal or informal cartels with practices such as price fixing is also forbidden, though proving it in court can be a lot harder.

• Weird name, though. The word "antitrust" is most often used in the US and comes from the battle with "trusts", which were pioneered in the 1880s by oil magnate John D Rockefeller to group companies across US state lines under one controlling legal body specifically to concentrate power and reduce or eliminate competition. Thus was born the Standard Oil Trust. (S for Standard, O for Oil, hence "ESSO".) Only in 1911 was it finally broken up and split into 34 companies.

• In the US, both the Federal Trade Commission and the entirely separate Department of Justice Antitrust Division enforce federal antitrust laws, agreeing to take cases based on expertise in particular industries or markets. Perhaps just one agency would seem... monopolistic?

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