Wednesday, December 27, 2023

Holiday spending rebounds despite inflation / Deep Dive: Ford deal fuels Zegna's luxury ride / Survey: Walmart leads holiday shopping

Plus, China limits gaming spending, tech giants hit

Inside Business

For December 27, 2023

Here's your daily business briefing.

🎄 Holiday spending rebounds despite inflation
🤝 Deep Dive: Ford deal fuels Zegna's luxury ride
🛒 Survey: Walmart leads holiday shopping

Make sure to continue reading the Earnings Report and the Quick Hits.

Thanks for reading!!

Shriram
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Mastercard SpendingPulse reports a 3.1% rise in U.S. retail sales from Nov. 1 to Dec. 24, reflecting robust spending as many consumers waited until the last minute, expecting price drops and seeking discounts. Online retail sales increased by 6.3% yearly, while in-store sales, excluding automobile purchases and travel services, rose by 2.2%.

More:

Sales of jewelry and gadgets declined, but restaurants enjoyed robust growth due to rising menu pricing and an increase in dine-out business.
Although there was a slight decrease in expenditure on gadgets and appliances following pandemic-related purchases, overall spending stayed high.
The labor market in the U.S. is still robust, but consumers must contend with growing credit card debt and shrinking savings.
The National Retail Federation projects that, excluding specific categories, holiday sales will increase by 6% to 8% to reach $942.6B to $960.4B between Nov. 1 and Dec. 31.

What the numbers say: Asia, particularly China, remains crucial ($711M in sales in 2022 from the APAC region), and there's a decline in optimism among high net-worth consumers, challenging Zegna's rebranding efforts. Zegna aims to enhance its luxury business by leveraging the acquired Tom Ford brand, with plans to double Tom Ford stores to 100 and achieve over 10% annual revenue growth for Tom Ford International.

Relevance: Tom Ford's acquisition is crucial for Zegna's shift to a modern, high-end fashion brand, moving away from traditional men's tailored suits. With a successful emphasis on "leisure luxury" in the U.S., Zegna aims to replicate this in China, leveraging Tom Ford's status as a top 25 fashion brand to expand into accessories and womenswear.

More: Under CEO Ermenegildo Zegna, the company has aggressively expanded with acquisitions in the last five years, targeting over 10% annual revenue growth. Despite slower cultural change communication to China due to COVID, Zegna remains optimistic about Asia, especially the Tom Ford brand, positioning itself as a luxury brand aggregator, with no deal discussions expected in 2024 but openness to opportunities thereafter.

According to an Ipsos survey of over 800 people, Walmart leads recent holiday purchases with 25% of respondents, outpacing Target (9%), Kohl's (7%), and Macy's (3%). One-third planned to increase their holiday shopping budget despite constraints, with 20% shopping on Black Friday, 45% before Black Friday, and 35% after.

More:

According to an October Deloitte survey, customers anticipated their holiday purchasing budgets would increase by 14%, or $1,652.
Walmart offered discounts on various products during their early October "Walmart Deals — Holiday Kickoff" and other early holiday deals.
- Walmart's "Walmart Deals — Ready, Set, Gift" event from Dec. 13 to Dec. 21 offers discounts on electronics, cookware, toys, and home goods, targeting last-minute shoppers.
The previous year's top three in-store holiday shopping destinations were Walmart, Target, and Amazon Go or Amazon Go Grocery.
Adobe Analytics predicts 51.2% of the holiday budget will be spent on mobile devices, with online sales between Thanksgiving and Cyber Monday growing by 7.8% to $38B from the previous year.

China's new draft rules curbing online gaming spending caused significant share declines for major tech companies. Tencent, a leading gaming firm, experienced its worst drop since October 2008, losing $47B in market value, while NetEase saw a 25% plunge, wiping out $16.4B in its most considerable daily loss since June 2020; Bilibili dropped 9.7%, and Kuaishou fell 7.2%.

More:

The National Press and Publication Administration's draft rules for online games mandate spending limits and prohibit practices like daily login rewards that encourage high spending.
The prohibited practices include auctions, giving large gratuities to gamers who broadcast their games, and any other activity that could lead to the high-priced sale of virtual items.
The rules require game publishers to maintain data locally and strongly emphasize gamers registering under their valid names.
As China continues its crackdown on gaming addiction among youth, the recent measures, building on restrictions from August 2021, target the online gaming industry.

Here are the quarterly earnings reports for the following companies, released in December:

Generative AI, like ChatGPT, is set to influence $194B in spending this holiday season, with $51B influenced during Cyber Week through features like personalized product recommendations. Retail leaders such as Walmart, Target, and Nordstrom utilize AI to forecast demand, predict out-of-stock items, and enhance productivity.

More:

Around 17% of consumers use early personal assistant AI tools, such as ChatGPT, for tasks like gift selection and outfit creation, finding them helpful for product research and inspiration.
Google's Bard and Walmart offer virtual try-on features for clothes, while Kohl's and Simon Property Mall experiment with AI-powered personal shopper tools.
Consumer electronics like the Google Pixel 8 and Meta's high-tech glasses with Ray-Ban offer AI features, but sales have experienced a lull.
AI-enabled goods are available at Best Buy, but innovation — including generative AI — is predicted to propel consumer electronics sales back up in the second part of the year.

Quick Hits:

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Israel's government has approved a $3.2B grant for Intel's new $25B chip plant in southern Israel, marking the largest-ever investment by a company in the country.
AI startup Anthropic aims for over $850M in annualized revenue by the end of 2024, per The Information's sources on Tuesday.
Juneyao Airlines was scheduled to receive a wide-body aircraft, marking the first direct delivery of a Boeing plane to a Chinese airline since late 2019, as per flight data.
The dollar fell to a five-month low, and the euro rose to a four-month high on Wednesday, driven by expectations of a Federal Reserve interest rate cut, with limited year-end trading flows constraining significant moves.
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Shriram is pursuing Master’s in Business with Marketing at Warwick Business School. He worked as a Senior Consultant in Tech and Political Consultancies before his Masters. He is passionate about Tech, Marketing, Strategy, Anthropology and Politics. He is also the Postgraduate Ambassador for Warwick Business School.

This newsletter was edited by Aaron Crutchfield

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U.S. court pauses Apple Watch ban / New York Times sues Microsoft and OpenAI / Japan preparing antitrust legislation

Plus: Prime Video will start showing ads on Jan. 29.

Inside Tech

For December 27, 2023

Here's a glance at today's top tech stories:

A court has temporarily paused a U.S. ban on Apple Watches.
The New York Times has sued Microsoft and OpenAI over copyright claims.
Japan is preparing antitrust legislation targeting Google and Apple.
Prime Video will show ads starting on Jan. 29.

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A federal appeals court has paused a U.S. import ban on Apple's latest smartwatches as a patent dispute continues. Apple can now resume Apple Watch sales on its website and in its retail stores across the U.S.

More:

The International Trade Commission (ITC), a federal agency, recently found that Apple had infringed on tech company Masimo's patents for technology that reads blood oxygen levels.
The ITC ordered Apple to pause all sales of its Watch models - specifically, the Apple Watch Series 9 and Ultra 2 - containing the blood oxygen sensor technology.
Apple appealed after President Biden's administration chose not to veto the ban, allowing it to take effect. The company argued it would suffer from "irreparable harm" if the ban remained in effect.
On Wednesday, the U.S. Court of Appeals for the Federal Circuit agreed to temporarily suspended the ban while it evaluates Apple's request for a more extended pause during the appeals process.
The court granted the ITC until January 10 to reply to Apple's request.

Zoom out:

The Apple Watch is the leading smartwatch/fitness tracker brand in the U.S., according to Statista Consumer Insights data.
Of 3,000 smartwatch users surveyed between October 2022 and September 2023, 59% reported using an Apple Watch, versus 27% for Fitbit devices.

The New York Times has sued Microsoft and OpenAI for alleged copyright infringement related to their generative AI technologies. In the lawsuit filed Wednesday, The Times alleged that both tech companies used its content without permission to develop products, including OpenAI's ChatGPT and Microsoft's Copilot.

More:

The suit argues that these AI tools redirect traffic away from The New York Times' website, resulting in lost advertising, licensing, and subscription revenue for the company.
The firms behind generative AI tools often claim that they can use publicly available internet content, citing "fair use" provisions that allow limited use of copyrighted material without permission.
However, the Times argues in its lawsuit that the fair use argument is invalid because AI tools can reproduce large portions of its news articles word-for-word.
The newspaper is seeking "billions of dollars in statutory and actual damages" and a court order to stop OpenAI and Microsoft from using its content.
Representatives for OpenAI and Microsoft have not yet commented on the matter.

Zoom out:

Meanwhile, Apple is in talks with major news publishers about licensing their story archives to train its generative AI systems. Apple has approached news publishers including Condé Nast, NBC News, and IAC.

Japan is working on antitrust legislation that would force Google and Apple to allow third-party app stores and alternative payment options for apps. Nikkei reports that Japan's Fair Trade Commission plans to challenge Apple and Google's dominance in app stores, payments, search, browsers, and operating systems.

More:

Under the rule, Japan may require Apple and Google to allow users to install apps from sources other than their official app stores on iOS and Android.
The Fair Trade Commission is in the process of finalizing the legislation for possible parliamentary approval in 2024.
If approved, the commission could impose fines of up to 6% of revenue earned from the so-called "problematic activities."

Zoom out:

Japan's proposed regulation is similar to the European Union's Digital Markets Act (DMA), which will force Apple to allow app sideloading in the EU by March 2024.
Currently, both Google and Apple restrict third-party app providers from accepting payments through platforms other than their own.
iOS apps can't be sideloaded due to Apple's rules, while Google's Play Store is used by 97% of Android users.

Amazon will incorporate ads on its Prime Video streaming service starting on Jan. 29. In the U.S., Prime members will see the ads unless they pay an extra $3 per month on top of their existing $15 per month Prime subscription.

More:

Amazon informed its subscribers via email that Prime Video content will soon include "limited advertisements."
The commercials will begin airing in the U.S. on Jan. 29 and subsequently roll out to subscribers in the U.K., Germany, and Canada on Feb. 5.
The company claims it will still have "meaningfully fewer ads than linear TV and other streaming TV providers."

Zoom out:

Other streaming services like Disney+, Hulu, and Netflix have also introduced ad-supported options.
Apple's streaming service will soon be the only major streamer without an ad-supported tier.

Apple's $3,500 mixed-reality headset is expected to hit retail stores in late January or early February, according to analyst Ming-Chi Kuo. In a note this week, Kuo added that Apple plans to ship roughly 500,000 Vision Pro headsets this year, calling it "the most important product for Apple for 2024."

More:

The headset has now entered mass production. Apple will start mass shipments of the AR/VR device in the first week of January, Kuo said.
His report aligns with a forecast from Bloomberg's Mark Gurman, who predicted that the device would reach customers by February.
The Vision Pro, which resembles ski goggles, is powered by a standalone battery pack and uses two processors and two dozen sensors to display content in front of the user's eyes.
Apple has been encouraging third-party developers to create apps for the headset's operating system, known as visionOS.
An App Store for the headset will reportedly include all compatible iPhone and iPad apps.

OpenAI is in early talks to raise a new funding round that would value the ChatGPT maker at $100B or more, according to Bloomberg. If successful, the round would cement OpenAI as one of the world's most valuable startups.

More:

According to sources, OpenAI is planning the new funding round for the upcoming year at a valuation exceeding $100B.
The round's terms, timing, and valuation could still change, the sources said.
It would immediately follow OpenAI's tender offer in January, led by Josh Kushner's Thrive Capital. OpenAI is targeting a valuation of $86B, more than triple its previous valuation of $28B.
The AI startup will not issue any new shares, allowing existing employees to cash in on their holdings.

Zoom out:

Meanwhile, OpenAI is also in talks with Abu Dhabi-based G42 to invest in a new AI chip venture, Project Tigris.
OpenAI has discussed raising $8B to $10B from G42. It's unclear if the chip venture and broader company funding are linked, according to Bloomberg.

QUICK HITS

Raising capital in 2024? Foundersuite is your secret weapon. Build a target list with our DB of 216,000+ investors, manage the raise with our CRM, run due dil with our data room.*
In a lawsuit filed by a former Twitter director, a federal judge ruled that Twitter, now X Corp, violated contracts by failing to pay millions of dollars in promised employee bonuses.
Israel's government has granted Intel a $3.2B grant for a new $25B chip plant in the southern part of the country.
Synopsys Inc., a chip design software maker, has made an offer to acquire Ansys Inc., an engineering software vendor valued at $30B.
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*This is a sponsored post.

Beth Duckett

AI and technology writer

Beth is a contributing editor and writer of Inside's AI and Tech newsletters. She has written for notable publications like USA Today and the Arizona Business Gazette. During her time as a public policy reporter at The Arizona Republic, she received recognition with a Pulitzer Prize nomination and a First Amendment Award for her collaborative reporting on pension cost increases. Beth also authored a book on the solar photovoltaic industry in 2016. You can reach her at Beth.Duckett@yahoo.com.