Burberry Group plc (BRBY.L)
- Bloomberg
Chanel Designs a Fabulously Fashionable Bond
(Bloomberg Opinion) -- It’s important in the fashion world to make a big entrance and Chanel is doing just that with its inaugural 600 million-euro ($700 million) bond. It has chosen to issue debt that’s linked to environmental sustainability targets; the bond includes a penalty if the company doesn’t live up to its green goals.The famous French luxury brand — headquartered in London now — is showing up its British rival Burberry, whose sterling-denominated sustainable bond last week was a regular green issue. That one won’t incur any penalty for failing to hit its environmental targets.In attaching green strings to its bonds, Chanel is following the example set last year by Italian utility Enel SpA and more recently Novartis AG, a Swiss drugmaker. The five-year tranche will repay at 100.5% of face value on maturity if the company isn’t wholly reliant by then on renewable electricity, and the 10-year tranche will cash out at 100.75% if Chanel falls short on its greenhouse gas emission targets.The company is to be applauded for avoiding the “greenwashing” criticism that can be leveled at other so-called sustainable bonds. It achieved “carbon-neutral” status last year as part of its efforts to support the Paris climate change agreement.Chanel is interesting in that it doesn’t have a credit rating and it probably won’t be eligible for the European Central Bank’s and the Bank of England’s giant bond-buying programs (the company is based outside the euro area and yet the debt was issued in euros). As things stand, Chanel’s U.K.-issued notes won’t benefit either from the ECB’s plan to start buying sustainability-linked bonds next year. But it was still able to cut the coupon on offer during the sale process, and it secured strong demand anyway. Appetite for any kind of yield is still fierce among debt investors, and Chanel is a prized name for a debut bond sale.While coronavirus has taken a toll on the luxury industry, Chanel is in fashion’s premier league with more than $12 billion of net sales in 2019. The bond market has rewarded that. The price on the deal’s five- and 10-year maturities was tightened by 25 basis points to 95 and 125 basis points over their respective benchmarks, giving an implied rating that’s comfortably within the investment-grade bucket. Demand for the bonds was respectable at nearly three times the deal size.Having previously relied on private debt and bank loans, Chanel is coming to the public markets to refinance some of the 600 million pounds ($765 million) of Covid loans it has repaid to the BOE. So we probably shouldn’t read too much into what the bond debut says about the controlling Wertheimer family’s plans for the company. There has been speculation (denied by the Wertheimers) about an initial public offering or sale. Even if that isn’t the intention, it doesn’t hurt to have a profile in the debt markets.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Lagarde’s Green Push Picks Up With New ECB Collateral Option
(Bloomberg) -- The European Central Bank will start accepting bonds linked to environmental goals as part of President Christine Lagarde’s drive to press ahead with a green agenda.In a move that broadens the universe of green assets it accepts as collateral, bonds with coupons linked to sustainability performance targets will be eligible for its refinancing operations from January, the ECB said. They could also be used in the central bank’s quantitative easing programs if they comply with other criteria.Sustainable investing is a fast-growing area of finance and Lagarde has repeatedly argued that the ECB must play a role in fighting climate change.“I would not put it past the ECB to do some form of green QE at some point,” said Claus Vistesen, chief euro-area economist at Pantheon Macroeconomics. “This is just snowballing downhill now, it’s not going to stop.”Lagarde has told the European Parliament that climate change should be “mission critical” for the Frankfurt-based institution, and she has made it part of a strategic review that is due to be completed next year.The ECB already accepts green bonds as collateral. An ECB spokeswoman described Tuesday’s announcement as a technical change that the central bank hopes would encourage issuance.Bloomberg New Energy Finance wrote earlier this month that the sustainability-linked bond market had been slow to take off, though voluntary guidelines defining the instruments and promoting transparency should help expand it.There are also concerns over potentially misleading claims about environmental responsibility.Companies that issue green debt aren’t necessarily reducing their carbon emissions, underscoring the need for firms to have an environmental rating, the Bank for International Settlements said in a report this month. Concern about standards were raised when Spanish oil company Repsol SA in 2017 became the first major oil refiner to sell the securities.Green bonds are issued to finance specific projects without affecting a firm’s environmental credentials as a whole. Sustainability-linked bonds, meanwhile, are tied to more general environmental targets.(Updates with background from seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
TikTok and Instagram Face Off for Luxury Influencers
(Bloomberg Opinion) -- Instagram has long been beloved of fashionistas — and a magnet for luxury-goods makers seeking to capture a slice of their spending. But glossy selfies are so last season.Since short-form video took the world by storm, ByteDance Inc.’s TikTok has begun nibbling away at Instagram’s dominance. Luxury brands including Louis Vuitton, Christian Dior and Balenciaga are embracing the world’s most-downloaded non-gaming app, where teen influencers capture followers by the millions with flashy dance routines and challenges.So now Facebook Inc.-owned Instagram is betting its new Reels feature can help it stay relevant to sellers of the hottest handbags, shoes and watches.Users on TikTok tend to be younger, an important demographic for luxury brands. The platform’s emphasis on content created by TikTokers themselves makes it feel more authentic and fresh, but it also presents a greater risk that groups could lose control over their brand image.Still, many are trying it out. Burberry Group Plc launched the TB Challenges when the iconic British brand unveiled its Thomas Burberry monogram last year. The idea was simple: Users were invited to post videos on TikTok and its Chinese app Douyin making the shape of a T and a B with their hands. The campaign generated more than 1 billion views across both platforms.Kering’s Gucci created its first TikTok channel in February. Soon after, the Italian fashion house ran the Accidental Influencer project, promoting its vintage-inspired Gucci Tennis 1977 sneaker with videos including bespoke choreography for TikTok. That effort was outstripped by the GucciModelChallenge, which has garnered 24 million views. It took off this summer with no encouragement from the brand — proof of the power of the platform’s user-generated element. To participate, TikTokers emulate Gucci Creative Director Alessandro Michele’s “granny chic” style by dressing up in vintage finds, oversized sunglasses and headscarves, often including pieces by the brand. If their aim was to be cast by Michele, they may get their wish. Gucci will now feature some of the people who took part in its own TikTok project.What makes TikTok so powerful is its youthful focus. Prada SpA invited 16-year-old Charli D’Amelio to its fashion show in Milan in February, where she danced on TikTok with catwalk models. Tapping into future big spenders is crucial. By 2025, under-45s are set to make up half of the luxury market and of that, 15% will be younger than 30, according to Bain & Co.For all the experimentation on TikTok, Instagram, with over 1 billion monthly users, is still the most important social media platform for fashion and luxury. According to analysts at Bernstein, it’s the leading social media indicator of how brands are performing outside of Asia. (In Asia, apps such as Tencent Holdings Ltd.’s WeChat dominate.)Companies have carefully curated their images on the platform. They work with more established influencers and celebrities, such as Jennifer Lopez at Tapestry Inc.’s Coach and musician Harry Styles at Gucci. And in a relatively new twist, users can shop directly from Instagram posts and live videos without leaving the app.If Reels can take that all to a new level, the platform may just have a chance against TikTok. An increasing number of influencers, and brands including Burberry, Louis Vuitton and Ralph Lauren Corp. are posting Reels, and the results are promising. A short video of model Bella Hadid dancing to original audio with Burberry’s pocket bag generated 3.7 million views. Only one of its longer-form videos on Instagram TV reached 1 million views.The way for both Reels and Tiktok to capitalize on their positioning across luxury, fashion and retail would be to make their videos shoppable, something TikTok will launch in the U.S. shortly. Meanwhile, Alphabet Inc.’s Google has introduced Shoploop, where consumers can buy from short videos demonstrating beauty products.But success for Reels isn’t guaranteed. Facebook is testing ways to make it easier to find on the Instagram home page. It’s unclear whether it will become as addictive as TikTok, which serves up content based on viewing habits. My Bloomberg Opinion colleague Tim Culpan has described this as TikTok’s secret sauce keeping users glued to their screen. But perhaps the biggest challenge for Instagram is convincing luxury brands to invest time and money in Reels. After all, TikTok is already dominant in short videos and, with international travel ground to a trickle, they may want to focus on wooing wealthy consumers from Asia, and China particularly, at home on their local platforms.In Shenzhen, Burberry’s done just that. Its new store in partnership with Tencent boasts a WeChat mini-program featuring a cute animal character that evolves the more users engage with the brand, from liking social media posts to buying things. Developing such programs is time-consuming and costly.Even so, experimenting with Reels is worth it. If ever TikTok is weakened in the U.S. amid questions over its ownership, then Instagram would be well placed to benefit. If the two platforms continue to coexist, the competition for luxe users will intensify. Instagram needs Reels to work to avoid becoming a fashion victim in the battle for short-video supremacy.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
