Raphael Stevens

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    Why economic warfare nearly always misses its target

    Between August and October 1943 American warplanes repeatedly bombed Schweinfurt, in southern Germany. The Bavarian town did not host army HQs or a major garrison. But it produced half of the Third Reich’s supply of ball bearings, used to keep axles rotating in everything from aircraft and tank engines to automatic rifles. To Allied planners, who had spent months studying the input-output tables of German industry, the minuscule manufacturing part had the trappings of a strategic commodity. Knock away Germany’s ability to make them, the thinking went, and its military-industrial complex would come crashing down. More

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    Klarna CEO says a European tech brain drain is ‘number one risk’ for company ahead of IPO

    Klarna CEO Sebastian Siemiatkowski told CNBC that unfavorable share-based compensation rules in Europe could lead to Klarna losing talent to tech giants in the U.S. such as Google, Apple and Meta.
    In a wide-ranging interview, he said that the lack of attractiveness of Europe for tech talent is the “number one risk” facing the company as it prepares for a much-anticipated IPO.
    The Swedish fintech firm offers only a fifth of the equity as a share of revenue compared to a basket of its peers, according to a Klarna-commissioned study obtained by CNBC.

    Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
    Chris Ratcliffe | Bloomberg via Getty Images

    A European technology talent brain drain is the biggest risk factor facing Klarna as the Swedish payments company gets closer to its upcoming initial public offering, according to CEO Sebastian Siemiatkowski.
    In a wide-ranging interview with CNBC this week, Siemiatkowski said that unfavorable rules in Europe on employee stock options — a common form of equity compensation tech firms offer to their staff — could lead to Klarna losing talent to technology giants in the U.S. such as Google, Apple and Meta.

    As Klarna — which is known for its popular buy now, pay later installment plans — prepares for its IPO, the lack of attractiveness of Europe as a place for the best and brightest to work has become a much more prominent fear, Siemiatkowski told CNBC.
    “When we looked at the risks of the IPO, which is a number one risk in my opinion? Our compensation,” said Siemiatkowski, who is approaching his 20th year as CEO of the financial technology firm. He was referring to company risk factors, which are a common element of IPO prospectus filings.
    Compared to a basket of its publicly-listed peers, Klarna offers only a fifth of its equity as a share of its revenue, according to a study obtained by CNBC which the company paid consulting firm Compensia to produce. However, the study also showed that Klarna’s publicly-listed peers offer six times the amount of equity that it does.

    ‘Lack of predictability’

    Siemiatkowski said there a number of hurdles blocking Klarna and its European tech peers from offering employees in the region more favorable employee stock option plans, including costs that erode the value of shares they are granted when they join.

    In the U.K. and Sweden, he explained that employee social security payments deducted from their stock rewards are “uncapped,” meaning that staff at companies in these countries stand to lose more than people at firms in, say, Germany and Italy where there are concrete caps in place.

    The higher a firm’s stock price, the more it must pay toward employees’ social benefits, making it difficult for companies to plan expenses effectively. Britain and Sweden also calculate social benefits on the actual value of employees’ equity upon sale in liquidity events like an IPO.
    “It’s not that companies are not willing to pay that,” Siemiatkowski said. “The biggest issue is the lack of predictability. If a staff cost is entirely associated with my stock price, and that has implications on my PNL [profit and loss] … it has cost implications for the company. It makes it impossible to plan.”
    In the past year, Siemiatkowski has more clearly signalled Klarna’s ambitions to go public soon. In an interview with CNBC’s “Closing Bell,” he said that a 2024 listing was “not impossible.” In August, Bloomberg reported Klarna was close to selecting Goldman Sachs as the lead underwriter for its IPO in 2025.
    Siemiatkowski declined to comment on where the company will go public and said nothing has been confirmed yet on timing. Still, when it does go public, Klarna will be among the first major fintech names to successfully debut on a stock exchange in several years.

    Affirm, one of Klarna’s closest competitors in the U.S., went public in 2021. Afterpay, another Klarna competitor, was acquired by Jack Dorsey’s payments company Block in 2021 for $29 billion.

    Klarna brain drain a ‘risk’

    A study by venture capital firm Index Ventures last year found that, on average, employees at late-stage European startups own around 10% of the companies they work for, compared to 20% in the U.S.
    Out of a selection of 24 countries, the U.K. ranks highly overall. However, it does a poorer job when it comes to the administration burdens associated with treatment of these plans. Sweden, meanwhile, fares worse, performing badly on factors such as the scope of the plans and strike price, the Index study said.
    Asked whether he’s worried Klarna employees may look to leave the company for an American tech firm instead, Siemiakowski said it’s a “risk,” particularly as the firm is expanding aggressively in the U.S.
    “The more prominent we become in the U.S market, the more people see us and recognize us — and the more their LinkedIn inbox is going to be pinged by offers from others,” Siemiatkowski told CNBC.
    He added that, in Europe, there’s “unfortunately a sentiment that you shouldn’t pay that much to really talented people,” especially when it comes to people working in the financial services industry.
    “There is more of that sentiment than in the U.S., and that is unfortunately hurting competitiveness,” Klarna’s co-founder said. “If you get approached by Google, they will fix your visa. They will transfer you to the U.S. These issues that used to be there, they’re not there anymore.”
    “The most talented pool is very mobile today,” he added, noting that its now easier for staff to work remotely from a region that’s outside a company’s physical office space. More

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    Starbucks invests in two innovation farms to help climate-proof its coffee

    Starbucks is investing in two new farms in Central America to get closer to a goal of protecting its coffee supply from climate change.
    The coffee giant buys 3% of the world’s coffee supply, which has been pressured in recent years due to extreme weather.
    At the two new farms, Starbucks will study how its hybrid coffee varieties perform at different elevations and soil conditions.

    A sign outside of the Starbucks headquarters is seen at Starbucks Center on July 3, 2024 in Seattle, Washington.
    David Ryder | Getty Images

    More than a decade ago, Starbucks bought its first coffee farm, in Costa Rica. Now the coffee giant has added two more to its portfolio.
    The Seattle-based company said Thursday that it’s invested in another farm in Costa Rica and its first in Guatemala in the hopes of getting closer to its goal of protecting its coffee supply from climate change.

    Rising temperatures, frosts in Brazil, three consecutive years of La Nina and other extreme weather have been hurting coffee production in recent years, putting pressure on supply. For Starbucks, which buys 3% of the world’s coffee, the shortages can mean scrambling to find Arabica beans — and higher prices for its customers. Consumer coffee prices have risen 18% over the last five years as of August, according to the Bureau of Labor Statistics.
    “Frosts in Brazil have already impacted volumes of up to 50%, so we can have really severe impact in terms of product availability, and that is more and more regular in the whole Coffee Belt,” said Roberto Vega, Starbucks vice president of global coffee agronomy, research and development and sustainability.
    The Coffee Belt refers to the equatorial region with the ideal conditions to grow coffee beans.

    A worker cuts and collects coffee fruits in a coffee plantation in Heredia, Costa Rica, on February 3, 2023. 
    Ezequiel Becerra | AFP | Getty Images

    At the two new farms, Starbucks will study how hybrid coffee varieties perform at different elevations and soil conditions. The hybrid plants’ attributes include higher productivity and resistance against coffee leaf rust, a fungus that thrives in higher temperatures and rainfall.
    “We can develop new hybrids, but the fact that a hybrid works in one country and under certain conditions doesn’t mean that it’s going to be working everywhere,” Vega said.

    Vega’s team is also hoping to tackle other challenges faced by its coffee farmers that aren’t the direct result of climate change.
    For example, the company’s new Guatemalan farm is small, with depleted soil and low productivity. Starbucks is hoping to stage a turnaround by recovering its soil and then will use those learnings to teach other farmers how to do the same.
    “The farm is not necessarily in good shape, and that’s exactly what we were looking for. We wanted a farm that really mirrors the challenges that farmers are having today,” Vega said.
    At the second farm in Costa Rica, which is located next to its existing Hacienda Alsacia, Starbucks plans to use drones, mechanization and other tech to address the labor shortages faced by many Latin American farmers.
    Starbucks eventually plans to buy two more farms in Africa and Asia, stretching its agricultural portfolio across the Coffee Belt. More

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    A tonne of public debt is never made public

    How much money has Senegal borrowed? More than previously thought, according to Ousmane Sonko, who became its prime minister in April. At a press conference on September 26th he said the previous government had “lied to the people” by hiding loans worth 10% of GDP, enough to push the country’s public debt to 83% of national income. Since a full audit has not yet been published, it is hard to know what numbers to believe. The IMF, which has a $1.9bn bail-out programme with Senegal, is not pleased. More

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    Levi Strauss trims guidance as it weighs sale of Dockers business

    Levi Strauss delivered mixed quarterly results and said it was looking to sell its Dockers business.
    The denim maker is seeing strong gains in its namesake brand and Beyond Yoga but sales at Dockers plunged 15% during the quarter.
    Levi’s focus on direct selling, plus lower cotton costs, led its gross margin to grow by 4.4 percentage points.

    Justin Sullivan | Getty Images

    Denim-crazed consumers are turning to Levi Strauss & Co for new jeans, but the company’s overall business is being dragged down by its Dockers brand, which the company is now considering selling off, it announced Wednesday. 
    Sales at Levi’s brand were up 5% during its fiscal third quarter — the biggest gain in two years — but overall revenue came in flat and lower than Wall Street had expected. 

    Shares of Levi’s fell more than 8% in extended trading Wednesday.
    Here’s how the denim-maker performed compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: 33 cents adjusted vs. 31 cents expected 
    Revenue: $1.52 billion vs. $1.55 billion expected

    The company’s reported net income for the three-month period that ended Aug. 25 was $20.7 million, or 5 cents per share, compared with $9.6 million, or 2 cents per share, a year earlier. Excluding one-time items, Levi’s posted earnings of $132 million, or 33 cents per share. 
    Sales came in at $1.52 billion, up slightly from $1.51 billion a year earlier. 
    With one quarter left to go in the fiscal year, Levi reaffirmed its full-year adjusted earnings per share guidance of $1.17 to $1.27, in line with expectations of $1.25, according to LSEG. It expects earnings per share to come in at the midpoint of that range.

    It trimmed its revenue guidance and is now expecting sales to grow 1%, compared to a previous range of between 1% and 3%. That’s below the 2.3% growth that analysts had expected, according to LSEG.

    So long, Dockers

    Levi’s, which owns its namesake brand, as well as Dockers and Beyond Yoga, would have printed quite a different set of results had it not been for Dockers. It started that brand in 1986 to offer consumers an alternative to denim: khakis. 
    Throughout the 1990s and 2000s, khakis were a mainstay in most consumers’ closets but these days, it has fallen out of fashion. The efforts that Levi’s has made to differentiate Dockers led to too much overlap with the Levi’s brand, which has expanded into a lifestyle brand that offers a lot more products than jeans.
    During the quarter, sales at Dockers were down 15% to $73.7 million while Beyond Yoga, the buzzy athleisure brand it acquired in 2021, saw sales grow 19% to $32.2 million. 
    “Over the last couple of years, the brand has underperformed. … We felt this was the right decision for the long term. Our view financially is the exit of Dockers will improve the company’s overall margins and also minimize volatility in top line growth,” Levi’s finance chief Harmit Singh told CNBC in an interview. “We believe the exit of Dockers will allow both Dockers and Levi’s to independently operate and maximize each other’s value independently.” 
    Levi’s has tapped Bank of America to lead the sale process. 

    Direct gains

    Beyond Docker’s, Levi’s is making gains in growing its profitability as it continues to shift its focus to selling directly to consumers.
    During the quarter, its gross margin rose by 4.4 percentage points, which Singh attributed to the direct-selling strategy, lower cotton costs and better products that didn’t need to be marked down to be sold. 
    Like other brands, Levi’s has been working to carve out its direct selling strategy and reach more customers through its own stores and websites rather than through wholesalers like Macy’s. The strategy is a boon to profits because the margins are higher and it also allows brands to get closer to their customers through data collection.
    During the quarter, Levi’s direct channel was up about 10%, driven by strength in the U.S. and 16% growth in e-commerce. Overall, direct sales comprised 44% of total revenue and Levi’s wants to get that number closer to 55%.
    Behind those numbers are a slew of splashy marketing campaigns, which include a new partnership the jeans brand announced with Beyoncé on Monday after the pop star released a song titled “LEVII’S JEANS” earlier this year on her country album.
    “Our strategic decision was to actually have Beyoncé represent some of our core product. So in the first ad, chapter one, she’s in … 501s and an essential white t-shirt and it doesn’t get more Levi’s than that,” CEO Michelle Gass told CNBC. “Part of the success recipe for Levi’s has been and will continue to be us living in the center of culture and bringing together the icon of Beyoncé with the icon of Levi’s, I don’t think there’s any better example of that.”

    Global woes

    Sales in Levi’s Europe business came in higher than expected at $406.6 million, ahead of StreetAccount estimates of $392 million, but sales in the Americas and Asia came in lower. Levi’s posted $757.2 million in sales in the Americas, below the the $789.2 million that StreetAccount analysts had expected. In Asia, Levi’s saw revenue of $247.1 million, below StreetAccount estimates of $258 million. 
    “China was a drag,” Singh said of the region, which represents about 2% of Levi’s overall business. “It’s got this macro headwinds, and we had some execution issues. We’ve just changed the leadership in China and over time we still believe in the long-term potential of China.”
    In the Americas, beyond a slowdown at Docker’s, sales were also impacted by one of Levi’s largest wholesale customers in Mexico, Singh said. During the quarter, the partner had a cybersecurity breach, which constrained shipping times and impacted sales. The region is also working through some “execution issues,” said Singh. More

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    Xi Jinping’s belated stimulus has reset the mood in Chinese markets

    If Chinese retail investors had their way they would forgo the seven-day National Day holiday that ends on October 7th. An aggressive stimulus package, announced in Beijing on September 24th, has unleashed the biggest stockmarket rally the country has witnessed in more than 15 years. Major indices have soared more than 25%; the Shanghai stock exchange has suffered glitches under the volume of buying activity. The prospect of halting for a full week has made netizens anxious: “We must keep trading; we must cancel National Day,” one young investor screamed into a video widely shared on WeChat, a social-media platform. More

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    Costco adds platinum bars to its precious metals lineup

    Costco launched platinum bars on its website for $1,089.99, an addition to the company’s precious metals selection of gold bars and silver coins.
    Gold bars launched at Costco in August 2023, and not even two months later were selling out within hours of a restock.
    While the value of gold has risen consistently in the last five years, platinum has not held up as well. The value of platinum has risen more than 15% over the past 12 months, though it has dropped over 8% since May.

    Arrows pointing outwards

    Source: Costco

    Costco continues to chip away at the gold mine that is the precious metals market. The wholesaler is adding Swiss-made platinum bars to its selection.
    Costco on Wednesday announced the 1-ounce platinum bars, on sale for $1,089.99 on its website alongside its now-famed gold bars and silver coins. The bars are only sold online, and cannot be delivered to Louisiana, Nevada or Puerto Rico, the company said. Interested buyers will also need a Costco membership, which costs between $65 and $130 a year.

    It’s no surprise the company has continued to delve into the precious metals market. Gold bars launched at Costco in August 2023, and not even two months later were selling out within hours of a restock. Analysts at Wells Fargo reported in April that Costco was selling as much as $200 million worth of gold bars a month.
    “I’ve gotten a couple of calls that people have seen online that we’ve been selling 1-ounce gold bars,” said Richard Galanti, then-chief financial officer of Costco, on the company’s earnings call in September 2023. “When we load them on the site, they’re typically gone within a few hours, and we limit two per member.”
    The value of gold has risen more than 40% in the past year and over 70% in the last five years. But the price of platinum has been a little more rocky in recent years. The value of platinum has risen more than 15% over the past 12 months, though it has dropped more than 8% since topping $1,100 earlier in 2024.
    — CNBC’s Jeff Cox contributed to this report.

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    Diamond Sports looks to drop 11 MLB teams from Bally Sports regional networks

    Diamond Sports currently plans to drop all of its Major League Baseball teams from its Bally Sports regional networks, with the exception of the Atlanta Braves.
    Bally Sports networks have been dropping teams during its ongoing bankruptcy process. Last year the San Diego Padres and Arizona Diamondbacks exited their regional sports networks.
    An attorney for Diamond Sports said it’s still in negotiations with the individual clubs in hopes of maintaining the rights of MLB teams for its networks.

    A microphone with the Bally logo is used for a post game interview following the Atlanta Braves 3-0 victory over the Minnesota Twins at Truist Park on June 28, 2023 in Atlanta, Georgia. 
    Todd Kirkland | Getty Images

    Major League Baseball is out of here.
    Diamond Sports — the owner of Bally Sports-branded regional sports networks — said Wednesday that it plans to drop all MLB teams from its channels except for the Atlanta Braves.

    Bally Sports has more than a dozen networks across the U.S. Diamond has reached out to all of the 11 teams on its air — the Cincinnati Reds, Cleveland Guardians, Detroit Tigers, Kansas City Royals, Los Angeles Angels, Miami Marlins, Milwaukee Brewers, Minnesota Twins, St. Louis Cardinals, Tampa Bay Rays and Texas Rangers — with amended, proposed contracts, to determine the future of MLB on the networks.
    A Diamond attorney made the comments before a U.S. bankruptcy judge on Wednesday as part of an update on the company’s ongoing bankruptcy process and attempt at finalizing a reorganization plan.
    Some of those teams were already slated to see their contracts end this season, and some contracts are not being determined by the bankruptcy process, a Diamond spokesperson said.
    MLB’s regular season ended earlier this week, and the postseason has already begun. Regional sports networks primarily air regular-season games.
    “To be clear, rejecting these teams is not our preferred path,” Diamond attorney Andrew Goldman said on Wednesday. “Our preferred plan is to bring as many teams into the reorganized [company’s] fold as possible.”

    He added the company is still in negotiations with the individual clubs, but its discussions with MLB’s Commissioner’s Office have ended.
    MLB’s attorney James Bromley on Wednesday told the bankruptcy judge it was “unfortunate we are being sandbagged this way,” and added that “some of our clubs are being left out in the cold again.” A spokesperson for MLB declined to comment.
    Goldman said Diamond had warned the league about this outcome in August, noting it was a possibility if the MLB rejected Diamond’s latest proposal.

    Curveball

    Milwaukee Brewers’ Sal Frelick hits a double during the fourth inning of Game 2 of a National League wild card baseball game against the New York Mets Tuesday, Oct. 1, 2024, in Milwaukee.
    Morry Gash | AP

    For decades, the regional sports networks were a lucrative business model for the teams and leagues, and networks paid high fees to air games. But they have suffered as cord-cutting has hit the pay-TV business, leading to fewer subscribers.
    This — and the heavy debt load Diamond has contended with since Sinclair acquired the business from Disney in 2019 — led the owner of the largest portfolio of regional sports networks to file for bankruptcy in March 2023.
    Diamond’s lawyers have been trying to reset those rights payments to reflect so-called market rates. As a result, Diamond has rejected contracts, seeing a number of teams find new TV and streaming homes.
    In June, the NBA and NHL voiced concerns about the viability of Diamond’s business, particularly ahead of the seasons that will begin this month.
    A Diamond attorney said Wednesday was a “watershed moment” for the company as it was able to file an amended reorganization plan. While Diamond aims to exit bankruptcy protection, the possibility of winding down the business still exists. Still, attorneys said the company promised the NBA and NHL they would honor their contracts through the end of the season.
    “Today marks an important step forward for Diamond with the filing of a baseline plan to enable us to emerge from bankruptcy as a viable, go-forward business before year-end,” a Diamond spokesperson said in a statement. “We have delivered proposals to and remain in discussions with our MLB team partners around go-forward plans. We firmly believe that through our linear and digital offerings we have created the best economic and fan-friendly engine for all of our team partners.”
    Diamond’s tussles with MLB began before the filing.
    Diamond had been pushing unsuccessfully for some time to hold the streaming rights for all MLB teams that air on its networks.
    Last year, the San Diego Padres and Arizona Diamondbacks left their Bally Sports networks, and the league began producing and distributing the games on pay-TV bundles and MLB TV instead. More