Fashioning a US-China Cold War

Plus: Green industry may or may not save the planet. It is saving industrial real estate. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 18, 2023

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Good morning.

Mankind was never meant to wield such power…

We’re not talking about artificial intelligence. We’re talking condiments. Kraft Heinz announced on Wednesday that it’s unleashing the awe-inspiring if somewhat horrifying “Heinz Remix” sauce dispenser on American restaurant-goers. The machine lets users create weird condiment combos, mixing base sauces like ketchup and BBQ sauce with ingredients like jalapeno and mango. It’s trying to shadow the success of Coca-Cola’s “freestyle machine,” which gave the company ideas for new flavors like cherry vanilla. That means whatever unholy concoctions you create with the new condiment machine, the data will be pumped back to Heinz HQ. Surveillance capitalism, meet ranch dressing.

Morning Brief

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Real estate has another new hero: green industry.

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China’s fast-fashion rockstars have a bullseye on their back.

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The M&A of MMA.

Industry

Green Manufacturing Sparks Industrial Real Estate Growth

You say you want a green revolution? Well, you know, it’s already well underway — at least if industrial real estate is any indicator.

Green-focused industries — such as manufacturing electric vehicles, solar panels, batteries, and all other parts of their respective supply chains — are exploding, taking up more industrial real estate than ever before, according to a recent analysis from The Wall Street Journal. And, in more ways than one, it couldn’t come at a better time.

The Green New Real (Estate)

For anyone with a healthy (or unhealthy) amount of climate change anxiety, green industries’ growing footprint is good news. But of course, as anyone with climate anxiety knows all too well, there’s always bad news. Wednesday delivered a heavy dose of gloom: Scientists at the World Meteorological Organization, a United Nations agency, published a report saying global temperatures are likely to rise to record levels in the next half-decade, breaching the 1.5 degrees Celsius above pre-industrial levels threshold that governments agreed to avoid in the Paris Agreement (experts typically define 2 degrees of warming as the true catastrophe zone).

Happily, the US government’s near-endless bag of green energy subsidies is having a salubrious impact. Compared to a year ago, EV and EV parts-makers have more than doubled their leasing footprints in the first quarter of 2023, according to data from real estate group CBRE. That surge is not just good for the environment, but for real estate developers in a post-pandemic, post-interest rate hike lull:

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After massively expanding logistics operations, e-commerce players are now pulling back on industrial leasing space. Overall, e-commerce companies signed some 4.7 million square feet worth of new industrial space in 2023’s first quarter, down from 13.7 million last year, according to CBRE.

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Green manufacturing is filling some of that void. EV and EV-parts manufacturers and distributors saw new leasing space jump to 3.4 million square feet in Q1 compared to just 1.5 million a year ago, CBRE found.

Construction for green manufacturing space more than doubled last year, with automotive and energy-related companies “taking a bulk of that space,” Stephanie Rodriguez, national director of US industrial services at real estate firm Colliers, told the WSJ.

Power Play: Whether green manufacturers can keep the lights on in their new factories is another question entirely. On Wednesday the North American Electric Reliability Corp., a regulatory group that monitors the stability of the power grid, said that this summer’s heat waves are likely to threaten the US southeast with grid blackouts for the first time ever. In other words, Georgia and Alabama are about to get a little taste of California life. Let’s just hope this green manufacturing wave is producing lots and lots of solar panels.

– Brian Boyle

E-commerce

China’s Fast Fashion Apps Become New Geopolitical Battleground

(Photo Credit: Dick Thomas Johnson/Flickr)

Washington isn’t just dressing down Chinese tech giants.

Online fast-fashion darlings are facing the same geopolitical headwinds that have long buffeted the likes of TikTok and Huawei. Shein, the company that bulldozed a path to Western consumers for fellow China-based fast-fashion apps, took a valuation haircut of around $34 billion on Wednesday.

Fashion Is Danger

The fast fashion colossus, which rode to international success during the pandemic with its easy-to-use platform and startlingly cheap clothes, was valued at $100 billion last year. As of this week that’s down to $66 billion on the back of a fresh $2 billion fundraising injection, despite raking in $23 billion in revenue last year, according to The Wall Street Journal. Fellow China e-retailer Pinduoduo followed in Shein’s wake by launching Temu, the international version of its app, in September 2022. Both Shein and PDD Holdings, Pinduoduo and Temu’s parent company, have moved their main offices out of China in a bid to cement their international brand identities.

But Pinduoduo suffered a big setback when Google banned its Chinese app from the Play Store in March after it found versions of the app that contained malware. Given the US has a history of raising national concerns around Chinese-owned apps even when there’s no clear evidence of dodgy code, this sent up a series of red flags in Washington:

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In an April report, the US government accused both Temu and Shein of posing “data risks,” as well as citing concerns around forced labor in their supply chains, which Temu and Shein both refute.

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A cybersecurity analyst told CNBC that Temu is less intrusive than its Chinese sister app in what data it requests from users’ phones.

Getting caught in the geopolitical cross-fire is of course just one pressure point. Shein’s valuation trim comes during a general slump in tech stocks, and fast fashion overall is falling ever more out of vogue both with sustainability-minded younglings and, potentially, investors.

ASOS S.O.S.: British fast-fashion e-retailer ASOS announced last week that its losses had widened in the last six months to £272 million. The Financial Times responded to the news with an opinion column that likened digital fast-fashion retailers to the clothes they sell: “fun, flimsy and ephemeral.” Does that remind anyone else of a TikTok video?

– Isobel Asher Hamilton

SPONSORED BY CHARTR

The News, but Smarter

Sound familiar? No wonder – if you like The Daily Upside, you’ll definitely enjoy Chartr, a newsletter that brings you gorgeous visuals illustrating the trends that drive the day’s biggest news in business, tech and beyond.

Think of it as the movie adaptation of what you’re reading right now. Chartr’s got graphs depicting fascinating subjects that reveal crucial insights on our modern world. Recent features include:

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The dramatic rise and fall of SoftBank’s Vision Fund

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A visual history of Berkshire Hathaway vs. the S&P 500

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2023’s big tech turnaround, charted

Armed with easy-to-remember data snacks, your small talk is about to level up from passable to primo.

M&A

In a Down Year for M&A, Raine Group Has the Magic Touch

What’s the deal with the Raine Group?

The boutique bank just scored a fat fee facilitating the WWE-UFC merger, and appears to be the one outfit finding success in an otherwise moribund M&A market.

M&A Is Not OK

Mergers and acquisitions totaled just $582 billion in Q1, according to analytics service Dealogic, the lowest level in over a decade. That’s a 48% drop compared to the $1.1 trillion earned in the same time last year. Deal count fell to 8,774 in the quarter, 27% less than a year ago. The deals have also been on the smaller side, with not a single deal announced l in January eclipsing the $10 billion mark, according to S&P Global.

Looking at the world of media and entertainment, things are even more dire as deal values shrunk the most compared to other sectors, Axios reported. Activity in the sector dropped to $9 billion compared to $56.3 billion in the prior year’s first quarter.

So how is the Raine Group bucking the trend? We’ve been wrestling with that conundrum and our conclusion is that it has everything to do with sports:

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The Raine Group is advising World Wrestling Entertainment and the Ultimate Fighting Championship in a merger where the boutique bank stands to make $65.5 million when all is said and done, the Financial Times reported.

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No stranger to sports deals, just last year Raine was the exclusive advisor on the sale of Chelsea F.C. to a consortium led by billionaire Todd Bohely, a deal which earned them roughly €30 million. Raine is also playing a key role in the sale of Manchester United if and when the Glazer family ever decides to pull the trigger. That’s shaping up to be one of the biggest team sales in history, likely surpassing £6 billion.

This Could Take Time: Deal-making has slowed for the same reasons everything else in the economy is messed up these days — inflation, rate hikes, bank failures, and the dreaded recession that’s always lurking in the shadows. Is it any wonder no one’s rushing to make new deals? “All in all, it may take longer than expected for global M&A deal volumes for more traditional transactions to bounce back,” Bloomberg’s Emily Rouleau wrote in an analysis.

– Griffin Kelly

Extra Upside

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Going once, going twice: A nearly 3,000 year-old Hebrew Bible sold for $38 million at Sotheby’s auction.

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Tick-Tock, TikTok: Montana officially bans TikTok.

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