After being signed into law in December, the Uyghur Forced Labor Prevention Act (“UFLPA”) took effect this week. The law, which officially went into force on June 21, creates a rebuttable presumption that any goods that were “mined, produced, or manufactured, wholly or in part, in the Xinjiang Uyghur Autonomous Region” were made using forced labor, and bars their importation into the U.S., unless the importer can produce documentation within 30 days that meets the “clear and convincing evidence” standard in order to qualify for an exception.

Direct imports into the U.S. from Xinjiang have fallen significantly in light of enduring reports of detention camps in the Xinjiang region in northwest China where ethnic Uighurs and other Muslim minorities are reportedly forced to “learn Chinese and memorize propaganda songs” and to work as part of a sweeping “re-education” campaign. The UFLPA could, nonetheless, have sweeping consequences for the fashion industry given its breadth, as well as the extent to which apparel manufacturers rely on cotton from the Xinjiang region. After all, the law applies not only to products shipped directly from Xinjiang, but also to shipments that come from other countries but that contain products made from cotton (and other raw materials) and/or labor tied to Xinjiang. 

This stands to make the applicability of the law greater given the fact that “a wide range of raw materials and components from [the Xinjiang region] find their way into factories in China or in other countries, and then to the U.S.,” according to the New York Times.

From a purely-cotton-perspective, the potential impact of law is striking. The U.S. imported about $9 billion worth of cotton goods from in 2020, according to former Executive Assistant Commissioner Office of Trade, U.S. Customs and Border Protection Brenda Smith, as previously reported by the AP. In terms of the Xinjiang region, alone, it is responsible for 85 percent of China’s cotton, and an estimated 20 percent of the global cotton supply by the Worker Rights Consortium. “Virtually the entire [global] apparel industry” – high fashion and luxury names, included – “is tainted by forced Uighur and Turkic Muslim labor,” the labor rights monitoring organization told the Guardian  last summer, due in large part to the difficulty that comes with tracing the origins of garments and their composite parts in multi-national brands’ sweeping supply chains.

Now that the UFLPA is firmly in place, Steptoe & Johnson LLP’s Jeffrey Weiss and Claire Schachter suggest that companies engage in the following initial steps … 

Evaluate the effectiveness of the existing company-wide supply chain due diligence system for assessing and mitigating forced labor risks – including g., all internal and independent third-party risk assessment/auditing systems; supplier code of conduct monitoring and enforcement; engagement with direct and indirect suppliers; forced labor risk training, etc. – and determining whether the individual components and due diligence system as a whole are likely to satisfy the CBP Guidance/UFLPA Strategy guidance and what modifications/additional processes, if any, may be needed;

Develop detailed supply chain maps for products imported into the United States in order to identify and assess the risks of any links to Xinjiang or listed entities/facilities/products and develop mitigation strategies;

Develop an efficient approach for gathering and preparing necessary supply chain documentation for potential submission to CBP in the event any shipment is detained and the company seeks to demonstrate the shipment is outside the scope of the UFLPA or that it qualifies for an exception to the rebuttable presumption; and

Monitor developments on UFLPA implementation, including additional guidance from CBP, likely to be released over the coming months.

Apple has topped a list of the most valuable brands, putting the Cupertino, California-based consumer tech company on track to become the first trillion-dollar brand, followed by Google, Amazon, Microsoft, and Chinese tech and media conglomerate Tencent. While tech companies dominate the top spots of the Kantar BrandZ Most Valuable Global Brands 2022 report, which ranks companies based not just on financial results but their intangible assets (including trademarks) and consumer perceptions of their brands, as well, fashion and luxury names have also garnered meaningful positions on the latest version of the brand valuation ranking, with Louis Vuitton, for instance, landing in the top 10 for the first time ever – and Cartier topping the list of the fastest-rising brands for the year. 

Relying on input from millions of global consumers and tens of thousands of brands to measure how “meaningful, different, and salient” brands are to consumers, Kantar found that the total value of the names on the 2022 Most Valuable Global Brands list grew by 23 percent to reach almost $8.7 trillion, which it says is “reassuring, considering the backdrop of high inflation and an unpredictable global economy.” Among the strongest brands (i.e., those that benefit from demand power – or consumers’ predisposition to choose one brand over others in their category, pricing power, etc.) of the year are those that fall within the luxury sphere, per Kantar, which notes that luxury brands, in particular, “have performed exceptionally well” on a year-over-year basis.

Louis Vuitton, which landed in the number 10 spot with a brand valuation of $124.3 billion, is the first luxury brand to reach the global Top 10, according to Kantar, which “reflects the growth of the luxury market worldwide and in China in particular.” (Luxury brands were among the fastest growing, up 45 percent, on this year’s ranking, following only behind consumer tech brands, which saw growth of 46 percent.) 

Brand valuation

Elsewhere in the luxury space, Richemont-owned Cartier was named the fastest-rising brand across all categories, growing its value by 88 percent to $10 billion since last year’s report. Other brands doubling their brand value over the past year include: YouTube (No.24, $86 billion), Google (No.2, $819 billion), Tesla (No.29, $75 billion) and Hermès (No.27, $80 billion). In terms of Cartier, in particular, Kantar stated that the company “is seen as an especially smart buy when it comes to offering products that retain their worth over time,” presumably a nod to enduring resale demand for the brand’s offerings, including in a pre-owned state. 

Resale & Sustainability

Kantar specifically touches on the effect of resale as part of the larger picture of brand valuation, stating that “the notion of ‘resale value’ has long informed brand value in the cars category, burnishing the reputation of brands as ‘good buys.'” That impact has since expanded beyond cars, with the help of “a variety of resale startups, [which] have brought the same financial calculus to bear on luxury, streetwear, and footwear brands – as consumers can see in real time which products can best ‘hold their value’ on the secondary market.” The result, according to Kantar, has been “a boon for brands with more classic, iconic ‘hero products’ in their stables – as well as those that manage to bring out the seasons’ hottest, hard-to-find viral sensation.” 

(Kantar further claims that “iconic brand codes can prove especially important in turbulent times. For brands like Louis Vuitton, Chanel, and Hermès, signature heritage offerings like the Speedy, 2.55, and Kelly handbags are so much more than mere marketing mascots. They’re crucial revenue drivers in volatile economic climates. That’s when consumers turn away from risk, and instead, gravitate towards heritage products that are proven sources of value, comfort, and continuity.”)

The burgeoning resale market neatly ties in with one way for brands to boost their valuation: sustainability initiatives. While Kantar asserts that consumers’ expectations vary by category, brand, and market when it comes to sustainability, it notes that “one way that brands can move the needle on sustainability is by making products that last longer.” Kantar continues, asserting that the “opposite of planned obsolescence is the concept of future-proofing: finding ways to build, maintain, and service goods that last beyond typical product lifestyles,” with “service” being the key here, as it “enables brands to continue to unlock profits,” while also enabling brands to grow brand value in the eyes of consumers. 

Microsoft, Zara, and IBM lead the way in the new Kantar Sustainability BrandZ Index, which the London-based firm says shows that sustainability already accounts for 3 percent of brand equity and is expected to rise further, according to Kantar. 

Brand valuation

In terms of other fashion and/or luxury entities on the Top 100 ranking, Nike took the number 13 spot with a $109.6 billion brand valuation and a 31 percent increase from last year; Hermès came in at number 27 with a brand valuation of $80 billion (up 73 percent year-over-year); Chanel came in at 45 with a valuation of $53 billion (up 13 percent); Gucci landed at number 58 with a valuation of $37.9 billion (up 12 percent); Spanish fast fashion company Zara made it into the Top 100 in the 83 spot with a valuation of $25.4 billion (up 19 percent); and finally, adidas took the number 89 spot with a valuation of $23.8 billion (up 6 percent). 

China, Data Privacy & the Metaverse

As for other key takeaways from this year’s report, Kantar pointed to the expansion of Chinese brands, stating that as American and European brands “remain dedicated to expanding their operations in China, they will increasingly have to contend with competition from mature, differentiated Chinese brands in their home markets.” While Kantar points to Chinese tech companies, including smartphone makers like Xiaomi, Oppo, and Viva, as key examples of this, fashion and sportswear companies come to mind, as well. For instance, Kantar highlights labels like Anta and Li-Ning, which it says have made “significant gains in market share over the past few years thanks to their cultural fluency and heritage appeal.” Non-native brands can still succeed in the Chinese market, of course, Kantar contends, but “their engagement with the Chinese market must shift toward a ‘higher quality’ approach,” meaning that they must demonstrate that they “truly understand Chinese society and that they are committed to improving China as a long-term partner for ‘quality growth.'”

Beyond that, Kantar highlighted the importance of the “post-cookie era,” which has been “hastened by a combination of regulatory pressure from jurisdictions like Europe and China, as well as strong pro-privacy stances by hardware manufacturers like Apple.” Kantar states that it is certainly likely that in the absence of third-party trackers, “the advantage will go to those brands and platforms with which consumers are most willing to share their own first-party data,” and it cites brands like Nike, which has built out a content suite that includes fitness tools, fan communities, and the SNKRS shopping app, “all of which should work together to provide the brand with rich consumer profiles and dynamic marketing opportunities.”

Brand valuation

“Companies have long aspired to build interactive ‘brand universes,’” according to Kantar, which says that “now it really pays to have one.” In something of the same vein, Kantar states that the rise of the metaverse may have “all sorts of outré implications for categories like fashion, furnishings, and beauty – not to mention immersive marketing experiences for products of all time.” This could prove to be exciting for brands and consumers, alike, but for now, it states that “the greatest test for the metaverse will be to see if it can prove useful in a far more mundane corner of life: the routine business meeting.” 

Finally, one “big story in branding today,” Kantar says, is the use of collaborations as a “shortcut to creating a cultural moment around a product.” This could include creative partnerships between a brand and a celebrity (for instance, McDonald’s and BTS) – or between two large brands, in different but adjacent categories (e.g., Gucci and Adidas). “But even more striking is the rising trend in collabs between two equally large competitors,” such as Kering-owned brands Gucci and Balenciaga, as well as Fendi and Versace, which Kantar rightly notes is more unusual since the two brands do not share a corporate parent. 

A copyright case over allegedly infringing non-fungible tokens (“NFTs”) listed on an online marketplace in China has resulted in what is being characterized as a “first-of-its-kind judgment.” Filing suit against Bigverse, plaintiff Shenzhen QiCeDieChu Culture Creativity Co Ltd. (“QiCeDieChu”) asserts that it is the copyright holder of a series of illustrated works by Chinese artist Ma Qianli, including one of a cartoon tiger receiving a vaccine, which was tied to an NFT and offered up on Bigverse’s NFTCNplatform without its authorization. As the operator of the marketplace site, Bigverse is contributorily liable for failing to adequately police the platform for infringements, QiCeDieChu argued.

Specifically, QiCeDieChu argued in its complaint that Hangzho-headquartered Bigverse has an obligation to review the NFTs that are minted and then offered up on its NFTCN platform – in connection with which it collects a portion of the sale – to ensure that the digital tokens are not tied to works that infringe the rights of others. Unsurprisingly, Bigverse argued in response to QiCeDieChu’s suit that it should be shielded from infringement liability, as it is merely a middleman and not the creator or the seller of the NFTs on its platform, which are created – and uploaded – by users.  

Following a hearing in April, the Hangzhou Internet Court sided with QiCeDieChu, holding that Bigverse does, in fact, have a duty to detect and prevent infringement before NFTs are actually listed on its platform, in addition to having an obligation to respond to infringement notices about infringing NFTs after the fact. By failing to fulfill that duty, which is critical when it comes to NFTs because of the generally irreversible nature of the transactions and the ability of “flaws in the copyright ownership of the underlying work of an NFT” to impact the “entire NFT transaction chain,” Bigverse infringed QiCeDieChu’s “right to disseminate works through information networks.”

As such, the court ordered that one-year-old Bigverse – which raised RMB 10 million ($1.6 million) in a Series A round in March – remove the infringing NFTs and pay RMB 4,000 ($589) in damages to QiCeDieChu. Additionally, the court also states that Bigverse should maintain a vetting system to verify that NFTs that users are looking to list on the NFTCN platform do not infringe the rights of others, as well as a takedown system to address infringing NFTs that have been listed.

The court noted that while NFTs cannot be destroyed, they can be sent to an “eater address” (or burn address) and thus, removed from circulation, which it asserted is a sufficient way to deal with infringing NFTs.  

Reflecting on the “landmark” case, DLA Piper’s Horace Lam states that it is the first time that a Chinese court has specifically spoken to the legal nature of NFTs and the obligations of an NFT platform. Specifically, Lam notes that the court characterized NFTs as “digital commodities,” and emphasized that the sale of an NFT does not equate to a transfer or license of the intellectual property of the underlying artwork, unless the terms of the sale provide otherwise. (The court also noted a party that mints an NFT should have rights in the underlying artwork, as distinct from merely having a copy of the underlying work.)

A key takeaway, according to Lam, is the court’s determination that the sale of an NFT that makes unauthorized use of another’s copyright-protected work “does not infringe upon the copyright owner’s ‘right of distribution’ in the underlying work, which is limited by the first-sale doctrine. Instead, it infringes the copyright holder’s “right of communication by information networks,” which he says is “a highly controversial issue in relation to copyright infringement of an NFT.” 

Given that the Hangzhou Internet Court is only a district-level court, Lam asserts that it is “unclear whether its ruling will be widely followed or is likely to be challenged in subsequent cases by other courts in China,” but says that the outcome is “meaningful,” nonetheless, in the light of the fact that formal NFT laws or regulations have not been enacted in China (yet). As such, he encourages players in the NFT space in China to “carefully consider the implications of the ruling.” 

In much the same way as NFTs have boomed in popularity in other countries across the globe, there has been significant interest in – and demand – for NFTs in China. The potential drawback, however, comes in the form of an inability to resell such digital tokens amid an enduring crackdown on cryptocurrency trading and mining by the Chinese government. 

MIT Technology Review reported last month that three national financial industry associations in China released a joint statement centering on NFTs. The three associations, “which collectively cover almost all Chinese banks, brokerages, and fintech companies,” according to MIT Tech Review’s Zeyi Yang, asserted that to “prevent financial risks,” they are asking their members “not to offer centralized trading platforms for NFTs, to refrain from investing directly or indirectly in NFTs, and to forbid using cryptocurrencies like Bitcoin or Ethereum in buying or selling them, among other measures.” 

“The initiative is designed to make it harder to trade NFTs and impossible to speculate in them,” Yang states. “Ultimately, the shifting political atmosphere around NFTs may help test whether they hold any intrinsic value.” 

Kering reported rising revenue for the first three months of the year, citing “a very solid first quarter in a more uncertain environment, notably impacted by tightening COVID restrictions in China since March.” Boasting revenues of 4.96 billion euros ($5.4 billion) for the quarter ending on March 31 (up 21 percent on a comparable basis from the same quarter last year), the French luxury goods group posted double-digit revenue growth across all of its brands, with “spectacular performances” coming from Saint Laurent, its “Other Houses, particularly Balenciaga,” and Kering Eyewear. Meanwhile, Kering chairman and CEO François-Henri Pinault revealed that Bottega Veneta delivered “sharp higher sales on a more demanding base,” while its biggest brand Gucci’s “strong showing in North America and Europe was overshadowed by its exposure to China.” 

Diving into the results of its individual brands, Kering revealed that Q1 revenue for Gucci, which is responsible for almost 50 percent of the group’s sales, amounted to 2.6 billion euros ($2.8 billion), up 13 percent compared to Q1 2021, driven largely by local customers in North America and Western Europe in particular. Kering noted that wholesale revenues for Gucci fell 2 percent on a comparable basis, an indication that its “rationalization of this sales channel is now complete,” following efforts by Kering to restructure the Italian fashion brand’s distribution away from wholesale and towards the heightened control and exclusivity that comes with its own retail channels. 

Kering Revenue

While Gucci was the “weakest link” for Kering during the first quarter, according to Neev Capital managing director Rahul Sharma, Saint Laurent’s “new peaks,” as Kering put it, helped make up for Gucci’s lag. Saint Laurent had an exceptional start to the year, per Kering, with revenue of 739 million euros ($801 million), up 37 percent on a comparable basis. “Sales in directly operated stores rose sharply, up 49 percent on a comparable basis, with double-digit growth in all product categories,” with that “excellent momentum [being] driven by spectacular performances in Western Europe and North America.” As for the brand’s revenue from wholesale, which is being “streamlined,” according to Kering, it rose 10 percent on a comparable basis. 

Kering also highlighted the “resounding success of carryovers and Spring 22 collections” for Saint Laurent, as well as its “continued development of online.” 

Jefferies analysts Flavio Cereda and Kathryn Parker stated in a note on Thursday that they “continue to think Saint Laurent is more sustainable in the medium term than Balenciaga,” which was Kering’s the other big Q1 performer. Although, they assert that a “significant surge in Leather Goods must be coming to an end [for Saint Laurent]” in light of the fact that wholesale rationalization – a la Gucci – is coming.  

Similarly, Bottega Veneta fared well during Q1, with revenues totaling 396 million euros ($429 million)  in the first quarter, up 16 percent on a comparable basis. Relative to the Q1 of 2019, Kering revealed that Bottega’s sales were up 59 percent, with activity sustained in directly operated stores and very good performances in Western Europe, North America, and Japan. Of note, per Kering, is Bottega’s “consistently deployed iconization strategy” for its offerings, gradual rationalization of wholesale, and the retail strength coming by way of its “stable store network.” 

As for its “Other Houses,” the group – which houses the Balenciaga and Alexander McQueen brands, among others – “posted an extremely strong first quarter,” with revenue of 973 million euros ($1.05 billion), up 35 percent on a comparable basis, and “each house delivering double-digit growth.”

Kering’s positive results follow from those of rivals LVMH and Hermès, which reported Q1 growth last week despite the “still uncertain context,” largely coming by way of the Chinese market. Echoing the sentiments of management at both LVMH and Hermès, Kering Chief Financial Officer Jean-Marc Duplaix said in a call on Thursday that the Chinese market has remained fundamentally “intact,” and thus, consumers are expected to bounce back and resume their robust luxury spending once the latest COVID crisis subsides. 

LVMH Moët Hennessy Louis Vuitton touted a “good start” to the year, reporting 18 billion euros ($19.59 billion) in revenue for the first quarter of 2022, up 29 percent compared to the same period in 2021, and stating that it is “well positioned to continue to gain market share” in the luxury sphere. Despite “continued disruption from the health crisis and the dramatic events in Ukraine,” the French luxury goods conglomerate revealed that all of its business groups – from Fashion & Leather Goods to Selective Retailing – achieved double-digit revenue growth, except for Wines & Spirits, which continued to see supply constraints. 

Delving into its biggest division, LVMH stated on Tuesday that Fashion & Leather Goods, which is responsible for just upwards of 50 percent of the group’s total revenues, recorded revenues of 9.12 billion euros for the first three months of the year. The group pointed to Louis Vuitton, which had “an excellent start to the year,” Dior, which “enjoyed another remarkable performance,” Fendi’s “solid growth, driven in particular by the success of Kim Jones’ collections,” and Celine, which achieved “very strong growth thanks to the remarkable success of its ready-to-wear and leather goods lines designed by Hedi Slimane.” Loro Piana, Loewe, and Marc Jacobs “all had a very good quarter,” per LVMH. 

A standout in terms of growth within the Fashion & Leather Goods division is Dior, with Bernstein analyst Luca Solca stating in a note on Wednesday that the brand is doing “somewhat better” than the others within the division. As for Louis Vuitton, he states that management does not intend to be overwhelmed by demand,” as they have a lot of initiatives in place for supply to keep up with demand, like the two new precious leather workshops in Vendôme, France.” At the same time, “The strategy remains that of controlling volumes.” 

In a call on Tuesday, LVMH Chief Financial Officer Jean-Jacques Guiony specifically cited the strength of Dior, noting that Dior and Celine grew faster than other labels. Although, top-earner Louis Vuitton “is never very far from the average for the division.”

LVMH Revenue

Within the realm of Watches & Jewelry, which recorded organic revenue growth of 19 percent year-over-year, with revenues reaching 2.34 billion euros, Tiffany & Co. had “an excellent start to the year, still driven by strong growth in the United States.” The new Knot collection was particularly successful, according to LVMH, which is currently in the midst of a major youth-focused overhaul at Tiffany & Co. under the watch of EVP of Product and Communications, Alexandre Arnault. Bulgari was another standout, thanks to strong demand – for both it and Tiffany & Co. – in the U.S. and Europe, as well as Singapore and Korea. 

LVMH noted “strong growth of perfume and makeup, robust progress in the U.S. and a rebound in Europe,” with the division generating 1.91 billion euros, up from 1.55 billion euros for the same quarter last year. 

Elsewhere under the LVMH umbrella, the Selective Retailing division, which is home to the likes of beauty retailer Sephora and duty-free chain DFS, among others, generated 3.04 billion euros in revenue, up 30 percent compared to Q1 2021. Specifically, LVMH cited strong performance from Sephora, which demonstrated a “solid performance in stores, especially in North America, France and Middle East,” driven in large part by fragrance sales and the “recovery of makeup.” At the same time, DFS – which has been hit significantly in the wake of the pandemic and limited international travel, saw revenue increase but “at a lower level” amid the continued impact of the pandemic on travel.

Geographically speaking, LVMH revealed that the United States up 26 percent), Europe (up 45 percent), and Japan (up 30 percent) achieved double-digit revenue growth, while Asia (up 8 percent) continued to grow over the quarter even in the wake of tightening health restrictions in China in March. The group pointed to a “balanced geographic revenue mix,” with 37 percent of Q1 sales coming from the Asian market (excluding Japan), 24 percent coming from the U.S. and 14 percent coming from Europe (excluding France), followed by sales in “Other Markets” (12 percent), Japan (7 percent), and France (6 percent). 

Solca emphasized the importance of the U.S. market, which is “the largest country in terms of percentage revenue for LVMH – even more so than Mainland China.” He further states that this U.S. market is currently “less dependent on cosmetics than several years ago, as makeup has seen some slowdown in the past years and has been replaced by other categories under cosmetics and Fashion & Leather Goods.” 

In terms of e-commerce, LVMH reported that it continued to see “strong momentum of online revenue and omnichannel developments” in Q1, with e-commerce sales in the U.S., for instance, remaining above 2019 levels even though they are slowly normalizing in favor of brick-and-mortar sales. 

And finally, in a brief note on the metaverse, LVMH management stated that it is difficult to comment on this as of now, but confirmed that the group is eyeing the space “very carefully,” and stated that the group “will be part of whatever the future holds for the metaverse.”