Self-made or not, Kylie Jenner really is an economic phenomenon

In the film Dodgeball, the vile owner of Globo Gym (played by Ben Stiller) boasts: “I earned this body and I built this temple out of nothing more than a little can-do attitude and elbow grease…and a large inheritance from my father.”

The reaction to the claim by Forbes magazine that 20-year-old Kylie Jenner is on track to become the world’s youngest “self-made billionaire” has focused on the “self-made” element. Does someone who is born into a wealthy, well-connected, reality TV dynasty really qualify as “self-made” (presuming it’s not an oblique reference to Jenner’s allegedly copious amounts of plastic surgery)?

Yet the second element of the claim warrants some scrutiny too. Is the valuation of her makeup company, which is the basis of the bulk of her $900m (£680m) estimated wealth, sound?

I admit I was sceptical. But the consensus of financial analysts I consulted is that, assuming the $330m a year sales figure for Kylie Cosmetics is accurate, it’s not unreasonable to value the brand at around $800m.

Mature companies are generally valued on a multiple of profits, rather than turnover. But for fast-growing, young companies (and Kylie Cosmetics was only established two years ago) it’s normal for top-line sales to be used.

Other recent acquisitions bear this out. In 2016, It Cosmetics was bought by the beauty conglomerate L’Oreal for $1.2bn, when the eight-year-old company’s sales were just $182m, little over a half of Kylie Cosmetics’ today.

And last year George Clooney sold his four-year-old Tequila business, Cosamigos, to the drinks giant Diageo in a $1bn deal, when annual revenues were estimated at only $70m. Cosamigos is certainly associated with Clooney, but it isn’t named after him. Kylie Jenner’s makeup business is slightly different because it is clearly driven by a single celebrity name.

That implies a risk. “With a one name brand all it takes is a change in public mood and it’s all up in smoke,” warns George Salmon, an equity analyst at Hargreaves Lansdown.

We had a good illustration of this hazard last week when John Schnatter, the founder and chairman of the Papa John’s pizza empire and the face of the company in its advertising, used a notorious racial epithet.

Shares in the company dropped by 5 per cent and Schnatter was hastily ejected by the board.

Nevertheless, the explosive growth in sales for Kylie Jenner’s company is a confirmation of the awesome financial power of modern internet-powered celebrity.

Earlier this year a Dublin hotel objected when a YouTube “social influencer” called Elle Darby requested a free stay in return for publicity. It’s hard not to feel sympathy with the exasperated hotel owner who wrote: “Who is going to pay the housekeepers who clean your room? The waiters who serve you breakfast? The receptionist who checks you in? Who is going to pay for the light and heat you use during your stay? The laundering of your bed sheets? The water rates?” 

Yet the reality is that the kind of publicity social media stars (and, granted, Darby probably is not in this bracket) can potentially generate for a business really can more than cover the costs of their complimentary hospitality. Collaborating with social media influencers has become a marketing strategy for many firms. Those who invest in it seem to think it works. And one study suggests that each dollar spent on influencer marketing returns around $8.

“For he that hath, to him shall be given,” states the Parable of the Talents. And we see ample evidence of it. Hollywood actors are inundated with free clothes and jewellery in the hope they will wear them at award ceremonies, with all the various freebies worth around $100,000 a year according to one estimate.

Sports stars receive vast amounts of money in sponsorship deals, earning far more from image rights than salaries or tournament fees. And one can now become a dollar billionaire in two years from selling makeup on the back of being “famous for being famous”.

The economics makes sense. What such trends say about the state of our society is, of course, another matter.

#KylieJenner #socialinfluencers

If only we could unchain Britannia from Dominic Raab-style dogma about workers’ rights

Like a stopped clock that always tells the same time, there’s a certain breed of British right winger who forever insists that the magic formula for economic growth is to be found in making life for ordinary workers more precarious.

Seven years ago David Cameron commissioned a Conservative donor and private equity magnate called Adrian Beecroft to review employment law. The big idea in Beecroft’s thin report was to introduce “no fault dismissals”, effectively enabling UK employers to fire workers at will.

Beecroft was left to gather dust on a Whitehall shelf after the then business secretary, Vince Cable, openly trashed it. But Beecroft’s proposals became a rallying banner for the right-wing press. And its influence may not be dead. For another believer in the salutary effects of a hire-and-fire culture is none other than the newly installed Brexit secretary, Dominic Raab.

Around the same time that Beecroft delivered his report, Raab authored a pamphlet asserting that UK employment legislation represents a “straitjacket” for the economy. And like Beecroft, Raab proposed allowing employers to fire at will. For the sake of the unemployed, he implored the government to “urgently reduce the burdens of employment regulations”. Raab followed this up a year later with Britannia Unchained, a book written with some other Tory backbenchers, in which the British were labelled “among the worst idlers in the world”.

Theresa May claims to be delivering a historic expansion of workers’ rights and protections, especially for those in the gig economy. But Raab has said nothing over the past seven years to distance himself from his earlier convictions about the cosseted nature of the UK workforce. Indeed, given the unreconstructed Thatcherite wing of the Conservative party (of which Raab is a member) believes leaving the EU will allow the UK to scrap various worker protections, it seems pretty likely that he sees Brexit as a chance to implement this agenda; to “finish the Thatcher revolution” as Nigel Lawson puts it.

It is important to recognise that it is possible to have too much worker protection. When employers find it extremely onerous to shed or move workers in response to inevitably evolving economic conditions, the result can be a damaging reluctance to invest. This can also contribute to a two-tier workforce, where older workers have blanket security but younger workers are never taken on and consequently tend to cluster in chronically insecure and informal jobs. We see symptoms of this illness in countries such as Spain, France and Italy.

But not here in Britain. Indeed, the past decade has furnished a comprehensive rebuttal of the Beecroft/Raab view of the UK economy. The national unemployment rate in 2011 was more than eight per cent. Today it just over four per cent, the lowest since the mid-1970s. This “jobs miracle”, as Conservative ministers tend to style it, happened without a Beecroft-style assault on workers’ rights.

Whatever has been ailing the UK economy, it is not excessive protection of workers. Indeed, even seven years ago cross-country studies by the OECD clearly showed that the UK labour market was, by international standards, exceptionally flexible. Workers’ protections in the UK are lower than in every other developed country apart from the US, Canada and New Zealand.

As for the Britannia Unchained claim that Britons are exceptional “idlers”, this was largely based on our low productivity (output per worker) relative to peer economies such as France, Germany and the US. No one knows for sure why there exists such a productivity gulf between the UK and our European neighbours. But there are good grounds for suspecting that the answer lies in factors such as a deficient investment in workers’ skills and in poor management practices, particularly among smaller companies.

There is no credible basis for claiming that it is due to a national aversion to hard graft.

Indeed, some believe that the UK’s ultra-flexible labour market might be doing more economic harm than good, encouraging a proliferation of low-productivity jobs and discouraging investment in labour-saving equipment by firms. Could the road to a more productive economy lie through more security for workers? That case remains to be made convincingly. But it’s surely long past time that we unchained Britannia from discredited right-wing theories about the harm done by workers’ rights.

#DominicRaab #employmentlaw #labourmarket

Politicians should listen to big businesses – but not too much

Businesses have been sounding a Brexit chorus of warning. 

In recent days Airbus, BMW, Siemens and Jaguar Land Rover have all raised their voices to highlight the severe economic damage that will be done to their operations if the cabinet’s hardline Brexiteers get their way and wrench Britain out of the EU’s customs union and single market. Some have even said the harm could be so grave that they would pull out of the UK altogether, costing jobs and investment.

Choruses need a conductor. And it’s more than likely that these interventions were coordinated to prepare the ground for Friday’s Chequers meeting to force a cabinet agreement on what proposal the UK government should submit for a post-transition Brexit trade deal with the rest of the European Union.

But not everyone in the audience has been appreciative.

“Fuck business” was the concise review of one of those cabinet hardliners, Boris Johnson. The pro-Brexit Conservative internet entrepreneur Tim Montgomerie sought to present this four-letter reaction from the foreign secretary last week in the grand tradition of Adam Smith, citing the father of economics’ renowned alertness to firms’ tendency to anti-competitive behaviour.

Others have made the point that the voice of a handful of large pro-EU multinationals could be drowning out a different perspective from smaller firms.

It’s a curious consequence of Brexit that it has got “pro-business” right-wingers to pay attention to the dangers of monopolisation and lobbying by big firms. The fact that such concerns have surfaced now that businesses are warning about Brexit puts one in mind of the jailed dictator who suddenly becomes an advocate of prisoners’ human rights.

Yet even if the source of the argument is dubious, that doesn’t mean it’s an empty one. No serious person disputes that businesses often lobby in their own narrow interest. And it’s a fact of life that large firms with tens of thousands of employees usually have a degree of political access that smaller firms with only tens of workers lack. Even those who welcome big businesses’ interventions over Brexit would have to acknowledge these truths.

But that leaves us with a dilemma. When should politicians listen to big business? And when shouldn’t they? When should the public pay particular attention to their arguments? And when should we discount them? How can we distinguish relevant interventions from irrelevant special pleading? 

One sound criterion would seem to be when a question of public policy directly impinges on a particular firm’s operations, giving them a special expertise. That’s clearly the case with Brexit. No one is better placed to talk about the impact of customs delays than a car manufacturer which runs a “just in time” assembly plant. When businesses write letters to newspapers supporting the Conservatives because of the general thrust of their tax policies the voice of business should command less reverence.

Jeremy Hunt, the health secretary, has called Airbus and BMW’s airing of their perspective on the dangers of leaving the customs union “inappropriate”. He would be more credible if a record could be found of him telling businesses to pipe down in the past. Yet proximity to the consequences of policy can’t be the sole criterion of when we should listen to businesses’ views.

Soft drink manufacturers know a great deal about how the soda tax is likely to affect the public’s consumption of their wares. Cigarette manufacturers know all about the impact of plain packaging rules.

Banks are experts in how regulatory requirements to increase their capital safety buffers will impact their profits. And so on.

But as all those examples show, having a financial interest in a policy doesn’t necessarily equate to that interest aligning with the broad public interest. Other criteria are necessary when it comes to evaluating lobbying.

The first is transparency. Private lobbying by big money is particularly insidious. If Jeremy Hunt wants to talk about inappropriate behaviour he might consider David Cameron’s non-disclosed “kitchen suppers” in Downing Street for Conservative Party donors.

Transparency relates to another vital criterion: equality of access. If a minister only listens to one section of business, such as large firms or finance, there is a danger that they start to see the world through the eyes of that section. We saw this clearly with Gordon Brown’s ultimately ruinous love affair with the City of London.

If ministers only hear from businesses and shut out other social stakeholders, such as trade unions and charities, that too is liable to be distorting and dangerous. Transparency about how often ministers meet various groups is a vital defence against this kind of capture.

But, in the end, there is no foolproof rule, or set of rules, that can reliably separate social useful business lobbying from the socially useless kind. It will always depend on a judgement about context.

Business has a right to a voice in politics. And sometimes that voice deserves a special hearing. But it should only ever be one voice among several.

If a minister only listens to one section of business, such as large firms or finance, there is a danger they see the world through the eyes of that section

#AdamSmith #bigbusiness #lobbying