fortune--2020-05-19--It’s a dogfight at America’s pet stores as COVID-19 upends the $96 billion industry

It was the kind of culinary theater that restaurant patrons swoon for. In an open kitchen just off Manhattan’s Union Square, as customers looked on, a team of cooks clad in dark gray chef coats, aprons, and hats labored over hot stoves, bringing meals to life in stainless-steel pots and pans. It was a Friday afternoon in late winter, and the emphasis was on comfort food: venison and squash, beef and russet potato.
The romance of the moment dissipated a bit once the cooking was done, however. Rather than plating the hearty meals, the cooks set them aside to be packaged in plastic containers or vacuum-sealed. Those packages would soon sit on nearby shelves, not far from kitty litter, lamb lung treats, and 50-pound bags of dry dog chow. And there would be no “compliments to the chef” from satisfied diners, because the venison and beef were destined to be eaten by retrievers and terriers.
The bustling kitchen is the centerpiece of a revamped branch of Petco—the nation’s second-largest pet-store chain, behind its longtime rival PetSmart. Operated by an outside company, JustFoodForDogs, the Petco kitchen makes “human grade” meals that purport to be healthier than mass-market pet food; they seem almost appetizing, if you squint hard enough. Petco sells the venison and squash for $11.96 for 18 ounces. A yellow Lab with a daily venison habit would set its “pet parent” back $80 a week, or more than $4,000 a year. But Petco, like its competitors, is betting that even during tough economic times, animal lovers won’t dismiss such spending as a luxury.
JustFoodForDogs is a high-end food brand that is now an important partner for Petco, making “human grade” food for its stores. Courtesy of Petco
The fancy-food push reflects the cultural shift that has upended the $95.7 billion U.S. pet products industry in recent years. The “humanization” of pets has become a mantra repeated endlessly by industry insiders: One pet-food executive used the word 32 times in a 20-minute interview with Fortune. It’s shorthand for Americans’ growing tendency to treat their pets like family members. “Thirty years ago, the pet was on the porch, and now it’s on the bed,” says Sumit Singh, the 40-year-old CEO of online pet-supply juggernaut Chewy, of which PetSmart is the majority shareholder. Tellingly, every one of the more than two dozen analysts and executives Fortune spoke with for this story referred to animal custodians not as “owners” but as “pet parents.”
That paradigm shift has set off a cascade of changes in how people shop, forcing retailers and manufacturers alike to reinvent themselves. And in an evolution that mirrors human-retail trends, that reinvention has been intrinsically linked to a “premiumization” of their products. That means more upscale offerings—think quinoa in the cat chow and orthopedic dog beds. But it has flowed down to the middle of the market, too, with some retailers purging GMO-based ingredients entirely from their food shelves and offering services like dog-walking and “pet wellness.”
The two privately held superstores have begun to get the balance right. Petco, with annual revenue of about $4.5 billion, has bet successfully on higher-end food and a big reinvention of its stores; the company has recorded six consecutive quarters of comparable sales growth. PetSmart, the industry leader with an estimated $7.4 billion in sales last year, has brought to a near-halt a long sales decline by upping its investments in services like “pet hotels,” doggy day care—complete with story hour—and in-store veterinary clinics.
The change in tactics has enabled the dog-and-cat duopoly to hold their own against big-box mastiffs Walmart and Target, which have also upgraded their pet food and supplies and vastly expanded the assortment they stock. The pet specialists have gotten stronger at e-commerce, too. Petco was getting about 10% of sales online right before COVID-19, and that has shot up since the pandemic kicked in. And Chewy.com, which PetSmart bought in 2017 for $3.3 billion, has relied on “high touch” personalized marketing, 24-hour-a-day customer service including advice on products, and algorithmic upselling to become the industry’s biggest online player, with $4.8 billion in sales in 2019—beating even Amazon.com in the pet category.
Thirty years ago, the pet was on the porch, and now it’s on the bed. Chewy CEO Sumit Singh
The urgent question now facing pet retailers is whether this momentum can survive the shock of the coronavirus. Historically, pet products have been business’s closest thing to a recession-proof industry, bolstered by the obsessiveness Americans have for animals: 77 million U.S. households have at least one dog, and 58 million are run by at least one cat, among countless others that host bearded dragons, budgies, and butterfly fish. The sector’s sales never dipped during the Great Recession and have grown an average of 6% a year over the past decade. But the industry most likely won’t get off that easily this time. Research firm Packaged Facts expects U.S. pet retail sales to fall 17% in 2020, to $78.5 billion; food sales will likely still grow, but services like boarding, grooming, and non-urgent vet services are already dropping off badly.
So far pet stores—big boxes and neighborhood shops alike—have been deemed essential services and allowed to stay open by the authorities. The kinds of services that have drawn customers into stores, like grooming and training, have all but shut down, but Petco and PetSmart have been able to mitigate the pain by offering curbside pickup for orders placed online. What’s more, the spring’s drastic lockdowns led to a surge in pet adoptions—and consequently, Chewy, PetSmart, and Petco all saw sales soar initially as customers stocked up. Petco says that even sales of its fresh and frozen gourmand JustFoodForDogs meals have risen since lockdowns began.
Still, a prolonged downturn could endanger the link between Americans’ love of animals and their ability to pamper them. “We will probably see people looking for more value in the products they purchase,” says Steve King, CEO of the American Pet Products Association.
And if more “parents” decide that pets don’t need much, that could force pet retailers to adapt yet again.
Petco was founded in 1965 as UPCO, a mail-order vet-supply business based in San Diego. By the 1980s it had become a national retailer. Another pet chain with big ambitions got off the ground in Phoenix in the 1980s, eventually settling on the name PetsMart in 1989. (A few years later, to avoid association with the unrelated, faltering Kmart chain, the company redeployed its capital, so to speak, becoming PetSmart.) PetSmart now has about 1,660 stores.
Over the years, both chains opened up their big boxes across the country. By gradually adding services like grooming and boarding, particularly in PetSmart’s case, they gained a stranglehold on pet retail. Over the past two decades, their market share and strong cash flow attracted the attention of private equity firms, which acquired them in leveraged buyouts. In 2015, PetSmart, which had been a Fortune 500 company since 2008, was taken private by BC Partners for $8.7 billion. And Petco bounced between private equity firms and the public markets before eventually being bought by its current owners, CVC Capital Partners and a Canadian pension fund, in 2016.
Like other brick-and-mortar retailers, the big incumbents grew complacent. Ownership focused more on cost-cutting and reducing debt than on making improvements. “They thought they were well protected by their in-store experiences and services,” says Moody’s analyst Mickey Chadha, who evaluates both companies’ mammoth debt loads.
Competitors began to bridge the giants’ protections in earnest over the past decade. Big foodmakers like Purina, Mars, and General Mills weakened those chains’ duopoly and started selling more of their better products at Walmart and Target too, tired of chronic drops in pet-store traffic. Amazon also made a dent: While conventional wisdom in the industry had long held that shipping heavy bags of dog food or kitty litter made pet e-commerce unworkable, the Seattle slayer began stealing market share for “hard” goods like leashes, bowls, and cat trees as well as food. (For more, see “Why the pet industry hopes Americans will start treating their cats more like dogs.”)
Courtesy of PetSmart
But perhaps the biggest shock to the system was the rise of Chewy.com, which launched in 2011. Chewy became an online pet store by accident: Ryan Cohen, its Montreal-born cofounder, had initially wanted to launch an online jewelry store but then realized that Petco and PetSmart had left the e-commerce market for pets up for grabs. To compete with the much bigger Amazon, Chewy focused on relating to customers as fellow pet parents. That included touches like randomly sending customers drawings of their pet made by one of 1,500 artists with whom Chewy contracted. “The pet portrait was to show our customers that we’re not Amazon, this isn’t a machine. You’re dealing with pet lovers,” says Cohen. Today, new pet owners get a congratulations note as if they’d had a baby, and owners who lose a pet may get condolence flowers. (Cohen no longer has a role with Chewy, but the company’s first big private-label food brand, Tylee’s, was named for his dog.)
Chewy boosted its growth by mastering automatic replenishment of staples like food and litter with “set it and forget it” service, which now generates 70% of its sales. As the dates for new autofill orders approach, Chewy’s tech enables it to suggest add-ons with which owners might be willing to experiment, says CEO Singh—particularly pet treats, now a $7 billion market in the U.S.
The jolt of tougher competition finally awoke the two pet super-chains. If they wanted to keep their huge store networks from becoming liabilities, they’d need to make a stronger case to shoppers—with a wider array of services and higher-quality “store brands” that other big retailers didn’t have, all under one roof.
“We are sprinting away from ‘commodity-ville,’ towards services and products you can only get at Petco,” says Ron Coughlin, chief executive since 2018. A visit to Coughlin’s office at headquarters in Rancho Bernardo, Calif., brings a reminder that Coughlin, 53, is a pet parent too. Coughlin’s 11-year-old yellow Lab, Yummy, bounds around the room and has no reservations about interrupting a conversation to demand that his owner’s interviewer provide head scratches.
A Petco store in nearby Escondido is one of 300 in the 1,500-store chain so far to get the full-on remodeling treatment that exemplifies the chain’s hoped-for transformation. In the food aisles, if the vibe a few years ago was Albertsons for Kitties and Doggies, now it’s more like Whole Foods. There are homey touches like wood shelf panels and signage, a Treatery stand for baked goods for dogs, and a station where pet owners can get nutritional advice that involves Petco’s premium WholeHearted food brand.
Just as striking are the spacious areas for services like grooming, boarding, and training. Some 40% of the space in many remodeled Petcos is devoted to services, which generate more than 10% of sales and are growing fast. At the Escondido store, pet owners can bring their dog in and wash it themselves for $15. That’s a draw for apartment-dwelling customers, particularly young ones, who don’t have backyards and want to avoid a mess in their own bathrooms. Petco is also rolling out vet clinics in earnest; it’s added them to 90 stores so far, with another 50 planned this year.
PetSmart was big on services before Petco jumped into that dogfight, and it’s taking steps of its own to maintain its head start. Its PetsHotel boarding facilities, which launched in the 2000s, now operate in 207 stores and eight stand-alone locations; prices start at $35 a night for boarding. They’ve long offered features like hypoallergenic beds and indoor tracks for long walks; now PetSmart offers luxury “suites,” where pets can sleep apart from other animals and get individual walks and playtime.
PetSmart is also overhauling its Doggie Day Camp daytime boarding. The company brought in animal behaviorists and even consulted human childcare development specialists to see what activities it could add, explains J.K. Symancyk, PetSmart’s 48-year-old CEO. “What you have is a structured day just like you would in day care,” he says. That includes story-reading time at 2 p.m., with a reader seated in the center of a room full of dogs. Some 70% of the dogs typically pay rapt attention, Symancyk says, but he admits, “There’s always a few who don’t listen and want to do their own thing.”
Analysts credit store overhauls like these with halting the erosion of the megachains’ share in a very fragmented market. Petco and PetSmart now account for about 18% of retail sales, on par with the faster-growing online retailers, and a hair behind mass merchandise stores like Walmart. (Supermarkets and small independent stores account for most of the rest.)
We are sprinting away from ‘commodity-ville,’ towards services and products you can only get at Petco. Petco CEO Ron Coughlin
The Big Two have also finally become real contenders in e-commerce—a trend that the coronavirus, with the imperative it creates for online ordering, has helped accelerate. Coughlin landed the Petco CEO gig in part because of his tech background: He was previously at HP, where he ran the “personal systems” business selling PCs and tablets.
PetSmart, as mentioned, owns Chewy—but its relationship with e-commerce is more complicated. Beyond selling some of each other’s brands, Chewy and PetSmart have remained strictly separate as business units, and PetSmart gets only about 4% of sales online. Some in the industry see PetSmart’s acquisition of Chewy as less of an e-commerce strategy and more of a financial-management tactic.
PetSmart took Chewy public in 2019. Because the companies had stayed largely separate, notes Moody’s analyst Chadha, Chewy could “get a loftier e-commerce valuation, and not a brick-and-mortar valuation.” Indeed, the IPO was a bonanza: Chewy’s market cap on the offering date was $14.3 billion, or nearly five times what PetSmart paid for it. And PetSmart used the proceeds to pay down some of its huge debt load. (Wall Street surmises that PetSmart will continue to offload its estimated 67% remaining stake over time.)
PetSmart’s Symancyk, who sits on Chewy’s board and owns 2% of the stock, insists that financial strategy aside, separation is “what’s best for both companies,” adding that owning Chewy has helped PetSmart improve its own e-commerce, especially through better data analytics. There’s also a cultural consideration in play: After the 2017 acquisition, there was a backlash among Chewy customers who were fearful that PetSmart would impose a big-box, big-corporation mindset on the startup. Letting Chewy run its own doghouse, in other words, might keep its customers loyal.
The premium pet-food phenomenon was energized, more than a decade ago, by a pet-food tragedy. In 2007, tens of thousands of pets were sickened from food that was contaminated with melamine, a chemical used in making plastics. The resulting recall affected 180 brands. Pet owners were already nervous about “feed grade” food, which isn’t regulated by the Food and Drug Administration and is often produced abroad. Pet food with fresh ingredients and raw meat—generally made in the U.S. and often locally sourced—underwent a boom.
For a while food prices and margins rose, luring dozens of new players into the market. Ultra-premium offerings like the venison in the Petco kitchen in Union Square still represent only a small sliver of the premium end of the business, but the broader “natural food” category became huge. At the apex of the gold rush, food behemoth General Mills bought natural-food maker Blue Buffalo in 2018 for $8 billion, still the largest deal ever in the pet industry. (For more, see “10 big business deals that are changing the pet industry.”)
More recently, the flood of new competition, including new brands from incumbents, has put downward pressure on prices. The premium market also wobbled in 2018 after the FDA said there could be a connection between grain-free diets—a large portion of the “healthy” pet food market—and dilated cardiomyopathy, a kind of heart disease, in dogs. Still, despite those setbacks and the category’s diminishing profitability, most industry analysts still see premium food as a market that even a global economic crisis won’t dent. And if the downturn persists and leads some food shoppers to trade down, premium store brands like Petco’s WholeHearted could pick up the slack. It helps that, from an owner’s perspective, pets are creatures of habit on the food front. “They have a way of letting you know if they’re displeased,” says David Sprinkle, analyst at Packaged Facts.
The big pet chains are doing their part to keep consumers focused on the healthfulness of food. In May 2019, in a throw-down-the-gauntlet move, Petco stopped selling any food that contained artificial colors and other ingredients. It ditched the standard cat food Fancy Feast, one of its top-selling products, and nudged Nestlé Purina Pet Care to fast-track its Fancy Feast Gourmet Naturals to meet the chain’s new requirements. Mars, now the largest pet-food maker globally after a series of big acquisitions, has tweaked its own offerings with health in mind: Its Nutro food line, for example, now contains no GMOs, and Mars says it’s the first GMO-free brand sold at mass retailers.
These changes by the big food manufacturers show not only the staying power of healthier pet food, but the clout that Petco and PetSmart still wield. General Mills, for example, still gets 36% of its pet food sales at PetSmart and another 14% at Petco. Last summer, it launched a super-premium offshoot of Buffalo Blue, sold at those chains and Chewy only, called Carnivora. A 22-pound bag of grain-free adult dog food, made of 90% animal meat, cartilage, and nutrient-rich organs, can go for $99.99—easily more than twice a typical meat-and-grain dry food brand can cost.
At the same time, some of the manufacturers see a ceiling on humanization; they acknowledge that pet owners may often project their own food fads onto house pets. “What pets need is very different from what humans need,” notes Tracey Massey, global president of Mars Pet Nutrition, whose portfolio includes such big food brands as Royal Canin, Pedigree, and Whiskas.
Yummy, Ron Coughlin’s dog, had his cancer surgery last year at a full-service veterinary clinic. But he gets follow-up appointments, annual checkups, and other services at Thrive, Petco’s in-store clinic. Yummy isn’t an unbiased consumer—he’s best friends with the CEO, after all—but major pet retailers are hoping more American pets will follow his example. Humanization shapes consumers’ decisions about pet health just as much as it does their spending on food and toys—and Petco, PetSmart, and their competitors believe that could make in-store vet services a business that’s just as recession-proof.
Packaged Facts estimated in November (pre-pandemic) that spending on pet medication, which reached $9 billion in 2018, would increase by 33% by 2022. The embrace of pet health care insurance, still a niche product, reflects and reinforces that trend: Some 28% of dog owners and 22% of cat servants have some sort of medical coverage for their pet, building a market expected to hit $2 billion by 2024. There’s also evidence that shoppers aren’t especially price-sensitive about veterinary care—an important point considering that profit margins on both food and other pet supplies have declined over the past decade, according to a recent report by AlixPartners.
Trends like these are driving Petco’s new foray into vet clinics. (It also operates PetCoach, a web consultation service it bought three years ago.) PetSmart has offered in-store vet clinics for decades, and now has them in more than half its stores—about 880 in all. But the bigger chain’s vet business itself is transition: PetSmart has hosted clinics under the Banfield Pet Hospital brand name in many of its stores since 1994, and collects rent, but it has sold off much of its stake in that business to Mars in recent years. Now PetSmart is recruiting independent vets to fill unused space at many of its stores; it also recently expanded its partnership with ShotVet, a mobile vaccination service.
There’s an e-commerce dimension to the health care push, too. Pre-pandemic, about 15% of pet medications were sold online. Chewy has a burgeoning online pet pharmacy business that it launched in 2018 and is pushing into services like basic online veterinary “telemedicine” consultations—a boon at a time when people are sheltering in place. Chewy’s knack for data-driven recommendations to customers can come in handy in vet services too. “We want data to get so robust, they can remind you of vet visits [and] suggest vets in your area,” says Chewy CEO Singh. “We can demand-generate for veterinarians,” while generating referral fees for the website in return.
The chains’ focus on vet clinics extends beyond traditional disease treatment and annual checkups. They’re also pivoting toward “wellness,” recognizing that matters like weight control and pet anxiety are becoming bigger issues for pet owners. A wellness focus could also spin off new products. PetSmart’s Symancyk thinks the near future could bring the rise of offerings like beverages laden with electrolytes—think Gatorade for dogs. Industry analysts expect meal plans and special-needs diets for pets to take off. On the tech side, wearables like collars that monitor how much a cat is moving—a feline Fitbit of sorts—are emerging as a promising area.
PetSmart and Petco are not the only ones to see a veterinary opportunity, of course. Walmart is opening vet clinics at 1,000 stores by 2023 by leasing space to clinic operators; it has also beefed up its online veterinary pharmacy. And Tractor Supply, a retailer with a major pet-supply presence, has pop-up vet clinics at some stores (though those are currently closed because of COVID-19). “That’s the nature of being in an industry that’s growing: A lot of people are going to come into it,” Symancyk says.
Then again, the crowding into pet health care has a particularly poignant subtext to it in the current moment. At a time when people are concerned about their own health and each other’s health as never before, there’s no more profound way to humanize a pet than to fret over its medical well-being.


fortune--2020-05-19--Trump admits he’s taking the same anti-malaria drug that the FDA warns against

Of beef and barley : Why China and Australia are feuding—and what it means for the U.S. trade war

President Donald Trump said he is taking hydroxychloroquine, the anti-malaria drug that he’s promoted as a treatment to combat coronavirus infection, despite government warnings that it can cause serious side effects.
Trump said Monday at the White House that he’s been taking the drug for about a week and half. Vice President Mike Pence’s press secretary, Katie Miller, tested positive for coronavirus on May 8. Trump was not seen in Pence’s company following the diagnosis until Monday, when the vice president joined him for a meeting with restaurateurs.
Trump is a self-admitted germophobe, telling reporters he was wary of shaking hands even before the coronavirus pandemic, and theatrically distancing himself from former patients during press events.
At the same time, he has avoided other steps recommended by public health experts to slow the spread of the virus, such as wearing a mask. The Centers for Disease Control and Prevention says that wearing a mask when social distancing is not possible could prevent people who have the virus but don’t know it from spreading it to others.
The president has dismissed suggestions that he put on a mask, saying he is tested frequently. He said Monday he receives a test “every couple of days” and added he has “shown always negative.”
There is scant evidence that hyroxychloroquine is effective against the coronavirus. The Food and Drug Administration on April 24 cautioned against the use of hydroxychloroquine or chloroquine for Covid-19, the illness caused by the coronavirus, outside of a hospital setting or clinical trial, citing a risk of heart rhythm problems.
“I want the people of this nation to feel good,” Trump said at the meeting, where he disclosed to reporters that he’s taking the drug. He also said he had taken azithromycin, an antibiotic commonly known as a z-pak, and that he is taking a zinc supplement.
“There is a very good chance this has an impact, especially early on,” he said. “I’m telling you, so far I seem O.K.”
Pence didn’t answer when reporters asked whether he, too, was taking the drug. The White House didn’t immediately respond to a question about whether Miller’s diagnosis prompted Trump to begin taking it.
On Monday night, the White House released a memorandum from Sean Conley, the physician to the president and a Navy commander. Conley said in the memo that after discussions with Trump “for and against the use of hydroxychloroquine, we concluded the potential benefit from treatment outweighed the relative risks.”
The memo, however, did not say whether the doctor had actually prescribed the drug, or if Trump is taking it. Conley did confirm that the president “receives regular Covid-19 testing, all negative to date.”
“I get a lot of positive calls about it”
The National Institutes of Health’s Covid-19 Treatment Guidelines say the malaria drug alone should be avoided at high doses or with azithromycin, outside of clinical trials, because of the same concerns. One of Trump’s top medical advisers, Anthony Fauci, the director of the National Institute of Allergy and Infectious Disease, has publicly discouraged use of the drug against the coronavirus.
Read More: Trump-Touted Malaria Drug Fails in Covid-19 Study
“Here’s my evidence: I get a lot of positive calls about it,” Trump said. He added that he had not started taking the drug at the recommendation of his doctor, but had instead asked the White House physician whether he could take it and was told he could.
Trump first began touting the drug in mid-March, creating a rush for supplies of the pills among hospitals, doctors and people who wanted to use it as a preventive. The surge created shortages for lupus and rheumatoid arthritis patients, who also use the medicine. In April, azithromycin also went into shortage, according to the FDA.
During the week of March 20, hydroxychloroquine prescriptions jumped to 298,660, more than double a week earlier, according to data compiled by Bloomberg Intelligence. Prescriptions have since plummeted back to nearly normal levels.
When used by healthy patients on its own, hydroxychloroquine has a relatively well-established profile and is considered low-risk.
In several trials of hospitalized, severely ill patients with Covid-19, it has been shown to raise heart risks and rates of death when combined with azithromycin. The medicine is known to interfere with the heart’s electrical signals in extremely rare cases, and can cause sudden death.
Alarm on Fox
The president’s announcement was met by alarm on Fox News, where anchor Neil Cavuto pointed to a Department of Veterans Affairs study showing it was linked to higher rates of death in hospitalized Covid-19 patients with pre-existing conditions and other studies showing it was ineffective.
“If you are in a risky population here, and you are taking this as a preventative treatment to ward off the virus, or in a worst-case scenario you are dealing with the virus, and you are in this vulnerable population, it will kill you,” Cavuto said on-air. “I cannot stress enough: this will kill you.”
Some of the network’s opinion hosts, in particular Laura Ingraham, have promoted use of the drug against the coronavirus. Ingraham has met with Trump at the White House to advocate for the malaria drug, according to the Washington Post.
Trump, who will be 74 next month, suffers from pre-existing conditions including high cholesterol and obesity, according to reports from his medical exams as president.


fortune--2020-05-19--How the biotech investor behind Moderna is using the ‘immigrant mindset’ to take on COVID-19

At a time when the world is just waking up to all the ways in which the planet was woefully ill-prepared for a new, highly contagious pathogen and the global pandemic it has wrought, Noubar Afeyan, founder and CEO of Flagship Pioneering, a Cambridge, Mass., biotech incubator, is thinking about the technology that will prevent such a catastrophe from ever happening again: “a pathogen defense shield.”
“You don’t wait until there is an all-out pandemic to come up with a vaccine or a treatment,” Noubar tells Fortune’s Alan Murray on this week’s episode of Fortune’s “Leadership Next” podcast. “You put in place surveillance. You put in place rapid response. You put in place production capacity, [so] that as soon as you have something, [it] very quickly can be produced.”
Afeyan, whose career and firm have focused on audacious innovation—“how to take the fiction out of the subset of science fiction that turned out to actually be science fact,” he says—is used to operating on science’s cutting edge. That’s no less true in this pandemic.
Flagship Pioneering currently has nine entities working on various ways to fight COVID-19, from companies that are using A.I. machine learning to help in the hunt for effective therapeutics, to others that are “computationally designing antibodies against the virus” or developing sophisticated at-home antibody tests.
The most high-profile of Flagship’s portfolio companies’ efforts, however, is that of Moderna Therapeutics, whose experimental COVID-19 vaccine candidate—made using the company’s messenger-RNA platform technology—is out front in the global pharma race. On Monday, the biotech, also based in Cambridge, Mass., reported an early success: The first 45 volunteers who had received the company’s vaccine all developed antibodies to the virus.
Moderna, which has 15 non-COVID clinical development programs but no drugs yet approved, is hoping to start pivotal late-stage vaccine trials this summer, aiming to file a new-drug application later this year or in 2021, says Afeyan. He notes that while there are challenges, like securing raw materials and scaling production, the company is working through them.
“At the end of the day, we think of it as, what can be done to go as fast as possible that money can allow?” says Afeyan. “Everything we can do with resources—given the impact this disease is having on the economic well-being of nations around the world—the kind of money you need to do this quickly is a very, very tiny percentage of that.”
While profits are hardly assured for Moderna in this endeavor—Afeyan points out that the vaccine’s approval, like all drug approvals, is “a low-probability event”—he says pursuing a vaccine was the only course for the company given the potential impact on public health. He adds that, for Moderna, it also offers an accelerated opportunity to prove the power of its mRNA technology, namely the incredible speed at which it can develop potential therapeutics.
“The entire platform, we thought, would benefit from the maturation that this would impose on us,” says Afeyan.
While Moderna is an all-out sprint on its COVID-19 vaccine candidate, Afeyan says he’s also rooting for the competition. “It’s encouraging to see so much science being applied to this problem,” he says. “We’re going to need multiple vaccines to be able to supply the world, regardless. And so I don’t believe in a winner-take-all outcome here.”
He adds: “We’re running in our lane. And other people have their lanes. And we’re not competing against them. We’re competing to finish the race. And if we can finish the race, then we will have had an impact.” If the vaccine is successful, Afeyan believes Moderna can produce 1 billion doses annually.
Afeyan, an Armenian entrepreneur who was born in Lebanon and left the country with his family during its civil war, credits his background as an immigrant in his success and encourages others to realize the inherent value in the immigrant experience.
“I view innovation as just intellectual immigration,” he says. “When you leave the comforts of what you know, expose yourself to criticism, go to something that people don’t believe is possible, persist, persist, persist, until you make it habitable so that people come and tell you how obvious it was years later. That is what an immigrant does.
“I would invite people to think of the immigrant mindset when they are doing these kinds of innovation, particularly cutting-edge innovation, and recognize that it is a strength that the kind of resilience, the adaptivity, all the things that we think are rarefied skills in an entrepreneur, that’s what every immigrant has to go through.”


fortune--2020-05-19--Merkel and Macron join forces for $500 billion EU COVID-19 aid package

German Chancellor Angela Merkel and French President Emmanuel Macron agreed to support a 500 billion-euro ($546 billion) aid package to help the European Union recover from the coronavirus pandemic in a major step toward tighter integration.
Following a videoconference between the two leaders, Merkel said that Germany would accept a fund within the framework of the EU budget, financed by additional borrowing, that would make grants to member states that have been hardest hit by the virus. Crucially, she said the bonds issued by the European Commission would be repaid from the EU budget, the lion’s share of which is covered by Germany. Italian bonds jumped.
“The EU must act together, the nation state has no chance if it acts on its own,” the chancellor said in a joint online press conference with Macron. “This is the biggest challenge in the history of the EU.”
The proposal marks a significant step in efforts to shore up the European project and a potential win for Macron, who’s been calling for Germany and the richer northern states to do more to help those in the South who’ve suffered most. The sums involved would dwarf the commission’s existing debt issuance, a sign of Merkel’s determination to keep the EU together.
Yet the plan is still only a foundation. A final deal will need the backing of all 27 members, and Austria signaled immediately that it remains opposed to direct handouts. A spokesman for Dutch Prime Minister Mark Rutte said the commission should come up with a proposal for members to discuss and that his team took note of the Franco-German outline.
If it goes through, the agreement could relieve some of the pressure on the European Central Bank, which has so far taken the lead in the EU-level response, pledging to buy more than a trillion euros of debt to stabilize markets while political leaders struggled to coordinate their own efforts.
Italian bonds jumped the most since March on Monday, with 10-year yields dropping as much as 20 basis points to 1.68%. The risk premium over German bonds, which declined on the news, narrowed to 216 basis points, the lowest level this month. The euro climbed 0.6% to $1.0887.
ECB President Christine Lagarde praised the proposal as “ambitious, targeted and, of course, welcome” in an interview with multiple newspapers published on the central bank’s website.
“They pave the way for the European Commission to borrow funds over the long term and, above all, they allow a substantial amount of direct support to be provided to the countries most affected by the crisis,” she said. “This is testament to the spirit of solidarity and responsibility.”
Bond Buying
Lagarde could still ramp up her bond purchasing program when policy makers meet on June 4. Governing Council members have repeatedly said they’ll do what’s needed to guide the euro-zone economy through the crisis and, before this week, most economists predicted that would mean an extra 500 billion euros of bond buying this year.
The ECB is concerned that if it doesn’t mop up the massive amount of debt needed to combat the fallout from the virus, financial markets will tighten and delay the recovery. In the worst case, the bloc could be tipped into another debt crisis.
Until now, the EU response has been delayed by a dispute over so-called eurobonds, with France and Italy leading calls for jointly issued debt to shield public finances in the worst hit countries from the biggest decline in economic output since World War II. The commission projects that Italy’s public debt will be close to 160% of its gross domestic product by the end of this year.
Spanish Prime Minister Pedro Sanchez indicated his support for the Franco-German proposal, saying on Twitter that “it is a step in the right direction, in line with our own demands.”
The proposal Merkel outlined on Monday marks a major shift toward bolstering the EU’s financial power while skirting Germany’s constitutional ban on debt mutualization. While the plan would see member states share liability for the recovery fund, it wouldn’t breach the German constitution because the exposure is limited, according to an official for Merkel’s Christian Democratic party.
“As Germans, we are ready to make a significant contribution to the regions and industries that are particularly hard hit,” said Eckhardt Rehberg, the CDU’s budget spokesman in the German parliament. “European assistance is possible without coronabonds or Eurobonds — and thus without debt pooling.”
Green Push
Merkel said that EU treaties won’t be changed at this point but that might be possible in the future, opening the door to conversations about deeper fiscal integration.
A jointly-financed recovery fund would help to restore the level playing field within the EU single market, which has been distorted by deep-pocketed states like Germany showering their firms with subsidies while countries like Italy can’t match that spending power. The proposal also includes ambitious plans to overhaul the European economy, including stricter emissions-cuts targets for 2030, measures to punish imports from polluters outside the EU and looser state-aid rules to help the creation of larger and greener companies.
The agreement between France and Germany “acknowledges the scope and the size of the economic challenge that Europe faces,” Commission President Ursula von der Leyen said in a statement. The commission will unveil its proposal for the recovery fund on May 27.
But the key deliberations will be taking place in Austria, the Netherlands, Denmark and Sweden, which have so far proved to be the staunchest opponents of increasing aid to the areas worst hit by the virus. Austrian Chancellor Sebastian Kurz said on Twitter that the four nations’ position hadn’t changed and that a recovery effort should be done through loans. That’s in contrast to the German proposal, which would distribute money through grants.
But the initiative by Merkel and Macron could make it difficult for other member states to object.
“This Franco-German agreement means that the other ‘frugals’ cannot really oppose anymore the principle of European debt instruments,” said Daniel Gros, director of the Brussels-based CEPS think tank. “But they can still nibble at the edges, making eligibility more stringent.”
–With assistance from Viktoria Dendrinou, John Ainger, Birgit Jennen, Nikos Chrysoloras, Diederik Baazil, Paul Gordon and David Verbeek.


fortune--2020-05-19--U.S. consumers are managing their $14 trillion debt burden—for now: Goldman Sachs

With the coronavirus pandemic continuing to ravage the U.S. economy, taking unemployment to Depression-era levels, a growing number of economists have raised concerns about the historic levels of American household debt.
Total U.S. consumer debt hit an all-time high of $14.3 trillion in the first quarter of this year, according to the Federal Reserve Bank of New York survey, with housing debt making up the overwhelming bulk of that total. As millions of Americans file new unemployment claims every week, there are fears that many will be unable to pay their bills and meet their debt obligations—potentially triggering a spike in defaults and delinquencies that could cascade throughout the economy.
But despite worsening economic conditions, underlying data suggests that things shouldn’t get as bad as some might fear, according to Goldman Sachs economists. A research note released by the investment bank on Monday suggests that defaults and delinquencies should rise “much less than the increase in unemployment would suggest.”
There are a few reasons for this optimism, according to Goldman economist Joseph Briggs. In addition to U.S. household debt being mostly concentrated among “higher-earning households,” debt-to-disposable-income ratios across all income levels have been “well below” their recent average—and significantly below their peak at the cusp of the 2008 global financial crisis.
As for the housing debt that accounts for the bulk of U.S. consumer debt, credit scores for new mortgages have remained elevated since the financial crisis—indicating that the current pool of outstanding mortgage debt is “safer” than that which brought the global economy to its knees in 2008, Briggs notes.
The report acknowledges that relatively healthy aggregate debt statistics could “mask underlying weakness for more vulnerable households.” Defaults and delinquencies on consumer loans typically increase in lockstep with unemployment figures, and Briggs admits that they “could rise as job losses mount.”
But he adds that delinquency rates should still be “less dramatic than their historical relationship with unemployment suggests.” That’s because expanded unemployment insurance benefits and economic stimulus payments have “more than offset income losses” among low-earning workers who have borne the brunt of job losses so far.
With House Democrats already proposing a second round of stimulus payments, that could further help Americans meet their debt obligations. Meanwhile, the CARES Act’s forbearance provisions on government-backed mortgages and federal student loans—which enable borrowers to delay payments for up to six months—have also helped alleviate the burden, according to Briggs.
There’s evidence that these policies have already helped stem the tide of defaults and delinquencies. The Goldman note reports that delinquency rates for most types of consumer loans “increased only modestly” in April; delinquencies on subprime auto loans—arguably the riskiest segment of consumer debt—climbed less than 2%, while the aggregate dollar amount of delinquent credit card loans actually declined last month. Additionally, the share of renters who paid their rent on time fell only slightly in May to 80.2%, compared with 81.7% in May 2019.
But that doesn’t mean debt-laden American consumers are out of the woods just yet. After all, current federal unemployment benefits are currently slated to expire at the end of July, and if the government fails to extend those—or replaces them with less lucrative benefits—defaults and delinquencies could well rise.
And even if the government does extend coronavirus aid measures through the end of 2020, there could be more pain on the horizon in 2021 if the U.S. economy struggles to rebound, unemployment remains “elevated,” and more Americans find it hard to make ends meet.
In the meantime, it appears that the government’s expanded unemployment benefits, stimulus payments, and forbearance measures have helped diffuse that $14 trillion consumer debt bomb—at least for now.
More must-read stories from Fortune:
—Real unemployment rate soars past 24.9%—and the U.S. has now lost 33.5 million jobs
—Inside China’s reopening: 7 personal stories of life after lockdown
—Sheryl Sandberg: The pandemic is creating a “double double shift” for women
—Trump’s demand that China pay coronavirus reparations evokes an ugly history
—Now is the time to invest in preschool education. Here’s why
—PODCAST: How Marc Benioff is helping out during the coronavirus pandemic
—WATCH: Why the banks were ready for the financial impact of coronavirus
Subscribe to How To Reopen, Fortune’s weekly newsletter on what it takes to reboot business in the midst of a pandemic


fortune--2020-05-19--Stocks rally fizzles despite new round of stimulus pledges

This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning. A stimulus pact in Europe, a vaccine in the labs (courtesy of Moderna) and a commitment by the Fed to do whatever it takes gave equities markets a boost in early trade, before indices started to sink.
Let’s check in on the action.
Markets update
Asia
The major indices are all climbing , with Japan’s Nikkei up 1.8% .
, with Japan’s up . China is locking down the city of Shulan (pop. 700,000) because of a new coronavirus outbreak there.
is locking down the city of (pop. 700,000) because of a new there. The world’s No. 2 economy is also creating a $2 billion fund to help other countries with their COVID-19 response. They may need to write a bigger check.
Europe
European bourses climbed higher at the opening this morning, led by Germany’s Dax , which was up 0.9% a half-hour into the trading session. An hour later, they were all in the red.
bourses climbed higher at the opening this morning, led by , which was up a half-hour into the trading session. An hour later, they were all in the red. France and Germany agreed on Monday to back a €500 billion ($546 billion) rescue fund to help eurozone-ravaged countries. That they’ve agreed to anything is a bigger deal than the price tag, and that’s sending equities higher this morning.
and agreed on Monday to back a ($546 billion) to help eurozone-ravaged countries. That they’ve agreed to anything is a bigger deal than the price tag, and that’s this morning. Europe’s car market has been driven into a ditch. New auto registrations fell by 74% in April. Shares of BMW, Volkswagen and Daimler were trading lower on the news.
U.S.
The Dow , S&P 500 and Nasdaq futures point to a flat open, looking to extend yesterday’s monster gains.
, and futures point to a flat open, looking to extend yesterday’s monster gains. There are a growing number of market observers concerned about the size and speed of the equities rally , and that includes the Fed’s own economists .
, and that includes the . Treasury Secretary Steven Mnuchin and Fed chairman Jerome Powell will address Congress today. Powell is expected to declare the central bank will use its “full range of tools to support the economy.” That’s music to stock traders’ ears.
Elsewhere
Gold is up, slightly.
is up, slightly. The dollar is down, slightly.
is down, slightly. Crude is trading higher, looking to extend the rally in Brent and WTI to a fifth consecutive day.
Dry powder
The jury is out on whether stimulus packages will do the job in stimulating economic activity. (Some economists and social scientists are going so far as to suggest break-the-glass measures are needed to get helicopter money into the hands of the people to juice the global economy.)
But there’s a potent piece of stimulus ammunition we may be overlooking, says Calvin Schnure, senior economist at Nareit. “There’s a $2 trillion stimulus fund you haven’t heard about, and it’s growing bigger every day,” he writes.
It’s consumer savings, the levels of which have swelled over the past month when so many Americans were confined to their homes. By Schnure’s calculation, because consumers were unable to dine out, were forced to postpone travel, and couldn’t venture out to catch a film or a live performance, all those abandoned transactions means more money now sits in the bank, ready to be spent.
“Savings have jumped as a result, with the personal saving rate increasing to 13.1% in March, from 7.7% in January. And savings likely increased further in April and early May,” he writes.
He breaks out the size of America’s swelling piggy bank in today’s chart.
As the economy slowly reopens, businesses could very well be greeted by a flush consumer anxious to spend. After all, rock-bottom interest rates leaves little incentive to keep all that cash in the bank earning next-to-no-return. If recent savings trends continue, he writes, “by the time the economy reopens there could be as much as $4 trillion in consumer spending power available to help jump-start the economy.” That would be roughly twice the size of the CARES Act.
It’s a fascinating hypothesis, and one worth watching. I think there’s a lot of validity in it. Now that businesses have reopened here, we’re scribbling in the calendar all manner of to-do’s like: “dentist appointment,” “call the electrician,” and new “tires for the car.”
That starts to add up.
***
Have a nice day everyone. I’ll see you here tomorrow.
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
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Today's reads
Cure-all. Nasdaq-listed Moderna Therapeutics (MRNA) was one of the high-fliers in yesterday's rally. Before the bell on Monday, the biotech firm announced a round of positive early results from the trials of its COVID-19 vaccine candidate, mRNA-1273. Shares closed at $80, up 20%, and investor enthusiasm spilled out into the broader markets.
Life, the universe and everything. On Friday night, author J.K. Rowling asked Twitter to explain bitcoin—as in, what is it? "It didn't take long for a band of cryptocurrencies enthusiasts on social media—known colloquially as "crypto Twitter"—to flood Rowling's account with thousands of replies," my colleague Jeff John Roberts writes. The exchange didn't go well. Did I mention she had knocked back a few Old Fashioned cocktails before and during this lesson (or so she said)?
(Some of these stories require a subscription to access. There is a 50% discount for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.)
Market candy
17 and 52
Just as I was pressing "send" on Bull Sheet yesterday, Fortune's annual Fortune 500 list went live on the site. I have so much great corporate data to work with that I'll be turning a few choice pieces into "Market Candy" nuggets throughout the week...
17 corresponds to the number of new companies to make the 2020 list, including Uber (No. 228), Fox Corp. (No. 280), and Science Applications International (No. 466).
52 = the number of companies to appear on the Fortune 500 every year since the list's debut in 1955, including Exxon Mobil, General Motors, Chevron and General Electric.


fortune--2020-05-19--Coronavirus patients who seem to catch COVID-19 twice aren’t infectious 2nd time

Patients who test positive for the coronavirus weeks after recovering from Covid-19 probably aren’t capable of transmitting the infection, research from South Korea shows.
Scientists from the Korean Centers for Disease Control and Prevention studied 285 Covid-19 survivors who had tested positive for the coronavirus after their illness had apparently resolved, as indicated by a previous negative test result. The so-called re-positive patients weren’t found to have spread any lingering infection, and virus samples collected from them couldn’t be grown in culture, indicating the patients were shedding non-infectious or dead virus particles.
The findings, reported late Monday, are a positive sign for regions looking to open up as more patients recover from the pandemic that has sickened at least 4.8 million people. The emerging evidence from South Korea suggests those who have recovered from Covid-19 present no risk of spreading the coronavirus when physical distancing measures are relaxed.
The results mean health authorities in South Korea will no longer consider people infectious after recovering from the illness. Research last month showed that so-called PCR tests for the coronavirus’s nucleic acid can’t distinguish between dead and viable virus particles, potentially giving the wrong impression that someone who tests positive for the virus remains infectious.
South Korean authorities said that under revised protocols, people should no longer be required to test negative for the virus before returning to work or school after they have recovered from their illness and completed their period of isolation.
“Under the new protocols, no additional tests are required for cases that have been discharged from isolation,” the Korean CDC said in a report. The agency said it will now refer to “re-positive” cases as “PCR re-detected after discharge from isolation.”
Some coronavirus patients have tested positive again for the virus up to 82 days after becoming infected. Almost all of the cases for which blood tests were taken had antibodies against the virus.


fortune--2020-05-19--Trump’s new threat escalates battle with WHO over China

President Donald Trump escalated his threats against the World Health Organization over its handling of the coronavirus pandemic, saying he would permanently cut U.S. funding if it does not make sweeping reforms.
In a four-page letter detailing his many grievances with the WHO, Trump called on the group to “demonstrate independence from China,” renewing a complaint that led him in April to temporarily suspend U.S. funding. He posted the letter late Monday on Twitter.
“If the World Health Organization does not commit to major substantive improvements within the next 30 days, I will make my temporary freeze of United States funding to the World Health Organization permanent and reconsider our membership in the organization,” Trump wrote to Director General Tedros Adhanom Ghebreyesus.
In his tweet, Trump called the letter “self-explanatory.” Still, he gave no other details about the reforms he was seeking or what specific changes might unlock funding.
Trump made the letter public hours after Chinese President Xi Jinping addressed the Geneva-based group’s governing body, the World Health Assembly, by video link and promised to devote $2 billion toward fighting the pandemic over the next two years while urging greater international cooperation to defeat the virus, which has infected 4.8 million people worldwide and killed more than 318,000.
Trump announced on April 14 that he would temporarily suspend U.S. funding to the WHO, accusing the group of being too supportive of China.
Administration officials indicated at the time the freeze would last 60 days pending a review. But Trump wrote in his letter that the review “confirmed many of the serious concerns I raised.”
It listed several examples of what he said were the WHO’s inaccurate statements about the virus and its praise of the Chinese government’s response.
The president said the United Nations agency “consistently ignored credible reports” of outbreak in Wuhan, China, last December, then “belatedly” declared it a public health emergency in late January. He said the organization was “inexplicably against” his decision to curb travel from China at the time, even though it “strongly praised China’s strict domestic travel restrictions.”
Trump’s decision to halt financial support to the WHO in the midst of a global pandemic is unprecedented, and it set off a fierce internal debate within his own administration over the extent of the funding freeze.
Some Trump administration officials have argued that the WHO should receive far less than the $400 million to $500 million it gets each year from the U.S., believing the money should go to other organizations focused on public health.
But others have suggested that the funding suspension be used as leverage to force the WHO to adopt changes to what the administration sees as its pro-China bias. Those officials caution that a permanent, broad-based cut could harm efforts to fight the virus, as well as diseases like HIV, polio and the measles.
Trump’s critics have accused him of targeting the WHO and China in order to deflect attention from his administration’s handling of the virus crisis, which has received poor marks from voters in surveys as the November election approaches.
He consistently praised China’s handling of the virus in January and February, even after he was told by the intelligence community on January 28 Beijing was withholding key data about the virus.
“Just had a long and very good conversation by phone with President Xi of China. He is strong, sharp and powerfully focused on leading the counterattack on the Coronavirus,” Trump tweeted on Feb. 7.
As recently as late March, Secretary of State Michael Pompeo was highlighting U.S. contributions to what he said were “important” institutions, including the WHO. Even Trump himself had earlier praised its work in battling the virus.
Yet as the virus spread across the U.S., Trump began accusing the organization of many of the same complaints detailed in Monday night’s letter.
Trump’s decision marked a last-minute success by hardliners within his administration to keep denying funding to the WHO. As of Friday night, internal advocates for the group believed they had reached a compromise in which the U.S. would commit to restore some funding — equal the amount China pays each year.
That left open the possibility of even more money for the WHO because the promised money only covered the annual dues the U.S. is assessed and not the hundreds of millions of dollars more it makes in voluntary contributions every year.
A Reversal After Leak
But Trump later reversed himself after an earlier draft of his letter was leaked to Fox News, and Tucker Carlson and Lou Dobbs went on air to criticize the compromise plan.
“Lou, this is just one of numerous concepts being considered under which we would pay 10% of what we have been paying over many years, matching much lower China payments,” Trump wrote in a tweet Saturday, after the draft was leaked. “Have not made final decision. All funds are frozen. Thanks!”
It’s not clear how much reform the WHO can actually carry out on its own.
As with almost every organization under the United Nations umbrella, such changes would require approval from the countries that belong to the agency, which include China and many developing countries that rely on the agency for crucial medical assistance and were caught off-guard by the Trump administration decision to freeze funding at the height of the coronavirus crisis.


fortune--2020-05-18--FBI: We received effectively no help from Apple in accessing Pensacola Shooter’s iPhones

The FBI was able to unlock encrypted iPhones belonging to the shooter in December’s attack at the Naval Air Station in Pensacola, Florida, and discovered he had contact with a suspected al-Qaeda operative, Attorney General William Barr said Monday.
“The FBI finally succeeded” and found that the phones “definitively established” the shooter’s “substantial ties” to the terrorist organization, Barr said at a news conference with FBI Director Christopher Wray.
Success getting into the two phones heads off a legal confrontation — at least for now — with Apple in a continuing fight that pits the needs of law enforcement against the privacy of phone users — but Barr and Wray hit hard at the company.
“We received effectively no help from Apple,” Wray said, an assertion that Apple has previously denied. He said the delay in accessing the phones’ information means conspirators could have destroyed useful evidence.
The alleged link to al-Qaeda is also significant because it suggests the terrorist organization is still able to encourage, and possibly direct, operations in the U.S. almost two decades after the Sept. 11, 2001 attacks.
The Trump administration asked Apple in January for help unlocking a pair of iPhones belonging to the shooter, Mohammed Alshamrani, a 21-year-old 2nd Lieutenant in the Royal Saudi Air Force. Alshamrani was killed by law enforcement responding to the attack.
Barr previously said the shooting rampage that killed three sailors was an act of terrorism. The attack frayed U.S. relations with Saudi Arabia, which removed 21 of its cadets from military training in the U.S. in response.
Alshamrani and his associates in al-Qaeda in the Arabian Peninsula “communicated using end-to-end encrypted apps, with warrant-proof encryption, deliberately in order to evade law enforcement,” Barr said in a statement Monday. “Alshamrani’s preparations for terror began years ago. He had been radicalized by 2015, and having connected and associated with AQAP operatives, joined the Royal Saudi Air Force in order to carry out a ‘special operation.’”
After accessing evidence on the phone, the U.S. recently carried out a counterterrorism operation targeting an overseas al-Qaeda operative that Alshamrani associated with, Barr and Wray said. However, the officials stopped short of asserting that al-Qaeda directed the Pensacola attack.
Shot Phone
The attorney general said that Alshamrani viewed the data on one of his iPhones as so valuable that he interrupted his rampage to fire a bullet into it.
Wray told lawmakers in February that the bureau had reconstructed an iPhone belonging to the shooter but still couldn’t access the encrypted data on the device.
Apple declined to comment on Monday but previously has said it gave the Federal Bureau of Investigation cloud data it held related to the iPhones and works “tirelessly” to assist the bureau. The Cupertino, Calif.-based company continues to insist that it won’t provide a backdoor around encryption to access information on its devices.
“We have always maintained there is no such thing as a backdoor just for the good guys,” the company said in a statement in January. “Backdoors can also be exploited by those who threaten our national security and the data security of our customers.”
While the government had been pressing Apple to help it unlock the devices, experts in cybersecurity and digital forensics say the FBI has shown it has the ability to get into mobile phones when necessary without Apple’s help, as it eventually did with the one belonging to the shooter behind an attack in San Bernardino, California, five years ago.
“Every time there’s a traumatic event requiring investigation into digital devices, the Justice Department loudly claims that it needs backdoors to encryption, and then quietly announces it actually found a way to access information without threatening the security and privacy of the entire world,” said Brett Max Kaufman, an attorney with the American Civil Liberties Union.
“The boy who cried wolf has nothing on the agency that cried encryption,” he said in a statement.


fortune--2020-05-19--If your unemployment claim was denied, here are your options

Who is Rebecca Campbell , Disney ’ s new head of streaming ?

A total of 36.5 million Americans have filed for unemployment benefits since the shutdowns started in mid-March. And already the unemployment rate has soared to 14.7%—its highest since 1940.
But this flood of people seeking benefits, combined with federal changes in who is eligible, has overwhelmed states’ ability to process claims quickly. The slowness of many states to approve claims has made it difficult even for Americans who waited weeks for an answer—only to learn their claim was denied.
Having a denied claim, however, isn’t the end of the road, according to the experts Fortune spoke to. Here’s what to do next.
What to do if your unemployment claim gets denied?
Before picking a remedy for a denied jobless claim, applicants need to find out why they were denied. They should get a “notice of determination,” which spells out the specifics. An employer could have blocked it based on information he or she provided to your state: Perhaps the former employer said you failed a drug test, or you quit your job without good cause. On the flip side, you may have just lacked the proper information in your application.
Knowing why your claim was blocked is the first step to fighting a denied claim, says David Barron, an employment lawyer at Cozen O’Connor. In some cases, especially if you applied early, states denied claims because they had not yet updated eligibility to include categories such as freelancers, who were newly eligible for unemployment under the March stimulus bill.
Should you reapply or appeal following a denied unemployment claim?
Every state is different, but if it’s a simple reason for being denied, like missing information, it probably makes sense to simply refile, Barron says.
“Some [people] chose to refile rather than go through the appeals process—sometimes refiling is faster and works better,” Barron says.
But if the denial was a result of a bigger issue, like an employer challenging a claim, then going through the appeals process is probably the right path, Barron says. (Employers are known to fight claims at times since these can impact how much they pay into UI.)
What does the unemployment appeals process entail?
Americans denied an unemployment claim have the right to an appeal—which doesn’t require a lawyer. This process varies by state, but usually the denied have around 30 days to start the appeals process. During the appeal, denied applicants continue to file weekly claims, and if they win the appeal they get back-paid the benefits. In Washington an administrative law judge will be assigned to the case, but appealing applicants can do the hearings via telephone.
But there is also an appeals process for employers. If you get unemployment benefits, your employer usually has the right to file its own appeal if it believes you are ineligible.
More people are eligible for unemployment benefits. Whom does this include?
The March stimulus bill passed by Congress expanded who is eligible for unemployment benefits. This includes jobless freelancers, independent contractors, and self-employed business owners.
And some Americans who’ve seen their hours cut can receive partial UI benefits. Additionally, some states have waived work-search requirements and typical waiting periods.
How do the additional weekly $600 unemployment benefits work?
The stimulus bill passed in March provided an additional $600 weekly in unemployment insurance benefits to everyone who qualifies for his or her state’s program. Out-of-work Americans can get the additional $600 per week through July 31.
Americans receiving UI benefits will automatically get the additional weekly federal money, regardless of their income level. And the money is retroactive to when their initial claim is eligible—not when it is approved—going back as far as the last week of March. But unless they are extended, the expanded benefits only last through July 31, so if you are laid off this week or in the coming weeks, you will have a shorter window in which to receive the expanded benefits.


fortune--2020-05-19--Reopening offers a leadership challenge. These 5 priorities serve as a playbook

If your unemployment claim was denied , here are your options

Returning to business amid the COVID-19 pandemic will be the preeminent leadership challenge of this generation. The pandemic, and the crucial stay-at-home and social distancing measures to mitigate it, have turned life and the economy upside down. It is painfully clear that we won’t be returning to business as usual. To meet this generational challenge, business leaders must seize the opportunity to capture everyone’s attention and jump-start their business by focusing on five priorities to regain momentum ahead.
The priorities can serve as a playbook for business leaders no matter the size of the organization. Everyone will want to hear what your vision is—optimistic but realistic—and how to achieve it.
First, refocus the company to engage employees with a clear sense of how this pandemic experience makes their work valuable. This is an opportunity to clarify the message and the story of why your business matters, and what you want your business to stand for. Managers are doing that at a Lysol manufacturing plant in New Jersey. Factory workers making Lysol always thought they had a steady job, but never “a purpose” in that job, according to the Wall Street Journal. Now, managers are encouraging these workers to think of themselves as “heroic,” as frontline soldiers saving others. They trace this purpose back to Lysol’s efforts to combat the Spanish flu pandemic a century ago. CEOs can explore and refine the purpose of our organizations and in turn reenergize a combined spirit and culture—a positive when so many could be returning with trepidation.
Second, collaborate with customers to acknowledge the interconnectedness and build even stronger bonds. Economic repercussions could be surprising. Listen to how customers are struggling and find ways to help to build more trust and loyalty. For instance, doctors’ offices, like most small businesses, are stretched with limited resources to manage reopening. At my last company, Allergan, we had started to provide free consulting services to certain customers to help reopen, a daunting task for any size company. We also assisted them with liquidity, helping to manage financing and inventory. CEOs must also get this perspective firsthand, making themselves directly available to customers. Engaging to identify pain points ahead as your customers plan to return to work—and helping to address them—will be remembered.
Third, let your brand speak to our shared challenges wrought by the pandemic’s fallout. The brand should not go quiet—it could be more relevant than ever before or adjusted to project something bigger. For example, consider Fastenal, a diversified manufacturing and industrial distribution company. Through the lens of COVID-19, Fastenal can now stand in the future as a player in public health. Fastenal makes personal protective equipment (PPE), including face masks, and has increased its output of these products. Every business contributes to the benefit of society. Explore and project how your brand links to a wider, socially conscious purpose today.
Fourth, renew and reimagine trust with all stakeholders. There is a real opportunity for improved interactions, greater understanding, and deeper trust to change ordinary processes. The pandemic has fostered a collective duty to get things done—fast. This must be nurtured and not squandered or left to wither. Technology companies have been the focus of privacy concerns with governments, regulators, partners, even consumers. During the pandemic, technology-enabled contact tracing is a vital tool to save public health and slow infections. It’s not hard to imagine a new dialogue with regulators, health officials, companies, and underserved communities to improve public health through such tracing applications. More trust can snowball to greater things.
Finally, communicate nonstop and stay highly visible, leading from the front, as in any business transformation. Like everyone else, I’ve never witnessed anything like this. However, I’ve led multiple mergers and a dozen integrations, and important parallels can serve as an example for business leaders during the pandemic.
Think of the months ahead as analogous to executing the integration of two merging companies. Like an integration, a primary goal is to address the understandable fear and uncertainty from circumstances beyond people’s control. Even without a long planning period, the template applies. Identify a day one restart for your company. Leaders must personally communicate the vision for a better future and their road map of actions to make it happen. In your day one plan, outline what you know and routinely communicate facts that hopefully ease uncertainty. Leaders must stay engaged with the reentry team to adjust quickly.
The only way is forward, safely. With these five priorities, we might just find that the opportunities we discover will change our world for the better.
Brenton L. Saunders is the outgoing chairman and CEO of Allergan after its acquisition by AbbVie.
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fortune--2020-05-19--Intel’s diversity chief exerts her inclusion muscle

This is the web version of raceAhead, Fortune’s daily newsletter on race, culture, and inclusive leadership. To get it delivered daily to your inbox, sign up here.
At a time when we worry major firms will curtail their diversity and inclusion initiatives, Intel is dialing their’s up.
Its most recent Corporate Responsibility Report set forth a wide range of important goals—from net positive water use to building out its human rights-minded supply chain programs. The goals are big, but the call to action is even bigger. “The world is facing challenges that we understand better each day as we collect and analyze more data, but they go unchecked without a collective response–from climate change to deep digital divides around the world to the current pandemic that has fundamentally changed all our lives,” said Intel CEO Bob Swan in a statement. “We can solve them, but only by working together.
At the heart of the report is a promise to double the number of underrepresented talent in senior management by 2030. That work falls to Barbara Whye, the company’s seemingly tireless chief diversity and inclusion officer, who is also their vice president of social impact and now oversees the Intel Foundation.
“The magnitude of these challenges really require new thinking, and we fully recognize that you can’t bring the same level of solutions to these global challenges that you have in the past,” she tells raceAhead, by phone.
Here are some highlights from our conversation, which has been edited and condensed for length and clarity.
Intel has achieved one interesting benchmark already, what you call “full market representation” of women and other underrepresented demographics. How do these new goals build on the work you’ve done already?
So, we started with just trying to prove out—despite what people were saying—that you couldn’t achieve full representation, or there is no talent, or there are pipeline issues. But we knew that was just one step of many steps; the next one is around sustaining that representation and growing it. So, how do we measure what it means to be included and make sure that we push the boundaries on what’s possible? That’s what we’re really trying to accomplish, and we can’t do that alone.
Part of the announcement is a new Global Inclusion Index which companies can use to track their own diversity progress. How will this work?
One of the first things that we’re going to do around this index is to survey other companies, tech and non-tech, and look for those best practices around inclusion.
To do that, we can’t bring Intel along alone, we’re looking specifically to partner, obviously with philanthropic organizations, government, academia, and just really pulling all the disciplines together to really tackle this in a unique and different way—new terminology, methodology, and practices—even getting on the same page about definitions. So that’s kind of the goal of what we’re trying to accomplish.
What’s one best practice anyone can take to the bank?
I just truly believe that one simple yet powerful solution to make inclusion work is to give it the same value as a business unit success—and make sure that a business unit leader or manager is held accountable to metrics, similar as you would for a roadmap or completing a technology schedule. We’ve done that with our annual performance bonuses, but it works throughout the fabric of the company. And I know that that’s going to show up in this index, and can help companies move from incremental change and take on a more innovative strength.
One of the things that Intel has been particularly good at, in raceAhead’s view, is acknowledging that friction should be expected as people work with others who are different from themselves. You’ve used it as a developmental opportunity, instead of avoiding the issue.
Yes, we think of it as a muscle—and I think some of that was how Intel grew up and how we evolved, because you may have heard we had this culture around candid and constructive conversations. Where I think we tried to really increase and build that muscle was to continuously adapt and continuously learn through the feedback that you’re getting from the employees—because each of us requires different things to experience belonging inside of a company. So the Warm Line [a service where employees could share friction with managers or issues related to feeling overlooked or excluded] was how we got data around the employee experience. And, when you really prioritize these diverse [teams] and allow people to lean into inclusive behaviors, you actually get a better product and a better solution on the other side.
What’s the endgame for the inclusion index?
I think what I want to accomplish and what Intel is trying to accomplish with this global inclusion index is to create the psychological safety for all of these companies to say, “Hey, we don’t have it right all the time. We are a learning culture. And let’s put our heads together to think about what are the solid principles around how we can drive inclusion faster in our workplaces.” Because when we do that, we’re actually creating better communities and creating better companies and better business results.
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com
On point
The new Fortune 500 list has a record number of female CEOs And, because I know you care about these things, there are 37 women, of whom 34 are white, three are Asian, and zero are Black or Latina. Last year there were 33, which was then a record. In 2000, the number was two. Click through for the entire gender analysis, via my colleague Emma Hinchliffe.
Fortune
The new Top Companies for Multicultural Women list is out Working Mother reports that more companies have participated in the survey that precedes the list than ever before, a sign that companies are taking gender equity more seriously. The survey asks rigorous questions about hiring, retention, and advancement. L'Oréal USA, which earned the top spot, reports that 20% of its managers are multicultural women. The company requires diverse interview slates, ties executive compensation to diversity goals, and the CEO holds leaders accountable for the success of inclusion initiatives.
Working Mother
The White House is opting-out of hanging Barack Obama’s official presidential portrait It’s a pretty significant break from tradition, one that has long symbolized both the historical significance of the office and the peaceful transitions of power. President Donald Trump doesn’t seem to be interested, and Obama didn’t seem to want to participate anyway, according to the people who leaked these things to NBC News. "You've got a president who's talking about putting the previous one in legal jeopardy, to put it nicely. We have not seen a situation like that in history," presidential historian Michael Beschloss says. "It takes antipathy of a new president for a predecessor to a new level."
NBC News
Netflix’s Gentefied is renewed for a second season The half-hour Latinx dramedy is about three Mexican-American cousins struggling to thrive in a rapidly changing Los Angele, a boldly Spanglish look at their family business, immigration, identity, class, and modern life. The characters, created by first-time writers Marvin Lemus and Linda Yvette Chávez, first appeared in a Sundance Channel digital series in 2017. To celebrate the eight-episode renewal, the cast and creators will gather for a live virtual table read on Wednesday, May 20 on the Netflix Is A Joke YouTube channel to benefit Proyecto Pastoral, a nonprofit in Boyle Heights that is addressing the impacts of COVID-19 on their community.
Deadline
Coronavirus in the community
The people who aren’t protesting the coronavirus lockdown? The working class.
The Trump administration plans to end the deployment of the National Guard members who are doing virus-related support work just one day before many would qualify for additional education or retirement benefits.
African Americans are being disproportionately hit by the pandemic. Is it their fault? Whites who score high in "racial resentment" say yes.
Rikers Island is "the epicenter of the epicenter" of the pandemic, says the president of the Correction Officers' Benevolent Association.
Rest in Power, Dr. James A. Mahoney: The beloved Brooklyn doctor devoted his life to his patients at the underserved public hospital where he contracted the coronavirus.
On background
Prayers all the way up for Little Richard There has been an enormous outpouring of love for the architect of rock and roll since his death 10 days ago at 87. Name it, and “Little Richard did it first,” says The Undefeated’s Jesse Washington in this stellar tribute. Richard Penniman was a deeply religious man, and will be laid to rest tomorrow at Oakwood University, the Huntsville, Ala. institution where he studied ministry after pausing his public career in the 1950s. "Ultimately, I think he landed in that sweet spot where he understood that Little Richard and Richard Penniman could both serve God," David Person, the spokesman for the Penniman family, tells WAAY News. David Ramsey, writing in the Oxford American, gracefully explores the star’s life and quest to “get right with God,” which started with a sign from the sky that turned out to be Sputnik. Perhaps the most surprising tribute came from the Vatican’s own newspaper, L'Osservatore Romano. I do not speak Italian, but the first line of this tribute certainly spoke to me: “Awopbopaloobopalopbamboom.” Go get it, cool Pope.
Vatican News
Remembering Mary McLeod Bethune The famed educator, and founder of Bethune-Cookman University, died 65 years ago yesterday. She’s worth remembering. Bethune forged unusually strong relationships with the white elite in her day, and the 15th child of former slaves spent her extraordinary political capital to provide what young Black people needed to thrive in terms of civil rights, education, health, and access to the full range of experiences that this country could offer. And she got stuff done: She founded the university with an initial investment of $1.50. I think she would have been enormously influential even in these strange, modern times. But click here for her bio, and tell me what you think. Then hear her voice, in this 1949 radio program, in which she was interviewed by her dear friend, Eleanor Roosevelt. Really.
WNYC
Are you an ethical leader? Part of the trouble is recognizing what the right thing to do is in any given situation. Neil Malhotra and Ken Shotts, two political economists at Stanford Graduate School of Business, teach a class called "Values-Based Leadership," designed to prepare future leaders to grapple with some of the big questions of the day—like what are values? How do you stay true to your own values while respecting the values of others in the organization? In this excellent Q&A, they take on everything from the pitfalls of gut instinct to the creeping rationalizations that produce the Theranos’s of the world. And then there is the leadership bubble. “Powerful people typically don’t perceive that other people are agreeing with them because of their role. They have to learn to recognize that,” cautions Malhotra.
Stanford Graduate School of Business
Today's mood board


fortune--2020-05-19--Who is Rebecca Campbell, Disney’s new head of streaming?

Change is in the air at Disney. Amid the novel coronavirus pandemic that has battered much of the company’s business, longtime Disney vet Rebecca Campbell is now chairman of the streaming segment, otherwise known as direct-to-consumer and international.
Campbell’s appointment comes after Kevin Mayer, the departing streaming chief and dealmaker extraordinaire, resigned to become chief executive of the massively popular short-form video app TikTok (as well as chief operating officer of ByteDance, the Chinese company that owns TikTok). Mayer was once considered Hollywood’s top choice to succeed Bob Iger as CEO, but instead the gig went to former theme parks and cruise chief Bob Chapek. Disney’s new leader, it turns out, is well acquainted with Campbell. She most recently served as president of Disneyland Resort, reporting directly to Chapek.
Campbell is moving from the parks side of the business to streaming at a time when subscriber gains on Disney’s streaming platforms—Disney+, ESPN+, and Hulu—happen to be among the few positives for the company as it navigates a crisis.
“Clearly, Ms. Campbell has the full confidence of Disney’s new CEO, and presumably also Mr. Iger and the board,” Bernstein media analyst Todd Juenger wrote in a research note.
“Her elevation is probably best described as following the ‘best available athlete’ theory of talent cultivation (as opposed to the ‘best specifically suited résumé’ theory),” he added, noting that the streaming industry’s relative newness means that “the list of ‘highly successful streaming executives’ is a very, very short list of very expensive individuals, none of whom are looking for work.”
Rebecca Campbell, Disney’s new streaming chief, with Will Smith at a 2019 screening of “Aladdin” in Paris. Gareth Cattermole—Getty Images
But Disney, in Campbell’s promotion announcement, was quick to point out that she actually does have some experience on the streaming side. Prior to her role as Disneyland Resort president, she spent two years in London working as Disney’s president of the Europe, Middle East, and Africa (EMEA) region. “She played a critical role in the launch of Disney+ globally while overseeing the EMEA region,” Chapek said in the announcement. (It’s worth noting that Campbell was named president of Disneyland in September 2019 and assumed those duties in full by November—right as Disney+ launched in the U.S., the Netherlands, and Australia, but months before it rolled out in select European countries in March.)
In addition to launch strategy, Campbell in her EMEA president role helped secure the first major distribution deal for Disney+ in the region and spearheaded the integration of 21st Century Fox with Disney’s operations in those territories. In general, she oversaw all of the region’s media, movies, and other operations with a group of 5,000 employees spread across 59 markets, with offices in 25 countries.
Throughout most of Campbell’s 23-year Disney career, however, she worked in local broadcasting. First joining the company in 1997 as vice president of programming at Philadelphia’s WPVI-TV, the local ABC affiliate, she worked her way up to president and general manager by 2003. In 2007 she moved to the same role in New York—the group’s flagship station and the nation’s largest television market—before earning a promotion in 2010 as president of ABC Owned Television Stations group. In this position she oversaw eight local TV stations—including New York, Los Angeles, and Chicago—and was responsible for national ABC TV sales and ABC Daytime programming. In 2017, she made the move to London.
So what challenges will Campbell now face in her new role? “She joins the business at a moment where the already thin original content pipeline has dwindled to essentially ‘nothing,’” Juenger wrote in regard to the pandemic’s impact on film and television production. “There are also vitally important strategic decisions to be made on the future of Hulu, its brand and content and differentiation strategy, the role of Hulu Live, the international rollout of Hulu, and what role ESPN+ should play in new sports rights negotiations, to name a few.”
“She will not have the luxury of time to contemplate most of these tough decisions,” Juenger added.
But Chapek is confident.
“As we look to grow our direct-to-consumer business and continue to expand into new markets, I can think of no one better suited to lead this effort than Rebecca,” the chief executive said. “Her strong business acumen and creative vision will be invaluable in taking our successful and well-established streaming services into the future.”


fortune--2020-05-19--Spotify shares soar on news of Joe Rogan’s exclusive podcast deal

Spotify Technology SA signed a deal with comedian and TV host Joe Rogan, gaining exclusive rights to one of the most popular and influential audio programs in the U.S. and sending its stock up more than 11%.
Rogan will make his podcast, “The Joe Rogan Experience,” available on Spotify starting Sept. 1, with the show becoming exclusive to the service later this year, the company said Tuesday. Spotify also gains exclusive rights to videos that Rogan films while taping his podcast.
Signing Rogan is a coup for Spotify, which has invested hundreds of millions of dollars in original podcasts over the past few years. A former standup comedian and host of the TV show “Fear Factor,” Rogan has built one of the most loyal followings in all of podcasting over the past decade. His show routinely ranks at or near the top of the charts on Apple Inc., the world’s top podcast supplier.
Shares of Spotify soared as high as $179.69 in New York on the news. The company has sold investors on the idea that podcasts will benefit its business in much the way original TV series have helped Netflix Inc., providing programs that differentiate Spotify from competitors and are financially more lucrative.
Politicians, celebrities and business leaders all appear on Rogan’s sometimes controversial podcast, eager to win favor with his listeners. Bernie Sanders stopped by the show as part of his presidential campaign, while Tesla Chief Executive Officer Elon Musk has appeared a of couple times. Spotify isn’t buying Rogan’s company, as it did with Bill Simmons’s The Ringer or Gimlet Media. Instead, it has licensed the rights to his show for an undisclosed sum.
Rogan is taking a risk. There’s a chance he will lose the majority of his audience, since Apple accounts for more than 60% of listeners for most podcasts.
But Spotify is hoping many of those listeners defect, and can help Rogan expand his audience overseas as well. The company has the most popular podcasting app in many international markets and has established itself as the clear No. 2 in the U.S.
“It will be the exact same show,” Rogan said in a video. “I’m not going to be an employee of Spotify. We’re going to be working with the same crew doing the same show. The only difference will be it will now be available on the largest audio platform in the world.”


fortune--2020-05-19--Facebook makes a bigger push into shopping with new online storefronts for businesses

Facebook has unveiled a new e-commerce platform and several new shopping features in an effort to make its social network more relevant for business.
Facebook CEO Mark Zuckerberg announced the changes Tuesday in a live video broadcast on the social network in which he positioned the new shopping service as a way to boost small businesses, especially those struggling during the coronavirus pandemic.
“Our goal is to make shopping seamless and empower anyone from a small-business owner to a global brand to use our apps to connect with customers,” Zuckerberg said.
The new e-commerce platform, called Facebook Shops, is a further step in Facebook’s efforts to integrate its original social networking site with photo-sharing site Instagram and messaging services WhatsApp and Messenger, which it also owns.
It’s also the company’s latest move to generate revenue from Instagram, which it purchased for $1 billion in 2012, and WhatsApp, which it bought for $19 billion in 2014. Although the shops are free for businesses to set up, Zuckerberg said he thought the improved commerce offerings would lead to increased advertising across Facebook’s platforms, which is the company’s primary revenue source.
He said the new shopping features were “the biggest step we’ve taken yet to enable commerce across our apps.” While in the past, many companies had used Facebook and Instagram to build brand awareness, Facebook has been eager to ensure users stay within its ecosystem to actually make transactions.
Facebook Shops will allow any business to set up a unified Facebook and Instagram virtual storefront, put its catalog online, and take orders through either a link to its own website or, for companies in the U.S. that use Facebook’s “checkout” feature, directly on Facebook’s platform.
Customers will be able to communicate with the retailer through WhatsApp, Instagram Direct, or Messenger. In the future, Facebook said, customers would be able to make purchases directly through these messaging services too.
The company also debuted new e-commerce features for Instagram. One called Instagram Shop will enable users to browse for items they may want to buy through the app’s Explore feature, browsing by brand or item type, and then make purchases directly within the app.
Another feature will allow businesses to tag products in their Facebook Shops catalog and then do a broadcast on Facebook Live or Instagram Live that will enable customers to purchase those items while watching. In essence, it takes a concept pioneered in the television era by the Home Shopping Network and updates it for the mobile age.
Finally, the company said it would test a way for customers to connect company loyalty programs to their Facebook profiles and then enable businesses to manage those loyalty programs through their Facebook Shops accounts.
Facebook said companies that provide tech to help businesses sell online such as Shopify, BigCommerce, Woo, ChannelAdvisor, Cred Commerce, Cafe24, Tienda Nube, and Feedonomics were partnering with it on these new shopping features and would be providing tools to help small businesses set up on Facebook Shops.
In a separate announcement and blog post Tuesday, Facebook touted several artificial intelligence advances that it says will underpin the new shopping features. Manohar Paluri, a director of Facebook AI, said the vision is to give small businesses tools to create the same sort of online shopping experiences—complete with 360-degree views of products and detailed catalog information—that previously only major retail brands could afford to deliver.
Among these innovations is a computer vision system capable of recognizing almost any product—from a Gap sweatshirt to an IKEA sofa to a KIA Sportage—in almost any image.
The system, which Facebook calls GrokNet, not only identifies the product, it can determine many of its attributes, such as its color and style. The idea is that someone will be able to upload a photograph to Facebook’s Marketplace, or eventually Instagram, and automatically create links to places where you can buy the items in that photograph. Businesses will be able to create catalogs of items they can sell more rapidly simply by photographing their products. And, eventually, Facebook and Instagram users may be able to shop simply by taking photographs of items they are hoping to buy.
The system was trained on billions of images, both high-resolution and low-resolution, across seven different data sets, and it outputs 83 different classifications for each object.
The system was fine-tuned to perform particularly well for fashion items, furniture, and automobiles, Sean Bell, the computer vision researcher who developed the software, said. Bell had previously founded a San Francisco company called GrokStyle that was creating this software and which Facebook acquired in February 2019 for an undisclosed amount.
Facebook said in a blog post that GrokNet is currently powering new Marketplace features that will let consumers shop by image and that it is testing using the system to automatically tag items on Facebook Pages.
In what it calls a world first, Facebook also said it had created a system that can accurately identify partly blocked objects in images—such as a T-shirt underneath a jacket. The system isn’t always perfect—it can’t know for certain in some cases, for instance, the sleeve length of a shirt underneath a sweater. But it performs better than any prior system at this difficult task, Tamara Berg, another Facebook researcher who worked on the computer vision project, said.
The company also created a different A.I. algorithm, called Rotating View, that will enable anyone to create three-dimensional and panoramic views from just a few photographs. The software leverages advances made in the past two years by Facebook’s own researchers and those at companies like chipmaker Nvidia and DeepMind, the A.I. company owned by Google parent Alphabet, that can render three-dimensional models from two-dimensional images.
In blog posts related to the A.I. developments, Facebook sketched a future in which an intelligent virtual assistant helps users shop, suggesting items that suit their personal tastes and fashion sense, or that fit in well in with their existing home decor.
Berg said the company is in the process of prototyping a kind of “virtual fashion stylist” along these lines—one that would eventually be able to recommend what items in a person’s wardrobe would work well together or help a person build outfits from different items. She said it has long been her own ambition to create a virtual fashion assistant modeled on the character of Cher, played by Alicia Silverstone in the 1995 film Clueless.