Finimize - 👋 WeWork filed for bankruptcy

What’s going on here?

WeWork filed for bankruptcy, serving as a stark reminder of the importance of doing business within your means.

What does this mean?

Once the darling of the startup world, WeWork was revolutionizing office work, boasting office spaces on every desirable street and a valuation of $47 billion. But the company was soon weighed down by colossal losses and its disaster of an initial public offering. Stir in increasingly pricey leases and the habit-changing effects of the work-from-home movement, and WeWork ended up laden with debts verging on $19 billion and profit firmly in the red. Now the company – once the biggest office tenant in Manhattan – has been forced to file for bankruptcy. Mind you, that’s not necessarily the final curtain. The bankruptcy filing could allow WeWork to shed its expensive, hard-to-cancel, cumbersome contracts at a lower cost, clearing space for a major shake-up. In fact, the firm’s already worked out restructuring deals with its creditors, trading mountains of debt for stakes in the reorganized company.

Why should I care?

For markets: Not the first, not the last.

WeWork’s the most infamous failure in the commercial property industry, but the firm has plenty of company. After the pandemic triggered a seismic shift in working patterns, office spaces cleared out. And with today’s ramped-up interest rates, it’s more expensive for businesses to pay rent. That combination has already crumbled coworking companies, forcing Knotel and subsidiaries of IWG to file for bankruptcy in 2021 and 2020 respectively.

The bigger picture: The heydays are over.

WeWork once epitomized the allure of charismatic entrepreneurs, hailed for using cutting-edge tech and visionary strategies to transform traditionally mundane industries. After all, charm and ambition can attract investors on the lookout for high risk and high reward when money’s cheap, maybe even bringing in the coveted “unicorn” status. But you can’t compete without solid financial foundations – especially now interest rates have made it prohibitively expensive to access extra cash.

What’s going on here?

British luxury watch retailer Watches of Switzerland (WoS) reported stylish results on Tuesday.

What does this mean?

WoS’s competition toughened up in August, when Rolex snapped up the brand’s rival Bucherer. Straight away, investors worried that Rolex might hold off on supplying WoS with new watches, choosing to stock the competition’s velvet-lined cabinets instead. But WoS proved that not everything has to be shiny and new: second-hand watches flew off the firm’s shelves between April and October, bringing overall sales for the period 5% higher than the same time last year. What's more, WoS confidently stuck to its forecast of doubling sales and profit by 2028. Investors were won over by a future of preloved sales, sending the company’s shares up nearly 10%.

Why should I care?

For markets: Alternative assets do it beta.

Interest rates call the shots for all sorts of investments, with higher rates weighing asset prices down. Beyond that, though, a handful of assets – think art, jewelry, and watches – are also whipped around by market cycles. They’re known as having “high beta”, which simply means they rise and fall more dramatically than the market as a whole. So sure, watch prices have been slipping since last year, but if interest rates let up and the market changes tack, they could be headed for a recovery worth watching.

The bigger picture: There’s a time and a place.

Luxury accessories are perfect for pulling an outfit together, but they’re far from guaranteed to make you a quick buck. In fact, if you’re looking to resell that pair of Louboutins, it couldn’t really be a worse time. That said, this could be a chance to give your portfolio a makeover for less. European luxury giants like LVMH have seen their stocks dip, and when the economy eventually recovers, they’ll likely make bank from pent-up demand.