P&G Worked With China Trade Group To Sidestep Apple Privacy Rules

Procter & Gamble Co. helped develop a technique being tested in China to gather iPhone data for targeted ads, a step intended to give companies a way around Apple Inc.’s new privacy tools, according to people familiar with the matter.

The move is part of a broader effort by the consumer-goods giant to prepare for an era in which new rules and consumer preferences limit the amount of data available to marketers. P&G—among the world’s largest advertisers, with brands such as Gillette razors and Charmin toilet paper—is the biggest Western company involved in the effort, the people said.

The company has joined forces with dozens of Chinese trade groups and tech firms working with the state-backed China Advertising Association to develop the new technique, which would use technology called device fingerprinting, the people said. Dubbed CAID, the advertising method is being tested through apps and gathers iPhone user data. Through the use of an algorithm, it can track users for purposes of targeting ads in a way that Apple is seeking to prevent.

Apple is planning a software update in coming weeks that will require app users to choose whether they want their activity to be tracked across other companies’ apps and websites. Apple has touted the new software as an important step for putting privacy controls in users’ hands. Device fingerprinting runs afoul of Apple’s rules, and the tech company has said it would ban any app that violates its policies.

“The App Store terms and guidelines apply equally to all developers around the world, including Apple,” an Apple spokesman said. “We believe strongly that users should be asked for their permission before being tracked. Apps that are found to disregard the user’s choice will be rejected.”

Facebook Inc. and ad-tech firms have been vocal critics of the Apple changes, fearing users won’t consent to being tracked. They say the flow of user data is critical to providing more tailored digital advertising that better resonates with consumers.

P&G, whose involvement hasn’t been previously reported, said in a statement that it is providing input to the trade group consistent with the company’s goal of finding ways to “deliver useful content consumers want in a way that prioritizes data privacy, transparency and consent. That means partnering with platforms and publishers—both directly and through our advertising associations across the globe,” it said.

The company declined to provide additional details about the program, including whether it intends to use the technology.

P&G was involved in testing CAID, the people said. The testing has also involved ByteDance Ltd., the parent company of TikTok, and Tencent Holdings Ltd., according to people familiar with the matter. Those companies operate some of the most widely used apps in China.

Through apps, CAID collects user device data, such as the device start-up time, model, time zone, country, language and IP address. Based on China’s personal information security standards, most of those data aren’t counted as “personal information.” But a so-called device ID can be generated by algorithm based on these data. That device ID can achieve a similar tracking effect as the identifier that Apple is allowing users to block.

CAID can be used without having to obtain user consent. If in operation, it could track activity even if a user had opted out of tracking through a pop-up prompt Apple is using with the rollout of new privacy controls. Recently, Apple has issued warning letters to app developers who have used tools like CAID, asking for their removal within 14 days.

Also involved in the China-based effort are business units of accounting firms Deloitte LLP and PricewaterhouseCoopers as well as ratings company Nielsen Holdings PLC, according to documents of the advertising association that were viewed by The Wall Street Journal. Representatives for PwC and Nielsen didn’t respond to requests for comment, and a spokeswoman for Deloitte declined to comment.

Apple’s changes are expected to most affect marketers, such as game makers, that aim to get apps installed on iPhones. Large advertisers such P&G, which can use their own data for advertising, will see less impact, said Aaron Shapiro, former chief executive and co-founder of Huge, a digital ad agency that has worked with P&G and McDonald’s and was acquired by Interpublic Group.

Still, P&G—which has spent years building a formidable data operation—has a lot at stake.

“Advertising effectiveness in digital is all about the data,” Mr. Shapiro said. “Even if this issue is not a problem, they might just be forward-thinking, which is they have to proactively put in place solutions for future clampdowns that are going to happen.”

Apple’s privacy changes are set to upend the digital ad industry and come after P&G has sought for years to carefully target digital ads at would-be buyers. The consumer-goods giant spent $7.3 billion on advertising in the past fiscal year and has long used its hefty ad budgets to push the tech industry for better ways to prove that digital ads reach their intended targets.

P&G marketing chief Marc Pritchard has advocated for a universal way to track users across platforms, including those run by Facebook and Alphabet Inc.’s Google, that protects privacy while also giving marketers information to better hone their messages.

Frustrated with what it saw as tech companies’ lack of transparency, P&G began building its own consumer database several years ago, seeking to generate detailed intelligence on consumer behavior without relying on data gathered by Facebook, Google and other platforms. The information is a combination of anonymous consumer IDs culled from devices and personal information that customers share willingly. The company said in 2019 that it had amassed 1.5 billion consumer identifications world-wide.

China, where Facebook and Google have a limited presence, is P&G’s most sophisticated market for using that database. The company funnels 80% of its digital-ad buying there through “programmatic ads” that let it target people with the highest propensity to buy without presenting them with irrelevant or excessive ads, P&G Chief Executive Officer David Taylor said at a conference last year.

“We are reinventing brand building, from wasteful mass marketing to mass one-to-one brand building fueled by data and technology,” he said. “This is driving growth while delivering savings and efficiencies.”

China is P&G’s second-largest market. The company said in 2017 that it would invest $100 million into its China digital innovation centre, in part to bolster its digital marketing.

Facebook has been among the most vocal opponents of Apple’s proposed changes, which could hurt its core ad business. If users opt out of sharing their info with the social-media giant, for example, the company would lose some of the data it uses to create profiles of individuals for ad targeting. Advertisers say they would also have a harder time measuring the return they get for their ads.

Facebook CEO Mark Zuckerberg has reiterated in recent weeks that the change could make it harder for small businesses to market to customers. He also said it might bolster his own company’s platform, making it a more appealing place to conduct transactions if online advertising in general isn’t as effective.

Retailers are making modest predictions about the holiday shopping season—and their stocks are going gangbusters in response.

Victoria’s Secret, Foot Locker, Ulta Beauty and Dollar Tree are among the companies that offered somewhat mixed assessments of the state of the shopper last week. Yet each received an ovation from investors.

Traders have piled into stocks en masse since a softer-than-expected inflation reading on Nov. 14 bolstered wagers that the Federal Reserve is done raising interest rates and is poised to cool the economy without tipping it into a recession. Treasury yields have sharply declined as well, giving equities a second wind.

The S&P 500 has risen 4.1% since the report, extending its gains for the year to almost 20%.

Many depressed sectors of the market, such as retailers, have risen even faster. The SPDR S&P Retail exchange-traded fund—which includes 78 retailers, from department stores and other apparel companies, to automotive and drugstores—has jumped about 13%. Victoria’s Secret has soared 52%, Foot Locker is up 50%, Ulta has risen 21% and Dollar Tree has added 12%. (Three of the four stocks have suffered double-digit percentage declines this year.)

Americans slowed their spending in October, according to last week’s consumer-spending data from the Commerce Department. But the early readings from the holiday shopping season have been more encouraging. U.S. shoppers spent $38 billion during the five days from Thanksgiving through the following Monday, up 7.8% from the same period last year, according to Adobe Analytics.

Many investors closely watch consumer spending because it is a major driver of economic growth. If spending is too strong, the Fed could be forced to raise interest rates again. Whereas, if spending is too weak, it could be a sign that the economy is entering a recession.

In the coming days, investors will look at U.S. service-sector activity for November and Friday’s monthly jobs report as they try to assess the strength of the economy and the market’s trajectory.

“The consumer has been resilient throughout it all,” said Jay Woods, chief global strategist at Freedom Capital Markets. “The economic news is now starting to back that up, that, ‘OK, we aren’t going to be in a recession. Things are getting a little bit better.’ And these stocks that had been beaten-down are finally catching a bid.”

Victoria’s Secret posted its second consecutive quarterly loss Wednesday, with the lingerie retailer facing a continued slump in sales. But the company forecast higher sales in the current quarter, sending shares up 14% the next day, their largest one-day percentage gain in more than two years. The stock is down 20% in 2023.

Footwear retailer Foot Locker said Wednesday that Black Friday sales were strong and it forecast an upbeat holiday shopping period, while reporting lower sales and profit for the third quarter. Its shares rose 16% that day, their biggest gain in more than a year, trimming their 2023 decline to 21%.

Cosmetic retailer Ulta on Thursday posted stronger-than-expected sales in the third quarter and raised the lower end of its sales and profit outlook for the year. The shares rose 11% in the following session, their best day since May 2022. They are up 0.6% for the year.

Dollar Tree reported Wednesday that same-store sales growth was weaker than analysts expected, but investors appeared to be encouraged that the discount retailer is seeing increases in customer traffic, even if basket sizes are shrinking. Its shares rose 4.4% that day and are off 11% in 2023.

Another reason why retail stocks have rallied? Warehouses have reduced merchandise, and store shelves aren’t spilling over with discounted goods.

John Augustine, chief investment officer at Huntington Private Bank, said higher interest rates and oil prices made him bearish on retail stocks over the summer. But with an easing macro environment, he believes retailers could be poised to do well.

“It seems like traffic is gonna be there for the holidays,” Augustine said. “Now can retailers make the same profit, earnings per share, with tighter inventory?”

Short sellers are licking their wounds after the recent rally. They lost about $120 million in November betting against the SPDR S&P Retail ETF, according to financial-analytics firm S3 Partners. That compares with a loss of $2.8 million through the first 10 months of the year. Short sellers borrow shares and sell them, expecting to repurchase them at lower prices and collect the difference as profit.

Many retail stocks still generally look cheap compared with the broader market. Victoria’s Secret is trading at 11.8 times its projected earnings over the next 12 months, while Foot Locker is at 16.2. The S&P 500’s multiple is 18.8.

Despite the recent excitement in markets, many investors caution that it is too soon to count on a soft landing for the economy. Jamie Dimon, chief executive of JPMorgan Chase, recently cautioned that inflation could rise further and a recession isn’t off the table.

In the past 11 Fed rate-hiking cycles, recessions have typically started around two years after the Fed begins raising interest rates, according to Deutsche Bank. This hiking cycle started last March.

“It’s not an all-clear resurgence trade that we’re in right now,” said Brock Campbell, head of global research at Newton Investment Management. “This is gonna be a much more idiosyncratic stock picker’s group for a while.”

P&G Worked With China Trade Group To Sidestep Apple Privacy Rules

One of the world’s largest ad buyers built a marketing machine reliant on digital user data.

Shares of retailers including Victoria’s Secret and Foot Locker are surging despite mixed holiday updates