design:retail forum: in-store technology as retailtainment: bright shiny object or the new normal?

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IN-STORE TECHNOLOGY AS RETAILTAINMENT BRIGHT SHINY OBJECT OR

THE NEW NORMAL?

DEBORAH WEINSWIG MANAGING DIRECTOR FUNG GLOBAL RETAIL & TECHNOLOGY SEPTEMBER 23, 2016

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• ABOUT FUNG GROUP

- Fung Global Retail & Technology

- Fung Explorium in Shanghai

• 2016 YTD RETAIL ENVIRONMENT OVERVIEW

• TOP 12 RETAIL TECH TRENDS

WHAT’S IN MY CART TODAY

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FUNG GROUP

TRADING LOGISTICS DISTRIBUTION RETAILING

Li & Fung Limited Listed on SEHK

Global Brands Group Listed on SEHK

Fung Retailing Limited Privately Held Entity

Convenience Retail

Asia Limited

Listed on SEHK

Trinity Limited

Listed on SEHK

Branded Lifestyle Holdings Limited

LiFung Kids (Holdings) Limited

Toys “R” Us (Asia)

Suhyang Networks

UCCAL Fashion Group

Privately Held Entities

Fung Holdings (1937) Ltd.

A privately held entity and major shareholder of the Fung Group

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• The knowledge bank for the Fung Group

• Consultancy for clients within and outside Fung Group

• Focuses on emerging retail and technology trends

• Based in New York with research teams in London and Hong Kong

• 20+ analysts specializing in retail and technology

• Publishes thematic and global market research on topics such as the Internet of Things (IOT), digital payments, omnichannel retail, fashion retail trends and disruptive technologies

FUNG GLOBAL RETAIL & TECHNOLOGY

HONG KONG NEW YORK LONDON

RETAIL

TECH

MICRO

MACRO

RETAIL

REAL

ESTATE

THEMATIC

RESEARCH VR

AI

IOT

DIGITAL

DIGITAL

DIGITAL

DIGITAL

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• Fung Global Retail & Technology publishes research, freely available on www.fgrt.com

• We advise retailers, real estate developers and tech companies on projects situated at the intersection of retail, tech and/or fashion

• Our team offers a robust knowledge bank and significant experience in the retail, fashion and tech fields

A UNIQUE COMBINATION OF RETAIL, FASHION AND TEC

RETAIL FASHION TECH

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FUNG GLOBAL & FUNG CAPITAL RETAIL TECHNOLOGY LANDSCAPE

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• Continued gas dividends

• Strong housing starts and rising house prices

• Strong job market

• Inflation still below target expectations

• Global uncertainty weights in on Fed action, business investment

MACRO ENVIRONMENT OVERVIEW

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US MACRO OVERVIEW: FAVORABLE BACKDROP

Indicator Period 2016 2015 YoY Change Impact on

Consumption

GDP Growth Q2 1.1% 2.6% (1.5%) −

Gas Price ($ per gallon) Sep $2.23 $2.44 (8.8%) +

Unemployment Rate Jul 4.9% 5.3% (40) Bps + The S&P/Case-Shiller 20-City Composite Home Price Index

Jun 189.9 180.6 +5.1% +

Consumer Price Inflation Jul 0.8% 0.2% 60 bps +

Savings Rate Jul 5.7% 5.8% (10 bps) +

Wage Growth Aug 2.4% 2.3% 10 bps +

University of Michigan Consumer Sentiment Aug 89.8 91.9 (2.1%) −

Sources: Energy Information Agency, Bureau of Economic Analysis, Bureau of Labor Statistics, McGraw Hill Financial, University of Michigan Survey of Consumers

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• GDP annualized growth rate was 1.1% in Q2, following lackluster growth of 0.8% in the first quarter and 0.9% in the last quarter of 2015.

• Downward revisions to growth in prior periods were in government spending, inventories and net exports.

GDP GROWTH GREW BELOW EXPECTATIONS AT 1.1% IN Q2

Source: Bureau of Economic Analysis/Fung Global Retail & Technology

US GDP GROWTH RATE

Q4 2015 Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014

4%

0.9% 0.8%

Q1 2016 Q2 2016

2.6%

2% 2.3%

2%

5%

1.1%

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HOME PRICES AND RESIDENTIAL INVESTMENT ALSO POSITIVE

Source: S&P Dow Jones Indices /US Bureau of Census

S&P Case Shiller 20-City Housing Index Housing Starts YoY Growth (%)

5.6%

(20.0)

(10.0)

0.0

10.0

20.0

30.0

40.0

Jul 14 Jul 15 Jul 16

(10.0)

(5.0)

0.0

5.0

10.0

15.0

20.0

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

%

MoM% (left) YoY% (right)

5.1%

-0.1

11

40.0

60.0

80.0

100.0

120.0

Aug 11 Aug 12 Aug 13 Aug 14 Aug 15 Aug 16

CONSUMER SPENDING IS SUPPORTING GDP GROWTH

Sources: Bureau of Labor Statistics/University of Michigan/Conference Board

Consumer Sentiment & Consumer Confidence Total PCE YoY Growth (%)

0.0

1.0

2.0

3.0

4.0

5.0

Jun 10 Jun 11 Jun 12 Jun 13 Jun 14 Jun 15 Jun 16

%

2.9%

89.8

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THE LABOR MARKET IS SUPPORTING CONSUMER SPENDING

Sources: Bureau of Labor Statistics/ Bureau of Economic Analysis

Average Hourly Earnings YoY Growth (%) Unemployment Rate (%)

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Aug 11 Aug 12 Aug 13 Aug 14 Aug 15 Aug 16

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

Aug 10 Aug 11 Aug 12 Aug 13 Aug 14 Aug 15 Aug 16

4.9%

2.4%

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INFLATION PACE STILL MODEST

US Gasoline Price CPI YoY Change (%)

Source: US. Bureau of Labor Statistics/EIA

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16

CPI-U CPI-U Less Food and Energy

$1.50

$1.75

$2.00

$2.25

$2.50

$2.75

$3.00

Sep 15 Mar 16 Sep 16

$2.223

0.8%

2.2%

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• The experiential consumer drives change in retail

• Store traffic down, but shopping is more digital and purposeful

• Retailers are adjusting and performance is improving

• Promotions are here to stay: a view of shopping events and our 2016 holiday outlook

RETAIL ENVIRONMENT OVERVIEW

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CONSUMERS BUY MORE SERVICES, LESS GOODS

2%

3%

4%

5%

6%

7%

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Source: Bureau of Economic Analysis

6.58%

3.86%

3.07% CLOTHING & FOOTWEAR

% of Total Personal Consumption Expenditure by Category

FOOD &

ACCOMMODATIONS

RECREATION SERVICES

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Experiences Trump “Things”

Experiences are what people use to define themselves across social media channels.

Non-essential categories, including vacations and dining out, will see the fastest growth, about 27%.

More than 3 in 4 millennials would choose to spend money on a desirable experience.

Over the next 5 years US consumer spending is forecasted to grow by 22%

Source: MINTEL

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Why People are Leaving the Stores

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Getting Hungry Need to Go to Bathroom Long Checkout Lines Lousy Dressing Rooms

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The Instagram Effect:

Never be photographed in the same dress twice

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Selfie Culture Has Resulted in a Shift to Beauty Spending Over Apparel

Industry Global Revenue 2015 Annual Growth 10-15

Cosmetics $276bn 3.2%

Apparel $618bn 0.6%

Source: IBISWorld

The Beauty Category Outperforms Apparel

“Selfie culture, if you take a photo 10 times today...the result is people are using more makeup and more instant skin care.”

- Fabrizio Freda, CEO of Estée Lauder, commenting on 11% growth in makeup sales in 1Q16

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RETAILERS REBALANCING FOOTPRINT

Source: Bloomberg, Company Reports, Fung Global Retail & Technology

-70% -60% -50% -40% -30% -20% -10% 0%

Sears

aerie

Christopher and Banks

Abercrombie & Fitch

Pacific Sunwear

Kmart

Restoration Hardware

Office Max/Office Depot

Aéropostale

Saks Fifth Avenue

Bebe Stores

Hollister US

Lands' End

Staples

Barnes & Noble

New York & Company

Williams-Sonoma

JCPenney

Dillard's

Rite Aid Corp

Gap

Teen retailers account for most of

the store closings between

2010 and 2015

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… WHILE THE NUMBER OF MALLS REACHES A PLATEAU

Source: ICSC, Fung Global Retail & Technology

967

1,027

1,097

1,161 1,211 1,222 1,221

1990 1995 2000 2005 2010 2015 2016

Number of Malls in the US

Note: Regional & Super Regional Malls (400,000 - >800,000 sq.ft)

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-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Au

g 1

4

Sep

14

Oct

14

No

v 1

4

Dec

14

Jan

15

Feb

15

Mar

15

Ap

r 1

5

May

15

Jun

15

Jul 1

5

Au

g 1

5

Sep

15

Oct

15

No

v 1

5

Dec

15

Jan

16

Feb

16

Mar

16

Ap

r 1

6

May

16

Jun

16

Jul 1

6

Au

g 1

6

Sales Traffic

• US mall traffic has decreased for 43 consecutive months and continues to be challenging

• Malls have seen an average 9.0% YoY decrease in traffic since January 2015

- High-end malls appear less affected

- General Growth Properties: traffic up 2% in 2015

- Simon Malls: traffic up 1.5% in 2015

- Taubman Centers: traffic up in 2015

STORE TRAFFIC CONTINUES TO DECLINE

Source: RetailNext

Monthly US In-store Traffic and Sales YoY%

-7%

-6%

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• YoY % for conversion rate has stayed positive despite the continuous drop in traffic

• A greater portion of store traffic are converted into real dollar sales, indicating fewer window shoppers

• Digital part of the cause:

- 31% of all US retail sales in 2015 were digital are digitally influenced (Forrester)

- 39% of in-store buyers read online reviews before making a purchase (Bazaarvoice Global Consumer Behavior Research)

BUT CONVERSION IS UP: SHOPPERS ARE MORE PURPOSEFUL

Source: RetailNext

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

Au

g 1

4

Sep

14

Oct

14

No

v 1

4

Dec

14

Jan

15

Feb

15

Mar

15

Ap

r 1

5

May

15

Jun

15

Jul 1

5

Au

g 1

5

Sep

15

Oct

15

No

v 1

5

Dec

15

Jan

16

Feb

16

Mar

16

Ap

r 1

6

May

16

Jun

16

Jul 1

6

Au

g 1

6

Conversion Traffic

Monthly US In-store Traffic and Conversion Rate YoY%

-7%

0.3%

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Where Received Fulfilled By Order From

All-Channel Universe

Source: Hudson’s Bay

Direct DC

Store DC

Your Store

Different Store

Vendor

Home

Elsewhere

Your Store

Different Store

Home

Elsewhere

Your Store

Different Store

Mobile

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RETAIL WRAP-UP: Sector Performance

Source: Bloomberg, Company Reports,

US Equites By Sector 2Q 2016

Earnings Per Share Beat Miss

Apparel, Accessories and Footwear 71% 29%

Big Box, Discount, Dollar and Convenience Stores 67% 33%

Consumer Packaged Goods and Beauty 100% 0%

Department Stores 100% 0%

Luxury and Accessible Luxury 67% 33%

Sporting Goods and Athletic Wear 86% 14%

Home and Home Improvement 75% 25%

Supermarkets and Drug Stores 75% 25%

Technology-internet Retail 13% 88%

Real Estate and REITS 80% 20%

Note: International equities included in analysis: Inditex, Prada, Hudson Bay Combany, Adidas

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RETAIL WRAP-UP: Winners and Losers

Source: Bloomberg

Company Actual Consensus

Vera Bradley (10.6%) (1.8%)

Dick's Sporting Goods (0.2%) 2.7%

Children's Place 0.4% 2.5%

Gap (4.0%) (2.0%)

Burlington Store 2.1% 3.2%

Finish Line 1.8% 2.9%

Stein Mart 1.0% 2.0%

Ascena Retail (5.0%) (4.0%)

Ulta Salon Cosmetics & Fragrance 11.8% 12.6%

lululemon athletica 5.0% 5.8%

Wal-Mart Stores 0.3% 1.1%

Guess? (3.6%) (3.1%)

Company Actual Consensus

Restoration Hardware 11.0% (12.3%)

Express 6.0% (8.6%)

Hudson's Bay 12.1% 0.8%

Steven Madden 11.2% 4.3%

Skechers USA 10.5% 4.3%

Kate Spade & Co 13.0% 7.3%

L Brands 5.0% 0.4%

Whole Foods Market 2.5% (1.9%)

American Eagle Outfitters 7.0% 3.0%

Foot Locker 8.5% 4.8%

Kroger 5.0% 1.4%

Tiffany & Co 0.0% (3.2%)

Comps/Same Store Sales Actual vs. Consensus Results

Note: Most recent quarter

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Prime Day Singles’ Day

Date 07/15, debuted in 2015

07/12, 2016

Every 11/11, debuted in 2009

Channel Amazon’s global sites Alibaba, JD.com, Suning, Gome, Haier

Market US, UK, Spain, Italy, Germany,

France, Canada, Australia China, US

Sales $525M* Blockbuster record of $14.3B for Alibaba

Growth 26%* 236%

Compared with Cyber Monday 0.14 X 4.7 X

Prime Day vs. Singles’ Day

*FGRT Estimate

Disappointment vs. Record-Breaking Sales

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Holiday 2016 Preview

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TOP 12 IN-STORE TECHNOLOGY TRENDS Experiences

In-store

Technologies

Customer

Engagements

1. Experiential Retail

2. Smart Malls

3. AR + VR

4. Facial Recognition

5. Interactive Displays

6. Robotics

7. Evolving Pure Play

8. Reverse Logistics

9. Mobile Payments

10. Gamification

11. Tech Empowered Store Associates

12. Natural Language Processing

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1Experiential Retail

Origins: free, walk-in mini facials available at Origins stores.

BEAUTY

Lush: in-store Hair Lab to try products before purchase.

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Sephora: Play, learn and shop at its 400th store’s BEAUTY TIP (Teach, Inspire, Play) WORKSHOP in Chicago.

BEAUTY

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Facial & Spas

Bloomingdales: Drybar opened its first Soho store on the 1st floor within Bloomingdales in 2015.

BEAUTY

ULTA: offer hair and skin care consultations in the in-store Style Bar.

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Nike, Lululemon, Athleta, Rebecca Minkoff: free in-store fitness classes like yoga and HIIT available for sign-up.

WELLNESS

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Singapore: health promoting malls like the Star Vista partner with professional instructors to organize weekly workout session.

WELLNESS

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FOOD

Old Navy: tee & ice-cream giveaway truck popped up in NYC. Urban Outfitters: launched UO café in Herald Square, NYC.

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ENTERTAINMENT

The Dubai Mall: has one of the largest indoor aquariums in the world.

American Dream Meadowlands: first indoor skiing facility in the U.S., projected to launch in spring 2017.

Mall of America: indoor entertainment facilities include roller coasters.

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2 Smart Mall

Data-enabled personalized and timely promotions. Track movement, behavior and preferences. Beacon-enabled, location-based advertising.

Reshaping the physical shopping experience

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2 Smart Mall

Reshaping the physical shopping experience

An in-mall mobile retail solutions provider to offer shoppers smartphone access to hyperlocal in-store deals.

Silicon Valley based unit that designs and develops innovations to improve the retail experience.

Partnered with HGTV to launch virtual and hands-on technology-based experiences.

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Lowe’s Holoroom allows customers to see different merchandise and color combinations as they would appear in a home.

Tommy Hilfiger, Top Shop and many other retailer stores have virtual reality headsets that allow visitors to experience runway shows.

Pokemon Go: augmented reality, the game is driving traffic to stores.

3 Augmented Reality + Virtual Reality

Combined AR and VR markets will reach $151 bn by 2022

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4 Facial Recognition The global Facial Recognition market is forecasted to grow from $2.77 bn in 2015 to $6.19 bn by 2020, at a CAGR of 17.4% Source: MARKETSANDMARKETS

Walmart tested with FaceFirst to spot shop lifters.

actiMirror is an in-store, mirror-like display that identify the customer’s demographics and make instant personalized product.

Applications are expanding from health, wellness, beauty and advertising into theft prevention.

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5 Interactive Display Interactive display uses online or offline interactive media to present and promote products, brands and services to consumers

PERCH is a digital platform that responds with dynamic digital media as customers touch and pick up products.

FrankMayer specializes in designing and producing interactive point-of-purchase displays and kiosks. GE light display for customer testing of bulb hues in different lighting settings.

TUKU is a tap-to-learn in-store information tool that presents information in an easily digestible manner.

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6 Robotics The global robot market is growing rapidly at a CAGR of 17%, expected to reach $135 billion by 2019.

SoftBank: Pepper acts as a sales assistant to engage with customers in-store.

Henn-na Hotel: robots are replacing the human servers in the Henn-na Hotel Nagasaki from front desk to kitchen.

Amazon Robotics: Founded in 2003, Amazon robotics has automated the entire fulfilment center operations with autonomous mobile robots.

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7 Evolving Pure Plays Number of Actual/Planned Physical Stores

AMAZON

ATHLETA

CASPER

AYR

YOGIBO

HARRY’S

2 120 1 1 2

3 26 3 1 9

5 39 25 11 2

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7 Evolving Pure Plays

Gilt now has two physical presence Amazon strives to provide the similar services in store as online

Birchbox’s Soho Store in New York City

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8 Reverse Logistics In-store returns from e-commerce companies can increase traffic to malls and decrease fraudulent returns

Gilt customers can now make returns at any Saks Fifth Avenue/OFF 5th locations .

Happy Returns offers return kiosks in high-traffic areas (e.g., shopping malls) that takes returns for retailers and repackages them, reducing return costs for retailers.

Retail Industry has $260.5 billion worth of merchandise returned or 8% of total sales.

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9 Mobile Payments Are Changing The Landscapes

# of Accepted Locations

>2,000,000 > 30 million > 2,000,000 > 300,000 >200,000

+ Apple Watch is compatible

Secure – Unique security code for each transaction

Compatibility with existing terminals

No additional investment for retailers

Works on any Android device

Support from major retailers: Staples, Walgreens, Wholegoods

Works on both iOS and Android

Connect to a platform to invest in financial product

Widely supported within China, eg. repay credit card, utility bills, online purchases, or QR-codes for offline payment

Part of the Alibaba’s ecosystem

Provides users with additional wealth management tools and services

Only works with NFC-enabled registers

NFC terminal cost retailer $500 or more

Not accepted by major retailers: Walmart, Target, Best Buy

Limited device options − Samsung Galaxy S6

Magnetic strip reader requires tricky position for phone

Support NFC technology-enabled Android smartphones only.

Few stores outside of Asia support WeChat Pay but catching up.

Lack of third-party regulations

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9 Mobile Payments Are Changing The Landscapes

P2P payments explode on WeChat

32.1 billion red envelopes

516 million

Users *

~74% of all

WeChat users

903% YoY growth since introduction

of red envelopes

* Over 92% of those senders were reportedly between the ages of 20 & 29

Chinese New Year Celebration

Feb. 7 – 12, 2016

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10 Gamification The global gamification market will worth $10.02 billion by 2020 with a CAGR of 42.4% Source: Mind Commerce

CocaCola: customers in Japan can get free drinks with 15 digital stamps from the CocaCola app

Sears in-store scavenger game. Starbucks let customers accumulate points to win game pieces to win different levels of prizes.

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10 Gamification:

A gamified solution to increase store traffic via promotion rewards

Helps retailers increase store foot traffic and sales.

Geo-location engages customers at venues.

Injects relevant retailer content and promotions and engage the customer with games.

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Branch Messenger: an application that helps retailers reduce absences and increase productivity

11 Store Associate Tech Tech empowered store assonates are can be a differentiating factor

Tulip Retail: mobile CRM platform for store associates

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12 Natural Language Processing The next frontier of human/computer interface can revolutionize digital product search: Google and Amazon actively acquiring AI startups

AddStructure Conversational platform for search, recommendation, and personalization.

A.I. POWERED CONVERSATIONAL

COMMERCE

Angel.ai (acquired by Amazon in Sep 2016): Language search for commerce with 40+ commercial categories, from flights and hotels to entertainment and deliveries

Api.ai (acquired by Google in Sep 2016): conversational user experience platform for developers

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TOP 12 IN-STORE TECHNOLOGY TRENDS Experiences

In-store

Technologies

Customer

Engagements

1. Experiential Retail

2. Smart Malls

3. AR + VR

4. Facial Recognition

5. Interactive Displays

6. Robotics

7. Evolving Pure Play

8. Reverse Logistics

9. Mobile Payments

10. Gamification

11. Tech Empowered Store Associates

12. Natural Language Processing

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An experimental learning laboratory for business model

innovation

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A playground for the future of retail and a platform for accelerated experimental learning.

Explorium is…

Interactive Exhibition Space To consumers we are a dynamic mall for them to

discover new shopping experiences both online

and offline.

Data & Analytics Hub Underneath the surface we are capturing

interactions between consumers and the physical

and digital space.

Research and

Learning Lab Experiments are

designed, prototyped,

and tested with the

public with learnings

supported by data.

Explorium is strategically

located in Shanghai, the

leading edge of tomorrow’s

shopping behaviors.

上海

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An interactive exhibition space and dynamic physical platform.

Explorium is…

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A data and analytics hub in partnership with IBM with an all-encompassing digital platform and analytics dashboard.

Explorium is…

iBeacon Bracelet App

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An experimentation platform through which the Fung Group provides the expertise, tools, network, and targeted consumers to maximize the efficiency of retail experiments.

Explorium is…

Research Experiments to Explore Future Potential

Strategic pilot experiments focused on high-potential Group opportunities at leading edges of the future of retail.

Learning Experiments to Maximize Today’s Potential

Business-driven experiments at Explorium aiming to optimize current retail models for their businesses.

COMPETITIVE

POSITION

GROWTH

RATE

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Q & A DEBORAH WEINSWIG

MANAGING DIRECTOR FUNG GLOBAL RETAIL & TECHNOLOGY [email protected]

https://fungglobalretailtech.com

mailto:[email protected]

https://fungglobalretailtech.com/