Eco-Friendly Fashion Production and Distribution

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From Wall Street to Main Street

Eco-Friendly Fashion Production and DistributionEMERGE2016May 31, 2016John Harmon, Senior AnalystFung Global Retail & Technology

#AgendaAbout Fung Global Retail & TechnologyAddressing the IssuesPotential Solutions: The 3 RsWhat Li & Fung Is DoingSteps Forward

#About Fung Global Retail & Technology

#About the Fung Group

TRADING

LOGISTICS

DISTRIBUTION

RETAILINGLi & Fung LimitedListed on SEHKGlobal Brands GroupListed on SEHKFung Retailing LimitedPrivately Held EntityConvenience RetailAsia LimitedListed on SEHKTrinity LimitedListed on SEHKBranded Lifestyle Holdings LimitedLiFung Kids (Holdings) LimitedToys R Us (Asia)Suhyang NetworksUCCAL Fashion GroupPrivately Held EntitiesFung Holdings (1937) Ltd. A privately held entity and major shareholder of the Fung Group

#About Fung Global Retail & TechnologyThe knowledge bank for the Fung GroupFocuses on emerging retail and tech trends, specializing in retail and technology intersections, and building collaborative communities.Based in New York, London and Hong KongPublishes thematic and global market research on topics such as the Internet of Things, digital payments, omni-channel retail, luxury and fashion trends and disruptive technologies.

FUNGTHINKTANKRETAILTECHMICRO MACRORETAIL REAL ESTATETHEMATIC RESEARCHVRAIIOT

DIGITALDIGITALDIGITALDIGITAL

#Fung Global Retail & Technology is a Knowledge Bank and Think Tank for The Fung Group, focused on emerging retail and tech trends.

Teams based in New York, London and Hong Kong.

We publish thematic and global market research on topics such as the Internet of Things, digital payments, Omni channel retail, luxury and fashion trends and disruptive technologies.

Our Expertise: A Unique Combination of Retail, Fashion and TechFung Global Retail & Technology advises 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. We are involved in many areas of the business and believe this allows us to offer a unique perspective by focusing on the future and where the sector is heading.

FASHIONTECHRETAIL

#

Our Partnerships With Accelerators

ENTREPRENEURSROUNDTABLEACCELERATOR

#Alchemist Accelerator is an accelerator exclusively for startups whose revenue comes from enterprises, not consumers.

CoCoon is a coworking space where entrepreneurs, creative talent, successful leaders and investors meet, collaborate and deliver results together. Member companies get access to networking opportunities, work space, a photography studio and mentors.

Entrepreneurs Roundtable Accelerator (ERA) provides participant companies with an intensive four-month program, with the goal of helping early-stage companies progress rapidly into exciting, viable businesses.

New York Fashion Tech Lab is an accelerator that is a result of a collaboration between the Partnership Fund for New York City, Springboard Enterprises and major fashion retailers. It focuses on early- and growth-stage companies.

Plug and Play is a global innovation platform. It connects startups to corporations, and invests in over 100 companies every year. Its 360 ecosystem allows for remarkable innovation to take shape on an international scale.

Techstars is a global ecosystem that empowers entrepreneurs to bring new technologies to market wherever they choose to build their business.

Addressing the Issues

#Environmental and Social Challenges from Apparel80 billion pieces of clothing purchased worldwide each yearUp 400% from 2 decades ago garments end up in landfills or are incinerated after short lifespan1/6 of people worldwide work in garment industryBangladesh is #2 country for fast fashionGarment workers average $3/daySource: The True Cost (2015)

#Current ClimateAmericans throw out average of 82 pounds of textiles per yearOnly 10% of clothing donated to thrift stores get soldRest ends up in landfills or flood foreign marketsUsed garments account for over 50% of clothing sector by volume in many sub-Saharan African countriesAverage pair of jeans takes 7,000 liters to produceAverage t-shirt takes 2,700 liters

#Fast FashionProduces products in a cost-efficient manner in order to respond to fast-changing consumer tastesUses concepts from electronics manufacturing to control production and inventoryClothing stays on the shelves a couple of weeksA model for the broader apparel industry?Responds to changes in consumer preferencesBetter aligns production with demandLess discountingBut higher social cost and waste

#Potential Solutions: The 3 Rs

#Back to the 1970sThe 3 Rs ReduceReduce the amount of garments on the market, and the materials used to make themReuseGive already used goods a second lifeRecycleFind a new purpose for the raw materials of used goods

#1. Reduce

#

Ways to ReduceNew manufacturing technologies have been developed that enable more on-demand creation of apparelSome also reduce the amount of water or other raw material used in the manufacturingWhen goods are made on-demand, there is no need for excess inventory to go unsoldNew manufacturing technologies and techniques include:DPOLElectroloomRobotic Knitting3D Printing

#Direct Panel on Loom (DPOL)Loom attached to computerWeaving, cutting, patterning in one stepReduce lead times by 50 %Save 70-80% of waterNo fabric wasteEvery piece made to fit

#ElectroloomMold designed using CADInternal electric fieldFibers guided in 3D shape around moldFibers bind togetherSeamless fabric items on demandOnly one step after designRaw material converted directly to finished garmentStill in early development

#Robotic KnittingReplaces human seamstressesLower production costs Transform raw yarn directly into a final product or near-final productShima SeikiMaximum knitting speed of 1.6 meters per secondPartnered with Drexel University: Advanced Functional Fabrics of AmericaThursday FinestManufactures colored and fitted knitted ties using a Shima Seiki flat knitting machineA dress takes 60 minutes to make, a tie takes only 30 minutes

#3D PrintingExamples in Consumer Goods

Orbitrecworlds first 3D-printed bike unveiled at CES NormalCustom-fit 3D-printed earphonesPartnered with Rebecca Minkoff on limited-edition productsMore sustainableMink Makeup Printer Sub-$200 desktop printer can print makeupShoes of PreyDesign your own perfect shoesDesign studios in 6 Nordstrom stores

#2. Reuse

#

Ways to ReuseUsed goods can be given second lives or repurposed with new marketplaces that are availableConsignment economyRental economySharing economy

#ConsignmentOnline Fashion Resale Marketplaces Show Explosive GrowththredUP, Tradesy, The RealReal, Poshmark, and Vestiaire Collective, reKindnessReasons for successHeavy venture capital investment in online consignment industry (over $300 million)Retail brands resale programs encouraged consumers sustainable consumption habitsConsumers are convinced by great quality of secondhand apparel bought via online platformsSocietal shift toward less ownershipthe art of decluttering

#Online Consignment and Rental MarketplacesthredUPBuy like new clothing, and send in your old clothing to get paid for every item that is soldTradesySnap a photo and sell clothing and accessories with free shippingThe RealRealOnline luxury consignment marketplacePoshmarkShop from other peoples closets and sell whats in yoursRent the RunwayRent rather than buy new clothing to wear something new for any occasionreKindnessTake an item to give an item in the community closet

#Sharing EconomyMillennials Like Sharing Plans, but Want to Own a Car 20% of millennials take public transit once a week or more, compared with just 7% of Gen Xers and 10% of baby boomers 35% of millennials indicated that they plan to purchase a vehicle in the next 12 months, compared to 25% of all US adults surveyedMillennials lease cars more than any other generation, and are leasing 50% more often today than they were five years ago

#Sharing EconomyUberifying Virtually Every Industry Disruptors: Uber, Airbnb, Lending Club, WeWorkValuations of sharing-economy companies have skyrocketed Revenues are projected to catch up to aggressive valuations Sharing-economy market:

$15 Billion2013

$335 Billion2025CAGR: 29.5%

#3. Recycle

#

Ways to RecycleTake waste material and turn it into something new and usableAdidas making recycled shoesH&M closing the loopNew startups on the scene to assist with recycling

#Adidas: Recovering PlasticsMaterial source: fishing nets, easier-to-reach beach trash and marine plastic waste

"Knitting in general eliminates waste, because you don't have to cut out the patterns like on traditional footwear We use what we need for the shoe and waste nothing.- Eric Liedtke, Head of Global Brands and Member of Executive Board at AdidasSneaker Prototype made of recycling

#H&M: Closing the LoopH&M encourages customers to recycle clothing, which is then reused or turned into new clothes2013Customers can to drop off garments from any brand, no matter the condition, to any H&M location and receive a discount.201438 million t-shirts worth of material was donatedH&M launched the Close the Loop clothing line, made using recycled fibers2015Recycling a t-shirt saves 2,100 liters of water. H&Ms 5 million-views Close The Loop Video We have set the vision of becoming 100% circular. --Anna Gedda, Head of Sustainability at H&M2016 H&M says it has recycled 25,000 tons of unwanted clothing