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2017 in Review: The Retail Turning Point

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It’s been a year in retail like no other.

The retail industry is in the midst of unprecedented disruption - the days of slow, strategic planning are part of a bygone era. There have been record store closings, aggressive new retail concepts, major retail acquisitions, restructuring and bankruptcies.

To survive and thrive, retailers are pushing the boundaries of technology - using data and intelligence in ways never before seen across the merchandising, planning, allocation, and fulfillment process. Review some of the major themes and shocking moments of 2017 with special guest Deborah Weinswig, Managing Director of Fung Global Retail & Technology, plus tips on how to succeed in 2018. The slides cover the following themes:

- A review of the major trends and key industry happenings in 2017

- Why retailers are afraid to tell customers that they know so much about them

- Ways in which optimizing inventories can be the key to serving your customers

- How to better understand customers and provide a better experience through advanced analytics

- Tips on how to succeed in 2018... and more

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2017 in Review: The Retail Turning Point

  1. 1. © 2017 Celect, Inc. All Rights Reserved.1
  2. 2. Welcome! Todd Harris Director of Marketing Celect Deborah Weinswig Managing Director Fung Global Retail & Tech José Chan VP of Business Dev Celect © 2017 Celect, Inc. All Rights Reserved.
  3. 3. • Introduction to Celect & FGRT • Major Retail Trends • 7 Surprises of 2017 • 2018 – The Breakout Year for AI? © 2017 Celect, Inc. All Rights Reserved.3 WHAT WE WILL COVER TODAY
  4. 4. Celect Background • Predictive analytics SaaS platform to help retailers optimize inventories through data- driven decisions. • We leverage a groundbreaking advance in Machine Learning and Optimization. • An MIT Artificial Intelligence Lab Top 50 Technology Innovation © 2017 Celect, Inc. All Rights Reserved.4
  5. 5. 5Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com About the Fung Group PRODUCTS SERVICES DISTRIBUTION RETAILING Li & Fung Limited Listed on the SEHK Global Brands Group Listed on the SEHK Fung Retailing Limited Privately Held Entity Convenience Retail Asia Limited Listed on the SEHK Trinity Limited Listed on the 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 KNOWLEDGE FGRT Fung Business Intelligence Fung Academy
  6. 6. 6Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • The knowledge bank for the Fung Group • Focuses on emerging retail and technology trends • Established in 2014 • Based in New York, with research teams in London, Hong Kong, Israel and India • Publishes thematic research and research with a global scope on topics such as omnichannel retail, fashion and retail trends, and disruptive technologies • Compiles the FGRT Retail Intelligence Index About FGRT
  7. 7. 7Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Major Retail Trends
  8. 8. 8Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com TECH Experiences & Entertainment Shortened Customer journeys Connect with the Consumer ... and consumers today are calling for different retail experiences, both online and offline. Shoppers’ Expectations Are Constantly Evolving …
  9. 9. 9Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Retailers must rethink how they engage and retain their visitors. Personalized Services The Connected Customer Conversations Community Reinventing the Relationship with the Consumer
  10. 10. 10Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Delivering a relevant, personalized experience Redefining Convenience mobile interaction and product- browsing history Analyze target consumer audience Identify products and services Personalize and continue trend-driven innovation Execute
  11. 11. 11Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com In the All-Channel Universe, Customer Is Now the Channel Order From Fulfilled By Where Received Home Elsewhere Your Store Different Store Mobile Direct DC Store DC Your Store Different Store Vendor Home Elsewhere Your Store Different Store Source: Hudson’s Bay Company
  12. 12. 12Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com The Retailer as a Hub for One-Stop Shopping Retailers serve as a hub for consumers to arrange travel, have their clothes dry cleaned, book appointments for haircuts, and pay for services. 1. Shopping 2. Clothing Storage 3. Dry Cleaning 4. Haircut 5. Shave6. Teeth-Whitening
  13. 13. 13Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Global Trends that Can Impact US Retail O2O Marketing and Direct Selling: Influencers and Livestreaming Line KaokaoFacebook Instagram Snapchat WeChat 2,000 700 255 963 169 49 111 0 500 1000 1500 2000 2500 Super Bowl Viewership Major Social Media Platforms: Monthly Active Users (Mil.) Global China Japan Japan Comparison • Social media platforms provide enormous reach for marketing and advertising • Different regions have their own unique social platforms • Platforms such as WeChat provide space for brands to run their own service account within the app, so they can promote and sell products
  14. 14. 14Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Robotics Augmented Reality Artificial Intelligence Virtual Reality The Next Wave of Disruptors in Retail
  15. 15. 15Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • We forecast that the company’s gross merchandise volume will reach $50 billion in 2020 (growing at a CAGR of 16%). Source: FGRT Amazon launches Acquired 2002 Expansion into apparel 2015 Apparel private label launched Amazon apparel generates $16.3 billion in sales 2016 7 more Private labels launched Intimates private label in 1Q 1995 2006 Acquired 2011 2015 2017 2009 Acquired Amazon Captures the Majority of E-commerce Growth
  16. 16. 16Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com 7 Surprises of 2017
  17. 17. 17Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • The list keeps growing, mostly due to department store and specialty store closures. 1. Store Closings Continue to Exceed Store Openings Total: 6,985 announced store closures 229% year over year
  18. 18. 18Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Aside from the announced deals, there has been much other M&A chatter: • Nordstrom announced it is exploring a “going private” transaction (June 8, company press release) • American Eagle Outfitters is reported to be bidding for Abercrombie & Fitch with private equity firm Cerberus Capital Management (May 25, Reuters.com) • Deckers Brands announced that it is reviewing strategic alternatives (April 25, company press release) • BJ's Wholesale Club put itself up for sale in April (April 14, New York Post) 2. Surge in Retail M&A Activity
  19. 19. 19Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com 2. Surge in Retail M&A Activity Notable Announced Retail M&A in the US, YTD Date Company Target Value Dec-13 Target Shipt $550 million Dec-4 CVS Health Aetna $69 billion Nov-21 Walmart Parcel Undisclosed Nov-17 Williams-Sonoma Outward $112 million Oct-4 Office Depot CompuCom Approp. $1 billion Oct-3 Ace Hardware The Grommet Undisclosed Sep-22 Albertsons Plated Undisclosed Jul-17 Michael Kors Jimmy Choo $1.2 billion Jun-17 Sycamore Partners Staples $6.9 billion Jun-17 Amazon Whole Foods $13.7 billion Jun-17 Walmart Bonobos $310 million May-17 Coach Kate Spade $2.4 billion Apr-17 Petsmart Chewy.com $3.35 billion Mar-17 Walmart ModCloth Less than $75 million Feb-17 Walmart Moose Jaw $50 million Jan-17 Walmart Shoebuy $70 million Source: Company reports
  20. 20. 20Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com 3. Walmart Acquisition Spree • After acquiring a number of online apparel companies, Walmart will host a Lord & Taylor storefront on Walmart.com starting in the spring of 2018. • The intent is to create a premium fashion destination on Walmart.com. • Wal-Mart is beginning to build out "elements of discovery and inspiration" within the fashion portion of its website.
  21. 21. 21Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • The growth of e-commerce revenue has taken off following the acquisition of Jet.com. 4. Walmart Explosive E-commerce Growth 7.0% 11.8% 20.6% 29.0% 63.0% 60.0% 50.0% 7.5% 13.0% 16.8% 31.0% 69.0% 67.0% 54.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 Growth in Walmart E-commerce Sales and GMV Sales GMV Source: Company reports Acquisition of Jet.com (9/19/16)
  22. 22. 22Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • Alibaba guided for robust 45%–49% revenue growth in its fiscal 2018 (ended June) at its 2017 Investor Day. 5. Alibaba’s 50% Revenue Guidance 33% 56% 45%–49% 0% 10% 20% 30% 40% 50% 60% FY16 FY17 FY18E Alibaba Annual Revenue Growth Source: Company reports
  23. 23. 23Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • For e-commerce retailers, physical stores are marketing assets that support their online business models. Examples include: • Amazon • Bonobos • Birchbox • Everlane • Rent the Runway • Warby Parker 6. Online Going Offline Source: Amazon
  24. 24. 24Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com 13 + 67 popups 1 + 1 popup 48 16 + 1 popup 52 Stores and Pop- Ups Store Collaborations/Acquisition s 133 1 5 1 19 61 30 6 Physical Stores 456 Source: Company Reports, October 2017 24 1 6. Online Going Offline
  25. 25. 25Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • On June 16, Amazon announced its plan to acquire Whole Foods for $13.7 billion in cash. • Amazon closed the acquisition on August 28, and Amazon electronics were available that same day. • Amazon reduced prices as much as 43% on the day of close and again on Nov. 15. 7. Amazon Acquires Whole Foods Source: GeekWire
  26. 26. 26Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Bonus: Walmart Launched the Store No.8 Incubator • Store No. 8 is a technology-startup incubator in Silicon Valley operating under Marc Lore. • Store No.8 aims to identify changes that will reshape the retail experience, including virtual reality, autonomous vehicle and drone delivery and personalized shopping. • In August, Store No.8 hired Jennifer Fleiss, co-founder of Rent-the-Runway, to oversee code eight, the incubator’s first portfolio company.
  27. 27. 27Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com 2018—The Breakout Year for AI?
  28. 28. 28Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com • In retail, AI can help with personalization, customization and localization. • AI can help retailers analyze large volumes of data to come up with product and service recommendations. Why Does AI Matter to Retail?
  29. 29. 29Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com AI Means Personalization and Higher Conversion Source: Alizila.com Alibaba saw a surge in mobile engagement during the first quarter of 2017 due to AI- powered personalization. Its shopping app reached 529 million users in June, an increase of 22 million in three months. 6.7 billion Personalized shopping pages were generated by merchants on Taobao and Tmall during the 2016 11.11 Shopping Festival 20% higher conversion rate on personalized landing pages during 11.11 in 2016 compared to non- personalized ones.
  30. 30. 30Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Source: Nvidia A Bit of History: AI is Not New
  31. 31. 31Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Why AI is Important Today • AI is not new, but now we have the ability to collect and store large amounts of data to train algorithms in a cost-efficient way. • Data is the key: more data beat better algorithms. Data Algorithm Interface Action
  32. 32. 32Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com Disruptive Technologies Approaching a Tipping Point Source: Gartner 21% 16% 17% 25% 36% 12% 10% 10% 20% Conversational Interfaces Smart Robotics 3D Printing AI IoT 2015 2018 80% % growth 2015-2018 150% 70% 35% - According to Gartner’s CIO surveys, disruptive technologies are increasingly gaining adoption. % of Respondents That Have Deployed A Technology or are in Short-term Planning of Deployment
  33. 33. 33Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com New Retail Is Powered by AI Rolling Out O2O Services on Mobile Devices and Social Networks Pure Plays Opening Experiential Stores Offering New Pickup Options Such as Click-and-Collect Using QR Codes In-Store to Encourage Customers to Buy Online; Driving Online Traffic to Physical Stores Enhancing Mobile Payment Services In-Store Forming Strategic Alliances with Internet Companies to Drive Synergies New Retail, an initiative advocated by Alibaba, refers to the integration of online, offline, logistics and data across a single value chain
  34. 34. 34Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com AI and Singles’ Day 2017 Applications: Alibaba Language Processing Tmall Smart Selection, an AI- powered recommendation algorithm, helps buyers make decisions while scrolling online. Customer service chatbot Dian Xiaomi can understand more than 90% of customer inquiries and serve almost 3.5 million users a day, according to Alibaba. Using deep Q- networks, Alibaba can determine the best fit for products in a package, which has saved 5% of overall packaging costs, according to the company. Data Analytics
  35. 35. 35Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com ThredUp Offering AI-Powered ‘Goody Boxes’ • Goody Boxes–a non-subscription, no commitment box filled with discounted items for purchase. • For $20, the customer receives 10–20 secondhand items and keeps and returns desired items. • StitchFix’s machine-learning algorithm learns the customers’ tastes and preferences over time. Source: AdWeek ThredUP’s Goody Boxes
  36. 36. KEY TAKEAWAYS: 1. Retail is being disrupted because consumers expectations have evolved: Convenience, Personalization and Speed 2. 2017 produced many eyebrow raising moments including: Store closings, acquisitions, bankruptcies with more to come in 2018 3. AI is at a tipping point, where both new and existing retailers will more readily adopt AI into their business models © 2017 Celect, Inc. All Rights Reserved.36
  37. 37. 37Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com See Deborah at NRF BIG Show 2018 in January! Monday, January 15th
  38. 38. THANK YOU! © 2017 Celect, Inc. All Rights Reserved.38 Deborah Weinswig deborahweinswig@fung1937.com José Chan jose@celect.com Todd Harris todd@celect.com
  39. 39. © 2017 Celect, Inc. All Rights Reserved.39

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