3. 3
Wall Street Career: The Changing Landscape
In 17 years on Wall Street (1997–2013):
• Career began in the go-go years of the tech bubble
– Research directors were saying, “Multiples don’t matter…”
4. 4
Wall Street Regulation Timeline
2000 2002 2003 2008–2009 2010 2016
Dodd-FrankRegulation FD Sarbanes-Oxley
Global
Financial Crisis
Regulation FD:
• Response to companies unfairly
giving guidance to favorite analysts
• Leveled the playing field, giving retail
investors the same info as the pros
• But it changed the research
process…
• … and made the analyst job less
attractive
Sarbanes-Oxley Act:
• Response to WorldCom and Enron frauds
• To protect investors from fraudulent corporate accounting
activities
• Management and financial internal controls
Dodd-Frank Act:
• Response to US government bailouts during global financial crisis
• Volcker Rule: restrictions on proprietary trading
• Financial Stability Oversight Council
• Macroprudential regulations
Today
Compliance today:
• Response to global financial crisis,
LIBOR scandal, rogue traders
(Barings, UBS)
• Now, 1/3 of sales floor staff are
compliance officers
Global Analyst
Research Settlement
Global Analyst Research Settlement:
• Response to banking-research conflicts
• 10 firms (including Citi) paid total fines of
$1.4 billion; support for independent
research
• Completely separated research and
investment banking (physical, reporting
lines, staff, budget, etc.)
• Analyst compensation no longer tied to
banking revenue
5. 5
MBAs Migrate Away from Wall Street
• New talent is gravitating toward tech and
entrepreneurial pursuits, avoiding the
financial-services industry
• MBA graduates from Booth pursuing careers
in investment banking:
– 33% in early 2000s
– 16% in 2015
24%
45%
8%
24%
32%
35%
15%
18%
0%
8%
15%
23%
30%
38%
45%
Consul0ng
Financial
Services
Technology
Other
University
of
Chicago
Booth
Full-‐Time
Hires
by
Industry,
2015
vs.
2010
2010
2015
Source:
University
of
Chicago
6. 6
Global Financial Crisis
• The last four years on Wall Street have been
dramatically altered by the global financial
crisis of 2008–2009
• Global financial crisis
– Market crash
– Analyst job less attractive
– The power of compliance departments was
expanded even further
• Personal crisis …
• … offering a start toward my next career …
8. 8
The Start of My Retail Tech Journey…
• Met ProfitLogic in 2001:
– Science-based solution for analyzing demand
patterns for markdowns in order to optimize price
and profit in real time
– Huge supporter, but could not legally join at the time
• Acquired by Oracle for almost $200 million in 2005
JULY 2005
10. 10
Joined Fung Group to Lead New Global Research Effort in April 2014
• Head of Fung Global Retail & Technology
• The knowledge bank and think tank for the Fung
Group; focused on analyzing retail and
technology trends
• Differentiate ourselves from sell-side research by
focusing on deep dive reports as well as on the
intersection of retail, fashion and technology
FUNG
THINK
TANK
RETAIL
TECH
MICRO
MACRO
RETAIL
REAL
ESTATE
THEMATIC
RESEARCH
VR
AI
IOT
DIGITAL
DIGITAL
DIGITAL
DIGITAL
HONG KONG NEW YORK LONDON
11. 11
Top 25 Retail Trends
1. Store Traffic
2. Experiential Retail
3. Smart Malls
4. Retail Store Closings and Openings
5. Owning Grocery
6. Moving to Omni
7. Evolving Pure Plays
8. Winner-Take-All E-Commerce
9. Loyalty Programs
10. Social Media
11. Mobile Payments
12. Influencers
13. Social shopping
14. Buy Buttons
15. Consignment
16. Subscription Economy
17. Sharing Economy
18. Rental Economy
19. Caring Economy
20. Silver Economy
21. Internet of Things
22. Artificial Intelligence
23. 3D Printing
24. Jewelry/Art
25. Israel-China Silk Road
13. 13
Experiential Retail: A Way to Bring Shoppers Back to Stores
• Urban Outfitters acquired the Vetri Family group of
restaurants in 2015
• Club Monaco collaborated Café Myriade to open
an in-store coffee shop in Montreal
Food &
Beverage
In-Store
Technology
• Rebecca Minkoff offers interactive mirrors as well as
virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets
that allow visitors to experience runway shows
Custom-
ization
• In March of 2016, Nike revealed its app, Nike+, that
gives shoppers the ultimate customized experience
2
14. 14
Experiential Retail: Making the Experience Engaging
• Urban Outfitters acquired the Vetri Family group of
restaurants in 2015
• Club Monaco collaborated Café Myriade to open
an in-store coffee shop in Montreal
Food &
Beverage
In-Store
Technology
• Rebecca Minkoff offers interactive mirrors as well as
virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets
that allow visitors to experience runway shows
Custom-
ization
• In March of 2016, Nike revealed its app, Nike+, that
gives shoppers the ultimate customized experience
2
15. 15
Experiential Retail: Customization and Personalization
• Urban Outfitters acquired the Vetri Family group of
restaurants in 2015
• Club Monaco collaborated Café Myriade to open
an in-store coffee shop in Montreal
Food &
Beverage
In-Store
Technology
• Rebecca Minkoff offers interactive mirrors as well as
virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets
that allow visitors to experience runway shows
2
Custom-
ization
• In March of 2016, Nike revealed its new app, Nike+, that
gives shoppers the ultimate customized experience
17. 17
Data-‐enabled
personalized
and
Lmely
promoLons
Track
movement,
behavior
and
preferences
Beacon-‐enabled
locaLon-‐based
adverLsing
Smart Malls: Reshaping the Physical Shopping Experience3
18. 18
Partnered with HGTV to launch virtual and hands-on technology-
based experiences
Formed strategic alliance with StepsAway, an in-mall mobile
retail solutions provider offering shoppers smartphone access to
hyperlocal in-store deals
Silicon Valley–based unit that designs and develops innovations
to improve the retail experience
Smart Malls: Reshaping the Physical Shopping Experience3
19. 19
Retail Store Closings and Openings Continue
2015
• There was a 7% year-over-year increase in
store closure announcements
• There was 29% less square footage
associated with announced store closures
in 2015 than in 2014
• 16 retailers closed at least 10% of their stores
between 2010 and 2015
– Teen retailers appear consistently on this list
-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
Change in Store Base: 2010–2015
3
20. 20
Retail Store Closings and Openings Continue
2016
• Off-price/discount retailers are expected to
see major growth in 2016 as well as fast
fashion brands
• Foreign discount grocers Aldi and Lidl plan
to push US expansion
• E-commerce pure plays are opening stores
Retailer
Number of Announced
Store Closings
Walmart 269
Men’s Wearhouse 250
Sports Authority 140
Sears 50
Macy’s 40
Kohl’s 18
Retailer
Number of Announced
Store Openings
Dollar General 1,000*
Forever 21 600
H&M 425
Amazon 400
Under Armour 200
Dick’s Sporting Goods 135–150
Ulta 100
Lidl 50
Aldi 45
Costco 32
Dollar Tree 13
Stein Mart 12
Target 11
*In 2017
Source: ICSC Research/PNC Research
4
21. 21
Owning Grocery as a Pipe into the Home
Grocery Retail:
• Large customer base + frequency of
touchpoints = big opportunity to leverage
nonfood offering.
• In Europe, Tesco led the way in the
1990s –2000s
• Tesco has expanded beyond its grocery
base by cross-selling to its banking and
mobile telecom customers
Global Scale
Online Capabilities
Bigger Stores
Brand Building
£~10 billion in
group general
merchandise sales.
7.4 million Tesco Bank
customers.
4 million Tesco Mobile
cellphone customers
Tesco’s Diversification from Grocery
Source:
Company
reports/Fung
Global
Retail
&
Technology
5
22. 22
Owning Grocery as a Pipe into the Home
Similar opportunities today for grocery
discounters Aldi and Lidl:
• Aldi and Lidl launching non-foods online in
selected markets (UK, Germany, Belgium)
• Discounter store sizes have been increasing
• Weekly nonfood special deals are already
footfall drivers
• Average discounter basket size in the UK up
by 47% in five years—suggests growing
shopper trust
(source: Kantar Worldpanel)
• Frequency of visits increasing in the UK
(source: Kantar Worldpanel)
5
23. 23
Moving to Omni:
Tech Investments Help Feed the Digital Shopping Habit
• Retailers are raising capital-spending
budget for technology projects
• There is a 75% correlation between capex/
sales and e-commerce sales/total sales for
selected retailers:
“You have to spend money to make money”
Retailer Capex and Capex/Sales (2015)
0%
1%
2%
3%
4%
5%
6%
7%
8%
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
Walmart
Costco
HomeDepot
Target
Walgreens
Lowe’s
Nordstrom
Nike
Macy’s
LBrands
Gap
Kohl’s
BestBuy
Sears
Capex/Sales
Capex($Bil.)
Source:
eRetailer/company
reports/Fung
Global
Retail
&
Technology
6
24. 24
Moving to Omni: Operations and Channels
• L Brands moved to integrate its Victoria’s Secret direct-sales business
— online — into the store businesses
• Victoria’s Secret discontinued catalogs in 2016, saving $100 million annually
• Aim to offer a seamless shopping across mobile, online and in stores
6
The Seamless
Experience
Same-day
Delivery
• From test phase to full-scale operations:
– Kohl’s expands same-day delivery to 7 new markets with Deliv
(April 2016)
– Best Buy expands same-day delivery to 13 new markets with Deliv
(April 2016)
– Macy’s already in 17 markets with Deliv
Click &
Collect
• Amazon UK has partnered with Barclays to use its outlets as
collection points for deliveries
25. 25
Evolving Pure Plays (Number of Actual/Planned Physical Stores)
AMAZON
ATHLETA
CASPER
AYR
YOGIBO
HARRY’S
1 400 120 1 3 2
3 21 1 1 7
4 27 25 12 2
7
26. 26
Evolving Pure Plays
• Millennials prefer mono-brand brick-and-mortar stores, and they shift between online and offline
along the shopping journey
7
27. 27
(10%)
5%
20%
35%
50%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Amazon Sales Growth US Total Retail Sales Growth
Amazon Annual Sales Growth
Winner-Take-All E-Commerce:
Amazon Sales Growth Far Outpaces US Retail Sales Growth
• Amazon accounted for $0.51 of every
$1.00 of growth in US e-commerce in 2015
• The company generated 24% of total US
retail growth
• Amazon’s apparel business is expected to
grow from 5% of the total US apparel
market in 2015 to 14% by 2020
(Cowen & Co.)
Source:
Bloomberg/US
Census
Bureau
8
28. 28
Winner-Take-All: Amazon Leads Fashion Apparel Market
• Winner: Amazon led the group of the
top 19 apparel companies with growth
of 26% in 2015
• Runners-up: Fast fashion top 5 included
Inditex and H&M
• Declining players: Walmart’s apparel
division and Gap and Macy’s all posted
sales declines for the year
• Key Brand Partnerships: Amazon has
recently partnered with Kate Spade,
Calvin Klein, Lacoste, and Nicole Miller
-5%
0%
5%
10%
15%
20%
25%
30%
Amazon
FastRetailing
Inditex
LVMH
H&M
RossStores
Hanesbrands
Nordstrom
TJXCompanies
JCPenney
RalphLauren
PVH
Target
Kohl's
VFCorp
Walmart
GapInc
Macy's
IsetanMitsukoshi
2015 Annual Sales Growth by Company
8
29. 29
• Smartphone based
• Integration of tracking status, payment, gift cards, etc.
Loyalty Programs: Apps Will Dominate
• Cards with bar codes, reward programs
• Use of gamification (membership levels, points, leaderboards)
Last-
generation
Loyalty
Tomorrow’s
Loyalty
Today’s
Loyalty
• Coupons, membership cards
9
30. 30
• Integration with credit cards, gift cards, etc.
• Round-up on purchases + 15% savings bonus
• 180+ redemption options
Loyalty Programs: Case Studies
• Re-launched in February 2016
• Game allows users to win free dessert, drink, or GrubHub
credit after placing five unique orders
Partnerships
Mobile
Gamification
• Launched in May 2015
• Retailers: Macy's, AT&T, Rite Aid, Enterprise Rent-A-Car, Hulu
• Links existing store loyalty cards to their Plenti account
9
31. 31
App
2016/2015
AcLve
Users
(Mil.)
Approx.
YoY
Change
WhatsApp
1,000
37%
QQ
Mobile
860
5%
Facebook
Messenger
800
53%
WeChat
650
37%
Skype
300
27%
Viber
249
29%
LINE
212
57%
Snapchat
100
45%
Social Media: Occupies Consumers’ Leisure Time
• Adults spent an average of 109 mins. per
day in 2015 on social media sites such as
Facebook, Twitter and Instagram
• Consumers spend 84% of their time in only
five apps each month: One or two are likely
social media, instant messaging, etc.
Source:
Company
Reports,
Quartz,
TechinAsia
10
32. 32
Social Media: Snapchat Reaches Millennials
• Snapchat users view 7 billion videos per day and address a young audience
Source:
CivicScience,
“Insight
Report:
Who
is
the
Snapchat
User?
Profiling
the
Snapchat
Fan”
Snapchat Users’ Demographic Profile
10
33. 33
Social Media: Burberry Snapchat Campaign
• Burberry becomes the 1st luxury brand to run a Snapchat Discover channel native ad
• Printing codes on products to encourage customers to use Snapchat in-store
10
34. 34
Mobile Payments: Samsung Pay Changes Landscape
• Apple and Android pay require near-filed communications (NFC)
chips for payment
– Negative: Require retailers to install new equipment
• Samsung uses magnetic stripe capability (MST) chips for payment
– MST compatible with new and older credit card terminals –
no additional invest required
– Most-widely accepted mobile wallet in the US
– Consumers can enlist loyalty cards into Samsung Pay
– Receive coupons and discounts directly to Samsung account
– In 2016: Expanding to China, lower-priced handsets and online transactions
• Customer adoption remains hurdle, shoppers need incentive
11
35. 35
Mobile Payments: Samsung Pay Changes Landscape
# of
Accepted
Locations
700,000 > 30 million > 700,000
+
• Apple Watch is compatible
• Secure – Unique security code
for each transaction
• Compatibility with existing
terminals
• No additional investment for
retailers
• Works any Android device
• Support from major retailers:
Staples, Walgreens,
Wholegoods
–
• 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
• Uses NFC technology
11
36. 36
Mobile Payments:
Peer-to-peer payments explode on WeChat
32.1 billion
red envelopes
516 million
Users *
Chinese
Lunar
New
Year
2016
~74% of all WeChat
users
903% Y-o-Y growth
since introduction of
red envelopes
* Over 92% of those senders were reportedly between the ages of 20 and 29
11
38. 38
Influencer Word-of-Mouth Marketing Gains Momentum12
• Brand influencers: advocates on social media platforms
and review sites to support brands they love
• Influencer marketing:
- 81% of marketers found IM effective in 2015
- 59% of marketers will increase IM budgets in 2016
• Influencer marketing agency is now a booming industry
• Each month over 50 million people watch over 1.6 billion
minutes of fashion and beauty videos in more than 45,000
YouTube channels
39. 39
12
Target collaborates with
Joy Cho, a popular designer and
blogger. They also launched Oh Joy
for Target collection, an exclusive
party-inspired Home line
Emily Schuman a much-followed
fashion blogger, author and
designer launched her Cupcakes
and Cashmere collection in
collaboration with Nordstrom
Blogger star and
entrepreneur Michelle Phan
launched her own makeup
line, Em, with L’Oreal
Influencer Word-of-Mouth Marketing Gains Momentum
41. 41
Social Shopping is Made Simpler13
• Buy on social media platforms without switch
apps or websites
• WeChat is a pioneer in social shopping
45%
44%
30%
25%
22%
20%
16%
Reading reviews, comments and
feedback
Receiving promotional offerings
Viewing advertisements
Staying on top of current fashion and
product trends
Writing reviews, comments and
feedback
Associating with particular brands
and retailers
Purchasing products directly via a
social media channel
How Social Media Influences Shopping Behavior
Source:
PWC
43. 43
More Social Shopping Enhanced by Buy Buttons14
• In 2015 Pinterest introduced “Buy it” button, and
Instagram expanded its ad program.
• Twitter, Facebook and YouTube also becoming more
commerce-friendly and are experiment with buy buttons
Source:
Pinterest
Pinterest users’ average order value is $123.50, which is
about 126% higher than Facebook users’ average of $54.64
(source: Javelin Strategy & Research)
Oct 2015: Facebook
Tests Buy Buttons
May 2015: Google
Search Buy Button
Sep 2015: Twitter
Buy Button
Sep 2015: YouTube
Buy Button
June 2015: Pinterest
Buy Button
44. 44
Consignment: Online Fashion Resale Marketplaces Show
Explosive Growth
• Disruptors: thredUP, Tradesy, The RealReal,
Poshmark, Vestiaire Collective
• Why Online Resale Marketplaces Took Off
– Heavy venture capital investment in online
consignment industry (over $300 million)
– Retail brands’ resale programs encouraged
consumers’ sustainable consumption habits
– Consumers are convinced by great quality
of secondhand apparel bought via online
platforms
– Societal shift toward less ownership—
the art of decluttering
15
46. 46
Subscription Economy: Beauty and Fashion Are Growing
• Disruptors: Le Tote, Birchbox, BarkBox, Pijon, Stitch Fix
• Convenience and curated products for consumers
• Recurring revenue model for retailers
• Element of self-gifting
• Beauty is the biggest category
• Fashion-styling subscriptions are becoming popular
• Office supplies present an opportunity
16
47. 47
Sharing Economy: “Uberifying” Virtually Every Industry
Disruptors: Uber, Airbnb, Lending Club, WeWork
• Valuations of sharing-economy companies have
skyrocketed
• Revenues are projected to catch up to
aggressive valuations
• Sharing-economy market:
$15 Billion
2013
$335 Billion
2025
CAGR: 29.5%
17
48. 48
Sharing Economy:
Millennials 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 surveyed
• Millennials lease cars more than any other
generation, and are leasing 50% more often
today than they were five years ago
17
49. 49
Rental Economy: Fashion Rental Leading
Following Rent the Runway, a new generation of fashion-rental companies has emerged
Disruptors: Style Lend, VillageLuxe, Le Tote, Lena the Fashion Library and Borrow For Your Bump (maternity)
18
50. 50
Caring Economy Promotes Startups for Social Good
Disruptors: TOMS, Reformation, Warby Parker,
NOURI, SoapBox Soaps, Zady, GoodXChange
• Promotes social activism over self-indulgence
– Consumers, especially Gen Z, demand
integrity from brands and retailers
• Startups with social missions apply market-
based strategies to achieve a social goal
– TOMS, the shoe company, has a “one for one”
business model
– Reformation designs and manufactures
sustainable apparel; sources sustainable
fabrics and vintage garments
– Kohl’s Cares gives back to communities with
Salina Yoon children’s books
19
52. 52
Silver Economy: Demographics Create Opportunities
• “The Grey Market” : older consumers may be an
engine of growth in the sluggish global economy
• Silvers are those aged 65–85 years old, while
super silvers are 85+
• The United Nations forecasts that the 60+ age
group will grow from 12.3% of the global
population in 2015 to 16.5% in 2030
• In 2015, consumers aged 65+ accounted for
around $7 trillion, or approximately 17%, of total
worldwide consumer spending
• Spending by silvers is expected to grow 114%,
2015 – 2030, outpacing population growth of 56%
Source:
UN
Department
of
Economic
and
Social
Affairs,
PopulaQon
Division,
World
Popula0on
Prospects:
The
2015
Revision/InternaQonal
Labour
OrganizaQon,
World
Social
Protec0on
Report
2014–15/Euromonitor
InternaQonal/Fung
Global
Retail
&
Technology
56%
114%
Population Spending
Estimated Growth in Senior Population and
Spending by Seniors, 2015–2030
20
53. 53
Silver Economy: Demographics Create Opportunities
• In 2030, seniors are projected to account
for around $15 trillion, or approximately
23.5%, of total spending
• Products for silvers:
– Health apps, cell phones and medical
alert devices
– Kanega smartwatch offers discreet
support for falls and medication
reminders, and guards against
wandering
20
55. 55
Internet Of Things: Overview
• The global market size of the retail IoT is estimated
increase from $14.28 billion in 2015 to $35.64 billion
in 2020, representing a 20.07% CAGR.
• It is estimated that in 2020, retailers worldwide will
spend $2.5 billion per year on IoT-related
hardware:
21
56. 56
Internet of Things: Wearables - Beyond Fitbit
• Wearables are becoming increasingly smart
– Altra IQ Smart Shoes use sensors to give feedback
about running and walking habits, revealing why some
muscles or joints hurt
– Medical-grade Embrace watch alerts caregivers to any
unusual physiological events of watch wearers,
Source:
EmpaQca
Source:
BusinessWire
21
57. 57
Artificial Intelligence and Machine Learning
• Predictive analytics and machine learning
used for generating recommendations; key
driver across industries
35% of Amazon sales, 50% of LinkedIn
connections and 75% of Netflix views are driven
by recommendations
Stitch Fix
• Subscription service that uses AI and human
judgment to recommend apparel to shoppers
• Subscribers receive a curated box with items
Lewk
• An algorithmically curated monthly menswear
box
22
58. 58
3D Printing: Clothes, Footwear, and Accessories
• The 3D printing industry was valued at $11 billion in 2015, and is expected to grow to
$26.7 billion by 2019, a CAGR of 27%.
23
59. 59
Jewelry/Art Taking Increasing Share of Consumers’ Wallet24
• High-end consignment jewelry platform
• Merchandise, appraise, photograph and serve
• Partnered with E-bay valet
• Curates emerging artists
• “Democratize" the process of selling artwork
• Connecting artists directly with collectors
60. 60
Israel-China Silk Road
• Are Israel and China creating a Silk Road for startups?
• China is a “mobile first” country
• Chinese companies are developing apps
• In 2014, Chinese investors invested US$302 million in
Israeli companies, and in 2015, that number rose to
more than US$500 million, a significant increase.
25
61. 61
Bonus Trend: Beauty
• Disruptors: Sephora, Lancôme, Mink, Cover Girl
• Sephora implemented the Virtual Artist, allowing users to try makeup online which they can filter by color,
brand, and price
• Lancôme introduced Le Teint Particulier at select Nordstrom stores in which computers scan the users skin
tone and customize the final blend using eight different hues.
• Cover Girl’s beauty app, BeautyU, has profiling features to add personalization to recommendations
62. 62
Q & A
Deborah Weinswig
Managing Director of Fung Global Retail & Technology
deborahweinswig@fung1937.com
US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016
April 14, 2016