Golden Seeds Presentation

Golden Seeds Presentation
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 March 23, 2016
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 2 ABOUT THE FUNG GROUP ABOUT FUNG GLOBAL RETAIL & TECHNOLOGY MACRO AND RETAIL LANDSCAPE OVERVIEW 24 DISRUPTORS AGENDA
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 4 TRADING LOGISTIC S DISTRIBUTIO N 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 Toyrs “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 ABOUT FUNG GROUP
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 6 • The knowledge bank for the Fung Group • Focuses on emerging retail and tech trends, specializing in retail and technology, intersections, and building collaborative communities • Based in New York, London and Hong Kong • Publishes thematic and global market research on topics such as the Internet of Things, digital payments, omnichannel retail, luxury and fashion trends and disruptive technologies. FUNG GLOBAL RETAIL & TECHNOLOGY
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 7 • Fung 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 A UNIQUE COMBINATION OF RETAIL, FASHION AND TECH OUR EXPERTISE FASHION TECHRETAIL
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 8 • Global macroeconomic trends • Demographic trends (milennials vs boomers vs silvers) • Retail sales • Same store sales • Square footage/real estate analysis • Travel retail • Market share analysis by category • Inventory analysis • Margin dissection and analysis • Expertise in subsectors of retail, including fast fashion, e-commerce, department stores, specialty stores, off-price and home improvement • Experience following the tech space across hardware and software • Partner and mentor accelerators and startups in retail and tech • Coverage includes North America, Latin America, Europe, the Middle East and Asia • Offices in New York, London and Hong Kong • The Fung Retail & Technology team includes 20 analysts, each specialized in specific areas of the world, working together to offer a global perspective • We leverage the Fung Group’s participation in 40 markets around the world • We have industry contacts in the U.S., Europe and Asia A DIFFERENTIATED PERSPECTIVE A BROAD KNOWLEDGE BASE COMBINED WITH SPECIALIZED EXPERTISE AND OUR GLOBAL NETWORK Broad Knowledge Base Specialized Expertise Global Network
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 9 COMPREHENSIVE RESOURCES RESEARCH PROCESS RESEARC H Contacts News Databases On the Ground Partners Internal • Fung colleagues • L&F colleagues in the US, Europe and Asia • Planalytics • RetailNext • Prosper Analytics • Bloomberg • S&P Capital IQ • Euromonitor International • Haver Analytics • Statista • Analyst days • Industry conferences • Store tours • Financial reports • Financial and industry news • Finance • Retail • Tech
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 10 ENTREPRENEURS ROUNDTABLE ACCELERATOR OUR PARTNERSHIPS WITH ACCELERATORS
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 11 • Warehouse Clubs • Department Stores • Discount Stores • Drug Stores / Pharmacy • Consumer Electronics Stores • Home Improvement • Hypermarkets/Supercenters • Supermarkets • Specialty Retailers • E-commerce Retailers • Convenience Stores • Global Retail Market • Global Consumer Economics • Emerging Retail Technologies • New Retail Business Models • Retail Channel Studies • Startups, Accelerators in Retail • Retail Real Estate • Retail Business Strategy • Disruptive Technologies • Future Proofing • North America • Europe • Latin America • Asia Pacific • Middle East and North Africa OUR RESEARCH PROCESS BROAD COVERAGE Sector Coverage Thematic Coverage Geographic Coverage
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 13 US: SHOWS CONTINUOUS IMPROVEMENT Weak consumer sentiment reflecting lower expectations for growth Strong vehicle sales and housing starts Unemployment rate fell to 4.9% in February Low gas price stimulates consumer spending Consumer sentiment index dropped from 93.0 in 2015 to 90.0 in 2016
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 14 US: SHOWS CONTINUOUS IMPROVEMENT Major Economic Indicators Indicator 2016 2015 YoY Change Meaning Unemployment Rate 4.9% 5.5% (60) bps The S&P/Case-Shiller 20-City Composite Home Price Index N/A 184.2 5.8% Housing Starts (Mil.) 1.2 0.90 30.9% Total Vehicle Sales (Mil. Units) 17.9 16.8 6.5% Gas Price (USD/Gal.) $1.94 $2.35 (18.8)% Savings Rate 5.2% 5.3% (10) bps University of Michigan Consumer Sentiment Index 90.0 93.0 (3.2)% CPI: Apparel Prices 127.5 126.4 (0.9)% Sources: Bureau of Labor Statistics, US Census Bureau, St. Louis Fed, University of Michigan, US Energy Information Administration
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 15 CONSUMERS PREFER DINING OUT Spending at restaurants and bars outpaced grocery stores for the first time in 2015 Source: US Census Bureau, data in billions USD 0% 5% 10% 15% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Grocery Dining Out Groceries and Dining Out as a Percentage of Total PCE $15 $33 $52 $70 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Grocery Stores Dining Out Spending at Grocery Stores vs. Dining Out Source: US Census Bureau, data in billions USD
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 16 US: BUDGET & INTERNET SHOPPING DRIVE RETAIL GROWTH BRICK & MORTAR: Traffic continues to drop Digital influence continues to grow ONLINE: DEPT STORES & BIG BOX RETAILERS Face price competition OFFICE-PRICE RETAILERS & FAST FASHION RETAILERS Ride the off- price/value boom Led the group of top 19 apparel companies with growth of 26% in 2015 Source: Company Reports ANNUAL SALES GROWTH BY COMPANY – 2015
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 17 In contrast to biggest US retailers, a number of European apparel names continue to see striking success EUROPE: STRONG PERFORMANCE CONTINUES • These factors underpin global expansion opportunities • Plus, European shoppers remain more willing to spend on apparel than US shoppers; and a European economic recovery +15.4% FY15 +17.7% FY15 (+9% in local currencies) +8% 1Q16 Why? Implications More fashionable products Better stores
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 18 FASTEST GROWING EUROPEAN RETAILERS NOW AND THEN Retailer 2005 Total Revenue (Millions) 5 Year Retail Sales CAGR% Baugur Group 12,549 106.2% Dirk Rossmann GmbH 3,363 28.3% WM Morrison Supermarkets Plc 21,840 28.1% Mercadona, S.A. 11,958 25.2% Inditex S.A 8,250 22.1% Phones4U 2,754 18.9% The Carphone Warehouse Group PLC 2,821 18.3% Luxottica Group 4,108 18.0% Musgrave Group 5,417 16.7% Next plc 5,325 15.3% Retailer 2014 Total Revenue (Millions) 5 Year Retail Sales CAGR% Axel Johnson AB 9,733 49.3% Jumbo Groep Holding 7,269 30.1% PRADA Group 4,662 24.6% Compagnie Financiere Richemont 13,217 17.9% Hermes 5,475 17.6% Primark 21,447 16.4% Sports Direct International 4,529 15.6% LVMH 40,727 14.6% Casino Guichard-Perrachon 64,462 13.1% HTM-Group 3,714 13.1% Source: NRF, Deloitte, Company Reports
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 19 FASTEST GROWING US RETAILERS NOW AND THEN Source: NRF, Deloitte, Company Reports Retailer 2005 Total Revenue (Millions) 5 Year Retail Sales CAGR% GameStop 3,092 37.5% Amazon.com 8,490 25.2% Dick’s Sporting Goods 2,625 24.1% Wawa, Inc. 2,790 23.8% Pathmark Stores, Inc. 3,977 21.6% Whole Foods Market, Inc. 4,701 20.7% Bed Bath and Beyond 5,810 19.4% Lowe’s 43,243 18.2% Abercrombie & Fitch 2,785 17.6% Kohl’s 13,402 16.9% Retailer 2014 Total Revenue (Millions) 5 Year Retail Sales CAGR% Albertsons Companies 27,199 45.3% Southeastern Grocers 11,500 36% Apple 182,795 26.4% Ascena Retail Group 4,791 26.2% Amazon.com 88,988 25.8% Under Armour 3,084 23.7% Nike 30,601 21.8% Forever 21 4,500 14.3% Advance Auto Parts 9,844 12.7% Whole Foods Market 14,194 12.1%
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 20 FASTEST GROWING ASIAN RETAILERS NOW AND THEN Source: NRF, Deloitte, Company Reports Retailer 2005 Total Revenue (Millions) 5 Year Retail Sales CAGR% Kintetsu Department Store Japan $2691 Tokyu Corporation Japan $6,002 AS Watson & Company Ltd. Hong Kong $11,416 GS Retail Co Ltd. S. Korea $2,936 Yamada Denki Co., Ltd. Japan $11,363 Shinsegae Co., Ltd. S. Korea $7,352 Bic Camera, Inc. Japan $4,046 Beisia Group Hong Kong $6,505.32 AEON Co., Ltd. Japan $13,529.15 Lotte Shopping Co., Ltd S. Korea $8,005 Retailer 2014 Total Revenue (Millions) 5 Year Retail Sales CAGR% Vipshop China $3,701.18 JD.COM China $17,671.82 Yonghui Superstores China $5,719.18 Chongqing Department Stores China $4,712.00 CP ALL Public Company Thailand $11,436.07 China Resources Enterprise Hong Kong $14,110.28 Chow Tai Fook Jewelry Group Hong Kong $8,285.28 Central Group Thailand $6,800.00 Belle International Hong Kong $6,505.32 Fast Retailing Co. Ltd. Japan $13,529.15
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 22 1. Millennials Are Becoming The Trend Setter For The Consumer Market 2. Home Furnishings Market Disrupted By E-commerce 3. ACTIVE PURSUIT For Healthy Eating Lift Organic Grocers’ Sales 4. Last-mile Delivery Drives Online Grocery Sales 5. Ready-to-cook / Eat Economy Gains Popularity 6. Millennials Aspire To CAR OWNERSHIP But Also Like Sharing PLANS 7. Experiences Trump “Things” 8. Caring Economy Promotes Startups For Social Good 9. Subscription Economy Is Nibbling Away At Traditional Retailers’ Sales 10. Silver Economy: Aging Population Creates An Opportunity 11. Apps Become The Primary Way Of Communication 12. Social Shopping Is Made Simpler LIST OF DISRUPTORS 13. Mobile Aggregators Create A One-stop Shopping Cart 14. Influencer Marketing Word-of-mouth Marketing Gains Upthrust 15. SEARCH Engines Seek OPPORTUNITIES IN RETAIL 16. Retail Store Closings And Openings Continue 17. Experiential Retail Brings Shoppers Back To Stores 18. Smart Malls: Reshaping The Physical Shopping Experience 19. Evolving Pure Plays 20. Online Fashion Resale Marketplaces Show Explosive Growth 21. E-commerce Disruptors In High-end Market 22. AMAZON LEADS FASHION Apparel Market 23. A Tale Of Two Retailers: Innovation Drives Growth 24. The Fall Of Disruptors: DEATH OF THE UNICORN?
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 23 • 80 million in US, biggest demographic group • $1.3 Trillion buying power in US (BCG) • Nearly half of workforce by 2020 • 5/6 Millennials in the US connect with companies on social media (SDL) • Millennials are more into access over ownership- “The Renter Generation” MILLENNIALS ARE BECOMING THE TREND SETTER FOR THE CONSUMER MARKET1 Source: Pew Research Center 31% 34% 49% 34% 18% 29% 2% 2% 1% 1995 Q1 2015 Boomers Gen Xers Millennials Post-Millennials SilentsGreatest
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 24 • Founded in 2009, Houzz is aiming to disrupt the home furnishings space • Houzz is an online home-remodeling community that connects homeowners with design inspirations and home professionals • Its business model is driven by community, content and commerce • Houzz has already attracted 35 million users across 200 countries 2HOME FURNISHINGS MARKET DISRUPTED BY E- COMMERCE
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 25 2HOME FURNISHINGS MARKET DISRUPTED BY E- COMMERCE +15% +20% +44% Source: Company Report
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 26 2HOME FURNISHINGS MARKET DISRUPTED BY E- COMMERCE • Startups like CIMAGINE are appealing to millennials’ tech savviness with augmented reality to visualize furniture products in their space
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 27 • Millennials believe that eating right is the most important aspect to achieving well-being • Millennials are more concerned with nutrition food labels regularly 3ACTIVE PURSUIT FOR HEALTHY EATING LIFT ORGANIC GROCERS’ SALES Millennials Boomersversus 24% 12% Exercise and Eating Healthy 40% 33% Artificial Ingredients Source: Company Report
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 28 • Multi-cultural cuisines • Gluten-free baked goods • Organics • Avoid additives • Less swayed by traditional nutritional markers such as calorie count and health claims • Buy frozen or prepared ‘healthy’ foods, adding fresh ingredients and seasonings • In 2015, Whole Foods Market revealed perhaps the first major millennial-focused store format • Prepared food departments are cooking to order, offering greater variety, and healthier customized meals 3ACTIVE PURSUIT FOR HEALTHY EATING LIFT ORGANIC GROCERS’ SALES
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 29 4LAST-MILE DELIVERY DRIVES ONLINE GROCERY SALES The on-demand economy has driven growth of delivery start-ups that provide innovative ways for consumers to ship or receive goods Company Latest Funding Round curbside $25 Million deliv $28 Million Doordash $40 Million drizly $13Million Instacart $220 Million munchery $85 Million nestdrop $150K postmates $80 Million roadie $10 Million shyp $50 Million
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 30 Disruptors: Blue Apron, Munchery, Plated, HelloFresh • Blue Apron was the fastest-growing US e-tailer in 2014, with sales growing 550%, to $65 million • Healthier and cheaper than eating out and takeout • Convenience: ready-to-cook boxes and curated grocery according to menus, delivered to your doorstep • US food market • $1.2 trillion, with $600 billion in restaurants • Millennial focused 5READY-TO-COOK / EAT ECONOMY GAINS POPULARITY Up 300% 2015 Source: Forbes
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 31 • A recent survey found that 20% of Millennials take public transit once a week or more, compared with just 7% of Generation 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 total U.S. adults. • Millennials lease more than any other generation and are leasing 50% more often today than they were five years ago 6MILLENNIALS ASPIRE TO CAR OWNERSHIP BUT ALSO LIKE SHARING PLANS
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 32 • More than 3 in 4 millennials would choose to spend money on a desirable experience • 60% of Millennials have shared their experiences online versus 34% of Gen Xers and 18% of Boomers • Since 1987, the share of consumer spending on live events has increased 70% largely on the back of millennial spending. 7EXPERIENCES TRUMP “THINGS”
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 33 Disruptors: Gigzolo, Zaptravel, OpenTable, Beautified • Consumers are spending less on apparel and more on experience • 78% of millennials prefer to spend money on an experience rather than buying something desirable • Gigzolo: curated network of musicians and DJs available for hire for events • Zaptravel: • Digital travel agent • Uses a semantic search engine to scroll through its database 7EXPERIENCES TRUMP “THINGS”
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 34 Disruptors: TOMS, Reformation, Warby Parker, NOURI, SoapBox Soaps, Zady, GoodXChange • Social activism over self-indulgence • Consumers, especially Gen Z, are increasingly demanding integrity from brands and retailers • Startups for social good 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, sourcing sustainable fabrics and vintage garments 8CARING ECONOMY PROMOTES STARTUPS FOR SOCIAL GOOD
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 35 SUBSCRIPTION ECONOMY IS NIBBLING AWAY AT TRADITIONAL RETAILERS’ SALES 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 9
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 36 SILVER ECONOMY: AGING POPULATION CREATES AN OPPORTUNITY • Senior population is growing across the globe • US has the largest market for seniors: 2.2 trillion in 2014 • Older Consumers Are Increasingly Digitally Connected: Increasing mobile device usage: Greatcall • Boom of healthcare tech industry: UnaliWear • Smart Home: healthcare and assisted living system Source: UN Department of Economic and Social Affairs 10 7 10 15 12.3% 13.5% 16.5%17.0% 19.0% 23.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 0 2 4 6 8 10 12 14 16 2015 2020 2030 Estimated Senior Population and Spending, 2020 & 2030 Consumer spending by senior population(USD trillion) Senior population as a % of total population % of total worldwide spending
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 37 APPS BECOME THE PRIMARY WAY OF COMMUNICATION 57% 53% 45% 37%37% 29% 27% 22% 19% LINEFacebook Messenger SnapchatWhatsAppWeChatViberSkypeVineKakaotalk Source: Globalwebindex as of Q1 2015 Messenger App User Growth YoY%11
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 38 App Millions of Monthly Active Users WhatsApp 900 million QQ Mobile 860 million FB Messenger 800 million WeChat 650 million Skype 300 million Viber 249 million LINE 212 million Snapchat 100 million APPS BECOME THE PRIMARY WAY OF COMMUNICATION 11 Source: Globalwebindex as of Q1 2015
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 39 12SOCIAL SHOPPING IS MADE SIMPLER • Buy on social media platforms without switch apps or websites • Easy to curate content on social media • “Buy button” helps prevent shopping cart abandonment • Youtube, Pinterest , Twitter and Google already have buy buttons • 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
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 40 13 MOBILE AGGREGATORS CREATE A ONE-STOP SHOPPING CART • Aggregate and curate online content • Attempting to create a universal shopping cart • The Keep app allows shoppers to buy products from any online stores and check out from one single cart on Keep • Shopspring.com: shop over 800 brands from one location, purchasing directly from the brand
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 41 14 INFLUENCER MARKETING WORD-OF-MOUTH MARKETING GAINS UPTHRUST • 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 • E-Marketer: YouTube has the highest ROI on influencer marketing Social Media Users in Jan. 2016 Facebook 1.5 billion YouTube 1 billion Instagram 400 million Twitter 320 million Snapchat 200 million Pinterest 100 million Sources: Statista
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 42 14 INFLUENCER MARKETING WORD-OF-MOUTH MARKETING GAINS UPTHRUST 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
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 43 15 SEARCH ENGINES SEEK OPPORTUNITIES IN RETAIL Who They Are Biggest search engine in China Most popular search engine in the world Public Company Listed on NASDAQ Shell company in Cayman Island Listed on NASDAQ Pay-per-click Marketing Baidu Tuiguang Google AdWords Third-Party Payment Baidu Wallet Google Wallet E-commerce Business Baidu Mall Google Shopping
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 44 15 SEARCH ENGINES SEEK OPPORTUNITIES IN RETAIL Online Search • Chinese market focused • 82% of China online search queries • 1% of global searches share • Expanding globally • 90% share of global searches • 10% share in China Mobile Search • 80% of China’s mobile search market • In Dec 2015, mobile search users reached 657million. 21% YoY increase • A starter in mobile search: early collaboration with Android operating system • 78% of global mobile search market share; 1% in China Online Marketing • Revenue was $9.9 billion, 96% of total revenue • 1,049,000 active online marketing customers in 2015 • Advertising revenue reached $67.35 billion in 2015 • 90% of total revenue Third-Party Payment • Limited Presence: Market Share: Alipay: 61.9%; Tenpay: 14.5%; Baidu Wallet: 2.3% • Rapid expansion: reached 53 million in 4Q15; 180% YoY • Google’s payment (Android Pay/ Google Wallet) is stronger than Baidu wallet • Paypal accounted for 78% of the digital payment • Apple and Google compete for the 2nd E-commerce • Dominance of Alibaba group(Tmall, Taobao) • Baidu Mall (2015): sell foreign branded and imported goods to middle and high-end consumers • “Top Revenue Vertical” • Google shopping vs. Amazon: shoppers directly click into the Amazon website that diverts Google search traffic away
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 45 16RETAIL STORE CLOSINGS AND OPENINGS CONTINUE Retailer # of Announced Store Closings Walmart 269 Mens’ Wearhouse 250 Sports Authority 140 Sears 50 Macy’s 40 Kohl’s 18 Retailer # of Announced Store Openings Dollar General 900 Forever 21 600 Under Armour 200 Dick's Sporting Goods 135-150 Ulta 100 ALDI 45 Costco 32 Dollar Tree 13 Stein Mart 12 Target 11 Source: ICSC Research and PNC Research 2015 • There was a 7% increase YoY in store closure announcements • There was 29% less square footage associated with announced store closures in 2015 versus 2014 2016 • Off-price/discount retailers are expected to see major growth in 2016 • Foreign discount grocers Aldi and Lidl plan to push US expansion • E-commerce pure plays opening stores
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 46 17EXPERIENTIAL RETAIL BRINGS SHOPPERS BACK TO STORES Urban Outfitters acquired Vetri Family group of restaurants in 2015 Club Monaco and Kohl’s are also opening food and beverage shops in their stores Rebecca Minkoff offers interactive mirrors as well as virtual reality headsets Tommy Hilfiger stores have virtual reality headsets to allow consumers to experience runway shows Lowe’s Holoroom allows customers to see merchandise in different color combinations and as they would appear in a home Proliferation of mobile apps to improve in-store experiences, such as: customizable shopping lists, location-relevant promotions, and product and inventory information Food & Beverages Virtual Reality Technology
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 47 Data enabled personalized and timely promotions Track movements, behavior and preferences Beacon enabled location-based advertising SMART MALLS: RESHAPING THE PHYSICAL SHOPPING EXPERIENCE18
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 48 • HGTV partnered with Macerich shopping malls to launch virtual and hand-on technology-based experiences 4 8 • RetailNext formed strategic alliance with StepsAway, an in-mall mobile retail solution provider offering shoppers smartphone access to hyperlocal in-store deals • A Silicon Valley-based unit which designs and experiments with innovations to improve the retail experience SMART MALLS: RESHAPING THE PHYSICAL SHOPPING EXPERIENCE18
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 49 4 9 AMAZON BONOBOS ATHLETA CASPER AYR YOGIBO HARRY’S INDOCHINO EVOLVING PURE PLAYS 19
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 50 Millennials prefer mono-brand brick-and-mortar stores, and they shift between online and offline along the shopping journey 5 0 Retailer # of Stores 1 2 3 20 26 EVOLVING PURE PLAYS 19
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 51 20 ONLINE FASHION RESALE MARKETPLACES SHOW EXPLOSIVE GROWTH Disruptors: thredUP, Tradesy, The RealReal, Poshmark, Vestiaire Collective • Online resale industry is worth $34 billion in the US • Mobile is hot in resale; over 45% of thredUP’s sales come from mobile devices • Patagonia, Eileen Fisher and H&M launched resale programs 2011 2012 2013
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 52 20 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
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 53 21 E-COMMERCE DISRUPTORS IN HIGH-END MARKET • High-end consignment jewelry platform • Merchandise, appraise, photograph and serve • Partnered with E-bay valet • On-demand personal shopping and styling subscription service • Professional stylist bringing store inventory directly to customers • Quinn has a built-in style school that ensures a talent pool • Curates emerging artists • “Democratize" the process of selling artwork • Connecting artists directly with collectors
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 54 22 AMAZON LEADS FASHION APPAREL MARKET • Winner: Amazon led the group of top 19 apparel companies with growth of 26% in 2015 • Runner Up: Fast Fashion Top 5 include Inditex and H&M • Declining Players: Walmart’s apparel, Gap, Macy’s and Isetan Mitsukoshi each posted sales declines for the year -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
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 55 23A TALE OF TWO RETAILERS: INNOVATION DRIVES GROWTH -20% -10% 0% 10% 20% 30% 40% 50% Q22009 Q32009 Q42009 Q12010 Q22010 Q32010 Q42010 Q12011 Q22011 Q32011 Q42011 Q12012 Q22012 Q32012 Q42012 Q12013 Q22013 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 YoY Revenue Growth UA ARO $0 $20 $40 $60 $80 $100 $120 2009 2010 2011 2012 2013 2014 2015 2016 Historical Stock Prices UA ARO
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 56 23A TALE OF TWO RETAILERS: INNOVATION DRIVES GROWTH Under Armour is Innovative • From sports clothing retailer to major player in fitness technology • Introduced UA Healthbox along with HTC • Created “cognitive coaching system,” with IBM’s Watson • Teams up with influencers such as Dwayne Johnson or Muhammed Ali to promote the brand Aeropostale is Stale • Share prices have fallen close to 98% over the past 5 year • Considering strategic alternatives including a sale or restructuring • Failed to adapt to changing consumer tastes • Failed to drop large logos and identify trends • Missed the fast fashion boat
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 57 24THE FALL OF DISRUPTORS: DEATH OF THE UNICORN? • 146 privately held startups with valuations of $1billion or higher, or the “unicorns” in the US, 35 in China • Gilt Groupe once valued at $1.1 billion, was sold at $250 million • Good Technology, valued at $ 1billion, was sold at $425 million • Square was valued at $6 billion when private. Market cap at $3billion now • Current market can’t absorb existing unicorns and they are unwilling to go public • At risk: Snapchat, Uber, Evernote, Vancl
FUNG GLOBAL RETAIL & TECHNOLOGY GOLDEN SEEDS MARCH 23, 2016 58 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 March 23, 2016
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 March 23, 2016

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