in-store technology as retailtainment bright shiny object or the new normal?

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1 IN-STORE TECHNOLOGY AS RETAILTAINMEN T BRIGHT SHINY OBJECT OR THE NEW NORMAL? Michael Zung Marketing DIRECTOR FUNG GLOBAL RETAIL & TECHNOLOGY SEPTEMBER 28, 2016

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Page 1: 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?Michael Zung

Marketing DIRECTORFUNG GLOBAL RETAIL & TECHNOLOGYSEPTEMBER 28, 2016

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• ABOUT FUNG GROUP

• 2016 YTD RETAIL ENVIRONMENT OVERVIEW

• 5 WAYS AMAZON IS DOMINATING

• TOP 12 RETAIL TECH TRENDS

WHAT’S IN MY CART TODAY

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FUNG GROUP

TRADING

LOGISTICS

DISTRIBUTION

RETAILING

Li & Fung LimitedListed on SEHK

Global Brands Group

Listed on SEHK

Fung Retailing Limited

Privately Held Entity

Convenience Retail

Asia LimitedListed on SEHKTrinity LimitedListed on SEHK

Branded Lifestyle Holdings Limited

LiFung Kids (Holdings) LimitedToys “R” Us (Asia)Suhyang Networks

UCCAL Fashion GroupPrivately 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

RETAILTECH

MICRO MACRO

RETAIL REAL

ESTATE

THEMATIC RESEARCHVR

AI

IOT

DIGITALDIGITALDIGITALDIGITAL

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The Fung Global Retail & Tech Team Hard at Work

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US MACRO OVERVIEW: FAVORABLE BACKDROP

Indicator Period 2016 2015 YoY Change Impact on Consumpti

on 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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CONSUMERS BUY MORE SERVICES, LESS GOODS

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2%

3%

4%

5%

6%

7%

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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RETAILERS REBALANCING FOOTPRINT

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

SearsaerieChristopher and BanksAbercrombie & FitchPacific SunwearKmartRestoration HardwareOffice Max/Office DepotAéropostale Saks Fifth AvenueBebe StoresHollister USLands' End StaplesBarnes & NobleNew York & CompanyWilliams-SonomaJCPenneyDillard's Rite Aid CorpGap

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

Teen retailers account for many 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

1990 1995 2000 2005 2010 2015 2016

9671,027

1,0971,161

1,211 1,222 1,221

Number of Malls in the US

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

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Aug

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Oct

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Nov

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Dec 1

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Feb

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ar 1

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May

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Jun

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Nov

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Dec 1

5Ja

n 16

Feb

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May

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Jun

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Aug

16

-30%

-25%

-20%

-15%

-10%

-5%

0%

Traffic Sales

• 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: RetailNextAu

g 14

Sep

14O

ct 1

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Jan

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-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

Conversion Traffic

Monthly US In-store Traffic and Conversion Rate YoY%

-7%

0.3%

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5 WAYS AMAZON IS DOMINATING 1. Amazon Prime2. Prime Now3. Home Services4. Amazon Apparel5. Amazon Web Services

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AMAZON SALES GROWTH FAR OUTPACES US RETAIL SALES GROWTH• Accounted for $0.42 of every $1.00 of

growth in US e-commerce in 2015• Also generated 27% of total retail

growth in the United States

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015(10%)

5%

20%

35%

50%

Amazon Sales Growth US Total Retail Sales Growth

Source: Bloomberg and US Census Bureau

Annual Sales Growth

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1. Amazon Prime Is Taking Off

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Explosive Growth in Prime Subscribers

• Estimate of 63 million prime memberships (CIRP)

­ Added 19m since last June

• Most households do not hold multiple memberships

­ About 46% of US households have just one member

­ Costco has 44.6 million paid members and 81.3 million cardholders

Source: Business Insider

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Prime Purchases vs. Average Amazon

• Prime members spend about $1,100 a year

­ Plus varying membership fees

• Non-members spend an average of $600 a year

• Amazon Flywheel

­ More attractive to customers as more items are prime eligible

­ More vendors want their products to be eligible for Prime status to participate in Amazon's fulfillment

­ Prime becomes even more attractive to customers, feeding a cycle of momentum

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Dash Buttons

• One-click physical buy button

­ Seamlessly restock household essentials

• Prime-eligible items only

­ Amazon is selective as to which brands can participate

• Takes a percentage of each order

• Turning into additional Ad revenue source

­ Amazon looking to tap into the $77 billion digital ad spend market with this service, especially CPG brands.

• Kwik is creating similar buttons that are open to any retailer

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2. Prime Now is Redefining Logistics

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Amazon Prime Now

• Free 1 or 2-hour shipping

­ Select metro areas

­ Suggested $5 tip

­ Can be changed up to 48 hours after delivery

• Cowen estimates that 25% of Prime Members have used Prime Now. Previously only on apps, now also available on the web

• Expanded internationally:

­ UK, Italy, India, Japan

• Limited items, but includes many categories from food to electronics

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Redefining Logistics• Signed two deals to lease 40 airplanes

• Supplementing existing network to ensure capacity to support 1–2 day delivery options

• Currently relies on UPS, USPS and FedEx for delivery

­ Slowly taking over operations and relying less on 3rd parties

• Spent $11.5 billion on shipping in 2015, up from $8.7 billion in 2014

­ New logistics service could lower these costs

• Logistics could eventually become client-facing business like AWS

• Amazon has deployed an estimated 30,000 Kiva robots in its fulfillment centers

Number of Amazon Employees

Source: Company Reports

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3. Amazon Home Services Could Shake Up Several Industries

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Home Services Market Size

• $400 Billion (Angie’s list)

• 85 million Amazon customers purchasing products that need installation or assembly

• 7.6 million Americans working in “gig economy” by 2020

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Amazon Home services COULD shake up furniture and appliances industries

• Amazon is combining delivery of larger products with seamless assembly.

• Orders are growing at 20% a month since launch

• Home Services offers 36 million pre-packed services on the site, compared to the 2 million it offered when it first began offering local services last year

• Prepackaged or custom services

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DIFM vs. DIY

• US aggregate spending on consumer home improvement, professional maintenance, repair & operations and DIFM services: $550 billion

• Home Depot: $89 billion in annual sales in 2015

• Younger shoppers less familiar with DIY, affluent older shoppers look for professionals to do work for them

• UK home ownership skewed toward older generations

• US growth in multifamily homes driving demand for home improvement services

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5. Amazon Moving into Apparel

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Amazon Is Poised to Become Largest US Apparel Seller in 2017

TJX

Walmart

Macy's

Amazon

$0 $5 $10 $15 $20 $25 $30

Estimated US Apparel and Accessories Sales 2017 ($ Bil.)

Source: Cowen & Company

• Amazon is poised to surpass Macy’s to become the biggest US apparel seller by 2017

• Amazon sells about 343,000 different kinds of items in leading brands versus an average of 85,000 for Macy’s and Nordstrom

• The brands listed on Amazon are in direct competition with those sold at department stores, such as Nicole Miller, Calvin Klein, Kate Spade, Lacoste and Levi Strauss

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Amazon Led Apparel Sales Growth in 2015Am

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(5%)

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5%

10%

15%

20%

25%

30%

Source: Company reports

Annual Sales Growth by Company - 2015

• Amazon led the group of top 19 apparel companies with growth of 26% in 2015

• Fast Fashion Top 5 include Inditex and H&M

• Walmart’s apparel, Gap, Macy’s and Isetan Mitsukoshi each posted sales declines for the year

• North American Apparel Sales grew at 2.5% in 2015 (PwC)

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Amazon’s Foray into Apparel

1995Amazon Launches 2006

Acquired

2002Expansion into Apparel

2009

Acquired

2011

Acquired

2015Private Label Launched

2015Amazon apparel generates $16.3 billion in sales*

*Based on our estimates, includes 3rd party sellers

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Amazon Web Services—The Secret Weapon

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Amazon Web Services—the Secret Weapon

• AWS: a $10B revenue run rate business

­ 64% revenue growth and $604M+ in operating income in 1Q16

­ Accounted for 56% of Amazon’s operating income in 1Q16

­ Total CapEx $9.5B TTM

2013 2014 2015

$3.1

$4.6

$7.9

AWS Revenues ($ Bil.)

CAGR = 59.2%

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Booming Cloud Services Business

• Software-as-a-Service (SaaS) to remain dominant computing type

­ Infrastructure-as-a-service (IaaS) expected to grow at a 27.0% CAGR

­ Platform-as-a-service (IaaS) expected to grow at a 30.6% CAGR

• By 2018, most vendors will have shifted to SaaS/PaaS

• Large companies to account for $80B of 2019 spending

• SMBs expected to account for 40% of spending during 2015–2019E

2015 2019E

$70

$141

Worldwide Spending on Public Cloud ($ Bil.)

CAGR=19.4%

Source: IDC, 2016

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AWS: Dominant Market Leader in Cloud

• Amazon ranks #1 with >30% share

• Microsoft ranks #2 and is fastest-growing, still has < 10% share

• IBM, Google and Salesforce. com round out the top five

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Summary of Markets ($ Bil.) Market Market Size (2015) AMZN Size (2015) Share

US Retail $4,699 $99.1 2%

US E-commerce $341 $99.1 29%

WW Public Cloud $84 $7.9 9%

Global Logistics(1) $186 N/A N/A

US Grocery $983 $32 4%

US Apparel $267 $16 5%

Global Intelligent Virtual Assistant $0.6 N/A N/A

TOTAL $6,220 $107 2%

Source: Companies/comScore/Cowen & Co./Euromonitor/IDC/US Census/Fung Global Retail & Technology(1) DHL+FedEx+UPS+USPS

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TOP 12 IN-STORE TECHNOLOGY TRENDS Experiences

In-store Technologies

Customer Engagements

1. Experiential Retail2. Smart Malls3. AR + VR4. Facial Recognition5. Interactive Displays6. Robotics

7. Evolving Pure Play8. Reverse Logistics 9. Mobile Payments10. Gamification11. Tech Empowered Store Associates12. 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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1Experiential Retail

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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1Experiential Retail

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

WELLNESS

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1Experiential Retail

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.

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

3 Augmented Reality + Virtual RealityCombined 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 recommendations.

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 Landscape

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

11 Store Associate TechTech empowered store associates 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 Retail2. Smart Malls3. AR + VR4. Facial Recognition5. Interactive Displays6. Robotics

7. Evolving Pure Play8. Reverse Logistics 9. Mobile Payments10. Gamification11. Tech Empowered Store Associates12. Natural Language Processing

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Q & AMichael Zung

MARKETING DIRECTORFUNG GLOBAL RETAIL & [email protected]

https://fungglobalretailtech.com