in-store technology as retailtainment bright shiny object or the new normal?
TRANSCRIPT
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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
14Se
p 14
Oct
14
Nov
14
Dec 1
4Ja
n 15
Feb
15M
ar 1
5Ap
r 15
May
15
Jun
15Ju
l 15
Aug
15Se
p 15
Oct
15
Nov
15
Dec 1
5Ja
n 16
Feb
16M
ar 1
6Ap
r 16
May
16
Jun
16Ju
l 16
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
4N
ov 1
4De
c 14
Jan
15Fe
b 15
Mar
15
Apr 1
5M
ay 1
5Ju
n 15
Jul 1
5Au
g 15
Sep
15O
ct 1
5N
ov 1
5De
c 15
Jan
16Fe
b 16
Mar
16
Apr 1
6M
ay 1
6Ju
n 16
Jul 1
6Au
g 16
-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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LVM
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H&M
Ross
Sto
res
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TJX
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JC P
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Kohl
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VF C
orp
Wal
mar
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Gap
Inc
Mac
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Iset
an M
itsuk
oshi
Sour
ce: C
ompa
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epor
ts
Data
in m
illio
ns U
SD
(5%)
0%
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