Weekly Insights October 28 2016 - Deborah Weinswig€¦ · e-commerce options and increased sales productivity—to play a bigger role in retailers’ success. 3) German discounter

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OCTOBER 28, 2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

STATOFTHEWEEK

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D E B O R A H W E I N S W I G M A N A G I N G D I R E C T O R

F U N G G L O B A L R E T A I L & T E C H N O L O G Y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m

U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9

C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

OCTOBER 28, 2016

20%• According to Consumer Intelligence Research

Partners,thenumberofAmazonPrimemembersintheUShasreached65million,up38%fromayear ago; this represents 20% of the USpopulation.

• PrimemembersspendtwiceasmuchonAmazonper year as nonmembers do ($1,200 comparedwith$600).

1) This week’s note “From the Desk of DeborahWeinswig” discussestheWWDApparel&RetailCEOSummitheldinNewYorkthisweek,andhighlightsthekeythemescoveredbypresentersandpanelistsattheevent.

2) With“seenow,buynow”gainingmomentuminthefashionindustry,fast-fashionretailerscouldstandto lose,eventhoughtheyoperateatdifferentpricepoints.The trend couldcauseother factors—suchas strong and relevantproductofferings, improved serviceoptions,e-commerce options and increased sales productivity—to play abiggerroleinretailers’success.

3) German discounter Lidl is expected to trial click-and-collect serviceforfreshandfrozenproductsinHamburgbeginninginDecemberthisyear. Lidl’s parent company, Schwarz Group, is reported to beinvesting “a three-digit million figure” to improve its global onlinepresence.

4) BritishgrocerTescohaslaunchedatrialattwostoresinEssexforanewtechnologycalledTap&Tag,whichreplacespaperreceiptswithdigital ones when a customer completes a purchase. To use thetechnology,customerssimplyneedtotapacontactlesscardorNFC-enabledphoneontheTap&Tagconsoletopay,andadigitalreceiptwillthenbesenttothem.

Source:Statista

MarketShareofSmartwatchUnitShipments,byVendor

Source:ConsumerIntelligenceResearchPartners

75.5% 73.8%63.0%

52.4%

7.5% 9.8%16.0%

14.3%

17.0% 16.4% 21.0%33.3%

0%

25%

50%

75%

100%

2Q15 3Q15 4Q15 1Q16

Others

Samsung

Apple

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OCTOBER 28, 2016


FROMTHEDESKOFDEBORAHWEINSWIG

Thisweek, the FungGlobal Retail& Technology teamattended theWWDApparel& Retail CEO Summit,whichwasheldOctober25–26 inNewYorkCity.Thisyear, theeventcelebrated its20thanniversaryandcarriedthetitle“ReframingFashionandRetail.”Theconferencefeaturedleadersandluminariesfromretail,fashion,businessandthefashionpress.ThespeakerlistincludedfashioniconsandcelebritiessuchasDianevonFurstenberg,MarcJacobs,NormaKamaliandChuckTodd,whomoderatestheNBCpoliticaltalkshowMeet the Press. Discussion and presentation topics included consumer opportunities, the in-storeexperience,thefashioncalendar,consumerexpectations,luxury,influence,onlineretailtrendsandthenewconsumer.

Panelistsgenerallyofferedapositiveoutlookforholidayspendingthisyear.JerryStorch,CEOofHudson’sBayCompany,saidthatlastyear’sterroristattacksandtheupcomingUSpresidentialelectionwillsoonbethingsofthepast,freeingconsumerstohitthestoresagain.SarahQuinlan,SeniorVicePresident&GroupHeadofMarket InsightsatMasterCardAdvisors,offeredherviewofthisyear’sholidayseason,predictingthatsaleswillincreaseby3.4%andthatshopperswillstartshoppinglate.Quinlanthengaveasummaryofkey consumermarkets around theworld, noting that sales figures inHongKong, Japan and theUKwerenegative,butthatUSluxurysaleswerepositiveinSeptember.Shealsonotedthate-commercecontinuestoexhibitlocomotive-likepower.

Thebeautycategoryalsoappearstobefairlyrobust.MaryN.Dillon,CEOofUltaBeauty,commentedthatbeauty is themost innovativecategorywithinretailandsaidaquarterofhercompany’ssame-storesaleslastquarterweredrivenbynewproducts.Ultaholdsonlya4%shareofthebeautymarketand,inagrowingmarket,thereremainsplentyofroomforthecompanytoachieveitsgoalsofdoublingitsmarketshareandroughlydoublingitsstorecount.

Severalpanelists commentedon theaccelerationof theappareldeliveryprocessdue to the riseof socialmedia,whichhasspurredthe“seenow,buynow”trend.Forexample,themostrecentNewYorkFashionWeek featured fashion shows thatwereopen to thepublicand streamedvia the Internet.Viewers couldpurchasethe itemstheysawontherunwayimmediatelyfollowingtheshows,ratherthanhavingtoplaceordersandthenwaitasinthepast.

The artistic, high-end fashion designers are resisting the current socialmedia–fueled environment,whichrunsatInternetspeed.FashioniconDianevonFurstenbergofferedsomerisquéremarksabouthergoalsfordressdesignand thenbemoaned thecurrent stateof “productpollution,”noting that thereare somanyproductscurrentlybeingofferedthatconsumerslosefocusandinterest.Moreover,shesaidthissurplusofproducthasledtoa“triumphofmediocrity”thatisfueledbyrealityTV,andthattheapparelindustryneedstopruneitsofferingsandfocusoncraft,designandvalue.

Sidney Toledano, President andCEOof ChristianDior Couture, recognized the challenges in the industry,noting that there isno creativitywithout constraintsand thatdesignersmust respect the lawsof gravity.Instant/fastretailmeansthatconsumersconstantlywanttoseesomethingnewinstores.Onlineanddigitalchannels need to featuremore product andmore luxury, he said, and Dior wants to lead this category.Retailers are using chat and other technologies in order to forge a special relationship with customers,Toledanonoted.

Acommonthemeacrossnearlyalloftheretailerpanelswastheapparelindustry’sneedtoreinventitselfinresponse to the challenges posed by socialmedia, changes in the display andmarketing of apparel, andother economic factors. Jerry Storch was emphatic that retailers must make stores—both physical andonline—fantastic in order to give customers a reason to visit them. Jim Gold, President and ChiefMerchandising Officer at NeimanMarcus, said that his company is transforming its sales andmarketingprocesses, focusing on personalization and transforming customer service for “anything, anytime,anywhere.”

TheFungGlobalRetail&Technologyteamlearnedagreatdealfromtheseindustry leadersandiconsandlooksforwardtocontinuingtoreportonkeyindustryeventsandconferences.

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OCTOBER 28, 2016


USRETAILEARNINGS

Company

Revenues(USDMil.)

YoY%Change

GrossMargin(%)

Change(bps)

NetIncome(USDMil.)

YoY%Change StoreFleetEOP

Period 2016 2015

2016 2015

2016 2015

2016 2015

Kimberly-Clark 3Q16 4,594 4,718 (2.6) 36.4 35.7 70 550 517 6.4 – –

Procter&Gamble 1Q17 16,518 16,527 (0.1) 51.0 50.7 28 2,714 2,601 4.3 – –

UnderArmour 3Q16 1,472 1,204 22.2 47.5 48.8 (129) 128 100 27.6 225 173

VFCorp 3Q16 3,488 3,613 (3.4) 48.4 47.9 51 498 460 8.4 – –

Source:Companyreports

USRETAIL&TECHHEADLINESWillInstantFashionMeantheEndofFastFashion?(October21)Women’sWearDaily• With“seenow,buynow”gainingmomentum in the fashion industry, fast-fashionretailers

couldstandto lose.Zara,H&M,ASOS,Forever21andotherscouldbenegatively impactedbytheinstantrunway-to-storepresentationtrend.

• Someexpertsarguethatthesee-now,buy-nowmodelwillnotimpactfast-fashionretailers,as they operate at different price points. However, it could cause other factors—such asstrong and relevant product offerings, improved service options, e-commerce options andincreasedsalesproductivity—toplayabiggerroleinretailers’success.

RetailersRushedtoHireforHolidays,aSignofTightLaborMarket(October24)TheWallStreetJournal• Despitestartingtorecruitseasonalworkersearlierthisyear,retailersarestillrushingtohire

temporaryhelpfortheholidays.DatafromIndeed.comshowthatretailersstartedsearchingfor seasonal help in August, a month earlier than in recent years, signaling that theyanticipateastrongholidayseason.

• Experts say several trends are at work here. Many consumers are starting their holidayshopping before Halloween, rather than waiting until after Thanksgiving. Also, withunemploymentholdingaround5%,therearefewerworkersavailable.Andretailersarenowcompeting with logistics firms and distribution centers for seasonal hires as e-commercecontinuestogrow.

MasterCardUsersWillSoonBeAbletoManageTheirAccountsoverFacebookMessenger(October25)TechCrunch• Soon,MasterCard account holderswill be able to use FacebookMessenger to check their

accounts, track their spending, review purchases and more. MasterCard will incorporateKasisto’sconversationalartificial intelligenceplatform intoFacebook’schatbotplatformforitsbottool.

• Thebot iscurrently inpilot testing,butwillbeavailable toFacebook’s1billionusersearlynextyear.MasterCardwillalsobereleasingabotformerchantsthatallowsonlineshopperstomakepurchasesrightinthemessagingplatform.

WEINSWIG’SWATCHING

ThisweekinNewYork,theUSFungGlobalRetail&TechnologyteamattendedtheWWDApparel&RetailCEOSummitandpresentedatForesight2016,7thonline’sinauguraluserconference.

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OCTOBER 28, 2016


Everlane’sSocialStrategy:DriveCommunityEngagement,NotSales(October25)Glossy• Direct-to-consumerapparelstartupEverlaneisworkingtomakeitssocialmediapresenceas

personalaspossible.Theideaisconsistentwiththebrand’scommitmenttotransparency;itseeks to enable customers to see into the brand and actually help shape it themselves.However, its strategy also gets around the pay-to-play model that is becoming morecommoninsocialmediaadvertising.

• InadditiontoitsprimaryInstagramaccount—whichboasts274,000followers—Everlanehasa private, secondary account with a curated group of followers who are provided withcustomerfeedbackandsneakpeeksofproductofferings.ThecompanyalsorecentlyaskeditsFacebookfollowers iftheywouldbeinterestedinaFacebookgrouptodiscussallthingsEverlane.Theresponsewasverypositive.

EUROPERETAILEARNINGS

Company

Revenues(USDMil.)

ChangeinUSD(%)

ChangeinReporting

Currency(%)Gross

Margin(%)Change(bps)

NetIncome(USDMil.)

YoY%Change StoreFleetEOP

Period 2016 2015

2016 2015

2016 2015

2016 2015

Luxottica 3QESep30 2,482 2,397 3.5 3.2 N/A N/A N/A N/A N/A N/A 7,400 N/A

DIA 3QESep30 2,589 2,561 1.1 0.8 N/A N/A N/A 53.2 45.3 17.5 7,824 7,583

Kering 3QESep30 3,553 3,221 10.3 10.0 N/A N/A N/A N/A N/A N/A 1,289 1,232Source:Companyreports

EUROPEANRETAILHEADLINESLidlRampsUpOnlinePresence(October25)TheDrinksBusiness• German discounter Lidl is expected to trial click-and-collect service for fresh and frozen

products in Hamburg beginning in December this year. This marks an expansion of itsoffering from its existing website in Germany that sells ambient grocery and nonfoodproducts.

• Lidl’s parent company, Schwarz Group, is reported to be investing “a three-digit millionfigure”to improve itsglobalonlinepresence.AspokesmanforthegrocernotedthattherearenoplansyettolaunchanonlineshopintheUK.

FrenchConnectionEyedbyOverseasBuyers(October24)TheTelegraph• SharesinfashionretailerFrenchConnectionjumpedonMondayafterrumorsofatakeover

emerged over the weekend. It was speculated that several foreign buyers are looking toacquirethecompany.FrenchConnectionhasreportedaspateoflossesandhasseenadropinitsshareprice.

• FrenchConnectionhas reportedly appointed investmentboutiqueMoelis to adviseon thematter.SeveralEuropeanandUSfirmsaresaidtobeconsideringapproaches, includingUScompanyNeubergerBerman,whichpreviouslyacquiredtheparentofBritishshirtbrandBenSherman.

BHSInternationalRevealsInternationalExpansionPlans(October24)RetailWeek• BHS International has announced plans to expand its operations across the world. It has

nearly completed deals with three new franchise partners, to open new stores across 10countriesinAfrica,EuropeandtheMiddleEast.

• Managing Director David Anderson stated that the franchise partners of BHS have madesignificant investments in stores and that the British firm will help them “by providing agreaterfocusonmarket-specificproducts,andbyintroducingnewranges.”

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OCTOBER 28, 2016


MagnitAcceleratesClosureofLoss-MakingStores(October21)CNBC• Russia’sbiggestfoodretailer,Magnit,hasimplementedamajorprogramtocloseinefficient

storesandrefurbisharound1,000–1,500shopsnextyear.Thecompanycurrentlyoperatesabout13,000stores.

• Magnit’s sales growthhas slowed sinceRussia’s economywas struckby lowoil prices andWesternsanctions,whichhaveimpactedconsumerspendinginthecountry.

TescoTrialsNewAnti-FraudTap&TagTechnology(October21)RetailGazette• BritishgrocerTescohas launchedatrialat twostores inEssexforanewtechnologycalled

Tap&Tag, which replaces paper receipts with digital ones when a customer completes apurchase.Touse the technology, customers simplyneed to tapa contactless cardorNFC-enabledphoneon theTap&Tagconsole topay.Adigital receiptwill thenbe sent to themfollowinganonlineregistration.

• TheTap&TagtrialwillendinNovember,afterwhichTescowilldecidewhethertorollitoutacrossthenetwork.Thetechnologyisdesignedtohelpthegrocertacklefraudulentreturns,whichcostTescoanestimated£8million(US$9.7million)ayear.

ASIATECHHEADLINESAntFinancialPartnerswithUSPaymentTechCompaniesVerifoneandFirstData(October25)e27.co• AntFinanical,Alibaba’sdigitalpaymentsaffiliate,haspartneredwithUS-basedpaymenttech

companiesVerifoneandFirstDatatoexpanditsbusinessoverseas.• Thenewdealwillmakeitmoreconvenienttoconductcross-bordertransactionsforChinese

shoppers,who are showing an increasing interest in traveling overseas to purchase luxuryitems.

India’sOlaCooperateswithBMWforLuxuryCabsSegment(October24)Reuters• To strengthen its luxury mobility segment, Indian ride-sharing service provider Ola has

partneredwithGermancarmakerBMW.ThecollaborationwillenableOlacaboperatorstopurchaseBMWcarsatcheapercreditandtoreceiveafter-salessupport.

• Otherautomakers,suchasVolkswagen,ToyotaMotorandGeneralMotors,havealsosignedtie-upswithride-sharingcompanies.

TencentCollaborateswithMatteltoDevelopToys(October25)ShanghaiDaily.com• Tencent signed an agreement with US-based Mattel, the largest toy manufacturer in the

world,todevelophigh-techandintelligenttoysbasedontheQQFamilyfigures.• China has few original brands to rival the global manufacturers, despite its large toy

manufacturing and exporting volume, according to the China Toy & Juvenile ProductsAssociation.

Singapore’sEdtechStartupCialfoHeadstoChina(October25)e27.co• Followingapre-seriesAfundraiseroundtwomonthsago,SingaporeanedtechstartupCialfo

hasannouncedthelaunchofitsfirstoverseasoffice,inShanghai,China.Thecompanyaimstohelpstudentsmoreeasilyfindtheirdreamcollege,andChinaisabigmarketforit.Cialfohasalsominted10newstrategicpartnershipagreementsinthecountry.

• Cialfo is looking to collaborate with more education service providers and after-schoolenrichmentprograms,andtoconnectthemwithexistingconsultanciesontheplatform.

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OCTOBER 28, 2016


LATAMRETAILHEADLINESCarcel,aSustainableKnitwearCollectionMadebyPeruvianPrisoners,ReadytoLaunch(October25)WWD.com• Carcel,anewcompanybasedinCopenhagen,isplanningtolaunchane-commercesitethat

sells only sustainable knitwear producedby female prisoners in Lima, Peru. Through a 30-day,$23,000Kickstartercampaign,thecompanysucceeded ingettingenoughpreorderstofinanceknittingmachinesfortheprison.

• Depending on the demand, the company can employ up to 180 women to produce itscollectionof six styles of alpacadesigns inmultiple colors. Thepieceswill retail for $125–$350,andtheproducerofeachgarmentwillhavehernameprintedonitslabelinordertocreateasenseofworthfortheprisoners.

AppleWatchNike+WillBeSoldinBrazilStartingOctober28(October25)AméricaRetail• OneofthemostawaitedwatchesinBrazil,theAppleWatchNike+,willarrivejustonemonth

after the second edition of the AppleWatch launched in the country. This arrival comesmuch faster thanusual for the LatinAmerica region,where consumersusuallywait longerthantherestoftheworldfornewnovelties.

• ThewatchwillalsoarriveinMexicoandPuertoRico.InBrazil,itwillsellforR$2,999,whichisnearlyUS$1,000atcurrentexchangerates,andwillbeavailableatAppleandNikestores.

Mexico’sRetailSalesRiseforFourthStraightMonth(October25)Reuters• RetailsalesinMexicowereup0.6%inAugustfromJuly,whenadjustedforseasonalswings,

accordingtothecountry’snationalstatisticsagency.Themonthlyincreasewasthefourthinarow.

• Yearoveryear,retailsalesincreasedby8.9%inAugust,signifyingstronggrowthinMexico’sretailmarketasthemiddleclasscontinuestoexpandandgainspendingpower.

WalmartWillOpenNewStoresinTabasco,Mexico(October26)AméricaRetail• WalmartisinvestingmorethanMXN157million(US$8.5million)toopentwonewstoresin

the state of Tabasco thatwill generatemore than 250 permanent jobs. The companywillhavecreated4,500jobsintotal,with1,350initsdistributioncentersacrossthestate.

• The company now has 30 stores in the 13municipalities in Tabasco, whereWalmart hasinvestedMXN2.7billion(US$144.7million).

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OCTOBER 28, 2016


EARNINGSCALENDAR

Sales(Mil.) EPS

Company

EarningsReleasePeriod Date

ConsensusTY LYActual

ConsensusTY LYActual Currency

GeneralGrowthProperties(GGP) 3Q16 Oct31 794 585 0.14 0.14 USD

TaubmanCenters(TCO) 3Q16 Nov1 150 140 0.35 0.50 USD

Coach(COH) 1Q17 Nov1 1,069 1,030 0.45 0.41 USD

StevenMadden(SHOO) 3Q16 Nov1 404 414 0.70 0.70 USD

Alibaba(BABA) 2Q17 Nov2 33,937 22,171 4.71 2.08 CNY

Clorox(CLX) 1Q17 Nov2 1,428 1,390 1.42 1.32 USD

EstéeLauder(EL) 1Q17 Nov2 2,891 2,835 0.80 0.82 USD

Facebook(FB) 3Q16 Nov2 6,917 4,501 0.97 0.31 USD

KateSpade(KATE) 3Q16 Nov2 312 277 0.08 0.07 USD

WholeFoodsMarket(WFM) 4Q16 Nov2 3,510 4,829 0.24 0.30 USD

Adidas(ADS.DE) 3Q16 Nov3 5,382 4,758 1.93 1.66 EUR

AvonProducts(AVP) 3Q16 Nov3 1,421 1,667 0.03 (0.09) USD

ForestCityRealtyTrust(FCE-A) 3Q16 Nov3 319 289 0.11 (1.18) USD

Fossil(FOSL) 3Q16 Nov3 740 771 0.31 1.24 USD

GildanActivewear(GIL) 3Q16 Nov3 725 675 0.51 0.51 USD

Unicharm(8113.JP) 3Q16 Nov3 170 170 13.60 2.91 JPY

Richemont(CFR.VX) 1H17 Nov4 5,057 5,821 1.12 2.11 EUR

AssociatedBritishFoods(ABF.LN) FY16 Nov8 13,073 12,800 1.04 0.94 GBP

CVSHealth(CVS) 3Q16 Nov8 45,293 38,644 1.57 1.20 USD

IconixBrandGroup(ICON) 3Q16 Nov8(E) 89 91 0.16 (0.11) USD

Marks&Spencer(MKS.LN) 1H17 Nov8 4,972 4,951 0.10 0.14 GBP

Wayfair(W) 3Q16 Nov8 849 594 (0.59) (0.21) USD

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OCTOBER 28, 2016


EVENTCALENDAR

Event Location Date(s)

FungGlobalPresenting/Attending

SingaporeFashionWeek Singapore,Singapore Oct26–30 BrandCollective Sonoma,CA Oct27–28 √Planalytics18thAnnualHolidayPreviewandQ3Recap Webinar Oct28 √CantonFair Guangzhou,China Oct31–Nov4 √LeanStartupWeek SanFrancisco,CA Oct31–Nov6 LBrandsAnnualInvestorUpdateMeeting Columbus,OH Nov1 √DecodedFashionNewYorkSummit NewYork,NY Nov1–2 RetailCongressAfrica CapeTown,SouthAfrica Nov1–2 KrogerInvestorConference Cincinnati,OH Nov1–2 √ChicagoBooth:ChicagoConversations–DrivingInnovationinSeattle Seattle,WA Nov2 WIRED2016 London,UK Nov3–4 WIRED2016:NextGeneration London,UK Nov5 JDAFocusConnect2016 London,UK Nov7–9 WebSummit Lisbon,Portugal Nov7–10 CustomerEngagementSummit2016 London,UK Nov8 ICSCLatinAmericaLawConference Santiago,Chile Nov8–9 PlugandPlayAgriFoodLaunchEvent Sunnyvale,CA Nov9 CTHallofFameDinner NewYork,NY Nov9 ICSCSouthAmericanShoppingCenterandRetailWorkshop Santiago,Chile Nov9–10 L2Beauty2016 NewYork,NY Nov10 √CohnReznickRetailandConsumerProductsDinner NewYork,NY Nov10 CESUnveiledNewYork NewYork,NY Nov10 FashionDigitalNY NewYork,NY Nov11 TechweekLosAngeles2016 LosAngeles,CA Nov14–20 InsideRetailAcademy:Retail’sNextRevolution HongKong Nov15 WWDDigitalForumLA2016 LosAngeles,CA Nov15 WIREDRetail2016 London,UK Nov16 √RetailWorld Berlin,Germany Nov16–17 MAPIC2016 Cannes,France Nov16–18 Procter&GambleAnalystMeeting Cincinnati,OH Nov18 Women’sEntrepreneurshipDay NewYork,NY Nov19 SleepConference London,UK Nov22–23 BigData&AnalyticsInnovationSummit Beijing,China Nov23–24 AAPA25thLatinAmericanCongressofPorts Merida,Mexico Nov29–Dec2 ICSCNewYorkNationalDealMaking NewYork,NY Dec5–6 √ILTM(InternationalLuxuryTravelMarket) Cannes,France Dec5–8 ElevateNYC:ACloudInnovationForum NewYork,NY Dec6

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OCTOBER 28, 2016


DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comAmandaByrneMarketingAssociate

KirilPopovSeniorAnalyst

JohnHarmon,CFASeniorAnalyst

JohnMercerSeniorAnalyst

RachaelDimitResearchAssociate

StevenWinnickResearchAssociate

CharliePoonResearchAssistant

HONGKONG:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com

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Weekly Insights October 28 2016 - Deborah Weinswig€¦ · e-commerce options and increased sales productivity—to play a bigger role in retailers’ success. 3) German discounter