JUNE 26, 2015 Weekly Insights · !2 JUNE 26, 2015 Fung Business Intelligence Centre (FBIC) Publication: Retail Research Weekly Insights Copyright © 2015 The Fung Group. All rights

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JUNE 26, 2015

Fung Business Intelligence Centre (FBIC) Publication: Retail Research Weekly Insights Copyright © 2015 The Fung Group. All rights reserved.

Li & Fung was on the move this week, demonstrating stock-‐checking robots and announcing an agreement to supply private-‐label goods to two Chinese department store chains

Wearable tech maker Fitbit completed its initial public offering, raising $732 million

eBay has sold its 24.8% stake in Craigslist and put eBay enterprise up for sale, as it readies to spin out PayPal

Once Ahold and Delhaize announcing complete their merger, the combination could offer some major competition to Walmart

Weekly Insights D E B O R A H W E I N S W I G

E x e c u t i v e D i r e c t o r , H e a d o f G l o b a l R e t a i l & T e c h n o l o g y F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e

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 N e w Y o r k : 6 4 6 . 8 3 9 . 7 0 1 7

June 26, 2015

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JUNE 26, 2015


FROM THE DESK OF DEBORAH WEINSWIG

Two innovative developments stood out to us this week—RFID-‐detecting robots and private label launches in China. Both were from Li & Fung, and both reflected very different shifts in retail.

The first standout moment was our opportunity to see new stock-‐check robots from Catalyst, a subsidiary of Li & Fung that specializes in radio-‐frequency identification (RFID) tagging. Catalyst’s new robots walk the floors of retail stores, detecting the volume and location of RFID-‐tagged stock; each robot is a totally automated stock-‐check and stock-‐location machine.

A couple of big European retailers are already trialing the robots, the company told us. We would not be surprised to see many more follow: in an omnichannel age, when customers increasingly want to collect or return online purchases in-‐store, visibility and traceability of stock across its journey is more important than ever.

Just this week, the UK’s Marks & Spencer revised its prior years’ sales figures for online merchandise sales, because it had not been deducting the value of Internet purchases that customers returned in-‐store. RFID and its robot facilitators are likely to help retailers avoid these kinds of slip-‐ups.

The second notable moment of the past week for us was the inking of a deal between Li & Fung and two Chinese department store chains—Shanghai Bailian Group and Beijing Wangfujing Department Store Group—to launch private-‐label ranges in these stores.

The move is an exciting one in a sector that has seen little differentiation through private-‐label development. As we note in our new Global Department Store Retailing report, the sector in China operates mostly under the concession model, with the development of private labels still at a nascent stage. Private labels accounted for less than 2% of revenues for department store operators surveyed by the China Chain Store & Franchise Association and the Fung Business Intelligence Centre—much lower than the 30% to 50% for retailers in developed markets.

And while the Chinese department store sector continues to record positive aggregate growth, these types of retailers have been losing share of total retail sales, our report notes. So even big, growing department store chains cannot afford to stand still. We see private labels offering a real point of difference in the Chinese market, especially for the earliest adopters, and we think there is big scope to grow the private label apparel market in China.

Our 140-‐page Global Department Store Retailing report looks at the issues facing the sector, discusses the major regional markets and profiles the biggest global chains. Download your free copy from www.fbicgroup.com.

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JUNE 26, 2015


US Existing Home Sales Soared in May Figure 1. US Total Existing Home Sales: YoY % Change

Through May 31, 2015 Seasonally adjusted Source: National Association of Realtors

• May total existing home sales in the US reached 5.35 million, up 5.1% from a revised 5.09

million in April and up 9.2% year over year, beating Bloomberg’s consensus of 5.25 million for the month.

• The month-‐over-‐month growth represents the highest sales rate since November 2009. • The national median house price for all housing types in May was $228,700.

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FBIC HAPPENINGS & WEINSWIG’S WATCH ING

CHART OF THE WEEK

STAT OF THE WEEK

• This week, FBIC’s New York team attended CE Week, an event that showcases the latest changes in consumer electronics and technology.

• Next Week FBIC will host the second Disruptors Series Breakfast in New York in collaboration with Entrepreneurs Roundtable Accelerator (ERA).

• Wearable maker Fitbit raised $732 million at its IPO on June 18.

• The stock was priced at $20 a share on the day of the IPO and it was up 50% four days later. The company is valued at $4.1 billion.

$4.1 Bil

Source: 24/7 Wall Street

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JUNE 26, 2015


US RETAIL TRAFFIC Figure 2. US Weekly Store Traffic: YoY % Change

Through June 20, 2015 Source: ShopperTrak

• Overall store traffic for the week ended June 20 was up 4.1%, boosted by Father’s Day shopping.

• Apparel and electronics store traffic increased by 1.1 % and 1.3 %, respectively.

• The month-‐to-‐date traffic declined 4.2%, reflecting consumer’s growing preference to shop online.

US REGULAR GASOLINE PRICES

Figure 3. US Regular Gasoline Prices (USD per Gallon)

06/08/15 06/15/15 06/22/15 Week Ago Year Ago

US 2.780 2.835 2.812 (0.023) (0.892)

East Coast 2.691 2.742 2.729

(0.013)

(0.938)

Midwest 2.677 2.794 2.743

(0.051) (0.950)

Gulf Coast 2.536 2.593 2.574 (0.019) (0.920)

West Coast 3.377 3.334 3.329

(0.005) (0.682)

Source: US Energy Information Administration

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JUNE 26, 2015


US RETAIL EARNINGS

Company

Revenues ($ Mil.)

Change YoY Gross Margin (%) Change

Net Income ($ Mil.)

Change YoY Store Fleet EOP

Period 2015 2014 (%) 2015 2014 (BP) 2015 2014 (%) 2014 2013

NIKE 4Q ended May 31 7,779 7,425 4.8 46.2 45.6 60 865.0 698 23.9 832 768

Source: Company reports

US RETAIL HEADLINES UK Fashion Brand FatFace Explores US Store Locations (June 17) The Guardian • The head of British fashion chain FatFace visited 40–50 potential East Coast store locations,

including Boston, Newport and Portland, Maine. FatFace will open its first US store this fall in Boston; it will be the company’s first expansion outside the UK and Ireland.

• FatFace started out selling sweatshirts in 1988. The apparel brand currently operates over 200 stores in the UK and Ireland.

eBay Sold Its Stake in Craigslist (June 19) Women’s Wear Daily • eBay announced that it sold its 28.4% equity in Craigslist back to the company. The deal is eBay’s

latest effort to refocus on online marketplace business. The company is set to spin off PayPal and has put eBay Enterprise up for sale.

• Shares of eBay were up 0.5% on the announcement.

Instacart Upgrades Some Contract Workers to Employees (June 22) The Wall Street Journal • Instacart, an on-‐demand grocery startup, will allow some of its contract workers to become part-‐

time employees in the wake of regulators looking into companies employing Uber-‐like workforces. Companies such as Uber and Postmates don’t treat their on-‐demand workers like employees in order to avoid insurance costs.

• Instacart employs 7,000 contractors in stores. The part-‐time programs apply to workers in Boston and Chicago. The company also doesn’t offer part-‐time employment to drivers so as to avoid vehicle-‐related charges.

Alibaba Sells Its US-‐Based E-‐Commerce Site 11 Main (June 22) Women’s Wear Daily • Alibaba’s first US site, 11 Main, has stopped independent operation after launching just one year

ago. 11 Main will merge operations with social-‐shopping site OpenSky, in which Alibaba has 37% ownership.

• In contrast to Amazon’s and eBay’s approach to designer brands, 11 Main focused on growing mom-‐and-‐pop stores in the US.

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JUNE 26, 2015


ASIA HEADLINES Alibaba Just Threw $1 Billion into the Battle for China’s OSO Services (June 23) TechinAsia • E-‐commerce titan Alibaba announced that it’s forming a ¥6 billion (US$970 million) joint venture

company to focus on web-‐connected on-‐demand services, such as food delivery.

• The move seems designed to ensure that Alibaba’s large lead in e-‐commerce in China isn’t eroded as the concept of e-‐commerce broadens to include anything from ordering a pizza online to hailing a cab from an app.

Yello Digital Marketing Just Made an Acquisition that Could Propel It into Thailand (June 22) TechinAsia • South Korea’s Yello Digital Marketing, a subsidiary of mobile advertising network Yellow Mobile,

has acquired a stake in Thai online marketing company Adyim.

• Adyim is a four-‐year-‐old online firm operating in Bangkok. Its main services include digital content creation, website design, mobile app development, viral video production and social media management. Its clients include L’Oréal Thailand and Amway.

Here’s How SoftBank Aims to Provide Electricity in Every Indian Home (June 22) TechinAsia • Japanese telco SoftBank, Indian conglomerate Bharti and Taiwan-‐based manufacturer Foxconn

announced a joint venture to invest in cleantech startups in India. The fund, named SBG Cleantech, will be a harbinger of solar and wind energy.

• The country has achieved a base of 3.7GW of solar power, evolved its policies and created a solar ecosystem of installers, manufacturers, developers, financiers and researchers.

This Indian Startup Gamifies Cognitive Skill Development for Kids (June 22) TechinAsia • NASSCOM published statistics saying 80% of India’s graduates were unemployable because they

couldn’t grasp concepts quickly and apply them in the workplace.

• Startup Edsix Brain Lab offers a gamified skill assessment and enhancement platform for K–12 students. It aims to strengthen cognitive skills for critical thinking, learning agility, increased attention span and more.

China Amps Up Support for the Russian Tech Ecosystem (June 22) e27.co • Russian government agency Skolkovo Foundation and Chinese investment group Cybernaut are

launching a US$200 million fund to support Russian startups, as well as a joint robotics hub in China in conjunction with the Skolkovo Robotics Center.

• As a key strategic partner in boosting the Russian economy, China has ramped up support, most recently with a US$25 billion financing agreement for Chinese banks to support Russian companies.

Singapore and Australia Top the Region for Mobile and App Infrastructure: Ericsson (June 22) ZDNet • Singapore has the fastest download speeds in the region, and is second only to Australia for

having the best app infrastructure across the region, according to an Ericsson report.

• The report says that Singaporeans are currently experiencing median download speeds in excess of 20 Mbps and peak download speeds of 70 Mbps, with expanded LTE coverage cited as the reason for such speeds.

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JUNE 26, 2015


First 5G Mobile Networks Expected in 2020 with up to 20 Gbps Speeds (June 22) ZDNet • Instead of the 50 to 100 Mbps connections of 4G networks, 5G could top out at 20 Gbps. That’s

fast enough to download an ultrahigh-‐HD movie on a mobile device in 10 seconds, says The Korea Times, reporting on the new 5G definition being adopted by the ITU.

• The Korea Times reports that 5G networks can “provide more than 100 megabits-‐per-‐second average data transmission to over one million Internet of Things devices within 1 square kilometer.”

China to Promote Cross-‐Border E-‐Commerce as Incomes Rise (June 21) Channel NewsAsia • The government released policy guidelines that include tax policies aimed at boosting domestic

consumption and pilot projects to ease overseas payments, according to a statement posted on the central government’s website (www.gov.cn).

• Chinese e-‐commerce firms will be given state support on international projects while credit insurance services will also be introduced. Customs will streamline clearance of goods and quality supervision agencies will allow collective declaration, examination and release of goods.

EUROPEAN RETAIL EARNINGS

Company

Revenues ($ Mil.) Change

Change in Reporting Currency Gross Margin (%) Change Net Income ($ Mil.)

Change YoY Store Fleet EOP

Period 2015 2014 (%) (%) 2015 2014 (BP) 2015 2014 (%) 2015 2014

H&M 1H to May 31,

2015 10,087 10,607 (4.9) 23.1 57.4 58.1 (68) 1,178.7 1,282.2 (8.1) 3,285 3,132 Source: Company reports

EUROPEAN RETAIL HEADLINES Ahold and Delhaize Join Forces to Compete with Walmart (June 24) Retail-‐Week.com • Dutch grocery retailer Ahold and Belgian supermarket chain Delhaize have announced a merger.

The new firm, Ahold Delhaize, will be valued at around €26 billion (£18.4 billion) based on current share prices.

• While both retailers are based in Europe, the US market generates around 60% of their sales. Those involved in the move say they hope to create a more “innovative retail leader” capable of rivaling Walmart in the US.

IKEA Wants to Get Closer to UK Customers (June 24) RetailBulletin.com • As part of its initiative to become more accessible to UK customers, furniture retailer IKEA is

testing a new retail format in the form of order and collection points. It will trial a variety of formats for the new service in selected markets, and use it as an opportunity to find out more about customers’ shopping preferences in these areas.

• The first order and collection point will open this autumn and function as a planning studio. Shoppers will be able to test products and collect orders made online or in-‐store. This first collection point will also include a café and a small selection of products that customers can take home that day.

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JUNE 26, 2015


Shopping Center to Invest in Luxury Sector amid Consumer Demand (June 24) Company Press Release • Westfield Corporation has announced it will make a multimillion-‐pound investment in one of its

London shopping centers. The key focus is the expansion of its luxury shopping area, The Village at Westfield London.

• The move will see a number of new luxury stores opening and existing retailers relocating to larger spaces. The plans are in response to growing consumer demand for luxury retail at the shopping center and are set to be completed by the end of the year.

John Lewis to Partner with Mobile Provider Vodafone (June 23) Company Press Release • UK department store John Lewis is adding another service to its technology portfolio by

partnering with Vodafone to offer its UK customers mobile contracts in selected John Lewis stores.

• The rollout will begin in London in July with other stores following suit shortly after. The department will be jointly run by John Lewis and Vodafone staff.

German Shoe Retailer Could Be Bought by Rivals (June 24) Retail-‐Detail.eu • According to industry sources, Reno, Germany’s second-‐largest shoe retailer, is up for sale.

• The company currently has 750 stores and a €650 million annual turnover. The sale is set to take place at the end of the summer, and competing chains Leiser and Goertz have already been named as potential buyers.

Superdrug Becomes the UK’s Fastest-‐Growing Healthcare Retailer (June 25) Retail-‐Gazette.co.uk • UK retailer Superdrug has become the fastest-‐growing healthcare retailer in the UK, based on the

accounts it filed at Companies House this week for the 52 weeks ended December 27, 2014.

• The accounts show a 2014 operating profit of £38.2 million, up from £25.8 million in 2013 and an operating loss of £6.4 million in 2012. Health products grew by 12.2% while beauty saw a 4.6% increase.

Debenhams 3Q Sees Flat Comps (June 25) Company Press Release • UK department store chain Debenhams reported flat comps for the 15 weeks through June 13,

2015. A less-‐promotional stance during the period, including carrying its New Season Spectacular into the first half, hit comparable sales growth by 0.1%, the company said.

• Gross transaction values inched up 0.4% in the third quarter, helped by online revenues, which were up 17%.

H&M Reports Storming First Half (June 25) Company Press Release • Swedish fashion giant H&M posted first-‐half results showing sales up 23%, to SEK86.1 billion, or

12% growth in local-‐currency terms. Net profit surged 19% year over year, to SEK10.1 billion.

• Breaking out second-‐quarter results, the company said sales grew 21% in SEK terms and 10% in local currencies in the quarter, while net profit grew 11%.

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JUNE 26, 2015


LATAM HEADLINES Carlos Slim–Controlled Company to Acquire Mexican Walmart Bank Unit (June 24) Fox News Latino • Grupo Financiero Inbursa, which is controlled by Mexican billionaire Carlos Slim, has acquired

Banco Walmart for US$234 million (MXN3.6 billion). • The bank has US$523 million (MXN8.1 billion) in assets, a US$352 million (MXN5.4 billion) credit

portfolio and US$138 million (MXN2.1 billion) in equity. • Inbursa expects the acquisition, in connection with its commercial alliance with Walmex’s self-‐

service retail chain, to accelerate its retail banking strategy of offering attractive products and high-‐quality service to a greater number of customers.

Dufry Opens Three New Stores at Rio de Janeiro’s Galeão International Airport (June 24) MoodieReport.com • International travel retailer Dufry has opened three adjacent pop-‐up stores in Terminal 2 of Rio

de Janeiro’s Galeão International Airport. • The three stores are branded MAC, Tommy Hilfiger and Watches & Accessories stores, with a

total area of more than 2,000 square feet (200 square meters). • Dufry already operates a new 5,920-‐square-‐foot (550-‐square-‐meter) duty-‐free shop in Terminal

1, which is open 24 hours a day. Éxito Opens Devoto Express Convenience Stores in Uruguay (June 23) IGD RetailAnalysis • Grupo Éxito has opened its first two express convenience stores in Uruguay under the name

Devoto Express. • Éxito already operates 110 express stores in its home country, Colombia, and its international

growth strategy includes expanding this format. • The company’s goal is to open another eight Devoto Express stores by the end of 2015, for a total

of 10 stores. Mexican Retail Sales Fall in April, Endangering Recovery (June 22) Reuters • Following three months of expansion, Mexican retail sales posted a decline in April. • Retail sales declined by 0.3% month over month in April, but they were still up 4.6% year over

year. • Mexico’s economy grew at its slowest rate in a year in the first quarter, yet consumption is

improving, according to officials from the country’s national statistics institute. Brazilian Malls Facing Credit Crunch as Economy Weakens (June 19) Bloomberg • The weakening economy is taking a toll on mall operators, who face higher borrowing costs due

to their weakened earnings. • Moreover, the decline of the Brazilian real is adding to the debt burden of property owners, as

much of their debt is denominated in US dollars and the real has lost 14% of its value against the US dollar this year.

• Mall operators are facing even higher interest rates due to credit downgrades, and some are pursuing asset sales to reduce leverage ratios.

Alibaba Interested in Expanding Food Imports from Latin America (June 19) RetailNews Asia • Alibaba is enthusiastic about doing business in Latin America, particularly in Mexico, Brazil and

Argentina. • The company is specifically interested in importing foodstuffs into China, as the country’s rising

middle class is demanding them. • Avocados were a top seller in 2014, and Chilean cherries and Argentine prawns have also been

hot products.

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JUNE 26, 2015


EARNINGS CALENDAR

Sales (USD Mil.) EPS

Company

Earnings Release Period Date

Consensus TY LY Actual

Consensus TY LY Actual Currency

Nike 4Q 15 Jun. 26 7,667 7,425 0.83 0.78 USD

Tesco 1Q 15 Jun. 26 N/A N/A N/A N/A GBP

Ocado Group FY 15 Jun. 30 1,107 949 0.022 0.013 GBP

Alimentation Couche-‐Tard 4Q 15 Jul. 7 7,499 8.95 0.27 0.22 USD

Marks & Spencer 1Q 15 Jul. 7 N/A N/A N/A N/A GBP

Fast Retailing FY 15 Jul. 9 1,665,000 1,380,000 1,286 887 JPY

Family Dollar 3Q 15 Jul. 10 2,727 2,660 0.82 0.85 USD

eBay 2Q 15 Jul. 16 4,487 4,370 0.73 0.69 USD

VF 2Q 15 Jul. 17 2,462 2,400 0.36 0.36 USD

Google 2Q 15 Jul. 17 14,253 12,670 6.74 N/A USD

Tractor Supply 2Q 15 Jul. 17 1,762 950 1.11 0.95 USD

Apple 2Q 15 Jul. 22 48,545 37,430 1.77 1.28 USD

LVMH FY 15 Jul. 23 35,458 40,640 3.65 6.40 EUR

Kering HY 15 Jul. 23 5,290 4,747 5.07 4.41 EUR

Macerich 2Q 15 Jul. 23 327 254 0.14 0.11 USD

Westfield Financial 2Q 15 Jul. 23 8.9 8.7 0.08 0.07 USD

Facebook 2Q 15 Jul. 23 3,969 2,910 0.47 0.31 USD

Brunswick 2Q 15 Jul. 24 1,155 1,139 1.03 0.95 USD

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JUNE 26, 2015


EVENT CALENDAR

Event Location Date(s) FBIC Presentation

Techweek Chicago Chicago, IL June 22–28

Sustainability Re.Hack London, England June 25–26

App Promotion Summit London, England July 9

Wearable Technologies Conference San Francisco, CA July 9–10 ICSC North American Research Task Force Summer Meeting New York, NY July 10–11

Fortune Brainstorm Tech Aspen, CO July 13–15

UJA Cybersecurity Tech Talk New York, NY July 15

Mobile World Congress Shanghai Shanghai, China July 15–17

ICSC New England Idea Exchange Boston, MA July 15–17

Omnichannel Retail Executive Forum New York, NY July 16

Esri Business Summit San Diego, CA July 20–24

AAFA Project SOLE New York, NY July 19–21

AAFA 4th Annual Traceability Conference Nashville, TN July 21

Online Retailer Conference & eCommerce Expo Sydney, Australia July 21–23

NRFtech Half Moon Bay, CA July 26–28 NRF International Trade/ Supply Chain Summer Meeting Washington, DC July 28

NRF Retail Advocates Summit Washington, DC July 28–29

Colombiamoda Medellin, Colombia July 28–30

NYC Intimate Apparel Market Week New York, NY August 3–7

Magic Las Vegas, NV August 17–19

NACDS Total Store Expo Denver, CO August 22–25 Deborah Weinswig

CIO Retail Summit Scottsdale, AZ August 23–25

Planalytics Back-‐to-‐School Outlook Online August TBD

World Retail Congress Rome, Italy September 8–10

NRF Retail Leaders Dinner Dallas, TX September 10

WWD Digital Forum New York, NY September 16–17

ICSC Western Division Conference San Diego, CA September 16–18

E-‐Commerce Paris Paris, France September 21–23

World Retail Congress Paris, France September 30–October 1

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JUNE 26, 2015


Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 [email protected] Cam Bolden [email protected] Sunny Chan [email protected] Marie Driscoll, CFA [email protected] John Harmon, CFA [email protected] Aragorn Ho [email protected] John Mercer [email protected] Charlie Poon [email protected] Kiril Popov [email protected] Stephanie Reilly [email protected] Lan Rosengard [email protected] Jing Wang [email protected]

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JUNE 26, 2015 Weekly Insights · !2 JUNE 26, 2015 Fung Business Intelligence Centre (FBIC) Publication: Retail Research Weekly Insights Copyright © 2015 The Fung Group. All rights