Weekly Insights by Fung Global Retail Tech September 2 2016 · Abercrombie & Fitch 2Q16 783 818 (4.2) 60.9 62.3 (143) (13) (1) (1,520.9) 926 954 ... imported toys, clothing and other

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September 2, 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

September 2, 2016 • Thisweek’snote“FromtheDeskofDeborahWeinswig”talksabouthowtheUSLaborDayholidaymarksthetraditionalendofsummerand,increasingly,thestartoftheholidayshoppingseason.

• Despite being bombarded with branded content through socialmedia and targeted ads,64% ofmillennials say they areas brandloyal as their parents, or even more so. According to a recentsurvey, only 1% of millennials say they are influenced byadvertising.

• Two Dutch companies are developing a new delivery service foronline orders.With the service, drones could deliver packages tosmart, Internet-connectedmailboxes. The service aims to removethe need for a human to place parcels, and deliveries could bescheduledforanytimeoftheday.

• The Mexican peso is weak versus the US dollar right now, butMexican nationals are still crossing the border to shop in thegrowing number of American shopping centers in Texas andArizona. Mexican residents account for nearly US$4.5 billion inannual retail sales in Texas, particularly in counties along theborder.

Source:TheEconomist

BigMacIndex:GlobalPricesforaBigMacinJuly2016$829.5Bil.• In the US alone, consumers spent $829.5 billion on

Generation Z in 2015. This is equivalent to 6.8% oftotal US consumer spending last year, andrepresentedan8.1%increasefrom2014.

• Around $66 billion of the 2015 total was spent on

discretionary categories, whilemost of it was spentonessentialorsemi-discretionarycategories,suchashousing,food,clothingandtransportation.

Source:Women’sWearDaily/FungGlobalRetail&Technology

$2.79

$3.47 $3.54$3.94

$4.21$4.78

$5.04

$6.59

China Japan UAE Britain EuroArea Brazil TheUnitedStates

Switzerland

http://wwd.com/retail-news/trends-analysis/consumer-spending-apparel-sales-up-10393763/

http://wwd.com/tag/consumer-spending/

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September 2, 2016


FROMTHEDESKOFDEBORAHWEINSWIG

SummerIsOver,andtheHolidayShoppingSeasonHasAlreadyBegun

In theUS, theLaborDayholiday fallsnextMonday,whichmarks thetraditionalendofsummer.Now,with theOlympics finished, summer holidays taken and the kids going back to school, adults adopt amoreseriousattitudetowardworkagain.

Firstupistheback-to-schoolflurry.FungGlobalRetail&Technologyismaintainingitsinitialestimateof2%–3% growth in this year’s back-to-school retail sales, amid a dynamic US economic environment.Retailersareoptimisticaboutthefallquarter,andsolidconsumerspendinginthesecondquartershouldrelieve someanxiety for retailers. The low saving rate, robust labormarket and falling gas prices alsofavorstrongconsumptiontrends—yetconsumerconfidencecouldsufferduetoslowwagegrowth,thepotentialofaninterestratehikeandthependingUSpresidentialelection.

We normally think of the holiday shopping season as taking place during the calendar fourth quarter(October–December), but that is changing. The second annual Amazon Prime Day in July was muchbigger than the first, with orders up 60% worldwide and up 50% in the US. The number of Primemembers is growingatabout50%peryear,basedonestimates fromConsumer IntelligenceResearchPartners, creating a virtuous circle for Amazon; more members bring better economies of scale andbetterbenefits—whichattractevenmoremembers—andsoon.PrimeDayenablesAmazontoenliventhe slowmidsummer shopping season, and savvy shoppers can use PrimeDay to get a head start ontheirback-to-schoolandholidayshopping.

OtherretailersjumpedonthePrimeDaybandwagontoofferdealsoftheirowninJuly.Walmartofferedfreeshippingandpricerollbacks;Targetrana“SummerSale”;BestBuyoffereddiscountsonseveralbig-ticket electronics categories, including HDTVs, gaming consoles and large home appliances, whilehighlighting the fact that“nomembership [was]needed”;andToys“R”Us ranapromotionofferingadiscountandfreeshipping.

Asthisletter’stitlesays,theholidayshoppingseasonhasalreadybegun.Today,Walmartissuedapressreleasesayingthat20%ofthetoptoysforthisholidayseasonareexclusivetotheretailer,and itstoyrecommendationsaretiedtothepersonalityofthechildrecipient:boss,humanitarian,dreamer,thrill-seekerorindependent.Thecompany’sholidaylayawayplanwillstartSeptember2,allowingcustomersto put down 10% of the basket’s value (or $10, whichever is greater) on a $50 minimum basket.Customers will have until have until December 12 to pay off the balance.Walmart offered a similarpromotionlastyearaswell.

Thegeneraltrendhasbeenforretailerstomoveupthetimingofshoppingeventsinordertogetajumpontheircompetitors(andalso,probably,toalleviatesomeoftheirownuncertaintyaboutholidaysales).Inrecentyears,wehaveseenasmearingofthetimingofholidaysales,aspurchasesnormallycompletedin December are increasingly being completed in November or even earlier, depending on thepromotions offered. And the advent of e-commerce andmobile commerce hasmade it less and lessnecessaryforshopperstovisitacrowdedstoreduringtheholidays.

EvenBlackFridayislosingitsdominanceasthelargestshoppingdayoftheyear.Manyshoppingeventsare now being held on Thanksgiving Day or falling to CyberMonday, and some retailers are offeringpromotions theweek before Thanksgiving or throughout thewholemonth of November. Online andmobile commerce makes it easier for retailers to offer online promotions at virtually any time, andconsumers are increasingly taking advantage of these shopping events, rather than saving up theirshoppingforthetraditionalbigshoppingdays.

Althoughthedogdaysofsummerarenotyetbehindus,itistimeforconsumerstotakeouttheircreditcardsandstartthinkingabouttheirholidayshopping.

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September 2, 2016


USRETAILEARNINGS

Company

Revenues(USDMil.)

YoY%Change

GrossMargin(%)

Change(bps)

NetIncome(USDMil.)

YoY%Change StoreFleetEOP

Period 2016 2015

2016 2015

2016 2015

2016 2015

Abercrombie&Fitch 2Q16 783 818 (4.2) 60.9 62.3 (143) (13) (1) (1,520.9) 926 954

BigLots 2Q16 1,203 1,210 (0.5) 40.4 39.3 109 23 18 28.8 1,445 1,464

Chico’s 2Q16 636 680 (6.6) 37.9 53.8 (1,591) 23 2 985.7 1,595 1,581

DSW 2Q16 659 627 5.1 28.4 30.5 (214) 25 38 (33.4) 480 449

FiveBelow 2Q16 220 182 20.8 33.3 32.8 48 10 7 39.5 491 417

G-IIIApparelGroup 2Q17 442 474 (6.7) 35.2 35.5 (33) (1) 12 (110.4) N/A 435

Lululemon 2Q16 515 453 13.6 49.4 46.8 259 54 48 12.5 379 336

VeraBradley 2Q17 119 121 (1.2) 57.4 55.1 222 5 6 (10.6) 157 144Source:Companyreports

USRETAIL&TECHHEADLINESAtPorts,aSignofAlteredSupplyChains(August29)TheWallStreetJournal• Activity and traffic in US ports is flat, during a time when retailers are usually loading up onimportedtoys,clothingandothermerchandiseforholidayshoppers.Thesametrendwasseenlastyear,andeconomistssay it isduetoretailershaving less inventory instoresasconsumersshifttoshoppingonline.

• Thepatternchangewasunexpectedbyports,whichhavespentbillions toupgradeequipmentanddeepenharborsinanticipationoftheusualsurgeofimportsduringthistimeofyear.Portsareexpectedtohandle2.2%moreimportsthisyear,whichrepresentstheslowestgrowthratesince2011.

GetReadytoSharetheRoadwithCarsthatHaveNoOneBehindtheWheel(August31)TechCrunch• CaliforniaandMichiganarebothlookingatlegislationthatwouldallowthetestingofdriverlesscarsonactualroads.Whilethebillsdolimitthesituationsinwhichdriverlesscarscanbetested,theproposedlawsrepresentabigstepinthedevelopmentandacceptanceofthetechnology.

• Thebillscouldrepresentasignificanteconomicadvantage,too,servingasawaytokeepcartechresearch and development within the two states. Plus, the legislation will likely speed upadoptionofsimilarlegislationinotherstates.

HowSocialMediaCapsizedtheFashionShow(August29)Glossy• Tommy Hilfiger is taking a unique approach to New York Fashion Week. In addition to itsprivatelyheld,press-and-buyers-onlywomen’sready-to-wearshow,theclassicAmericanbrandwillhold“acarnival-themedpartyandfashionshow”calledTommyPiertolaunchtheTommyxGigibrand.Halfofthe2,000ticketsfortheeventwillgotothepublic.

• This new take on FashionWeek is in response to the power and immediacy of social media,whichbrandsmustadaptto.Fashionshowsnowhavetosatisfytwoaudiences:theindustryandtheconsumer.

WEINSWIG’SWATCHING

NextweekinNewYork,theUSFungGlobalRetail&TechnologyteamwillbeattendingtheGoldmanSachs23rdAnnualGlobalRetailingConferenceandcohostingaDinnerwithTheDisruptorseventwithHookLogic.

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September 2, 2016


ThinkTank:MillennialsAreMoreBrandLoyalthanYouThink(August30)Women’sWearDaily• Despitebeingbombardedwithbrandedcontentthroughsocialmediaandtargetedads,64%ofmillennialssaytheyareasbrandloyalastheirparents,orevenmoreso.Accordingtoasurvey,only 1% of millennials are influenced by advertising, says ThomasMarks, VP ofMarketing atStitchLabs.

• So, retailers should focus their marketing efforts on creating experiences, supporting goodcausesandengagingwithcustomersonsocialmedia.Ofthemillennialssurveyed,78%saidtheywouldratherspendonanexperience,87%saidtheyhaddonatedtoanonprofitin2013and62%saidtheyaremorelikelytobecomebrandloyalifabrandengageswiththemonsocialmedia.

EUROPERETAILHEADLINESAppleOrderedtoPay€13BillioninTaxtoIreland(August30)Reuters• On Tuesday, August 30, EuropeanUnion antitrust regulators ordered Apple to pay €13 billion(US$15billion)intaxestotheIrishgovernment.

• In2014,theEuropeanCommissionaccusedIrelandofdodginginternationaltaxrulesbyallowingApple to safeguard profits worth tens of billions of dollars from tax collectors in return forpreservingjobs.

NotOnTheHighStreettoExpandintheUKandOverseas(August30)RetailGazette• British online retailer Not On The High Street has landed £21 million (US$27 million) ininvestment fundingas itexpands in theUKandabroad.The fundsareexpected tobeused tofurtherinvestintechnology,marketingandwebsiteoperation.

• Not On The High Street has a partner community of 5,000 sellers that use the platform toconnectwithcustomers.

GaleriesLafayettetoFurtherInvestinItsOmni-ChannelStrategy(August29)LuxuryDaily• Frenchdepartment-storechainGaleriesLafayettehashiredConstancedePolignacasMarketingand Digital Director. Polignac joins from apparel retailer Camaieu and will develop GaleriesLafayette’somni-channelstrategy.

• Earlier this year, Galeries Lafayette acquired French e-commerce site Instant Luxe, whichspecializes in preowned luxury goods. With growing interest in luxury consignment amongaffluent consumers, the purchase of Instant Luxe gives Galeries Lafayette a foothold in thesecondhandretailsector.

DutchCompaniesTestDronePackageDeliverytoSmartMailbox(August29)EcommerceNewsEurope• Two Dutch companies, delivery specialist B2C Europe and mailbox manufacturer Parcer, aredeveloping a new delivery service for online orders. With the service, drones could deliverpackagestosmart,Internet-connectedmailboxes.

• The service aims to remove the need for a human to place parcels, and deliveries could bescheduledforanytimeoftheday.Smartmailboxescouldbelocatedanywherethatisaccessiblebyair.

LastRemainingBHSStoresClosed(August28)BBCNews• OnSunday,August28,thelast22remainingBHSstoresclosed,followingthe88-year-oldBritishdepartmentstorechain’s failure to findabuyer.The retailerwasplaced intoadministration inMarch.

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September 2, 2016


• IntheweekspriortoAugust28,administratorsmade141BHSstoreclosures.Negotiationsoverpensionscontinueforthe11,000BHSstaffwhohavelosttheirjobs.

ASIATECHHEADLINESMalaysia’sMacrokioskSecuresInvestmentfromJapan’sGMOPaymentGateway(August30)e27.co• Malaysian mobile technology company Macrokiosk has secured an undisclosed amount ofinvestment from Japan’s GMO Payment Gateway in return for a substantial stake in thecompany.

• Macrokioskbelievesthepartnershipwillhelp itadoptnewtechnologiesandinnovatesolutionstomeetthedynamicneedsofitsvariousclients.

MitsubishiHeavyIndustriestoDeliverJapan’sFirstJetin2018(August30)Bloomberg• Mitsubishi Heavy Industries revealed that it still plans to deliver its first plane, theMitsubishiRegionalJet,in2018,despiteissueswiththejet’sair-conditioningventilatorhavinggroundedtheplanefromfurthertestflights.

• MitsubishiRegionalJetwillbethefirstlocallybuiltpassengerjet.Italreadyhas407orders,anditstwobiggestcustomersarebasedintheUS.

VentureCapitalGroupFoundedtoBoostSoutheastAsia’sStartupIndustry(August30)TechinAsia• Anewgroup,calledtheASEANVentureCouncil,hasbeenformedbyventurecapitalfirmsthatinclude Gobi Partners, East Ventures and Convergence Ventures. The goal of the group is topromoteanddeveloptheventurecapitalindustryinSoutheastAsia.

• The startup industry in SoutheastAsia is booming right now; in the first half of 2016,US$799millionwaspumpedintoyoungtechfirmsacrosstheregion.

Japan’sSmartHRSecuresUS$4.89MillioninFunding(August30)TechinAsia• Japan’s SmartHR, which provides automated human resources services, has secured fundingtotaling US$4.89 million. The funds will be used to better automate personnel and labormanagementtasks.

• SmartHR helps automate employee benefit and insurance programs. The company’s serviceenablesclients to shorten theprocedure for filing insuranceclaimsbyconnectingdirectlywithlocalcityoffices.

LATAMRETAILHEADLINESDilmaRousseffOustedinHistoricBrazilImpeachmentVote(August31)TheWallStreetJournal• At the impeachment trial ofDilmaRousseff onAugust 31, Brazil’s senate voted to convict theformer president on charges that she used illegal bookkeeping maneuvers to hide a growingbudgetdeficit.

• TheimpeachmentofRousseffwaswidelyexpectedduetotheamountoflegalevidencethathadbeen compiled. Interim PresidentMichel Temer,who had served as Rousseff’s vice president,willservetheremainderofthetermaspresident.

RetailDevelopmentIsSurgingattheUS-MexicoBorder(August30)ShoppingCentersToday• TheMexicanpesoisweakversustheUSdollarrightnow,butMexicannationalsarestillcrossingthebordertoshopinthegrowingnumberofAmericanshoppingcentersinTexasandArizona.

https://smarthr.jp/

https://smarthr.jp/

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September 2, 2016


• MexicanresidentsaccountfornearlyUS$4.5billioninannualretailsalesinTexas,particularlyincounties along the border. Existing malls in the area are working to expand in order toaccommodateMexicanshopperscomingfromacrosstheborder.

TheBodyShopExpandstoChile(August25)RetailGazette• TheBody Shop is continuing its expansion in LatinAmerica, andplans to open a new store inChile. The retailer is already present in both Mexico and Brazil; Chile will be the third LatinAmericancountrythattheretailerenters.

• TheBodyShophasstoresin65countriestodate.ThecompanyhasnotannouncedplanstoopenanyadditionalstoresinChileapartfromitsfirstone.

BrazilianPet-SittingMarketplaceDogHeroRaisesUS$3.1Million(August29)TechCrunch• Known as the Brazilian Airbnb for pet sitting, DogHero raised US$3.1 million in financing aspetcare spending in Brazil continues to rise. Currently, Brazil accounts for US$8.16 billion inspendingonpets.

• DogHerolaunchedin2014inordertocapitalizeonconsumers’willingnesstoopentheirwalletsformorethird-partypetservices,suchasveterinarycare,groomingandpetsitting.Brazilisthesecond-largestmarketfordogownershipintheworld,behindonlytheUS.

SorianatoCompetewithWalmartinE-Commerce(August30)AméricaRetail• MexicanretailerSorianaissettosell itsproductsonlinethroughSoriana.com.Therewillbenominimumpurchasenecessaryandexpressshippingwillbeanoption,withanestimateddeliverytimeoftwotofivedays.

• Items sold on the site will include electronics, computers, domestics, furniture, health andbeauty,sportinggoods,toys,andcarparts,andtherewillalsobeanoutletsection.Soriana.comwillfeaturealivechatoptionthatprovidescustomerswithimmediateanswerstoquestionsandconcerns.

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September 2, 2016


EARNINGSCALENDAR

Sales(Mil.) EPS

Company

EarningsReleasePeriod Date

ConsensusTY LYActual

ConsensusTY LYActual Currency

GlobalBrandsGroup(787.HK) 1H16 Sep2(E) 1,474 1,282 0.00 (0.01) USDHudson’sBayCompany(HBC.TO) 2Q17 Sep6 3,258 2,038 (0.57) (0.06) CAD

RestorationHardware(RH) 2Q17 Sep8(E) 512 507 0.29 0.79 USD

Kroger(KR) 2Q17 Sep9 26,795 25,539 0.45 0.44 USD

AscenaRetailGroup(ASNA) 4Q16 Sep14(E) 1,771 1,170 0.17 0.07 USD

Next(NXT.LN) 1H17 Sep15 1,905 1,891 1.86 1.84 GBPWmMorrisonSupermarkets(MRW.LN) 1H17 Sep15 7,940 8,064 0.04 0.05 GBP

Esprit(330.HK) FY16 Sep20 17,844 19,421 (0.18) (0.54) HKD

Kingfisher(KGF.LN) 1H17 Sep20 5,492 5,768 0.12 0.12 GBP

Inditex(ITX.SM) 1H17 Sep21 10,425 9,421 0.40 0.37 EUR

RiteAid(RAD) 2Q17 Sep22 8,165 7,665 0.03 0.05 USD

Nike(NKE) 1Q17 Sep23(E) 8,877 8,414 0.56 0.67 USD

Boohoo.com(BOO.LN) 1H17 Sep27 124 91 0.01 0.00 GBP

CostcoWholesale(COST) 4Q16 Sep29 37,123 35,778 1.74 1.73 USD

H&M(HM-B.ST) 3Q16 Sep30 49,594 46,024 3.21 3.21 SEK

Tesco(TSCO.LN) 1H17 Oct5 27,457 27,227 0.03 0.01 GBP

FinishLine(FINL) 2Q17 Oct6(E) 494 483 0.53 0.57 USD

LVMH(MC.PA) 3Q16 Oct10(E) 8,938 8,581 N/A N/A EUR

eBay(EBAY) 3Q16 Oct12(E) 2,185 2,099 0.44 0.39 USD

Supervalu(SVU) 2Q17 Oct12(E) 3,991 4,062 0.11 0.13 USD

Alphabet(GOOGL) 3Q16 Oct13(E) 17,966 18,675 8.62 5.73 USD

FastRetailing(9983.JP) FY16 Oct13 1,792 1,682 522 1,079 JPY

ASOS(ASC.LN) FY16 Oct18 1,424 1,151 0.58 0.43 GBP

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September 2, 2016


EVENTCALENDAR

Event Location Date(s)

FungGlobalPresenting/Attending

PepcomDigitalFocusGlobal@IFA Berlin,Germany Sep4 MakeUpinNewYork NewYork,NY Sep7–8 GoldmanSachsAnnualGlobalRetailConference NewYork,NY Sep7–8 √NRFRetailIndustryLeadersDinner Dallas,TX Sep8 NewYorkFashionWeek NewYork,NY Sep8–15 √MOBX2016 Berlin,Germany Sep9 E-CommerceParis Paris,France Sep12–14 InternationalRetailDesignConference Montreal,Canada Sep13–15 PepcomHolidaySpectacular!East NewYork,NY Sep15 √ONA16 Denver,CO Sep15–17 LondonFashionWeek London,UK Sep16–20 CTAInnovate!andCelebrate SanJose,CA Sep20–22 WWDDigitalForumNewYork NewYork,NY Sep21–22 MilanFashionWeek Milan,Italy Sep21–27 design:retailForum Brooklyn,NY Sep22–24 √ICSCVRNFallOutletConvention NewYork,NY Sep25–27 VanityCapitalConference Paris,France Sep26–27 √Shop.orgRetail’sDigitalSummit Dallas,TX Sep26–28 √ParisFashionWeek Paris,France Sep27–Oct5 √HermesRetailWeekSupplyChainAwards London,UK Sep29 AmsterdameWeek Amsterdam,Netherlands Oct3–8 2016ApparelExecutiveForum FortLauderdale,FL Oct5–7 ITEXPO Anaheim,CA Oct5–8 Barcoding,Inc.ExecutiveForum Baltimore,MD Oct6 AAFA’sFootwearWorkshop Lawrence,MA Oct6 TechweekNewYork2016 NewYork,NY Oct10–16 ICSCREConAsia-Pacific2016 Manila,Philippines Oct11–13 √LatAmStartupsConference3.0 MexicoCity,Mexico Oct12–14 ICSCResearchConnections Austin,TX Oct16–18 √RevionicsInsight2016 Austin,TX Oct16–18 √GartnerSymposium/ITXpo2016 Orlando,FL Oct16–20 eModaDay+eBeautyDayBuenosAires BuenosAires,Argentina Oct18–19 ABCKidsExpo LasVegas,NV Oct18–21 GraceHopperCelebrationofWomeninComputing Houston,TX Oct19–21 CESUnveiledPrague Prague,CzechRepublic Oct20

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September 2, 2016


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

RachaelDimitResearchAssociate

JohnHarmon,CFASeniorAnalyst

JohnMercerSeniorAnalyst

KirilPopovSeniorAnalyst

StevenWinnickResearchAssociate

CharliePoonResearchAssistant

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

Documents

Weekly Insights by Fung Global Retail Tech September 2 2016 · Abercrombie & Fitch 2Q16 783 818 (4.2) 60.9 62.3 (143) (13) (1) (1,520.9) 926 954 ... imported toys, clothing and other