ICSC Summer 2016 Task Force Meeting- July 14-15, 2016.

1. ICSC NARTF Meeting Tech Talk
Deborah Weinswig
Managing Director
Fung Global Retail & Technology
July 15, 2016
1

2. Agenda
• About Us
• Retail Environment Overview
• Top 10 Retail & Technology Trends
2

3. About Us
3

4. Fung Holdings (1937) Ltd.
A privately held entity and major shareholder of the Fung Group
About Fung Group
Li & Fung Limited
Listed on SEHK
Global Brands Group
Listed on SEHK
Fung Retailing Limited
Privately Held Entity
Convenience Retail
Asia Limited
Listed on SEHK
Trinity Limited
Listed on SEHK
Branded Lifestyle Holdings Limited
LiFung Kids (Holdings) Limited
Toyrs “R” Us (Asia)
Suhyang Networks
UCCAL Fashion Group
Privately Held Entities
DISTRIBUTION RETAILINGLOGISTICSTRADING
4

5. Retail, Tech and Fashion
• Fung Global Retail & Technology advises retailers, real estate developers, tech companies,
and others on projects situated at the intersection of retail, tech and/or fashion.
• Our team offers a robust knowledge bank and deep-rooted experience across the retail,
fashion, and tech industries. We are involved in many areas of the business, which allows us
to offer a unique perspective on the future and where the sector is heading.
5

6. About Fung Global Retail & Technology
• The knowledge bank for the Fung Group
• Focuses on emerging retail and tech trends,
specializing in retail and technology intersections,
and building collaborative communities.
• Based in New York, London and Hong Kong
• Publishes thematic and global market research on
topics such as the Internet of Things, digital payments,
omnichannel retail, luxury and fashion trends and
disruptive technologies.
FUNG
THINK
TANK
RETAIL
TECH
MICRO
MACRO
RETAIL
REAL
ESTATE
THEMATIC
RESEARCH
VR
AI
IOT
DIGITAL
DIGITAL
DIGITAL
DIGITAL
HONG KONG NEW YORK LONDON
6

7. Retail Environment Overview
7

8. US Macro Overview: Favorable Backdrop, but Uncertainty Looming
Sources: Energy Information Agency, Bureau of Economic Analysis, Bureau of Labor
Statistics, McGraw Hill Financial, University of Michigan Survey of Consumers
Continued
Gas Dividends
Strong Job
Market
Strong
housing starts
and rising
house prices
Inflation still
below target
expectations
Global
uncertainty
weights in on
Fed action,
business
investment
8

9. US Macro Overview: Favorable Backdrop
Indicator Period 2016 2015
YoY
Change
Impact on
Consumption
GDP Growth Q1 1.1% 0.6% 50 bps +
Gas Price ($ per gallon) Jul. $2.25 $2.83 (20.5%) +
Unemployment Rate* Jun. 4.9% 5.3% (40) bps +
The S&P/Case-Shiller 20-City Composite Home Price Index Apr. 186.6 180.6 +3.3% +
Consumer Price Inflation May 1.0% 0.0% 100 bps +
Savings Rate May 5.3% 4.8% 50 bps −
Wage Growth May 4.6% 5.3% (70 bps) −
University of Michigan Consumer Sentiment Jun. 93.5 96.1 (2.7%) −
Sources: Energy Information Agency, Bureau of Economic Analysis, Bureau of Labor
Statistics, McGraw Hill Financial, University of Michigan Survey of Consumers
9

10. GDP Expected to Grow Over 2% in Q2
• GDP annualized growth slowed to 1.1% in Q1, down from 1.4% in Q4 2015, but strongest Q1 in three
years
• The upward revision was due to increasing US exports and growing investment, and offset by
decreasing PCE.
-0.9%
4.6%
4.3%
2.1%
0.6%
3.9%
2.0%
1.4%
1.1%
2.3%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
US GDP Growth Rate
Source: Bureau of Economic Analysis/Fung Global Retail & Technology
10

11. Home Prices and Residential Investment Also Positive
Source: S&P Dow Jones Indices /US Bureau of Census
S&P Case Shiller 20-City Housing IndexHousing Starts YoY Growth (%)
9.5
(10.0)
0.0
10.0
20.0
30.0
40.0
May-14 May-15 May-16
0.5
5.4
(10.0)
(5.0)
0.0
5.0
10.0
15.0
20.0
(1.0)
(0.5)
0.0
0.5
1.0
1.5
2.0
Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16
%
%
MoM% (left) YoY% (right)
11

12. Consumer Spending is Supporting GDP Growth
Sources: Bureau of Labor Statistics/University of Michigan/Conference Board
93.5
40.0
60.0
80.0
100.0
120.0
Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Consumer Sentiment & Consumer Confidence
3.7
0.0
1.0
2.0
3.0
4.0
5.0
6.0
May-10 May-11 May-12 May-13 May-14 May-15 May-16
Total PCE YoY Growth (%)
12

13. The Labor Market is Supporting Consumer Spending
Sources: Bureau of Labor Statistics/ Bureau of Economic Analysis
Real Wage Growth (%)Unemployment Rate (%)
4.9
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
3.5
1.0
2.0
3.0
4.0
May-10 May-11 May-12 May-13 May-14 May-15 May-16
13

14. Inflation Pace Still Modest
US Gasoline PriceCPI YoY Change (%)
Source: US. Bureau of Labor Statistics/EIA
$2.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
Jul-15 Nov-15 Mar-16 Jul-16
2.2
1.1
(0.5)
0.0
0.5
1.0
1.5
2.0
2.5
May-12 May-13 May-14 May-15 May-16
CPI-U Less Food and Energy CPI-U
14

15. 1Q Retail Wrap-Up: Winners and Losers
Company Actual Consensus
Burlington 4.3% 3.2%
Dollar Tree 2.3% 2.1%
Five Below 4.9% 4.2%
Michael Kors 0.3% 0.2%
TJX 7.0% 3.2%
ULTA 15.2% 10.7%
Urban Outfitters 1.0% (0.4%)
Wal-Mart 1.0% 0.5%
1Q Comps/Sales Actual vs. Consensus Results
Company Actual Consensus
Abercrombie&Fitch (4.0%) 1.5%
Chico’s (4.2%) 0.0%
Costco 0.0% 0.9%
Dillard’s (5.0%) (2.3%)
Dollar General 2.2% 2.4%
Foot Locker 2.9% 4.5%
Guess (4,2%) (1.6%)
H&M 5.0% 9.0%
JCPenney (0.4%) 3.2%
Kohl’s (3.9%) 0.2%
Macy’s (6.1%) (3.4%)
Nike 11.0% 12.0%
Restoration Hardware 4.0% 6.1%
Ross Stores 2.0% 2.5%
Target 1.2% 1.7%
Source: StreetAccount
15

16. Brexit: Declining Consumer Confidence
Metric
Before
Brexit
After
Brexit
Likely
Outcome
GDP YoY (%) 2.3% 1.5% −
Consumer Price
Inflation 0.3% 3.0%* +
GFK’s Consumer
Confidence Index -1 -9 −
Prime Central
London House Price
YoY (%)
0.5% -0.6% −
FTSE 250 Index 17,330 14,670 −
FX Rate (USD/GBP) 1.49 1.32* −
Interest Rate 0.5% 0.5%* −
*JP Morgan Estimate
*FTSE 250 Index: Market closed on Jun 23rd vs. Market closed at Jun 27th
*FTSE: Market closed on Jun 23rd vs. Jun 27th
*MPC’s decision on interest rate: As of Jul 11th
Source: OCED/S&P/Knight Frank/GFK/ONS/FTSE/Thompson Reuters/Bank of England
• Affluent Consumers are expected
to take a greater hit
• Younger Consumers without
mortgage or stock market exposure
are less affected
• Middle-Aged & Retired Consumers
are the most cautious and anxious
group, with the most exposure to
the consumer finance metrics
16

17. Brexit Reinforces Existing Retail Trends in the UK
Low-Price Positioning Internet Pure PlayYoung-Shopper Base
Grocery discounters are likely to
gain from heightened consumer
caution, particularly among family-
life-stage and older shoppers
Ecommerce will grow even faster,
as digitally savvy younger
consumers prove a resilient
segment and other age groups
switch channels to pursue
bargains
Young-fashion retailers that
combine value with style are
likely continue to make
headway
We believe grocery discount channels, young-fashion brands and E-retailers will stand strong after Brexit
17

18. Prime Day vs. Singles’ Day
Prime Day Singles’ Day
Date
07/15, debuted in 2015
07/12, 2016
Every 11/11, debuted in 2009
Channel Amazon’s global sites Alibaba, JD.com, Suning, Gome, Haier
Market
US, UK, Spain, Italy, Germany,
France, Canada, Australia
China, US
Sales $525M* Blockbuster record of $14.3B for Alibaba
Growth 26%* 236%
Compared with
Cyber Monday 0.14 X 4.7 X
Disappointment vs. Record-Breaking Sales
*FGRT Estimate
18

19. Selfie Culture Has Resulted in a Shift to Beauty Spending Over Apparel
• The beneficiaries of the shift in culture are the emergence
and ubiquity of hair salons (Drybar), makeup application
services (Blushington) and skin services (Skin Laundry)
• Sephora and Ulta have also reported stellar results of late
“Selfie culture, if you take a photo 10 times today... the result is people
are using more makeup and more instant skin care.”
Fabrizio Freda, CEO of Estée Lauder
Social media has made millennials more physically aware of their appearance
Industry Global Revenue 2015
Annual Growth
10−15
Cosmetics $276bn 3.2%
Apparel $618bn 0.6%
19

20. Store Traffic Continues to Decline
• US mall traffic has decreased for 43
consecutive months and continues to
be challenging
• Malls have seen an average 9.1% 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
-30%
-25%
-20%
-15%
-10%
-5%
0%
14-Jan
14-Feb
14-Mar
14-Apr
14-May
14-Jun
14-Jul
14-Aug
14-Sep
14-Oct
14-Nov
14-Dec
15-Jan
15-Feb
15-Mar
15-Apr
15-May
15-Jun
15-Jul
15-Aug
15-Sep
15-Oct
15-Nov
15-Dec
16-Jan
16-Feb
16-Mar
16-Apr
16-May
16-Jun
Monthly US In-store Traffic and Sales YoY%
Traffic Sales
20
Source: RetailNext

21. -16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
14-Jan
14-Feb
14-Mar
14-Apr
14-May
14-Jun
14-Jul
14-Aug
14-Sep
14-Oct
14-Nov
14-Dec
15-Jan
15-Feb
15-Mar
15-Apr
15-May
15-Jun
15-Jul
15-Aug
15-Sep
15-Oct
15-Nov
15-Dec
16-Jan
16-Feb
16-Mar
16-Apr
16-May
16-Jun
Monthly US In-store Traffic and Conversion Rate YoY%
Conversion Traffic
But Conversion is Up: Shoppers are More Purposeful
• 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
Source: RetailNext
21

22. Direct DC
Store DC
Your Store
Different Store
Vendor
Where ReceivedFulfilled ByOrder From
All-Channel Universe
Source: Hudson’s Bay
Home
Elsewhere
Your Store
Different Store
Home
Elsewhere
Your Store
Different Store
Mobile
22

23. Why People are Leaving the Stores
Getting Hungry Need to Go to BathroomLong Checkout Lines
23
Lousy Dressing Rooms

24. Consumers Buy More Services, Less Goods
0%
1%
2%
3%
4%
5%
6%
7%
8%
% of Total Personal Consumption Expenditure by Category
Clothing and footwear Recreation services Food and accommodations
Source: Bureau of Economic Analysis
24

25. Experiences Trump “Things”
Experiences are what people
use to define themselves across
social channels
Over the next 5 years US consumer
spending is forecasted to grow by 22%;
non-essential categories, including
vacations and dining out, will see the
fastest growth, about 27% (Mintel)
More than 3 in 4 millennials would
choose to spend money on a
desirable experience
25

26. The Instagram Effect:
Never Be Photographed in the Same Dress Twice
26

27. Back To School 2016: Anticipate Savvy Parents
• Customer Growth Partners forecasts a 3.3% ‘Sluggish’ Growth for the 2016 Back-to-School Season, a
marked slowdown from the 4+% growth seen in both 2014 and 2015
• But parents are getting savvy about how they will complete their shopping list: with more coupons and
online shopping, according to NRF’s latest survey
38%
26%
28%
17%
18%
27%
37%
28%
26%
20%
20%
27%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Shopping for sales more often
Using coupons more
Buying more store brand products
Spending less overall
Shopping more online
Back-to-school plans will not change 2016
2015
Source: NRF Back-To-School Spending Survey,
conducted by Prosper Insights
27

28. Top 10 Retail & Tech Trends for
Mall Operators
28

29. Top 10 Retail & Tech Trends for Mall Operators
1. Experiential Retail
2. Smart Malls
3. Augmented Reality+Virtual Reality
4. Facial Recognition
5. Interactive Displays
6. Robotics
7. Evolving Pure Play
8. Reverse Logistics
9. Mobile Payments
10. Gamification
Experiences, In-store technologies, and Customer Engagements Are Key
29

30. 1. Experiential Retail: Beauty
Facial & Spas Makeup ParlorsSalons
Bloomingdales: Drybar opened its first
Soho store on the 1st floor within
Bloomingdales in 2015
ULTA: offer one-to-one hair style
consultations in the in-store salon bar
Lush: in-store Hair Lab to try products
before purchase
Origins: free, walk-in mini facials available
at Origins stores
Anastasia: opened its brow studio
inside Sephora’s 5th Ave location
in Mar. 2015
Sephora: in-store beauty bar and
touchup service
30

31. Urban Outfitters: launched UO café in
Herald Square, NYC
Club Monaco: features Toby’s Estate Coffee
in its flagship store on 5th Ave
1. Experiential Retail: Food
Independent Cafes Pop-Up Food Truck
Macy’s: Chef Street food truck court
offering all-day dining services at its
Herald Square location
Old Navy: tee & ice-cream
giveaway truck popped up in
NYC, 2016
In-Store Food Treat
LOFT: caters cupcakes from Magnolia
Bakery NYC to celebrate National
Cupcake Day
Anthropologie: pop-up market in Soho
featuring Brooklyn-based Gimme
Coffee and local-sourced bakeries
31

32. 1. Experiential Retail: Health & Wellness
Workout at Mall
CoCo-Mat’s: in-store “Nap
Chambers” available for free-
booking and napping
Nike, Lululemon, Athleta,
Rebecca Minkoff: free in-store
fitness classes like yoga and HIIT
available for sign-up
Free Fitness ClassesNap Lounge
Singapore: health promoting malls
like the Star Vista partner with
professional instructors to organize
weekly workout session
2.
32

33. 1. Experiential Retail: Entertainment
The Dubai Mall: has one of the
largest indoor aquariums in the
world.
American Dream Meadolands: first
indoor skiing facility in the U.S.,
projected to launch in spring 2017
Indoor Skiing Facility Aquarium In The Mall
33
Mall of America: indoor
entertainment facilities include
roller coasters
Indoor Amusement Park

34. 2. Smart Mall: Reshaping the Physical Shopping Experience
Data-enabled personalized and timely
promotions
Track movement, behavior and
preferences
Beacon-enabled, location-
based advertising
34

35. 2. Smart Malls: Reshaping the Physical Shopping Experience
RETAILNEXT: works with stepsaway, an
in-mall mobile retail solutions provider
to offer shoppers smartphone access to
hyperlocal in-store deals
WESTFIELD LABS: Silicon Valley
based unit that designs and
develops innovations to improve
the retail experience
MACERICH: partnered with HGTV to
launch virtual and hands-on technology-
based experiences
35

36. Rebecca Minkoff Connected Store Demo
36

37. Lowe’s Holoroom allows customers to see
different merchandise and color combinations
as they would appear in a home
Tommy Hilfiger stores have virtual
reality headsets that allow visitors to
experience runway shows
3. Augmented Reality+Virtual Reality
Research firm MarketsandMarkets forecasts that the combined AR and VR markets will reach $151 billion by
2022, and the retail applications of AR and VR are nearly limitless.
Source: Digital Trends/Ad Age
Pokemon Go: augmented reality, the
game is driving traffic to stores.
37

38. Coke Cola tested 50 interactive fridges
across Australia which could detect
customer’s demographic information and
change displays
actiMirror is an in-store, mirror-like
display that identify the customer’s
demographics and make instant
personalized product
4. Facial Recognition
Applications are expanding from
health, wellness, beauty and
advertising into theft prevention
The global Facial Recognition market is forecasted to grow from $2.77 Billion in 2015 to $6.19 Billion by 2020, at
a CAGR of 17.4%, according to MarketsandMarkets.
Source: Digital Trends/Ad Age
38

39. 5. Interactive Display
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.
Interactive display uses online or offline interactive media to communicate with consumers and to present and promote
products, brands and services
39

40. SoftBank: Pepper acts as a sales
assistant to engage with customers
in-store
6. Robotics
Henn-na Hotel: robots are
replacing the human servers in
the Henn-na Hotel Nagasaki
from front desk to kitchen
The global robot market is growing rapidly at a CGAR of 17%, expected to reach $135 billion by 2019
40
Amazon Robotics: Founded in 2003,
Amazon robotics has automated the
entire fulfilment center operations with
autonomous mobile robots

41. 7. Evolving Pure Plays
4 22 2 1 8 150
1 400 122 1 3 3
5 32 25 12 2
Number of Actual/Planned Physical Stores
41

42. 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
8. Reverse Logistics
Retail Industry has $260.5 billion
worth of merchandise returned or 8%
of total sales
In-store returns from e-commerce companies can increase traffic to malls and decrease fraudulent returns
Source: Digital Trends/Ad Age
42

43. 9. Mobile Payments are Changing the Landscapes
# of
Accepted
Locations
>2,000,000 > 30 million > 700,000 > 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
Users need QR-
codes only
Works on all
operating systems
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
Uses NFC
technology
Few stores outside
of Asia support
WeChat Pay
Vulnerable in the
face of frauds and
hackers’ attacks
Lack of third-party
regulations
43

44. 32.1 billion
red envelopes
516 million
Users *
Chinese Lunar New Year 2016
~74% of all
WeChat users
903% Y-o-Y
growth since
introduction of
red envelopes
* Over 92% of those senders were reportedly between the ages of 20 and 29
9. Mobile Payments: P2P Payments Explode on WeChat
44

45. • The global gamification market will worth
$10.02 billion by 2020 with a CAGR of
42.4%, according to Mind Commerce
• North America is currently leading the
market, followed by Europe
• By 2020, North America market will have
a value of $6.9 billion followed by Europe
with $1.9 billion
Source: Mind Commerce
10. Gamification
1.7
3.0
4.0
5.5
7.5
10.0
2015 2016 2017 2018 2019 2020
Global Gamification Market Forecast in $ Billion 2015−2020
45

46. Geo-location engages
customers at venues
Injects relevant retailer
content and promotions
Helps retailers increase store foot
traffic and sales
The average consumer attention span is 8 seconds
10. Gamification: Skrownge
Skrownge is a gamified solution to increase store traffic via promotion rewards
46