REVTECH at Shop.org Retail- September 28, 2016.

1. 1
IN-STORE
TECHNOLOGY AS
RETAILTAINMEN
T
BRIGHT SHINY OBJECT OR
THE NEW NORMAL?
Michael Zung
Marketing DIRECTOR
FUNG GLOBAL RETAIL & TECHNOLOGY
SEPTEMBER 28, 2016

2. 2
• ABOUT FUNG GROUP
• 2016 YTD RETAIL ENVIRONMENT OVERVIEW
• 5 WAYS AMAZON IS DOMINATING
• TOP 12 RETAIL TECH TRENDS
WHAT’S IN MY CART TODAY

3. 3
FUNG GROUP
TRADING LOGISTICS DISTRIBUTIO
N
RETAILING
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
Toys “R” Us (Asia)
Suhyang Networks
UCCAL Fashion Group
Privately Held Entities
Fung Holdings (1937) Ltd.
A privately held entity and major shareholder of the Fung Group

4. 4
• 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
RETAIL
TECH
MICRO
MACRO
RETAIL
REAL
ESTATE
THEMATIC
RESEARCHVR
AI
IOT
DIGITAL
DIGITAL
DIGITAL
DIGITAL

5. 5
The Fung Global Retail & Tech Team Hard at Work

6. 6
US MACRO OVERVIEW: FAVORABLE BACKDROP
Indicator Period 2016 2015 YoY Change
Impact on
Consumption
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

7. 7
CONSUMERS BUY MORE SERVICES, LESS GOODS
2%
3%
4%
5%
6%
7%
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Bureau of Economic Analysis
6.58%
3.86%
3.07% CLOTHING & FOOTWEAR
% of Total Personal Consumption Expenditure by Category
FOOD &
ACCOMMODATIONS
RECREATION SERVICES

8. 8
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

9. 9
RETAILERS REBALANCING FOOTPRINT
Source: Bloomberg, Company Reports, Fung Global Retail & Technology
-70% -60% -50% -40% -30% -20% -10% 0%
Sears
Christopher and Banks
Pacific Sunwear
Restoration Hardware
Aéropostale
Bebe Stores
Lands' End
Barnes & Noble
Williams-Sonoma
Dillard's
Gap
Teen retailers account for many of the
store closings between
2010 and 2015

10. 10
… WHILE THE NUMBER OF MALLS REACHES A PLATEAU
Source: ICSC, Fung Global Retail & Technology
967
1,027
1,097
1,161
1,211 1,222 1,221
1990 1995 2000 2005 2010 2015 2016
Number of Malls in the US
Note: Regional & Super Regional Malls (400,000 - >800,000 sq.ft)

11. 11
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Oct15
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Jul16
Aug16
Sales Traffic
• 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%

12. 12
• 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: RetailNext
-16%
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Oct15
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Jul16
Aug16
Conversion Traffic
Monthly US In-store Traffic and Conversion Rate YoY%
-7%
0.3%

13. 13
5 WAYS AMAZON IS DOMINATING
1. Amazon Prime
2. Prime Now
3. Home Services
4. Amazon Apparel
5. Amazon Web Services

14. 14
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
(10%)
5%
20%
35%
50%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Amazon Sales Growth US Total Retail Sales Growth
Source: Bloomberg and US Census Bureau
Annual Sales Growth

15. 15
1. Amazon Prime Is Taking Off

16. 16
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

17. 17
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

18. 18
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

19. 19
2. Prime Now is Redefining Logistics

20. 20
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

21. 21
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

22. 22
3. Amazon Home Services Could Shake Up
Several Industries

23. 23
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

24. 24
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

25. 25
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

26. 26
5. Amazon Moving into Apparel

27. 27
Amazon Is Poised to Become Largest US Apparel Seller in 2017
$0 $5 $10 $15 $20 $25 $30
TJX
Walmart
Macy's
Amazon
Estimated US Apparel and Accessories Sales 2017 ($ 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

28. 28
Amazon Led Apparel Sales Growth in 2015
(5%)
0%
5%
10%
15%
20%
25%
30%
Amazon
FastRetailing
Inditex
LVMH
H&M
RossStores
Hanesbrands
Nordstrom
TJXCompanies
JCPenney
RalphLauren
PVH
Target
Kohl's
VFCorp
Walmart
GapInc
Macy's
IsetanMitsukoshi
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)

29. 29
Amazon’s Foray into Apparel
1995
Amazon
Launches
2006
Acquired
2002
Expansion into
Apparel
2009
Acquired
2011
Acquired
2015
Private Label
Launched
2015
Amazon apparel
generates $16.3 billion in
sales*
*Based on our estimates, includes 3rd party sellers

30. 30
Amazon Web Services—The Secret Weapon

31. 31
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
$3.1
$4.6
$7.9
2013 2014 2015
AWS Revenues ($ Bil.)
CAGR = 59.2%

32. 32
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
$70
$141
2015 2019E
Worldwide Spending on Public Cloud
($ Bil.)
CAGR=19.4%
Source: IDC, 2016

33. 33
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

34. 34
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

35. 35
TOP 12 IN-STORE TECHNOLOGY TRENDS
Experiences
In-store
Technologies
Customer
Engagements
1. Experiential Retail
2. Smart Malls
3. AR + VR
4. Facial Recognition
5. Interactive Displays
6. Robotics
7. Evolving Pure Play
8. Reverse Logistics
9. Mobile Payments
10. Gamification
11. Tech Empowered Store Associates
12. Natural Language Processing

36. 36
1Experiential Retail
Origins: free, walk-in mini facials available at Origins stores.
BEAUTY
Lush: in-store Hair Lab to try products before purchase.

37. 37
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.

38. 38
1Experiential Retail
Nike, Lululemon, Athleta, Rebecca Minkoff: free in-store fitness classes like yoga and HIIT available for sign-up.
WELLNESS

39. 39
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.

40. 40
2Smart Mall
Data-enabled personalized and timely promotions.Track movement, behavior and preferences.Beacon-enabled, location-based advertising.
Reshaping the physical shopping experience

41. 41
2Smart 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.

42. 42
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.
3Augmented Reality + Virtual Reality
Combined AR and VR markets will reach $151 bn by 2022

43. 43
4Facial 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.

44. 44
5Interactive 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.

45. 45
6Robotics
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.

46. 46
7Evolving 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

47. 47
7Evolving 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

48. 48
8Reverse 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.

49. 49
9Mobile 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

50. 50
10Gamification
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.

51. 51
Branch Messenger: an application that helps retailers
reduce absences and increase productivity
11Store Associate Tech
Tech empowered store associates are can be a differentiating factor
Tulip Retail: mobile CRM platform for store associates

52. 52
12Natural 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

53. 53
TOP 12 IN-STORE TECHNOLOGY TRENDS
Experiences
In-store
Technologies
Customer
Engagements
1. Experiential Retail
2. Smart Malls
3. AR + VR
4. Facial Recognition
5. Interactive Displays
6. Robotics
7. Evolving Pure Play
8. Reverse Logistics
9. Mobile Payments
10. Gamification
11. Tech Empowered Store Associates
12. Natural Language Processing

54. 54
Q & A
Michael Zung
MARKETING DIRECTOR
FUNG GLOBAL RETAIL & TECHNOLOGY
michaelzung@fung1937.com
https://fungglobalretailtech.com