The Future Customer and Opportunities for Startups

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Kiril Popov
FUNG GLOBAL RETAIL & TECHNOLOGY
January 16, 2016
The Future Customer and Opportunities for
Startups

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Today We’ll Talk About:
Consumers Retail Technology Opportunities

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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

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• The knowledge bank for the Fung Group
• Focuses on emerging retail and technology trends
• Established in 2014
• Based in New York, with research teams in London
and Hong Kong
• 20+ analysts specializing in retail and technology
• Publishes thematic and research with a global scope
on topics such as omnichannel retail, fashion and
retail trends and disruptive technologies
FUNG GLOBAL RETAIL & TECHNOLOGY
NEW YORK LONDON HONG KONG

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Global Trends Shaping The Future of
Consumption

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Future Consumers Will Be: Older
*Germany and France are included in W. Europe. The UK is included in N. Europe.
**China and Japan are included within E. Asia; we have also split these countries out.
Source: UN Department of Economic and Social Affairs, Population Division: World Population Prospects: The 2015 Revision
26%
20%
15%
11%
10%
6%
8%
30%
26%
21%
18%
17%
10%
12%
E. Asia: Japan**
W. Europe*
N. America
E. Asia**
E. Asia: China**
S.E. Asia
World
2015 2030
65+ Population as Percentage of Total Population, by Region,
2015 vs. 2030E

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Future Consumers Will Be: Older
*For Japan, the age groups are split as 60–69 and 70 and over.
Source: BLS/ONS/Statistics Japan/Fung Global Retail & Technology
Estimated Average per-Capita Expenditure: Senior Households
(65–74 and 75+) as % of National Average, 2015
105%
90%
106%
109%
115%
123%
Japan*
UK
US
65-74 75+
Wealthier than Other
Generations
Living Healthier and Longer
Lives
Increasingly Digitally
Connected

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Characteristics and Trends Driving Opportunity
in the Silvers Market
Increasingly Digitally
Connected
Source: Fung Global Retail & Technology
Living Healthier and
Longer Lives
Wealthier than Other
Generations
• E-commerce
• Staying in touch
• Constant learning
• Teaching
• Aging in place
• Health conscious
• Socially active
• Travel
• Hobbies and
interests
• Dining out
• Events and
concerts

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Future Consumers Will Be: Hyper-connected
Physically Digitally
Mobile Broadband Connections
Out of Total
Source: GSMA
Smartphones
Data Traffic CAGR (2015 – 2020)
2015 2020E
47%
2.6bn
49%
71%
5.8bn
3.1%
3.7%
4.8%
6.0%
North America
Europe
World
Asia
Estimated Annual Growth Rates for Passenger
Air Traffic from 2016 to 2035, by region
Source: Boeing

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Case Study: Chinese Outbound Travelers
Includes nontourists such as business travelers
Source: China Statistical Yearbook/China National Tourism Administration/Fung Global
Retail & Technology
31 35
41 46 48
57
70
83
98
109
120
129
140
155
171
186
0
50
100
150
200
05 06 07 08 09 10 11 12 13 14 15 16F 17F 18F 19F 20F
Total Outbound Chinese Passenger Journeys,
2005–2020F (Mil.)
Chinese outbound tourists accounted for
US$201 billion in retail purchases in 2015.
By 2020, total overseas spending will reach
US$349 billion per year.
Trends:
- Make their own travel arrangements
(44.7%)
- Use blogs and travel websites for
research (43%)
- More than half plan to spend more

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Implications and Opportunities
Implications:
Consumers are increasingly more informed
independent.
More choice and access to goods and services.
Digital footprint, incl. user-generated feedback and
ratings, key to inform and influence purchasing
behavior.
Opportunities:
Cross-border e-commerce.
Travel services.
O2O and digital marketing.

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Future Consumers Will: View Social in New Ways
The Gen Z population reached 1.9
billion worldwide in 2015, or 26% of
the global population.
Gen Zers:
• Always online
• Are highly image conscious
• Like to communicate through
images
• Value privacy and authenticity
Sources: Mintel, Fung Global Retail & Technology
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Popular Gen Z social apps:
Snapchat, Houseparty, Kik
Pokemon Go, Musical.ly
Live.me, Live.ly

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Case Study: Growth in Personal Livestreaming in China
The personal livestreaming market in
China will be worth $5 billion in 2017
from an estimated $1.8 billion in 2015.
Fragmentation:
150 livestreaming platforms
Exporting features and business
models:
Live.me, Live.ly, Youtube (SuperChat)
Sources: iResearch,Credit Suisse, Fung Global Retail & Technology
13
0%
50%
100%
150%
200%
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016E 2017E 2018E
Livestreaming Market Size (RMB Bil., Left Axis) YoY (%, Right Axis)
Market Size of the Entertainment Livestreaming Industry,
2013-2018E

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Implications and Opportunities
14
Implications:
New generations of users require new ways to fulfill
their needs.
Specialization and focus key in the initial phase of
user adoption.
Speed of adoption of new technologies and
applications is increasing, together with the size of
the market.
Opportunities:
Identify generation-based trends and design around
them.
Reach a target audience by
leveraging niche platforms.

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Future Consumers Will: Use Voice to Interface with Technology
• Amazon’s Alexa is becoming the central nerve system for connected living:
At CES 2017, products ranging from LG refrigerators, Ford cars and Samsung robotic
vacuum cleaners to TVs from Westinghouse, Seiki and Element announced integration
with Alexa.
• Benefits Amazon Prime and Amazon’s
retail ecosystem.
• Competition is ramping up: Google, Apple, Facebook
• E-commerce applications are second largest end-user
segment for natural language processing technologies.
Source: Tractica

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Implications and Opportunities
Implications:
Shopping via voice commands decreases the
influence of product images and web interface...
But increases the weight of factors such as prior
purchase history, price and availability.
More retailers and brands to get on Amazon’s
platform.
Opportunities:
Natural language processing and
search optimization.
Data structuring and analytics.

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Future Consumers Will: Shop at Integrated Retail Ecosystems
• Alibaba goes brick-and-mortar with Intime acquisition.
• Rural Taobao: new consumers and new vendors.
• Amazon became a majority marketplace in 2016, while
also extending private label push.
• Driving traffic with shopping holidays and content:
‒ Prime Day
‒ 11.11 and 12.12
• Walmart, Zalando making big marketplace push.
17
42
43
44
45
46
47
48
49
50
3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16
Source: Company Reports
Amazon Marketplace Units Ordered as a % of
All Units Ordered

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Case Study: Tubatu – O2O Platform for Home Decoration
• B2C e-commerce platform for interior design and home decoration
services.
• Launched in 2008, valued at US$2 billion (2015).
• Annual user growth of over 300%.
• 10,000 service requirements per day.
• Operates warehouses in seven cities, including Beijing, Shanghai and
Shenzhen.
• Launched decoration insurance product in 2012.
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Source: Company Reports
250 cities
70,000
decoration
companies
900,000 interior
desigers

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Implications and Opportunities
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Implications:
Retail is consolidating and fragmenting at the same
time because of digital marketplaces:
‒ Marketplaces to continue outperforming multi-
brand retailers.
‒ More brands and specialty retailers to leverage
the distribution capabilities of platforms.
The marketplace consumer will become even more
value-driven.
Opportunities:
Leverage marketplace reach and efficiency – e.g.
cross border e-commerce.
Design solutions to help retailers compete in the
new retail environment.

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Startup Strategies

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Startup Strategies
Platform (B2C) Product or Service B2B Solutions
• Focus on niche
consumer
segment or need.
• Expand vertically.
• Overinvest in
digital footprint.
• Leverage platforms
to inform
consumers and for
distribution.
• Address pain-
points of retailers
competing with
marketplaces.
Any
• Import
business
model and
localize to
market

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Thank you!
KIRIL POPOV
FUNG GLOBAL RETAIL & TECHNOLOGY
kirilpopov@fung1937.com
https://FungGlobalRetailTech.com