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PhilaU Fashion Immersion Program at Li & Fung

Jing WangFung Global Retail & Technology

September 9, 2016

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• 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.

Retail, Tech, and Fashion

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© 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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Source: Energy Information AgencyBureau of Economic AnalysisBureau of Labor Statistics

Indicator Period 2016 2015 YoY change Impact on Consumption

GDP Growth Q2 1.2% 3.9% (270 bps) -Gas Price ($ per gallon) Aug. $2.15 $2.63 (18.2%) +Consumer Price Inflation Jun. 1.1% 0.2% 90 bps +Savings Rate Jun. 5.3% 5.8% (50 bps) +Unemployment rate Jul. 4.9% 5.3% (40) bps +Wage Growth Jun. 3.6% 3.2% 40 bps +The S&P/Case-Shiller 20-City Composite Home Price Index May 188.3 178.9 +5.2% +University of Michigan Consumer Sentiment Jul. 90.0 93.1 (3.3%) -

Tax-Free Shopping Days Q2/Q3 54 63 (14.2%) -

Overview: Favorable Macro Backdrop; Spending Remains Steady

McGraw Hill FinancialUniversity of Michigan Survey of Consumers

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• The top half and bottom half are doing better, with outperformance at the bottom

• The “consumer hourglass” phenomenon generates opportunities in the value-for-money segment

The Consumer Hourglass

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Squeeze in the Middle SegmentNeiman Marcus

SaksNordstrom

Bloomingdale’sDillard’sMacy’sKohl’sSears

JCPenneyTarget

WalmartCostco

TJ Maxx/Off-PricePrimark

Aldi / Trader Joe’sDollar Stores

FASTEST GROWTH

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Five Ways That Amazon Is Disrupting Retail Industry

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• Accounted for $0.51 of every $1.00 of growth in US e-commerce in 2015

• Generated 24% of total retail growth in the United States

• New Amazon services are changing consumer preferences

Is It Amazon or a Change in Customer Preferences?

Amazon Annual Sales Growth

Source: Bloomberg and US Census Bureau

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Apple Samsung Amazon Lenovo Huawei-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

-24.8% -18.1%

175.7%

-13.5%

124.6%

AMAZON PRIME IS TAKING OFF IN WAYS THAT PERHAPS AMAZON DIDN’T EVEN EXPECT

• Amazon now has at least 54 million prime members, and growing at 50%+ the last 2 years. By contrast, Costco has 44.6 million paid members

• Amazon’s video strategy with Twitch, Hollywood, and with original content producers is helping to drive prime membership more than originally expected. AMZN’s Cloud leadership also enables this.

• The Fire – originally panned by critics – is the fastest growing tablet - $50 changed the tablet game and is allowing Prime content to be consumed easily.

• Originally thought of as an April Fool’s joke, Dash, a button to order a specific product, now has 100 products at a push of a button for Prime members.

Source: IDC Quarterly Tablet Tracker

Amazon Annual Tablet Growth, Q4 2015

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AMAZON IS COMPLETELY REDEFINING LOGISTICS WITH PRIME NOW

• Dubbed “Prime Now,” Amazon has recently expanded its same day delivery service to 24 US cities and London.

• Cowen estimates that 25% of Prime Members have used Prime Now. Previously only on apps, now also available on the web as well.

• Competing with grocery delivery services like FreshDirect, but also Google Express, UberEats, and Instacart.

• Amazon looking to tap into the $77 billion digital ad spend market with this service, especially CPG brands.

• Also announced plans to lease 20 Boeings, are actively lobbying for drones for Prime Now Air, and have other experiments in Europe, all of which put FedEx, UPS and DHL on their heels.

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AMAZON HOME SERVICES MIGHT SHAKE UP A NUMBER OF INDUSTRIES, INCLUDING FURNITURE AND APPLIANCES

• Amazon is combining delivery of larger products with seamless assembly.

• Over 85 million U.S. customers shop for products that need additional services including installation

• 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

• Affects markets of Home Depot, Best Buy, Ikea and others that are also developing “DIFM vs DIY” strategies

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ECHO IS A SLEEPER HIT ALONG WITH ALEXA• Paired with Alexa, Echo allows for “always on” AI in your

home – without needing your phone or pushing a button.• Echo becomes the central nervous system of the connected

home.• When first launched in 2014, purpose was not entirely clear,

and panned by critics. Now even Apple’s Co-founder is a fan.• Advertising tie ups with Capital One and other finance firms

are in the works. • Tie ins with Amazon Prime Now and other Amazon

retail services are natural extensions.• Echo is on back order, prompting other device

makers like Google's Nest to work on their own look-alike services.

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AMAZON WILL DISRUPT THE CORPORATE AND SME OFFICE SUPPLY MARKET

• About 300,000 businesses had opened accounts with Amazon in the first 11 months of its Amazon Business service.

• Amazon is rumored to be buying Office Depot’s corporate accounts business.

• The corporate business was required to be divested as a part of the FTC regulations regarding the Staples purchase of Office Depot.

• But now Staples is having second thoughts about being left with just the brick and mortar footprint if the FTC wins its case against the Office Depot / Staples merger.

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Top 10 Retail Trends for 20161. Store Traffic2. Evolving Pure Plays3. Virtual Reality4. Influencers 5. Consignment6. Subscription Economy7. Sharing Economy8. Rental Economy9. Caring Economy10.Silver Economy

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With Store Traffic Down, In-Store Experience Is Key• US mall traffic has decreased for 44

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

2015Source: RetailNext

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Virtual reality (VR) means presenting the senses with a computer-generated virtual environment • VR—Oculus Rift headset• Samsung’s Gear VR headset to be priced at $99 and to

hit stores next year• 360-degree video technology allows consumers to learn

more about products before going to the store• Widespread adoption of VR in the retail space is expected

in as little as three years• Industry even has a new term for selling via VR:

v-commerce

Source: Digital Trends/Ad Age

Market Size & Growth Rate: $3 Billion @ 80% (2016)

Virtual Reality2

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Evolving Pure Plays (Number of Actual/Planned Physical Stores)

AMAZON

ATHLETA

CASPER

AYR

YOGIBO

HARRY’S

1 400 120 1 3 2

3 21 1 1 7

4 27 25 12 2

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Influencer Word-of-Mouth Marketing Gains Momentum4• Brand influencers: advocates on social media

platforms and review sites to support brands they love

• Influencer marketing: - 81% of marketers found IM effective in 2015- 59% of marketers will increase IM budgets in

2016• Influencer marketing agency is now a booming

industry • Each month over 50 million people watch over 1.6

billion minutes of fashion and beauty videos in more than 45,000 YouTube channels

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4 INFLUENCER MARKETING WORD-OF-MOUTH MARKETING GAINS MOMENTUM

Target collaborates with Joy Cho, a popular designer and blogger. They also launched Oh Joy for Target collection, an

exclusive party-inspired Home line

Emily Schuman a much-followed fashion blogger, author and

designer launched her Cupcakes and Cashmere

collection in collaboration with Nordstrom

Blogger star and entrepreneur Michelle

Phan launched her own makeup line, Em, with

L’Oreal

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Owns data from 5,000 retailers and 130 million products

Makes a perfect match between

retailers and the right influencers

Helps minimize overhead costs

is a data-driven influencer marketplace

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Influencers: A Marketplace - Shopography4

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Why Online Secondary Marketplaces Took Off:• Online resale industry is worth $34 billion in the

US• Rise of retail brands’ resale programs • Consumers are convinced by the great quality of

the secondhand apparel bought via online platforms

• Societal shift toward less ownership — the art of decluttering

• Creating communities where the customers can share experiences about shopping + more…

5 Online Fashion Consignment Takes off

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2020

Subscription Economy: Beauty and Fashion Are Growing

• Disruptors: Le Tote, Birchbox, BarkBox, Pijon, Stitch Fix• Convenience and curated products for consumers• Recurring revenue model for retailers• Element of self-gifting • Beauty is the biggest category • Fashion-styling subscriptions are becoming popular • Office supplies present an opportunity

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Sharing Economy: “Uberifying” Virtually Every Industry

Disruptors: Uber, Airbnb, Lending Club, WeWork• Valuations of sharing-economy companies

have skyrocketed • Revenues are projected to catch up to

aggressive valuations • Sharing-economy market:

$15 Billion

2013

$335 Billion 2025

CAGR: 29.5%

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Rental Economy: Fashion Rental LeadingFollowing Rent the Runway, a new generation of fashion-rental companies has emergedDisruptors: Style Lend, VillageLuxe, Le Tote, Lena the Fashion Library and Borrow For Your Bump (maternity)

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Caring Economy Promotes Startups for Social Good Disruptors: TOMS, Reformation, Warby Parker, NOURI, SoapBox Soaps, Zady, GoodXChange• Promotes social activism over self-

indulgence– Consumers, especially Gen Z, demand

integrity from brands and retailers• Startups with social missions apply

market-based strategies to achieve a social goal– TOMS, the shoe company, has a “one

for one” business model– Reformation designs and manufactures

sustainable apparel; sources sustainable fabrics and vintage garments

– Kohl’s Cares gives back to communities with Salina Yoon children’s books

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Silver Economy: Demographics Create Opportunities

• “The Grey Market” : older consumers may be an engine of growth in the sluggish global economy

• Silvers are those aged 65–85 years old, while super silvers are 85+

• The United Nations forecasts that the 60+ age group will grow from 12.3% of the global population in 2015 to 16.5% in 2030

• In 2015, consumers aged 65+ accounted for around $7 trillion, or approximately 17%, of total worldwide consumer spending

• Spending by silvers is expected to grow 114%, 2015 – 2030, outpacing population growth of 56% Source: UN Department of Economic and Social Affairs, Population Division, World

Population Prospects: The 2015 Revision/International Labour Organization, World Social Protection Report 2014–15/Euromonitor International/Fung Global Retail & Technology

Population Spending

56%

114%

Estimated Growth in Senior Population and

Spending by Seniors, 2015–2030

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2525

Partnership with IBM and Pico

35 Participating Brands

12,000 Employees as Shoppers

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Bonus: Fung Group’s Explorium Project in Shanghai Explorium a retail “omni-platform lab” consisting of a 60,000 sqrt space in Shanghai that has an interconnected digital network of services, including a mobile shopping application, an i-beacon tracking solution and a data analytics platform.