Weekly Insights October 7 2016 - Deborah Weinswig€¦ · Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 1) the election fever currently gripping voters in the US and the coming ... follow

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OCTOBER 7, 2016

DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

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OCTOBER 7, 2016

1Mil.• Walmartplanstoadd1millionitemspermonth

to its online offering, according to InternetRetailer. The new products will primarily beadded through listings from third-partymarketplacesellers.

• According to Mashable, Walmart offered 11million products online as of July 2016, whileAmazonoffered260million.

1) This week’s note “From the Desk of DeborahWeinswig”discussestheelectionfevercurrentlygrippingvotersintheUSandthecomingelection’seffectonshoppingandHalloweenspending.

2) Accordingtoareport fromAstoundCommerce,m-commercesalesareup40%thisyear,growingfasterthane-commercesales,whichhave increased by 11%. These figures show that mobile is thefastest-growingdigitalcommercechannel.

3) Italian eyewear group Luxottica and software giant Intel havelaunched a smart eyewear device called Radar Pace. The deviceallows real-time tracking of the wearer’s athletic performance,providesinstantcoachingandrespondstovoicecommands.

4) ToyotaMotorunveiledababy companionrobotcalledKiroboMiniin Japan, where plummeting birth rates have left many womenchildless. The product is a doe-eyed, palm-sized robot that speakswithababylike,high-pitchedvoice.Toyotaplanstoselltherobotfor¥39,800(US$392)inJapannextyear.

Source:InternetRetailer ThroughOctober3,2016Source:S&PCapitalIQ

BritishPoundFallstoLowestLevelin31Years

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OCTOBER 7, 2016


FROMTHEDESKOFDEBORAHWEINSWIG

TheUSIsintheGripsofElectionFever

It is now less than fiveweeks until theUS general election,whichwill be held onNovember 8, the firstTuesdayafterthefirstMondayinNovember.Votersarebothenergizedbythecomingelectionandrelievedthat the long preelection period—which has included contentious caucuses, primaries and politicalconventions—is now nearly behind them. Although most of the attention has been devoted to thepresidential election, there are several other seatsup for grabs, including34 seats in the Senate—whosemembersserveforatermofsixyearsandwhichhasaRepublicanmajority—andall435seatsintheHouseof Representatives—whosemembers serve for two years andwhich also has a Republicanmajority. Theparty affiliation of the future occupant of the White House will have important consequences: a partymismatchbetweentheexecutivebranchandthe legislativebranchmajoritycouldcauseacontinuationofpoliticalgridlock.

Onepresidentialdebateandthesolevicepresidentialdebatehavealreadytakenplace,andthesecondandthirdpresidentialdebatesarescheduledforOctober9and19.Forthefirstpresidentialdebatethisyear,84millionviewers tuned in towatch,making it themost-watcheddebate since theCarter-Reagandebate in1980. Viewership totals also beat those for the 2012Obama-Romney debate,which drew just 67millionviewers.Therewasextradramabehindthescenespriortothisyear’sdebate,aseachpartythreatenedtoinviteattendeeswhocouldhavebeendisruptivetotheotherparty.

Whatisdifferentthistimeisourdependenceonsocialmedia.InanEdisonResearch/TritonDigitalsurvey,78%ofintervieweessaidtheycurrentlyusesocialmedia,comparedwith53%in2012(duringtherun-uptothe last presidential election) and just 24% in 2008. Facebook is themost-used social-media brand,withmorethan60%ofrespondentssayingtheyusetheplatform.Votersare increasinglyusingsocialmediatofollow political news or candidates,with one-quarter of respondents saying they use Facebook to followpolitics,followedby11%sayingtheyuseTwitter.

Withvotersfocusingonthepresidentialcandidatesandtheirpositions,wehavetoask,whatistheimpacton retailers and retail? There are twomain effects. First, shopper traffic tends to decline both theweekbefore theelectionandtheweekof theelection,according todata fromShopperTrak for the2004,2008and 2012 election years, as voters are likely focusing on the election and the issues during thoseweeks.However,traffictendstobouncebackaftertheelection,andtheNationalRetailFederation(NRF)recentlyforecasta3.6%increaseinholidayspendingthisyear,despiteitbeinganelectionyear.Theforecastgrowthrateishigherthanthe3.0%increaseseenlastyear,anonelectionyear.Second,thereisgreatercompetitionforadvertisingduringelectionyears,whichmeansmuchadvertising fromretailersandothersourcesgetscrowdedout.BorrellAssociatesforecastthatpoliticaladvertisingwillhitarecord$11.4billionthisyear.Itislogicaltoconcludethatlessproductadvertisingwouldresultinlowerproductsales.ButAmericans’holidayspendingplansarerelativelyunaffectedbytheultimateoutcomeoftheelection:inarecentHarrisPoll,atleast68%ofrespondentssaidthattheelectionresultswillnotaffecttheirspendingplans.

Thereisstilloneshoppingeventbetweennowandthegeneralelection:Halloween.However,spendingonthatholidayalsoseemsunlikelytobehinderedbytheelection.AnNRF/ProsperInsights&AnalyticssurveyfoundthatAmericansplantospendarecord$8.4billiononHalloweenthisyear,up22%from$6.9billionlast year. Interestingly, there appears to be a correlation between election years and relative peaks inHalloweenspending,perhapsowingtoconsumers’fondnessforpoliticalcandidatemasks.

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OCTOBER 7, 2016


Figure1.HalloweenSpending(USDBil.)

Source:NRFHalloweenSpendingSurvey,conductedbyProsperInsights&Analytics

FungGlobalRetail&Technologywillbefollowingtheelectioneventsastheyunfoldandaswemoveclosertotheall-importantholidayshoppingseason.

USRETAIL&TECHHEADLINESSomeRetailersChooseTurkeyoverThanksgivingShopping(September29)SunHerald

• AgrowinglistofretailersaresayingthattheywillremainclosedonThanksgiving,andwaituntilBlackFridaytokickofftheirholidayshoppingsales.

• AccordingtoBfads.net,awebsitethattracksBlackFridaysalesandstorehours,GameStop,Home Depot, Nordstrom and Costco will all be closed on Thanksgiving. WebsiteBlackFriday.comreports thatBJ’s, Lowe’s,Pier1 Imports,Petco,PetSmart,Sam’sClub,T.J.MaxxandDillard’s,amongothers,willalsobeclosedontheholiday.

WhyRetailersAreGender-Bending(October3)Glossy

• Whilesmallerbrandshavebeenexperimentingwithgender-neutralorunisexlinesforyears,high-streetretailersarealsostartingtolaunchthesecollections.GuessandZarahavejoinedtheranksofMarcJacobs,AlexanderWangandHermesinofferinggenderlesscollections.

• Theboostindemandforunisexapparelcomesfromyoungshoppers,includingGenZers—only44%ofwhombuythingsaimedattheirgender.DatafromLyst,afashione-commerceplatform,supportthatthereisatrendofgender-blurringapparel.Thesitehasseena108%increaseinsalesofunisexproductsinthelastyearandgenderlesssearchesmakeup23%ofsitetraffic,up9%fromlastyear.

WEINSWIG’SWATCHING

This week, Fung Global Retail & Technology's New York team attended Walmart's 2016 InvestmentCommunityMeetinginBentonville,Arkansas.

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OCTOBER 7, 2016


MobileAppsOutpaceMobileWebCommerceforFirstTime:Report(October4)LuxuryDaily

• According to a report fromAstound Commerce,m-commerce sales are up 40% this year,growingfasterthane-commerce,whichhasseenan11%increase.Thesenumbersshowthatmobileisthefastest-growingdigitalcommercechannel.

• Ofthe$40billioninonlinesalesmadeinthefirstquarterof2016,$26.6billioncamefrommobile and $13.5 billion from desktops. Within m-commerce, $13.4 billion in sales weremadethroughmobileappsversus$13.2millionthroughmobileweb.

Fast-FashionTricksAreonDisplayatDepartment-StoreChains(September29)TheWallStreetJournal

• Lord&Taylorisgettinginonthefast-fashionmovement,speedingupitssupplychaintogettrends into its storesmorequickly.Major apparel retailers are struggling to speedup thisprocess,butfordepartmentstoresthatrelyonwholesalerstodesignandproducemostoftheirproducts,thestrainhasbeenparticularlytricky.

• ThesolutionofXcelBrands,whichhaspartneredwithLord&Taylortoimprovethesupplychainprocess, istopairproprietarybrandswithmorenimblesourcingtohelpretailerssellmoreatfullpricebydeliveringmerchandiseinrealtime.

EUROPERETAILEARNINGS

Company

Revenues(USDMil.)ChangeinUSD(%)

ChangeinReportingCurrency

(%) GrossMargin(%)Change(bps)

NetIncome(USDMil.)

YoY%Change StoreFleetEOP

Period 2016 2015

2016 2015

2016 2015

2016 2015Tesco 1HEAug27 38,101 41,391 (8.0) 1.4 4.9 4.7 17 (139) (565) N/A 6,511 6,605

Source:Companyreports

EUROPEANRETAILHEADLINESLVMHBuysMajorityStakeinPremiumLuggageGroupRimowa(October4)Companypressrelease

• FrenchluxurygroupLVMHhasagreedtoacquirean80%stakeinGermanpremiumluggagemaker Rimowa for €640million (US$715million), subject to the approval of competitionauthorities.ThisisthefirstacquisitioninGermanyfortheowneroftheLouisVuittonbrand.

• RimowawasfoundedinColognein1898,anditexpectstomakeover€400million(US$446million) in revenue thisyear.Thecompany is currentlyheadedby the founder’sgrandson,DieterMorszeck,whowillretainhisleadershiproleandastakeinthecompany.

LuxotticaandIntelUnveilSmartEyewear(October3)Companypressrelease

• Italian eyewear group Luxottica and software giant Intel have launched a smart eyeweardevice called Radar Pace. The device will be sold through Luxottica’s Oakley stores andonlinethroughOakley.com.

• Thesmarteyewear’ssystemallowsreal-timetrackingofthewearer’sathleticperformance,provides instant coaching and responds to voice commands. The device featuressophisticated lens technology that can fine-tune the colorof the lens andenhancedetailsaccordingtotheenvironment.

PrivateEquityGroupBaringAsiaAcquiresCathKidston(October3)Retailgazette.co.uk

• Hong Kong–based private equity firm Baring Asia has acquired British lifestyle brand CathKidston.PaulMason,thecurrentchairman,willstepdownandbereplacedbyWilliamFlanz,theformerCEOofGucci.

• CathKidstonhasbeenactivelyexpandinginAsia,andtheregionhasbeenakeyfocusforthebrand in recent years. Some 70% of Cath Kidston’s stores are located outside theUK; thecompanyoperates133storesinAsiaalready,andhasplansinthepipelinetoopenmore.

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OCTOBER 7, 2016


MediaMarktTestsStarshipTechnologiesHomeDeliveryRobots(September29)Companypressrelease

• German electronics retailerMediaMarkt is testing robots to deliver orders to customers’homes in the Grafental district of Düsseldorf. For the time being, the robots need to beaccompaniedbyahumanescort.

• To try out delivery by the robots, customerswho live in the test areaneed toplace theirordersonlineandchooseexpressdelivery.Customerswillalsoneedtoprovidetheirmobilephone numbers for the robot to text them the time it will arrive at their homes. If theproductisinstock,therobotswillbeabletodelivertheordertothecustomer’shomein30minutes.

AlditoInvest£300Million(US$383Million)initsUKStoreNetwork(September29)Retaildetail.eu

• Over thenext12months,German retailerAldi is set to invest some£300million (US$383million)toexpanditsUKstorenetwork.Thegrocerannounceditsplanswhenitpublisheditsannualresults.In2015,Aldi’sUKturnoverwas£7.7billion(US$9.8billion),up12%fromthepreviousyearandarecordforitsbusinessintheUK.

• Aldi’soperatingprofitfellby1.8%yearoveryear,to£255.6million(US$326.1million),whichthe company attributed to its continued investment in pricing. The investment in UKexpansionwillbeusedtoopenatleast70newstoresandtoremodelanother100stores.

ASIATECHHEADLINESSamsungBioLogicsPlansIPOofupto$2Billion(October4)Bloomberg

• DrugmakerSamsungBioLogicsisseekingtoraiseasmuchasKRW2.25trillion(US$2billion)fromaSouthKoreaninitialpublicofferingasasteptowarditsgoalofbecomingtheworld’slargestcontractmanufacturerofbiologicalmedicines.

• SamsungGroup,thecountry’slargestconglomerate,controlsmorethan50companies,withinterests that range from TVs to finance, and has invested in areas that includepharmaceuticals.

AlibabaLeadsUS$10MillionInvestmentinFashionE-TailerGrana(October4)e27.co

• Alibaba is the leader of a US$10million series A round of funding for Grana, a direct-to-consumer online fashion retailer. Alibaba will also help Grana in its entry into MainlandChina.

• Grana is a fashion brand based in Hong Kong. It produces its own high-quality fashionproductsandsellsexclusivelythroughtheonlinechannel.

OnePlusAdoptsaMoreAggressiveStrategyinIndia(October3)TechinAsia

• Chinese smartphone manufacturer OnePlus is developing its first large-format experiencecenterinIndia,adoptingthe“onlineforsales,offlinefortheexperience”strategy.

• IndiawasamongthetopsevenmarketsforOnePlus’sphones,eventhoughthephoneswerenotsold inthecountry: Indianswerebuyingthemusingaddresses inothercountries,thenhaving thephones shipped to India.OnePlus has trained its eyeson the Indianmarket bycloselywatchingbuyingbehavior,buildingandengagingwiththecommunityofbuyersandfans.

ToyotatoLaunchRobotBabytoTargetMaternalInstinctinAgingJapan(October3)Reuters

• Toyota Motor unveiled a baby companion robot called Kirobo Mini in Japan, whereplummetingbirth rateshave leftmanywomenchildless. Theproduct is adoe-eyed,palm-sizedrobotthatspeakswithababylike,high-pitchedvoice.

• Toyota,whichplanstoselltherobotfor¥39,800(US$392)inJapannextyear,isalsoinvestingheavilytodevelopartificialintelligenceforself-drivingcars.

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OCTOBER 7, 2016


LATAMRETAILHEADLINESMexico’sGrupoAxoEyeingIPOinorAfter2018(October3)WWD.com

• Mexico’s fastest-growing apparel franchiser, Grupo Axo, is considering an initial publicoffering in or after 2018 in order to finance expansion. The company’s investor relationsdirectorsaidthatwhilethecompanyisconsideringthisasanoption,itcurrentlyhasnofirmIPOplansinplace.

• FitchRatingsexpectsGrupoAxo’srevenuestoriseby15%annuallyoverthenexttwoyears.Thepastfouryearshaveseenrevenuesincreaseby30%.GrupoAxolicensesanddistributesnearly 20 foreign lifestyle brands inMexico and South America, including Abercrombie &Fitch,BrooksBrothers,EmporioArmani,andCrateandBarrel.

InGuatemala,AllegationsFlyOverShutteredApparelFactory(October3)WWD.com

• BruceMasters,PresidentoftheAmericanChamberofCommerceinGuatemala,isfightingafiercelegalbattlewithhundredsofworkerswhoheallegeslootedhisloss-makingAlamedaapparelfactory.Masterssaystheworkerslooted$3.5millionworthofmachinery,fabricandothergoods,bankruptinghimandleavinghimunabletopaywagesand$2millionowedtobanks.

• The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) isrepresenting theworkers,claimingMasters’saccusationsare falsewhile theypressure theapparelmanufacturertopaybackwagesandseverance.

ZaraOpensItsNewDoorsinLima,Peru(October4)AméricaRetail

• SpanishretailerZaraopeneditsfirststoreinPeru,onthenorthsideofthecapitalcity,Lima.Theopeningwasplannedformid-October,butthestoreopenedaheadofscheduledespitesomeaspectsbeingstillunfinished.

• Growth has slowed in Latin America for the retailer, which currently has a presence inVenezuela,Colombia,Ecuador,Peru,CentralAmericaandMexico,which leads in termsofsales intheregion.Thestore is joiningotherfast-fashioncompanies, includingH&M, in itsnewhomeinPeru.

Lowe’sMexicoEnhancesCXwithPriceOptimization(September28)RetailTouchPoints

• Lowe’s Mexico has partnered with Upstream Commerce—a provider of cloud-based,automatedcompetitivepricingandproductanalyticssolutionsfore-commerceretailers—inorder todeploycompetitivepricingandassortment for thehome improvementcompany’sproducts.• Lowe’s Mexico is working to improve its omni-channel customer experience. UpstreamCommercealreadyoperatesinLatinAmerica,soitspartnershipwithLowe’sMexicowillhelpitexpanditsfootprint.

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OCTOBER 7, 2016


EARNINGSCALENDAR

Sales(Mil.) EPS

Company

EarningsReleasePeriod Date

ConsensusTY LYActual

ConsensusTY LYActual Currency

LVMH(MC.PA) 3Q16 Oct10 9,049 8,581 N/A N/A EUR

Supervalu(SVU) 2Q17 Oct12(E) 3,950 4,062 0.10 0.13 USD

FastRetailing(9983.JP) FY16 Oct13 1,794 1,682 524 1,079 JPY

ASOS(ASC.LN) FY16 Oct18 1,434 1,151 0.58 0.43 GBP

eBay(EBAY) 3Q16 Oct19 2,185 2,099 0.44 0.39 USD

Carter’s(CRI) 3Q16 Oct20(E) 901 850 1.67 1.51 USD

Walgreens(WBA) 4Q16 Oct20 29,105 28,522 0.99 0.25 USD

Kimberly-Clark(KMB) 3Q16 Oct24 4,735 4,718 1.54 1.54 USD

Luxottica(LUX) 3Q16 Oct24 2,278 2,155 0.45 0.43 EUR

VFCorp.(VFC) 3Q16 Oct24 3,630 3,613 1.15 1.07 USD

DIA(DIA.SM) 3Q16 Oct25 2,398 2,303 N/A 0.10 EUR

ExpressScripts(ESRX) 3Q16 Oct25(E) 25,486 25,223 1.73 1.06 USD

IconixBrandGroup(ICON) 3Q16 Oct25(E) 89 91 0.16 (0.11) USD

Procter&Gamble(PG) 1Q17 Oct25 16,507 16,527 0.98 1.07 USD

UnderArmour(UA) 3Q16 Oct25 1,455 1,204 0.25 0.23 USD

SimonPropertyGroup(SPG) 3Q16 Oct26 1,365 1,320 2.68 2.54 USD

Skechers(SKX) 3Q16 Oct26(E) 955 856 0.46 0.45 USD

Alibaba(BABA) 2Q17 Oct27(E) 34,257 22,171 4.73 2.08 CNY

Alphabet(GOOGL) 3Q16 Oct27 18,698 18,675 8.62 5.73 USD

Amazon(AMZN) 3Q16 Oct27(E) 32,644 25,358 2.02 0.17 USD

Apple(AAPL) 4Q16 Oct27 46,794 51,501 1.65 1.97 USD

Baidu(BIDU) 3Q16 Oct27(E) 18,467 18,383 7.39 8.13 CNY

Colgate-Palmolive(CL) 3Q16 Oct27 3,938 3,999 0.73 0.72 USD

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OCTOBER 7, 2016


EVENTCALENDAR

Event Location Date(s)

FungGlobalPresenting/Attending

FutureofStorytelling NewYork,NY Oct7–8 TechweekNewYork2016 NewYork,NY Oct10–16 ICSCREConAsia-Pacific2016 Manila,Philippines Oct11–13 √StartupLaunchpad HongKong Oct11–14 √LatAmStartupsConference3.0 MexicoCity,Mexico Oct12–14 ChinaInternationalInternet&E-commerceExpo Shenzhen,China Oct12–14 √UltaBeautyAnalystandInvestorDay Chicago,IL Oct13 FashionTechForum2016 Brooklyn,NY Oct13 StylusInnovationForum NewYork,NY Oct14 ForbesUnder30Summit Boston,MA Oct16–18 ICSCResearchConnections Austin,TX Oct16–18 √RevionicsInsight2016 Austin,TX Oct16–18 √GartnerITXpo2016 Orlando,FL Oct16–20 CapsuleLosAngelesWomen’s LosAngeles,CA Oct17–18 NGRetailSummitEurope Dublin,Ireland Oct17–19 eModaDay+eBeautyDay BuenosAires,Argentina Oct18–19 ABCKidsExpo LasVegas,NV Oct18–21 WestfieldCorporationDevelopmentDay LosAngeles,CA Oct19 √RetailLoco Chicago,IL Oct19–20 √GraceHopperCelebrationofWomeninComputing Houston,TX Oct19–21 CESUnveiledPrague Prague,CzechRepublic Oct20 ICSCLatinAmericaResearchConference Bogotá,Colombia Oct20–21 PopTech Camden,ME Oct20–22 MarketingFestival Ostrava,CzechRepublic Oct20–22 MakerFaire Shenzhen,China Oct21–23 √Money20/20 LasVegas,NV Oct23–26 WIREDtoStyle NewYork,NY Oct24 √WSJDLive2016 LagunaBeach,CA Oct24–26 ULIFallMeeting Dallas,TX Oct24–27 CESParisUnveiled Paris,France Oct25 RetailMarketingSociety’sHoliday2016:TheRetailOutlook NewYork,NY Oct25 Knowledge@WhartonandMomentum’sRetailWestSummit SanFrancisco,CA Oct25–26 WWDApparel&RetailCEOSummit NewYork,NY Oct25–26 √DignityUWearFundraiser NewYork,NY Oct26 SingaporeFashionWeek Singapore,Singapore Oct26–30 E-RetailDay MexicoCity,Mexico Oct27

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OCTOBER 7, 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:85223004406LONDON:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NEWYORK:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com

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Weekly Insights October 7 2016 - Deborah Weinswig€¦ · Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 1) the election fever currently gripping voters in the US and the coming ... follow