6 RETAIL TRENDS & 7 WAYS AMAZON IS CHANGING EVERYTHING Deborah Weinswig Managing Director of Fung Global Retail & Technology May 12, 2016
6 RETAIL TRENDS & 7 WAYS AMAZON IS
CHANGING EVERYTHING Deborah WeinswigManaging Director of
Fung Global Retail & Technology
May 12, 2016
HONG KONG NEW YORK LONDON
FUNGTHINKTANK
RETAILTECH
MICRO MACRO
RETAIL REAL ESTAT
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THEMATIC RESEARCHVR
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DIGITALDIGITALDIGITALDIGITAL
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 Global Retail & Technology advises retailers, real estate developers and tech companies on projects situated at the intersection of retail, tech and/or fashion.
• Our team offers a robust knowledge bank and significant experience in the retail, fashion and tech fields. We are involved in many areas of the business and believe this allows us to offer a unique perspective by focusing on the future and where the sector is heading.
A Unique Combination Of Retail, Fashion And Tech
OUR EXPERTISE
FASHION TECHRETAIL
ENTREPRENEURSROUNDTABLEACCELERATOR
Our Partnerships With Accelerators
Yesterday’s Bombshell
Macy’s Bombshell: More Of The Same or Something New?• Cut FY16 SSS guidance to -3% to -4%, but
lowered EPS by ~15%– From $3.80-$3.90 to $3.15-$3.40– SG&A deleverage exceeds projections– Must ask: is it as easy to find cost cuts to
meet earnings?• Management called out elevated savings
rate, reduced share of wallet on apparel and excess inventories across the industry
• Strong dollar leading to reduced tourism in US market
• All reasonable – but is there something more at play?
Macy’s Bombshell: More Of The Same or Something New?• AMZN impact on traditional retail is not a
new story, but is the pace of share shift accelerating?
• AMZN results strong while traditional department stores starting to falter.
• If it is less about AMZN and more about slowdown of int’l travel, they should do relatively better than M?
• Not standing flat footed: all aware AMZN is here to stay, making investments to combat
• Macy’s is adding Backstage, its discounter offering and Blue Mercury Spas to current store locations.
AMZN
Macy’s
Target
Walmart
Dec-
14De
c-14
Dec-
14Ja
n-15
Jan-
15Fe
b-15
Feb-
15Ma
r-15
Mar-1
5Ma
r-15
Apr-
15Ap
r-15
May-
15Ma
y-15
Jun-
15Ju
n-15
Jun-
15Ju
l-15
Jul-1
5Au
g-15
Aug-
15Au
g-15
Sep-
15Se
p-15
Oct-1
5Oc
t-15
Nov-
15No
v-15
Nov-
15De
c-15
Dec-
15Ja
n-16
Jan-
16Fe
b-16
Feb-
16
-15%-13%-11%
-9%-7%-5%-3%-1%1%3%5%
With Store Traffic Down, In-Store Experience Is Key• US mall traffic has decreased for 37
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 Source: RetailNext
Monthly US Store Traffic: YoY% Change
1
Experiential Retail: A Way to Bring Shoppers Back to Stores
• Urban Outfitters acquired the Vetri Family group of restaurants in 2015
• Club Monaco collaborated Café Myriade to open an in-store coffee shop in Montreal
Food & Beverage
In-StoreTechnolog
y
• Rebecca Minkoff offers interactive mirrors as well as virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets that allow visitors to experience runway shows
Custom-ization
• In March of 2016, Nike revealed its app, Nike+, that gives shoppers the ultimate customized experience
2
Experiential Retail: Making the Experience Engaging • Urban Outfitters acquired the Vetri Family
group of restaurants in 2015• Club Monaco collaborated Café Myriade to open
an in-store coffee shop in Montreal
Food & Beverage
In-StoreTechnolog
y
• Rebecca Minkoff offers interactive mirrors as well as virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets that allow visitors to experience runway shows
Custom-ization
• In March of 2016, Nike revealed its app, Nike+, that gives shoppers the ultimate customized experience
2
Experiential Retail: Customization and Personalization • Urban Outfitters acquired the Vetri Family
group of restaurants in 2015• Club Monaco collaborated Café Myriade to
open an in-store coffee shop in Montreal
Food & Beverage
In-StoreTechnolog
y
• Rebecca Minkoff offers interactive mirrors as well as virtual reality headsets in stores
• Tommy Hilfiger stores have virtual reality headsets that allow visitors to experience runway shows
Custom-ization
• In March of 2016, Nike revealed its new app, Nike+, that gives shoppers the ultimate customized experience
2
Data-enabled personalized and
timely promotions
Track movement, behavior and preferences
Beacon-enabled location-based
advertising
Smart Malls: Reshaping the Physical Shopping Experience3
Partnered with HGTV to launch virtual and hands-on technology-based experiences
Formed strategic alliance with StepsAway, an in-mall mobile retail solutions provider offering shoppers smartphone access to hyperlocal in-store deals
Silicon Valley–based unit that designs and develops innovations to improve the retail experience
Smart Malls: Reshaping the Physical Shopping Experience3
Retail Store Closings and Openings Continue
2015• There was a 7% year-over-year
increase in store closure announcements
• There was 29% less square footage associated with announced store closures in 2015 than in 2014
• 16 retailers closed at least 10% of their stores between 2010 and 2015– Teen retailers appear consistently on
this list
Sears
aerie
Christopher and Banks
Abercrombie & Fitch
Pacific Sunwear
Kmart
Restoration Hardware
Office Max/Office Depot
Aéropostale
Saks Fifth Avenue
Bebe Stores
Hollister US
Lands' End
Staples
Barnes & Noble
New York & Company
Williams-Sonoma
JCPenney
Dillard's
Rite Aid Corp
Gap
-70% -60% -50% -40% -30% -20% -10% 0%
Change in Store Base: 2010–2015
4
Retail Store Closings and Openings Continue2016• Off-price/discount retailers are expected
to see major growth in 2016 as well as fast fashion brands
• Foreign discount grocers Aldi and Lidl plan to push US expansion
• E-commerce pure plays are opening stores
Retailer Number of Announced Store Closings
Walmart 269Men’s Wearhouse 250Sports Authority 140Sears 50Macy’s 40Kohl’s 18
RetailerNumber of
Announced Store Openings
Dollar General 1,000*
Forever 21 600
H&M 425
Amazon 400
Under Armour 200
Dick’s Sporting Goods 135–150
Ulta 100
Lidl 50
Aldi 45
Costco 32
Dollar Tree 13
Stein Mart 12
Target 11*In 2017Source: ICSC Research/PNC Research
4
Moving to Omni: Tech Investments Help Feed the Digital Shopping Habit
• Retailers are raising capital-spending budget for technology projects
• There is a 75% correlation between capex/sales and e-commerce sales/total sales for selected retailers:
“You have to spend money to make money”
Retailer Capex and Capex/Sales (2015)
Wal
mar
t
Cost
co
Hom
e De
pot
Targ
et
Wal
gree
ns
Low
e’s
Nord
stro
m
Nike
Macy
’s
L Bra
nds
Gap
Kohl
’s
Best
Buy
Neim
an M
arcu
s
Sear
s$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
0%
1%
2%
3%
4%
5%
6%
7%
8%
Cape
x ($
Bil.)
Capex/Sales
Source: eRetailer/company reports/Fung Global Retail & Technology
5
Moving to Omni: Operations and Channels
• L Brands moved to integrate its Victoria’s Secret direct-sales business — online — into the store businesses
• Victoria’s Secret discontinued catalogs in 2016, saving $100 million annually
• Aim to offer a seamless shopping across mobile, online and in stores
The Seamless
Experience
Same-day Delivery
• From test phase to full-scale operations:– Kohl’s expands same-day delivery to 7 new markets with Deliv
(April 2016)
– Best Buy expands same-day delivery to 13 new markets with Deliv (April 2016)
– Macy’s already in 17 markets with Deliv
Click & Collect
• Amazon UK has partnered with Barclays to use its outlets as collection points for deliveries
5
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
6
Evolving Pure Plays• Millennials prefer mono-brand brick-and-mortar stores, and
they shift between online and offline along the shopping journey
6
Competing in an Amazon World7 Ways Amazon is Changing “Everything”
OVERALL E-COMMERCE SALES GROWTH CONTINUESTO OUTPACE TOTAL RETAIL SALES GROWTH
Source: Census Bureau
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-30%
0%
30%
60%
E-Commerce Only Total Retail
E-Commerce Sales Growth vs. Total Retail Sales Growth
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
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015(10%)
5%
20%
35%
50%
Amazon Sales Growth US Total Retail Sales Growth
Source: Bloomberg and US Census Bureau
Annual Sales Growth
SINCE THE START OF 2016 WE HAVE BEEN MONITORING AMAZON NEWS ON A DAILY BASIS
1. Amazon Prime Is Taking Off
Explosive Growth in Prime Subscribers• Estimate of 54 million
prime memberships (CIRP)– 51% jump YoY in 2015
• 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
Prime Offerings• Shipping
– Free 2 Day shipping• Prime Now
– Same day delivery within a 1 to 2-hour window of select items in select metro areas
– No extra fee, $5 tip encouraged• Video
– Stream thousands of movies and TV shows on over 600 devices
– Focusing on original content– Spends around $3 billion annually on streaming
content, and is expected to grow• Music• Unlimited photo storage in the cloud
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
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
Amazon Video Direct• Users can upload original or
licensed content• Ad supported• Can designate access:
– Free to everyone, can rent or own, subscription, or Prime only
2. Prime Now is Redefining Logistics
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
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
CompanyLatest Funding
Roundcurbside $25 Million deliv $28 Million Doordash $40 Milliondrizly $13Million Instacart $220 Millionmunchery $85 Million nestdrop $150K postmates $80 Million roadie $10 Millionshyp $50 Million
Other Same-Day Delivery Startups
3. Amazon Home Services Could Shake Up Several Industries
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
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
Amazon Thinks Big (Items)• Amazon wants to sell bigger things
– Decreasing barriers to large appliance and furniture purchases• Amazon increasing capacity for large items
– About 12 warehouses just for big products• More than 1 million items with option for assembly or other
services• Services available without items
– Landscaping, house cleaning
DIFM vs. DIY• US aggregate spending on consumer home
improvement, professional maintenance, repair & operations and DIFM services: $550 billion [source]
• 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
Other DIFM Players• Integrates:
– TaskRabbit, Take Lessons, Pep Boys
• Competes with:– Angie’s List, Yelp, Google
• Task-related startups:– Fiverr, Handy
4. Echo+Alexa Is a Sleeper
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.• 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.
• First launched in 2014– Purpose not entirely clear– Originally panned by critics, many were finally won over
Growing Virtual Assistant Market• Global market worth $5.1 billion by 2022 (Transparency Market Research)• North America has largest market share of smart virtual assistants at 39%• Asia Pacific expanding at a 33.4% CAGR
New Sizes and Features• Always-on feature• Constantly adding new skills
– Add events to calendar with voice commands
– Check stock quotes• Enables smart home actions
– Takes advantage of IoT capable devices throughout the home, connects to them all
• New form factors:• Echo Dot, Amazon Tap
Cross-selling Amazon Media Content• Purchase Kindle books via
Alexa or have Kindle e-books read to you• Control through Amazon Fire
TV Stick• Purchase additional Amazon
content
Partnerships• Users can access banking functions with Capital
One– Adding additional revenue stream
• Music requests can be made to Spotify• Users can order an Uber via Alexa• Ford is looking to use SYNC Connect with Alexa
– Allow customers to access vehicle from inside home
• Hands free delivery from Domino’s is under development
Other AI Personal Assistants (Fix formatting)
Platform Launch Date Key Features
Apple Siri Oct. 2011 Integrated into multiple devices, including the iPhone, iPad, iPod Touch, Apple Watch and Apple TV
Google Now Jul. 2012 Relies on predictive technology to anticipate the user’s information needs
Microsoft Cortana Apr. 2014 Employs progressive intelligence; the system asks permission before accessing a user’s information on a device instead of automatically recording information
Facebook M Aug. 2015 Uses human intelligence to train and improve AI
Hound by SoundHound Mar. 2016 Comprehends natural language; is capable of handling sophisticated commands
Mobvoi Aug. 2014 Chinese AI personal assistant that is available on iOS, Android and its own smartwatch
Viv Under Development
Next generation of intelligent virtual assistants. Viv is able to create its own code and find answers, supplying the missing link between human and information
Source: Company official websites/Financial Times
5. Disrupting the Office Supply Market
US Office Supply Market
2008
2009
2010
2011
2012
2013
2014
E
2015
E
2016
E
2017
E
2018
E
2019
E
2020
E$0
$5,000
$10,000
$15,000
$20,000
$25,000
• $16.8 billion market in 2016• 48% of Staples sales come from
core office supplies, ink and toner products
• Staples and Office Depot control 67% of store based office supply sales in North America– Attempted merger blocked by FTC
Sales Value of Office Supply and Stationery Stores in US (Mil. $)
Source: US Census Bureau/Statista*Estimate
Amazon Business Accounts• About 300,000 businesses had opened accounts with Amazon in
the first 11 months of its Amazon Business service.• Successor to Amazon Supply• Free 2 day shipping on orders of $49+ of office supplies• Companies can approve employee purchases
– Can pay invoices rather than upfront• Already has some control over 3rd party sellers, contrary to
original testimony in Staples/Office Depot hearings
6. Amazon Moving into Apparel
Amazon Is Poised to Become Largest US Apparel Seller in 2017
TJX
Walmart
Macy's
Amazon
$0 $5 $10 $15 $20 $25 $30
Estimated US Apparel and Accessories Sales 2017 ($ 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
Amazon Led Apparel Sales Growth in 2015Am
azon
Fast
Ret
ailin
g
Indi
tex
LVM
H
H&M
Ross
Sto
res
Hane
sbra
nds
Nor
dstr
om
TJX
Com
pani
es
JC P
enne
y
Ralp
h La
uren
PVH
Targ
et
Kohl
's
VF C
orp
Wal
mar
t
Gap
Inc
Mac
y's
Iset
an M
itsuk
oshi
Sour
ce: C
ompa
ny R
epor
ts
Data
in m
illio
ns U
SD
(5%)
0%
5%
10%
15%
20%
25%
30%
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)
Amazon’s Foray into Apparel 1995Amazon Launches 2006
Acquired
2002Expansion into Apparel
2009
Acquired
2011
Acquired
2015Private Label Launched
2015Amazon apparel generates $16.3 billion in sales*
*Based on our estimates, includes 3rd party sellers
Amazon Quietly Launched Private Label
FRANKLIN & FREEMAN
SOCIETY NEW YORK
SCOUT & ROLARK & RO
FRANKLIN TAILORED
JAMES & ERIN
Marching Forward in Private Label Opportunities
• Fast fashion and basic categories are under-represented on Amazon
• Forever 21, H&M and Uniqlo each have less than 80 SKU’s on the site while Coach and Michael Kors each have at least 16,000
• Nike has the most SKU’s with more than 115,000
• Amazon launched 1800 stock-keeping units within seven private label brands in 2015
• Brands ranging from men’s dress shoes, suits, accessories, women’s casual, fashion and kidswear
• Amazon is aggressively hiring private label talents, including merchandiser and fit specialist.
Amazon Web Services—The Secret Weapon
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
2013 2014 2015
$3.1
$4.6
$7.9
AWS Revenues ($ Bil.)
CAGR = 59.2%
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 2015–2019E2015 2019E
$70
$141
Worldwide Spending on Public Cloud ($ Bil.)
CAGR=19.4%
Source: IDC, 2016
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
Amazon Still has a lot of Room to Grow
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
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