Future of Retail: Is It Coming Apart at the Seams?

1. 1
Deborah Weinswig
Managing Director
deborahweinswig@fung1937.com
US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016
Future of Retail:
Is It Coming Apart at the Seams?
June 9, 2016

2. 2
Agenda
ABOUT US
RETAIL LANDSCAPE OVERVIEW
TOP 20 RETAIL & TECH TRENDS FOR 2016

3. 3
About Us

4. 4
About Fung Group
TRADIN
G
LOGISTIC
S
DISTRIBUTI
ON
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
Toyrs “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

5. 5
Retail, Tech, and Fashion
• 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.

6. 6
Retail Landscape Overview

7. 7
All-Channel Universe
Order
From
Fulfilled
By
Where
Received
Home
Elsewhere
Your Store
Different Store
Mobile
Direct DC
Store DC
Your Store
Different
Store
Vendor
Home
Elsewhere
Your Store
Different Store
Source: Hudson’s Bay

8. 8
Retail Destruction
“We are seeing continued weakness in consumer spending levels
for apparel and related categories.”
-Terry J. Lundgren, Chairman and CEO of Macy’s, Q2 earnings call
“They (consumers) are not buying apparel.”
-Wesley McDonald, CFO of Kohl’s, Q2 2016 earnings call
“While apparel will always be important to JCPenney, we've
conducted a detailed review of our customers’ current and future
shopping patterns, and we'll start to strategically shift our
merchandising mix to sell more products and services that correlate
to where customers are spending the greater percent of their
dollars.”
-Marvin R. Ellison, CEO and Director of JCPenney
“There's no doubt that the luxury market is the most challenging
market we participate in right now. And you've seen that in the
results of companies across the luxury spectrum.”
-Gerald L. Storch, CEO of Hudson’s Bay
Company Actual Estimate
Kohl’s (3.9%) 0.2%
Nordstrom (1.7%) 0.1%
Guess (4,2%) (1.6%)
Macy’s (6.1%) (3.4%)
JCPenney (0.4%) 3.2%
Pottery Barn 0.2% 2.5%
H&M 5.0% 9.0%
Target 1.2% 1.7%
Foot Locker 2.9% 4.5%
Costco 0.0% 0.9%
Dollar General 2.2% 2.4%
Source: StreetAccount
Actual Comps/Sales Results Versus Estimates

9. 9
The Beauty Category Outperforms Apparel
“Selfie culture, if you take a photo 10 times today…the result is people are using more
makeup and more instant skin care.”
-Fabrizio Freda, CEO of Estée Lauder, commenting on 11% growth in makeup sales in 1Q16
Industry
Global Revenue
2015
Annual Growth
10-15
Cosmetics $276bn 3.2%
Apparel $618bn 0.6%
Source: IBISWorld

10. 10
Experiences Trump “Things”
• Over the next 5 years US
consumer spending is forecasted
to grow by 22%; non-essential
categories, including vacations
and dining out, will see the fastest
growth, about 27% (Mintel)
• More than 3 in 4 millennials would
choose to spend money on a
desirable experience
• Experiences are what people use
to define themselves across social
channels

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The Instagram Effect
Never Be Photographed in the Same Dress Twice

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Beauty and Food Retailers are Immune from
Secondary Market
No market for used lipsticks or half-eaten sandwiches

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The Presidential Election: Cautious Consumers
• The 2016 presidential campaign is one of the most unpredictable election years
• Election cycles always prove to be consumer mood-dampeners
• The luxury sector is affected the most because most of luxury spending is mood-driven
• The US luxury market is in decline with no support from tourism and election uncertainty

14. 14
US: Election Years Influence Stock Market
Election
An early pullback in spending that
is followed by a strong recovery
later in the year.
Pre-Election
The best stock market returns
compared to post election,
midterm and election years. 14%
5%
5%
7%
8%
0%
4%
8%
12%
16%
Pre-Election Midterm Post-Election Election Year Average
Source: Bloomberg
S&P 500 Average Returns

15. 15
The Consumer Hourglass
• 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
Squeeze in the Middle Segment Neiman Marcus
Saks
Nordstrom
Bloomingdale’s
Dillard’s
Macy’s
Kohl’s
Sears
JCPenney
Target
Walmart
Costco
TJ Maxx/Off-Price
Primark
Aldi / Trader Joe’s
Dollar Stores

16. 16
Four-Quadrant Disruptors Framework
NAME UR
PRICE
SELF-
CHECKOUT
EVANGELIZE
THRIVE
EXPERIENTIAL RETAIL:
MAKE THE STORE AN AWESOME
PLACE
CUSTOMER
ENGAGEMENT:
HOW DO YOU CONVERT THE CONSUMER
ALL CHANNEL:
The CONSUMER CAN SHOP WHEREVER
+ WHENEVER
REACTION
COMMERCE
NEW RETAIL MODELS:
HOW WILL THE CONSUMER SHOP IN
THE FUTURE

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Top 20 Retail & Tech Trends for 2016
1. Store Traffic
2. Experiential Retail
3. Smart Malls
4. Augmented Reality
5. Virtual Reality
6. Robotics
7. Facial Recognition
8. Wearables
9. Evolving Pure Plays
10. Loyalty Programs
11. Influencers
12. Consumers Have Full Power:
Name Your Price
13. Secondary Market for Fashion
14. Subscription Economy
15. Sharing Economy
16. Rental Economy
17. Caring Economy
18. Silver Economy
19. Amazon Leads Retail Growth
20. Artificial Intelligence

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1. With Store Traffic Down, In-Store
Experience Is Key
• US mall traffic has decreased for 42
consecutive months and continues to
be challenging
• Malls have seen an average 6.5%
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
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
Dec-14
Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Aug-15
Sep-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Monthly US In-store Traffic YoY%

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1. With Store Traffic Down, Department Stores Go
Off-Price
• Department stores are offering below-retail prices through off-price chains. Both Kohl’s and
Macy’s are opening off-price stores
this year
– Kohl’s opened a single store selling returned items in Cherry Hill, NJ in June 2015
– Macy’s discount chain “Macy’s Backstage” opened four stores in greater New York City
area in September 2015

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2. 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
• 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
• In March of 2016, Nike revealed
its app, Nike+, that gives
shoppers the ultimate customized
experience
Food &
Beverage
In-Store
Technology
Customization

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2. Experiential Retail:
Making the Experience Engaging
• 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
• In March of 2016, Nike revealed
its app, Nike+, that gives
shoppers the ultimate customized
experience
Food &
Beverage
In-Store
Technology
Customization
• 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

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2. Experiential Retail:
Customization and Personalization
• 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
• In March of 2016, Nike revealed
its app, Nike+, that gives
shoppers the ultimate customized
experience
Food &
Beverage
Customization
In-Store
Technology
• 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

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3. Smart Malls:
Reshaping the Physical Shopping Experience
Data-enabled
personalized and
timely promotions
Track movement,
behavior and
preferences
Beacon-enabled
location-based
advertising

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4. Augmented Reality
uses augmented reality and configurable 3D models of
products to drive sales and conversion
Augmented Commerce
Click and see the
products in 3D at home
Augmented Stores:
“Endless aisle” or virtual
showroom
Augmented Sales
A B2B sales tool for
sales associates to use
with customers

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5. Virtual Reality
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
• 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

27. 27
6. Robotics
• Starwood Hotels is using robotic butlers in the Aloft Silicon Valley hotel
• Suitable Technologies: entire store with telepresence robots
– Robots created for corporate boardrooms
– Allow users to interact remotely from home
(or wherever they are)
– In the Suitable Technologies
showroom, salespeople appear only as robots
– SoftBank’s new robot Pepper is capable of engaging customers as a
sales assistant in store

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7. Facial Recognition
The global advanced Facial Recognition market expected growth: $2.77 Bil. in 2015 to $6.19 Bil. in
2020 (CAGR 17.4%)30% of retailers are using facial recognition technology to track customers in
stores (ICSC)
Applications are
increasing: health,
wellness, beauty and
advertising
In 2015, Walmart tested
with FaceFirst
Intel released RealSense
facial recognition
technology in 2015

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8. Wearables: All About Medical
Electronic glasses that
enable blind to see
3-D Printing: Prostethics Second Generation
Hearing Aid
Created by eSight
Seen at 2016 WEAR
Conference in Boston
Created by Enabling the
future.org
Allowing consumers to design
and DIY
Created by ReSound
Smart hearing aids controlled
on iPhone, or iPad. Users can
adjust volume, treble, bass.

30. 30

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8. Wearables Make Them Wantables : All About the Hype
• Global demand for smart and interactive textiles is still small. It is expected to hit $3.8B in
2020, or a CAGR of 14%.
• So far smart clothing products are all about the hype
• Ralph Lauren’s PoloTech shirt replaces wrist-worn fitness trackers (manufactured by
OMsignal)
• Others: Visijax cycling jacket, Sensoria smart socks, Hexoskin smart fabric shirt, MYO
armband

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9. Evolving Pure Plays
(Number of Actual/Planned Physical Stores)
1 400 120 1 3 2
3 21 1 1 7
4 27 25 12 2

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10. Loyalty Programs: Case Studies
Today’s
Loyalty
Cards with bar codes, reward
programs
Use of gamification (membership
levels, points, leaderboards)
Last-generation
Loyalty
Coupons, membership
cards
Tomorrow’s
Loyalty
Smartphone based
Integration of tracking status,
payment, gift cards, ect.

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11. Influencers: A Marketplace
• Marketers felt the biggest issue is
scale, with 59%, intending to
increase their influencer marketing
budgets. (Tidal Labs)
• A transparent marketplace can:
– Search all influencers by
relevant attributes
– Streamline process to cut
overhead
– Remove friction in reaching
out to startups via email
– Problems the sector is facing:
fragmentation, scale, and
authenticity
Main Challenges When Rolling Out Influencer
Engagement Strategy
Source: Augure/State of Influencer Engagement Survey

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11. Influencers:
A Few Voices Reach and Impact Many
Vloggers Blogs Influencers
Joy Cho
12.8M
followers
Chris Ozner
Over 75M
daily users
Nash Grier (age 16)
1.5B plays per day
Leandra Medine
Over 2.6M
followers/month
Aimee Song
Over 2M
followers/month
Zoe Sugg
Over 1.6M
followers/month
Carli Bybel
Over 1.2M
followers/month

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12. Consumers Have More Power:
Name your price
• Name-your-own-price model: allows customers to state the price they are willing to pay
• Dynamic pricing and data-driven repricing: prices change in response to real-time supply
and demand
• 40% of retailers plan to use cloud/Saas solutions for dynamic pricing
• Implementing dynamic pricing can improve revenues and profits by 8% and 25%,
respectively
Source: WisePricer
Best Buy and
Walmart
implement price
changes over
50,000 items
per month.
Amazon changes
prices every 10
minutes or more!

37. 37
12. Consumers Have More Power:
Name your price
is a smart wishlist generator for customers
Follow friends’ and
families’ wishlists on
social media
Slide price bar to
indicate the price you
want to pay
Set an expiration date for
auto-buying service when
the app discovers a sale

38. 38
12. Consumers Have More Power:
Name your price
is an app that empowers customers through PAY WHAT YOU
WANNA PAY
Discretionary Nice-to-
Have product
categories
Slide the price bar to
indicate customer
willingness: a lower
price corresponds to a
longer waiting time
Inventory turnover
maximization for retailers

39. 39
13. Secondary Market for Fashion
• Online resale fashion industry is worth $25 billion by 2025
• 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
• 87% of individuals who bought secondhand clothing online shifted their spending away from off-
price retailers.
• Sentiment toward secondhand has shifted

40. 40
13. Secondary Market for Fashion: Partnerships
A program that lets customers exchange their well-
maintained, name-brand clothing for Macy’s gift
cards to make the world greener
Easy steps for big rewards
Order a Clean out Kit
Fill it up; send it out
Get gift cards after
thredUP’s review
Strict rules to maintain excellent
quality
Less than five year old
Selected name-brands
Clean, trendy and women’s only
Expanding partnership
and impact
Diapers.com since 2014
Gymboree since 2012

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13. Barter Instead of Buying- reKindness
is a unique “swap to shop” online fashion barter
community
Barter spare clothes in
reKindness’s
community closet
online and at local
events
Reduce personal
environmental footprint
by recycling clothes
De-clutter mass-market
items to make life less
stressful

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14. Subscription Economy:
Beauty and Fashion Are Growing
• Convenience and curated products for consumers
• Recurring revenue model for retailers
• Element of self-gifting and beauty is the biggest category
• Fashion-styling subscriptions are becoming popular
Le Tote, Birchbox, BarkBox, Pijon, Stitch Fix, Bookofthemonth

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15. Sharing Economy:
“Uberifying” Virtually Every Industry
• Valuations of sharing-economy companies have skyrocketed
• Revenues are projected to catch up to aggressive valuations
• Sharing-economy market:
Disruptors: Uber, Airbnb, Lending Club, WeWork

45. 45
16. Rental Economy: Fashion Rental Leading
Disruptors: Style Lend, VillageLuxe, Le Tote, Lena the Fashion Library and Borrow For Your Bump
(maternity)
Following Rent the Runway, a new generation of fashion-rental companies has emerged

46. 46
17. 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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18. 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
56%
114%
Population Spending
Estimated Growth in Senior Population and
Spending by Seniors, 2015–2030

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49. 49
19. Amazon Leads Retail Growth
• 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
Amazon Annual Sales Growth
Source: Bloomberg and US Census Bureau

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19. Amazon Leads Retail Growth
PROS
• 110 Amazon Dash Buttons available
• Two-day shipping on all items
• Set up with existing Amazon account
• Dash Buttons are available to Prime members for $4.99 each, with a $4.99 credit
after the first order
CONS
• Does not provide data to brands
• Selective regarding which brands can participate
• Controls the channel while promoting private label brand
• Items must be Prime-eligible

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20. Artificial Intelligence: Amazon Echo & Alexa
• Paired with Alex, 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
Ford is partnering with Amazon to integrate vehicles with Echo, Amazon’s smart-home device

52. 52
Bonus: Israel-China Silk Road
• Are Israel and China creating a Silk
Road for startups?
• China is a “mobile first” country
• Chinese companies are developing
apps
• In 2014, Chinese investors invested
US$302 million in Israeli companies,
and in 2015, that number rose to
more than US$500 million, a
significant increase.

53. 53
Bonus:
Fung Group’s Explorium Project in Shanghai
Explorium a retail “omni-platform lab” consisting of a 60,000
square foot 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.
Partnership with IBM
and Pico
35 Participating
Brands
12,000 Employees as
Shoppers

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Thank You!
Deborah Weinswig
Managing Director
deborahweinswig@fung1937.com
US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016
June 9, 2016