Hollywood, FL APRIL 4 – 6, 2016

APRIL 11, 2016

This week, the Fung Global Retail & Technology team attended the Demandware XChange ’16 Conference in Hollywood, Florida. The annual show has become a technology and cultural phenomenon, growing every year and attracting capacity crowds. It brings together leading retailers, innovative technology companies, partners and employees. This year, the emphasis was on how to leverage unified commerce to drive growth and transformation without disruption. Demandware, the industry-leading provider of enterprise cloud commerce solutions, now operates over 1,500 digital commerce sites for 331 customers and over 400 million shoppers worldwide. Demandware Commerce solutions supported 92 orders each second this past holiday season. Below, we recap the show, highlighting some of the exciting things we saw and heard.

PREDICTIVE RECOMMENDATIONS Retailers looking to keep up with consumer demand for individualized and seamless customer experiences have a new technology option to consider. Demandware’s predictive recommendations and email intelligence technology is changing the relationship between customer and brand. The platform leverages data science to deliver product recommendations that create personalized site experiences, while the predictive intelligence engine works with a retailer’s existing email solution to choose the optimal content for each email recipient.

APRIL 11, 2016

In addition, newly introduced merchandising enhancements enable retailers to drag and drop products within category grids and provide advanced search and filter capabilities within products and categories. The types of data used to drive personalized recommendations include:

• Behavior: product views, category views and checkout starts.

• Transactions: line-item details, subtotal and order total.

• Catalog: inventory, price and customer attributes. The recommendation rule configuration allows retailers to set specific product rules. This allows them to avoid, for example, recommending sale items or items that are currently out of stock. True Religion’s Director of E-Commerce, Julie Ting, discussed the results her company has seen since implementing the cloud- based solution. Specifically, she said the tool has helped True Religion increase engagement, loyalty and conversions. So far, the company has experienced increases in time on site, page views per session, add-to-cart rate and cart rate conversion. It has also seen improved product sell-through rates: for example, when customers were shopping for tops, the company saw an increase in sales of the bottoms that were recommended with them.

DISTRIBUTED COMMERCE The rise of social and mobile engagement has accelerated the democratization of retail, forcing retailers to push their unique brand experience beyond their physical and virtual walls in order to make the journey from inspiration to purchase as seamless as possible. Demandware expects mobile’s share of e-commerce to grow from 2.6% to 15% by 2017. The company said that social media is now mobile-first and that many emerging engagement platforms are mobile only. To underscore the point, Demandware noted the desktop/mobile usage ratios of four of the biggest social media platforms: • Facebook: 32% desktop/68% mobile • Twitter: 14% desktop/86% mobile • Instagram: 2% desktop/98% mobile • Pinterest: 8% desktop/92% mobile Social commerce is growing, and Demandware estimates that it represented 5% of all online retail revenue in 2015. Retailers in Internet Retailer’s Social Media 500 ranking recorded a collective $3.3 billion from social shopping in 2014, up 26% from 2013. Also, consumers arriving at retail sites from social networks spend an average of 8.2% more time shopping on those sites than other shoppers do. According to Tiffany Black, Head of Commerce Business Development at Pinterest, 93% of Pinterest “pinners” use the site to plan for purchases. Gardener’s Supply Company was approached by Pinterest and Demandware in 2015 to be a first mover on Buyable Pins, and the brand has

APRIL 11, 2016

experienced significant success with them: • Visits, orders and revenue from Pinterest grew 30% faster than they did for the overall business. • The company saw 12 times more traffic and five times more revenue from Pinterest than it did from the next largest social platform. • Since launching Buyable Pins, 50% of all referral traffic from Pinterest has come from them. • The company has over 4.2 million pins; every new season gets a curated Pinterest board. Demandware announced that it had established global strategic partnerships with Pinterest and Salesforce.com that let users sell to consumers via “Buy Now” buttons in social and service channels. The initiative empowers retailers and brands to sell products on new digital channels without losing connection to a central commerce platform. ENHANCING THE STORE EXPERIENCE AND UNIFIED COMMERCE PLATFORM The in-store experience is evolving and becoming more digitally integrated. This is making it ever more important for retailers and brands to have a single platform across touch points, operations and customer data. Initiatives such as buy online, pick up in store have created a closer tie between the store and online channels. And, according to Demandware, 60% of in-store sales are influenced by digital.

Companies such as True Religion are integrating digitally to improve customers’ experiences. Store associates at True Religion locations in Beverly Hills and New York will soon be wearing Apple Watches, enabling them to share a virtual, endless aisle of products with shoppers. The associates will also gain access to information about customers’ preferences regarding products and forms of communication. The True Religion app (Band) enables employees to access its inventory system to quickly locate the exact items customers are seeking. Since the sale ends up online, one challenge True Religion has faced is figuring out how to compensate and motivate store associates for any purchase that results from an in-store experience. The Limited is also piloting new in-store technology; store associates using iPads can scan items to find them in inventory and then order them online. Charles Tyrwhitt is testing a 65-inch touch-screen TV in its stores that can be used to locate and order inventory and show styles to customers. At the conference, all three retailers discussed

APRIL 11, 2016

the importance of having a unified commerce platform that presents all online and in- store data in a single view. Customers now shop across several channels, and it is important for retailers to recognize the different touch points and accurately track customer and inventory data. To help on this front, Demandware is launching a unified business function in North America this fall that will allow retailers a real-time view of their inventory. ROADMAP FOR GROWTH

In this new era of retail democratization and disruption, retailers must rethink their strategic and operational approaches in order to achieve growth. To gain insight into retailers’ strategic priorities, the Economist Intelligence Unit surveyed 300 retail executives in November and December 2015; 75% were C-level managers and 25% were senior vice presidents, vice presidents or directors. The study broke the respondents into high-performing and low-performing groups. High performers, representing just under one-third of survey respondents, represented companies that were above their competitors based on three metrics: same-store sales growth, margin and inventory turnover rates. Among the high performers, the top three strategic initiatives for revenue growth over the next three years were geographic expansion, strategic partnerships, and new stores and formats. Geographic expansion was the top priority among those surveyed, cited by 43% of high performers and 33% of low performers. Columbia Sportswear, a vertically integrated sportswear brand, is one company that has relied on globalization to fuel growth. It has expanded its direct-to-consumer presence with websites that operate in dozens of geographies around the world. Time to market was also cited as an important factor in terms of geographic expansion, and Uniqlo was recognized on this front for its expansion into 17 countries in just four months. High performers in the study also said they have allocated more resources to strategic partnerships in order to experiment with technologies that will allow them to better align with shifting consumer tastes. For example, Under Armour partnered with, and ultimately purchased, MyFitnessPal, an app that allows consumers to track their fitness activity. As a result, Under Armour can now send consumers product information and promotions based on their fitness progress and interests. Other strategic partnerships include Tory Burch and Fitbit, Whole Foods Market and Instacart, and American Apparel and Postmates.

APRIL 11, 2016

Opening new stores and formats was cited as an important initiative by 30% of high performers and 20% of low performers polled. Different retailers have been taking different approaches on this front. Party City, for example, establishes hundreds of pop-up Halloween stores every fall to extend its holiday-period footprint, creating temporary locations without the traditional cost of permanent stores. Story, a retail concept founded by Rachel Shechtman, takes the viewpoint of a magazine, changing merchandise every four to eight weeks like a gallery might, and has seen high dollar- per-square-foot sales. Finally, pure play ModCloth has opened a store where customers can try on merchandise, but not buy it; instead, they can order it and have it shipped to their home. These growth initiatives underline many of the spending priorities and organizational changes high-performing retailers plan to make to put the customer at the center of their businesses. COMMERCE PACESETTER AWARDS

Demandware’s Commerce Pacesetter Awards honor excellence in digital commerce and recognize Demandware clients that have leveraged the power of technology, partnerships and people most effectively. The Fast Track Award recognizes companies that have used Demandware to speed their time to market, and have launched one or more e-commerce sites and other major initiatives quickly and efficiently. Uniqlo won the award this year, and was recognized for having: • Launched online stores for delivery into 17 countries in four months. • Successfully integrated its e-commerce sites with its existing infrastructure in partnership with Arvato and Demandware. • Implemented click-and-collect in all stores in France and Germany. • Completed its project prior to peak season, with early results exceeding targets and expectations. The Sustained Growth Award honors retailers that have achieved above-average growth while using Demandware Commerce over two or more years. Carter’s won the award this year, and CIO Janet Sherlock accepted it. The company: • Has experienced annual double-digit e-commerce growth since launching in 2010. • Established a shared shopping cart across brands, driving conversion rates and average order values.

APRIL 11, 2016

• Launched a mobile site in 2013; mobile conversion has improved by two times and mobile now accounts for half of traffic. • Processed over 10,000 orders in a single hour on Black Friday 2015.

The final award, The Innovation Award, honors Demandware clients that have developed engaging shopping experiences. This year, Cole Haan won the award, and was recognized for having: • Monetized mobile traffic by implementing Apple Pay. • Launched “Shop the Look” capability on Instagram. • Pioneered Buyable Pins on Pinterest as an early adopter. • Been recognized by L2 as the “Best of Mobile” in 2015 in the fashion industry vertical.

APRIL 11, 2016

Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected]

John Harmon Analyst Steven Winnick Research Associate

HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470

LONDON: 242–246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988

NEW YORK: 1359 Broadway, 9th Floor New York, NY 10018 Tel: 646 839 7017 FBICGROUP.COM