March 21, 2017

The Fung Global Retail & Technology team is attending Shoptalk 2017 Day 2 Shoptalk 2017 in Las Vegas this week (March 19–22). Described by the organizer as “the next-generation commerce event,” Takeaways: Shoptalk expects more than 5,000 attendees from over 40 countries at this year’s event. 1) E-commerce companies such as and eBay shared their efforts to improve fulfillment speed. Stephenie Landry, Vice President of Now, pointed out that instant fulfilment such as two-hour delivery could become the norm for future e-commerce. 2) Retailers are rethinking technologies to help run stores more efficiently and engage customers. Kyle Nel, Founder and Executive Director of Lowe’s Innovation Labs, discussed how Lowe’s is creating a more efficient and engaging shopping experience by introducing autonomous robots at 11 of its retail stores. 3) Marc Lore, President and CEO of eCommerce US Deborah Weinswig (Walmart’s e-commerce operations), announced on Managing Director, Monday that the company is launching a technology- Fung Global Retail & Technology startup incubator in Silicon Valley to help identify changes [email protected] US: 917.655.6790 that will reshape the retail experience. The incubator, HK: 852.6119.1779 dubbed Store No. 8, will house startups wholly owned by CN: 86.186.1420.3016 Walmart, but run independently.

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 1 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

This week, the Fung Global Retail & Technology team is attending Shoptalk 2017 in Las Vegas during March 19–22. Described by the organizer as “the next-generation commerce event,” Shoptalk expects more than 5,000 attendees from over 40 countries at this year’s event. From new technologies and business models to changes in consumer preferences and expectations, attendees are exploring disruption in the retail industry, particularly its impact on how consumers discover, shop and buy. Below, we summarize our key takeaways from Day 2 of Shoptalk.

Day 2 Takeaways

1. E-Commerce Pure Plays are Testing the Limits of Instant Fulfillment E-commerce companies such as Amazon and eBay shared their efforts to improve fulfillment speed. Amazon Prime Now: Stephenie Landry, Vice President of Amazon Prime Now, pointed out that instant fulfilment such as two-hour delivery could become the norm for future e-commerce. Two-day shipping was considered unnecessary just a few years ago, but has become more-or-less expected by the consumer. Since December 2014, Amazon Prime has been providing free two-hour shipping and charging $7.99 for one-hour delivery to members. Currently offered in 45 cities in six countries, the rapid expansion of this service demonstrates the strong demand for instant fulfilment. eBay: President and CEO, Devin Wenig, announced that the company will roll out guaranteed three-day delivery on more than 20 million items. Shoppers will also be able to filter items by one- or two-day delivery.

2. Brick-and-Mortar Stores Still Present a Growth Opportunity, but Require a Major Transformation Although sales from brick-and-mortar stores continue to grow, performance differs vastly among individual retailers. Deloitte Consulting: Kasey Lobaugh, Chief Retail Innovation Officer, shared a study, which indicated that store- based retailers that offer highly differentiated products and performance recorded a five-year compounded annual growth rate (CAGR) of 10.1% in annual revenue over 2010–2015. However those retailers that sell commodity-like products reported an average decline of 0.2% over the same period. Lobaugh shared that access to products and easy returns are two advantages of in- store shopping versus the online channel. Retailers need to continue to improve in the two areas. Source: Fung Global Retail & Technology

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 2 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

Source: Fung Global Retail & Technology

Target: As store-based sales still account for the majority of retailers’ sales, investing in stores to create a convenient, exciting and all-channel experience is critical to remain competitive in the current retail environment. Chairman and CEO, Brian Cornell, shared the company’s multi- billion dollar investment initiatives for its stores over the next few years, including remodeling 600 stores, opening small-format stores and improving in-store fulfilment capability. Store remodeling included redesigning in-store displays, store entrances and in-store technologies.

3. Creating a Frictionless Store Experience: Automation and Self-Checkout Retailers are rethinking technologies to help run stores more efficiently and engage customers. Lowe’s: Kyle Nel, Founder and Executive Director of Lowe’s Innovation Labs, discussed how Lowe’s is creating a more efficient and engaging shopping experience. Lowe’s is introducing autonomous robots at 11 of its stores, hoping to create more seamless interactions for customers. The LoweBot, made by Fellow Robots, uses a 3D scanner to detect people as they enter the stores. Shoppers can search for items by asking the bot or typing items into a touch screen. The bot can guide them to those items using smart laser sensors. Lowe’s hopes the bot will also save customers time, as people entering the store often want to know where something is and don’t have time to download an app.

Source: Fung Global Retail & Technology

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 3 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

Rebecca Minkoff: Co-Founder and CEO, Uri Minkoff, discussed the company’s partnership with self-checkout startup, QueueHop, to provide self-checkout technology in its stores with the aim of easing the shopping experience. Unlike Amazon Go, there is still a checkout to contend with, but one that shoppers can complete on their own. The millennial fashion brand is hoping to shave off time by creating a more seamless shopping experience, which could spur consumers to go into their stores more often.

4. China and India Represent the Biggest International Opportunities for E- Commerce China and India are showing the most attractive growth potential for e- commerce. China: Driven by high mobile adoption, cheap logistics and an inefficient store-based retail landscape, China has become the world’s largest e- commerce market. By 2020, the number of e-commerce consumers is forecast to outgrow that of the US by threefold. By 2019, 29% of the world’s online shoppers will be Chinese, according to eMarketer. Lee McCabe, Vice President North America at , encouraged every e-commerce player to think about selling into China at scale, especially through e- commerce marketplaces, which are the dominant online shopping destination for Chinese consumers.

Source: Fung Global Retail & Technology

India: India also presents a tremendous opportunity in e-commerce. By 2019, 11.6% of the world’s online shoppers will be Indians, which puts the country second on the list after China, according to eMarketer. Devin Wenig, President and CEO of eBay, considers India a great opportunity for eBay, given the growing wealth, supply and demand imbalance in e-commerce and high mobile adoption in the country.

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 4 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

5. Data Analytics Empowers Consumers to Influence Product Curation Retailers have used various data analytics tools to listen to consumer feedback and applied the insights gained to direct their product development. In fact, data plays an ever more central role in retail. This was emphasized in presentations from both eBay and Alibaba, which define themselves as data companies rather than anything else.

Source: Fung Global Retail & Technology

Data analytics is enabling retailers across categories to provide products that customers want. • Paris Presents Incorporated, a global beauty and personal care company, developed its award-winning, real technique makeup brush sets after analyzing customer reviews and comments that they wanted to have high-quality makeup brush sets at mass-market prices. • Nature Box, an all-natural snack subscription company collects customer feedback for new products for a period of 12 weeks and makes a decision whether or not to continue making the products based on the reviews. • Le Tote, a fashion rental subscription company, uses an extensive rating system to decide what to include in each subscription box each month. 6. Mobile Contactless Payments on the Rise, Bringing Benefits to Retailers Over the past two years, mobile wallets have flooded the market with offerings such as Samsung Pay, Chase Pay, Android Pay, Apple Pay, Amazon Pay, and more. Each of these offers unique benefits to the user and encourages customers to form shopping habits around them. Benefits to the retailers and merchants include: reduces checkout friction with expedited payment, incorporates existing loyalty credit card of a brand or retailer into Apple Pay, provides a single login for registration and transactions, lowers cart abandonment and increases conversion.

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 5 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

Apple Pay: Baris Cetinok, Senior Director of Product Marketing & Management for Apple Pay & iCloud, discussed the rapid growth of Apple Pay adoption in the US. Over the holiday season in 2016, transactions through Apple Pay for both e-commerce and physical retail stores had a 10%–15% higher average order value and a 2x higher checkout conversion rate. Last quarter, Apple Pay witnessed 500% payment volume growth compared to the previous quarter, according to Cetinok. The benefits felt by the merchants have led to greater acceptance. The number of locations accepting Apple Pay will grow from 220,000 in 2014 to 5 million by 2017. Amazon Pay: The world’s leading cloud e-commerce platform for businesses, BigCommerce, announced at Shoptalk that Amazon Pay would now be available on its platform, providing 50,000+ businesses the ability to offer a streamlined checkout experience to Amazon customers worldwide.

7. Retailers and Brands Partnering with the Tech Community; Walmart Announces Startup Incubator Walmart: Marc Lore, President and CEO of Walmart eCommerce US (Walmart’s e-commerce operations) announced on Monday that it is launching a technology-startup incubator in Silicon Valley to help identify changes that will reshape the retail experience. The incubator, dubbed Store No. 8, will house startups wholly owned by Walmart, but run independently. “There’s not a focus just on today, they can actually think bigger,” Lore said at the Shoptalk conference. The aim of Store No. 8 will be to incubate, invest in and work with other startups, venture capitalists and academics to develop Walmart’s own proprietary robotics, virtual and augmented reality, machine learning and artificial intelligence technology. Rebecca Minkoff: Co-Founder and CEO, Uri Minkoff, discussed that in order to be competitive, aligning with partners is key. In January, the company announced its fashion venture capital fund in partnership with Quotidian Ventures, a VC firm based in New York.

Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 6 Copyright © 2017 The Fung Group. All rights reserved.

March 21, 2017

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]

Jing Wang Research Associate Steven Winnick Research Associate

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Deborah Weinswig, Managing Director, Fung Global Retail & Technology deborahweinswig@ fung1937.com US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 7 Copyright © 2017 The Fung Group. All rights reserved.