2017 in Review: The Retail Turning Point

Welcome!
Todd Harris
Director of Marketing
Celect
Deborah Weinswig
Managing Director
Fung Global Retail & Tech
José Chan
VP of Business Dev
Celect
© 2017 Celect, Inc. All Rights Reserved.

• Introduction to Celect & FGRT
• Major Retail Trends
• 7 Surprises of 2017
• 2018 – The Breakout Year for AI?
WHAT WE WILL COVER TODAY

Celect Background
• Predictive analytics SaaS platform to help
retailers optimize inventories through data-
driven decisions.
• We leverage a groundbreaking advance in
Machine Learning and Optimization.
• An MIT Artificial Intelligence Lab Top 50
Technology Innovation

5Deborah Weinswig Tel. 646.839.7017 deborahweinswig@fung1937.com
About the Fung Group
PRODUCTS SERVICES DISTRIBUTION RETAILING
Li & Fung Limited
Listed on the SEHK
Global Brands Group
Listed on the SEHK
Fung Retailing Limited
Privately Held Entity
Convenience Retail
Asia Limited
Listed on the SEHK
Trinity Limited
Listed on the SEHK
Branded Lifestyle Holdings Limited
LiFung Kids (Holdings) Limited
Toys “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
KNOWLEDGE
FGRT
Fung Business
Intelligence
Fung Academy

• The knowledge bank for the Fung Group
• Focuses on emerging retail and technology trends
• Established in 2014
• Based in New York, with research teams in London,
Hong Kong, Israel and India
• Publishes thematic research and research with a global
scope on topics such as omnichannel retail, fashion and
retail trends, and disruptive technologies
• Compiles the FGRT Retail Intelligence Index
About FGRT

Major Retail Trends

TECH
Experiences
&
Entertainment
Shortened Customer
journeys
Connect with the
Consumer
... and consumers today are calling for different
retail experiences, both online and offline.
Shoppers’ Expectations Are Constantly Evolving …

Retailers must rethink how they engage and retain their visitors.
Personalized
Services
The
Connected
Customer
Conversations
Community
Reinventing the Relationship with the Consumer

Delivering a relevant, personalized experience
Redefining Convenience
mobile interaction
and product-
browsing history
Analyze
target consumer
audience
Identify
products and
services
Personalize
and continue
trend-driven
innovation
Execute

In the All-Channel Universe, Customer Is Now the Channel
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 Company

The Retailer as a Hub for One-Stop Shopping
Retailers serve as a hub for consumers to arrange travel, have their clothes dry cleaned,
book appointments for haircuts, and pay for services.
1. Shopping
2. Clothing Storage 3. Dry Cleaning
4. Haircut
5. Shave6. Teeth-Whitening

Global Trends that Can Impact US Retail
O2O Marketing and Direct Selling: Influencers and Livestreaming
Line KaokaoFacebook Instagram Snapchat WeChat
2,000
700
255
963
169
49 111
0
500
1000
1500
2000
2500
Super Bowl
Viewership
Major Social Media Platforms: Monthly Active Users (Mil.)
Global China Japan Japan Comparison
• Social media platforms provide
enormous reach for marketing
and advertising
• Different regions have their
own unique social platforms
• Platforms such as WeChat
provide space for brands to
run their own service account
within the app, so they can
promote and sell products

Robotics Augmented
Reality
Artificial
Intelligence
Virtual Reality
The Next Wave of Disruptors in Retail

• We forecast that the company’s gross merchandise volume will reach $50 billion in 2020
(growing at a CAGR of 16%).
Source: FGRT
Amazon launches Acquired
2002
Expansion
into apparel
2015
Apparel
private label
launched
Amazon apparel
generates $16.3
billion in sales
2016
7 more
Private labels
launched
Intimates private
label in 1Q
1995 2006
Acquired
2011 2015 2017
2009
Acquired
Amazon Captures the Majority of E-commerce Growth

7 Surprises of 2017

• The list keeps growing, mostly due to department store and specialty store closures.
1. Store Closings Continue to Exceed Store Openings
Total: 6,985 announced store closures
229% year over year

Aside from the announced deals, there has been much other M&A chatter:
• Nordstrom announced it is exploring a “going private” transaction (June 8, company press
release)
• American Eagle Outfitters is reported to be bidding for Abercrombie & Fitch with private
equity firm Cerberus Capital Management
(May 25, Reuters.com)
• Deckers Brands announced that it is reviewing strategic alternatives (April 25, company press
release)
• BJ's Wholesale Club put itself up for sale in April
(April 14, New York Post)
2. Surge in Retail M&A Activity

2. Surge in Retail M&A Activity
Notable Announced Retail M&A in the US, YTD
Date Company Target Value
Dec-13 Target Shipt $550 million
Dec-4 CVS Health Aetna $69 billion
Nov-21 Walmart Parcel Undisclosed
Nov-17 Williams-Sonoma Outward $112 million
Oct-4 Office Depot CompuCom Approp. $1 billion
Oct-3 Ace Hardware The Grommet Undisclosed
Sep-22 Albertsons Plated Undisclosed
Jul-17 Michael Kors Jimmy Choo $1.2 billion
Jun-17 Sycamore Partners Staples $6.9 billion
Jun-17 Amazon Whole Foods $13.7 billion
Jun-17 Walmart Bonobos $310 million
May-17 Coach Kate Spade $2.4 billion
Apr-17 Petsmart Chewy.com $3.35 billion
Mar-17 Walmart ModCloth Less than $75 million
Feb-17 Walmart Moose Jaw $50 million
Jan-17 Walmart Shoebuy $70 million
Source: Company reports

3. Walmart Acquisition Spree
• After acquiring a number of online
apparel companies, Walmart will
host a Lord & Taylor storefront on
Walmart.com starting in the spring of
2018.
• The intent is to create a premium
fashion destination on Walmart.com.
• Wal-Mart is beginning to build out
"elements of discovery and
inspiration" within the fashion
portion of its website.

• The growth of e-commerce revenue has taken off following the acquisition of Jet.com.
4. Walmart Explosive E-commerce Growth
7.0%
11.8%
20.6%
29.0%
63.0%
60.0%
50.0%
7.5%
13.0%
16.8%
31.0%
69.0% 67.0%
54.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3
Growth in Walmart E-commerce Sales and GMV
Sales GMV
Acquisition of Jet.com
(9/19/16)

• Alibaba guided for robust 45%–49% revenue growth in its fiscal 2018 (ended June) at its
2017 Investor Day.
5. Alibaba’s 50% Revenue Guidance
33%
56%
45%–49%
0%
10%
20%
30%
40%
50%
60%
FY16 FY17 FY18E
Alibaba Annual Revenue Growth

• For e-commerce retailers, physical stores
are marketing assets that support their
online business models. Examples include:
• Amazon
• Bonobos
• Birchbox
• Everlane
• Rent the Runway
• Warby Parker
6. Online Going Offline
Source: Amazon

13 + 67
popups
1 + 1
popup
48
16 + 1
popup
52
Stores and Pop-
Ups
Store
Collaborations/Acquisition
s
133
1 5
1 19
61 30 6
Physical Stores
456
Source: Company Reports, October 2017
24
1
6. Online Going Offline

• On June 16, Amazon announced its
plan to acquire Whole Foods for $13.7
billion in cash.
• Amazon closed the acquisition on
August 28, and Amazon electronics
were available that same day.
• Amazon reduced prices as much as
43% on the day of close and again on
Nov. 15.
7. Amazon Acquires Whole Foods
Source: GeekWire

Bonus: Walmart Launched the Store No.8 Incubator
• Store No. 8 is a technology-startup incubator in Silicon Valley operating under Marc Lore.
• Store No.8 aims to identify changes that will reshape the retail experience, including virtual
reality, autonomous vehicle and drone delivery and personalized shopping.
• In August, Store No.8 hired Jennifer Fleiss, co-founder of Rent-the-Runway, to oversee code
eight, the incubator’s first portfolio company.

2018—The Breakout Year for AI?

• In retail, AI can help with personalization, customization and localization.
• AI can help retailers analyze large volumes of data to come up with product and service
recommendations.
Why Does AI Matter to Retail?

AI Means Personalization and Higher Conversion
Source: Alizila.com
Alibaba saw a surge in mobile engagement
during the first quarter of 2017 due to AI-
powered personalization.
Its shopping app reached 529 million
users in June, an increase of 22 million in
three months.
6.7 billion
Personalized shopping pages were
generated by merchants on Taobao
and Tmall during the 2016 11.11
Shopping Festival
20% higher
conversion rate
on personalized landing pages during
11.11 in 2016 compared to non-
personalized ones.

Source: Nvidia
A Bit of History: AI is Not New

Why AI is Important Today
• AI is not new, but now we have the ability
to collect and store large amounts of data
to train algorithms in a cost-efficient way.
• Data is the key: more data beat better
algorithms.
Data
Algorithm
Interface
Action

Disruptive Technologies Approaching a Tipping Point
Source: Gartner
21%
16%
17%
25%
36%
12%
10%
10%
20%
Conversational Interfaces
Smart Robotics
3D Printing
AI
IoT
2015 2018
80%
% growth 2015-2018
150%
70%
35%
-
According to Gartner’s CIO surveys,
disruptive technologies are increasingly
gaining adoption. % of Respondents That Have Deployed A Technology
or are in Short-term Planning of Deployment

New Retail Is Powered by AI
Rolling Out O2O Services on
Mobile Devices and Social
Networks
Pure Plays Opening
Experiential Stores
Offering New Pickup Options
Such as Click-and-Collect
Using QR Codes In-Store to
Encourage Customers to Buy
Online; Driving Online Traffic to
Physical Stores
Enhancing Mobile Payment
Services In-Store
Forming Strategic Alliances
with Internet Companies to
Drive Synergies
New Retail, an initiative advocated by Alibaba, refers to the integration of online, offline,
logistics and data across a single value chain

AI and Singles’ Day 2017 Applications: Alibaba
Language Processing
Tmall Smart Selection, an AI-
powered recommendation
algorithm, helps buyers
make decisions while
scrolling online.
Customer service chatbot
Dian Xiaomi can
understand more than
90% of customer inquiries
and serve almost 3.5
million users a day,
according to Alibaba.
Using deep Q- networks,
Alibaba can determine the
best fit for products in a
package, which has saved
5% of overall packaging
costs, according to the
company.
Data Analytics

ThredUp Offering AI-Powered ‘Goody Boxes’
• Goody Boxes–a non-subscription, no
commitment box filled with discounted
items for purchase.
• For $20, the customer receives 10–20
secondhand items and keeps and returns
desired items.
• StitchFix’s machine-learning algorithm
learns the customers’ tastes and
preferences over time.
Source: AdWeek
ThredUP’s Goody Boxes

KEY TAKEAWAYS:
1. Retail is being disrupted because consumers expectations have
evolved: Convenience, Personalization and Speed
2. 2017 produced many eyebrow raising moments including: Store
closings, acquisitions, bankruptcies with more to come in 2018
3. AI is at a tipping point, where both new and existing retailers will
more readily adopt AI into their business models

See Deborah at NRF BIG Show 2018 in January!
Monday,
January 15th

THANK YOU!
Deborah Weinswig
deborahweinswig@fung1937.com
José Chan
jose@celect.com
Todd Harris
todd@celect.com

2017 in Review: The Retail Turning Point

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