deborah weinswig managing director, insights by fbi… · !1 may 13, 2016...

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MAY 13, 2016

DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.

+5.4% CHART OF THE WEEK

STAT OF THE WEEK

STAT OF THE WEEK

D E B O R A H W E I N S W I G M A N A G I N G D I R E C T O R ,

F U N G G L O B A L R E T A I L & T E C H N O L O G Y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m

U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9

C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6

MAY 13, 2016

US Urban Area Housing Prices Continue to Rise, but at a Slower Pace S&P/Case-‐Shiller 20-‐City Composite Home Price Index: YoY % Change $840.5 Mil.

• Gartner forecasts that the IoT security market will initially grow at a moderate pace, to $547.2 million in 2018, then gain real momentum after 2020, reaching a

value of $840.5 million.

• The spending will increasingly be focused on preventing and dealing with malware attacks in

enterprises.

• This week, the Fung Global Retail & Technology team attended the WWD Beauty CEO Summit in Palm Beach, Florida. The event’s theme this year was “See Change, Be Change.”

• Annual US sales of women’s plus-‐sized apparel grew by 17% in 2016, to $20.4 billion, up from $17.4 billion in 2013. Meanwhile, overall apparel sales grew by only 7%. Despite this growth, retailers often shrink or kill a plus-‐sized line when demand changes, which discourages shoppers and drives them toward e-‐commerce sites.

• British grocer Tesco will start selling its products in Spain through a

wholesale deal with El Corte Inglés, one of Europe’s largest retail groups. El Corte Inglés will sell traditional British products, such as teas and biscuits. In return, Tesco will expand its sale of El Corte Inglés products to more of its stores.

• The textiles industry in the ASEAN region is worth over US$10 billion a

year, yet it is dominated by large organizations, and small design houses often have difficulty identifying which manufacturers can help them scale up. Design Make Produce aims to tackle this problem by pairing designers with high-‐quality manufacturers that can meet their specific needs.

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MAY 13, 2016


FROM THE DESK OF DEBORAH WEINSWIG

This week, the Fung Global Retail & Technology team attended the WWD Beauty CEO Summit in Palm Beach, Florida. The major theme this year was “See Change, Be Change,” and more than 250 global retail executives were in attendance. The event kicked off with a cocktail party hosted by Anisa International that featured a conversation between William P. Lauder, Executive Chairman of Estée Lauder Companies, and Peter Born, Executive Editor, Beauty, WWD. As Estée Lauder’s CEO from 2004–2009, Lauder expanded the company’s international presence and distribution channels and greatly strengthened its brand portfolio. In his conversation with WWD’s Born, Lauder commented on the emergence of the omni-‐channel model and how it is changing the retail environment.

On the first full day of the event, Lauder offered several insights as to how retailers can handle the new retail environment. First, he said that the new market dynamics likely mean retailers will have to rethink how they approach partnerships and their leadership teams, and that the market will encourage imagination. Second, he said retailers will have to modify their behavior so as to be able to “fail fast and fail cheap.” Finally, he noted that the new omni-‐channel environment offers opportunities for new business models, such as online retailers opening physical stores.

Day two of the summit featured presentations on the main “See Change, Be Change” theme by large retail players such as Amazon Beauty and Walmart, as well as by smaller, more recent market entrants such as Nudestix and Coola Suncare. Presentation topics included targeting consumers’ changing beauty needs, reaching consumers who are increasingly digitally savvy, the role of influencers in marketing and brand authenticity. Despite the challenges posed by new technologies, the retailers who presented believe that consumers still remain eager for innovation and exciting new products.

On day three, key topics of discussion included the need to focus on the consumer experience, increasing demand for quality skincare products and how to improve brand loyalty. We listened to presentations from a healthy mix of large and small retail players, including Uri Minkoff and Walgreens on the big-‐name side and Dermalogica and Skin Laundry on the newer entrants side. The consensus among the presenters was that consumers want to be involved in the brand—and that social media is the key to accomplishing that.

We enjoyed attending the WWD Beauty CEO Summit and appreciated the opportunity to reconnect with industry leaders and deepen our understanding of the beauty industry this week. We look forward to offering insights and commentary next week from the four-‐day Shoptalk conference in Las Vegas.

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MAY 13, 2016


US RETAIL EARNINGS

Company

Revenues ($ Mil.) Change YoY Gross Margin (%) Change Net Income ($ Mil.) Change YoY Store Fleet EOP

Period 2016 2015 (%) 2016 2015 (BP) 2016 2015 (%) 2016 2015

Dillard's 1QE Apr. 1,539 1,613 (4.6) 39.0 40.5 (150) 77 110 (30.0) 272 274

Fossil Group 1QE Apr. 660 725 (9.0) 52.7 55.3 (258) 6 38 (84.7) 612 614

Kohl's 1QE Apr. 3,972 4,123 (3.7) 35.5 36.9 (139) 17 127 (86.6) 1,167 1,164

Macy's 1QE Apr. 5,771 6,232 (7.4) 39.1 39.0 5 115 193 (40.4) 870 840

Nordstrom 1QE Apr. 3,249 3,215 1.1 35.4 37.8 (246) 46 128 (64.1) 329 303

Ralph Lauren 4QE Apr. 1,871 1,885 (0.7) 54.2 55.4 (119) 41 124 (66.9) 493 466

Wayfair 1QE Mar. 747 424 76.2 24.0 24.3 (33) (41) (27) (51.9) NM NM

Source: Company reports

US RETAIL HEADLINES Retailers Ignore Most of America’s Women (May 10) Bloomberg • Annual US sales of women’s plus-‐size apparel grew by 17% in 2016, to $20.4 billion, up from

$17.4 billion in 2013. This growth is significant, especially compared to the 7% increase in overall apparel sales during that same period.

• The NPD Group thinks that if retailers would embrace the category, customer demand would push sales of plus-‐size clothing even higher. But, after introducing a plus-‐size line, retailers often shrink or kill the line when the economy turns south or they shift focus. This discourages plus-‐size shoppers from shopping with those retailers again, and drives many of them to e-‐commerce sites instead.

Federal Judge Blocks Staples-‐Office Depot Merger (May 11) The Wall Street Journal • A federal judge has blocked the merger of Staples and Office Depot due to antitrust concerns,

saying the merger would lead to higher prices for corporations making large bulk orders. As a result, the companies have said they are backing away from the $6 billion deal.

• US District Judge Emmet G. Sullivan’s full opinion will be released next week. Staples says it plans to cut $300 million in annual costs and explore options in its European operations. The retailers do not plan to appeal.

Consumers Like Retailers’ Omni-‐Channel Capabilities (May 11) Internet Retailer • Retailers receive high praise from consumers when they allow store pickup or return of online

orders. In a survey conducted by Internet Retailer, 91% of respondents who had picked up an online order in a store rated the experience as “excellent” or “good,” and said they were likely to choose the option again in the future.

• Older respondents were more likely to use an order-‐online, pick-‐up-‐in-‐store service, and to give it a higher rating. Those polled were also pleased with their experience returning online orders, with 92% of respondents who had used this option in the past year rating the experience as “good” or “excellent.”

WEINSWIG’S WATCH ING

This week, Deborah Weinswig attended the WWD Beauty CEO Summit in Palm Beach, Florida.

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MAY 13, 2016


Why Items from Your Shopping Cart May Start Showing Up in Your Instagram Feed (May 10) Adweek • Facebook is extending its advertising strategy to Instagram. Dynamic ads will be introduced to the

photo-‐sharing platform, capitalizing on the app’s e-‐commerce capabilities. This update will help marketers reach their target audience by showing users products that may be relevant to them, based on their online browsing history.

• Joint research from Facebook and Instagram shows that 60% of Instagram users have discovered new products on the platform and that 75% have been inspired to take action regarding those products.

EUROPE RETAIL HEADLINES Tesco to Enter Spain with El Corte Inglés Wholesale Deal (May 10) Retailgazette.co.uk • British grocer Tesco is to start selling its products in Spain through a wholesale deal with El Corte

Inglés, one of Europe’s largest retail groups. El Corte Inglés will sell traditional British products, such as teas and biscuits.

• In return, Tesco will expand its sale of El Corte Inglés products to more of its stores. The Spanish retailer will supply 48 product lines, including some Spanish cuisine favorites such as Iberian sausages, beans, rice, olive oil and vinegar.

Dansk Supermarked to Convert Discount-‐Convenience Stores (May 10) Retailanalysis.igd.com • Danish chain Dansk Supermarked has revealed that it plans to convert three-‐quarters of its

DøgnNetto discount-‐convenience store portfolio to the Netto discount format this year. The rest of the portfolio will be converted to Føtex Food, its new convenience concept.

• Dansk Supermarked already operates 420 Netto discount stores and it plans to either open new stores or expand at least 50 of those this year. Reportedly, these plans are independent of the conversions the group already had planned.

Morrisons’ Comps Increase for the Second Consecutive Quarter (May 5) Company press release • Morrisons, Britain’s fourth-‐biggest grocery retailer, achieved its second consecutive period of

comparable sales growth, with comps excluding fuel up 0.7% in 1Q17. Comparable sales accelerated from the 0.1% growth recorded during 4Q16, the only quarter of FY16 in which the company achieved positive comparable sales growth.

• E-‐commerce contributed 1% to comps in the quarter, while the food-‐to-‐go category saw sales increase by 17.0%. The company said that its installation of new self-‐scans and express checkouts in stores had improved the in-‐store customer shopping experience, which helped strengthen the growth in number of customer transactions: on a comparable basis, transaction numbers were up 3.1%.

Pandora Achieves Double-‐Digit Sales Growth and Raises FY16 Forecasts (May 10) Company press release • Danish jewelry manufacturer and retailer Pandora reported a revenue increase of 34.0%, to DKK

4,740 million (US$701 million), in 1Q16. The company also raised its revenue guidance for the fiscal year to more than DKK 20 billion (US$3 billion), which was DKK 1 billion (US$153 million) higher than previously estimated.

• The company’s management commented that revenue growth was driven by sales increases in existing stores, particularly in the EMEA and Asia-‐Pacific regions, and by a continued expansion of the store network across all regions.

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MAY 13, 2016


Farfetch Raises US$110 Million to Fund Expansion (May 4) Ft.com • A little over a year after its last multimillion-‐dollar funding round, London-‐based online luxury

fashion retailer Farfetch has raised US$110 million to augment its expansion in Asia. The latest round was led by new investors that include Temasek, IDG Capital Partners and Eurazeo.

• The retailer has been growing rapidly since it launched in 2008. The Asia-‐Pacific region accounts for nearly 26% of its sales, and China alone accounts for 12% of sales. The fresh funding will help the London fashion pure play boost its expansion in the region.

ASIA TECH HEADLINES Tech Plays Matchmaker for Fashion and Manufacturing in the ASEAN Region (May 10) e27.co • The textiles industry in the ASEAN region is worth over US$10 billion a year, yet it is dominated

by large organizations, and small design houses often have difficulty identifying which manufacturers can help them scale up. To pair designers with high-‐quality manufacturers that can meet their specific needs, Felicity Millman and Michelle Teo started Design Make Produce.

• Design Make Produce has collated the largest list of manufacturers across the ASEAN region, and it has developed a much smaller list of manufacturers that have been validated by the industry. It has team members based throughout the region, in Malaysia, Vietnam and China, among other countries.

Uber Competitor Go-‐Jek Is About to Team Up with Indonesia’s Largest Taxi Company (May 9) TechinAsia • Blue Bird, Indonesia’s largest taxi and transportation company, is apparently teaming up with Go-‐

Jek, Indonesia’s homegrown ride-‐hailing company. The collaboration will cover aspects of technology, payments and promotions.

• Go-‐Jek originally provided only two-‐wheeler transportation, but launched Go-‐Car after new regulations were instituted for ride-‐hailing companies. Instead of “Uberizing” its own fleet, Blue Bird turned to Go-‐Jek, and the two local firms will form an alliance against competitor Grab, which is based in Malaysia.

China Rules that iPhone Knock-‐Offs Are OK, but Facebook Ones Are Not (May 9) TechinAsia • The Beijing Municipal High People’s Court judged that a potato chip and canned vegetables

factory in Guangdong Province can no longer be named “Face Book,” due to copyright issues, but that a leather goods manufacturer is allowed to produce products labeled “IPHONE.”

• According to the Financial Times, Chinese copyright law has a central tenet stating that “a multinational with a globally recognized brand must prove that its trademark is also well known within China,” which does nothing to help explain the disparate rulings in these two cases.

HSBC Cuts Zomato’s Valuation by Half (May 9) TechinAsia • HSBC’s brokerage division cut the valuation of restaurant information and ordering site Zomato

to US$500 million, which is about half of what it was valued at when the startup raised funding last September. HSBC was concerned about Zomato’s advertisement-‐heavy business model, growing competition in the food-‐ordering space, and money-‐losing international operations.

• Zomato challenged the report, saying that HSBC does not understand the business well. Founder and CEO Deepinder Goyal said in an email to employees that the company is aiming for overall profitability in the next 6–12 months.

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MAY 13, 2016


HTC’s Revenue Plunges 64% as the Struggling Firm Reports Another Quarter in the Red (May 9) TechCrunch • Taiwan-‐based tech company HTC announced that 1Q16 revenue came in at NT$14.8 billion

(US$456 million), down from NT$41.5 billion a year earlier, representing a 64% drop.

• After a slim profit of NT$0.36 billion (US$11 million) in 1Q15, HTC had posted three consecutive quarters of losses already. This quarter, the operating loss reached NT$4.8 billion (US$148 million).

LATAM RETAIL HEADLINES Miami Suddenly Has a Glut of Plush Hotel Suites (May 9) Bloomberg • The hotel industry in Miami is struggling as Brazilians pull back from travel due to Brazil’s

recession and currency devaluation. The revenue per available room has dropped every month in 2016 and, in April, Miami’s results were the worst among the top 25 US markets.

• Brazilians account for a huge portion of Miami’s tourism industry. In 2015, 2.1 million New Yorkers visited the city, making New York the number one source of visitors to Miami. Brazil accounted for the second-‐largest group, with 747,000 visitors to the city.

Honduras Urged to Diversify Export Base Beyond US (May 4) WWD.com • At the World Trade Organization forum last week, Honduras’s trading partners praised the nation

for its open trade regime, but urged it to diversify its export mix due to a dependency on coffee, bananas and apparel.

• Exports of goods in the Honduran maquilas, duty-‐free and tax-‐free export-‐processing zones, totaled US$2 billion in 2015, accounting for nearly half of all exported goods.

Brazil Retail Sales Disappoint as Impeachment Process Advances (May 11) Bloomberg • Brazil’s retail sales fell by more than analysts had expected in March as economic and political

challenges in the country continued. Sales contracted by 0.9% in March, which was more than the 0.6% contraction that economists had expected.

• Consumer confidence is at the lowest level on record, and unemployment is on the rise as the process of impeaching President Dilma Rousseff moves along and the recession deepens.

FEMSA Plans to Buy Big John Stores in Chile (May 11) América Retail • FEMSA has agreed to acquire a Chilean convenience store chain known as Big John. The

acquisition is expected to cost approximately US$45 million.

• The acquisition will increase the number of FEMSA-‐owned stores in Chile by 6%. Big John stores have approximately 49% control of the market in Chile; the major player is the OK Market chain.

Mexico’s Annual Inflation Slows in April (May 9) WSJ.com • Mexican consumer prices fell in April, marking the lowest annual inflation rate since December

due to declines in electricity, transportation and fresh produce prices. The consumer price index fell by 0.32%, to 2.54%.

• Summer electricity subsidies took effect in 15 cities in Mexico, bringing down the price of electricity, while lower transportation costs, particularly airfare, and declines in fresh produce prices also helped to reduce the rate.

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MAY 13, 2016


E = estimated

EARNINGS CALENDAR

Company

Earnings Release Period Date

Sales (Mil.) EPS

Currency Consensus TY LY Actual

Consensus TY LY Actual

Urban Outfitters 1Q17 May 16 (E) 761 739

0.25 0.25 USD

The Children’s Place 1Q17 May 17 418 405

1.04 0.82 USD

Home Depot 1Q17 May 17 22,207 20,891

1.33 1.16 USD

TJX Companies 1Q17 May 17 7,289 6,866

0.71 0.69 USD

American Eagle Outfitters 1Q17 May 18 733 700

0.18 0.15 USD

Burberry FY16 May 18 2,520 2,523

0.71 0.76 GBP

L Brands 1Q17 May 18 2,620 2,512

0.55 0.61 USD

Lowe’s 1Q17 May 18 14,817 14,129

0.84 0.71 USD

Target 1Q17 May 18 16,327 17,119

1.20 1.11 USD

Tencent 1Q16 May 18 30,100 22,399

1.01 0.67 CNY

Williams-‐Sonoma 1Q17 May 18 (E) 1,080 1,031

0.50 0.49 USD

Dick’s Sporting Goods 1Q17 May 19 1,667 1,565

0.50 0.53 USD

Dollar Tree 1Q17 May 19 (E) 5,096 2,177

0.81 0.71 USD

Gap 1Q17 May 19 3,449 3,657

0.33 0.56 USD

Ross Stores 1Q17 May 19 3,113 2,938

0.73 0.69 USD

Walmart 1Q17 May 19 113,385 114,826

0.88 1.03 USD

Richemont FY16 May 20 11,146 10,410

3.42 2.04 EUR

Foot Locker 1Q17 May 20 2,000 1,916

1.39 1.29 USD

DSW 1Q17 May 24 701 656

0.47 0.53 USD

Costco 3Q16 May 25 27,209 26,101

1.23 1.17 USD

Express 1Q17 May 25 523 502

0.27 0.22 USD

Guess 1Q17 May 25 465 479

(0.18) 0.04 USD

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MAY 13, 2016


EVENT CALENDAR

Event Location Date(s)

Fung Global Presenting/ Attending

Shoptalk Las Vegas, NV May 15-‐18 √

Mercedes-‐Benz Fashion Week Australia Sydney, Australia May 15-‐20

INTX: The Internet & Television Expo Boston, MA May 16-‐18

S&P Market Intelligence Webcast Online May 16-‐18

RAPID Conference and Exposition Orlando, FL May 16-‐19 Retail Analytics Council Advisory Board Update and Research Chicago, IL May 17-‐19

Brand Innovators: The Art & Science Sessions New York, NY May 18 Retail Analytics Council Executive Development Program Evanston, IL May 18-‐19

Retail Week Supply Chain Summit London, UK May 18-‐19

Conversion Conference Las Vegas, NV May 18-‐19

C-‐Star Retail Conference Shanghai, China May 18-‐20

NRF Retail Industry Leaders Dinner New York, NY May 19

FT Business of Luxury Summit San Francisco, CA May 22-‐24

RECon The Global Retail Real Estate Convention Las Vegas, NV May 22-‐25 √

MIT Tech Review EmTech Digital San Francisco, CA May 23-‐24 NRF Retail Advocates Summit Washington, DC May 23-‐25 Future Stores – In-‐store Experience Innovators London, UK May 23-‐25 Brand Innovators: Brand Week Chicago, IL May 23-‐27 AAFA American Image Awards New York, NY May 24 Wear Conference 2016 Boston, MA May 24-‐26 √ IATI BIOMED Tel Aviv, Israel May 24-‐26 CONNECTIONS: The Premier Connected Home Conference San Francisco, CA May 24-‐26

The Next Web Conference: Europe Amsterdam, Netherlands May 26-‐27

Wear Conference: Babywearing Conference Chicago, IL May 27-‐29 Global E-‐Commerce Summit Barcelona, Spain May 29-‐Jun 1 Ecommerce Europe Annual Conference & Summit Barcelona, Spain May 30 RISE Hong Kong Hong Kong May 30-‐Jun 2 ILTM (International Luxury Travel Market) Asia Shanghai, China May 30-‐Jun 2 EMERGE 2016 Onestop Partner Summit Manhattan Beach, CA May 31 √ RetailNext Exec Forum Napa, CA Jun 1-‐3 √ InfoComm 2016 Las Vegas, NV June 4-‐10

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MAY 13, 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] Amanda Byrne Marketing Associate

Rachael Dimit Research Associate

John Harmon, CFA Senior Analyst

Aragorn Ho Research Associate

John Mercer Senior Analyst

Kiril Popov Senior Analyst

Steven Winnick Research Associate

HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470 NEW YORK: 1359 Broadway, 9th Floor New York, NY 10018 Tel: 646 839 7017 LONDON: 242–246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 FBICGROUP.COM

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