october 23, 2015 … · 2015. 10. 23. · !2 october 23, 2015...

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October 23, 2015

DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.

l This week, FBIC participated in a panel discussion at the Sourcing Journal Summit in New York, attended by more than 250 senior-‐level attendees and representatives from more than 100 companies

l Fashion retailer Primark will open near Philadelphia on Nov. 25, after making its recent US debut in Boston. The store will carry its own brand of men’s, women’s and children’s clothing and accessories

l Nordstrom plans to expand its 180-‐store off-‐price Nordstrom Rack chain to 300 stores by 2020, having figured out the elusive millennial generation

l Walmart plans to increase spending on e-‐commerce capabilities to $900M this year and $1.1B next year, up from the $700M last year, targeted at fulfillment centers, its mobile app and online grocery shopping

D EB OR A H W EIN S W IG

Executive Director – Head of Global Retail & Technology Fung Business Intelligence Centre [email protected]

US: 646.839.7017 HK: 852.6119.1779

CN: 86.186.1420.3016

October 23, 2015

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October 23, 2015


FROM THE DESK OF DEBORAH WEINSWIG

Last week, we attended and participated in a panel discussion at the Sourcing Journal Summit 2015, which was held in Midtown Manhattan. Sourcing Journal positions itself as the premiere trade publication for apparel and textile executives focused on sourcing and manufacturing, and it has more than 55,000 readers. The event was advertised as having more than 250 senior-‐level attendees, more than 15 thought-‐provoking speakers and representatives from more than 100 companies. Discussion and panel topics included key trends in sourcing, the latest in trade, optimizing the supply chain, the future of reshoring and nearshoring, and using technology to improve efficiency. Our panel discussion focused on how technology has changed the development process over the past few years, trends in preproduction technology and how these technologies are changing retail. Despite an abundance of software solutions available for managing manufacturing processes, many manufacturers are frustrated by the fact that they are still emailing around large, detailed spreadsheets that must be pored over every Monday morning. Another source of frustration is design changes that arrive after manufacturing has already begun. If a certain style or color is selling out, lead times can be are too long for manufacturers to be able to react to the spike in demand. Turning to omnichannel, we were asked how technology is helping retailers cater to the constantly connected consumer, which companies are winning and what they are doing right. Although the perception is that omnichannel is omnipresent, studies show that this is not yet the case. According to a recent study conducted by ERP software provider SAP, 17% of retailers have become omnichannel providers, while 50% are still planning or undergoing their transformation. That indicates that most retailers still have far to go before they can offer “buy anywhere, collect anywhere” service to customers. Regarding success stories, we like the recent upgrade of the Starbucks smartphone app. It enables customers to order and pay on their phones, thereby skipping the line, which can be long in New York City during the morning rush. Starbucks has worked hard to enable customers to customize their drinks, and the app helps with order accuracy as well. It also increases revenues, as customers who use it are less likely to abandon a long line and go elsewhere for their coffee. A fascinating and illuminating presentation was given by John Thorbeck, Chairman of Chainge Capital, which offers consulting services for companies to adopt Lead Time Optimization. He has published several articles on the “Zara Gap,” with several publications in collaboration with Professor Warren Hausman of Stanford University. Dr. Hausman’s work borrowed the concept of postponement from the electronics-‐manufacturing industry. The idea is that companies that have the supply-‐chain flexibility to postpone manufacturing as long as possible can achieve increases in profitability and receive a higher market value for their stock. The Zara Gap represents the significant valuation disparity between Zara’s stock and those of other retailers when plotted in a graph comparing the market-‐capitalization-‐to-‐revenue ratio versus a ratio of operating income to inventory. According to the a Sourcing Journal article, the key elements of postponement are: postponing finished good commitments to reduce lead times and finished good inventories; staging capacities and hedging materials to exploit improving forecasts during the selling season; optimizing total profit to incorporate the financial impact of markdowns, stockouts and unwanted inventory instead of focusing on cost minimization alone; and integrating demand for fresh, more frequent new product with rapid replenishment. We look forward to even more ideas and technologies from other industries being borrowed and adopted to enhance and advance the retail industry!

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October 23, 2015


UK Retail Sales Growth Figure 1. UK Year-‐over-‐Year Retail Sales Growth (ex Fuel)

Source: Office for National Statistics

• UK retail sales growth jumped to 3.4% in September 2015, new data shows. • A return to positive growth for food retailers contributed, as grocery stores saw an uplift in trade

due to the Rugby World Cup. • Nonfood stores saw a strong month, with sales up 4.1% year over year, with clothing specialists’

sales up 5.8% • Internet retail sales were up 14.9% year over year in September.

FBIC HAPPENINGS & WEINSWIG’S WATCH ING

CHART OF THE WEEK

STAT OF THE WEEK

• FBIC Global Retail & Technology estimates US holiday retail sales will rise by 3-‐4% year over to $626-‐633 billion this year.

• Expected colder, drier weather this December will provide a boost to US retail sales ahead of Christmas 2015.

• For more, see our report, US Holiday 2015 Forecast.

3-‐4% Source: FBIC Global Retail & Technology

3.3

2.8

4.1

0.2

2.4

1.9

2.3

0.9

3.4

0

1

1

2

2

3

3

4

4

5

Jan Feb Mar Apr May Jun Jul Aug Sep

%

• Last week, we attended and participated in a panel discussion at the Sourcing Journal Summit 2015, which was held in Midtown Manhattan.

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October 23, 2015


US RETAIL EARNINGS

Company

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

Period 2015 2014 (%) 2015 2014 (BP) 2015 2014 (%) 2015 2014

Tractor Supply 3Q ended Oct.21 1,476 1,360 8.5 34.7 34.1 60 0.9 0.8 11.0 1,465 1,361

Alphabet 3Q Ended Sept.30

18,675 16,523 13.0 25.2 22.5 267 3,979 2,739 45.3 NA NA

Amazon 3Q Ended Sept.30

25,358 20,579 23.2 1.6 (2.6) 424 79 (437) (118.1) NA NA

eBay 3Q Ended Sept.30

2,099 2,150 (2.4) NA NA NA 529 579 91.4 NA NA

Under Armour 3Q Ended Sept.30

1,204 938 28.4 48.8 49.6 (86) 101 89 13.5 173 122 Source: Company reports

US RETAIL HEADLINES

Primark to launch in the Philadelphia market (October 19) Philadelphia Inquirer

• Irish-‐based fashion retailer Primark will open in the King of Prussia Mall (in the old Sears space) near Philadelphia on November 25, shortly after making its US debut in Boston earlier this year. The department store will focus on customer service, with plans for 93 fitting rooms – triple the usual number for a shop this size—58 cash registers—double the usual complement, and will hire 220 full-‐time workers and 270 part time.

• The store will carry its own brand of men’s, women’s and children’s clothing and accessories, sourced by a Dublin-‐based global buying team to designers and factories worldwide, which the company says drives down costs.

Nordstrom Rack stores woo next-‐gen luxury shoppers (October 15) Business Insider

• Nordstrom plans to expand its 180-‐store off-‐price Nordstrom Rack chain to 300 stores by 2020, according to Women’s Wear daily. Unlike many other retailers, Nordstrom has figured out the elusive millennial generation. “The outlet business gives Nordstrom exposure to young customers who are seeking a deal and otherwise wouldn’t be shopping there,” explained Robin Lewis of the Robin Report.

• According to Lewis, the wide variety of brands offered by Nordstrom minimizes the risk of the outlet business diluting the brand’s image. Nordstrom believes younger customers will migrate to its expensive full-‐line stores as they grow older.

Amazon to icnrease holiday hiring by 25% (October 20) WSJ

• Amazon announced plans to hire 100,000 seasonal warehouse employees in the U.S. this year, 25% more than last year, to speed up holiday deliveries. By comparison, Wal-‐Mart is expected to hire 60,000 workers this year, Target hopes to hired 70,000 seasonal workers and Macy’s plans for 85,000.

• Holiday hiring by U.S. retailers is projected to be flat this year, in part due to changing shopping habits and job growth in the sector this year, according to global outplacement firm Challenger Gray & Christmas.

Coty aquires content agency Beamly as it prepares for P&G Deal (October 19) Cosmetic Design

• Coty confirmed the acquisition of London and New York-‐based digital marketing business Beamly. Beamly is focused on driving social media participation and brand engagement for consumer brands in the digital media space. Coty will benefit from Beamly’s social data benchmarking capabilities, content creation, content optimization and consumer

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engagement tools. Coty was specifically interested in Beamly for the company’s capabilities in online video.

• As part of the acquisition contract, Beamly will continue to serve other clients and expand its non-‐Coty business footprint. The acquisition comes at a crucial time for Coty, after it was announced in July that it was buying 43 color cosmetic and fragrance brands from Proctor & Gamble at an estimated cost of $12.5bn. The deal includes leading fragrance brands such as Hugo Boss, Dolce & Gabbana and Gucci.

Wal-‐Mart investing $2 billion into E-‐Commerce over next two years (October 14) WSJ

• Wal-‐Mart plans to increase spending to build e-‐commerce capabilities to $900 million this year and $1.1 billion next year, the company announced on Wednesday. The planned spending outpaces the $700 million Wal-‐Mart spent on e-‐commerce last year.

• Priorities for Wal-‐Mart include continued work on fulfillment centers, with four new facilities expected to open in California, Florida and Texas, according to a spokesman, improving its mobile app and investing in Chinese online commerce company Yihaodian, which it purchased in June. Online grocery shopping will also get a slice of the $2 billion.

EUROPEAN RETAIL EARNINGS

Company

Revenues ($ Mil.) Change

Change in Reporting Currency Gross Margin (%) Change Net Income ($ Mil.) Change Store Fleet EOP

Period 2015 2014 (%)

2015 2014 (BP) 2015 2014 (%) 2015 2014

Burberry 1H ending Sep. 30, 2015

1,702

1,844

(7.7) 0.5 N/A N/A N/A N/A N/A N/A

218

216

Carrefour 3Q ending Sep. 30,

2015

23,961

27,942

(14.2) 2.2 N/A N/A N/A N/A N/A N/A

12,058 10,608

Metro Group FY ending Sep. 30,

2015

68,044

81,296

(16.3) (1.2) N/A N/A N/A N/A N/A N/A

2,068

2,063

Debenhams FY ending Aug. 29,

2015

3,609

3,820

(5.5) 0.4 12.9 12.1 80.5 145.3 144.0 0.9

248

245 Source: Company reports

EUROPE RETAIL HEADLINES Marks & Spencer Launches New Loyalty Program (October 14) reuters.com

• Marks & Spencer has launched a new loyalty program, which rewards customers with points when they shop at its stores, write a review or engage with the brand on social media. The program, called Sparks, will go live on October 22.

• Depending on the number of points club members accumulate, customers will have a chance to preview new-‐season ranges and pre-‐order key pieces from them. Cardholders will also receive personalized offers and discounts based on their purchases and chosen preferences when they enroll in the program.

Tesco Files to Trademark “Tesco Now”, Fueling Rumors of One-‐Hour Delivery Service (October 19) marketingmagazine.co.uk

• Tesco, the British multinational grocery and general merchandise retailer, has reportedly filed to trademark “Tesco Now,” kindling rumors that it could begin a one-‐hour delivery service. The trademark is said to cover five different food areas and the delivery of goods.

• The move follows the introduction of Amazon’s Prime Now service, through which customers can get delivery of their orders within 60 minutes. A spokesperson for Tesco did not comment on the specifics of the filing but only stated that the retailer trademarks “a range of names to protect potential projects involving the Tesco brand."

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Asda Slows Expansion of Click-‐and-‐Collect, Scales Back Expansion Plans (October 19) ft.com

• Asda, contending to be Sainsbury’s biggest rival in the UK after Tesco, has announced that it will defer investments in click-‐and-‐collect grocery shopping services, by slowing the rollout of third-‐party collection points. It will focus on refurbishing 95 of its largest stores.

• The Walmart-‐owned retailer also announced that it would also close its business-‐to-‐business operations over the next few months. Andy Clarke, Asda’s chief, said that the focus will be on improving Asda’s business, so that it is “not spread too thinly.”

Hamleys Close To £100 million Sale, Possibly To HK-‐based Buyer (October 19) retailgazette.co.uk

• British toy store Hamleys is close to being sold to a Hong Kong-‐based buyer, reportedly related to the owner of fashion retailer House of Fraser. Yuan Yafei, head of the Sanpower conglomerate, who acquired the department store chain last year, had originally planned to do the deal himself, but instead has been closely involved in his relative’s talks.

• Hamleys, currently owned by French company Groupe Ludendo, is said to be closing the sale for £100 million ($155 million) after months of talks. It was hoped that the announcement of the deal could coincide with the Chinese president Xi Jinping’s visit to the UK. However, it seems unlikely, as regulatory hurdles have pushed the announcement to a later date.

ASOS Reports Group Sales Increase of 18%, UK Retail Sales Up 27% (October 20) Company Press Release

• Fashion pure play ASOS reported an 18% increase in group sales to £1.15 billion ($1.78 billion), for the year through August 31, 2015. Retail sales in the UK rose by 27% to £473.9 million ($733.4 million) and international sales were up by 11% to £646.1 million ($1 billion). Gross margin for the group was up by 20 basis points to 49.9%.

• The company announced diluted earnings per share of 44.4 pence (68.7 cents). Operating profit and profit after tax were both up by 1%, at £47.3 million ($73.2 million) and £36.9 million ($57.1 million) respectively. At year-‐end, the online retailer had 9.9 million active customers, representing an increase of 13% from last year.

ASIA TECH HEADLINES China Gives Conditional Approval to Nokia-‐Alcatel Deal (October 19) ZDNet

• China’s competition regulator has given conditional approval to Nokia’s 15.6 billion euro (US$17 billion) acquisition of Alcatel-‐Lucent. The company needs to pass the international antitrust regulatory reviews for the deal to go ahead.

• Nokia is still in the process of gaining formal approval from the French Ministry of Economy under an agreement announced last month. After the transaction closes, Nokia-‐Alcatel will be the second-‐largest network-‐equipment vendor behind Ericsson and ahead of the world’s third-‐largest, Huawei.

On China’s Craziest Sales Day, Alibaba Wants Online Discounsts to Appear in Offline Stores (October 19) TechinAsia

• Each year on November 11, people across china load up their virtual shopping carts to nab discounts on their favorite ecommerce sites. Last year’s shopapalooza saw Chinese consumers spend US$9.3 billion in just 24 hours on Alibaba’s online marketplaces, Taobao and Tmall.

• Alibaba announced today that “today through November 11, the same ’11.11’ festival products, prices, services, logistics and membership benefits normally available to shoppers

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on Tmall will also be available to those who visit the stores of participating merchants.” Estee Lauder, Mars, and Chow Tai Fook have signed up already.

Xiaomi Just Made a ‘Hoverboard’ (October 19) TechinAsia

• Xiaomi’s founder and CEO Lei Jun showed off a self-‐balancing scooter the company has produced in conjunction with Ninebot, the Chinese startup (which Xiaomi helped fund) this afternoon.

• Xiaomi’s hoverboard weighs 12.8kg and can get up to 16km/h. The little handle goes up to knee level, which is way too low to hold on to. It costs just RMB 1,999 (US$315), and currently only available in China, from November 3 onward.

Spotify Moves Closer to Launches in Indonesia and Japan (October 19) TechCrunch

• It’s been two-‐and-‐a-‐half years since Spotify first brought its music-‐streaming service to Asia, and the company is moving closer to entering two important markets in the region: Japan, where music streaming is beginning to show promise, and Indonesia, the world’s fourth largest country with a population of over 250 million.

• Japan maybe a tricky market but Spotify is already lagging the competition. Line, Japan’s top mobile messaging company, debuted a streaming service in June, and Apple Music then entered the country this summer. Spotify confirmed that it has a team of four on the ground in Tokyo, and hiring a financial controller.

Infographic: Is Hong Kong the New Tech Hub of the East? (October 19) e27.co

• HotelClub cites compelling reasons for why Hong Kong trumps neighboring cities in China. Hong Kong has unrestricted internet access, with more routinely going online at higher internet speed. Opening a bank account and registering a business is easier in Hong Kong too.

• The obstacles include high cost of living. Average property prices are 30 percent higher than in New York City, and its relatively small population which make it difficult for startups to scale up.

LATAM RETAIL HEADLINES

Williams-‐Sonoma Opens First Franchise Stores in Mexico (October 21) Bloomberg

• Williams-‐Sonoma announced that it plans to open 13 stores across Mexico in the fourth calendar quarter of 2015, its first stores in Mexico, all to be located in Mexico City

• Brands include Williams-‐Sonoma, Pottery Barn, Pottery Barnkids, PBteen and West Elm

Brazilian Grupo Iguatemi Expands Outlet Business (October 19) wwd.com

• Grupo Iguatemi continues to progress towards its goal of opening three outlet malls by 2018 despite Brazil’s worsening recession

• The outlets are expected to come in under the company’s Ifashion banner, with one to be located in Belo Horizonte and one in TIjucas, both in Santa Catarina state, and the third mall is to be located in the state of Curitiba

Amazon Wants Mexican Street-‐Market Bargain Hunters to Go Digital (October 15) Bloomberg

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• Amazon started operating in Latin America’s second-‐largest economy in June, offering electronics, housewares, sporting goods and other product categories—the largest international rollout for Amazon

• Online retail sales are expected to grow to US $5.7 billion this year, according to eMarketer, which further estimates that an additional 15 million Mexicans are expected to have Internet access by 2018

Dunkin’ Donuts to Open First Store in Mexico (October 15) dineroenimagen.com

• This week, Dunkin' Donuts plans to open first store in Mexico, as part of its strategy of adding 100 units operated by its Mexican subsidiary Sizzling Platter

• In January, the company announced that a franchise agreement specifying the development of more than 100 restaurants in Mexico City and in the states of Hidalgo, Mexico, Morelos, Jalisco and Querétaro over several years

Latin American Retailers Opening Stores in New York City (October 15) dineroenimagen.com

• Brazilian retailer UMA, with stores in Sao Paulo and Rio de Janeiro, plans to open two stores in New York City in Greenwich Village on October 16

• That same day, two Peruvian designers—jeweler Andrea Bocchio and the knitwear label Hortensia Handmade—plan to open a pop-‐up store called El Mercado Peru at the Corner at the Roger Smith Hotel in Midtown Manhattan

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EARNINGS CALENDAR

Company

Earnings Release Period Date

Sales ($ Mil) EPS

Currency Consensus TY LY Actual

Consensus TY LY Actual

Carter’s 3Q 15 Oct. 22 856 799

1.47 1.24 USD

Alphabet 3Q 15 Oct. 22 15,058 16,523

7.24 4.70 USD

Overstock.com 3Q 15 Oct. 22 402 353

0.14 0.07 USD

Debenhams FY 15 Oct. 22 2,668 2,313

N/A 0.07 GBP

Under Armour 3Q 15 Oct. 22 1,176 938

0.44 0.41 USD

Amazon 3Q 15 Oct. 22 24,904 20,579

0.83 (0.71) USD

Procter & Gamble 1Q 16 Oct. 23 17,531 20,792

0.96 1.07 USD

VF Corp 3Q 15 Oct. 23 3,678 3,520

1.12 1.08 USD

Taubman Centers 3Q 15 Oct. 26 136 176

0.78 0.87 USD

Luxottica 3Q 15 Oct. 26 2,232 1,883

0.45 0.36 EUR

Alibaba 2Q 16 Oct. 27 21,365 16,829

3.45 1.20 CNY

Apple 4Q 15 Oct. 27 50,878 42,123

1.87 1.42 USD

Simon Property Group 3Q 15 Oct. 27 1,286 1,235

2.46 1.90 USD

Macerich 3Q 15 Oct. 27 329 264

0.98 0.88 USD

Coach 1Q 16 Oct. 27 1,048 1,039

0.41 0.53 USD

Walgreens 4Q 15 Oct. 28 28,519 19,057

0.81 0.80 USD

Iconix 3Q 15 Oct. 28 108 95

0.54 0.37 USD

Baidu 3Q 15 Oct. 29 18,479 13,520

9.30 11.00 CNY

Steve Madden 3Q 15 Oct. 29 416 392

0.68 0.62 USD

Ralph Lauren 2Q 16 Oct. 29 1,960 1,994

1.74 2.21 USD

Brunswick 3Q 15 Oct. 29 995 932

0.74 0.65 USD

Westfield Financial 3Q 15 Oct. 29 9.1 9.1

0.08 0.08 USD

CVS 3Q 15 Oct. 30 38,201 35,021

1.29 1.08 USD

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October 23, 2015


EVENT CALENDAR

Event Location Date(s) FBIC Presenting

19th Annual PopTech Camden, ME October 22–24

Oracle OpenWorld San Francisco, CA October 25–29

Hygienix Conference 2015 St. Petersburg, FL October 25–29

Money 20/20 Conference Las Vegas, NV October 26

Telematics West Coast San Diego, CA October 26–27

Kroger Investor Day New York, NY October 27

eMarketer Attention! 2015 – Wearables New York, NY October 27

WWD Apparel & Retail CEO Summit New York, NY October 27–28

Bio China 2015 Summit – Innovation & Partnering Shanghai, China October 27–28

Annual China Brand Development Conference Shenzhen, China October 27–28

WWD Apparel & Retail CEO Summit New York, NY October 27–28

Bio China 2015 Summit – Innovation & Partnering Shanghai, China October 27–28

Ascena Investor Day New York, NY October 28

UJA Tech Talk: The Power of Vertical Integration New York, NY October 28

C3 Connected Mobility Summit San Francisco, CA October 28

Pepcom – Holiday Spectacular! West San Francisco, CA October 28

AAFA Hong Kong Executive Summit Hong Kong October 28–29

Decoded Fashion Game Changers, IAC New York, NY October 28–29 Deborah Weinswig

Performance Marketing Insights London, UK October 28–29 Israeli & Canadian Private Equity and Venture Capital Summit New York, NY October 29

Planalytics Holiday Outlook Webcast Webcast October 29 Deborah Weinswig

AAFA – NYC Intimate Apparel Market Week New York, NY November 2

L Brands Investor Day Columbus, OH November 3

World Retail Congress Africa Cape Town, South Africa November 3–4

European Utility Week Vienna, Austria November 3–5

Forbes CMO Summit Naples, FL November 3–5

Web Summit – Where the Tech World Meets Dublin, Ireland November 3–5

Ad:tech NYC Israel Pavilion New York, NY November 4–5

Customer Engagement Technology World New York, NY November 5–6

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Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852.6119.1779 [email protected] Filippo Battaini [email protected]

Marie Driscoll, CFA [email protected]

John Harmon, CFA [email protected]

Aragorn Ho [email protected]

John Mercer [email protected]

Shoshana Pollack [email protected]

Kiril Popov [email protected]

Jing Wang [email protected]

Steven Winnick [email protected]

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

october 23, 2015 … · 2015. 10. 23. · !2 october 23, 2015...

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