october 30, 2015 … global retail...!4 october 30, 2015...

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October 30, 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, members of the FBIC US team attended the Kroger and Ascena Investor Days and spoke at the Decoded Fashion New York Summit

l Walgreens Boots Alliance announced an agreement to acquire Rite Aid, which would bring together the #1 and #3 retail pharmacy companies creating a pharmacy giant with over 13,000 stores

l Lord & Taylor said it plans to open its first off-‐price store, called Find @ Lord & Taylor. The new Find concept is designed to appeal to a younger, millennial audience at a lower price point

l Online artisan marketplace Etsy launched its delivery service, Etsy ASAP, which will service select parts of Manhattan, Brooklyn and Queens for a flat fee of $20 with same-‐day or next-‐day delivery

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 30, 2015

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October 30, 2015


FROM THE DESK OF DEBORAH WEINSWIG

This week, we attended Kroger’s 2015 Investor Conference, where we heard from the grocery giant how it will sustain growth. Kroger outlined a focus on five pillars:

• Friendly and fresh—catering to shoppers’ greater demand for fresh, more natural foods.

• What’s for…dinner? Lunch? Tapping foodies’ interest in new and different products.

• Targeting fill-‐in markets to drive market share.

• Productivity initiatives, such as automated temperature monitoring that can cut waste and staff hours.

• Investment in digital technologies, such as the company’s acquisitions of digital coupon provider YOU Technology and analytics firm 84.51° (formerly Kroger’s stake in dunnhumby).

The most prominent theme across Kroger’s initiatives is a strengthening of its food credentials, a reaffirmation of its positioning as a traditional supermarket. This focus certainly builds on its strengths: it has helped the company post positive comps for 47 quarters. But this constancy is not merely habit. Kroger executives were at pains to emphasize the extent to which the company also uses customer insights to inform its strategy:

• The company identified shopper demand for clean, healthy ingredients, and met it with the Simple Truth brand, which has now reached more than $1 billion in annual sales. Kroger’s broader natural and organics offering represents more than $11 billion in sales.

• Kroger also used insights to identify the foodie trend and customers who have a passion for food. As a result, its gourmet Private Selection range is now the sixth-‐biggest-‐selling brand in its stores.

• Price is not one of Kroger’s five strategic pillars, but the company did affirm its commitment to lower prices every day, and told us how it is using insights to discover which items shoppers most want to see priced low. The result? Some $3.5 billion in targeted price investment over the last 11 years.

The company’s emphasis on customer insights suggests that it remains attuned to shopper demands, and we think this will be crucial for it to continue to outperform—not least because of the threat from the no-‐frills discounters from Germany, Aldi and Lidl.

Looking ahead, we wonder if the expansion of Aldi and Lidl could drive a renewed focus on price in the US grocery sector. Aldi has grown solidly in the American market, turning over $11.7 billion in 2014, according to the NRF, up 56% in five years. Lidl will soon enter the US market, and we think it could be similarly well received by American shoppers. Any major recovery in gas prices and a squeeze on shoppers’ wallets could accelerate migration to budget retailers.

In other countries where discounters have expanded, established nondiscount rivals have attempted to differentiate themselves, but have ultimately been forced to compete on price. This has been most obvious in the UK, where nondiscount chains such as Tesco and Morrisons have abandoned fancy store conversions and gone back to basics, with a focus on lower prices. And the signs indicate that simply cutting prices can stem nondiscount retailers’ loss of market share in a way that attempted differentiation does not.

If the discounters gain more ground, domestic players such as Kroger could be squeezed—which makes investment in customer insights crucial. If Aldi and Lidl, collectively, make rapid gains, then the conversation in US grocery retail may change, and retailers may be forced to redraw their strategies with a greater emphasis on price.

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October 30, 2015


US Housing Prices Continue to Gain Strength Figure 1. S&P/Case-‐Shiller 20-‐City Composite Home Price Index: YoY % Change

Source: S&P Dow Jones/CoreLogic

• US city home prices continued to rise in August, reflecting improving demand in the housing market. The S&P/Case-‐Shiller 20-‐City Composite Home Price Index rose by 5.1% in August, meeting economists’ expectations.

• All 20 cities in the composite showed year-‐over-‐year increases in August. In July, only 14 out of 20 did. Denver and San Francisco topped the list, with 10.7% gains.

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FBIC HAPPENINGS & WEINSWIG’S WATCH ING

CHART OF THE WEEK

STAT OF THE WEEK

• This week, members of the FBIC US team attended the Kroger and Ascena Investor Days and spoke at the Decoded Fashion New York Summit.

• The Energy Information Administration (EIA) predicts that US households using natural gas for heat are likely to spend an average of 10% less this winter.

• Households heating with oil may spend 25% less, and heating bills should be the lowest they have been since 2009.

10%/25%

Source: EIA

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October 30, 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

Alphabet 3QE Sept.

18,675 16,523 13.0 25.2 22.5

267 3,979 2,739

45.3 NA NA

Amazon 3QE Sept. 25,358 20,579 23.2 1.6 (2.6) 424 79 (437) NM NA NA

Apple 4QE Sept. 51,500 42,100 22.3 39.9 38.0 190 11,100 8,500 30.6 463 437

Coach 1QE Sept. 1,030 1,040 (1.0) 48.3 51.6 (329) 113 146 (22.6) NA 1,014

eBay 3QE Sept. 2,099 2,150 (2.4) 79.4 80.8 (142) 1,666 1,737 (4.1) NA NA

Procter & Gamble 1QE Sept. 16,527 18,771 (12.0) 50.7 48.1 253 2,601 1,990 30.7 NA NA

Macerich 3QE Sept. 326 263 24.0 9.5 4.9 457 34 39 (12.8) NA NA

Simon Property Group

3QE Sept. 750 737 1.8 44.8 41.9 287 189 161 17.4 NA NA

Steven Madden 3QE Sept. 413 392 5.4 35.8 34.7 114 43 39 10.3 165 133

Taubman Centers 3QE Sept. 91 81 12.3 29.7 32.1 (243) 27 26 3.8 NA NA

Under Armour 3QE Sept. 1,204 938 28.4 48.8 49.6 (86) 101 89 13.5 173 122

Walgreens Boots Alliance

3QE Sept. 28,522 19,057 49.7 25.5 28.0 (248) 26 (221) NM 12,755 8,681

Source: Company reports

US RETAIL HEADLINES

Hudson’s Bay Launches New Off-‐Price Concept: Find @ Lord & Taylor (October 26) CNBC.com

• Lord & Taylor said it plans to open its first off-‐price store, called Find @ Lord & Taylor, in Paramus, New Jersey, in November, and that it will open an additional six stores next year. The company also operates 85 Saks Off 5th stores.

• The new Find concept is designed to appeal to a younger, millennial audience at a lower price point than Saks Off 5th offers. This makes Lord & Taylor the third department store brand to launch an off-‐price store format.

Etsy Launches Delivery Service Etsy ASAP in Partnership with Delivery Startup Postmates (October 26) CNBC.com

• Online artisan marketplace Etsy launched its delivery service, Etsy ASAP, which will service select parts of Manhattan, Brooklyn and Queens for a flat fee of $20. Shoppers in these areas will be able to enjoy same-‐day or next-‐day delivery.

• The Etsy ASAP launch follows the recent rollout of the Etsy Local mobile offering, which helps shoppers find Etsy items and sellers nearby. Recently, Uber started to offer UberRUSH service for local businesses in New York City, San Francisco and Chicago. Amazon also offers same-‐day delivery for items from Amazon Handmade.

Walgreens to Aquire Rite Aid in $17.2 Billion Deal (October 27) The Wall Street Journal

• Tuesday, Oct. 27, after the market close, Walgreens Boots Alliance announced an agreement to acquire smaller drugstore chain Rite Aid for $9.4 billion in cash, offering $9 per share, which represents a 48% premium to Rite Aid’s closing price of $6.08 on Monday. Including debt, the deal is valued at $17.2 billion, the company said.

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• The deal would bring together the number 1 and number 3 retail pharmacy companies, creating a pharmacy giant with over 13,000 stores and more than $67.1 billion in combined revenue, according to Drug Store News’s Annual PoweRx Industry Rankings.

Chico’s Appoints Former Walmart Executive as New President and CEO (October 28) USA Today

• Chico’s announced on Wednesday that Shelley Broader would become President and CEO of Chico’s FAS on December 1. Broader will succeed David Dyer as he retires. Broader is a seasoned retail executive with a combined 25 years of experience at Walmart, Michael’s Stores and Delhaize Group. Most recently, she was the CEO of Walmart’s EMEA region.

• Broader also previously served as CEO of Walmart Canada, chief merchandising officer for Walmart Canada and senior vice president for Sam’s Club.

EUROPEAN RETAIL EARNINGS

Company

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

Period 2015 2014 (%) Reporting Currency 2015 2014 (BP) 2015 2014 (%) 2015 2014

ICA AB 1HE Jun. 30 5,876 6,427 (8.6) 17.2 13.4 13.6 (24.5) 299.0 198.0 51.0 2,092 1,780

Stockmann Oyj ABP 3QE Sep. 30 390 537 (27.4) (13.4) 50.1 49.6 50.0 (18.4) (18.0) 1.7 505 697

Macintosh Retail Group NV

3QE Sep. 30 121 150 (19.9) (4.4) N/A N/A N/A N/A N/A N/A 550 610

Groupe Fnac SA 3QE Sep. 30 956 1,145 (16.5) (0.3) N/A N/A N/A N/A N/A N/A 191 184

Source: Company reports

EUROPE RETAIL HEADLINES Liu Jo to Focus on Travel Retail (October 22) Retaildetail.eu

• Liu Jo, the Italian clothing brand, wants to expand its travel retail offering and open more shops in airports and train stations. The company has 320 stores of its own and concessions in 5,550 multibrand stores across 45 countries. It made its first foray into travel retail this year.

• The company currently has airport stores in Bergamo, Venice, Rome, Lisbon, Brussels and the largest German cities. Liu Jo will target the cities where its brand is popular for the first stage of its expansion, and later expand to the Middle East and Asia.

Sainsbury’s Trials New Supermarket Design (October 23) Company press release

• UK grocery retailer Sainsbury’s is experimenting with a new design and layout for six of its stores. In response to emerging shopping trends, the store layout will be “mission-‐based,” with new till formats and technology that enables quicker checkout.

• The retailer plans to increase the focus on its private label clothing and homeware merchandise through this trial. In addition to staffed checkout points and self-‐checkout tills for basket purchases, Sainsbury’s has also introduced a larger self-‐checkout point for customers with small shopping carts.

Raf Simons Departs Christian Dior (October 23) Retaildetail.eu

• Belgian fashion designer Raf Simons, who was in charge of Christian Dior’s creative direction for three and a half years, has decided not to renew his contract. His last collection for the French fashion house was presented in Paris on October 2.

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• In a press statement, Simons said that his decision is “based entirely and equally on [his] desire to focus on other interests in [his] life, including [his] own brand.” Dior has yet to announce his successor.

Debenhams to Enter Australia and Vietnam (October 23) Retailgazette.co.uk

• British department store chain Debenhams is set to expand its international presence by opening new stores in the Australian and Vietnamese markets in early 2016. Prior to the launch, Debenhams plans to unveil a dedicated e-‐commerce site in Australia before Christmas 2015. This will be the retailer’s first entry into the Southern Hemisphere.

• For the venture in Australia, Debenhams has partnered with Pepkor, part of the global retail giant Steinhoff Group. In Vietnam, the company has signed with VinDS, part of Vingroup, as its local market partner.

Aldi Pledges to Pay Above “Real” Living Wage (October 26) Retail-‐week.com

• German grocer Aldi has pledged to pay £9.45 (US$15.35) per hour to its London staff and £8.40 (US$13.64) per hour to staff across the rest of the UK, outstripping Chancellor of the Exchequer George Osborne’s suggested living wage of £7.20 (US$11.70) per hour. These rates also exceed the hourly rates that discount rival Lidl had revealed last month—£9.35 (US$15.18) for London staff and £8.20 (US$13.32) for staff in the rest of the UK.

• Aldi has also disclosed plans to hire and train 600 new apprentices beginning in 2016. It opened its 600th UK store in Cardiff this year, and has a target of opening 1,000 stores across the country by 2022. The national living wage of £7.20 (US$11.70) an hour, which Osborne unveiled during the summer Budget this year, is set to come into force in April 2016, and is expected to rise to £9 (US$15) by 2020.

ASIA TECH HEADLINES

Apple’s Location for Its Official Singapore Store Confirmed? (October 26) TechinAsia

• Apple’s location for its first official store in Singapore might have been confirmed in a press release by Pure Fitness. The fitness chain issued a statement saying it will be closing its branch in Knightsbridge to make way for the opening of a new Apple store in late 2016.

• Pure Fitness had stated in an earlier email to customers that it, along with other tenants of the building, will be handing the space back to the landlord in order to make way for the new Apple store.

Indonesian Fashion E-‐Commerce Firm Paraplou Shuts Down (October 26) TechinAsia

• Paraplou shut down its site on Saturday, October 24, with a farewell message on its home page. The company said that market immaturity, certain financial conditions and a difficult funding environment were the primary reasons for its closure.

• The company was headed by Bede Moore and Susie Sugden, two former Rocket Internet managing directors. They had worked at Lazada Indonesia for two years before starting Paraplou in order to provide e-‐commerce services for premium fashion brands in Indonesia.

WeChat to Charge Its 560 Million Users for Big E-‐Money Transfers (October 26) e27.co

• Tencent’s all-‐in-‐one WeChat app will now charge a 0.1% fee on mobile transfers over ¥20,000 (US$3,155) to cover bank transaction fees for its WeChat Wallet service.

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October 30, 2015


• WeChat Wallet is used by 200 million people and is supported by an estimated 200,000 physical stores, including 25,000 supermarkets and 40,000 vending machines. It can be connected to most major banks, allowing cash from bank accounts to be easily transferred into online accounts.

Sharp Warns of Profit Loss in Display Business Slide (October 26) ZDNet

• In a press release on Monday, Sharp warned shareholders to expect a six-‐month operating loss due to poor smartphone display sales.

• According to the firm, “intensified competition” in the small and medium-‐sized LCD business will result in a forecast operating loss of ¥26 billion (US$215 million). The company has struggled in recent years due to stiff competition, the recession and currency fluctuations.

Sources Say Toshiba to Sell Sensor Business to Sony for Around US$165 Million (October 26) Channel NewsAsia

• Toshiba plans to sell its image sensor business to Sony for around ¥20 billion (US$164.68 million) as part of a restructuring plan laid out earlier this year, sources with knowledge of the deal said on Saturday.

• Masashi Muromachi, who became Toshiba’s CEO following the accounting scandal that hit the company, has promised to restructure lower-‐margin businesses. Nikkei reported that the deal for the image sensor business would be the beginning of the restructuring.

LATAM RETAIL HEADLINES

Luxottica’s 3Q Growth Reversed by Currency (October 27) Company press release

• Luxottica reported a 1.4% year-‐over-‐year decline in third-‐quarter revenues, equating to a 13.6% increase when adjusted for currency.

• Positives included sales of the “Made in Italy” collection in Brazil, continuing growth in Mexico, and encouraging results in Chile and Colombia, which were helped by the opening of two wholesaling subsidiaries earlier in the year.

Brazilian Retailers Seek to Adapt to Recession (October 26) CDL Belo Horizonte

• In August, online order volume in Brazil declined for the first time in 15 years; it was down 7% year over year, according to consulting firm E-‐bit.

• Brazilian retailers are adapting by reducing costs through eliminating free shipping and charging a premium for rapid shipping.

BRMALLS Reports Preliminary 3Q15 Sales Growth of 1.8% (October 26) Company press release

• BRMALLS’ total sales reached R$5.1 billion (US$1.3 billion) in the third quarter of 2015, which represented total year-‐over-‐year sales growth of 1.8%, excluding recently divested properties.

• Same-‐store sales grew by 2.3% despite deteriorating macroeconomic conditions, and same-‐store rent grew by 7.4% during the quarter, with a 96.8% occupancy rate.

Riachuelo Halves Number of Planned Store Openings (October 24) Economia.estadao.com.br

• The Guararapes Group, the parent company of Riachuelo, the #3 retail group in Brazil after C&A and Lojas Renner, has cut its planned number of store openings to 80 from 160.

• Delays in mall openings were cited as the reason, and other retailers, such as Hering and Marisa, have also reduced their forecasts of store openings.

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October 30, 2015


Soriana and Comercial Mexicana Accept Regulator’s Terms on Store Deal (October 21) Bloomberg

• Both Soriana and Comercial Mexicana have accepted a restriction to exclude 14 stores from Soriana’s acquisition of its rival’s operations, which will reduce the total deal value by MXN3.6 billion (US$218 million). Another 12 stores will be acquired for subsequent divestment.

• The original agreement centered on Soriana acquiring 160 stores from Comercial Mexicana for MXN39 billion (US$2.4 billion).

EARNINGS CALENDAR

Company

Earnings Release Period Date

Sales ($ Mil.) EPS

Currency Consensus TY LY Actual

Consensus TY LY Actual

CVS 3Q 15 Oct. 30 38,201 35,021 1.29 1.08 USD

Colgate-‐Palmolive 3Q 15 Oct. 30 4,076 4,379

0.72 0.69 USD

Clorox 1Q 16 Nov. 2 1,376 1,352

1.18 1.10 USD

Estée Lauder 1Q 16 Nov. 2 2,783 2,631

0.70 0.59 USD

General Growth Properties 3Q 15 Nov. 2 764 632

0.35 0.33 USD

Forest City Enterprises 3Q 15 Nov. 3 326 235

0.33 0.30 USD

Associated British Foods FY 15 Nov. 3 12,976 12,943

0.98 0.98 GBP

Avon Products 3Q 15 Nov. 4 1,683 2,138

0.07 0.22 USD

Michael Kors 2Q 16 Nov. 4 1,076 1,056

0.90 1.00 USD

Whole Foods Market 4Q 15 Nov. 4 3,475 3,256

0.35 0.35 USD

Facebook 3Q 15 Nov. 4 4,368 3,203

0.52 0.30 USD

Tumi 3Q 15 Nov. 4 136 130

0.21 0.21 USD

Marks & Spencer 1H 16 Nov. 4 4,951 4,904

0.13 0.14 GBP

Adidas 3Q 15 Nov. 5 4,518 4,015

1.49 1.34 EUR

Kate Spade 3Q 15 Nov. 5 281 250

0.04 0.04 USD

Coty 1Q 16 Nov. 5 1,133 1,182

0.30 0.26 USD

Ralph Lauren 2Q 16 Nov. 5 1,960 1,994

1.74 2.21 USD

Unicharm 3Q 15 Nov. 6 997,000 152,400

21.10 19.74 JPY

Tencent 3Q 15 Nov. 10 25,458 19,808

0.86 0.70 CNY

Macy’s 3Q 16 Nov. 11 6,114 6,195

0.53 0.61 USD

JC Penney 3Q 16 Nov. 11 2,877 2,764

(0.56) (0.76) USD

Fossil Group 3Q 16 Nov. 11 795 895

1.19 1.96 USD

Yoox Net-‐A-‐Porter 3Q 16 Nov. 11 190 128

0.02 0.03 EUR

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October 30, 2015


EVENT CALENDAR

Event Location Date(s) FBIC Presenting

Ford Motor Investor Day Dearborn, MI October 30

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

Euromonitor – Home Goods and the Internet of Things Webcast November 4

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

AAFA – Fashion & Sports PML: Users vs IT Webcast November 5

MIT Enterprise Forum – Uber-‐ization New York, NY November 5

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

UJA – Tech Mission to Israel Tel Aviv, Israel November 7

Carrefour Management Meeting New York, NY November 9

Restaurant Finance & Development Conference Las Vegas, NV November 9–11

Fast Company Innovation Festival New York, NY November 9–13

Techweek Los Angeles Los Angeles, CA November 9–15

CES Unveiled New York New York, NY November 10

McDonald’s Investor Day New York, NY November 10

WWD – Digital Forum LA Los Angeles, CA November 10

IoT – Connected Entertainment & Smart Home Amsterdam, Netherlands November 10–11

Trinity Board Meeting – Global Retail Trends Macau, SAR November 11 Deborah Weinswig

Israeli Pavilion at Content and Communication World New York, NY November 11–12

World Retail Congress LatAm São Paulo, Brazil November 12–13

Hasbro Investor Day TBA November 16

TreeHouse Foods Investor Day Rosemont, IL November 16

Connected Car Expo Los Angeles, CA November 16

LSCo – Lean Startup Conference San Francisco, CA November 16–19

QConn – International Software Development San Francisco, CA November 16–20

The Retail Marketing Society – Wearable Technology New York, NY November 19 Jing Wang

Pepcom – Wine, Dine & Demo! New York, NY November 19

Kellogg Investor Day Chicago, IL November 20

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October 30, 2015


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 30, 2015 … global retail...!4 october 30, 2015...

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