1

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Cosmoprof North America 2017 Wrap-Up

TheFungGlobalRetail&TechnologyteamattendedCosmoprofNorthAmerica2017inLasVegasthisweek.CosmoprofistheleadingB2BbeautytradeshowinNorthAmerica,drawingmorethan33,000attendeesand1,015exhibitorsfrom39countries.Inadditiontothetradeshow,theeventincludedathree-dayeducationprogramwherebeautyindustryexpertssharedinsightsanddiscussedkeytrends.

Belowareourtoptakeawaysfromthethree-dayevent:

1) Earvin“Magic”Johnsonkeynote:knowyourcustomerandoverdeliver

2) Ashiftindemandfornaturalcosmeticsandskincareinthelasttwoyears

3) Socialmediainfluencersdominateconsumerengagementinthebeautysector

4) Malegroomingisbooming

5) Thefutureofbrands

6) Thedigitalizationofthesupplychainisexpectedtoshapethefutureofthebeautyindustry

7) Technologyhascontinuedtoadvanceinthebeautycategory

8) Influencers,influencers,influencers

9) Chinaisbecomingthelargestbeautymarketintheworld

10) Indiebrandsworktogainscaleandcompetewithmassbrands11) K-beauty’smomentumcontinues

12) Interactivetechnologyareashowcasedthelatestinnovationsinbeauty

13) On-demandstartupsaredisruptingthebeautyindustry

14) Eco-friendlyandorganicproductswereprevalentatcosmoprof

15) Beautyservicescanchangethebrick-and-mortarexperienceBonustrend:big-boxretailersareactivelyengagedwithindiebeautybrands

2

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

TheFungGlobalRetail&TechnologyteamattendedCosmoprofNorthAmerica2017inLasVegasthisweek.CosmoprofistheleadingB2BbeautytradeshowinNorthAmerica,anddrawsmorethan33,000attendeesand1,015exhibitorsfrom39countries.Inadditiontothetradeshow,theeventincludedathree-dayeducationprogramwherebeautyindustryexpertssharedinsightsanddiscussedkeytrends.

Belowareourtoptakeawaysfromthethree-dayevent:

1) Earvin“Magic”JohnsonKeynote:KnowYourCustomerandOverdeliver

BasketballlegendandkeynotespeakerEarvin“Magic”Johnsonsharedhisexperienceabouthowoverdeliveringtoanunderservedcustomerbasewaskeytohissuccessasabusinessman.HenotedthaturbanAmericansandminoritieswerebeingunderservedandhadsignificantspendingpower:$2trillion,with$1trillionofthatfromHispanicconsumersand$1trillionfromAfricanAmericanconsumers.Asaresult,hecameupwiththeideatolaunchMagicJohnsonTheatres,openingmovietheatresinurbanneighborhoodsthathadnofacilitiesatthetime.Byknowingthedemographicandtheireatinganddrinkinghabits,insteadofofferingCokeandSpriteatthetheatreconcessionstands,hesoldgrapesodaandorangesoda,whichweremorepopularamongstAfricanAmericanconsumers.

Afterthesuccessofthatventure,Johnsonalsosawthattherewasalackofcoffeeshopsinthesesameneighborhoods.HemetwithHowardSchultzofStarbucksandproposeda50/50ownershipstructurebetweenhimselfandStarbucksforthesestores.SimilartohisstrategyatMagicJohnsonTheatres,Johnsonreplacedsconeswithsweetpotatopies,knowingtheyweremorepopularamongthedemographic,andchangedthemusicplayedinstorestoPrinceandMichaelJacksontocatertohiscustomers’tastes.Afterasuccessfulthree-storetest,theconceptwasrolledoutandtheyopened125stores.Lastly,Johnsonsawaneedforafull-service,sit-downrestaurantconceptinurbanareas,whichledhimtobuythechainTGIFriday’saswell.

Johnsonhighlightedhisbeliefthatlisteningtocustomers’needsandoverdeliveringwaskeytohissuccessinbusiness.Anotherexampleofthesameconceptis,astheowneroftheLosAngelesDodgersbaseballteam,Johnsonlistenedtothefans’feedbackabouttheneedforcheaperparkingandabetterstadiumexperience.Heultimatelyloweredpricingforparkingandofferedfansadifferentiatedexperience,whichresultedinselling3millionticketsbeforetheseasonhadevenstarted.

Johnsonalsotalkedaboutthefactthathealwaysknewhewantedtobeasuccessfulbusinessman,evenwhilehewasplayingbasketballprofessionally.HethoughtaboutthelongtermandlaidthegroundworkforhisfuturecareerwhileheplayedwiththeLosAngelesLakers.Hesoughtmentorsandlearnedfromothersthatweremoreexperienced.Healsobroughtthesamedisciplinehehadinhisprofessionalbasketballcareertothebusinessworld.

Source:FungGlobalRetail&Technology

3

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

2) ShiftinDemandforNaturalCosmeticsandSkincareintheLastTwoYearsWhiletherehavebeennaturalbeautybrandsfordecades,therealdemandforthecategoryacceleratedinthelastcoupleofyears.2014representedaturningpointinthecategory.Therehadbeenaperceptionthatnaturalbeautyproductsdidn’t“work”andweren’teffectiveandthatconsumershadtochoosenaturalorresults.Thatisnolongerthecase.Naturalproducts,despiteinmanycasesbeingofferedatpremiumpricepoints,garnerverypositivecustomerreviews(whichisn’talwaysthecaseforhighendandpremiumproducts)andmillennialsandyoungerconsumerstendtoeducateandshowtheirolderfamilymembersandfriendsnaturalproducts.

Authenticityiskeyinthenaturalscategory,asconsumersneedtobeabletotrustbrandsandtheproductstheymake.Theyneedtobeabletotrustthatbrandsarebeinghonestandtheproductswillbeconsistenttimeandagain.

MaryBemis,founder&editorialdirectoroftheInsider’sGuidetoSpas;JeanGodfrey,June,beautydirectoroftheGOOP;IndieLee,founderoftheIndieLee;Dr.LilianaSGeorge,presidentofthePureBeautyConcepts.Source:FungGlobalRetail&Technology

Consumers’motivationforusingnaturalbeautyproductsvaryandincludehealth,anextensionoftheirlifestyleandperformance.Womenaremoreengagedinreadinglabelsandunderstandingingredientsandwhattheyareputtingintoorontheirskinandbodies.Accordingtosome,nothingismoreluxuriousthannaturalproductsparticularlygiventheincreasedfocusonhealthandwellness.

Forconsumersthatdousenaturalproducts,theymaynotusenaturalproductsexclusivelysimilartoorganicfood.Consumerseatorganicfoodsomeormostofthetimebutnotallofthetimeandthatisokay.Makingpeoplefeelbadorshamingthemintousingnaturalproductsisnoteffectiveastheynowhavetheoptiontomakeapurchaseonline.Theoldcosmeticssalesmodelofpushingproductisnotsuccessfulanymore.Consumersarealsomoreeducatedaboutproductswhentheycomeintothestore.Forconsumerswithsensitiveskin,theyoftencomebackaroundtonaturalproductsafterotherproductsdidn’twork.

Thisisnotafadandisnotsomethingthatwillslowdownorgoaway.

4

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

3) SocialMediaInfluencersDominateConsumerEngagementintheBeautySectorTheriseofinfluencershastransformedhowbeautybrandsmarketthemselves.Beautyshoppersnowpreferauthenticcontentcreatedbypeersandinfluencersoverdirectcommercialappealsfrombrands.YouTubehasbecometheprimarychannelforbeautyshopperstoobtaininspiration,mostlythroughbeautyinfluencers.Instagramalsohashighengagementratesinfashionandbeautycategory.Consumersalsonowdemandmorepracticalcontentfrombeautybrands,suchasmakeuptutorials.

Micro-influencersthatreachaspecifictargetarefavoredbybeautycompanies.Researchshowsthatthelargerthenumberoffollowersaninfluencerhas,thelowertheengagementlevel.Assuch,beautycompaniesareworkingwithinfluencerstotargetspecificaudiences,particularlywithmicro-influencers,orinfluencerswhohaveonlyafewthousandfollowersonsocialmediaplatforms,butwhosecontentisperceivedasbeinghighlyauthenticratherthancommercial.Micro-influencers’followerstendtohaveaveryspecificinterestincommon,sobrandscaneffectivelytargetnicheaudiencesthroughthem.Professionalstylistsareincreasinglybecomingsocialmediainfluencersinthebeautyspace.Theyhopetoleveragetheirprofessionalskillstoeducateconsumersandotherstylistsviasocialmedia.LarisaLove,ownerofLarisaLovesalonstartedhercareerasahairstylist.ShestartedtobuildherclientlistbycreatingdramatichairtransformationsonherInstagramaccount,@larisadoll.Shehasbuiltover500,000Instagramfollowersandmanybecameherloyalclientsforherhairservices.AlfredoLewis,GlobalDirectorofEducation,BrazilianProfessionals,notedthathisfirmusessocialmediatotrainprofessionalstylists.

4) MaleGroomingIsBoomingWhentouringthetradeshowfloor,wesawastrongrepresentationofmalegroomingproducts.Theglobalmarketformalegroomingproductsisbooming,andisprojectedtoreachUS$60.7billionby2020,accordingtoEuromonitor.Whilesomemayattributethistothegrowthinshavingproductsandfragrances,thestrongestgrowthisactuallyinthelargestcategory,maletoiletries.Valuedat$17.5billionandcomprising37%oftotalsalesin2015,thiscategoryincludesmen’sbathandshower,deodorant,skinandhaircareproducts.ThelargestmalegroomingmarketisWesternEurope,valuedat$12.4billionin2015.AsiaPacificisthehighestgrowthmarket,forecasttogrowatacompoundannualgrowthrate(CAGR)of8.1%to$11.5billionby2020fromUS$7.8billionin2015,accordingtoEuromonitor.Brick-and-mortaristhemaindistributionchannelformalegroomingproducts,accountingfor81%oftotalsalesin2015.Groceryretailersandnongroceryspecialists—mostlyhealthandbeautyspecialistretailers—arethetwomajordistributionchannels,accountingfor37%and36%sharegloballyin2015,accordingtoEuromonitor.

Source:FungGlobalRetail&Technology

5

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Someretailershavedesignedstorelayoutstomatchmen’sshoppingneedsinthiscategory,includingspecialtybeautyretailerKiehl’s,aswellasdepartmentstoressuchasMacy’sandNordstrom.TheArtofShaving,apremiumgroomingomnichannelchainstore,isofferingbarbershopsinselectedoutlets,deliveringgroomingexperiencestoitscustomers.L’OréalandPhilipscollaboratedinDecember2016andlaunchedapopupbarbershopatSingaporeChangiAirport,showcasingtheirproductsinabidtowidentheircustomerbase.Whilemostofthemajorbeautyandpersonalcareproductcompanieshavealreadycreateddedicatedbrandsorsub-brandsfortheirmalegroomingproducts,anumberofmalegroomingstartupshaveemergedinrecentyears,successfullytappingintotheunmetneedsandgrowingtrendsinthisfield.

StephanKanlian,professorandchairoftheCFMMMaster’sProgram,FashionInstituteofTechnology;MorganHagney,seniormarketingmanageroftheL’OrealParis;NicolasVissat,marketingdirectoroftheHaircolorCategory,Matrix;GraceGordon,globalmarketingmanageroftheEsteeLauder.Source:FungGlobalRetail&Technology

5) TheFutureofBrandsTherewillbesomebrandsthatwon’tmakeitthroughthecurrentfluxinbeautyandretail.Thebrandsthatwillbesuccessfulandwillhaveafuturewillbethosethatmakeanemotionalconnectionwithconsumers.Brandscanmakeanemotionalimpactwithconsumersinthreeways:

i. Transparency–millennialsaremorelikelytobuyfromabrandiftheyknowthepeoplebehindthebrandandwhattheystandfor.Theyareinterestedinwhatthecompanysupportsandhowtheygoabouttheirbusiness.Consumerswantbrandstotakeownershipandtostandforsomething.

ii. Experience–Experienceisaboutcustomerserviceinthestoreaswellassomethinguniqueinphysicalretail.Experienceisaboutadialoguebetweenthebrandandconsumers.Consumerswanttheirfeedbacktakenintoaccount.

iii. Community–Loyaltyisgroundedincommunity.44%ofmillennialsshowbrandloyaltybymakingrecommendationstofamilyandfriends.Communityisgroundedintrust.Today’sworldisvolatileandtrustisincrisis.Themorefrequentthecontactandcommunicationbetweenabrandandaconsumer,themorelikelytodeveloparelationship.Thehyperconnectivityoftheworldweliveinhasresulted

6

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

inmorelonelinessandlessconnection.Thatisanopportunityforretailersandbrandsasconsumersincreasinglylookforasenseofbelongingandthoselike-minded.

Millennialshavezeroexpectationsofbrands.Theythinkthatretailersandbrandsvalueprofitabilityoverthemandhavinganauthenticrelationship.Only8%ofmillennialsfeelheardbybrands–thatisamissedopportunity.Millennials,whenpolledwouldalsobewillingtogiveupshoppinginstoresiftheyhadonelesshourintheday.

6) TheDigitalizationoftheSupplyChainIsExpectedtoShapetheFutureoftheBeautyIndustry

Digitalizationisimprovingthetransparencyandefficiencyofthesupplychainforthebeautyindustryasitiswiththeapparelsector.ThomasKull,AssociateProfessorofsupply-chainmanagementatArizonaStateUniversity,notedthatanimportantaspectofdigitalizingthesupplychaininvolvesusingpredicativetechnologyandbigdatatoimprovethetraceabilityofbeautyproductsalongthesupplychain.Beautycompaniesneedtobemoretransparentaboutelementsoftheirmanufacturingprocesses,suchasanimaltesting,packagingmaterialsandthepotentialuseofharmfulingredients.Consumersarenowmoreeducatedandhavemoreaccesstomorespecificinformation.Forexample,consumershavethepowertodeterminethepercentageofrecycledmaterialsinbeautypackaging.Onthepositiveside,brandscanleveragetheircleanproductionprocessesasamarketingmessageforconsumersthatcareaboutenvironmentalcauses.

Source:FungGlobalRetail&Technology

Dataisalsoparamount.Becauseoftheaccessibilityofreal-timedata,companiesareabletomakebusinessdecisionsbasedonreal-timeanalyticsversushistoricalinformationandaverageestimates,whichhavebeenreliedoninthepast.Kulldescribeddataasanequivalentofnaturalresourcesforcompaniesinanotherera.Companiesbuiltvastmonopoliesbasedonnaturalresourcesinthepast.Nowtheycanbuildmonopoliesbasedondata.

7

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Businessescanpotentiallypivottheirbusinessmodelsbasedondatafindings.Therehasbeenatrendof“servitization”acrossindustries,whichrepresentstheshiftfromsellingproductstosellingservices.Forexample,GEswitchedfromsellingairplaneenginestoairlinestoselling“thrusts”ortheuseofairplaneengines.Real-timecommunicationbetweendeviceshasallowedGEtocollectusagedatafromitsairplaneenginesandbillairlinesbasedontheaccumulativeusage.

7) TechnologyHasContinuedtoAdvanceintheBeautyCategoryTheadvancementofaugmentedreality(AR)technologyinbeautyhasallowedconsumerstotryonproductsinafairlyrealisticsetting.Themagicmirrorexperiencehasevolvedfromastaticpicturetoarealisticvideothatcanadjustproductcolorbasedonthelightingenvironmentwheretheconsumeristryingontheproducts.Theincreasinglyaccurateandrealistictry-onexperienceisbasedoncolormappingtechnologywhichcanadjustthecoloroflipstickaccordingtotheanalysisofthelightingenvironmentusingthecolorsofusers’eyesandhairasreferences,accordingtoParhamAarabi,FounderandCEOofModiface.

Source:FungGlobalRetail&Technology

ModifacehascreatedseveralapplicationsincorporatingAR.Thecompanydevelopedastep-by-steppersonalizedlivemakeuptutorialthatteachespeoplevariousbeautytechniques.Ithasalsolayeredgaze-basedanalyticstotrackconsumers’affinitywithdifferentproductswhentheytrythemon.Conversionratesimproveby27%whenbrandsusethisconsumerpreferenceinformationtomakeproductrecommendations,accordingtoModiface.

Artificialintelligence(AI)hasmademasscustomizationpossibleforthebeautyindustry.SmartfoundationmatchappMatch&Co.usesAItechnologytoanalyzeandpredictfoundationcolorchangeforconsumersovertimeandinvitethemtorematchtheircoloreveryfewmonths.Consumers’foundationcolorchangesby20%eachyear,accordingto

8

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Match&Co.Match&Co’sappwillnotifyuserstodoarematch.ThecompanyiscollaboratingwithBareMineralstooffer“madetofit”personalizedfoundations.

Source:FungGlobalRetail&Technology

8) Influencers,Influencers,InfluencersAtCosmoprofwemetwithTribeDynamics,anindustryleaderinmeasuringsocialinfluencerengagement.TribeDynamicsmeasureshowconsumersrespondtobrandsonsocialmediathrough“earnedmediavalue”orEMV.Thecompanymeasuresanddiscoverswhichbrandsarebeingtalkedaboutthemost.Thebeautyindustryiseffectivelyusingthepowerofsocialinfluencermarketingmorethananyothermethodofmarketing.Thecompanyestimatedthatthebeautyindustrywasatleast3–5yearsaheadofotherindustriesusingsocialinfluencermarketingbecausethecosttopublishandcreateamessageisalmostzerotoday,andbecausetheriseofcontentbeingcreatedisexponential.

TribeDynamicshasdiscoveredbrandsbeforetheywentviralusingitsanalytics.NYXandBECCAcosmeticsareexamplesoftwocosmeticsbrandsthatusedsocialinfluencerengagementtogrowtheirbrandstomultimillion-dollarbrands.NYXdoesnotpayitsinfluencers,andBECCAcosmeticswasunderperformingwhenYouTuberJaclynSmithpostedavideoabouttheirproduct.Thecompanyexperiencedaone-daysalesrecord,showingthetremendouspowerofsocialmediaandinfluencers.ThecompanyhassincecollaboratedwithSmithonanentirelineofbeautyproductsincludingBECCAxJaclynHill.BECCAcosmeticshassincebeenacquiredbyEstéeLauderforover$200millioninOctober2016.

NYXhasgrownorganicallythroughunpaidsocialinfluencerengagementtobecomethenumber-threecosmeticscompanyinsocialengagementwithEMVover$50millionandyear-over-yeargrowthonsocialmediaengagementof97%fromFebruary2016toFebruary2017.

9

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

9) ChinaIsBecomingtheLargestBeautyMarketintheWorld

WehadtheopportunitytohearapresentationbyTonyShan,SeniorBusinessDevelopment&MerchandisingManagerandtheHeadoftheNewYorkofficeatVIP.com.VIP.comoperatesintheChinesee-commercemarketandhasamemberbaseof300millionmembers.ThatcomparestotheChinesepopulationof1.38billionand450millionChineseonlineshoppers.VIP.comhadrevenuesof$8.2billionin2016andisoneofthetop-threee-commercesitesinChina.Thecompanyoffersend-to-endsolutionsincludingoperations,marketing,logisticsandcustomerservice,andhasaglobalfootprintwith10officesaroundtheworldand28warehousesglobally.

In2016,ChinaovertooktheUStobecomethelargestbeautymarketintheworld.Risingincomelevelsarechangingpreferences.Withtheriseoftheuppermiddleclassandincreaseinspendingpower,theChineseconsumermarketpresentsmanyopportunities,disproportionatelybenefitinginternationalbrandsandverticalssuchasbeauty.Thecompany’scustomersareloyal,withan80%returnrateamongshoppers,andarehighlysticky.VIP.com’scustomersarealsopredominantlywomen,astheycontrolthepurchasingdecisions;80%ofthecustomerbasearewomen.

Source:FungGlobalRetail&Technology

Chineseconsumersareadoptinge-commercefasterthanintheUSandEurope:onlinesalesinChinagrew36%yearoveryearin2015,fasterthanintheUSat14%andinEuropeat12%.ThefastergrowthinChinaismainlyduetothelargerpopulationofonlineshoppersandtheleapfroggingofe-commercerelativetophysicalretail.Inaddition,therewere340millionmobileshoppersinChinain2015,comprising82%oftotalonlineshoppers,accordingtoiResearch.Thisisforecasttoreach510millionin2018,or91%oftotalonlineshoppers.Some90%ofVIP.com’sshopperscomeviathemobilechannel.

Source:FungGlobalRetail&Technology

10

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Source:FungGlobalRetail&Technology

ChineseshoppersdifferfromtheirWesterncounterpartsinanumberofways:

• Chineseconsumersaremorelikelytoshopontheirmobilephones,giventhehighmobileInternetpenetrationrateinChina.

• Chineseconsumerssearchforproductsdirectlyone-commercesites,whileWesternconsumerstypicallyusesearchenginesasthestartingpoint.

• Customers’expectations:Chineseconsumersaretypicallymoredemanding.Whenshoppingonline,theytypicallyexpectnext-daydeliverycomparedtowesternconsumerswhoarereceptivetodifferentservicelevels.Atthesametime,Chineseconsumersarepricesensitiveandawareofbrands’premiumpricing.

Establishedin2008,theplatformhasbuiltlong-termrelationshipswithover19,000brandsandaccumulated100millioncustomermembers.Vipshopisrankedasthethird-largestB2ConlineplatforminChina,withrevenuesof¥40.2billionin2015.

10) IndieBrandsWorktoGainScaleandCompetewithMassBrandsWhileindiebrandshaveanappealtoconsumersastheylookforup-and-comingandnewandexcitingproducts,smallandindiebeautybrandsstrugglewithhowtotaketheirbrandstothenextlevelandscaletheirbusinesses.WeheardfromseveralbeautybrandsincludingJouerCosmeticsandFABskincare,aswellastheperspectivefromretailersDermStore.comandQVC.

AnumberofthebrandsagreedthatPRisveryexpensiveforyoungbrandsinthebeautyspace,particularlyconsideringthereturntheybringin.JouerCosmetics,inparticular,talkedaboutthesuccessithasseenbyinsteadfocusingonsocialmediaandutilizinginfluencersandmicro-influencerstospreadthewordabouttheirbrandsandproducts.

QVChasseveralplatformsforbeautyproducts,itsmainQVCtelevisionchannelwhichfeaturesbeautyamongstothercategories,a24-hourbeautychannelwhichisbroadcastonFacebookandonlineatbeautyiq.com,anditswebsite.BeautyIQisgearedtowardayoungeraudienceandtendstoskewtowardsocialbrands.ThecoreQVCchannelisbroaderwithalargeraudience.DermStorewaslaunchedbyadermatologistasa

11

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

skincare-focusedplatform.Thecompanyhasevolvedtoincludecolorcosmeticsandislookingtofurtherevolveandexpandintohaircareandfragrances.

Intermsofthebrandsitselectstobeonitsplatforms,QVCprioritizesstorytelling,particularlysincethechannelisaboutdemonstration,andstorytellingisintegraltothat.Indiebrandscanbenicheandoftenhaveacompellingstoryabouthowthecompanyand/orproductcameintobeing.Theyareoftenbeguntofillaparticularneed.Thecompanyishighlystructuredandmeasuresbrandproductivityindollarsperminute—itpayscloseattentiontowhatitscustomerswant,anddollarsperminuteisthecustomervotinginrealtime.Inadditiontobeingaplatformtosellproducts,QVCoffersbrandexposureandmarketing.

11) K-Beauty’sMomentumContinuesTherecontinuestobestronginterestinbeautycategoryinnovationfromSouthKorea.SouthKoreanbeautybrandshaveseenstrongsalesvolumegrowth,withexportsreaching$2.45billionin2015,andtheyhavehadagrowinginfluenceontheglobalbeautymarketinrecentyears,sparkingthe“K-beauty”trend.Thishasledtomarket-sharegainsintheglobalbeautyandpersonalcaremarket.

K-beautybrandsareknownfortheirinnovation,whichconsumershaveheartilyendorsed.AstudybyNielsenin2015showedthatsixoutof10K-beautybrandshoppersfromGreaterChinaandSingaporeconsideredSouthKoreanproductstobeinnovative.ThisperceptionwasthestrongestamongMainlandChineseshoppers,with68%ofthosepolledagreeingthatK-beautyproductsareindeedinnovative.

Source:FungGlobalRetail&Technology

12

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Fromproducttoprocesstotechnologytopackaging,K-beautybrandshaveinnovatedonseveralfronts.Innovationinproductdevelopmentisdrivenbycompanies’heavyinvestmentinR&DaswellasbytheexpectationsofthesophisticatedcustomersintheSouthKoreanmarket.Thiscreatesanidealplatformforbeautybrandstocreateandtesttheirinnovations,includingformulas,ingredientsandmanufacturingprocesses.

K-beautybrandsalsohaveashorterproductdevelopmentcyclecomparedwiththeinternationalplayers,respondingmorequicklytoevolvingconsumerdemandsandthereforeremainingrelevant.SouthKoreanbrandshavebeenleveragingthegrowinginfluenceofdigitalmediatoengagewithcustomers,too,whilecapturingtheopportunitiesbroughtforwardfromtheK-beautywave.Manyofthesebrandswerealsoquicktoadoptin-storetechnologies,someofwhichareonparwith,ormoreeffectivethan,thosedevelopedbyinternationalbeautybrands.

AnumberofK-beautystartupshaveemergedthathavecreatedinnovativeproductsusingthelatesttechnologiesandhavemadetheirproductsavailableoverseasthroughe-commerce.

12) InteractiveTechnologyAreaShowcasedtheLatestInnovationsinBeautyOntheCosmoproftradeshowfloor,therewasanareadedicatedtointeractivetechnology.Someofthenotabledemonstrationswesawtherewere:HiMirror:Thissmartmirrorconductsin-depth,at-homeanalysisofusers’skinconditions.Thedevicecantrackredness,hydrationlevel,darkspotsandwrinklesovertime.Userscanusetheanalysistounderstandtheeffectoftheirskincareproductsandadjusttheirskincareregimenaccordingly.Inadditiontoskinconditionanalysis,theconnecteddevicealsodoublesasasmartmakeuptutorandamusicplayer.

Source:FungGlobalRetail&Technology

13

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Raise3D:This3D-printermakerprovideshigh-qualitydesktop-size3Dprintersthatsmallandmedium-sizedbeautybrandscanusetomakeprototypesofpackagingfasterthantheycanusingfactorysamples.Thesizeoftheprintersandtheiraffordablepricesenablesmallerbrandstoinvestin3Dtechnologyinordertoimprovetheirspeedtomarket.

13) On-DemandStartupsAreDisruptingtheBeautyIndustry

On-demandbeautyservicesappshaveprovidedconsumersamoreconvenientalternativetobookingappointmentsatindividualsalons.Thebeautyservicesindustryisfragmented,withmanyindependentsalonsandstylistsandalackoftransparencyregardingpricingandconsistencyofquality.Itisalsodifficultforconsumerstofitbeautyservicesintotheirbusyschedules.Threeon-demandbeautyservicesplatformshaveattemptedtosolvetheseproblems:

StyleBee:Thisplatformenablesclientstobookprofessionalbeautyservicesattheirhomeoroffice.Theplatformhasanetworkofvettedbeautyprofessionalswhocanprovideservices24/7ataclient’slocationofchoice.StyleBeemaintainsconsistentpricingforitsservices,whichrangefromblowoutstohaircutstomakeupapplications.ThecompanycurrentlyservesSanFrancisco,LosAngelesandLasVegas.

ShearShare:Thisplatformenableslicensedbarbersandcosmetologiststorentspacebyappointmentatestablishedsalons.Itprovidesflexibilityforindependentstyliststobooktemporarysalonspaceandhelpssalonstomonetizetheirexcessspace.Theplatformhasconnectedsalonownersto1millionstyliststofillemptysalonspaceondemand.

BellaonDemand:Thisluxurybeautyappbringsbeautyservicestoclientswhereverthoseclientsare.Sinceitslaunchin2014,BellaonDemandhasexpandedto11countriesanditsnetworknowincludes1,200stylists.Thestartuphasalsopartneredwithbeautybrandsandretailerstobringproductsforsaletoclientsduringappointments.Theconversionratesforsuchbeautyproductsaresignificantlyhigheronceclientshaveseenthestylistsapplythem.

14) Eco-FriendlyandOrganicProductsWerePrevalentatCosmoprofTheheavypresenceofeco-friendlyandorganicproductsatCosmoprofdemonstratesthattheyarenotafadthatisgoingawayanytimesoon.Therewasacuratedareacalled“DiscoveryGreen”onthetradeshowfloorthatwasdedicatedtomorethan50eco-friendly,organicbeautyandall-naturalcompanies.Somenotablecompaniesthatexhibitedwere:

Source:FungGlobalRetail&Technology

14

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Source:FungGlobalRetail&Technology

Feather&Bone:Aholisticwellnesscompanythatsellsuniquebeautycaresolutionsthroughbothproductandeducation,Feather&Bonelaunchedin2015.Itsfirstproduct,FaceGems,isasingle-use,portabletabletfacialcleansermadefromonlythreeingredients—starch,clayandsandalwood.

EmaniVeganCosmetics:Thiscompanymakescolorcosmeticsusingonlyveganingredientsandsellsthematmass-marketprices.Itsproductsappealtovegansandvegetarianswhowanttoextendtheirlifestylebeyonddiet.Emani’sproductsarecurrentlyavailablethroughitsdirect-to-consumerwebsite,onAmazonandatTarget.

15) BeautyServicesCanChangetheBrick-and-MortarExperienceWhentouringtheshowfloor,wenoticedthattheareafocusedonbeautyservicesgeneratedmuchinterestamongothershowattendees.Theareafeaturedabarbershopaswellasvendorswhoprovidedeyelashextensions,makeupapplication,women’shairstylingandbraiding,nailartandskincare.Forretailerslookingtoenhancethein-storeexperienceandcombatweaktraffic,beautyservicescouldprovideareasonforconsumerstovisitstores.Suchbeautyservicessupportourviewthatstorescanserveasamoregeneralplatform,providingone-stopshoppingandaddedconvenience.Thesekindsofservicescanalsogiveretailersaccesstonewcustomergroupsthattraditionallyhavenotvisitedtheirstores.UltaBeauty,forexample,hasseensuccessthroughthiskindofinitiativebyaddinghairsalonsinitsretaillocations.

BonusTrend:Big-BoxRetailersAreActivelyEngagedwithIndieBeautyBrandsBig-boxretailersareactivelyadaptingtotheworldofindiebeautybrandsbybuildingstand-alone,brandedonlinechannelstoofferindiebeautyproducts.Insomecases,theyaredoingsoattheexpenseofbuildingtheirownbeautybrandsandtheirbig-boxretaileridentities.Forexample,TargetownsandmerchandisesDermStore,anindiebrandstartedbydermatologiststhatwasoriginallyitsown,separatesite.

15

July13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comShoshanaPollackSeniorAnalyst

JingWangResearchAssociate

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242–246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017

FungGlobalRetailTech.com