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January18,2017

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

Top 10 Takeaways from the NRF Retail’s Big Show Day 3: Beyond Technology, Changes in Human Behavior are Driving Changes in Retail

1) OnTuesday,January17,weattendedthethirdandfinaldayoftheNationalRetailFederation(NRF)Retail’sBigShow2017.Asonthepreviousdayoftheshow,theincomingpresidentialadministrationwasamajortopicofdiscussion,withpresentersandattendeesanalyzingthepotentialimpactoftax-policychanges.

2) WilliamDudley,PresidentandCEOoftheFederalReserveBankofNewYork,notedthestrongcorrelationbetweenhousingmarketperformanceandconsumerspending:whenhomeequityisrising,homeownerstendtotapintothewealthtofundtheirconsumerspending.DudleyisoptimisticaboutthestateoftheUSeconomyandsaidthatitisin“quitegoodshape,”citingstronggrowthinthelabormarket,wagegrowthandareasonableinflationlevel.

3) Technologywasahottopicofdiscussion,butpresentersnotedthatitalonewillnotsolvethechallengesretailersarefacing.Retailersstillneedtolistentotheircustomers,astheywillbevocalabouttheirneedsandwants.

4) Afewbuzzwordsweheardthroughoutthedaywere“storytelling,”“content”and“innovation.”Manydiscussionsthatincludedthesewordsfocusedontheideathatretailersneedtochangetheirwayofthinking.OneofthemostinsightfulthingsweheardwasfromdesignerRebeccaMinkoff,whosaidthathercompanypaysattentiontochangesinhumanbehaviorandworkstounderstandtheimpactofthosechangesonbothitsownbusinessandretailoverall.Shecitedtheselfieculturechangingthewaypeopleshopasanexample.

5) Theretaillandscapemaylookdifferentinthefuture,asanumberoflargerretailershaveseensignificantdeclinesinrecentyears.Asconsumersembracespecialistsanddifferentiation,therewilllikelybefewerverylargebrandsandmoresmallandmidsizebrands.

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January18,2017

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

Tuesday,January17,wasthethirdandfinaldayoftheNRFRetail’sBigShow2017,andmembersoftheFungGlobalRetail&Technologyteamattendedconferencesessions,metwithretailersandwalkedtheshowfloor.Below,weprovideourtop10takeawaysfromthefinaldayoftheshow.

1. TheHousingMarketHasaStrongImpactonConsumptionintheUSWilliamDudley,PresidentandCEOoftheFederalReserveBankofNewYork,notedthestrongcorrelationbetweenhousingmarketperformanceandconsumerspending:whenhomeequityisrising,homeownerstendtotapintothewealthtofundtheirconsumerspending.

Dudleynotedthat,inthewakeoftheGreatRecession,USconsumershavenotbeenborrowingagainsttheirrisinghomeequityliketheydidpriorto2008,insteadusingtheirgrowingincometopaydowndebt.Therehasbeenanestimated$300billionlessinhome-equityconsumerfinancing,whichhashinderedgrowthinconsumerspendingdespiteastrongmacroeconomicbackdrop.Dudleynotedthatthesustainedeconomicrecoverycouldboostconsumers’confidence,encouragingthemtotapinto$200billionworthofhome-equity-backedfinancinginordertosupporttheirspending.HepointedouttheneedfortheincomingadministrationtoreformtheUStaxsystem,butsaidtheproposedbordertaxwouldbringadrasticchangefortheretailindustry.DudleysaidthattherisingvalueoftheUSdollarisnotlikelytooffsettheexpectedincreaseinimportedtaxes.HeisoptimisticaboutthestateoftheUSeconomyandsaiditisin“quitegoodshape,”citingstronggrowthinthelabormarket,wagegrowthandareasonableinflationlevel.

2. RebeccaMinkoffonthePulseofChangeinHumanBehaviorDesignerRebeccaMinkoffsayshercompanyviewseverythingitdoesthroughthedigitalandtechnologylens,butthatthecompanystillfeelsstronglyaboutthein-storeretailexperience.Shesaysthebrandhasitsfingeronthepulseofhumanbehaviorandhowchangesinbehavioralpatternswillaffectretail.Thecompanyfocusesonexperientialretail,incorporatingtechnologyintostoresandworkingtomakecustomersfeellikepartofacommunitywithinthestore.Forexample,thecompanyhostseventsandseminarsinwhichaccomplishedwomeninvariousfieldsspeakabouttheirexperiences.Theeventsarefree,andattendeesmayormaynotendupshopping,buttheywillassociatetheexperiencewiththebrand.

Source:FungGlobalRetail&Technology

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January18,2017

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

3. RebeccaMinkoffandUriMinkoffLaunchFashionTechVentureCapitalFundMinkoffandherbrotherUriMinkoff,whoisthecompany’sCEOandCofounder,feelsostronglyabouttechnology’sroleinretailandfashionthattheyrecentlylaunchedadomesticfashiontechventurecapitalfundinpartnershipwithPedroTorres-Mackie,founderofQuotidianVentures.Thefundwillfocusonsixtoeightearly-stageinvestmentsperyear.Thefund’sfirstinvestmentisin42Technologies,whichturnsrawpoint-of-saledataintoactionableinsightsforbrick-and-mortarbusinesses.UriMinkoffsaidthatothertechnologies,suchasvirtualreality(VR),augmentedreality(AR)andartificialintelligence(AI),willbemeaningfuloverthenextseveralyears,notingthatthecompanyfilmeditslatestfashionshowinvirtualreality.

4. MarxentProvidesBothARandVRToolsforHomeFurnishingsRetailMarxentprovidesAR,VRandsmart-displaytoolsthatenableconsumerstovisualizefurnitureandhomeappliancesinthestore,ratherthanonatabletorsmartphone.StorevisitorscanuseVRgogglesoratablettovisualizeavarietyofappliances,furnitureandhomefurnishingsonlargetouchscreendisplays.Storevisitorscanalsoenterthedimensionsoftheirlivingspaceintothetoolinordertovisualizehowthespacewouldlookwithacompletesetoffurnishings.Theplatformcontainsalargelibraryofstoreditems,allowingshopperstoseeawiderrangeoffurnishingsthanwouldnormallybeavailableinaphysicalstore.ThebenefitforretailersisthatMarxent’stoolsofferabetter,morecontrolledexperiencethatdrawscustomersintothestore,enablinghigherconversionrates.

Source:FungGlobalRetail&Technology

5. WomenAreLeadingtheNextGenerationofWearablesAswearablesmovebeyondthesmartwatch,womenareaddingtheiraestheticsensibilitiesanddesignknow-howtowearabletech.Asfashionandtechnologyarecombinedinwearables,fashionanddesignneedtocomefirst,beforetechnologyisincorporated,RebeccaMinkoffsaid.Womencanofferauniqueperspectiveonthedesignofthesedevices,sincetheyareoftentheconsumersoftheseitemsandknowwhatotherwomenwant.Newwearablesdesignedbywomenrangefromjewelrythatworksinconjunctionwithasmartphonetoalert

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January18,2017

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

thewearerofimportantmessagesandeventstoawearablebowtiefordogsthattracksapet’smovementsandactivityduringtheday.

6. RetailersNeedtoChangeTheirWayofThinkingAfewbuzzwordsweheardthroughoutthedaywere“storytelling,”“content”and“innovation.”Manydiscussionsthatincludedthesewordsfocusedontheideathatretailersneedtochangetheirwayofthinkingandmasteranewsetofskills.Mostintheindustryseemtoagreethatthebestshoppersshopacrosschannels:thequestionnowishowtocreateagoodexperiencethatgoesbeyondconvenience,whileprovidingmeaning,forthosemultichannelshoppers.Retailersneedtochangenotonlywheretheyreachconsumers,butalsowhichconsumerstheyreachandhowtheyreachthem.Thatwillinvolveinnovationandcollaboration.

Source:FungGlobalRetail&Technology

7. ThereWillBeFewerLargeRetailersandBrandsintheFutureInthepast,consumershavepreferredaone-stopapproachtoshopping.Now,theirneedsaremoresegmentedinallareasoftheirlives:peopleprefertogettheirsportsnewsfromsportsexpertsandtheirfinancialnewsfromfinancialexperts,forexample,ratherthangettingalltheirnewsfromonesource.Inretail,wethinkthatphenomenonispartofwhydepartmentstoreshavestruggledandcontinueto.Theyarenolongerexpertsinanyparticulararea,nordotheyofferastrongpointofview.Wethinkthatinthefuture,therewillbemanymoresmallandmidsizeretailers.Thisalsocoincideswiththecurrentsentimentthatbigistheoppositeofcool.Itisverydifficultformajorretailersandbrandstomaintainahighlevelofcachet.

8. E-CommerceIsthePrimaryOpportunitytoEntertheChineseRetailMarketChinaissettobecometheworld’slargestretailmarket,withoneofthehigheste-commercepenetrationratesintheworld.FrankLavin,FounderandCEOofExportNow,saystheChinesemarketistheprimaryopportunityforglobalretailersduetotheeaseofentryviae-commerceandthecriticalmassofthemarket.DanielArmstrong,BusinessManagerofUKandInternationalGrowthatWaitrose,sharedhowWaitrosesuccessfullyenteredtheChinesemarketviaAlibaba’sTmallGlobalbrandedplatform.IttookWaitroseonlyfourmonthstosetupitsstoreonTmallGlobal,whereasitwouldhavetakenityearstolaunchinChinaviabrick-and-mortar.Armstrongalsonotedthate-commerceplatformsarepreferredoverindependentsitesinChina,andherecommendedthat

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January18,2017

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

retailersjoinleadingshoppingplatformssuchasTmallGlobalandJD.com.LavinandArmstrongbothremindedtheaudiencethatChineseconsumersputgreatemphasisonproductauthenticity.ProductinformationandimageryonChinesee-commerceplatformsaremuchmoreextensivethantheyareonWesternwebsites.

Source:FungGlobalRetail&Technology

9. GlobalRetailCEOs’ConfidenceHasImprovedfor2017AccordingtoanannualsurveyofglobalCEOsconductedbyJDAandPwC,the350globalretailCEOssurveyedareremarkablybullishabout2017andareconvincedthate-commercewillbetheprimarydriveroftheretailindustry.Chinaisaparticularlybrightspot;itsgrowthtrajectoryforbothonlineandofflinechannelsisexpectedtobesignificant.

JoeJensen,ManageratIntel,sharedhisviewofhowthee-commerceshoppingexperiencecouldevolveandtalkedaboutthebiggestchallengesretailersface.Jensensaidthat40millionUShouseholdswillhaveVRgoggleswithin18monthsandthatVRcommercecouldsignificantlyenhancethee-commerceshoppingexperienceanddrivemoreonlinesales.Healsonotedthatinventorymismanagement,fulfillmentandrisinglaborcostsaresomeofthebiggestchallengescitedbytheretailCEOswhoweresurveyedbyJDA/PwCabouttheirbusinessesin2017.Jensennotedthatthecostofretailers’inventorymismanagementproblemisoutgrowingtheirtechnologyspendingtosolvetheproblem.In2016,inventorymismanagementnegativelyimpactedtheglobalretailindustryby$1.2trillion.

10. RetailTechnologyStartupsSettoChallengetheIndustryStatusQuoFourretailtechnologystartupsfromtheXRCLabsacceleratorprogramsharedtheirlatestinnovationsattheshow.PerseusMirrorsmakesaconnectedmirrorthatenablespeopletomanagetheirday-to-daylife,includingtheirshoppingagenda,throughavoice-commandsystem.Strypesempowersconsumerstodesigntheirownproductusingafoolproofplatform.BanterisanAI-poweredmessagingsystemthatmakescustomerservicemorepersonal.ShopShopsisacross-borderonline-to-offlineapplicationthatconnectsbrick-and-mortarstoresintheUSwithChineseshoppers.

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January18,2017

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.comJohnHarmonSeniorAnalyst

ShoshanaPollackSeniorResearchAssociate

JingWangResearchAssociate

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