US 2016 HOLIDAY

HOMESTRETCH: Performance

to Date Bodes Well for Holiday

1

Shoshana PollackSenior Research Associate FUNG GLOBAL RETAIL & TECHNOLOGYDECEMBER 15, 2016

Agenda

2

11. Sales by Region: Thanksgiving Day Through Cyber Monday

12. With the Bulk of Major Shopping Days Still Ahead, Expect a Last-Minute Rush of Holiday Shoppers

13. Post–Black Friday Drop-Off in Traffic Seen in Last Few Weeks Is Normal

14. Online Traffic Remained Strong in Early December Despite Expected Post–Black Friday Drop-Off

15. Holiday Promotions Generally Consistent with Last Year, Not as Deep as Black Friday’s

16. Retailers Should Take a Holistic View of Consumers to Be Successful

17. Holiday Themes: Fashion Trends

18. Positive Holiday Calendar

19. Favorable Macro Backdrop

1. Holiday Homestretch: Performance to Date Bodes Well for Holiday

2. Holiday Shopping Season Lengthened

3. Some Retailers Shut their Doors on Thanksgiving

4. Thanksgiving/Black Friday Store Traffic Declined Modestly, but Showed Improvement over Recent Years

5. Black Friday Online Sales Hit Record, Mobile Drove Growth

6. Comments from Retailers on Black Friday Results

7. Cyber Monday Set Online Sales Record

8. Amazon Won Cyber Weekend Again

9. Thanksgiving Weekend: E-Commerce’s Share of Holiday Spending Increased

10. Cyber Monday Becomes Cyber Week

1. Holiday Homestretch: Performance to Date Bodes Well for Holiday

Based on data for holiday sales, we are optimistic about our 3%–4% growth forecast:

• Thanksgiving and Black Friday generated sales of $5.27 billion in online sales, up 17.1% year over year, according to Adobe

• Black Friday set a new record of $3.34 billion in online sales, surpassing $3 billion for the first time and up 21% year over year, according to Adobe

• Cyber Monday sales totaled $3.45 billion in online sales, up 12.1% from last year, according to Adobe

• Other positive factors include a favorable macro backdrop, favorable calendar and a favorable weather forecast, as well as number of hot products

3

Online Retail Sales for the US Holiday Season(USD Bil.)

*Cyber Monday 2016 is a forecastSource: Atlas/Adobe

2013 2014 2015 2016

Thanksgiving Black Friday Cyber Monday*

1.1

1.92.3

1.3

2.42.7

1.7

2.73.1

1.9

3.3 3.4

$529

$554$569

$585

$608

$626

$645–$651

5.2%%

4.6%

2.7% 2.7%

4.1%

3.2%3%–4%

0%

2%

4%

6%

8%

10%

$400

$450

$500

$550

$600

$650

$700

2010 2011 2012 2013 2014 2015 2016E

Gro

wth

Rate

Ho

liday

Ret

ail S

ales

(U

SD B

il.)

Holiday Retail Sales Growth Rate

Source: National Retail Federation (NRF)/Fung Global Retail & Technology

4

1. Holiday Homestretch: Optimistic About Holiday Sales Forecast of 3%–4% Growth

2. Holiday Shopping Season LengthenedShoppers are spreading out their spending, and retailers got a head start on offering Black Friday deals this year

Retailers promoted holiday deals earlier and

at a greater extent than last year

• Amazon, Walmart, Best Buy and Target rolled

out early-bird online specials on November 1

• Retailers expanded their mobile messaging two

weeks before Thanksgiving

The days leading up to Thanksgiving captured

more holiday sales than last year

• Wednesday before Thanksgiving: Sales

increased by 10.4% year over year, according to

First Data

• E-commerce traffic was up 15% the weekend

before Thanksgiving, according to Verizon

2016 Sales Growth: Days Preceding Thanksgiving

Source: First Data

12%

7%8%

10%

0%

4%

8%

12%

16%

20%

Sunday,11/20

Monday,11/21

Tuesday,11/22

Wednesday,11/23

3. Some Retailers Shut their Doors on Thanksgiving

6

-11%

-11%

-10%

-7%

-8%

-10%

-10%

-11%

-16%

-15%

-10%

-9%

-50% -30% -10% 10% 30% 50%

22:00

20:00

18:00

16:00

14:00

12:00

10:00

8:00

6:00

4:00

2:00

0:00

7.5%

6.4%

5.5%

-2.5%

1.6%

2.2%

0.8%

-6.7%

-14.5%

-30.7%

-30.0%

-2.4%

-55% -35% -15% 5% 25% 45%

22:00

20:00

18:00

16:00

14:00

12:00

10:00

8:00

6:00

4:00

2:00

0:00Many retailers either did not open on Thanksgiving or opened much laterthan in 2015

This drove huge declines in traffic

Many merchants that did open waited until 6:00 p.m. to do so; by then, consumers were ready to shop

Percent Change in Number of Merchants Open on Thanksgiving Day 2016 vs. 2015

Percent Change in Brick-and-Mortar Transactions on Thanksgiving Day 2016 vs. Last Thanksgiving

On Thanksgiving Day, there were approximately 10% fewer merchants open than last year, which reduced traffic. In-store traffic was down Thanksgiving evening, according to ShopperTrak.

Source: First Data

4. Thanksgiving/Black Friday Store Traffic Declined Modestly but Showed Improvement over Recent Years

• In-store traffic declined modestly, but was higher than in past years

• Thanksgiving/Black Friday traffic was down 1% year over year, according to ShopperTrak

• Thanksgiving/Black Friday traffic was down 4.4% year over year, according to RetailNext

7

Source: RetailNext

-16.0%

-12.0%

-8.0%

-4.0%

0.0%

2014 2015 2016

Store Traffic In-store Sales

Improving Traffic Trend

5. Black Friday Online Sales Hit Record, Mobile Drove Growth

Black Friday online sales were up 21.6%

year over year, to $3.34 billion

• The total exceeded Adobe’s projection of

$3.05 billion

• Shoppers saw twice as many price drops on

Black Friday as on Cyber Monday

Mobile sales revenue was $1.2 billion, up

33% from last year

• Mobile drove retail website visits: 56% of

visits came from mobile

• Desktop purchases represented the majority

of US online sales, accounting for 64% of

revenue

US: Online Retail Sales on Black Friday (USD Bil.)

$1.9

$2.4$2.7

$3.3

$0

$1

$2

$3

$4

2013 2014 2015 2016

Black Friday sales inched closer to Cyber Monday’s totals

Source: Altas/Adobe

6. Comments from Retailers on Black Friday Results

Thanksgiving Day has become one of the busiest mobile shopping days for Amazon. US mobile orders on Thanksgiving Day 2016 exceeded those of Thanksgiving and Cyber Monday combined in 2015. Amazon said it is on pace to surpass the number of items sold last year and that Alexa devices are among its best-sellers.

JCPenney said the appliance category was strong and that it had a good start to Black Friday, with record mobile traffic and sales.

Kohl’s set a record for online sales on Thanksgiving. The retailer made many Black Friday deals available online before its stores opened.

Macy’s reported strong traffic at its Herald Square flagship location in New York City and said that more than 16,000 people were waiting outside before the store opened.

Target reported that Black Friday was Target.com’s biggest day ever and that it saw double-digit online growth that day. In-store traffic was strong as well.

Thanksgiving Day was once again one of Walmart’s top online shopping days of the year. Mobile drove more than 70% of online Black Friday traffic for the retailer.

7. Cyber Monday Set Online Sales RecordCyber Monday was the biggest day in the history of US e-commerce; the record sales were driven by mobile shopping and major promotions

Cyber Monday sales increased by 12.1% year

over year, to $3.45 billion, according to Adobe

• Average order volume was up 5% versus last

year, according to Dynamic Action

Mobile shopping revenue reached $1.07

billion, up 34% from last year, according to

Adobe

• In contrast to Black Friday and Thanksgiving,

desktop traffic accounted for more than half of

shopper visits on Cyber Monday

Mobile Shopping Sales (USD Mil.) 2016 2015

YoY % Change

Thanksgiving Day $449 $184 59%

Black Friday $1,200 $900 33%

Cyber Monday $1,070 $706 34%

Source: Altas/Adobe

8. Amazon Won Cyber Weekend Again

Amazon accounted for 30.9% of total

online revenue from Black Friday

through Cyber Monday

According to Slice Intelligence,

emerging e-commerce players gained

steam on Cyber Monday:

• Jet.com: 190% YoY growth in

online traffic

• Wish: 101% YoY growth in

online traffic

• Wayfair: 80% YoY growth in

online traffic

Selected Retailers’ Share of Online Revenue During Cyber Weekend

Amazon once again ranked as the most-visited online retailer on Cyber Monday

1.2%

1.5%

2.5%

2.7%

3.2%

4.1%

4.4%

7.4%

30.9%

1.1%

0.9%

2.7%

2.3%

3.4%

5.1%

4.3%

6.1%

31.1%

0% 5% 10% 15% 20% 25% 30% 35%

Home Depot

Apple

Nordstrom

Kohl's

Macy's

Walmart

Target

Best Buy

Amazon

2015 2016

Source: Slice Intelligence

9. Thanksgiving Weekend: E-Commerce’s Share of Holiday Spending Increased

Online Share of Holiday Spending, Thanksgiving–Black Friday Weekend

87.2% 85.5% 81.0%

12.8% 14.5% 19.0%

2014 2015 2016

E-Comm Brick & Mortar

E-commerce’s share of holiday spending was up over Thanksgiving weekend, representing 19% of total retail sales compared with 14.5% last year, according to First Data.

• Shoppers spent $5.27 billion online on Thursday and Friday of Thanksgiving weekend, up 17.7% from the two-day period last year, according to Adobe. Over the Thanksgiving Day–Cyber Monday period, shoppers spent $12.91 billion online, up 15.2%, Adobe estimates.

• Shopper visits to brick-and-mortar stores declined by an estimated 1% over the two-day Thanksgiving–Black Friday period, according to ShopperTrak. Black Friday shopper visits were flat versus last year, and Thanksgiving evening visits were down versus last year.

Source: First Data

10. Cyber Monday Becomes Cyber Week

Cyber Monday Becomes Cyber Week

• About 47% of Cyber Monday deals were extended

throughout the week (DealNews.com)

• Example: December 5 brought in $1.94 billion in online

revenue this year, up 9% from 2015 (Adobe)

• Online deals were extended throughout November and

December

Amazon, Walmart, Macy’s and Target all offered Cyber

Week deals

• Amazon began 12 days of deal promotions on December 7

• For the first time ever, Walmart kicked off its Cyber

Monday deals at 12:01 a.m., EST, on the Friday before

• Macy’s extended its Cyber Monday offers through

Wednesday

Cyber Monday 2016 was the biggest day in the history of US e-commerce

11. Sales by Region: Thanksgiving Day Through Cyber Monday • Brick-and-mortar sales were strongest in the West. The region saw 6.3% retail sales growth,

despite initial predictions that the East Coast would benefit from colder weather

• Middle Atlantic: brick-and-mortar sales were up 2.4% YoY

• New England: brick-and-mortar sales were up 3.2% YoY

14

Source: First Data

NEW ENGLAND3.2%

MIDDLE ATLANTIC2.4%

MIDWEST3.0%

SOUTH4.3%

WEST6.3%

SOUTHWEST4.4%

12. With the Bulk of Major Shopping Days Still Ahead, Expect a Last-Minute Rush of Holiday Shoppers

15

2016: Five Biggest Shopping Days

(Projected, Sales)

2016: Five Busiest Shopping

Days (Projected, Shopper Visits)

1. Friday, December 23 1. Saturday, December 17

2. Saturday, December 17 2. Black Friday, November 25

3. Black Friday, November 25 3. Friday, December 23

4. Thursday, December 22 4. Saturday, December 10

5. Wednesday, December 21 5. Monday, December 26

Source: RetailNext

• Four out of five of the biggest shopping days still ahead

• Friday, December 23, is set to be the biggest shopping day of the season

– That Friday is the day before Chanukah begins and two days before Christmas

• We expect a last-minute rush of shoppers who have procrastinated

13. Post–Black Friday Drop-Off in Traffic Seen in Last Few Weeks Is Normal

16

• While in-store traffic has moderated a bit, the decline does not seem as dramatic as in years past, based on our store visits

• In addition, our store visits confirmed that retailers have planned their inventories more conservatively than last year

14. Online Traffic Remained Strong in Early December, Despite Expected Post–Black Friday Drop-Off

17

Online traffic remained strong in early December:

• Over the December 3–4 weekend, online traffic was up 4% on Saturday and 10% on Sunday year over year (Verizon Enterprise Solutions)

– Extended Cyber Monday sales drove the increase

– According to Slice Intelligence, Amazon accounted for 38% of online holiday spending in the week following the Thanksgiving/Black Friday shopping weekend

Free Shipping Day (December 16), which guarantees delivery by Christmas Eve, is likely to draw last-minute online shoppers

Overall, online sales are expected to increase by up to 10%, to $117 billion, during the holiday season (NRF)

15. Holiday Promotions Generally Consistent with Last Year, Not as Deep as Black Friday’s

18

Retailers are pulling back their Black Friday promotions in December:

• J.Crew shifted to 30% off from 40% off

• Abercrombie & Fitch dropped to 30% off from

50% off

• Ann Taylor dropped from 50% off to 40% off

However, retailers offered compelling promotions on Green Monday (December 12), also known as “Cyber Monday II”

• Ann Taylor Loft offered 40% off on Green

Monday, compared with 50% off on Cyber

Monday

• Wayfair.com offered 70% off certain items, the

same discount that it offered on Cyber Monday

• On both Cyber Monday and Green Monday,

Amazon offered the same sale on the Fire Tablet

and the Amazon Tap

Selected Retailers: Post–Black Friday to Mid-December Promotional Level

Compared with Last Year

Flat

Higher Lower

16. Holiday Themes: Retailers Should Take a Holistic View of Consumers to Be Successful

19

• Brands should effectively converge the digital and physical channels to deliver a single, seamless shopping experience that includes click-and-collect, ship to store and improved mobile shopping

• Retailers are increasingly making available online the type of doorbuster deals typically reserved for stores

Kohl’s: Improved its mobile experience; app engagement rose by 70% YoY on Black Friday

• Improved in-store service for online orders: nearly 40% of Kohls.com orders are fulfilled through buy online, pick up from store/ship from store

Walmart: Increased inventory available for online purchase and increased Black Friday online deals

• The company offered 50% more Black Friday merchandise online

Target: Offered Cyber Monday deals in-store this year

• The company increased the in-store pickup area for e-commerce orders, and doubled the number of stores offering pickup service (1,000)

Toys “R” Us: Increased its capacity to ship items; the company will be able to ship nearly twice as many units from its stores this holiday season

• Nearly all 870 stores are capable of shipping online orders

17. Holiday Themes: Fashion Trends

Standout fashion trends for the 2016 holiday season:

20

Source: Urban Outfitters

Yeezy Boost by Kanye WestSource: Adidas

Season of Sparkle SetSource: Ulta

Mila bootsSource: Chloe

Beauty - Ulta, Sephora

Boots and booties Denim - Embroidered denim

Sneakers - Puma, Adidas, celebrity tie-ins

18. Positive Holiday Calendar

• There are two extra days between Thanksgiving and Christmas this year: 31 days compared with 29 last year

• Super Saturday (December 17) is expected to be the second-biggest shopping day of the year

• Shoppers will also take advantage of Free Shipping Day (December 16), which guarantees delivery by Christmas Eve

• Christmas Eve and the first day of Chanukah fall on the same day this year, so holiday gift purchases will get an extra boost ahead of December 25

21

Election Day

Singles’ Day

Thanksgiving

Black Friday

Cyber Monday

Giving Tuesday

Green Monday

Chanukah (Sundown–Sundown, Dec 24–Jan 1)

Super Saturday

Christmas

19. Favorable Macro Backdrop

22

Source: US Energy Information Administration/International Monetary Fund/Rhodium Group

A solid job market, relatively low gas prices and improving wages suggest that the economy has sustained its strong momentum from early in the fourth quarter—which is a positive sign for the holiday shopping season

The US unemployment rate was 4.6% in November, 40bps lower than in November 2015

Home prices continued to rise moderately in November, supported by low mortgage rates and a shortage of supply

Private sector wages rose by 2.5% year over year in November

Consumer confidence hit 93.8 in November, up 2.7% year over year

Indicator Period 2016 2015YoY %

Change Impact on

Consumption

Gas Price (USD per Gallon) Nov $2.16 $2.10 2.9% –

University of Michigan Index of Consumer Sentiment

Nov 93.8 91.3 2.7% +

Unemployment Rate Nov 4.6% 5.0% (40) bps +

Average Hourly Wages Nov $25.89 $25.16 2.5% +

S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index

Sep 191.78 182.52 5.5% +

US Housing Starts Oct 132,300 101,474 23.3% +

Source: US Bureau of Labor Statistics/US Energy Information Administration/US Bureau of Economic Analysis/S&P Dow Jones/University of Michigan

23

19. Favorable Macro Backdrop

19. Favorable Macro Backdrop: Gasoline Prices Were the Second-

Lowest Since 2008 During Thanksgiving Weekend

Gasoline prices averaged $2.16 per gallon over November, up 2.9%, or 6 cents per gallon, from the year-ago period

• Prices increased by 1.9%, or 4 cents per gallon, from October

Still, the average price on Thanksgiving Weekend was the second lowest since 2008

• Over Thanksgiving, 48.7 million people traveled 50 miles or more, 1 million more than last year and the most since 2007 (AAA)

Looking ahead: gas prices to rise

• OPEC’s deal to decrease production will result in higher gas prices

24

Through November 30, 2016Source: US Energy Information Administration

US Retail Gasoline Prices (USD per Gal.)

$2.16

$1.00

$1.50

$2.00

$2.50

$3.00

Nov 14 May 15 Nov 15 May 16 Nov 16

19. Favorable Macro Backdrop: Consumer Confidence Rises to

Six-Month High

The University of Michigan Index of Consumer Sentiment hit 93.8 in November, up 5% from September and up 2.7% YoY

• The reading was above the market’s expectation of 91.6

Confidence edged upward due to attitudes about:

1. Personal finances

2. Inflation

3. Unemployment

4. Government policies

5. Interest rates

25

Source: University of Michigan

University of Michigan Index of Consumer Sentiment

93.8

50

70

90

110

06 07 08 09 10 11 12 13 14 15 16

19. Favorable Macro Backdrop: Labor Market Stands Firm,

Jobless Rate Falls to Nine-Year Low and Payrolls Rise

The US unemployment rate was 4.6% in November, down from 4.9% in October and 5.0% in the year-ago period:

• The decline in unemployment was partly driven by new jobs, offset by a 0.1% decline (62.7%) in labor force participation

Sector growth:

• Construction, professional/business services and healthcare grew

• Retail sector jobs declined for the second straight month, reflecting a shift toward online shopping

Payrolls grew by 178,000

26

Through November 30, 2016Source: US Bureau of Labor Statistics

US Unemployment Rate

4.6%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Nov 10 Nov 11 Nov 12 Nov 13 Nov 14 Nov 15 Nov 16

19. Favorable Macro Backdrop: Wages Continue to Advance

Following Large Gains

Average hourly earnings fell by 0.1% over November, but were up 2.5% year over year

• Wages increased by 2.8% year over year in October

• This was the largest increase since June 2009

Looking ahead: further tightening of labor market

• This will support stronger wage growth in the months ahead

27

Through November 30, 2016Source: US Bureau of Labor Statistics

Average Hourly Earnings (YoY % Change)

2.5%

1.5%

2.0%

2.5%

3.0%

Nov 10 Nov 11 Nov 12 Nov 13 Nov 14 Nov 15 Nov 16

19. Favorable Macro Backdrop: US Housing Starts Surge to

Nine-Year High

• Housing starts surged to a high not seen in more than nine years in October as builders ramped up construction of both single-family and multifamily homes

• US housing starts in October reached 132,300 (annualized), spiking by 25.5% MoM and by 23.3% YoY

• US building permits in October totaled 1,229,000, up 0.3% MoM and up 4.6% YoY

28

Source: US Census Bureau/National Association of Realtors

US: Housing Starts and Building Permits (Seasonally Adjusted Annual Rate, Thous.)

1,323

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16

Housing Starts

1,229

400

600

800

1,000

1,200

1,400

Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16

Building Permits

19. Favorable Macro Backdrop: Home Sales Appear Solid, Decline

Slightly amid Higher Prices

• Home sales appear solid, but are constrained by supply and affordability

• Existing home sales increased by 2.0% month over month in October, to 5.6 million

– This indicates some release of pent-up demand due to tight supply over the summer

• New home sales decreased by 1.9% month over month in October

– The reading came in weaker than the expected drop of 0.5% due to lower affordability

29

5,600

4,000

4,400

4,800

5,200

5,600

6,000

Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16

x 0

.00

1

Existing Home Sales

563

0

150

300

450

600

750

Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16

New Home Sales

US: Existing Home Sales and New Home Sales (Seasonally Adjusted Annual Rate, Thous.)

Source: US Census Bureau/National Association of Realtors

19. Favorable Macro Backdrop: US Retail Sales Inch Up in November

• In November, US retail sales excluding autos were up 0.2% from October, versus expectations for a 0.4% increase. Year over year, sales were up 3.9%.

– Sales at nonstore retailers (such as Amazon, Google and eBay) rose by 11.9% year over year in November

– Department store sales saw the biggest decline in November, down 6.4% year over year, and continuing the recent trend of underperformance

30

Monthly Retail Sales ex Autos Jan 2013–Nov 2016 (YoY % Change)

Monthly Retail Sales ex Autos Dec 2015–Nov 2016 (YoY % Change)

3.9%

3.9%

(10)

(5)

0

5

10

15

03 04 05 06 07 08 09 10 11 12 13 14 15 160

1

2

3

4

Source: US Census Bureau