Weekly Insights by FBIC Global Retail Tech Dec 11 · !1 december 11, 2015...

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December 11, 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, we attended Home Depot’s 2015 Investor and Analyst Conference in Atlanta, Georgia. At the meeting, members of the management team outlined the company’s goals, which should sustain growth and lead to higher profitability over the next three years.

l There are 174 million smart homes in existence this year, according to a new report from Gartner, which is expected to nearly double to 339 million next year. Top consumer applications are smart TVs, set-‐top boxes, light bulbs and various automation tools.

l According to IDC, Fitbit shipped 4.7 million wearable units in Q3, taking 22.2% of the market. Apple shipped 3.9 million units, for an 18.6% share, and Xiaomi shipped 3.7 million units, or a 17.4% share.

l In Brazil, Black Friday retail ecommerce sales grew by 38%, and sales on Cyber Monday increased by 56%, to US $429 million and US $78 million, respectively. Home appliances were the number-‐one category on both days.

D E B O R A H W E I N S W I G 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

December 11, 2015

+5.4% CHART OF THE WEEK

STAT OF THE WEEK

STAT OF THE WEEK

• Seven out of 10 British shoppers will shop at

discounters over the Christmas period (November 20-‐December 26) according to

IGD.

• They are set to spend £20.3 billion on groceries and £1.7 billion of which will be captured by German discounter duo Aldi

and Lidl.

The US Delivered another Strong Job Report in November 7/10

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December 11, 2015


FROM THE DESK OF DEBORAH WEINSWIG

This week, we attended Home Depot’s 2015 Investor and Analyst Conference in Atlanta, Georgia. At the meeting, members of the management team outlined the company’s goals, which should sustain growth and lead to higher profitability over the next three years.

Chairman, President and CEO Craig Menear kicked off the meeting by introducing a strategic framework—called interconnected retail—that should help Home Depot achieve its goal of growing revenues and increasing shareholder returns. The company is targeting approximately $101 billion in revenues by the end of fiscal year 2018 (which ends Feb. 1), which represents a 4.7% CAGR from fiscal year 2015. Management also aims to raise operating margins to 14.5% (from 14.2% in fiscal year 2015) and to raise return on invested capital to 35% (versus a goal of 27% previously).

Menear used a three-‐legged stool as a metaphor for the company’s strategy, which will focus on three areas that should enable it to expand its addressable market: customer experience, product authority and productivity. Whereas Home Depot previously viewed itself as addressing 27% of a $300 billion home-‐improvement market, it is now targeting several adjacent markets, including a $140 billion labor services market, a $60 billion product pull-‐through services market, and a $50 billion maintenance, repair and operations (MRO) market—with the four segments comprising a $550 billion market. Home Depot’s share of this expanded addressable US market currently stands at 15% and should rise to 18% if the company meets its goals.

Customer experience: Home Depot wants to transition from a customer service model to a customer experience model, in which the customer sees a single face of the company in a frictionless and seamless experience, regardless of whether a sale occurs in a brick-‐and-‐mortar store or online.

Product authority: Here, Home Depot plans to continue its leadership in terms of being a product authority for all of its customers, including professionals, do-‐it-‐for-‐me’s and do-‐it-‐yourselfers, and its employees are working to maintain the proper merchandise mix to serve each of these groups. Moreover, the company’s teams are working to bring more science into the art of merchandise selection, striving to understand customer and local preferences. While the Internet reduces the advantage of large-‐store size, it also enables a greater degree of customization. Home Depot is working to improve efficiency, too, in terms of how it moves products from its suppliers to its customers, in order to raise productivity.

Productivity/capital allocation: The company is working to become the low-‐cost provider in its markets by taking a different approach with suppliers, as well as by running more integrated operations that involve more long-‐term planning. By collaborating internally and externally, which management calls an end-‐to-‐end approach, Home Depot can create interconnected retail, which should drive growth and profitability.

Growth agenda: Home Depot sees major areas of growth in serving professionals and in interconnected retail. Professional contractors and services are expected to benefit from demographic changes such as the declining desire of the aging population to do their own home repairs and renovations. This demographic is more likely to seek a professional to perform these tasks for them. The company has realigned its organizational structure to enhance its MRO and installation services businesses. Interconnected retail has two parts. The first refers to growing Home Depot’s online business, which is expected to hit nearly $1 billion this calendar year. The company has invested in a third digital fulfillment center to enable continued growth in the online business.

The second part centers on changing the way the company connects with its customers, including addressing their needs through product innovation. For example, consumers have been enthusiastic purchasers of LED light bulbs, while contractors have shown that they appreciate lightweight building products. These kinds of customer needs are evolving over time as more consumers telecommute and, therefore, want to make their homes smarter.

Finally, growth will be supplemented through expansion in Canada and Mexico. However, management plans to have the discipline to reject expansion, experiments and acquisitions that do not make sense.

We were pleased that Home Depot has a solid game plan for continuing its strong execution and growth over the next three years by expanding into new, adjacent markets and categories, and we look forward to future developments as the company fine-‐tunes its strategy.

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December 11, 2015


The US Delivered another Strong Job Report in November Figure 1. US Unemployment Rate %

• US employers added 211,000 jobs in November, holding the unemployment rate at 5%. The fast job growth pace lifted the yearly average so far to 210,000 jobs.

• The US job market is seeing a full recovery from the Great Recession, having added almost 12 million jobs since 2009; long-‐term unemployment rate has fallen by two thirds since its recent peak in 2010; Hourly earnings grew by 2.3% year-‐over-‐year in November, representing the strongest growth since 2009.

• The strong November job report makes the Fed’s decision to raise the near-‐zero interest rates more likely to happen later this month. “We know that zero rates are no longer required for this economy,” said Joseph Carson, director of global economic research at Alliance Bernstein.

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FBIC HAPPENINGS & WEINSWIG’S WATCH ING

CHART OF THE WEEK

STAT OF THE WEEK

• This week, Deborah Weinswig attended Home Depot’s 2015 Investor and Analyst Conference in Atlanta, Georgia.

• Seven out of 10 British shoppers will shop at discounters over the Christmas period (November 20-‐December 26) according to IGD.

• They are set to spend £20.3 billion on groceries and £1.7 billion of which will be captured by German discounter duo Aldi and Lidl.

Source: Retail Week

Source: Bureau of Labor Statistics

7/10

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December 11, 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

Children's Place 3QE Oct. 456 487 (6.4) 39.7 43.5 (384) 38 37 2.7 1,085 1,117

Costco 1QE Nov. 26,627 26,282 1.3 11.3 11.0 27 480 496 (3.2) 697 671

Lululemon 3QE Nov. 480 419 14.6 46.9 50.4 (348) 53 60 (11.7) 354 289 Restoration Hardware 3QE Oct. 532 485 9.7 35.7 37.3 (161) 21 19 10.5 68 68 Source: Company reports

US RETAIL HEADLINES Number of Smart Homes Projected to Nearly Double in 2016 (December 7) MediaPost

• There are 174 million smart homes in existence this year, according to a new report from Gartner. The number is expected to almost double next year, to 339 million. Overall, the total number of connected things is expected to hit 1.6 billion, up from 1.2 billion this year.

• The consumer applications fueling the growth of smart homes are smart TVs, set-‐top boxes, light bulbs and various automation tools, such as thermostats, home security systems and kitchen appliances, according to Gartner.

Amazon Offers Showtime, Starz On-‐Demand to Prime Members (December 8) The Wall Street Journal

• Amazon is taking steps to look more like a virtual cable company. The Seattle retailer said Tuesday that it is now offering on-‐demand programming from channels such as Showtime and Starz On-‐Demand to Prime members for as much as $8.99 each per month.

• Amazon’s new offering furthers its ambitions in streaming video and could lure new subscribers to its $99-‐a-‐year Prime program, which offers unlimited two-‐day shipping, the streaming video offering and other goodies. Amazon covets Prime members because they spend more money on the shopping site than do non-‐Prime customers.

Why 2015 Was a Breakthrough Year in Artificial Intelligence (December 8) Bloomberg

• After a half-‐decade of quiet breakthroughs in artificial intelligence (AI), 2015 has been a landmark year. Computers are smarter and learning faster than ever. The pace of advancement in AI is “actually speeding up,” said Jeff Dean, Senior Fellow at Google.

• The unprecedented advancements in AI research can be attributed to a confluence of factors. For one, cloud-‐computing infrastructure is vastly more powerful and affordable, and it has the ability to process complex information. Also, there are more plentiful data sets and free or inexpensive software development tools for researchers to work with. Thanks to this, a crucial class of learning technology, known as neural networks, has gone from being prohibitively expensive to relatively cheap.

Indochino’s CEO Steps Down as Company Pushes into Offline Retail (December 8) Forbes

• On Tuesday, Indochino, which sells customized suits online, announced that it had replaced Kyle Vucko, cofounder and CEO, with entrepreneur Drew Green in an effort to further its push into offline retail. The move comes after a year of record sales, during which the company grew revenue by 40% and opened seven brick-‐and-‐mortar locations in North America.

• In an interview with Forbes, Vucko said that Indochino’s pivot from being solely online to including offline retail introduced “a lot more strain” into operations. When the company

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was originally launched in 2007, it was conceived to allow customers to measure themselves at home and then use those measurements to order custom suits online. Indochino began opening offline showrooms late last year.

EUROPE 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

Inditex 3QE Oct. 31 16,376 17,100 (4.2) 16.0 58.8 58.9 (14.6) 2,249 2,279 (1.3) 6,913 6,570 Source: Company reports

EUROPE RETAIL HEADLINES British Retailers See Sales Decline in November despite Black Friday (December 8) British Retail Consortium

• Retail sales in the UK in November, dropped 0.4% on a like-‐for-‐like basis year over year. On a total basis, sales crept up 0.7% year over year, compared a 2.2% rise the year before, according to the British Retail Consortium (BRC)-‐KPMG Retail Sales Monitor.

• Helen Dickinson, CEO of the BRC, stated that “Black Friday had an undoubtedly significant impact for the non-‐food categories, disturbing the build-‐up to Christmas.” David McCorquodale, Head of Retail at KPMG added that “despite the hype around Black Friday, there was minimal loosening of the family purse strings compared to last year.”

Metro Group Looking to Acquire Small and Medium-‐Sized Enterprises (December 7) retaildetail.eu

• Cash-‐and-‐carry retailer Metro AG is looking to acquire small and medium-‐sized enterprises, and will not focus on large companies, said CEO Olaf Koch to Reuters. He also indicated that the company has not yet set its sights on any actual acquisition targets.

• The German group reportedly has a cash reserve of about €2 billion ($2.2 billion), partly accumulated from its sale of department store chain Galeria Kaufhof. Metro has also invested in iBood.com, a community shopping and flash deals site, which became part of its subsidiary Media Saturn Holding.

Leroy Merlin Considers Homebase Takeover (December 7) retail-‐week.com

• French DIY group Leroy Merlin is reportedly contemplating a bid to take over Homebase. These reports come at a time when takeover interest in Home Retail, Homebase’s owner, has been mounting.

• The group refused to comment on the speculation and instead stated that it was “focused on peak trading.” This news follows last week’s reports that the former owner of Garden Centre Group was also considering a bid for Homebase, while several private equity groups are reportedly eyeing Home Retail.

Tesco Launches Biggest Ever Food Sampling Campaign (December 7) retailanalysis.igd.com

• British grocery retailer Tesco has launched what it believes to be the nation’s biggest ever sampling campaign to strengthen its position as a quality supplier of Christmas food. The retailer hopes to hand out samples of its Christmas ranges to nearly 2.6 million customers.

• The sampling campaign will take place at 600 of Tesco’s large format stores and will run right through till Christmas day. Tesco will also host a Christmas food festival offering products from its festive range through themed displays in 270 of the largest stores. Products available

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December 11, 2015


for tasting during the campaign will be from Tesco’s range of party food and its own brand ranges of Tesco Finest and Tesco Free From.

Carrefour Opens Its Largest Asian Store (December 3) internationalsupermarketnews.com

• French retail giant, Carrefour, has opened a new store in Beijing, China’s capital city. This is the retailer’s twentieth store in the city and its largest store in Asia. The new two-‐storied outlet is spread across nearly 770,000 sq. ft. and accommodates more than 80 stores, including Uniqlo, Decathlon and the first-‐ever Baidu Concept Store.

• The hypermarket offers more than 40,000 items, fifteen percent of which are imported goods. Laurent Olszewski, the regional head of Carrefour in that area stated that the retailer is “concentrating on imported nourishment items as there has been an ocean change in the sustenance inclinations of the Chinese purchaser.”

ASIA TECH HEADLINES New Twist in Vietnam’s Online Food Delivery Battle: Foodpanda Gets Acquired by Rival (December 8) TechinAsia

• After announcing the shutdown of its Vietnamese business, Rocket Internet’s Foodpanda announced today that it sold it to rival Vietnammm for an undisclosed amount. Foodpanda.vn’s customers and its base of over 1,000 restaurant partners will now be forwarded to and combined with those of Vietnammm.

• Vietnammm is a subsidiary of one of the world’s largest online food delivery websites Takeaway, and Eat.vn is backed by VC Crop, one of the most prominent Vietnamese online media companies.

WeChat Just Declared War on Uber (December 7) TechinAsia

• WeChat, the hugely popular messaging app in China, today blocked Uber’s official brand accounts, thereby locking the company out of an important channel for spreading the word about the car-‐hailing service.

• In an article published today, Tencent blames the accounts for “illegal collection of user data” and other things against the terms of service for brand accounts, such as providing inducements for people to share things – a likely reference to Uber’s rider promo codes.

Didi, Lyft Enter Four-‐Way Alliance to Take on Uber for Rides (December 4) Bloomberg.com

• Uber’s American rival Lyft Inc., China’s Didi Kuaidi, India’s Ola and Southeast Asian taxi-‐booking app GrabTaxi teamed up to offer users traveling overseas seamless access to rides via the same application they use back home. The group will begin introducing joint products in the first quarter of next year, according to a joint statement.

• The four companies said they will collaborate and share technology, local market knowledge and business resources. To begin with, their alliance will benefit users who go abroad and want to continue using the ride-‐hailing app they’re most familiar with.

Fitbit, Apple and Xiaomi Are The World’s Top Wearables vendors, Says IDC (December 4) TechCrunch

• Xiaomi is the world’s No.3 wearables vendor behind Fitbit and Apple, according to a new report from IDC that looked at shipment volume in the third quarter of 2015. Though it may be a surprise for anyone living outside of China, in June this year IDC released a report that Xiaomi placed second, before shipments of Apple Watch were included.

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• According to IDC, Fitbit shipped 4.7 million wearable units in the third quarter, taking a 22.2 percent market share. Apple shipped 3.9 million units, for an 18.6 percent market share, while Xiaomi shipped 3.7 million units, a 17.4 percent market share.

Apax Said Planning to Sell Tommy Hilfiger China Stake to PVH (December 9) Bloomberg

• Apax Partners, one of Europe’s largest private equity firms, plans to sell its stake in Tommy Hilfiger’s China operations to joint-‐venture partner PVH Corp., people with knowledge of the matter said. PVH, the owner of the Tommy Hilfiger brand, is considering an initial public offering of the China operations as early as next year after buying Apax’s stake, one of the people said.

• Apax, which owns about half of the China venture, is exercising an option to sell its holding to PVH and should complete the transaction by the end of the year, according to the people. The terms of the deal would give the China venture an equity value of about $500 million, the people said, asking not to be identified because the information is private.

LATAM RETAIL HEADLINES Black Friday Takes Off in Brazil (December 9) eMarketer

• Despite some consumer skepticism about the attractiveness of Black Friday deals in Brazil this year, E-‐bit Informação reported that Black Friday retail ecommerce sales grew by 38%, and sales on Cyber Monday increased by 56%, to BRL 1.6 billion (US $429 million) and BRL 0.3 billion (US $78 million), respectively

• Sales grew faster than orders, indicating higher average order values. Home appliances were the number-‐one category on both Black Friday and Cyber Monday. On Black Friday, phones and mobile phones were the second-‐biggest seller, and fashion and accessories came in second on Cyber Monday

Apparel Driving Haitian Exports (December 7) WWD

• Haiti exported US $966 million worth of apparel in 2014, accounting for 89.2% share of its total exports, up from US $926.5 million in 2013 and up sharply from US $245 million in 2000, owing to an estimated US $55 million was invested in Haiti’s apparel sector from 2006 to 2013

• The U.S. received nearly 86% of Haiti’s exports last year, driven by renewed and extended preferential access for Haitian goods and continuing economic improvement.

Central America Seeking Equal Treatment Under Trans-‐Pacific Partnership (December 7) WWD

• Textile and government officials from Guatemala and El Salvador will meet with the US Trade Representative’s Office this week to request that Vietnam join the TPP with similar conditions to those in the CAFTA-‐DR

• CAFTA-‐DR is the decade-‐long free trade agreement between Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Dominican Republic with the US, and Vietnamese textiles be able to reach the U.S. with a 20–35% cut in duties, gradually declining to zero in 10 years, which the Latin American countries consider an unfair advantage

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Liverpool Aims to More than Triple Online Sales by 2020 (December 6) El Financero

• Over the next five years, Mexican retailer Liverpool plans to raise its share of 5% from 1.5% currently by leveraging the Internet and call centers

• Moreover, the company plans to expand its physical footprint by three Liverpool stores and eight Fábricas de Francia stores

Mall of San Juan to Offer New Shopping and Dining Options (December 3) Chain Store Age

• Real-‐estate operator Taubman announced the launch of eight new shopping and dining options at the Mall of San Juan, Puerto Rico, before the end of 2015, including American Cut Bar & Grill, Aveda, BRIO Tuscan Grille, Daniel Espinosa Jewelry, Free People, Il Nuovo Mercato, Stuart Weitzman and Swatch. Another 20 more stores and restaurants are scheduled to open in 2016.

• The center celebrated its grand opening in March 2015, with more than 80 stores and restaurants having opened at in the mall, and more than half are exclusive to San Juan

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EARNINGS CALENDAR

Company

Earnings Release Period Date

Sales ($ Mil.) EPS

Currency Consensus TY LY Actual

Consensus TY LY Actual

Rite Aid 3Q 16 Dec 17 8,187 6,692

0.06 0.12 USD

Nike 2Q 16 Dec 22 7,799 7,380

0.85 0.74 USD

Walgreens Boots Alliance 1Q 16 Jan 7 29,252 19,554

0.96 0.97 USD

Fast Retailing 1Q 16 Jan 7 532 480

N/A N/A JPY

Unilever FY 15 Jan 19 53,163 48,436

1.80 1.82 EUR

Supervalu 3Q 16 Jan 20 4,177 4,204

0.16 0.04 USD

eBay 4Q 15 Jan 20 2,317 4,921

0.50 0.77 USD

Kimberly-‐Clark 4Q 15 Jan 25 4,580 4,828

1.43 1.35 USD

Procter & Gamble 2Q 16 Jan 26 16,968 20,161

0.98 1.06 USD

Apple 1Q 16 Jan 26 77,348 74,599

3.26 3.06 USD

Coach 2Q 16 Jan 26 1,273 1,219

0.67 0.72 USD

Metro 1Q 16 Jan 27 2,929 2,841

0.53 0.45 CAD

Facebook 4Q 15 Jan 27 5,358 3,851

0.68 0.25 USD

Colgate-‐Palmolive 4Q 15 Jan 28 3,941 4,221

0.73 0.76 USD General Growth Properties 4Q 15 Jan 28 683 673

0.42 0.38 USD

Hennes & Mauritz FY 15 Jan 28 181,712 151,419

12.96 12.07 SEK

Deckers Outdoor 3Q 16 Jan 28 847 785

4.93 4.50 USD

Amazon 4Q 15 Jan 28 35,993 29,328

2.79 0.45 USD

Hanesbrands 4Q 15 Jan 28 1,532 1,523

0.46 0.37 USD

Alphabet 4Q 15 Jan 28 16,892 18,103

8.10 5.47 USD

Clorox 2Q 16 Jan 29 1,349 1,345

1.04 0.97 USD

Unicharm FY 15 Jan 29 751 600

63.11 64.10 JPY

Simon Property Group 4Q 15 Jan 29 1,380 1,297

2.66 2.47 USD

Alibaba 3Q 16 Jan 29 32,885 26,179

5.73 3.10 CNY

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EVENT CALENDAR

Event Location Date(s) FBIC Presenting

CohnReznick – Economic Update & Panel Discussion New York, NY December 15

CVS Investor Day New York, NY December 16

BofAML 2015 Disruptive Technology Day New York, NY December 16 China-‐Israel Technology, Innovation & Investment Summit Beijing, China January 4–6

Pepcom Digital Experience Las Vegas, NV January 5

ShellyPalmer – Israel Dealmakers Dinner @CES Las Vegas, NV January 5

Credit Suisse – 5th Annual Macro Conference Singapore January 6

ShowStoppers @CES Las Vegas, NV January 6 Credit Suisse – Greater China Technology & Internet Conference Hong Kong January 6–8

Israel Export Institution – Redefining Innovation @ CES Las Vegas, NV January 6–9

CES 2016 Las Vegas, NV January 6–9

Brand Innovators – Mobile & Millennials Detroit, MI January 11

ICR Consumer & Economic Trends Conference Orlando, FL January 11–13

UJA – i3: A Summit for Women New York, NY January 12

ROI SuperSaturday New York, NY January 16

NRF Foundation Gala New York, NY January 17

Digital Life & Design Conference Munich, Germany January 17-‐19

NRF Retail’s Big Show New York, NY January 17–20 Brand Innovators Future of Consumer Engagement & Retail New York, NY January 19

Planalytics – Retail Strategy Breakfast New York, NY January 18

Mercedes-‐Benz Fashion Week Berlin Berlin, Germany January 19–22 Credit Suisse – 2016 Latin America Investment Conference São Paulo, Brazil January 19–20 Avon Products Investor Day New York, NY January 21

Brand Innovators – Content Marketing Denver, CO January 22

MAGIC – Project NY New York, NY January 24–26

ICSC – Texas Retail Forecast Dallas, TX January 25

OurCrowd Global Investment Summit 2016 Jerusalem, Israel January 25–26 2016 Fintech Startups Finals Hong Kong January 25–26

Wearable Technologies Conference Munich, Germany January 26–27

Brand Innovators – Consumer Engagement San Francisco, CA January 28

ICSC Heartland Omaha, NE January 28 Deborah Weinswig

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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

Weekly Insights by FBIC Global Retail Tech Dec 11 · !1 december 11, 2015...

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Transcript of Weekly Insights by FBIC Global Retail Tech Dec 11 · !1 december 11, 2015...