april 12, 2016 - Deborah Weinswig

APRIL 12, 2016

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• A recurring theme across day one of the World Retail Congress 2016 event was that consumers want experiences more than they want to buy more products. Some retailers have lost out to spending on services, while others are delivering experiential retail in order to tap this demand. • Some 12 trends, from globalization to personalization, are having a major impact on retail, according to one speaker at the conference. • In the coming years, there will probably be fewer people of working age in China and fewer drivers in the US. The Fung Global Retail & Technology team is attending the World Retail Congress 2016 event in Dubai this week. Here are our key takeaways from day one of the conference. CONSUMERS CRAVE EXPERIENCES Consumers want experiences more than they want to buy more products—this was the resounding theme of the first day of the World Retail Congress. It is a trend impacting diverse markets, and was noted as being, by turns, both a threat and an opportunity for retailers: • In the conference’s introductory session, Stephen Sadove, former Chairman and CEO of Saks, noted that while US mall traffic is declining, Dubai malls are booming. The difference, he said, was the experience: malls in Dubai offer everything from indoor skiing to aquariums to movie theaters. • Alain Bejjani, CEO of retail group Majid Al Futtaim, continued this theme, claiming that the “Dubai mind-‐set,” putting the customer and his or her happiness at the heart of everything, has transformed shopping from a chore into an “anticipated event.” • Bernie Brookes, CEO of Edcon, listed “theater and fun” among his 12 themes for the retail sector (which we discuss in more detail below). • From the world of luxury retail, Paolo de Cesare, CEO of upmarket French department store Printemps, said that the recent downturn in sales of high-‐end goods was exacerbated by shoppers switching their spending from goods to services: some shoppers have moved from buying luxury products to buying luxury services, spending on hotels, restaurants and travel instead.

DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & T ECHNOLOGY [email protected] US: 917.655.6790 H K: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.

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APRIL 12, 2016

• The day wrapped up with William Kim, CEO of fashion retailer AllSaints, echoing the experience theme. Although the trend poses a threat to the luxury world, Kim’s company has worked to channel consumer demand for experience into retail demand through a “brand-‐obsessed model” that offers a content-‐rich, digital-‐ centered proposition. 12 THEMES IMPACTING RETAIL In a whistle-‐stop tour through previous major shifts in retail and the changes impacting the sector today, Bernie Brookes noted 12 themes that he said are changing the way shoppers shop and retailers sell: • Globalization: barriers to international expansion have come down and we are seeing retailers from Aldi to H&M grow their global presence. • Price focus and value focus: budget retailers and premium names are growing the fastest (which we refer to as the “Hourglass Model” of retail). • Shoppers increasingly expect customization and personalization. • A digital focus is essential. • Building loyalty, and using Big Data to do it. • Quality of customer service: “the people difference.” • Newness and uniqueness: offering something that no one else offers. • Visualization and imagination, such as striking visual merchandising and window displays. • Community engagement. • Agnostic channels: an omni-‐channel experience. • Theater and fun in retail: delivering an experience. • Education: from advice to in-‐store classes. MACRO OUTLOOK Dr. Ira Kalish, Chief Global Economist at Deloitte, offered an overview of the macroeconomic prospects in different regions. He said the outlook for the US economy is uncertain: recent headwinds have included weaker exports and less investment by energy firms. Tailwinds focus on the consumer sector: consumer spending is robust, the job market is strong, wages are rising in real terms and the housing market looks positive. China is transitioning to low-‐speed growth, Kalish observed, and this makes sense given that it is moving from a lower-‐income to a middle-‐income country. It is also shifting from manufacturing to services, and from exports to domestic demand. But private sector debt has surged, and there is excess capacity in the economy, which the Chinese government is now addressing with closures of superfluous factories. One major issue for China is that the working-‐age population is set to start declining, which will suppress growth and push up wages—this will be good for consumers, but not for export competitiveness. DEBORAH WEINSWIG, MANAGING DIRECTOR, FUNG GLOBAL RETAIL & T ECHNOLOGY [email protected] US: 917.655.6790 H K: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2016 The Fung Group. All rights reserved.

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France remains the notable laggard in Europe, Kalish said. Other risks include a Brexit, deflationary pressures, high unemployment in some markets and the migrant crisis threatening free movement of labor. Longer term, emerging markets will provide a disproportionate share of global economic and retail growth: India and China will continue to see their middle-‐class populations grow strongly. Finally, one notable change in the US market, Kalish noted, is that fewer consumers are driving. An aging population, urban living among millennials, online shopping and remote working have resulted in less driving and a lower proportion of 16–24-‐year-‐olds holding driver’s licenses. Kalish argued that the impact will be felt in commercial property, in that fewer offices and shops will be needed in future years. ONE-‐LINE TAKEAWAYS Finally, here are some brief quotes from some of those who spoke on day one of the World Retail Congress: “There can never be too much great [retail] real estate.”

– Jerry Storch, CEO, Hudson’s Bay Company

“Dubai is second only to London in terms of the number of global brands per square meter.”

– Alain Bejjani, CEO, Majid Al Futtaim

“Retailing has for much of its history been an inside-‐out business, not an outside-‐in business—i.e., one which starts with the customer.”

– Arthur Martinez, Chairman, Abercrombie & Fitch

“Don’t get locked into a monolithic business model. [In a fast-‐changing world] capital has to be deployed with an eye to rapid payback, not the long term—capital must earn its returns quickly so [it] can be put towards new strategies.”

– Arthur Martinez, Chairman, Abercrombie & Fitch


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Deborah Weinswig, CPA

Managing Director Fung Global Retail & Technology New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected] John Mercer Analyst

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