THE FUTURE OF DIGITAL RETAILDeborah Weinswig

Executive Director, Head—Global Retail & TechnologyFung Business Intelligence Centre deborahweinswig@fung1937.com

Cell: 917-655-6790

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Agenda

• About the Fung Group/Li & Fung• About Fung Business Intelligence Centre (FBIC)• Top 16 Emerging Global Technology Trends for 2016

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The Fung Group

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Fung Business Intelligence Centre• Established in 2000 and headquartered in Hong Kong• FBIC serves as the knowledge bank and think tank for the Fung Group

– Collects and analyzes market data on sourcing, supply chains, distribution and retail– Provides thought leadership on technology and other key issues

• New York–based Global Retail & Technology team – Follows broader retail and technology trends– Provides advice and consultancy services to colleagues and business partners of the Fung Group – Builds collaborative knowledge communities

• Creating a database of technology-based startups

• Disruptors Breakfasts: introduce startups focusing on disruptive technologies that are changing the ways we think and act today

Futureproofing

• Anticipate future trends and developments

• Plan for future value and avoid obsolescence– What problem are you trying to solve?

– How will solution be used?

– How robust does it need to be?

• Ensure flexibility to manage changing formats and deployment patterns

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Fung Capital/FBIC Commerce Technology Landscape

TOP 16 RETAIL TECH TRENDS FOR 20161. Additive Technology: Intelligent Clothing

2. 3D Printing

3. Robotics/Artificial Intelligence

4. Drone Delivery

5. Smart Malls

6. IoT-Driven Partnerships

7. Wearables

8. Gamification

9. Voice and Facial Recognition

10. Virtual Reality

11. Augmented Reality

12. IoT

13. Mobile Health

14. Mobile Payments

15. Caring Economy

16. Sharing Economy

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1. Additive Technology: Intelligent Clothing• Application of nanotechnology in smart fabrics offers potential

for development of new textile materials– Kuraray has developed a way to harness attributes of liquid-crystalline

polymers, resulting in extraordinarily strong fibers that can hold the weight of four SUVs

– Threadsmiths introduced the Cavalier T-shirt, which uses “hydrophobic” nanotech woven into the fabric to make it water and stain resistant

• Visijax embeds LEDs in both the front and rear of jackets– Machine washable and powered by

a USB-rechargeable battery that lasts up to 20 hours between charges

– Commuter and City Ace models have motion-sensing, self-canceling turn signals embedded into the sleeves of the garment

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2. 3D PrintingExamples in consumer goods: • Orbitrec: world’s first 3D-printed bike unveiled at CES • Normal

– Custom-fit 3D-printed earphones– Partnered with Rebecca Minkoff on limited-edition products– More sustainable

• Shoes of Prey– Design your own perfect shoes– Design studios in 6 Nordstrom stores

• Mink Makeup Printer – Sub-$200 desktop printer can print makeup

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3. Robotics/Artificial Intelligence• SoftBank is partnering with IBM’s Watson to

provide new functionality to Pepper, its voice recognition robot

• In Japan, hundreds of Pepper robots have been deployed at Nestlé retail stores

• Target is planning to deploy robots in a concept store in 2016

• Lowe’s OSHbot already being tested

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3. Robotics/Artificial Intelligence• About 1.2 million additional robots are expected to be

deployed in the US by 2025 (BCG) • Amazon had 30,000 Kiva robots working at 13 fulfillment

centers by September 2015, double the number from a year earlier

• Robots created for corporate boardrooms– Allow users to interact remotely from home

(or wherever they are)– In the Suitable Technologies showroom, salespeople appear

through telepresence robots

• Advise on how to repair parts and do training sessions

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3. Robotics/Artificial Intelligence

• Stitch Fix– Subscription service that uses AI and human judgment to

recommend apparel to shoppers

– Subscribers receive a curated box with items personally chosen by a combination of machine and human stylists

• Used for generating recommendations; key driver across industries– 35% of Amazon sales, 50% of LinkedIn connections and

75% of Netflix views are driven by recommendations

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4. Drone Delivery• Amazon is the leader in drone delivery technology• Drone company Flytrex forecasts that delivery drones

could be in use in London within five years• Estimated 1 million drones sold during holiday season (FAA)• New drones introduced at CES that can follow a moving

object and carry a person• QuiQui is a drone delivery service based

in San Francisco• The FAA lost a recent lawsuit, paving

the way for commercial drone use

5. Smart Malls• Beacons enable location-based advertisements

– Shoppers who are nearby receive mobile notification, such as coupons and directions– ShopAdvisor & Levi Strauss study: recipients visited stores at a rate that was 2.6 times greater than

those who did not receive notifications• Malls can track movements, behaviors and preferences

– Data collected from connected kiosks, apps, motion-sensing technology, beacons, wi-fi networks

– Primarily collected from wi-fi networks• Data enables personalized and timely promotions

– Build shopper profiles, including visitation frequency and movement inside malls

– If data shows that shoppers frequent healthy food outlets, it can drive the opening of health-food restaurants in a mall’s food court

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5. Smart Malls• Westfield Malls’ IoT offers touchscreen displays, electronic parking assistance, free wi-fi• HGTV partnered with Macerich shopping malls to launch virtual and hands-on technology-based

experiences– Augmented reality allows families to create “Elfie Selfie” videos– Traffic at those 10 malls was up 45%, according to The Washington Post

• RetailNext formed a strategic alliance with StepsAway, an in-mall mobile retail solution provider offering shoppers smartphone accessto hyperlocal in-store deals – Offer timely, relevant promotions that measure redemption

and conversion rates– Interactive data allows platform to improve and become

“smarter” for future promotions

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6. IoT-Driven Partnerships• Unprecedented cross-industry partnerships being formed• Samsung and Microsoft developing IoT devices based on

Windows 10• Panasonic is partnering with Denver to transform it into the first

smart city – Create an energy-efficient hub – Solar technology, tele-medicine tech, traffic management and

security

• Audi and Qualcomm are partnering to integrate Qualcomm’s Snapdragon 602A to provide cutting-edge connectivity technology – Infotainment, advanced smartphone connectivity, navigation, voice

quality and control features

• Ford is partnering with Amazon to integrate vehicles with Echo, Amazon’s smart-home device

• Intel is working with New Balance on an Android Wear fitness watch that is due out next holiday season

• IBM and Under Armour are integrating the Watson supercomputer with the Connected Fitness network to analyze data and provide real-time coaching on health and fitness

• Volvo pursued a partnership with Microsoft to enhance connected-car strategies– The Microsoft Band can be pressed and told to start the car

heater, for example

6. IoT-Driven Partnerships

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7. Wearables• Fitbit: 22.2% share (#1) of the wearables market as of

3Q 15 (IDC)• Apple Watch: 18.6% (#2) share of the wearables

market as of 3Q 15 (IDC) • iFit ecosystem provides a game plan for exercising,

activity, nutrition and sleep • Under Armour’s $400 HealthBox uses a wristband,

heart rate monitor and scale to track fitness, sleep and nutrition

• Withings has a smart wristband heart monitor, scale, sleep monitor and blood pressure monitor

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7. Wearables (Wellness)• AromaCare (mindfulness)

– Connected oil diffuser for personal aromatherapy sessions

– Aroma capsules have RFID tag to enable launching of specific program

• Emfit QS (sleep)– Monitors heart rate levels and then matches them to specific moments

and interactions throughout a user’s day

• it Smart Bed (sleep)– Features biometric sensors that track heart rate, movement and

breathing

– ActiveComfort technology collects a customer’s ideal levelof firmness, comfort and support of mattress

– Support for sleep apnea

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8. Gamification

• Gamification is the use of elements from computer and video games in real-world or other activities

• Examples include badges, levels and leader boards that can be used to enhance consumer loyalty

• In a tiered rewards program, customers must perform certain actions in order to pass milestones; each time a milestone is passed there are new rewards

• Starbucks Rewards gives loyal customers stars and has tiered levels of rewards, based on purchases

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8. Gamification• Under Armour and HTC: first connected-fitness product portfolio, the Under Armour

HealthBox– Based on your height, weight, age and workout tendencies, the Under Armour Record App

pairs you with other users – You can “challenge” family, friends or co-workers

• Zipline: gamifies store execution and customer engagement– The future of "direct to Associate"

communication which will become more prevalent as companies begin to allow Associates to bring their own devices to work

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9. Facial Recognition• The global advanced Facial Recognition market expected growth: $2.77 Bil. in 2015 to $6.19 Bil. in 2020 (CAGR 17.4%)• 30% of retailers are using facial recognition technology to track customers in stores (CSC)

• Applications are increasing: health, wellness, beauty and advertising – Determine the thickness and application of makeup

– Analyze in-store shopper data

• In 2015, Walmart tested with FaceFirst: – Cameras check you in at location

– Smartphone receives customized deals based on demographic

• Intel released RealSense facial recognition technology in 2015– Consumer grade 3D cameras

– Home usage: camera recognizes face to unlock front door

• Challenges: Consumers are not especially comfortable with technology use in retail

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10. Virtual Reality• Google Cardboard viewer was provided

free to New York Times subscribers

• The CTA expects VR unit sales to increase to 1.2 million, a 500% increase from last year

• VR—Oculus Rift headset ($599) available in April 2016

• Samsung Gear VR headset ($99)

• Vitrio VR system provides a 360-degreeVR view of properties

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10. Virtual Reality (Retail Applications)• Widespread adoption of VR in

the retail space is expected in as little as three years

• Video of VR application at Tommy Hilfiger store

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11. Augmented Reality• Augmented reality enables consumers to visualize products in

their homes in 3D while they are in the store• Cimagine

–Markerless augmented-reality system that can be integrated across multiple channels

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11. Augmented Reality (Retail Applications)

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12. IoT (Connected Home)• A multitude of connected-home “smart” products are on the market:

cameras, doors, locks, thermostats and light bulbs• Samsung Smart Home

– Samsung Family Hub Refrigerator

– Highlights: maintains grocery lists and schedules, and even sends photos of the refrigerator’s contents to smartphones

• Lowe’s and Staples have launched their own lines of home automation and connected-home products

• LG’s value has dramatically increased via its openness and inclusion of partners in other industries, such as software, automobiles, materials and even real estate

• Nest Learning Thermostat learns what temperatures the user likes most and turns down the temperature when the user is away to save money

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12. IoT (Connected Pets)

• Consumers will spend $60.6 billion on their pets in 2015, the American Pet Products Association says

• Tracking pets’ location and activities

• Video and treats

• Video games

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13. Mobile Health• The global mobile health market is expected to top $49

billion by 2020. A large aging population and rising rates of chronic conditions, including cancer, heart disease and diabetes, will drive the market

• The US senior care service market is forecast to reach $400 billion by 2018, advancing by 6.3% annually

• Smartphone ownership among those ages 65 and older increased from 5% in 2012to 27% in 2015

Revenue Forecast for Telehealth Devices

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13. Mobile Health• Tele-health technology delivers virtual

medical and health services to the growing aging population. CVS has over 1,000 walk-in clinics, many of which use tele-health technology

• The average tele-health service cost is$45 compared to $136–$176 for in-person visits

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14. Mobile Payments• Apple and Android pay require near-filed communications (NFC)

chips for payment– Negative: Require retailers to install new equipment

• Samsung uses magnetic stripe capability (MST) chips for payment – MST compatible with new and older credit card terminals –

no additional invest required

– Most-widely accepted mobile wallet in the US

– Consumers can enlist loyalty cards into Samsung Pay

– Receive coupons and discounts directly to Samsung account

– In 2016: Expanding to China, lower-priced handsets and online transactions

• Customer adoption remains hurdle, shoppers need incentive

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14. Mobile Payments

# of Accepted Locations 700,000 > 30 million > 700,000

+• Apple Watch is compatible

• Secure – Unique security code for each transaction

• Compatibility with existing terminals

• No additional investment for retailers

• Works any Android device

• Support from major retailers: Staples, Walgreens, Wholegoods

–• Only works with NFC-enabled

registers

• NFC terminal cost retailer $500 or more

• Not accepted by major retailers: Walmart, Target, Best Buy

• Limited device options - Samsung Galaxy S6

• Magnetic strip reader requires tricky position for phone

• Uses NFC technology

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15. Caring Economy• Disruptors: TOMS, Reformation, Warby Parker, NOURI,

SoapBox Soaps, Zady, GoodXChange• Social activism over self-indulgence

– Consumers, especially Gen Z, are increasingly demanding integrity from brands and retailers

• Startups for social good apply market-based strategies to achieve a social goal– TOMS– Reformation

• Social innovation hubs—The Good Lab in Hong Kong

16. Sharing Economy• Next big industry to be disrupted is

healthcare, via startups such as Doctor on Demand, Pager, Studio Dental and MedZed

• Sector is maturing and becoming more sophisticated; Airbnb and Uber have launched separate apps for business

• Challenges: customer safety and regulation battles

• 2016 may see the first big sharing economy IPO

Source: Company Reports/Analyst Estimates

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*Retail company

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THANK YOU!deborahweinswig@fung1937.com

US Cell: 917-655-6790Hong Kong Cell: 852 6119 1779

Twitter: @debweinswig