Download - The Retail Revolution is Now January 25 2017 · 1/25/2017 · measures to remain relevant in this new retail order that is defined by information and technology. In this report,

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January25,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Retailerstodayareconfrontedbyamorecomplexanddiversebusinessenvironment.Withmoreinformationatthehandsofconsumers,newwaystheyengagewithproductsandbrandsandamoredynamiccompetitivelandscape,traditionalretailisgoingthroughaperiodthatismoreakintoarevolutionthananevolution.Theoldguardofretailerswillneedtotakedrasticmeasurestoremainrelevantinthisnewretailorderthatisdefinedbyinformationandtechnology.

Inthisreport,welookatthevaluepropositionofbrick-and-mortarretailersfromtheperspectiveofconvenience,howtheoldguardischangingasaresultoftheretailrevolutionandthedriversofthefutureretaillandscape.

The Retail Revolution

is Now

Deborah Weinswig

Managing Director,

Fung Global Retail & Technology

[email protected]

US: 917.655.6790

HK: 852.6119.1779

CN: 86.186.1420.3016

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January25,2017


ConvenienceNoLongerMeansBeingPhysicallyClosetotheConsumerAccordingtotheInternationalCouncilofShoppingCenters(ICSC),thenumberofmallsintheUSgrewbymorethan300%from1970to2016,reaching1,221shoppingcenters.ManyoftheseareB,CandDmallswhichusedtobenefitfromtheirproximitytosufficientlylarge-enoughpopulations,andprovidedago-toplaceforpeopletoshop,socializeandentertainthemselves.Withmuchofsocialinteractionhavingmovedonlineandwiththeubiquityofe-commerceandfreedeliveryoptionsthathaveproliferatedoverthepasttenyears,itiseasierthaneverforconsumerstoavoidgoingtolower-tiermallsaltogether.Infact,BandCmallsaccountforonly28%ofallmallsales,despiterepresenting45%ofallshoppingcentersofthistype.

Figure1.NumberofMallsintheUS,1970–2016

Source:ICSC

Mallsthatdonotoccupyprimelocationsandcannotoffercreativeentertainmentarenolongerattractivefromaconsumer’sviewpoint.Naturally,operatorshavealreadystartedrepurposingBmallsasAmalls,andclosingmanyCandDmallsaltogether.Itishighlylikelythatatleast30%ofUSmalls,ormorethan350ofthem,willgodownascasualtiesoftheretailrevolution,inouropinion.

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January25,2017


DepartmentStoreshaveBecometheOldGuardDepartmentstoreshavetraditionallyservedasmallanchortenantsandhavebeenscalingdowntorepositionthemselvesinthenewmalllandscape.In2016,Macy’sannouncedthatitwouldclose100stores,or15%ofitsfleet.Searsannouncedthatitwouldclose50,or7%,ofitsstores,andJCPenneysaiditwouldclosesevenstores.

Figure2.NumberofDepartmentStoresintheUS,2015–2017E

Source:Companyreports/FungGlobalRetail&Technology

Somespecialtyretailershavealsoannouncedstoreclosuresoverthepastyear.Thewomen’sapparelandteencategorieshavebeenhithard.Themid-tierwomen’sapparelcategoryisstrugglingwithalackofdifferentiationinasaturatedmarket.BananaRepublicandGap—wherewomentraditionallyshoppedforwardrobestaples—haveallannouncedstoreclosures.TheLimitedfiledforbankruptcyafterannouncingitwillcloseallofits250stores.Theteencategoryhasalsostruggled,withfiveretailersdeclaringbankruptcyin2015and2016.Expressreduceditsstorecountby21%andAmericanEagleOutfittersreduceditsby10%from2015to2016.

Againstthisbackdrop,thewinningretailers,orthenewguard,arethosethatareextremelyconsumercentric,highlyintegratedandmakesmartuseoftechnologicalinnovation.

Amazon’sincreasedfocusontheapparelcategoryisaclearindicationofwhatistocome.EuromonitorInternationalandForresterResearchexpectAmazontotripleitsshareoftheUSapparelmarketoverthenextfiveyears.

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Figure3.Amazon’sEstimatedShareoftheUSApparelMarket

Source:EuromonitorInternational/ForresterResearch

WebelieveAmazonwillcontinuetoincreaseitsapparelmarketshareattheexpenseofdepartmentstoresandtraditionalapparellabels,thankstoconsumers’increasingcomfortwithpurchasingonline,theconvenienceAmazonoffersandthevalueofitsprivate-labelofferings.

WillImprovingtheIn-StoreExperienceStifletheRevolution?Theconsensusthathasformedamongretailprofessionalsisthatthebiggestopportunityforbrick-and-mortarretailersisinimprovingthein-storeexperience,includingthroughtheuseofnewtechnologies.Weagreebetterserviceofferings,morein-storeeventsandimprovedstoreenvironmentsareallweaponsthatbrick-and-mortarretailerscanwieldinthebattleagainstthegrowingthreatofplayerssuchasAmazon.Andthereissignificantpotentialforsomeretailers—notably,someofAmerica’smajordepartment-storechains—toimprovetheirproposition.

Inaddition,brick-and-mortarretailersalsohaveanever-increasingarsenaloftechnologiesavailabletousetotheiradvantageincreatingbetterexperiencessuchasmobilepaymentsolutions,chatbots,robots,augmented-(AR)andvirtual-reality(VR)entertainment,andlocation-basedtechnologies,tonamejustafew.

Butwemustnotgetcarriedawaywithbelievingthatexperiencealonewillsavebrick-and-mortarstores.Ifaconsumerwantscheapelectronics,orurgentlyneedstobuygroceries,orsimplywantstocollectapurchasethatwasmadeonline,thenthestoreexperiencemaybecompletelyirrelevanttothatconsumer.Moreover,someretailersmayfinditdifficulttochangetheirfocustothequalityofthein-storeexperience,duetotheirtraditionalpositioningandcorporatecultures.

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AftertheRevolution:Convenience,Collection,DestinationExperienceisnottheonlyopportunityforstores.Inourviewofthefutureofretail,threecorefunctionswilldriveshoppertrafficoncee-commercehasestablishedamajorshare:

1. Thenewconvenience:Shopperswillmakedistresspurchasesofgoodsneededquickly,oftenatstoresclosetohome.

2. Collection:Shopperswillgotoastoretopickuponlinepurchases.

3. Destination:Leisureshopperswillstillmaketripstothosestoresthattheyliketovisitratherthanhavetovisit.

Ourvisionofthefutureincludesamixofformats,storesizesandretailpropositions.Smaller,morelocalstoreswillservedemandforconvenience,andmaybecollection,too;wearealreadyseeingretailerssuchasTargetopenthesekindsofstores.Meanwhile,high-qualityflagshipstoreswillbetheonesthatfocusonthecustomerexperienceinordertoattractleisureshopperswhoarelookingtospendsomeenjoyabletimebrowsingandbuying.

Large-storeretailersthatofferrelativelyfewcompellingreasonsforshopperstovisitwillfacethemostdifficultyinthisretaillandscape.Theseincludethehard-hitdepartmentstoresandotherretailerswhosetraditionalUSPshavebeenbreadthofchoiceorlowprices.Thesekindsofretailersmustconsiderhowtheirstoreswillmeetshoppers’needsinthefuture:thismaymeannotonlyfewerstores,butalsostoresthatcatertohowconsumersshopinadigitalage.Byfocusingononeormoreofthethemesofconvenience,collectionanddestination,webelievesuchlarge-storeoperatorsmaybeabletosuccessfullyrepositionthemselvesforthefuture.

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January25,2017


DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst

KirilPopovSeniorAnalyst

ShoshanaPollackSeniorResearchAssociate

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017

FungGlobalRetailTech.com

Download - The Retail Revolution is Now January 25 2017 · 1/25/2017 · measures to remain relevant in this new retail order that is defined by information and technology. In this report,

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