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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
StatoftheWeek
ChartoftheWeek
D e b o r a h W e i n s w i g M a n a g i n g D i r e c t o r
F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m
U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9
C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6
December 23, 2016
41%• AccordingtoVAT-refundfirmGlobalBlue,tourist
spendingintheUKincreasedby41%yearoveryearinNovember.
• Asiantouriststookparticularadvantageoftheweakpound.Chinesevisitors’spendingwasup63%inNovemberandaccountedforaquarteroftotaltouristspendingintheUKduringthemonth.
1) Thisweek’snote“FromtheDeskofDeborahWeinswig”discusseshowtheBrexitvoteimpactedtheUKeconomyin2016anddetailsourexpectationsforthecountry’seconomyin2017.
2) Fred’sPharmacyhassignedanagreementwithWalgreensBootsAllianceandRiteAidtopurchase865storesacrosstheEasternandWesternUS,alongwithassetsrelatedtostoreoperations,foratotalof$950millionincash.
3) TotalUKretailsalesjumpedbyanexceptional6.1%yearoveryearinNovember,theOfficeforNationalStatisticsreported.Theincreasewasupfromanalreadystrong6.0%jumpinOctober.Internetpureplays,whosesalesincreasedby28%yearoveryear,boostedtheoverallfigures.
4) AsAmazonplanstoenterSoutheastAsianextyearwithitslaunchinSingapore,Lazada,SoutheastAsia’slargeste-commercesite,isexpandingitsdeliverynetworkviapartnersinChinaandSouthKorea.Lazada,alreadypresentinIndonesia,Malaysia,thePhilippines,Singapore,ThailandandVietnam,has12warehousesand92distributioncentersintheregion.
Source:RetailGazette
USRetailSalesexFoodServicesandGasoline:YoY%Change
Source:USCensusBureau
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Nov15
Dec15
Jan16
Feb16
Mar16
Apr16
May16
Jun16
Jul16
Aug16
Sep16
Oct16
Nov16
3.6%
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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
FromtheDeskofDeborahWeinswig
2016:AYeartoRememberinEurope
2016provedtobeaneventfulyearonbothsidesoftheAtlantic.InEurope,theUK’sBrexitvotewasthebiggestshockoftheyear,anditisoneourglobalresearchteamhascoveredindepth:wehavejustpublishedtheninthreportinourBrexitBriefingsseries.Here,wesummarizethemainimpactsandprospectsarisingfromtheUK’sdecisiontoleavetheEuropeanUnion(EU).
UK2016:WhatWeSaw
TheBrexitvotepromptedachangeofUKprimeministerandthedepreciationoftheBritishpound.Whatitdidnotprecipitateisrecession,masslayoffs,acollapseinhouseprices,adeclineinretailsales,oranynumberofothernegativeeconomiceffectsthatvariousresearchbodiesandfinancialinstitutionsforecastfortheimmediateaftermathofa“Leave”vote.
Instead,theUKenjoyedthefastesteconomicgrowthoftheG7nations.Andretail,inparticular,benefitedfromtheBrexitvote.BritishshopperskeptonspendingwhilethedepreciatingpoundattractedtouristshopperstotheUK,boostedcross-bordersalesonUKwebsitesandflatteredtheinternationalsalesofUK-domiciledretailers.Thesefactorsfedintotheaccelerationofretailsalesthatwehaveseeninrecentmonths:aswereportedthisweek,UKretailsalesjumpedby6%ineachofOctoberandNovember,andsalesareoncoursetomakethisthebumperholidaytradingperiodthatweforecastbackinOctober.
UK2017:WhatWeExpect
Softergrowthandhigherconsumerpricesaretheheadlinemacroeconomicnegativesexpectedfor2017.TheUKgovernment’sOfficeforBudgetResponsibility(OBR)forecaststhattheUKeconomywillgrowby1.4%nextyear,downfrom2.1%in2016.AndtheOBRexpectsconsumerpricesinflationtobehigherastheweakerpoundfeedsintoshopprices;theofficeexpectsinflationtopeakat2.7%inthefourthquarterof2017.
Inretail,weexpectperformancetocontinuetobesolid,althoughweanticipategrowthwillsettleatlowerlevelsthanweareseeinginthecurrentboomperiod.
In2017,theUKwillfacerisinginputpricesasaresultoftheweakenedpound.Whileoneriskfrominflationisthatitwillhitconsumers’discretionaryspending,anotheristhatretailersandproducerswillhavetoabsorbincreasedcosts,atthepriceoftheirmargins.Groceryandapparelretailareparticularlycompetitive;retailersinthesesectorshaveverylimitedscopetopassoncostincreasesand,so,willbeforcedtotakehitstotheirmargins.
Afurtherpotentialheadwindtotheconsumermarket—andonethatisunrelatedtoBrexit—istherecentgrowthinconsumercredit,whichhashelpedbuoyretailsales.Unsecuredconsumercreditgrewbymorethan7%inOctober(latest),thefastestratesinceNovember2006,accordingtofinancialindustrytradeassociationBBA.Acceleratinggrowthincreditcardborrowing,loansandoverdraftspromptedBankofEnglandGovernorMarkCarneytorecentlywarnofinflatedlevelsofhouseholddebt.Brexituncertaintymakesaninterestrateincreaselookunlikelyin2017,butanysubstantialsqueezeinwagegrowthorsofteningofthejobmarketcouldleavesomehouseholdsunabletoservicetheirobligationsandpromptotherconsumerstoretrenchtheirspendinginordertopaydowndebt.
Sofar,however,Britishconsumerdemandhasprovedresilientamidsubstantialuncertainty.Weseenoconvincingreasonforthisresiliencetofallawayin2017.
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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
USRETAILEARNINGS
Source:Companyreports
USRETAILHEADLINESLands’EndPicksRetailVeteranandLuggageExecutiveJeromeGriffithasNewCEO(December19)WSJ.com
• CatalogretailerLands’EndnamedJeromeGriffithasitsnewCEO.GriffithmostrecentlyranluggageretailerTumi.The59-year-oldisknownforhisloveoftheoutdoors,inlinewiththeLands’Endethos.
• Hisappointmentmarksabigchangefromthecompany’sformerCEO,high-fashionpurveyorFedericaMarchionni,whowasforcedoutinSeptember.Marchionnitookthecompanyinthewrongdirection,debutingspikeheelsandslimmerfitsforyoungercustomers,andturningoffitscustomerbase.
Fred’sPharmacytoAcquire865RiteAidStoresfor$950Million(December20)RetailDive.com
• Fred’sPharmacyhassignedanagreementwithWalgreensBootsAllianceandRiteAidtopurchase865storesacrosstheEasternandWesternUS,alongwithassetsrelatedtostoreoperations,foratotalof$950millionincash.
• ThetransactionisexpectedtocloseafterthecompletionofWalgreens’proposed$9.4billionacquisitionofRiteAid,subjecttotheapprovaloftheFederalTradeCommission.
J.Crew’sDebtLoomsasRetailerSeekstoRegainFirst-LadyGlow(December21)Bloomberg.com
• J.Crewisgoingtotrytouse2017toturnaroundatwo-yearsalesslumpinordertoavoidfacingamountingwallofdebt.Thecompany’s$2billionindebtbecomescurrentin2018,andJ.Crewneedstoreviveitssalestoavoiddefault.
• Inordertorevivesales,thecompanyisfocusingonitspreppyheritage,expandingitsdiscountbusinessandfuelingthegrowthofMadewell,itsmillennial-focusedbrand.
TheLimitedMayFileforBankruptcyandShutDownIts240Stores(December21)Fortune.com
• DecliningtrafficatmallsandasurfeitofmerchandiseonthemarkethavehitTheLimitedhard.ThecompanyisplanningtofileforChapter11bankruptcyprotectioninthecomingweeks,withliquidationlikely.
• TheLimitedsaiditisexploringanumberofoptionsthatwouldprovideitwithgreaterfinancialflexibility.Themall-basedretailer’scomparablestoresalesfellby11%lastquarter.
AmericanApparelGetsApprovaltoLiquidateNineLocations(December19)WSJ.com
• AmericanApparelisplanningtoclosenineofitsstoresbyDecember31,includinglocationsinNewYorkandWashington,DC.TheapprovalcamefromtheUSBankruptcyCourt,allowingthecompanytoputup“goingoutofbusiness”signageattheninestoresoverthenexttwoweeks.
• Liquidationsalesareexpectedtogenerateabout$600,000inincomeforAmericanApparel,andtheclosuresofstoresinexpensiveneighborhoodssuchasNewYorkCity’sTribecaandWashington’sGeorgetownwillsave$200,000amonthinrent.
Company
Revenues(USDMil.)YoY%Change GrossMargin(%)
Change(bps)
NetIncome(USDMil.)
YoY%Change StoreFleetEOP
Period 2016 2015
2016 2015
2016 2015
2016 2015
Nike 2Q17 8,180 7,686 6.4 44.2 45.6 (140) 842 785 7.3 N/A N/A
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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
EUROPEANRETAILHEADLINESAsdaKicksOffChristmasDiscounting,CutsVegetablePricesbyUpto57%(December19)RetailGazette.co.uk
• StrugglingBritishgrocerAsdaistakingonthediscounterswithaseriesofdeeppricecutstoseasonalproducelinesaheadoftheChristmaspeak.BetweenDecember19and27,Asdawillsellvegetablesatdiscountsofupto57%.
• Customersneedtopayonly20p(US$0.25)for360gramsofbroccoli,halfakilogramofsproutsandparsnips,andakilogramofcarrots.Asdastatedthatcustomerswouldcollectivelysaveabout£2.2million(US$2.7million)ontheseasonalvegetables.
CarrefourIntroducesOne-HourDeliveryService(December19)RetailAnalysis.igd.com
• FrenchsupermarketgiantCarrefourhaslaunchedasuperfastdeliveryserviceinParisandNeuilly-sur-Seine,inFrance.Customerscanchoosefromarangeof2,000stapleitemsfordeliverywithinanhour.
• Customersarecharged€4.90(US$5.09)fortheservice,whichdoesnotincludeaminimumpurchaseorasubscriptionfee.
TopshopExpandstoMainlandChina(December16)FT.com
• Arcadia-ownedfashionchainTopshophasunveiledplanstoopenstoresinMainlandChinanearlytwoyearsafteritsonlinelaunchinthecountry.TheretailerwillinitiallyopenfivestoresinpartnershipwithonlineretailerShangPin.com.
• ShangPin.comalreadysellsmerchandisefromtheTopshopandMissSelfridgebrandsonlineinChina.Topshopintendstoopen75morestoresinthecountryiftheinitialonesareasuccess.
UKRetailSalesSurge6.1%inNovember(December15)Pressrelease
• TotalUKretailsalesjumpedbyanexceptional6.1%yearoveryearinNovember,theOfficeforNationalStatisticsreported.Theincreasewasupfromanalreadystrong6.0%jumpinOctober.Internetpureplays,whosesalesincreasedby28%yearoveryear,boostedtheoverallfigures.Clothingstoressawasecondconsecutivemonthofpositivegrowth.
• BlackFridaypromptedarecoveryingrowthatelectricalgoodsretailersandajumpinonlinesalesatclothingandfootwearspecialists.
Boohoo.comAcquiresPrettyLittleThing(December14)Pressrelease
• UKfashionpureplayBoohoo.comhasacquired66%ofsmallerfashionpureplayPrettyLittleThingforacashconsiderationof£3.3billion(US$4.1billion).ThetransactionisexpectedtobeconsolidatedonJanuary3,2017.
• Previously,Boohoo.comheldanoptiontoacquire100%ofPrettyLittleThing.Thecurrentcashconsiderationiscalculatedprorataonthisoption,whichwillallowBoohoo.comtoacquiretheremainderofthestakebyFebruary28,2022.
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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
ASIATECHHEADLINESMicrosoftPlanstoUseMachineLearningtoImproveEyecareinIndia(December20)TechCrunch.com
• MicrosoftannouncedthelaunchofanewresearchgroupinIndia,theMicrosoftIntelligentNetworkforEyecare,tobringdata-driveneyecareservicestothecountry.MicrosoftispartneringwiththeLVPrasadEyeInstitutetousemachinelearningtoidentifyconditionsthatleadtoblindnessandtoimproveeyecareforchildren.
• ThemovefollowsasimilarpartnershipbetweenGoogle’sDeepMindandtheUK’sNationalHealthServicetoanalyzeeyescanstospotconditionsthatcanleadtoblindness.
Alibaba’sLazadaBracesforaSoutheastAsianBrawlwithAmazon(December15)Bloomberg.com
• AsAmazonplanstoenterSoutheastAsianextyearwithitslaunchinSingapore,Lazada,SoutheastAsia’slargeste-commercesite,isexpandingitsdeliverynetworkviapartnersinChinaandSouthKorea.Lazada,alreadypresentinIndonesia,Malaysia,thePhilippines,Singapore,ThailandandVietnam,has12warehousesand92distributioncentersandislookingtoshoreupitssupplychainthroughacquisitions.
• SoutheastAsia’spopulationnumbers620million.Asconsumersintheregionhavegottenmoreaccustomedtoshoppingonline,ithasbecomeoneofthefastest-growinge-commercemarketsintheworld.
ZhonganSaidtoConsiderChinaListingInsteadofHongKongIPO(December20)Bloomberg.com
• ZhonganOnlineP&CInsuranceisconsideringalistinginMainlandChinainsteadofinHongKongortheUSamidlukewarmoverseasinterest.ItalsoseekstoavoidcompetingwithapotentialofferingfromAntFinancial,anaffiliateofAlibabaGroup.AntFinancialisZhongan’slargestshareholder,holdinga16%stake.TencentandPingAnInsuranceGroupeachholda12%stakeinthecompany.
• Zhonganhasmorethan400millioncustomersandprovidesonlineinsuranceintheautomotive,healthcareandonline-shoppingsectors,amarketexpectedtoreach¥2trillion(US$300billion)by2025.
VIPKidRaises$125MilliontoMatchChineseKidswithAmericanTeachers(December20)Bloomberg.com
• VIPKidisanonlineplatformthatmatchesChinesestudentsaged5–12withpredominantlyNorthAmericaninstructorstoprovideonlineclassesinEnglish,math,scienceandothersubjects.InChina,therearehundredsofmillionsofkidswhoseparentsarewillingtopayforhigh-qualityeducation.IntheUSandCanada,whereteachersareoftenunderpaid,teacherscanmakeuseoftheplatformtoputtheirskillsaseducatorstoprofitableuse.
• CindyMi,thefounderofVIPKid,aimstogiveChinesekidsthekindofeducationAmericanchildrenreceiveintopschoolsintheUS.Theplatformstartedwith200teachersandhasgrownto5,000workingwith50,000children.Miplanstoexpandto25,000teachersand200,000childrennextyear.
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December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
LATAMRETAILHEADLINESExpandedPanamaCanalWelcomes500thNeopanamaxTransit(December19)WWD.com
• JustsixmonthsaftertheinaugurationoftheexpandedPanamaCanal,thecanalwelcomedits500thtransitofaNeopanamaxship,thecontainervesselYMUnity,whichwastravelingfromAsiatotheUS.
• Thisisasignificantmilestonefortheexpandedcanal,whichhasbeenexperiencingsteadytrafficsinceitopened.Thenewlocksare70feetwiderand18feetdeeperthantheoriginals,thoughtheyuselesswaterduetowater-savingbasinsthatrecycle60%ofthewaterpertransit.
MexicoOctoberRetailSalesPostBiggestRiseinSevenMonths(December20)Reuters.com
• Mexico’snationalstatisticsagencysaidretailsalesinthecountryroseby1.6%inOctobermonthovermonth,whenadjustedforseasonalswings.
• ThemonthlyincreasewasthebiggestsinceMarch,andthefifthincreaseinthelastsixmonths.Inunadjustedterms,salesadvancedby9.3%inOctoberyearoveryear.
UberEatsArrivesinColombia,DeliveryServiceAppCompetitionHeatsUp(December21)America-Retail.com
• UberEatshasarrivedinColombia,allowingColombianstoorderfoodfordeliverydirectlyfromtheapp.Theexistingdeliveryinfrastructurerequiresthatmostpeoplestillcallarestauranttoorderfood.
• Registeredrestaurantssaytheirsaleshaveincreasedbynearly20%sincethelaunchofthedeliveryapp.
TheDanishFashionBrandEmpoweringWomeninPeruvianPrisons(December16)Independent.co.uk
• FashionbrandCarcel,startedinCopenhagen,aimstohelpwomeninPeruvianprisonsfinddignityintheirworkbyenlistingthemtohelpmakeclothesforthebrand.Thewomencanvoluntarilysignuptoworkandearnafairwagemakingsustainableclothing.
• Theclothesaremadefromalpacawool,andcostUS$125–US$250peritem.Thebusinesshelpsthewomenaccruemoneywhileinprison,sotheyhavetheabilitytorebuildtheirliveswhentheyexit.
7
December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
EARNINGSCALENDAR
Sales(Mil.) EPS
Company
EarningsReleasePeriod Date
ConsensusTY LYActual
ConsensusTY LYActual Currency
Walgreens(WBA) 1Q17 Jan5 29,206 29,033 1.10 0.91 USD
FastRetailing(9983.JP) 1Q17 Jan12 540 520 742.25 471.06 JPY
SuperGroup(SGP.L) 1H17 Jan12 334 255 0.21 0.18 GBP
Supervalu(SVU) 3Q17 Jan18(E) 4,063 4,114 0.14 0.17 USD
Apple(AAPL) 1Q17 Jan24(E) 77,160 75,324 3.22 3.22 USD
Kimberly-Clark(KMB) 4Q16 Jan24 4,555 4,539 1.43 1.44 USD
eBay(EBAY) 4Q16 Jan25(E) 2,405 2,322 0.54 0.45 USD
Facebook(FB) 4Q16 Jan25(E) 8,483 5,841 1.30 0.54 USD
Procter&Gamble(PG) 2Q17 Jan25 16,882 16,915 1.07 1.05 USD
Unilever(ULVR.L) FY16 Jan26 52,168 53,272 1.86 1.83 EUR
Colgate-Palmolive(CL) 4Q16 Jan27 3,907 3,899 0.76 0.73 USD
Clorox(CLX) 2Q17 Jan31(E) 1,409 1,345 1.23 1.14 USD
Coach(COH) 2Q17 Jan31 1,321 1,274 0.75 0.68 USD
Coty(COTY) 2Q17 Jan31(E) 2,364 1,211 0.35 0.27 USD
H&M(HM-B.ST) FY16 Jan31 193,021 180,861 11.20 12.63 SEK
LVMH(MC.PA) FY16 Jan31(E) 37,276 35,664 7.96 7.28 EUR
OcadoGroup(OCDO.L) FY16 Jan31 1,275 1,108 0.01 0.02 GBP
SimonPropertyGroup(SPG) 4Q16 Jan31 1,503 1,380 1.40 1.27 USD
MichaelKors(KORS) 3Q17 Feb2(E) 1,373 1,398 1.64 1.59 USD
8
December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
EVENTCALENDAR
Event Location Date(s)
FungGlobalPresenting/Attending
CESUnveiledLasVegas LasVegas,NV Jan3 √CES2017 LasVegas,NV Jan5–8 √ICRConference2017 Orlando,FL Jan9–11 ChicagoBoothEconomicOutlook2017:TopEconomicChallengesFacingtheNewPresident NewYork,NY Jan12 RetailROISuperSaturday NewYork,NY Jan14 NRFFoundationGala NewYork,NY Jan15 NRFRetail’sBigShow NewYork,NY Jan15–17 √Digital-Life-DesignConference Munich,Germany Jan15–17 HongKongFashionWeek HongKong Jan16–19 NextMoneyFintechFinals2017 HongKong Jan18–19 PROJECTNewYork NewYork,NY Jan23–25 AnnualGoldenSeedsSummit NewYork,NY Jan23–28 √ICSCTexasRetailForecast Dallas,TX Jan24 AAFAProductSafetyWestSeminar LongBeach,CA Jan24 ICSCHeartlandStatesIdeaExchange SaintLouis,MO Jan25–26 InnovationEnterpriseBigDataInnovationSummit LasVegas,NV Jan25–26 CreditSuisse2017LatinAmericaInvestmentConference SãoPaulo,Brazil Jan31–Feb1 Cybertech2017 TelAviv,Israel Jan31–Feb1 Inside3DPrintingConference&Expo Düsseldorf,Germany Feb2–3 WWDDigitalBeautyForum:NewYork NewYork,NY Feb7 WearableTechnologiesConference Munich,Germany Feb7–8 FinovateEurope2017 London,UK Feb7–8 EntertainmentExperienceEvolution SantaMonica,CA Feb7–8 InnovationEnterpriseBigData&AnalyticsInnovationSummit Melbourne,Australia Feb8–9 AAFACommitteeMeetings LosAngeles,CA Feb8–9 NewYorkFashionWeek NewYork,NY Feb9–17 Ambiente Frankfurt,Germany Feb10–14 RetailSupplyChainConference2017 Orlando,FL Feb12–15 NationalGrocersAssociationShow LasVegas,NV Feb12–15 AsiaRetailCongress Mumbai,India Feb13–14 RSA2017–IsraeliCyberSecurityShowcase SanFrancisco,CA Feb13–16 OurCrowdGlobalInvestorSummit2017 Jerusalem,Israel Feb16 LondonFashionWeek London,UK Feb17–21 ToyFair NewYork,NY Feb18–21 IndustryofThingsWorldUSA2017 SanDiego,CA Feb20–21
9
December23,2016
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comKirilPopovSeniorAnalyst
JohnHarmon,CFASeniorAnalyst
JohnMercerSeniorAnalyst
RachaelDimitResearchAssociate
StevenWinnickResearchAssociate
CharliePoonResearchAssistant
HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com
