the retail revolution is now january 25 2017 · 1/25/2017 · measures to remain relevant in this...
TRANSCRIPT
1
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
US: 917.655.6790
HK: 852.6119.1779
CN: 86.186.1420.3016
2
January25,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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.
200
400
600
800
1,000
1,200
707274767880828486889092949698000204060810121416
3
January25,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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.
0
200
400
600
800
1,000
1,200
Kohl's JCPenney Macy's Sears Dillard's Nordstrom NeimanMarcus
SaksFifhAvenue
2015 2016 2017E
Kohl’s Macy’s
Dillard’s
4
January25,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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.
6.7%
8.9%
11.0%
13.3%
15.9%
18.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2015 2016E 2017E 2018E 2019E 2020E
5
January25,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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.
6
January25,2017
DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.
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