us retail headlines - coresight research · wrong direction, debuting spike heels and slimmer fits...

1

December23,2016

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.

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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


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


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


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.

5

December23,2016


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.

6

December23,2016


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


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

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December23,2016


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,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

us retail headlines - coresight research · wrong direction, debuting spike heels and slimmer fits...

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