Weekly Insight 3_26 Final

 March 26, 2015
Weekly insights
March 26, 2015
Technology and retail are colliding. We have identified four technologies that will cause further upheavals in retail. Retailers have started early Easter promotions. More Wall Streeters defect to tech firms as Kraft and Heinz agree to merge. D EBO RA H W EI N S WI G
Ex e c uti ve D ir ec to r— H ea d of G lob al R eta i l & Te c h n ol og y
Fu n g Bus i n es s I n tel li g en c e C en tr e
d ebo ra h we in s w ig @ f un g 19 37. c om
N ew Y or k : 64 6. 83 9. 701 7
Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
FROM THE DESK OF DEBORAH WEINSWIG Technology and retail are colliding. Hot on the heels of the upheavals caused by e-­‐commerce, a suite of technologies has emerged that has the potential to further disrupt retail. These technologies will place new pressures on stores to provide a seamless, omnichannel (anytime/anywhere) shopping experience for consumers and force new business models on retailers. We’ve identified four emerging technologies that will cause further upheavals in retail. The first is sensors and MEMS (microelectromechanical systems): these enable devices such as smartphones to gather data about location, orientation, motion, temperature, etc., and they are starting to be used in wearable technologies. Another is mobile apps: more than a billion smartphones are sold every year and developers are creating apps for every imaginable use—app usage for shopping is soaring, too. A third is cloud computing: the ability to store data and tap into remote processing power and other remote resources in the cloud makes complex smartphone apps possible. The cloud also provides flexibility in IT operations and access to capabilities that retailers don’t have in-­‐house. The fourth game-­‐changing technology is beacons: these compact, inexpensive Bluetooth transponders can be installed throughout stores and other spaces to track activity on the shopping floor and transmit information such as guidance and marketing communications to shoppers. We think these disruptive technologies will drive further changes in how shoppers behave and will place even more information and power in the hands of consumers. Looking ahead, what will be the result for physical stores? We think one outcome could be a new store model, a hyperconnected environment in which the digital and physical worlds meet. The store of the future could include elements such as: • In-­‐store offers delivered digitally: When a shopper enters a store, a sensor could identify her via the location data from her smartphone (at some point, this could be done using cameras and facial-­‐recognition software). The system could then call up data about the shopper, including online-­‐browsing data, to “push” a list of suggested purchases to her, make cross-­‐selling suggestions and issue e-­‐coupons. • More self-­‐service options: In-­‐store technologies could give shoppers new ways to find what they want. For example, smartphone apps or in-­‐store kiosks could advise customers on product availability and the in-­‐
store location of their chosen items. And, in clothing stores, “magic mirrors” could show customers colors and size options or suggest complementary accessories or footwear. • Clienteling: The store of the future may not need as many associates on the floor, but the ones who are there would have new powers. With tablet computers and apps that tap into data on the cloud, associates could have full customer relationship management systems in their hands. They could call up a shopper’s profile, make cross-­‐selling suggestions, answer the shopper’s questions, display merchandise, check availability and transact a sale. • Automated inventory: Internet-­‐of-­‐Things technology could make new approaches to inventory management possible. By using sensors to weigh or measure inventory, stores could see exactly when replenishment is needed. At some point, RFID tagging of individual stock items could make inventory management even more precise. Advanced inventory systems could not only prevent costly stock-­‐outs, but also help fine-­‐tune ordering and reduce inventory carrying costs and markdowns. The good news for traditional retailers is that stores retain a critical role in the consumer’s path to purchase, even in this digital era. Shoppers still want an in-­‐store experience—to be surprised and delighted, to touch the goods, to see what other shoppers are looking at. And it’s becoming increasingly clear that they want to combine the convenience of online and in-­‐store shopping with services such as collect-­‐in-­‐store and return-­‐in-­‐
store. For now, some consumers still have reservations when it comes to the more cutting-­‐edge technologies, data applications and payment methods. But change is coming. Retailers have a chance to evolve digitally enabled and data-­‐driven business models—if they act now. Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
STAT OF THE WEEK 36% • The increase in after-­‐tax profits that Swedish fashion retailer Hennes & Mauritz (H&M) reported for the first quarter. • The CEO of H&M, Karl-­‐Johan Persson, attributed fast growth to robust store and online expansion. The company plans to open 400 stores this fiscal year. Source: Women’s Wear Daily CHART OF THE WEEK Existing Home Sales in the US Edged Up in February Figure 1. Existing Home Sales YoY % Change 60 40 20 4.7 0 (20) (40) 04 05 06 07 08 09 10 11 12 13 14 15 Through February 28, 2015 Seasonally adjusted Source: US National Association of Realtors • The sale of existing homes rose in February by 1.2% from January, and by 4.7% year over year, to a seasonally adjusted rate of 4.88 million units. • Despite the increase, the rate of growth is still “unhealthy,” according to the chief economist of the National Associaton of Realtors. • Fast-­‐rising home prices and low inventory levels were major concerns. The Feburary median home price in the US was $202,600, up 7.5% year over year.
Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
2
March 26, 2015
US RETAIL TRAFFIC US Store Traffic Was Improved by Spring and Easter Shopping Figure 2. US Weekly Traffic YoY% Change 10 5 0 (5) (15) 10/03 10/10 10/17 10/24 10/31 11/07 11/14 11/21 11/28 12/05 12/12 12/19 12/26 01/02 01/09 01/16 01/24 01/31 02/07 02/14 02/21 02/28 03/06 03/13 03/21 (10) Through March 21, 2015 Source: ShopperTrak •
US store traffic stayed in negative territory in the week ending March 21, but improved to (-­‐
1.2%) from (-­‐3.4%) due to early spring and Easter shopping. •
Apparel store traffic grew by 3.8%, while electronics store traffic declined 8.4%. US REGULAR GASOLINE PRICES Figure 3. US Regular Gasoline Prices* (USD per Gallon) 03/09/15 US 2.487 03/16/15 2.453 03/23/15 Change from Week Ago Year Ago 2.457 0.004 (1.09) East Coast (PADD1) 2.421 2.401 2.361 (0.040) (1.167) 2.339 2.285 2.391 (0.054) (1.160) 2.228 2.220 2.191 (0.029) (1.128) 2.232 2.288 2.303 0.015 (1.154) 3.182 3.116 3.047 (0.069) (0.776) Midwest (PADD2)
Gulf Coast (PADD3)
Rocky Mountains (PADD4) West Coast (PADD5)
Source: US Energy Information Administration Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
US WEATHER ANALYTICS: Week of March 29–April 4 Week Leading to Easter Warmer Temperatures Across the Western Half of North America, While Cool Conditions Persist in the East • Warmth Continues Across the Plains and West. Markets from the Central Plains to the West Coast will continue to trend warmer than both last year and normal. Expect strong demand for pool chemicals, lawn care categories and other outdoor products. • Cooler than Last Year in the East. The eastern US will start the week off on the cool side and will become colder still as another shot of Canadian air rushes into the region midweek. Most of the East will average well below last year and normal. The South Central region will also trend cooler than last year and normal for the majority of the week. These conditions will limit demand for spring merchandise. Florida remains the exception, with temperatures there expected to be warmer than both last year and normal. • Rain and Mountain Snow. Light snow will track across the Northern Tier, while rain and thunderstorms will persist across the South. More rain and mountain snow will extend from the Pacific Northwest across the Northern Rockies and into the Plains. Weather-­‐Driven Demand: Sandals +5% YoY March 29–April 4 Weather Outlook (Average Temperature vs. This Time Last Year) Source: Planalytics US PROMO HIGHLIGHTS • Retailers started early Easter promotions: JCPenney offered bonus cash and doorbuster deals for Easter dresses. Kohl’s also featured dresses and shoes for Easter at up to 50% off. Dollar General encouraged shoppers to celebrate Easter savings with over 100 items for Easter baskets. • Department stores’ spring campaigns were in full swing: Nordstrom promoted wedding guest dresses and “style on a shoestring.” The Macy’s weekly sale was themed “Happy Spring Home Sale” and featured sales of 10%–15% off, plus extra Macy’s money. • Big-­‐box retailer Walmart encouraged shoppers to tackle spring projects and take advantage of deals on landscape basics. Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
RETAIL EARNINGS Revenues ($ Mil.) (%) Gross Margin (%) Company 2014 Five Below 264 212 24.4 40.3 39.7 G-­‐III Apparel Group 514 473 8.8 35.7 35.2 2014 2013 Change (BP) Net Income ($ Mil.) 2014 2013 60 33 25 52 22 13 Change YoY (%) Store Fleet EOP 2014 2013 34.2 366 304 75.3 N/A N/A 40,276 32,143 25.3 55.2 54.9 30 3,613 2,649 36.4 3,551 3,10
0 602 521 15.7 51.5 53.5 (200) 111 110 1.1 302 254 Nike 7,460 6,972 7.0 45.9 44.5 140 791.0 682 16.0 858 753 PVH 2,069 2,052 0.8 51.8 47.9 389 52 (38) N/A N/A N/A H&M* lululemon athletica 2013 Change *Reported in SEK Source: Company reports
US RETAIL HEADLINES Simon Property Made Best and Final Offer of $23.2 Billion for Macerich (March 20) Company press release • Simon Property announced its best and final offer to acquire Macerich: $95.5 per share, or a total transaction value of $23.2 billion. This offer represents a 37% premium over Macerich’s pre-­‐announcement price on November 18, 2014. • This new deal was proposed after Macerich rejected Simon’s $91 per share, or $16 billion, offer last Tuesday. The new offer also includes the assumption of Macerich’s $6.4 billion of debt. • Macerich has until April 1 to consider the offer, after which Simon will withdraw the deal. Victoria’s Secret Partners with Percassi to Franchise in Italy (March 24) Women’s Wear Daily • The Italian retail and real estate development firm Percassi signed a franchising partner agreement with Victoria’s Secret in Italy. The first city boutiques are set to open this year. Percassi earlier had helped Zara enter the Italian market. • At Victoria’s Secret stores in Italy, customers will be able to shop for fragrances, bath and body products, small leather goods, travel accessories, and a selection of lingerie. Morgan Stanley CFO Ruth Porat to Join Google (March 24) Financial Times • The Chief Financial Officer of Morgan Stanley, Ruth Porat, will assume the same role at Google. She will replace the retiring CFO, Patrick Pichette. • Porat, 57, joined Morgan Stanley in 1987 and led the bank’s tech banking division during the dot-­‐com era. She is the most recent influential Wall Street figure to leave for Silicon Valley, following the example of Goldman Sachs’ Anthony Noto, who became CFO of Twitter, and prominent Credit Suisse tech banker Imran Khan, who now serves as Chief Strategist at Snapchat. Heinz and Kraft Announce Merger: Will Become the Third-­‐Largest Food Company in North America (March 25) Company press release • Kraft Foods Group and H.J. Heinz announced their merger, under which Kraft shareholders will own 49% of the new company and get a special cash dividend of $16.5 per share, while Heinz shareholders will own a 51% stake. • The new Kraft Heinz will be headquartered in Pittsburgh and the Chicago area. Kraft’s shares jumped 26% upon the announcement. Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
ASIA TECH HEADLINES Reuters Websites Become Inaccessible in China (March 20) Channel NewsAsia • The news websites of Reuters, including those in English and Chinese, were inaccessible in China on Friday. Users first experienced difficulties accessing them late Thursday. • The websites of Bloomberg News, The New York Times and The Wall Street Journal have all been inaccessible in China for some time. The Cyberspace Administration of China, the country’s Internet regulator, did not immediately respond to a written request for comment. Founder Cher Wang Takes Over as CEO as Taiwan’s HTC Seeks Turnaround (March 20) Channel NewsAsia • On Friday, HTC named Cher Wang as Chief Executive Officer, giving her, the company’s founder and chairwoman, a bigger role in leading a potential turnaround of the Taiwanese smartphone maker. • Revenue at HTC, which once had a 1% share of the global smartphone market, has largely flatlined following a gradual slide over the past two years. Net income has fared worse, with the company reporting either losses or only a slim profit since hitting a peak in the third quarter of 2011. Uber Singapore Is Offering Free Rides in a Lamborghini or Maserati (March 21) e27.co • In the new service, Uber will provide rides in supercars until May 20, 2015, as part of a new partnership with Dream Drive. • The Lamborghini will set riders back a base fee of S$200 (US$144) with a S$7 (US$5) fee for each additional minute. The Maserati is somewhat cheaper, with a base fee of S$165 (US$119) with a S$7 (US$5) fee per additional minute. China to Reap Alibaba Windfall as It Tightens Up on Tax (March 23) Channel NewsAsia • China could make billions of dollars from taxing gains made by employees of e-­‐commerce giant Alibaba. Employees are free to sell their shares for the first time since the company’s IPO, just as the country is tightening up its leaky mechanisms for tax collection. • While tax on employee compensation is withheld by employers, tax on share sales must be declared by employees, meaning that those taxes are typically harder for authorities to track. Wempy Dyocta Koto of Indonesia’s Systec Group Joins Chinaccelerator (March 23) Tech in Asia • Wempy Dyocta Koto is a well-­‐known figure in Southeast Asia. Fortune named him one of Indonesia’s “40 under 40” recently. He also currently sits on the board of advisors for Kalibrr, the first Filipino startup to be admitted into Y Combinator. • Startups that gain entry into Chinaccelerator receive US$30,000 in seed funding, residence at the accelerator’s campus in Shanghai, three months of mentorship, and the chance to pitch to angel investors and VCs at the end of the program during a demo day. Daum Kakao Acquires K Cube Ventures, Adds $15 Million to It (March 23) Tech in Asia • Daum Kakao, the publicly listed firm responsible for one of South Korea’s largest Web portals in Daum and chat app KakaoTalk, has acquired 100% of K Cube Ventures, an early-­‐stage VC firm that invests primarily in South Korean and a few Asian-­‐Pacific companies. • Daum Kakao will invest another US$15 million in K Cube to launch a new early-­‐stage fund. In the process, K Cube will become the acquirer’s corporate investment arm. K Cube will operate independently from K Venture, an investment firm with US$90.8 million in capital. Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
Learn Business English from Real Execs with BeNative Pro, Which Just Raised $2.7M (March 24) Tech in Asia • Seoul-­‐based educational startup Smatoos announced a KRW3 billion (US$2.7 million) series B investment for its business-­‐English learning service, BeNative Pro, which launched earlier this year. • It will go toward expanding into China and Taiwan, as well as increasing the startup’s existing presence in Japan. Currently, 64% of users are in South Korea, 27% are in Japan and 9% are in China. EUROPE/UK RETAIL HEADLINES Hennes & Mauritz Group Increases Profits and Establishes New Market Opportunities (March 24) Company press release • For the period from December 2014 through February 2015, H&M’s comparable sales increased by 15% in local currency, while gross profits grew by 26%. This quarter’s success has been attributed to new collections that have been well received by consumers both in-­‐store and online. • The company said it plans to open 400 new stores in the financial year 2014/2015 and will pursue nine more online markets. ScS Reports Rise in Comparable Sales Alongside an Operating Loss (March 23) The Retail Bulletin • ScS, a UK sofa retailer, has reported a 7.8% rise in comparable sales in the first half of its financial year and a total sales increase of 14.5%, to £132 million (US$478 million). • In the six months ending January 24, 2015, ScS boosted gross profits by 13.2%, but posted an operating loss of £8.7 million (US$13 million). However, this shortfall had been expected due to investment in advertising and new concessions. NotOnTheHighstreet.com Taps into Tesco Knowledge (March 23) The Retail Bulletin • Simon Belsham, Managing Director of Grocery Home Shopping for Tesco.com, has been appointed Chief Executive Officer for NotOnTheHighstreet.com. • NotOnTheHighstreet.com had a turnover of £127 million (US$189 million) in 2014 and customers numbered over 3 million. With previous roles in Ocado and Tesco, Belsham is being brought on to help the company with his e-­‐commerce expertise. Achica Remains in the Red Despite Sales Increase (March 23) RetailWeek.com • UK-­‐based luxury e-­‐tailer Achica has now posted its full-­‐year financial results for 2013. The sales figures are encouraging: £36.5 million (US$54 million) in 2012 increased to £55.7 million (US$83 million) in 2013. However, the loss for the period reached almost £7 million (US$10 million). • The deficit has been linked to staff investment and property costs. Achica says it will continue to invest in new market opportunities, particularly in Spain and France, which the company sees as strategically important for business growth. Morrisons Axes Nearly Half of Executive Board in One Fatal Blow (March 24) RetailWeek.com • David Potts, the new boss of UK supermarket chain Morrisons, has started an explosive clear-­‐
out within the company’s top-­‐level management. The Marketing Director, Retail Director, Strategy Director, and Logistics and Convenience Directors have all been shown the door, leaving only seven left on the Executive Board. • Potts has said he aims to create a “leaner” senior team as Morrisons prioritizes investment in its larger stores in order to regain “trading momentum.” Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
7
March 26, 2015
LATAM RETAIL HEADLINES FEMSA to Benefit from Change in Mexico’s Oil Regulation (March 24) Bloomberg • A minor change in Mexico’s oil regulation overhaul ended the monopoly of state-­‐owned Pemex (Petróleos Mexicanos). • Fomento Económico (FEMSA) agreed to acquire 227 gas stations on February 26 and is looking to acquire even more. • Under the new regulatory framework, FEMSA will now be able to open gas stations freely. Ferrioni Automates Supply Chain (March 24) ChainStoreAge.com • Mexican brand manufacturer and retailer Ferrioni plans to replace its legacy POS and merchandising systems with fully automated supply chain processes. • The company is implementing an omnimobile solution, which expands beyond the traditional workplace to include enterprise notifications and alerts from anywhere, at any time. • When the solution is deployed, the company will have real-­‐time insight into all of its business processes. GM to Manufacture Next-­‐Generation Chevrolet Cruze in Mexico (March 23) Reuters • On March 23, General Motors announced its plans to build its next-­‐generation Chevrolet Cruze small car in Mexico. • The company will spend $450 million to expand its plant in Coahuila, as part of its announced $5 billion investment in Mexican plants. •
This represents the first time the Cruze will be manufactured in Mexico. Facebook Opens “Innovation Lab” in Brazilian Favela (March 19) The Wall Street Journal • Last week, Facebook set up an “Innovation Lab” in Heliópolis, a sprawling, unplanned community (favela), in southeast São Paulo. • The lab offers small business owners free classes on digital marketing, finance and Facebook’s services. • The lab’s goal is to provide mobile technology to entrepreneurs, since Brazilians are among the world’s top purchasers of smartphones, even in lower-­‐income areas. Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
Earnings Calendar Company Event Date ASOS 1H15 Earnings Call/Earnings Release Apr. 1 Marks & Spencer 4Q Trading Update Apr. 2 Hudson’s Bay 4Q15 Earnings Call/Earnings Release Apr. 7 Walgreens Boots Alliance 2Q15 Earnings Call/Earnings Release Apr. 9 Rite Aid 4Q15 Earnings Call/Earnings Release Apr. 9 Fast Retailing 1H15 Earnings Call/Earnings Release Apr. 9 Family Dollar 2Q15 Earnings Call/Earnings Release Apr. 10 Etam Développement FY14 Earnings Call/Earnings Release Apr. 16 Google 1Q15 Earnings Call/Earnings Release Apr. 16 Debenhams 1H15 Earnings Call/Earnings Release Apr. 16 Associated British Foods 1H15 Earnings Call/Earnings Release Apr. 21 eBay 1Q15 Earnings Call/Earnings Release Apr. 22 Tesco FY15 Earnings Call/Earnings Release Apr. 22 Tractor Supply 1Q15 Earnings Call/Earnings Release Apr. 22 Apple 2Q15 Earnings Call/Earnings Release Apr. 22 Facebook 1Q15 Earnings Call/Earnings Release Apr. 23 Brunswick 1Q15 Earnings Call/Earnings Release Apr. 24 Procter & Gamble 3Q15 Earnings Call/Earnings Release Apr. 24 VF 1Q15 Earnings Call/Earnings Release Apr. 24 Simon Property 1Q15 Earnings Call/Earnings Release Apr. 24 Amazon 1Q15 Earnings Call/Earnings Release Apr. 24 Overstock.com 1Q15 Earnings Call/Earnings Release Apr. 24 Baidu 1Q15 Earnings Call/Earnings Release Apr. 24 Under Armour 1Q15 Earnings Call/Earnings Release Apr. 24 General Growth Properties 1Q15 Earnings Call/Earnings Release Apr. 27 Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
Event Calendar Event Location Date(s) FBIC Presentation Mercedes-­‐Benz China Fashion Week Beijing, China Mar. 24–31 Internet Retailing Expo Birmingham, UK Mar. 25–26 Social Media Marketing World San Diego, CA Mar. 25–27 Profiting with Business Weatherization New York, NY Mar. 31 Strategic Sourcing, Customs, and Logistics Integration Conference Washington, DC Apr. 13–15 Digital Velocity San Diego, CA Apr. 13–15 The 13 China Department Store Summit th
Jinjiang, China Apr. 18–20 Deborah Weinswig Wearable Technology: Adoption and Monetization Summit 2015 San Francisco, CA Apr. 21–22 Condé Nast International Luxury Conference Florence, Italy Apr. 22–23 Global Retailing Conference Tucson, AZ Apr. 23–24 Deborah Weinswig Wearable Technologies Conference Milan, Italy Apr. 29 Retail and Consumer Goods Analytics Summit Chicago, IL Apr. 29–May 1 Deborah Weinswig Disrupt NY New York, NY May 4–6 RetailNext Executive Forum Monterey, CA May 6–8 Vanity Capital BAML Conference Singapore, Singapore May 12–13 Deborah Weinswig Internet of Things World San Francisco, CA May 12–13 RECon Las Vegas, NV May 17–20 CES Asia Shanghai, China May 25–27 MIT Technology Review EmTech Digital San Francisco, CA Jun. 1–2 Internet Retailer Conference Exhibition Chicago, IL Jun. 2–5 WWD Digital Forum: Beauty Edition New York, NY Jun. 9–10 New York Fashion Tech Lab Demo Day New York, NY Jun. 18 NRF PROTECT Long Beach, CA Jun. 23–25 ICSC Next Generation Conference Miami, FL Jul. 26–28 NACDS Washington, DC Aug. 24 Deborah Weinswig Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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March 26, 2015
Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: +852 6119 1779 deborahweinswig@fung1937.com Marie Driscoll, CFA mariedriscoll@fung1937.com John Harmon, CFA johnharmon@fung1937.com Amy Hedrick amyhedrick@fung1937.com Aragorn Ho AragornHo@Fung1937.com John Mercer johnmercer@fung1937.com Stephanie Reilly stephaniereilly@fung1937.com Lan Rosengard lanrosengard@fung1937.com Jing Wang jingwang@fung1937.com Fung Business Intelligence
Centre (FBIC) publication: Retail Research Weekly Insights
Copyright © 2015 Fung Group. All rights reserved.
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