Source: S&P Capital IQ/Fung Global Retail & Technology

From the Desk of Deborah Weinswig

Thoughts on Voice Technology, Artificial Intelligence and Drones in Retail

Last week, we participated in the R:Evolution 4.0 retail and consumer conference in London. Among the topics discussed were the retail applications for voice-command technology (which is used in Amazon’s Alexa and other intelligent assistants), artificial intelligence (AI) and drones. Here, we reflect on what we heard at the conference and offer our own thoughts.

Voice Technology Has Proved Its Worth

William Tunstall-Pedoe, a tech entrepreneur, told the crowd at R:Evolution that voice technology, such as that used in the Amazon Echo and Google Home devices, has “crossed the threshold” of proving its usefulness to consumers. Voice tech is disintermediating the search process, Tunstall-Pedoe said—and we see similar prospects for it to cut out the middleman in retail. We think the ease of reordering goods via voice command could boost direct-to-consumer sales, whereby brands bypass conventional retailers and sell directly to consumers, including on Amazon’s marketplace. Voice shopping could work particularly well for replenishment purchases of everyday grocery store items. We see a future in which a consumer says, “Alexa, reorder Pantene shampoo,” and Procter & Gamble makes the sale while Amazon dispatches the order.

Mass-Market Names Are Already Using AI

AI is no longer a peripheral technology—mass-market retail companies are already using it. UK home-shopping retailer Shop Direct is working with IBM Watson on the launch of a fully conversational, AI-powered chatbot. Sam Barton, Head of User Experience at Shop Direct, told R:Evolution 4.0 attendees that some 200,000 customers are already using the company’s first chatbot iteration. Dan Webb, VP of Engineering at food-delivery firm Deliveroo, told those at the conference that data-based decision making is quickly shifting from humans to AI-enabled computers. Deliveroo is applying AI to historical data to optimize its delivery drivers’ journeys and make “meaningful gains in efficiency.” We will shortly be publishing a Deep Dive report on AI in retail. One of our observations is that Internet-only retailers have tended to lead in the adoption of AI technology, even though some of its advantages—such as inventory optimization and improved online service—are of potential value to almost all retailers.

More Hurdles and Less Certainty for Drones

Drone delivery will surely play a part in the last-mile delivery challenge in the future, according to Tunstall-Pedoe. However, the hurdles appear to be greater for drones than for the other technologies noted above, and these include aviation legislation and privacy concerns. As a consequence, when Amazon made its first drone delivery in December 2016, it was in a remote countryside location. While more of us will soon be speaking to devices and interacting with chatbots that talk back to us, drones face logistical and legal hurdles that make it unlikely we will see robot-filled city skies anytime soon.

US RETAIL EARNINGS

Source:Company reports

US RETAIL & TECH HEADLINES

Amazon’s New Bookstore Keeps Shoppers on the Amazon Website (May 24) MarketWatch.com

• Amazon.com’s first New York City bookstore officially opens for business this week. It will be the company’s seventh brick-and-mortar bookstore location. The store occupies 4,000 square feet in The Shops at Columbus Circle, which also houses H&M, Whole Foods Market, Coach, Michael Kors, and high-end restaurants Per Se and Masa.
• Amazon Books will have about 20 associates and stock 3,000 books, all presented with their covers forward and accompanied by a placard featuring a customer review and a bar code that can be scanned using the Amazon app for pricing and additional information.

Retail Mergers Expected to Increase This Year (May 23) Investopedia.com

• Merger and acquisition (M&A) activity in the retail sector worldwide will pick up this year, according to a report from A.T. Kearney, a global strategy and management consulting firm. This year has brought a more complex political environment, so M&A in retail will require a more thoughtful approach than in years past as retailers continue to feel pressure to grow revenue and profits, the report said.
• A.T. Kearney tallied acquisition deals in retail in the past decade and interviewed more than 100 C-level executives for the report. About 67% of those executives believe the pace of M&A will increase in the months ahead.

The Dollar Would Have to Spike to Offset Border Adjustment Tax, Retailers Say (May 22) CNBC.com

• The retail industry is wielding a new weapon in its long-running battle against a border adjustment tax: the US dollar. The Retail Industry Leaders Association, one of the trade groups leading the fight, commissioned a study arguing that the border tax proposal—which would effectively impose a 20% tax on imports—could disrupt foreign exchange markets and result in higher prices for consumers.
• The analysis, by Capital Economics, an independent consulting firm, estimated the US dollar would need to appreciate by 25% in order to offset the new tax. But it predicted that the greenback would likely rise by only single digits instead. For consumers, that could translate into a price hike of 2.1%, with even bigger jumps for certain types of goods, such as apparel.

Why the Rout in Retail Should Not Be a Big Worry for the US Economy (May 20) Bloomberg.com

• A furious pace of store closings and bankruptcies has drummed up fears that US retail is collapsing, but many indicators suggest that retail employment is unlikely to shrivel and that the economy will withstand any shock from the sector’s rout.
• For starters, the broad trend in retail purchases is moving higher. Excluding auto dealers and gas stations, sales were up an annualized 4.6% over the past three months. Even with recent job losses, retail headcount is close to its 12-month average. Such figures suggest that the industry is hardly about to shrink or fade away.

Automation Puts Millions of US Retail Jobs at Risk (May 18) ChainStoreAge.com

• Automation may be mission-critical to operational longevity in the retail industry, but it could be creating a significant pool of “stranded workers.” In the coming years, 6–7.5 million retail jobs likely will be automated out of existence, leaving a large portion of the retail workforce at risk. Retail cashiers are at highest risk for being stranded by automation technologies, and women hold 73% of these positions.
• That is according to a new report titled Retail Automation: Stranded Workers? Opportunities and Risks for Labor and Automation. The report was created by Cornerstone Capital Group and commissioned by the Investor Responsibility Research Center Institute. The report identifies the structural factors catalyzing change in the retail industry.

EUROPE RETAIL EARNINGS

Source: Company reports/Fung Global Retail & Technology

EUROPE RETAIL HEADLINES

UK April Retail Sales Boosted by a Late Easter (May 19) Press release

• Helped by a later Easter than last year, total UK retail sales jumped by 8.1% year over year in April, accelerating from already solid growth of 3.3% in March, according to the Office for National Statistics. Unweighted average growth across March and April was a strong 5.8%.
• In April, grocery stores grew sales by 7.1%, while clothing specialists grew sales by 10.1%, helped by a reported surge in sales at smaller clothing retailers.

Mothercare to Cut Number of UK Stores (May 18) Press release

• British babycare and maternity retailer Mothercare announced that it will cut its store numbers to between 80 and 100 from 152 currently as it seeks to generate “more stable and sustainable” cash flows.
• The company has consolidated executive responsibilities for brick-and-mortar stores and e-commerce into the new role of Chief Customer Officer (CCO). Andy Harding, previously CCO of British department store House of Fraser, has been appointed to the role, effective July 2017.

Amazon Trademarks Checkout-Free Supermarket Slogans in UK (May 19) Bloomberg.com

• The UK Intellectual Property Office has approved Amazon’s application to trademark the slogans “No Lines. No Checkout. (No, Seriously.)” and “No Queue. No Checkout. (No, Seriously.)”
• The slogans are used in a promotional video for Amazon Go, the company’s futuristic store that has no cashiers or checkouts. The trademarking signals that Amazon’s move into the European grocery market may be imminent.

McColl’s Interested in One Stop in Fallout from Tesco-Booker Merger (May 22) Retail-Week.com

• Jonathan Miller, Chief Executive of UK convenience store chain McColl’s, announced that he would seek to buy some or all of Tesco’s One Stop convenience stores if Tesco is forced to offload the chain as part of its merger with wholesaler Booker.
• Speaking about One Stop, Miller said, “I think the business is very, very similar to our own and it would be [a] perfect fit for our business.”

Lidl Starts Selling Online in China (May 22) RetailDetail.eu

• German discounter Lidl this week launched its own web shop in China on Alibaba’s online platform, Tmall Global. Rival Aldi opened a shop on Tmall Global in March 2017.
• The web shop will offer a number of Lidl’s private labels, and products will be shipped from Germany. Lidl is expected to expand the product range if the web shop is deemed a success.

ASIA TECH HEADLINES

Kuang-Chi Invests $5 Million in SkyX, a Maker of Drones to Monitor Oil and Gas Pipelines (May 23) TechCrunch.com

•  Shenzhen-based Kuang-Chi Group is investing $5 million in drone tech startup SkyX Systems, according to SkyX CEO Didi Horn. A former fighter pilot with the Israeli Air Force, Horn started SkyX in 2015 to help public and private companies monitor energy infrastructure from on high, using increasingly powerful drones and big data analytics.
• SkyX has developed proprietary SkyOne drones that employ a fixed-wing design and helicopter-like features to take off and land on small charging stations set up in the fields alongside oil and gas pipelines. The stations shelter the drones from bad weather and theft during charging.

Toyota Pushes into Blockchain Tech to Enable the Next Generation of Cars (May 23) TechCrunch.com

• Toyota has enlisted a series of partners that specialize in different aspects of blockchain technology—the distributed, encrypted ledger technology that powers the cryptocurrency bitcoin—to explore how the technology may be applied to the car industry.
• Toyota unveiled a number of projects that aim to address how software will help people become comfortable with autonomous technologies. That means monitoring and distributing information about the safety of individual vehicles and the way owners use the cars, and cutting down on fraud.

SoftBank Closes Funding for Record $93 Billion Investment Fund (May 20) Bloomberg.com

• SoftBank and Saudi Arabia formally announced the first round of capital commitments for the largest-ever technology investment fund, as SoftBank founder and CEO Masayoshi Son seeks to accelerate his financing of cutting-edge technologies and startups.
• More than $93 billion has been secured from backers, led by the Japanese company and Saudi Arabia’s Public Investment Fund. The Vision Fund will allow the billionaire Son to cut even more ambitious deals than he has been able to with his highly leveraged company.

Google Cozies Up to China with AI Secrets and a Game of Go (May 23) Bloomberg.com

• Years after Beijing locked out virtually every Alphabet service, Executive Chairman Eric Schmidt and Chinese government officials kicked off a summit in Wuzhen Tuesday at a high-profile public event. During the summit on AI, Google experts and prominent local academics planned to exchange notes and host discussions, but the centerpiece was a contest between DeepMind’s so-far undefeated AlphaGo system and Ke Jie, local champion of the 2,500-year-old strategy board game Go.
• Google and its DeepMind AI unit are appealing to local sentiment. The widely covered contest provoked discussion on social media about whether an AI system could beat a player from China—the nation that spawned the game several millennia ago.

LATAM RETAIL AND TECH HEADLINES

GPA, Braskem to Manufacture Recycled Plastic Packaging in Brazil (May 22) PackagingBR

• Brazilian retail chain GPA and thermoplastic resins producer Braskem have partnered to manufacture recycled plastic packaging from materials collected in supermarkets. Under the partnership, the two companies are set to produce 60 metric tons of recycled plastic that will, in turn, be used every year to manufacture the new packaging of Qualitá stain remover products.
• The partnership is part of the Braskem-created Wecycle platform, which makes use of plastic waste in the production chain. It is also part of GPA’s Novo de Novo reverse logistics program.

Dufry Shopping Duty-Paid Concept Store Opens in Goiânia, Brazil (May 20) MoodieDavittReport.com

• Dufry has opened a 381 square meter, walk-through, duty-paid megastore called Dufry Shopping at Santa Genoveva Airport in Goiânia, Brazil. The retailer said that the opening underlines a commitment and strategic plan to offer domestic passengers a similar shopping experience to that enjoyed by international travelers.
• The walk-through format offers easy access to a diverse array of products, including perfumes and cosmetics, confectionery and liquor, an array of luxury and fashion products such as sunglasses and watches, plus electronics and travel essentials.

David’s Bridal Announces Grand Opening of First Mexico City Store (May 19) Company press release

• David’s Bridal, the leading bridal and special occasion retailer in the US, has partnered with Diltex, the foremost manufacturer and retailer of intimate apparel in Mexico, to open its first franchise location in Mexico City. The store opened on May 20.
• Diltex is a Mexico-based company that for the past 67 years has been dedicated to the design, production and marketing of quality fashion products for Latina women. The company produces underwear, outerwear, cosmetics, household items and other products.

Mexico Retail Sales in March Fall by Most Since August 2013 (May 23) Reuters.com

• Retail sales in Mexico unexpectedly fell by 1.3% in March from February, the national statistics agency said. That was the biggest month-over-month drop since August 2013. Economists polled by Reuters had projected an increase of 0.3%.
• Mexico revised its official 2017 growth estimate upward on Monday after data showed that the economy grew by more than had been expected in the first quarter despite uncertainty about how US President Donald Trump’s policies will hit exports and investment.

MACRO UPDATE

Key points from global macro indicators released May 17–24, 2017:

1.  US: Jobless claims in the US continued to drop in May. Both initial and continuing claims were lower than in April and lower than expected, strongly signaling a continued decrease in unemployment. New home sales dropped by 11.4% month over month in April, suggesting a cooling housing market.
2. Europe: UK retail sales experienced strong growth in April, increasing by 2.3% month over month and by 4.0% year over year. In the eurozone, the Consumer Price Index (CPI) increased by 1.9% year over year in April. The eurozone consumer confidence reading was negative in May, but showed a slight improvement from the previous month.
3. Asia-Pacific: China announced that foreign direct investment dropped by 4.3% year over year in April, reflecting negative sentiment about the Chinese economy.
4. Latin America: In Brazil, the current account balance and foreign direct investment both decreased in April from the previous month. Mexico enjoyed nominal GDP growth of 11.0% year over year in the first quarter. The prosperous economy boosted Mexico’s March retail sales by 6.1% year over year.

* Fung Global Retail & Technology’s evaluation of the actual figure’s impact on the economy relative to historical benchmarks and the current macroeconomic environment: + indicates a positive signal for the country’s economy, – indicates a negative signal and = indicates a negligible or mixed impact. Source: US Bureau of Labor Statistics/US Federal Reserve/Markit/Halifax/Eurostat/National Bureau of Statistics of China/Instituto Brasileiro de Geografia e Estatística (IBGE)/Instituto Nacional de Estadística y Geografía (INEGI)/Fung Global Retail & Technology