From the Desk of Deborah Weinswig

Reviewing Retail in 2017, Part 2: Collaborations

As retail’s foundations shifted in 2017, legacy retailers sought out collaborations designed to drive shopper traffic, build their appeal to demographics such as millennials and maximize the value of their real estate holdings. This trend was particularly apparent in the US, but we also saw European and Asian retailers enter partnerships to tap new technologies and develop cross-channel offerings. This is the second of two notes where we review the year in retail; last week, we discussed 2017’s notable retail mergers, acquisitions and investments.

Retailer-Retailer Collaborations

We saw a large number of collaborations between retailers this year, and these served a multitude of purposes. Piggybacking on Amazon’s growth: Both Sears and Kohl’s partnered with Amazon in 2017. In July, Sears began selling private label appliances on Amazon.com, and it added private label car batteries and tires to the offering in December. In a more striking partnership, Kohl’s agreed to two tie-ups with Amazon. First, Kohl’s started selling Amazon’s tech products in dedicated in-store departments. Later, it began using its stores as drop-off points for returns by Amazon customers. The Kohl’s-Amazon partnership raises two questions, neither of which has been answered so far: Will other retailers follow Kohl’s in collaborating with Amazon? And will this collaboration offer Kohl’s some immunity from Amazon’s impact on US department stores? Implementing new technologies: In November, French grocery retailer Groupe Casino became the first non-UK retailer to license Ocado’s hardware and software for use in high-tech online grocery fulfillment centers. This was a long-awaited agreement. Back in February, Alibaba Group signed a partnership with Chinese retailer Bailian Group to develop new retail technologies, launch new cross-channel retail services, improve supply chain management and adopt technologies to improve customer service capabilities. Tapping high-growth markets: In August, Walmart and JD.com announced that they were expanding their strategic partnership in China by further integrating their platforms, supply chains and customer resources. The retailers also collaborated on the inaugural 8.8 shopping festival in China on August 8. Offering convenience: In April, Uniqlo partnered with 7-Eleven in South Korea to enable Uniqlo customers to pick up their Internet purchases from the convenience store chain. Broadening choice: Under an agreement announced in November, Lord & Taylor will open a storefront on Walmart’s online marketplace site in early 2018. Denise Incandela, Head of Fashion at Walmart US eCommerce, told Reuters, “Our goal is to create a premium fashion destination within Walmart.com.”

Retailer-Brand Collaborations

Brick-and-mortar retailers sought out collaborations with brands that could bring product exclusivity or experiences to their stores. In May this year, Target brought Casper mattresses to physical stores for the first time, after introducing Harry’s shaving products in stores in 2016. In August, Germany’s KaDeWe Group followed Target’s lead and began selling Casper mattresses in its own stores. In November, the Macy’s flagship store in New York’s Herald Square unveiled a 1,000-square-foot Samsung smart product experience area. According to Samsung, this was the first installation of its kind in the US, and the combination of retail and entertainment brought 200–300 customers into the store per day in November to try the virtual reality experience. Online, Nike was among the brands to start selling on Amazon this year. And Calvin Klein opted to sell its new underwear styles only on Amazon and through pop-up stores instead of through traditional channels such as department stores.

Retailer-Service Collaborations

In the most striking retailer-service collaboration of the year, Hudson’s Bay Company (HBC) entered into a strategic relationship with office-space provider WeWork. HBC sold its Lord & Taylor New York flagship to WeWork’s real estate company. WeWork will use the building as its headquarters and lease some of the office space to other companies; a smaller Lord & Taylor store will occupy part of the building. HBC will also lease space in some of its other stores to WeWork. Rhône, the partner in WeWork’s real estate joint venture, will make a $500 million equity investment in HBC. The move illustrates the reduced need for square footage at department stores and suggests that there are possibilities for other hard-hit retailers and property owners to generate value from their surfeit of underproductive retail space. We wonder if we will see other large-store retailers search out similar agreements with service providers in 2018. Even if we do not, there is little doubt that we will continue to see retailers take original approaches to strategic relationships next year as they seek to drive traffic, tap high-growth platforms, adopt new technologies and maximize the value of their real estate portfolios.

US RETAIL EARNINGS

Source: Company reports/FGRT

US RETAIL & TECH HEADLINES

Macy’s Taps Former Walmart Exec for New Digital Role (December 20) RetailDive.com

• Macy’s on Tuesday announced the appointment of Jill Ramsey to the newly created role of Chief Product and Digital Revenue Officer, which was established to focus on bridging the gap between the physical and digital customer experiences. Beginning January 8, Ramsey will report to Macy’s president Hal Lawton.
• Ramsey will oversee product and revenue for Macys.com and the Macy’s app. She will also lead on digital revenue, enterprise product management, the enterprise portfolio, digital merchandise management, site production and the user experience, the company said.

Walmart Is Reportedly Developing a Store of the Future with No Cashiers (December 20) BusinessInsider.com

• Walmart is developing a store with no cashiers, according to a report in Recode. Few details are available, but the initial sketch of the idea sounds very similar to Amazon’s Amazon Go store, which has no cashiers and uses tracking cameras and machine-learning software to charge customers for things they take off the shelf.
• Recode also reports that Walmart is testing a tech-heavy personal-shopping service geared toward higher-income “busy” moms. It allows customers to buy products or get recommendations simply by snapping a picture and sending it to the company.

Lowe’s Taps Former Amazon Exec for First Chief Digital Officer Role (December 19) ZDNet.com

• Home improvement chain Lowe’s has nabbed an e-commerce executive from Amazon to become its first-ever Chief Digital Officer, a relatively new role in the corporate taxonomy that is increasingly driving digital transformation efforts.
• Vikram Singh is charged with accelerating the company’s “digital evolution” into a fully integrated retailer with seamless connections between in-store, online and mobile shopping. He will also work to better integrate digital efforts at Lowe’s between its supply chain and marketing operations.

Bankrupt Toys“R”Us Weighs Closing at Least 100 Stores (December 18) Bloomberg.com

• Toys“R”Us, which filed for bankruptcy in September, is considering closing at least 100 US stores in the face of weak holiday sales, according to people with knowledge of the situation.
• Shutting stores is common practice for bankrupt retailers, but Toys“R”Us has said that its Chapter 11 filing would not herald a big retrenchment for the largest toy store chain. Weak holiday results threaten to complicate the retailer’s plans to get its finances in order and emerge from bankruptcy with an improved balance sheet.

Americans Spend More than Expected as Holiday Season Heats Up (December 14) WSJ.com

• Americans are spending more than expected this holiday season, fueled by income gains, confidence in the economic outlook, buoyant financial markets and modest inflation.
• The boost includes in-store and online spending at brick-and-mortar retailers such as Walmart and Nordstrom, which clocked the largest year-over-year November sales increase in seven years. Home furnishings stores and electronics and appliance stores also logged strong spending numbers.

Target to Buy Shipt for $550 Million in Challenge to Amazon (December 13) Bloomberg.com

• Target agreed to purchase grocery delivery startup Shipt for $550 million, stepping up its challenge to Amazon by speeding the rollout of same-day shipping.
• The all-cash deal will let Target customers order groceries and other goods online, and then have the items sent directly to their doors from nearby Target stores. Buying Shipt further beefs up Target’s logistics operations, following its acquisition of software company Grand Junction earlier this year.

EUROPE RETAIL EARNINGS

*Retail segment only Source: Company reports/FGRT

EUROPE RETAIL & TECH HEADLINES

UK Retail Sales Bounce Back in November (December 14) Office for National Statistics press release

• In November, UK retail sales grew by 4.8% year over year, well ahead of inflation and recovering from soft growth in October, according to the Office for National Statistics.
• Grocery retailers and electrical goods specialists enjoyed robust year-over-year growth, owing to Black Friday sales. Clothing specialists posted 6.1% growth in November, sustained solely by a very large recorded increase at small clothing chains.

Tesco to Invest €70 Million in Ireland Stores (December 19) Independent.ie

• British grocer Tesco has earmarked €70 million ($83 million) for store development in Ireland in 2018. Tesco Ireland CEO Andrew Yaxley said that the company began the store expansion program after business in Ireland returned to growth this year.
• Of the total investment, €31 million ($37 million) is set aside for a new store at a shopping center close to Dublin. The store, which opens in May 2018, will span 60,000 square feet.

Zalando Trials New Simplified Returns Service (December 18) RetailDetail.eu

• German online retailer Zalando is trialing a new simplified returns service in Austria that allows customers to exchange products bought in the wrong size. Through the Order Exchange Service, a customer need only indicate the right size required on the website and return the product to be exchanged to a courier that delivers the new product.
• This service is free during the trial. The idea was generated during Zalando Hack Week, an event where entrepreneurs pitched new ideas for e-commerce business operations and winners were given funding to develop their ideas further.

Inventure Announces New Fund to Invest in Early-Stage Technology Startups (December 19) TechCrunch.com

• Nordic venture capital firm Inventure has announced a new fund totaling €110 million ($130 million) to invest in seed-stage and early-stage technology startups in the Nordic region. Inventure claims it is “the largest early-stage technology fund ever raised in Finland” and hopes to raise the fund’s size to €135 million ($159 million) by the end of 2018.
• The VC firm is about a decade old and has offices in Helsinki, Stockholm and Shanghai. It seeks to invest in areas of emerging technology, including artificial intelligence, the Internet of Things, new materials, sensors and mixed reality.

Albert Heijn to Exit Germany (December 15) ESMMagazine.com

• Dutch retailer Albert Heijn announced that it will exit Germany, where it operates through its convenience store banner, Albert Heijn To Go. The retailer has six stand-alone stores and five forecourt stores in the country that will be closed by the end of March 2018.
• Albert Heijn spokesperson Anoesjka Aspelagh said that the company had given the banner “ample time” to see if it works since its launch in 2012. Aspelagh remarked that the stores saw “modest growth,” but did not contribute toward “a sustainable company.”

Toys“R”Us UK Faces Potential Collapse (December 18) TheGuardian.com

• Toys“R”Us UK faces potential collapse this week as it struggles to win the support of the state-backed Pension Protection Fund for a planned restructure. The Pension Protection Fund has demanded that Toys“R”Us pay about £9 million ($12 million) into its ailing pension fund in exchange for backing the retailer’s planned company voluntary arrangement, which would see 26 stores close.
• If the company voluntary arrangement does not go ahead, sources close to the company said that it was likely to fall into administration, with the potential closure of all 84 permanent stores and about 20 pop-up stores, putting all 3,200 staff at risk of redundancy.

ASIA RETAIL & TECH HEADLINES

Horizons Ventures Backs AI Startup Fano Labs in First Hong Kong Investment (December 19) TechCrunch.com

• Horizons Ventures, the venture capital firm founded by Hong Kong’s richest man, Li Ka-Shing, has made a rare early-stage investment, backing artificial intelligence (AI) startup Fano Labs. Horizons has invested in Facebook, Razer, Slack, Improbable, Spotify and others, and is now investing an undisclosed amount in Fano Labs, which recently graduated from the Zeroth AI accelerator program. The deal marks the firm’s first investment in a Hong Kong–based company.
• Fano Labs uses speech recognition and natural language processing to help call centers, where its technology is used to listen to recorded interactions with customers. As anyone who has ever called a center knows, “your call may be recorded.” That is so the company can ensure the agent has performed within the boundaries of the law. Recordings are also used to evaluate staff, check on customer feedback and train new employees.

Tencent and JD.com Invest $863 Million into E-Commerce Firm Vipshop to Battle Alibaba (December 18) TechCrunch.com

• Tencent is continuing its investment spree, agreeing to buy $604 million in shares of Chinese online retailer Vipshop. The deal is being made with longtime partner JD.com, which will invest $259 million in NYSE-listed Vipshop. That takes the total between the two to $863 million.
• The duo is paying a 55% premium for the stock, which will give Tencent a 7% share and JD.com a 5.5% share in Vipshop. The investments will also allow each firm to appoint a board member based on shareholding terms following a two-year lockup period. Vipshop is best known as an online discount retailer for brands, with a particular focus on the fashion space.

Google Is Using Light Beam Tech to Connect Rural India to the Internet (December 15) TechCrunch.com

• Google is preparing to use light beams to bring rural areas of the planet online, and the company has announced a planned rollout in India. Alphabet’s X—the company formerly known as Google X—is working with a telecom operator in the Indian state of Andhra Pradesh, home to more than 50 million people, to use Free Space Optical Communication (FSOC), a technology that uses beams of light to deliver high-speed, high-capacity connectivity over long distances .
• X partner AP State FiberNet will introduce 2,000 FSOC links beginning in January to add additional support to its network backbone in the state. The X project is aimed at “critical gaps to major access points, like cell towers and Wi-Fi hot spots, that support thousands of people,” the company said. The initiative ties into a government initiative to connect 12 million households to the Internet by 2019, the US firm added.

Tencent to Buy Part of Supermart Chain in Rare Retail Foray (December 17) Bloomberg.com

• Tencent will acquire a stake in Chinese supermarket chain Yonghui Superstores for about ¥4.22 billion ($638 million), a rare incursion into a physical retail arena coveted by rival Alibaba Group. China’s largest Internet corporation is buying about 5% of Yonghui from existing shareholders at ¥8.81 a share, Yonghui said in an exchange filing last Friday, a 9.9% discount to its price before trading was halted on December 8.
• “The proposed Tencent-Yonghui deal suggests more tie-ups between Chinese grocery retailers and leading Internet platforms are likely,” Shen Li and Vey-Sern Ling, Hong Kong–based Bloomberg Intelligence analysts, wrote in a note Wednesday. “Investment in groceries, a high-frequency purchase category for consumers, will expand the reach of Tencent’s mobile payment system, WeChat Pay, which has been gaining market share from Alibaba’s Alipay over the past few years.”

LATAM RETAIL & TECH HEADLINES

Oracle Launches Innovation Lab in Brazil (December 13) ZDNet.com

• Oracle has launched a new innovation lab in Brazil to co-create innovation projects with clients and startups. The lab was previously located at the company’s offices in Brazil and was mainly based on online collaboration platforms.
• “Our mission is to contribute to the expansion of innovation in Brazil. That is why we have created this knowledge exchange space operating on several fronts, such as customer

Brazilian PC Market Back on Track (December 18) ZDNet.com

• The Brazilian PC market has returned to growth after three consecutive quarters of positive sales performance, according to figures from IDC. Third-quarter sales grew by 30%, with 1.36 million PCs sold versus 1.04 million in the same quarter of 2016. Revenue was also up, at R$3 billion ($911 million), a 28% increase year over year.
• This follows the positive growth seen earlier this year. PC sales grew by 5% in both the first and second quarters of 2017, according to IDC Brazil research. Last year, PC sales in Brazil took a considerable hit due to the recession the country had been going through.

Brazilian Fintech Nubank Starts International Tech Talent Hunt (December 13) ZDNet.com

• Brazilian fintech Nubank has launched an engineering center in Berlin as part of a plan to boost its software engineering function internationally. Based in the St. Oberholz coworking space in the hip neighborhood of Mitte, the company’s engineering center will serve as a vehicle to absorb international sector trends, develop new products and attract technology talent.
• One could be forgiven for thinking that Nubank plans on taking advantage of the market opportunities in Europe brought by the EU’s upcoming Payment Services Directive. The firm stressed that it has no plans to launch products in the region and that the main goal is to continue focusing on the Brazilian market.

Amazon Becomes Mexico’s Top Online Retailer in 2017 (December 19) Reuters.com

• Amazon likely doubled its sales to become the biggest Internet retailer in Mexico this year, helping to grow the country’s nascent e-commerce market by a third, according to a report by market research firm Euromonitor International.
• The world’s largest online retailer will generate $502.2 million in Mexico sales this year compared with $243.9 million last year, the Euromonitor report said. The firm’s findings were based on trade surveys, market studies and data research.

MACRO UPDATE

Key points from global macro indicators released December 13–20, 2017:

1. US: Retail sales increased by 0.8% month over month in November, ahead of the 0.3% consensus estimate. Industrial production came in below the market’s estimate in November, edging up by 0.2% month over month.
2. Europe: In the UK, retail sales increased by 1.2% month over month and by 1.5% year over year in November. The UK unemployment rate stood at 4.3% in October. In the eurozone, industrial production increased by 0.2% month over month in October.
3. Asia-Pacific: In China, retail sales increased by 10.2% year over year in November, while industrial production increased by 6.1% year over year. In Japan, the Tankan Large Manufacturing Index increased to 25 in the fourth quarter, while the Nonmanufacturing Index remained at 23.
4. Latin America: In Brazil, retail sales decreased by 0.9% month over month and increased by 2.5% year over year in October. The gauges for both periods were weaker than the respective consensus estimates, which had called for a 0.2% month-over-month increase and a 5.0% year-over-year increase in retail sales.

*FGRT’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 Census Bureau/US Federal Reserve/UK Office for National Statistics/Eurostat/National Bureau of Statistics of China/Bank of Japan/Instituto Brasileiro de Geografia e Estatística/FGRT