Countdown to Shoptalk 2017 Startup Pitch Series #3: Navigating the Retail Revolution

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KEY POINTS

At this year’s Shoptalk, Fung Global Retail & Technology Managing Director, Deborah Weinswig, will emcee a startup pitch competition with 15 innovative early-stage companies. In this last report of our Shoptalk Startup Pitch trilogy, we profile the five remaining companies: DropSpot, Feed.fm, Fract, Hanger and QueueHop. 

  • DropSpot is a mobile app that turns neighborhood stores into package pickup locations. Customers receive packages through a network of neighborhood merchants that drives traffic to the stores.
  • Feed.fm is a “music-as-a-service” platform that allows companies to integrate music into their websites and mobile apps.
  • Fract is an artificial intelligence (AI) platform that helps retailers optimize store locations and map territories and trade areas, using geospatial intelligence.
  • Hanger is a platform for tracking and sharing clothing and style inspirations within the user’s personal network of friends and family.
  • QueueHop gives customers the option to check out on their phones, and avoid the hassle of waiting in line, using QR code scanning and RFID-powered security tags on items.

For the second year in a row, Fung Global Retail & Technology is partnering with Shoptalk. This year, Fung Global Retail & Technology Managing Director, Deborah Weinswig, will emcee a startup pitch competition with 15 innovative early-stage companies. Each company will present their businesses to a panel of distinguished judges from the investment community to vie for two $25,000 prizes. One winner will be selected by the panel of judges and the other through audience voting.

As we discuss in our 2017 Trends Report, the retail industry is undergoing a retail revolution, and the companies that survive will do so only if they embrace the new wave of retail opportunities: executing retail as a platform, making use of connected technology, engaging in experiential retail and providing product curation. In response to these trends and strategic opportunities, retailers in all channels are changing to accommodate shoppers’ shifting preferences. In this second report of our trilogy, we look at five companies―DropSpot, Feed.fm, Fract, Hanger and QueueHop―that fit into at least one of the four areas of opportunity for retailers outlined above.

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As the shopping journey for customers becomes more complex and more expensive for retailers, we continue to see more creative ways for e-commerce fulfilment. An increasing share of purchases is being fulfilled through click-and-collect and from third-party collection points such as lockers. Over $100 million of merchandise was delivered via same-day fulfilment in 20 cities in the US in 2016.

Among recent last-mile innovations are experiments by large retailers such as Amazon and Walmart to redesign their stores to build in collection services. Amazon is set to open three drive-through grocery collection stores. Walmart recently opened its first two pickup stores at gas stations.

Company Description

DropSpot is a mobile app that turns neighborhood stores into package pickup locations. Customers receive packages through a network of neighborhood merchants, driving traffic to the stores. DropSpot solves the problem of home-package delivery by letting consumers receive their packages at pickup locations close to their home or work. The company has enlisted over 1,000 merchants across the country to become “drop spots” for packages, and the number is expected to double by the end of 2018.

What Problem is DropSpot Solving?

As e-commerce gains more share, retailers need to become more creative in tackling the challenges of last-mile fulfillment. Last-mile is often a costly part of fulfillment and is important in building good customer relations. Turning neighborhood stores into package pickup locations provides convenience to the customers, while driving traffic to the retail stores.

Revenue Model and Competitive Landscape

Revenue model: The company charges retailers a small fee for each package delivered through a neighborhood store in DropSpot’s network. DropSpot charges customers a return service fee for those who send packages back. The company also offers premium concierge and vacation storage and insurance fees for customers who would like to have a more personalized service.

Competitive landscape: DropSpot competes with other third-party last-mile delivery companies such as Postmates and Deliv.

Management Team

Co-founder and Chairman of DropSpot, Richard Waryn is a seasoned entrepreneur and private-equity professional with experience buying, growing and exiting from a wide variety of early- to mid-stage growth companies. Since moving to Colorado in 2010, Waryn has focused on investing his own portfolio in a variety of privately-held companies.

Industry and Company Outlook

We expect retailers to continue to use technologies to fulfill orders in a timely and cost-efficient manner. There will be more collaboration between retailers and third-party delivery companies to meet the growing demand for package delivery. More capital-light and flexible delivery services companies such as DropSpot will have the opportunity to take market share in this space.

 

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Retailers and brands are actively trying to build audience, engagement and retention to their mobile apps and e-commerce platforms. The US retail industry spent and estimated $15.09 billion on online and mobile media advertising in 2016, up 14.9% from 2015, according to eMarketer.

With shopping increasingly taking place on digital platforms, and consumers shopping more on their mobile devices, brands are trying to create deeper customer engagement through mobile platforms. Using music to improve the customer experience has been done for decades, but using music online to build engagement and retention is relatively new. Music can be a powerful marketing platform to increase customer engagement and loyalty.

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Company Description

Feed.fm falls under the experiential retail category. It is a “music-as-a-service” platform that allows companies to integrate music into their websites and mobile apps, as well as provide statistics to the brand on how people are engaging. When customers visit the brand’s mobile app or website, they receive an opt-in option, so they can decide whether or not to play the music.

The editorial team, or music experts, works with the brands to create custom track lists based on their audience and preferences. Feed.fm handles the negotiations and licensing with the artists to make sure they are properly compensated and there are no copyright issues. In a 60-day trial period with American Eagle, Feed.fm reported a 200% increase in session times when customers engaged with the radio, a 100% increase in retention and a 200% increase in the unique visitor to order conversion rate.

What Problem is Feed.fm Solving?

Traditional retailers are trying to keep pace with e-commerce, particularly Amazon, so offering unique branded content to engage users is very important. With the rise of social commerce, retailers also face the risk of losing business to social commerce platforms such as Facebook, Instagram and Pinterest. In addition, integrating digital music into retail platforms is complex, largely because of the high costs associated with licensing songs and copyright issues.

Revenue Model and Competitive Landscape

Revenue model: Feed.fm is a subscription service that charges a monthly fee of $5,000. Clients sign annual contracts.

Competitive landscape: Other online platforms/management systems for digital music integration include Muzak, which designs, delivers and installs custom music and voice messaging, for multiple industries including retail, hospitality and restaurants.

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Management Team

Jeff Yasuda, Founder and CEO, has extensive experience in software and hardware technology companies. In 2008 he founded Blip.fm, a video streaming and music discovery platform. Prior to Blip.fm, he worked with numerous technology companies in software, hardware, and computer services and telecommunications.

Industry and Company Outlook

As consumers increasingly shop on digital platforms, and social platforms gain popularity, brands will have to provide a unique and customized offering to enhance the user experience. In 2016 eMarketer predicted that mobile retail revenue in the US reached $96.2 billion, up 28% from 2015. We expect this number to continue to increase. The company can help retailers optimize their digital platforms in order to improve the engagement and brand experience.

 

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When it comes to retailers, online and offline, choosing the optimal business location is extremely important. Geospatial AI companies are increasingly working with retailers to identify suitable locations based on characteristics such as population, race, median household, income, age and employment status. These characteristics can help companies ensure businesses the optimal location. According to SAP, 80% of all data has a location/geographic element to it, which makes location analytics and intelligence one of the essential aspects of business analytics.

Company Description

Fract is an AI platform that helps retailers optimize store locations and map territories and trade areas, using geospatial intelligence. Fract collects geographic data and provides actionable insights to its customers.

Geospatial analytics enables businesses to not only take into account demographic and psychographic data, but also look at customer movement. The company provides answers to questions such as, how easy is it to get to your store? Are there any natural obstacles that customers need to overcome? Are there any competing businesses situated on the same route that most customers take to get to you?

What Problem is Fract Solving?

If your business relies on foot traffic, location is a strategic necessity. Traditionally, business owners spend countless hours studying the optimal location for their business with limited geospatial resources. In addition, as purchases continue to shift online, store and warehouse location relevant to its customers is vital in reducing shipping times and costs.

Revenue Model and Competitive Landscape

Revenue model: A SaaS subscription model based on features, such as number of users, size of business and usage.

Competitive landscape: Other geospatial AI solutions such as AmigoCloud, which is a geospatial platform that helps businesses collect, manage, analyze, visualize and choose a site location.

Management Team

Mike Mack, Co-Founder and CEO, has over 20 years of retail and business location analytics experience. Prior to Fract, Mike founded DatMap, a geo-spatial software company for big-box retailers for site selection.

Industry and Company Outlook

According to a recent study by Gartner, by 2020, every company that hopes to achieve success will need to take into account “where” the optimal location for business is. This spatial information, paired up with demographic, psychographic and sales data, can open up countless possibilities for businesses to target customers on a wider, deeper and more personalized level than ever before.

 

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Personalization in fashion is a differentiating factor for retailers and brands. About 45% of online shoppers are more likely to shop on a site that offers personalized recommendations, according to Invesp. Meanwhile, social shopping platforms are playing a more important role in making more personal recommendations to customers. In 2015, over 5% of all retail spending came from social network referrals, according to e-commerce shipping company ReadyShipper.

Company Description

Hanger is a platform for tracking and sharing clothing and style inspirations within the user’s personal network of friends and family. The Hanger app connects users with their friends’ closets and helps them discover the value that’s already hanging in their own wardrobe. Hanger makes users experts in their personal style and inspires confidence in what they wear. The app has 2,600 active users and over 10,000 downloads. The company is currently in talks with major department stores and fashion brands.

What Problem is Hanger Solving?

Brand and retailers have struggled to personalize style and product recommendations based on what is already in their customers’ wardrobes. Consumers would like personalized styling advice from their peers and from brands. Hanger’s social shopping platform provides consumers with tools to manage their personal style while developing relationships with brands.

Revenue Model and Competitive Landscape

Revenue model: Hanger takes 7%–22% of each transaction that take place through Hanger’s recommendation.

Competitive landscape: Hanger competes with other social shopping apps. Savel Go is one such app that offers user the opportunity to have conversations with other consumers who are shopping for similar items worldwide and get real-time feedback. Stuff N Style is a personal styling app that collects pictures of customers’ closets and helps them find feedback in putting outfits together from others.

Management Team

Daniel Evans is the CEO and Co-Founder of Hanger, a multi-sided marketplace that provides consumers with tools and analytics to manage and share their personal style while facilitating authentic relationships with the brands they love. Prior to founding Hanger, Evans held a variety of roles across two decades in the technology field including UX/UI designer, developer, product owner and executive.

Industry and Company Outlook

We expect to see some level of convergence of social media and shopping platforms in the future. There will be increasing demand for consumers to interact with brands and retailers in a social environment and drive sales through trusted recommendations by influencers or peers. Hanger is well positioned to benefit from this social shopping trend.

 

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The customer checkout experience is key to customer retention for store-based retailers. A survey by eMarketer reveals that at least 30% of customers would go back to brick-and-mortar stores if smooth and quick self-checkout options existed. About 33% of customers leave the store without buying if the checkout line is longer than seven minutes. The retail self-checkout experience has evolved from the self-checkout kiosks in the 2000s to RFID-based scanners currently in use.

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Company Description

QueueHop gives customers the option to check out on their phones, without the hassle of having to wait in line, using QR code-scanning and RFID-powered security tags on items. QueueHop makes Radio-Frequency Identification (RFID) anti-theft apparel security tags that automatically unlock after a payment is made. QueueHop has worked with Rebecca Minkoff to reimagine its in-store checkout experience.

What Problem is QueueHop Solving?

The in-store experience has become increasingly important as retailers struggle to drive traffic and sales to stores. Providing a speedy and convenient checkout experience continues to be a challenge for store-based retailers. Technology companies have developed various mobile-based solutions to solve this problem.

Revenue Model and Competitive Landscape

Revenue model: QueueHop charges retailers an implementation fee for adding RFID security tags to their products. Fees are not disclosed.

Competitive landscape: QueueHop competes with other mobile-based self-checkout solution providers such as Selfcart and Shopic.

Management Team

Co-Founder and CEO Lindon Gao started his career in investment banking as an analyst at Goldman Sachs and JP Morgan. He started QueueHop in 2015, a company that is set to disrupt the user-initiated payment landscape within the retail industry. He also owns a jewelry manufacturing company for designers and wholesalers called LPG Crafts.

Industry and Company Outlook

We expect to see more innovation in self-checkout experiences, especially within the fashion, grocery and drugstore space. As the price of RFID tags decreases, we expect to see more retailers invest in RFID-based solutions. QueueHop is well positioned to reimagine the self-checkout experience at fashion retail stores.