RETAIL, FASHION & BEAUTY: HOW COMPANIES DRIVE INNOVATION

1. Retail, Fashion & Beauty: How companies drive innovation Harper’s Bazaar cover, 1965

2. Introduction Innovation has always been a pillar of sustainable growth. However, innovation cycles tend to get shorter and shorter. Innovation is a real imperative and a critical survival challenge for any company that wants to: • create and foster a culture of disruption • meet new consumer purchase habits, especially those of Millenials and Generation Z • reinvent and deliver new experiences and services to customers • Strengthen growth and profitability 2© iVentures Consulting 2017 Harper’s Bazaar cover, 1965

3. 4 types of innovation are company-driven 3 Product innovation Customer experience innovation Business model innovation Operational innovation © iVentures Consulting 2017 Source: Crowd Companies, 2017

4. Product innovation 4 R&D, New product development Examples: • Amazon Alexa • Amazon Dash button • Patagonia e-fibers • Apple Watch • Tag Heuer Modular Connected 45 • Amazon drones • Nike Plus app • Levi’s Commuter Trucker jacket • L'Oréal/ La Roche Posay My UV Patch • Shiseido MATCHco (skintone matchmaker app) • Etc. © iVentures Consulting 2017 Source: iVentures Consulting, 2017

5. Customer experience innovation New services, new interfaces, immersive experiences … Examples: • Stores of the future (Amazon Go, Farfetch…) • Virtual reality Makeup/skincare/hair color try-on (Sephora Visual Artist, L’Oréal Makeup Genius, Rimmel Get The Look…) • Virtual reality tool to design & customize our own sneakers (NikeID in Paris’ flagship store) • Chatbots for makeup tips (Sephora), personal styling (H&M), gift searching (Nordstrom)… • Yearly subscription for free express delivery (Amazon Prime, Instacart Express, Fnac+…) • 1-hour delivery (Amazon Prime Now) • Reserve or Click & Collect (Sephora, Fnac/Darty, Gap, Celio, Etam …) • VR headsets in Coach and Tommy Hilfiger stores with full access to latest runway shows 5© iVentures Consulting 2017 Source: iVentures Consulting, 2017

6. Operational innovation 6 New processes, means of organization and tools to improve customer experience, productivity, product & service quality, sales, reduce costs, etc. Examples: • Mass customization (Adidas, Nike, Converse, Zazzle, eSalon, Function of Beauty etc.) • See now, buy now (Burberry, Tommy Hilfiger, Rebecca Minkoff etc.) • Artificial Intelligence: machine learning, chatbots etc. (Stitch Fix, H&M chatbot, Sephora chatbot etc.) • Fulfillment robots (Amazon, Walmart, Rakuten etc.) • 3D printing (Adidas, Nike, Under Armour, New Balance etc.) • 3D design (Under Armour, Adidas, Nike, Theory, Roberto Cavalli etc.) • Etc. © iVentures Consulting 2017 Source: iVentures Consulting, 2017

7. Business model innovation 7 Reimagine revenue stream Examples: • Peer-to-peer resales (Vestiaire Collective, Tradesy and Poshmark in fashion…) • Subscription (Birchbox for beauty box, The Honest company for ethical baby products, personal care, cleaning, vitamins…, Dollars Shave Club for razors…) • Rental (Rent the Runway and Letote in fashion…) • Trade-in services (Material WRLD in fashion, Nextdoor for neighborhood communities…) • Marketplace (Amazon, Farfetch, Fnac/Darty…) • Personal styling (Stick Fix in fashion….) • Personal shopper (Instacart, Monoprix, Del Easy in groceries…) • On-demand services (Glamsquad, Treatwell and Blow in Beauty…) • Etc. © iVentures Consulting 2017 Source: iVentures Consulting, 2017

8. 9 ways for companies to drive innovation 8 Internal accelerator/ incubator Accelerator/incubator in partnership with an external player Innovation Lab Venture Capital fund Startup acquisition Partnership with a tech company Creation from scratch of in-house innovative initiatives Cultural transformation program Innovation prize © iVentures Consulting 2017 Source: iVentures Consulting, 2017

9. 9 ways for companies to drive innovation Cultural & Business impact 9 Impact on Culture (* Low ** Average *** High) ★ ★★ ★ ★★ ★★ ★ ★★ ★★ ★★★ Impact on Business (* Low ** Average *** High) ★ ★ ★★ ★★ ★★ ★★★ ★★ ★ ★★★ ★★ Level of Maturity (1 Low – 4 Strong) 1 2 2 3 3 3 4 4 4 Internal accelerator/ incubator Accelerator/ incubatorin partnershipwithan externalplayer InnovationLab VentureCapital fund Startupacquisition Partnershipwith atechcompany Creationfrom scratchof in-house innovative initiative Cultural transformation program Innovationprize © iVentures Consulting 2017 Source: iVentures Consulting, 2017

10. 9 ways for companies to drive innovation Maturity levels based on Cultural & Business impact © iVentures Consulting 2017 Key success factors: • Setting up innovation actions with strong value • Successful implementation of each action Innovation prize Partnership with a tech company Creation from scratch of in- house innovative initiatives Internal accelerator/ incubator Accelerator / incubator in partnership with an external player Venture Capital fund Innovation Lab Startup acquisition Cultural transformation program 10 Source: iVentures Consulting, 2017

11. 11© iVentures Consulting 2017 The objective of the following part is to illustrate through examples the 9 ways that companies drive innovation, based on public information. The level of maturity of each referenced company is not evaluated. Examples of innovation actions driven by groups, brands and retailers André Courrèges, Space Age Collection, 1960’s

12. Innovation award 1/2 • For the next Viva Technology summit related to digital transformation players, scheduled in Paris in June 2017, LVMH created the LVMH Innovation Award to stimulate forward-thinking ideas and innovative initiatives that impact product life cycles and the customer experience. The 32 startups selected will be invited to join the LVMH popup Lab during the show. They will compete for the prize created by LVMH. The winner will receive the support of teams from LVMH and its Maisons to help drive its business development. • Since 2015, every year, H&M Foundation’s Global Change Award selects 5 winner startups focused on game-changing innovations than can help make fashion circular and protect our planet. These 5 winners split a grant of €1 million and get access to a one-year innovation accelerator, provided by the H&M Foundation in collaboration with Accenture and KTH Royal Institute of Technology (ie. Accelerator in partnership with an external player). • Since 1992, each year L’Oreal has organized L’Oréal Brandstrorm, an international multi-field innovation challenge that offers students a pedagogical and professional experience and the opportunity to innovate within the beauty industry. 2 teams are designated winners of L’Oréal Brandstorm, one for the Tech challenge and one for the Brand challenge. Each winner receives a $10,000 award and is flown to Paris. There, they connect with L’Oreal’s leaders, and are mentored and coached by L’Oreal executives. The theme of the 2017 challenge is “Disrupt men’s grooming with life-changing innovation”. © iVentures Consulting 2017 Maturity: Level 1 12

13. Innovation award 2/2 • In 2012, the L’Oreal USA Women in Digital program launched the “NEXT Generation Awards”, a competition to support female entrepreneurs and advance the technology they build. Every year, L’Oréal seeks women-operated businesses that can help conceive, launch, and scale new technology with the potential to revolutionize the digital space, drive brand innovation, and shape the beauty industry’s next generation. 3 finalists are selected and receive a trip to New York City to present at L'Oréal’s annual Inspiration Day in front of 500 marketers. They also receive recognition in press materials, introductions to potential investors and L'Oréal executives, mentorship from L'Oréal USA executives, invitations to network with advisory board members, etc. The grand prize winner receives a pilot with one of L'Oréal USA’s Brands voted on during Inspiration Day. © iVentures Consulting 2017 Maturity: Level 1 13

14. Partnership with a Tech company 1/2 • Levi’s and Google recently joined forces to create the Levi’s Commuter Trucker jacket, embedded with Google’s ‘Jacquard’ technology, in order to bring practical purpose to wearables. Jacquard allows wearers to control their mobile experience and connect to a variety of services, such as music or maps, directly from the jacket. • Neiman Marcus partners with Rent the Runway to attract millennial consumers by bringing a fashion rental concept to the in-store environment. The first Rent the Runway unit was opened end 2016 at Neiman Marcus’ San Francisco store, in a spacious 2,500 square foot space with a rotating selection of dresses that shoppers can rent for special occasions. • Whole Foods preferred to team up with Instacart rather than create its own delivery service. Last year, Whole Foods invested in Instacart and signed a 5- year delivery partnership making Instacart Whole Foods’ exclusive delivery partner. • Last September, Google and Zalando launched Project Muze, a machine- learning experiment for 3D fashion design. Based on Google’s open source platform TensorFlow, Project Muze is a virtual design engine that enables users to create hyper-personalized fashion looks powered by machine learning (an algorithm that learns from data). © iVentures Consulting 2017 Maturity: Level 2 14

15. Partnership with a Tech company 2/2 • Sephora partners with AR technology provider ModiFace to perfect facial recognition technology for virtual makeup features in 3D live (Virtual artist) in its mobile apps, offering customers the opportunity to try on products digitally. • Since 2015, Apple has partnered with luxury-goods company Hermès to provide new leather straps for the Apple Watch, called the "Apple Watch Hermès Collection”. • Following a successful first attempt at a smartwatch in 2015 (56,000 units sold), in March 2017 the Swiss manufacturer Tag Heuer launched a new smartwatch, the Modular Connected 45, in partnership with Silicon Valley giants Google (Android Wear operating system) and Intel (for the hardware). Modular 45 features the seamless integration of TAG Heuer’s Swiss watchmaking heritage. And through its customizable modular design, it keeps users connected without sacrificing style. © iVentures Consulting 2017 Maturity: Level 2 15

16. Creation from scratch of in-house innovative initiatives • 8 years after closing eLuxury.com, LVMH launched 24Sevres.com in June 2017 , a new luxury goods E-Commerce website that features all its brands as well as external brands, and rely on its department store Le Bon Marché. • In September 2016, the leading media company launched its own fashion E- Commerce site Style.com, mixing its own inspirational contents from Vogue, GQ etc... and commerce. Condé Nast invested $100 million into this venture. Style.com is based on a marketplace model (no risk and expense of buying and stocking inventory). Style.com closed in June this year as Condé Nast partners with the unicorn E-tailer Farfetch.com. • In early 2016, L’Oréal Luxe (L’Oréal’s luxury division) launched on the French market its own customizable beauty box offer “Ma Beauté Luxe”, composed of products from its brands (Lancôme, Kiehl’s, Urban Decay, Giorgio Armani, Diesel etc.). The targeted results were not achieved, and the initiative was stopped in January of this year. © iVentures Consulting 2017 Maturity: Level 2 16

17. Internal accelerator/incubator 1/2 • In March, Walmart launched Store No. 8, a Silicon Valley-based incubator that funds top entrepreneurs and startups focused on virtual & augmented reality- enabled shopping, in-store drones, beacon technology, proprietary robotics and artificial intelligence technology. • Founded in 2012, L’Oréal's Technology Incubator partners with academics, startups and tech companies to take the beauty brand digital and create innovative products. Current projects include sun-protection wearables, skin- matching app, 3D human skin printing, 2-D-printed nails etc. Among the incubator’s innovative products already launched are L’Oréal Makeup Genius, L'Oréal/La Roche Posay My UV Patch and Kerastase Connected hairbrush. • In January, the leading European E-Commerce player Vente-privee launched its accelerator Impulse in Paris, to support European startups involved in imagining tomorrow’s fashion tools and services. First selected startups include Easysize, Fitle, Shipup, ShorTouch and Wishibam. © iVentures Consulting 2017 Maturity: Level 3 17

18. Internal accelerator/ incubator 2/2 In February, Nordstrom’s in-store designer boutique Space launched "The Lab," an incubator to showcase and support new designers in selected stores and online. Initially created in 2010 by Sephora America’s CEO and based in San Francisco, Kendo is LVMH’s accelerator for emerging beauty brands. It creates or acquires beauty brands and focuses on developing them into global powerhouses. The current portfolio includes Kat Von D Beauty, Marc Jacobs Beauty, Formula X Nail, OleHenriksen and Bite Beauty. © iVentures Consulting 2017 Maturity: Level 3 18

19. Accelerator / incubator in partnership with an external player 1/2 • In May 2016, L’Oréal announced a strategic investment in Founders Factory, a London-based multi-sector digital accelerator and incubator, to become its exclusive partner for investments in beauty tech startups worldwide. Each year, Founders Factory will incubate 5 companies and co-create 2 new companies from scratch. • Since September 2015, Target has teamed up with leading tech startup accelerator Techstars for a 3-month intensive startup accelerator in Target's hometown of Minneapolis, which is focused on bringing new technology, experiences, products, and solutions to retail. For each batch, 10 companies are selected and work with mentors from the Techstars network and within Target. • Since June 2016 , French retailer Group Galeries Lafayette (BHV, Louis Pion, Galeries Lafayette) has partnered with the Silicon Valley startup accelerator and investor Plug & Play (known for its investments in Paypal and Dropbox) for a 3-month intensive startup accelerator program, based in Paris. Lafayette Plug & Play assists 10 startups per batch willing to disrupt fashion and retail by creating an ecosystem that includes access to venture capitalists, world-class mentors, and Fortune 500 companies. © iVentures Consulting 2017 Maturity: Level 3 19

20. Accelerator / incubator in partnership with an external player 2/2 • In March of this year, French luxury Group Kering (owner of Gucci, Saint Laurent, Puma …) and Silicon Valley startup accelerator and investor Plug and Play announced that Kering is the first founding anchor partner of the ‘Plug and Play - Fashion for Good’ accelerator, a collaboration with Fashion for Good and the C&A Foundation to fast-track sustainable innovation within the luxury and apparel industries. First selected startups include Agraloop, Amadou, Dragon, Dropel, ICA Bremen, Myco Tex, MySource, Pili-bio, RePack, Sundar, Versus and Tipa. • Every year since 2015, the 5 winning startups of the H&M Foundation’s Global Change Award (ie. Innovation Prize), dedicated to changing innovations than can help make fashion circular and protect our planet, get access to a one-year innovation accelerator, provided by the H&M Foundation in collaboration with Accenture and KTH Royal Institute of Technology in Stockholm. The 2017 batch of startups includes Wine Leather, Solar Textiles, Content Thread, Denim-dyed Denim and Manure Couture. • Created in 2013 and based in London, Jlab is John Lewis Partnership’s 12- week accelerator program, created in collaboration with the innovative specialists L Mark. JLAB is about bringing disruption and innovation to the retail industry. Its mission is to help innovative startups take their business to the next level and build a relationship with two of the UK’s leading retail brands: John Lewis and Waitrose. In 2017, Jlab’s main focus is on food experiences, in-store experiences, frictionless shopping, healthy living, smarter supply chains and all innovations that are “so out of this world they can’t be classified.” © iVentures Consulting 2017 Maturity: Level 3 20

21. • Launched in 2014 and based in London, Unilever Ventures is the venture capital and private equity arm of Unilever. The company invests in young, promising companies, accelerating growth by providing access to Unilever’s global ecosystem, assets and expertise. Unilever ventures focuses on tomorrow’s world-beaters in Personal Care and Digital. Among its porfolio are Instacart, Olapic, Yummly etc. • Launched in December 2016 and based in Tokyo, Shiseido Venture Partners is the internal venture capital organization of the Shiseido Company, ready to invest up to ¥3 billion ($26 million) in startup ventures. The company targets startups that use beauty-creating technologies, along with ideas and technologies that communicate beauty and new business structures that deliver beauty. Its first investment is Dricos in Japan. • In January of this year, Rebecca Minkoff announced its partnership with Quotidian Ventures to launch a Fashion Tech fund based in NYC, focused on early-stage investments in technology, with applications in E-commerce, Fashion and Retail. • Created in 2002 and based in Paris, NYC and Shanghai, Creadev is the venture capital organization of the Mulliez family, owner of leading retail players Auchan, Decathlon, Kiabi etc… The company invests from €1 million to €80 million in companies focused on Sustainability, Health, Education and Digital. Venture Capital fund © iVentures Consulting 2017 Maturity: Level 3 21

22. Innovation lab 1/2 • Considered the king of retail innovation, Amazon has constantly innovated both horizontally (across product areas and business policies) and vertically (over supply chain and distribution) and often developed its new products and services internally. Founded in 2004 in the Silicon Valley, Amazon Lab 126 is Amazon’s inventive research & development center that designs and engineers high-profile consumer electronic devices. Among Amazon Lab 126’s innovations are the Fire tablets, Dash Button, Kindle e-readers, Amazon Fire TV, and Amazon Echo. • Created in 2005 in the Silicon Valley, WalmartLabs is the division of Walmart responsible for accelerating its development in redefining the shopping experience and meeting the ever-changing needs of customers wherever they may be, in a store, online and on their mobile device. The WalmartLabs team collaborates with innovative startups on omnichannel, store leveraging via mobile, baby registry, store maps, mobile checking, etc. • Launched in 2014, the Unilever Foundry is Unilever’s platform enabling startups and innovators to engage, collaborate and explore business ideas with Unilever and its 400+ brands. The Unilever Foundry has worked on over 100 pilot projects in partnership with innovative startups, to stimulate and facilitate experimentation within its organization. Unilever’s brands and functions are continuously adding new briefs to the Unilever Foundry. One of the current briefs is “Igniting Men’s Grooming Online”. Unilever thinks there is an opportunity to connect with men online and get them to expand their grooming repertoire to include face care. © iVentures Consulting 2017 Maturity: Level 4 22

23. Innovation lab 2/2 • Founded in 2012 in Dallas, iLab is Neiman Marcus’ hub for innovation projects; its goal is to turn technology innovation into a core value and reimagine the in- store experience, in order to recapture shopper interest and drive traffic back to its stores. Projects in collaboration with innovative startups include smart mirrors, cellphone charging stations, visual search, mobile wallet, interactive shelves etc. • Created in March 2015 in San Francisco, Sephora’s innovation lab’s objectives are to create and foster a culture of innovation. Sephora’s lab team collaborates with innovative startups. The lab is responsible for taking new product ideas, perfecting them and launching them either in store, online or on the mobile app. Its approach is to repeat testing in order to identify the right technology and products to develop. Innovations include for example augmented reality and chatbot with Sephora Virtual Artist, Beauty Workshop station in store... • GapLabs is the division of Gap Inc. responsible for reinventing the shopping experience across its brand portfolio (Gap, Old Navy, Banana Republic…). GapLabs’s approach is to listen to and learn from its customers, external trends and each other, to inspire a culture of empowerment, accountability, learning and fun, to collaborate with innovative startups across the company and deliver value to Gap Inc. and its customers. © iVentures Consulting 2017 Maturity: Level 4 23

24. Startup acquisition 1/2 • Since September 2016, Walmart has successively acquired E-Commerce companies Jet.com (for $3 billion), Modcloth (terms of the deal not disclosed), Shoebuy (for $70 million) and Moosejaw (for $51 million) and soon Bonobos (discussions in progress), to accelerate its E-Commerce growth and try to compete with Amazon. • In July 2016, consumer goods giant Uniliver bought Dollars Shave Club, the subscription service that provides monthly new razor delivery to your doorstep, for $1 billion (5 times its revenue). The goal was to acquire the brand and its customer-relationship skills with male consumers. • In September 2014, Neiman-Marcus, the world’s best-known department store, acquired German-based online fashion retailer Mytheresa (terms of the deal not disclosed), to accelerate its E-Commerce growth and reach new customers. • In August 2014, leading luxury department store Nordstrom bought Trunk Club, the men’s online personal styling service, for $350 million, to accelerate its E- Commerce and offer a new experience to its customers. © iVentures Consulting 2017 Maturity: Level 4 24

25. Startup acquisition 2/2 • In January 2016, Hudson’s Bay Co (HBC), owner of Saks Fifth Avenue and Lord & Taylor, acquired the flash-sales pioneer Gilt Group for $250 million, in order to strengthen Saks Fifth Avenue’s E-Commerce. • In November 2015, the watchmaker Fossil acquired wearables maker Misfit for $260 million, with the goal of becoming the fashion gateway to the high-growth wearable technology and connected device markets. • In January 2017, the Japanese beauty giant Shiseido Company acquired MATCHCo, a US-based beauty tech startup (that provides consumers with personalized foundation via an app), to be able to quickly respond to consumers’ demands by offering a new customized experience (terms of the deal not disclosed). © iVentures Consulting 2017 Maturity: Level 4 25

26. • Every brand and group in Retail, Fashion and Beauty organizes learning expeditions in technology & digital meccas (Silicon Valley, New York, London, Tel Aviv, …) for its executive management, in order to foster innovation culture. Execs meet tech entrepreneurs and learn about tech & digital trends. • From 2011 to 2015, the luxury group Kering (owner of Gucci, Saint Laurent, Puma …), ran a digital academy to develop its internal digital culture and train a population of 400 executives and digital experts, spread over 3 continents, both online and offline. The program included E-Learning, live training sessions, learning expeditions, conferences etc… • In September 2016, cosmetics group Shiseido launched Shiseido +, its digital academy, to increase the digital proficiency of all Shiseido employees and build a community of digital talents by 2020. The first season program targets 600 employees in marketing, communication, sales and digital, and is a mix of live training sessions, e-learning and learning expeditions. • LVMH regularly organizes Digital Days, the biggest digital event at the group level. This event is designed to help LVMH Maisons to learn from the latest digital trends and innovations, exchange on both successful and failed projects, initiatives and strategies, and transform the way they work and find inspiration for future business. These digital days include keynotes and testimonies from digital leaders, new technology presentations, meetings with startups and workshops. Cultural transformation program © iVentures Consulting 2017 Maturity: Level 4 26

28. Where do we go from here? Empower your teams Innovation strategy and new products/services roadmap must be defined and driven at management committee level: • Nomination of a feature team in charge of the innovation/disruption roadmap • Team led by a member of the management committee. Ie : - Head / VP of Digital Transformation - Head/ VP of Innovation - Head / VP of Disruption & Growth - Chief Digital Officer - Advisor to the CEO 28© iVentures Consulting 2017 Pierre Cardin space age collection, 1960’s

29. Where do we go from here? Write your success stories © iVentures Consulting 2017 Invest in the future and structure innovation resources: • Walmart spends ≈$1B/ year on innovation (total 2016 Revenue of $482B included $13.7B in E- Commerce) • Fnac/Darty have mutualized their digital innovation Define company’s innovation strategy: • Ambition • Products & Services roadmap • Organization (with cross-functional teams - store and digital) Implement an innovation process: • Start by whittling down big ideas • Review by cross-functional team (executives, store managers and associates) • Create prototypes • Test in several volunteer stores or markets “ Remember that most of the time, your initiative won’t work. Be patient and improve, improve, improve…” Scott Emmons, Head of the Innovation Lab at Neiman Marcus 29

30. Have any questions? Looking for advice, speakers, or just a good cup of coffee? Don’t hesitate to contact us… Paris Christophe Biget Managing Partner @cbiget +33 1 77 19 38 25 7/11 rue de l’Yvette 75016 Paris San Francisco Aurelia Ammour Managing Partner @aammour +1 (415) 315-9654 1714 Lombard Street San Francisco CA 94123 contact@iventures-consulting.com www.iventures-consulting.com www.facebook.com/IventuresConsulting @iVenturesC © iVentures Consulting 2017 Peugeot HQ lobby, 1966

31. iVentures Consulting is a Management Consulting company dedicated to Digital transformation and E-Commerce & Omnichannel in Fashion, Luxury, Beauty and Retail. Founded in 2005 by Aurélia Ammour and Christophe Biget, iVentures is based in Paris and San Francisco. • Digital transformation strategy: Digital integration in all aspects of business • E-Commerce & Omnichannel ecosystem audit and strategy definition • Innovation strategy: Market watch, Lab/ Accelerator, Startup ecosystem • Support to deployment C O N S U LT I N G B U S I N E S S I N T E L L I G E N C E • Top Management digital transformation program w/ Ecole 42 • Digital academy • Reverse mentoring • Digital day/ tribune • Learning expedition C U LT U R A L T R A N S F O R M AT I O N • E-Shopper Index: Ranking & Analysis of leading companies’ E- Commerce performances throughout the customer journey • Deep dive analysis: E-Commerce & Omnichannel performances optimization Beauty: Clarins, Diptyque, Feelunique.com, Lancôme, L’Oréal Paris, LVMH Perfumes & Cosmetics, Nocibé, Paco Rabanne, Puig, Sephora, Yves Rocher. Fashion & Luxury: Baccarat, Boucheron, Céline, Esprit, Givenchy, IKKS, Just One Eye, Kering Group, Lacoste, LVMH Group, Loewe, Moët Hennessy, Vilebrequin. Retail: Carrefour, Darty, Fnac, Micromania/ Gamestop, Monoprix, Stokomani, Tati, Truffaut. About iVentures Consulting 31© iVentures Consulting 2017 M A I N C L I E N T S