Tuesday, 21 November 2017

2017 Holiday Spending Forecast: Will Be Better Than Expected



Executive Summary

Retail investors have had a tough year.
  • The S&P Retail ETF (exchange-traded fund) has declined nearly 10% in the past twelve months versus the S&P 500 up 19%. That’s nearly 30 percentage points of underperformance.
  • It’s fair to say that investor hatred of retail has gone to a dark place when once-loved stocks like Macy’s are trading at less than half that of the S&P 500 (7x next twelve months earnings versus the S&P 500 at 18x).
Why has retail been so bad and why do people expect a weak holiday?
  • Of course, the big driver is Amazon and the push towards eCommerce. Amazon has their hands in everything and they don’t care about near-term profitability.
  • There are many other reasons to be negative on retail: higher gas prices, iPhone X super cycle, rising shipping costs, the millennial-driven shift from buying "stuff" to buying experiences (vacations, fine dining), and more.
  • The Wall Street Journal recently wrote, "It’s understandable that investors think this holiday season, when November and December count for about a quarter of department stores’ annual sales, will be another miserable one."
Why might retail be better than expected?
  • While there is no doubt that the changing paradigm brought on largely by the shift to eCommerce is real, retailers are not going out of existence tomorrow and there are some mitigating factors.
  • There are a few positive factors that should benefit retailers this holiday season that aren’t getting a lot of attention. These include: recently positive chatter from retailers, cooler weather, low inventories, favorable calendar elements, a positive macro backdrop, upbeat surveys, and easy comparisons.
Who survives?
  • The retail landscape will continue to be difficult for those who fail to move with the times.
  • However, the retailers who have (1) a desirable product/defensive brand, (2) a solid omnichannel strategy, and (3) well-controlled inventories should fare pretty well this season in light of an overall favorable background. As always, it’s a matter of bifurcating the winners and losers - not all retail will succeed.
Last year’s holiday season left retailer investors with not much more than coal in their stockings. Even after the holidays and throughout the year, Santa seemed to forgo his hibernation period, dropping leftover bits of coal in retail investors’ stockings. No specific retail sector has been safe. Previously defensive stocks like Walgreens and CVS have been thrown to the wolves (Walgreens -14% and CVS -10% year-to-date). Grocers like Kroger (down nearly 40% YTD) and meal kit services like once-splashy IPO Blue Apron (down nearly 70% YTD), are crying “uncle.” Of course, traditional retailers like Macy’s (-44%), Dick’s (-49%) and J.C. Penney (-62%) haven’t escaped the pain either. Year-to-date, auto parts retailers like Advance Auto Parts and Auto Zone have declined 52% and 24%, respectively. Even life sciences companies like Thermo Fisher Scientific are not immune as Amazon looks to enter the lab supplies business (-8% since the rumors started).
The S&P Retail ETF (ticker: XRT) has declined nearly 10% in the past twelve months versus the S&P 500 (up 19%). That’s nearly 30 percentage points of underperformance. Few sectors have seen a chart so ugly:
Figure 1: S&P Retail ETF Underperformed S&P 500 Index by about 30 Points Past Twelve Months
So what’s been the cause and why are investors still positioned so negatively heading into the holiday shopping season? There are so many things going against retail’s favor. Here’s a quick, fun list:
  • The shift to online hurts traditional retailers as shoppers can easily compare prices of branded goods. Shoppers can also shop whenever they want, with no sense of urgency from previous surge days like Black Friday.
  • eCcommerce is not only cannibalizing store traffic and four-wall margins but also forcing retailers to invest in omnichannel capabilities—a double hit to profitability.
  • The largest competitor, Amazon, has an unparalleled and convenient distribution chain and doesn’t care about making a near-term profit.
  • Year-to-date, gas prices are up 13% y/y, possibly limiting discretionary spending.
  • The iPhone X super cycle may take wallet share.
  • Shipping costs are rising.
  • The shift from buying “stuff” to buying experiences (vacations, fine dining).
It’s fair to say that investor hatred of retail has gone to a dark place when once-loved stocks like Macy’s are trading at less than half that of the S&P 500 (7x next twelve months earnings versus the S&P 500 at 18x). The Wall Street Journal recently wrote, “It’s understandable that investors think this holiday season, when November and December count for about a quarter of department stores’ annual sales, will be another miserable one.”
Of course, the big driver is Amazon and the push towards eCommerce. Amazon has their grubby hands in everything (even pharma and groceries now) and they don’t care about near-term profitability. Nevertheless, while there is no doubt that this is a serious concern, non-Amazon retailers are not going out of existence tomorrow. People still want to shop somewhere that has a brick-and-mortar store. Even Amazon is joining the brick-and-mortar party.
Additionally, there are a few positive factors that should benefit retailers’ holiday sales 2017 that aren’t getting a lot of attention. These include:
  1. Recently positive chatter from retailers
  2. Cooler weather
  3. Low inventories
  4. Favorable calendar elements
  5. Positive macro backdrop
  6. Upbeat surveys
  7. Easy comparisons
So the retailers who have (1) desirable product, (2) a solid omnichannel strategy, and (3) well-controlled inventories should fare pretty well this season in light of an overall favorable background. As always, it’s a matter of bifurcating the winners and losers—not all retail will succeed.
Given the wild exogenous events that seem almost more predictable than not these days (hurricanes, wildfires, political landscapes on par with Game of Thrones), retail forecasting can be tough to do with much certainty. But let’s take a look at the information we do have today and see what we should expect.

Why We’re in for a (Somewhat) Jolly Christmas

1. Recently Positive Commentary

Before trend changes manifest themselves in numbers, they happen at the ground floor—at a level where people are just beginning to talk.
A handful of retailers reported third-quarter earnings in early to mid-November with surprisingly positive commentary. Department stores have been some of the hardest-hit retailers from Amazon given their high fixed costs (shift to online hurts 4-wall margins) and easily price checked branded items. Yet, both Kohl’s and Macy’s noted that they saw business pick up in the back half of October after the negative impacts of hurricanes and unusually warm weather lessened. Kohl’s noted, “We’re super confident as we go into the fourth quarter.” Ross beat both sales and earnings forecasts and raised its forecast for the fourth quarter.
On its earnings call, Target seemed more upbeat on Holiday Sales 2017 than they had been in a while, “While Q4 is always intensely competitive, we are entering this holiday season with lots of confidence.” From its earnings call last week, it was clear that Walmart was seeing improved traction as well. Walmart’s domestic comparable-store sales increased 3%; even foot traffic was up and they noted “good momentum in sales growth across the business.
Additionally, many states noted an improvement in the October Beige Book: “All responding retailers reported that sales improved over the last six weeks. Whereas previous reports sometimes cited flat or negative year-over-year results, contacts this round reported year-over-year comparable store gains in the 2 percent to 4 percent range. Consumers reportedly spent on clothing, furniture, and home improvement items. Contacts were generally optimistic that the recent positive sales trend would continue through the end of the year”

2. Cooler Weather Bodes Well for Multiple Retail Sectors

Year-to-date, the weather has not been cooperating. According to the National Centers for Environmental Information, the October national average was 55.7°F, 1.6°F above the 20th-century average, and in the warmest third of the historical record.
Figure 2: Year-to-Date Temperature above Average
Following last year’s unseasonably warm winter, the U.S. appears to be set up for a cold burst this holiday season. The National Science Foundation recently forecast an exceptionally cold winter with a polar vortex expected to return. Even if temperatures are modestly lower versus last year, this should help seasonal categories and auto parts retailers as there is likely pent-up demand from lack of purchases last year. Cooler weather provides an impetus for shoppers to get new items, whether it be apparel to keep warm or new auto parts that get worn out more easily in harsh weather.
Weather Trends International (WTI) also forecasts a relatively positive retail scenario for this holiday spending season with November expected to be significantly cooler y/y. Already, the first week of November was significantly cooler versus the prior two years and marked the snowiest start to the month in six years. The second week of November was also cooler year-over-year with the Northeast receiving an arctic blast and minimal precipitation—a favorable setup for shopping for seasonal winter categories. Retailers already appear to be feeling the benefit as Macy’s noted in mid-November at the Morgan Stanley Global Consumer & Retail Conference, “Obviously a few weeks does not make a fourth quarter, but this weather is clearly quite positive for the business.”

3. Inventory Levels Are Low

Given declining foot traffic and in an effort to avoid last year’s overstocked inventory situation, many retailers are being extremely cautious on inventory heading into the holiday season with some still in the process of placing new orders. According to dozens of sources that spoke to Reuters, this includes Macy’s, J.C. Penney, Kohl’s, Nordstrom, Dillard’s, and Hudson Bay’s Lord & Taylor, among others.
Recent earnings calls echo this message as many have reported very clean inventories and noted that they are managing inventory for the back half very cautiously. This should bode well for markdowns and gross margins as retailers will be less likely to slash prices to move excess inventory. According to Morgan Stanley, inventory coming out of 2Q was 210 basis points below 3Q expected revenue growth—a clear indication that inventory levels are in good shape. J.C. Penney was one of the most significant clearers of inventory as they took aggressive actions mid-quarter to clear stagnant inventory to make room for an “improved apparel assortment heading into the holiday season” according to CEO Marvin Ellison.

4. 2017 Holiday Calendar Shifts Are Favorable

  1. Sheer number of shopping days is higher. In 2017, we will see one additional shopping day between Thanksgiving and Christmas (31 days versus 30 last year). Fewer shopping days tends to put more pressure on retailers to promote early and turn up the volume as Christmas approaches. While clearly some retailers still started their promotions early according to Abha Bhattarai of the Washington Post, a more forgiving calendar relieves some of the pressure to promote early and deep.Figure 3: Shopping Days Between Thanksgiving and Christmas
  2. Day of the week for Christmas is favorable. In 2017, Christmas will fall on a Monday versus a Sunday last year. This means an extra weekend day for shopping which will boost brick-and-mortar but not eCommerce as UPS and FedEx don’t deliver on Sundays.
  3. Lots of Saturdays in December. For the first time since 2012, there will be four Saturdays in December before Christmas Day. According to ShopperTrak, Saturdays in December are some of the busiest shopping days all year and they get busier week-over-week leading up to Christmas Day.
  4. The 53rd week. Every five years, retailers have a 53rd week in January. An entire extra week is a pretty big deal and can add 4-5% incremental revenue growth. While investors are supposed to take this into account, headline numbers can do a lot for momentum and sentiment. Since the XRT Retail ETF has been available, a 53rd week has occurred twice and, in both instances, the XRT outperformed the S&P 500 index by about 300 basis points from the beginning of the fourth quarter through the end of the first quarter.
Figure 4: Retail ETF (XRT) Has Outperformed the S&P 500 During Years with a 53rd Week

5. Macro Factors Bode Well

Consumer confidence in October increased to its highest level since 2004. Director of Economic Indicators at The Conference Board, Lynn Franco, noted, “Consumers’ assessment of current conditions improved, boosted by the job market, which had not received such favorable ratings since the summer of 2001. Consumers were also considerably more upbeat about the short-term outlook, with the prospect of improving business conditions as the primary driver. Confidence remains high among consumers, and their expectations suggest the economy will continue expanding at a solid pace for the remainder of the year.” While consumer confidence recently has not been as highly correlated with retail sales as in the past, this has been attributed to low inflation and high savings rates. However, as shown in Figures 5 and 6, CPI has begun to tick up while the savings rates have steadily declined.
Figure 5: One Month Percent Change in CPI, Seasonally Adjusted, and Figure 6: US Personal Savings Rate
Disposable personal income last year grew 2% over the holiday spending season and, according to Deloitte, may rise to a range of 3.8% to 4.2% this season. Clearly, the more disposable income shoppers have, the better.
Figure 7: Disposable Personal Income Steadily Rising
Furthermore, gas prices, while about 19% higher year-over-year (week of 11/6/17) at $2.56 remain extremely low relative to historical levels of $3.01 (2012-2016 average). Additionally, gas prices year-to-date through August, before Hurricane Irma and Hurricane Harvey hit, were running just 10% higher year-over-year and are expected to trend lower going forward.
Figure 8: US Retail Gasoline Prices Remain Relatively Low

6. Easy Comparisons

I really hate to talk about “easy comps”—an industry term that empirically feels meaningless. However, easier comps, for better or worse, tend to drive stocks. An unexpected acceleration in revenue (even when caused, in part, by easier comparisons) indicates an improving environment and this tends to lead to higher earnings estimates, higher valuations, and, therefore, higher stock prices. Psychologically, an investor seeing a company grow comparable store sales 10% may place a higher multiple on that stock versus a company that puts up 5% growth even if it’s simply a matter of easier y/y comparisons.
In this light, it’s important to note that last year’s holiday season was a nightmare for most retailers, and this means that year-over-year comparisons will be quite easy. Last year, comps decelerated from up 0.5% in 1Q16 to near flat in 2Q, to down 0.8% in 3Q and then down 1.1% in 4Q16 and down 2.3% in 1Q17 as the holiday hangover persisted (analysis based on Toptal Research of XRT ETF stocks excluding eCommerce only companies and including only companies with fiscal years ending December or January). Some fared even worse—Express’s comps declined 13% and Macy’s declined 5% y/y,
Last year, the start of the season coincided with the U.S. presidential election and shoppers seemed more apt to stay home and watch Trump and Hillary throw side eye at each other than to shop. Furthermore, retailers entered the season with bloated inventories which combined with a reticent shopper and an unseasonably warm winter, led to a pretty dismal performance. In fact, foot traffic declined 12% y/y in November and December and retail stocks significantly underperformed as the S&P Retail ETF declined 3% versus the S&P 500 up 9% from the end of 3Q16 to the end of 1Q17.
Figure 9: Retail Stocks Significantly Underperformed Last Holiday Season

7. Surveys Are Positive

Surveys and forecasts from the major retail agencies are relatively optimistic about the holiday season with all predicting revenue growth to increase about 4%, an acceleration versus last year’s +3.6%.
The National Retail Federation forecasts retail sales in November and December (including eCommerce and excluding automobiles, gasoline, and restaurants) will increase between 3.6% and 4.0% to $679 billion in 2017. This indicates growth will meet or exceed last year’s +3.6% and the five-year average of +3.5%. NRF Chief Economist Jack Kleinhenz notes, “Consumers continue to do the heavy lifting in supporting our economy, and all the fundamentals are aligned for them to continue doing so during the holidays…The combination of job creation, improved wages, tame inflation and an increase in net worth all provide the capacity and confidence to spend.”
NRF’s survey conducted in October found that only 27% of consumers believe their holiday spending will be impacted by concerns regarding the economy. This is down from 32% last year and is the lowest level since the NRF began asking the question during the Great Recession of 2009.
Deloitte, whose forecast is the most optimistic at 4.0-4.5%, believes four factors will drive the strong uptick: personal income growth, consumer confidence, strong labor market, and a low, stable personal savings rate. ICSC forecasts retail sales increase 3.8% y/y and believes that consumers are “very optimistic this holiday season and that physical retail remains a cornerstone of the holiday season.” ICSC excludes non-store vendors.
Figure 10: Revenue Forecasts for Holiday 2017
While some are predicting that Black Friday is dead, RetailMeNot’s survey of over 1,000 people found that the desire to shop the day after Thanksgiving remains about flat with 52% of respondents planning to shop on Black Friday versus 53% last year. As for Cyber Monday, the demand is increasing. Cyber Monday is the Monday after Thanksgiving and has seen increasing popularity as shoppers participate in easy-access, online deals. Last year, Cyber Monday hit a new all-time record as the largest online sales day with sales up 10% year-over-year, according to Adobe Digital Insights. For 2017, Adobe forecasts Cyber Monday sales will increase a whopping 16.5% to $6.6 billion.

Parting Thoughts

By no means should we expect a retail renaissance this holiday season. However, given some of the positive factors that retailers have at their backs, there’s reason to have hope that those with desirable product/defensive brand (e.g., Canada Goose)/eCommerce insulated model (e.g., off-price), a competitive omnichannel strategy, and clean inventories are set up for a pretty solid holiday shopping season. The combination of miserable sentiment and not-bad results has often proved itself to be a good time to invest. On November 9th, Macy’s reported its 11th consecutive same-store sales decline, sales were down more than consensus, but they beat on earnings and had clean inventories. Stock reaction to these so-so results? Up 11%. On November 14th, Advance Auto Parts reported a slight miss on comparable store sales but beat on earnings due to strong margins. The mixed quarter led to the stock being up 20%. With expectations this low and relative valuations in the dumps, it doesn’t take much to please a retail investor.


Is there a Week 53 this year?

The retail calendar is divided into 52 weeks of seven days, a total of 364 days. This leaves an extra day at the end of each year which culminates in an extra week being added to certain years. This occurs every five or six years. The last time this happened was in 2000, 2006, 2012 and it will occur in 2017.

The state of interactive advertising: New formats are infusing digital ads with creativity that gets results


With the rise of mobile usage, brands have been challenged to figure out how to do more with less screen real estate and shorter attention spans.
Thanks to a combination of new technologies, more powerful mobile devices and a drive to blast through banner blindness, a new level of creativity is coming to mobile advertising as interactive ads are finally coming into their own.
A number of companies are on the forefront of interactive ads — also called engagement or immersive ads. These companies are rethinking the standard banner, using 360-degree video, augmented reality (AR) and virtual reality (VR) in advertising experiences that aim to get users engaging with ads beyond just clicking through to go to a website or download an app.
It’s not just for the sake of creativity. These companies and the brands they work with will tell you the results they’re seeing from re-imagining what digital ads prove that interactivity will only continue to gain traction.
“Interactive ads are a way to spend more valuable time with consumers,” says Kara Manatt, SVP, audience intelligence and strategy at IPG Mediabrands’ MAGNA agency. Manatt leads a research team that tests new ad formats and strategies. This year, the team conducted a large-scale test of interactive ads with four major brands in different industries.
“In general, brands are receptive to interactive ads. Most of us know that given most screens are touchable … interactive ads are the future,” says Manatt. “People expect to be able to interact with their screens, so why shouldn’t ads do that.”
Here’s a look at some of the real-world use cases and campaigns using interactive ad formats, beyond what the major platforms offer (e.g., Snapchat 3-D world lenses, Facebook canvas ads and its new effort in web-based VR, 360 experiences, Google lightbox and trial run ads).

Next-level display ads

Mobile and the use of rich interactive media has opened up new creative opportunities for display ads.
Working with New York-based PadSquad, Timberland ran a “coloring book” ad featuring a Nas video and cartoon (see the demo on mobile here). The ad features a Nas video that plays with the sound off and invites users to color and bring the cartoon to life (mobile demo).
In fewer than 40 days, the ad had accrued 59 days of video play time, with over 50 percent of video starts getting completed and more than 200,000 engagements, including coloring and click-throughs, says Padsquad.
“Units just really haven’t changed much over the years from rectangle and squares. There’s a low bar. We try to challenge brands to do things differently,” says Meehan. The mobile-only company works with clients on ideation, design and development for free and charges for media, says PadSquad CEO Daniel Meehan.

Timberland’s interactive ad from Padsquad features an image users can color and a video featuring Nas.
London-based mobile video platform LoopMe also added a coloring dimension to an ad for Yorkshire Tea featuring the storybook character the Gruffalo to promote the brand’s pledge to plant 1 million trees over five years. Users could select colors from a palate and share their finished product on social media.
The company says brand awareness was 97 percent higher among those exposed to the ad versus an unexposed control group. Perception of Yorkshire Tea as an environmentally friendly brand increased 39 percent among those exposed to the ad.

Yorkshire Tea’s ad campaign let users color in and share a picture of storybook character the Gruffalo.
Other PadSquad interactive mobile display formats, including the title lookbook unit that flips through “pages” of an ad with a slight tilt of the user’s phone — no swiping or scrolling required. DSW used the format (mobile demo) for a spring promotion.

360-degree video is filling in for VR

“TV is moving to video, and mobile is where consumer activity is happening,” says Stephen Upstone, CEO and co-founder of LoopMe. Upstone says LoopMe, which recently expanded to the US, reaches some 2 billion devices globally. The firm focuses primarily on mobile video and putting video in rich media ads.
LoopMe’s Purchase Loop platform uses artificial intelligence to optimize campaigns for brand lift based on the outcome a brand wants to achieve.
“For example, a quick-serve restaurant wants to be viewed as a coffee destination,” suggests Upstone. “We can determine which video formats actually caused the consumer to change their mind about the brand or come to the desired outcome. It gives us an interesting view into what’s working.” Upstone says that in addition to brand metrics, “you can also trace the effectiveness of these ads to store visits, new car sales, etc.”
Some examples of 360 video campaigns powered by LoopMe:
  • The North Face ran a 360-degree gyroscope ad that tied in with weather data.
  • A Honda ad got users’ phones to vibrate when a car engine starts up. The company also used 360 video to let users experience the inside of the car.
  • A Norwegian Air campaign allowed users to click on locations they’re interested in and then to experience those locations.
Mountain Dew and its agency, OMD, used Immersv’s mobile 360 and VR marketing platform for an ad campaign promoting the VR experience, “The Professor Presents: #GotHandles.” The campaign delivered 63 percent video completion rates and 22 percent post-video click-through rates. The 360-degree trailer (shown below) promoted the VR experience on Immersv’s network of mobile 360 and VR app publishers and directed them to download the VR experience.
OmniVirt powers 360 VR ads on publisher sites, starting with an ad for GE that appeared on the The New York Times’s mobile site in July 2016. The platform can distribute 360 VR ads in standard units on publisher sites and apps, as well as in social networks like Snapchat and Twitter.
Last year, Outlyer Technologies launched its Advrtas platform and interactive 360 VR ads that employ its patent-pending Panamorphic technology. The company also creates VR and AR ads, but saw Panamorphic units as a way “to get people excited today and then learn from that and extend to platforms as more users come online,” Robert Bruza, CEO of Outlyer, told me last spring.

The units have a VR mode for viewing in headsets but also work on the web. Users have 360-degree navigation throughout a visual environment that can also include 3D or 2D computer-generated elements, photos or graphics and transactional calls to action in the ads. Users can click interactive hotspots to explore different aspects of the environment.

In this example of a 360 VR ad from Advrtas, calls to action surface as the user tours the areas of a resort.
“Video is the linchpin behind interactivity,” says PadSquad’s Meehan. The company launched an interscroller ad format called Vvital that can incorporate 360, shoppable icons, a swipeable product gallery, store locator, interactive cue cards and other interactive features.
“Many clients had been doing pre-roll and some had tested Snapchat,” said Meehan, “but for many, it was the first time to run vertical video that wasn’t placed ahead of other video content.”
ABC used the Vvital format to promote its TGIT (Thank God It’s Thursday) suite of shows (mobile demo). Meehan says in the short flight of just 11 days, the ad vertical drove more than 775,000 engagements and 239 days of total video play time.

Augmented Reality has come to the web

Upstone says their research has shown advertisers get more impact when they combine video and rich media formats. These formats will soon be more mainstream, says Upstone. “It’s going to become more commonplace. Consumers are very happy to adapt photos and videos with AR on social. Snapchat, Samsung and Facebook are helping push that.”
While VR advertising is still in its infancy, AR is rapidly gaining traction, in part because the format doesn’t depend on delivery via a headset. Also because of Snapchat. Snapchat is now running AR campaigns regularly on its platform. But AR is poised to extend well beyond Snapchat to the mobile web and other apps. Google and Apple, with ARCore and ARkit respectively, are offering developers tools to create AR experiences more easily.
For Santa Monica, California-based Vertebrae, Apple’s iOS 11 created the opportunity to open the camera onto the ad itself and use facial recognition to provide an AR experience from an ad, and at scale.
Vertebrae launched a suite of AR ad formats last month that can run on Android 5.0 and up, “but having iPhone in the game is really impactful,” says CEO Vince Cacace of the company’s AR efforts. “iOS users are more likely to engage, and we see higher camera open/allow rates than on Android.”
Vertebrae’s AR ad units work on the mobile web in Chrome and Safari. “The problem historically has been, if you’re Golden Grahams, for example, and want to have AR-triggered promotion on the box of cereal, you probably don’t have an app and don’t want to make consumers download one. Now we can build AR ad experiences over the web.”
The company offers five web AR ad templates: Virtual Try On (see how accessories look on you), Dynamic Experience Mask (facial recognition), Interior World View (inside 360 image/video), Interactive 3D Object, a Portal, and swipeable static branded filters — with plans for several more.

“Brands are going to be doing ads on Facebook and Snapchat, and we should be able to offer this on the mobile web,” said Cacace of the company’s AR efforts. “We create the assets — advertisers can also use them on Facebook and Snapchat — and we serve them through our own platform on the mobile web.”
Cacace says they are just beginning to figure out the best use cases and measurement. “On the AR side, you have all this standard data, but also all this new information from the AR experience. For instance, camera events data — in the ad for trying on Ray-Ban sunglasses, you can see which models got tried on most, for the longest and how users engaged.”
San Francisco-based VR ad network OmniVirt also offers AR and 360 video ad experiences on the web.

In September, Tel Aviv-based in-app advertising platform IronSource launched what it says is the first AR ad format to promote high-end mobile games that often use 3D (known in the industry as AAA games for their high development quality). The AR ad format was developed by IronSource’s Playworks Studio when Apple’s ARKit was still in beta. The ads use 3D assets from the original game and can run in iOS and Android apps.
IronSource AR ads superimpose in-game characters and scenarios from the advertised game onto the user’s real-world environment. “Users will be able to vanquish monsters, earn points or step into the virtual world of the game, before being prompted to install the app to continue playing,” the company said in a statement.

Virtual Reality is still in its infancy

It’s still very early days for VR content, let alone VR advertising. Most of the advertising that does exist still promotes other VR apps
USA Today’s in-house studio, GET Creative, has developed true VR and 360 VR branded stories for several advertisers, including a 360 VR campaign for True Michigan and a VR campaign for Honda.
The group is also working on creating a native VR ad format it’s calling a cubemercial that puts viewers inside a room in which brands can show products and videos on each of the walls. Google is also working on a cube-like VR ad format.

Engagement through personalization

“Advertising has always been about awareness. The only thing that’s changed is new channels,” said Eric Frankel, CEO and co-founder of personalization platform AdGreetz. “The future is ‘activation’ — hyper-relevant, data-driven personalized videos. The best way to activate people is to treat people in a personalized, hyper-relevant manner.”
AdGreetz is taking a bit of a different approach to driving engagement. The company develops and distributes hyper-personalized ads at scale across online and offline channels, including web, in-app, social networks, email outdoor and more.
Users can log in to Facebook or type their name to see a personalized video from West Elm.

Interactive in-app & App install ads

Mobile advertising platform Leadbolt launched its version of a playable app install ad format last month that lets users test out an app before downloading it. The company says the playable ads averaged double the click-through rates and 4x improvement in conversion rate when compared to static interstitials.
Tapjoy, which specializes in in-game rewarded ads, recently launched an interactive end card for its inter-play ads. In its debut application, 20th Century Fox used the ad format to promote the film, “War for the Planet of the Apes.”
After the movie trailer, an interactive slider appears, allowing users to swipe up or down to see images and descriptions of the film’s characters, followed by the option to click out to Fandango to purchase tickets to the movie.
IronSource is launching what it calls 4D Interactive Ads this month. The ads layer interactivity on top of video content and feature interactive “choose your own adventure” journeys, taking users through various scenarios within the ad. The ads change as users make their choices and answer specific questions. Audience preference and behavior data gets funneled back to the advertisers to help them better understand their customers and prospects.

The barrier to entry in interactive is getting lower

MAGNA’s Manatt says that while some brands worried about the investment needed to create interactive ads, the agency found that they could make effective interactive ads with existing assets. “You can take existing video and make it more effective with interactivity. It’s probably going to be even more effective with new assets, but we proved it’s possible with existing assets.”
“One key angle for us was time and attention — how can we get consumers’ time?” said Manatt of the agency’s recent study. “Could interactivity turn a 15-second video into a longer user experience and drive brand KPIs? We found the average interactive ad meant 47 percent more time with consumers.”

How should you start the process of mobile app development?

IT teams must go into the mobile app development process with a strong plan for implementation. Know which tools and types of apps work best for the organization ahead of time

Organizations that plan to implement a custom application face a number of decisions about how to build the app.
Before diving into the process of mobile app development, IT teams and developers must first decide what type of app to develop and deploy based on user needs. IT must also decide whether the app should run on Apple iOS devices, Google Android devices or both; they might also want to support Microsoft Windows devices or even BlackBerry devices.
Many IT teams deploying mobile apps are now turning to mobile backend as a service (MBaaS) for their infrastructure needs. MBaaS decouples front-end development from the back-end systems. Effective MBaaS provides the services necessary to support apps throughout their lifecycles, as well as for integrating with other systems and managing security and synchronization. As with other services, however, IT must ensure that MBaaS can integrate with its existing systems and support operational workflows, without interfering with desktop and application management.
Another consideration in the process of mobile app development is whether to build native, web or hybrid apps. Native, built-from-scratch apps generally perform better than other app types and can take full advantage of the device's built-in features. Native apps are more difficult and costly to build, however, because developers must create a version of the app for each supported platform, often having to learn new languages and systems in the process.
Web apps are much simpler to build. They're based on open standard technologies, such as HTML5, CSS and JavaScript. As a result, they can run on any device with an HTML5-enabled browser, making them much cheaper and quicker to implement and maintain than native apps.
An IT team should take into account their users and the app's purpose.
The hybrid app falls somewhere between the two. It uses open standard technologies like web apps, but can take greater advantage of a device's native features. The hybrid app uses the same core code for all platforms, but for each platform, the code is wrapped in a platform-specific shell. This makes it possible to access many of the device's native capabilities.
As part of the overall process of mobile app development, an IT team should take into account their users and the app's purpose. For example, they might want to invest more in customer-facing apps than those used only internally. If a web or hybrid app can provide the functionality necessary to support the workflow, there is no need to invest in a native app.
Lastly, IT teams and developers might also consider tools such as mobile application development platforms (MADPs) or rapid mobile application development (RMAD) services to accelerate the process of mobile app development. MADPs and RMAD tools offer end-to-end software for building, deploying and managing apps. For an organization to use these tools effectively, however, it must provide the ability to easily integrate the apps into existing systems.