U.S. Apparel Retailing: Delivering a strong finish Jahnia Sandford Analyst Mary Brett Whitfield Senior Vice President September 2013

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Today’s Presenters and Agenda Update on Landscape Best-in-Class Mobile Shopping Apps Hot Growth Tactics Presenters Mary Brett Whitfield Senior Vice President Jahnia Sandford Analyst

Kantar Retail ShopperScape® 4,000 primary household shoppers per month CORE SAMPLE: Representative sample of ~50,000 unique primary household U.S. shoppers annually ALSO: Oversample of men for representative sample of males HOH 18+ (n = 800/month) Who? How? Fielded online the third week of every month Survey fielded through LSR access panel of more than 3 million individuals What? Monthly and quarterly tracking questions on retailers and venues shopped, products purchased, where spent, near-term spending outlook, and household financial health Questions on timely and topical issues (including key holiday periods) affecting shopping behavior Coverage 200+ retailers across all sectors of retail 75+ product categories (e.g., over-the-counter medications) 7 major merchandise groups (e.g., health and beauty care products) 4 4

Agenda Update on the Landscape: What’s Required to Deliver a Strong Finish? Macro Financial Seasonal Best-in-Class Mobile Shopping Apps Hot Retailer Growth Tactics

Macro Trends Lend Favorability But not all apparel retailers have been able to capitalize Consumer Confidence Spending Sentiment Material Costs Inflation Weather Strong Prior-Year Performance Competition Payroll Tax Increase Housing Market Rebound Diverts Discretionary Spending Source: Conference Board, Kantar Retail ShopperScape®, research and analysis

A Few Retailers Capitalized and Grew at the Top and Bottom Growth H1 (Y-O-Y) Sales Comps Net Income 13.0% 9% | 9% 30% 8.0% 3.0% 11% 7.6% 2% | 5% 34% 5.6% 3.6% 8% 5.0% 3.6% 18% 4.8% 3.0% 3% 1.6% 1.5% 8% Source: Kantar Retail analysis and company reports

Top Retailers Not Able to Capitalize Top and bottom line declines Growth H1 (Y-O-Y) Sales Comps Net Income -14.5% -17% | -12% -201% -7.8% -14.0% -531% -4.7% -15% | -10% -198% -2.9% -5% | -7% -19% 0.5% -0.5% -4% Source: Kantar Retail analysis and company reports

Apparel’s Leaders Sum up Biggest Challenges Have needed to be more promotional to drive sales On Women’s Apparel challenges: Ronald L. Frasch, President and Chief Merchandising Officer, Saks: “The customer … is very discriminating, and she is moving to where the fashion is and clearly letting us and the brands know that she's not going to buy something if it's not to her liking. So I would say we're probably in the middle stage into this, much more work to be done.”  On Teen Apparel challenges: Thomas P. Johnson, CEO, Aeropostale: “Clearly, the teen sector is challenged, and I think it's a number of different things. One is the promotional activity is high, which you would think would induce more purchases. But what it basically does is lower everybody's AUR, so that's obviously challenging.”  Robert L. Hanson, CEO and Director ,American Eagle Outfitters: “AEO's women's business had the biggest miss to plan, comping down 9% in the quarter … we saw weakness primarily in core and core fashion styles” “We believe that fashion always trumps weather.” —Urban Outfitters President and CEO Richard Hayne Source: Kantar Retail analysis and company reports

Seasonal Update Difficult spring leads to moderate/lackluster BTS From a shopper perspective: Shoppers narrowed their destination sets Still choosing Walmart and Target as top destinations for supplies and apparel Season starting earlier and earlier … and the “season” is really all summer Where Plan to Shop for BTS Category Supplies 61% 36% Clothing 39% 33% Will Shop for BTS Clothing in Summer … … as I see deals … as budget allows Source: Kantar Retail ShopperScape®, June 2013 and analysis

Marshalls Turns BTS/C into a Gift Giving Occasion Source: Kantar Retail research and analysis

More Retailers Use Hashtags in BTS Campaigns #BACKTOCOOL Source: Kantar Retail research and analysis

Catalog Spree Modern catalog shopping puts retailers toe-to-toe Style and brand take prominence over price Source: Kantar Retail research and analysis

Walmart’s Cyber Monday in August Lowest prices on back-to-school for one day Early access for Facebook fans Also prominent on mobile app homepage in days leading up Source: Kantar Retail research and analysis

New Competition to Consider Kroger Fashion Essentials and Meijer Style National Brands Full-family assortment Source: Kantar Retail store visits, retailer web sites

Seasonal Recap and Looking Ahead Expect similar environment headed into the holidays Spending sentiment favorable at macro level, but retailers of discretionary goods will need to earn share of wallet Those that do will be in a position to drive growth at top and bottom line Competition not slowing requiring retailers to be more proactive and innovative Source: Kantar Retail analysis

Agenda Update on the Landscape: What’s Required to Deliver a Strong Finish? Best-in-Class Mobile Shopping Applications Who’s playing? Who’s winning among users Best-in-class features Hot Retailer Growth Tactics

Why Discuss Mobile Shopping Apps? 142 million shoppers own a smartphone: 59% share of mobile market 24/7 Access More than 80% of Gen Y shoppers own smart phones Nearly one in five shoppers has used a mobile device to access a retailer Web site More than one in 10 has used a retailer/ shopping app Kantar Retail ShopperScape®, March 2013, comScore MobiLens, and analysis

Use of Retailer Apps on Mobile Growing 2013: 11% 2012: 7% Source: Kantar Retail ShopperScape®, January 2012 and January 2013

Expect 2013 results to eclipse these Mobile by the Numbers! Retailers setting huge benchmarks 2011-2102 Y-O-Y mobile sales growth Number of fashion items sold per minute on eBay thru mobile Expect 2013 results to eclipse these Portion of 2012 eCommerce sales from mobile Position of fashion items among other categories based on mobile sales in U.S., U.K. Australia, and France Portion of 2012 total sales from mobile Source: Kantar Retail research, analysis and company reports

What do each of these retailers have in common??? [On the DSW mobile app’s impending launch] “That's one of the most requested thing from our customers … people don't shop on [native iPhone mobile browser] Safari, they shop on an app. They're conditioned to do that because it's more secure and it's easier.” – Kelly Cook, SVP of Marketing, DSW Inc. Source: Kantar Retail research and analysis

Steady Demand for Tablets Supports Belk Anthropologie on Tablet Play … Smartphone Play Soon Upcoming iPhone app launch, after success of the Free People app launch in June ’13, which in in 3 short months achieved more than 80K downloads and a higher sales conversion rate than the brand’s online site Digital currently the fastest growing business at Belk… ramping up investment in all areas Source: Kantar Retail ShopperScape,®, January 2012 and 2013

Who’s Playing? Last update as of 9/12/13 *User ranking based on all iPhone versions to date Source: Kantar Retail research, analysis, and iPhone iTunes app store

ModCloth’s Attention to Detail Aids in the Purchasing Decision Source: Kantar Retail research, analysis, and retailer iPhone app

Gilt and Rue La La Sync Sales to Shoppers’ Schedules Add sales reminders one-day out Add sales reminders multiple days out Source: Kantar Retail research, analysis, and retailer iPhone app

And these?? Giving shoppers other ways to connect in lieu of full mobile store app launch Source: Kantar Retail research and analysis

American Apparel’s Shopping Assistant Syncs all Channels Augmented Reality Experience Check-out from device using scanner and PIN Must create an account or sign-in to use full app Source: Kantar Retail research, analysis, and retailer iPhone app

International Retailers Apart of U.S. Shoppers’ Routines Interactive weekly fashion/lifestyle magazine Singing alarm clock and weather reporter Source: Kantar Retail research, analysis, and retailer iPhone app

Kate Spade Saturday Uses pending mobile launch to direct traffic online Source: Kantar Retail research, analysis, and retailer iPhone app

Ann Wants to Be Your BFF Uses corporate culture to connect with users If you love the brand so much why not work there… Allows users to save favorite mantras, dates, trends from the community and career opportunities Source: Kantar Retail research, analysis, and retailer iPhone app

lululemon’s Lifestyle Approach Targeting yogi community Upcoming classes automatically load when app is opened Source: Kantar Retail research, analysis, and retailer iPhone app

Neiman Marcus’ Unique Approach Sells gifts and shoes only (SWAS concept on Mobile) NM Gifts Today's Shoe Free gift wrapping Free expedited delivery Source: Kantar Retail research, analysis, and retailer iPhone app

Other Standout Features Personalization One Click Ordering “Personalization is even more important on mobile because of the more limited screen real estate.” –Steve Jacobs, CIO, Gilt.com Timing and Overall use of Notifications Convenience/ Omni-shopping Source: Kantar Retail research, analysis, and retailer iPhone app

Apps Eliminate Need to Carry Around Physical Card, Ups Convenience Factor Source: Kantar Retail research, analysis, and retailer iPhone app

Retailers Driving Cross-Channel Shopping Pac Sun gives online shoppers 5 reasons to go mobile PacSun sells its mobile phone app’s uses and benefits to online shoppers Shopper won’t have to click thru to app stores to find out Source: Kantar Retail research and analysis

Others Enhance the Store Locator Feature Source: Kantar Retail research, analysis, and retailer iPhone app

And Some Retailers Highlight other Brands Shows sneak preview of merchandise and app layout Introduces shoppers to newest banner and growth brand with brief back story Though 4-separate apps available, Gap allows users to shop all banners from any of the apps, eliminating the need to download each one Source: Kantar Retail research, analysis, and retailer iPhone app

In Targeting Gen Y, Games and Interactivity Take Prominence Over Shopping 6+ different gaming options Source: Kantar Retail research, analysis, and retailer iPhone app

Mobile App Recap: Fast growing, highly relevant selling channel attractive for retailers and shoppers Have a mobile presence and showcase product whether selling or not! Shoppers are looking Mirror shopping at other channels but keep in mind space and time constraints Showcase most relevant targeted messages upfront on app to engage immediately Mobile app should be easiest shopping platform of all channels, strive for fewest clicks Applying CRM insights just as important here as with other channels and mediums Focus on practical but “wow” details such as store locator features and virtual wallet Market mobile app and its features across other channels, use as competitive differentiator Incorporate key store/ online strategies, i.e., exclusives (styles and deals), early access, shops Source: Kantar Retail analysis

Agenda Update on the Landscape: What’s Required to Deliver a Strong Finish? Best-in-Class Mobile Shopping Applications Hot Retailer Growth Tactics Partnerships and collaborations eCommerce In-store

Recent and Upcoming Collaborations Popularity not slowing Feb 2014 12.5.13 9.27.13 2014 11.14.13 Source: Kantar Retail research and analysis

Three Signs that Partnerships Are Here to Stay Extensions and Expansions Acceleration/ Turn Around Surprise Opportunities Revealed Source: Kantar Retail research and analysis

TJX relaunched TJMaxx.com on Sept. 18, 2013 eCommerce Newbies The last of the top value players get in the game H&M debuted U.S. eCommerce Aug. 1, 2013, simultaneously with mobile phone shopping application TJX relaunched TJMaxx.com on Sept. 18, 2013 TJX Saks Off-fifth Source: Kantar Retail research and analysis

Driving Traffic to Store Old Navy creates an event around one product Using the model on other products with higher price points Limit of 5-per person Source: Kantar Retail research and analysis

Retailers Carve Out Space on the Selling Floor Influences and accommodates a longer stay in store Nordstrom Habitant Bar/Café Nordstrom Juniors Sitting area Urban Outfitters Media Bar Source: Kantar Retail store visits, research and analysis

More Space also Dedicated to Interactivity Fun and enjoyable elements targeted toward Gen Y Nordstrom Urban Outfitters Source: Kantar Retail research and analysis

Rack Does Mobile Checkout Right Arming the store for an efficient digital checkout process Source: Kantar Retail store visits, research and analysis

Cross-Merchandising Evolving, Blurring Department Lines Urban Outfitters Macy’s Making every category relevant to the shopper Gap Source: Kantar Retail store visits, research and analysis

Macy’s Making Impulse a destination Apparel, beauty and shoes today … mens, kids, home/ kitchen next? Source: Kantar Retail research and analysis

Delivering in the Back Half: Environment no less challenging but full of opportunities Shoppers are more confident and willing to spend than they were a year ago. Each shopping touch point will be important in driving traffic, conversion and return trips. Consistent and thoughtful execution is essential. Extending value beyond price by communicating and delivering on shopping experience, exclusivity, brands, and convenience will bode well with shoppers when they make destination decisions. Mobile is an important and profitable touch point, especially during holiday where routine browsing and pre-trip planning takes place. Source: Kantar Retail analysis

QUESTIONS? Delivering a Strong Finish Submit questions on Q&A panel on right side of screen Delivering a Strong Finish Best-in-Class Mobile Shopping Apps Hot Retailer Growth Tactics

Jahnia Sandford Analyst jahnia.sandford@kantarretrail.com T + 1 614 355 4045 Mary Brett Whitfield Senior Vice President marybrett.whitfield@kantarretail.com T + 1 614 355 4010