1 planetretail.net HEALTH & BEAUTY Retail sector overview and key trends October 2013 DENISE KLUG Associate Analyst

2 1.Outlook 2.Overview 3.The e-commerce challenge 4.The issue with beauty claims 5.Key trends Contents

1. Outlook

4  SDM will remain an independent banner and keep its name. It will carry Loblaw private labels and vice versa.  The acquisition will create a retailer with combined sales of CAD46.3 billion (USD44.8 billion). Canadian grocer Loblaw has agreed to buy domestic drugstore operator Shoppers Drug Mart (SDM). The rivals are looking for ways to increase their competitiveness. MAJOR EVENTS: Loblaw’s acquisition of Shoppers Drug Mart shakes up the Canadian market. 2. Overview Planet Retail’s take  Loblaw intends to operate a proximity store concept. Expanding SDM drugstores’ grocery offering - especially in city centres – offers a chance to achieve that aim.  Loblaw is also currently working on a health store concept. The banner could become a hybrid combining both Loblaw and SDM know-how.  The exchange of private labels affords many opportunities for cross-merchandising.  Jean Coutu could do a buyback, pay a special dividend or prepare itself to be bought. An acquisition in the health & beauty sector seems the most likely way to spend the cash.  Pharmacy operator Katz Group would be an ideal partner for Jean Coutu, as both retailers could complement their national network should one acquire the other.  US-based Target in Canada has entered into co-operation with Metro (CAN)-owned McMahon Distributeur Pharmaceutique to operate instore pharmacies.  Drugstore/pharmacy operator Jean Coutu has upwards of USD500 million in cash on the balance sheet and no debt as it recently sold all its shares in US drugstore operator Rite Aid. With this, Jean Coutu could fund expansion through acquisition.

5 Today’s shoppers…  …are savvy and well-informed  …ask for honesty and transparency  …are fuelled by technology and social media  …have a newfound voice and a desire to be heard The movement against photoshopped/airbrushed images in advertisements and the media in general is growing stronger and becoming more widespread. Educated customers are gaining ground in questioning the need for unrealistic promotional pictures. 4. Issues with beauty claims Planet Retail’s take  Customers are demanding honesty.  They fear the psychological side effects of seeing unnatural pictures presented as ideals.  Retailers and manufacturers have to react by altering the messages they send. © Giopetsgraphicart.blogspot.com 48% of young women are less trusting of brands that use airbrushing to change the way women look in ads. 76% of women prefer to see natural images. 84% of women think it’s unacceptable for brands to alter the way women look in advertising images. (According to a report by the Advertising Association and its research unit Credos)