Global Retail Trends

Global Retail TrendsTom Rubel

2

RFIS: A business intelligence resource focused on the road ahead

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information

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Strategic perspectives on retailing

Reports, conferences, newsletters, and databases

Tracks/Sectors

Food, drug, mass

Softgoods

Homegoods

Global

Key account series

3

Leading Retail Insights Information Portal

4

TNS Retail Forward clients include leading US and global retailers and suppliers

5

Lots of Changes in Store

6

Big winners: China and India

Rising wages feed rising middle class

Big winners: Consumers

Better quality

More choice

Lower prices

- Deflation in many

categories

Asia Rises To Supply The World’s Goods

7

Merchandise deflation: Running faster to stay in place

Operating expense inflation

People

Space

Advertising

Top line troubles, bottom line pressures

Persistent Deflation Pinches Retail Profits

8

Where The Action IsFigure 2 - Global Retail Opportunity Map

LowRisk

HighRisk

High GrowthLow Growth

Vietnam

Poland

Taiwan

Nigeria

Thailand

South Africa

United States

United Kingdom

Turkey

Switzerland

Spain

South Korea

Russia

Italy

China

FranceCanada

Brazil

Belgium Australia

Argentina

Indonesia

India

Germany

Japan

Malaysia

Mexico

Netherlands

Philippines

Sweden

-75

-70

Western

Central & Eastern

North America

Latin America

Asia-Pacific

Best Opportunity

9

Retail Outlook 2011

China surpasses the United Kingdom, Germany and France to become third-largest retail market

Russia’s retail market more than doubles

Retail Sales (excluding Automobiles) by Country,2006 and 2011F ($U.S. Billions)

2006

2011F

$0 $1,000 $2,000 $3,000 $4,000 $5,000

$3,428

$1,206

$629

$750

$800

$665

$597

$337

$440

$290

$288

$304

$4,375

$1,255

$965

$917

$890

$766

$693

$689

$589

$476

$407

$384

United States

Japan

China

United Kingdom

Germany

France

Italy

Russia

Spain

India

Mexico

Canada

Sources: National statistics offices, OECD and TNS Retail Forward

10

Retail Outlook

Slow growth in most developed markets

Faster growth in most developing markets

China, India and Russia boom

Western European growth subdued

Uncertain if Japan can sustain renewed growth

0.8%

1.3%

2.2%

2.8%

2.9%

3.0%

3.6%

3.6%

4.0%

4.1%

4.6%

4.7%

5.1%

5.2%

5.7%

6.0%

6.6%

7.1%

7.2%

7.7%

7.9%

8.9%

9.6%

9.7%

10.4%

10.4%

10.6%

11.2%

12.8%

15.4%

Japan

Switzerland

Germany

Sweden

France

Italy

Taiwan

Netherlands

Belgium

United Kingdom

Poland

Canada

South Korea

United States

Australia

Spain

Brazil

Malaysia

Mexico

Thailand

South Africa

China

Argentina

Philippines

India

Vietnam

Indonesia

Turkey

Nigeria

Russia

Non-auto Retail Sales Growth, CAGR 2006-2011F

Sources: National statistics offices, OECD and TNS Retail Forward

Emerging markets

Developed markets

11

China: Opportunity or Threat?

Massive market

Wal-Mart redux?

Quickly-growing retail sector

Booming housing market

Past decade:100M farmers go urban

Equal to combined populations of the UK and Spain

By 2020, 300M-500M more

Reshaping global supply chain

12

China: Opportunity or Threat?

Voracious appetite will keep commodities prices rising

Conspicuous consumption

17% - and rising - of global oil production

21% of the world’s steel

a third of the coal

half the cement

Two-thirds of all building cranes

Higher Commodities Prices Will Drive inflation

13

Demographic Dichotomies – Developed Markets

Aging populations

Shrinking workforce

Shrinking spending

Somewhat mitigated in U.S. by immigration

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

17.5%

18.1%

18.4%

19.1%

21.8%

22.0%

22.3%

23.4%

24.3%

26.4%

22.8%

23.6%

22.7%

24.9%

26.2%

26.7%

24.7%

24.6%

26.7%

26.8%

31.7%

30.8%

26.8%

30.8%

28.5%

28.9%

29.3%

27.0%

27.5%

26.4%

28.0%

27.6%

32.0%

25.2%

23.6%

22.4%

23.7%

25.0%

21.6%

20.3%

Italy

Germany

Japan

Spain

United Kingdom

Canada

Netherlands

France

Australia

United States

0-19 20-39 40-59 60+

Age Distribution by Country:Top 10 Developed Countries, 2015

Source: U.S. Census Bureau International Database and Retail Forward, Inc.

14

Demographic Dichotomies – Emerging Markets

Younger populations

Growing workforce

Building pool of university-educated talent

Rising standard of living

Growing middle class

Age Distribution by Country:Top 10 Emerging Countries, 2015

25.7%

30.1%

29.9%

33.0%

32.9%

29.5%

29.4%

25.1%

16.1%

13.0%

14.9%

11.8%

6.5%

5.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

20.7% 30.2% 28.7% 20.4%Russia

China

Brazil

34.5% 31.8% 23.6% 10.0%Indonesia

35.6% 31.7% 22.3% 10.4%Mexico

38.1% 31.7% 21.0% 9.3%India

41.0% 32.5% 18.8% 7.6%Philippines

42.1% 33.8% 17.6% 6.5%Bangladesh

Pakistan

Nigeria

0-19 20-39 40-59 60+

44.5%

52.3%

Source: U.S. Census Bureau International Database and Retail Forward, Inc.

15

Economic Concentration Leads to Global Oligopoly

Patterns in the UK and US markets will play out across global stage

Except far faster

Top 10 US Market Share by Retail Segment/Product Category

50%

24%

43%

50%

56%

74%

99%

97%

100%

100%

100%Warehouse Clubs

Office SupplySuperstores

Supercenters

Department Stores

Discount Stores

Drug Stores

Consumer ElectronicsStores

Supermarkets

Home ImprovementStores

E-Retailers

Home FurnishingsStores

16

Modernization of Retailing

1999/2000 – majority of stores in most Asian markets traditional outlets

Modern trade growing

4.13.529117259257312,7391,89125

HKSing.TaiwanKoreaPhilipp.ThailandMalaysiaChinaIndon.HCMC & Hanoi

1999/2000 Share of Trade by Store Type(based on all categories)

Drugstores

Hypermarkets

Supermarkets

Minimarkets

Convenience Stores

Traditional Grocery

Other

Source: ACNielsen 1999/2000 Retail Trade Establishment Country Surveys

100%

0%

25%

50%

75%

Total Grocery Store Numbers (000)

China 2004 – 46%

17

Top 10 Retailers Own Nearly a Third of Top 200

Top 10 retailers account for 30% of Top 200 sales

Tesco overtakes Metro

Ahold and ITM Enterprises fall from Top 10

Target returns at #9

Schwarz Group debuts at #10

29.9%7.9%$904,700Top 10

1.7%12.5%$50,342GermanySchwarz Group10

1.7%12.2%$51,271United StatesTarget9

1.7%10.0%$51,862United StatesCostco8

2.0%7.3%$60,553United StatesKroger7

2.1%-5.1%$63,138JapanSeven & I Holdings6

2.3%-1.2%$69,262GermanyMetro AG5

2.4%16.5%$71,735UKTesco PLC42.7%11.5%$81,511United StatesThe Home Depot3

3.1%2.5%$92,600FranceCarrefour Group2

10.3%9.5%$312,427United StatesWal-Mart Stores1

Share Top 200

Sales2005

GrowthNet Sales

(Millions USD)Home CountryCompany2005 Rank

Global Economic Concentration of the Top Retail Companies

Sources: Company reports, published reports and Retail Forward Inc.

18

The Efficient Value Chain

Lower costs enable lower prices

Lower prices attract more customers and share

Greater share drives growth of margin dollars

Which enables investments in technology and efficiency …

Which enables lower costs …

Invest in Efficiency

LowerCosts

LowerPrices

ExpandUnit Sales

IncreaseMargin

$

The

Productivity

Loop

19

Wal-Mart

20

It Will Reach a Half Trillion Dollars in Sales…

Wal-Mart Stores, Inc. Sales($ Billions)

$89 $100 $112$131

$156$181

$204$230

$256$285

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$500+

2010F

21

Wal-Mart Keeps Smiling

Superior beings from another planet?

Wal-Mart makes mistakes

But they learn

Innovators who think big and disrupt traditional models

Processes

Products

Formats

Geographies

Focused on their brand promise

Figured out food, soon foreign

By 2010, bigger and more successful

22

By 2010, WM Will Have 3,100+ Supercenters…

Wal-Mart Supercenter vs. Conventional StoreUnit Growth and Projection

239344

441564

721888

1,713

1,995 1,960 1,921 1,869 1,801 1,7361,647

1,568

1,066

1,2581,471 1,353

1,478

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

1,931

2,171

2,411

2,651

2,891

3,131

908788

668

1,0281,148

1,268

2005F 2006F 2007F 2008F 2009F 2010F

Wal-Mart SupercentersConventional Wal-Mart stores

23

Conventional Trade Loses to Supermarkets; Supermarkets Lose to Hypermarkets/Supercenters

* Reflects weighted average of publicly held supermarket companies.

Sources: Company annual reports and Retail Forward, Inc.

Supermarket value-add model

Higher costs

Higher margin service depts

Higher costs, labor-related

Wal-Mart low-price, low-cost model

Efficiency-minded

Dist/logistics

IT/Retail Link

Non-union labor

Price parity essential on key “like” items

Result: price battle, and supermarkets lose

Supermarket Industry * Wal-Mart Stores, Inc.

Gross Margin

SG&A Expenses

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005

Gross Margin

SG&A Expenses

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005

24

Conventional Supermarkets: Long Slow Slide

Forecast

‘90 ’92 ’94 ’96 ’98 ’00 ’02 ’04 ’06F ’08F’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07F ’09F’91

22.0 21.9 21.220.4 19.7 19.1 18.6 18.1 17.6 17.0

16.2 16.3 15.9 15.514.8 14.5 14.2 13.8 13.4 13.0

12.4

10F

Supermarket Share of Non-Auto Retail SalesSupermarkets lose share

Prices

Shopping experience

Caught in the middle

Mass channel

Specialists

Eating & drinking places

Supermarkets losing out

Value perceptions

Ease of use

Time crunch

25

Low/Growing

Negative to B/E

Concept Innovators

None

Declining

Low to B/E

Special Need/Niche

Intensive/Consolidated

High, Leveling off

High/Declining

Broad Market

Extensive/Saturation

Rapid Acceleration

High Yield

Special Need

Limited

Sales

Profitability

Positioning

Competition

Development

Growth(Accelerated

Development)Maturity DeclineIntroduction

(Early Growth)

Sales

Profits

SupercentersSupermarkets

Small Format Value Retailers

Regional Discount Dept. Stores

Warehouse Clubs

Drug Stores

Convenience Stores

TIME

Home Solutions Megastores

Online Retailing

Big 3 Discount Dept. Stores

Kohl’s

Home Furnishings Superstores

Home Improvement Centers

Department StoresHardlines Category Killers

CatalogsSears/JCPenney

Hardware Stores

Home Furnishings Specialty Stores

Most Retail Concepts Are Mature

26

Out of Runway

27

Reinventing Aging Offers

Struggling for relevance:

Department stores

Discount stores

Supermarkets

Apparel specialists

Big box?

Several large retailers won’t survive the coming decade

All strategies eventually fail

28

Online Retailing: Fast Growth, Growing Importance

Rapid growth

Big impact in some categories

little impact in others

Big impact for some consumer segments

but not for all

Still only accounts for small percentage of retail sales

$28$35 $45

$57$71

$88

$110

$140

$180

$228

$285

$0

$50

$100

$150

$200

$250

$300

2000 2002 2004 2006F 2008F 2010F

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%ForecastBillions $

Share of Retail Sales

Annual E-Commerce Retail Sales

67%

53%

65%

75% 73%81%

All Shoppers

<$25K $25K–$49.9K

$50K–$ 74.9K

$75K–$99.9K

$100K+

Online Shopping Penetration By Household Income(Percentage shopped online in past 6 months)

Sources: U.S. Department of Commerce and Retail Forward Inc.

Sources: Retail Forward ShopperScapeTM, Apr 06.

29

Access is Growing Worldwide

2006: 1.08 billion Internet users – 16.6% penetration –worldwide

U.S. is largest Internet market in terms of users, but...

Internet Users and Penetration

by Country, 2006

181.9

133.5

87.2

39.435.1

34.428.7

28.625.5

21.2

21.0 20.016.5

13.17.9

63.6%

10.2%

68.4%

47.8%

57.9%

70.5%

47.1%

49.2%

2.3%

11.3%

63.4%

18.6%

40.8%

64.5%

19.8%

0

20

40

60

80

100

120

140

160

180

200

Un

ite

d S

tate

s

Ch

ina

Ja

pa

n

Ge

rma

ny

Un

ite

d K

ing

do

m

So

uth

Ko

rea

Fra

nce

Ita

ly

Ind

ia

Bra

zil

Ca

na

da

Me

xic

o

Sp

ain

Au

str

ali

a

Arg

en

tin

a

Inte

rne

t U

se

rs (

mil

lio

ns

)

0%

10%

20%

30%

40%

50%

60%

70%

80%

% o

f P

op

ula

tio

n

Source: eMarketer, January 2007

30

China Will Soon Have Largest Internet Population

China is likely to take the lead in user count by 2011

Still at low penetration levels

Internet Users and Penetration by Country, 2006, 2011F

181.9

133.5

87.2

34.425.5

211.3

245.5

95.4

38.4

71.6

United

States

China Japan South

Korea

India

2006 Internet Users (millions)

2011F Internet Users (millions)

% Penetration 63.6% 70.6% 10.2% 18.1% 68.4% 75.1% 70.5% 77.3% 2.3% 6.0%

Source: eMarketer, January 2007

31

Retailers Act Like Suppliers

Global retailers get access to global sources of supply

Impact of deflation and inflation on profits

Sales

Opex

COGS – the last frontier

The need for differentiation

FMCG – Biggest customers will be biggest competitors

And they own the shelves

PL: World class

Product

Packaging

Positioning

CARREFOUR Quality Line:Packaged fresh foods

CARREFOUR Brand:900 food/non-food items

FRENCH TOUCH BrandTop quality at discount

BANG Products:

FIRSTLINE BrandElectrical items

Carrefour’s PL Product Range CN

32

How Big Are Private Brands?

Private brands and exclusive products are a key component of leading retailers’ strategies

Generate between ¼ to almost ½ of sales for some leading retailers

Growing more than 2x as fast as all food sales in recent years

Estimated Share of Sales from Private Label

Sources: Company reports, PLMA, Private Label magazine, and other trade press research.

Loblaws(Canada)

Safeway Albert-sons

Kroger Meijer A&P FoodLion

35%

29%

17%

25% 25%23%

17%

Target Tesco

46% 45%

37%

Wal-Mart

33

Retailers As Brand Managers

Accelerated growth of private brands

Growth of powerhouses

Search for competitive differentiation

Retailers as brand managers

Innovate new products

Image and identity

Brand marketing

Brand editing

Brand positioning

Renewal

Retailers: Build Your Brand, or Be Gone

34

Suppliers Act Like Retailers

Supplier challenges

Shrinking brand equity

Customers as competitors

Fewer, bigger unique customers

Competitors for space from other categories

Responses

Superbrands/ Pillar brands

Private label, exclusives, co-brands

Account specific programs

Category consultants

Focus on Shopper Insights

Direct to consumer

- Store within a store

- Showcase stores

- Web sites and catalogs

35

Retailing 2010: New World Assets For Retailers

Old world assets

Inventory

Factories

Real Estate

Equipment

2010 assets

Brands

People

Differentiation

Customer Experience Management

Customer Information

36

What’s it Mean for Retailers and Suppliers?

Dominant issue:

Where's’ the growth?

Retailers

Re-invention

New markets

Sell more to existing customers

Suppliers

Deal with PL

Account specific strategies

Shopper insights

Retail strategies

How does TNS RF help?

37

How Should We Grow?

Geography

Channel/FormatCustomer

Intensify

Extend

Diversify

Product/

Service

38

Retail Market Positioning Strategy

POSITIONING

VARIABLES

RETAIL MIX

VARIABLES

Market Positioning

Strategy

Market Positioning

Strategy

CoreCompetition

CoreCompetition

CoreMerchandise

CoreMerchandise

CoreCustomers

CoreCustomers

KeyAppeals

KeyAppeals

Physical FacilitiesPhysical Facilities

Merchandise and Merchandising

Merchandise and Merchandising

PricingPricing

Advertising andPromotion

Advertising andPromotion

Customer ServiceCustomer Service

Organization, Systems, Processes

Organization, Systems, Processes

39

Customer Intensification Process tm (CIP)

Retailers know in great detail what they sell

But they don’t know what their customers are not buying from them

CIP focuses on share of wallet, not share of market

40

ExistingCustomers

Attract NewCustomers

Sell Existing Types of Merchandise

Introduce New Types of Merchandise

Easiest

More Difficult

Why CIP?

41

Management and Buyer Input:

• On-Site Interviews

• Phone Interviews• Existing

Research

Quantified, Prioritized Opportunity:

• Customers• Competitors• Categories• Style

Perspectives

CategoryFinancial

Data12 Months

TransactionData

85 categories

CustomerData

21 days20,000 store exits

700 questions All stores

Project Approach

42

Investment Matrix: Top 20 Category Opportunities

PotentialMarket

Opportunity

Market Share

$0

$XXX

0% % % % % % %

Grow Leverage

Focus Maintain

Average Opportunity = $44M

Average Share = 24%

Data points removed to protect confidentiality

Category Size and Share

43

Project Results: Bloomingdale’s

Michael Gould, CEO, Bloomingdale’s

CIP Impact on Bloomingdale’s Growth

NRF Big Show Presentation, Jan 05

“When our own customers went through an interview process and a whole program via Retail Forward….it clarified that we are all about affordable and approachable luxury.

What sold our own people was when they heard 21,000 of our customers interviewed in every location, saying these things about us…

…you do not have price congruity in these businesses

…you have a ladies shoe business that is inferior to your sportswear business

…you don’t have this, you do not have that

…this is what we think about your service

…this is what we think about your return policies

…this is what we think about your fitting rooms and stock rooms.”

43

44

Collaborative Category DevelopmentCollaborative Category Development

ShopperShopper

RetailerRetailer Category/Brand

Category/Brand

CollaborativeCategory

Development

CollaborativeCategory

Development

ShopperShopper

RetailerRetailer Category/Brand

Category/Brand

CollaborativeCategory

Development

CollaborativeCategory

Development

Drive category growth

Build better relationships with shoppers

Understand and improve the shopping experience

Generate customer and category-specific shopper insights

Improve shopper/category needs and retail activation

Create category strategies for the “Department of the Future”

Demonstrate loyalty to Brand owners’ brands can also create loyalty to the customer

Global Retail Trends

Global Retail TrendsThank you!