StatusUSRetailIndustryStatusUSRetailIndustryRetailgrowthremainsstubbornlysubstandardRetailgrowthremainsstubbornlysubstandardItsrecoveryforUSretailcomparedeconomicgrowthcycleslate1990s2000sgrowthdiscre ID: 874093
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1 RetailsUnprecedentedResetPresentationCo
RetailsUnprecedentedResetPresentationConference StatusU.S.RetailIndustry StatusU.S.RetailIndustry Retail growthremainsstubbornlysubstandard Retail growth remains stubbornly substandard ItsrecoveryforU.S.retailcomparedeconomicgrowthcycleslate1990s2000sgrowthdiscretionary fromConsumerssaytheyarefairlyupbeateconomy,wellpersonal DISCRETIONARYRETAILSALES Retail sales (excl. food services, autos & gas) Adjusted GAFO 6.0%8.0% 2.0%4.0% 199620002002 So
2 urce:DiscretionaryspendingtheGAFOcategor
urce:DiscretionaryspendingtheGAFOcategoryourproxy)nonreportedthetheCensus(BOC).GAFOrepresentsfirmsthatspecializemerchandiseconsistingfurniturehomefurnishings;electronicsappliances;clothingaccessories;goods;hobby,booksmusic;merchandise;officesupplies StatusU.S.RetailIndustry Manyretailersoperationalchallenges Many retailers operational challenges OACULICAILSWIHSALS Mostlateacrosssectors. C E O F P U B T H SAL E S Total Sales Growth (Nominal, YOY
3 % Change) General Merchandise Spermarket
% Change) General Merchandise Spermarkets EBITDA Margin General Merchandise Supermarkets 12% General Merchandise 11%12% 4% 8% 28% Return on Invested Capital General Merchandise Supermarkets 4Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q16 4Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q16 23% 28% Source:CensusBureauand 4Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q16 StatusU.S.RetailIndustry Retailbankruptcieshaveincreased Retail bankrup
4 tcies have increased largeretailbankrupt
tcies have increased largeretailbankruptciesversuslastyearParticularstressregionaldepartmentgrocerystores,goodselectronicssegments RETAILRESETSTwothirdslargeretailbankruptcieswereprivatebacked stresssportingdepartmentelectronicssegments stores stores Liquidating RetailBankruptcies 0 V s 2 0 1 6 M ) stresssporting r t m e n t r a n d stresssporting r t m e n t r a n d stresssporting r t m e n t r a n d stores stores locations11Filed $3000 ($) stres
5 s stress stress depatetstoes electronics
s stress stress depatetstoes electronicssegments depatetstoes electronicssegments depatetstoes electronicssegmentsLiquidatinglocationslocations $ 1 , , Ptil Ptil Ptil departmentelectronicssegments departmentelectronicssegments departmentelectronicssegments Liquidatinglocations Liquidatinglocations Pursuing $ 20162017 s t ress i sportingdepartmentelectronicssegments s t ress i sportingdepartmentelectronicssegments s t ress i sportingdepartmentelect
6 ronicssegments Source:retailbankruptcyfi
ronicssegments Source:retailbankruptcyfilingsliabilitiesthroughLiquidatingCEOreports StatusU.S.RetailIndustry Retailbankruptciescommonlyliquidation Retail bankruptcies commonly liquidation U.S.Bankruptcylawdebtorfriendly,preferenceforcompanyreorganizegoingconcernemergefreshstart. Successfulreorganizationrequiresstrategicbankruptcy,retailcases. RETAILBANKRUPTCYCHALLENGESRetailermust p a y f f o f g received ffg immediatelyprecedingbankruptcyBurde
7 nRetailerspostbankruptcyaccept becomesev
nRetailerspostbankruptcyaccept becomesevenshorter inventoryrunway . becomes even shorter inventory runway . LendersDebtortypicallymandateconcernsufficientinventory Percentageretailbankruptcies LiquidationValueretailestate,easyinventoryIP,oftenexceedsconcernreceived.for liidtitill Percentage retail bankruptcies contrastfornonretailbankruptcies. t s h t o d ay.Source:ArticleConsultingAmericanBankruptcyInstituteJournal, How Did We Get Here? How Did
8 We Get Here? Trends Were Trends Were
We Get Here? Trends Were Trends Were Ways RisksThreats Customizestoreexperience Work ownersimprove Saturatedstoremarketincreasedcompetition Work owners improve overallexperiencedrivefoottrafficconsumerfromexperiences EmbraceIntelligenceretailMacysSignificantpostprivateupcomingmaturities(Claires,Gymboree, DevelopconnectivityDatadrivenLoyaltyProgramscostinvestment l Customerfocusvalue(TJMaxx,Tree)offerings ( Ulta Warby Parker) Onerousoperati
9 ng l o igationsconsumertastes ( Ulta , W
ng l o igationsconsumertastes ( Ulta , Warby Parker) Undisciplineddiscounting How Did We Get Here? AlternateStrategies Alternate Strategies PureRetailer(WetNastyLimited, unprofitablestores,maintainmortarpresence ( G ordmans,BCBGMAXAZARIA,Payless) ( G ordmans, BCBGMAXAZARIA, Payless) stores , stores (WarbyParker,Birchbox, LiquidationAuthority,Chalet,hhgregg, How Did We Get Here? FlatRetailRecovery Flat Retail Recovery RetailrecoverysteadyGAFOgrowth
10 flat. RETAILSALES SUBSECTORYEAROVERYEAR
flat. RETAILSALES SUBSECTORYEAROVERYEAR grocerysectormostlyflatfewupticks.Departmentstoreselectronicsstoreshardpasttwoyears S . RETAIL SALES SUBSECTOR YEAR OVER YEAR 10% 4% nge 0% 2010201120122013201420152016 GAFO Electronicsstores Apparel Grocerystores goodsstores Departmentstores(excl.L.D) How Did We Get Here? Online store Two V ery D ifferent R ealities Online & store Two V D ifferent R ealities prettypicture,storegrowth(YOY)graduallytrendingl
11 ower contrast,storehaveconsistentlygrown
ower contrast,storehaveconsistentlygrowndigitrateManylargeretailexecutivesarefocusingattentionformanystoresthatscaled bll d dd U.S.DISCRETIONARYSALESGROWTHONLINEvs.STORES T h e b a starte ll going f orwar YOY % change Online Sales Growth (QoQ) Store-Based Sales Growth 8%10%13%15% 18% 3%5% 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 2Q2 3Q2 4Q2 1Q2 Source:discretionaryspendingtheGAFOcategoryourpr
12 oxy)nonreportedthetheCensus(BOC).requi
oxy)nonreportedthetheCensus(BOC).requiresthatreportingretailerstheirfromonlinewhichthenreportedcategory(NAICSCodeStorewhichincludesonlinecatalogGAFOreportedthestrippedtheironlinecomponentreflectwhatconsiderbestapproximationpurebasedperformancediscretionaryproductcategories. 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 How Did We Get Here? US Oli l ttibit US O n ne h b ecome bi gp i A mazon tti e bi gges s
13 approachyear,representingU.S.retailreta
approachyear,representingU.S.retailretailersaccountformosttodaymanygeneratingleast AmazonsestimatedshareU.S.thirdretailgrowthtotalretailgrowthcomesfromAmazon. SALESPRODUCTCATEGORYAmazonsgrowth,growthtotal 50%60% s Amazons increasing 2008200920102011201220132014 Source:CensusBureauand magazines Electronics Music & Amazon How Did We Get Here? Online growthCAGRovernext Online growth CAGR over next anticipatedoublingmarketshareexcludinggrocery.Su
14 rprisingly,consumershaveembracedformanyp
rprisingly,consumershaveembracedformanyproductsthatsuitedfor comefromapparel,electronics,goods,toyhobby,havesharegrowItscostlyvictoryformostretailers.Formarginalthat rates fromstorestoda traditionalretail gyy ecosystem.PureretailersfacecostscustomerSonos,WarbyParker,evenAmazonRentRunwaytoretaillocationsthroughoutU.S. RETAILSALESFORECAST Source: Source: CensusBureauFilings How Did We Get Here? ChangesMerchandising Impact Changes Merchandising Th
15 e traditionalbrands ( Polo Jessica Creat
e traditionalbrands ( Polo Jessica Creatingexcessinventoriesfortraditionaldepartmentstores Inventoriesawayfrom mortar Inventories away from mortar Morecentralized/automatedfulfillmentforFewerstoresaccelerate FastfashioncreatingsignificantadjustmentsthroughoutZara,Primar,Forever21 apparelmarketgrowing;verystoreinventorieswhatsracks)Manufacturersrelatedsuppliersadjustsmaller,fasterorders replenishmentrequiresproductionadequateLowerworkingcapitalreq
16 uirementsallowsbrandsretailersinvesteffo
uirementsallowsbrandsretailersinvestefforts How Did We Get Here? Not All M alls are Created E qually Not M are Created E areratedbetter.However,theygeneratealmosttotalgenerated contrast,bottom(ratedareresponsibleforvalue.squarefootA++generatingsquarefootcomparedthataverage SALESVOLUME valueshavedeclinedsignificantlyclosuremortarretailstores. SALES VOLUME Source:TrafficnumbersfromProdcoRetailTrafficIndex.fromGreenStreetAdvisorsEstateOutlook Whats