The Disruptive Future of Retail

1. THE DISRUPTIVE FUTURE OF RETAIL WELCOME Tony D’Onofrio

2. www.tonydonofrio.com© 2018 Retail Solutions. All Rights Reserved. 2 You are the Leaders to Shape It. Global Retail Finds Its Groove Where is the Global Shrink? Digital Transformation Wake Up Call The Disruptive Future of Retail

5. © 2018 Retail Solutions. All Rights Reserved. The World and Retail Find their Growth Groove 5Source: World Bank 2018, The Economist August 2017 Global GDP 2015-2020 (% growth) Retail Sales 2012-2021 ($ Trillion)

6. © 2018 Retail Solutions. All Rights Reserved. Global Retail Sales 6Sources: The Economist Intelligence Unit 2018, Focus Economics 2018, Chain Store Age / IHL Group 2018 Retail sales growth, 2018-2019 forecasts (real % change per year) 2012 2013 2014 2015 2016 2017(*) Retail Sales (annual growth %) 14.3 13.1 12.0 10.7 10.4 7.2 China Retail Sales (*) The Economist Intelligence Unit Forecast, August 2017 India 2021(*) $1.5 Trillion USA 2018 +6.2%

7. © 2018 Retail Solutions. All Rights Reserved. The Global Top 250 Retailers 7Source: Deloitte Touche Tohmatsu Limited 2018 43 $10,055 17.2% 35.1% 26.5 14.0% 135 $21,685 54.0% 21.1% 5.9 38.5% 51 $14,698 20.4% 22.4% 8.1 33.3% 21 $14,354 8.4% 20.4% 6.7 38.1% 250 $17,643 100.0% 22.5% 10.0 33.2% Number of Companies Average Retail Revenue US$M Share of Top 250 Companies Average # of Country % of Retail Revenue Average from Foreign Operations % Single-Country Operators Top 250 Apparel and accessories Fast-moving consumer goods Hardlines and leisure Diversified Product sector profiles, FY2016 Level of globalization by product sector, FY2016

8. © 2018 Retail Solutions. All Rights Reserved. Top 10 Global Retailers & Fastest Growing 8 Top 10 Retailer Country FY2011 - 2016 retail Revenue CAGR % RANK Fastest Retailer Country FY2011 - 2016 Retail Revenue CAGR % Wal-Mart Stores, Inc US 1.7 1 Vipshop Holdings Limited China 103.8 Costco Wholesale Corp. US 6.0 2 Albertsons Company, Inc. US 74.0 The Kroger Co. US 5.0 3 JD.com, Inc. China 62.6 Schwarz Group (LIDL) Germany 7.3 4 Zalando SE Germany 48.1 Walgreens Boots Alliance, Inc. US 6.1 5 Reliance Industries Limited/Reliance Retail India 34.5 Amazon.com, Inc US 17.6 6 Southeastern Grocers, LLC US 31.7 The Home Depot, Inc. US 6.1 7 Axel Johnson AB/ Axfood, Axstores Sweden 31.6 Aldi Group Germany 7.7 8 Hudson’s Bay Company Canada 30.3 Carrefour S.A. France -1.1 9 Sprouts Farmers Market, Inc. US 29.6 CVS Health Corp. US 6.4 10 Lenta Group Russia 27.8 Source: Deloitte Touche Tohmatsu Limited 2018

9. © 2018 Retail Solutions. All Rights Reserved. APAC Leading Middle Class Evolution 9 500M 77% 66% New urban middle class globally Of new urban middle class in Asia Pacific Working-age proportion of global population (peaked in 2015) 1 2 33 Billion People Make Up Global Middle Class $33 Trillion Spent by Global Middle Class in 2015 2021 is the Year Most People Could Be in the Middle Class 2016 Urban Middle Class 2026 Urban Middle Class Brookings Institution, 2016JCI Estimates based on UN, Pew Foundation, IMF, & CEIC Data

10. © 2018 Retail Solutions. All Rights Reserved. 10Source: A.T .Kearney 2017 2017 Global Retail Development Index Rank Country GRDI Score Population (million) GDP per Capita, PPP National Retail Sales ($ billion) 1 India 71.7 1,329 6,658 1,071 2 China 70.4 1,378 15,424 3,128 3 Malaysia 60.9 31 27,234 92 4 Turkey 59.8 80 21,147 241 5 United Arab Emirates 59.4 9 67,696 73 6 Vietnam 56.1 93 6,422 90 7 Morocco 56.1 35 8,360 40 8 Indonesia 55.9 259 11,699 350 9 Peru 54.0 32 13,019 61 10 Colombia 53.6 49 14,162 90 Emerging markets are ahead in growth of mobile shopping

13. © 2018 Retail Solutions. All Rights Reserved. Retailer Losses 13Source: Senormatic Global Shrink Index 2018, IHL Group 33% 23% 18% 26% Shoplifting Employee Theft Administrative Losses Vendor Fraud $99.56B Global Shrink Loss RETURNS $643 Million Lost in Returns INVENTORY DISTORTION $1.1 Trillion Lost Revenue Opportunity Due To Inventory Distortion Total Retail Losses

14. © 2018 Retail Solutions. All Rights Reserved. Global Retail Shrink $99.56B in losses 14 23% 18% 26% 33% Shoplifting Dishonest Employee Theft Admin/non- crime Loss Supplier Fraud Source: Sensormatic Global Shrink Index, 2018 14 Countries 13 Vertical Markets “The Sensormatic Global Retail Shrink Index is the culmination of the largest survey of senior retail executives with a view on, or role in, loss prevention carried out in recent years.” ~ Planet Retail, 2018 51% LP Respondents 74% Senior Mgmt or Higher 73% of Global GDP 80% of Global Retail Sales

15. © 2018 Retail Solutions. All Rights Reserved. LP Growing Industry Influence 15 15% 22% 23% 26% 37% 45% 54% 79% 34% 56% 38% 52% 32% 41% 33% 14% 51% 22% 40% 23% 30% 14% 13% 7% 0% 20% 40% 60% 80% 100% 120% RFID Fire Solution Video Analytics Data Mining EAS Access Control Exception-based reporting CCTV Ranked 1-3 in importance Ranked 4-6 in importance Ranked 7-8 in importance Technologies Most Critical in the US Loss Prevention and Security Functions Base: 182 USA Decision-Makers Gaining Influence 61% Remained the same 24% 15%Losing Influence LP Department Influence Over the Years Base: 168 US Decision-Makers of US LP decision makers consider EAS tech extremely or very important 56% Very important 32% 24%Extremely important Slightly important 3%12 % 28% Moderately important Not at all important Base: 157 US Decision-Makers Source: Loss Prevention Magazine, 2017

17. © 2018 Retail Solutions. All Rights Reserved. Store Systems Priorities 17Source: IHL Group, 2018 Top 10 Strategic Priorities for 2018 12% 15% 16% 33% 46% 54% 59% 72% 78% 89% Store Network Upgrades Workforce Management Reducing Supply Chain Costs Digital Transformation Single Transaction Engine One Cross Channel Customer Database Empowering Store Associates Upgrading CRM/Loyalty Programs Inventory Visibility Personalizing Customer Experience 5.6% Average increase Enterprise IT spending in 2018 vs. 4.5% last year

18. © 2018 Retail Solutions. All Rights Reserved. Emerging Technologies 18Source: IHL Group, 2018 New Technology Priorities 1.3% 1.4% 2.8% 3.5% 5.3% 5.5% 6.7% 7.0% 7.3% RFID Augmented / Virtual Reality SD-WAN IoT Big data Conversational Commerce Predictive / Prescriptive Analytics AI/Machine Learning Proximity / Location-based Mkt Respondents Planning To Increase Spend by >10% Who Are Leaders 42% 57% 60% 73% 74% 76% 80% 100% 100% Big Data Integration AI / Machine Learning SD-WAN Predictive / Prescriptive Analytics Proximity / Location Based Mkt Conversational Commerce IoT RFID Augmented / Virtual Reality 0% 20% 40% 60% 80% 100% 120%

19. © 2018 Retail Solutions. All Rights Reserved. Wake Up Retail Call: Tech Strategies & Obstacles 19Source: RIS / Gartner Retail Technology Study 2018 Top 5 Major Strategies over the next 18 months 54% 54% 51% 46% Social Media Engagements Personalized Mkt Capabilities Unified Commerce (Omnichannel) 47% Increasing Customer Engagement Advancing Analytics Top 5 Obstacles over the 18 months 38% Consolidating Sales Channels Application Integration Optimizing Digital Commerce Customer Data Security 52% 41% Retiring Legacy Systems 37% 37% Advancing mobile commerce Improving IT Networks Big Opportunities and Strong Headwinds Accelerate the Pace of UNIFIED COMMERCE and DIGITAL TRANFORMATION.

20. © 2018 Retail Solutions. All Rights Reserved. The $15 Billion Innovation Challenge 20Source: IHL Group Over 50% of US Households have Prime membership 66 Million Households 70% of Households > $112k Income 87% - 237% Average IT spend increase required to effectively compete with Amazon USA 20 Amazon’s annual spend is more than the amounts of the following retailers combined

22. © 2018 Retail Solutions. All Rights Reserved. 22 Bricks vs Clicks USA Channel Retail Growth USA Channel Shopping Preference Source: Deloitte Retail Bifurcation March 2018, Statista Digital Economic Compass 2018 E-commerce growth by country ($ billion) If you want 10,000 new customers, you have to build a new warehouse and this and that. For me: two servers. ~ Jack Ma, Alibaba Average Channel Growth Actual 2012-2016 of low-income consumers choosing shop in-store.58% of high-income consumers choosing shop online.52% Predicted 2017-2022 1.3% 12.5% 1.7% 11.7% In-store $30B Online $40B Online $50B In-store $36B Average CAGR China United States Japan United Kingdom Germany

23. © 2018 Retail Solutions. All Rights Reserved. Why Clicks NEED Bricks 23 CLICKS Getting Physical CLICKS Insights • Amazon > Bookstores > Amazon Go > Whole Foods ($13.7 Billion) • Alibaba $8 Billion in Physical Stores Last 2 Yrs > Hema Supermarkets • The Delivery Last Mile • INNOVATION Differentiation • Expanding Loyalty Programs • Return Rate – Online nearly 33% / instore 9% • The Profit is in the Store Forbes 19 April 2017, Forbes 27 August 2017), Economist 2017 / Bloomberg Business Week November 3, 2017 Where Do Apparel Retailers Make The Largest Profit ? In Store Online Online In Store Pick Up Online Ship From Store 32% Profit Margin Profit Margin Profit Margin Profit Margin 30% 23% 12% For each additional percentage point of shopping that moves online, a retailer’s margins shrink by about half a point. ~ Morgan Stanley

26. © 2018 Retail Solutions. All Rights Reserved. Innovation SPEED 26Source: Singularity.com, Economist 2017, Ericsson Mobile Report 2017 Blowing away the cloud Connected devices, worldwide, bn *Everyday objects Connected to the internet

27. © 2018 Retail Solutions. All Rights Reserved. Retail Innovation 27 Fast Fashion – 10% CAGR Market Share Do you own a voice- controlled digital home assistant? Cowen & Company 2017 RIS Shopper Insights 360, 2017 New Channels Biz Models Source: Cowen & Company, Company Reports Buying Platforms Shopper Purchase Frequency Through New Channels

28. © 2018 Retail Solutions. All Rights Reserved. The Evolution of Loss Prevention 28 Store Intelligence Item Intelligence Item Security Data & Video Analytics Traffic & Shopper Analytics EAS Video RFID

29. © 2018 Retail Solutions. All Rights Reserved. Retail Loss Prevention Disrupted 29 RETAIL THEFT OPPORTUNITIES DIGITALLY EMPOWERED CONSUMER Shrink Brand Value Differentiation Real-Time Consumer Loyalty Immersive Unified Customer Experiences Smart Supply Chains Brand Integrated Security / Video Analytics / Machine Learning Data / Visual Zone Deterrence Prescriptive Data Analytics

30. © 2018 Retail Solutions. All Rights Reserved. The Future Retail Ecosystem 30 CONSUMER STORE DATA EXPLOSION • POS • Labor Scheduling • Planograms • Store Traffic • Loyalty Programs • EAS • Video • RFID • HVAC • Internet of Things • Beacons • Wearables • Robots • Unified Commerce • Smart Mirrors • Smart Floors • Smart Fitting Rooms • Augmented Reality • Virtual Reality INTELLIGENT FILTERS • Video Analytics • Artificial Intelligence • Machine Learning • Big Data Seamless Bricks & Clicks Consumers as Brand Ambassadors Associates as Brand Ambassadors Unassisted Self Checkout Covert Intelligent LP (deterrence) IMMERSIVE EXPERIENCES The retailer of the future will likely be a retailer of the past — just the most efficient version therein. ~ Goldman Sachs 2017

31. © 2017 Retail Solutions. All Rights Reserved. 3131 The Formulas for Retail Success Wall Street Journal, 16 October 2017 / McKinsey October 2017, Deloitte March 2018 USA - 1.2 billion hours/week driving to mall, finding parking, wondering around aisles, checking out & driving home Five-year revenue growth Premier +81% Priced-based +37% Balanced +2%

32. © 2018 Retail Solutions. All Rights Reserved. 32 Stores Not Going AWAY Source: Economist 2017, Cowen & Company 2017 / PSFK / RSR Research Educate & empower in-store employees using technology Opportunity for improving in-store experience* E-commerce sales As % of total

34. © 2018 Retail Solutions. All Rights Reserved. Global Source Tagging 34 18% 34% 37% 45% 50% 73% 50% 46% 41% 21% 9% 16% 17% 14% 29% Latin America Europe Global Asia - Pacific North America 33% 28% 20% 12% 11% 51% 62% 67% 73% 78% 16% 10% 14% 15% 11% Apparel and fashion Accossories Food and Beverages Health and Beauty Electronics DIY/ Home Improvement Future Plans of Using Source Tagging Across Regions Future Plans of Using Source Tagging Across Product Categories Not Planning to Implement Planning to Increase Planning to Maintain Source: Global Theft Barometer “There is only one boss: the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” ~ Sam Walton The Future of Retail • Theft is not going away • Branding and Customer Experiences everywhere • Remove the non-customer facing store clutter

35. © 2018 Retail Solutions. All Rights Reserved. 35 Room for Growth Internet usage % of population, 2016 Source: Economist, Statista Digital Economic Compass 2018 Thanksgiving Day Weekend Single’s Day (Alibaba) The retail industry is strong, but it is undergoing a major renaissance, a renewal akin to the renaissance that took place between the 15th and 17th centuries. ~ Deloitte, March 2018

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