U.S. Retail Trends 2016

December 13, 2016

Garrick Brown Vice President, Retail Research for the Americas [email protected] WHERE WE’RE GOING

• RAMIFICATIONS OF THE CONTINUING GROWTH OF PEAK HOLIDAY ONLINE SHOPPING • THE MINDS AND MOTIVATORS OF THE HOLIDAY SHOPPER • LATEST TRENDS FOR AND – AND WHY WE SHOULD CARE • THE COMBINED POWER OF STICKS AND BRICKS • HOW THE LARGE DELIVERY COMPANIES ARE PREPARING FOR PEAK VOLUMES • TRENDS FROM AMAZON • CHANGING CUSTOMER DEMANDS REGARDING DELIVERY – SPEED VS. COST

What does this all mean to the real estate world? WHY THE HOLIDAY SEASON IS CRITICAL

Building/Garden Equipment

Food & Beverage

Health/Personal Care

Furniture/Furnishings

Warehouse Clubs/Superstores Holiday Sales as % of Annual Sales Shoes

Clothing

eCommerce/Mail Order

Electronics/Appliances

Discount

Sporting Goods, Hobby, Book, Music

Department Stores

Jewelry Stores 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Source: Cushman & Wakefield Retail Research / National Retail Federation US HOLIDAY SHOPPING SEASON RETAIL SALES GROWTH

8.0% Holiday Season Retail Sales Growth

6.0% 2.5% 10-YEAR ANNUAL 4.0% AVERAGE

2.0%

0.0% (In thousands) 2001 2003 2005 2007 2009 2011 2013 2015

-2.0% THE PROGNOSTICATORS: Cushman & Wakefield 3.7% BETTER THAN LAST YEAR....BUT Deloitte 3.6% - 4.0% BRICKS-AND-MORTAR SALES GAINS ARE DWARFED BY ECOMMERCE GROWTH -4.0% National Retail Federation 3.6% ICSC 3.3% RetailNext 3.2% -6.0%

Source: Cushman & Wakefield Retail Research / National Retail Federation WHY IS BLACK FRIDAY DIMINISHING IN IMPORTANCE?

The Creep is All About Promotions and Markdowns

16% 46% 54%

BEFORE BEFORE AFTER SEP NOV NOV 1 1 1

HOLIDAY PROMOTIONS ARE STARTING EARLIER, OFFERING MORE “PREVIEWS” AND “EARLY ACCESS” CONSUMERS ARE STARTING HOLIDAY SHOPPING EARLIER

Source: Cushman & Wakefield Retail Research / RetailMeNot.com CHRISTMAS CREEP APPLIES TO ECOMMERCE TOO

Online Holiday Gift Browsing Takes Off in November

IN 2015, CONSUMER INTEREST IN DEAL SEARCHING INCREASED 21% ON NOVEMBER 7

Black Friday

Cyber Monday

November 7 Impressions in Millions Impressions

Christmas Day

October November December

Source: Cushman & Wakefield Retail Research / RetailMeNot.com WHY IS BLACK FRIDAY DIMINISHING IN IMPORTANCE?

US Retail and eCommerce Holiday Season Sales Growth 2010-2016

19.4%

17.5% 17.2% 16.0% 14.4% 13.3% 12.1%

% Change 7.3% 6.3%

3.4% 3.6% 2.9% 3.3% 2.1%

2010 2011 2012 2013 2014 2015 2016

Retail eCommerce* holiday season sales Retail holiday season sales Note: sales are for Nov. and Dec. of each year; excludes travel and event tickets. *Includes products or services ordered using the internet, regardless of the method of payment or fulfillment.

Source: Cushman & Wakefield Retail Research / RetailMeNot.com WHY IS BLACK FRIDAY DIMINISHING IN IMPORTANCE?

9.0% eCommerce Acceleration 8.1% Q2 2016 8.0%

7.0%

6.0%

ECOMMERCE TOTAL SHARE OF 5.0%4.2% Q1 2009 US RETAIL SALES IS ROUGHLY 9.5% (EXCLUDING AUTOMOTIVE AND FUEL SALES)

4.0%

3.0% Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16

Source: U.S. Census Bureau BUT ECOMMERCE NUMBERS FOR GAFO ARE FRIGHTENING…

$200,000 40.0%

$180,000 35.0% Retail Sales: GAFO, ($Mil.) eCommerce Share

$160,000 30.0%

$140,000 25.0%

$120,000 20.0% (In Billions $)

$100,000 15.0%

$80,000 10.0%

$60,000 5.0% AUG AUG AUG AUG AUG AUG AUG AUG AUG AUG AUG 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

WHAT IS GAFO? General merchandise, General Clothing & Furniture & Electronics & Sporting Goods, Office Supplies, apparel, furniture and other Merchandise Accessories Home Furnishings Appliances Hobby, Book & Music Stationary, Gifts

Source: U.S. Department of Commerce WHY IS BLACK FRIDAY DIMINISHING IN IMPORTANCE?

CLOSED ON THANKSGIVING OPEN ON THANKSGIVING CLOSED ON THANKSGIVING AND BLACK FRIDAY

WALMART ALL DAY ACADEMY SPORTS HALF PRICE BOOKS OFFICE DEPOT REI

JC PENNEY 3 PM BARNES & NOBLE IKEA PETCO

OLD NAVY 4 PM BJ’S WHOLESALE JO-ANN FABRIC PETSMART

BEST BUY 5 PM BURLINGTON JOS. A. BANK PIER 1

MACY’S 5 PM CABELA’S LOWE’S PUBLIX

TOYS R US 5 PM MARSHALL’S SAM’S CLUB

TARGET 6 PM CRATE & BARREL MATTRESS FIRM STAPLES

KOHL’S 6 PM DILLARD’S MENARD’S TJ MAXX

SEARS 6 PM DSW NEIMAN MARCUS TRACTOR SUPPLY

MICHAEL’S 6 PM GAME STOP NORDSTROM ULTA

Brown Thursday Continues But Momentum Slows PROMOTIONS AND MARKDOWNS MAKING THEIR LISTS

Which Gift Categories Will Shoppers Seek Deals on During the Holidays?

ELECTRONICS CLOTHING TOYS RESTAURANTS / JEWELRY TRAVEL & SHOES ENTERTAINMENT

56% 51% 31% 20% 18% 15%

Source: Cushman & Wakefield Retail Research / RetailMeNot.com DEALS MAKE THE IN-STORE DIFFERENCE

Pricing “Race to the Bottom” Will Remain An Issue This Holiday Season

73% 50% 83%

OF SHOPPERS SAY OF CONSUMERS SAY OF SHOPPERS USE THEY ARE PLANNING FINDING A GOOD UP TO 6 CHANNELS ON HITTING BRICKS- DEAL BEFOREHAND TO FIND THE AND-MORTAR WILL PUSH THEM BEST DEALS AND STORES IN-STORE PROMOTIONS

MULTI-CHANNEL SHOPPING DRIVES DEAL SEEKERS

Source: Cushman & Wakefield Retail Research / RetailMeNot.com PROMOTIONS AND DISCOUNTS TO DRIVE ACTIVITY

Consumers Still Motivated by Markdowns During the Holiday Season

51% 19% 73% 95% 90% $218 OF CONSUMERS OF SHOPPERS OF HIGH OF PARENTS OF SHOPPERS VS. BOUGHT A USE A DEAL EARNERS PLAN ON WITH A GIFT FOR OR SAVINGS BOUGHT PURCHASING SIGNIFICANT $163 SOMEONE APP SOMETHING GIFTS FOR OTHER PLAN ON MEN PLAN ON SALE WITH A THEIR KIDS, PURCHASING A ON SPENDING IN 2015 PROMOTION SPENDING AN HOLIDAY GIFT MORE THAN IN 2015 AVERAGE OF FOR THEM WOMEN ON $361 PER CHILD GIFTS FOR THEIR SIGNIFICANT OTHER

Source: Cushman & Wakefield Retail Research / RetailMeNot.com THE NEW MATH OF THE OMNI-CHANNEL WORLD – EDITION

US Average Total Annual Revenues

$1,400 $200 $2,500 IN-STORE ONLY SHOPPER ON-LINE ONLY SHOPPER DUAL PLATFORM SHOPPER

TGT CONCLUDES THEIR OMNI-CHANNEL SHOPPER IS 3.2X THE REVENUE GENERATOR OF IN-STORE ONLY SHOPPER “The millennial impact is critical. It is the driving force behind a lot of the change in retail.”

- Neil Saunders, CEO of retail analysis firm Conlumino MILLENNIALS

18-34 AGE GROUP MILLENNIALS NOW MILLENNIALS DON’T TO SURVIVE, DIGITAL NATIVES RECENTLY PASSED MAKE 54% OF VIEW THE WORLD RETAILERS MUST ARE A FORCE TO BOOMERS IN PURCHASES ONLINE IN TERMS OF INTEGRATE THEIR CONTEND WITH – TOTAL SIZE CHANNELS THINKING, SYSTEMS OR SUCCEED WITH UP FROM 51% IN 2015 AND WAYS OF AND 5% AHEAD OF SMARTPHONES, DOING BUSINESS ONLINE PURCHASES TABLETS, SOCIAL BY NON-MILLENNIALS MEDIA, STORES, ETC. ARE ALL ONE BIG ECOSYSTEM MILLENNIALS LOVE MOBILE

Digital Natives + Demographic Shift = More Omnichannel!

BLACK FRIDAY CYBER MONDAY

13% 10% 65+ 65+ 15% 35% 55-64 18-24 19% 48% 55-64 25-34 26% Millennials are 45-54 almost twice as likely Cyber Monday goes to shop online or on mobile too smartphones this Black 23% Friday 45-54 39% 25-34 49% 36% 21% 25-34 35-44 35-44

Source: Cushman & Wakefield Retail Research / RetailMeNot.com THANKSGIVING WEEKEND RULES THE ONLINE CALENDAR

Projected Top eCommerce Shopping Days in 2016

NOVEMBER DECEMBER

SMTWTFS SMTWTFS

1 2 3 4 5 1 210 3 6 7 8 9 10 11 12 4 55 610 79 8 9 104 13 14 15 16 17 18 19 11 124 137 14 15 167 172 8 1 20 21 22 23 252 26 183 19 8 209 21 22 236 24 27328 129 6 30 25 265 27 28 29 30 31

Mobile Desktop

Source: Cushman & Wakefield Retail Research / RetailMeNot.com TOP BRICKS-AND-MORTAR RETAIL SALES DAYS

Black Friday No Longer Number One! Surpassed by Final Friday and

NOVEMBER DECEMBER

SMTWTFS SMTWTFS

10 1 2 3 4 5 1 210 3 4 6 7 8 9 10 11 12 4 55 610 79 8 9 108 1 13 14 15 16 17 18 19 11 12 13 14 15 16 172 2 6 9 8 3 7 20 21 22 23 24 253 26 186 19 20 215 224 231 247 27 28 29 30 25 265 27 28 29 30 31

10 Busiest Shopping Days (Sales) 10 Busiest Shopping Days (Foot Traffic)

Source: Cushman & Wakefield Retail Research / RetailNext ONLINE PEAK REVENUE MILESTONE DATES – COMPARISONS

2015 PROJECTED 2016 DELTA

THANKSGIVING $1.7B $2.0B 17.5% BLACK FRIDAY $2.7B $3.0B 11.1% CYBER MONDAY $3.1B $3.4B 9.7%

SINGLES DAY GMV $14.3B $17.8B (ACT) 24.5%

Internet Retailer, Adobe Digital Index WHAT DOES IT MEAN FOR THE HOLIDAYS?

eCommerce Retail Sales Nov/Dec $100 $94.71 $95 $90 $85 $80.81 $80 $75 $69.68 $70 (In Billions $) $65 $60.92 $60 $54.34 $55 $50 2012 2013 2014 2015 2016 (est.)

CHRISTMAS CREEP AND BROWN THURSDAY ARE FACTORS....BUT ECOMMERCE IS THE PRIMARY REASON

Source: Cushman & Wakefield Retail Research / eMarketer CYBER MONDAY IS HUGE

9.7% INCREASED $4.0 EXPECTED $3.5 $3.0 Total Annual GDP vs. Cyber Monday: $2.5 Barbados $4.4B $2.0 Eritrea $3.9B US CYBER MONDAY $3.4B $1.5 Andorra $3.3B (In Billions $) $1.0 Aruba $2.7B Greenland $2.4B $0.5 $0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (est.)

CYBER MONDAY SINGLE DAY SALES LIKELY TO EXCEED $3.36B

Source: Cushman & Wakefield Retail Research / ComScore BUT NOT AS HUGE AS SINGLES DAY

11/11/2016 Was the World’s Largest Retail Day By Far

$20.0 $18.0 Alibaba $17.8B $16.0 ($1B in 5 MINUTES) $14.0 Total Annual GDP vs. Singles Day: $12.0 Honduras $19.5B Bosnia & Herzegovina $18.5B $10.0 ALIBABA SINGLES DAY $17.8B $8.0 North Korea $17.4B Iceland $17.0B $6.0 Cambodia $16.8B (In Billions $) $4.0 $2.0 $0.0 2011 2012 2013 2014 2015 2016 (est.) Singles Day Cyber Monday

Source: Cushman & Wakefield Retail Research / Statista CYBER MONDAY LOST PRODUCTIVITY

121M CYBER MONDAY 132M CYBER MONDAY SHOPPERS SHOPPERS IN 2015 X 78.2% (CURRENT EMPLOYMENT TO POPULATION RATIO) = 103.1M EMPLOYED CYBER SHOPPERS

132M THE AVERAGE U.S. HOURLY WAGE IS NOW $25.92 PER HOUR, CYBER MONDAY OR $6.48 FOR EVERY 15 MINUTES SHOPPERS ANTICIPATED IN 2016

ASSUMING JUST 15 MINUTES PER EMPLOYED CYBER SHOPPER ($6.48 X 103.1M), LOST WORKPLACE PRODUCTIVITY = $668.1M FEDEX: MORE STRESS, MORE RECORDS

PROJECTED 10-14% ESTIMATED 370M FEDEX GROUND 4 NEW 6 NEW 30 NEW AIRCRAFT; PEAK UNIT SHIPMENTS INVESTMENT IN DISTRIBUTION TEMPORARY ENHANCED VISION GROWTH IN 2016 BETWEEN INFRASTRUCTURE HUBS, 19 NEW HEAVY/BULKY CAPABILITIES BLACK MONDAY IN 2016: $2.0B; FULLY AUTOMATED ANNEXES FOR 270 AND CHRISTMAS; OF TOTAL STATIONS SORTATION AIRCRAFT UP FROM 325M FEDEX CAPITAL TOTALING 12MSF HUBS TO IMPROVE IN 2015 INVESTMENT OF WEATHER $5.6B (VS. $4.8B RESPONSE IN 2015)

WE HAD 3 DAYS OF GREATER THAN 25 MILLION SHIPMENTS DURING PEAK 2015 VS. AVERAGE NON-PEAK VOLUMES OF 12 MILLION SHIPMENTS PER DAY UPS: MORE STRESS, MORE RECORDS

PROJECTED VOLUMES EXPECTS FOUR INVESTMENT IN AMONG BILLIONS IN PROMOTING UP 10% TO 700M MONDAYS BEORE INFRASTRUCTURE CAPITAL INVESTMENT EXPANSION OF SHIPMENTS CHRISTMAS TO BE PROJECTED AT $2.8B DURING 2016 ARE 15 UPS ACCESS POINT DURING PEAK ITS BUSIEST DAYS (VS. $2.3B IN 2015) NEW OR EXPANDED NETWORK FOR IN HISTORY SORTATION HUBS REMOTE DELIVERY NATIONWIDE

PROJECTING 13 OF 21 HOLIDAY DELIVERY DAYS BEFORE CHRISTMAS TO EXCEED 30M SHIPMENTS VS. AVERAGE NON-PEAK VOLUMES OF 18M SHIPMENTS PER DAY TOP 2015 US RETAILERS BY ONLINE REVENUE

Amazon

Apple $92.5B Dell

Walmart

Staples $13.7B

Macy’s

Home Depot

Costco

Office Depot $5.0B QVC

Best Buy

Nordstrom

Kohl’s

Gap

Target $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 TOP 2015 US RETAILERS BY ONLINE REVENUE AS SHARE OF TOTAL REVENUE

Staples 50.8%

Williams-Sonoma 50.7%

J Crew 38.8%

Macy’s 22.9%

Nordstrom 20.1%

Gap 16.1%

Sears 14.9%

Kohl’s 14.7%

JC Penney 11.2%

Best Buy 10.1%

Under Armour 9.5%

Home Depot 5.3%

Costco 3.9%

Target 3.4%

Walmart 2.8% 0% 10% 20% 30% 40% 50% 60% ONLINE FASHION & AMAZON’S GROWING DOMINANCE

The Explosion of Online Fashion

AMAZON PROJECTED In 2016, Amazon’s apparel TO SURPASS MACY’S AS #1 APPAREL RETAILER IN U.S. IN 2017 business is expected to reach “$16.3B compared to Macy’s $22.2B. However by 2017, Amazon is expected to sell nearly $28B in apparel. Just four years ago, Macy’s apparel sales were 5X greater than Amazon’s. “ ONLINE FASHION & AMAZON’S GROWING DOMINANCE

PROJECTED AMAZON MARKET SHARE OF PROJECTED CLOTHING AND ACCESSORY CLOTHING AND ACCESSORIES: REVENUES IN 2021:

16% $62B

8.2% %

6.6% BILLION $ $26B $23B

2016 2017 2021 AMAZON TJ MAXX MACY’S COWEN ANALYSIS AMAZON FASHION OFFERING: TO MACY’S AND BEYOND?

30M SKUS = TOTAL # OF ITEMS 35 NOT JUST CLOTHING SOLD IN 250 WALMART SUPERCENTERS 30 30 25 25 21 20 18 16 15 12 13 11

Millions of SKUs 10

5 (including FBA/Marketplace) 0 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 IT LOOKS LIKE AMAZON’S WORLD....AT LEAST ONLINE

Percentage of Total US Online Sales in Nov/Dec of 2015 45 42.7% 40 35 30 NEXT 10 RETAILERS AFTER AMAZON 25 TALLIED 24.9% SHARE

% COMBINED 20 15 10

5 2.4% 2.2% 2.0% 0

Etsy Apple iTunes Macy’s Target Kohl’s Amazon Best Buy Walmart Groupon Nordstrom The downside of retailers being on the Amazon marketplace – Bezos gets the data along with the retailer WHO DREW THE TRAFFIC DURING PEAK 2015?

Wayfair MOST TOP SITES POSTED YOY VISIT Costco GROWTH DESPITE THE FACT THAT MANY JC Penney ACTUALLY LOST SHARE DUE TO AMAZON’S ASTRONOMICAL GROWTH Sears

Newegg

Macy’s 1.6% WALMART GAINED Kohl’s 13.8M VISITS IN DECEMBER VS Home Depot 2014, WHILE GOING FROM A 7% SHARE Best Buy TO A 6% SHARE OVERALL Target 3.2%

Walmart 6.0%

Amazon 34.5%

0% 5% 10% 15% 20% 25% 30% 35% 40% SHIPPING SPEED COSTS

Amazon is Messing it Up For Everyone Else

50% 4 DAYS 5.1 DAYS OF THE TOP 30 ECOMM THE AVERAGE ACTUAL THE AVERAGE ACTUAL RETAILERS FEATURED A DELIVERY TIME AMONG TOP DELIVERY TIME TODAY AMONG “FREE” SHIPPING OFFERING; 30 US ECOMM RETAILERS TOP 240 ECOMM RETAILERS UP FROM 33% IN 2014 (EXCLUDING AMAZON), DOWN FROM 8.3 DAYS IN 2014

IT PAYS TO BE PATIENT

Source: WSJ, StellaService, Internet Retailer, Slice Intelligencer WHO’S COMPRESSING TIME THE MOST?

Average Delivery Time in Days For Top Online Retailers by Package Volumes (Excluding Amazon)

APRIL 2014 APRIL 2015 APRIL 2016 % IMPROVEMENT NORDSTROM 7.9 6.3 4.9 38% WAYFAIR 5.9 6.0 5.9 0% WILLIAMS-SONOMA 9.3 7.0 6.0 35% JC PENNEY 9.7 6.5 5.1 47% KOHL’S 8.0 6.5 5.6 30% MACY’S 7.3 5.8 4.4 40% TARGET 7.8 6.5 4.8 38% WALMART 8/0 5.5 5.5 31% BED BATH & BEYOND 6.7 5.3 4.2 37% BEST BUY 6.8 5.3 3.3 51% NEWEGG 6.5 5.5 4.1 37%

BASED ON SURVEY OF 100M SHIPMENTS

Source: Slice Intelligence RETURNS – THE GIFT THAT KEEPS ON GIVING

US RETAIL SALES ON TRACK TO REACH $4.0 TRILLION BY 2017

BY 2017, PROJECTED US ECOMMERCE 9/100 SALES WILL REACH $440 BILLION IN-STORE PURCHASES ARE RETURNED

TOTAL RETAIL RETURNS BY 2017 PROJECTED TO EXCEED $460 BILLION

70-80% OF SHOPPERS MAKING ONLINE- PURCHASED RETURNS TO STORE ALSO 30/100 ONLINE PURCHASES MAKE A NEW PURCHASE ARE RETURNED

WSJ and NRF; L2 Insight Report Department Stores: Omni-channel OUR HOLIDAY PREDICTIONS SUMMARIZED…

It’s a make or break holiday season for some retailers

RETAILERS ON THE EDGE SEARS 3.7% 17.2% 9.4% CLAIRE’S OVERALL TOTAL INCREASE IN DISCOUNTING GORDMAN’S RETAIL SALES ECOMMERCE CYBER MONDAY & MARKDOWNS BON-TON GROWTH SALES GROWTH SALES TO JUST WILL CONTINUE TRUE RELIGION FOR THE 2016 OVER $3.6B TO BE MAJOR NINE WEST HOLIDAY DRIVER OF 99 CENTS ONLY SEASON SALES ACTIVITY RUE21 NEBRASKA BOOK COMPANY RUBY TUESDAY CHRISTOPHER & BANKS CONN’S SURGING ONLINE SALES WILL AGAIN STRESS NATIONAL IGNITE RESTAURANT GROUP CARRIERS & FACE RISK OF FAILED DELIVERY PROMISES LUMBER LIQUIDATORS GANDER MOUNTAIN TOO LATE TO FIX ANY PEAK SUPPLY CHAIN GAPS – SEE YOU NEXT YEAR FOR THOSE THAT SURVIVE SPORTSMAN’S WAREHOUSE LE CHATEAU BEBE J. CREW WHAT DOES IT MEAN FOR REAL ESTATE: RETAIL & LOGISTICS?

FOOD & RETAIL CLOSURES ENTERTAINMENT CONTINUE, AND CONCEPTS DRIVE WILL LIKELY GROWTH IN MALLS, INTENSIFY, IN 2017 LIFESTYLE CENTERS & URBAN RETAIL

STRONG DEMAND INCREASING THE ACROSS ALL PUSH TO BE BETTER, LAST MILE PRODUCT TYPES SMARTER, FASTER & FULFILLMENT CHEAPER CONTINUES CONTINUES TO BE POSITION THE RIGHT INVENTORY LARGE PERIPHERAL FCS, THE HOLY GRAIL CLOSER TO THE CUSTOMER AT SMALLER CLOSER-IN FCS, THE RIGHT TIME SORTATION HUBS/CROSS- DOCKS & LAST-MILE DEPOTS