STAFF REPORT

MEETING DATE: May 7, 2013 75 Rowland Way #200 Novato, CA 94945-3232 TO: City Council (415) 899-8900 FAX (415) 899-8213 FROM: Christopher L. Stewart, Economic Development Manager www.novato.org

SUBJECT: RETAIL SALES TAX LEAKAGE STUDY

REQUEST

Receive presentation and written report on Novato’s Retail Sales Tax Leakage Study.

RECOMMENDATION

Consider and discuss the Study’s results and recommendations.

DISCUSSION

At the February 5, 2013 City Council meeting and as part of the Fiscal Sustainability Revenue Work Session-Revenue #2-Economic Development, staff presented proposed priorities for an Economic Development Plan for Novato. Preliminary research by the Economic Development Manager indicated that Novato residents were spending significant time and money traveling to neighboring communities to purchase over $100 million in retail services and products that were not available in Novato. The costs and extrapolated impacts on Novato residents appeared to be significant.

It was clear that more detailed data about the magnitude of retail leakage and what specific types of retail services and products were being purchased outside of Novato was needed. Staff also wanted to look at successful economic development strategies that other communities have used to reduce their retail sales leakage. Chabin Concepts, Inc. and Marketek were retained to bring both the retail analysis and economic development strategy experience to bear on Novato.

FISCAL IMPACT

Information only - the amount of fiscal impact will depend upon future council directives as part of the overall fiscal sustainability process.

ALTERNATIVES

None.

ATTACHMENTS

1. Final Written Report (Posted online, Appendix not copied due to large size. Hard copy is available at City Clerk’s Office.) 2. Powerpoint Presentation (Will be posted when available.) Novato City Council Agenda Staff Report Date: ______File No. ______Page 1 cc13_054.docx; 5/2/2013 Page 2

City of Novato 2013 Retail Market Analysis

Page 3

Page 4 Table of Contents

A. Introduction ...... 1 Process ...... 1 Novato’s Top Selling Points for Retail ...... 2 Novato’s Top Challenges for Retail ...... 3 Areas for Improvement ...... 3

B. Retail Initiatives ...... 4 Advance Novato’s Competitive Position ...... 5 Create Tools and Materials ...... 7 Transform Perceptions ...... 9 Create a Dynamic Family-Oriented Downtown Novato ...... 11 Tend to Existing Employers ...... 13 Attract Retailers that “Fit” Novato ...... 14 Package and Promote Market-Ready Properties ...... 16

C. Implementation ...... 18

D. Retail Demand Analysis ...... 21 City of Novato ...... 21 Greater Retail Market Area ...... 26 Existing Demand Potential ...... 28 Future Demand Potential ...... 30 Marin County Visitors ...... 30 Summary ...... 30

E. Retail Supply Analysis ...... 33 Retail Industry Trends ...... 33 Novato Retail Supply ...... 35

F. Survey Highlights ...... 41 Shopper Survey Summary ...... 41 Business Owner Survey Summary ...... 43

G. Acknowledgement ...... 45

H. Document Review ...... 46

I. The Consultants ...... 47

J. Appendices ...... 48

Page 5 Page 6 A. Introduction

Faced with the loss of redevelopment funds, declining property values, heightened competition for retail sales tax revenue, and a national economic downturn that is still very slow to recover, the City of Novato’s response to these fiscal challenges has been to dramatically reduce budgets and expenditures.

With no or little economic relief on the horizon and to hedge an approaching budget deficit in the next five years, the City has chosen to investigate ways to increase revenue and improve their economic position.

The outcome of this report — an in-depth retail market analysis and recommended initiatives — are based on the City’s current economic development goals and guiding principles.1

 Business Retention and Recruitment.  Enhance the vibrancy of public spaces, retail centers, and downtown.

Goals  Generate ongoing revenue and return where appropriate from City-owned assets.

 Maintain the small town atmosphere and charm of downtown and the residential

communities.  Help existing and new businesses occupy or redevelop vacant buildings and properties.  Seek new development that conforms to the General Plan, Zoning, Specific Plans and Design Guidelines.  Recruit businesses where there is consensus and community support.

Guiding Principals Guiding  Promote project excellence in site design, architecture and sustainability.  Collaboration and team work for successful implementation.

Process Preparation of this report involved extensive research and analysis of Novato’s retail trade area which led to recommended retail initiatives that will help Novato improve its competitive position and take advantage of its unique opportunities. Project activities included:

. Review of previously completed documents, reports, studies, presentations. . Community tour; two consultants on site for three days.

1 Presentations: Revenue Work Session; Fiscal and Organizational Sustainability (Feb 5, 2013) and Proposed Economic Development Priorities for Novato 2013.

City of Novato 2013 Retail Market Analysis 1 Page 7 . Interviews with local businesses, real estate brokers, community stakeholders and partners.

. Online opinion survey of community and businesses; over 1,000 respondents. . Visit and evaluation of retail centers. Interviews with retail store owners and/or managers.

. Evaluation of specific potential development areas within the City. . Presentation of initial findings and discussion with City’s department managers. . Presentation of draft report to Joint Meeting of the Measure F Oversight/Citizens Finance Committee and the Economic Development Commissions.

. Presentation to City Council.

Novato’s Top Selling Points for Retail Successful, competitive business districts of any size have a healthy business/retail climate, key amenities, and characteristics that attract both customers and business prospects. The Chabin Concepts team assessed the Novato community overall, the downtown, the Redwood Boulevard area and other shopping districts to identify assets, challenges and opportunities for retail growth.

Presented here is a brief summary of the advantages and challenges of the Novato market and properties. More thorough discussions and data are included in the remainder of this document and the Appendices.

. City has a large employment base (over 3,000 businesses and 26,000 employees within the City limits).

. City is well-positioned at the juncture of two state highways (101 and 37). . There is easy and convenient access and visibility from Highway 101 (seven interchanges with minimal congestion).

. Sufficient traffic (2011 average daily traffic counts along the Novato portion of Highway 101 total 795,000 and 716,000 south and north respectively).

. Job growth in Marin County in targeted sectors (technology and bioscience). . Income levels in the City and in the market area are strong (above the State of California and above six of the nine Bay Area Counties).

. A family-oriented market with 40 percent of residents between the ages of 25 and 54; youngsters (age 19 and younger) represent 24 percent of the market and seniors (65+) are 16 percent.

. A growing visitor market largely due to business and wine country popularity.

2 City of Novato 2013 Retail Market Analysis Page 8 . Vintage Oaks Shopping Center is a regional retail draw due in part to the presence of Costco and the mix of quality middle-market retailers; the quality and vitality of the center and location is reflected in its 99.9 percent occupancy.

. Numerous long-time retail anchors actively respond to the changing marketplace. . Local government supportive of retail expansion.

Novato’s Top Challenges for Retail . Much of the development in and around the City is mature. . The City’s development opportunities are limited geographically (City is bordered by highway, mountains, bay, state historic park, preserves and open space).

. Very few acres remain of ready-to-go and/or developable commercial land. . Several underutilized and re-developable sites are in undesirable locations. . City’s historic reputation (pre-recession) as unfriendly to business still exists in the market (concerns are: planning, zoning, slow response time, inconsistent feedback on regulations, lack of communication with existing business).

. The community of Novato has reputation as anti-corporate and anti-big box retailers making it less conducive or attractive for new large scale retail development.

. Lack of an image or brand (i.e. to Highway 101 travelers and North Bay Area, Novato is not known for or considered a destination for anything in particular).

. The modest population growth (0.5 percent average annual) makes Novato dependent on the external market and/or visitors for continued retail growth.

. While retail vacancy is generally low throughout Novato (4.6 percent citywide), a few neighborhood retail centers have multiple vacant spaces.

Areas for Improvement

The following section—Retail Initiatives—is based on these assessment findings and the trade area market research conducted and presented in subsequent chapters and appendices. The initiatives provide recommended strategies and actions that will help to:

. Boost the City’s competitive position for retail/commercial investment . Mitigate the disadvantages and challenges over which the City has some control . Give direction on activities, tools, and materials for the City’s economic development department program of work

City of Novato 2013 Retail Market Analysis 3 Page 9

Page 10 B. Retail Initiatives

As the retail vacancy rate declines and as the economy continues to recover, competition for more retail will increase across the State and the Nation. The strategies and actions recommended for the City of Novato are based on its (1) current and potential market, (2) assets, (3) challenges that need to be overcome and/or mitigated, (4) priorities and goals.

This plan has been developed to enhance the opportunities for Novato to strengthen its prominence in the Bay Area while attracting investment and serving local residents and businesses. It also addresses how to strengthen weaknesses identified as areas for improvement. The graphic below summarizes recommended actions as a pathway for achieving the City’s retail goals and objectives.

4 City of Novato 2013 Retail Market Analysis Page 11 Advance Novato’s Competitive Position

To present the City of Novato to target audiences in a competitive manner the City must understand what is relevant and important to each audience, whether a national chain retailer, a local entrepreneur considering a start-up, a local business wanting to expand, or a developer interested in making an investment. 2

OBJECTIVE: Shape a compelling message for marketing and sales that will resonate with your target audiences and capture their attention, ultimately leading to increased awareness, more leads and closed deals.

Value Your value proposition is your promise of performance and value. It is Proposition not marketing prose, it is what you commit to do. It should be expressed in a short statement that explains “why the City of Novato is the best location for...” An effective value proposition: 1. Addresses a critical concern 2. Focuses on a single benefit 3. Is specific and based on facts 4. Uses clear and concise language (no industry-speak) 5. Creates a sense of urgency, a compelling reason to act 6. Mitigates risk An effective value proposition is also understood and used by everyone who represents and promotes the City; it should guide your advertising and promotional materials.

Key Message Key Messages create clarity and continuity for communicating with Platform various audiences. They are the main things you want people to know about and think of when they hear “Novato.” They should inform your audience, convey your benefits, and be supported by specific, fact-based proof points. Sample key messages and a proof point: Message: Centrally located in one of California’s high-income markets. Proof: Close as 20 miles, no more than 50 miles to Bay Area cities. Message: More affordable than any other Bay Area community. Proof: Quote current housing prices, property prices, lease rates, cost of living, wages, etc. Message: Desirable market demographics. Proof: Quote City’s average or median income level as a percentage

2 Appendix A: Value Proposition and Key Message Architecture.

City of Novato 2013 Retail Market Analysis 5 Page 12 above the Bay Area counties, competitor cities, state average, etc.

Practice Once the City’s Value Proposition, Key Messages, and Proof Points are compiled, practice delivery. These should not be “memorized” statements, but ideas and facts that you can convey conversationally.

Research Document key site selection data for use in proposals, website, and marketing materials. Use the Retail Market Analysis as basis for responding to RFPs and preparing marketing materials. Conduct ongoing industry intelligence to understand the unique needs for each retail sector and/or retailer. Your knowledge of industry trends and issues will impress prospects and existing businesses and build trust.  Set up Google News Alerts  Monitor industry association and corporate websites and news releases  Follow retailers, industry leaders, and associations on social media; join relevant industry groups on LinkedIn

Market Distinguish each of Novato’s major retail areas with individual market Position position statements. For example:  Old Town — Novato’s Entertainment District and Civic Center.  Vintage Oaks Shopping Center — Novato’s Family-Oriented Shopping and Dining Destination.

Continue Efforts City of Novato Towards  Develop sites in a well-planned manner, concentrated areas. Building a Strong Market Position  Prioritize sites for development. Establishing a vision and best use for each priority site will show developers and prospects that the City is serious about business investment.  Continually present the City of Novato as “open for business.” Old Town / Downtown  Encourage additional downtown living options which will also boost evening and weekend activity.  Hire a downtown business manager; half-time or full-time, funded fully or in part by BID, who could concentrate on retail business retention, expansion and assistance.

6 City of Novato 2013 Retail Market Analysis Page 13 Create Tools and Materials

The nature of business location decision making is competitive, complex, and fast. To be successful in marketing, attracting new investment, and helping local businesses expand, the City of Novato must be prepared to respond quickly and accurately with the specific and detailed information required by businesses to make a good location decision.

OBJECTIVE: Prepare the City of Novato to market opportunities and respond to requests for proposals quickly and with accurate and current information on properties, demographics, the market trade area, etc.

Website  Regular updates — update the information on the City’s website and continue to update regularly to present an accurate and fresh picture of the Novato market. Currently the page “Novato Wants Your Business” contains two different PDF downloads for community and demographic information (see Figure 1). It is unclear how current this information, neither document provide an “as of” date for the data.  User-friendly presentation — present the retail market data and demographics in easy to scan text, bullet points, tables, downloadable.  Maps — of downtown, retail centers, commercial sites available; and reference map to show the City’s location in the region and the state.  Key Messages — once developed, use the key messages and proof points on the website and collateral materials.

Collateral  Maps — no other piece will tell a better story or be more helpful to Materials (print a prospect than a map; locational and site maps; regional, city, trade and electronic) area, identify the retail-ready sites; use on the website and in proposals.

 Business Case — for the retailers in general and for each targeted retail category. Document Novato’s value proposition based on data that corresponds to priority location factors.3  Case Studies — on local businesses to illustrate their success in Novato. Reading about companies is interesting to prospects and an excellent vehicle to reinforce your key messages. Documented stores and quotes are your best proof points for marketing and sales.  Property Profiles — work with motivated land/building owners and/or developers to prepare detailed info on each ready-to-go site.4

3 Appendix B: Building a Business Case template

City of Novato 2013 Retail Market Analysis 7 Page 14 Communications Use a variety of communication venues to reach multiple audiences.  Social Media — establish a social media policy for economic development communications. Use Twitter, LinkedIn, Facebook to promote events and opportunities in Novato.  Electronic Messaging — use services such as Vertical Response or Constant Contact for regular e-messages, e-newsletters. The most well-received e-messages are short, informative, and relevant to your audience.

Analysis  Metro Comp — this software tool comes populated with operational costs for the City of Novato that enables you to compare Novato with other (competitor and source) areas with unbiased data. Not only is this a tool for business attraction, it is also an opportunity to assist local companies that may be thinking of relocating.5  Regional Project Assessment System (RPAS) — is a software tool that can assist Novato in measuring the impact associated with a specific project. RPAS uses Novato-specific multipliers and other data. This can help the City prioritize projects, measure program effectiveness, publicize the value of new or existing business, etc.6

Figure 1 – Update Novato’s market information.

4 Appendix C: Sample property profiles 5 Appendix D: MetroComp product information. 6 Appendix E: RPAS product information.

8 City of Novato 2013 Retail Market Analysis Page 15 Transform Perceptions

The most-inviting, well-maintained and smartly tenanted shopping districts still must continuously work to promote—and deliver on—the image and promise they offer to the shoppers they seek to attract and serve. Novato’s shopping districts need to constantly market their unique benefits to local shoppers and visitors alike. See previous section on “Advancing Novato’s Competitive Position” for suggestions on market positioning statements.

The City of Novato must continually attend to and work to overcome negative perceptions both with their internal audiences (residents and businesses) and with external audiences (prospective businesses, developers, brokers, etc.). Understand that perception is reality and take charge of your story.

OBJECTIVE: Become known as the Bay Area’s Business-Friendly Community.

Illustrate a Several Novato businesses responding to the survey commented that: (1) Business the development/permitting process takes too long, is frustrating; (2) the Friendly City is non-responsive, obstreperous; (3) parking downtown is largely Reputation insufficient and the City is not planning for future parking needs; (4) zoning and regulatory issues are a challenge to doing business; (5) there is an overall anti-business sentiment from the City and from the residents.7 It is critical to the City’s reputation and ability to attract business investment that it be recognized as business-friendly. Excellent, friendly customer service will leave a lasting impression and build good will among existing and potential new businesses. While the development/permitting process was noted as a challenge to doing business in the survey, during interviews the consulting team heard that the process has improved. It is not uncommon for people to reference a problem they had dealing with City regulations only to find out later that the experience was many years ago. Begin countering the pessimism and building a business-friendly attitude.  The City has good information on its Community Development website pages; public can access applications, check fees and other information online. Add to the website a flowchart illustrating steps of the entitlement process including an estimated timeline.  Develop case studies with testimonials that illustrate the business- friendly services of the City and City’s ability to help clients meet project timelines. Post these on the website and use in marketing.

7 Appendix F: Summary of findings from the business and shopper surveys.

City of Novato 2013 Retail Market Analysis 9 Page 16 Internal and The City has three audiences to reach—residents, existing business, and External prospective businesses. Create a unified campaign to forge a positive Marketing image and an engaging business-friendly atmosphere. Along with the impressive response to the shopper survey, a few people went so far as to give their contact information and offer their help to work with the City on this effort.8 Take them up on their offer. Start building “Red Teams” to assist the Economic Development Commission with specific, one-time or limited- time projects, such as:  Refine the City’s retail market vision.  Develop internal marketing messages and tactics.  Assist ED Commission in retail business attraction: key messages, proof points, case studies, business case, site visits, etc.  Internal Marketing / Buy Local Campaign: Educate the public about what retail sales mean to them and their future; e.g. sufficient City services; a healthy, vibrant City can help attract the retailers they would like, etc.  External Marketing: Define the messages to target retailers, developers, brokers. Document the information necessary for businesses and developers to make site location decisions.  Existing Business: Invite them to assist the City in a business retention/expansion program focused on small business retailers. Use the retail market data to help small businesses understand how to expand their markets, merchandise lines, services, etc.

Figure 2 - What residents and businesses want to change about Novato.

8 This information was forwarded to the City’s Economic Development Manager.

10 City of Novato 2013 Retail Market Analysis Page 17 Create a Dynamic Family-Oriented Downtown Novato Strong downtowns and commercial cores have retail and service amenities that serve local residents and attract visitors. A thriving downtown can also help support industrial business attraction efforts because it shows the community’s commitment to local businesses and improving quality of life factors.

Successful, competitive business districts are achieved through planning and a proactive marketing and business assistance program.

. Plan – to take advantage of Novato’s assets . Proactively – address/mitigate challenges to development and business success . Promote – Novato’s opportunities for retail growth

OBJECTIVE: Transform Downtown Novato into the City’s Civic Center.

Plan for Success The Downtown Specific Plan created in 1998 is nearing 20 years old. The Vision and many of the goals and objectives of the Plan are still valid today, based on the shopper survey results. However, many of the issues and unfulfilled opportunities also remain valid today.  Refresh/update the Downtown Specific Plan.  Acknowledge and celebrate all that it has accomplished.  Identify what is yet to be accomplished and determine its validity.  Prioritize the top projects for the next six months, one year and three years; e.g. Parking, Grant Avenue, City Hall, Transit Station, City Plaza, Theater, Housing, Gateways, Murals/Public Art, etc.

Encourage Downtown residents help keep a City’s downtown busy and vibrant Residential Use 24/7. This can be accomplished with mixed-use developments, loft housing (over retail). This ready customer base will encourage:  Resident-serving businesses (e.g. a permanent Farmers’ Market);  Dining and entertainment venues; and  Family-oriented events and retailers.

City of Novato 2013 Retail Market Analysis 11 Page 18 Business  Provide technical assistance to small businesses. Help them Assistance interpret and use retail market information provided with this report, understand market dynamics, target new or expand existing customer-base, revise product or service offering, etc.  Help businesses find a way to take advantage of downtown events that draw people locally and from throughout the region e.g. the Festival of Art, Wine, and Music. For example: rather than trying to “stock up” for the extra traffic and/or compete with street vendors for the pedestrian traffic, offer local businesses a reduced rate to leave their brick and mortar shop and join the street vendors. They could feature a few of their best-selling items and encourage return customers with handouts, coupons, specials, etc.

Complement  Counter the concerns of Novato’s downtown merchants that not building more retail and big box will negatively impact them; Compete focus on attracting new retail that will complement not compete with downtown businesses. This issue was discussed in the 2009 Redwood Corridor Plan (see Figure 3).  Provide incentives to new-products / services offered in downtown.9

Establish  Differentiate downtown proper from shopping centers by Downtown as promoting community centered activities downtown, encouraging Community more evening activity, and easy pedestrian access. Entertainment  Center Develop a multi-purpose public plaza that could be a permanent home for a farmer’s market, be the focal point for outdoor entertainment, include unique elements such as a water feature that would attract families and children.  Move forward with the Downtown Novato Theater and potential Cineplex and/or another catalytic entertainment anchor to encourage evening and weekend activity.

it is possible to introduce additional retail in the Study Area that would Figure 3 - Excerpt complement rather than compete... For example... a higher end home furnishing from City of Novato 2009 Redwood store... would not most likely negatively impact Downtown businesses since no Corridor Report comparable retailers are located Downtown. In fact... major retail center on North (p.30) Redwood Boulevard could draw more shoppers and sales to Downtown. This dynamic occurs in... Walnut Creek and San Mateo...

9 Appendix G: Brush, CO offers specific incentives for new businesses that do not compete with their downtown merchants.

12 City of Novato 2013 Retail Market Analysis Page 19 Tend to Existing Employers Helping Novato’s existing business base succeed and grow is the underpinning of a successful economic development program. Most often, small business / retailers want and need help with marketing and merchandising, finance, systems improvements, tenant and façade improvements, business location/expansion and staying on top of marketplace trends and opportunities. Access to capital was a key need identified by business owners who responded to the recent Novato Business Survey.

A key weakness of small independent businesses, including many observed in Novato, is their inattention to overall image and visual appeal. Store image and identity includes signage, storefront appearance, window displays, store merchandising, lighting and other elements that collectively send customers a strong impression about business quality and offerings.

OBJECTIVE: Elevate the attention given to local businesses, provide valuable resources and solutions resulting in contented and successful businesses.

Business A business visitation program (retention/expansion program) is one of Visitation the best ways to stay on top of business changes, issues, opportunities Program and to share information face-to-face.  Work collaboratively with partner agencies and other City staff to reach as many small businesses as you can. Schedule a certain number of meetings a month; focus on a specific industry sector (top 25 retail sales tax generators); use a combination of face-to- face and group meetings.  The value of your efforts will be measured by the quality and timeliness of the follow-up service delivered.

Primary  Aim to meet at least semi-annually with primary employers. Employers  Provide immediate assistance to help Costco find location for a gas station—a major sales tax generator for the City of Novato.

Communicate  Distribute to businesses, property owners and all those with a and Promote vested interested in downtown Novato’s economic vitality, Opportunities highlights of the retail market analysis and the top initiatives the City of Novato will be working on in the next months and years.  Educate business owners about the market opportunities the City is working on their behalf, Encourage volunteers to get involved with making change and improving Novato’s retail market.

City of Novato 2013 Retail Market Analysis 13 Page 20 Attract Retailers that “Fit” Novato

Retailers and retail developers are always on the lookout for new locations and the next “hot spot.” Fortunately, many area developers and brokers are already seriously looking at the City of Novato in general and at specific locations.

The Retail Supply/Demand Analysis conducted provides the City of Novato with an extensive list of merchandise/service categories and the types of goods and services that the Novato market can support. See Sections D, E and accompanying appendices for more detail on the specific types of retailers that match Novato’s market and demand.

OBJECTIVE: Ensure a continuing “top of mind” awareness of Novato’s retail and commercial development opportunities.

Understand the Conduct ongoing industry and business intelligence to understand the Industry and market and location needs of retailers in general and the specific target Retail Sectors retailers.  Set up Google News Alerts;  Monitor industry association websites, newsletters, events;10  Monitor target retailers’ press releases;  Follow industry leaders, associations, retailers on social media; join related industry groups on LinkedIn.

Align Targets  Match target users with available properties, buildings.  Create design concepts for specific properties to illustrate the City’s vision for development. Having design concepts will enable residents, developers, investors, and potential users to visualize the opportunity. Being able to show community buy-in for the development concept will help reduce investors’ risk and build momentum for investment.

Media Make sure developers, brokers, and industry targets are aware of the plans and progress being made on commercial sites throughout City.  Provide regular news releases to regional, state, and industry media.  Create and post messages via LinkedIn and other social media messaging.

10 Appendix H: Retail industry reports contain relevant industry associations and websites to monitor.

14 City of Novato 2013 Retail Market Analysis Page 21 Leverage Join TeamCalifornia and take advantage of the annual schedule of Marketing events and marketing program which focuses on industrial and commercial markets.11  Site selection professionals  Corporate real estate (SIOR, CoreNet, IAMC)  Retail (ICSC)  Life Sciences and Medical Devices (MDM, Biotech Conferences)  Renewable Energies and Green/Clean Tech  Winter and Summer Fancy Food Show

Campaign to When there is adequate budget and staff resources expand marketing Key Influencers beyond the leveraged tactics (above) and begin industry-specific campaigns.  Prioritize industries for campaign focus.  Conduct a series of direct and electronic mail communications; use Business Cases and Case Studies.  Make prospecting calls to developers, brokers, and retailers; consider outsourcing the lead development process to ROI Vision (www.ROIVision.com), a company that specializes in generating qualified leads and can put you in touch with company representatives.

11 Appendix I: Team California’s 2013 Tradeshow Schedule

City of Novato 2013 Retail Market Analysis 15 Page 22 Package and Promote Market-Ready Properties

Business location decisions are very time sensitive. The more prepared and ready-for- development sites are, the more competitive and attractive the City of Novato will be to businesses and developers. Encourage development and investment in the City by continuing to develop a vision for primary properties and prepare them for development.

OBJECTIVE: Have a diverse portfolio of ready-to-market sites and buildings.

Inventory  Partner with property owners, utilities, and others to document Sites / Buildings the necessary information to present a complete property profile.12  Put the properties on City’s website.

Package the Include photos, location and site maps and the City’s vision, preferred Properties uses, design concepts. For example:  Fireman’s Fund Building / Site — mixed use lifestyle retail center; concert/performing arts venue; hotel / conference center  Birkenstock Building — play up the fact that Novato is HQ; consider a brand museum and outlet center  Dairyman Site — potential to assemble parcels with adjoining properties to create a unified shopping center vs. a stand-alone retailer  Hanna Ranch — move forward with mixed-use / hotel development and some retail  Old Town — Move forward with efforts to renovate Downtown Novato Theater, possible relocation of the Cineplex and/or another catalytic entertainment anchor to encourage evening and weekend activity  Redwood Corridor — Finalize the 2009 plan/vision  Rowland Boulevard (behind Vintage Oaks) — Consider changing from a 5-lane access road to a 2-lane; make use of the water views for pedestrian, biking, or park-like venue. Traffic from Hanna Ranch will require more than two lanes but improvement could be made.  Bel Marin Keys Business Park — Restricted uses due to the Planned Development designation could be a basis for some considering the City “unfriendly to business.” Invest the time and effort to revise

12 Appendix C: Property profile template.

16 City of Novato 2013 Retail Market Analysis Page 23  Hamilton Air Base — work closely and support efforts to promote and fill vacancies with appropriate uses

Make  Identify improvements necessary to achieve the development Improvements envisioned including environmental work done or required and any constraints to business development (land use, traffic, etc.)  Prioritize improvements and secure funding

Figure 4 - Present the City's vision for properties in marketing materials.

City of Novato 2013 Retail Market Analysis 17 Page 24 C. Implementation Schedule

To help organize and assign priorities, use the planning tool on the next page to schedule what can and should be done in the first 30, 60, 90 days and to prioritize remaining action items. This timeline may, of course, need to be adjusted depending on funding and staffing capacity.

Performance Measurements

The following performance measurements are designed to assess the effectiveness of the strategies, the impact the strategies have had on the local business climate. If improvements are not realized year to year, adjust activities, or tactics used as necessary. Determine what you can do differently to achieve better results and then update the next year’s annual work plan.

Performance Indicator / Metric YR1 YR2 YR3 YR4 YR5 Market/Development-ready commercial sites AC Retail-ready space SF New retail SF Investment in infrastructure improvements $ Investment in downtown improvements $ Occupancy rate downtown % Overall retail occupancy rate % Proposals submitted to prospects/site selectors # Site tours (brokers, developers, companies) # New companies locating / start-up # Net new job growth from all sectors # % Sales tax revenue to City $ Local businesses visited for BRE # Average days to permit # Downtown living space SF

18 City of Novato 2013 Retail Market Analysis Page 25 Long- Short- Mid-Term Term Objective / Action Item 30 days 60 days 90 days Term 3-5 Years 6-10 1-2 Years Years Advance Novato’s Competitive Position Define value proposition Create key messages and document proof points Create market position statements for major retail areas Establish industry intelligence tracking sources Prioritize sites for development; best uses; vision Hire / Support downtown business manager

Create Tools and Materials Update website Create collateral materials Messaging to key audiences Acquire tools for analysis

Transform Perceptions Establish development/permitting process flowchart Develop case studies, testimonials Form “Red Team(s)” to assist with projects

Create Dynamic Family-Oriented Downtown Novato Update Downtown Specific Plan; prioritize top projects Pursue mixed use development; downtown living options

City of Novato 2013 Retail Market Analysis 19 Page 26 Long- Short- Mid-Term Term Objective / Action Item 30 days 60 days 90 days Term 3-5 Years 6-10 1-2 Years Years Establish a “Complement not Compete” policy or plan Develop a multi-purpose public plaza downtown Establish a catalytic entertainment anchor for weekend/evening activity

Tend to Existing Employers Implement a business visitation / assistance program Establish schedule for visiting primary employers, small businesses

Attract Retailers that Fit Novato Match target retailers with available properties Create design concepts for priority properties Media and Messaging Join TeamCalifornia and participate in relevant missions/tradeshows Industry-specific campaigns; prospecting calls; direct/electronic campaigns

Package and Promote Market-Ready Properties Document property details, features Post properties on website (preferably in searchable database) Identify and schedule improvements necessary

Monitor Performance Document performance indicators Adjust action items, tactics and schedule accordingly

20 City of Novato 2013 Retail Market Analysis Page 27

Page 28 D. Retail Demand Analysis

The market demand analysis estimates the level of potential new retail space that can be supported in Novato now and over the next five years. Key target markets for new retail development include residents of the City and the surrounding market area, employees working nearby and visitors to the area. This section provides an overview of each market and a statistical demand analysis based on spending patterns and projected population growth.

City of Novato

Retail demand potential generated by existing City of Novato residents is based on retail sales leakage in the City. The leakage is estimated by comparing per capita taxable retail sales in Marin County with per capita taxable retail sales in Novato.

According to the California State Board of Equalization’s Taxable Sales in California During 2011,13 taxable sales in the City of Novato totaled $675.6, with $586.9 million (or 87 percent of the total) in taxable retail sales.14 By comparison, Marin County had a total of $4.0 billion in taxable sales in 2011, with 77 percent (or $3.1 billion) in retail sales.

Table 1 provides a breakdown of total and per capita taxable retail sales by store type for Novato and Marin. On a per capita basis, retail sales in Marin are 10 percent higher than in Novato ($12,386 versus $11,293). Sales per capita in Marin outpace those in Novato for seven of the nine retail store types. In two categories – general merchandise and gasoline stations – Novato’s per capita sales are higher than the county average. The most considerable gap is in general merchandise (i.e., department stores), where Novato per capita sales of $2,905 are 2.7 times as high as the county average ($1,080). These figures likely reflect that the Novato Target and Costco are drawing retail spending from a market area considerably larger than the City limits.

To estimate retail sales leakage by category, Table 2 calculates the difference between per capita sales in Marin and Novato. The per capita leakage figure is then multiplied by the City’s

13 This is the most recent year for which taxable retail sales by store type is available for both the City of Novato and Marin County. 14 Total taxable sales figures are composed of both taxable sales at retail outlets and of taxable sales at other outlets, including manufacturing and wholesale sales. Retail sales figures do not include sales of nontaxable items, such as resale items, food for home consumption and prescription medications.

City of Novato 2013 Retail Market Analysis 21 Page 29 2011 population figure to arrive at total estimated retail sales leakage. Note that this methodology assumes that Novato households have similar buying power and spending patterns as the average Marin household. It does not address retail spending by non-residents, such as visitors and employees, which may bolster sales in some Marin cities more than others.

22 City of Novato 2013 Retail Market Analysis Page 30

Table 1 - Taxable Retail Sales by Store Type, City of Novato and Marin County, 2011

Marin County City of Novato Store Type Taxable Retail Taxable Retail Per Capita Taxable Per Capita Taxable Sales (in Sales (in Retail Sales* Retail Sales* thousands) thousands) Clothing & Clothing Accessory Stores $280,098 $1,107 $37,654 $725 General Merchandise Stores $273,199 $1,080 $150,949 $2,905 Food & Beverage Stores** $266,823 $1,054 $48,970 $942 Food Services & Drinking Places $445,433 $1,800 $72,617 $1,397 Home Furnishings & Appliance Stores $240,698 $951 $12,882 $248 Building Materials & Garden Equipment Stores $254,092 $1,004 $17,113 $329 Motor Vehicle & Parts Dealers $523,483 $2,069 $72,938 $1,403 Gasoline Stations $371,618 $1,469 $94,060 $1,810 Other Retail Stores† $468,827 $1,853 $79,710 $1,534 TOTAL $3,134,271 $12,386 $586,893 $11,293

*Population estimates are from the California Department of Finance. As of January 1, 2011, the City of Novato had an estimated population of 51,970 and Marin County had an estimated population of 253,040. **Does not include any nontaxable spending, such as on food for home consumption and prescription medications. †Includes health & personal care stores; sporting goods, hobby, book & music stores; florists; office supplies & stationery stores; gift, novelty and souvenir stores; used merchandise; other miscellaneous store retailers; and non-store retailers (electronic and mail-order retailers, kiosks and street vendors, vending machine operators, sales through infomercials, door-to-door sales and home delivery). Sources: California Board of Equalization’s Taxable Sales in California During 2011; California Department of Finance’s Population Estimate for Cities, Counties and the State (released May 2012); Marketek, Inc.

City of Novato 2013 Retail Market Analysis 23 Page 31

Table 2 - Taxable Retail Sales Leakage by Store Type for the City of Novato, 2011

Marin County Per City of Novato Capita Retail Store Type Per Capita Retail Total Sales Sales (from Table Per Capita Sales (from Table Leakage (in 1) Sales Leakage* 1) thousands) Clothing & Clothing Accessory Stores $1,107 $725 $382 $19,873 General Merchandise Stores $1,080 $2,905 None None Food & Beverage Stores** $1,054 $942 $112 $5,831 Food Services & Drinking Places $1,800 $1,397 $403 $20,921 Home Furnishings & Appliance Stores $951 $248 $703 $36,553 Building Materials & Garden Equipment Stores $1,004 $329 $675 $35,073 Motor Vehicle & Parts Dealers $2,069 $1,403 $665 $34,576 Gasoline Stations $1,469 $1,810 None None Other Retail Stores† $1,853 $1,534 $319 $16,579 TOTAL $12,386 $11,293 $3,260 $169,406

*Found by subtracting Novato’s per capita sales from Marin County’s per capita sales for each category. In cases where Novato’s per capita sales exceed Marin County’s no leakage is reported. **Does not include any nontaxable spending, such as on food for home consumption and prescription medications. †Includes health & personal care stores; sporting goods, hobby, book & music stores; florists; office supplies & stationery stores; gift, novelty and souvenir stores; used merchandise; other miscellaneous store retailers; and non-store retailers (electronic and mail-order retailers, kiosks and street vendors, vending machine operators, sales through infomercials, door-to-door sales and home delivery). Sources: California Board of Equalization’s Taxable Sales in California During 2011; California Department of Finance’s Population Estimate for Cities, Counties and the State (released May 2012), Marketek, Inc.

24 City of Novato 2013 Retail Market Analysis Page 32 This methodology estimates a retail leakage of $169.4 million in sales for the City of Novato. The largest leakage is in home furnishings & appliance stores ($36.6 million), followed by building materials & garden equipment ($35.1 million).

Table 3 provides a comparison of total (retail and non-retail) sales tax leakage in Novato to that of other cities in Marin County. Novato’s total sales tax leakage for retail and non-retail taxable sales is $156.1 million.15 Of the eleven municipalities in Marin, Novato is second in terms of population, ninth in terms of median income and sixth in terms of taxable sales per capita. It shows the sixth largest sales tax leakage per capita but the largest sales tax leakage overall ($156.1 million). Like the leakage by store category figures shown in Table 2, net leakage for retail and non-retail uses signifies a considerable loss of taxable sales.

Table 3 - Total (Retail and Non-Retail) Taxable Sales Leakage by Location, 2011 Total Per Capita Median Per Capita Taxable Population Taxable City/Town Income Taxable Sales (2011) Sales (2012) Sales Leakage (in Leakage* thousands) Belvedere 2,069 $172,533 $3,960 $12,045 $24,921 Corte Madera 9,258 $96,745 $53,299 ($37,294) ($345,268) Fairfax 7,445 $69,346 $5,655 $10,349 $77,051 Larkspur 11,932 $84,350 $14,915 $1,090 $13,003 Mill Valley 13,967 $112,746 $15,459 $546 $7,629 Novato 51,970 $73,764 $13,001 $3,004 $156,134 Ross 2,419 $105,707 $1,148 $14,857 $35,940 San Anselmo 12,342 $79,814 $7,536 $8,468 $104,517 San Rafael 57,775 $72,033 $24,781 ($8,776) ($507,046) Sausalito 7,067 $107,408 $19,767 ($3,762) ($26,588) Tiburon 8,969 $121,283 $3,991 $12,014 $107,750 *Based on a comparison of each City’s per capita sales and the average per capita sales for Marin County of $16,005. Figures in parenthesis represent sales above what is anticipated based on the county average. Sources: California Board of Equalization’s Taxable Sales in California During 2011; California Department of Finance’s Population Estimate for Cities, Counties and the State (released May 2012); ESRI Business Information Solutions; Marketek, Inc.

15 Note that the sales tax leakage figure for Novato in Table 3 ($156.1 million) is below that of the leakage shown in Table 2 ($169.4 million). This difference is because Table 3 provides net leakage figures which include Novato’s sales tax surpluses in general merchandise stores and gasoline stations. Specifically, gross leakage of $169.4 million (from Table 2) minus general merchandise surplus of $94.8 million and gasoline station surplus of $17.7 million plus non-retail sales tax leakage of $99.3 million equals $156.1 million. This alternate methodology was necessary to compare Novato to other Marin County cities because sales tax by store category was not available for all cities throughout the county.

City of Novato 2013 Retail Market Analysis 25 Page 33 Greater Retail Market Area

To estimate existing and future retail demand potential in Novato, Marketek delineated a custom-drawn retail trade area from which the majority of the City’s shoppers are likely to emanate (see Figure 5). This Greater Retail Market Area is based on interviews with existing businesses, natural and man-made boundaries, drive times, Novato’s competitive assets, its location within the region, and the location of the competitive supply of retail centers.

Demographic Snapshot

As of 2012, the Greater Retail Market Area was home to an estimated 271,000 residents and 107,300 households (Table 4). Since 2000, population growth in the market area has been slow, at an average annual rate of 0.3 percent (compared to 0.9 percent for the state). Household size averages 2.4 persons, lower than the state average of 2.9. Greater Retail Market Area residents tend to be older than residents statewide, with median ages of 43 years and 35 years, respectively.16

Figure 5- Novato Greater Retail Market Area

16 Appendix J: Additional demographic data for the Greater Retail Market Area and comparison geographies.

26 City of Novato 2013 Retail Market Analysis Page 34 Table 4 - Demographic Snapshot of the Novato Greater Retail Market Area, 2012

City of Greater Retail State of Demographic Indicator Novato Market Area California 2012 Population 52,297 271,013 37,707,477 Avg. Annual Pop. Growth Rate (’00-’12) 0.8% 0.3% 0.9% 2012 Households 20,436 107,327 12,743,499 Average Household Size 2.5 persons 2.4 persons 2.9 persons Median Age 43 years 43 years 35 years Median Income $73,764 $80,700 $57,385 Racial Composition White Alone 76% 78% 57% African American Alone 3% 3% 6% Asian/Pacific Islander Alone 7% 6% 14% Other Race Alone/2+ Races 14% 13% 23% Ethnic Composition Not Hispanic or Latino 78% 81% 62% Hispanic or Latino 22% 19% 38%

Sources: ESRI Business Information Solutions; Marketek, Inc.

Novato is home to an estimated 3,100 businesses with 26,300 employees, who form an important daytime market for retail, restaurant and service businesses. Research conducted by the Building Owners and Managers Association of American estimates that office workers (as one segment of the workforce) spend between 10 and 15 percent of their expendable income in and near their places of work. Top spending categories include restaurants, entertainment, cards and gifts, personal care items, and books and magazines. Please see Appendix K for a breakdown of employment by industry.

This analysis does not calculate potential retail demand generated by employee spending because the number of persons working in Novato (26,300) is approximately equal to the number of employed Novato residents (25,622 according to the American Community Survey). Thus, spending by employees commuting into Novato is roughly offset by local residents’ spending at their places of employment outside of Novato. Additionally, it is likely that a large share of persons working in Novato live within the Greater Retail Market Area even if they live outside of the City limits.

City of Novato 2013 Retail Market Analysis 27 Page 35 Existing Demand Potential

Existing sales leakage for the Greater Retail Market Area is estimated in Table 5. This methodology uses data prepared by ESRI Business Information Solutions to weigh estimated retail sales against estimated retail demand. Retail ‘supply’ is based on estimates of actual retail sales using the Census of Retail Trade and a variety of other business and government databases. Retail ‘demand’ represents the expected amount spent by market area households for various retail goods and services, based on consumer expenditure patterns derived from the U.S. Consumer Expenditure Survey.

When estimated retail demand exceeds supply, a leakage presumably occurs, causing consumers to look outside the market area for retail goods and services. A surplus, conversely, suggests that supply exceeds demand and that certain business categories are importing sales from shoppers who live outside the market area. It is important to note that the demand data only reflects potential spending by residents, and does not include spending by visitors and employees working but not living in the market area.

In the Novato Greater Retail Market Area, an apparent sales leakage is occurring in every retail category, for a total of $850.5 million in lost sales. The gap between estimated supply and demand is most pronounced for restaurants ($225.7 million) and general merchandise ($179.4 million).

Converting this sales leakage to square feet of store space based on sales per square foot standards shows potential support for 2.3 million square feet of additional store space in the Greater Retail Market Area. The largest share of potential space is in the general merchandise category at 600,000 square feet. Some of this demand will likely be absorbed by the Target stores set to open in Petaluma and San Rafael.

Greater Retail Market Area leakage in convenience-related goods (i.e., food & beverage stores and health & personal care stores) does not necessarily indicate support for additional store space in Novato. Consumers tend to shop for these items close to home and are unlikely to drive as far for convenience items as they would for destination shopping (apparel, home goods, specialty stores, etc.). Thus, demand for additional grocery store and pharmacy space is likely to be more evenly distributed throughout the Greater Retail Market Area than demand for stores in other retail categories.

In reality, the consumer marketplace is quite fluid. Even if goods are available locally, priced appropriately and of good quality, shoppers will always do a certain amount of shopping outside of the Greater Retail Market Area, including via the Internet. However, the leakage/surplus analysis provides a reasonable indication of the availability of goods in the local market.

28 City of Novato 2013 Retail Market Analysis Page 36 Table 5 - Existing Retail Balance in the Novato Greater Retail Market Area, 2010

Potential Demand/ Supportable Supply/ Leakage/ Spending Target Sales Space (SF) in Store Type Retail Sales Surplus Potential ($/SF) the Greater (in thousands) (in thousands) (in thousands) Retail Market Area Clothing & Clothing Accessory Stores $236,744 $168,482 $68,262 $370 184,493 General Merchandise Stores $321,960 $142,590 $179,370 $300 597,899 Food & Beverage Stores $978,083 $880,949 $97,134 $390 249,061 Food Services & Drinking Places $686,402 $460,694 $225,708 $460 490,669 Furniture & Home Furnishings Stores $160,263 $135,560 $24,703 $340 72,657 Electronics & Appliance Stores $153,035 $108,710 $44,326 $340 130,370 Building Materials & Garden Equip. Stores $202,415 $123,610 $78,806 $350 225,160 Health & Personal Care Stores $192,502 $127,267 $65,236 $365 178,728 Sporting Goods, Hobby, Books & Music Stores $74,043 $56,130 $17,913 $216 82,929 Miscellaneous Stores* $104,506 $88,519 $15,988 $216 74,016 Non-store Retailers** $111,323 $78,225 $33,098 None None TOTAL $3,221,278 $2,370,735 $850,543 2,285,982

*Includes florists; office supplies & stationery stores; gifts, novelty and souvenir stores; used merchandise; and other miscellaneous store retailers. **Includes electronic and mail-order retailers, kiosks and street vendors, vending machine operators, sales through infomercials, door-to-door sales and home delivery. According to the U.S. Census Bureau’s e-commerce multi-sector E-Stats report, online sales made up 40 percent of non-store retail sales as of 2010, the latest year for which data is available. Sources: ESRI Business Information Solutions; City of Novato 2009 Existing Conditions Report; Urban Land Institute; Marketek, Inc.

City of Novato 2013 Retail Market Analysis 29 Page 37 Future Demand Potential

The second source of demand generated by Greater Retail Market Area residents is future demand, or demand based on local spending patterns and the projected increase in households over the next five years. Marketek estimates that within the Greater Retail Market Area there is potential demand for an additional 300,000 square feet of store space over the next five years. For detailed future retail demand calculations, please refer to Appendix L.

Marin County Visitors

A third source of potential retail demand includes visitors to Marin County and the Novato area. According to Dean Runyan Associates, from 2000 to 2010, visitor spending in Marin County grew from $547 million to $641 million, or by 17 percent. In constant dollars, visitor spending in the county increased by an average of 2 percent per year since 1992. Using this rate to project visitor spending forward translates to an increase of $75 million in visitor spending in Marin over the next five years.

Based on Marin County visitor spending patterns, retail sales growth of $75 million has the potential to support 208,000 square feet of new store space throughout Marin County. A key indicator of the impact of Novato’s visitor market is overnight visitors as measured by Novato’s share of hotel rooms in the county. Currently Novato’s visitor market, as measured by number of hotel rooms, constitutes 22 percent of Marin County’s total. Were Novato to capture 22 percent of potential visitor demand countywide, it would equate to 46,000 square feet of new retail space supported by visitor spending. Please refer to Appendix L for historical visitor spending, visitor spending by merchandise category and calculation of potential demand. Future expansion of hotel market, new visitor attractions and destinations and new retail/ entertainment venues would also increase potential visitor spending in the City of Novato.

Summary

Table 6 summarizes potential supportable new retail space in the Novato area based on existing and future demand from residents and visitors. Potential demand is divided among five merchandise categories: shoppers’ goods, convenience goods, restaurants, entertainment and personal services. Please refer to Appendix L for the examples of the types of goods and services within these categories.

Existing demand has the potential to support 2.3 million square feet of new retail space in the Greater Retail Market Area; future demand (based on Greater Retail Market Area resident spending and Marin County visitor spending) has the potential to support 0.5 million square

30 City of Novato 2013 Retail Market Analysis Page 38 feet of new retail space over five years. Taken together, there is potential demand for 2.8 million square feet new retail space in the Novato Greater Retail Market Area through 2018.

The share of space that Novato can ultimately capture will depend on numerous factors, including retail outreach efforts, the availability of quality retail-ready space, the performance of competitive shopping areas and the success of efforts to develop a variety of retail, service, entertainment, residential and civic uses. A capture of one-third of resident and visitor spending, for example, would translate to potential for 930,000 square feet of new retail space in Novato over the next five years.

Novato’s success at transforming demand potential to new retail space will depend on providing quality retail space and on marketing and business development efforts. A passive or segmented approach would likely result in the City falling short of its estimated potential.

Table 6 - Summary of Potential New Retail Space in Novato Greater Retail Market Area (2013- 2018)

Future Demand Based on Total Potential Existing Unmet Greater Retail Supportable Merchandise/Service Greater Retail Market Area Retail Space Category Market Area Residents and from 2013 to Demand (SF)* Marin County 2018 (SF) Visitors (SF)* Shoppers’ Goods 1,367,524 158,460 1,525,984 Apparel 184,493 37,871 222,364 Home Furnishings 72,657 24,446 97,103 Home Improvement 290,345 19,875 310,220 Specialty Retail 222,130 76,268 298,399 General Retail 597,899 N/A 597,899 Convenience Goods 427,780 97,046 524,835 Grocery 249,061 83,956 333,018 Health & Personal Care 178,728 13,090 191,817 Restaurants 490,669 85,085 575,754 Entertainment N/A 134,769 134,769 Personal Services N/A 30,728 30,728 Total 2,285,982 506,088 2,792,070 Note: Potential unmet demand for electronics and appliances is split between home improvement and specialty retail merchandise categories. Potential unmet demand for sporting goods, books, music, hobbies and miscellaneous retail is included in the specialty retail merchandise category. Potential visitor demand for shoppers’ goods is allocated one-third to apparel and two-thirds to specialty retail. *Sales leakage data is not available for entertainment and personal service space. Future demand for shoppers’ goods is distributed by merchandise type; some share of this demand will likely be absorbed by general retail/department stores.

City of Novato 2013 Retail Market Analysis 31 Page 39 Sources: Marketek, Inc.; ESRI Business Information Solutions; Urban Land Institute; City of Novato 2009 Existing Conditions Report; Dean Runyan Associates

32 City of Novato 2013 Retail Market Analysis Page 40 E. Retail Supply Analysis

This section provides a summary of the existing retail market in Novato and the region. It begins with an overview of recent industry trends.

Retail Industry Trends The national commercial real estate market is recovering slowly after experiencing declines in consumer spending and tightening lending markets. After being down by $45 billion, retail sales have almost returned to pre-recession levels and are anticipated to grow over this year and next. Nationwide occupancy rates are recovering, are now estimated at 7 percent. Positive absorption has continued, although retail market expansion is projected to continue at a slow pace as consumers remain cautious and spending makes incremental increases, according to the National Retail Federation.

ChainLinks Retail Advisors report that of the nation’s top ten strongest retail markets based on vacancy rate, four are coastal California cities (San Francisco, San Diego, San Jose and Los Angeles). Additional retail industry trends are highlighted below.17

Long-Term Trends . Return of home values and the housing market in the next two years is expected to boost consumer confidence and spending, bolstering expansion of mid-priced retail stores.

. Shoppers will remain value-conscious, stemming in part from a sense of frugality developed during the recent recession and in part from competition by online retailers.

. Growth in e-commerce will reshape the typical tenant mix. Dining and entertainment uses will become increasingly important commercial district anchors.

. The most resilient retail districts will be in more mature markets (i.e., cities versus new suburbs).

17 Sources: ChainLinks Retail Advisors; U.S. Census Bureau; Forrester Research; NAI Norris, Beggs & Simpson; International Council of Shopping Centers; Forbes

City of Novato 2013 Retail Market Analysis 33 Page 41 . Open air lifestyle centers are replacing malls by attempting to create a sense of community with a focus on food, entertainment and civic uses in addition to traditional retail. Centers seek to be more like downtowns by creating usable public spaces and fostering a mix of uses in compact, pedestrian-friendly environments. As these centers proliferate they are adapting their tenant mix to stay fresh and unique.

Short-Term Trends . With the exception of malls, vacancy is projected to fall nationally for all types of retail centers (specialty, lifestyle, power, neighborhood, community and strip centers).

. Urban markets are expected to dominate retail expansion in the short term, with suburban projects being more dependent on new housing production. Retailers are looking for expansion opportunities that are “sure bets” e.g. Class A or B space in urban locations with significant population density and higher incomes.

. The retail market is split, with discount and luxury stores doing well but mid-priced retailers hampered by slow economic growth of the middle class.

Retail Concepts in Expansion Mode . Grocery stores, including new concepts and niche grocers (discount, luxury, organic, ethnic)

. Restaurants, especially fast-casual and fast food; restaurants are projected to make up 40 percent of new tenants in 2013

. Health and fitness retailers and service providers . Discount stores (dollar stores, thrift stores, off-price apparel) . Pet supplies, sporting goods, hobbies and craft supplies . Home improvement stores are not expanding presently but are expected to grow with the return of housing development

Retail Concepts in Contraction Mode . Video stores, video game stores, bookstores . Office supplies . Pack and ship stores . Some older casual dining concepts

34 City of Novato 2013 Retail Market Analysis Page 42 E-Commerce Trends . Online sales have shown continual growth both in dollar amount and in share of total retail sales. In 2012, e-commerce totaled $225 billion and made up 5.2 percent of all sales. This total is up 16 percent from 2011 online sales of $194 billion, which was also up 16 percent from 2010’s total of $167 billion.

. As of 2010 (the latest year for which online sales data by sector is currently available), the majority (80 percent) of online sales were by non-store retailers (specifically, electronic shopping and/or mail-order houses). Online sales made up 40 percent of sales of non-store retailers.

. The second largest share of online sales were for motor vehicles or motor vehicle parts (12 percent). The final 8 percent of online sales were distributed amongst remaining retail categories.

. E-commerce is anticipated to continue to show high year-over-year growth, increasing from a projected $262 billion in 2013 to $370 billion in 2017.

Novato Retail Supply As of March 2013, Novato’s retail inventory totaled 2.2 million square feet of space in 196 buildings, according to a Sperry Van Ness report. An estimated 103,000 square feet is vacant for a citywide retail vacancy rate of 4.6 percent. This figure is down slightly from three years ago, when the vacancy rate was estimated at 6 percent. The City has seen little new commercial construction over the last three years, adding Circle/Umpqua Bank (20,000 square feet) and Peet’s Coffee (8,015 square feet), both in 2012. Of space leased since 2010, the average annual triple net rental rates have hovered in the $21 to $22 per square foot range.

Local Shopping Centers Table 7 summarizes key characteristics of local/neighborhood Novato retail centers with over 20,000 square feet of store space. These centers total 850,000 square feet and have an average vacancy rate of 8.8 percent. Vacancies, however, are concentrated in three centers:

. The Square Shopping Center: 32,600 square feet . Pacheco Plaza: 16,000 square feet . San Marin Plaza: 7,200 square feet Of the 14 centers surveyed, 12 were built prior to 1990. The two newer centers are the Village at Novato, which opened in 2006 and is anchored by Trader Joe’s, and Hamilton Marketplace, which opened in 2008 and is anchored by Safeway. Other grocery stores include a second Safeway, Lucky Supermarket, Paradise Foods, Whole Foods and Grocery Outlet.

City of Novato 2013 Retail Market Analysis 35 Page 43 Regional Shopping Centers Novato is home to one regional shopping center—Vintage Oaks, a 620,000 square foot center just north of the Redwood Highway and Highway 37 intersection (Table 7). The tenant mix includes a Costco, Target, Macy’s Furniture, Ross, and nearly 50 other retailers and restaurants offering a mix of apparel, home goods, services, specialty shops and casual dining. Vacancy is very low at 0.5 percent (2,900 square feet of available space).

The largest regional center in the Novato competitive area is Northgate Mall in San Rafael. The over 700,000 square feet of store and restaurant space includes a Macy’s, Sears, Kohl’s and a movie theater. Stores with the highest price points are in the Village at Corte Madera, about 15 minutes south of Novato. The open-air center is anchored by Nordstrom and Macy’s and includes more than 50 mid- to higher-priced retailers and restaurants.

North of Novato, Petaluma offers two regional centers with about 200,000 square feet of store space each. Washington Square is anchored by Safeway, and the Village Premium Outlets includes 45 outlet stores.

Anticipated Additions to the Retail Supply A summary of planned and proposed retail development in the Novato competitive area is provided below. Anticipated new development totals nearly 900,000 square feet of commercial space (retail and office) over the next few years.

East Washington Place, Petaluma

. Total of 335,155 square feet, including a 135,000 square foot Target . Tenants will include Target, Dick’s Sporting Goods, TJ Maxx/HomeGoods, Sprouts Farmers Market, Ulta Beauty, BevMo, Chipotle and Five Guys Burgers & Fries

. Target scheduled to open in July 2013 . Located at East Washington Street and Highway 101 Target at Shoreline Center, San Rafael

. Approximately 137,000 square foot . Scheduled to open in October 2013 . Located at the Shoreline Center in East San Rafael Anecdotally, Terranomics Retail Services estimates that the opening of two new Target Stores in the trade area is expected to impact sales at the Target in Novato by 20 to 25 percent over the first three years. Sales at Novato’s Target are likely to come back to show as little as a 10 percent hit after three years. The comeback may not be that strong however in which case, sales increases in Novato would be more heavily dependent on population growth there.

36 City of Novato 2013 Retail Market Analysis Page 44 While Costco’s proximity may continue to draw some shoppers from the San Rafael area, older and higher-income households in South Marin County are not deemed a big market for Costco.

Deer Creek Village, Petaluma

. Total of 315,000 square feet of retail and office space developed by Merlone Geier Partners

. Mixed-use center with shopping, office, recreation and outdoor dining; one retailer will include Friedman’s Home Improvement

. To be delivered in phases with construction beginning in 2013 . Located at southwest corner of the intersection of Rainier Avenue and McDowell Boulevard adjacent to Highway 101 Riverfront, Petaluma

. Proposed mixed-use development by Basin Street Properties . Proposed mix includes 273 residential units, 90,000 square feet of commercial space, a hotel and a central green with sports fields

. Retail mix is expected to be local/service-related . Project is expected to appear before the planning commission in summer or fall 2013 . Located on highway 101 between Hopper Street and Petaluma River Loch Lomond Marina, San Rafael

. Property recently sold to Woodbridge Capital Partners . Approved development includes 81 residential units, 22,250 square feet of commercial space, a grocery store and a park

. City approvals for new development are good through August 2014 . Located off Point San Pedro Road

City of Novato 2013 Retail Market Analysis 37 Page 45 Table 7 - Local Novato Shopping Centers, March 2013 Annual Total Available Vacancy Lease Year Name and Address Selected Tenants SF SF Rate Rate Built ($/SF) Novato Fair Shopping Center Safeway, Rite Aid, Dollar Tree, Pet Food 133,862 5,850 4.4% $30.00 1962 900-920 Diablo Ave. Express, Anytime Fitness, Radio Shack Nave Shopping Center Grocery Outlet, Post Office, Bike Shop, 121,692 1,200 1.0% $16.08 1974 1531-1545 South Novato Blvd. Acupuncture Clinic, California Grill, Cleaners Downtown Novato Shopping Center Lucky Supermarket, CVS, Crabtree & Evelyn, 105,781 5,000 4.7% $21.00 1966 1707-1767 Grant Ave. Noah’s Bagels, U.S. Bank, Creekside Bakery Hamilton Marketplace Safeway, Pet Food Express, Toast Café, Wells 89,525 3,087 3.4% N/A 2008 5720 Nave Dr. Fargo, Beauty Island Salon, Pasta Moto The Square Shopping Center CVS, Oasis Natural Foods, Planet Beach Tanning 78,272 32,583 41.6% $15.00 1974 2045 Novato Blvd. Salon, JJ’s Pizza Pacheco Plaza Paradise Foods, Woodlands Pet Food, Boca 71,670 16,041 22.4% N/A 1967 366 Ignacio Blvd. Pizzeria, Video Place, Taki’s Restaurant San Marin Plaza Apple Market, Tuesday Morning, Urban Escape 70,257 7,198 10.2% $15.60 1984 101-199 San Marin Dr. Fitness, Mary’s Pizza Shack Rowland Plaza, 44 Rowland Way 35,377 0 0.0% N/A 1989 CineMark Century Theatres Ignacio Center Dollar Tree, Hardware Store, Bike Hut, Red Boy 32,839 1,970 6.0% $21.84 1968 455 Entrada Dr. Pizza, Techs to Go, Valley Floral 6100 Redwood Back in Motion Spinal Decompression, Good & 24,837 0 0.0% N/A 1978 6090-6100 Redwood Blvd. Fresh Buffet, Picket Fence Quilts Tresch-Triangle Shopping Center Discount Vitamins, Genesis Dollar Store, Marin 21,506 0 0.0% N/A 1963 1559 S Novato Blvd. Treks, Beauty Center Salon 7049 Redwood Marin Tile Supply, North Bay Artworks, Pacific 21,296 0 0.0% N/A 1988 7049 Redwood Blvd. Mortgage Del Prado Square Farmers Insurance, Postal Annex+, Round Table 20,433 0 0.0% N/A 1981 500-530 Alameda Del Prado Pizza The Village at Novato Trader Joe’s, Pharmacia, Starbucks, Mr. Ribs, 20,043 1,892 9.4% N/A 2006 7514 Redwood Blvd. Two parcels available for future development

38 City of Novato 2013 Retail Market Analysis Page 46

Figure 6 - Map of Local Novato Shopping Centers, March 2013

City of Novato 2013 Retail Market Analysis 39 Page 47 Table 8 - Regional Shopping Centers in the Novato Area, March 2013

Total Name and Address Selected Tenants SF

Target, Costco, Macy’s Furniture, Marshalls, Vintage Oaks at Novato 620,379 Ross, DSW, Sports Authority, Old Navy, Party 100-200 Vintage Way, Novato City, Petco Macy’s, Sears, Kohl’s, Century Theatres, Forever Northgate 712,771 21, H&M, Victoria’s Secret, Gap, Express, Tilly’s, 5800 Northgate Dr., San Rafael Children’s Place Macy’s, Nordstrom, Apple, Anthropologie, Village at Corte Madera 430,835 Pottery Barn, Janie & Jack, True Religion, Kiehl’s, 1618 Redwood Hwy., Corte Madera North Face Town Center Corte Madera Safeway, The Container Store, Barnes & Noble, 100 Corte Madera Town Center, 371,191 Crate & Barrel, REI, Z Gallerie, Rite Aid, S.A. Corte Madera Elite, PF Changs Safeway, Staples, Pet Food Express, Curves, Washington Square 200,000 Hallmark, GameStop, See’s Candies, ATA Martial 301 S McDowell Blvd., Petaluma Arts Academy Saks Fifth Avenue Off 5th, Ann Taylor, Jones Petaluma Village Premium Outlets 195,968 New York, Banana Republic, Gap Outlet, Tommy 2200 N Petaluma Blvd., Petaluma Hilfiger, Nike Sources: ESRI Business Information Solutions; Marketek, Inc.

Figure 7 - Map of Regional Shopping Centers in the Novato Area, March 2013

40 City of Novato 2013 Retail Market Analysis Page 48 F. Survey Highlights

To incorporate the wants and needs of the community’s residents and businesses, the consulting team designed an online survey; the City of Novato and its partners effectively promoted the survey. The Novato community completed two electronic surveys, one focused on shoppers and one on businesses, during the months of February and March 2013. One thousand and twenty-three (1,023) residents responded to the Shopper Survey, and 51 business owners answered the Business Survey. Findings are summarized below.

Shopper Survey Summary

A majority of respondents perform most of their non-grocery shopping in Novato (67 percent). Almost one-third (31.2 percent) of those who shop in Novato shop two to three times a month.

Shopping and Service Needs in Novato

. The type of apparel stores respondents wish to see in Novato are women’s casual (68.3 percent), shoes (55.3 percent), and men’s casual (39.8 percent). Specific Apparel stores respondents would like to see in Novato are Gap (16 percent), Macy’s (15 percent), and Banana Republic (11 percent).

. The types of household stores that respondents would like to see in Novato are home décor/art (55.8 percent), furniture (52.3 percent), and garden supplies (43.6 percent). Specific household stores respondents would like to see in Novato are Crate and Barrel (19 percent), Pottery Barn (15 percent), and IKEA (10 percent).

. The types of convenience merchandise stores respondents wish to see in Novato are a bakery (50.7 percent), a hardware store (47 percent), and building supplies (41.3 percent). specific convenience merchandise stores respondents would like to see in Novato are Lowe’s (23 percent) and Home Depot (20 percent).

. The specific types of specialty merchandise stores respondents wish to see in Novato are a book store (60.3 percent), an arts and supplies store (48.1 percent), kitchen and tabletop goods (41.3 percent), and a fabric/yarn/sewing supplier (39 percent). Specific specialty merchandise stores respondents would like to see in Novato are Michael’s (19 percent) and Barnes and Noble (15 percent).

. The specific types of leisure and entertainment services respondents wish to see in Novato are more restaurants (63.7 percent), concerts and live music (60.4 percent), a movie theater (46.7 percent), and an outlet for live theater (40.5 percent).

City of Novato 2013 Retail Market Analysis 41 Page 49 . General services that respondents wish to see in Novato are a day spa (38.3 percent), a salon or barbershop (25.2 percent), tailoring/alteration services (24.3 percent), and dry cleaning or laundry services.

. Types of restaurants and eating places respondents wish to see in Novato are seafood (46.9 percent), healthy or natural restaurants (46.2 percent), family dining (41.4 percent), fine dining (41 percent), and a deli (38.4 percent). Specific restaurants and eating places respondents would like to see in Novato are Sol Food (11 percent), Red Lobster (7 percent), and Outback (6 percent).

. The types of health services respondents wish to see in Novato are dental providers (38.7 percent), general health care providers (35.5 percent), homeopathic or naturopathic providers (34.5 percent), and vision care providers (33.7 percent). Specific providers respondents would like to see in Novato are Kaiser Permanente (12 percent) and Lens Crafters (10 percent).

Shopping / Personal Business Preferences

. The majority of respondents cite the convenient location as the major advantage to shopping in Novato (82.6 percent), followed by the need to support local businesses (78.1 percent).

. Most respondents cite a poor selection of goods/services (57.1 percent) and limited hours (43.3 percent) as the principal disadvantages of shopping in Novato. Respondents also cite lack of parking (40.5 percent) and high prices (32.7 percent) as a deterrent to patronizing Novato businesses.

. The majority of respondents report that the best time for them to shop is Weekdays from 8:00am to 5:00pm (52.8 percent), followed by Saturday afternoon (48.8 percent).

General Information

. Approximately one-third (33.2 percent) of respondents are age 45 to 54, followed closely by ages 55 to 64 (21.7 percent) and ages 35 to 44 (21 percent). Most respondents were female (73.6 percent, and live in the 94947 zip code (40.8 percent).

42 City of Novato 2013 Retail Market Analysis Page 50 Business Owner Survey Summary

. Of the 51 business owner survey respondents, thirteen are in the Professional Services field, seven are in Construction, five are in Retail, five are in the Personal Services field, four are in Finance/Insurance/Real Estate and one each are in Public Administration, the Restaurant field, and in Transportation/Utilities. Thirty-one respondents have been in businesses for ten years or more.

. Advantages to doing business in Novato include the supportive small community, location, the physical beauty, and the small town feeling. The main disadvantage to doing business in Novato is the lack of parking.

. When asked to characterize recent business activity, six businesses report declining business. Twenty-four report that their business is moderately growing, seventeen say that they are holding their own, and the remaining three reported that their business is rapidly expanding.

. When asked what their plans to expand or reduce their operation are in the next two years, over half said they had no plans to change, eleven had plans to expand, three planned to relocate, and one planned to reduce.

. The types of investments or improvements that business owners report are New/expanded marketing/promotion activities (52.1 percent), New/additional employees (43.8 percent), Systems improvements (37.5 percent), New/expanded products, services, inventory (33.3 percent), and physical improvements (29.2 percent).

. Top obstacles facing businesses are the current economic conditions, competition, general operating costs, City/County/State regulations, and cash flow/working capital. The large majority are most interested in marketing/advertising. Lean business practices, business planning and cash flow, and using the internet for e-commerce are also important.

Business’ Thoughts about Novato

The identity or image businesses would like to see Novato develop includes the following themes: creating a welcoming and healthy downtown, making the area a destination for shoppers and businesses and making the downtown a unique place to shop.

When asked what businesses could do to attract more shoppers, examples of responses were: build more parking or parking structures, modernize or update the building, expand hours and days open, hold special events, and advertise more.

City of Novato 2013 Retail Market Analysis 43 Page 51 Some things that businesses say they would like to keep the same in Novato are the physical beauty, open spaces, small town atmosphere, and community support. Things that they would change are the lack of parking, limited activities in downtown and limited business diversity.

44 City of Novato 2013 Retail Market Analysis Page 52 G. Acknowledgement

The Chabin Team would like to thank the following individuals for their participation and contribution to the City of Novato’s Retail Market Analysis.

Ali O’Moomy, Journey Ford Bruce Giddings, Builders Supply Carolyn Glendening, Novato Health Foods Coalition Chip Young, Pini Hardware Coy Smith, Novato Chamber of Commerce, Novato Economic Development Commission Darren Pomponio, Downtown Novato Business Association David Winton, Law Offices of David Winton, Novato Economic Development Commission Harry Thomas, Novato Economic Development Commission Henry Hightower, Finnegan’s Marin John Shaefer, Terranomics John Williams, Sperry Van Ness/Delta Realty, Novato Economic Development Commission Kathy DeOchoa, Vintage Oaks Martha Harmon, Whole Foods Mary Strebig, Sutter Health/Novato Community Hospital Nathan Ballard, Keegan and Coppin Peggy Flynn, Novato Economic Development Commission Peter Pelham, Bank of Marin, Novato Economic Development Commission Randy Lakritz, Toyota Marin Rob Eyler, Sonoma State University Roger Goodwin, Old Town Sports Steven Leonard, Cassidy Turley Tim Howard, Courtyard Marriott, Novato Economic Development Commission City of Novato Staff and Elected Officials And the over 1,000 local residents and businesses who participated in the online survey to share their shopping habits, preferences, and suggestions.

City of Novato 2013 Retail Market Analysis 45 Page 53

Page 54 H. Document Review

Bay Area Regional Economic Assessment (Bay Area Economic Institute, Oct 2012) Budgetary Impact of New Retail Projects; Deer Creek Village and East Washington Place, Petaluma (Lon Hatamiya, Navigant Consulting, Feb 2010) City of Novato Economic Report (MEF, June 2011) Downtown Novato Specific Plan (1998) Draft presentation for Measure F; ED & Fiscal Sustainability (City of Novato, Feb 2013) Economic Development Priorities presentation to City Council (City of Novato, Feb 2013) Existing Conditions Report (Bay Area Economics and Stellar Environmental Solutions, March 2009) General Plan Steering Committee Staff Report on the Downtown Specific Plan and Vision 2028 Plan (Sep 2009) News article, Target to Open New Store in Petaluma (Target news release Feb 2012) Novato Chamber of Commerce Tourism Committee Report to the City of Novato (2011) Novato District Add-On Sales Tax Review Confidential Report (MuniServices 3Q2012) Novato General Plan Update presentation of survey results (EMC Research) Novato Sales Tax Receipts Confidential Report (MuniServices, Sept 2012) Petaluma Leakage and Sustainable Retail Strategy (Thomas Consultants, June 2004) Redwood Boulevard Planning Study; Issues and Options Report (2009) Retail Sales Analysis (Ultra Research, 2008) Workforce Trends, The US, CA, Marin (Racy Ming, WIB Director, Sept 2012)

46 City of Novato 2013 Retail Market Analysis Page 55

Page 56 I. The Consultants Chabin Concepts, Inc. 2515 Ceanothus Avenue, Suite 100 | Chico, CA 95973 800.676.8455 | www.chabinconcepts.com

Chabin Concepts is an economic development consulting firm with over 23 years of experience developing business and community strategies, marketing plans, and target industry identification. Chabin has conducted over 350 community assignments ranging from economic development strategies, enterprise zone and other incentive applications, grant applications, feasibility analysis, marketing campaigns and implementation staff for economic development programs. Chabin’s goal is to position cities, counties and states to win new jobs and investment by delivering strategic solutions, tactics, and tools to accomplish the mission. Audrey Taylor, President & CEO, Chabin Concepts — Over the past 24 years, Audrey has led Chabin Concepts to be one of the leading full service economic development consulting firms in the nation. Success has been built on her philosophy of collaboration and bringing each client the best expertise and experience available by organizing Teams. Victoria Doll, Principal, Chabin Concepts — Vicki specializes in research, surveys and interviews, assessments, CEDS, Enterprise Zones and economic development strategies. Vicki leads Chabin’s community and industry research, project management and coordination as well as technology tools for the economic development office.

Marketek, Inc. 9220 SW Barbur Blvd, Suite 119-220 | Portland, OR 97219 503.636.1659 | www.marketekinc.com Marketek celebrates 29 years of providing market research, city planning and economic development services to clients nationwide. Since 1985 Marketek has assisted over 350 communities revitalize local neighborhoods and commercial districts. In 2011-2012 the firm completed more than 50 projects in seven states with services ranging from retail marketing assistance to affordable housing studies. Mary Bosch, Principal, Marketek — Mary is a market analyst and economic developer experienced with every facet of the business development process  from the perspective of the entrepreneur to the developer and the marketing professional. Through her work on economic revitalization assignments throughout the nation, Mary has acquired a strong understanding of what it takes to rebuild a community's retail and economic base.

City of Novato 2013 Retail Market Analysis 47 Page 57

Page 58 J. Appendices

A. Value Proposition and Key Message Architecture B. Building a Business Case and Case Study how-to C. Sample commercial and industrial property profiles D. MetroComp product information E. RPAS product information F. Summary of findings from the business and shopper surveys G. Brush, CO new businesses, non-compete incentive program H. First Research industry reports with relevant associations and websites to monitor I. Team California’s 2013 Tradeshow Schedule J. Novato’s Demographic Profile K. Retail Market Potential Demand L. Visitor Market Potential Demand M. Target Retailer Profiles N. Novato Retail Marketing Fact Sheet O. Guiding Principles for Main Street Commercial Development

48 City of Novato 2013 Retail Market Analysis Page 59 Page 60 Appendix

A. Value Proposition and Key Message Architecture

City of Novato 2013 Retail Market Analysis Page 61 What can you say that will address one of your audience’s key problems, needs or fears?

What can you say that is trendy, What can you say that will newsmaking or that fits a address one of your audience’s message that matters to them? key desires, dreams or hopes?

What can you say that sounds What can you say that sets you apart; especially authentic coming from that will make your audience say, you, based on how they see you, “Nobody else can say that”? your reputation, your ethos? Page 62 Key Message Architecture

Vision A 21st Century City That’s Inspiring the Future

Positioning Statement ABC is the global model of a city fueled by Innovation, Creativity and Opportunity

Value Where the world’s Innovation is the way in Investing in the Future of Gateway to the Propositions talent meets City of ABC ABC Region Recreational Market

ABC is an international city ABC has an unmatched ABC invests in dynamic work ABC is a gateway for business Key and a crossroads for ideas, entrepreneurial energy that environments, a vibrant city center, and visitors from around the Messages talent, culture and business that inspires innovation and family-friendly neighborhoods world looking for recreational continues to change the world adventures

Ready access to Regional events Powering ABC’s innovation economy is ABC is ranked the most competitive In the past decade ABC has invested and attractions including… one of the most highly educated and Proof knowledge economy by the World more than $600 million in capital productive populations in America. Points Competitive Knowledge Index. improvements, neighborhood parks, Construction of HIGHWAYS, More than 40 percent of the libraries, community centers, and fire AIRPORTS, INTERCHANGES, ETC. is workforce has a bachelor’s degree or ABC is the most diversified innovation- stations. underway and will be completed in higher, compared with 25 percent based economic community spanning 2014; providing a gateway to nationally. seven core technology sectors. More than 10 housing projects are outstanding recreational currently planned or under construction opportunities. 38 percent of ABC’s population are 1,500 of the 2,500 largest technology in ABC. foreign-born, representing a diversity firms in the world are located within 30 On average, ABC welcomes over 6 far broader than any other major US miles of ABC. ABC is transforming XYZ neighborhood million visitors a year who account city. into an exciting, work-live innovation for a $90 billion dollar regional ABC leads the nation in patent generation district with capacity for 26.7 million economic impact. Among the 64 ABC technology and is home to more patent holders than square feet of new office development companies that received venture the entire state of Massachusetts. and 30,000 new homes. ABC is a hub for outdoor enthusiasts capital in 2010, 65 percent had including those who enjoy biking, ABC’s economic strategy focuses on small foreign-born executives on their Cultural initiatives and events like NAME1 hiking, fishing, hunting, etc. companies and start-ups with potential to management teams. and NAME2 strengthen and advance the Residents and visitors regularly use become global leaders. creative and cultural foundations of ABC. the XX miles of trails, XX miles of The city has embraced a wide range river, XX acres of local and state of cultural events and arts ABC is the nation’s top city in technology SCHOOL serves ABC residents and parks, etc. organizations that reflect residents’ development and a major leader for employers with opportunities for clean technology commercialization. roots and cultural ties such as named continued learning through unique For world-class shopping and social events, fairs, etc. partnerships.

Page experiences, ABC is home to top international brands as well as lively ABC has created more affordable housing entertainment options. 63 in the past eight years than any other city in the County. Page 64 Appendix

B. Building a Business Case and Case Study How-to

City of Novato 2013 Retail Market Analysis Page 65

Building a Business Case – Step by Step Step 1 — Industry Intelligence Conduct research to gain an understanding of specific industry sector needs. Potential sources for information include:  First Research (www.firstresearch.com) - synthesizes hundreds of sources into an easy to digest format to quickly understand a prospect’s or client’s business issues

 Industry journals and news articles  Industry tradeshows, conferences, and networking events  Interviews with local businesses in the industry sector or industry associations  Site consultants, brokers, developers and industry consultants Step 2 — Research Unique Assets Armed with clear understanding of the industry’s near-term and long-term needs, begin to define your unique assets. Outline the assets to consider. Drill down into what is unique, new and differentiates your community from others. Focus your research in the following areas:  Innovation and research resources (universities, research centers, patents, tech transfer)  Collaborations and industry associations of value to your businesses that are occurring in your community and throughout the sate and nation  Special industry-specific programs  Relevant rankings of accomplishments in industry sector Step 3 — Location Factors

Organize relevant location factors for the specific industry needs.  Company: list of your existing employers in this industry  Location: show your location and market access; demonstrate location advantages; focus on your proximity to relevant markets and suppliers  Labor Shed: availability of specific skill sets that will support the industry; wages for entry level and experienced; industry-specific training programs; productivity measurements; union activity  Real Estate: business parks including infrastructure; specialty facilities  Access to Resources: suppliers, funding  Business Climate: factors that make it easier for this industry to do business in your area  Cost: a customized analysis for typical industry operations  Incentices: a simple overview of relevant and industry-specific programs; case studies that illustrate the benefits and potential savings Step 4 — Feature Companies

Gather information on industry leaders in your area, including:  What they manufacture  Innovations and patents  Rankings  Websites

Page 66

Building a Business Case – Step by Step Step 5 — Fast Facts

Summarize key differentiation proof points – what sets your community apart. Step 6 — Value Proposition

Based on the outcomes of your research:  Background: prove your understanding of the industry by describing it, the sub-sectors, and specific needs  Market Overview: describe the industry sector in your community  Value Proposition: articulate the thesis of why this industry can be successful in your community with facts and resources supporting the statement (proof points) Step 7 — Review Review the Business Case to ensure proof points are aligned and supporting the industry-specific value proposition.  Does the research support the value proposition?  Do the value proposition and proof points differentiate your community from the competition and answer the question “why is your community the location of choice”?  If the answer is “no” to either question, dig deeper into your research, re-phrase your value proposition and/or develop a strategy to enhance your assets. Step 8 — Continue to Build the Business Case Your Business Case(s) should evolve over time, maintain the accuracy and timeliness of your Business Case.  Engage partners to ensure that new programs, services, announcements, discoveries are added to the Business Case as they happened  Post findings from reports that are relative to this industry  Post articles on local businesses  Create news pitches or press releases on businesses featured, expansions, new discoveries, new programs, new services – how the industry is changing the world; this will continue to support the message that your community is a leader in the industry  Meet with partners and local industry at least once a year to update the Business Case data  Develop one or two case studies on local firms within the industry cluster  Post new information to your website  Use an up-to-date industry profile or case studies as part of direct mail

Page 67 Page 68 Appendix

C. Sample commercial and industrial property profiles

City of Novato 2013 Retail Market Analysis Page 69 Property Profile

Address Street address and intersection

Location Description: e.g. stand-alone, part of a neighborhood shopping center, regional shopping center, downtown, etc.; on highway or major commuter route; intersections; etc.

Acreage / Lot Size / Sq.Ft.

Total Square Feet

Retail Square Feet

Building Dimensions

Year Built / Improvements

Features

Best / Preferred Uses

Neighboring Uses

Price / Lease Rate

Terms

Supporting Documents  Exterior Photos  Site Map  Utility Map  Interior Photos  Building Specs  Infrastructure Map  Location Map  Building Plans

Page 70 Appendix

D. MetroComp product information

City of Novato 2013 Retail Market Analysis Page 71 MetroComp

Show Your Strengths — MetroComp is a user-friendly, customized database application for comparing the operating costs in your community with those of your competitors.

MetroComp includes a complete interactive operating cost comparison module. Select from several pre- defined prototype operations — standard manufacturing, distribution, back office, research and development, headquarters — or define your own.

Operating Cost Comparisons are detailed in easy-to-read charts and graphs that can be previewed or printed. Results include:

• Total annual operating costs by area

• Selected occupational wage rates by area

• Comparative overall average wages and benefits costs

• Utility costs

• Property taxes

Flexible Output Options

• Select cities and desired reports

• Print directly from the database creating high-quality customized responses

• Or, export to spreadsheet programs (i.e. Excel) and make charts and other modifications

• Insert MetroComp reports as images in your word processing documents

Developed by Applied Economics, offered to you by Chabin Concepts Page 72 MetroComp

Menu Minimum System Requirements

• Windows 2000 operating system

• Microsoft Access 2000

• 10 MB hard disk space

Choose Your Plan

• Basic 10 — operating cost info for your metro area and 9 comparative metro areas that you select. On-site technical support, if requested, will be billed at time + expenses. Sample Report

• Additional metro areas can be added at time of order or after installation.

• Cost for non-Metro areas varies depending on size of area and availability of data.

• Call 1.800.676.8455 ext 26 for a quote.

Chico, California | Yakima, Washington | Silicon Valley, California 2515 Ceanothus, Ste 100 • Chico, CA 95973 • www.chabinconcepts.com Page 73 For more Information email [email protected] or call 800.676.8455 ext 26 PROJECT PRO-FORMA INPUT TO CALCULATE ANNUAL OPERATING COST FOR A BUSINESS LOCATED IN SAMPLE CITY The Sample Annual Business Operating Cost Pro-forma on the following page was prepared using the following project parameters. It was prepared and included here to illustrate the type of report a community using MetroComp could provide a local business or a prospect. This particular sample report contains estimated costs for the Redding Metro Area.

Real Estate Building Type: Industrial Building Square Feet: 25,000 Status: New Construction Acres for Construction: 1.0 Capital Investment Machinery and Equipment: $2,000,000 Monthly Utility Use Electricity Demand/Usage: 75KW 50,000 KWh Water Usage: 3,000cf, 5/8 meter Wastewater Usage: 3,000cf, 5/8 meter Natural Gas Usage: None Work Force (full time equivalents) Assembler 10 Machine Tool Operator 5 Warehouse Worker 4 Machinist 2 Computer Operator 2 Production Supervisor 1 Electronics Technician 1 Total SAMPLEWork Force 25

Page 74 SAMPLE BUSINESS ANNUAL BUSINESS OPERATING COSTS

Fringe and Building / Lease Total Local Metro Area Employee Payroll Mandated Benefits Utilities Payments Property Tax Operating Cost Index

Phoenix $778,880 $204,300$38,124 $260,664 $107,214 $1,389,182 98.6% Redding $781,047 $237,558$56,491 $282,677 $50,523 $1,408,296 100.0% Medford $823,285 $230,515$33,599 $271,487 $60,630 $1,419,515 100.8% Reno $823,557 $240,863$66,150 $266,867 $55,646 $1,453,083 103.2% Stockton $826,578 $251,035$75,889 $281,509 $48,285 $1,483,296 105.3% Sacramento $858,479 $260,496$52,005 $294,668 $50,650 $1,516,298 107.7% Los Angeles $886,733 $268,836$68,982 $454,355 $70,029 $1,748,935 124.2%

The annual estimated business operating costs table summarizes the annual cost of labor, utilities and facilities for selected metropolitan areas. Detailed calculations and source of costs of doing business for labor, utilities and facilities are provided in the following tables, which include costs such as worker's comp, unemployment insurance, health insurance, gas and electricity, annual real estate (lease or purchase) and taxes. Page 75 SAMPLE

See detailed tables for sources. 10-Aug-11 Page 76 Appendix

E. RPAS product information

City of Novato 2013 Retail Market Analysis Page 77

APPLIED ECONOMICS REGIONAL PROJECT ASSESSMENT SYSTEM Economic and Revenue Impacts for Economic Development

Product Overview The Regional Project Assessment System (RPAS) is a computer simulation model intended to assist regional governments and economic development organizations in evaluating prospects, industries and programs. An economic impact analysis traces spending through an economy and measures the cumulative effects of that spending. This economic impact model is customized for economic development activities including business attraction, expansion and retention. The RPAS product can be used to:

• Evaluate economic and revenue benefits of new and existing businesses and evaluate incentives • Prioritize projects • Publicize value of new or existing businesses • Measure impact of business assistance resulting in retention • Identify potential supplier leakages • Document the value of an economic development program as a performance measure for fund development efforts or annual reporting

RPAS uses information about the operations of an individual company such as jobs, payroll, capital investment and taxable sales to estimate direct and total economic and revenue impacts. Data can be entered for a single year or multiple years.

Direct impacts are those resulting from the company itself, while total impacts take into account the supplier and consumer industries in the region that may also benefit. Economic impacts estimated by RPAS include jobs and output by industry, personal income, household spending, supported population and households, and non-residential real estate impacts. There are a series of output reports that detail the local economic impacts.

Revenues modeled by RPAS are based on the specific revenue items that are most important to your region. This nearly always includes sales and property tax, and income tax. However, it may also be customized to include utility taxes, franchise taxes and fees, inventory taxes, payroll taxes, or other major revenue sources. The model can also be customized to include state and local financial incentive programs.

11209 N. Tatum Boulevard, Suite 225 * Phoenix, AZ 85028 * 602-765-2400 tel * 602-765-2407 fax

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APPLIED ECONOMICS REGIONAL PROJECT ASSESSMENT SYSTEM Economic and Revenue Impacts for Economic Development

Approach Unlike many impact models that rely on state or national economic multipliers, the economic impacts generated by RPAS are based on industry-specific economic multipliers customized for your region. This provides RPAS the ability to more accurately predict how a particular prospect will “fit” with the balance of your regional economy. Prospects that make purchases from other industries present in the region will show correspondingly greater impacts than those that may not be able to make as many purchases within the region. The price of the model varies depending on the number of regions you include. Regions may be defined as individual counties or multi-county areas.

Prospect or industry information including employment, skill mix, payroll, building and equipment investment, and utility consumption are used as inputs for the impact analysis. Corresponding direct, supplier and consumer impacts are then estimated based on the economic multipliers and conditions of your region.

The revenue impact portion of the RPAS is customized based on the particular state and local revenue sources most important in your region. This portion of the model uses information about the company’s capital investment, sales, income and other characteristics along with tax rates specific to your region to calculate the direct revenue impact of a new or existing company. In addition, results of the economic impact are used to estimate indirect, employee-based revenue impacts. Based on current rates and fiscal structure of your region, the output from the RPAS model shows the revenues resulting at the local and state levels from a new or expanding company. The value of financial incentives can also be incorporated into the model to show the amount of incentives offered to a company compared to the amount of new state and local tax revenue they will generate.

Workforce Impacts The model can be further customized to evaluate the impacts of workforce training programs, in addition to its normal use in evaluating new and expanding businesses. This would require input data on pre and post-training wages of trainees and information on the industry that individuals are placed in after training. The model could then calculate the economic impacts as well as additional tax revenues that result from the increased skill levels and earning capacity of training participants. These types of measures are a useful way to quantify the value of workforce training and measure the return on investment.

CUMULATIVE ANNUAL REVENUE IMPACTS

Local Impacts State Impacts City Sales County Sales Personal Tax Tax Sales Tax Income Tax Total Taxes 2006 Direct Revenues $7,953 $1,988 $22,269 $34,168 $66,379 Total Revenues $11,547 $2,887 $32,332 $49,217 $95,983 2007 Direct Revenues $15,728 $3,932 $44,040 $66,364 $130,065 Total Revenues $22,920 $5,730 $64,177 $96,501 $189,328 2008 Direct Revenues $26,340 $6,585 $73,752 $110,179 $216,855 Total Revenues $38,471 $9,618 $107,719 $161,026 $316,834 2009 Direct Revenues $38,979 $9,745 $109,142 $167,202 $325,068 Total Revenues $57,130 $14,282 $159,964 $243,274 $474,650 Cumulative Total $130,068 $32,517 $364,191 $550,018 $1,076,795

ECONOMIC IMPACT OF JOB TRAINING PROGRAM

Direct Impacts Total Impacts Program Return on Output Jobs Income* Output Jobs Income Costs Investment 2006 $2,931,088 48 $1,472,815 $4,973,245 68 $2,138,353 $379,600 192% 2007 $3,017,612 54 $1,439,862 $5,062,855 74 $2,106,127 $879,600 31%

2008 $4,060,809 76 $1,965,069 $6,866,618 103 $2,879,811 $939,600 67%

2009 $4,900,631 69 $2,340,648 $8,325,401 102 $3,455,308 $720,283 145%

Total $14,910,141 247 $7,218,395 $25,228,119 348 $10,579,599 $2,919,083 93%

11209 N. Tatum Boulevard, Suite 225 * Phoenix, AZ 85028 * 602-765-2400 tel * 602-765-2407 fax

Page 79

Page 80 Appendix

F. Summary of findings from the business and shopper surveys

City of Novato 2013 Retail Market Analysis Page 81 NOVATO BUSINESS SURVEY: A SUMMARY

Total of 51 survey participants (Total Finished Survey: 37 = 72.5%)

SECTION 1: BUSINESS INFORMATION AND OPERATIONS

1. What is the nature of your business? [51 respondents]

Other Responses:

 Pre School  Real estate loan business  Video Production, Web Design, Media Transfers  Publishing  Rental property  Hotel  Sports/Entertainment  Healthcare  Electrician  Chemical biomolecular engineering  Business services

Summary of Novato Business Survey Results 1

Page 82 NOVATO BUSINESS SURVEY: A SUMMARY

2. How long have you been operating this business in Novato? [51 respondents]

3. Name up to 3 advantages or strengths you associate with doing business in Novato. [44 respondents]

1.

 Family oriented  residents are loyal to local businesses  Close to home  2nd largest city in Marin  Location is central to Northbay - future  good school district in rental area growth  strong community identity  Beautiful settings  Safe  Excellent B2B services, bank, bookkeeper,  Small close community etc.  I work where I live  We are separated from Petaluma and SR by  Friendly people 15 miles each. People want to stay here if  Contributing to health of Novato you can offer them reasons to come community downtown.  Like using local vendors when possible  Relatively High Income Population  Serve clients from the North & South.  Close to my studio  No commute  Supportive Small Community  Close to SF  Reasonably close proximity to many clients  Small market, easy to stand out  Business Community Support  less traffic  convenient location for employees living in Sonoma  Close to home.  Working in my hometown

Summary of Novato Business Survey Results 2

Page 83 NOVATO BUSINESS SURVEY: A SUMMARY

 People like the newness of our place  Close to where I live  Boutique style, with unique options  Small Tight-knit community

2.  Affordable for families  low crime rate  High barriers to entry - very expensive to  City Council seems to be more business develop friendly lately  small town feel  Wide-open spaces.  Proximity to HWY 37 to Sonoma. Location  Good restaurants for lunch relative to tourists going to west Marin via  Affluent community Novato Blvd and SM Drive.  easier parking  Relatively Technically Savvy Population  Ease of walking, biking to work.  Know everyone  Developing business community with a  Diversified wide array of services  Loyal Clients  Love the people who own businesses  own our office locations around, small town vibe  People in government like Jeanne  easy freeway access to bel marin keys MacLeamy are good for business.  Friendly & personal service  streets & public safety adequate in rental  Relatively uncongested area  Central Northway location  less commuting  Community committed to supporting one-  nice downtown another  Strong community  reasonable rent  High percentage of families and residential housing

3.  Great Weather  Downtown renovation projects  community minded public  Free parking.  Lots of room for growth  Grant Street location adds value  Friendly Intelligent  good location for employees  Location  Easy access  We are a growing and diverse community  pretty environment  I focus on the Novato market and it's  Quaint downtown with good restaurants worked well  I walk everywhere and know everyone  Environmentally friendly  between Petaluma & san Rafael  I have been a resident of Novato for over  Committed to growth 40 years  pleasant surroundings  Easy to get around  good community awareness  Possible for our family-owned business to succeed

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4. Please share any disadvantages (if any) to doing business in Novato. [35 respondents]

 The process to move our business to its  Low foot traffic. No central gathering current location took over a year and opportunities like Mill Valley and Tiburon. almost put us out of business Concerns about future parking  Permit process  Large portion of Business comes from  California Taxes, too much regulation. outside of Novato California is not friendly or conducive to  Blight. Crime. Depressed & unemployed small businesses due to excessive taxes, population. High tax. So many poor people. fees which misguided voter base will keep  Hard to get cross-promotions working, as extending. Moving my business out of other businesses don't offer what people state. are looking for?  As a loan officer it was difficult to attract  Negative attitudes of fellow merchants clients from southern Marin and not  Anti-business attitude among residents, enough business in Novato alone so I feeling of backwater, bedroom community moved to an office in Mill Valley rather than vibrant business community,  No concerted effort to attract of retain too suburban for 50,000 people. quality businesses  Finding qualified help. Lack of restaurants  Not a tourist destination  Somewhat isolated/removed from  DOWNTOWN PARKING!!!!!! PERMIT central/southern Marin and SF. PROCESS  Customer volume is lower here than in  Kneejerk opposition to new business Petaluma or San Rafael. among a vocal segment of the population  Zoning and regulatory issues are a  Trying to buy a building to house my challenge business had been a time consuming and  Dead at night frustrating process. Planning is not  Novato is unique. Tight wallets. Lack of interested in preserving/enhancing value. knowledge of Shops downtown. They are non-responsive, obstreperous, and provincial.  too small of an attitude, not enough life   Too many low income housing Traffic congestion on highway reduces unfortunately has increased number of efficiency of execution shoplifters and crime rate.  small client base  In our location we've dealt w/ graffiti,  commercial property owners have too burglaries and homeless people issues. much control  Most of our customers are in San Francisco  …There is about to be an enormous parking and further south. issue due to the city council's poor  The building department needs to planning….The city estimates for parking needs are 100's short of what will be  no enough retail locations so people shop needed and there is no plan for the 100's in other cities of spaces needed. The city has reduced  Cost of living, Labor force parking spaces in the face of these  Not as affluent as southern Marin. Lower privately financed commercial projects that median income. have the potential to add to our tax coffers  The parking for clients is less than and to add vibrancy downtown. Both of adequate. these benefits are seriously at risk due to  The lack of affordable housing for my the lack of a plan for parking. What, if employees. Many live out of town. The anything, can the city do to provide parking rental market has increased during the for the people of Novato to generate tax recession and has forced employees to revenues? How will they figure out a way move north. to keep people from turning away to instead head to other towns or strip malls?

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5. How would you characterize your current business' activity level (i.e., last 12 months of operation)? Please specify your response below with the percentage (%) change. [50 respondents]

Percentage Change:

 5%  77% booked appointments in Jan.  Formed to retire from doing real estate compared to 89% before economic loans when market collapsed. downturn  10%  Flat YOY  1%  Only because my extra-efforts.  +26  20  5%  30%  15+%  Up about 15%  0  We have limited hours but when we are  small growth in gross income and open it is hard to get people to see us...as households in account we are set back somewhat.   down 40% 28%   6% Within Novato, our business has grown 100%

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6. Which description below best describes your plan to expand or reduce your operation in the next one to two years? [48 respondents]

Other:

 taxes, fees prohibit growth, not business friendly  N/A - Retired  added a San Francisco and Redwood City office over the past couple years  adding manufacturing  Hopeful to expand.  Maintain moderate growth

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7. Please check any type of investment or improvements you have made in your business in the last two years. [48 respondents]

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8. Please check any type of investment or improvements you plan on making in the next one to two years. [48 respondents]

Other:

 New location  moving businesses out of state, starting new business out of state  location acquisition  expand our San Francisco office presence  New computer system

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9. In addition to a strong economy, what factors are critical for the success and expansion of your business? Check all that apply. [47 respondents]

Other:

 more business friendly tax, regulatory  Professional services, biotechnologies, climate large # of employees  Proximity to more clients in southern  Home values need to increase Marin.  ability for clients to locate parking place  Parking is imperative. Other businesses that  Referrals draw Novato's family demographic and  awareness others to downtown.  A strong economy.  Strong economy is key  unique retail shops  economically capable retirees  Networking, referrals  Safety  The theater opening and other arts related  different approach to the "new" cheaper businesses, leisure too customer  clients not moving out of California  Local retailers having strong sales  We grow by sharing business with design  good schools and public infrastructure partners.  price/competition

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10. What are some of the major issues or obstacles facing your business today? Please check the top 5 priority issues. [47 respondents]

Other:

 too high CA, local taxes on businesses  Collapse of US real estate market & US economy  The future of parking downtown.  land use, water quality, water conservation, wastewater  all the permits and license that need to maintain  environmental regulations  Taxes! Too many levels: usage tax, calif bus tax $800, etc.  Tax both state and fed.  too restrictive and time consuming  shrinking client budgets  Not getting the right kind of buyers...we don't expect Novato people to buy but we need tourists and sf people. We do get a fair share of sf folks who read about us coming in

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11. To keep your business healthy and competitive, which of the following types of information or assistance are important to your company's growth? Please check all that apply. [41 respondents]

Other:

 California beyond help, too many 'takers', not enough 'makers' will only worsen  Business & Residential Growth in Novato  you are really focusing this too much on the really small businesses  Continued availability of skilled tradespeople for occasional contract work

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12. Are you interested in participating in a cooperative business marketing effort to attract customers to Novato or to encourage residents to shop locally? [47 respondents]

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SECTION 2: THE FUTURE OF NOVATO

13. What identity or image would you like to see Novato develop for itself as a unique business district to residents, employees and visitors? [26 respondents]

 There is nothing unique about Novato other  Local business sticking together, helping the than a nice place to live -- not a good place to community own a business.  A Downtown that is welcoming, clean with  Small town charm good workforce places for people to gather and linger  Downtown Novato: Novato is primarily a family  I drive down Grant Ave at all different times town. Most in Novato see it that way, as do during the week - shops are closed, parking is other Marin and Sonoma residents. Build on difficult, buildings look run down. If you venture this. Bringing families to Novato to dine, shop, off of Grant Ave at any point, all surrounding and enjoy our space here is imperative. Family streets looked abandoned, unsafe, and friendly from 9am until 9pm. neglected. With as large of a family town as this  Country Charm in a suburban milieu. is, there should be a strong, centralized area for  Lively and Prosperous families to go. Make Grant Ave (from Redwood to Machin) a pedestrian only area - something  Convenience / Unique to serve entire family that encourages families to be out and about.  A pathway to relaxation and fun - we have the  Small town with a big city feel hiking trails, beautiful weather, on sought of wineries/restaurants/etc.  More restaurants and shops on Grant Avenue  Less of the small town feel near the freeway.  Upscale contemporary  destination for large and small retailers - not  Tech and biotech hub and accentuate the just downtown gateway to the wine country theme.  Welcoming community with balance of goods  I would like to see us as an arts hub...we have and services available (Don't get too gentrified the theater, MOCA, artist studios and we are I at the cost of essentials needed for daily life) the best place between Napa and Sonoma to attract the right people.  Keep growing the downtown  Close off Grant Ave (Reichert to Whole Foods)  Professionals, technology, financial, or and create car parking on Vallejo. Make the biotechnology train station unique and interesting!!!  Family oriented, small owner lead businesses.  Unique Boutiques Keep your tax money at home. Shop and hire local.  I would love to see us expand Downtown, Grant and Redwood, bring in some more lively  There is an opportunity for something like an attractions, a movie theater, parking, some Artist Colony and such. No specific suggestions stores that attract young people s high-end right now. The place to come and stay awhile. restaurant Stroll a bit.  All the stores you love & space to breath.

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14. What type of retail businesses would you like to see Novato attract or grow to improve its business mix? [27 respondents]

 In all good conscience, I could not recommend  Book store. Ice cream parlor. Entertainment any business move to Novato -- it's not a good downtown. business community.  Live music, entertainment for young people  More "things to do" type businesses. The  Quality restaurants, specialty boutiques, Novato Theatre perhaps a sports complex such bookstore, quality furniture and home decor as the one proposed at Hamilton. Etc.  Just mix up the businesses! We have 742 high-  Novato needs a lot of things, including a reason end retail shops in a 3 block area on Downtown to be downtown at night. Why should Novatans Grant! Two Indian restaurants, one Japanese have to go to the Sweetwater in mill valley or restaurant that is barely open - there's a myriad terrapin crossroads in San Rafael to listen to of shops with no through-line or plan. Families musicians that live in Novato? Crazy. want to "one-stop" shop. Haircut, lunch,  Book Store Music Venues Movie Venues More affordable shopping, kids’ activities, etc. At this Retail Stores point, Vintage Oaks provides that far better  Family oriented Restaurants than Novato.  More technology oriented stores  More visual and performing arts, more  Hotels/ B&B's, continued growth of specialized community spaces to encourage people to stores like Motorcycle/Harley Davison or gather/linger downtown, and more nightlife. outdoors like REI, The theater renovation is vital. Fewer banks and nail/hair salons  Medium and big box variety of stores near the freeway...like you did at vintage oaks. Very  Quality building materials and home disappointed in the slow progress on North improvement stores that are open longer hours. Redwood Corridor Bigger box stores not a problem.  Some larger retail business - like crate and  Arts, theater type barrel  We have a good mix - advertise more. Traffic  Any that complement and/or can't be replaced will be a nightmare if big box shops land here. by online businesses. Businesses that are Look at Petaluma...its crap. locally/regionally owned and operated by  Perhaps Tourist attractive businesses: Cowgirl people who care about the community. Creamery Businesses that appeal to a range of ages and  A high-end restaurant (mechelin rated level) income levels, some fun youthful clothing stores like Buffalo  A book store men's casual clothing downtown - Exchange or H&M, Movie theater jeans, etc.  Entertainment, shopping (modernize)  Current popular trends in shopping and retail.

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15. What could Novato retail/service businesses do to attract more local and visitor shoppers? [25 respondents]

 Be more aware of what is going on as far as new  Keep up with the retail scene and trends. developments and businesses.  `PR campaigns. `Hwy signage. `The message and  Build a parking structure downtown where the reasons to come and stay awhile. `The open air, city offices should not be. street dinners on Fridays in Tiburon are a neat  Think Positive, Stop Complaining - #1 Utilize the idea for downtown Novato. Good for business events we have to bring in new and good for community building. `Wine walks, clients/customers Advertise with the DNBA Santa Crawls, Pillow fights (Reno hosts these Website Partner with DNBA Marketing and with great success) Promotions  Advertise. Have events.  Raise awareness , increase incentives to local  More down town activities. shoppers  Open more days of the week with regular  Well, a signage program is a waste of money. hours, better attitudes of shop owners and Promote Novato as a destination, gateway to employees, more involvement in the wine country, expand hours at stores, better community by business owners mix of stores  Solidify and streamline the shopping  Hold local events besides the art and wine like experience. One-stop. Holiday fair, we already have the homes in full  more coupons, BOGO offers swing of house decorating and the carriage ride  More parking. Keep the Farmers Market but and tree lighting, would love to see all move it off of Grant Avenue. connected  Improve its reputation in Marin -- from that of  Be bigger and offer more variety at a good rural stepchild to hip and modern. Many folk price. With a mix or more restaurants. head to Petaluma or San Rafael, bypassing  Work with local, regional, and state leaders to Novato reduce regulatory and tax costs and allow  Close off Grant Ave. make it visually appealing owners to keep prices low for shoppers and with parking and lighting and green zones. compete with online and larger merchants. Make train station unique and welcoming! Expand hours, even one evening a week, to  Better windows. Ban together to promote the accommodate full-time workers and those who charm & boutique nature of the retail district. like evening activities.  Stay open later in the evening.  continue to promote and support the dining establishments and encourage live entertainment  Modernize, not as much appeal to new, next generation.

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16. As Novato continues to grow and change, if you could keep one thing the same, what would it be? [24 respondents]

 Lower taxes, fees, streamline regulatory  Small town feeling. Train Depot. History processes Museum  The demographic of Novato that is very loyal to  Would like to keep the small town feel, no more local businesses and keeps hoping that our city large big box stores or hardware. Keep it local. understands that city of Novato projects are not  Keep the Downtown core intimate, pedestrian what bring them downtown. friendly  the local nature of the place  It's still a good town for families.  Old Town Charm and Feel  views of the hills  Keep our community safe  The parks and open space  The suburban rural character  Same high quality police and fire service  Community support for businesses and  Love the other business owners and small town residents vibe. Don't give in to the big box stores.  Small-town atmosphere in beautiful,  The small town atmosphere and the reasonable-density setting surrounded by open commitment of the community to each other. space where it's possible to know neighbors,  physical beauty local merchants, local landlords, etc.  open space on the hillsides  Schools

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17. If you could change one thing about Novato, what would it be? [27 respondents]

 Tear down old City Hall bldg. on Sherman Ave  Get more residents to shop Novato businesses along with adjacent SFD the City owns and also first and check out the retail stores in the old rat-infested community center building to downtown make way for a City Hall building fronting  Negativity and small mindedness. Not enough DeLong Ave -- and construct a building with a balance for community services and businesses PRESENCE. in balance with environmental and "small town"  city council - low income housing naysayers.  Downtown city offices. They bring very little to  Stop the political games and do what’s best for downtown when you consider what the Novato and its families. alternative could have been.  `Remove sandwich boards.  Fix downtown parking  Stronger identity/signage at each point of entry.  Put in more retail on the West side of Grant More unified - Name different neighborhoods Avenue "San Marin" "Ignacio"...  Create more job training for the individuals  Add public places for sitting and relaxing living in poverty and discourage them to ask for  I want to encourage the family atmosphere. help at street corners Novato is a great place to live, work, shop, etc.  More active promotion of the city would really Currently, families reside here, but LIVE in other help generate more sales taxes, result in less towns. leakage.  Add more retail to improve the tax base so the  a large conference space/center or meeting city would have more money for services. It also venue needs to be more friendly toward developing its  Develop North Redwood Corridor with financial infrastructure. emphasis on retail that attracts shoppers for  more cultural diversity other cities like San Rafael. Then also start over  The will to change and not base its identity on Grant avenue downtown. around a too small and antiquated downtown.  the misconception that Novato is a small town We Need to build buildings of adequate size  Find fun, effective ways to continually renew and function to serve the residents awareness of our shared experience and history  Don't let anymore nail or hair salons in. to support a sense of community (examples:  Fill the vacant shops on Grant. Focus on Grant appreciation for community roots such as Ave - DO NOT SPREAD OUT FARTHER! Centralize Miwok culture, ranching and farming, multi- to attract more people. generational local businesses, military at  More fun things to do Downtown Hamilton, etc.)

18. Please provide us with the following information. All information will be kept separate from other survey responses, which will be used only in the aggregate. [23 respondents]

Answers not included in summary.

19. May we contact you to discuss your ideas and responses? [28 respondents]

Answers not included in summary.

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20. Please share with us any other comments you may have. [11 respondents]

 As you probably determined I am very strongly against city offices downtown. We now have to deal with an enormous impending parking issue that, I believe, will deter retail/commercial growth and drive people away from downtown Novato. I love Novato and believe the citizens and merchants here have been shortchanged by the city council on numerous fronts. Namely with this city office project. I am also concerned that the city council will eventually push the parking problem/burden on to business and property owners downtown. Once people begin to realize that the parking issue is severe (probably when city offices are complete and Umpqua occupies 999 Grant) there will be a realization that the parking issue is a large problem. The city, with dwindling resources and a lack of public owned space, will look be forced to find a solution and find a way pay for their mistake and poor planning. The merchants and property owners should not pay for their shortsightedness, especially when the city decided to go against what was clearly laid out in the downtown specific plan. Namely a parking garage on this site.  I'm very thankful for the survey.  There are a lot of great families living in Novato that truly care for this community. It is very important to continue the spirit by keeping this town safe and clean to encourage continuous support.  Get a lot of ideas from this  The Downtown BID needs to be reviewed. It does not include all businesses and focuses primarily on "Old Town"  In the interest of keeping rental property healthy, we would like to see the city focus on basics: low crime, smooth streets, and well-maintained parks. We support fair funding by the state for our local public schools. We are concerned about regional pressures for Novato to provide what seems to be more than its equitable share of below-market-rate housing in Marin. New affordable housing should be included in infill projects, and as a percentage of larger projects, as has been successfully done in San Rafael and elsewhere in condo projects with sweat-equity units included amid market-rate units.  Keep going!  Thank you for taking an interest in the retail sector of Novato  Good survey  We love Novato  Please do not bring in Big Box shops. People are driving from San Rafael & Petaluma because we have unique charming shops & restaurants.

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Page 99 NOVATO SHOPPER SURVEY: A SUMMARY

Total of 1,023 survey participants (Total Finished Survey: 801 = 78.3%)

SECTION 1: NON‐GROCERY SHOPPING HABITS

1. Where do you do most of your non‐grocery shopping (e.g., apparel, home furnishings, sporting goods, etc.)? [1,022 respondents]

2. About how often do you shop (for non‐grocery items) in Novato? [1,018 respondents]

Summary of Novato Shopper Survey Results 1

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SECTION 2: RESPONDENT NEEDS

3. What kinds of additional APPAREL stores would you patronize in Novato? [836 respondents]

4. Please provide the names of SPECIFIC apparel stores you like to see come to Novato. [495 respondents]

Top Specific Stores: Top Business Types:

GAP 16% Non‐Chain Store 3% Macy's 15% Shoes 3% Banana Republic 11% Boutique 2% Nordstrom’s 9% High End 2% Nordstrom’s Rack 8% None 1% REI 7% Independent 1% Chico's 7% Special Sizes 1%

Anthropologie 6% JcPennys 6% Athleta 5%

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5. What kinds of additional HOUSEHOLD FURNISHING stores would you patronize in Novato? [740 respondents]

6. Please provide the names of SPECIFIC household furnishing stores you like to see come to Novato. [342 respondents]

Top Specific Stores: Top Business Types:

Crate and Barrel 19% None 3% Pottery Barn 15% Locally Owned/Independent 2% IKEA 10% Consignment 1% Restoration Hardware 7% Non‐Chains 1% Bed Bath & Beyond 6% Used, Refurbished 1% Lowe's 6% Discount Store 1% Home Depot 6% Electronics 1% Made In America 1% West Elm 4% Ashley Furniture 4% Williams Sonoma 4%

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7. What kinds of additional CONVENIENCE MERCHANDISE stores would you patronize in Novato? [574 respondents]

8. Please provide the names of SPECIFIC convenience merchandise stores you like to see come to Novato. [241 respondents]

Top Specific Stores: Top Business Types:

Lowe's 23% None/Have Enough 12% Home Depot 20% Hardware Store 3% Orchard Supply 5% Local/Independent 3% Walgreens 5% Non‐Chain 3% Wal‐Mart 3% Book Store 3% United Market 3% Florist 2% Sift Cupcakes 3% Pharmacy 2% 1% Pini 3% Indian Grocery 1% Molly Stone 3% Kid's Consignment Friedman's 3% OSH 3% Michaels 3%

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9. What types of additional SPECIALTY MERCHANDISE stores would you patronize in Novato? [808 respondents]

10. Please provide the names of SPECIFIC specialty merchandise stores you like to see come to Novato. [367 respondents]

Top Specific Stores: Top Business Types:

Michael’s 19% Book Store 11% Barnes and Noble 15% Independent/Locally Owned 6% Joann's Fabrics 12% None 3% Book Passage 12% Art 2% Apple Store 12% Craft Shop 2% Bed Bath Beyond 10% Consignment Store 2% Sur La Table 8% Non‐Chain 2% Williams Sonoma 7% Kitchen Store 2%

Copperfield's Books 7% Ben Franklin 6%

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SECTION 3: SERVICES IN NOVATO

11. What types of additional LEISURE/ENTERTAINMENT SERVICES would you patronize in Novato? [777 respondents]

12. Please provide the names of SPECIFIC leisure/entertainment services you like to see come to Novato. [294 respondents]

Top Specific Stores: Top Business Types:

Novato Theater 10% Bowling Alley 6% Company 4% Ice Skating Rink 3% Bikram yoga 3% Pool 3% Chili's 3% Roller Rink 3% Sol Food 2% Water park 2% Pump it Up! 2% Wall/Rock Climbing 2% 24 Hour Fitness 2% Mini Golf 2% Olive Garden 2% Comedy Club 2%

Red Lobster 2%

Bay Club

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13. What kinds of additional GENERAL SERVICES would you patronize in Novato? [527 respondents]

14. Please provide the names of SPECIFIC general services you like to see come to Novato. [97 respondents]

Top Specific Stores: Top Business Types:

Blockbuster 8% Day Spa 6% Kinkos 6% Video Rental 6% Fedex 4% Independent/Non‐Chain 5% Apple Store 4% Post Office 4% UPS 3% DVD Rental 3% EVO Spa 2% Nail Salon 2% 2% Dog Day Care 2% Stellar Spa

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15. What types of additional RESTAURANTS AND EATING PLACES would you patronize in Novato? [768 respondents]

16. Please provide the names of SPECIFIC restaurants and eating places you like to see come to Novato. [277 respondents]

Top Specific Stores: Top Business Types:

Sol Food 11% Wine Bar 4% Red Lobster 7% Family 3% Outback 6% Vietnamese 3% In And Out 5% Local 3% Olive Garden 5% Coffee House 3%

Cattlemen's Steak House 3% Seafood 3% Three Twins Ice Cream 3% Vegetarian/Vegan 2% Chicago's Pizza 3% Independent 2% PF Changs 3% Bakery 2% CPK 2% Non‐Chain 2%

Rubio's 2% Left Bank 2%

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17. What additional HEALTH SERVICES would you patronize in Novato? [377 respondents]

18. Please provide the names of SPECIFIC health services you like to see come to Novato. [59 respondents]

Top Specific Stores: Top Business Types:

Kaiser Permanente 12% None 31% LensCrafters 10% Health Services 5% Redwood Regional Medical 2% Alternative Medicine 5% Serendipity Chiropractic in Petaluma 2% 5% Naturopathic Homeopathic 5% Vet 5% Child Specialist 5% 3% Acupuncture 3% Non‐Chain

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SECTION 4: SHOPPING/PERSONAL BUSINESS PREFERENCES

19. Some of the above‐listed merchandise and services may currently be available in Novato. Help us understand why you may not choose to patronize these stores or service providers. [268 respondents]

Summary of responses:

 I have lived here five and a half years and there has been no attempt for many of the businesses to let me know they exist. I can't patronize what I don't know about.

 Consumers are drawn in by energy of other consumers and aesthetics are a BIG part of drawing people in. People want to "feel" good and when we feel good we stay and spend more money. We hang out for hours and doddle around, going in and out of shops with our kids. I am a HUGE consumer and your target market and I live in Novato, but do not shop here. The reasons are very clear. The businesses that are located throughout Novato are mostly run down or outdated. There are several, like Morris & Co., Klyde Street Pets, Studio 4 Art, 5 Little Monkey's, Rustic Bakery, etc.. That are where I DO shop and want to shop. They are clean, fresh, and fun to shop in. They have the products that draw me in and make me want to buy there…. Parking is not readily available, nor marked clearly off of the main Grant St. The broken away street off of Redwood is also a pain. People do not want to have to loop around to search for parking. People from out of town would sooner not stop and shop. EVERY great downtown I know of in Marin/Sonoma has easy parallel parking along all of the main shopping areas…. There NEEDS to be an outdoor gathering area for people to stop and chat, meet, and hang while the kids get to play around and get their energy out.

 There is a lack of diversity of stores and restaurants in down town you can find in the other towns…

 I patronize lots of the local Novato stores and restaurants. Novato has much to offer but might need more advertising so people know where things are (i.e. Pini is a fantastic hardware store but people might not know where to find it.)

 I do every bit of shopping that I can for essentials in Novato. I'd like to see more specialty stores and restaurants here.

 Some new businesses are not generally advertised so that we don't even know they are here. Parking is the biggest deterrent. I used to shop at the Farmers Market but parking was so limited that I had to park too far away to shop there.

 Parking downtown is a BIG problem, no matter what the surveys have shown. I have worked downtown for a number of years and parking continues to be a source of frustration for customers.

 Issues with Quality and Customer Service

 I already do patronize them so do not want to provide any more competition for them.

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 Simple: They are either never open ‐ or never open when people have time to shop, i.e., most of Downtown Novato is closed on Sunday. The pricing on items/goods/services in Novato are outrageously high.

 A lot of the stores in downtown Novato are not open at times that are friendly to families where both partners work  I make a conscious effort to patronize Novato businesses before I drive out of town.

 More options. I would love to shop from store to store for all my needs. Like Petaluma. Dinner and shopping then live music.

 I do go to some of the current merchandise service places. Some items are limited at current stores or too difficult to find what I need. I often try to shop on Grant, but there isn't parking. I end up doing everything in Corte Madera instead.

 I already patronize many of the businesses in Novato. I really feel making the downtown area more vibrant will draw people to the area.

 I do shop in Novato. But I leave Novato for higher quality merch or bigger selection or better deals. There are a few decent restaurants but we need more at better quality and open a little later.

20. What do you think are the major ADVANTAGES of shopping or doing personal errands in Novato? [804 respondents]

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21. What do you think are the major DISADVANTAGES of shopping or doing personal errands in Novato? [804 respondents]

22. When do you do most of your shopping? [810 respondents]

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SECTION 5: YOUR THOUGHTS ABOUT NOVATO

23. As Novato continues to grow and change, if you could keep one thing the same, what would it be? [596 Respondents]

Summary of responses:

 Sense of community

 Keep the open space! It is one of the great advantages for Novato which very few people know about

 The small town feel, open spaces are pleasing to the eye.

 Mom and Pop stores, privately owned businesses

 Small town feel with main downtown shopping district

 Support local business to thrive.

 Our small town feeling. I love that we are a young, diverse and welcoming community and I want to be supportive and a part of it.

 Its identity as a small town city, friendly and community oriented. Where you and your friends want to raise their children.

 Keep the look and feel of Old Town Novato ‐ i.e. trees w/lights, main drag w/boutique shops, annual 4th of July parade, etc.

 Preserve unique identity by deliberately maintaining visible architectural, cultural, and historical themes from Novato's past roots and current environmental context.

 Maintain open space and undeveloped spaces! Also, create more walkable, bike/transit friendly, mixed‐ use development.

 I love the small, privately owned stores. I like the small town feeling where you know people and want to patronize their stores. I like the sense of community.

 Small‐town, friendly feel. I know my neighbors, and I'm proud to support local businesses whenever I can (at reasonable rates, with good quality of products or services).

 Have a vibrant downtown with entertainment, restaurants and retail

 Charm, small businesses, upgrading facades and downtown

 Three things ‐‐ core of small town identity, connection to broader cultural landscape of ranching/west Marin connection, and very important ‐‐ access to outdoors and open space.

 Keep the downtown clean, walkable, and safe.

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 Small town feeling and friendliness, tree lined streets and walking to shops, no parking meters, and maintain our ethnic diversity

24. If you could change one thing about Novato, what would it be? [646 Respondents]

Summary of responses:

 More connectivity. More safe bikeable and walkable infrastructure supplemented by an easy to use affordable transportation system and mixed use developments. I would also like to see more running paths with redwood chips, Millenials understand the repercussions of staying active late in life‐‐> hip and knee replacements, this is something I hope we can avoid through well planned infrastructure.

 The appearance and lack of retail and restaurants downtown. I think the old Pini Hardward building should be built into something like the Theater District in Petaluma or similar to Whole Foods. Downtown living with retail, wine bar, restaurants etc.

 Needs more density, walkability, less parking, more transit, more shopping opportunities within walking distance

 We should stand up for the quality of living we deserve and have paid dearly for throught the purchase prices of our homes, our property taxes and all the other taxes we pay. I think we have been way too soft allowing the county and outside agencies dictate who should live here with no regard to the people already here and what those decisions will have on us. We already had to pull our kids out of the local school and send them to private schools and if the demographics continue to slide, we will sell and move out in the next few years when our kids leave for college. We are not alone and have many friends who feel the same way.

 Novato consists of two major areas: Northern Novato and Southern Novato. Novato assumes everyone in Southern Novato wants to drive to Northern Novato to the downtown area which has been refurbished. Those of us in Southern Novato actually would prefer to have to drive LESS and have the convenience of shopping in our own neighborhood. The City of Novato would still get the financial benefit of having convenient shopping in Southern Novato, so what is the issue? I would prefer to have useful shopping available here in the Ignacio/Hamilton area rather than drive all the way into downtown Novato. Until this is changed, I choose to travel south to San Rafael (closer to my home) and spend my money there due to the convenience and time savings.

 It needs to be updated and a destination where people want to come for the day, much like Mill Valley or Sonoma. I would love to walk downtown with my kids and spend the day seeing friends and others in the community because that is where things are "happening."

 Develop more of a current/updated downtown feel, Main Street, focus. Not much to do in the evening now. Getting better but the various shops are not cohesive and interesting enough along Grant St. San Rafael is doing a much better job in this area and taking business away from Novato. Also, get mountain and road cyclers to think of Novato as a cool place to ride, stop and rest, etc. along the smart train pathway.

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 The downtown is so boring and completely lacks night life. Other than Finnegan’s, there is nowhere to go. Why can't Grant Ave look more like downtown Petaluma or 4th street in San Rafael. Generally, it's the coffee shops and nightclubs that draw the people in. It sure would be great to have late night book store with coffee shop and a down town theater.

 Revitalize the Redwood Corridor AND reorient future development to take advantage of the beautiful wetlands that border much of our town

 It's legendary in the county how hard The City of Novato is to work with when it comes to business permits, etc. That needs to change.

 More progressive attitudes about the environment, including safer bike lanes for commuters and recreational users, an alternative transportation within the city itself so the elderly who can't drive and those who cannot afford a car can get around easily to go shopping, to the movies, etc.

 It would be my wish that Novato would be a little bit more smart about its development. Stores are put in and the traffic seems to be an afterthought (intersection at Trader Joes on Redwood is a mess). There are too many nail and beauty salons and not enough high quality places to eat. It just seems like there is no vision or that the vision that does exist is about bringing in revenue rather than creating a long term goal of making Novato the best community that it can be. I live near downtown and it feels like a dumping ground. Families with young children are moving in to the neighborhood and they want to have a safe, beautiful, interesting and PROGRESSIVE community to live in. They are the taxpayers that will support the city if they stay. They should have a voice in the redevelopment of the city.

 PLEASE be weekend friendly. And PLEASE PLEASE be dog friendly. When we visit a street festival and are asked to leave because our 20 lb. mini Aussie is not welcome, it leaves a very bad taste in our mouths. We leave sore and don't buy anything from anyone.

 Take trees out of the parking spots downtown and out them on the sidewalks; more parking downtown; re‐open Novato Theater.

 Get rid of the white elephant buildings and squalor that they are generating throughout Novato ‐‐ if you're not going to renovate them, sell them to commercial interests that will. I'm terribly disappointed in the neglected properties in the center of Hamilton!

 Beautification. Rundown shopping strips with faded facades; an overabundance of nail shops and mechanics and empty storefronts downtown make Novato sad and trashy. There are two good blocks of downtown Novato. Expand that outward.

 Include basic, age‐appropriate economics, personal finance, and business ethics education in local schools starting in primary grades, and then help teens and young adults apply that education and feel part of the community by creating opportunities for apprenticeships, employment, and entrepreneurial ventures

 Create a government planning and community development culture in all departments that takes a "systems thinking" approach and projects it forward 20‐50 years. E.g., support for higher levels of education that will drive local employability and therefore economic development. E.g., creating downtown traffic and parking solutions that don't deter customers.

 Add art galleries and coop studios, antique stores so that Novato becomes a destination for outside shoppers. Market locally produced goods‐ arts, crafts, farm products with specialty restaurants, coffee shops, bakeries. Our unique feature is the beautiful oak woodlands of the hills. Open those views, develop

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more hiking trails from downtown area. Use native oaks as street trees. Connect the developed areas to the natural areas.

 A downtown that attracts people. I rarely patronize grant ave due to limited services there that fit my family’s needs. We patronize hair salon, soccer store, a couple of restaurants and that's it.

 There is no "good" centralized location in Novato for food and shopping ‐ "A downtown area." It's sprawled out ‐ like a mini‐Los Angeles. Grant Ave. should fulfill this need, but instead patrons are met with parking issues, pricing issues, selection of shops (we have so many shops that sell the same kind of product and poor customer service ‐ I spend most of my time at Vintage Oaks or online.

 Better leverage the downtown area. There is so much potential there but it will take investment. Create a business friendly environment to attract anchoring business that create opportunity for smaller business to start and thrive in town.

 The Square Shopping Center. It's gone beyond frustrating that businesses have left this neighborhood mall and that the place is an eyesore: it's actually starting to feel unsafe. It's a shame because the surrounding neighborhood is wonderful. People don't feel good about letting their kids walk there. It doesn't need to be fancy; it just needs a supermarket to be the other anchor, a nice variety of shops, some landscaping, re‐ facing, etc. Pacheco Plaza underwent a complete face‐lift and it was nowhere as shabby as The Square.

 I would love to see a more cohesive downtown‐‐there seems to be a mix of businesses and empty spaces that don't seem to fit. A plan for Novato, downtown and otherwise, to attract and retain business that create a well‐rounded offering here in town.

 Promote and create a more integrated environment for all residents of this city. Novato schools and neighborhoods are becoming more segregated in terms of socio economics and racial composition. It’s disappointing to watch the saga of the charter school proposed by former Rancho parents. Basically, these parents don't want their kids around English learners or nonwhite kids. It's sad to watch how the T‐ball league puts the Olive neighborhood in the South Novato league but not in the North League with Pleasant Valley and Rancho. Little by little this town is getting drawn into a very ugly dimension if we don't stop these social trends.

 We love Petaluma's downtown area, great restaurants and shopping ‐ so many people I know prefer Petaluma over Novato downtown and wonder why our town is too outdated and dead.

 Create ways to develop and maintain a sense of community. Try to create and maintain a "street life”. Keep Novato from drifting more into being a "low‐income community". We are and need to be a mixed community. We have always been Marin's "step‐child" community, let's change this image.

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25. What identity or image would you like to see Novato develop for itself as a unique business, shopping and entertainment district? [546 Respondents]

Summary of responses:

 We need to take advantage of that fact and create a small but upscale destination in which people could come and have the luxury of staying in one location but taking day trips to both the wine country and SF.

 I would like to see Novato capitalize on its image of its Old Town. Fix up the Downtown Novato Train Station and get an old railroad car to give tours of our town.

 Gateway to Wine Country, we have beautiful views, brand Novato as a place of friendly people, fair prices, high end quality shopping and entertainment.

 A City that provides sufficient growth in the way of stores, shops, restaurants, etc. to sustain economic balance and service to its residents.

 Need to develop more well‐rounded mix of shops, longer hours for downtown shops, computer training/retail store, focus on roots, focus on agriculture, gateway to wine country‐overall uniqueness

 A better image overall; nicer small specialty stores to go to...art galleries, a little more "culture"....art stroll nights, etc.

 I would like Novato to have a great downtown area with a mix of businesses, many being owned by independent business owners. Not opposed completely to bigger chains, but don't want the downtown area (and the Redwood corridor) to look like San Rafael. It needs to be clean and safe in order to be attractive to people.

 Focus on regionally owned business rather than national chains, hire residents of Novato to keep commuting/carbon footprint down.

 Cultural center ‐ including art, music (nightlife) and great food of diverse ethnicities

 Keep the family friendly, small town feel. Encourage more family owned businesses instead of being swayed by the promise of big box retailers that they are the answer to all of the funding problems that all cities have.

 Entertainment district. Huge untapped population of older adults in Marin who want fun, close by places to go for all kinds of low key entertainment, intellectual stimulation, cultural enrichment such as restaurant with musical quartet playing, retired professors giving talks, author talks, Buddhist meditation. Bring a little Berkley to Slovato.

 Family friendly where businesses work together to keep customers and offer a wide variety of items that appeal to wider population not only novatoans but to attract more tourists and folks from neighboring towns shop play stay not even a b and b downtown that serves high tea etc. something like that . . . an attraction that brings folk year round farmers market and so on

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 A vibrant and diverse community with great downtown area and friendly business environment. A community that embraces the diversity of folks that live in Novato and welcomes businesses, shopping, and entertainment venues geared for all segments of our community.

 Keep small town, affordable, broad range of services. Cluster things together to keep the downtown attractive and viable. Encourage walking and/or multiple shopping and entertainment opportunities close together. I like that I can walk or drive short distances and accomplish multiple tasks in one trip. Ensure nearby neighborhoods are not impacted by too much development with not enough parking.

 Creative, educated, tolerant, art‐loving town ‐ where family is a big part of the community.

 Diverse, affordable restaurants and shops.

 Be different: create the concept of after dinner family and friend promenade area; adjust merchant times for shopping, leisure time. Outdoor dining, plaza concerts.

 This is safe, clean emerging community that we want to be proud.

 Comfortable, safe community that people want to shop at and gather at. I would like the Train depot to be fixed up as a destination and like a community square like Sonoma has

 We need to expand the down town area, more than just old town. We should have a beautiful walking area with lovely stores and restaurants to entice people to come from out of town.

 Novato should promote itself as a "gateway" to all the great areas of the North Bay ‐ a place to stay and eat and recreate that is close to Pt. Reyes, Petaluma river, open space, wine country, a race track, etc.

26. Please check your age. [797 Respondents]

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27. Please provide your gender. [795 Respondent]

28. In which Zip Code do you live? [784 Respondents]

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29. Please share any other comments below. [222 Respondents]

Summary of responses:

 I would like to see information or a directory of city services, both in map and list form. We have lived in Novato for three years now and would like to know more about the city...

 Learn from Petaluma and its downtown improvements ‐ great place to walk, nice shops, great dining options; it is alive and draws people to come during the day and stay out at night. Novato still is asleep with no focal point, and little draw other than its beauty and outdoors; dead at night.

 Novato is slowly getting better. Hopmonk tavern was a great addition but if you want to do any indoor recreation besides sitting and watching a movie at 9pm you definitely go elsewhere. Petaluma has an excellent downtown and nightlife. Novato should take notes

 Please take a look around at what makes Novato special. Please do not destroy that. We want more Mom and Pop type businesses that have charm and support the small business owner. Put in an Ice rink and skating ring (indoors) Add some retail in there. They will be packed! We drive to Santa Rosa and Rohnert Park for all of that. Kids parties almost every weekend. Also something like Pump it up, House of Air would bring in families even from Southern Marin

 I sure would love to see more action downtown. My husband and I went downtown on New Year's Eve and there were no people in sight and barely a place open. We were glad to at least find an Indian restaurant. This restaurant had just one other couple.

 Glad to see this survey, Novato is unique in that I believe more people (including myself) feel the need to travel out of town to obtain the goods and services that I prefer. Too many old lady boutiques!

 All things are linked ~ A large part of Novato's problems start with the schools, how the young are taught to feel about their hometown, how their education is supported compared to others in the county. I know and speak from inside experience: volunteered in the classroom of a young 30 something teacher who went through Novato schools and CAME BACK TO GIVE BACK. But she ended up leaving for a southern Marin school because of lack of support in her work. This is a shameful. So NUSD needs to take a long hard look at why it can't hold on to its own

 It's time to make decisions to allow economic growth to provide proper service to the City and its residence. The small town attitude does not pay the bills. Reduce the restrictions that prevent businesses from even looking at Novato. I have been a resident since 1967 and it's a shame that Novato has so many vacant commercial sites. Novato has done a good job of maintaining wonderful resident neighborhoods. Let's balance the neighborhoods with business!!!!

 We need a book store, the Novato Theater restored, a coffee or tea dessert house open in the evening, an open air meeting area downtown that could be used for movies or concerts. Pedestrian pathways to connect North Redwood Corridor (when developed) with downtown.

 Old Town is on the right track. A mixture of retail, food and service should be the aim of downtown as well as the various shopping centers. More outreach to encourage residents to shop mindfully and locally. More "events" downtown. Maybe instead of the Easter and Halloween candy‐grabs the DNBA/City might

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support a mini‐park with a carousel & bocce ball court to lure more casual use of the downtown. Many long‐time residents don't even know what we have here! Let's drag people away from their TV's.

 Novato is a wonderful place ‐ however, it is losing it’s appear. Bring back Western Weekend, there used to be something always going on at the Novato Horseman's Club. Crab Feeds, Dances ‐ there is no place to go and listen to music and have dinner. Charlie Bolton's used to be a big draw for dancing ‐ you have to leave the city if you want to do anything. Thank God for the Rowland Plaza Theater.

 There is nothing wrong with new development as long as it is done with taste and beautiful design.

 Don't ruin its natural beauty. Use the College of Marin [IVC] to springboard organic ‐ food, even manufacturing in the right location ‐ hold conferences, market places ‐ more 'central' than Pt. Reyes Station. Link the open spaces ‐ Rush Creek‐Mt Burdell‐Old Town ‐ definitely accessible and walkable to all ‐ this way 'use' Old Town on the weekends to get people in ‐ we have great weather ‐when The City and south Marin are in fog and wind...

 That we want more choices is not in disrespect of the businesses we have now‐‐bringing more foot traffic to Novato will help current businesses too!

 Novato has the opportunity to thrive like South Bay communities such as Mountain View and Cupertino (check the case studies). It has been sad to watch this opportunity squandered by short‐sighted, myopic planning and development. The MOST BASIC initiative needs to be raising the quality and level of education, which in turn creates skilled workers, attracts jobs, and creates an engine of economic development. Without the skilled employees and the jobs, there won't be the income to drive retail, real estate, government, etc.

 Downtown needs strong anchor stores to get people there. Businesses that have a successful history in other communities and who understand how to run a business

 I love Novato. I was born and raised here. I am now raising my son here and appreciate the school system, the feeling of safety and the convenience of being in the middle of two great destinations (SF and Sonoma). I want to make our town just as desirable. I don't mind tourism, but it would be also nice to see my neighbors enjoying a social place or two in our own town.

 Novato is lucky to have businesses such as Pini Hardware, Hopmonk tavern and Moylan's brewery, but too many of them are located on the edge of town. The city council and the chamber of commerce need to put some serious effort into making downtown Novato a place where people can walk around, shop and have food and drink, like 4th street in San Rafael or Kentucky Street in Petaluma.

 Continue to remodel Grant Ave. Give us a proper downtown that is clean and new while maintaining the historic charm. Clean up the shopping center off Novato Blvd. just west of Wilson to be more like Pacheco Plaza with an affordable grocery store compared to overpriced Harvest Market.

 Novato doesn't do many things right and needs to turn that image around. The town is not very attractive and has little nightlife. Yet the ingredients are all there to make Novato a real cool place if it got rid of its "sleepy, bedroom community" vibe.

 We need to keep the nice mix of upper and lower income homes and jobs; need to attract solid businesses to offer good jobs.

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 As a family of four with a healthy household income‐ we spend about 80% of all our household purchases outside Novato. Bring some businesses here so we can save on gas to Corte Madera!

 Love Novato small town feel and pastoral/rustic energy but needs to be modernized with better ethnic restaurants and definitely more entertainment/activities for kids and adults

 I hope we can keep growth slow and well thought out. Growth that is forced or mandated changes the character of a community too fast. The housing numbers we are told are needed, are not backed up with facts. Thank you.

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Page 121 Page 122 Appendix

G. Brush, CO new businesses, non-compete incentive program

City of Novato 2013 Retail Market Analysis Page 123

Downtown Brush New Business Incentive Program

The Downtown Brush Rentals Incentive Program is given to encourage the establishment of new business within Downtown Brush through assisting new, relocating, or expanding businesses.

The Downtown Brush Rentals Incentive Program provides the option of one of the following:

- Rent subsidies of up to one-third of the business’s monthly rent, not exceeding $500 per month, for the first three months of a minimum 1 year lease. - City utilities costs, not exceeding $125 per month, are covered for the first year. - A forgivable loan in which the City of Brush gives up to $1500 dollars to the business as additional startup capital, which the business will repay at $125 per month, interest free. If the business remains in operation after two years, the amount initially loaned is given to the business. - Advertising costs for the newspaper and radio up to $1500. There is an option to combine different incentives, but the total must not be greater than $1500. i.e. $500 of advertising costs and a $1000 forgivable loan.

To qualify for the Downtown Brush Rentals Incentive Program you must meet the following criteria:

- A new business in Downtown Brush. ‘Downtown’ being qualified as Edison St. in the 300 and 400 block or on Clayton St. in the 100 and 200 block. ‘New’ being qualified as: o Relocating from another city o Opening an additional location of an existing business o Starting a new business A changing of address, name, or ownership does not qualify as new - Properly licensed. - Qualify as a targeted business. - Application approved by the City of Brush City Council.

Targeted businesses for Downtown Brush: New retail not currently provided downtown. i.e. New clothing & accessory store (not used clothes), pet shop, household/office furnishings, tackle & bait shop, specialty retail New service not currently provided downtown. i.e Party supply store/rental, restaurant, pharmacy

A business that offers the same goods or service that is currently offered by a business downtown will not qualify for the incentive program. Due to restricted funds, The City of Brush! limits the number of recipients of the Downtown Rental Incentive Program to four per calendar year.

Page 124

Downtown Brush New Business Incentive Application

Name of Business: ______Address of Business: ______Mailing Address (if different): ______Contact: ___ Phone: ______Email: ______Federal ID#: General Description of Nature of Business: ______Date of Business Opening: ______Business Hours of Operation: ______Business is:  New business  Relocating Business  Expanding Business

Select the incentive program option(s) you are interested in receiving and the amount:  Rent subsidies  City Utility Costs  Forgivable Loan  Advertising Costs $______$______$______$______

Monthly Rent/Mortgage at Business Location: Length of Lease: ______Building Owner: ______Building Owner’s Mailing Address: ______

Upon signing the application for assistance for the Downtown Brush New Business Incentives, I certify that the above information is correct. I also understand that this application is not a guarantee of assistance; that the application must go through the approval process of the City of Brush. Should my application be approved, I understand that the maximum assistance given will total no more than $1500.00. Should any circumstance arise which causes my above listed business to cease to exist, or to function in the nature it is listed above, or to relocate from the downtown area, all within the first year of business, I understand that any incentive assistance given from the City of Brush shall end at any time the City determines.

Applicant Signature: Date: ______Printed Name: Title: ______======For City of Brush Use Only Applicant is:  approved for: ______ denied ______

Page 125 Page 126 Appendix

H. First Research industry reports with relevant associations and websites to monitor

City of Novato 2013 Retail Market Analysis Page 127 INDUSTRY PROFILE Toy & Hobby Stores 1.28.2013 NAICS CODES: 451120 SIC CODES: 5945

Industry Overview

Companies in this industry operate physical retail stores that sell new toys, games, and hobby and craft supplies; some also sell products online. Major companies include Toys "R" Us, Michaels Stores, and AC Moore Arts & Crafts (all based in the US); Citta del Sole (Italy), Hamleys (UK), LEGO Group (Denmark), and Toyworld (Australia).

The global toy market generates more than $83 billion in annual revenue, according to the NPD Group. Emerging markets include China and India, where rising disposable income is driving increased demand.

The US toy and hobby store industry includes about 9,000 stores with combined annual revenue of about $20 billion and is forecast to have low growth over the next two years. Improved consumer confidence in the US economy is expected to boost demand.

Competitive Landscape Consumer spending is a key driver of demand for toy and hobby stores. In addition, population growth among young children (under 12) drives demand for toy stores, and population growth among women 35 and older drives demand for hobby stores. The profitability of individual companies depends on the ability to generate store traffic and effective merchandising. Large companies offer wide selections and deep discounts. Small companies can compete effectively by offering specialized products, providing superior customer service, or serving a local market. The industry is highly concentrated: the top 50 companies generate about 85 percent of revenue.

Toy and hobby stores compete with mass merchandisers. Toy retailers also compete with consumer electronics stores, due to the increasing popularity of electronic toys and video games. Hobby stores compete with fabric and sewing goods stores in select market segments.

Products, Operations & Technology

Major products include toys (30 percent of sales), craft supplies (15 percent), and kitchenware and home furnishings (10 percent). Other products include games, hobby goods, artificial flowers, and sewing and knitting materials. Toy stores may provide assembly or delivery services. Hobby stores may offer classes, known as “how-to” seminars, and picture framing or floral arrangement.

Product Segmentation by Revenue - Census Bureau

Page 128 Toy and hobby stores include national chains, regional chains, and independent retailers. National and regional chains operate in large strip malls or stand-alone locations, and stores range from 18,000 to 45,000 square feet. Chains may operate midsized stores, ranging from 3,000 to 5,000 square feet, in indoor shopping malls. Independent retailers typically operate much smaller stores, often as small as 1,500 square feet. Chains consider proximity to distribution centers when opening new stores.

Large toy stores generate up to $9 million annually and average $240 per square foot. Large hobby stores generate between $4 and $5 million annually and average between $200 and $240 per square foot.

Inventory assortment depends on store size and product specialization. Large toy stores offer between 8,000 and 24,000 stock-keeping units (SKUs), while a specialty toy store may only carry 500. Large hobby stores carry up to 45,000 SKUs, while a specialty hobby store may offer 6,000. Most retailers must accommodate seasonal inventory, as demand for toys and hobby goods increases during holidays like Easter and Christmas. Inaccurate forecasting is a frequent problem and most retailers rely on end-of-season sales to clear merchandise. Some retailers use automated merchandise replenishment systems to minimize out-of-stocks and allocate products across stores. Stores receive inventory directly from suppliers or from off-site distribution centers. Large stores may receive shipments several times a week.

Toy and hobby stores buy products from manufacturers, importers, or distributors. Both retailers may offer unique private label products, which generate higher margins. Toy stores may depend greatly on major toy manufacturers due to the popularity of branded products like Barbie and Hot Wheels. Imports are a high percentage of toy and hobby products, and retailers may place orders up to six months in advance. Due to the importance of the winter holiday season, major toy retailers may place positional orders over a year in advance. Retailers attend trade shows (like the American International Toy Fair for toy stores) or craft fairs to help decide on merchandise.

Due to the large number of SKUs, companies rely on computerized inventory management systems to manage products at stores and distribution centers. Handheld radio frequency (RF) guns track in-store inventory. Companies may use electronic data interchange (EDI) to optimize purchasing. In addition, companies may use Internet-based transportation management systems to track merchandise shipments through the supply chain.

Sales & Marketing

The typical customer for toy stores is a parent or grandparent; the typical customer for hobby stores is a married, relatively affluent, educated woman 35 or older. Children under 12 receive the majority of toys.

Marketing and promotional vehicles include newspaper, TV, print, and radio advertising, direct mail, and in-store programs. Seasonal events, especially Christmas promotions, are extremely important. Toy stores may start marketing efforts as early as October, and increase activity around Thanksgiving. Hobby stores may begin holiday promotions as early as late summer due to time required for customers to complete Christmas crafts. Some toy stores offer registries or wish lists to aid in gift giving.

Toy stores may have interactive play areas where children can try products. Hobby stores may hold in-store demonstrations to promote a craft project.

Most toy and hobby stores have websites that provide store and product information, and both use customer email lists to communicate in-store events and promotions. Hobby store websites offer project ideas, instructions, and supply lists. Toy stores may operate retail websites internally or partner with an Internet retailer. Highly specialized retailers depend on the Internet to reach customers beyond physical locations.

Toy stores may price popular toys at a loss during peak selling periods to drive store traffic and compete with Page 129 mass merchandisers. Hobby stores may heavily discount end-of-season items or offer to match or beat competitors' pricing.

Finance & Regulation

Cash flow is highly seasonal, with the majority of sales during the winter holidays. Hobby stores experience seasonal peaks earlier, due to the popularity of Halloween and Thanksgiving crafts. Most companies incur additional expense prior to and during fourth quarter for additional inventory, seasonal staffing, and incremental advertising and promotions. Initial lease terms for toy and hobby stores range from five to 10 years. Leases typically include monthly rental payments, maintenance fees, utility charges, and insurance premiums. When stores close, companies are liable for the remaining lease liability. The industry is labor-intensive: average annual revenue per employee is about $115,000.

Toy and hobby retailers often carry large inventories to maintain high in-stock positions during the winter holidays. Companies may require financing to fund inventory. Receivables are low, since most customers pay with cash or third party credit cards. Large retailers may offer branded credit cards through commercial banks. Accounts payable ranges between 30 and 50 days sales. Companies require capital to open new stores and remodel existing stores. Gross margins range from 30 to 40 percent.

State and federal consumer protection laws regulate toy and hobby stores. The Consumer Product Safety Commission (CPSC) regulates safety requirements for toys, and has the authority to order product recalls or replacements.

International Insights The global toy market generates more than $83 billion in annual revenue, according to the NPD Group. Major toy retailers based outside the US include Citta del Sole (Italy), Hamleys (UK), LEGO Group (Denmark), and Toyworld (Australia).

Emerging markets include India and China. Hamleys has opened stores in India through its partnership with Indian company Reliance Retail and has future expansion plans. China has become a more important toy market as the number of consumers with growing disposable income in the country has grown. Toys R Us has paired up with Hong Kong-based Li & Fung Retailing for a joint venture to grow its licensed operations throughout Asia.

Importers from Asia supply the US with most toys, seasonal crafts and decorations, and artificial floral products. Foreign political and economic issues, tariffs, and transportation delays can affect the profitability of toy and hobby stores.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of toys to the US come primarily from China, Mexico, Japan, Taiwan, and Canada. Major export markets for US toys include Canada, Mexico, China, Paraguay, and Chile.

NAIC 33993 DOLLS, TOYS, AND GAMES

Regional Highlights

Page 130 In the US, regional chains operate stores within proximity of distribution centers. Additional distribution centers support expansion to new markets.

Human Resources

Most jobs in toy and hobby stores require few special skills, and workers are paid accordingly. The average hourly industry wage is significantly lower than the average for all US workers, and personnel turnover in retailing is high. The industry relies highly on part-time workers, especially during the winter holidays. Hobby stores try to recruit craft enthusiasts to provide better customer service and act as project demonstrators or class leaders.

The industry injury rate is moderately higher than the average for all workers, mainly due to falls and injuries from handling large containers of goods.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Depends on consumer income Require effective merchandising and store traffic Risk: Economic health affects spending on non-essentials

Industry Indicators

US consumer spending on nondurable goods, an indicator of toy and hobby sales, rose 1 percent in January

Page 131 2013 compared to the same month in 2012.

US personal income, which drives how much consumers spend on luxury items like toys, rose 2.2 percent in January 2013 compared to the same month in 2012.

US retail sales for sporting goods, hobby, book, and music stores, a potential measure of toy and hobby products demand, increased 5.9 percent in the first two months of 2013 compared to the same period in 2012.

US tourism spending on shopping, which impacts toy and hobby store revenues, increased 3 percent in the third quarter of 2012 compared to the same period in 2011.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Dependence on Consumer Income and Expenditures - Most consumers classify toys and hobby products as leisure purchases, and sales depend on personal income, consumer confidence, and economic health. During the late 2000s recession, personal consumer expenditures on recreational goods slowed considerably. Consumers typically cut leisure purchases and holiday spending during difficult economic times.

Competition from Alternative Retailers - Toy and hobby stores face strong competition from mass merchandisers like Wal-Mart and Target. In addition, toy stores must compete with consumer electronics retailers like Best Buy for sales of electronic toys and video games. By expanding craft and seasonal merchandise sections, fabric and sewing supply stores, such as Jo-Ann Stores, give hobby stores additional competition.

Business Challenges

Seasonal Sales - Toy and hobby stores depend highly on sales of traditional and seasonal merchandise during the winter holidays, as some retailers generate over half of operating income during fourth quarter. Companies may require financing to build inventory to prepare for holiday sales. In addition, inaccurate forecasting for seasonal items, such as Christmas products and Halloween costumes, can cause massive inventory write-offs.

Predicting Trends - Trends and fads drive sales for toy and hobby stores. Toy stores must attempt to predict what trends will be hot with kids. Children's unpredictability results in short product life cycles and high new product failure rates for toys. Craft popularity can be cyclical (old trends include macramé and needlepoint), and demand may differ by market area.

Shifting Demographics for Toy Stores - Growth in the population of young children, primarily under 12, drives toy demand. Swells in the population, driven by the after-effects of the baby boom, result in uneven demand. While the total population of children is projected to increase through 2050, families are having fewer children, limiting market growth.

Safety Issues for Toy Stores - Toy recalls can wipe out retailer inventory for a key product, and consumer concerns can affect category sales. The Consumer Product Safety Commission (CPSC) can issue involuntary recalls and manufacturers may issue voluntary recalls if a toy might be considered a safety hazard. Retailers that specialize in baby and toddler toys are especially vulnerable, since toys for the very young receive the most scrutiny.

Page 132 Business Trends

Declining Retail Prices - Retail prices for toys declined by nearly 40 percent between 2002 and 2011. Large mass merchandisers expand toy and seasonal merchandise departments during Christmas, and price popular toys at a loss to drive store traffic. Toy stores must match pricing to compete, and hope to generate profits on less popular and specialty toys.

Employment Growing - Industry employment increased 13 percent between 2002 and 2011. Large craft retailers have expanded due to lack of major competition and diversified product offerings. The economic downturn of the late 2000s and intense price competition from mass merchandisers and consumer electronic stores, on the other hand, forced some small toy stores and large chains such as Toys "R" Us to close locations. As the economy has gradually improved, so have toy sales.

Electronic Entertainment Slows Growth - Sales of traditional toys decreased 2 percent in 2011 over 2010, while the youth electronics category fell 5 percent, according to the Toy Industry Association and NPD Group, respectively. Toy stores must accommodate cyclical demand for video games, which depend highly on new hardware platforms about every five years. Sales of video games have slowed as a result of aging hardware and increased competition from smart phone game applications

Increasing Popularity of Crafts - Some 4 million new people take up crafts every year, according to the Craft and Hobby Association. More craft-oriented TV shows, websites, books, and magazines make crafting accessible to a wider audience. Cable stations like HGTV (Home and Garden Television) and DIY (Do-It-Yourself Network) provide new ideas and help increase the popularity of crafts.

Industry Opportunities

Product Specialization - By focusing on depth of selection versus breadth, specialty toy and hobby retailers have a competitive advantage over mass merchandisers. For example, stores that specialize in baby products, educational toys and crafts, specialty paper, or scrapbook supplies can offer customers a better selection and product expertise. Mass merchandisers are unable to dedicate the space and staff to support niche segments.

Superior Customer Service - Most mass merchandisers lack the resources to provide superior customer service, especially during the winter holidays. Small toy retailers can offer premium gift-wrapping, special orders, or toy personalization to differentiate from large retailers. Hobby stores can develop customer loyalty by offering craft workshops and staffing locations with craft enthusiasts.

Developing Community Relationships - Small stores are often integral parts of the surrounding community and can react quickly to local needs. Toy stores can participate in school fundraisers and youth sport events often overlooked by large retailers. Hobby stores can develop relationships with women’s and senior citizen’s groups to promote sales.

Unique Store Environments - Toy stores can offer play areas, which allow children to try toys before purchase and encourage parents to shop longer. Build-a-Bear Workshops provide entertainment value by letting customers customize stuffed animals in a theme park-like setting. Hobby stores exhibit completed crafts and allocate space for workshops and classes. Scrapbook stores display ideas for finished pages and allow customers to buy necessary materials and assemble pages in the store.

Baby Boomers - The aging of the baby boom generation increases the target market for hobby stores, as older adults may have more leisure time to dedicate to crafts and hobbies. Almost 90 percent of women between 55 and 64 participate in a craft, according to the Hobby Industry Association, and 40 percent of women over 75 craft. The US population of those age 65 and older is expected to increase by more than 35 percent between 2010 and 2020, compared to a 10 percent increase in the population as a whole.

Industry Websites

American Specialty Toy Retailing Association Specialty toy retailing trade association providing industry news.

Canadian Craft and Hobby Association News, events, and links.

Craft & Hobby Association

Page 133 Craft and hobby store trade association, includes the Hobby Industry Association (HIA).

Industry Canada - Hobby, Toy and Game Stores Industry statistics and company directory.

Neighborhood Toy Stores of Canada News, events, directories, and resources.

NPD Group - Toys Market research website for toy statistics and research on children.

Playthings Trade association – good source of industry news.

Toy Industry Association Toy industry trade association – good source for statistics and news.

Toys "R" Us Major toy retailer.

Glossary of Acronyms

CHA - Craft and Hobby Association

CPSC - Consumer Product Safety Commission

DIY - Do-It-Yourself Network

EDI - electronic data interchange

HGTV - Home and Garden Television

RF - radio frequency

SKU - stock-keeping unit

TIA - Toy Industry Association

Page 134 INDUSTRY PROFILE Sporting Goods Stores 4.1.2013 NAICS CODES: 45111 SIC CODES: 5941

Industry Overview

Companies in this industry operate physical retail stores specializing in sporting goods, athletic and fitness wear, fitness equipment, and related products. Major US companies include Big 5, Cabela's, Dick's Sporting Goods, Hibbett Sports, REI, and The Sports Authority.

The US retail sporting goods industry includes about 20,000 companies with combined annual revenue of about $38 billion. Moderate growth is forecast for the next two years. Key drivers of growth include disposable income and sports participation rates.

Competitive Landscape Demand is driven by population demographics and consumer income. The profitability of individual companies depends on merchandising and marketing skills. Large chains have an advantage in stocking a wide variety of goods. Small companies and specialty retailers can compete successfully by carrying a deeper product line in specialized sports, hiring highly experienced staff, offering repair services, or by serving a local market. The industry is concentrated: the 50 largest companies account for about 55 percent of revenue.

Products, Operations & Technology Sports equipment accounts for 65 percent of industry revenue; clothing, 20 percent; and footwear, 10 percent. Major equipment categories include exercise, hunting and firearms, golf, fishing, and camping.

Product Segmentation by Revenue - Census Bureau

Sporting goods stores vary according to format and merchandise. Large-format stores are from 20,000 to 200,000 square feet, stock a large number of items, and are typically found as anchor stores in strip malls or in stand-alone locations. Traditional sporting goods retail stores vary in size from 5,000 to 20,000 square feet,

Page 135 carry a more limited number of items, and are typically found in strip or enclosed malls. Specialty stores have a wide selection of items for just one or two sports, such as golf, tennis, skiing, and camping; are typically 2,000 to 20,000 square feet; and are located in enclosed and strip malls. Specialty sporting goods stores typically hire staff who are skilled in the designated sport, to appeal to hard-core athletes and beginners looking for expert advice. Local specialty stores try to differentiate themselves from the larger sports stores by connecting with the community through sponsoring local events, as well as offering special services such as repairs or in-store restaurants. Large-format stores typically have more than $5 million in annual revenue and more than 50 employees. Specialty stores have less than $1 million in annual revenue and fewer than 10 employees. Sporting goods are also sold by mass merchandisers like Wal-Mart, Kmart, and Target, and by catalog and Internet retailers such as L.L. Bean.

Although large chains can sell a broad range of merchandise at lower prices, small local stores can successfully compete by offering better service or specializing in a particular sport. Because the equipment for many sports is very technical, knowledgeable salespeople are a strong competitive factor. The operations of sporting goods stores are fairly straightforward: companies acquire merchandise, determine store layout, train employees, advertise goods, provide services, sell goods, and manage inventory. Some larger chains also operate specialty sports stores. For example, Dick's Sporting Goods operates the Golf Galaxy chain.

Product is acquired from manufacturers and about 1,000 wholesale distributors. Manufacturers regularly introduce new models, which often have only minor changes from older models. Trade shows are an important way of finding out about new products. The type of merchandise purchased varies according to the season and regional and local preferences. In addition to equipment, most retailers sell sports apparel and shoes. Imported sporting goods represent about 15 percent of industry retail sales. Sporting goods imported into the US come primarily from China, Taiwan, and Canada. Nike, mainly a manufacturer of shoes and sports clothing, is one of the biggest vendors to Dick's Sporting Goods, accounting for about 15 percent of its merchandise.

Store layouts and merchandise presentation are often changed, especially in large-format stores that try to maintain the atmosphere of a collection of specialty departments. Layout and presentation may be designed with the help of special merchandise planning and analytics software. Because much sports equipment is highly specialized, employees must be trained to understand and explain differences. Companies typically try to recruit employees who are avid sports participants. Many companies rely on part-time employees for 50 percent or more of their workforce.

Inventory management is a major concern for all sporting goods retailers because of the large numbers of items they sell and the short selling season for many sports. Chains usually supply their stores from a central distribution facility, with weekly resupply based on sales. Hibbett Sports supplies most of its some 800 stores from a single 220,000 square foot distribution facility. Many companies use highly sophisticated computerized inventory management systems that include point-of-sale (POS) terminals, scanners, and handheld radio frequency terminals to record merchandise receipts, print pricing labels, monitor inventory levels, facilitate automatic inventory replenishment, and identify popular items.

Sales & Marketing

Marketing is typically through a combination of advertising and promotional events. Advertising is most often through newspaper ads, inserts, direct mailings, and billboards. Stores often have special sales associated with seasonal sports, like skiing. Many companies sponsor local sports events or competitions and host store appearances by sports celebrities. Stores provide technical services, such as racquet stringing, skate sharpening, ski adjustments, and bike overhauls, to build customer loyalty. Some stores feature "participation areas," like basketball hoops and climbing walls. In addition to selling individual items, many stores specialize in selling team uniforms and equipment to local schools and clubs. To promote products, many manufacturers provide cooperative marketing funds to retailers.

Finance & Regulation

The revenue of many sporting goods retailers is seasonal, particularly if they specialize in just one or two sports. Even full-line retailers have seasonal swings, with sales strongest in fourth quarter. Retailers generally lease space rather than buy real estate to house stores. Lease payments may include a percentage of gross sales. Lease renewals are usually at the option of the retailer. Gross profit margins range from 30 to 40 percent. The industry is labor-intensive: average annual revenue per employee is about $150,000.

The activities of retailers are passively regulated by state consumer laws and the FTC to ensure fair pricing and sales practices. Retailers who sell firearms must comply with all local, state, and federal laws related to background checks and data collection.

Regional Highlights Demand for different types of sports merchandise varies by geographical region. Demand is strongest in regions with rapidly growing population. States where population has grown the most in recent years include California, Georgia, Florida, North Carolina, and Texas. States with the most sporting goods retailers include California,

Page 136 Florida, New York, and Texas.

Human Resources Employees in retail operations are involved mostly in stocking shelves, operating cash registers, and answering customer questions. This largely unskilled work pays low wages, significantly lower than the national average. Companies try to attract and retain employees with special technical knowledge about sports and sports equipment, particularly in specialty stores. Employee turnover in retail sales is moderately higher than the national average.

Like other retailers, sporting goods companies rely heavily on part-timers due to uneven customer traffic during the day, week, and year. Since part-time workers usually receive only minimal benefits, the total cost of benefits is small relative to payroll expense. The indirect benefits given to workers are discounts of 15 to 25 percent on what they buy. The injury rate for the industry is slightly lower than the average US rate.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to consumer income and demographics Need good merchandising and marketing Risk: Economic health affects spending on non-essentials

Industry Forecast

Page 137 US personal consumption expenditures on sporting equipment, footwear, guns, recreational boats, and aircraft, are forecast to grow at an annual compounded rate of 3 percent between 2013 and 2017. Data Published: March 2013

Consumer Spending Growth on Sport Equipment Slows

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Dependence on Consumer Income - The revenue of sporting goods stores is sensitive to the health of the economy, as sports are leisure activities for most participants. Spending on sporting goods correlates strongly with declines or gains in consumer income. During the late 2000s recession, sporting good sales stalled, following years of growth after the early 2000s recession.

Slower Growth of Athlete Population - Demographics play a big part in sporting goods sales, since participation in sports tends to vary among different age groups. The number of Americans ages 5 to 19, the most athletically active segment of the population, will increase 7 percent from 2000 to 2020. A more affluent and still active group, those ages 20 to 45, will grow only 4 percent.

Business Challenges

Competition from Mass Merchants - Large discounters like Wal-Mart with big sports departments have rapidly expanded in recent years. Wal-Mart is now considered the largest retailer of sporting goods and toys. In general, mass merchants carry a more limited selection of sporting merchandise.

Seasonal Demand - Typically, sporting goods products are bought for back-to-school, seasonal, holiday needs, or around Christmas time for gifts. Some sporting goods, like tennis rackets and surfing gear, are usually

Page 138 purchased in spring and summer, while other goods, like skis, are bought in fall and winter. Hunting season is usually in fall and winter, a time when gun sales usually increase.

Competition from Electronics - The US sporting goods industry competes for attention with electronic and entertainment leisure diversions like TV, movies, the Internet, and especially video games. The increasingly sedentary habits of children, seen through a steady increase in childhood obesity, partly reflect the strong growth of video gaming in recent years, especially among teenage boys.

High Employee Turnover - A shortage of knowledgeable employees is a major problem for sports retailers. Smaller stores, especially, rely on having greater expertise in particular sports to draw customers. Annual employee turnover in the retail sales industry can reach 60 percent. A typical 20,000 square foot store requires 20 to 25 employees.

Regional Preferences - Merchandise should reflect the needs of the local customer. Stores often study local sports trends to maintain a supply of products for each community's special interests. Stores also carry apparel that reflects the community's interests in regional college and professional sports teams.

Minimum Wage Laws - Retailers must follow state and federal minimum wage changes since many employees are often paid minimum or near-minimum wage. The federal minimum wage increased incrementally in 2008 and 2009, to $7.25 an hour. Some states such as California have passed higher minimum wage standards.

Business Trends

Changing Tastes - A National Sporting Goods Association (NSGA) sports participation survey shows that the popularity of various sports has changed in the last decade: running, gym workouts, and target shooting have increased in popularity, while golf, in-line roller skating, skateboarding, and cross country skiing have decreased. Among teenagers, participation has dropped in most activities over the past decade, except aerobic exercising, target archery, walking, equipment exercising, ice hockey, and kayaking.

Multiple Growth Strategies - Strong demand for sporting goods in the past decade allowed many sporting goods retailers to expand operations, using different strategies. Large-format retailers like Sports Authority followed a strategy of entering large new markets with multiple stores, benefiting from shared marketing and distribution. Smaller retailers like Hibbett have followed a strategy of serving mid-sized markets, avoiding competition from the large-format companies. Companies like Dick's Sporting Goods have grown by acquiring other retailers.

Catalog Sales - Every year in the first quarter, mail order and sporting goods makers' catalogs are mailed to potential customers. Many sporting goods catalogs have only 25 to 75 pages, but some, including the "master" catalogs published by Cabela's and Bass Pro Shops, can have more than 700. Many fishers and hunters prefer to buy equipment locally, but firms like Cabela's and Bass Pro have huge selections that few local stores can rival.

Private, Exclusive Brands - Stores that carry private and exclusive brands differentiate themselves from the competition. Dick's carries its own private labels, such as Tailgate Gear, and also exclusive lines from Reebok, Umbro, and Field & Stream. Companies receive higher gross margins on the private and exclusive brands than on sales of comparable products.

Loyalty Programs - Some sporting goods retailers offer loyalty programs as incentives for customers. The programs offer customers points for buying merchandise as well as other activities such as referring friends to the store or taking surveys. Points add up to store discounts, coupons, or other bonuses. For example, Hibbett has an MVP loyalty program and Dick's has a ScoreCard Rewards program.

Industry Opportunities

More Apparel, Accessories - For some retailers, sports apparel is the best-selling product, ahead of athletic shoes and sports equipment. Many consumers wish to project an athletic image, even if they only occasionally engage in sports. The popularity of hiking, camping, and gym workouts have also sharpened consumer demand for outdoor and indoor sports apparel.

Internet Sales - Although many sporting goods retailers operate Internet sites, the volume of online sales remains small compared to store sales. Internet sites have been most effective at selling specialized equipment normally not found in local stores. Specialty retailer Cabela's operates retail stores, but receives nearly 40 percent of its sales through its direct sales channels including the Internet.

New Sports Activities - Increasing participation in nontraditional sports such as BMX biking, roller hockey, and

Page 139 handgun target shooting could create demand for new segments of sporting gear. The number of regular BMX biking participants jumped by 40 percent from 2010 to 2011, according to the Sporting Goods Manufacturers Association, while roller hockey participation increased 21 percent over that same period. Participation in these niche activities has not come at a cost to traditional sports, which could increase overall demand for athletic apparel and equipment.

Team Sport Sales - Some sporting goods stores also supply customized athletic apparel to local sports teams. Hibbett Sports sells apparel, equipment, and footwear to schools and youth associations through its Hibbett Team Sales unit. Supplying athletic apparel can help diversify a retailer's revenue stream.

University Research - Sporting goods manufacturers can turn to universities for research on new product development. For example, MIT's Center for Sports Innovation tests and creates new sporting goods products, charging low fees for research in exchange for hands-on experience for students.

Industry Websites

Canadian Sporting Goods Association Newsletter, research, and employment resources.

National Association of Sporting Goods Wholesalers Mainly hunting and fishing.

National Sporting Goods Association Industry statistics, issues, and trade show calendar.

Sports & Fitness Industry Association News and industry research.

SportsOneSource News on the industry.

Glossary of Acronyms

NSGA - National Sporting Goods Association

POS - point-of-sale

SGMA - Sporting Goods Manufacturers Association

SGMAI - Sporting Goods Manufacturers Association International

Page 140 INDUSTRY PROFILE Restaurants 2.18.2013 NAICS CODES: 7225 SIC CODES: 5812

Industry Overview

Companies in this industry operate restaurants and other eating places, including full-service restaurants (FSR), quick-service restaurants (QSR), cafeterias and buffets, and snack bars. Major companies include Bloomin’ Brands (Outback Steakhouse, Carrabba’s Italian Grill); Brinker International (Chili’s Grill & Bar, Maggiano's Little Italy); Darden Restaurants (Olive Garden, Red Lobster); McDonald's; and YUM! Brands (KFC, Pizza Hut, Taco Bell).

The US restaurant industry includes about 550,000 restaurants with combined annual revenue of more than $400 billion. Moderate growth is forecast for the next two years. Key growth drivers include innovations in menu items and dining concepts.

Competitive Landscape Demographics, consumer tastes, and personal income drive demand. The profitability of individual companies can vary: while QSRs rely on efficient operations and high volume sales, FSRs rely on high-margin items and effective marketing. Large companies have advantages in purchasing, finance, and marketing. Small companies can offer superior food or service. The industry is highly fragmented: the 50 largest companies account for about 20 percent of revenue.

Restaurants compete with companies that serve meals or prepared foods, including grocery stores, warehouse clubs, delis, and convenience stores. In addition, restaurants compete with home cooking.

Products, Operations & Technology Products include appetizers, entrées/main dishes, desserts, and beverages. Companies may specialize in a certain type of cuisine (such as Italian, Chinese, or barbecue); entrée (sandwiches, steak, seafood); or other food item (pretzels, smoothies). Among FSRs, most establishments focus on Italian cuisine, steak, or seafood. Hamburger joints make up a majority of QSR locations, along with pizza parlors and sub sandwich shops. Industry revenue is roughly evenly split between FSRs and limited service.

At QSRs, customers generally order and pay before eating. While most QSRs are fast-food restaurants, QSRs also include fast-casual restaurants, which offer higher quality, more expensive food without table service. In FSRs, waiters take orders, serve beverages and meals, present the check, and process payment. FSRs include casual dining (full bar); family dining (limited bar); and fine dining establishments.

The industry includes national and regional chains, franchises, and independent operators. The majority of companies are independently owned and operated, although many QSRs are franchises of large national chains. Franchises allow individual owners to leverage a well-known brand name and benefit from the purchasing efficiencies and operational expertise of the franchiser. Franchise agreements generally cover a specific geographical market and outline restaurant operating requirements, such as hours of operation, menu offerings, and pricing. Annual sales average $840,000 for FSRs and $740,000 for QSRs, according to the National Restaurant Association.

The food preparation area of a restaurant is known as the "back of house," while the dining area is known as the "front of house." Food prep areas include the kitchen, cold storage, and dishwashing areas. Dining space may include bars, outdoor seating, or banquet rooms. Upscale restaurants often feature unique decor to create a distinctive ambiance. An FSR's square footage and the number of seats and tables dictate how many patrons it can serve and directly affect sales. Because the restaurant industry is highly competitive, site selection is critical: companies may consider population density, household income, competition, visibility, accessibility, and traffic.

Page 141 Food preparation varies depending on restaurant type. QSRs typically offer a limited number of simple items, which allows companies to train unskilled workers to prepare food. Most chains have strict operating procedures for food preparation to ensure consistent quality and food safety. FSRs offering expensive fare or a wide variety of menu options have more complex operations and require larger staff. An executive chef, assisted by a sous chef, oversees kitchen operations and may be involved in the business end of restaurant management. Line cooks are responsible for various kitchen stations, such as the grill, sauté, or fryer. Prep cooks prepare ingredients for cooking. Pastry chefs create desserts.

Companies typically buy supplies from food distributors. Some restaurants buy directly from local farms or farmers markets. Large chains may contract with suppliers to minimize volatile commodity costs. Companies carefully manage inventory of perishable food products, such as fresh seafood and dairy goods, to reduce losses due to spoilage.

When developing menus, restaurants consider ingredient availability, cooking equipment, labor requirements, physical space, and cost. The mix of menu options must balance popularity and profitability. Some companies change menu selections seasonally, with some high-end restaurants creating new menus daily. While menu options can vary widely, frequently consumed restaurant foods include hamburgers, french fries, pizza, salads, sandwiches, chicken, and seafood. Alcoholic beverages are important contributors to total sales, particularly for FSRs and especially for high-end restaurants. Companies may offer an alternative menu for children or those with special dietary needs.

Restaurants rely on imports to get out-of-season fruits and vegetables, exotic foods, and seafood. Mexico is an important source of produce. Canada, Chile, and many Asian countries, including China, Thailand, Indonesia, and Vietnam, are major suppliers of seafood.

Computerized information systems can improve and link food preparation and serving operations. Touchscreen ordering programs ensure accurate communication of customer orders. Timing systems monitor meal progress and can alert staff if an order is running behind schedule. Reservations programs maximize traffic flow and seating. Inventory management systems track supply levels and can help reduce waste due to spoilage. Cost accounting programs help companies determine the profitability of individual menu items. Handheld point-of-sale (POS) devices allow servers to place orders and print checks tableside, improving accuracy and reducing ordering time. Some handhelds can also print customer checks and process credit card payments.

Sales & Marketing

While restaurants appeal to a broad demographic, young adults without children are most likely to dine out, according to NPD Group. Young men are an important segment for QSRs, tourists are more likely to visit FSRs, and households with children tend to order take-out.

Marketing and promotional vehicles include TV, print, radio, and outdoor advertising; direct mail; and newspaper insert coupons. Franchises typically contribute to corporate advertising funds and may run separate local marketing programs. Relationships with hotels can help drive tourist traffic. Word-of-mouth is especially important for small, independent restaurants with limited marketing budgets. Companies may also implement loyalty programs by offering discounts and free food for frequent visits.

Customer service is a critical element of the dining experience for FSRs, particularly in the high-end segment. Expensive restaurants may assign multiple waiters to a single table to ensure attentive service. Customers may expect waitstaff to have in-depth knowledge of menu offerings and recommend wine pairings. Developing personal relationships with regular patrons helps create a loyal customer base. Most QSR customers expect fast service and accurate order fulfillment.

Restaurants use Internet sites to post basic information, including menus, directions, and hours of operation. Some companies allow customers to make reservations or place take-out, dine-in, or delivery orders through websites. Customers can sign up for email and cell phone notifications that communicate daily specials.

For casual-dining chain restaurants, individual checks average up to $25, according to Technomic. In the most expensive restaurants, checks regularly exceed $100 and entrées alone can cost $40 or more. Quick casual restaurant checks typically range from $6 to $9.

Finance & Regulation

Sales are slightly seasonal, and peak during the summer. Bad weather can depress sales. Receivables are low because most customers pay with cash or third-party credit card. Many ingredients are perishable, so most companies keep low inventories. Cost accounting is important, since the profitability of individual dishes can vary significantly. Gross margins are about 60 percent of sales. For FSRs, food/beverage costs and payroll are each about one-third of sales, according to the National Restaurant Association. Credit card fees are typically 2 percent of sales. The industry is labor-intensive: annual revenue per worker is less than $50,000.

The cost of building a restaurant can vary, and depends heavily on whether companies own or lease property

Page 142 and if the restaurant is a new concept, an existing business, or a franchise. The investment for a new restaurant, including leasing a property or buying land, can run into the hundreds of thousands of dollars. Franchise agreements typically include an initial payment, royalties based on a percentage of sales, and marketing fees.

Federal, state, and local government laws regulate restaurant operation, food safety, and worker protection. Local officials regularly inspect restaurants to enforce health, sanitation, safety, fire, and liquor licensing regulations. Noncompliance can result in temporary or permanent closure. Highly publicized food poisoning incidents involving contaminated ingredients and improper preparation have increased attention on restaurant sanitation. Immigration laws can affect restaurants' available labor pool.

Regional Highlights Restaurants thrive in rapidly growing areas of the country. States with the highest population growth in recent years have included Texas, California, Florida, Georgia, and North Carolina.

Regulations governing the industry may vary among states and among local governments. Heightened consumer and government concern over obesity has resulted in certain jurisdictions restricting the use of trans fats and requiring restaurants to post detailed nutrition information.

Human Resources Many entry-level jobs, such as servers, dishwashers and bus staff, require few skills, with some positions paying at or slightly above minimum wage. Most servers rely on tips to supplement income. Average hourly wages at food service and drinking establishments, including restaurants, are significantly lower than the average for all US workers; as a result, the industry depends on part-time help. In some areas, companies rely on undocumented workers to maintain staffing. Unpredictable restaurant traffic and rapid worker turnover make staffing and scheduling a constant challenge. The injury rate in the restaurant industry is slightly lower than the national average.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Page 143 Industry Growth Rating

Demand: Tied to consumer demographics, spending, and tastes Need efficient use of low-cost labor Risk: Volatile supply costs and increasing competition

Industry Indicators

US consumer spending on services, an indicator of restaurant sales, rose 1.8 percent in January 2013 compared to the same month in 2012.

The average US retail price for diesel and regular gas, which influences discretionary consumer spending on eating out, fell 0.8 percent and 3.1 percent, respectively in the week ending March 11, 2013, compared to the same week in 2012.

US tourism spending for food services and drinking places, an indicator for restaurant revenues, increased 5.9 percent in the third quarter of 2012 compared to the same period in 2011.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Volatile Supply Costs - Unstable manufacturer prices for ingredients used in restaurants can significantly impact restaurant profitability. Commodity markets affect wholesale prices for beef, poultry, and fish, where prices can change more than 10 percent in a single year. Supply issues can affect the cost of seafood. The wholesale price of flour, eggs, dairy products, fats, and oils can also increase rapidly and affect restaurant margins. Consumer price sensitivity can limit a restaurant's ability to completely pass through cost increases.

Increasing Competition - Restaurants face increasing competition from a broad range of businesses vying for consumers' food dollars. Grocery stores and warehouse clubs are providing more ready-to-eat meals and sides, often at a better value than restaurants. Convenience stores, gas stations, coffee shops, and delis sell sandwiches and beverages, cutting into restaurants' share of the lunch market. Home cooking is also a source of competition, as about half of American consumers eat at home more often.

Business Challenges

Ingredient Contamination - Deaths and illnesses caused by contaminated food and raw ingredients have been well publicized, and can affect sales across all types of restaurants. Contamination through poor sanitation or worker error can destroy a company's reputation. The presence of E. coli, mad cow disease, or salmonella affects the entire supply chain, and can leave restaurants scrambling to find alternative suppliers. Avian flu

Page 144 scares can affect supply and demand for poultry products.

Labor Issues - Restaurants struggle to deal with labor shortages, immigration policy changes, high turnover, and minimum wage policies. The labor shortage of young workers significantly challenges restaurants as they try to expand and provide acceptable customer service. As some restaurants rely on undocumented workers, tightening immigration policies can further shrink the labor pool. Due to low pay, recruiting and retaining entry-level workers is a constant challenge. Minimum wage hikes at the federal and state level can detrimentally affect labor costs.

Demand Dependent on Consumer Spending - Restaurant meals are generally more expensive than home cooking, and sales depend on consumer spending. During the late 2000s recession, sales growth in restaurants slowed and QSR employment declined as consumers cut unnecessary expenses. Slow restaurant traffic during tough economic times can depress sales.

Maintaining Franchise Relations - Keeping franchisees happy while ensuring franchise agreement compliance is a difficult balancing act for many companies. For some large companies, franchise outlets outnumber company-owned by a wide margin. Disagreement over national ad campaigns, media spending, capital projects, and new products can lead to tenuous relationships. Poorly managed franchises can damage consumer perception of an entire chain; many companies struggle to turn around underperforming outlets.

Health Concerns - Growing consumer and government concern over the high fat/high calorie content and excessive portion size of some restaurant foods has resulted in bad publicity and state-sponsored legislation. Multiple customer lawsuits accusing fast food restaurants of contributing to obesity have resulted in harmful publicity. The remote possibility of a settlement could have a drastic effect across the food industry. Related state bans on trans fats may require restaurants to change recipes or incur additional costs.

Liability Associated with Serving Alcohol - Risks associated with serving alcohol include liability for the actions of intoxicated customers and legal consequences from selling to underage patrons. Certain states have "dram shop" laws that hold restaurants liable for damages caused by inebriated customers. Companies that serve alcohol to underage customers may incur fines and risk temporary or permanent closure.

Business Trends

Modest Sales Growth - A slowing US economy has not stopped sales growth for restaurants. Sales growth in food service and drinking places (which include FSRs and QSRs) grew modestly from 2009 through 2011. Spending at restaurants as a share of total food spending has remained fairly constant over that time span. Some consumers are choosing to eat out less rather than go to less expensive restaurants or cut restaurant spending.

Fast Casual Sales Growth - The fast casual restaurant segment, which accounts for about 15 percent of all quick-service restaurant sales, is expected to post compound growth of 8 percent annually through 2016, according to Technomic. By straddling the middle ground between FSRs and fast food restaurants, fast casual restaurants aim to offer quality food at a good value in a relaxed environment. Some fast casual restaurants are focused on increasing sales with new menu items aimed at breakfast, dinner, and snack occasions. Catering can also deliver large sales and generate awareness.

Demand for Healthy Menu Options - Amid reports of rising obesity rates in the US, healthy eating has become a major concern for many Americans. Three out of four consumers say they are trying to eat healthier foods when they dine out, according to the National Restaurant Association. Locally sourced produce and meats, as well as organic food items, are increasingly finding their way onto restaurant menus. At the same time, about 60 percent of adults say they intend to eat smaller food portions as part of a healthier lifestyle, according to NPD Group.

Industry Opportunities

Millennials Driving Future Growth - Younger consumers could become an increasingly important demographic group for restaurants because they eat out more often and snack more than older customers, according to research from The Boston Consulting Group reported by Nation’s Restaurant News. Millennials spend an average of $170 dining out in a typical month, mostly at quick-service and fast-casual restaurants. Unlike older consumers, Millennials are more likely to go to a restaurant during off-peak times for a snack between meals. In addition, Millennials are driven more by convenience and are drawn to restaurants that offer healthy or exotic food options.

Adding Organic Menu Options - Companies can leverage growing consumer interest in the environment and healthy eating by adding organic and locally produced menu choices. About three out of four restaurant goers

Page 145 say they are more likely to visit a restaurant that offers locally produced menu items, according to the National Restaurant Association. Restaurant operators are responding to this trend: more than half of restaurants now use locally sourced ingredients. By using organic ingredients, sustainable seafood, and antibiotic and hormone-free meats, restaurants can appeal to environmentally conscious customers. Many consumers are willing to pay a premium for environmentally conscious food.

Social Media Marketing - About 90 percent of restaurant operators say they plan to use social media services like Facebook and Twitter to market themselves online, according to the NRA. About a third of consumers say they would follow a restaurant through social media if dining specials were advertised. In addition to online media, technologies such as electronic ordering systems, self-ordering kiosks, and menus on tablet devices may help shape the restaurant business in the future.

Fast Casual Dining Options - Casual dining restaurants could increase business by developing a fast-casual counterpart to serve busy consumers on the go. Fast casual dining concepts like Chipotle Mexican Grill and Five Guys Burgers and Fries offer the convenience of fast food counter service along with quality ingredients typically used at full-service restaurants. With the segment gaining in popularity, chains such as Famous Dave’s, Denny’s, and Ruby Tuesday have developed limited service prototypes as an offshoot of their brand.

Industry Websites

Canadian Restaurant and Foodservices Association News, research, products and events.

Nation’s Restaurant News Industry news and trends.

National Restaurant Association Industry news, trends, research, and consumer information from trade association.

NPD Group Eating and cooking trends.

QSR Magazine Articles, industry reports, and resources.

Restaurant Finance Monitor Industry and company-specific news.

RestaurantOwner.com Restaurant operations, business tools, and surveys.

Technomic Industry and category sales, forecasts, and other market research.

Glossary of Acronyms

FSR - fullservice restaurant

NRA - National Restaurant Association

POS - point-of-sale

QSR - quickservice restaurant

Page 146 INDUSTRY PROFILE Pet & Pet Supplies Stores 4.15.2013 NAICS CODES: 45391 SIC CODES: 5999

Industry Overview

Companies in this industry operate physical retail establishments that sell pets, pet foods, and pet supplies. Major companies include PetSmart, PETCO Animal Supplies Stores, and Petland (all based in the US), along with Global Pet Foods and Pet Valu (Canada), and Pets at Home (UK).

The global pet and pet supply store market is concentrated in the Americas, Europe, and the Asia/Pacific region; pets are less common in South Asia, Africa, and the Middle East. Major pet populations exist in Brazil, China, Russia, Indonesia, and Japan. However, the largest pet market by a wide margin is the US.

The US pet and pet supply store industry includes about 8,800 stores with combined annual revenue of about $12 billion and is forecast to have a moderate-growth rate in the next two years. Key drivers of growth include increasing income levels, as well as a trend toward pet humanization, or treating pets like family members.

Competitive Landscape

Pet ownership drives demand, and spending generally resists economic cycles. Profitability for individual companies depends on the ability to generate store traffic and effective merchandising. Large companies offer low prices and wide selections of both products and services. Small companies compete effectively by serving a local market, selling unique products, offering specialized services, or providing pet expertise. The industry is concentrated: the 50 largest companies account for about 70 percent of revenue.

Competitors include grocery stores, warehouse clubs, mass merchandisers, Internet retailers, and some veterinary clinics.

Products, Operations & Technology

Major product segments include pet food, pet supplies, aquarium products and fish, and pets. Pet food accounts for 40 percent of sales, pet supplies for 40 percent, aquarium products and fish for 10 percent. Pets and pet care services each account for about 5 percent. The pet food segment primarily consists of dog and cat food. Pet supplies include pet toys, collars and leashes, cages and habitats, and vitamins and supplements. Types of pets sold include dogs, cats, fresh and saltwater fish, birds, reptiles, and small animals (mostly hamsters and gerbils).

Service Segmentation by Revenue - Census Bureau

Page 147 Pet stores include national chains, franchises, and independent retailers. National chains operate a "superstore" format, which can exceed 20,000 square feet. Pet superstores are located in high traffic areas, usually in large strip malls, co-anchored by other strong superstores. Pet store franchises vary in size, but generally have smaller stores of about 8,000 square feet. Smaller stores allow franchises to locate in smaller shopping centers, closer to neighborhoods. Independent pet stores serve small markets and average 3,000 square feet.

Pet superstores generate about $3 million of revenue annually, with sales per square foot about $200. A typical pet store franchise has $2 million of annual revenue, or $250 per square foot. Smaller independent pet stores generally have revenue under $1 million, with sales per square foot under $200.

Pet superstores carry large inventories, and can offer more than 10,000 different products. Superstores may offer veterinary services, grooming, and obedience classes. Pet store franchises let independent owners customize inventory for a local market, with large franchises capable of offering thousands of different products. Both chains and franchises offer private label products. Independent pet stores may carry unique inventory, like exotic animals (pythons, chinchillas, bearded dragons) or organic pet food. Most pet stores are known for selling premium pet foods, which are generally not available through grocery stores and mass merchandisers due to manufacturer restrictions.

Chains and franchises buy large quantities of key products like dog and cat food directly from manufacturers at deep discounts. Independent pet stores purchase directly from smaller manufacturers or distributors. Trade shows are an extremely important source of information, since the pet supply industry is highly fragmented.

Many pet stores must provide care and maintenance for live animals. Some pets are highly perishable or require special care and feeding. In general, independent pet stores generate a higher percentage of sales from live pets than do pet superstores.

Chains and franchises employ computerized inventory management systems to track tens of thousands of items from thousands of different suppliers. Independent pet stores also use computers to track how fast items move. Chains may use electronic data interchange (EDI) to automate the purchasing process. Radio frequency identification (RFID) improves the efficiency of PetSmart's distribution system.

Sales & Marketing The typical pet store customer is a family with children that has higher-than-average income. Over half of US households own a pet; the most popular are dogs, cats, or fish.

The primary marketing and promotional vehicles include TV, print, and radio advertising, direct mail, and newspaper circulars. To generate store traffic, pet stores may hold special events like pet adoption drives. Major chains offer customer loyalty programs that offer discounts and rebates. Loyalty programs also allow companies to collect consumer information and perform market research. Independent pet stores rely heavily on referrals from other customers and repeat business.

Some companies have Internet retail websites or link to complementary websites. Other companies provide information only about store locations, products, services, or pet care. Internet operations are especially important to highly specialized independent pet stores, which may serve customers outside their local market area. Sales of pet food are limited over the Internet due to the high shipping charges customers must pay.

Pet stores discount dog and cat food to drive store traffic and generate incremental sales from complementary pet supplies with higher margins. Pet store dog and cat food pricing is typically competitive with that of grocery stores, but higher than mass merchandisers. Some chains price lower than grocery stores. In addition, pet stores may offer competitive pricing on veterinary services, boarding, and grooming.

Page 148 Finance & Regulation

Cash flow is just slightly seasonal, with a minor peak during the winter holidays depending on the types of products sold. Receivables are low since most customers pay with cash or third-party credit cards. Companies require capital to add locations or remodel existing stores. The industry is labor-intensive, with annual revenue per employee of about $110,000. Revenue per employee for small, independent pet stores is significantly lower than for major chains.

Most companies lease their locations. Initial lease terms for pet superstores range from 10 to 20 years, but for pet store franchises and independent pet stores vary depending on size and location, and average three to five years. Leases typically include a base payment and may include a percentage of sales, maintenance fees, or advertising charges.

The USDA regulates the handling and sale of small animals. Veterinary practices, pet boarding, pet transport, and waste management are regulated by federal, state, and local laws, which vary greatly. Companies with stores in multiple states are challenged by following different sets of local rules and requirements.

International Insights The global pet and pet supply store market is concentrated in the Americas, Europe, and the Asia/Pacific region; pets are less common in South Asia, Africa, and the Middle East. Major companies based outside the US include Global Pet Foods and Pet Valu (both based in Canada), along with Pets at Home (UK).

Major pet populations exist in Brazil, China, Russia, Indonesia, and Japan. However, the largest pet market by a wide margin is the US, where about 60 percent of households have pets, according to the American Pet Product Association. Pet preferences vary from country to country; Brazil trails only the US in dog population, for example, while Russia trails only the US in cat population, according to the World Society for the Protection of Animals.

Many companies rely on imports from China for low-price versions of products, like plastic pet toys and birdcages. Traditional pets (like some turtles) and exotic pets (like pythons or chinchillas) are often imported. The US has banned imports of certain species due to communicable diseases in the animals, which could be passed to other pets or even humans.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of pet food to the US come primarily from China, Canada, Thailand, Ireland, and Germany. Major export markets for US pet food include Canada, Japan, China, Mexico, and Indonesia.

NAIC 31111 ANIMAL FOODS

Regional Highlights

US dog and cat owners have traditionally lived in more rural locations, but more city dwellers have become pet owners in recent years, according to the American Pet Products Association (APPA). Pet owners in the eastern US are more likely to own small animals, including gerbils and hamsters; in the western US, birds and reptiles.

Page 149 Human Resources

Most pet store employees require minimum skills and are paid accordingly. Average hourly industry wages are moderately lower than the average for all US workers. Pet stores rely greatly on part-time help. A high employee turnover rate makes hiring and training an ongoing part of operations. Employees of highly specialized independent pet stores, especially stores selling exotic animals or expensive aquarium systems, require more extensive knowledge and training. The industry injury rate is double that of the national average, driven primarily by sprains and lacerations.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to pet ownership Need good merchandising and store traffic Risk: Economic health affects spending on high-margin pet items

Industry Indicators

Total US consumer spending, an indicator of pet store sales, rose 1.2 percent, primarily from services expenditures, in January 2013 compared to the same month in 2012.

US personal income, which drives consumer spending on pets and pet supplies, rose 2.2 percent in January 2013 compared to the same month in 2012.

Page 150 Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Commodity Prices Changes in prices for commodities, such as crops, metals, and other raw materials

Critical Issues

Competition from Alternative Channels - Pet stores face intense competition from mass merchandisers, warehouse clubs, grocery stores, and Internet retailers. Mass merchandisers and warehouse clubs offer lower prices on pet food, and represent a significant portion of pet product sales. Grocery stores offer convenience, and Internet retailers offer a wide range of supplies at extremely competitive prices. Recognizing the profitability of pet products, even hardware stores are establishing pet sections.

Sales Depend on Consumer Spending - Consumer spending impacts sales growth at pet stores. Lack of credit availability, weather, consumer confidence, unemployment, and overall economic malaise can lead to sales declines. For companies that depend on sales of higher-margin products, a downturn in the economy can have a devastating effect on revenues since many consumers will shift to cheaper items.

Business Challenges

Industry Concentration - A few big companies control more than half of all industry sales and, as a result, enjoy volume discounts that they can pass on to consumers. Access to capital also allows large companies to expand quickly, which can impact small retailers in the same market. As a result, the total number of US pet stores has been declining annually.

Fragmented Pet Supply Industry - Companies rely on thousands of small manufacturers for pet supplies. Small manufacturers may offer a limited selection of products, are more susceptible to economic downturns, and often rely on facilities overseas to hold down costs. Any disruption in operations could leave pet stores in out-of-stock positions on key products. Pet supplies, a significant source of revenue, represent significant sales for superstores.

Premium Pet Foods in Grocery Stores - Most premium pet foods weren't available in grocery stores until Procter & Gamble acquired the Iams brand of premium pet food and introduced it to grocery stores. As a result, pet stores lost sales of both Iams pet food and any complementary sales due to decreased store traffic.

Controversy Over Selling Live Animals - The overpopulation of dogs and cats, and controversial breeding programs known as puppy mills, have led some organizations to protest the sale of live animals through pet stores. Some animal rights organizations consider confinement in pet stores a form of animal cruelty. Bad press, combined with the high cost of maintenance, has led to significant decreases in the number of pet stores selling live animals. Many independent pet stores no longer carry live animals. Live animal purchases only account for about 5 percent of industry sales.

Business Trends

Page 151 Rapid Expansion of Pet Superstores - Fueled by historical growth in pet ownership, chains introduced superstores rapidly, starting in the early 1990s. Superstores open dozens of stores every year. Unable to compete with low prices on pet food, smaller traditional pet stores have been forced to close.

More Revenue from Pet Services - Services represent a small, but profitable and growing, segment of sales for pet stores. In the past five years, retail prices rose 20 percent for pet services (like boarding and grooming), and 30 percent for veterinary services. Services also generate store traffic, increasing the potential for sales of pet products.

Pet Humanization Means Higher Spending - As owners treat their pets more like children, demand for premium products and services increases. Americans spend more on pet supplies than on toys or video games. Lavish spending has fueled growth in specialties such as gourmet pet food, deluxe pet hotels, and pet photography.

More Imports Equals Lower Prices - Cheap manufacturing costs in countries like China allow pet supply companies to produce low-cost pet products. Imports are often trendier items, or items customers replace regularly, like collars. Pet stores sell these imports at low prices.

Industry Opportunities

Offering Convenient Services - Busy owners look for services providing convenience, like pet daycare or walking. Small pet stores have been successful by providing aquarium maintenance and cleaning, so owners don't have to deal with the messy task. Providing a service as simple as pet food delivery helps independent pet stores remain competitive.

Animal Specialization - With the declining number of pet stores offering live animals, opportunities exist to sell specific pets and provide expertise on pet care. Most chains don't sell exotic pets, like pythons or bearded dragons, which have limited availability and require extensive knowledge to sell and maintain.

Providing Medical Advice - The rising cost of veterinary care has resulted in owners turning to pet stores to help diagnose common health problems in their pets. Providing medical advice helps pet stores develop relationships with customers, and the recommended treatment usually results in the purchase of remedies available in the pet store.

Growing Market for Luxury Pet Goods - The humanization of pets and extensive press coverage of celebrities' pets has resulted in demand for luxury brand name products. Brands like Chanel, Burberry, and Coach make dog collars and leashes. With intense competition at the low end of the market, small, independent pet stores can differentiate from large chains by stocking unique, high-end products.

Growing Pet Ownership Abroad - As key segments of pet ownership level in the US, increasing pet ownership in European and Asian countries can provide a source of growth for pet stores. Increasing income has driven both pet ownership and spending in countries like Korea and Belgium. Petland, a US-based pet store franchise, has multiple locations in Canada, Japan, Chile, and South Africa.

Industry Websites

American Pet Products Association Trade association providing basic industry statistics.

Humane Society Animal protection organization, information on care and treatment of pets.

Humane Society of Canada News, links, and advocacy.

Industry Canada - Pet and Pet Supplies Stores Industry statistics and company directory.

Pet Age Industry trends, issues annual retailer report focusing on independent pet stores.

Pet Industry Distributors Association Trade association for pet product wholesalers and distributors. Good supply chain information.

Pet Industry Joint Advisory Council of Canada (PIJAC)

Page 152 News, events, policy, advocacy, and resources.

Glossary of Acronyms

APPA - American Pet Products Association

EDI - electronic data interchange

PIDA - Pet Industry Distributors Association

PIJAC - Pet Industry Joint Advisory Council

RFID - radio frequency identification

Page 153 INDUSTRY PROFILE Performing Arts Companies 2.4.2013 NAICS CODES: 7111 SIC CODES: 7922, 7929

Industry Overview

Companies in this industry produce live presentations by actors, singers, dancers, musical groups, and other performing artists. Major US companies include the Boston Symphony Orchestra, the Metropolitan Opera Association, and the San Francisco Symphony.

The US performing arts industry includes about 9,000 companies with combined annual revenue of about $14 billion. Moderate industry growth is forecast for the next two years. Key growth drivers include increases in the number of older people with more time to attend performances and opportunities to reach new audiences through social media.

The industry includes about 3,000 theater companies; 200 dinner theaters; 200 opera and 600 dance companies; 4,500 musical groups and artists, including 850 symphonies and chamber music organizations; and 30 circuses.

Competitive Landscape

Personal income and leisure time drive demand for performing arts. The profitability of individual companies depends on producing performances that audiences want to see and on efficient operations. Large companies have advantages in marketing, fundraising, and attracting star performers. Small companies can compete effectively by specializing in new, unique, or popular works. The US industry is fragmented: the 50 largest companies account for less than 30 percent of revenue.

Products, Operations & Technology Major sources of revenue for the performing arts industry are admissions; entertainment contract fees; private contributions; royalty, licensing, and residual fees; and government grants. Admissions account for 45 percent of industry revenue; contract fees, 20 percent; and private contributions, 15 percent. Other revenue sources include food, beverage, and merchandise sales; facility rental; membership dues; and fees for entertainer management, advertising, and endorsements.

Revenue by Product - US Census Bureau

Page 154 Performing arts companies prepare productions primarily for presentation to live audiences. Theater companies and dinner theaters account for 50 percent of industry revenue; musical groups and artists, about 40 percent. Companies create or license rights to plays, dances, songs, or other content. They recruit producers, third-party sponsors, and other sources of funding, including grants. Companies hire directors and conductors, performers, costume and set designers, and production crews either per project or on a seasonal or full-time basis. Companies may hire independent grant writers and outsource production and technical work to firms that provide stage, set-building, sound, lighting, or other specialized crews.

Ticket sales ("box-office receipts"); audience size; number of performances; and budget are major industry metrics. Most companies schedule a group of shows well in advance for each performance "season."

Auditions are the main way companies find performers, and rehearsals are the primary means to ensure quality performances. Companies interact with professional performers' agents or managers, who represent entertainers, find appropriate theatrical roles or music engagements, and negotiate on their clients' behalf. Through auditions, companies identify the primary performer for a theatrical role or musical position and a substitute (called an understudy, standby, swing, or cover), who can fill in as needed. Solo performers and some performing arts companies, particularly those that do roadshows, use booking agents to find and secure engagements ("gigs" in the music industry). Companies comply with unions' rules, which include minimum salaries and working conditions for members.

Most symphonies, operas, and theater companies are hierarchical organizations with executive boards and administrative and artistic or music directors, who run the operations, and affiliates, who provide financial support and volunteer. Many smaller organizations combine administrative and artistic responsibilities in a single job and operate somewhat differently than larger groups. An ensemble group's members stay together from season to season, usually share decision-making, and often are community-oriented. A repertory company has a single group of entertainers who perform a variety of shows; performers may be resident with the company or hired for the performance season. Summer stock groups generally present the same or similar repertoire each year, but with different - often new or young - performers each summer. Broadway producers run show-specific organizations, with upfront funding from investors.

Technology is increasingly important to performing arts companies for creative development, production, and business operations. Artistic directors rely on digital technology for sound, lighting, and special effects. Marketing, sales, and grant submission have online components. Company websites feature information about performers, works performed, schedules, favorable reviews, and tickets. Computers are essential to most companies' scheduling, capacity planning, ticket sales, and reporting. A current and correct view of profitability after each performance helps measure progress against budget, and contributes to decisions about canceling or continuing a show or the season.

Sales & Marketing

Customers vary greatly by age, income, and education, depending on type of performance and venue. Major sales channels are ticket agencies, travel agencies, and venue box offices. Many performing arts companies hire third-party booking agents to represent them in obtaining engagements. Performance companies sell advertising in program booklets ("playbills" in the theater segment) to help cover publication costs.

Major types of marketing include online, print, radio, and TV advertising. Other marketing is through visibility from corporate sponsorships, fundraising events, benefit performances, and membership drives. Companies use affiliate memberships as fee-based loyalty programs: members receive special attention, such as discounted tickets, priority seating, and invitations to social events. The industry commonly uses third-party marketing companies and consultants.

Page 155 Internet sales are increasingly important. Online sources include Ticketmaster and regional and local entertainment and ticketing websites. Many websites give consumers the option to print their tickets or receive them via standard mail or delivery services, for a fee.

Ticket prices range from $15 to over $100 per performance, depending on the company, key performers, and locale. Yearly theater or concert subscriptions can cost hundreds. Many companies discount tickets for students, seniors, groups, or corporate sponsors' employees. Processing fees and delivery can each add more than 10 percent to the cost of a ticket. Ticket scalping is common in some cities and for popular performers and can drive a single ticket's street price into hundreds or thousands of dollars.

Finance & Regulation

Cash flow for most performing arts firms is seasonal and highly uneven, because many companies perform primarily from September through May and attendance fluctuates. Financing performance companies is risky, due to the large upfront investment required and unpredictability of success. Shows or tours that cancel early in a run may result in low margins or, at worst, large losses. Some companies own the facility they perform in, a major fixed cost. Fluctuating costs include performer compensation, venue rental, and gas for roadshows. Annual budgets range from under $50,000 to over $100 million. The industry is labor-intensive: average annual revenue per worker is about $140,000.

Many commercial performing arts companies have little or no profit; nonprofits aim to cover costs. Fundraising, ticket sales, and endowments often vary in success within the same year. Small companies depending on contributions from the community suffer during economic downturns; local dance and performing arts companies across the nation were forced to close during the late 2000s recession.

The industry is subject to strict union requirements and standard government regulations for businesses, copyrights, and safety. Copyright laws protect scripts, choreography, and music. Union rules highly affect operations, including contract negotiations, minimum salaries, and work conditions. Companies track and pay royalties for the use of copyrighted theatrical, dance, and musical works.

Regional Highlights States with the most performing arts companies are California and New York, which combined have about a third of the industry's establishments. Other leading states for the industry include Florida, Tennessee, Illinois, and Texas. New York City's Broadway theater productions are a bellwether for the industry and influence show selection nationwide. Chicago has a reputation for avant-garde theater, and New Orleans, Memphis, and Austin for music.

Human Resources Professional performers typically have formal training or a college degree in their specialties and need to excel, because competition for roles and positions is intense. Management, conductors, producers, and directors generally have college degrees and those in artistic roles have experience as performers. Trade unions are highly influential in the industry. Average hourly wages in the performing arts industry are significantly higher than the national average.

Personnel turnover is high, because most companies hire performers per project or per season. Industry injury rates are more than twice the national average. Injuries consist mainly of sprains and strains caused by performers' positioning or movement.

Industry Employment Growth Bureau of Labor Statistics

Page 156 Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to consumer spending and leisure Need good marketing and favorable productions Risk: Private and public funding cuts and competition for talent

Industry Indicators

US corporate profits, an indicator of corporate sponsorships for the performing arts, rose 8.7 percent in the third quarter of 2012 compared to the same period in 2011.

US personal income, which drives consumer spending on recreational activities like performing arts, rose 2.2 percent in January 2013 compared to the same month in 2012.

Total US revenue for performing arts companies rose 11.1 percent in the fourth quarter of 2012 compared to the previous quarter.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Competition for Consumer Spending - As a discretionary spending item, attending performances depends on personal income and competes with other forms of entertainment and leisure activities. Performing arts companies can set admission prices to be competitive with those of movies, spectator sports, and other

Page 157 activities. Effective marketing can promote live performances as a unique experience worth attending.

Dependence on Third-Party Funding - Performing arts companies depend on third-party sources for investment and supplemental funding, as revenue can't cover expenses. Corporate and individual sponsorships, foundation and government grants, and gifts help underwrite operations; private contributions account for about 15 percent of industry revenue. Changes in corporate profits, the stock market, and government budgets are indicators of near-term financial support from private and public sources.

Business Challenges

Powerful Unions - Trade unions are powerful in the performing arts industry, due to their large membership and ability to call a strike, effectively bringing shows and theaters to a standstill. The Actors' Equity Association has more than 49,000 members, including actors, singers, dancers, and stage managers, on whose behalf it negotiates contracts and working conditions with producers, theaters, and performing arts companies. A notable impasse between producers and the stagehand union led to a 19-day strike that stopped production of about 70 percent of New York's Broadway shows around Thanksgiving 2007.

Competition for Talent - Stiff competition exists for talent, especially for stars, including producers, directors, actors, conductors, and musicians. A well-known producer or conductor helps attract funding and bring in audiences, as do star performers. Local and regional groups gain prestige by hiring stellar talent full-time, part-time, or even for a single performance. Top local or regional talent, however, often leave for opportunities in larger companies or cities.

Changes in Audience Preferences - Entertainment trends change over time and are often cyclical, as evident by the lapse and resurgence in popularity of old or new works, elaborate or simple performances, and drama or musicals. Performing arts trade groups and researchers conduct opinion polls and track audience data to analyze preferences and trends. Given the high production costs and lead times for new shows, accurately anticipating audience preferences is critical to financial success.

Public Support for Arts - The industry relies on national, state, and local government support of the arts, which varies yearly. Support fluctuates as elected or appointed officials change. The National Endowment for the Arts, the largest US annual funder, is a federal public agency and depends on government funding. At local and state levels, arts organizations depend on politicians' votes, which often result in compromises and less funding than needed. In recent years, performing arts organizations, mainly through special "presenters," have developed regional outreach and advocacy programs to engage audiences and politicians in supporting the arts.

Professional Critics' Influence - Critics play an important and controversial role in influencing consumer opinions about performances, groups, and individual performers. Many consumers rely on critics' views in deciding to see a performance. A good review can increase ticket sales overnight. while a bad review by a critic with high visibility or popularity can damage a show's chance of success, because critics usually attend early in a run. Negative publicity is difficult to overcome.

Business Trends

Downsizing and Reduced Funding - Many arts organizations have been forced to downsize after corporate support for the arts declined in the wake of the the late-2000s recession. In some cities, symphonies and opera groups have reduced operating budgets and performance schedules, in some cases transitioning artists and staff from from full-time to part-time. Other markets have witnessed the closure of theatrical companies and other organizations due to lack of funding. The tepid recovery may force some organizations to adjust to the "new normal" of reduced corporate and government support.

Changes in Consumer Demographics - Potential audience demographics are shifting as the large baby boomer generation retires and the national population ages, factors to consider in marketing and audience acquisition. The population age 65 to 84 will increase nearly 40 percent by 2020 from 2010 levels, according to government projections. In contrast, those 45 to 65 will increase only about 3 percent, and those 20 to 44, about 4 percent.

Weak Employment Growth - Employment growth in the performance arts industry is expected to be about the same or weaker than average through 2020. Demand for dancers, singers, and musicians should grow at about the same rate as for all occupations, though employment growth for actors could be lower. Job growth for choreographers is expected to be better than average, though, due to increased popularity for dancing in popular culture.

Higher Wages - Performing arts companies, once known for lower-than-average pay, have increased wages

Page 158 significantly in recent years. Average industry wages grew by more than 25 percent between 2006 and 2011. Average hourly wages were nearly 40 percent higher than the national average in 2011.

Artist as Enterprise - Successful solo performing artists, especially pop singers, have become big business. Artists are figureheads for the companies they form to manage their name as a brand. Companies extend an artist's brand through merchandising and private-labeling to recorded music, videos, clothing, jewelry, and other consumer items. Some stars become paid spokespersons for social or environmental causes and endorse products.

Industry Opportunities

Social Media Marketing - Performing companies can use social media sites and networks to raise awareness and market their productions. Twitter can be used to broadcast messages about upcoming shows, and Facebook can be a tool for cultivating loyalty among patrons. Video clips posted to social media sites can generate publicity for performances if they go viral online. Performing arts companies may be able to collect demographic information from followers on social media sites and learn what sorts of performances they would be most interested in attending.

Crowdfunding Performance Arts - To make up for diminishing levels of corporate support, some performing arts organizations and artists are turning to crowdfunding websites like Kickstarter. Generating financial support from an online community can not only provide funding but also create awareness for a performance and engender audience loyalty. Some performing arts companies may explore other alternatives to make up for a shortage of corporate and government donations, such as individual memberships that offer special perks or rewards.

Reacher Older Audiences - As the US population ages and retirees become the fastest-growing segment, opportunities to develop new audiences will increase. Attendance at live rehearsals and special daytime performances, discussion groups, and classes appeal to seniors. Leading performing arts companies bring free programs to public audiences of diverse demographics, many of whom would not otherwise attend, by working with city-funded or private-public partnerships and sponsors. New York City is a leader in providing live outdoor public performances, reaching thousands of people at a time.

Performing New Works - Leading-edge groups, often small in size and budget, have long included new works in their repertoire, but more companies are now doing so. Original theater works often debut off-Broadway and after a successful run, appear on stages around the country. Experimental and avant-garde productions, which appeal to special audiences, do well in Chicago, a city known for new theater works.

Technological Advances - The industry is expanding its use of computer and communication technology to deliver live and prior performances. The Metropolitan Opera broke new ground by broadcasting live performances in high-definition to audiences in 200 movie theaters in the US and Europe. The broadcasts are credited with stimulating new global interest in opera, according to The New York Times; as a result, the Met tripled the number of screens the second year. Other technologies gaining popularity for delivery include Internet streaming and downloads, subscription radio, and TV-on-demand.

Issue-Oriented Programs - Some performing arts companies are joining efforts with groups supporting issues for the public good. For example, a Boston ballet theater group received a $100,000 foundation grant in 2007 to help fund collaboration between the dance community and organizations that support the environment, healthcare, education, and human rights, according to The Boston Globe. Project plans included a festival, conference, publication, website, and youth programs.

Industry Websites

Actors' Equity Association (AEA) Trade union news, resources, casting calls.

American Association of Community Theater (AACT) Resources, festivals for community theater groups.

Association of Performing Arts Presenters Advocacy initiatives for performing arts industry.

Dance/USA Statistics, resources, issues.

International Society for the Performing Arts (ISPA) Page 159 News and resources.

League of American Orchestras Statistics, resources, issues.

National Endowment for the Arts (NEA) News, funding for performing and other arts.

OPERA America Information for companies, artists, audiences; links.

Playbill Magazine covering the live theater industry.

Professional Association of Canadian Theatres Resources, advocacy, links.

Stage Directors and Choreographers Society (SDC) News, strike lists for independent union.

Theatre Communications Group News about not-for-profit theater.

Variety News on music performers, groups, awards.

Glossary of Acronyms

AACT - American Association of Community Theater

AEA - Actors' Equity Association

NEA - National Endowment for the Arts

SSDC - Society of Stage Directors and Choreographers

Page 160 INDUSTRY PROFILE Opticians 2.11.2013 NAICS CODES: 44613 SIC CODES: 5995

Industry Overview

Companies in this industry sell prescription and other eyeglasses and contact lenses; they usually include a lab on premises to grind lenses to specifications. Major US companies include Eye Care Centers of America, LensCrafters, Pearle Vision, and US Vision; major companies based outside the US include Boots Opticians (UK), Fielmann (Germany), and De Rigo, Luxottica, and Safilo (Italy).

Global revenues for the retail optical industry are around $20 billion, according to VisionWatch. Italy and Germany (the headquarters of Luxottica and Fielmann, respectively) account for a significant percentage of revenues. In Europe, Switzerland has more than three optical retailers per 10,000 population; most EU countries have around one or two per 10,000.

The retail optical industry in the US includes about 13,000 optician stores with combined annual revenue of about $8 billion. Moderate growth is forecast for the industry over the next two years. Demand is driven by advances in lens technology, an aging population that increasingly suffers from presbyopia (hardening of the lens) and needs reading glasses, and fashion trends, which led to increases in the price of eyeglass frames.

Optometrists are covered in a separate industry profile.

Competitive Landscape Demand is driven by demographics, fashion, and changing health care practices. Most important is the aging of the US population, which is increasing demand for eye exams and glasses. Large retailers enjoy economies of scale in purchasing and can offer a wider range of product styles. Small retailers can often compete successfully with large chains by offering convenient locations, specialized products, or superior service. Eyeglass purchases are mildly cyclical with the economy, as many consumers view extra glasses as an expense that can be deferred. The industry is concentrated: the 50 largest companies generate about 65 percent of revenue.

Products, Operations & Technology

Opticians sell eyeglasses and contact lenses in retail stores based on prescriptions written by optometrists or ophthalmologists. Often stores employ an on-site optometrist who performs eye exams; optometrists may also own and operate retail stores. Lenses and frames account for the bulk of store sales. Frames, which come in enormous variety and a wide range of prices, are often branded and can produce high markups, while contact lenses and lenses for glasses are mostly commodity items with fairly low margins. A typical store may hold an inventory of 500 frames in 100 different styles. The price range of frames a store carries depends on the demographics of local shoppers. Opticians also sell non-prescription products like sunglasses and reading glasses (magnifiers).

Contact lenses come in hard or soft varieties, may be colored, and may allow extended wear or be disposable. The lenses for glasses also come in various colors and with various coatings and may contain areas of different correction (bi- or tri-focals). "Progressive" lenses are bifocals with the corrective areas smoothly blended into each other. Simple conditions, like near- or far-sightedness, can be corrected with either contact lenses or glasses, while some can best be corrected with glasses.

Because the lenses for glasses must be ground, coated, and shaped to fit a particular frame, some retail stores have an attached optical laboratory, while others send such work out to a company-owned or independent laboratory. Some stores with an attached lab can produce a finished pair of glasses in an hour, but the usual turnaround time is several days.

US imports of ophthalmic goods, including contact lenses and eyeglasses, come primarily from China and Italy. Page 161 Lenses for glasses are made of plastic and are bought from a few large manufacturers, such as Essilor and Carl Zeiss Vision. The world’s largest producer of frames is Luxottica. Contact lenses are made by such companies as Bausch & Lomb, Johnson & Johnson, and CIBA VISION.

Sales & Marketing

Typical customers are consumers in need of eye exams and corrective lenses. Optician stores, like other retail stores, try to locate in areas of high shopper traffic like shopping malls or near office buildings; much of their business is walk-ins.

Because state regulations require a prescription for corrective lenses, many stores have an optometrist on-site or in an adjacent office. Some large chains bundle a retail store with an optometrist and a lab. Some chains operate stores within larger department or warehouse stores. Independents and chains market online and through local TV, radio, and newspaper advertising. Chains may group several stores within a market to make advertising more cost-effective.

Although health insurance plans increasingly cover eye exams, vision plans are more common in the industry. Consumers covered under vision care plans are two or three times more likely to have an eye exam than patients who have vision coverage in their health plan, according to the National Association of Vision Care Plans.

Internet sales of eyeglasses is a growing sector. The Federal Trade Commission’s Contact Lens and Eyeglass Rules requires optometrists to give patients their eyeglass prescriptions so they can buy their glasses wherever they want. Buying eyeglasses online is more complex than buying contact lenses, however, as opticians must make additional measurements.

Individual sales at optical stores are often more than $100. Frame prices can range from around $60 for low-end basic models to $400 or more for designer frames. Lens prices depend upon features such as scratch resistance, UV protection, special coatings, and new technology that reduce strain and weight and increase clarity.

Finance & Regulation

Inventory typically turns about 10 times a year. Gross margins are high, often around 40 percent of net sales, but selling costs are also high. The industry is labor-intensive: average annual revenue per employee is about $125,000. Some stores allow customers to finance purchases, but receivables are usually less than 30 days sales and mainly from insurance payers.

Some stores are operated as franchises, with the franchisee paying a minimum annual franchise fee as well as a percentage of revenue in exchange for management help, advertising, and product discounts.

International Insights Global revenues for the retail optical industry are around $20 billion, according to VisionWatch. Italy and Germany (the headquarters of Luxottica and Fielmann, respectively) account for a significant percentage of revenue. In Europe, Switzerland has more than three optical retailers per 10,000 population; most EU countries have around one or two per 10,000.

According to the World Health Organization, around 640 million people suffer from vision impairment, and 80 percent of their vision problems can be prevented or cured, often with corrective lenses. Lost productivity caused by this vision impairment results in annual losses of $270 billion to the global economy, according to the Brien Holden Vision Institute. Additional investment by government agencies or nonprofit organizations to address vision impairment could drive demand for the retail optical industry.

In many affluent countries, the demand for opticians is rising due to an aging population. Older people suffer from presbyopia, or an age-related hardening of the lens, that can generally be compensated for with reading glasses. High-tech lenses and fashionable frames and sunglasses also drive sales in Europe and other affluent regions.

Regional Highlights In the US, the most populous states, such as California, Texas, Florida, and New York, have the highest distribution of optical goods retail stores.

Human Resources Most jobs in optical goods stores require only a moderate amount of skill and training. Dispensing opticians receive a two-year associate’s degree; more than 20 states require certification. Some receive on-the-job training. Average hourly industry earnings for the industry are moderately lower than those of the average US worker.

Page 162 Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Driven by demographics, fashion, and healthcare advances Convenient location, specialized products and services create competitive advantages Risk: Economic health impacts consumer spending on new eyewear

Industry Forecast

US personal consumer expenditures on ophthalmic and orthopedic equipment, an indicator of demand for opticians, are forecast to grow at an annual compounded rate of 6 percent between 2013 and 2017. Data Published: March 2013

Consumer Spending Growth on Ophthalmic Goods Steady

Page 163 First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Insurance and Vision Plans - Opticians usually participate in one or more vision plans, which give customers discounts on frames and glasses. Some large chains manage their own vision plans. Health insurance plans are also increasing coverage of eye exams. Additionally, medical flexible spending accounts (FSA) and health spending accounts (HSA) allow consumers to use money in those accounts for eye exams and expenses. Keeping track of the variety of vision plans and insurance benefits may be complex, could increase receivables, and require opticians to accept insurance companies' allowable charges.

Internet Sales of Contact Lenses, Glasses - Internet sales of contact lenses have grown tremendously, since all that is required is a prescription. New technology has also improved the ability of Internet optical stores to fit frames and lenses to an individual's face, crucial to a good fit and effective vision correction. As a result, bricks-and-mortar optical stores are seeing increased competition from online stores, which can sell their products more cheaply, are perceived to have a better selection, and are considered more convenient.

Business Challenges

Improved Corrective Eye Surgery May Shrink Optical Market - Although corrective eye surgery like LASIK or lens implants after cataract surgery have so far had no major impact on sales of glasses and contact lenses, the volume of such surgery is expected to increase as quality improves and costs decrease. Cataract surgery, which eliminates the need for prescription eyeglasses, is also likely to increase, as cataracts are more common in the elderly population. Instead of marketing eyeglasses solely as vision correction, opticians may have to revise their approach to eyewear as eye protection or as a fashion statement.

Competition from Mass Merchandisers - Mass merchandisers such as Costco and Sam’s Club have added

Page 164 dispensing optician services to their stores and have become the largest competitors in the industry. Wal-Mart reported $1.5 billion and Costco reported more than $600 million in eyewear revenue in 2011, according to Vision Monday. Mass merchandisers and department stores, as well as large optical chains such as Luxottica Retail, can benefit from economies of scale and an enormous customer base with built-in traffic flow.

Health Care Reform - The Affordable Care Act (ACA) of 2010 will likely impact the vision exam services of an optician’s business operations. Since the ACA expands coverage to previously uninsured patients, it makes the company’s products and services available to a wider pool of customers. But because vision care plans typically require opticians to offer products at a discount, expanded coverage may not lead to higher revenue.

Business Trends

Aging US Population - The US population between the ages of 45 and 64 is expected to number more than 84 million by 2020. This group has the most rapid change in the quality of vision, has frequent eye examinations, and can afford to buy multiple pairs of glasses and contact lenses. This age group is also at higher risk for diabetes, which can cause deteriorating vision, requiring more care.

Glasses as Fashion Statement - With the popularity of designer frames, glasses are no longer simply for vision correction. Thinner, lightweight lenses with specialized coatings and other functionality mean that eyeglasses can be a fashion statement and can be used to enhance the wearer’s features. Opticians are trained to recommend frames that look the best on the customer.

Bundling Product Options - Industry experts are advising opticians to bundle lens features into product packages to increase sales, according to Vision Monday. With bundling, opticians put together lenses with a variety of pre-selected features for customers to choose from, rather than allowing customers to choose from a list of individually priced options. The change to bundling can increase dispensing sales significantly, according to proponents.

Industry Opportunities

Boutique Services - Some opticians are moving into high-end services to differentiate themselves from mass-market and Internet stores. For example, providing specialty lab services to create one-of-a-kind eyewear can be a lucrative market, especially with advances in technology and changing fashion trends. Standing out among the competition is crucial to an optician’s success in a crowded market, in which many customers shop by price.

Sports Eyewear - Athletes have special requirements for glasses. For example, golfers require different levels of polarization in their lenses that regular sunglasses don’t provide. Safety and sun protection are also issues. Opticians who provide sports eyewear to dedicated athletes, whether professional or amateur, can benefit from the fact that many of these customers will have high discretionary income and will be motivated to buy eyewear that can help them improve their performance.

Customized Vision Correction - New sensing technology that measures the specific vision deficiencies of an individual eye have resulted in customized eyeglasses that provide superior vision and artificial lenses that correct for natural aging of the eye. Ophthonix is developing a measurement device for optometrists that will allow lenses to be crafted to correct individual eye aberrations, beyond simple near- or far-sightedness. Even customers with 20/20 vision may be able to improve their eyesight.

Industry Websites

20/20 Magazine News and articles about eyewear and vision correction.

All About Vision Consumer information.

American Optometric Association Eye and vision facts.

Eye Care Professional

Page 165 News and articles on glasses and dispensing.

FDA LASIK Eye Surgery Site Government health and safety information on LASIK.

Opticians Association of America State and national organizations and news.

Opticians Association of Canada News and information.

Vision Monday News and trends.

Glossary of Acronyms

FSA - Flexible Spending Account

HSA - Health Spending Account

Page 166 INDUSTRY PROFILE Movie Theaters 2.18.2013 NAICS CODES: 51213 SIC CODES: 7832, 7833

Industry Overview

Companies in this industry exhibit motion pictures at indoor movie theaters, film festivals, and drive-in theaters. Major US companies include AMC Entertainment, Carmike Cinemas, Cinemark, and Regal Entertainment.

The US movie theater industry includes about 2,000 companies that operate about 5,000 indoor theaters and 300 drive-ins with combined annual revenue of about $13 billion. Moderate growth is forecast for the next two years. Key growth drivers include consumer spending and entertainment trends.

Competitive Landscape

Personal income and leisure time drive demand. The profitability of individual companies depends on securing access to popular movies and sales of high-margin food and beverages. Large companies have advantages of scale in negotiating with movie distributors, marketing, and purchasing. Small companies can compete effectively by specializing in movie type or audience, or by providing better service and amenities. The industry is highly concentrated: the top 50 companies account for more than 80 percent of revenue.

Products, Operations & Technology

Ticket sales account for two-thirds of revenue; food and beverage sales for more than 20 percent. Other source of revenue include on-screen advertisements, facility and concession rental during nonpeak hours, and amusement machine use.

Revenue by Product - US Census Bureau

Movie theater operations center on licensing and showing (“exhibiting”) films to customers, and obtaining and selling concession items. Theaters license from distributors the rights to show a movie in specific geographic zones for a determined duration. Distributors define the zones, which typically vary from two to 15 miles in

Page 167 radius. Theater companies that are the only exhibitor in a zone have an advantage in negotiating and selecting which new (“first-run”) films to exhibit. Distributors typically rank zones by their population density, audience demographics, and potential box office revenue.

Most theaters license films from independent distributors, although large theater chains rent directly from distributors owned by the major movie production companies. License contracts typically are on a theater- by-theater and film-by-film basis. Theaters negotiate license fees with distributors using one of three types of formulas: a percentage-of-revenue rate set prior to exhibition (“firm term”); a rate set at completion of the engagement (“review or settlement”); or an agreed “sliding scale” formula that will apply decreasing rates to successive weeks of an engagement. Most contracts involve a sliding scale arrangement. Sliding scale rates are typically 50 to 70 percent of box office revenue at the start of a film’s run, dropping to around 30 percent after a month or two. Theaters pay more to license potential blockbuster movies, which typically have longer engagements.

Major operational metrics are ticket sales (“box office revenue” or “admissions”); food and beverage (“concession”) sales; and revenue-per-customer. Metrics for size of business are total number of screens (auditoriums) and ratio of screens to theaters. The largest companies have a screen-to-theater ratio of over 12 to 1, but the national average historically has been below seven. A multiplex theater has 12 to 16 screens; a megaplex, more than 16. The largest company has more than 6,000 screens in its US circuit. Most companies locate theaters near areas of high consumer traffic, such as shops and restaurants. Theater facility formats include the older sloped-floor auditorium or modern stadium seating.

Concession items consist mainly of popcorn, candy, and soft drinks; some theaters, particularly “art” theaters, sell wine and beer, and some offer children’s meals. Because concession items have higher margins than ticket sales, theaters focus on food and beverages to increase the average purchase per customer. Theaters encourage concession staff to increase sales and service speed. Theaters buy food and beverages from concession distributors, which make weekly or as-needed deliveries. Chains negotiate bulk rates and order directly from manufacturers, but receive the shipments from distributors, paying them a percentage for warehouse and delivery services.

Technology has become important for selling tickets and measuring business performance. Companies’ e-commerce websites enable customers to buy and print tickets in advance or pick them up at the theater, sometimes at self-service kiosks. Point-of-sale systems track ticket and concession sales, triggering automatic replenishment orders to suppliers. Systems integrate sales data real-time from a theater, its website, and third-party ticketing services to provide staff with current ticket and seating availability. The data also enable management to change schedules and screenings and to support negotiations for film bookings with distributors. Many companies send sales data electronically to firms that measure and rank movie theaters.

Most theaters continue to exhibit content that production companies recorded on 35mm film, although digital formats are increasing. Other than referring to the technical recording format, the industry uses the term “film” synonymously with “motion picture” or “movie.”

Sales & Marketing

Typical customers are consumer movie-goers, with younger patrons the most frequent. Theaters increasingly market to businesspeople for gift card purchases and to businesses for facility rentals. Corporate event sales are relatively low and primarily serve to earn revenue when the theater is otherwise idle.

Major types of marketing are online and newspaper advertising, including schedule listings. Film distributors pay for most newspaper ads and for radio and TV spots to promote special movies and events. Theaters pay for newspaper directory listings. Newspaper ads often include placing movie descriptions and schedules on the news publication’s website. Theater websites allow customers to see previews (“trailers”), read about actors, access schedules, and buy advance tickets or gift cards. Large chains often have promotional programs with distributors that include moviegoer contests; third-party cross-promotions, such as merchandise sales; and radio, TV, or cell phone ads.

Theaters also show coming attractions, and chains run trailers of movies playing at their nearby venues. Advance sales of tickets, gift, and discount cards also occur via phone, fax, email, and postal mail. Many companies offer loyalty programs for frequent movie-goers and cross-promotional specials among same-ownership theaters. Some companies sell gift cards at major retailers.

Large companies have formed partnerships for sales and delivery of on-screen display advertisements in theaters and other venues. Several of the largest firms are partnering to develop digital technology for delivery and exhibition of digitally formatted movies.

Theaters compete with other forms of leisure activity, including sports, hobbies, concerts, and amusement parks. Further competition comes from other forms of movie exhibition, including DVD, TV, video on-demand, and Internet streaming.

Finance & Regulation

Page 168 The movie theater business tends to be cyclical and seasonal, with high fixed costs and cash flow. Revenue historically has been highest during summer and holiday months, when major film distributors release their potential blockbuster films. Seasonality is leveling somewhat, due to more evenly dispersed release dates. Large companies’ film licensing and advertising costs can account for up to 40 percent of operating costs and lease expenses for up to 15 percent: these percentages are higher in small companies. The industry is labor-intensive: average annual revenue per employee is about $100,000.

Facility leases are usually long-term, at least 20 years for large companies, with renewal options at higher rates. Some leases require an additional yearly payment if the theater reaches a specified annual revenue goal. Heating or air conditioning must operate regardless of attendance levels, creating unpredictable cost: annual electricity prices have varied up to 15 percent and natural gas over 20 percent in some years.

Major regulations affecting the movie theater industry include antitrust, disability, and health and sanitation laws. Federal and state antitrust laws highly regulate the entertainment industry, a result of the consolidation of producers, distributors, and exhibitors under a few major corporations. Antitrust cases are common and the results often directly affect major film distributors, forbidding them to engage in long-term supply contracts with theaters. Such consent decrees require theater-by-theater and film-by-film contracts. Because theaters serve the public and sell food, they're subject to disability and accessibility laws, and to health and sanitation licensing requirements.

International Insights Some large US-based companies operate theaters in other countries, most notably in Canada, Latin America, and Europe. Consumers in some international markets don't attend movies as frequently as is common in the US. In some countries, the movie industry is vertically integrated, with the same company producing, distributing, and exhibiting films, which can create difficulties for US companies looking to exhibit locally.

Regional Highlights In the US, movie exhibitors tend to thrive in areas with higher populations. California, New York, Texas, Florida, and Ohio have the greatest number of movie theaters.

Human Resources

Most industry employees need only on-the-job training, because the jobs require minimal sales or service skills. Theaters give ongoing training to concession-counter personnel on suggestive and up-selling methods that help increase sales. About 90 percent of industry employees are part-time. The back office business staff and the projectionists who run the film or digital equipment require special training. Some projectionists are union members. In-theater management is responsible for controlling operations and quality assurance. Injury rates are significantly higher than the national average; slippery or uneven floors and dim lighting can contribute to falls.

Industry Employment Growth Bureau of Labor Statistics

Industry Growth Rating

Demand: Depends on consumer income and leisure

Page 169 Need access to popular movies and sales of food and beverages

Risk: Economic health affects spending on non-essentials

Industry Forecast

US personal consumption expenditures for movie, live entertainment, and sports admissions are forecast to grow at an annual compounded rate of 5 percent between 2013 and 2017. Data Published: March 2013

Consumer Spending Growth on Entertainment Uneven

First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures the links between industries and the aggregate economy. Forecast FAQs

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Dependence on Movie Production, Distribution Companies - Theaters rely on movie production companies and distributors for films, license rights, and marketing. Theaters need movies that appeal to local markets. Distributors decide which venues can license specific films, so theaters’ relationships and negotiations with movie suppliers are important. Theaters increasingly depend on production studios and distributors to market first-run films. A studio’s or distributor’s problems, such as strikes or finances, can directly affect theater revenue.

Dependence on Consumer Spending - As a discretionary spending item, movie-going depends on personal income and competes for the consumer dollar with other forms of paid entertainment. Changes in average national income typically indicate fluctuation in movie theater business. When consumer spending is healthy, theaters typically increase per-customer revenue through concession sales.

Page 170 Business Challenges

Competition from Alternate Distribution Channels - Movie production companies can generate revenue from multiple distribution channels, rather than relying primarily on theaters, as they did historically. Production companies' distribution strategies typically include additional revenue streams from releases for Blu-ray discs, cable TV, in-home video and DVD, satellite and pay-per-view services, and Internet downloads. The increasing popularity of online video streaming indicates the emergence of yet another distribution platform. Although theaters remain important first-run outlets, they risk becoming less important to production companies' revenue strategies.

Short ‘Theatrical Release Windows’ - The theatrical release window, the time between a new movie’s opening in theaters and its availability elsewhere, is decreasing. A short release window limits theatres’ exclusivity and revenue opportunity from a specific movie. Theatres used to exhibit first-run movies for several months, but typically now have them for only several weeks prior to secondary release on digital media or through other outlets. Some production companies release videos as quickly as the same day or next day after a first-run movie opens in theaters. Short release windows for multiple films can be detrimental to a single-facility theatre company.

Changes in Viewing Preferences - Despite the motion picture industry’s marketing and promotion to attract audiences, consumers may not come to theaters to view a movie for a variety of reasons, not necessarily related to ticket price. The industry acknowledges that consumer opinions posted on the Internet significantly influence web-savvy movie-goers. Younger consumers prefer seeing movies on personal or at-home digital media, because they can control when and where they watch entertainment. Theaters’ promotional spending and facility operating expenses are sunk costs, regardless if one or 100 people attend a showing.

Competition for Consumer Leisure Time - Movie theaters compete with a wide variety of leisure activities, including other forms of entertainment. Theaters essentially compete with any activity or pastime that can fill consumer leisure time, whether or not cost is involved. Rather than go to a movie, consumers may watch TV; attend sports events, concerts, drama productions, or other spectator activities; use the Internet; engage in video games, athletics, hobbies, and community activities. A prolonged spike in the success of other forms of entertainment or leisure activity can affect movie attendance.

Page 171 Business Trends

Mega Entertainment Companies - Consolidation has created mega-companies that dominate the US movie theater market. Formerly independent chains, like Loews Cineplex, UA Theatres, Century Theatres, and Hoyts, are now part of larger entertainment companies. The three largest US movie theater companies account for 1,200 venues and 15,000 screens domestically and abroad. Small and medium chains, usually local or regional, are potential acquisition targets.

Fewer Theaters - As acquiring companies evaluate the contribution of their extended holdings on revenue, new owners invariably close less-profitable theaters. The number of movie theaters declined almost 4 percent between 2006 and 2011; the number of drive-in theaters fell by 15 percent in the past decade. Industry experts expect acquisitions and closures to continue.

More Screens Per Theater - While small companies or older theaters typically have only one screen, larger companies with newer or updated venues usually feature multiple screens. With multiple screens, a facility can simultaneously run films that appeal to a wide range of audiences and attract more viewers per day. A multiplex typically has 12 to 16 screens, whereas a megaplex has more than 16 screens. Each of the three largest companies has 300 to 600 theaters and from 4,000 to 7,000 total screens.

Ticketing Services - Larger movie chains expand marketing and sales capabilities by using third-party ticketing services. Ticket companies enable consumers to buy movie tickets via phone, fax, websites, and wireless devices. One of the largest services provides tickets to more than 50 percent of screens across the US. Ticket service websites display movie previews, reviews, and theater locations, schedules, and ticket availability, in addition to enabling purchases. Consumers pay a per-transaction fee for using the services, as do participating theaters.

Digital Exhibition of Movies - The movie industry is converting from 35mm film to digital media. Electronic media enable the production, distribution, and exhibition of a movie using the same digital file, which speeds the delivery process and allows value-added video content to appear on the file with the movie. Although theaters need to buy digital projectors and train projectionists, industry participants expect movie studios to help fund the expense. Major theater companies have joined partnerships to develop implementation plans, financing alternatives, and digital cinema systems.

Page 172 Industry Opportunities

Specialization by Content or Price - Smaller and midsized companies can specialize to differentiate themselves from large movie chains and appeal to underserved markets. First-run independent and international films, restored classics, and non-traditional studio movies are genres that appeal to mature audiences. The aging population, famous film festivals like Sundance, and recent box-office “indie” hits are driving growth in demand for art, international, and documentary films. Theaters can also appeal to the budget market by specializing in low-cost tickets for non-first-run movies.

Facility Upgrades - Most large chains have already remodeled or replaced old theaters and continue to build modern ones, so smaller and midsized companies can often compete if they upgrade facilities. Enhancements include larger screens, better sound systems, plusher seating, and new decorating. Reconfiguring a single-screen theater into more than one auditorium turns a facility into a multiplex. Experts say that audiences prefer megaplexes (with more than 16 auditoriums) to multiplexes, and stadium seating to sloped floors.

Better Amenities, Services - Services before arrival and in-theater are gaining importance with consumers, many of whom are willing to pay more for convenience and comfort. Offering advanced ticket sales via a variety of means is common and some theaters sell reserved seats at a premium, sometimes several dollars more than the regular admission price. Gift cards, frequent customer programs, and wine, beer, and café-style food sales are additional amenities that add revenue and increase moviegoer loyalty.

Digital Ads, Non-Movie Events - Greater use is being made of service companies that deliver digital advertising and non-feature programming to screens and theater lobbies. Digital services help theaters more easily generate additional revenue through display advertisements, host meetings and events, and provide other entertainment, such as live or pre-recorded concerts or sports events. This digital delivery technology is separate from that needed to exhibit digital feature films.

Expansion Abroad - Large companies are expanding beyond the US border, mainly to Canada, Latin America, and Europe. One of the top three US movie theater companies reports that in a recent three-year period, the compound annual growth rate of its Latin American revenue was greater than that of its US operations. Experts point to growth opportunities in major metropolitan areas of Latin America.

Industry Websites

Cinema Advertising Council In-theater advertising statistics, research, technology.

Motion Picture Association of America (MPAA) Movie industry news, issues, statistics, ratings descriptions.

National Association of Theatre Owners Issues, news, and statistics from trade association.

National CineMedia (NCM) Digital delivery of cinema advertising and non-movie content for events.

United Drive-In Theatre Owners Association Drive-in theater business FAQs, statistics.

Variety Film news, box-office and production charts.

Glossary of Acronyms

AFM - American Film Market

AMPTP - Alliance of Motion Picture and Television Producers

CGI - computer-generated imagery

DMA - designated market area

MPAA - Motion Picture Association of America

Page 173 NAC - National Association of Concessionaires

NATO - National Association of Theatre Owners

Page 174 INDUSTRY PROFILE Home Furnishings Stores 4.8.2013 NAICS CODES: 44229 SIC CODES: 5714, 5719

Industry Overview

Companies in this industry sell new home furnishings, such as decorative items, kitchen and bath products, linens, and window treatments, from physical retail locations. Major US companies include Bed Bath & Beyond, Garden Ridge, Pier 1 Imports, Restoration Hardware, Sur La Table, and Williams-Sonoma.

The US home furnishings store industry includes about 20,000 stores with combined annual revenue of about $26 billion. High growth is forecast for the next two years. Key growth drivers include consumer income and improved conditions in many regional housing markets.

Competitive Landscape

Demand is driven by consumer income. Large companies compete through volume purchasing, breadth of products, and effective merchandising and marketing. Small companies focus on a market segment and compete through depth of products and superior customer service. The industry is concentrated: the 50 largest companies account for about 75 percent of industry revenue.

Competition for home furnishing stores includes department stores, mass merchandisers, home improvement stores, and online and mail order retailers.

Products, Operations & Technology Major product categories are domestics (17 percent of sales), decorative accessories (15 percent), and cookware (10 percent). Domestics are towels, sheets, blankets, and table linens. Decorative accessories include lamps, mirrors, pictures, clocks, and desk sets. Other products include window treatments, dinnerware, glassware, and small appliances.

Home furnishings retailers include national chains and independent stores. Major chains, such as Bed Bath & Beyond, offer “superstores” that vary from 20,000 to 50,000 square feet and are located in suburban strip malls. Other chains, such as Williams-Sonoma, operate stores of 6,000 to 15,000 square feet located in enclosed shopping malls and strip centers. Independent stores range from 2,000 to 20,000 square feet.

Large-format stores typically carry 15,000 to 40,000 different items and can generate $5 to $8 million in annual sales or $200 to $300 per square foot. Smaller stores have annual sales of $1 to $4 million and generate $250 to $400 per square foot. Chains usually have their own distribution facilities with centralized purchasing and inventory management. Goods may be purchased from distributors, importers, or directly from manufacturers. Independent retailers typically buy from several hundred suppliers, while large chains have several thousand suppliers. Most chains use third-party logistics companies for shipping goods to stores. To reduce inventory costs and respond quickly to demand shifts, some retailers are replenishing store inventories daily.

Home furnishings retailers use computer systems to manage point-of-sale (POS) transactions and inventory and warehouse operations. To improve customer service, many also use hand scanners and bar codes to look up prices on the store floor. Computers are also used to store customer data, handle credit approval, and manage bridal gift registries.

Sales & Marketing

The typical target customer is a woman, age 25 to 55, who is fashion- and brand-conscious and has better- than-average income. Based on local demographics, retailers vary the mix of styles and price points carried at

Page 175 each store.

Effective merchandising and customer service are key to attracting new customers and repeat visits. Retailers frequently change displays and product mix to reflect seasonal variations in demand and create a “fresh” appearance for the store. Sales staff receive product training to help customers in purchase selections. Customer service also includes generous return policies for merchandise.

Advertising typically includes full color newspaper inserts and direct mail. Retailers with catalog operations also use their catalogs as direct mail to drive store traffic. The Internet is also used for advertising and to provide shop-at-home convenience.

To encourage repeat store visits, retailers offer customer loyalty programs that include private-label credit cards, advance notice of sales, and frequent buyer discounts.

Industry trade shows are an important source of information on new products and market trends.

Finance & Regulation

Cash flow is seasonal, with higher sales in third and fourth quarters. Transactions are by cash or credit card, so accounts receivable are low. Gross margins are typically 40 to 45 percent of net sales.

Lease terms for home furnishings stores vary from two to 20 years. In addition to a base rent payment, leases can include advertising and maintenance fees, and a percentage of sales.

The industry is unregulated except for standard state and federal regulations against deceptive sales practices and laws that regulate the use of credit financing.

International Insights

Many home furnishings products are imported, with China by far the dominant supplier. Other large suppliers are India, Pakistan, and Mexico.

Regional Highlights Home furnishings stores follow US population patterns, with the largest number of stores in California, Texas, Florida, and New York. Some national chains have expanded into Canada, but most focus on the US market.

Human Resources Skill levels for workers are relatively low. Hourly industry wages are significantly lower than the average for all US workers. Due to the seasonality of sales, stores employ a large number of part-time workers. The industry injury rate is more than 50 percent higher than the national average, in part due to the heavy and bulky products handled by employees.

A typical home furnishings store has a manager, one to two assistant managers, and five to 15 employees.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Page 176 Industry Growth Rating

Demand: Driven by consumer spending Need efficient inventory management Risk: Changing consumer decorating preferences

Industry Indicators

US consumer spending on durable goods, an indicator of home furnishing sales, fell 1.6 percent in January 2013 compared to the same month in 2012.

The value of US residential construction spending, a key indicator of home furnishings sales, rose 22.2 percent year-to-date in January 2013 compared to the same period in 2012.

US retail sales for furniture and home furnishings stores, a potential measure of demand for home furnishings, increased 2.5 percent in the first two months of 2013 compared to the same period in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Consumer Spending Change in overall level of consumer spending on goods and services

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Consumer Income Drives Demand - Home furnishings are usually discretionary purchases that can be

Page 177 postponed when consumer income declines. For example, sales for home furnishings stores fell 8 percent from 2008 to 2009 and grew by just 3 percent from 2009 to 2010, as consumers deferred purchases during the lingering economic downturn. Sales rose by more than 5 percent from 2010 to 2011 as overall economic conditions began to improve.

Imports Driving Down Prices - Consumer prices for home furnishing products have been steadily falling for nearly a decade, driven by low-cost imports and competition from national chains and mass merchandisers. Prices for linens fell nearly 20 percent from 2003 to 2012; prices for other home furnishings dropped by more than 35 percent.

Business Challenges

Changing Consumer Preferences - Most home furnishings products have become fashion items subject to changing preferences for features, styles, and colors. Like apparel, a particular product category, design, or color can become “hot” and surge in demand before cooling. Retailers must anticipate consumer lifestyle trends when buying merchandise and respond quickly when demand shifts. Managers review daily reports from point-of-sale systems to detect changes in buying patterns.

Sales Seasonality - Home furnishings retailers have higher sales in third and fourth quarters due to back-to- college, wedding, and holiday gift buying. Some retailers earn all their net income for the year during these quarters. Stores carefully manage inventories of popular items and rely on part-time workers to take full advantage of these peak sales periods.

Competition from Other Retailers - Mass merchandisers like Wal-Mart and Target have been expanding their home furnishings departments and driving down industry pricing. Department stores have focused on bridal registry services and offer frequent sales to meet price competition. Home improvement stores offer limited home accessories to complement their home remodeling products and services.

Dependence on Imports - Most home furnishings retailers get the majority of their products from overseas, primarily from China, Pakistan, Mexico, and India. Some buy through US importers, while others contract directly with foreign suppliers. This dependence on imports raises the risk of supply disruptions or pricing swings due to trade disputes and tariffs. Imports also increase exposure to currency exchange rate risk, though many retailers minimize exposure by pricing contracts in US dollars.

Competition for Retail Locations - Home furnishings retailers seeking to grow their store count must compete with other retailers for prime locations in suburban strip malls and enclosed shopping malls. A limited number of “power” strip malls are suitable for superstore formats; locations also targeted by mass merchandisers, consumer electronics chains, home improvement stores, and warehouse clubs.

Business Trends

Comparable Store Sales Fluctuate - Declining prices have made it more difficult for chains to grow sales at existing stores. Comparable store sales at the major chains have fluctuated the past several years, forcing store executives to rely on new store openings to achieve double-digit growth in overall sales. To attract repeat visits to existing stores, companies are expanding product lines, changing merchandising formats more frequently, and offering customer loyalty programs.

Major Chain Expansion - Some home furnishings chains like Bed Bath & Beyond are opening new stores and expanding existing stores to maintain revenue growth. Bed Bath & Beyond opened 40 new stores in 2011.

Direct-to-Consumer Sales - Many home furnishings retailers are selling directly to consumers via the Internet and catalog sales, in addition to their "bricks and mortar” stores. Williams-Sonoma does about 45 percent of its sales directly to consumers. Online and catalog sales provide 24 hour shopping convenience for busy consumers.

Celebrity Licensing - As home furnishings become more fashion-oriented, retailers and manufacturers are increasingly using celebrities in product branding and advertising. Martha Stewart helped initiate the use of celebrity branding, but it's expanded to include fashion models, clothing designers, and celebrity chefs.

Industry Opportunities

Page 178 Customer Service Key to Success - Home furnishings stores can compete effectively with mass merchandisers by offering superior customer service through knowledgeable sales staff. Stores refer to customers as “guests” and invest in staff training on product categories and guest relations. Advice from knowledgeable sales staff has become more important with the expansion of product choices.

Exclusive Brands - To differentiate themselves from the competition and attract new customers, many home furnishings retailers are developing exclusive product offerings. Some are developing their own private-label brands while others are working with manufacturers to license and develop celebrity brands on an exclusive basis. Investing in exclusive brands goes beyond individual sales potential: the main goal is to increase store traffic.

Expanded Product Offerings - Declining prices are forcing home furnishings retailers to look for innovative ideas and products to grow sales at existing stores. Expanding beyond their traditional product categories is one strategy retailers are pursuing. Some stores are adding furniture, rugs, and other home decorating items. Others are expanding from bath accessories into beauty and personal care products.

Leveraging Internet Capabilities - Most home furnishings retailers are using the Internet to offer convenient home shopping to customers. Innovative retailers are leveraging the Internet with their “bricks and mortar” stores to expand their services, including online bridal gift registries that track purchased items across stores nationwide. Some chains allow college students to shop for dorm room furnishings at their home store and pick up the items at another store, saving the cost of shipping bulky items like towels and bedspreads.

Integrated Merchandising - To increase purchases per visit, many stores have changed from merchandising by product category to an integrated approach that combines products from multiple categories focused around particular styles or areas of the home. Seeing complementary products in mock home settings can lead to additional purchases. Stores are also matching the styles displayed and highlighted to the tastes of local demographics.

Industry Websites

Bed Bath & Beyond Largest home furnishings chain.

Canadian Home Furnishings Alliance Media, links, directory, and events.

Home Furnishings News Weekly news and retail trends in home furnishings.

National Home Furnishings Association Trade association for furniture and other home furnishings.

National Retail Federation Largest retail trade association.

Williams-Sonoma High-end home furnishings retailer.

Glossary of Acronyms

BBB - Bed Bath & Beyond

HFN - Home Furnishings News

NHFA - National Home Furnishings Association

NRF - National Retail Federation

POS - point-of-sale

Page 179 INDUSTRY PROFILE Home Centers & Hardware Stores 3.18.2013 NAICS CODES: 44411, 44413 SIC CODES: 5211, 5251

Industry Overview

Companies in this industry sell building supplies, lumber, hardware, and other home improvement products. Major companies include Home Depot, Lowe's, and True Value (all based in the US), as well as Kingfisher (UK), Leroy Merlin (France), and OBI (Germany).

The global home center and hardware store industry generates about $500 billion in annual revenue, according to the European Federation of DIY Manufacturers. Leading regions include North America (58 percent of the market), Europe (35 percent) and Asia/Pacific (5 percent).

The US home center and hardware store, or home improvement retail, industry includes about 23,000 hardware stores and home centers with combined annual revenue of about $150 billion. The value of US new residential home construction and renovations, an indicator for the home center industry, is expected to grow at a high rate in the next two years. Key growth drivers include construction spending and consumer spending levels.

Home centers and hardware stores sell many of the same products, but home centers typically offer more building supplies (such as lumber and flooring) and appliances than hardware stores.

Competitive Landscape

Home remodeling and repair and new homebuilding drive demand. The profitability of individual companies depends on low-cost purchasing, effective merchandising, and competitive pricing. Large companies can offer wide selections, supply high-volume goods to builders, and have advantages in purchasing, finance, distribution, and marketing. Small companies can compete by offering specialty products, providing superior service, or serving a local market.

The home center segment of the industry is highly concentrated: the top four companies account for more than 90 percent of segment revenue. The hardware store segment of the industry is fragmented: the top 50 companies account for about 30 percent of segment revenue.

Competition includes building supply wholesalers and distributors, lumberyards, mass merchandisers, warehouse clubs, and Internet retailers.

Products, Operations & Technology

Major products for home centers include lumber and building supplies (35 percent of sales); hardware, tools, and plumbing and electrical supplies (20 percent); and lawn and garden products (10 percent), and paint and sundries (10 percent). Hardware stores tend to make more of their sales (about 60 percent) from hardware, tools, plumbing, and electrical supplies. Building supplies include doors, windows, masonry supplies, cabinets, and countertops. Lawn and garden supplies include lawn care machinery; outdoor nursery stock (trees and shrubs); and fertilizers. Home centers often carry a full line of appliances. Companies may also offer installation, delivery, design, or tool rental services.

Product Segmentation by Revenue - Census Bureau

Page 180 The industry includes national and regional chains and independent retailers. Membership in a cooperative, such as True Value or Ace, allows independent retailers to leverage a national name and benefit from volume discounts. Cooperative members may receive payouts or dividends based on how well the co-op performs.

Do-it-yourself (DIY) projects generally refer to customers buying products and performing work themselves. Do-it-for-me (DIFM) refers to projects where home improvement retailers supply and install products. Companies typically rely on third-party contractors for installations.

Large stores require significant amounts of real estate and are typically located in major retail centers to capitalize on heavy traffic. Locations for independent retailers include secondary strip malls and small town centers. A typical hardware store is about 9,000 square feet, generates $1.5 million annually, and averages $150 in sales per square foot, according to Hardware Retailing. Home centers are about 12,000 square feet, generate $5.5 million annually, and average $320 per square foot.

Inventory varies according to store type. Home centers stock more lumber and building supplies because many customers are building contractors. Large home centers carry about 40,000 stock-keeping units (SKUs) and typically have wide selections within product categories. While independent hardware retailers offer a more limited selection in stores, cooperatives offer members access to a broad range of inventory. Companies using a "good-better-best" merchandising strategy may carry products at different price/quality levels, including national brand names, exclusive brands, and private-label products. Periodically, companies may have line reviews for a category to decide which products or brands to add or drop.

Companies buy inventory from manufacturers, cooperatives, distributors, and importers. The supply side of the industry is fragmented. Large chains and cooperatives typically have extensive distribution networks to facilitate shipping from suppliers to stores. Special distribution centers may stock large items, items requiring special handling, imports, special orders, or Internet sales. Effective supply chain management has allowed large companies to realize significant cost savings and keep prices low. Imports are an important source of supply in the power tool, hardware, and lumber categories. Imported power tools and hardware come primarily from China and Mexico and softwood lumber imports come primarily from Canada.

Integrated information systems have been extremely important to large companies by linking operations at point-of-sale (POS); warehouses; and distribution centers. Bar codes allow companies to track the flow of individual products and identify slow- and fast-turning items. Electronic ordering and automatic replenishment can be important for high-volume stores. Database management systems track important customer groups, such as frequent buyers or new home owners, and help companies create targeted marketing programs.

Sales & Marketing

Typical customers include home owners, building contractors, and repairmen. While home centers tend to attract commercial customers, hardware stores appeal to consumers looking for products needed for DIY projects or repairs.

Marketing and promotional vehicles include national or local TV, radio, print, and newspaper advertising; direct mail; sponsorships; and instore displays. Vendors may provide cooperative advertising allowances. Partnering with home improvement TV shows, such as such as Home and Garden TV (HGTV), has helped large companies build brand awareness. Store events, such as instructional workshops, can drive traffic. Loyalty programs reward frequent customers and generate repeat business.

Good service is critical to appealing to both consumer and commercial customers. Companies in the consumer

Page 181 segment need workers who can help individuals seeking basic information and how-to instructions. Sales staff for commercial customers require in-depth knowledge of building supplies and typically deal with large quantities of products and specific timetables. Long-term relationships with contractors and builders are extremely important in the commercial sector.

Internet sales of hardware and home improvement products are growing rapidly. Most large companies have retail websites that may offer store and product information, project ideas, how-to instructions, buying guides, and installation quotes. Stores may use websites to sell products with volume too low to justify shelf space. Through the Internet, companies offering specialty merchandise, such as high-end bath fixtures, can reach beyond local markets.

The average transaction size is $17 for hardware stores and $41 for home centers, according to Hardware Retailing.

Finance & Regulation

Overall sales are somewhat seasonal, with peaks during the spring when outdoor projects and lawn care needs increase. Home centers experience higher sales in spring and summer because homebuilding activity increases during milder weather. Most large companies offer third-party financing or loan services for both consumers and commercial customers to help support large sales. Inventory ranges from 40 to 60 days sales. Gross margins are about 35 percent. Members of cooperatives may receive discounts on purchases or dividends at year-end.

While independent retailers tend to lease store sites, large companies, such as Home Depot and Lowe's, prefer to own property and benefit from lower occupancy costs and greater control.

Local government zoning laws can restrict the types of products sold. While building supply stores handling hazardous materials must comply with OSHA record keeping requirements, hardware stores are exempt. The federal Energy Policy Act gives consumers incentives to buy energy-saving equipment, such as solar heaters and energy-efficient building products.

International Insights The global home improvement retail industry generates $500 billion in annual revenue, according to the European Federation of DIY Manufacturers (fediyma). Leading regions include North America (58 percent of the market), Europe (35 percent) and Asia/Pacific (5 percent). Major companies outside the US include Kingfisher (UK), Leroy Merlin (France), OBI (Germany), Praktiker (Germany), and Bauhaus (Germany).

Retail sales in the home improvement industry are concentrated in North America and Europe, which together account for more than 90 percent of the market. Spending per capita on do-it-yourself products is highest in the US, Norway, New Zealand, Germany, Luxembourg, Austria, France, and Canada, according to fediyma. However, many retailers are looking to grow by investing in emerging markets such as Eastern Europe, Russia, North Africa, and South America. Some US retailers, such as Lowe's, have chosen nearby countries for international expansion efforts; the company predicts that one-third of its growth in the next five years will be in Canada and Mexico.

DIY/Home Improvement World Market Turnover, 2009 - European Federation of DIY Manufacturers

China has been a target for home improvement retailers as a result of the country's growing middle class and Page 182 rise in wages. China represents less than 2 percent of the world home improvement market and has high potential for growth. However, US and European retailers have struggled to establish a foothold there. Home Depot and Kingfisher, for example, have recently closed some of their stores in China after failing to connect with customers. Problems for foreign DIY chains operating in China have included neglecting to establish needed brand awareness, losing business to local competitors offering steep discounts, and learning that Chinese consumers do not embrace the "do-it-yourself" mentality that thrives in the US and Europe.

Many home improvement retailers rely on imports to provide low-end or entry-level products in several key categories, such as the power tool, hardware, and lumber categories. Larger retailers may negotiate directly with foreign manufacturers to source products. Tariffs, political instability, quotas, trade disputes, transport costs, and exchange rates can affect the cost and supply of imported products.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of hardware to the US come primarily from China, Mexico, Canada, Taiwan, and Korea. Major export markets for US hardware include Canada, Mexico, UK, Japan, and China.

NAIC 3325 HARDWARE

Regional Highlights Cold weather states experience seasonal demand for products related to outdoor projects, such as lawn and garden supplies. In some states, companies offer products specifically designed to help homes withstand severe weather or natural disasters. Florida has additional building codes and special products for hurricane preparedness. California has extra earthquake-resistant design and material building requirements.

Human Resources Average hourly wages for home improvement retailers are significantly lower than the national average. Pay in home centers is slightly higher than that in hardware stores due to expertise required to deal with commercial accounts. Some companies rely on part-time workers, especially during key seasonal periods. The industry injury rate is slightly less than the US average in hardware stores, but nearly 80 percent higher than average in home centers. The hazards of dealing with pallet configurations and lifting heavy building supplies likely account for the higher-than-average rate of back injuries in home centers.

Industry Employment Growth Bureau of Labor Statistics

Page 183 Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to home building and remodeling Need good merchandising and competitive pricing Risk: Limited retail pricing flexibility

Industry Indicators

US consumer spending on durable goods, an indicator of home center and hardware sales, fell 1.6 percent in January 2013 compared to the same month in 2012.

The value of US residential construction spending, a key indicator of home center and hardware store sales, rose 22.2 percent year-to-date in January 2013 compared to the same period in 2012.

US retail sales for building material and garden equipment and supplies dealers, a potential measure of home improvement and hardware supply demand, increased 3.7 percent in the first two months of 2013 compared to the same period in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Page 184 Energy Prices Change in crude oil and related energy prices

Construction Spending Change in the overall level of commercial and residential construction spending

Consumer Spending Change in overall level of consumer spending on goods and services

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Unfavorable Retail Pricing Trends - Declining and flat retail prices in key categories for home improvement retailers can affect profitability. Retail prices for tools and hardware were basically flat between 2005 and 2011; prices for outdoor equipment and supplies were down 4 percent. With limited retail pricing flexibility due to competition and increasing manufacturer prices, companies struggle to maintain margins.

Dependence on Housing Market - Home sales, improvement and repair projects, and new residential construction drive sales for home improvement stores. The residential real estate market can be cyclical and influenced by economic conditions. Decreases in home turnover and slower price appreciation, which limits discretionary consumer spending, can lead to fewer home improvement projects. Home centers, particularly those that depend on builders and contractors, are vulnerable to changes in new housing starts.

Business Challenges

Dominance of Large Companies - Home Depot and Lowe's dominate the market. Volume discounts allow large companies to offer extremely competitive prices. Most large home centers provide a wider variety of products and carry building supplies that small hardware stores don't stock. Large companies also have the resources to cater to builders and contractors.

Dependence on Weather - Extremes in weather conditions or prolonged periods of unseasonable weather can affect sales in important categories for home improvement retailers. Wet or cold weather during spring and summer can affect sales of outdoor products, such as lawn care equipment and landscaping supplies. Warm winters can reduce sales of cold weather products, such as snowblowers.

Product Liability and Recalls - Product recalls present liability and financial problems for home improvement retailers. Faulty products, such as power tools and cleaning chemicals, can be extremely hazardous and cause severe injury. Litigation due to unsafe products can be expensive and damage a company's reputation. Recalls can be time-consuming and costly.

Reliance on Imports - Companies rely on imports to provide low-end or entry-level products in several key categories of the home improvement market. Tariffs, quotas, trade disputes, and exchange rates can affect the cost and supply of imported products. Imports are a significant percentage of the US market for hardware and power tools. Canadian softwood lumber imports have been volatile due to long-standing trade issues.

Complex Inventory Management Needs - Because home improvement retailers stock thousands of products, managing inventory can be a challenge. The sheer number of stock keeping units can make purchasing, reordering, distribution, and receiving unmanageable. Even small format hardware stores can have up to 13,000 items in available inventory. Computerized inventory management systems are a critical part of operations for large companies.

Business Trends

Page 185 More "Green" Products - Growing consumer concern over global warming, environmental causes, and energy savings has increased demand for environmentally friendly home improvement products, such as sustainable wood cabinets and recycled glass tiles. Home Depot's Eco Options program identifies products that minimally impact the environment, including all-natural pesticides, energy-saving appliances, and compact fluorescent light bulbs. The number of building projects seeking Leadership in Energy and Environmental Design (LEED) certification, which sets standards for "green" buildings, is increasing.

Private-Label and Exclusive Brands - Large companies are enhancing merchandise selection and developing a competitive advantage by selling more private-label and exclusive products. Private-label brands typically offer higher margins to stores and better value to customers than branded. Exclusive brands often allow companies to provide high-end, better performing products. The True Value cooperative carries thousands of private-label items. Both Home Depot and Lowe's stock exclusive brands in multiple categories.

More Interactive Retail Experiences - Home improvement retailers are adding interactive elements to stores to increase sales. Live product demonstrations, televised demos, and how-to classes educate customers and help sell merchandise. Stations allowing customers to try tools can demonstrate benefits and promote high-end products. Interactive kiosks allow customers to view different paint colors in a variety of settings.

New Payment Options - Home Depot began accepting PayPal accounts as a form of payment in stores in 2012. Giving consumers more options on how to pay for their purchases could attract new customers and encourage customers to buy more to earn special rewards. PayPal and other alternative payment methods will likely continue to become part of the in-store check out process, as technologies advance.

Industry Opportunities

Installation Services - By offering products and installation, companies can provide a valued service and generate incremental sales. Finding good installers for major projects, such as new flooring or millwork, can be difficult for traditional customers. Lowe's has project managers, separate from sales staff, to manage the details of installations. Companies may offer in-home sales services for larger projects, such as generators or air conditioning systems.

Category Specialization - By specializing in a particular category, such as high-end fixtures or hardware, small companies can offer better selections and service. Focusing on a category allows companies and workers to develop expertise and differentiate from big box retailers. Specialized hardware stores can offer faster turnaround by stocking items most larger retailers must special order.

Internet Sales - Hardware and home improvement products are a fast-growing Internet category. Ace Hardware, for example, saw its Web sales increase nearly 40 percent in 2008. Some large companies allow customers to check product availability online. Companies may also offer store pick-up or returns for merchandise ordered through websites. Online buying guides and project instructions can help customers make better purchasing decisions.

Superior Customer Service - Small, independent hardware stores typically compete with big box retailers by offering better, more personal service. Providing superior service allows companies to attract customers who are less price sensitive. Knowing regulars by name, providing free delivery for heavy products, and offering house accounts to long-standing customers helps develop loyalty. Walking a customer through a do-it-yourself job can create a relationship and generate related-item sales.

Targeted Marketing - Companies can develop customer loyalty by creating programs specifically targeting key demographics. Home Depot has special efforts targeting Hispanics, including bilingual signage, Hispanic hiring initiatives, and a culturally relevant paint palette. Lowe's targets women with organized stores, better lighting, designer décor, and high-end appliances. Women initiate 90 percent of all home improvement projects, according to Lowe's.

Industry Websites

Hardware Merchandising (Canada) News and events.

Home Channel News News, surveys.

Home Depot Product trends from major home improvement retailer.

Page 186 Home Improvement Retailing (Canada) News, events, and classifieds.

National Association of Home Builders Building news and trends from trade association.

North American Retail Hardware Association News, industry statistics (annual survey), operating strategies, legislative issues from trade association. Publishes Hardware Retailer.

US Census - Construction Statistics Construction trends.

Glossary of Acronyms

DIFM - do-it-for-me

HGTV - Home and Garden TV

LEED - Leadership in Energy and Environmental Design

NAB - National Association of Home Builders

NRHA - North American Retail Hardware Association

POS - point-of-sale

SKU - stock-keeping unit

Page 187 INDUSTRY PROFILE Garden Centers & Farm Supply Stores 4.1.2013 NAICS CODES: 444220 SIC CODES: 5261

Industry Overview

Companies in this industry sell garden products including trees, plants, seeds, bulbs, and sod; some also offer farm supplies, including animal feed. Major US companies include Armstrong Garden Centers, Tractor Supply Company, and Southern States Cooperative.

The US garden center and farm supply store industry includes about 15,000 stores with combined annual revenue of about $30 billion. Consumer expenditures on flowers, seeds, and potted plants are expected to increase at a high rate over the next two years. Demand drivers include home and farm sales and the popularity of gardening as a leisure activity.

Competitive Landscape Consumer income, home sales, and leisure activity trends drive demand in garden centers; the general health of the farming sector, which is tied to crop and livestock prices, weather, and consumer consumption patterns, drives demand in farm supply stores. The profitability of individual companies depends on effective merchandising and marketing, competitive pricing, and the ability to secure convenient locations. Large companies have advantages in purchasing, distribution, finance, and marketing and can better serve large customers. Small companies can compete effectively by offering specialty products, providing superior customer service, or serving a local market. The industry is highly fragmented: the top 50 companies generate about 25 percent of revenue.

Competition includes home centers, hardware stores, mass merchandisers, and Internet and catalog retailers. Farm supply stores also compete with farm cooperatives, which allow small farms to combine purchasing power and enjoy volume discounts.

Products, Operations & Technology

Major products sold include farm supplies (25 percent), soil treatments (20 percent); and outdoor nursery stock (15 percent). Farm supplies include grain and animal feed. Soil treatments include fertilizers, lime, and other chemicals. Outdoor nursery stock includes trees, shrubs, bedding plants, bulbs, sod, and seeds. Companies may also sell hardware, automotive fuel, pet food and supplies, and lawn and garden equipment and parts. Services include equipment repair, maintenance, or rental. Some garden centers offer landscaping design and installation services.

Product Segmentation by Revenue - Census Bureau

Page 188 The industry consists primarily of independent retailers and regional chains, although Tractor Supply, a major farm supply company, has retail outlets in almost all states. Most stores have both indoor and outdoor retail space. Some garden centers have greenhouses or nurseries. Locations include strip malls, stand-alone buildings, and indoor shopping malls (for stores specializing in garden accessories).

Average size for farm supply stores varies: large stores can exceed 50,000 square feet, while smaller stores can be just 1,500; Tractor Supply stores range from 15,000 to 19,000. Most farm supply stores are, or were, located in rural areas. Suburban developments have replaced vast amounts of farmland, forcing many farm supply stores to either move or alter merchandising strategy to include more nonfarm goods. Common equipment includes trucks, skid loaders, and forklifts.

Companies buy merchandise from a variety of sources, including manufacturers, distributors, nurseries, wholesale growers, feed suppliers, and equipment dealers. Buying cooperatives allow independent garden centers to enjoy volume discounts, centralized billing, and delayed invoicing. Many companies attend trade shows to review new products and make buying decisions.

Merchandise selection varies by season and geographic region. Popular garden center products include annuals, perennials, trees, shrubs, cut flowers, and ground coverings (soil, mulch, and rocks). According to Today's Garden Center, plants make up more than 60 percent of sales for retailers. Holiday and seasonal items, along with pottery, are also major contributors to sales. Live plants, also known as "green goods," are perishable inventory and require adequate water, sunlight, and air circulation. Unsalable plants contribute to inventory "shrink." Important farm supply categories include animal care (feeds and supplements); seeds; fertilizers; tractors and parts; hardware; and tools. Changing customer demographics have caused many farm supply stores to stock a broader variety of merchandise, including lawn and garden care, pet care, clothing items and seasonal items such as gifts and toys.

Some companies use computerized information systems to manage point-of-sale (POS); inventory; sales; accounting; purchasing; and distribution. Large companies may use electronic data interchange (EDI) to transmit purchase orders. Tractor Supply uses Web-based supply chain management systems and radio frequency identification (RFID) to monitor merchandise movement through the supply chain.

Sales & Marketing

Typical customers for garden centers include homeowners and landscapers. Farmers and ranchers frequently shop at farm supply stores. Farm supply store customers also may be recreational farmers and people who enjoy the rural lifestyle.

Marketing and promotional vehicles include local newspaper, radio, television, phone directory, and print advertising; direct mail; and in-store events and displays. Because most companies are small and regional, national advertising is cost-prohibitive. Companies may get marketing allowances from manufacturers to promote specific products. During key seasonal periods, garden center staff may host seminars, speak at community events, or give interviews with local press to generate interest and create "free" advertising.

Customer service is especially important for companies serving do-it-yourself (DIY) customers. Sales staff with horticultural expertise help customers select appropriate plants. Workers with farming experience can guide less experienced customers (such as hobby farmers) through DIY projects, such as fencing, and general maintenance tasks. Loyalty programs reward frequent customers and encourage repeat store visits.

Because garden centers and farm supply stores serve primarily local markets, Internet sales are limited. Shipping is expensive for animal feeds and can stress live plants. Some garden centers sell some merchandise

Page 189 through websites. Many company websites give basic information, including hours of operation, location, and product information. In addition, more companies are using social networking tools like Twitter and Facebook to improve customer relations.

Finance & Regulation

Sales are highly seasonal with the main peak during spring, when most gardening, lawn care, and planting activity occurs. Demand for holiday-related products, such as Easter lilies, poinsettias, and Christmas trees also drive seasonal sales. Most companies build inventory and carry high accounts payable during winter in anticipation of the spring selling season. Payment terms for store inventory can range from 30 to 180 days depending on the product. Receivables are generally low, except for companies that allow customers to charge purchases to house accounts. At about 25 percent of sales, payroll and administrative costs are a significant expense. Gross margins average 30 percent, but are slightly lower for farm supply stores due to the higher percentage of lower margin products (such as animal feed and seeds).

The industry is capital-intensive: average annual revenue per worker is about $300,000.

Federal and state laws regulate fertilizer manufacturing, transportation, and environmental impact. Some states have banned phosphorous fertilizers. The EPA's Greenscapes program encourages sustainable landscaping and environmentally friendly lawn and garden maintenance practices. The National Plant Board and state and local agencies can quarantine plants to prevent the spread of pests and disease. The FDA's Center for Veterinary Medicine regulates animal food, feed ingredients, and additives.

International Insights

Some nursery products are imported, including trees, shrubs, and ground covers. Most nursery imports come from Colombia (cut flowers and Christmas trees), Canada (live plants and trees), and the Netherlands (flowering bulbs and tubers).

Change in Dollar Value of US Trade - US International Trade Commission

Imports of nursery products to the US come primarily from Colombia, Canada, Netherlands, Ecuador, and Costa Rica. Major export markets for US nursery products include Canada, Mexico, Netherlands, China, and Spain.

NAIC 11142 NURSERY PRODUCTS, FLOWERS, SEEDS, AND FOLIAGE

Regional Highlights

Demand in the US for lawn, garden, and farm products and supplies is regional and highly dependent on climate and growing conditions. Southern households spend more on lawn and gardening products than other regions of the US, according to the National Gardening Association. States with the most farms are Texas, Missouri, Iowa, Oklahoma, and Kentucky.

Human Resources

Most jobs in garden centers and farm supply stores require few skills. As a result, average hourly industry

Page 190 wages are moderately lower than the national average. Companies may rely on part-time help during peak periods. To provide specialized expertise, some garden center staff may have formal education, experience, or certification in horticulture and landscaping. Most states require landscape architects to have licenses. Farm centers may employ workers with farming and ranching backgrounds. For example, each Tractor Supply hires employees with experience in general maintenance, horse training, and welding.

The industry injury rate is about 35 percent higher than the average for all US workers, primarily due to equipment-related accidents. Improper operation of lifting equipment contributes to the high injury rate.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Tied to consumer and farm spending and home sales Depends on effective merchandising and marketing and competitive pricing Risk: Housing slumps and shrinking farm industry

Industry Indicators

US consumer spending on nondurable goods, an indicator of garden center sales, rose 1 percent in January 2013 compared to the same month in 2012.

The value of US residential construction spending, a key indicator of lawn and garden product sales, rose 22.2 percent year-to-date in January 2013 compared to the same period in 2012.

US retail sales for building material and garden equipment and supplies dealers, a potential measure of garden

Page 191 and farm supply demand, increased 3.7 percent in the first two months of 2013 compared to the same period in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Consumer Spending Change in overall level of consumer spending on goods and services

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Dependence on Real Estate, Construction - New home construction and existing home sales, important categories for garden centers and farm supply stores, drive growth for lawn and garden products. The real estate and construction industries are both cyclical and highly influenced by economic factors and consumer spending. Builders and consumers often cut landscaping and gardening projects or seek lower-cost retailers during tough economic times. As a result, employment in nurseries, garden centers, and farm supply stores usually decreases.

Farm Industry Shrinking - The long-term decline of the farm industry has reduced demand for farm supplies, causing farm supply retailers to struggle for survival. As the suburbs expand, eager real estate developers continue to buy farms. More lucrative and less demanding nonfarm employment opportunities have lured many farmers from the profession. The number of farms and farm acres declined between 1978 and 2007. However, the number of small and very large farms grew slightly between 2002 and 2007, according to the 2007 Census of Agriculture.

Business Challenges

Competition from Alternative Retailers - Garden centers and farm supply stores face strong competition for lawn and garden products from large, alternative retailers. Home centers, such as Home Depot and Lowe's, and mass merchandisers, including Wal-Mart, offer lawn and garden products and accessories at low prices. US households now spend more at home improvement stores and mass merchants than they do at smaller garden centers, according to the National Gardening Association. Large retailers often capitalize on seasonal demand and use aggressive pricing tactics to drive store traffic. As the farm industry continues to decline, farm supply stores rely increasingly on sales of gardening and landscaping supplies to offset decreasing revenues in traditional categories.

Volatile Manufacturer Prices - Manufacturer prices for fertilizer and animal feed can change significantly from year to year and affect profitability for garden centers and farm supply stores. Manufacturer prices for fertilizer can increase by more than 80 percent annually, and can change 5 to 20 percent annually for animal feed. Volatile commodity prices for raw materials in animal feed (corn and soybeans) and fertilizer (nitrogenates and phosphates) drive manufacturer price changes.

Farm Industry Concentration - While large farms are just 10 percent (and growing) of the farm industry, they represent more than 60 percent of farm production. Revenue at farms earning $500,000 or more annually grew 64 percent between 2002 and 2007. Many farm supply stores rely on business from small farms, as large farms may deal directly with suppliers. The number of small farms of 1 to 9 acres grew 30 percent between 2002 and 2007.

Page 192 Dependence on Weather - Bad or abnormal weather conditions can severely affect demand for lawn and garden products and crop supplies. Early or late frosts can affect farm crops and fertilizer sales. Extended droughts and watering bans can significantly reduce sales of lawn and garden items. Variable weather conditions complicate the highly seasonal nature of sales for both garden centers and farm supply stores.

Business Trends

Increased Spending on Professional Services - Homeowners want attractive lawns and landscapes, but lack of time has driven many to rely on professional services. While landscaping services revenues grew during the earlier part of the decade, the late 2000s recession diminished demand somewhat as housing starts dropped and developments went unsold. Meanwhile, US landscaping product demand is expected to rise 7.6 percent each year through 2015 as the housing market recovers, according to the Freedonia Group. Large lawn care and landscaping companies may avoid retailers and buy supplies in bulk from distributors.

Growing Interest in Outdoor Living - Consumer desire to spend time at home and extend living space outdoors should drive sales for outdoor patio products. Demand for decorative outdoor products such as lighting, pavers, and fountains will achieve double-digit growth each year through 2015, according to the Freedonia Group. As the housing industry rebounds and the economy improves, consumer's will unleash pent-up demand for landscaping renovations and updates that may have been put off during the recession.

Farm Supply Stores Diversify Merchandise - As the number of farms dwindles, farm supply stores have been forced to carry nontraditional merchandise to survive. To adapt to expanding suburbs and changing customer demographics, farm supply stores have added or expanded lawn and garden, pet care, and outdoor clothing categories. Sometimes the only retailer for miles, some stores offer convenience store products, such as soft drinks and snacks.

Industry Opportunities

Specialty Products - Stocking specialty products or offering a wide selection of merchandise within a category helps garden centers and farm supply stores differentiate from competition. Retailers can capitalize on the growing environmental movement by stocking more organic lawn and garden products or plants with low water needs. Offering locally grown or native plants and customized container plantings also advantages stores. Farm supply stores may focus on a particular type of animal feed or sell locally produced farm products, such as fresh eggs and beef jerky.

Growing Demand for Edibles, Seeds, and Trees - Gardens centers have experienced an increase in sales for edibles and vegetable seeds, according to a Today's Garden Center survey. The popularity of vegetable gardening has helped increase interest in edibles and seeds. More consumers are seeking to grow their own food in efforts to save money and promote health.

Delivering Superior Customer Service - By going beyond retailing and offering industry expertise and advice, companies can develop valuable customer relationships and loyalty. Many gardeners and hobby farmers are DIYers and often require help when attempting projects. Knowledgeable staff can help customers select proper plants and prevent unsuccessful plantings. Offering landscape design generates an alternative revenue source and helps companies sell more plants. Even experienced farmers and gardeners can appreciate staff versed in current trends and new products.

Promoting Quality - By focusing on quality rather than price, garden centers can further differentiate from large retailers and protect margins. Quality-oriented customers are more likely to buy lawn and garden products from garden centers versus price-oriented shoppers, who are more likely to buy from mass merchandisers, according to the Garden Writers Association Foundation. Selling high-quality plants results in healthy lawns and gardens and enhanced customer satisfaction.

Special Events - Garden centers can drive store traffic by creating themed events that showcase seasonal plants and merchandise. Santa villages, nativity scenes, and Easter displays provide photo opportunities and attract families during key months. Artful arrangements of nursery stock offer an attractive backdrop for garden parties and local community group meetings.

Industry Websites

Page 193 American Nursery and Landscape Association Industry and legislative news and statistics from trade organization.

Canadian Nursery Landscape Association - Garden Centres Canada Reports, news, and industry resources.

IGC Retailer Garden center industry source.

Lawn & Garden Retailer Industry news, trends, statistics, and annual survey.

National Gardening Association Industry news, trends, statistics from trade organization.

The Association of Horticulture Professionals (OFA) Horticulture educational association, news, trends.

Today's Garden Center Industry news, trends, Top 100 best practices garden centers.

Glossary of Acronyms

DIY - do-it-yourself

EDI - electronic data interchange

GWA - Garden Writers Association

NGA - National Gardening Association

POS - point-of-sale

RFID - radio frequency identification

Page 194 INDUSTRY PROFILE Consumer Electronics & Appliances Stores 3.4.2013 NAICS CODES: 4431 SIC CODES: 5045, 5064, 5065, 5722, 5731, 5734, 5946

Industry Overview

Companies in this industry sell household appliances, cameras, computers, and other electronic goods. Major US companies include Best Buy, RadioShack, and the retail operations of Apple, hhgregg, and Conn's.

The US consumer electronics and appliance store industry includes about 50,000 stores with combined annual revenue of about $100 billion, and moderate growth is forecast for the industry over the next two years. Key growth drivers include increases in per capita income and consumer spending, and a growing need for automation and technological advancement.

Competitive Landscape

Technological innovation and the need to replace or upgrade products drive demand. Profitability for individual companies depends on the ability to generate store traffic and repeat business, as well as effective merchandising. Large companies enjoy economies of scale in purchasing and marketing. Small companies can compete effectively by offering specialized products or superior customer service. The industry is concentrated: the 50 largest companies account for 70 percent of sales.

Competitors of consumer electronics stores include discount stores, warehouse clubs, department stores, Internet and mail order retailers, and specialty office and computer retailers.

Products, Operations & Technology

Major product segments include computer equipment, TVs, and major household appliances. Computer hardware and software together account for about 30 percent of industry sales; televisions and major appliances account for about 15 percent each. Other products include video equipment (video recorders, DVD players, and electronic games), audio equipment (home and auto sound systems, home theater systems, and accessories), and telephones (including wireless phones and smartphones). The industry typically refers to large appliances other than TVs, including such items as refrigerators and washing machines, as "white goods." Consumer electronics and appliance stores may also generate revenue from installation and repair or maintenance agreements, along with resale of third-party wireless phone, Internet access, or satellite TV or radio service.

Product Segmentation by Revenue - Census Bureau

Page 195 Consumer electronics and appliance retailers include national and regional chains and independent retailers. Major chains and some regional chains may offer a “superstore” format, which can exceed 30,000 square feet. Superstores are most often located in large strip malls in high traffic areas. Other chains may have smaller retail locations ranging from 1,500 to 10,000 square feet, located in indoor shopping or smaller strip malls. Chains may also offer a limited selection of products through kiosks (about 90 square feet) in other retail locations. Independent stores vary widely in size, from a few thousand square feet to larger than a typical superstore.

A typical electronics superstore generates $15 million to $40 million annually, and averages $500 to $900 per square foot. A store that specializes in high-end products can generate $7 million annually and averages $700 per square foot.

Many stores carry high levels of inventory for expensive items like plasma screen TVs and personal computer systems to avoid out-of-stocks. Inventory management and sales forecasting are critical to profitability, as rapid advances in technology can significantly decrease demand for older products. In contrast, during the winter holiday, demand for “hot” products like new video game systems and portable music systems can exceed supply. Many large chains offer private-label products to fill gaps in existing product offerings.

Most large retailers buy directly from large manufacturers like Sony, Panasonic, Hewlett-Packard, and Toshiba. Independent retailers buy through established buying groups like Nationwide and Resource Plus to increase individual buying power. In most product segments of the consumer electronics industry, suppliers are highly concentrated: Best Buy relies on just five suppliers for about 40 percent of total merchandise. For highly anticipated new products like game systems or video games, retailers may place advance orders to guarantee supply.

Large retailers use integrated computer systems to manage point-of-sale transactions and inventory management, which allow for automatic replenishment at the store level. Some systems integrate online orders, and allow for in-store pickup or direct shipment.

Advances in technology drive sales of new electronic products. For example, new digital technology created the market for products like MP3 players and HDTVs, and increased microprocessor power drives demand for newer computers and gaming systems with better graphics and higher performance. Household appliances like washers, dryers, and dishwashers with advanced microchips and sensors can typically perform more efficiently than older products.

Sales & Marketing

The traditional demographic for the consumer electronics store customer varies depending on product specialization. For high-end computer and video products, a typical customer is an affluent, professional man. Families with children, professional women, and small businesses also are important customer segments for categories like digital cameras, video recorders, and computers. The typical home appliance buyer is a 35- to 55-year old female homeowner looking to replace or upgrade an existing appliance.

Marketing and promotional vehicles include TV, newspaper, radio, and Internet advertising, direct mail, and in-store events. Retailers frequently use discounts, rebates, and other promotions to generate store traffic and establish competitive pricing with mass merchandisers and Internet retailers. Major chains may have loyalty programs that reward repeat customers and collect information on buying trends.

The technical nature of many electronic products requires professional installation services and trained sales associates able to explain complicated features to customers. Superior customer service generates repeat business and allows higher-priced independent stores to compete effectively against major chains.

Page 196 Most major chains have retail Internet operations, and may link to other websites, such as Amazon.com, to drive online sales. Many customers use store websites to research products and compare prices. Customers may have the option of having purchases shipped directly or picked up at the nearest retail location. Specialized retailers have leveraged the Internet by selling products like used video games and refurbished computers, which have limited availability.

Finance & Regulation

Cash flow is seasonal, with sales volume peaking during the winter holidays. Chains can generate between 50 to 100 percent of earnings during fourth quarter. Inventories for large chains range between 50 to 130 days sales, with inventory increasing during third quarter in preparation for holiday sales. Although customers may require financing for high-ticket items, receivables are typically low, since many chains offer branded third party credit cards at the point of purchase. The North American Retail Dealers Association (NARDA) offers consumer credit for independent stores.

Superstores typically have leases that run up to 20 years. Mall-based stores have leases that average five to 10 years; those in smaller strip malls average three to five years. Leases typically include a base rent payment, maintenance and advertising fees, and possibly a percentage of sales. Retailers may require capital to expand or upgrade stores.

Gross margins range between 25 and 50 percent, depending on the product mix. Retailers often take lower margins on products like computer hardware and game systems to drive sales of complementary software and video games with higher margins. Retailers typically receive residual payments for sales of wireless phone service through a third party provider.

Federal and state laws regulate the consumer credit business. Consumer electronics and appliance stores are also regulated by federal and state labor laws, as well as state and local regulations for zoning and business permits. The National Appliance Energy Conservation Act of 1987 affects products and pricing by limiting energy consumption of new appliances. In addition, EPA regulations can affect store operations as well as the design and price of a variety of products.

The FCC regulates communication by radio, TV, wire, satellite, and cable. FCC policies regarding wireless phone and digital video signals have significant implications for electronics stores. For example, the FCC's and Congress’ 2009 mandate to convert to an all-digital video signal generated considerable demand for digital TVs and virtually eliminated demand for analog.

International Insights Given the significant volume of consumer electronics products produced in Asia, many large retailers operate global sourcing offices in countries such as China, Hong Kong, and Taiwan. Some large chains have retail operations outside the US, particularly in Canada.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of consumer electronics to the US come primarily from China, Mexico, Japan, Thailand, and Malaysia. Major export markets for US consumer electronics include Canada, Mexico, Hong Kong, Japan, and China.

NAIC 33431 AUDIO AND VIDEO EQUIPMENT

Page 197 Regional Highlights Most US consumer electronics and appliance stores are located in fast-growing, densely populated, relatively affluent, suburban and urban areas. California, Texas, Florida, New York, and Illinois have the greatest number of establishments.

Human Resources

Seasonal sales make stores reliant on part-time labor, especially during the winter holiday. Average hourly industry wages are about the same as the national average. Some store sales staff are on commission. Sales staff training is important due to the technical nature and high cost of most electronics.

A typical superstore has a manager; several assistant managers (including a sales manager); and up to 100 full and part-time employees, who cover sales, sales support, and technical service functions. Smaller stores may have a manager, up to two assistant managers, up to 30 full- and part-time sales associates, and up to 15 technical and administrative support staff. Due to the nature of retail sales, the employee injury rate at consumer electronics and appliance stores is significantly lower than the US average.

Industry Employment Growth Bureau of Labor Statistics

Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: New products drive consumer demand Need store traffic and good merchandising Risk: Economic health affects spending on non-essential electronics

Page 198 Industry Indicators

US consumer spending on durable goods, an indicator of consumer electronic sales, fell 1.6 percent in January 2013 compared to the same month in 2012.

US personal income, which drives consumer ability to purchase luxury electronics, rose 2.2 percent in January 2013 compared to the same month in 2012.

US retail sales for electronics and appliance stores, a potential measure of demand for consumer electronics, decreased 0.7 percent in the first two months of 2013 compared to the same period in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Government Regulations Changes in federal, state, or local government regulations or business- related policies

Critical Issues

Market Saturation of Key Products - High household penetration of key products can slow growth for retailers, meaning consumer electronics and appliance stores must rely on replacement or upgrade sales. Almost every US household owns a refrigerator and a range, and many own washers and dryers, according to the Association of Home Appliance Manufacturers (AHAM). More than 90 percent of US households own DVD players, according to the Consumer Electronics Association (CEA). Retailers must rely on replacement sales and significant advances in technology to entice consumers to upgrade.

Significant Declines in Retail Prices - Retail prices for major segments of consumer electronics and appliances have been declining. Between 2007 and 2011, the average retail price for televisions dropped 60 percent, while major appliance prices declined more than 5 percent from 2008 to 2011. While electronics have historically relied on increased volume to compensate for price declines, market saturation levels of products may limit growth and affect profitability.

Business Challenges

Competition from Alternative Channels - Consumer electronics and appliance stores face heavy competition from numerous other channels, including warehouse clubs, mass merchandisers, department stores, and Internet and mail order retailers. About 15 percent of all consumer electronics purchases in the US are made online, according to McKinsey & Company. Alternative channels will continue to threaten brick-and-mortar electronics stores, as entry-level electronic products become less complex and easier to sell.

Significant Impact of Imports - Imports of consumer electronics and appliances into the US can have a significant impact on electronics and appliances retailers. Most electronic products manufacturers are either large foreign companies or US companies with some foreign manufacturing operations. The US imported about $40 billion worth of audio and video equipment in 2011, primarily from China and Mexico. Imports of major appliances,

Page 199 meanwhile, more than doubled between 2003 and 2011, a trend that has helped drive down retail prices.

Technological Advances Help Drive Growth - Retailers may depend on new products incorporating the latest technological innovations to help drive increased sales. The introduction of the latest iPad model in early 2012, for instance, helped boost sales at some consumer electronics stores, offsetting declines in other computer products. Products with new features may also entice consumers to replace their older appliances and electronic devices. Retailers may struggle to predict product lifecycles to reduce or eliminate excess inventory before a new model is introduced.

Industry Concentration - The top 50 consumer electronics and appliance retailers account for about 70 percent of industry sales. Purchasing power allows large retailers to negotiate volume discounts with suppliers and offer deep discounts to consumers. Without the volume or resources to compete on price, independent retailers have survived by providing the customer service needed to sell expensive and often complicated electronic products.

Seasonal Sales - Large consumer electronics and appliances retailers may generate between a third to half to net sales during fourth quarter. Consumers often wait until the winter holidays to buy items like MP3 players, digital cameras, plasma screen TVs, and major appliances. Delays in key product introductions (like video game systems), combined with price competition from other retailers, can contribute to soft sales during the holidays, adversely affecting financial results for the entire year.

Business Trends

Growth of Wireless, Mobile Segments - Expanding wireless networks provide wide-ranging access to the Internet and phone networks. Consumers and businesses are becoming more accustomed to communicating and accessing information without being tied to a physical location. The functionality of wireless devices is improving, as advances in technology allow more complicated tasks, such as capturing and transmitting voice, data, and video, to be executed more efficiently. Nine in 10 consumers own a smartphone, cell phone, or media tablet, according to the CEA.

Expanding Use of Electronic Media - More consumers are spending time surfing the Internet, playing video games, and listening to music using electronic devices. About 70 percent of households have broadband access to the Internet. More that 80 percent of electronic game players are older than 18, according to the Entertainment Software Association. Falling prices and more user-friendly products have made consumer electronics more accessible to the average consumer.

Transition to Digital Technology - Digital technology has revolutionized almost every segment of the electronic products industry and continues to drive the pace of new product introductions. Manufacturers have leveraged digital technology to improve picture and sound quality of products like TVs, cameras, and audio devices. Advances in digital technology are shortening product life cycles and increasing product proliferation.

Declining Employment - Employment at US consumer electronics and appliances stores fell by more than 10 percent between 2002 and 2011. Competition from mass merchandisers and online retailers may have forced some regional chains and independent stores to close. At the same time, productivity gains thanks to automation and computerized systems means fewer employees are need at each store location.

Industry Opportunities

Targeting Early Adopters - Early adopters, the first consumers to buy new technology, represent a potentially profitable segment for retailers because they generally spend more on electronics than other customers. In addition to spending more, early adopters tend to own more devices and consume more media (audio, video, apps). Most important for retailers, early adopters plan to continue purchasing additional devices in the future and can be valuable sources of repeat business if their loyalty can be secured.

Technical Services - As household penetration for more complex consumer electronics offerings grows, demand for technical installation and repair services should increase. Some product offerings, like home computer networks and home theater systems, may be too complex for the average consumer to install or fix. By offering installation and repair services, electronics retailers provide one-stop shopping for technologically challenged consumers.

End-User Education - Offering training classes for beginners and experts can help consumer electronics stores provide added value and develop customer loyalty. Increasingly widespread use of computers has driven the need for end-user education. While advances in technology have simplified basic hardware and software operations, experienced users may need training to fully leverage new features and functions. New users may require formal training to learn the basics.

Page 200 Complementary Product Sales - Consumer electronics and appliance retailers can increase sales by recommending complementary products when selling high-ticket items. Electronics retailers can realize incremental sales by focusing on extended warranties and complementary products like flash memory and printer ink.

Industry Websites

Association of Home Appliance Manufacturers Industry trade group, statistics, and trends.

Canadian Electronics Magazine Media and events.

Consumer Electronics Association Trade organization – good source for statistics and trends.

Entertainment Software Association Trade association for video and computer game developers.

National Retail Federation Retail trade organization – general retail trends and statistics.

North American Retail Dealers Association Trade organization for independent consumer electronics retailers.

This Week in Consumer Electronics (TWICE) Industry publication – statistics, trends, news.

Glossary of Acronyms

CEA - Consumer Electronics Association

MARTA - Metropolitan Appliance Radio and Television Association

NARDA - North American Retail Dealers Association

POS - point-of-sale

Page 201 INDUSTRY PROFILE Building Material Dealers 4.15.2013 NAICS CODES: 4441 SIC CODES: 5211

Industry Overview

Companies in this industry are primarily engaged in retail sales of new building materials and supplies. Major companies include Home Depot, Lowe's, and Menard (all based in the US) as well as Beijing Easyhome Investment Holding Group and Red Star Macalline International (both based in China), Home Improvement Hirose (Japan), Kingfisher plc (UK), and Praktiker and Tengelmann (both based in Germany). Some independently owned stores belong to wholesale cooperatives, such as Ace Hardware and True Value Company in the US, that buy materials in bulk and resell them to members.

Worldwide, the global do-it-yourself (DIY) and home improvement market, which includes building material dealers, is valued at more than $500 billion, according to the European Federation of DIY Manufacturers. Some of the leading retailers of building materials are based in Germany, the UK, and the US.

The US building materials dealer industry includes more than 40,000 companies with combined annual sales of about $230 billion and is expected to experience a high growth rate over the next two years. Growth drivers include the gradually improving US residential construction sector, and rising demand for remodeling.

The industry includes home centers and hardware stores and paint and wallpaper stores, which are covered in separate industry profiles, as well as specialized building material retailers.

Competitive Landscape

Demand is driven mainly by residential real estate construction and renovation. The profitability of individual companies depends on merchandising and customer service. Large companies enjoy economies of scale in purchasing and have the ability to offer more products. Small companies can compete effectively by catering to contractors, by offering specialty products and services, and by serving areas unattractive to larger companies because of limited customer concentration.

The industry is concentrated: the top 50 companies account for more than 50 percent of industry revenue.

Products, Operations & Technology Major products are lumber and other structural building materials and supplies (45 percent of sales) and hardware, tools, and plumbing and electrical supplies (25 percent of sales). Other products include paint; lawn, garden, and farm equipment and supplies; and floor coverings. In addition to selling products, many companies sell installation services (so-called "installed sales") using their own employees or outside contractors.

Product Segmentation by Revenue - Census Bureau

Page 202 A typical building supply store has about 20,000 square feet of floor space; big-box home improvement retailers like Home Depot or Lowe's have more than 125,000 square feet. The items sold in largest volume by most companies are lumber and plywood panels - commodity products with relatively low margins. Some companies sell only lumber, but larger stores also carry an assortment of higher-margin goods. Inventory management is a major operating concern for most retailers, including stocking the right products, pricing, re-ordering, and tracking sales. A typical Home Depot or Lowe's store carries 40,000 items.

Big chains buy many products directly from large suppliers, while smaller companies buy from a large number of regional distributors. Lowe's buys products from 7,000 vendors. Chains with many retail outlets often operate their own distribution centers.

Larger building material retailers rely on computer technology such as point-of-sale systems and electronic bar code scanning systems to help manage inventory. The biggest companies offer self-checkout systems. For companies that offer delivery services, fleet efficiency can be enhanced with GPS technology. GPS fleet tracking systems can reduce labor and fuel costs, improve vehicle utilization, and safeguard vehicles and other equipment.

Sales & Marketing

Typical customers are consumers and professionals such as contractors and tradesmen. Consumers fall into two main categories: do-it-yourself (DIY) and do-it-for-me (DIFM). DIY customers buy products and complete their own projects; DIFM customers buy products to be installed by others. Larger stores often provide installation services.

Consumer-oriented merchants use typical retail marketing such as TV, radio, and print ads, direct mail campaigns, and special sales events. Contractor-oriented companies establish and maintain long-term relationships with local builders and contractors. Credit availability is an important inducement for contractors, who typically aren't paid until a job is completed. A large percentage of contractor business is based on credit.

Large retailers like Home Depot and Lowe's offer thousands of products on their websites. Most products can be purchased online and shipped anywhere in the US. Customers can also use company websites to check for product availability at their local store, apply for consumer or contractor lines of credit, and access how-to project guides.

Finance & Regulation

Revenue for many building material and supply dealers is highly seasonal, with demand greatest in summer. Gross margins for lumber companies selling commodity products primarily to contractors can range from 5 to 20 percent. Home Depot and Lowe's, which sell mainly to consumers, have gross margins of about 30 percent. An important measure of performance is annual sales per square foot, since many overhead costs are determined by building size. Large home centers sell between $280 and $370 per square foot, and smaller stores an average of $200. Same-store sales are another key standard measure of retail performance. Business credit or private-label credit offers convenience to a customer and, more important, reinforces the pattern for repeat purchases. Often credit is administered and serviced by a financial lending institution.

International Insights The global do-it-yourself (DIY) and home improvement market, which includes building material dealers, is valued at over $500 billion, according to the European Federation of DIY Manufacturers. Some of the leading retailers of

Page 203 building materials are based in Germany, the UK, and the US. Major Companies outside the US include Beijing Easyhome Investment Holding Group and Red Star Macalline International (both in China), Home Improvement Hirose (Japan), Kingfisher plc (UK), and Praktiker and Tengelmann (both in Germany).

Global DIY and home improvement spending remains heavily concentrated in Europe and North America. Together, Europe and North America account for more than 90 percent of the global market, according to the European Federation of DIY Manufacturers. North America is by far the largest, with nearly 60 percent; Europe's share is over 30 percent. The Asia Pacific region accounts for less than 5 percent; Central and South America, Africa, and the Middle East each account for less than 2 percent.

Faced with mature markets at home, some North American and Western European building materials dealers have turned to developing markets for growth, particularly China. Rapid urbanization, rising wages, and an emerging middle class prompted companies including Home Depot and Kingfisher's B&Q subsidiary to invest heavily in China. But those early investments did not pay off, according to China Daily.

Home Depot and Kingfisher's B&Q stores essentially transplanted their existing business models in China. B&Q entered China in 1999, saw its store count peak at nearly 70 stores but then fall to about 40 in 2012. Home Depot, which entered China in 2006, endured heavy losses before gradually closing stores. In 2012 Home Depot decided to shutter all seven remaining big box stores in China.

Western building materials retailers misunderstood the Chinese market. Most new affordable urban housing is apartments being developed by the Chinese government. The apartments often are decorated and furnished, limiting demand for products such as lumber, ready-mix concrete, and other building supplies. Chinese consumers also have more of a do-it-for-me than a DIY approach to home improvements. Lastly, foreign companies found the competition stiff from domestic players like Red Star Macalline and Easyhome that better understand the market. In response to their missteps, Home Depot and B&Q have adjusted their strategies in China and are developing smaller stores that offer more services to help customers select and install products, according to China Daily.

Home improvement retailers have generally fared better when their foreign expansions have been closer to home. Home Depot and Lowe's have had more success expanding to Canada and Mexico. In Europe, players including Tengelmann's OBI division have grown successfully in the Czech Republic, Poland, and Russia.

The low level of spending on home improvements, coupled with rising incomes, in Asia, Latin America, Africa, and the Middle East still represents tremendous opportunity for building materials dealers. However, foreign entrants in these markets will need to apply the lessons learned in China, and take more care to structure business models around local tastes and cultures, and be nimble enough to adapt quickly.

Regional Highlights In the US building material dealers tend to cluster in areas where population is growing. California, Texas, New York, Florida, and Pennsylvania have the most building materials stores.

Human Resources Average hourly industry wages are moderately lower than the national average. Salespeople who serve commercial customers typically require higher levels of training and expertise. Due to uneven demand during the day, week, and year, many stores employ part-time workers. Employee turnover for the retail industry overall is about 20 percent higher than the average for all US nonfarm employers. Injury rates for building material retailers are 50 percent higher than the national average.

Industry Employment Growth Bureau of Labor Statistics

Page 204 Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Depends on construction and renovation Need good merchandising and inventory management Risk: Volatile supply costs and housing slowdowns

Industry Indicators

US consumer spending on durable goods, an indicator of building material supply sales to consumers, fell 1.6 percent in January 2013 compared to the same month in 2012.

The value of US residential construction spending, which impacts contractor demand for building material supplies, rose 22.2 percent year-to-date in January 2013 compared to the same period in 2012.

US retail sales for building material and garden equipment and supplies dealers, a potential measure of building material supply demand, increased 3.7 percent in the first two months of 2013 compared to the same period in 2012.

Total US wholesale sales of durable goods, a potential measure of demand for building material supply, increased 5.4 percent in January 2013 compared to the same month in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Construction Spending Change in the overall level of commercial and residential construction spending

Consumer Spending Change in overall level of consumer spending on goods and services

Page 205 Critical Issues

Volatile Supply Prices - Although price increases can often be passed to consumers, building material and supply dealers that maintain large inventories can be hurt if prices move sharply. Lumber prices, especially, can be volatile, affected by changing demand, domestic supply, and imports from Canada. Lumber prices can change significantly in just a couple of months. Import disputes between the US and Canada increase the uncertainty of supply.

Cyclical Industry - The building material and supply industry is highly cyclical, depending on the level of new home construction, improvements, and repairs, and the volume of home sales. Homeowners and contractors are more likely to buy building materials when housing starts and home sales are increasing. Repair and remodeling are somewhat less cyclical than new construction.

Business Challenges

Competition from Big Retailers - The expansion of large chains like Home Depot and Lowe's has driven many smaller stores out of business. Small companies that manage to survive are forced to adopt business strategies that don't rely on low prices. Big chain expansion draws do-it-yourself (DIY) customers from small stores, especially in larger metropolitan areas, forcing smaller companies to concentrate on the lower-margin contractor.

Credit Exposure to Commercial Contractors - Building material and supply retailers generally offer credit to contractors, who typically aren't paid until a construction or improvement contract is finished. Smaller companies may have large accounts receivable from big commercial customers. These small companies face greater risk from delinquent accounts.

Safety Issues - The "working warehouse" structure of many building material and supply stores means that shelves are stocked during the day, with employees spending substantial amounts of their time handling merchandise. Customers can be injured by stocking activity or improperly stacked merchandise on high shelves, leading to lawsuits and adverse publicity. Companies must follow OSHA's safety standards regarding operation of forklifts or other machinery in proximity to customers and some companies have stricter policies for additional safety.

Seasonal Cash Flow - Companies located in northern states typically have lower demand for products in winter, when home construction and outdoor improvement projects fall to low levels. For large chains, seasonality is somewhat mitigated by a wide geographic dispersion of stores. Large and small companies often attempt to offset the slower winter sales period by offering items associated with the winter holiday season.

Required Capital Investment in Inventory Systems - Because building material suppliers have to deal with thousands of different products, controlling inventory levels is critical. To control inventory and cut operating costs, companies have had to make large investments in computer technology. With rapid advances in technology and inventory systems, companies will have to make additional investments every few years.

Need for Knowledgeable Salespeople - Due to the increasing sophistication and large variety of products now available at building material and supply stores, salespeople must have a broad knowledge of many types of products and their applications. Experienced building material and supply salespeople are increasingly difficult to find. Salespeople who serve commercial customers typically require even higher levels of training and expertise.

Business Trends

Increased Services to Contractors - New methods of appealing to contractors include renting construction equipment, tools, and delivery trucks. Companies hope to draw more commercial customers and increase walk-in sales by renting equipment. Some building material and supply retailers offer rental services as part of their own operations, others co-locate with third party rental outlets to offer contractors a one-stop shop. Some lumber retailers offer additional services such as insurance and home design packages.

More IT - New technology, especially in product tracking and supply chain efficiencies, has cut costs. Some large retailers have introduced wireless scanners that have greatly reduced the time spent in checkout lines. Large retailers are also equipping staff with mobile computing devices to better serve customers. Self-checkout systems, which reduce labor costs and improve traffic flow and overall customer service by allowing customers to scan their own purchases and pay with credit cards or cash, have made their way to the hardware industry.

Environmental Certification - In response to the anticipated continued increase in consumer demand for Page 206 certified forest products, more building material and supply retailers are expanding their lines of certified wood products. Environmental concerns are driving the growth of environmental certification and labeling for wood products. Certification, or eco-labeling, is a way to reassure consumers that the wood was harvested in an environmentally responsible way that sustains the forest ecosystem.

Women Customers - Women are taking a bigger role in home improvement, and according to The Wall Street Journal, purchase 61 percent of major home improvement products. New store designs are created to attract women, focusing on details like better lighting and merchandise racks and floor colors. Product selections include more home furnishings like curtains, lamps, and seasonal decorations. Home Depot offers workshops specifically targeting female do-it-yourselfers.

Industry Opportunities

Value-Added Services - Rather than just reselling products bought from manufacturers and distributors, more building material and supply retailers are offering more services such as equipment rental to customers. Other popular services include training and education, custom-assembly of items such as roof trusses, specialty ordering, and contacts with other contractors such as cement mixers and roofers.

Installation Services - Building material and supply dealers increase revenue by offering installed sales programs for a variety of products such as appliances, ceiling fans, windows, and kitchen cabinets and counter tops. Under these programs, consumers select and buy materials and the company provides professional installers. Some retailers are also pursuing in-home selling and consultation services for some categories of product installation.

RFID Implementation - The use of radio frequency identification (RFID) technology is expected to eventually replace traditional bar-coding for the purposes of tracking products in the retail supply chain. RFID technology has shown promise in its ability to reduce out-of-stocks and quicken product replenishment. Retailers are working on new ways to use RFID data and technology to streamline supply chains and improve overall efficiency.

Remodeling Market - Remodeling activity tends to rise and fall with the cyclical movements of the overall economy. During slower economic times consumers may postpone major projects but make smaller improvements or repairs themselves. When the economy is growing, demand for the services of professional remodelers improves.

E-Commerce - Large retailers like Home Depot and Lowe's offer thousands of products on their websites. Most products can be purchased online and shipped anywhere in the US. Customers can also use company websites to check for product availability at their local store, apply for consumer or contractor lines of credit, and access how-to project guides. Lowe's has launched a Spanish-language website to serve Spanish-speaking customers.

GPS Delivery Tracking - Many companies offer to deliver large materials orders to job sites. Fleet efficiency is increasingly being enhanced with GPS technology. GPS fleet tracking systems can reduce labor and fuel costs, improve vehicle utilization, and safeguard vehicles and other equipment.

Industry Websites

Atlantic Building Supply Dealers Association Publications, events, and education resources.

Builder Online Industry news and useful links to manufacturers, distributors, and suppliers.

Building Material Information on and prices of building materials from NAHB.

Building Supply Industry Association of British Columbia Media, links, events, and resources.

China Building Material Industry Association Building material industry resources in China

Engineering News-Record News and construction pricing information; most recent cost trends for key construction materials.

Home Channel News Online version of the National Home Center News magazine, links to national associations, industry calendar of

Page 207 trade shows and meetings.

National Association of Homebuilders Hot topics and news reports on the industry.

National Lumber & Building Material Dealers Association Resources, links, publications, and governmental affairs.

North American Retail Hardware Association Industry news. Annual Market Measure report.

The European Federation of DIY Manufacturers European DIY News, Events, and Reports

The Merchant Magazine & Building Products Digest Subscriptions to two magazines about the building material product industry.

United States Census Bureau - Construction Statistics Useful statistics on various segments of construction.

Western Retail Lumber Association Media, resources, and events.

Glossary of Acronyms

DIFM - do-it-for-me

DIY - do-it-yourself

RFID - Radio frequency identification

Page 208 INDUSTRY PROFILE Bookstores 4.15.2013 NAICS CODES: 451211 SIC CODES: 5942

Industry Overview

Companies in this industry sell books from physical retail locations; they may also sell via websites. Major companies include Barnes & Noble, Books-A-Million, and Follett (all based in the US), as well as Fnac (France), Kinokuniya (Japan), Page One (China), Thalia (Germany), and WHSmith (UK).

The bookstore industry has worldwide revenue of about $60 billion, according to MarketLine. Some countries have restrictions on pricing and foreign ownership of bookstores, which have restricted the development of multinational chains.

The US bookstores industry includes about 9,500 stores with combined annual revenue of about $11 billion and is expected to grow at a medium rate in the next two years. Key growth drivers include consumer spending and technological innovations.

Online booksellers, such as Amazon.com, are covered in the industry profile for Internet & Catalog Retailers.

Competitive Landscape Demand is driven by demographics and consumer income. The profitability of individual companies depends on merchandising and marketing. Large companies can provide broader selections and lower prices. Small companies can compete by offering specialized products or serving a local market. The industry is highly concentrated: the 50 largest companies account for about 85 percent of sales.

The industry is being redefined as booksellers fend off intense competition from discount stores and online retailers and adjust to increasing acceptance by consumers of digital books as an alternative to printed books. Bookstores are finding the times challenging and Borders, once the nation's #2 chain, filed for bankruptcy in early 2011 before moving to liquidate its assets.

Products, Operations & Technology

The industry is segmented into general, college, and specialty bookstores. General bookstores sell mostly trade books (fiction, nonfiction, adult, children’s); college bookstores, mostly textbooks; and specialty bookstores, mostly religious books. Trade books account for about 35 percent of sales, textbooks for nearly 30 percent, and religious books about 5 percent. Bookstores may also sell music, DVDs, magazines, and gifts.

Product Segmentation by Revenue - Census Bureau

Page 209 Bookstore retailing includes national and regional chains and independent local bookstores. The dominant chains have “superstores” that can exceed 20,000 square feet and usually anchor large strip shopping centers in high-traffic areas. Most independent bookstores don't exceed 5,000 square feet, and occupy smaller strip malls or shopping centers. The failure rate of independent bookstores has historically exceeded that of all US businesses.

Book superstores carry large inventories and often stock over 100,000 titles in a single location. The number of titles an independent bookstore carries varies by the store size and subject matter. Independent bookstores may carry many titles for a limited number of subjects, or specialize in a particular genre like children’s books. The largest independent stores may offer as many titles as a superstore. Airport bookstores are constrained by space; Hudson’s carries between 6,000 and 8,000 titles in its stores.

Chains buy large quantities of books directly from publishers and get substantial discounts. Most independent bookstores buy from distributors or wholesalers that stock products from multiple publishers. Ingram Book Company and Baker & Taylor are major distributors. In general, wholesalers can deliver books faster than publishers.

Trade shows and publisher’s sales representatives are important sources of information when deciding what to buy. Companies may pre-order major releases, depending how strong publishers think demand will be. Wholesale prices allow for a 30 to 50 percent margin based on the suggested retail price set by publishers. Unlike most retail industries, bookstores are able to return almost all unsold books for full credit.

A book superstore typically has a manager, two assistant managers, and between 20 to 50 full and part-time employees. In many independent bookstores, the owner serves as manager. Variable peak selling hours, extended hours of operation, and seasonality increase the need for part-time help. Bookstore employees generally have low skill requirements.

Book superstores can generate over $5 million annually; most independent bookstores average $1 million or less. Book superstore sales average between $250 to $350 per square foot; and independent bookstores, around $330.

Many bookstores use electronic data interchange (EDI) or web-based technology to streamline order processing. Pubnet allows more than 4,000 bookstores to place and track orders with about 150 publishers, wholesalers, and distributors. In addition, bookstores may use electronic databases, like Books-in-Print, which hold data on millions of subjects and titles, and allow stores to search for information and customize inventory accordingly. Barnes & Noble’s proprietary inventory management system links retail locations with distribution centers and wholesalers, providing rapid replenishment of books.

Sales & Marketing The typical bookstore customer is a highly educated, relatively affluent, married woman.

Marketing and promotion are mainly through print, radio, online, direct mail, and in-store advertising. Special events like author appearances, book clubs, and children’s storytelling can increase store traffic. Publishers may reimburse a retailer for supporting an in-store event. Comfortable environments and in-store cafés encourage browsing, and frequent buyer programs are used to reward loyal customers with special discounts. National chains allow stores to individualize their inventory and promotions. Independent bookstores often market cooperatively with other retailers to save on costs. The American Booksellers Association (ABA) offers IndieBound, a national marketing program that can be tailored for independent bookstores.

Internet operations allow bookstores to offer customers an even larger selection and access to hard-to-find books. Barnes & Noble operates its own website, and pays referral fees to other sites that link to

Page 210 barnesandnoble.com. Independent bookstores can use third parties like Booksite.com to provide Internet retail operations. Some independent bookstores have successfully sold specialty products through the Internet. Internet pricing is usually lower than in-store to compensate for shipping charges.

By printing a price on books, publishers set a maximum price, which many retailers discount. Chains offer discounts of up to 30 percent on bestsellers to narrow the Internet pricing gap. The retail price of an adult trade hardback book is just under $30, while paperback versions retail for about $15. Mass market paperbacks typically retail for less than $10; college textbooks for more than $60.

Finance & Regulation

Retail revenues are highly seasonal, peaking during the back-to-school and holiday seasons. For traditional bookstores, the majority of sales and operating profits are generated in the fourth quarter. The initial lease term for a superstore can be ten to 20 years; three to five years for smaller bookstores. Renewal terms are shorter.

The industry is labor-intensive: average annual sales per employee are about $115,000.

Large retailers carry very high inventories, sometimes over 200 days sales, and most unsold inventory can be returned to publishers for full price. Bookstore retailers have low receivables, because most purchases are made with cash or third-party credit cards. Capital investment is required to open new and refurbish existing stores. Gross margins run between 20 and 40 percent, including the cost of occupancy.

The industry is lightly regulated, mainly through state and federal consumer protection laws. Due to civil lawsuits, the publishing industry regulates itself to ensure equitable treatment of independent bookstores.

International Insights The bookstore industry has worldwide revenue of about $60 billion, according to MarketLine. Major companies based outside the US include Waterstones (UK), WHSmith (UK), Fnac (France), Pocket Shop (Sweden), Indigo Books & Music (Canada), Thalia (Germany), MPH Bookstores (Malaysia), Kinokuniya (Japan), Page One (China), Popular (China), and Dymocks (Australia).

While the US book store market has been heavily impacted by e-book and e-reader sales, consumers in Europe have been slower to adopt digital books. Chains are beginning to turn their focus to digital initiatives, however. Waterstones, for example, began selling Amazon.com's Kindle e-reader in its stores in 2012. Germany's Thalia chain has produced its own e-reader, called Oyo, which is sold in its stores as well as online and in the Pocket Shop chain. The digital book revolution will likely transform the international marketplace as rights issues get resolved and consumers gain comfort with reading on e-readers and tablets.

Some countries have restrictions on pricing and foreign ownership of bookstores, which have curtailed the development of multinational chains. For example, bookstores in Canada must be owned and operated by Canadian companies, which has kept US chains from expanding northward. Laws in France limit discounting of French language print books to 5 percent of list prices and allow publishers to set retail prices for e-books.

Independent bookstores are still an important part of the landscape in many countries. For example, France, which is smaller than the state of Texas, has 2,500 independent bookstores. In comparison, the number of independent bookstores in the US is approximately 1,500, down from 3,000 a decade ago.

Regional Highlights

US bookstore retailing thrives in densely populated, relatively affluent, growing areas. Chains dominate major urban and suburban locations. Independent bookstores survive by serving smaller cities and suburbs that may not have the critical mass needed to support a superstore.

Human Resources

Average hourly industry wages are significantly lower than the average for all US workers, reflecting the low level of skill required. Personnel turnover for retailing is high, averaging about 50 percent per year. Bookstores rely greatly on part-time employees. Seasonality increases the need for part-time help during the back-to-school and holiday buying months.

Industry Employment Growth Bureau of Labor Statistics

Page 211 Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Depends on consumer income and demographics Need good merchandising and marketing Risk: Competition and flat prices squeeze margins

Industry Indicators

Total US consumer spending, an indicator of retail book sales, rose 1.2 percent, primarily from services expenditures, in January 2013 compared to the same month in 2012.

US personal income, which drives consumer ability to pay for leisure items like books, rose 2.2 percent in January 2013 compared to the same month in 2012.

US retail sales for sporting goods, hobby, book, and music stores, a potential measure of consumer spending on books, increased 5.9 percent in the first two months of 2013 compared to the same period in 2012.

US tourism spending on shopping, which impacts bookstore revenues, increased 3 percent in the third quarter of 2012 compared to the same period in 2011.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Page 212 Data provided by First Research analysts and reviewed annually

Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Government Regulations Changes in federal, state, or local government regulations or business- related policies

Critical Issues

Competition from Nonstore Sales - Book sales for Internet and mail order retailers are estimated at about $7 billion, cutting into sales for bookstores. Since Amazon.com's introduction, traditional bookstore sales have gone from growing faster than total retail sales to growing more slowly. Bricks-and-mortar chains such as Barnes & Noble offer online book sales, but independent booksellers have been slower to set up online storefronts.

Flat Prices Squeeze Margins - Consumer prices for trade books (fiction, nonfiction, adult, children’s) remained flat between 2002 and 2012. Publishers indirectly set maximum retail prices, so retailers must rely on increased volume or decreased discounts to sustain profitability. Flat pricing makes maintaining margins especially difficult for independent bookstores, as they lack the volume to realize economies of scale.

Business Challenges

Competition from Mass Merchants - Competition from mass merchants such as Wal-Mart and Target is slowing sales growth for bookstores. Book sales represent more than $1 billion in sales for warehouse clubs and supercenters. Independent bookstores have suffered the most because they're unable to sustain the deep discounts the mass merchants offer.

Industry Concentration Increases - The largest book retailers enjoy massive economies of scale and strong leverage with publishers. The rapid expansion of book superstores in the early 1990s combined with the rise of online sales have contributed to the closing of more than 1,500 independent bookstores in the past decade.

Seasonal Cash Flow - Most bookstores generate the majority of both sales and operating profit during the winter holiday season. College bookstores sales and profits peak in August, September, and January (when new terms start). A slow peak selling season adversely affects the entire fiscal year.

High Employee Turnover - Bookstores are especially vulnerable to high turnover due to low wages and dependence on part-time help. Independent booksellers often offer more flexible working conditions and have less staff turnover, resulting in more experienced and knowledgeable staff.

Business Trends

Growing Online and E-Book Sales - In 2010, sales of ebooks surpassed physical books for the first time, directly impacting the revenues of bookstores. However, bookstores are providing customers with ways to purchase e-books through their online and physical storefronts. Barnes & Noble’s NOOK e-reader is the second most popular e-reader after Amazon’s Kindle, and offers additional functionality. Independent booksellers also have established online storefronts that allow customers to buy books for a variety of e-readers, including iPads, the Sony e-Reader, and other products.

Decrease in Shopping Mall Presence - Decreased mall traffic and competition from superstores have made it difficult for bookstores in enclosed shopping malls to maintain sales. In fiscal 2010 Barnes & Noble closed nearly 50 of its B. Dalton mall stores, as profitability of this type of retail location continued to decline. Most remaining

Page 213 bookstores in malls are specialty bookstores such as Christian bookstores or those that sell toys, crafts, gifts, and books.

Used Book Sales - Large used-book chains such as Half-Price Books may see a boost in popularity as sales of new books decline. Antique, hard-to-find, and remaindered books, music, and other products are likely to appeal to book-buying customers who are looking for bargains. Some bookstore chains, such as Hastings, sell used books as well as new books.

Industry Opportunities

Nonbook Revenues - Music, movies, gifts, and coffee represent opportunities for incremental revenue. Some bookstores are increasing the amount of square footage dedicated to these products. Chains use brand name coffeehouses such as Starbucks and Seattle’s Best to increase store traffic. Many independents dedicate space to coffee and other food items.

Growth in College Bookstores - Full-time college enrollment is projected to rise nearly 10 percent between 2010 and 2017. That, combined with increasing prices of college textbooks, provides a profitable opportunity for bookstores in college markets. Barnes & Noble has a separate division that operates 600 campus bookstores in the US.

Rise of E-Books and E-Readers - E-books and e-book readers are gaining more acceptance. Some booksellers, such as Barnes & Noble, have launched devices to compete with Amazon.com and its Kindle e-reader device. Barnes & Noble's Nook opens new revenue streams and makes the company more competitive online. The e-book market is growing, according to research by Forrester Research, which forecasts that e-book sales will nearly triple from 2010 to 2015.

Highly Specialized Selections - Religious, Spanish-language, alternative lifestyle, and antique books are examples of specialized retailing that bookstores can offer. Independent bookstores or sections of superstores that focus on depth versus breadth of selection can fulfill consumers' specific needs.

Providing Community Events Center - Through special events like book signings and readings, bookstores can provide a forum for people with similar interests. Independent bookstores often are closer to their communities and can identify and act on these needs faster than superstores. Customers may shop more at stores that they feel have their community's interests in mind.

Proprietary Publishing - Barnes & Noble publishes books under its own name and commissions books directly from authors, allowing the company to offer heavy discounts while still generating attractive gross margins. The increasing number of small publishers provides opportunities for other bookstores to do the same on a smaller scale.

Bestseller Popularity - Bestsellers still drive traffic to bookstores. Buzz about popular books such as Fifty Shades of Grey, the Twilight series, or the latest book by superstar writers such as J.K. Rowling and Stephen King often brings in new customers. Bookstores can capitalize on the interest with special events and the sale of ancillary products.

Industry Websites

American Booksellers Association Association for independent bookstores – publishes ABACUS, a yearly survey of performance statistics for independent bookstores.

Book Industry Study Group Trade association for organizations involved in print or electronic media.

Canadian Booksellers Association News and Information.

National Association of College Stores

Glossary of Acronyms

Page 214 ABA - American Booksellers Association

EDI/EC - electronic data interchange/electronic commerce

POP - point of purchase

Page 215 INDUSTRY PROFILE Automotive Parts & Accessories Stores 2.4.2013 NAICS CODES: 44131 SIC CODES: 5015, 5531

Industry Overview

Companies in this industry operate physical retail establishments that sell sell automobile parts, supplies, batteries, and lubricants. Major companies include Advance Auto Parts, AutoZone, O'Reilly Automotive, and The Pep Boys (US); AUTOBACS SEVEN and Yellow Hat (Japan); Halfords Group (UK); ATU Auto-Teile-Unger (Germany); and Super Cheap Auto (Australia).

The global automotive industry is expected to experience healthy growth over the next several years, due largely to economic expansion in emerging markets. While the largest markets for auto parts retailers are the countries that have traditionally had the most automobiles, mature economies in North America and Europe will likely grow at a much slower pace.

The US automobile parts retail industry includes about 40,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $45 billion and is expected to grow at a moderate rate in the next two years. Key growth drivers include the number of older cars on the road and the sale of service along with parts.

The industry includes retailers of new and used automobile parts. Some large retailers also distribute auto parts. Tire wholesalers and tire dealers, which are not part of the industry, are covered in separate profiles.

Competitive Landscape

Demand for automobile parts is driven by the age and mileage of vehicles in use and generally increases when fewer new cars are sold and older cars are kept on the road longer. The profitability of individual companies depends largely on inventory management and marketing. Large companies have economies of scale in purchasing and distribution. Small companies can compete effectively by carrying specialized parts or providing extra services such as fast delivery. The industry US is concentrated: the 50 largest companies generate about half of industry revenue.

Products, Operations & Technology Auto parts account for about 50 percent of retail sales; auto supplies 12 percent; and auto batteries and auto lubricants, about 6 percent each. Because products are used on vehicles after their original sale, the industry is considered part of the motor vehicle aftermarket. Products are sold to two main groups of customers. Do-it- yourself (DIY) customers are consumers who work on their own cars; do-it-for-me (DIFM) customers include commercial installers such as auto repair shops, gas stations, fleet operators, and car dealer service departments. Parts sellers who provide installation and repair services may also categorize customers of those services as DIFM.

Product Segmentation by Revenue - Census Bureau

Page 216 Products include "hard parts" like brakes, mufflers, batteries, starters, alternator, and pumps; maintenance items like oil, oil filters, lubricants, additives, spark plugs, fuel injectors, lights, wipers, paints, waxes, and hoses; tools like wrenches and diagnostic equipment; and accessories like trim, wheel covers, and audio systems.

Big retailers tend to operate their own distribution networks. Some retailers sell both to consumers and local repair shops; some retailers operate their own repair departments. Many retailers operate their own delivery trucks.

Supply and inventory management are crucial to retail operations. A retailer may carry 40,000 SKUs onsite in a 10,000 square foot store. Parts are bought from the large auto parts manufacturers, from thousands of smaller manufacturers that make parts for the auto companies under new vehicle programs, and from manufacturers that make replacement parts specifically for the aftermarket. Long-term supply contracts are rare, and in most cases, several suppliers are available for any particular product. Large repair assemblies like entire doors or fenders are usually available only from a single source or used parts suppliers.

Computer technology is essential to auto parts retailers because they deal with large inventories of many items, bought from many suppliers, and with numerous small orders from customers, many of whom buy on account. Computerized catalogs that allow customers to find the correct parts based on auto year and make are common, and some companies sell parts online. Point-of-sale and bar code scanning systems are used to manage parts for different makes, models, and years; manage inventory levels, and gather information about buying patterns.

Sales & Marketing Sales and marketing initiatives center on the type of customer a company is trying to serve. Retailers use typical advertising outlets such as newspapers, direct mail, and websites. Large retailers also advertise on TV and radio. Some retailers focus on sponsoring sporting events to raise their profiles with target markets.

Some retailers belong to Program Distribution Organizations (program groups), similar to franchise networks, that buy in bulk and provide marketing services for members. Among the largest are the National Automotive Parts Association (NAPA), Automotive Distribution Network, and CARQUEST.

Finance & Regulation

The finances of auto parts retailers revolve around their large inventories and the capital required to open new locations. Cash flow is slightly seasonal, with higher sales during spring and summer. Receivables are typically less than 10 percent of sales for retail stores because many sales are made using cash or credit cards. The industry is labor-intensive: average annual revenue per employee is about $127,000.

Inventories are the largest asset, often equal to 40 percent of annual sales, because quick availability of a large number of parts is a key selling point for retailers. Payables are also often high, as suppliers and wholesalers essentially provide inventory financing.

Aside from investment in inventory, capital costs associated with warehouses or retail stores are fairly high because of requirements for efficient inventory storage and retrieval systems, computer systems, and desirable property locations. Including property costs, a new store typically requires an investment of more than $1 million; costs associated with a leased location are significantly less.

Auto parts retailers are regulated by various state and federal laws to ensure fair trade and employment practices. They may handle hazardous materials including automotive fluids, lubricants, and batteries that require special handling and disposal of damaged or unsalable items.

Page 217 International Insights Major auto parts retailers based outside the US include AUTOBACS SEVEN and Yellow Hat (Japan), Halfords Group (UK) ATU Auto-Teile-Unger (Germany), and Super Cheap Auto (Australia). Auto parts retailers can benefit from economic downturns, as consumers often look to repair rather than replace their cars. Ultimately, however, demand for auto parts depends on growth in the auto sector. Economic expansion in emerging markets is expected to drive healthy growth in the global automotive industry over the next several years, though mature economies in North America and Europe will likely grow at a much slower pace.

The largest markets for auto parts retailers are the countries that have traditionally had the most automobiles. Countries in North America and the EU import the most cars, but emerging markets in Asia offer greater growth potential. China surpassed the US to become the world's largest car market in 2009, and Brazil, India, and Russia are also expected to lead the expansion of the automotive sector. The market potential in China has already attracted investments from auto parts retailers based in Japan, some of which are also targeting countries in the Middle East.

International expansion by European auto parts stores is typically limited to neighboring or nearby countries,and international business in the North American market is even less common. Major US-based parts stores have virtually no presence outside the continent, and entering North American has proven difficult for companies based overseas. Developing retail and distribution infrastructure on the scale necessary to compete with established chains in a foreign market requires significant capital investments.

Change in Dollar Value of US Trade - US International Trade Commission

Imports of automobile parts to the US come primarily from Mexico, Canada, Japan, China, and Korea. Major export markets for US automobile parts include Canada, Mexico, China, Japan, and Germany.

NAIC 3363 MOTOR VEHICLE PARTS

Regional Highlights In the US, auto parts retailers tend to be concentrated in states with the highest population. Retailers that operate their own distribution networks position their warehouses in geographically dispersed locations to provide all stores with rapid inventory replenishment. When selecting new locations, parts retailers consider factors including population density, economic growth patterns, and the number of registered vehicles in a region.

Human Resources The average hourly wage in the auto parts retail industry is moderately lower than the national average. Special training about car parts and computerized catalogs is necessary. The injury rate for the retail segment is slightly higher than the national average.

Industry Employment Growth Bureau of Labor Statistics

Page 218 Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

Industry Growth Rating

Demand: Large repair market Need good inventory management and marketing Risk: New vehicle technologies result in less frequent repairs

Industry Indicators

The average US retail price for diesel and regular gas, which influences consumers' use and wear of their automobiles, fell 0.8 percent and 3.1 percent, respectively in the week ending March 11, 2013, compared to the same week in 2012.

US retail sales for motor vehicle and parts dealers, a potential measure of demand for auto parts, increased 7.3 percent in the first two months of 2013 compared to the same period in 2012.

Total US wholesale sales of durable goods, a potential measure of auto parts demand, increased 5.4 percent in January 2013 compared to the same month in 2012.

Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth.

Data provided by First Research analysts and reviewed annually

Page 219 Energy Prices Change in crude oil and related energy prices

Technology Innovation Advances in science and technology, including information technology

Critical Issues

Auto Parts Spending Driven by Economy - Because auto parts sales depend on how much people drive, demand decreases during recessions. During economic downturns, tourists and businesspeople travel less, and car owners delay maintenance and repairs.

Competition from Mass Merchants Pressures Prices - Retail auto parts stores face greater competition from large retailers such as Wal-Mart, Costco, Sears, and supermarket chains. These retailers are large enough to buy items directly from manufacturers and compete aggressively on prices charged to consumers. Mass merchants carry high-volume items such as oil, additives, lubricants, cleaners, mats, and wipers.

Business Challenges

Slow Industry Growth - Although the number of motor vehicles in the US generally grows each year, because of better technology new cars need fewer repairs and less maintenance. Many car manufacturers now recommend oil changes only every 10,000 miles. The decline in the number of motor vehicle crashes has decreased demand for replacement body and interior parts.

Big Chains Squeeze Smaller Retailers - Big retail chains often operate their own distribution networks and buy directly from manufacturers, giving them lower costs than independent retailers. Due to industry consolidation, a shrinking number of large chains control a large percentage of all auto parts stores.

High Technology Investments Required - Because they must stock so many parts, retailers must make large investments in computerized inventory and catalog systems. The greatly increased productivity of the industry in the last decade is due to the automation of inventory systems. Such systems are expensive, and must be maintained and periodically updated.

High Capital Costs - Because retail auto parts stores aim to be in high-traffic locations and need to carry large inventories, the cost to open a new retail outlet is very high. Retailers tend to carry a lot of debt and have high interest expense.

Business Trends

Retail Chains Seeking Commercial Sales - Retail auto parts stores, which once focused solely on DIY (do-it- yourself) customers, are aiming for DIFM (do-it-for-me) revenue as well. Sales growth has been faster in the DIFM segment of the auto parts industry. Retail stores are targeting businesses that serve DIFM customers by offering parts delivery and technical support.

More Generic Parts for Collision Repair - Because of the rise in collision repair costs, insurers are pressing repair shops to make greater use of generic replacement parts. While exterior parts typically still come from the original manufacturer, many interior parts have generic replacements that often cost much less than original parts. Some auto manufacturers have begun patenting certain parts as a way to generate revenue, which could crimp profits for independent repair shops.

Efficiency, Productivity Gains - Computer technology and greater warehouse automation have allowed parts dealers to keep prices low by using less labor. Distribution management system equipment includes carousels, robotic picking, radio frequency technology, voice technology, and automated sorting systems. Larger, more-efficient stores have become common; most use real-time inventory tracking.

Page 220 Industry Websites

Aftermarket Business Industry news. Top 100 distributors. Consumer surveys.

Automotive Aftermarket Industry Association Industry statistics, trends.

Automotive Industries Association Canada News and links.

Automotive Parts Manufacturers' Association (Canada) News, resources, events, and blogs.

Automotive Recyclers Association Industry news.

Detroit Free Press Industry news.

National Automotive Parts Association Products and resources.

National Highway Traffic Safety Administration Regulatory and safety information.

Specialty Equipment Market Association Statistics for this segment of the industry.

Wards Auto News and auto industry statistics.

Glossary of Acronyms

DIFM - do-it-for-me

DIY - do-it-yourself

JIT - just-in-time

SKU - stock-keeping unit

Page 221 Page 222 Appendix

I. Team California’s 2013 Tradeshow Schedule

City of Novato 2013 Retail Market Analysis Page 223 Tradeshow Schedule http://www.teamca.org/tradeshows_2013.php

TeamCalifornia Close Window Conference and Tradeshow Schedule 2013

Marketing Efforts TeamCA Marketing Plan by Industry Supporting Segment Dates Location Activities On Site the Industry Segment

SITE LOCATION CONFERENCES

TeamCA Annual Meet the Consultants Feb. 20 - 22 Central Coast Global Present & Ta r g e t Private Events and Forum Networking Industries Statewide Fam Tours

CORPORATE REAL ESTATE

SIOR May 2 - 4 Palm Springs, CA Exhibit, CA Event & Meetings IHUB Focus and Tours Sponsor CoreNet Global North American Oct. 21 - 23 Las Vegas, NV Session Presenter Meetings Private Signature Event Summit and Event IAMC Spring Forum March 16 - 20 Charleston, SC Sponsor Meetings Sponsorship and Private Signature Event IAMC Fall Forum Sept. 28 - Oct. 2 Salt Lake City, UT Sponsor Private Meetings Sponsorship and Private Events Signature Event

RETAIL

ICSC May 19 - 22 Las Vegas, NV Co-Exhibit Meetings Co-Sponsor, Event VIP

LIFE SCIENCE & MEDICAL DEVICES

Medical Device & Manufacturing, West Feb. 12 - 14 Anaheim, CA Exhibition & Meetings Signature Event Conference BIO International Convention April 22 - 25 Chicago, IL Conference Meetings Promotion of BIO 2014 in Session California Event Industrial Biotech Conference - June 12 - 14 San Diego Conf & Partnering Meetings Co-Sponsor Event VIP CALBIO Sessions

RENEWABLE ENERGIES - GREEN/CLEAN TECH/IT SOLAR, BIOFUELS, INDUSTRIAL BIO

Intersolar North America July 9 - 11 San Francisco, CA Exhibit and Meetings California Session & Intl Conference Breakfast Solar Power International 2013 Oct 21 - 24 Chicago, IL Exhibit and Meetings Session and Event Conference Imperial Valley Renewable Energy March 13 - 15 El Centro, CA Exhibit, Conference Ta r g e t California's Renewable Conference & Present Industries Energy Conference

FOOD & BEVERAGE INCL. PACKAGE AND PROCESS

Winter Fancy Food Show Jan 20 - 22 San Francisco, CA Exhibitor Promotion Meetings Presenting, Exhibiting and & Meetings Meetings California League of Food Processors Feb 5 - 6 Sacramento, CA Exhibit & Event Meetings Presenting, Exhibiting and Expo Meetings World Ag Expo 2013 Feb 13 - 15 Tulare, CA Exhibit & Event Meetings Exhibit, Intl Session and Signature Event Summer Fancy Food Show June 30 - July 2 New York City, NY Meetings Meetings Exhibit and Sessions

INTERNATIONAL - ALL INDUSTRIES

Page 224

1 of 2 4/16/2013 1:24 PM Tradeshow Schedule http://www.teamca.org/tradeshows_2013.php

CeBIT - Information Technologies March 5 - 9 Hannover, Germany Exhibition & Meetings Signature Event Conference Hannover Messe April 8 - 12 Hannover, Germany Exhibition & Meetings Signature Event Conference InterSolar.de - Munich, Germany - June 18 - 21 Munich, Germany Exhibition & Meetings VIP Sessions & Meetings Renewable Conference InterSolar China Dec 11 - 13 Beijing, China Exhibition & Meetings Exhibit, VIP Sessions & Conference Meetings CiFIT Mission w/SDWTC and Meetings September Xiamen, China Exhibition & Meetings Private Mission w/ new ITC Conference contacts

*Additional activities to be added throughout the year. Call for more information (916) 791-9900 or [email protected]

Close Window

Page 225

2 of 2 4/16/2013 1:24 PM Page 226 Appendix

J. Novato’s Demographic Profile

City of Novato 2013 Retail Market Analysis Page 227 Appendix A. Demographic Profile

Population & Household Growth: City of Novato, Retail Market Area, San Francisco Metropolitan Statistical Area (MSA) and State of California, 2000 to 2017 Avg. Ann. Change Avg. Ann. Change

2000-2012 2012-2017 Geographic Area 2017 2000 2012 Number Percent Number Percent (Forecast) City of Novato Population 47,630 52,297 389 0.82% 53,704 281 0.54% Households 18,524 20,436 159 0.86% 20,933 99 0.49% Avg. Household Size 2.52 2.53 0.001 2.54 0.002

Retail Market

Area Population 261,237 271,013 815 0.31% 279,755 1,748 0.65% Households 102,950 107,327 365 0.35% 110,888 712 0.66% Avg. Household Size 2.43 2.44 0.001 2.44 0.000

San Francisco

MSA Population 4,123,740 4,408,641 23,742 0.58% 4,600,714 38,415 0.87% Households 1,551,948 1,655,105 8,596 0.55% 1,729,816 14,942 0.90% Avg. Household Size 2.61 2.61 0.000 2.61 0.000

State of California Population 33,871,648 37,707,477 319,652 0.94% 38,992,984 257,101 0.68% Households 11,502,870 12,743,499 103,386 0.90% 13,169,732 85,247 0.67% Avg. Household Size 2.87 2.89 0.002 2.90 0.002

Average Annual Population Growth Rates, 2000-2017

1.2%

1.0%

0.8%

0.6%

0.4%

0.2%

0.0% City of Novato Retail Market Area San Francisco MSA State of California

2000-2012 Avg. Ann. Change 2012-2017 Avg. Ann. Change

Source: ESRI Business Information Solutions

City of Novato 2013 Retail Market Analysis | Appendix A Page 1 228 Household Income: City of Novato, Retail Market Area, San Francisco MSA and State of California, 2012

City of Retail San Francisco State of Income Novato Market Area MSA California

Less than $15,000 7.3% 7.9% 10.1% 11.0% $15,000 - $24,999 6.7% 6.1% 7.5% 9.6% $25,000 - $34,999 8.4% 7.2% 7.4% 9.4% $35,000 - $49,999 11.7% 10.2% 10.8% 13.3% $50,000 - $74,999 16.5% 14.9% 15.7% 17.6% $75,000 - $99,999 13.6% 13.0% 12.1% 11.9% $100,000 - $149,999 18.9% 18.9% 17.6% 14.9% $150,000 - $199,999 8.6% 9.2% 8.7% 6.3% $200,000 or More 8.3% 12.6% 10.1% 6.0%

Total 20,436 107,327 1,655,105 12,743,499

Median Household Income $73,764 $80,700 $71,942 $57,385

Household Income Distribution, 2012

20%

15%

10%

5%

0% Less than $15,000 - $25,000 - $35,000 - $50,000 - $75,000 - $100,000 - $150,000 - $200,000 or $15,000 $24,999 $34,999 $49,999 $74,999 $99,999 $149,999 $199,999 More

City of Novato Retail Market Area San Francisco MSA State of California

Source: ESRI Business Information Solutions

2 City of Novato 2013 Retail Market Analysis | Appendix A Page 229 Median Household Income by Census Tract, 2012

Greater Retail Market Area

Page 230

City of Novato 2013 Retail Market Strategy | Appendix A 3 Population by Age: City of Novato, Retail Market Area, San Francisco MSA and State of California, 2012

City of Retail San Francisco State of Age Novato Market Area MSA California

Under 5 5.8% 5.6% 6.0% 6.8% 5-14 12.8% 11.9% 11.5% 13.5% 15-19 5.5% 5.3% 5.8% 7.2% 20-24 4.5% 4.7% 6.5% 7.6% 25-34 10.6% 11.0% 15.2% 14.5% 35-44 13.4% 13.9% 14.7% 13.5% 45-54 15.5% 15.9% 14.5% 13.7% 55-64 15.5% 15.3% 12.7% 11.3% 65-74 9.3% 8.9% 7.1% 6.5% 75-84 4.6% 4.7% 4.0% 3.7% 85+ 2.5% 2.8% 2.0% 1.7%

Total 52,297 271,013 4,408,641 37,707,477

Median Age 43.3 43.4 38.5 35.3

Age Distribution of the Population, 2012 20%

15%

10%

5%

0% Under 5 5-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

City of Novato Retail Market Area San Francisco MSA State of California

Source: ESRI Business Information Solutions

4 City of Novato 2013 Retail Market Strategy | Appendix A Page 231 Racial & Ethnic Composition: City of Novato, Retail Market Area, San Francisco MSA and State of California, 2012 City of Retail San Francisco State of Race/Ethnicity Novato Market Area MSA California

White Alone 75.6% 77.8% 51.1% 56.9% Black Alone 2.8% 2.9% 8.2% 6.1% American Indian Alone 0.6% 0.7% 0.6% 1.0% Asian/Pacific Islander 7.1% 5.8% 24.2% 13.7% Some Other Race Alone 9.0% 8.3% 10.2% 17.3% Two or More Races 4.9% 4.5% 5.7% 5.0% Hispanic Origin 21.6% 19.0% 22.2% 38.4%

Total 52,297 271,013 4,408,641 37,707,477

Racial & Ethnic Composition, 2012

100%

80%

60%

40%

20%

0% White Alone Black Alone American Asian/Pacific Some Other Two or More Hispanic Indian Alone Islander Race Alone Races Origin (any race) City of Novato Retail Market Area San Francisco MSA State of California

Source: ESRI Business Information Solutions

Tapestry Market Segments: Retail Market Area, 2012 Recognizing that people who share the same demographic characteristics may have widely divergent interests and shopping preferences, Community Tapestry data (developed by ESRI Business Information Solutions) categorizes neighborhoods throughout the nation into 65 consumer groups or market segments. Neighborhoods are geographically defined by census blocks, which are analyzed and sorted by a variety of demographic and socioeconomic characteristics as well as other determinants of consumer behavior. The top ten Tapestry segments in the Greater Retail Market Area are summarized on the following page.

City of Novato 2013 Retail Market Strategy | Appendix A 5 Page 232 Market % of Household Median Median Consumer Preferences & Segment Households Type Age Income Purchases Professionals with exclusive, sophisticated lifestyles, members of these households travel extensively and Married 1 Urban Chic 35.7% 43 $87,202 attend museums, dance performances couples and concerts. They use the Internet to arrange travel, follow investments and make purchases. Affluent, older couples approaching Married retirement. They live in older, affluent 2 Connoisseurs 16.6% 47 $121,368 couples neighborhoods and spend heavily on travel and vacations.

These households are on the cutting Singles/ edge of urban style. They love to shop Shared 3 Trendsetters 10.4% 36 $61,498 both online and in stores. Health House- conscious, members of these households holds eat well and exercise regularly.

Active and unencumbered, these young, affluent singles are technologically Laptops and 4 5.8% Singles 39 $93,899 savvy, health conscious and physically Lattes fit. They buy organic and exercise regularly.

Affluent, professional couples who value their leisure time and often spend it Wealthy traveling. They contract out home and Married 5 Seaboard 4.9% 43 $96,498 garden maintenance. They are couples Suburbs technologically savvy and use the Internet for convenience rather than entertainment.

White-collar families who enjoy foreign travel, adult education classes and Singles/ 6 City Lights 4.3% 39 $63,959 listening to jazz. Shop online or at stores Family Mix such as Macy's, Lord & Taylor and the Gap. Mature, highly-educated, wealthy families. They indulge themselves with Married frequent travel and shop at stores such 7 Top Rung 3.8% 44 $182,041 couples as Nordstrom, Lord & Taylor and Banana Republic. Laptops and cell phones are necessities. These households spend their leisure time dining out with their families. They Pleasant- Married 8 3.8% 40 $77,930 hire contractors to do home Ville couples improvements and read two or more daily newspapers. Live in multiunit dwelling, frequently congregate housing that includes meals Married Retirement and other services in rent. Residents 9 2.4% couples/ 53 $49,174 Communities make good health a priority and spend Singles leisure time playing bingo, gambling and spoiling their grandchildren.

Affluent, double income families who Married live busy, upscale lifestyles. They focus couples 10 Boomburbs 2.3% 34 $110,681 on home upgrades, furnishings and with landscaping. Leisure time is spent children playing golf and tennis and swimming.

Source: ESRI BIS

6 City of Novato 2013 Retail Market Strategy | Appendix A Page 233 Businesses and Jobs in the City of Novato, 2012 Businesses Employees Industry Number Percentage Number Percentage

Agriculture & Mining 62 2.0% 607 2.3% Construction 295 9.6% 2,061 7.8% Manufacturing 112 3.6% 934 3.6% Transportation 69 2.2% 528 2.0% Communication 9 0.3% 32 0.1% Utilities 5 0.2% 110 0.4% Wholesale Trade 138 4.5% 1,115 4.2% Retail Trade 520 16.9% 5,036 19.2% Finance/Insurance/Real Estate 342 11.1% 3,756 14.3% Services 1,407 45.7% 10,946 41.6% Government 43 1.4% 749 2.8% Other 75 2.4% 409 1.6%

Total 3,077 100.0% 26,283 100.0%

Source: ESRI BIS

City of Novato 2013 Retail Market Strategy | Appendix A 7 Page 234 Appendix

K. Retail Market Potential Demand

City of Novato 2013 Retail Market Analysis Page 235

Page 236 Appendix K. Retail Market Area Potential Demand

Future Potential Retail Demand: Greater Retail Market Area, 2013 to 2018 2013 2018 Spending Target Merchandise or Retail Potential Retail Potential per Sales Service Category1 Household2 ($/SF)3 Sales Space Sales Space (in mil)4 (SF) (in mil) (SF)

Apparel $2,315 $370 $250.1 675,974 $258.4 698,254 Home Furnishings $2,334 $340 $252.2 741,672 $260.5 766,118 Home Improvement $1,953 $350 $211.1 603,001 $218.0 622,877 Specialty Retail $2,735 $216 $295.5 1,367,909 $305.2 1,412,996 Shoppers Goods $1,008.8 3,388,556 $1,042.0 3,500,244

Grocery $8,392 $390 $906.7 2,324,746 $936.5 2,401,370 Health/Personal Care $1,342 $365 $145.0 397,134 $149.7 410,223 Convenience Goods $1,051.6 2,721,879 $1,086.3 2,811,593

Restaurants $5,191 $460 $560.8 1,219,085 $579.3 1,259,267

Entertainment $802 $110 $86.7 787,742 $89.5 813,706

Personal Services $1,596 $185 $172.5 932,260 $178.2 962,987

Total $2,880.3 9,049,522 $2,975.2 9,347,797

Five Year Net Gain $94.9 298,275

1. See following “Summary of Merchandise and Service Categories.” 2. Household spending estimated from Bureau of Labor Statistics' Consumer Expenditure Survey. 3. Target sales are based on the City of Novato 2009 Existing Conditions Report and Urban Land Institute, "Dollars and Cents of Shopping Centers." 4. Retail sales potential found by multiplying spending per household by total Retail Market Area households for that year.

Sources: City of Novato 2009 Existing Conditions Report; Urban Land Institute; Marketek, Inc.

City of Novato 2013 Retail Market Analysis | Appendix B 1 Page 237 Summary of Merchandise and Service Categories Merchandise/Service Types of Goods/Services Category

Apparel Women's Apparel, Men's Apparel, Children's, Footwear, Watches, Jewelry

Home Furnishings Furniture, Floor Coverings, Major and Small Appliances, Household Textiles, Floor Coverings, PC Software and Hardware, Housewares, Dinnerware, Telephones

Home Improvement Maintenance and Remodeling Materials, Lawn & Garden

Misc. Specialty Retail Pet Care, Books & Periodicals, Sporting Equipment, Toys & Hobbies, Video Cassettes & Games, TV/VCR/Cameras, Audio Equipment, Luggage, Eyeglasses

Groceries Food at Home, Nonalcoholic Beverages at Home, Alcoholic Beverages, Smoking Products

Restaurants Food Away From Home, Alcoholic Beverages

Entertainment Admission to Movie/Theater/Opera/Ballet, Recreational Lessons, Participation in Clubs

Shoe Repair, Video Rental, Laundry & Dry Cleaning, Alterations, Clothing Personal Services Rental, Storage, Watch & Jewelry Repair, Photo Processing & Supplies,

Child Care

Source: ESRI Business Information Solutions

2 City of Novato 2013 Retail Market Analysis | Appendix B Page 238 Appendix

L. Visitor Market Potential Demand

City of Novato 2013 Retail Market Analysis Page 239 Appendix L. Visitor Market Area Potential Demand

Total Visitor Spending at Destination in Marin County, 1992 to 2018

$900

$800

$700

$600

$500

$400

$300

$200

$100 Spending (in millions in 2013 dollars) in 2013 millions (in Spending $0 1990 1995 2000 2005 2010 2015 2020

Actual Projected

Visitor Spending by Commodity Purchased in Marin County, 2010

Retail Sales Accommodations 19% 19%

Total 2010 Marin County Visitor Spending: $624 million Arts, Entertain. & Rec 16% Restaurants 27%

Ground Transportation Grocery 15% 4% Sources: Dean Runyan Associates; Marketek, Inc.

City of Novato 2013 Retail Market Analysis | Appendix C 1 Page 240 Appendix

M. Target Retailer Profiles

City of Novato 2013 Retail Market Analysis Page 241 Wal-Mart Neighborhood Markets

702 Southwest Eighth Street Bentonville, AR 72716 Phone: (479) 273-4000 Fax: (479) 273-6503 Division of: Wal-Mart Stores, Inc. Bentonville, AR Website: www.walmartstores.com Online sales: Yes Real estate website: www.walmartrealty.com Total stores: 151 Operating name(s): Wal-Mart Neighborhood Market 151 Preferred GLA: 42,000-55,000 sq. ft. Retail classification: Supermarkets Locations considered: Community strip center, enclosed regional mall, enclosed super regional mall, freestanding, power center Operates kiosks: No Percent in centers/malls: 40-59 Preferred co-tenants: All considered Public company: Yes Area(s) of operation: AL (5), AR (9), AZ (17), FL (27), IN (3), KS (3), KY (7), LA (5), MS (1), NM (2), NV (11), OK (17), TN (6), TX (32), UT (5), VA (1) Targeted for expansion: AL, AR, AZ, FL, MS, NV, OK, TN, TX, UT Number of foreign locations: 2 International operations: China (2) International expansion: China NEW AND NOTEWORTHY Wal-Mart's real estate division can be reached at 2001 Southeast Tenth Street, Bentonville, AR 72712, or by phone at (479) 273-8127. KEY PERSONNEL Director, Wal-Mart Neighborhood Markets: David Redfield

Page 242 Walgreen Company

200 Wilmot Road Deerfield, IL 60015 Phone: (847) 940-2500 Fax: (847) 914-2804

Website: www.walgreens.com Online sales: Yes Real estate e-mail: mailto:[email protected] Total stores: 7,045 Operating name(s): Walgreens 7,045 Preferred GLA: 14,560 sq. ft. Retail classification: Drug stores Locations considered: Community strip center, downtown/central business district, freestanding, hospitals, neighborhood strip center, pad site/outparcel Operates kiosks: No Percent in centers/malls: 20-39 Preferred co-tenants: Grocery/supermarket New units planned: 2010: 315-350 2011: 180-220 Preferred lease: 25 years w/10 5-yr. opt. Prefers to own its operating locations: Yes Minimum frontage: 200 ft. Special requirements: Parking for 50+ cars; 70,000 sq. ft. lot Population density targeted: 15,000 Radius: 1 mile(s) Traffic counts: 20,000 VPD Financial summary: 08/09 $63,335,000,000 08/08 $59,034,300,000 08/07 $53,762,000,000 Public company: Yes Stock symbol: WAG Traded on: NYSE Area(s) of operation: All USA, PR Targeted for expansion: All USA, PR Excess space: Yes Excess space email: mailto:[email protected] NEW AND NOTEWORTHY In May, 2009, Walgreen Company acquired 31 stores from Drug Fair Group Inc., Somerset, NJ. In October, 2009, the company agreed to acquire 12 Eaton Apothecary stores in Massachusetts from Dumouchel Apothecary of Waltham, Inc., Wellesley Hills, MA. Walgreen plans to keep most of the stores open following the acquisition.

Page 243 Walgreen Company

KEY PERSONNEL Chairman: Alan G. McNally President/CEO: Gregory Wasson CFO/Senior Vice President: Wade D. Miquelon CIO: Tim Theriault CAO/Vice President/Controller: Mia M. Scholz CTO/Divisional Vice President, E-Commerce: Abhi Dhar Chief Innovation Officer/VP, New Product Dev.: Colin Watts Chief Marketing Officer/Vice President: Kim L. Feil Executive VP, Community Management/Operations: Mark Wagner Senior Vice President/Secretary/General Counsel: Dana Green Senior VP/President, Walgreens Health/Wellness: Hal F. Rosenbluth Senior VP/President, Walgreen Health Services: Stanley B. Blaylock Senior Vice President, E-Commerce: Sona Chawla Senior Vice President, Health Care Innovation: Donald C. Huonker Senior Vice President, Human Resources: Kenneth R. Weigand Senior Vice President, Pharmacy: Kermit Crawford Senior Vice President, Store Operations: Debra Ferguson Senior Vice President, Supply Chain Management: J. Randolph Lewis Vice President/CAO/CFO, Walgreen Health Services: Robert Zimmerman Vice President, East Region: John Foley Vice President, Facilities Development: Thomas J. Connolly Vice President, IT: Denise Wong Vice President, Merchandising: W. Bryan Pugh Vice President, Midwest Region: Lisa Ehlers Vice President, New Business Development: David Van Howe VP, New Format Development/Retail Integration: John Spina Vice President, Puerto Rico/Southeast: Charles Bernard Vice President, South Region: David Lovejoy Vice President, Store Operations: Roxanne Flanagan Vice President, Store Operations: Matt Sesto Vice President, West Region: Bruce R. Bryant Divisional Vice President/Treasurer: Jason Dubinsky Divisional VP, Finance/Investor Relations: Rick Hans Divisional Vice President, Insights: Todd Vang Divisional Vice President, Marketing Development: Catherine Lindner Divisional Vice President, Marketing Services: Deborah Sabo Divisional Vice President, Privacy: Laura K. Merten Divisional Vice President, Real Estate: Patrick W. Tupa Director, Corporate Communications: Michael Polzin Director, Electronic Commerce: Tim McCauley Senior Market Manager: Eric W. Hendrickson Property Manager: Laurie M. Hodge

Page 244 United Supermarkets, Ltd

7830 Orlando Avenue Lubbock, TX 79423 Phone: (806) 791-0220 Fax: (806) 791-7480 Mailing Address: PO Box 6840 Lubbock, TX 79493-6840 Website: www.unitedtexas.com Online sales: No General e-mail: mailto:[email protected] Total stores: 51 Operating name(s): A Taste of Market Street 1 2,000 sq. ft. Amigos United 3 67,000 sq. ft. Market Street 10 64,000 sq. ft. United Supermarket 37 35,000 sq. ft. Preferred GLA: 2,000-67,000 sq. ft. Retail classification: Convenience stores, supermarkets Locations considered: Community strip center, freestanding, neighborhood strip center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: All considered Preferred lease: 20 years Average number of checkouts: 8 Financial summary: 2008 $1,062,100,000(e) 2007 $973,700,000(e) 2006 $893,100,000(e) Public company: No Area(s) of operation: TX (51) Targeted for expansion: TX Excess space: No KEY PERSONNEL President: Matt Bumstead CEO: Dan Sanders COO, Amigos United: Sidney Hopper CFO: Suz-Ann Kirby

Page 245 Mail Boxes Etc., Inc.

6060 Cornerstone Court West San Diego, CA 92121-3795 Phone: (858) 623-1753 Fax: (858) 597-8555 Division of: United Parcel Service, Inc. Atlanta, GA Website: www.mbe.com Online sales: No General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected] Total stores: 4,802 Franchised to other companies: 4,802 Operating name(s): Mail Boxes Etc. 108 The UPS Store 4,694 Preferred GLA: 800-1,800 sq. ft. Retail classification: Photocopies/printing, signs/postal service Locations considered: college, hotel, military sites, university, community strip center, downtown/central business district, freestanding, neighborhood strip center, pad site/outparcel, power center Operates kiosks: Yes Percent in centers/malls: 80-100 Preferred co-tenants: Entertainment, grocery/supermarket, upscale Preferred lease: 5 years w/1 5-yr. opt. Minimum frontage: 20 ft. Special requirements: High business density; 15 minute-use parking near door Population density targeted: 20,000 Radius: 3 mile(s) Traffic counts: 20,000 VPD Customer base: High, mid income, adult Public company: Yes Area(s) of operation: All USA, PR, Canada Targeted for expansion: All USA, PR, Canada International operations: India International expansion: India NEW AND NOTEWORTHY Since 2003, Mail Boxes Etc., Inc. is in the process of converting its retail stores to The UPS Store brand. For additional information and a more detailed break down of Real Estate Area Development please visit www.theupsstore.com/franchise/reaest.html In May, 2009, the company sold its international franchising business - 1,223 current centers in 31 countries - to Italian group Fineffe S.r.l..The Fineffe group formed new affiliate MBE Worldwide to handle all international franchises outside of North America and India; those two region are still handled by Mail Boxes Etc./UPS.

Page 246 Mail Boxes Etc., Inc.

KEY PERSONNEL President/CEO: Stuart Mathis Senior Vice President, Finance/Controller: Mahasty Seradj Senior Vice President, Franchise Services: Don Higginson Vice President/General Counsel: Debra Kaufman Abate Vice President, Business Analysis/Development: Sherrie Wehner Vice President, Domestic Sales: Kevin Pignone Vice President, HR/Training, Development: Kevin Foley Vice President, Industrial Engineering: Efrain Inzunza Vice President, Marketing/Sales: Tom Crockett Vice President, Product Development/Management: Christa Martin Vice President, Technology: Tim Davis

Regional real estate contacts: Area covered: FL Area covered: CT, NY Jeff Alianiello Philip Hold Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 177 US Highway 1, uite 251 54 Danbury Road Tequesta FL 33469 Ridgefield CT 06877 Phone: (561) 840-9288 Phone: (203) 746-4114 mailto:[email protected] mailto:[email protected]

Area covered: NH, NY, VT Area covered: FL Earl Wertheim Joni Dalgar Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 53 Birchcliff Parkway 2502 North Rocky Point Drive, Suite 660 Burlington VT 05401 Tampa FL 33607 Phone: (802) 651-1690 Phone: (813) 282-1115 mailto:[email protected] mailto:[email protected]

Area covered: PR Area covered: AL, FL, MS Jose Escudero Bill Key Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1357 Ashford Avenue 8668 Navarre Parkway Condado, San Juan PR 00907 Navarre FL 32566 Phone: (787) 724-8678 Phone: (850) 939-7266 mailto:[email protected] mailto:[email protected]

Area covered: AL, FL, GA, SC Area covered: WV Jim McElroy Martha Paparozzi Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1095 Old Roswell Road, Suite D-1 364 Patteson Drive Roswell GA 30076 Morgantown WV 26505 Phone: (770) 645-2513 Phone: (304) 599-0001 mailto:[email protected] mailto:[email protected]

Area covered: VA Area covered: ID, IN Rick Milner Andrew Tian Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 8280 Roxborough Loop 220 East Avenue Gainesville VA 20155 Ketchum ID 83340 Phone: (703) 754-9964 Phone: (208) 726-6896 mailto:[email protected] mailto:[email protected]

Page 247 Mail Boxes Etc., Inc.

Area covered: WY Area covered: CA Ed Anderson Jon Carlisle Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 270 Caroline Point Road / PO Box 749 422 Paraiso Court Lakeside MI 59922 Arroyo Grande CA 93420 Phone: (406) 844-3568 Phone: (805) 710-4186 mailto:[email protected] mailto:[email protected]

Area covered: CA Area covered: NV Navi Bhalla Carl DiGennaro Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1312 Rainbow Drive 6 Larkside Court San Mateo CA 94402 Henderson NV 89014 Phone: (650) 341-2744 Phone: (702) 898-7300 mailto:[email protected] mailto:[email protected]

Area covered: AK Area covered: UT Dwight Coppock Jim Duffin Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1830 East Parks Highway #A113 1883 East Richard Road Wasilla AK 99654 Sandy UT 84093 Phone: (907) 357-6270 Phone: (801) 255-2821 mailto:[email protected] mailto:[email protected]

Area covered: TX Area covered: CA Fred Kellogg Hema Kamdar Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 5152 Broadway, Suite 209 10080 Carmen Road San Antonio TX 78209 Cupertino CA 95014 Phone: (210) 930-2816 Phone: (408) 243-5111 mailto:[email protected] mailto:[email protected]

Area covered: CA Area covered: OH Eunice Franklin Drex Cunningham Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 8246 Sunset Rose Drive 526 West Aurora Road Corona CA 92833 Sagamore Hills OH 44067 Phone: (951) 340-1449 Phone: (330) 467-7999 mailto:[email protected] mailto:[email protected]

Area covered: DC, MD Area covered: IN, TN Alan Armstrong Tom Lester Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 8630-M Guilford Road 207 Tremont Street Columbia MD 21046 Chattanooga TN 37405 Phone: (410) 290-6902 Phone: (423) 877-7680 mailto:[email protected] mailto:[email protected]

Area covered: NJ Area covered: OH Larry Dimino Carla Kozlowski Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 314 Route 22 West, Suite B 35000 Chardon Road, Suite 140 Green Brook NJ 08812 Willoughby OH 44094 Phone: (732) 926-1560 Phone: (440) 918-1306 mailto:[email protected] mailto:[email protected]

Page 248 Mail Boxes Etc., Inc.

Area covered: DE, PA Area covered: AZ Jim McMahon Don Abee Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 617A Swedesford Road 2024 Exeter Road, Suite 2 Frazer PA 19355 Germantown TN 38138 Phone: (610) 695-6310 Phone: (901) 757-7701 mailto:[email protected] mailto:[email protected]

Area covered: KY, OH Area covered: CA Kevin Rexroat Jim Sleeper Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 7446 Jager Court 10747 Locust Court Cincinnati OH 45230 Carmel CA 93923 Phone: (513) 231-2850 Phone: (831) 625-1833 mailto:[email protected] mailto:[email protected]

Area covered: AZ Area covered: WA Larry Rogoff Kenneth Tysor Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 16650 North 91st Street, Suite 102 12402 North Division Street Scottsdale AZ 85260 Spokane WA 99218 Phone: (480) 991-5300 Phone: (509) 467-4451 mailto:[email protected] mailto:[email protected]

Area covered: HI Area covered: VA LeRoy Stone Luke Rendleman Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1775 Palea Way 977 Seminole Trail Honolulu HI 96825 Charlottesville VA 22901 Phone: (808) 395-7321 Phone: (434) 973-6700 mailto:[email protected] mailto:[email protected]

Area covered: CA Area covered: OH Gary Williams Bob Courtney Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 32451 Golden Lantern, Suite 204 1007 South High Street Laguna Niguel CA 92677 Columbus OH 43206 Phone: (949) 443-4300 Phone: (614) 444-0524 mailto:[email protected] mailto:[email protected]

Area covered: PA Area covered: CA Tom Winters Jim Rogers Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 309 Blue Run Road 5100-1B Clayton Road Cheswick PA 15024 Concord CA 94521 Phone: (412) 767-4189 Phone: (925) 677-0420 mailto:[email protected] mailto:[email protected]

Area covered: NY Area covered: TX Jim Pagliaroli Zandra Bean Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 3380 Sheridan Drive 1402 North Corinth Street #110 Amherst NY 14226 Corinth TX 76208 Phone: (716) 834-6388 Phone: (940) 321-2925 mailto:[email protected] mailto:[email protected]

Page 249 Mail Boxes Etc., Inc.

Area covered: AR, CO, IL, KS, MO, NM, OK, Area covered: TX OR, TX, WA Chris Canon David Baumeister Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 2200 4th Street PMB 300 6060 Cornerstone Court West Canyon TX 79015 San Diego CA 92121 Phone: (806) 557-6065 Phone: (858) 642-7990 mailto:[email protected] mailto:[email protected]

Area covered: LA, TX Area covered: TX Eddie Bodin Randy Davis Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 4400-A Amb. Caffery Parkway 17350 Tomball Parkway, Suite 130 Lafayette LA 70508 Houston TX 77064 Phone: (337) 988-2820 Phone: (281) 890-2415 mailto:[email protected] mailto:[email protected]

Area covered: WI Area covered: VA, WV Bob Cook Mark Johnson Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 3900 West Brown Deer Road 210 West Hamilton Avenue #372 Milwaukee WI 53209 State College PA 16801 Phone: (414) 354-9363 Phone: (814) 769-9525 mailto:[email protected] mailto:[email protected]

Area covered: AL, LA Area covered: AR, LA, MS Jeff Flannery Mike Toland Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 3810 Double Oak Lane 119 Homer Road Birmingham AL 35242 Minden LA 71055 Phone: (205) 980-1338 Phone: (318) 377-6665 mailto:[email protected] mailto:[email protected]

Area covered: IA, NE, ND, SD Area covered: MT Steve Spicer Bent Petersen Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 1811 Demers Avenue 439 Grand Avenue Grand Forks ND 58201 Bigfork MT 59911 Phone: (701) 775-9873 Phone: (406) 837-4928 mailto:[email protected] mailto:[email protected]

Area covered: FL Area covered: MI Fernando Rey Bob Mundt Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 376 Ansin Boulevard 40500 East Ann Arbor Road, Suite 302 Hallandale FL 33009 Plymouth MI 48170 Phone: (954) 455-6570 Phone: (734) 453-8960 mailto:[email protected] mailto:[email protected]

Area covered: CA Area covered: MI Cris Quinnell Russell Davis Mail Boxes Etc. U.S.A., Inc. Mail Boxes Etc. U.S.A., Inc. 29 West Anapamu Street, Suite 101 526 West 14th Street Santa Barbara CA 93101 Traverse City MI 49684 Phone: (805) 689-5808 Phone: (231) 947-0999 mailto:[email protected] mailto:[email protected]

Page 250 Sur La Table

5701 Sixth Avenue South, Suite 486 Seattle, WA 98108 Phone: (206) 613-6000 Fax: (206) 613-6137

Website: www.surlatable.com Online sales: Yes Real estate e-mail: mailto:[email protected] Total stores: 76 Operating name(s): Sur La Table 76 Preferred GLA: 5,000-10,000 sq. ft. Retail classification: Housewares/small appliances Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, neighborhood strip center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Upscale Preferred lease: 5 years Customer base: High income Public company: No Area(s) of operation: AZ (3), CA (24), CO (2), CT (1), DC (1), FL (5), GA (1), IL (4), IN (1), LA (1), MA (1), MD (1), MI (1), MN (1), MO (1), NC (2), NE (1), NJ (2), NV (1), NY (2), OH (3), OR (3), PA (1), TX (6), UT (1), VA (3), WA (3) Targeted for expansion: AZ, CA, CO, CT, DC, FL, GA, IL, IN, LA, MA, MI, MN, MO, NC, NE, NJ, NV, NY, OH, OR, PA, TX, UT, VA, WA Excess space: No KEY PERSONNEL Chairman: Carl Behnke Vice Chairman: Kathy Tierney CEO: Jack Schwefel CFO/Executive Vice President/Treasurer: Debbie Brownfield Media Relations Manager: Susanna Linse Marketing Coordinator: Rebecca Burgess Leasing agents: Steve Bartha S.J. Bartha Consulting Group 122 Kensington Drive Fort Lee NJ 07024 Phone: (203) 302-9116

Page 251 Rubio's Restaurants, Inc.

1902 Wright Place, Suite 300 Carlsbad, CA 92008 Phone: (760) 929-8226 Fax: (760) 929-8203 Website: www.rubios.com Online sales: No General e-mail: mailto:[email protected] Total stores: 177 Franchised to other companies: 5 Operating name(s): Rubio's Fresh Mexican Grill 177 Preferred GLA: 2,750-3,500 sq. ft. Retail classification: Fast casual restaurants Locations considered: Airport/transportation center, community strip center, enclosed regional mall, enclosed super regional mall, freestanding, neighborhood strip center, pad site/outparcel, power center Operates kiosks: No Co-brands/co-locates with other companies: No Percent in centers/malls: 80-100 Preferred co-tenants: Discount, entertainment, grocery/supermarket, upscale Preferred lease: 10 years w/2 5-yr. opt. Minimum frontage: 35 ft. Population density targeted: 50,000 Radius: 3 mile(s) Traffic counts: 35,000 VPD Customer base: High, mid income, adult, female, male Average number of checkouts: 3 Financial summary: 12/08 $179,300,000 12/07 $169,700,000 12/06 $152,270,000 Public company: Yes Stock symbol: RUBO Traded on: NASDAQ Area(s) of operation: AZ (30), CA (136), CO (3), NV (6), UT (2) Targeted for expansion: AZ, CA, CO, NV, UT KEY PERSONNEL Chairman: Ralph Rubio President/CEO: Daniel Pittard COO: Mark Simon CFO/Senior Vice President: Frank Henigman Senior Vice President, Development: Ken C. Hull Senior Vice President, Marketing/Product Development: Larry Rusinko Senior Vice President, People Services: A. Gerald Leneweaver Director, MIS: Paul Nishiyama Construction Manager: Marcus Fisher Construction/Real Estate Coordinator: Nancy Williams

Page 252 Restoration Hardware

15 Koch Road, Suite J Corte Madera, CA 94925 Phone: (415) 924-1005 Fax: (415) 927-9133

Website: www.restorationhardware.com Online sales: Yes General e-mail: mailto:[email protected] Total stores: 126 Operating name(s): Flatiron Gallery 1 Restoration Hardware 109 Restoration Hardware Furniture Outlet 16 Preferred GLA: 10,000-12,000 sq. ft. Retail classification: Furniture/beds, hardware/home improvement, home decor/lamps/drapes Locations considered: Downtown/central business district, enclosed regional mall Operates kiosks: No Percent in centers/malls: 60-79 Preferred co-tenants: Upscale Preferred lease: 10 years Minimum frontage: 75 ft. Population density targeted: 300,000 Customer base: High, mid income, adult, senior, College educated Average number of checkouts: 3 Public company: No Area(s) of operation: AL (1), AZ (1), CA (26), CO (3), CT (3), DC (1), FL (10), GA (4), IL (6), IN (1), KS (1), LA (1), MA (4), MD (1), MI (3), MN (2), MO (2), NC (3), NJ (5), NY (6), OH (3), OK (1), OR (1), PA (7), RI (1), TN (1), TX (9), UT (1), VA (6), WA (5), WI (3), Canada (4) Targeted for expansion: All USA, Canada Excess space: No NEW AND NOTEWORTHY Restoration Hardware Inc. is owned by private equity firms Catterton Partners and Tower Three Partners LLC. Gary Friedman, chairman and CEO, also has an equity interest. KEY PERSONNEL Chairman/President/CEO: Gary Friedman COO: Ken Dunaj CFO/Senior Vice President/Secretary: Chris Newman CMO: Bonnie Orofino Chief Marketing Officer: Ian Sears Vice President, Outlet Operations: James Thomsen

Page 253 Recreational Equipment Inc.

6750 South 228th Street Kent, WA 98032 Phone: (253) 395-3780 Fax: (253) 891-2523 Mailing Address: PO Box 1938 Sumner, WA 98390-0800

Website: www.rei.com Online sales: Yes

Total stores: 110 Operating name(s): REI 110 Preferred GLA: 26,000-30,000 sq. ft. Retail classification: Sporting goods/athletic wear Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, pad site/outparcel, power center Operates kiosks: No Percent in centers/malls: 60-79 Preferred co-tenants: All considered Preferred lease: 10 years w/3 5-yr. opt. Prefers to own its operating locations: Yes Population density targeted: 250,000-500,000 Customer base: High, mid income, adult Financial summary: 2008 $1,423,600,000(e) 2007 $1,145,300,000(e) 2006 $1,092,000,000(e) Public company: No Area(s) of operation: AK (1), AZ (2), CA (27), CO (8), CT (1), GA (4), ID (1), IL (4), MA (4), MD (3), MI (3), MN (3), MO (1), MT (1), NC (7), NJ (2), NM (2), NV (3), OR (6), PA (3), RI (1), TN (1), TX (7), UT (2), VA (2), WA (9), WI (2) Targeted for expansion: AK, AZ, CA, CO, CT, GA, ID, IL, MA, MD, MI, MN, MO, MT, NC, NJ, NM, NV, OR, PA, RI, TN, TX, UT, VA, WA, WI KEY PERSONNEL Chairman: Anne Farrell President/CEO: Sally Jewell Senior Vice President, Marketing/Merchandising: Matt Hyde Senior Vice President, Public Affairs: Michael Collins Senior VP, Sales/Service/Store Development: Brian Unmacht Vice President, Distribution/Logistics: Dave Presley Vice President, E-Commerce/Web Strategy: Brad Brown Vice President, Human Resources: Michelle Clements Vice President, Real Estate: Jerry Chevassus Director, Planning/Research: Michelle Eten Director, Real Estate: Lisa Schoo

Page 254 PIU Management, LLC

1860 West University Drive, Suite 108 Tempe, AZ 85281 Phone: (480) 371-1200

Website: www.pumpitupparty.com Online sales: No General e-mail: mailto:[email protected] Total stores: 210 Franchised to other companies: 155 Operating name(s): Bounce U 40 3,500-12,000 sq. ft. Pump It Up Party 170 5,500-12,500 sq. ft. Preferred GLA: 3,500-12,500 sq. ft. Retail classification: Amusement/play centers Locations considered: Community strip center, freestanding, industrial, neighborhood strip center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: All considered Public company: No Area(s) of operation: AL, AR, AZ, CA, CO, CT, FL, GA, IA, ID, IL, IN, KS, KY, MA, MD, MI, MN, MO, MS, NC, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, SC, TN, TX, UT, VA, WA, WI Targeted for expansion: All USA KEY PERSONNEL President/CEO: Gordon Keil Vice President, Franchise Development: Brent Schmick

Page 255 Williams-Sonoma, Inc.

3250 Van Ness Avenue San Francisco, CA 94109 Phone: (415) 421-7900 Fax: (415) 616-8359

Website: www.williams-sonomainc.com Online sales: Yes

Total stores: 630 Operating name(s): Pottery Barn 204 10,000-17,000 sq. ft. Pottery Barn Kids 93 9,400 sq. ft. West Elm 40 17,500 sq. ft. Williams-Sonoma 263 5,000-7,000 sq. ft. Williams-Sonoma Home 11 13,500 sq. ft. Williams-Sonoma Outlet 19 20,000 sq. ft. Preferred GLA: 5,000-20,000 sq. ft. Retail classification: Bed and bath linens, china/glassware, cutlery/kitchenware, home decor/lamps/drapes Locations considered: Downtown/central business district, enclosed regional mall, freestanding, lifestyle center, outlet center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Fashion-oriented, outlet, upscale Preferred lease: 12 years Population density targeted: 700,000 Customer base: High income, adult, child, senior Financial summary: 02/09 $3,361,472,000 02/08 $3,944,934,000 01/07 $3,727,513,000 Public company: Yes Stock symbol: WSM Traded on: NYSE Area(s) of operation: AL, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI, Canada Targeted for expansion: AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, NC, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, Canada

Page 256 Williams-Sonoma, Inc.

KEY PERSONNEL Chairman/CEO: W. Howard Lester President: Laura J. Alber COO/CFO/Executive Vice President: Sharon McCollam Chief Marketing Officer/Executive Vice President: Patrick J. Connolly Vice President, Real Estate: Arthur Tropp Director, Investor Relations: Steve Nelson Director, Legal Services/Real Estate Counsel: Joan Hill Real Estate Legal Manager: Lynette Westfall

Page 257 P.F. Chang's China Bistro, Inc.

7676 East Pinnacle Peak Road Scottsdale, AZ 85255 Phone: (480) 888-3000 Fax: (480) 888-3001

Website: www.pfchangs.com Online sales: No

Total stores: 356 Operating name(s): P.F. Chang's China Bistro 192 6,000-7,500 sq. ft. Pei Wei Asian Diner 164 3,000-3,300 sq. ft. Preferred GLA: 3,000-7,500 sq. ft. Retail classification: Fast casual restaurants, restaurants/bars Locations considered: Enclosed regional mall, enclosed super regional mall, freestanding Percent in centers/malls: 60-79 Preferred co-tenants: Entertainment, upscale Minimum frontage: 42 ft. Financial summary: 12/08 $1,198,100,000 12/07 $1,092,722,000 12/06 $937,610,000 Public company: Yes Stock symbol: PFCB Traded on: NASDAQ Area(s) of operation: AL, AR, AZ, CA, CO, CT, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI, Mexico Targeted for expansion: AL, AR, AZ, CA, CO, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI, Mexico KEY PERSONNEL Co-CEO: Richard L. Federico Co-CEO: Robert T. Vivian President, Global Brand Development: Michael Welborn CFO: Mark Mumford Chief Development Officer: Steve Marr Chief Marketing Officer: Tim McDougall Director, Financial Reporting/Investor Relations: Allison Schulder Regional real estate contacts: Area covered: (East of Mississippi) Kane Lester Regional Director, Real Estate (Southeast) Pei Wei Asian Diner Real Estate 1212 Haven Brook Way N.E. Atlanta GA 30319 mailto:[email protected]

Page 258 P.F. Chang's China Bistro, Inc.

Area covered: (West of Mississippi) Chris Michaelson Regional Director, Real Estate (Midwest) Pei Wei Asian Diner Real Estate 13330 Noel Road, Suite 1431 Dallas TX 75420 mailto:[email protected]

Area covered: (East of Mississippi) Len Kareska P.F. Chang's China Bistro Real Estate mailto:[email protected]

Area covered: (West of Mississippi) John Middleton P.F. Chang's China Bistro Real Estate mailto:[email protected]

Page 259 OSI Restaurant Partners, LLC

2202 North Westshore Boulevard, 5th Floor Tampa, FL 33607 Phone: (813) 282-1225 Fax: (813) 282-9195 Division of: Kangaroo Holdings Inc. Tampa, FL Website: www.osirestaurantpartners.com Online sales: Yes General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected] Total stores: 1,265 Franchised to other companies: 116 Operating name(s): Bonefish Grill 152 5,500 sq. ft. Carrabba's Italian Grill 233 6,000 sq. ft. Fleming's Prime Steakhouse & Wine Bar 64 7,500 sq. ft. Outback Steakhouse 792 6,000 sq. ft. Roy's 24 6,000 sq. ft. Preferred GLA: 5,500-7,500 sq. ft. Retail classification: Restaurants/bars Locations considered: Airport/transportation center, community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, mixed use center, neighborhood strip center, outlet center, pad site/outparcel, power center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 60-79 Preferred co-tenants: All considered Preferred lease: 6 years w/5 5-yr. opt. Minimum frontage: 200 ft. Special requirements: 125 parking spaces Population density targeted: 70,000 Radius: 5 mile(s) Traffic counts: 25,000 VPD Customer base: High, mid income, adult, senior Public company: No Area(s) of operation: All USA, PR, Canada, Mexico Targeted for expansion: All USA, PR, Canada, Mexico Number of foreign locations: 179

Page 260 OSI Restaurant Partners, LLC

International operations: Australia, Bahamas, Brazil, Cayman Islands, China, Costa Rica, Dominican Republic, Guam (USA), Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand, United Kingdom, Venezuela International expansion: Australia, Bahamas, Brazil, Cayman Islands, Costa Rica, Guam (USA), Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, United Kingdom, Venezuela Excess space: Yes Excess space email: mailto:[email protected] NEW AND NOTEWORTHY In September, 2009, OSI Restaurant Partners LLC sold its Cheeseburger in Paradise brand to Paradise Restaurant Group LLC, a private investor group led by the chain's president, Steve Overholt. The company closed its two-unit Blue Coral Seafood & Spirits concept in the first half of 2009. KEY PERSONNEL Chairman: Chris T. Sullivan Vice Chairman: Robert D. Basham CEO: Elizabeth Smith CFO/Senior VP/Secretary/Treasurer: Dirk Montgomery Chief Branding Officer/Executive Vice President: Jody Bilney Chief Development Officer/Executive Vice President: Richard Renninger President, Bonefish Grill: John Cooper President, Carrabba's: Steve Shlemon President, Fleming's: Skip Fox President, Outback Steakhouse: Jeff Smith President, Roy's: Mark Running President, Outback International: Michael W. Coble Executive Vice President/Secretary/General Counsel: Joseph J. Kadow Senior VP, Construction/Development: Steve Stanley Senior Vice President, Design/Equipment: Lindon Richardson Senior Vice President, Development/Training: Trudie Cooper Senior Vice President, Purchasing: Irene Wenzel Vice President, Dev./Real Estate (Bonefish Grill): Timothy Martin Senior Site Selection Manager: Carl Jenkins Site Selection Manager: Billy Grimm

Page 261 Sears Holdings Corporation

3333 Beverly Road Hoffman Estates, IL 60179 Phone: (847) 286-2500 Fax: (847) 286-7829

Website: www.searsholdings.com Online sales: Yes

Total stores: 3,900 Operating name(s): Kmart 40,000-110,000 sq. ft. Kmart Super Centers 80,000-190,000 sq. ft. Orchard Supply Hardware 50,000 sq. ft. Sears 63,000-107,500 sq. ft. Sears Appliances & Electronics 10,000-20,000 sq. ft. Sears Authorized Retail Dealers 7,500-8,500 sq. ft. Sears Auto Centers 10,000-15,000 sq. ft. Sears Grand 185,000-200,000 sq. ft. Sears Hardware 50,000 sq. ft. Preferred GLA: 7,500-200,000 sq. ft. Retail classification: Auto supplies/car care, discount stores, electronics, hardware/home improvement, major appliances, supercenters Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, neighborhood strip center, outlet center, pad site/outparcel, power center Operates kiosks: No Percent in centers/malls: 40-59 Preferred co-tenants: All considered Preferred lease: 5-10 years Customer base: High, mid income, adult, senior, teen Average number of checkouts: 20 Financial summary: 01/09 $49,124,000,000* 01/08 $50,703,000,000* 01/07 $53,016,000,000* Public company: Yes Stock symbol: SHLD Traded on: NASDAQ Area(s) of operation: All USA, VI, PR, Canada, Mexico Targeted for expansion: All USA, Canada, Mexico

Page 262 Sears Holdings Corporation

NEW AND NOTEWORTHY In May, 2009, Sears Holdings Corporation closed 24 locations: twelve Kmarts, seven Sears Grand/Essentials, four Sears and one Super K Mart. Sears Holding Company also operates Lands' End Incorporated, Dodgeville, WI profiled separately. KEY PERSONNEL Chairman: Edward Lampert Interim President/CEO: W. Bruce Johnson President/Senior Vice President, Home Services: Stuart Reed President/Senior Vice President, Jewelry: Michelle Pearlman CFO/Senior Vice President: Michael Collins President, Home Electronics: Karen Austin CAO/Executive Vice President/Director: William C. Crowley Executive Vice President, Apparel/Home: John Goodman Executive Vice President, Operations: Scott Freidneim Executive Vice President, Sears Apparel Design: Lisa Schultz Executive Vice President, Store Operations: Kevin Holt Senior Vice President/Secretary/General Counsel: William Harker Senior Vice President/General Manager, Sears Grand: Julie Younglove-Webb Senior Vice President, Business Finance/Planning: Allen Ravas Senior Vice President, Kmart Apparel: Irving Neger Senior Vice President, Kmart Retail: Donald Germano Senior Vice President, Marketing: Richard Gerstein Senior Vice President, Merchandising: Peter Whitsett Senior Vice President, Operations/Supply Chain: James Mixon Senior Vice President, Relationship Marketing: Louis Ramery Vice President/GMM: Doug Wurl Chief Accounting Officer/SVP/Treasurer/Controller: William K. Phelan Vice President/General Manager, Commercial Sales: Paul Carter Vice President, General Merchandise: Mike Clark Director, Specialty Marketing: Toure Claiborne

Page 263 Darden Restaurants Inc.

5900 Lake Ellenor Drive Orlando, FL 32809 Phone: (407) 245-4000 Fax: (407) 245-5627 Mailing Address: PO Box 593330 Orlando, FL 32859-3330

Website: www.dardenrestaurants.com Online sales: No General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected] Total stores: 1,773 Operating name(s): Bahama Breeze 24 8,600 sq. ft. Hemenway's Seafood Grille & Oyster Bar 1 7,500 sq. ft. Longhorn Steakhouse 321 5,500 sq. ft. Olive Garden 691 6,900-8,100 sq. ft. Red Lobster 690 7,222 sq. ft. Seasons 52 8 7,800 sq. ft. The Capital Grille 37 8,500 sq. ft. The Old Grist Mille Tavern 1 7,500 sq. ft. Preferred GLA: 5,500-8,600 sq. ft. Retail classification: Restaurants/bars Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, pad site/outparcel, power center Operates kiosks: No Licenses store name(s) to other companies: No Percent in centers/malls: 60-79 Preferred co-tenants: All considered New units planned: 2010: 50-55 Preferred lease: 10 years w/4 5-yr. opt. Population density targeted: 75,000-150,000 Radius: 5 mile(s) Traffic counts: 30,000 VPD Financial summary: 05/09 $7,217,500,000 05/08 $6,626,500,000 05/07 $5,567,100,000

Page 264 Darden Restaurants Inc.

Public company: Yes Stock symbol: DRI Traded on: NYSE Area(s) of operation: AL, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY, Canada Targeted for expansion: All USA, Canada International expansion: Japan Excess space: No KEY PERSONNEL Chairman/CEO: Clarence Otis President/COO/Director: Drew Madsen President, Longhorn Steakhouse: David C. George President, Olive Garden: David Pickens President, Red Lobster: Kim Lopdrup President, Specialty Restaurant Group: Eugene Lee CFO: Brad Richmond Executive Vice President, Marketing (Red Lobster): Salli Setta Executive VP, Operations (Olive Garden): Valerie Insignares Executive Vice President, Operations (Red Lobster): Doug Green Senior Vice President/Secretary/General Counsel: Paula Shives Senior Vice President/Treasurer: Bill White Senior Vice President/Corporate Controller: Valerie Collins Senior Vice President, Business Development: J.J. Buettgen Senior VP, Community/Government Relations: Robert McAdam Senior Vice President, Corporate Relations: Richard J. Walsh Senior Vice President, Development (Olive Garden): Jo El Quinlan SVP, Dist./Development/Supply Chain/Purchasing: Barry Moullet Senior Vice President, Finance/Controller: Jill Golder Senior VP, Group Human Resources: Ron Bojalad Senior Vice President, Human Resources: Daisy Ng Sr. Vice President, Human Resources (Olive Garden): Theresa Willings SVP, Human Resources (Specialty Retail Group): Paula Manchester Senior VP, Research/Strategic Marketing: Roger Thompson Vice President, Development: Briggs Sellers Vice President, Investor Relations: Matthew Stroud Vice President, Real Estate: Bruce A. Geise Vice President, Taxes: Patrick Harrigan Senior Associate General Counsel: Sally Blackmun Senior Director, Operations Compensation: Gail Frye Sr. Director, Operations Excellence (Red Lobster): Ingrid Hebel Director, Asset Management: John Doshna Director, Construction/Design: Tracy Wade Director, Market Development: Robert Reiner Director, Real Estate: Jill E. Stark Director, Talent Development: Mary Ng Site Development Manager: Jack Degagne Site Development Manager: Neil Terwilliger

Page 265 Nordstrom, Inc.

1617 Sixth Avenue, Suite 500 Seattle, WA 98101 Phone: (206) 628-2111 Fax: (206) 628-1795 Mailing Address: 1617 Sixth Avenue, 500 Seattle, WA 98101

Website: www.nordstrom.com Online sales: Yes

Total stores: 176 Operating name(s): Jeffrey Boutique 2 8,000-11,000 sq. ft. Last Chance Clearance 2 25,000 sq. ft. Nordstrom 111 190,000-250,000 sq. ft. Nordstrom Rack 61 30,000-40,000 sq. ft. Preferred GLA: 8,000-250,000 sq. ft. Retail classification: Department stores, off-price/outlet stores, shoes Locations considered: Community strip center, downtown/central business district, enclosed regional mall, freestanding, neighborhood strip center Percent in centers/malls: 80-100 Preferred co-tenants: Discount, fashion-oriented, outlet, upscale New units planned: 2010: 7 2011: 7 2012: 7 2013: 7 Financial summary: 01/09 $8,272,000,000 02/08 $8,828,000,000 01/07 $8,560,700,000 Public company: Yes Stock symbol: JWN Traded on: NYSE Area(s) of operation: AK, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OR, PA, RI, TX, UT, VA, WA Targeted for expansion: AK, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OR, PA, RI, TX, UT, VA, WA KEY PERSONNEL President: Blake W. Nordstrom President, Full-Line Stores/Executive VP: Peter E. Nordstrom President, Nordstrom Credit/Executive VP: Kevin T. Knight President, Nordstrom Direct/Executive VP: James Nordstrom Jr. President, Nordstrom Product Group/Executive VP: James R. O'Neal President, Nordstrom Rack/Executive VP: Laurie Black CFO/Executive Vice President: Mike Koppel CIO/Vice President: R. Michael Richardson CAO/Executive Vice President: Dan Little Executive VP/General Manager, AK/WA (Full-Line): Lynn A. Kuntz

Page 266 Nordstrom, Inc.

Executive VP/General Manager, Central (Full-Line): Robert J. Middlemas Executive VP/General Manager, South (Full-Line): Geevy S.K. Thomas Executive VP, Diversity Affairs/Human Resources: Delena M. Sunday Executive Vice President, Full Line Stores: Erik B. Nordstrom Executive Vice President, Marketing: Linda Toschi Finn Vice President, Corporate Communications: Brooke White Vice President, Investor Relations/Treasurer: Robert E. Campbell Vice President, Real Estate/Corporate Secretary: David L. Mackie Vice President, Store Planning/Fixtures Buyer: David Lindsey Vice President, Full-Line Store Strategy: Chris Holloway Director, Loss Prevention: Julee Kraus

Page 267 Michaels Stores, Inc.

8000 Bent Branch Drive Irving, TX 75063 Phone: (972) 409-1300 Fax: (972) 409-1556 Mailing Address: PO Box 619566 Dallas, TX 75261-9566 Division of: Bain Capital Partners, LLC Boston, MA

Website: www.michaels.com Online sales: Yes General e-mail: mailto:[email protected]

Total stores: 1,180 Operating name(s): Aaron Brothers 155 5,800 sq. ft. Michaels 1,025 18,200 sq. ft. Preferred GLA: 5,800-18,200 sq. ft. Retail classification: Art supplies/crafts/hobbies, art/collectibles/frames Locations considered: Community strip center, enclosed regional mall, enclosed super regional mall, freestanding, neighborhood strip center, power center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Fashion-oriented, upscale New units planned: 2010: 25 Preferred lease: 5 years w/4 5-yr. opt. Population density targeted: 150,000 Customer base: High, mid income, adult, female Financial summary: 01/09 $3,890,000,000(e) 01/08 $3,862,000,000 01/07 $3,843,000,000 Public company: No Area(s) of operation: AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY, PR, Canada Targeted for expansion: All USA, Canada KEY PERSONNEL CEO: John Menzer CFO: Elaine Crowley CIO: Mike Jones Chief Accounting Officer: Richard S. Jablonski Executive Vice President, Supply Chain: Thomas DeCaro Senior Vice President/Secretary/General Counsel: Michael Veitenheimer

Page 268 Michaels Stores, Inc.

Senior Vice President, Human Resources: Sue Elliot Vice President/Treasurer: Thomas Melito Regional Director, Real Estate: Wendi Frost Real Estate Manager: Karen R. Slayton Regional real estate contacts: Wendi Frost Regional Director, Real Estate Michaels Stores, Inc. 3729 Pelham Lane Charlotte NC 28211 Phone: (704) 442-9744 Fax: (704) 442-9745

Page 269 Macy's, Inc.

Seven West Seventh Street Cincinnati, OH 45202 Phone: (513) 579-7000 Fax: (513) 579-7555

Website: www.macys.com Online sales: Yes

Total stores: 807 Operating name(s): Macy's 807 Preferred GLA: 40,000-250,000 sq. ft. Retail classification: Department stores Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: All considered Financial summary: 02/09 $24,892,000,000 02/08 $26,313,000,000 02/07 $26,970,000,000 Public company: Yes Stock symbol: M Traded on: NYSE Area(s) of operation: AL (2), AZ (11), CA (135), CO (14), CT (13), DC (1), DE (4), FL (61), GA (24), HI (18), ID (8), IL (25), IN (11), KS (7), KY (8), LA (5), MA (30), MD (23), ME (2), MI (22), MN (13), MO (15), MT (3), NC (12), ND (2), NH (6), NJ (31), NM (2), NV (8), NY (52), OH (36), OK (4), OR (15), PA (37), RI (2), SC (2), SD (1), TN (9), TX (55), UT (6), VA (27), VT (1), WA (35), WI (5), WV (2), WY (1), PR (1) Targeted for expansion: AL, AZ, CA, CO, CT, DC, DE, FL, GA, HI, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY, PR Number of foreign locations: 1 International operations: Guam (USA) (1) International expansion: Guam (USA) NEW AND NOTEWORTHY Macy's, Inc. also operates Bloomingdale's, New York, NY, which is profiled separately. In February, 2009, the company consolidated its four divisions - Macy's Central, Macy's East, Macy's Florida, and Macy's West - into one unit at the corporate office. KEY PERSONNEL Chairman/President/CEO: Terry Lundgren President, Stores: Mark Cosby CFO/Executive Vice President: Karen M. Hoguet CAO: Tom Cole CMO: Jeffrey Gennette Chief Marketing Officer: Peter Sachse Chief Merchandise Planning Officer: Julie Greiner

Page 270 Macy's, Inc.

Chief Private Brand Officer: Timothy M. Adams Chief Stores Officer: Ronald Klein Senior Vice President/Secretary/General Counsel: Dennis J. Broderick Senior Vice President, Diversity/Human Resources: David W. Clark Senior Vice President, Property Development: Amy Hanson Senior Vice President, Real Estate: Carl Goertemoeller Vice President/Controller: Joel A. Belsky VP, Corporate Communications/External Affairs: James A. Sluzewski

Page 271 Lowe's Companies, Inc.

1000 Lowes Boulevard Mooresville, NC 28117 Phone: (336) 658-4000 Fax: (336) 658-4766 Mailing Address: PO Box 1111 North Wilkesboro, NC 28656 Website: www.lowes.com Online sales: Yes Total stores: 1,700 Operating name(s): Lowe's 1,700 Preferred GLA: 100,000-150,000 sq. ft. Retail classification: Hardware/home improvement, major appliances Locations considered: Community strip center, freestanding, power center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 20-39 Preferred co-tenants: All considered New units planned: 2010: 35- 45 Preferred lease: 15 years Special requirements: 30,000 sq. ft. outside garden center area Financial summary: 02/09 $48,230,000,000 02/08 $48,283,000,000 02/07 $46,927,000,000 Public company: Yes Stock symbol: LOW Traded on: NYSE Area(s) of operation: AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, WA, WI, WV, WY, Canada, Mexico Targeted for expansion: All USA, Canada, Mexico KEY PERSONNEL Chairman/CEO: Robert Niblock President/COO: Larry D. Stone CFO/Executive Vice President: Robert F. Hull Jr. CIO/Senior Vice President: Steven M. Stone CAO/Senior Vice President: Matthew V. Hollifield Chief Compliance Officer/SVP/Sec./General Counsel: Gaither Keener Chief Risk Officer/Senior Vice President: Marshall Croom Executive Vice President, Business Development: Greg Bridgeford Executive Vice President, Distribution/Logistics: Joseph Mabry Jr. Executive Vice President, Merchandising: Nick Canter Jr. Senior VP/GMM, Building Products/Lumber: John David Steed Senior Vice President/GMM, Bath/Kitchen: Clinton Davis

Page 272 Lowe's Companies, Inc.

Senior Vice President/GMM, Bath/Kitchen: John Kasberger Senior Vice President/GMM, Hardlines: Robert J. Gfeller Jr. Senior Vice President/GMM, Home Decor: Patti Price Senior Vice President/GMM, Outdoor Living: Eric D. Sowder Senior Vice President, Advertising/Marketing: Thomas J. Lamb Senior VP, Construction/Engineering/Real Estate: Gary Wyatt Senior Vice President, Corporate Affairs: N. Brian Peace Senior Vice President, Distribution: Stephen Szilagyi Senior Vice President, Environment/Store Planning: R. Vaughn Hayes SVP, Global Sourcing/Product Development: Mike Menser Senior Vice President, Human Resources: Maureen Ausura Senior Vice President, Logistics: Ricky Damron Senior Vice President, Research/Strategic Planning: Scott Butterfield SVP, Specialty Sales/Store Operations Support: Robert Wagner Senior VP, Store Operations (North Central): Brent G. Kirby Senior VP, Store Operations (Northeast): James Frasso Senior VP, Store Operations (South Central): Bill Edwards Senior VP, Store Operations (Southeast): Theresa A. Anderson Senior Vice President, Store Operations (West): Dennis Knowles Director, Real Estate: Brett Jarrett Director, Real Estate: Bram Neil Senior Real Estate Manager: Eric Dowell Senior Real Estate Manager: Crisman Jones Senior Real Estate Manager: Samuel McCoy Excess Property Manager: Neal C. Hamilton Property Management Manager: Philip J. Curley Real Estate Manager: David Shomaker

Page 273 Jo-Ann Stores, Inc.

5555 Darrow Road Hudson, OH 44236 Phone: (330) 656-2600 Fax: (330) 463-6675

Website: www.joann.com Online sales: Yes General e-mail: mailto:[email protected] Total stores: 759 Operating name(s): Jo-Ann Fabrics & Crafts 531 14,000-25,000 sq. ft. Jo-Ann Fabrics & Crafts Superstore 228 35,000 sq. ft. Preferred GLA: 14,000-35,000 sq. ft. Retail classification: Art supplies/crafts/hobbies, fabrics Locations considered: Community strip center, enclosed regional mall, freestanding, neighborhood strip center, pad site/outparcel, power center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 80-100 Preferred co-tenants: Discount, fashion-oriented, grocery/supermarket New units planned: 2010: 20 Remodels planned: 2010: 30 Preferred lease: 10 years w/4 5-yr. opt. Minimum frontage: 150 ft. Special requirements: 16 ft. ceilings Population density targeted: 100,000 Radius: 5 mile(s) Traffic counts: 30,000 VPD Customer base: High, mid income, adult, teen, female Average number of checkouts: 6 Financial summary: 01/09 $1,901,100,000 02/08 $1,878,800,000 02/07 $1,850,600,000 Public company: Yes Stock symbol: JAS Traded on: NYSE Area(s) of operation: AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV

Page 274 Jo-Ann Stores, Inc.

Targeted for expansion: AK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY Excess space: Yes Excess space email: mailto:[email protected] KEY PERSONNEL Chairman/President/CEO: Darrell Webb COO/Executive Vice President: Travis Smith CFO/Executive Vice President: James Kerr Executive Vice President, Store Operations: Kenneth Haverkost Senior Vice President/Secretary/General Counsel: David B. Goldston Senior VP, Logistics/Supply Chain Management: Anthony Dissinger Senior Vice President, Marketing: Kevin Brown Senior Vice President: Betty Rosskamm Vice President/GMM, Crafts: Brent Beebe Vice President/Controller: Christopher Beem Vice President, Human Resources: Thomas Williams Vice President, Real Estate/Store Development: Jeffrey N. Fink Regional Vice President, Heartland: Sue Walker Regional Vice President, Mid-Atlantic: Kris Christian Regional Vice President, Northwest: Kevin Kneeshaw Regional Vice President, South Central: Edward Dann Regional Vice President, Southeast: Roger Hawkins Director, Public Relations: Lisa Greb Director, Real Estate Operations: Kevin Beegle Real Estate Manager: Tony Carosello Regional real estate contacts: Area covered: AK, CA, HI, ID, MN, MT, NE, ND, OR, SD, WA, WY Kevin P. Beegle Director, Real Estate Operations Jo-Ann Stores, Inc. 5555 Darrow Road Hudson OH 44236 Phone: (330) 463-3461 Fax: (330) 463-6660 mailto:[email protected] Area covered: IL, IN, IA, KS, KY, MI, MO, OH, PA, WV, WI, WY Tony Corosello Real Estate Manager Jo-Ann Stores, Inc. 5555 Darrow Road Hudson OH 44236 Phone: (330) 463-3461 Fax: (330) 463-6660 mailto:[email protected] Area covered: AL, AZ, AR, CO, CT, DE, DC, FL, GA, LA, ME, MD, MA, MS, NV, NH, NJ, NM, NY, NC, OK, PA, RI, SC, TN, TX, UT, VT, VA Adam Rabin Director, Real Estate Jo-Ann Stores, Inc. 23023 Winged Elm Drive Clarksburg MD 10994 Phone: (301) 528-2007 Fax: (866) 308-5559 mailto:[email protected]

Page 275 J.C. Penney Company, Inc.

6501 Legacy Drive Plano, TX 75024-3698 Phone: (972) 431-1000 Fax: (972) 431-1362 Mailing Address: PO Box 10001 Dallas, TX 75301-2105

Website: www.jcpenney.net Online sales: Yes

Total stores: 1,109 Operating name(s): J.C. Penney 1,109 Preferred GLA: 115,000 sq. ft. Retail classification: Department stores Locations considered: Community strip center, enclosed regional mall, enclosed super regional mall, freestanding, power center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Fashion-oriented New units planned: 2010: 4 Customer base: Mid income Financial summary: 01/09 $18,486,000,000* 01/08 $19,860,000,000* 01/07 $19,903,000,000* Public company: Yes Stock symbol: JCP Traded on: NYSE Area(s) of operation: All USA, PR Targeted for expansion: All USA, PR Excess space: No KEY PERSONNEL Chairman/CEO: Mryon E. "Mike" Ullman III President, JCPenney Direct/Executive VP: John W. Irvin COO, JCPenney Direct/Senior Vice President: Bernard D. Feiwus CFO/Executive Vice President: Robert B. Cavanaugh CIO/Vice President: Thomas M. Nealon CAO/Chief HR Officer/Executive Vice President: Michael Theilmann Chief Marketing Officer/Executive Vice President: Mike Boylson Executive Vice President/General Counsel/Secretary: Janet Dhillon Executive VP/Director, Allocation/Planning: Clarence Kelley Executive Vice President/Director, Stores: Michael W. Taxter EVP/Director, Product Development/Sourcing: Peter M. McGrath Executive Vice President/GMM, Children's/Men's: Steve Lawrence EVP/GMM, Decorating/Fine Jewelry/Home: Jeffrey Allison EVP/GMM, Footwear/Women's Access./Women's Apparel: Elizabeth Sweney Senior Vice President/Controller: Dennis Miller

Page 276 J.C. Penney Company, Inc.

Senior Vice President/Director, Finance: Thomas A. Clerkin SVP/Director, Property Development: Michael Dastugue Senior Vice President/Director, Supply Chain: James W. LaBounty Vice President/Director, Product Development: Tami Wolfe Vice President/Director, Store Environment: Charles Foughty Vice President, Investor Relations: Phil Sanchez Vice President, Planning: Bob Johnson Vice President, Public Relations: Rita Trevino Flynn Vice President, Real Estate: Brad Syverson Director, Asset Management: Dale McDonough Director, Brand Marketing/Publicity: Merianne Roth Director, New Store Development: Dean Zurmely Senior Site Planning Project Manager: Shon Merryman Investor Relations Manager: Edward Merritt

Page 277 IKEA North America

420 Alan Wood Road Conshohocken, PA 19428 Phone: (610) 834-0180 Fax: (610) 834-0872 Division of: INGKA Holding B.V. Delft, Sweden

Website: www.ikea.com Online sales: Yes

Total stores: 49 Operating name(s): IKEA 49 Preferred GLA: 320,000-400,000 sq. ft. Retail classification: Furniture/beds Locations considered: Enclosed regional mall, enclosed super regional mall, freestanding, power center Operates kiosks: No Percent in centers/malls: 20-39 Preferred co-tenants: Discount, entertainment, fashion-oriented, outlet, upscale New units planned: 2010: 3-5 2011: 3-5 Prefers to own its operating locations: Yes Population density targeted: 1,500,000 Radius: 10+ mile(s) Customer base: High, mid income, adult Public company: No Area(s) of operation: AZ (1), CA (8), CT (1), FL (3), GA (1), IL (2), MA (1), MD (2), MI (1), MN (1), NC (1), NJ (2), NY (2), OH (1), OR (1), PA (3), TX (3), UT (1), VA (1), WA (1), Canada (12) Targeted for expansion: All USA, Canada Number of foreign locations: 252 International operations: Australia, Austria, Belgium, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Kuwait, Malaysia, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan, Turkey, United Arab Emirates, United Kingdom International expansion: Austria, Belgium, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Japan, Kuwait, Malaysia, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Saudi Arabia, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Taiwan, Turkey, United Arab Emirates, United Kingdom KEY PERSONNEL President, IKEA Canada: Kerri Molinaro President, IKEA USA: Mike Ward Director, Public Affairs: Joseph Roth Marketing Manager: Leontyne Green

Page 278 The Home Depot, Inc.

2455 Paces Ferry Road Atlanta, GA 30339-4053 Phone: (770) 433-8211 Fax: (770) 384-2917

Website: www.homedepot.com Online sales: Yes Total stores: 2,242 Operating name(s): Home Depot 2,236 102,000-150,000 sq. ft. Home Depot Fuel 6 2,400-3,000 sq. ft. Preferred GLA: 2,400-150,000 sq. ft. Retail classification: Convenience stores, hardware/home improvement Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, mixed use center, neighborhood strip center, power center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 0-19 Preferred co-tenants: All considered New units planned: 2010: 20-30 Preferred lease: 15-20 years w/10 5-yr. opt. Prefers to own its operating locations: Yes Special requirements: 300-400 parking spaces, 30,000 sq. ft. garden center Household density targeted: 30000 Customer base: Adult Financial summary: 01/09 $71,288,000,000 01/08 $77,349,000,000 01/07 $90,837,000,000 Public company: Yes Stock symbol: HD Traded on: NYSE Area(s) of operation: All USA, VI, PR, Canada, Mexico Targeted for expansion: All USA, VI, PR, Canada, Mexico Number of foreign locations: 11 International operations: China International expansion: China Excess space: Yes

Page 279 The Home Depot, Inc.

NEW AND NOTEWORTHY In January, 2009, The Home Depot, Inc. closed all EXPO Design Centers, Yardbirds stores, and Design Center stores. KEY PERSONNEL Chairman/CEO: Francis S. Blake President, Home Depot Asia/Canada: Annette Verschuren President, Home Depot Mexico: Ricardo Saldivar President, Northern Division: Jim Kane President, Western Division: Joe McFarland CFO/Executive Vice President, Corporate Services: Carol Tome CIO/Executive Vice President, MIS: Matt Carey Chief Marketing Officer/Senior Vice President: Frank Bifulco Executive Vice President, Human Resources: Tim Crow Executive Vice President, Merchandising: Craig Menear Executive Vice President, U.S. Stores: Marvin Ellison Executive Vice President/Secretary/General Counsel: Jack VanWoerkom Senior Vice President, Building Materials: Eric Peterson SVP, Corporate Communications/External Affairs: Brad Shaw Senior Vice President, Decor: Gordie Erickson Senior Vice President, Decor/Merchandising: Bill Lennie SVP, Enterprise Program Management: Kelly Barett Senior Vice President, Investor Relations: Diane Dayhoff Senior Vice President, Hardlines: Giles Bowman Senior Vice President, Home Depot Stores: Marc Powers Senior Vice President, Human Resources: Mike Buskey Senior Vice President, Pro Business: Ron Jarvis Senior Vice President, Program Management: Kelly Barrett Senior Vice President, Supply Chain: Mark Holifield Senior Vice President, U.S. Retail Finance: Ted Decker Vice President, Construction: John Shern Vice President, Real Estate: Michael LaFerle Executive Vice President/General Counsel/Secretary: Jack VanWoerkom Director, Real Estate: James J. McCarthy Director, Store Operations: Kimberly Hay Marketing Manager: Ken Rye Real Estate Manager: Kate Peterson Real Estate Manager: Kevin R. Workman

Page 280 Gap Inc.

Two Folsom Street San Francisco, CA94105 Phone: (650) 952-4400 Fax: (650) 874-7821

Website: www.gapinc.com Online sales: Yes General e-mail: mailto:[email protected]

Total stores: 2,814 Operating name(s): Banana Republic 582 4,500-15,000 sq. ft. Gap/Gap Outlet/GapKids/babyGap/Gap Body 1,173 2,750-16,800 sq. ft. Old Navy 1,059 20,000-35,000 sq. ft. Preferred GLA: 2,750-35,000 sq. ft. Retail classification: Apparel - children's, apparel - men's, apparel - women's Locations considered: Airport/transportation center, community strip center, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, outlet center Percent in centers/malls: 80-100 Preferred co-tenants: Fashion-oriented, outlet, upscale Preferred lease: 4 years Customer base: High, mid income, adult, child, teen Financial summary: 02/09 $14,526,000,000 02/08 $15,763,000,000 02/07 $15,943,000,000 Public company: Yes Stock symbol: GPS Traded on: NYSE Area(s) of operation: AK (7), AL (39), AR (18), AZ (41), CA (314), CO (46), CT (53), DC (5), DE (9), FL (152), GA (82), HI (10), IA (25), ID (9), IL (108), IN (45), KS (24), KY (22), LA (39), MA (92), MD (51), ME (14), MI (66), MN (47), MO (44), MS (17), MT (7), NC (69), ND (7), NE (14), NH (21), NJ (112), NM (8), NV (31), NY (200), OH (74), OK (24), OR (33), PA (121), RI (14), SC (40), SD (5), TN (53), TX (195), UT (23), VA (69), VT (8), WA (49), WI (45), WV (8), PR (16), Canada (189) Targeted for expansion: All USA, PR, Canada Number of foreign locations: 331 International operations: France (40), Ireland (2), Israel (2), Japan (147), United Kingdom (140) International expansion: China, France, Ireland, Israel, Japan, United Kingdom NEW AND NOTEWORTHY Square footage preferences for stores under the Gap banner are as follows: Gap (full concept store) - 16,800 sq. ft.; Gap/Gap Body combination - 10,300 sq. ft.; Gap/GapKids combination - 11,250 sq. ft.; GapKids/babyGap combination - 6,500 sq. ft.; Gap (adult concept) - 7,500 sq. ft.; Gap Body - 2,800 sq. ft.; GapKids - 3,750 sq. ft.; babyGap - 2,750 sq. ft. For real estate inquiries regarding Japan, contact 813-5369-5370; for France and the United Kingdom, contact 44-207-518-6335.

Page 281 Gap Inc.

KEY PERSONNEL Chairman/CEO: Glenn Murphy President, Banana Republic: Jack Calhoun President, Europe: Steven Sunnucks President, Gap Adult/Gapbody: Gary Muto President, Gap Direct: Toby Lenk President, Gap North America: Marka Hansen President, Gap Outlet: Art Peck President, Japan: John Ermatinger President, Old Navy: Tom Wyatt CFO/Executive Vice President: Sabrina Simmons CIO/Executive Vice President: Michael B. Tasooji CCO/Exec. VP/Secretary/General Counsel: Michelle Banks Executive Vice President, Human Resources: Eva Sage-Gavin Senior Vice President, Gap International Sourcing: Stan Raggio Senior Vice President, Real Estate: David Zoba Vice President, Investor Relations: Evan Price Vice President, Real Estate: Karen M. Janes Vice President, Real Estate: Carol Joyner Vice President, Real Estate: Ray Miolla Vice President, Real Estate: Mark Sweetser Senior Director, Real Estate: Jerald Estime

Regional real estate contacts: Area covered: NY (Manhattan/Metro) Area covered: NY (Upstate) Canada Gap Real Estate Gap Real Estate Phone: (917) 332-2352 Phone: (905) 460-2106

Area covered: OK, TX Area covered: AL, FL, GA, LA, MS, NC, SC, PR Gap Real Estate Gap Real Estate Phone: (972) 458-0711 Phone: (404) 236-8870

Area covered: AK, MT, NM, UT, WA, WY Area covered: AZ, CA, HI (Northern CA) Gap Real Estate Gap Real Estate Phone: (415) 427-0177 Phone: (415) 427-0175

Area covered: AR, OH, TN Area covered: CA, NV (Southern CA) Gap Real Estate Gap Real Estate Phone: (972) 776-4700 Phone: (415) 427-0174

Area covered: CO, IL, IA, KS, MI, MN, MO, NE, Area covered: CT, ME, MA, NH, RI, VT ND, SD, WI Gap Real Estate Gap Real Estate Phone: (781) 839-8750 Phone: (312) 274-2230

Area covered: DE, DC, IN, KY, MD, NJ, PA, VA, Area covered: ID, OR WV Gap Real Estate Gap Real Estate Phone: (415) 427-0177 Phone: (610) 667-8366

Page 282 Harold Friedman, Inc.

530 Fairground Hill Butler, PA 16001-2634 Phone: (724) 283-6030 Fax: (724) 287-5549

Website: www.friedmansfreshmarkets.com Online sales: No General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected] Total stores: 6 Operating name(s): East Brady Freshmarket 1 Friedman's Freshmarkets 5 Preferred GLA: 20,000-55,000 sq. ft. Retail classification: Supermarkets Locations considered: Community strip center, downtown/central business district, freestanding, neighborhood strip center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 40-59 Preferred co-tenants: Discount, entertainment New units planned: 2010: 1 Remodels planned: 2010: 2 Preferred lease: 10-15 years w/3 5-yr. opt. Customer base: Mid income, adult Average number of checkouts: 10 Financial summary: 2008 $34,800,000(e) 2007 $34,800,000(e) Public company: No Area(s) of operation: PA (6) Targeted for expansion: PA Excess space: No KEY PERSONNEL President/CEO/Real Estate: Carole F. Bitter Controller/IT/MIS Buyer: David R. Crater Director, Construction/Maintenance/Equipment Buyer: John Kelly Director, Marketing/Operations/Pricing: Dean Weiland

Page 283 FedEx Office

Three Galleria Tower, 13155 Noel Road, Suite 1600 Dallas, TX 75240 Phone: (214) 550-7000 Fax: (214) 550-7001 Division of: FedEx Corporation Memphis, TN

Website: www.fedexoffice.com Online sales: Yes General e-mail: mailto:[email protected]

Total stores: 1,900 Operating name(s): FedEx Office 1,900 Preferred GLA: 300-3,000 sq. ft. Retail classification: Photocopies/printing Locations considered: Community strip center, downtown/central business district, freestanding, neighborhood strip center, office buildings, power center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Grocery/supermarket Preferred lease: 10 years w/2 5-yr. opt. Special requirements: 14.5 ft. ceilings; zoned for 24-hour operations Population density targeted: 75,000 Radius: 3 mile(s) Customer base: Adult, teen, 45,000 median household income Public company: Yes Area(s) of operation: All USA, Canada, Mexico Targeted for expansion: All USA, Canada, Mexico Number of foreign locations: 160 International operations: Australia, China, Japan, Kuwait, Netherlands, United Arab Emirates, United Kingdom International expansion: Australia, China, Japan, Netherlands, United Arab Emirates, United Kingdom KEY PERSONNEL President/CEO: Brian Philips CFO/Senior Vice President: Leslie Benners CIO/Senior Vice President: Richard Maranville Chief Development Officer/Senior Vice President: Thomas Leverton Executive Vice President, Sales: John McDonald Senior Vice President/General Counsel: Frederic Liskow Senior Vice President, Human Resources: Tracy Brightman Senior Vice President, Operations: Jon Cannon Vice President, Development/Real Estate: Norman E. McLeod Vice President, Global Structuring: Steve Grupe Managing Director, Development: Nikki J. Viner Development Manager: Chris Bone Real Estate Asset Manager: Michelle Folds

Page 284 FedEx Office

Real Estate Development Manager: Lee Scott Real Estate Manager, Existing Assets: Lisa Street Real Estate Manager: Clayton Scott Lark

Page 285 Crate & Barrel

1250 Techny Road Northbrook, IL 60062 Phone: (847) 272-2888 Fax: (847) 272-5366 Division of: Euro Market Designs Inc. Northbrook, IL

Website: www.crateandbarrel.com Online sales: Yes Real estate e-mail: mailto:[email protected]

Total stores: 185 Operating name(s): CB2 7 10,000 sq. ft. Crate & Barrel 160 6,000-40,000 sq. ft. Crate & Barrel Outlet Store 13 6,000-10,000 sq. ft. Land of Nod 5 7,500 sq. ft. Preferred GLA: 6,000-40,000 sq. ft. Retail classification: China/glassware, cutlery/kitchenware, furniture/beds, home decor/lamps/drapes Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, outlet center, pad site/outparcel Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Fashion-oriented, upscale New international units planned: 2010: 2 Preferred lease: 10 years w/3 5-yr. opt. Customer base: High, mid income, adult, female Average number of checkouts: 4 Financial summary: 2009 $1,141,400,000(e) 2008 $1,137,300,000(e) 2007 $1,062,100,000(e) Public company: No Area(s) of operation: AZ, CA, CO, CT, DC, FL, GA, IL, IN, KS, MA, MD, ME, MI, MN, MO, NC, NJ, NY, OH, OR, PA, RI, TX, VA, WA, WI, Canada Targeted for expansion: AZ, CA, CO, DC, FL, GA, IL, IN, MA, MD, ME, MI, MN, NC, NJ, NV, NY, OH, PA, RI, TN, TX, UT, VA, WA, Canada International expansion: Dubai NEW AND NOTEWORTHY Euro Market Designs Inc., Crate & Barrel's parent company, is 66% owned by Otto Versand GmbH & Co., Hamburg, Germany.

Page 286 Crate & Barrel

KEY PERSONNEL Chairman: Gordon I. Segal President/CEO: Barbara Turf CFO: Diane Pearse CIO: Ed Renemann Senior Managing Director, Development: Robert W. Hense Senior Director, Construction: Dave Lepper Director, Architecture: Jacques Verlinden Director, Human Resources: Susie Muellman Director, Marketing Business: John Seebeck Director, Public Relations: Vicki Lang Director, Real Estate: Jeffrey Aronoff

Page 287 Brinker International

6820 Lyndon B. Johnson Freeway Dallas, TX 75240 Phone: (972) 980-9917 Fax: (972) 770-9467

Website: www.brinker.com Online sales: No Real estate e-mail: mailto:[email protected]

Total stores: 1,489 Franchised to other companies: 665 Operating name(s): Chili's Grill & Bar 1,292 3,950-5,500 sq. ft. Maggiano's Little Italy 45 12,000-17,000 sq. ft. On The Border Mexican Grill 152 3,600-5,700 sq. ft. Preferred GLA: 3,600-17,000 sq. ft. Retail classification: Fast casual restaurants, restaurants/bars Locations considered: Airport/transportation center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, pad site/outparcel, power center Operates kiosks: Yes Percent in centers/malls: 60-79 Preferred co-tenants: Entertainment Preferred lease: 10 years w/2 5-yr. opt. Population density targeted: 150,000 Radius: 5 mile(s) Traffic counts: 35,000 VPD Financial summary: 06/09 $3,620,600,000 06/08 $4,235,200,000 06/07 $4,376,904,000 Public company: Yes Stock symbol: EAT Traded on: NYSE Area(s) of operation: AK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY, PR, Canada, Mexico Targeted for expansion: All USA, PR, Canada, Mexico Number of foreign locations: 203 International operations: Australia, Bahrain, Ecuador, Egypt, Germany, Guam (USA), India, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Oman, Peru, Philippines, Qatar, Saudi Arabia, Singapore, South Korea, Taiwan, United Arab Emirates, Venezuela International expansion: Australia, Bahrain, Ecuador, Egypt, Germany, Guam (USA), India, Indonesia, Japan, Kuwait, Lebanon, Malaysia, Oman, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Korea, Taiwan, United Arab Emirates, Venezuela

Page 288 Brinker International

Excess space: No NEW AND NOTEWORTHY For Brinker International real estate inquiries, call the real estate hotline at (972) 770-9571 for the designated site managers and their assigned territories. Brinker International retains a 20% interest in the Romano's Macaroni Grill, Inc., Dallas, TX (80% owned by Golden Gate Capital, San Francisco, CA), which is profiled separately. KEY PERSONNEL Chairman/President/CEO: Douglas H. Brooks President, Chili's Grill & Bar/On the Border: Wyman T. Roberts President, Maggiano's Little Italy: Steve Provost President, Global Business Development: John Reale COO/SVP, Chili's Grill & Bar/On the Border: Kelli Valade COO/SVP, Global Business Development: Carin Stutz COO/Senior Vice President, Maggiano's Little Italy: Gene Monteagudo CFO/Executive Vice President: Charles Sonsteby CAO/Executive Vice President/General Counsel: Roger F. Thomson Executive Vice President, Brand Solutions: Michael B. Webberman Executive Vice President, People Works: Valerie Davisson Senior Vice President/Associate General Counsel: Jeffrey A. Hoban Senior Vice President/Controller: David Doyle Senior Vice President, Corporate Finance: Guy Constant Senior Vice President, Domestic Franchising: George Hailey Senior Vice President, IT/MIS: Michael L. Furlow Vice President/Associate General Counsel: Bryan D. McCrory Vice President, Architecture/Design: Richard McCaffrey Vice President, Business Solutions: Laurie Gaines Vice President, Corporate Affairs: Joseph G. Taylor VP, Finance/Global Business Development: Lynn Schweinfurth Vice President, Property Management: E. Denise Moore Vice President, Purchasing: Terry W. Stephenson Vice President, Restaurant Development: Jeffrey Smith Director, Real Estate: Clay Fuller

Regional real estate contacts: Clay Fuller Director, Real Estate Brinker International 6750 LBJ Freeway Dallas TX 75240 Phone: (972) 770-9637 Fax: (972) 770-9467 mailto:[email protected]

Page 289 Chico's FAS, Inc.

11215 Metro Parkway Fort Myers, FL 33966 Phone: (239) 277-6200 Fax: (239) 277-4259

Website: www.chicos.com Online sales: Yes General e-mail: mailto:[email protected]

Total stores: 1,074 Franchised to other companies: 13 Operating name(s): Chico's 608 2,500-4,000 sq. ft. Chico's Outlet 43 3,500-4,000 sq. ft. Soma Intimates 75 3,000-4,000 sq. ft. Soma Intimates Outlet 1 3,000-4,000 sq. ft. White House/Black Market 331 1,500-3,000 sq. ft. White House/Black Market Outlet 16 2,000-3,000 sq. ft. Preferred GLA: 1,500-4,000 sq. ft. Retail classification: Accessories, apparel - women's Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, neighborhood strip center, outlet center, pad site/outparcel Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 20-39 Preferred co-tenants: Entertainment, fashion-oriented, upscale New units planned: 2010: 10 2011: 15 Remodels planned: 2010: 20 2011: 20 Preferred lease: 5 years w/2 5-yr. opt. Minimum frontage: 30 ft. Population density targeted: 150,000 Radius: 5 mile(s) Customer base: High, mid income, adult, female, College-educated Average number of checkouts: 2 Mall sales per sq. ft. requirement: $450

Page 290 Chico's FAS, Inc.

Financial summary: 01/09 $1,582,405,000 02/08 $1,714,326,000 01/07 $1,640,927,000 Public company: Yes Stock symbol: CHS Traded on: NYSE Area(s) of operation: AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY, VI, PR Targeted for expansion: All USA, VI, PR Excess space: No NEW AND NOTEWORTHY Chico's FAS, Inc. utilizes over 35 brokers nationwide; contact the real estate department for a complete listing or for the broker assigned to your territory. KEY PERSONNEL Chairman: Ross E. Roeder President/CEO: David F. Dyer Brand President, Chico's: Cynthia S. Murray Brand President, White House/Black Market: Donna Noce Colaco COO/Executive Vice President: Jeffrey Jones CFO/Executive Vice President: Kent Kleeberger Chief Human Resources Officer/Senior VP: Manuel Jessup Chief Marketing Officer/Executive Vice President: Michael J. Leedy Chief Stores Officer/Executive Vice President: Mori MacKenzie Executive VP/Corporate Counsel/Secretary: Sandy Rhodes Senior Vice President/GMM, Soma: Terri Meichner Senior Vice President/GMM: Lece Lohr Senior Vice President, Allocation/Planning: Toni Robinson Senior Vice President, Chico's Stores: Sher Canada Senior Vice President, Consumer Research/Strategy: Elaine Boltz Senior Vice President, Design/Trends: Linda Costello Senior VP, White House/Black Market Stores: George M. Reider Vice President, Allocation/Planning: Michele Handley Vice President, Investor/Community Relations: Robert C. Atkinson VP, Operations (White House Black Market): Rod Olson Vice President, Production/Quality: Charles McMurray Vice President, Real Estate: Brian Sorlie Vice President, Real Estate (Eastern Region): Jeff Gaul Vice President, Real Estate Law: Carol Kauffman Director, Real Estate: Amy Claar-Pressley Business Manager: Robin Martin Store Planning Manager: Steve Szumlanski

Page 291 Chicago's Pizza Franchises

1111 North Broadway Greenfield, IN 46140 Phone: (317) 462-9878 Fax: (317) 467-1877

Real estate e-mail: mailto:[email protected]

Total stores: 10 Franchised to other companies: 10 Operating name(s): Chicago's Pizza 10 Preferred GLA: 2,000-2,500 sq. ft. Retail classification: Restaurants/bars Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, neighborhood strip center Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 0-19 Preferred co-tenants: All considered Preferred lease: 5 years w/2 5-yr. opt. Population density targeted: 12,000 Radius: 5 mile(s) Household density targeted: 12,000 Radius: 5 mile(s) Customer base: High, mid income, adult, teen Public company: No Area(s) of operation: IN (10) Targeted for expansion: IN Number of foreign locations: 1 International operations: Spain International expansion: Spain Excess space: No KEY PERSONNEL President/CEO/Equipment/MIS Buyer/Real Estate: Robert L. McDonald Leasing agents: Area covered: IN Kevin D. McKasson Olympia Partners Limited 320 North Meridian Street, Suite 700 Indianapolis IN 46204 Phone: (317) 264-9400 mailto:[email protected]

Page 292 California Pizza Kitchen, Inc.

6053 West Century Boulevard, Suite 1100 Los Angeles, CA 90045-6430 Phone: (310) 342-5000 Fax: (310) 342-4669 Website: www.cpk.com Online sales: Yes Real estate website: [email protected] Real estate e-mail: mailto:[email protected] Total stores: 256 Franchised to other companies: 48 Operating name(s): California Pizza Kitchen 229 5,500-6,000 sq. ft. CPK ASAP 25 2,500-3,000 sq. ft. L.A. Food Show 2 6,500-7,000 sq. ft. Preferred GLA: 2,500-7,000 sq. ft. Retail classification: Restaurants/bars Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, mixed use center, neighborhood strip center, pad site/outparcel, power center Operates kiosks: No Licenses store name(s) to other companies: Yes Percent in centers/malls: 40-59 Preferred co-tenants: Entertainment, fashion-oriented, upscale New units planned: 2010: 10 New international units planned: 2010: 8 Preferred lease: 10 years w/3 5-yr. opt. Population density targeted: 250,000 Radius: 5 mile(s) Traffic counts: 50,000 VPD Customer base: High income, adult, child, teen Financial summary: 12/08 $677,100,000 12/07 $632,884,000 12/06 $554,601,000 Public company: Yes Stock symbol: CPKI Traded on: NASDAQ Area(s) of operation: AL, AZ, CA, CO, CT, DC, FL, GA, HI, IL, IN, KY, MA, MD, MI, MN, MO, NC, NE, NJ, NV, NY, OH, OR, PA, TN, TX, UT, VA, WA, WI, Mexico Targeted for expansion: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OR, PA, RI, SC, TN, TX, UT, VA, WA, WI

Page 293 California Pizza Kitchen, Inc.

Number of foreign locations: 27 International operations: China, Guam (USA), Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore International expansion: China, Guam (USA), Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore Excess space: No NEW AND NOTEWORTHY The total store count above includes licensees. KEY PERSONNEL Co-Chairman/CEO: Larry Flax Co-Chairman/CEO: Rick Rosenfield COO/CFO/Executive Vice President: Sue Collyns Chief Communications Officer/SVP, Marketing/PR: Sarah Grover Senior Vice President, ASAP: Rudy Suguesti Senior Vice President, Construction: Tom Beck Senior Vice President, Real Estate: Steve Rich

Page 294 Blockbuster, Inc.

1201 Elm Street Dallas, TX 75270 Phone: (214) 854-3000 Fax: (214) 854-3241

Website: www.blockbuster.com Online sales: Yes General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected]

Total stores: 4,500 Franchised to other companies: 606 Operating name(s): Blockbuster 4,500 Preferred GLA: 4,000-5,000 sq. ft. Retail classification: DVD rental/sales Locations considered: Community strip center, enclosed regional mall, freestanding, neighborhood strip center, pad site/outparcel Operates kiosks: Yes Licenses store name(s) to other companies: No Percent in centers/malls: 60-79 Preferred co-tenants: All considered Preferred lease: 5 years w/3 5-yr. opt. Minimum frontage: 50 ft. Special requirements: Large percentage of children in area Household density targeted: 10,000 Average number of checkouts: 4 Financial summary: 12/08 $5,287,900,000 12/07 $5,542,400,000 12/06 $5,523,500,000 Public company: Yes Stock symbol: BBI Traded on: NYSE Area(s) of operation: All USA, VI, PR, Canada, Mexico Targeted for expansion: All USA, Canada, Mexico Number of foreign locations: 2,068 International operations: Argentina, Australia, Brazil, Chile, Colombia, Denmark, Dominican Republic, El Salvador, Guam (USA), Guatemala, Ireland, Israel, Italy, New Zealand, Panama, Peru, Portugal, Spain, Taiwan, Thailand, United Kingdom, Uruguay, Venezuela International expansion: Worldwide Excess space: No NEW AND NOTEWORTHY In September, 2009, Blockbuster Inc. announced plans to close as many as 1,560 of its stores over the next two years. The company is expanding its rental businesses outside of the physical stores, including digital downloads, mail rentals and Blockbuster Express rental kiosks.

Page 295 Blockbuster, Inc.

KEY PERSONNEL Chairman/CEO: James W. Keyes Senior Vice President, Retail Product/GMM: Joyce Woodward Senior Vice President, Corporate Communications: Karen Raskopf Senior Vice President, Development/Franchise: Steve Krumholz Senior Vice President, Investor Relations: Mary Bell Senior Director, Corporate Communications: Randy Hargrove Director, Investor Relations: Angelika Torres Director, Real Estate: Matthew Scow Real Estate Manager: Mark Comstock Real Estate Manager: David Counts Real Estate Manager: Ben Kirkland Real Estate Manager: Chuck Perkins Real Estate Manager: Joe Rybowicz Real Estate Manager: Greg Shulman Real Estate Manager: Lyle Stanleigh Regional real estate contacts: Area covered: AR, KY, LA, OK, TN, WV Ben Kirkland Real Estate Manager Blockbuster Real Estate Phone: (972) 683-5058

Area covered: IL, MI, NC, WI Joe Rybowicz Real Estate Manager Blockbuster Real Estate Phone: (847) 296-0828

Area covered: AK, CO, ID, IA, MN, MO, NE, NV, ND, OR, SD, UT, WA, WY David Counts Real Estate Manager Blockbuster Real Estate Phone: (972) 683-8619

Area covered: AL, AZ, CO, KS, MS, NM, OH, SC Mark Comstock Real Estate Manager Blockbuster Real Estate Phone: (972) 683-8733

Area covered: CA, HI Chuck Perkins Real Estate Manager Blockbuster Real Estate Phone: (949) 582-1299

Area covered: DE, DC, FL, GA, MD, VA Lyle Stanleigh Real Estate Manager Blockbuster Real Estate Phone: (561) 868-5151

Area covered: CT, ME, MA, NH, NJ, NY, PA, VT Greg Shulman Real Estate Manager Blockbuster Real Estate Phone: (972) 683-8568

Page 296 J & M Variety Stores Inc.

103 North Rollins Street Macon, MO 63552 Phone: (660) 385-5751 Fax: (660) 385-5752

General e-mail: mailto:[email protected]

Total stores: 4 Operating name(s): Ben Franklin Store 4 Preferred GLA: 8,500 sq. ft. Retail classification: Fabrics, gifts/novelties/souvenirs, home decor/lamps/drapes Locations considered: Freestanding Operates kiosks: No Percent in centers/malls: 0-19 Average number of checkouts: 2 Public company: No Area(s) of operation: IL (1), MO (3) Targeted for expansion: IL, MO Excess space: No KEY PERSONNEL President/General Manager/General Buyer/R.E.: Jeffrey P. Wavering Vice President/Buyer: Gloria Walker

Page 297 Newmeyer, Inc.

24 Elm Terrace Shopping Center Wheeling, WV 26003 Phone: (304) 243-9008 Fax: (304) 242-8877

Total stores: 9 Operating name(s): Ben Franklin Crafts 1 14,000 sq. ft. Dollar Zone 8 5,000-10,000 sq. ft. Preferred GLA: 5,000-14,000 sq. ft. Retail classification: Art supplies/crafts/hobbies, dollar/variety stores Locations considered: Community strip center, neighborhood strip center Operates kiosks: No Co-brands/co-locates with other companies: No Percent in centers/malls: 80-100 Preferred co-tenants: All considered Preferred lease: 5 years w/2 5-yr. opt. Minimum frontage: 50 ft. Population density targeted: 20,000 Radius: 3 mile(s) Customer base: Mid income Average number of checkouts: 2 Public company: No Area(s) of operation: OH (3), WV (6) Targeted for expansion: OH, WV Excess space: No KEY PERSONNEL Owner/President/Real Estate: Charles Pete Newmeyer VP/Equipment/Store Fixtures Buyer: Paul Newmeyer Leasing agents: Brad Barankin Barankin & Associates, Inc. 2544 Country Side Lane Wexford PA 15090 Phone: (724) 933-0199

Page 298 Barnes & Noble, Inc.

122 Fifth Avenue New York, NY 10011-5605 Phone: (212) 633-3300 Fax: (212) 675-0413

Website: www.barnesandnobleinc.com Online sales: Yes General e-mail: mailto:[email protected] Real estate e-mail: mailto:[email protected] Total stores: 724 Operating name(s): Barnes & Noble 724 Preferred GLA: 2,800-67,500 sq. ft. Retail classification: Book stores Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, power center Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Upscale Preferred lease: 10 years Customer base: Mid income, adult Average number of checkouts: 5 Financial summary: 01/09 $5,121,804,000 02/08 $5,286,674,000 02/07 $5,261,254,000 Public company: Yes Stock symbol: BKS Traded on: NYSE Area(s) of operation: All USA Targeted for expansion: All USA NEW AND NOTEWORTHY In September, 2009, Barnes & Noble, Inc. acquired Barnes & Noble College Bookstores, Basking Ridge, NJ, which is profiled separately. The company closed its remaining B. Dalton stores in January, 2010 as the stores' leases expired. KEY PERSONNEL Chairman: Leonard Riggio Vice Chairman/CEO: Stephen Riggio President, Publishing Group: J. Alan Kahn COO: Mitchell S. Klipper CFO: Joe Lombardi CIO: Chris Troia CMO: James Carey Executive Vice President, Distribution/Logistics: William F. Duffy Executive Vice President, E-Commerce: Tom Burke Executive Vice President, E-Commerce Operations: Kevin Frain Senior VP, Corporate Communications/Public Affairs: Mary Ellen Keating Vice President/Secretary/General Counsel: Jennifer Daniels

Page 299 Barnes & Noble, Inc.

Vice President/Controller: Allan Lindstrom Vice President/Director, Stores: Mark Bottini Vice President, Development: David Deason Vice President, External Communications: Carolyn Brown Vice President, Human Resources: Michelle Smith Director, Investor Relations: Andy Milevoj Regional real estate contacts: David Deason Vice President, Development Barnes & Noble, Inc. 1501 LBJ Freeway Suite 290 Dallas TX 75234 Phone: (972) 484-2665 mailto:[email protected]

Page 300 Ashley Furniture Industries Inc.

One Ashley Way Arcadia, WI 54612 Phone: (608) 323-3377

Website: www.ashleyfurniture.com Online sales: No Real estate e-mail: mailto:[email protected] Total stores: 395 Operating name(s): Ashley Furniture Homestore 395 Preferred GLA: 55,000 sq. ft. Retail classification: Furniture/beds Locations considered: Community strip center, freestanding, lifestyle center, neighborhood strip center, power center Licenses store name(s) to other companies: Yes Percent in centers/malls: 60-79 Preferred co-tenants: All considered Customer base: High, mid income, adult Public company: No Area(s) of operation: AK, AL, AR, AZ, CA, CO, DE, FL, GA, ID, IL, IN, KS, KY, LA, MD, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OR, PA, SC, SD, TN, TX, UT, VA, WA, WI, WV, WY, Canada, Mexico Targeted for expansion: All USA, Canada, Mexico Number of foreign locations: 2 International operations: Japan (2) International expansion: Japan KEY PERSONNEL Chairman: Ron Wanek President/CEO: Todd Wanek Senior Real Estate Project Manager: Gary Colby

Page 301 Apple, Inc.

One Infinite Loop Cupertino, CA 95014 Phone: (408) 996-1010 Fax: (408) 996-0275

Website: www.apple.com/retail Online sales: Yes Total stores: 235 Operating name(s): The Apple Store 235 Preferred GLA: 750-6,000 sq. ft. Retail classification: Computers/software Locations considered: Downtown/central business district, enclosed regional mall, enclosed super regional mall Operates kiosks: No Percent in centers/malls: 80-100 Preferred co-tenants: Upscale Financial summary: 09/09 $36,537,000,000(e) 09/08 $32,479,000,000(e) 09/07 $24,006,000,000(e) Public company: Yes Stock symbol: AAPL Traded on: NASDAQ Area(s) of operation: AL (2), AZ (6), CA (46), CO (6), CT (4), DE (1), FL (16), GA (5), HI (3), IA (1), IL (8), IN (1), KS (1), KY (1), LA (2), MA (10), MD (5), ME (1), MI (5), MN (4), MO (3), MS (1), NC (4), NE (1), NH (2), NJ (11), NM (1), NV (4), NY (15), OH (4), OK (2), OR (3), PA (6), RI (1), SC (1), TN (3), TX (16), UT (1), VA (7), WA (4), WI (3), Canada (14) Targeted for expansion: All USA, Canada Number of foreign locations: 48 International operations: Australia, China, France, Germany, Italy, Japan, Switzerland, United Kingdom International expansion: France, Germany, Italy, Japan, United Kingdom KEY PERSONNEL CEO: Timothy D. Cook CFO/Senior Vice President, Finance/Controller: Pete Oppenheimer Senior Vice President/General Counsel: D. Bruce Sewell Senior Vice President, Retail: Ron Johnson Senior Vice President, Worldwide Product Marketing: Phillip Schiller

Page 302 Urban Outfitters, Inc.

5000 South Broad Street Philadelphia, PA 19112 Phone: (215) 454-5500 Fax: (215) 454-5163

Website: www.urbanoutfittersinc.com Online sales: Yes General e-mail: mailto:[email protected]

Total stores: 319 Operating name(s): Anthropologie 133 9,000-12,000 sq. ft. Free People 34 2,500-4,000 sq. ft. Terrain 1 20,000 sq. ft. UrbanOutfitters 151 9,000-15,000 sq. ft. Preferred GLA: 2,500-20,000 sq. ft. Retail classification: Accessories, apparel - men's, apparel - women's, art/collectibles/frames, home decor/lamps/drapes Locations considered: Downtown/central business district, enclosed super regional mall, freestanding, lifestyle center, mixed use center, pad site/outparcel Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 20-39 Preferred co-tenants: Entertainment, fashion-oriented, upscale New units planned: 2010: 20 Preferred lease: 10 years w/2 5-yr. opt. Minimum frontage: 45 ft. Special requirements: High ceilings Customer base: High, mid income, adult, teen, female Average number of checkouts: 2 Financial summary: 01/09 $1,834,618,000 01/08 $1,507,724,000 01/07 $1,224,717,000 Public company: Yes Stock symbol: URBN Traded on: NASDAQ Area(s) of operation: AL, AZ, CA, CO, CT, DC, FL, GA, IL, IN, KS, LA, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OR, PA, RI, SC, TX, UT, VA, VT, WA, WI, Canada Targeted for expansion: All USA, Canada Number of foreign locations: 9

Page 303 Urban Outfitters, Inc.

International operations: Belgium (1), Denmark (1), Germany (1), Ireland (1), Sweden (1), United Kingdom (4) International expansion: Denmark, Ireland, Sweden, United Kingdom Excess space: No KEY PERSONNEL Chairman/President: Richard A. Hayne CEO/President, Anthropologie: Glen T. Senk President, Free People: Margaret Hayne President, Urban Outfitters: Ted Marlow CFO: Eric Artz CAO: Freeman M. Zausner Secretary/General Counsel: Glen Bodzy Executive Director, Finance: Robert Ross

Leasing agents: Wade L. McDevitt The McDevitt Co. 1809 Walnut Street Suite 400 Philadelphia PA 19103 Phone: (215) 665-0060 Fax: (215) 665-0068

Page 304 24 Hour Fitness

12647 Alcosta Boulevard, Suite 500 San Ramon, CA 94583 Phone: (925) 543-3100 Fax: (925) 543-3200

Website: www.24hourfitness.com Online sales: Yes Real estate e-mail: mailto:[email protected]

Total stores: 420 Operating name(s): 24 Hour Club 25,000 sq. ft. 24 Hour Fitness Sport 35,000-45,000 sq. ft. 24 Hour Fitness Super-Sport 45,000-55,000 sq. ft. Preferred GLA: 25,000-55,000 sq. ft. Retail classification: Health clubs/gyms Locations considered: Community strip center, downtown/central business district, enclosed regional mall, enclosed super regional mall, freestanding, lifestyle center, mixed use center, neighborhood strip center, pad site/outparcel Operates kiosks: No Co-brands/co-locates with other companies: No Licenses store name(s) to other companies: No Percent in centers/malls: 80-100 Preferred co-tenants: Entertainment, grocery/supermarket, upscale New units planned: 2010: 20 2011: 20 Remodels planned: 2010: 10-15 Preferred lease: 15 years w/3 5-yr. opt. Minimum frontage: 100 ft. Special requirements: 250 shared parking spaces; 24 hour operation Population density targeted: 80,000 Radius: 3 mile(s) Traffic counts: 30,000 VPD Customer base: High, mid income, adult, senior, teen Public company: No Area(s) of operation: AZ, CA, CO, FL, HI, ID, KS, MD, MO, MT, NE, NJ, NV, NY, OR, TN, TX, UT, WA Targeted for expansion: AZ, CA, CO, DC, FL, HI, KS, MD, MN, MO, NC, NE, NJ, NM, NV, NY, OK, OR, TX, UT, VA, WA Number of foreign locations: 16 International operations: Hong Kong (6), Malaysia (2), Singapore (3), Taiwan (5) International expansion: Hong Kong, Malaysia, Singapore, Taiwan, Thailand

Page 305 24 Hour Fitness

Excess space: Yes Excess space email: mailto:[email protected] NEW AND NOTEWORTHY 24 Hour Fitness requires at least 35,000 sq. ft. for locations without pools and at least 42,000 sq. ft. for locations with pools and basketball courts. KEY PERSONNEL CEO: Carl C. Liebert III CFO/Executive Vice President: Jeff Boyer CIO: Bill Donohue Senior Vice President, Development/Real Estate: James T. McPhail Senior Vice President, Human Resources: Mark Foley Facilities Manager: Kim Roberts Public Relations Manager: Wendy Yellin Regional real estate contacts: Area covered: CO, KS, MO, NE, OR, UT Southern CA Bruce Banker Director, Development/Real Estate 24 Hour Fitness 11798 Oswego Street Englewood CO 80112 Phone: (303) 662-0984 mailto:[email protected] Area covered: MD, TX, VA, WA Northern CA John Eiskamp 24 Hour Fitness Phone: (214) 210-1081 mailto:[email protected]

Page 306 Appendix

N. Novato Retail Marketing Fact Sheet

City of Novato 2013 Retail Market Analysis Page 307

Page 308 GreaterInformation Novato Technology Retail Solutions Market Area

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Page 309

Page 310 Appendix

O. Guiding Principles for Main Street Commercial Development

City of Novato 2013 Retail Market Analysis Page 311

Page 312

At the heart of Downtown Novato’s long term success is its ability to offer neighborhood residents, area employees and visitors a unique and welcoming business district that is easy to access and inviting to shop. With the influx of new housing, a new city hall, new office development and the growing interest in walkable neighborhood districts, Downtown Novato stakeholders recognize the need to plan and focus commercial development and proactively strengthen the retail base.

To achieve the goals noted above, the following guiding principles for successful retail and commercial development should be considered throughout the revitalization process. Several of the guidelines are reflected in the Downtown Novato Specific Plan and community vision and are linked to the successful development of other uses (e.g., office, residential, etc). They should be adopted and promoted as a framework for the Downtown Novato’s success.

1. Expand the size and scope of the consumer market. The critical link between market size and retail development cannot be overstated. Developing a strong mix of retail and service establishments requires continued growth in Novato households, downtown neighborhoods, employment, visitors and traffic to the area.

Strengthening the residential base in and immediately surrounding the Old Town Grant Street area will serve as an important catalyst for retail expansion. Residents of new housing will look to downtown for day-to-day goods and services (like grocery) well as for entertainment and specialty items. Supporting and boosting the number of employees in the area also has the potential to encourage retail development by offering a built–in consumer market.

2. Promote Downtown Novato’s Unique Character. The marketing process begins with a clear statement of Downtown Novato’s identity and competitive position in the marketplace. The Downtown Novato area must view itself as a ‘product’ and market itself to compete with other nearby shopping centers and business districts. Developing a common message and identity will provide guidance for marketing, urban design elements, signage, advertising, marketing materials, website, etc. In general, Downtown Novato should promote itself as the true heart of the community – a special and vibrant destination for all families and residents, employees and businesses.

3. Looks Count. Although the Old Town Novato area has completed streetscape and many storefront improvements and this investment contributes to a fresher image, it is important to be reminded that physical and economic development go hand-in-hand. Continuing to improve and maintain Grant Street’s appearance is critically important to make a favorable first impression on both business/developer prospects and shoppers. Interesting, diverse character in the built environment entices shoppers and businesses.

Page 313 4. Define the retail core and key nodes in the commercial corridor. Hand-in-hand with creating a safe, pleasant and quality pedestrian environment is the need to clarify the core retail area for the Downtown Novato neighborhood. The greater the concentration of retail, the greater the shopper draw/pull and, hence, the best chances for building a sustainable district. In the near future, the Old Town subdistrict should be the focus of a unified grouping of complementary businesses and over time, the west side blocks of Grant will become more attractive for redevelopment. Among the physical design elements that ensure a healthy retail street are:

Retail on both sides of street, where possible; Continuous retail storefronts with minimal interruption; Active uses along sidewalks, such as outdoor dining; On street parking in front of stores; Anchor retail at key commercial nodes and on the ends of main street; Retail on all four corners of key intersections; Easy pedestrian circulation/paths that encourage walking; and Pedestrian-friendly amenities, such as safe crossings, wide sidewalks and landscaping. 5. Clarify other Retail Focus Areas and Cluster Businesses. Downtown Novato’s success in capturing new and expanding retail development as well as its long term viability as a business district will be strongly influenced by a number of factors, many noted above. While retail demand is growing with the population base, it is not so abundant that commercial expansion will occur throughout the community. A strategy to concentrate and focus development is important to creating a critical mass of walkable neighborhood shopping destinations. Quality business locations that build on existing anchors, neighborhood-scale urban form and quality residential/commercial development will be best positioned to capture new demand.

6. Aggressively Promote Yourself. Just like any successful shopping center Downtown Novato needs aggressive marketing to quality retailers, service businesses and office tenants to make Downtown Novato as a prime choice for business location. Strong marketing/communication to area residents and employees should occur to encourage shopping and eating in Downtown Novato. An organized business development program for retention, expansion and attraction should be a follow-up phase of the redevelopment analysis.

7. Collaborate and Cross Promote. To successfully attract customers from beyond the immediate Downtown Novato neighborhood and help neighborhood businesses grow, Downtown Novato will need to market collaboratively and capitalize on events in the downtown. The Art & Wine Festival is the most obvious marketing opportunity with 90,000 consumers at downtown’s doorstep over one weekend. Developing special in- store promotions during the event and enticements to return for shopping, dining or other events are some of the activities that should be pursued.

Page 314 May 7, 2013 City of Novato

City Council Agenda

This agenda item will be posted as soon as it is available.

Page 315