INDUSTRY NOTE October 11, 2017 Consumer Taking Stock With Teens Survey - Fall 2017 Results CONCLUSION Erinn E. Murphy What surprised us most in our Fall 2017 Teen Survey was the stark decline of Nike. In Sr Research Analyst, Piper Jaffray & Co. contrast, adidas achieved new highs. Overall, larger brands are ceding share for small 612 303-8356, [email protected] brands. Emerging on the scene was notable strength in streetwear (Vans, Supreme). Nicole Miller Regan Accessories spending is the most muted we've seen. Food/restaurant spend dipped from Sr Research Analyst, Piper Jaffray & Co. peak but remain a focal point of teen spending. Starbucks remains the only concept with 612 303-6637, [email protected] DD% share. The shift online strengthened with 49% of teens citing Amazon as their favorite Michael J. Olson Sr Research Analyst, Piper Jaffray & Co. website. In video games, the mix shift to full game downloads is playing out at a more 612 303-6419, [email protected] rapid pace than many expect. Next phone purchase intent peaked again for Apple (82%). Sam Kemp Snapchat bolstered its social media lead and Instagram engagement continues to impress. Sr. Research Analyst, Piper Jaffray & Co. Unsurprisingly, on-demand music & SVOD services continue roll up legacy providers as 612 303-6179, [email protected] preference for linear TV fell 300 bps Y/Y. Stan Meyers Sr. Research Analyst, Piper Jaffray & Co. Actionable Movers In Teen Results: 212 284-5037, [email protected] • (+) Biggest Brand Gainers: adidas, Amazon, Apple, American Eagle, Birkenstock Related Companies: Share Price: (private), Gucci, Starbucks, Supreme (private), Tommy Hilfiger. AAPL 155.90 ADS GR 194.77 AMC 13.85 • (-) Largest Brand Losers: Facebook, Fossil, Michael Kors, Nike, Pandora, Ralph AMZN 987.20 Lauren, Steve Madden, Tory Burch (private), UGG (DECK), Under Armour. ATVI 61.45 CMG 310.88 Key Themes In The Data: CNK 36.00 1. While overall teen spending was down 4%, fashion as a percent of the budget was COH 40.00 steady Y/Y at 38% of the wallet. Restaurants remain a focal point, albeit at perhaps DECK 71.62 peak levels as spending on food remained the single largest category at 22% of the EA 117.82 upper teen wallet (vs. a high of 24% in Spring 2017). EBAY 38.84 2. Athletic apparel trends are moderating as Nike's share losses are not fully offset by FB 171.59 rise of adidas. Within footwear, we are still seeing a strong athletic appetite by females FOSL 8.48 IMAX 21.75 (athletic now represents 73% of female footwear preferences vs. 67% last year). JCP 3.54 Newer trends include denim, Streetwear/culture & 1990s/retro. JWN 43.38 3. Teens estimate they spend 17% of their time online when shopping - up from 15% KORS 47.56 last year. Traditional channels (dept. stores plus specialty) now represent 38% of time LB 42.95 spent vs. 42% last year. LGF/A 30.57 4. Amazon is 49% of teens' favorite website - up 600 bps from Spring. MCD 160.58 5. Teens who anticipate downloading most of their purchased video games reached 50%, NFLX 195.08 a significant jump from 45% in Spring. NKE 51.53 6. Facebook saw a 600 bps decline in engagement, driven by younger, newly sampled P 7.85 cohorts not adopting Facebook at rates of prior cohorts. This is offset by increasing PVH 126.04 strength in use and engagement in Instagram. RGC 16.00 RL 87.22 SBUX 55.42 Demographic Breakdown & Spending Results: In our 34th semi-annual Taking Stock SHOO 42.50 With Teens Fall survey we spoke with 6,100 teens across 44 states in the U.S. with an SNAP 14.34 average age of 15.9 years. We split our data into upper-income HH ($101k/year) and TTWO 102.67 average-income HH ($55k/year). The gender split this Fall was 46% female/54% males - UAA 16.84 similar to the last four surveys. Geographically, we received the most responses from the VFC 64.51 South (45%) and Midwest (32%) with the balance from the West & Northeast. Spending ZNGA 3.71 overall for teens contracted 4% Y/Y. Looking at wallet allocation, food spend moderated from 24% to 22% share of wallet. "Car" and necessities spend ticked higher. INDUSTRY RISKS Reliance on top mgmt, consumer preference changes, consumer spending, FX, competition. Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst certification, found on pages 65 - 66 of this report or at the following site: http://www.piperjaffray.com/researchdisclosures. Page 1 of 66 Taking Stock With Teens A Collaborative “GEN Z” Insights Project Fall 2017 Page 2 of 66 Investment Risks Risks to achievement of investment objectives include, but are not limited to, the following: • Reliance on key top management • Changing consumer preferences • Changes in input costs and raw materials • Markdown risks • Product flow and inventory disruptions • Competition • Lack of pricing power • Deleveraging of fixed expenses • Foreign exchange rate risk • General macroeconomic uncertainty Page 3 of 66 34th Semi-Annual Proprietary Teen Research Project National survey of teens measuring: • Spending Patterns UPPER-INCOME GROUP • Channel Preferences • Product Trends & Cycles 1,500 teens $101,000 Household income Electronic surveys Represents top 20% of U.S. household units 6,100 Responses AVERAGE-INCOME GROUP 15.9 Average Age 4,600 teens $55,000 Household income Electronic surveys Aligns more closely with U.S. median 35% Part-Time Employed Survey is executed in partnership with DECA The source for all charts/tables within this report is Piper Jaffray. Taking Stock With Teens Page 4 of 66 Executive Summary • Spending Is Down Overall By 4% Y/Y For Teens; 38% Of Budgets Spent On Fashion • Monitoring A Cresting In “Food” Spend & Uptick In “Car” / Necessity Spend • Athletic Trend Evolving Led By NIKE Declines; adidas Reaches Yet Another High • Culture-Oriented/Streetwear Fashion Trends Surging: Vans, Supreme • Amazon Captures Nearly 50% Of GenZ’s Vote For Favorite Website • Accessorizing Less? 75% Of Females Do Not Plan To Buy A Handbag Next • Intent To Buy iPhone Reaches High; Over 80% of GenZ Will Choose iPhone Next • Video Game Download Momentum – 50% Will Download More Vs. 45% In Spring • Snapchat & Instagram Engagement Ticks Up; Facebook Engagement Declines • On-Demand Music & SVOD Services Continue Share Gain From Legacy Providers Taking Stock With Teens Page 5 of 66 Global Fashion & Lifestyle Brands Clothing, Shoes, Accessories & Connected Devices 38% of Teen Spending Page 6 of 66 Teen Spending Declined >4% Y/Y Fall vs. -2% Y/Y Spring $2,450/Yr what teens estimate they spend each year GenZ contributes $830B (7% U.S. retail sales)* Male’s Wallet Share Female’s Wallet Share 1 Food 22% 1 Clothing 24% 2 Clothing 17% 2 Food 22% Personal Care/ 3 Video Games 11% 3 Accessories 16% *Source: Fung Global Retail & Technology Taking Stock With Teens Page 7 of 66 Athletic Trend Evolving Led By Nike; adidas Ticks Up Upper-Income Favorite Apparel Brand (All Teens) Rank Spring 2016 % Rank Fall 2016 % Rank Spring 2017 % Rank Fall 2017 % 1 Nike 21% 1 Nike 29% 1 Nike 31% 1 Nike 23% 2 American Eagle 8% 2 American Eagle 9% 2 American Eagle 10% 2 American Eagle 11% 3 Forever 21 7% 3 Forever 21 5% 3 Forever 21 5% 3 Adidas 4% 4 Ralph Lauren 6% 4 Ralph Lauren 4% 4 lululemon 3% 4 Forever 21 4% 5 Hollister 4% 5 Urban Outfitters 3% 5 H&M 3% 5 Hollister 4% 6 PacSun 3% 6 H&M 3% Adidas 3% 6 PacSun 3% 7 Urban Outfitters 3% 7 PacSun 2% 7 Hollister 2% 7 lululemon 3% Victoria's Secret 3% 8 Adidas 2% 8 Urban Outfitters 2% 8 H&M 3% 9 H&M 3% 9 Vineyard Vines 2% Vans 2% 9 Urban Outfitters 3% 10 Adidas 2% 10 Victoria's Secret 2% 10 PacSun 2% 10 Supreme 3% Ralph Lauren 2% • Nike, while still No. 1, moves from 29% share as preferred apparel brand to 23% • Adidas doubles its mindshare from 2% to 4% as it moves from No. 8 to No. 3 • American Eagle captures another double-digit % mindshare • Supreme, makes its foray into top-10 preferred apparel brands (male led) Taking Stock With Teens Page 8 of 66 Athletic Trend Evolving Led By Nike; adidas Ticks Up Upper-Income Favorite Footwear Brand (All Teens) Rank Spring 2016 % Rank Fall 2016 % Rank Spring 2017 % Rank Fall 2017 % 1 Nike 48% 1 Nike 51% 1 Nike 52% 1 Nike 46% 2 Vans 10% 2 Vans 9% 2 Vans 9% 2 Vans 12% 3 Converse 7% 3 Converse 7% 3 Adidas 8% 3 Adidas 11% 4 Adidas 4% 4 Adidas 6% 4 Converse 6% 4 Converse 7% 5 Sperry 3% 5 Steve Madden 2% 5 Steve Madden 3% 5 Birkenstock 2% 6 DSW 3% 6 Sperry 2% 6 Sperry 2% 6 DSW 2% 7 Steve Madden 3% 7 DSW 2% 7 DSW 2% 7 Foot Locker 2% 8 Foot Locker 2% 8 Birkenstock 2% 8 Foot Locker 1% 8 Sperry Top-Sider 2% 9 UGG 1% 9 Foot Locker 1% 9 Birkenstock 1% 9 New Balance 1% 10 TOMS 1% 10 Nordstrom 1% 10 Payless ShoeSource 1% 10 Steve Madden 1% UGG 1% • Nike, while still No.