Uncovering Retail Accessory Opportunities 2018 Stephen Baker Vice President, Industry Analysis NPD Group Tessco April 10 , 2018

Agenda CE Industry Overview Category Overviews Headphones Smart Home Mobile Accessories Mobile Power Cases

CE Industry Overview Breaking into the Mass Market Premium Economy is the new entry-level Category growth drives new products into a mass market environment Better mix creates better revenue opportunities Pace of Technology Change accelerating Disruptive change begins to impact products and categories, vendors and retailers alike Broadening scope and impact of tech across all consumer products landscape Monetizing ownership New opportunities inside rapidly transforming installed bases Hardware grows as the gateway to expanded value creation Positive Holiday/Q4 2017 sets stage for 2018 growth

2017 was best year out of last 5 for revenue growth Source: The NPD Group, Inc./Retail Tracking Service, Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch

2017 Top 4 Growth Categories vs. Top 4 Decline Categories Source: The NPD Group, Inc./Retail Tracking Service,

Stronger results at flat Source: The NPD Group, Inc./Weekly Retail Tracking Service, 9 week holiday period Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones, VR

Winning categories have more future potential than losers do Winners grew $2.3b 2013 to 2017. Losers fell $3.2b Source: The NPD Group, Inc./Weekly Retail Tracking Service, 9 week holiday period, All Categories generated $750m minimum between 2013 and 2017 Data doesn’t include Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones, VR

Largest 3 categories all lost revenue share in Holiday 2017 to rest of market Source: The NPD Group, Inc./Weekly Retail Tracking Service, 9 week holiday period Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones, VR

Cyber Week 2017 saw the biggest sales gain in three years as more retailers extended Thanksgiving weekend into online opportunities Source: The NPD Group, Inc./Weekly Retail Tracking Service, 8 week holiday period Data doesn’t include mobile phones, VG HW, Amazon Brand HW Devices, Surface (from MS stores), Apple Watch, Drones, VR

.com Share Continues to Grow eCommerce Dollar Share of Consumer Technology ($%) Source: The NPD Group / Consumer Tracking Service

Online market still grows as Amazon dominates but things are slowly changing Overall Online sales grew 15% to $40.1b in 2017 Best Buy was the fastest growing retailer online in CE Only 23% of online sales dollars come from PCs and TVs Source: The NPD Group / Checkout, Amazon includes 3rd Party Marketplace

Amazon has a business that looks very different than most CE businesses Source: The NPD Group / Checkout, Amazon includes 3rd Party Marketplace

2018 Forecast calls for a second straight year of overall revenue growth Source: The NPD Group, Inc./Future of Tech

Headphones

Headphones overview Poised to become a $5b category in 2018 Unit volume, ownership levels and customer interest creates a very high profile category Usage tracks to changes in media consumption and device ownership helping to drive volumes and varying platform demand One of the few categories in tech to deliver demand on a style and technology platform Also building into broader technology as part of “wearables,” “hearables,” “voice controls,” and health and fitness tech opportunity

Wireless headphones have grown over 20% YoY for 3 years straight Source: The NPD Group, Inc./Retail Tracking Service

Very little competition for AirPods yet 2017 Share Source: The NPD Group/ Retail Tracking Service

Bluetooth unit volume larger at $100+ than <$25 Bluetooth Headphones Unit Volume by Price Segment Source: The NPD Group, Inc./Retail Tracking Service

The top premium brands are driving category growth Bluetooth Headphones Revenue Growth YOY Source: The NPD Group, Inc./Retail Tracking Service

Largest retailers gain share in the shift to wireless Stereo Headphones Dollar Sales by Outlet Stereo Headphones Dollar Share- Ecommerce vs Retail Source: The NPD Group/Consumer Tracking Service; *Includes online nameplate

Paid music streaming continues to grow Source: NPD Entertainment Trends in America, August 2017 Q6 Please tell us all the ways you listened to music in the past 3 months.

Significant growth in older, higher income demographics Stereo Headphones Unit Sales- Primary Users by Age Units (000) Source: The NPD Group/Consumer Tracking Service

Current Headphone Owners Headphone Purchase Intenders The next wave of wireless headphone adopters will be younger than current owners Current Headphone Owners Headphone Purchase Intenders Mean 47 years 40 years 42 years Mean 47 years 34 years 33 years Q3. Please indicate which of these products you own. For those items you currently own, please indicate when they were purchased. Source: The NPD Group, Inc./Future of Tech Report

Smart Home

Smart Home Review Fastest growing large category in 2017 and will continue in 2018 Millennials are driving interest but broader consumer interaction needed to accelerate growth Halo effect of voice is key in driving adoption outside of tech enthusiasts Retail still struggles with displays and merchandising while consumers struggle about where and how to buy Channel purchase patterns very much tied to specific products. Consumers don’t appear to recognize it as a category yet. Still, opportunity for new channels to disrupt established consumer patterns

Smart Home revenues continuing to explode Source: The NPD Group, Inc./Retail Tracking Service, Data doesn’t include, Amazon Branded Products or Google Home

Security & Monitoring accounts for nearly two-thirds of category sales Home Automation Categories Dollar Volume ($ Millions); 2017 Source: The NPD Group/ Retail Tracking Service

Home Automation Categories Lighting and Entry are large categories seeing significant unit and revenue growth Home Automation Categories 2017 YoY Growth Unit & Revenue Growth; (Jul ’16- Jun ’17 vs. Prior Year) Source: The NPD Group, Inc./Retail Tracking Service

Home Automation categories are gaining retail distribution Distribution by Subcategory % of Stores Carrying Source: The NPD Group US SLE POS Monthly Retail Tracking Service

Where Purchased- Security & Monitoring (Among Current Owners) Most owners of security & monitoring devices purchase from online only retailers Where Purchased- Security & Monitoring (Among Current Owners) Source: Connected Intelligence, Connected Home Automation Report, Q4’17 Base: Security & Monitoring owners

Smart home ownership continues to scale Smart Home Device Ownership* (Among Internet HHs) Source: Connected Intelligence, Connected Home Automation Report, Q4 ’17 Base: Internet Households *Ownership of at least one of security & monitoring, power & sensors, smart lighting, system controllers, smart entry,. Excludes smart speakers

Voice Activated Speaker Ownership Ownership of voice activated speakers has grown to 15% of internet enabled households Voice Activated Speaker Ownership Source: Connected Intelligence, Connected Home Automation Report, Q2 ’16, Q2 ’17, Q4 ’17

Activities Echo Used For Music continues to be a top task for Echo users Activities Echo Used For Source: Connected Intelligence, Connected Home Automation Report, Q2 ‘17

Amazon and Google owners look very different Voice Speaker Usage (Among Owners) Source: Connected Intelligence, Connected Home Automation Report, Q4‘17

Speakers are most commonly placed in living rooms and kitchens Placement of Voice Speakers in Home Source: The NPD Group/Connected Intelligence, Connected Home Automation Report, Q4 ’17 Base: Voice Activated Speaker Owners Q. Thinking about the voice-activated digital speaker(s) in your household, where is it placed in your household? *includes multiple placements and multiple speakers

Mobile Accessories Overview

Key Accessory Strategies for 2018 Focus less on phone attach – less lucrative, lower dollars, much harder competition Focus more on aftermarket – Bigger opportunity (installed base vs. purchase cycle) More traffic opportunity More ASP upside opportunity More branding upside opportunity More technology upside opportunity More aligned with future usage of mobile than at point of purchase

Case revenue weakens some as rest of market moves higher Source: The NPD Group, Inc./ Retail Sales Tracking ,

Apple attaches more and has fewer people attach nothing— screen protectors moving up rapidly Source: The NPD Group, Inc./Checkout

Mobile accessories have a key role to play in online purchasing 9% 30% 31% Buyer share Share of Spend Buyer Share Percent of online consumers that bought a mobile phone in 2017 30% of spend for mobile accessories online purchases came from buyers who purchased a mobile phone online in 2017 Percent of consumers that bought something online bought a mobile phone accessory in 2017 Categories = mobile power, cases, headphones, streaming audio, screen protection Source: The NPD Group/ Checkout E-commerce: 12ME December 2017

Amazon Cell Accessory Share of Wallet by Cell Accessory Buyer Base 85% 29% 41% Amazon Cell Carrier All Other Buyers who buy a cell accessory on Amazon spend 85% of their cell accessory wallet on Amazon Buyers who buy a cell accessory on a cell carrier site spend 29% of their cell accessory wallet at Amazon Buyers who buy a cell accessory at non Amazon/cell carrier sites spend 41% of their cell accessory wallet at Amazon Categories = mobile power, cases, headphones, streaming audio, screen protection Source: The NPD Group/ Checkout E-commerce: 12ME December 2017

Mobile Power

Mobile power Growth of at-home usage (and Wi-Fi) diminishes value of mobile power banks However, use cases over time continue to migrate towards mobile high battery usage activities As important as mobile power banks are, charging equipment much more valuable More at-home use means more need for charging equipment in multiple places in home, in car, in work Wireless charging beginning to accelerate, potentially changing some levels of demand

Cables are leading revenue for power-related mobile accessories Source: The NPD Group, Inc./Retail Tracking Service,Battery Pack Revenue includes Charging Cases

Market for charging equipment shifting towards home/stationary use models Source: The NPD Group, Inc./Retail Tracking Service

USB-C revenue moving quickly upwards Wireless charging finally stimulated by iPhone Source: The NPD Group, Inc./Retail Tracking Service, Does not include Battery Packs,

Wireless Charging Beginning to Gain among Younger Consumer Source: The NPD Group, Inc./Omnibus Consumer Survey February 2018

Portable power revenue grows as batteries get bigger and pricing moves higher Source: The NPD Group, Inc./Retail Tracking Service,

Cable market increasingly Private Label but “branded” cables remain a strong force Source: The NPD Group, Inc./Retail Tracking Service

While biggest brands have higher ASPs the price differential between Private Label and smaller brands is minimal Source: The NPD Group, Inc./Retail Tracking Service

60% of Amazon/Marketplace Mobile Power unit sales unidentifiable Source: The NPD Group, Inc./Checkout

Cases

Phone Case Market Brands in retail channels are gaining share, especially the top non-OEM brands ASPs are steady (despite declines in 2 highest ASP brands) as consumers shift out of secondary brands and into more established brands – across phones and channels Retail and store volumes more concentrated in easy to sell cases for established brands-online/marketplace moving more to support long-tail buying Volumes not likely to move much regardless of phone product changes At least some seasonality seems to have left the market during product launches – in periods with “upgrades” consumers less likely to buy cases New form factors drive new case purchases (obviously) – Galaxy launch proves points

Poor launch results created some market pressures in Q4 2017 and into 2018 Source: The NPD Group, Inc./Retail Tracking Service,

Top brand ASPs are falling as mix and price shifts in the marketplace Source: The NPD Group, Inc./Retail Tracking Service, top 15 brands all sold 2m units in 49m ending Jan 2018

Top brand ASPs are falling as mix and price shifts in the marketplace Source: The NPD Group, Inc./Retail Tracking Service, top 15 brands all sold 2m units in 49m ending Jan 2018

Top brands account for less than 40% of online sales volume Source: The NPD Group, Inc./Checkout (inc Amazon Marketplace sales)

Results of a Hit Accessory Source: The NPD Group, Inc./Retail Tracking Service,