Driving Engagement thru Social Media & Loyalty Programs Mary Brett Whitfield Senior Vice President Jahnia Sandford Analyst Apparel Retailing Webinar Series May 2, 2013

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Today’s Presenters and Agenda Loyalty Program Participation Drivers Getting Social Emerging Growth Trends Around the Landscape Presenters Mary Brett Whitfield Senior Vice President Jahnia Sandford Analyst

Kantar Retail ShopperScape® 4,000 primary household shoppers per month CORE SAMPLE: Representative sample of ~50,000 unique primary household U.S. shoppers annually ALSO: Oversample of men for representative sample of males HOH 18+ (n = 800/month) Who? How? Fielded online the third week of every month Survey fielded through LSR access panel of more than 3 million individuals What? Monthly and quarterly tracking questions on retailers and venues shopped, products purchased, where spent, near-term spending outlook, and household financial health Questions on timely and topical issues (including key holiday periods) affecting shopping behavior Coverage 200+ retailers across all sectors of retail 75+ product categories (e.g., over-the-counter medications) 7 major merchandise groups (e.g., health and beauty care products) 4 4

Spring Spending Headwinds More plan to spend more…but more also plan to spend less Plans for Spending this Spring Compared with Last Year Updating Wardrobe for Myself Updating Wardrobe for Kids* Home Improvement Projects Gardening/Landscaping *Among shoppers with children 18 or younger in the household Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Agenda Loyalty Program Participation Drivers Getting Social Which Shoppers Participate and Where Shoppers’ Ideal Reward Program Benefits Benefits Frequent Shoppers Currently Receive Gap Analysis: How Retailer Programs Align with Shopper Wants Getting Social Emerging Growth Trends Around the Landscape

Loyalty Programs: Who Participates? Majority do not Membership in Any Frequent Shopper/Rewards Programs Offered by Clothing Specialty Retailers, Department Stores or Shoe Retailers Female Primary Household Shoppers Male Heads of Households Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Shoppers Most Likely to Cite Department Stores as Most Frequently Used Channel’s Share of Most Frequently Used Apparel-Related Loyalty Program (among female primary household shoppers) Most Frequently Used Apparel-Related Loyalty Program (among female primary household shoppers) Shoe Stores Apparel Specialty Stores Department Stores *Read as 26% of all female primary household shoppers cite Kohl’s as the apparel-related loyalty program they use most often Among female primary household shoppers Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Boomers Even More Likely to Most Use Department Store Programs Note: Arrows indicate significant difference vs. all shoppers (90% confidence level) Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Seniors and Boomers Drive Department Store Program Participation Most Frequently Used Apparel-Related Loyalty Program (among female primary household shoppers)   Generation All Shoppers Gen Y Gen X Boomers Seniors Sample 1264 247 457 440 121 Department stores (net) 61% 52% 58% 66% 76%* Kohl's 26% 22% 27% 25% 31% Macy's 10% 12% Other Department Stores 8% 9% 7% 11% JCPenney 2% 5% Sears Nordstrom 1% Belk 0% Dillard's Apparel specialty retailers (net) 30% 39% 32% 24% 18% Victoria's Secret 6% 3% Old Navy 4% TJMaxx/Marshalls Gap Other Apparel Specialty Stores 17% 21% 16% 14% Shoe retailers (net) DSW Other Shoe Stores Boomers Seniors Gen Y Gen X As buying power shifts to younger gens department stores especially need to rework or fine tune loyalty offerings Boomers- Seniors- regional, store atmosphere Gen Y- Gen X- Participating at retailers with more family focus/ value Gen Y (born 1982 to 2002) Gen X (born 1965 to 1981) Boomers (born 1946 to 1964) Seniors (born before 1946) Read as: 76% Senior female primary household shoppers cite a department store loyalty/rewards programs as the apparel-related rewards program they use most often Shading indicates significantly greater percentage vs.all shoppers; border indicates significantly lower percentage (90% confidence level) Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

(among female primary household shoppers) Give More Discounts, Free Shipping, and Rewards Coupons in Exchange for Loyalty Potential Loyalty Program Benefits Shoppers Indicated as Ideal (among female primary household shoppers) *Read as 62% of all female primary household shoppers indicate getting discounts on all purchases as an ideal benefit of an apparel-related frequent shopper/rewards program Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Increase Appeal among Men by Marketing Fewer Fees and Exclusive Events   Top 10 Most Appealing Loyalty Program Attributes: Men vs. Women Men Women 1. No annual fee Discount on all purchases 2. Free shipping for online purchases 3. Reward certificates at specific spending/points levels 4. Members-only coupon offers 5. Exclusive sales events  42%+  55%+ 6. Bonuses/discounts during your birthday month 7. Free shipping on returns 8. 0% financing Double/triple points days 9. 10. Early access to sales events  30%+  40%+ Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

365 Discounting Less Important to Macy’s Participants, More to Belk and Other Specialty May be less important to Macy’s customers due to the fact that Macy’s has frequent promotions very often to general customer base but additional incentives to cardholders, whereas belk and other spec such as Ann Taylor or Jcrew do not *Read as 50% of shoppers who use Macy’s rewards program most often indicate getting discounts on all purchases as an ideal benefit of a rewards program Note: Arrows indicate significant difference vs. all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Free Shipping Has Strongest Appeal among Old Navy and DSW Loyalty Program Shoppers *Read as 69% of shoppers who use DSW’s rewards program most often indicate having free shipping on online purchases as an ideal benefit of a rewards program Note: Arrows indicate significant difference vs. all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

What’s Ideal Across Cohorts No Annual Fee Likely to Resonate More with Boomers and Seniors than Younger Shoppers What’s Ideal Across Cohorts Where the largest and lowest percentage of shoppers noted a potential apparel retailing loyalty program benefits as ideal (among female primary household shoppers) Top Ideal Least Important Seniors No annual fee Discount on all purchases Free shipping for online purchases Allow family members credit line access Personal stylist orconcierge service Phone alerts about store events Boomers Reward certs when reached specific spending/points levels Personal stylist or concierge service Gen X Members-only coupon offers Gen Y Bonuses/discounts during birthday month Previews of new collections via e-mail Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Other Key Areas Where Cohorts Differ Largest Differences Between Gen Y and Senior Interests, Including In-store Events Other Key Areas Where Cohorts Differ Where the largest and lowest percentage of shoppers noted a potential apparel retailing loyalty program benefits as ideal (among female primary household shoppers) 0% Financing Birthday Bonuses & Discounts No Annual Fee Free Alterations Free Shipping on Returns Special In store Parties & Events Highest Among Gen X (29%*) Gen Y (59%) Seniors (69%) (31%) Boomers (55%) Gen Y (20%) Lowest Among (46%) (48%) Gen X (18%) Gen X &Y (49%) (10%) *Read as 29% of Gen X shoppers indicated 0% financing as an ideal potential benefit from an apparel-related frequent shopper/rewards program Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Members-only Coupons and Reward Certificates Popular Retailer Benefits Actual Loyalty Program Benefits Received from Apparel-Related Program Used Most Often (among female primary household shoppers) Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Kohl’s Loyalty Program Members Most Likely to Receive Members-only Coupons *Read as 49% of shoppers who use Kohl’s rewards program most often indicate having members-only coupons issued as an actual benefit they receive. Note: Arrows indicate significant difference vs. all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Gap, Belk & DSW Program Shoppers Likely to Get Rewards Certs for Spending *Read as 71% of shoppers who use DSWs rewards program most often indicate having certificates issued when reached spending or points levels as an actual benefit they receive. Note: Arrows indicate significant difference vs. to all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Female primary household shoppers Gap Analysis: Retailers Most Aligned with Shoppers on Members-only Coupons Which of these potential benefits of an apparel-related rewards program would you consider to be part of an 'ideal' rewards program? vs. For the apparel-related rewards program you use most often, which of these benefits do you receive as a member of that program? Female primary household shoppers Ideal Received 1 Discount on all purchases 62% 21% 2 Free shipping for online purchases 59% 16% 3 Reward certificates at specific spending/points levels 39% 4 No annual fee 57% 34% 5 Members-only coupon offers 40% 6 Bonuses/discounts during your birthday month 53% 7 Free shipping on returns 51% 11% 8 Double/triple points days 42% 13% 9 Exclusive sales events 41% 23% 10 Early access to sales events 19% Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

among shoppers who use Specialty Apparel Rewards program most often Points Programs and Exclusive Sales where Specialty Wins with Loyalty Program Shoppers Which of these potential benefits of an apparel-related rewards program would you consider to be part of an 'ideal' rewards program? vs. For the apparel-related rewards program you use most often, which of these benefits do you receive as a member of that program? Ideal Received among shoppers who use Specialty Apparel Rewards program most often Sample 373 1 Discount on all purchases 67% 18% 2 Free shipping for online purchases 63% 19% 3 No annual fee 61% 36% 4 Reward certificates when you reach specific spending/points levels 46% 5 Members-only coupon offers 60% 39% 6 Bonuses/discounts during your birthday month 56% 29% 7 Free shipping on returns 52% 12% 8 Double/triple points days 16% 9 Exclusive sales events 40% 24% 10 Early access to sales events 35% Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

among shoppers who use Shoe Store Rewards program most often Shoe Stores Best Aligned with Shopper Interests on Reward Points and Double/Triple Point Days Which of these potential benefits of an apparel-related rewards program would you consider to be part of an 'ideal' rewards program? vs. For the apparel-related rewards program you use most often, which of these benefits do you receive as a member of that program? Ideal Received among shoppers who use Shoe Store Rewards program most often Sample 115 1 Reward certificates when you reach specific spending/points levels 69% 50% 2 Discount on all purchases 68% 11% 3 Free shipping for online purchases 16% 4 Members-only coupon offers 64% 31% 5 Bonuses/discounts during your birthday month 58% 30% 6 Free shipping on returns 15% 7 No annual fee 53% 29% 8 Early access to sales events 9 Double/triple points days 43% 22% 10 Exclusive sales events 42% 21% Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

among shoppers who use Department Rewards program most often Department Stores Matching Up on Double/ Triple Points Days and Free Shipping Which of these potential benefits of an apparel-related rewards program would you consider to be part of an 'ideal' rewards program? vs. For the apparel-related rewards program you use most often, which of these benefits do you receive as a member of that program? Ideal Received among shoppers who use Department Rewards program most often Sample 776 1 Discount on all purchases 59% 24% 2 Previews of new collections via e-mail 56% 34% 3 Pick your own sales day 4 Reward certificates when you reach specific spending/points levels 55% 15% 5 Double/triple points days 54% 42% 6 Free shipping on returns 51% 16% 7 Special in-store parties and private events 50% 9% 8 Free shipping for online purchases 41% 22% 9 Receipt not required for returns 10% 10 Members-only coupon offers 40% 19% Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

among shoppers who use JCP's Rewards program most often JCP Most Aligned with Shoppers on Points/Spending Plan to Earn Rewards Certs Which of these potential benefits of an apparel-related rewards program would you consider to be part of an 'ideal' rewards program? vs. For the apparel-related rewards program you use most often, which of these benefits do you receive as a member of that program? Ideal Received among shoppers who use JCP's Rewards program most often Sample 90 1 No annual fee 56% 27% 2 Discount on all purchases 55% 9% 3 Reward certificates when you reach specific spending/points levels 51% 4 Members-only coupon offers 52% 5 Bonuses/discounts during your birthday month 14% 6 Free shipping for online purchases 12% 7 Free shipping on returns 42% 7% 8 Exclusive sales events 16% 9 Early access to sales events 40% 20% 10 Receipt not required for returns 37% 8% Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Loyalty Programs: Issues and Implications Leverage loyalty data in acquisition and retention efforts Position insights gained from loyalty data with other integral selling efforts Evolve approach to loyalty and what it means to/for growth

Agenda Loyalty Program Participation Drivers Getting Social Who’s Connected and on Which Platforms What’s Driving Shoppers to Connect What’s Keeping Shoppers Connected Emerging Growth Trends Around the Landscape

(among shoppers who connected with a retailer or brand in past year) Majority of Shoppers Have Not Connected Socially with Apparel Retailers/Brands The Socially Engaged (among shoppers who connected with a retailer or brand in past year) *Read as 27% of all shoppers indicated they have connected to an apparel retailer or brand thru Facebook in the past year **Read as 11% of shoppers who connected with an apparel related Facebook, Pinterest, Instagram or Twitter in the past year, connected with Twitter Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Deals and Promotions Biggest Drivers for Social Engagement Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Boomers and Lower-Income Shoppers not as Concerned with Getting Deals Generational Cohort Income Market *Read as 28% of Boomers engage socially to stay aware of future deals and promotions Note: Arrows indicate significant difference vs. all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Curiosity Drives Lower-Income Shoppers While contests attract Gen X and Middle-Income Shoppers  What Prompted Shoppers to Connect with a Retailer or Brand via Social Media (among all shoppers)   Generation Income Market All Shoppers Gen Y Gen X Boomers Seniors Down Middle Up Sample 1188 319 488 315 66 324 542 321 To stay aware of future deals and promotions 35% 39% 40% 28% 18% 24% To get a specific deal that was being offered 30% 32% 31% 29% 22% 21% Curiosity 23% 25% 27% 20% Ability to participate in contests 14% 16% Stay up to date on brand/retailer news and events 11% 19% 26% No real reason 13% 9% Get fashion advice/stay current on trends 12% Express my taste/show others I like a retailer 15% 17% Entertainment 7% 5% 10% Connect with others who share my interests/fashion 8% Access to customer service Able to share/show recent purchases/styles/outfits 6% 0% Other 1% 2% 3% Shading/bolding indicates significantly greater percentage compared with all shoppers; outline/bolding indicates significantly lower percentage (90% confidence level) Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Use Facebook to Market New Deals and Promotions and Twitter for Reminders Note: Arrows indicate significant difference when compared to all shoppers, 90% confidence level Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Instagram Garnering Most Interest out of Curiosity and for Trends and Style Advice In the Past Year what Prompted Shoppers to Connect with any Apparel Retailers or Brands, by Site (among all shoppers)   All Shoppers Twitter Facebook Pinterest Instagram Sample 1188 183 1102 277 96 To stay aware of future deals and promotions 35% 40% 36% 39% 29% To get a specific deal that was being offered 30% 37% 31% 34% Curiosity 23% Ability to participate in contests 22% 32% 27% Stay up to date on brand/retailer news and current events No real reason 14% 13% 15% 7% 12% Get fashion advice/stay current on trends 24% 25% 38% To express my taste/show others I like a particular retailer 20% 19% Entertainment 16% Connect with others who share my interests/fashion 11% Access to customer service 8% 10% Ability to share/show off recent purchases/styles/outfits 9% Other 1% Shading/bolding indicate significantly greater percentage compared with all shoppers; outline/bolding indicate significantly lower percentage (90% confidence level) Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Deals and Promotions Keep Shoppers Following, Pinning, and Posting … Especially Moms Seniors 27% *Read as 50% of shoppers stay connected with apparel retailers or brands because of access to deals and promotions Source: Kantar Retail ShopperScape® March 2013 and Kantar Retail analysis

Social Media Key Take Aways Understand opportunities in social media are as unpredictable as they are predictable, robust nonetheless Use social platforms more precisely, e.g., Facebook vs. Instagram, to add better value/ ROI Support key marketing and merchandising efforts with social with a more tactical approach Source: Kantar Retail analysis

Agenda Loyalty Program Participation Drivers Getting Social Emerging Growth Trends Around the Landscape

Are You Accepting PayPal? Amazon isn’t so why aren’t you? JCPenney joins Walmart, eBay, and Nordstrom (in-store only) as one of the few large-scale apparel-related retailers that accept PayPal, in early April Why is this important? Macy’s, Gap, Kohl’s, Target and many other top apparel retailers do not accept at this time, key because: Limits accessibility, in increasingly accessible world Stifles ability to differentiate from Amazon in a very relevant way Many smaller online-only retailers are accepting PayPal, broader competitive set PayPal accepted in more than 20,000 retail outlets across U.S. with user base of 128 million Sephora slated to accept in stores at EOY Source: Kantar Retail Analysis and company reports

luluemon Boots Trusted Advisory Status Launches “om finder” Yogi-centric mobile app Source: Kantar Retail Analysis and company media

See & Share Your Brand in Motion Using Vine to strengthen brand connection Glamour: advertising trendy footwear & wearability from Clover Canyon Boutique Uniqlo: promoting pop-up truck features, locations and experience 6 sec looping video to engage social followers Urban Outfitters: leveraging as contest in support of partnership with Converse, tie to key lifestyle interests Walgreens: promoting availability of healthy eating assortment Source: Kantar Retail Analysis and company media

New Approaches to Gen Y Sephora and Nordstrom’s latest efforts No slowing down in targeting younger shoppers, increasing threat to department stores: Merchandising in ‘discovery format’ not by brands Testing more interactive in-store features, e.g., Fragrance Sensorium Leveraging online: online-only deals, exclusive products and Beauty Talk blog and community forum with mobile app New “department store” brands arriving, e.g., Clinique and Bobbie Brown Source: Kantar Retail Analysis and company media

Adding High-end Cosmetics to Value Offer On mall and traditional department store implications as Century 21 debuts MAC Off-pricers usually, sell discontinued, slow selling, RTV beauty products at moderate to deep discount, inconsistent mix and availability Nordstrom Rack model – High penetration in single brands, i.e., Neutrogena and Origins Source: Kantar Retail Analysis, Store Visits and company reports

What to Watch For New initiatives and strategies on the horizon H&M U.S. eCommerce launch, set for late summer 2013 TJX expected to launch within year, but no confirmed date Ecommerce JCPenney completion of new home department, featuring shops from various designers including Martha Stewart, slated for late May 2013 Macy’s partnership with Finish Line (FL) began April 13 to complete 188 shops in Macys stores by year end, FL will assume control over macys.com athletic shoe sales on May 5. Over next 18 months, 472 additional shops will debut Shop in Shops Gap Inc., continuing to shave off U.S. square footage (Gap, BR and Old Navy) to focus on International and ramping up expansion of Intermix, Athleta and Piperlime banners Macy’s recently opened four new 150K sq. ft. stores, 100k smaller than the typical Macy’s. Plans continue in response to spending shifts and flexibility in fill-in markets. Even consider 70K sq. ft. lifestyle format in more urban markets… ongoing over next many years Right Sizing Source: Kantar Retail Analysis, and company reports

Growth Trends: Key Implications Working and refining relevant loyalty and social initiatives into growth strategies, essential New users and uses of/for online and bricks and mortar, mobile and social continuing to evolve, fast Anticipate push for back-to-school (and other “holiday” seasons) to be earlier, more dynamic … consider unique needs Expect more growth from categorical, geographical, and target shopper leverage Challenges on mall and for department stores not easing Source: Kantar Retail analysis

Mid-Year Forum / Chicago & New York City Build an integrated, strategic and “thought-tested” plan for 2014 Day 1 - “Where to Play,” addresses 3 business questions: Which changes in the marketplace matter to retail growth & how do I find meaning?   How, should I be changing my 2014 plans/objectives based on the change drivers? What are winning retailers doing to outpace the market?  Featured speakers: Bryan Gildenberg / Chief Knowledge Officer Leon Nicholas / Senior Vice President John Rand / Senior Vice President David Marcotte / Senior Vice President Mary Brett Whitfield / Senior Vice President Frank Badillo / Chief Economist Anne Zybowski / Vice President Day 2 “How To Win” - breakout sessions that take a look at specific retailers, channels, and topics.  Organized around “customer/channel,” “digital/shopper,” and “planning,” and designed to explain the change dynamics outlined on Day 1 are shaping marketplace strategies and plans.  Attend 4 focused 100-minute “power sessions” Two Locations: Chicago / June 12-13 Hyatt Regency Chicago New York City / June 19-20 Intercontinental Times Square Breakout Schedule Track 1 / Customer/Channel Walmart’s Momentum: Supercenter Fights for its Spark / Staying on Target: Planning in the Midst of a Shifting Landscape / Chain Drug: Keeping Up with the Channel Evolution Track 2 / Customer/Channel Chain Grocery: The Big Picture / Supermarket Transformation / Value Discounters: The Who , Where, What To Do About It / Winning with the Warehouses: Keeping Club Relevant Track 3 / Digital/Shopper Winning with Amazon / The New Shopping Cohort: New Requirements, Different Expectations / Navigating Life in the Amazon / The Real Story of Mobile Shopping Track 4 / Topical Canada the Emerging Market / Omni-retailing: Integrating eCommerce into Retail Strategy / Walmart’s Next Directions: New Avenues for Growth / Small Box Retailing Pricing for either location: $2,795 for 2 full days

QUESTIONS? Loyalty Program Participation Drivers Getting Social Submit questions on Q&A panel on right side of screen Loyalty Program Participation Drivers Getting Social Emerging Growth Trends Around the Landscape

Jahnia Sandford Analyst jahnia.sandford@kantarretail.com P + 614 355 4045 Mary Brett Whitfield Senior Vice President marybrett.whitfield@kantarretail.com P + 614 355 4010