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e-Market Solution Set Retail Sector POV

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  1. e-Market Solution Set Retail Sector POV May 19, 2000 DRAFT - FOR DISCUSSION PwC

  2. Agenda • Current status of the retail sector regarding eMarkets • Value Proposition of eMarkets in the retail sector • How the retail sector eMarkets will evolve in the next 2-3 years • PwC Opportunities in retail eMarkets

  3. CURRENT eMARKETS SITUATION During the first quarter of 2000, retail industry leaders quickly formed two competing eMarkets that cut across retail subsectors Carrefour/Sears captured the first announcement advantage ... …which catalyzed the formation of Worldwide Retail Exchange (WRE) • Sears/Carrefour/Oracle announced creation of GlobalNetXchange (GNX) on 28 February • Subsequently, Metro and Sainsbury’s (23 March), Kroger (28 March), and Coles Myer have joined • This is an exclusive buyer-led eMarket whose benefits accrue to the majority equity owners - first to join receive more of the equity (Carrefour/Sears at 20% each, Oracle at 7.5%, others at 1/2% for $15m investment) • Initial discussions began Tuesday 28 March • Press release on Friday 31 March • K-Mart, Target, Kingfisher, Tesco, M&S, Caro, Casino, Ahold, Auchan, Safeway (USA), Albertson’s, CVS • All retailers invited to join industry-wide eMarket which will provide benefits to all members

  4. CURRENT eMARKETS SITUATION In addition to WRE and GNX, at least three other eMarkets are competing in the retail space Pharmacia Upjohn Marks & Spencer* Dayton Hudson* Groupe Pinault*† Federated Dept† Sears Roebuck† Nordstrom Kroger JC Penney† May Dept†. Kohl’s Isetan*† Walmart† Saks† Daiei* Dillard KMart Target I2 Tradematrix’s dynamic marketplace offering in the retail space. Catalog services, Intelligent demand forecasting and SC collaboration. Alliances: IBM, Deloitte Consulting (preferred SI). i2 Tradematrix Retail Services Provides e-commerce applications and B2B marketplace for retail industry. Alliances: Donna Karam, Leslie Fay Company, Dillard Department Stores Tradewave E Marketplace powered by Retek, an e-commerce solutions providers for retailers, distributors and suppliers. Offers solutions for retail planning, procurement, selling etc. Participants include HomeBase, ShopKo, Hudson’s Bay, Selfridge’s Retail.com P Worldwide Retail Exchange Exchange due to be formed by Walgreen, CVS, Target and others. !00,000 suppliers E E E Exchange formed by Sears, Carrefour, Kroger, Metro AG, Sainsbury’s. PwC has won the exchange creation work. Global Net Exchange (GNX) E E *: Non-US Global 500 Corporations †: PwC Global 1000 Client E: Equity Investor P: Participant

  5. CURRENT eMARKETS SITUATION Segment Company In VAC? Electrolux N Home Appliances Emerson Y Whirlpool Y GE Appliances Y Maytag Y NACCO N Sunbeam N Semi-Tech N Durables Wal-Mart N Sears Y K-Mart Y Target Y JC Penny N Home Depot N CostCo N Lowe’s Y Although many US retailers are not currently affiliated with eMarkets, they are rapidly aligning themselves Segment Company In VAC? The Limited N Apparel & Footwear Gap Inc. N TJX N Nordstrom’s N Payless Shoes N Liz Claiborne N Benetton N Burlington Coat N Nike N Footwear Adidas N Reebok1 N Nine West N Timberland1 Y Fila1 N Levi Strauss N Apparel – Clothing & Textile Shaw Industries N Milliken & Co N Grocery Albertson Y Liz Claiborne N Kroger Y Benetton N Safeway Y Springs N Fruit of the Loom N Cintas Y Note (1); Includes apparel Source: US Census Data, Yahoo Finance, Hoovers, Forrester, Dow Jones, Bear Sterns, NetMarketMakers, Goldman Sach, PwC analysis

  6. CURRENT eMARKETS SITUATION DIY General Merchandise Electrical • GNX (Sears, Carrefour, Sainsbury, Metro AG) • TALPX (lumber) • Fpix (lumber) • Buildnet (building materials) • Channel Links (building materials) • Market4Retail.com (soft and hard goods) • Retek (DIY in collaboration with HomeBase) • e-wood.com (lumber) • GNX (Sears, Carrefour, Sainsbury, Metro AG) • eCPG/GMA (consumer products manufacturers) • Market4Retail.com (soft and hard goods) • RetailersMarketXchange (convenience, joint effort by Walmart & Chevron) • GNX (Sears, Carrefour, Sainsbury, Metro AG) • Market4Retail.com (soft and hard goods) • HomeAppliances. com (GE, Amana, whirlpool, Frigidaire, Maytag, F&P) Within retail subsectors, significant eMarkets activity is also happening Global retail eMarkets by sector Other Food Apparel TBD TBD TBD New eMarkets are being created and some existing eMarkets will disappear

  7. CURRENT eMARKETS SITUATION Retail eMarkets are pursuing different business models and positioning to target retailers VACs Business Model Preparedness Positioning Service Offerings GNX • Exclusive buyer led model • Incentive to early equity owners • Launch 3/00 • Spend $140B • Sears, Carrefour, Metro, Sainsbury, Kroger • Complete retail solution • Logistics • Manufacturing • Transportation • Community, Content, and Commerce • Logistics • Value added services WRE • Open model • Announcement 4/00 • Launch Summer 00 • Spend $300B • Ahold, Auchan, Safeway, K-Mart, Tesco, Kingfisher, M&S, Caro • Connect 100,000 suppliers, partners and distributors • Global retail exchange • Community, Content, and Commerce • Value added services GMA Brands (eCPG.net) • Net marketplace for the CPG manufacturers • Announcement 3/00 • Market: $460 B • P&G, Kraft, Nestle, Dial, Coca Cola, General Mills, Unilever, Borden, Cambell, Clorox, ConAgra, Earthgrains, etc. • Achieve collaboration efficiencies among grocery manufacturers • Community, Content, and Commerce • Value added services • Plans to expand to Collaborative planning, Demand management, Supply chain functions There is no one proven business model in the retail eMarket space

  8. VALUE PROPOSITION The value proposition for retail exchanges is, in the near term, oriented around procurement process savings Near term benefits • Cheaper, easier access to new suppliers and new customers • Catalyst for operational changes within members In the medium term, there will be greater benefits from greater functionality, industry-specific value-added services and horizontals • Collaborative planning for new products and promotions • Logistics and other supply chain enhancements • End to end linkages throughout the supply chain

  9. RETAIL eMARKETS EVOLUTION Suppliers Buyers Buyers Suppliers ICI Black & Decker HomeDepot Nestle Mattel B & Q Stanley eMarket eMarket Duracell Henkel Castorama Sara Lee Bosch Lowes Suppliers Buyers Comet Sony Best Buy eMarket Matsushita Circuit City Electrolux Darty GE In the near term, the retail sector can sustain multiple eMarkets • The industry believes that there must be at least two major eMarkets to demonstrate “competitiveness” to regulators • The industry is sufficiently fragmented, localized, and subject to differing subsector characteristics that several regional/subsector -oriented exchanges will be viable In General Merchandise, an eMarket maker has the opportunity to link together a highly fragmented marketspace of buyers and sellers In Do-it-Yourself (DIY), rapid consolidation is taking place for both buyers and sellers In Electricals, extreme fragmentation for buyers is squared off against increasingly larger suppliers In Apparel, TBD

  10. RETAIL eMARKETS EVOLUTION WRE “open”consortium GNX “closed” consortium Castorama B&Q OBI Circuit City CompUSA BBC Expert Comet Darty X x x x x x x x x x x x x x Stand-alone eMarkets Over the next few years, we believe that the large fixed costs of eMarkets infrastructure will drive smaller eMarkets into larger eMarkets Possible Development of Retail MetaMarkets • Industry trends: • Consolidation • eMarket Consolidation • Globalisation • EDLP Bubbles proportional to revenue DIY eMarket Small Buying Communities Lowe’s Electricals eMarket Home Depot? Wal-Mart? Best Buy

  11. RETAIL eMARKETS EVOLUTION In the medium term, we see the following developments: • Subsectors may continue to form their own exchanges prior to joining up with a larger vertical market • Independent sector leaders like Wal*mart and Home Depot are wild cards who could tilt the balance of the marketplace by a decision to remain un-aligned, to become the “anchor” of their own eMarket, or to join an existing eMarket • One probable end state depicts a pair of large global exchanges augmented by a few smaller, specialized ones serving particular subsectors

  12. RETAIL eMARKETS EVOLUTION Metamarket A Metamarket B eCPG Conselectrics mfrs GNX Other White Goods Auto Xchange Envera Paper & Pulp My Aircraft WRE Some CPG White goodsmfrs Apparel Logistics Logistics Office Supplies Office Supplies Back Office Back Office HR HR We believe that surviving retail eMarkets will ultimately join up with metamarkets in other industries/sectors Surviving Metamarket A ... …co-existing in harmony with metamarket B

  13. PwC OPPORTUNITIES PwC has multiple opportunities in the retail sector • GNX -- continue to invest and generate consulting revenues • WRE -- continue to generate add-on revenue work (eg: Tax work sold) • Target members of existing exchanges to fully leverage the benefits of membership via process change, organizational change, etc. • Help clients who are not yet members of either/any exchange figure out what to do • Potentially start up a new sector exchange with our clients (eg: Wal*mart, Home Depot) • Offer to broker consolidation of exchanges (eg: WRE + eCPG + Auto)

  14. PwC OPPORTUNITIES Do Nothing Join Existing eMarket as a Customer Join Existing eMarket as Equity Partner Develop Kingfisher’s own eMarket Develop eMarket with Partner(s) Benefits • Low cost • Process, COG savings • Participate in industry synergies • Equity upside • Process, COG savings • No equity upside • Process, COG savings • Equity upside • Control own destiny • Process, COG savings Higher Control, Costs & Rewards Risk of being frozen out PwC can help clients that are not members of any exchange sort out their options ... Option 4 Combination Option 1 Option 2a Option 2b Option 3a Option 3b Examples • GNX • WRE • GNX • Kingfisher opcos and suppliers • WRE • DIY, GM, Electricals • PwC’s eProco Risks • Fall behind competitors • Others get bigger share of benefits • Investment capital • Suppliers refuse to join • Systems expense • Investment capital • No one else joins Speed is of the essence

  15. PwC OPPORTUNITIES eMkt Option 2: Join an existing eMarket Customers Suppliers Role Activity Cons Benefits a. Simple Customer • Subscribe to an existing eMarket • Joining fees • License fees • Service fees • No equity • No control • No advantage over competitors • Speed • Relatively low set-up cost • Procurement process savings • Access supply base • Access price discounts • Access dynamic buying tools (e.g. auctioning/ bidding) • Achieve ‘e-currency’ b. Equity Partner • Take small equity stake in the eMarket (ca 0.5%) • Participate in management • Follower not leader • Little control over direction of eMarket • No company cost advantage over competitors • Some risk and cost of capital • Potential information/supplier leakage • Our key suppliers don’t hook up to our system because they are already members of other systems • Revenue streams • Equity valuation • Price reductions • Processing savings • Access to e-Sourcing • Access to suppliers • Some ‘e-currency’ … including leveraging the gains that have made by joining existing eMarkets …

  16. PwC OPPORTUNITIES a. Go it alone • Link up with existing suppliers • Perhaps link up with generic MRO, office products, suppliers/eMarkets • No cost advantages from buyer aggregation • No revenue streams • No equity play • Potentially less power than othereMarkets (e.g. Sears, Carrefour) • Process savings only • Relatively low set-up cost • Some data/source privacy • Revenue streams • Equity valuation • Control • Leadership • Greater Equity reward b. With Retail Partner(s) • Take equity stake in the eMarket • Participate in management • Access supply base • Access prices • Access to e-Sourcing • High investment • On-going management costs • Risk issues • Lose out on any better portals • Cost of capital • Managing conflict & sharing rewards • Price reductions • Processing savings • Industry efficiency • Access to e-Sourcing • Access to suppliers • Achieve ‘e-currency’ … or by making bolder moves and setting up eMarkets either alone or in collaboration with other companies eMkt Customers Suppliers Option 3: Set-up own eMarket(s) Role Activity Cons Benefits c. With Geographic/ Supplies Centric Partners • New revenue model • Sell content to lots of eMarkets • Costs • Risk • Process Savings • Potential Revenue streams • Equity benefits if you take a stake • Control & Influence

  17. Appendix

  18. APPENDIX CIP eMarkets structural evolution provides a framework for considering retail structural evolution [needs to be tailored for retail] EDI Networks Internet Commerce Platforms Industry Exchanges Meta-Markets and Interoperability E-Hubs • Retailers & Suppliers execute procurement, inventory, and payment transactions electronically • Still largely 1to1 connections between companies • Migration to internet-based technology (e.g. VPNs / PDNs) • Additional functionality added (e.g. auctions) • eMarket exchanges that include leading retail / CPG players, and/or technology providers, and/or startups • Many-to-many trading • Competition among exchanges • Consolidation among industry exchanges • Interoperability among exchanges • Outsourcing of non-industry-specific functions (e.g. MRO procurement) to horizontal exchanges • Addition of consumers to the exchanges (either individually or via consumer-buying groups) Characteristics • Walmart • Dell • Gateway • GlobalNetXchange • Worldwide Retail Exchange • eCPG.net • Softgoods Matrix • N/A • N/A Examples Time 1980s 1998-9 2000 2001-2 2004-5

  19. Facilitates purchases for indirect (MRO) goods Offer many-to-many negotiations Aggregate content into catalogs Provide for closed, real-time buyer and seller negotiations, auctions, and trades APPENDIX CIP functional evolution provides a framework for considering retail functional evolution [needs to be tailored for retail] Indirect GoodsProcurement Direct Goods Procurement Value Chain Services Business Services • Facilitates purchases for direct goods • Some add-on supply chain-oriented services (planning, forecasting, logistics, excess inventory, etc.) • Facilitates full range of value chain services (product development, marketing / advertising, trade funds promotions, market / consumer intelligence, large transaction payment mechanisms, etc) • Full integration of point of sale data across supply chain • Links broader array of buyers / sellers • Facilitates full range of business services (professional services / consulting, financial services, technology / ASP, etc) • Links still broader array of buyers / sellers Characteristics • GNX • WRE • eCPG.Net • GNX(Planned) • WRE (Planned) • eCPG.Net (Planned) Examples Time 2000 2000 2001-02 2002-03