How Standards Will Enable Retailers to Compete in a Consumer Controlled World

1. How Standards Will Enable Retailers to Compete in a Consumer Controlled World Jim Nadler Principal jimnadler@trevarian.com

2. Today’s Agenda • Today’s Retail Challenge • The New Consumer Dynamic • What it Means for Retailers • The Project Prioritization Dilemma • The Move to “Real Time” Retailing • The Role of Supplier Collaboration • How Standards Help • “A Retailer Example” • What About the CLOUD? • Conclusion

3. Today’s Retail Challenge • Attract, Build and Retain a PROFITABLECustomer Base • Drive Operational Efficiencies. • Improve Marketing Effectiveness • Differentiate with Customer Service Offerings. • Meet or BEAT Wall Street Expectations • Change the Paradigm on FINANCIAL Performance Metrics • Drive Increased Performance through Operational Execution across all Channels • Increase the Level of Supplier Collaboration as part of DRIVE to Execute Strategy • Eliminate Practices and Processes that do not provide increased focus on CUSTOMER CENTRICprograms Define and Implement Replicatible BU$INE$$ PROCE$$Change

4. The Retail Challenge • The emerging “Consumer in Control” requires new strategies to COMPETE and WIN • Industry MUST Move to a Consumer Focused Data Reporting Model • i.e. Integration of Category Management and CRM – “Shopper Marketing” • The emergence of the “digital native” and the advance of mobile commerce will forever change the retail landscape • What Role will Social Networks Play in the evolution of retail branding • ANYWHERE, ANYTIME Information Access is changing the GAME • Google Price by UPC • Research Digital Camera Cost/Features on AMAZON while standing in a Best BUY • Automating the service process will enable retailers to provide added benefits without increased costs.

5. The New Consumer Dynamic • The FRUGAL Consumer IS HERE TO STAY • The “New Consumer” has shifted to pragmatic consumption • Consumers ARE Educated About Their Preferences • Social Networks are changing the Branding Game • Online Shopping Continues to Grow • Mobile Commerce is Emerging • New Consumer Technology Tools are available every 6 months • The New Shopper ROI – “Return on Involvement”

6. The New Consumer – Key Trends Boomers will not lead the recovery Gen X will lead and retailers will have to better understand this group Digital Natives (Gen Y) will emerge as a key force Increased Private Label Brand Purchases* Continue to Seek Best “Deals” Limit Purchases to Need vs. Want Shopping Less Often Limits on “Stock-up”

7. The New Consumer – “Return on Involvement” • Consumer LIKE the tools Retailers began to offer pre-recession • Shopping Lists, Recipes, e-Coupons, Digital Receipts and other service oriented applications designed for their convenience • Expansion of Customer Touch Points brings new complexity and each must link to the other • Many Current eMail Marketing tools are SPAM • Approach to Integrated Messaging must link to individuals needs and not generic market • Building and Maintaining a connection with the “omni channel” consumer requires new approaches • Web/Store/Phone/Social Networks

8. Loyalty Programs: Not Effective Enough Retailers • Pursue loyalty with loyalty programs • Recognize programs rarely deliver on their promises (have not inspired loyalty) • Acknowledge they are challenged to derive insights from the data they collect Consumers • Generally underwhelmed to date • Good prices drive loyalty • Product selection drives loyalty • Don’t believe retailers have demonstrated that they know them Source: RSR Research, April 2011

9. Loyalty for Loyalty’s Sake Doesn’t Work 18% of SA say yes vs. 5% of NA Source: RSR Research, April 2011

10. Have We Lost Sight of the Basics? Source: RSR Research, April 2011

11. What Does It Mean For Retailers? • New Ways to Connect with and Support The Consumer are Critical • Exceptional Customer Service is CRITICAL • Price is FLAT • Traditional Theories Behind Store Layout Need A New Look • The deployment of New Technology Platforms play a Key Role in future success • It is ALL about SPEED to Market

12. What it Means for Retailers An Integrated Infrastructure is Required to Align Operationally to All Consumer Touch Points

13. What it Means for Retailers • Merchandising & Merchandise Planning - buy the right product, at the right cost, maximize selling space and sell the product at the right price • Marketing - stimulate the brand via various mediums, drive recency, frequency and spend, leverage loyalty and customer service initiatives while measuring effectiveness of our efforts • Operations - Provide tools to the front lines to improve our customers experience , reduce OOS, keep costs low • Other (Accounting, R/E, Admin) account for business activities, report on results, provide adequate e-mail and other infrastructure functions to our business units • eCommerce - maximize virtual transaction opportunities and utilize the most cost-efficient e-marketing platforms to improve brand performance Store Connect The DOTS Web Mobile Call Center

14. Current Systems Infrastructure Store Web Call Center A Confused Consumer Mobile

15. The Project Prioritization Dilemma • Current Processes are often not the result of an Integrated S&OP Exercise • Legacy Systems have “stunted” retailers ability to react quickly • Innovation is limited as retailers attempt to keep up with regulatory and competitive pressures • Budgets are quickly slashed as a response to uneven results • The Business Process you are trying to correct must lead the way – tie to ROI Model and get the User Community involved EARLY

16. ANYWHERE, ANYTIME ACCESS Driving Business Process Improvements The Need For A Real Time Retailing Architecture Mobile Connectivity Web Services The CLOUD Sales Reporting Data Repository Point of Service Store, Web, Kiosk, Phone, etc… Alert Messaging Exception Workbench

17. Integrated Data Repository Retailers Application Interfaces Retailers / Vendors / Third Parties Retail Checkout Systems • Transaction Data • Digital Electronic Receipts • PCI Compliant Real Time Connection User Views/Alerts Marketing ViewsOperational Views Supplier Collaboration • Summary Data • Sales, OH,OO by Product • Sales, OH,OO by Location • Purchases by Consumer • / Customer Segment • Store Location Table • Product Table/Catalog • Customers and Users Audited POS Sales OH, OO SKU/ Channel • Web Services • Marketing • Operations • Finance • Customer Services Real Time Connectors • Transaction DB • POS Transactions • Web Transactions • Mobile Transactions • Customers/Accounts • Repository Functions • Access Control and Security • Community Management Consumers • Application Interfaces • Retailer Websites • Supplier Websites • Social Networks • Mobile Networks • Hosted Applications • Syndicated Data • Forecasting • Analytics Integrated Purchase History Digital Receipts Shopping Lists Money Mgmt Integration Relevant Messaging Support & Service Real Time Feed to Operational Data Store File Transfer

18. Benefits of Retailer/Supplier Collaboration The Role of Enhanced Retailer/Supplier Collaboration • Inventory Management • Reduces purchasing and order management time; less administrative timeneeded to create and receive product orders, expedite shipments, and respond to problems • Improves demand management thus reducing overtime production labor costs. • Reduces out-of-stocks for both manufacturer and retailer, thereby increasingsales and add to gross margin. An added benefit: improved customerservice. • Reduces buffer stocks; possible reduction in warehouse facilities. • Improves transportation efficiencies (truckload capacity)

19. The Role of Enhanced Retailer/Supplier Collaboration • Marketing and Sales • Sales and Marketing • Equips marketing managers with marketing management tools • Reduces the complexity of marketing by providing new insights • Allows you to develop programs that truly serve the needs and wantsof your customers • Improves ROI on Trade and Consumer promotions • Facilitates a shift from “function control” to “enterprise management” of your marketing strategy (focus on MROI”) • Aids in coordination of advertising, consumer promotion, and trade promotion activities • Creates a more unified message that can touch both the head and heart (appeal to both logic and emotion) • Promotion compliance tracking (FASB and EITF acctg guidelines)

20. How Standards Help? • Standards allow for a framework to move forward quickly while driving down costs • Standardsinsure that initial development is reusable • Standards based solutions enable faster adaption / alignment with your business vision • Standards enable fast efficient integration of BEST in BREED Solutions

21. Key Standards • POS Log • e-Commerce • Payments & PCI • Digital Receipt • Data Warehouse • Product Database • Mobile Commerce • Cloud Computing

22. A Retailer Example – BevMo! March 2010 Creates IT’sMo! – a plan based on desire to explore new ways of delivery – step outside traditional thinking – take huge strides to enable rapid deployment of new concepts • Use of STANDARDS introduce architectures that conform to NRF/ART’s standards proposed benefits lower initial investment • Demonstrate “proof of concept‟ “plug & play‟ thanks to NRF/ART‟s standards rapid delivery lower CapEx somewhat higher OpEx • Systems “on demand” as a utility IT Team growth is minimized - maximum leverage of current resources systems - scalable on demand – tied to company performance with the right partners • SOX-compliance concerns diminish (SAS 70) • SOFTWARE-AS-A-SERVICE (SaaS) effective software license model • CLOUD COMPUTING – fast deployment - eliminate hardware acquisition costs

23. What About The Cloud? • Lower cost to engage - minimal infrastructure • Utilization is metered on an “as needed” basis “Pay by The Drink Model” • IT as a Strategic Tool • Initial investment = a foundation – Can be leveraged as you move forward • Access – Anywhere / Anytime • Best of All: Cloud = low cost Pilots – minimal risk – parallel approach – current world intact

24. Why The Cloud? “ cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. “ 2009 National Institute of Standards and Technology

25. Conclusion • Does your Systems Infrastructure provide ANYWHERE ANYTIME Access to Customer Demand Signals • How do you quantify the consumer experience and the investments needed to understand customer vs. product metrics? • What service initiatives you offer will provide a meaningful connection to the consumer • Data Analysis Tools for Channel Demand Signals – Touch points are Digital • Retail 3.0 Will Require a CHANGE IN THINKING and the Consumer will DEMAND that change • A Flexible ARCHITECTURE will be a REQUIREMENT