The Future of Retail

Mike Laurenti Executive Vice President Chief Information Officer

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Belk gives UNC Charlotte business school $5 million gift

Belk Inc. and UNC Charlotte announced Tuesday that the retail giant is giving the university $5 million over five years to boost the school’s teaching of marketing analytics and business innovation. The gift to the Belk College of Business will help establish an endowed professorship in business innovation and an endowed chair in marketing analytics, and also will groom business students for careers in those fields. The gift will support research in marketing, customer analytics, customer relationship management and strategic innovation.

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4th Quarter Financial Results / Confidential – Internal Use Only

6 * External Comps

Our Performance Three-Peat (2010, 2011, 2012)

Comparable Store Sales % Increase

Storm clouds on the horizon?

Department stores are losing share to alternative retail models

Department Store Sales as a % of Total Retail Sales1

Amazon’s projected growth in

apparel from FY11 to FY16 131%

1. US Census Bureau, retail sales exclude motor and food services; department store sales exclude discount department stores Additional sources: Store Ycharts (ycharts.com), eMarketer “US Retail Ecommerce Sales, by Product Category; http://money.cnn.com/2011/05/26/smallbusiness/flash_sales_ideeli_hautelook_gilt/index.htm;

Total department store sales have decreased 35% in the last 10 years,

while total retail sales increased 44%

Estimated growth of flash

sales from FY11 to FY16 500%

$ Power: Titans vs. Top U.S. Retailers

Total (TTM)

Market Cap 250B 92.7B 43.1B 32.6B 41.6B 12.5 B 472.5B

Sales 460.7B 71.7B 95.1B 71.6B 71.3B 92.3B 862.7B

Net Income 16.3B 4.3B 1.6B 2.1B 2.9B .6B 27.8B

Cash 8.1B 2.8 5.9B 1.3B 1.5B .24B 19.8B

$ (Billions)

Total (TTM)

Market Cap 626B 250B 115.1B 47.5B 62.7B 1,101.3B

Sales 148.8B 43.2B 54.3B 4.3B 13.0B 236.6B

Net Income 40.1B 15.5B .38B .72B 3.7B 60.4B

Cash 27.7B 42.0B 5.1B 10.2B 5.9B 91B

Sales & Net Income: Reported Earnings, Rolling 4 Qtrs; Updated 10/3/12

$ (Billions)

5 Yr. Cumulative % Growth 2007-2011

0%

50%

100%

150%

200%

250%

Titans Retailers

0% 0%

30%

6%

59%

10%

121%

13%

232%

20%

2007

2008

2009

2010

2011

Cumulative Growth % 2007-2011. Titans 5 Yr. Growth = 232% off 2007 baseline. Top Retailers 5 Yr. Cumulative Growth = 20% Apple: 353%

Amazon: 224% eBay: 53% Facebook: 2325% Google: 128% Total: 232%

Wal*mart : 22% Home Depot: -9% Costco : 38% Target: 11% Walgreens: 35% Kroger: 29% Total: 20%

“Showrooming” - The Threat is Real

Source: Citi Research, AlixPartners, comScore

• Over 1/3 of young smartphone owners using mobile payments

• Tablets reaching critical mass – 1/4 of smartphone owners use a tablet

• Amazon Price Check app

• Amazon Prices 8% Less than Walmart on Average

• Brick-and-mortar retailers fighting back

Amazon’s Price Check

app scans barcodes to

compare prices on

millions of products

“In 2012, we plan to spend over $140 million in e-commerce, representing approximately 30% of our capital expenditures, compared to spend of almost $100 million or approximately 20% last year”

-Mike Koppel, EVP and CFO, February 2011

“[Apparel] is a very important category…it is a very large market segment that [Amazon] can address.”

-Jeff Bezos (CEO), 2010 Annual Stakeholder Conference

“…it’s definitely one of the priorities of our new team to have a higher investment in technology…” -Karen Katz, CEO, May 2011

“We are going to reallocate our capital expense spending within our overall capital allocation plans. For 2012 we will fund online, as well as our technology investments, at an accelerated pace from last year”

-Kevin Mansell, Chairman and CEO, February 2012

“…our customers increasingly cross-shop between our online business, our specialty business and our value expression of the brand. So recognizing that, we're going to make sure we are not disconnected…”

- Glenn Murphy, CEO, November 2011

Retailers are changing how they deploy capital

Despite making up only a small part of overall retail sales, online digital sales are driving nearly HALF of

all growth for retailers

Sources: Forrester and Internet Retailer Estimates; adjusted for non-Ecommerce sectors (Fuel, Food, Grocery, Beverage, Automotive)

$31 B Stores Contribution

$27 B Online Contribution

Online

Stores

Sales INFLUENCED by the digital experience represent 41% of all purchases

Sources: Forrester and Internet Retailer Estimates; adjusted for non-Ecommerce sectors (Fuel, Food, Grocery, Beverage, Automotive)

Digitally Influenced Sales

Store Only Sales

Phase 1: Grow eCommerce

Phase 2: Project SMART

Phase 3: Omnichannel

Our Digital Journey

Grow eCommerce Our eCommerce growth is outpacing the industry, but creating challenges

• New D2C Fulfillment Center to fulfill demand

• IT Infrastructure scalability challenges

• Business demand insatiable • Team capability and capacity Gaps

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2010 2011 2012 2013P

eCommerce Sales (in millions)

Online Only

In-Store Only

In-Store & Online

$100/yr

$352/yr

$1064/yr

Customer Spend

5.1%

2010 2012

Stores

eCommerce

6.3%

Comp Sales Increases

Project SMART Digital Journey Phase 2

• Repair Team & Infrastructure

• Core Systems of Record

• Merchandise & Optimization Systems

• Foundation for Omni-Channel

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ERP & Merchandising

Systems

Optimization

Solutions

Analytic Solutions

Project SMART Scope

IBM (MDM, ESB/ETL & Consulting)

Infrastructure / Data Centers

27 Months, $93M in Capital

IT Organizational Impact

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50

100

150

200

250

300

2010 2013

Belk FTE's

Third PartyFTE's

70% of the IT team has less than 2 years tenure at Belk

• New Leadership Team • New functions • New Processes • Recruiting and relocation

challenges

Cost Center Impact

20 Months into a 27 Month Journey

Q3FY14 Q2FY14 Q1 FY14 Q4 FY14 Q3FY14 Q2FY14 Q1 FY14 Q4 FY14

LIVE IN-PROCESS Demand

Forecasting Merchandise

Planning Master

Data

Data

Warehouse ESB/ ETL

Replenishment)

Size

Optimization

Allocation

Stock Ledger

& Purchase

Order

Where do we go from here?

Retail 2017 Predictions

2017

1. Digitally-driven sales will account for the majority of overall retail sales

2. The role of the physical store and associate will fundamentally change, engaging with an always-connected customer

3. With respect to inventory, the concept of channel goes away

4. Digital commerce becomes pervasive at every point of inspiration (buy anywhere, from any device)

5. Every major retailer will personally identify the majority of their customers, when those individual customers engage

6. Physical payment will go the way of the personal check

Source: Deloitte

Investing $600 Million

• Branding $42M

• Service Excellence $14M

• Store Remodels & Expansions $270M

• Omni Channel Technology $263M

“The customers

will come to us”

The Past:

Physical

Store

“We need to sell

online”

The Recent

Past:

eCommerce

“Many

customers shop

across

channels”

The Present:

Multi-

Channel

What is Omni Channel?

“Relevant

products and

services

anywhere”

The Future:

Omnichannel

“Enter and exit

the experience

from anywhere”

Omnichannel Customer Vision

Know and Inspire Her. Inspire broadly, but personally, at every touchpoint and help her celebrate occasions big and small; Focus on what she wants and needs, not what we have

Never Make Her Wait. Make her shopping experience easy and simple across channels and differentiate on service when issues arise

Bring the Whole Enterprise to Her. Provide her access to everything Belk from rich content to the entire assortment within the comfort of her own store, wherever that is

Connect Her to Our Values. Remind her Belk is a family with family values and involved in her community

Be Her Authority on Modern, Southern, Style. Continue to highlight our strong southern voice from the trend-right assortment we carry to the content we produce; And remember southern hospitality

One consistent, compelling customer

experience

Our Omnichannel Vision

Roadmap to Omnichannel Digital Journey Phase 3

Transform the eCommerce experience

Transform the In-Store

experience

Expand Mobile at every

touch point

Integrate Customer

Data

Establish Enterprise Inventory

© 2012 Forrester Research, Inc. Reproduction Prohibited

Image source: Xdadevelopers.com (http://www.xdadevelopers.com) and Memgen Corporation

(http://www.memgen.com)

Tech enablers drive disruption

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ENABLERS WERE CRITICAL TO DISRUPTIVE CHANGE OVER LAST SIX YEARS

Multitouch displays

Motion and gesture sensors

High-speed radio modems

Low-power microprocessors

e-paper displays

Smartphones vs. Tablet usage

Source: Monetate – Cyber Monday 2012

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Time (hrs)

Tablet

Smartphone

Smartphone sessions peak as users reach work

Tablet sessions overtake handsets as users get home

1.5% 3.2%

Tablet/mobile sales as percentage of web sales in 2011

Tablets are the story in “m-commerce”

Base: 43 online retailers

Source: “The State of Retailing Online 2012”, a Shop.org study conducted by Forrester Research

61MM consumers with tablets in the US in

2012

137MM consumers with smartphones in the US in 2012

© 2012 Forrester Research, Inc. Reproduction Prohibited

Meet the new disruptors

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A NEW WAVE OF DISRUPTIVE TECHNOLOGIES IS EMERGING

Creation Survival Growth

Low

H

igh

Dis

rup

tive

po

ten

tial

Developmental phase

Equilibrium Decline

In-cell displays

Ultra high-speed broadband Multitouch

displays

3G wireless data

4G/LTE wireless data

Motion and gesture sensors

e-paper displays

Transparent displays

Augmented reality

Wearable displays Touch-less

UIs

Wearable sensors

Current generation

Emerging generation

USB

Wi-Fi WiGig Miracast

Low-power microprocessors

SSD Retina displays

GPS

Low -energy Bluetooth NFC

In-location positioning

© 2012 Forrester Research, Inc. Reproduction Prohibited

What is in-location positioning?

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EXTENDING WAYFINDING TO YOUR ACTUAL DESTINATION

Traditional GPS In-location positioning

© 2012 Forrester Research, Inc. Reproduction Prohibited

Image source: Point Inside (http://www.pointinside.com/) and aisle411 (http://www.http://aisle411.com/)

In-location positioning will . . .

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PROVIDE A NEW PLATFORM FOR NEW SHOPPER ENGAGEMENT

Promote specials based on shopping-list items.

Deliver seasonally relevant product recommendations.

Drive traffic to other departments based on shopping list.

Shopping-list management

In-store routing and searching

Contextual ads and promotion

What does Omni Channel Look like?

5 Key Lessons Learned

Lessons Learned #1 Assess the organization’s

maturity – it’s not a clear path

Can your culture accept the many unknowns and lack of a clear path?

Is there a consensus around the need for

change?

Is the business (and board) with you?

Lessons Learned #2

Are you prepared for the costs?

Is your organization prepared for the “unexpected”?

Have you planned enough contingency?

Lessons Learned #3 Do you have the IT team in

place to deliver it? (be honest)

Are there enough (and the right) people to accomplish the task?

Do you have proper disciplines in place? (e.g. enterprise standards, procurement

practices, etc.)

Lessons Learned #4 Do your partners have skin

in the game too?

Partnerships with technology firms is more important than ever – we can

learn from them

Have you created a relationship model to ensure success?

Change Management

(everything is changing fast – it is scary)

Lessons Learned #5

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Thank You to our Partners! • IBM Unix, P7, including advanced virtualization • Cisco switching and routing, including Cisco

Reference Architecture (multiple physical locations in one data center)

• Available anytime for advanced technical help, crisis or not

• Top notch talent

• Business Consulting

• Systems Integration Partner

• Technology Partner (ESB, ETL, MDM, PIM)

• Top notch talent

Thank You!

Mike_Laurenti@Belk.com