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© ALL RIGHTS RESERVED 2012

MARCH 6 , 2012

CATEGORY SHIFTING ONLINE E-commerce is a small fraction of total retail sales, but for certain categories Online shopping has reached a level that has retailers re-thinking the space allocated in stores. We know what happened in books and music … and a recent case is how Diapers.com grows while retailers across channels are left wondering where their baby business went.

This PULSE reports which categories shoppers will switch from buying in stores to mostly Online -- moving us one step closer to understanding “What is the next category to move out of the store”.

2 © ALL RIGHTS RESERVED 2012

60%-80% 40%-59%

20%-39%

SOME CATEGORIES WILL SHIFT ONLINE FASTER THAN OTHERS We asked shoppers how likely they are to switch most of their purchases in categories they

buy over to the Internet (assuming free shipping and 2-day delivery).

Q Assuming free shipping and 2 day delivery, how likely are you to switch most of your purchases in these categories to the Internet? *Single-Choice: Very, Somewhat, Neither Like Nor Unlikely, Not At All Likely

CATEGORY SHIFTING ONLINE | MARCH 6, 2012

CLIMBING SLOWLY CLEANING AND FOOD & BEVERAGE

Oral Care (38%) Cleaning Products (38%)

Paper Goods (37%) Candy (33%)

Beverages (33%) Alcoholic Beverages (33%)

Items to Prepare Meals (31%) Snacks (29%)

Breakfast Cereal (28%) Bottled Beverages (26%)

CLIMBING FAST ELECTRONICS, BABY/KIDS & LUXURY

Electronics (80%) Computers/Software (79%) Kids Toys & Games (77%)

Handbags (74%; 38%) Home Décor (73%)

Jewelry (69%) Fragrance (67%) Clothing (67%)

Baby (Clothing: 66%) (Diapers: 64%)

(Pers. Care: 62%) Home Fragrance/Candles (66%)

Shoes (65%) Tools & Home Improvement (63%)

Outdoor Furniture (61%)

NEXT TO CLIMB HEALTH, BEAUTY AND PET

Vitamins/Nutritionals (56%) Skin Care (55%) Cosmetics (52%)

Pet Supplies (51%) Hair Care (49%)

Men’s Grooming (45%) Wound/Topical Care (42%)

OTC Medication (41%) Lip Care (41%)

% VERY/SOMEWHAT LIKELY TO SWITCH MOST PURCHASES TO ONLINE (Base: Past Year Category Buyers)


Categories shifting online faster are generally those where it is easier to browse an exhausting selection from your couch rather than travelling from store to store.

The exception are the baby categories where it seems easier for busy parents to order online than go to the store.

CATEGORY FACTORS MAKING THE SHIFT FASTER



DISCRETIONARY PLUS BABY/KIDS Electronics 80%

Computers/Software 79%

Kids Toys & Games 77%

Home Décor 73%

Jewelry 69%

Fragrance 67%

Clothing 67%

Baby - Clothing 66%

Baby - Diapers 64%

Baby - Personal Care 62%

Home Fragrance/Candles 66%

Shoes 65%

Tools & Home Improvement 63%

Outdoor Furniture 61%


These mid-tier categories generally have long purchase cycles with regular replenishment, although OTC and Wound Care are often needed now.

CATEGORY FACTORS MAKING THE SHIFT SLOWER



HEALTH, BEAUTY AND PET Vitamins/Nutritionals 56%

Skin Care 55%

Cosmetics 52%

Pet Supplies 51%

Hair Care 49%

Men’s Grooming 45%

Wound/Topical Care 42%

OTC Medication 41%

Lip Care 41%


Categories that are migrating online more slowly have 2 distinguishing features: they have entrenched routines that are part of the weekly shopping trip, or you need them right now… like a candy bar or a bag of chips.

CATEGORY FACTORS MAKING THE SHIFT SLOWER

GROCERY CATEGORIES Oral Care 38%

Cleaning Products 38%

Paper Goods 37%

Candy 33%

Beverages 33%

Alcoholic Beverages 33%

Items to Prepare Meals 31%

Snacks 29%

Breakfast Cereal 28%

Bottled Beverages 26%




Generational differences are a big factor in how fast purchases of a category will shift Online.

»! Younger shoppers, with habits less engrained, are more willing to shift purchases Online and lead the way in 32 of 34 CPG categories tested (all but Fragrance & Lip Care). •! Expect more purchases to shift Online as 18-34

year olds take their “click” shopping preferences into the future, and…

•! As more mobile Internet technology like smartphones, apps, and tablets make it easier.

»! Older shoppers, are starting to catch-up Online in... •! Electronics, clothing and home décor – which have

been traditionally strong direct-to-consumer categories with catalogues.

18-34 YEAR OLDS SHOW US THE (NEAR) FUTURE ONLINE

Q Assuming free shipping and 2 day delivery, how likely are you to switch most of your purchases in these categories to the Internet? *Multiple-Choice: Very, Somewhat, Neither Like Nor Unlikely, Not At All Likely


% VERY/SOMEWHAT LIKELY TO SWITCH MOST PURCHASES ONLINE

AGE PPT Diff*

*Largest diffs in each tier 18-34 35-54 55+ Youngest (-) Oldest

Shoppers Base: Varies By Category Purchasers A B C % % % +%

ELECTRONICS, BABY/KIDS, LUXURY

Baby Diapers 71 C 58 36 +35

Jewelry 81 BC 66 57 +34

Outdoor Furniture 73 C 63 42 +34 Toys & Games for Kids 85 BC 77 C 63 +22 HEALTH, BEAUTY & PET

Pet Supplies 61 C 54 38 +23 Vitamins/Nutritionals 61 C 58 51 +20

Hair Care 57 C 51 C 38 +19

Cosmetics 60 C 52 43 +17

CLEANING AND FOOD & BEVERAGE

Alcoholic Beverages 44 BC 34 C 22 +22

Breakfast Cereal 39 BC 30 C 17 +22

Bottled Beverages 36 BC 27 C 17 +19

Candy 43 BC 33 C 26 +17

FOR THE COMPLETE REPORT, PLEASE CONTACT: AMY MARCUS (VP BUSINESS DEVELOPMENT) AT AMARCUS@WSLSTRATEGICRETAIL. COM


Don’t assume. The biggest learning here is to not assume your category will always be in a store because shopping habits are so entrenched. Categories that were presumed to be store-based because shoppers had to touch and feel the goods, have been among the fastest to move online, for example, shoes, clothing, expensive electronics, jewelry and fragrance. In these categories more shoppers have already found it easier to order online and make a return, than to shop the stores.

Be prepared. Retailers are watching which categories are moving online and taking the lead to reduce in-store space. This makes it more important for you to help retailers create strong websites that will keep their shoppers in their chain – either the bricks or clicks – rather than lose the sales to Amazon.

Link back to retailers. We know from our Buzz to Buy 2.0 report on digital and social media that manufacturer websites are the #1 place shoppers go for product information. It will be important to support link-backs between manufacturer and retailer sites to give shoppers complete product info, and lead to a sale at your key accounts.

Stores will be with us for a long, long time. We are not giving up on the store, but now more than ever it needs to be kept interesting and relevant to shoppers who are looking for the easier way to shop.

INSIGHTS TO ACTIVATE

TO T H E A P P E N D I X TA B L E


307 SEVENTH AVENUE SUITE 1707

NEW YORK NY 10001

P 212.924.7780 | F 212.924.7608 | E [email protected]

© WSL MARKETING INC. ALL RIGHTS RESERVED 2012

CONTACT AMY MARCUS @ [email protected] FOR QUESTIONS OR ADDITIONAL INFORMATION ABOUT THIS RESEARCH

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