The Retail Equation (TRE) publishes the annual Consumer Returns in the Retail Industry report to shed light on return trends and, ultimately, help retailers compare and improve their business processes. We are pleased to extend the application of this report to a monthly analysis of merchandise return activity. Each month, TRE will release the TRE Return Index, which is a numerical estimation of the volume of returns compared to U.S. retail sales. Our goal is to provide retailers with a monthly overview of return trends, statistics, and key learnings.

Trend report observations from this month include:

2016 RETAIL RETURN TRENDS

The Return Index changed less than one percent in May.

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Mother’s Day celebrations on May 8 seem to have kept consumers away from the return desk. That was the day with the fewest returns.

Soft goods retailers enjoyed a 10.7 percent drop in returns. Mixed goods retailers also saw decreases.

In May, return volumes were highest in Puerto Rico, California, North Dakota, Minnesota, and Florida.

TRE Return IndexVolume of Returns (Unit Adjusted) Compared to U.S. Retail Sales

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142

134

126

118

110

102

94

86

78

70JUL2015

AUG2015

SEP2015

OCT2015

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JAN2016

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Legend: — TRE Return Index--- TRE Return Index (estimated)— U.S. Monthly Retail Sales (unadjusted)

TRE Return Index = 81.2

Change from Prior Month = -0.8%

$281.6 B

Returns by Date/Time and Retailer Type

Returns by Day of Week

Returns by Day of Month

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51

102

153

204

255

306

357

408

459

510

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78

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130

156

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Average

Return Index by Retail Category

Return Index by Retail Format

Return volumes varied by only one percent in the middle of the week. Most consumers preferred to make their returns on Saturday.

Mother’s Day celebrations on May 8 seem to have kept consumers away from the return desk. That was the day with the fewest returns.

Returns at big box retailers were up slightly in May, while returns at mall based retailers decreased nearly 5 percent.

Soft goods retailers enjoyed a 10.7 percent drop in returns. Mixed goods retailers also saw decreases.

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16.25

32.50

48.75

65.00

SaturdayFridayThursdayWednesdayTuesdayMondaySunday

2 | 2016 RETA IL RETURN TRENDS

Legend: — Department Stores— Mix of Hard and Soft Goods Retailers— Hard Goods Retailers— Soft Goods Retailers

Legend: — Big Box Retailers— Mall Based Retailers— Strip Mall and Stand Alone Retailers

Returns by Geographic Location

Returns by State

Returns by Region

In May, return volumes were highest in Puerto Rico, California, North Dakota, Minnesota, and Florida.

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3 | 2016 RETA IL RETURN TRENDS

The Midwest enjoyed the lowest return percentage of any region.TRE Analys is

NORTHEASTTRE Return Index: 78.7Percent of total returns: 22.9%

SOUTHTRE Return Index: 74.0Percent of total returns: 34.6%

MIDWESTTRE Return Index: 83.0Percent of total returns: 21.0%

WESTTRE Return Index: 97.7Percent of total returns: 21.5%

10 states with lowest frequency of returns

Average states

10 states with highest frequency of returns

Methodology and Participating Retailers

The monthly TRE Retail Return Trend report is compiled by The Retail Equation by analyzing merchandise return transactions from retailers in the U.S. and Canada over a variety of retail segments, including many of the world’s largest, well-known big box, mass merchandise, department store, grocery/drug, and specialty retail merchants.

The Retail Equation would like to thank all of the retailers who regularly participate in this report. You will notice that no retailer names are mentioned, per TRE’s commitment to maintain confidentiality of each organization’s data.

The Retail Equation

The Retail Equation, an Appriss company, optimizes retailers’ revenue and margin by shaping behavior in every customer transaction. The company’s solutions use predictive analytics to turn each individual shopper visit into a more profitable experience. This yields immediate financial payback, increasing store comps by as much as two percent, with significant return on investment. The Software-as-a-Service applications operate in more than 34,000 stores in North America, supporting a diverse retail base of specialty apparel, footwear, hard goods, department, big box, auto parts, drug/pharmacy, grocery, and more.

PO Box 51373 Irvine, CA 92619-1373 USA +1 (888) 371-1616 www.TheRetailEquation.com

© June 2016. The Retail Equation, Inc., an Appriss company. All Rights Reserved. The Retail Equation logo is a trademark of The Retail Equation Incorporated. Patents, pending patents, trademarks, service marks and registered trademarks referenced herein are the property of The Retail Equation Incorporated, including but not limited to The Retail Equation, Verify Return Authorization, Verify-1, Verify-2, Verify-3, Receipt Verification, Change for Charity, Return Rewards, Purchase Rewards and Patents 6,016,480, 7,455,226, 8,025,229, 8,355,946, 8,356,750, 8,561,896, and 8,583,478.

Proprietary and Confidential. TRE3015-05

“May I interest you in a scented candle today? They are buy-one-get-one-free,” the cashier dutifully recites in a tone that anticipates rejection. Her delivery probably falls short of what the marketing manager had in mind.

“No, I just want to make a return,” states the customer flatly.

What happens next has a measurable impact on revenue and on customer satisfaction. The consumer making the return is probably among the retailer’s better customers. Will the return procedure and the clerk’s attitude reflect that? Will the return be fair and without bias? Will any effort be made to convert the refund into a new sale?

Returns are an effective opportunity to shape consumer behavior. For the consumer, making a return is usually the primary reason for that day’s visit to the store. Whether there will be a repeat visit often hinges on today’s return experience.

RETURNS IN FOCUS