Presented by: Bryan Gildenberg, Chief Knowledge Officer Frank Badillo, VP & Chief Economist...

Presented by:

Bryan Gildenberg, Chief Knowledge OfficerFrank Badillo, VP & Chief Economist

Signature Series Webinar

10 April 2014

Is It Spring Yet? A Look At An Unfreezing U.S. Environment

© Copyright 2014 Kantar Retail

Copyright © 2014 Kantar Retail. All Rights Reserved.

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Disclaimers

The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion.

This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides.


What Will a Spring Thaw Bring?

Focus on three key areas:

•Macro environment

•Shopper perception and response

•Channels and retailers

Framing assumptions affecting your 2015 planning process

Source: Daffodil Blooming Through The Snow by Serge Bertasius Photography and http://www.freedigitalphotos.net/ 3


Overall Consumer/Retail IndicatorsMarket DisruptionsConfidence & Spending IntentionsEmployment, Income, Wealth & CreditBusiness & Residential InvestmentPricesExchange Rate, Monetary & Fiscal Policy

Overall ImpactIndicators by group

United States

#The latest weekly scorecard is available in a news brief posted on the Macroeconomic Insights webpage at: http://www.kantarretailiq.com/Topic/NewsList.aspx?Topic=368280

Spending Reflects Recent Macro Conditions

4

Weather, heating costs, SNAP, and ACA rollout loom large

Source: U.S. Department of Commerce, U.S. Department of Labor, Conference Board, Federal Reserve Board, and Kantar Retail

• Impact of disruptions on spending is relatively small

– Toll on growth from any given disruption is easily obscured

• Impact of disruptions on shopping behavior is greatest

– Shift toward health care services

– Discretionary goods most at risk

– Consumable goods sheltered, favored—but specific retailers/brands not immune

– Coupons, private label, and value channels gain favor

Scorecard:Retail-Relevant Macro Conditions

April 2013#

Improving Mixed Worsening


A Chill From Weather and Health Care

• Topline household spending growth slowed into Q1

• Growth has shifted in favor of services, especially health care

• Caused dramatic growth slowdown in durable goods

• More modest letup in food and other consumable goods

Negative impact focused on discretionary, bigger-ticket goods

Source: U.S. Department of Commerce, and Kantar Retail analysis 5

Household Spending: Goods vs. ServicesQuarterly Percent Change Year-to-Year, Seasonally Adjusted

Durable Goods (e.g., Autos & Home

Furnishings

Total Household Spending

Nondurable goods less gasoline & other fuel goods

Services

*

* Q1 of 2014 is quarter through February 2014Q1

Impact


Health Care Impact Focused Up Market

• Many “Haves” likely pulled health care spending into 2013 to avoid potential higher costs in 2014

• Temporary impact will subside and drive 2014 pickup

• Softness may recur at year end if 2015 premiums adjusted higher

Half of “Have” households say they face higher costs

Source: Kantar Retail ShopperScape® February 2014, and Kantar Retail analysis 6

How would you describe the status of health insurance coverage for you/your household

in 2014 compared with 2013?

Have HouseholdsAnnual Income = $60,000+

Have-Not HouseholdsAnnual Income = <$60,000

Still uninsuredSame or lower cost for similar or expanded benefits

Newly insuredHigher cost for similar or expanded benefits


Impact on Spending Intentions is Reversing

7

Have households bouncing back in March

Haves2

All Shoppers

Have Nots3

1 Through March; Spending intentions represent sum of percentage of primary household shoppers planning to spend about the same or more in the coming month2 Haves are households with average income of $60,000 or higher, representing about 40% of households3 Have Nots are households with average income of less than $60,000, representing about 60% of households

Shoppers’ Spending Intentions1

Percent of Shoppers Planning to Spend About Same or More• Have households likely moving past precautionary response to health care impact…– …and following lead

of Have Nots

• Have Nots affected by different mix of factors…– …affected less so

by health care; quicker to bounce back

Source: Kantar Retail ShopperScape® January 2012-March 2014, and Kantar Retail analysis

+4.2% Y-to-Y

+5.8% Y-to-Y

+5.1% Y-to-Y


Health Care Among Reasons for Spending LessIn March, ranks down a list that differs for Haves vs. Have Nots

Source: Kantar Retail ShopperScape® March 2014, and Kantar Retail analysis 8

What are the reasons you plan to spend less at retail in the coming month?Responses of shoppers who plan to spend much/somewhat less at retail in coming month

Health care and winter heating

costs rank down list of key reasons among shoppers planning to spend

less


Reasons for Spending Less—Have HouseholdsSkew toward broad household needs and long-term goals


Highlights are “spend less” reasons

significantly more likely for Haves



Reasons for Spending Less—Have NotsSkew toward near-term budget constraints and challenges


Highlights are “spend less” reasons

significantly more likely for Have Nots



SNAP and Have Not Budget Constraints

Average Monthly SNAP BenefitsJan-2014 Per Month Chg from Oct.Per Person $124 - $10Per Household $255 - $21

Impact changing with benefit cuts, enrollment, shopper response

Source: U.S. Department of Agriculture, and Kantar Retail analysis 11

SNAP Recipients and HouseholdsIn Millions Through January 2014

-2.6% from 12/2012 Peak

-2.0% from 6/2013 Peak

• Impact of benefit cut depends on extent it is offset in some way

• May be accelerating movement out of program from post-recession peak

• New jobs/work hours part of response to benefit cuts – Cut of $10 per person,

$21 per household or about $5 billion annual total across households


Shopper Response to SNAP Benefits Cut

• One in five recipients has not changed behavior in response to cut

• Those that have changed behavior use mix of tactics to blunt impact

• Supermarkets (e.g. Kroger) may be faring relatively better among channels/retailers

Affected 12% of ShopperScape® households; ~20% of Have Nots

Source: Kantar Retail ShopperScape® January 2014, and Kantar Retail analysis 12

How has your spending and shopping behavior changed as a result of reduced SNAP benefits?


Have Nots Will Be Further Constrained by Inflation

13

Beginning of end of dormant inflation period?Food Consumer & Commodity Prices

1982-1984=100 for Food Price Index; 1970=100 for Commodity Index

Source: U.S. Department of Commerce, Standard & Poor’s and Kantar Retail analysis

• Food commodity prices are being led higher by meat, coffee, cocoa prices

• Reflect impact of recent and past weather effects

• Additional price pressure will depend on recovery of global commodity demand —especially from emerging markets * Commodity index is through March & includes Wheat, Corn, Soybeans, Cotton, Sugar, Coffee and Cocoa

** Food-at-home Consumer Price Index is through February

Agriculture & Livestock Commodity

Index*

U.S. Consumer Prices for Food

at Home **

Feb/MarchUptick

© Copyright 2014 Kantar RetailSource: U.S. Bureau of Labor Statistics and Kantar Retail analysis

Measures of Consumer Price Inflation(Monthly, Percent Change Year-to-Year)

Goods (excluding

food & fuel) -0.4% in Feb.

Food at Home+0.9% in Feb.

• Food price pickup is still very modest on a year-to-year basis—but is likely to trend higher

• Other goods prices still flat or down, but that also will begin to reverse

• Services remain the focus of most consumer inflation—with outlook dependent on health care and labor costs

Inflation Likely to Remain Modest in 2014

14

More significant inflation pickup likely to lag into 2015

Services2.4% in Feb.


• Plan for disrupted, but sustained recovery. Adjust to disruptions, but do not let them obscure the underlying opportunities (e.g., states, metro markets)

Planning Assumptions and Expectations

15

• Expect distinct Have/Have Not responses to disruptions. The shopping response of Have households to disruptions is key to the outlook for discretionary categories, while the Have Nots’ response is pivotal to consumables categories (e.g. drugs)

• Assume spending confidence will remain key for Haves. Whether held back by health care issues or more general concerns, a revival of spending intentions among Haves is key to the outlook

• Stay alert to inflation threat to Have Nots. Price and budget constraints remain a big concern amid even low inflation. As price pressures rise, the value focus of Have Nots will intensify into 2015


Planning Assumptions and Expectations

16

• Expect better growth for consumables. Growth improvement in 2014 should be driven by the sustained jobs recovery and health care-related spending—especially among Have Nots

• Be ready for a discretionary goods pickup sooner or later. A rebound could occur quickly in 2014 or lag into 2015, depending on whether Haves sustain a spending intentions revival

• Expect a mixed channel outlook, especially for big-box mass merchandisers. A firmer outlook for consumables, especially among Have Nots, should boost Walmart and other mass retailers, but they are likely to remain squeezed by strong competition from Amazon on one hand and supermarkets/small boxes on the other


3 BIG CONCEPTS TO REACH SHOPPERS

• “TOP OF MIND”

• “FIRST”

• “BEST”

17


ASSUMING EVERYONE’S SEEN THIS?

• https://www.youtube.com/watch?v=aFYs9zqYpdM

18

It’s Like Sharper Image Built An “End Of The World” Stick


The Core Threat: AmazonPercentage of shoppers who are Prime members, by club

Source: Kantar Retail ShopperScape®, December 2011, December 2012, and December 2013 19


All Shoppers 4.8

Gen Y 6.4

Gen X 5.3

Boomers 4.3

Seniors 3.3

Yet Boomers Most Likely to Purchase OnlineBoomers’ “digital fluency” lags … but active online purchasers

20Source: Kantar Retail ShopperScape®, January 2014

63% all shoppers

Have Purchased Products Online in Past 6 Months

(among all primary household shoppers)

Have Purchased Products Online in Past 6 Months

(among all primary household shoppers)

“Digital Fluency”Average Number of Online/Digital

Activities* Over Past 6 Months

“Digital Fluency”Average Number of Online/Digital

Activities* Over Past 6 Months

*Among 16 online shopping, app use, and social networking activities


Taking Routine Replenishment off the ListNew habits disrupt decision points; when, not what

21Source: Kantar Retail analysis, Company websites


Reforming Habits Is About Building LaddersShopper Marketing plays a critical role in being in the right place, right time — and building ladders (whether engagement or conversion)

Source: Kantar Retail analysis 22


Articulate a Theme That Resonates with MembersBMW items are tied to experts, linked to regimens

Source: Kantar Retail club visit (Costco, Columbus, OH, December 2013); Kantar Retail analysis (2014) 24

Adding credibility and clout, products are clearly linked to stylists/beauty experts. Participating items include Jenna Hipp, Shiseido, Orlando Pita, Pati Dubroff, LaLicious, StriVectin, Jessica Wu, and Serge Normant. Nearly all feature “Why We Love” explanatory signage and videos, and some provide product

testers. While there are only one or two SKUs from each stylist/brand, all comprised multi-packs/regimens and/or product “collections.”

Adding credibility and clout, products are clearly linked to stylists/beauty experts. Participating items include Jenna Hipp, Shiseido, Orlando Pita, Pati Dubroff, LaLicious, StriVectin, Jessica Wu, and Serge Normant. Nearly all feature “Why We Love” explanatory signage and videos, and some provide product

testers. While there are only one or two SKUs from each stylist/brand, all comprised multi-packs/regimens and/or product “collections.”

Items are stamped

with “Beauty’s

Most Wanted”

logo.

Items are stamped

with “Beauty’s

Most Wanted”

logo.


2014 IS THE YEAR WE NEED TO GET SERIOUS…Are We Part Of The Right Pre-Purchase Conversations?

25


Think of Portable, Real-Time Information as Climate Change

is one key symptom of that change — the ability for shoppers to know retail — a better product obviously reduces that comparability!

the ability for retailers to know shoppers

the ability for retailers to dynamically be the right retailer at the right time for the shopper


So, what are the responses?


BETTER: The New Premium” Addresses Key Questions About How, What and Why?

Transparency

Preservation

Purpose

Authenticity

Health

Community

How

What

Why

Sustainability

Wellness

Personal Social



PERSONALIZATIONSomewhere along this continuum is the right answer…

28

© Copyright 2014 Kantar RetailSource: Kantar Retail store visits & analysis

Using Loyalty Data to Offer Personalized Pricing

29

Language all centeredaround the user, showing

the personalization

Language all centeredaround the user, showing

the personalization

Recommended deals are designed to

convert the shopper to purchase in other

categories

Recommended deals are designed to

convert the shopper to purchase in other

categories


Get Personal to Tell a Better StoryBMW program elevates value with education, personalization

Source: Kantar Retail club visit (Costco, Columbus, OH, December 2013); Kantar Retail analysis (2014) 30

Costco’s BMW program uses informational signage and

messaging to better articulate and personalize its value

proposition, particularly for items that are new to market.

Costco’s BMW program uses informational signage and

messaging to better articulate and personalize its value

proposition, particularly for items that are new to market.


Contextualizers

•Whole Foods, lululemon, fashion, Dollar General

•Who will play a broader role? Watching category players starting to step up

– Blurring of media and retail – pronounced in entertainment and in online advertising

– Interesting model – Netflix, which started as a “retailer” but has turned into much more than that (content provider and producer, data source – in essence have replaced a broadcast network with a personalized and contextualized alternative)

Framers of a brand beyond shopping — targeting, but targeting a group based on affinity & lifestyle need rather than transactions



Winners Will Be Great At Clarity

• Better: “the aid” – a walking stick, GPS and emergency help system (“an iPhone on a stick” – J Rand)

• Personal: service (dieticians, pharmacists, etc)

• Context: access to healthcare and these better products

• What else gets demystified?– Technology (Best Buy)– Home Improvement (Home

Depot)– Fashion (J. Crew)– Beauty (Ulta/Sephora)

Demystification of high spend categories (what we sell)


Focus: Healthcare


• ShopRite Dieticians a key part of “demystifying” good nutrition and healthy living – best in class food retailers will own food expertise

• Publix Aprons runs 10 cooking schools, a YouTube channel and in-store displays for meal solutions

• HEB has beauty advisors in over 170 stores! Giant Eagle among many to revamp ISV in Beauty..

DEMYSTIFYING FOOD AND BEAUTY

33


Curating the Assortment to Help the ShopperAligning to dietary needs and lifestyle choices

Source: Kantar Retail analysis; store visits 34

Gluten freeGluten free VeganVegan Natural/OrganicNatural/Organic

More than just good merchandising, these are true solutions oriented at small but fast growing shopper segments

Where could your items fit in here?


Positioning Curation as a ServiceShowcasing new items and added value

Source: Kantar Retail analysis; store visits 35

“Primo Picks are unique, tasty, and cool products you may have never heard of before that we’ve

searched the world to bring home to you”

“Primo Picks are unique, tasty, and cool products you may have never heard of before that we’ve

searched the world to bring home to you” In store demos

On shelf signage

Sometimes its private label (and not even food!)


APPAREL SPECIALTY = CONTEXTThis changing context might be a bigger risk to Target than Amazon…

36


CLEAR: BEST PRACTICE

• Assortment management – science and discipline to help simplify an overcomplicated shelf

–Has to be non-self directed and holistic economically

• Signage – creative skill required to develop something the retailer wants too!

• Digital –use digital touchpoints to help shopper navigation in and before the shopping moment

37


• Cross channel behavior

• “emerging tools”

• Cross channel behavior

• “emerging tools”

• Surveys – attitudes & perceptions• i.e., PULSE (Communispace & MaPS)• Surveys – attitudes & perceptions• i.e., PULSE (Communispace & MaPS)

• In-store purchases• i.e., Retail Link• In-store purchases• i.e., Retail Link

• Competitive behavior • i.e., Nielsen scan data / panel data• Competitive behavior • i.e., Nielsen scan data / panel data

Refinements Require Focus on Analytics

38

Considering Walmart’s structure for its mass of data

Cindy Davis’s team frame to structuring customer insights:

Source: Kantar Retail analysis and company presentations


Future is Moneyball MarketingMust get smarter to anticipate omni-shoppers’ needs


Purchased shopping carts

Items added to carts but abandoned

Pricing experiments

Packaging experiments

Wish lists

Referral sites

Dwell times

Ratings by you or those in your social network/buying circles

Demographic information

User segmentation

Direct marketing click through data

Click paths in session

1

2

3

4

5

6

7

8

9

10

11

12


Retail Link 2.0 Arrives… Considering the next generation of colloboration

Source: Company presentation, Kantar Retail analysis 40

“We can now combine our internal data, our POS data, our inventory data with external sources of information, as well as with our supplier partners,

our retail supplier partners.” –Karenann Terrell, Oct. 2013

“We can now combine our internal data, our POS data, our inventory data with external sources of information, as well as with our supplier partners,

our retail supplier partners.” –Karenann Terrell, Oct. 2013


CONCLUSIONS

• A polarizing world means value proposition needs to get markedly better defined and articulated

• Outlet consolidation means I have to nail categories that shoppers buy most often, and leverage them effectively – Rx and HBA for Target are trip drivers, not basket builders

• Share of samer shoppers are less enticed by hot deals and premiumization – they are trying to responsibly manage their expense line

• Personalization and context are how we win the war against price transparency…how will Target use categories and partners here?

41


Contact:

Bryan GildenbergChief Knowledge [email protected]:+617.588.4124

Frank BadilloVP & Chief [email protected]:+1.614.355.4019Twitter: Frankonomist

www.kantarretail.comwww.kantarretailiq.com

>>Topics & Trends >> MacroeconomicsKRIQ Macroeconomic Insights Center

Presented by: Bryan Gildenberg, Chief Knowledge Officer Frank Badillo, VP & Chief Economist...

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