April 2015

Defying Gravity

Delivering High Growth in

a Low Growth World

Consumer dynamics are shifting...

Yesterday Today Tomorrow

Aged 60+

Ethnic Minority

Demographics

34%

8%

36%

14%

40%

20-30%

We’re becoming older and more diverse

Spending

Choices

Proportion of Spend on

Retail

Proportion of Spend on

Housing2

24%

20%

23%

28%

22%

29%

We’re spending proportionately less on retail and more on housing

Spending

Potential

Household Income

Growth

Mass Affluent1

0.9%

19%

3.8%

25%

3-4%

29%

Wealth polarisation is likely to continue

Source: Euromonitor, ONS, Datamonitor , Policy Exchange, OC&C analysis

1. £50k - £1m Assets, % of population

2. Expenditure on actual rentals for housing, imputed rentals for housing, maintenance and repair of dwellings, water and sewerage and electricity, gas and other fuels

...and technology has changed the way we shop

Yesterday Today Tomorrow

Connected Devices per

Person, #

Media Consumption

(hours / day)

% People who use

internet to research

goods / services

Connectivity

–

7.3

58%

3.1

9.1

73%

5

–

82%¹

We’re connected and will be more so ...

... With significant implications for the last mile

% Home Delivery2

% Click & Collect2

Channels

4%

–

17%

4%

25-30%

15-25%

Source: Euromonitor, Mintel, ONS, Statista eMarketer, Frost & Sullivan, Verdict, Forrester, OC&C analysis

1. OC&C Estimate

2. % out of total UK retail excluding Food and Grocery

Growth in retail is hard to come by Real Consumer Expenditure

% CAGR

1.7%

-1.1%

0.1%

0.8%

1.3%

1.9%

2.2%

2011-14 2014-25

1.9%

1.2%

1.4%

1.0%

2.0%

2.2%

2.1%

Total

Source: Economic Intelligence Unit, OC&C analysis

Growth Leaders outperform 17X Average Growth of Retailers, 2011-13

% CAGR, n = 550

0.9%

15.5% 1.1%

40.0% 1.2%

18.7% 1.6%

16.5% 2.9%

Total 16.9%

1.3%

14.4% -0.3%

16.6%

Growth Leaders

Typical Retailer

Retailers >£200m with publicly available financials1

Source: OC&C Retail Database 2015

1. Growth Leaders, excluding the 14 companies that grew through Acquisition

Multichannel leads the way, particularly from the UK & USA Overview of Top 100 Growth Leaders

UK

33

France 9

Germany 7

Other 5

US

34

Netherlands 3

Nordics 9

International Expansion

23

Sports & Outdoors 10

By Channel

Online Pureplay 9

Domestic Expansion

35

100

Bricks & Mortar

24

by Category By Growth

100

Health & Beauty 8

Multichannel

67

By Country

Clothing & Footwear

22

Healthy Food & Vitamins 5

New Categories 3 Other 11 New Channel 3

LfL

22

Grocery

13

General Merchandiser

13

DIY, Furniture &

Household 14

100

Electricals 4

100

Acquisition

14

...but “bricks”

have not run

out of steam

Multichannel

players are

winning...

A third of the

fastest growing

retailers are

UK -based

Growth is spread

across categories...

...driven by both

domestic and

International

expansion

Source: OC&C Retail Database 2015

1. Available on BvD

2. 6 companies categorised as Other in ‘By Country’ composed of 2 companies from Japan, 2 from Canada, 1 from Italy, and 1 from Spain

Retailers >£200m with publicly available financials1

Rank Retailer Country Category Latest

CAGR

Avg. Revenue

Uplift p.a. (£bn)

Latest Revenue

(£bn)

1 Apple US Technology 26% 19.3 106

2 Amazon US General Merchandiser 24% 8.0 45

3 Casino FR Grocery 19% 5.9 41

4 Costco US Grocery 9% 5.2 68

5 Aldi group GER Grocery 7% 3.1 46

6 7-Eleven JAP Grocery 8% 2.5 33

7 eBay US General Merchandiser 17% 1.3 10

8 Jumbo NL Grocery 46% 1.3 5

9 TJ/TK Maxx US Clothing 9% 1.3 17

10 Inditex ESP Clothing 10% 1.2 14

The Top 10 have posted between 7% and 46% growth

Source: OC&C Retail Database 2015

1. Latest available year

Retailers >£200m with publicly available financials1

3 of top 10 are tech-based 3 of the top 10 are tech-led

businesses

Grocery continues to

perform well

Grocery continues to

perform well

Retailers are spread

internationally

Some have grasped the ‘magic formula’ Revenue Growth Rate vs Profitability, by Retailer

Latest Available, % CAGR, % EBIT

Average

EBIT =

8.5%

Source: OC&C Retail Database 2015

1. Available on BvD

Retailers >£200m with publicly available financials1

Average Revenue

Growth = 16.9%

Magic

Formula

Investing to Grow

0 5 10 15 20 25 30 35 40 45 50

Net-a-porter

AO.com

Pandora

Lulu Lemon Prada

eBay

Amazon

Apple

2011-13 Revenue % CAGR

2013 E

BIT

%

Who are the Growth Leaders? Top Growth Leaders by Country, Latest Available

% CAGR, Average Annual £bn Change

Growth Leaders

Aldi UK 38% 1.3

Waitrose 7% 0.4

Growth Leaders

Apple 26% 19.4

Amazon 24% 8.0

Growth Leaders

H&M 8% 0.9

Rema 1000 16% 0.6

Growth Leaders

Tom Tailor 48% 0.2

Hugo Boss 9% 0.2

Growth Leaders

Jumbo 46% 0.3

Action 26% 0.2

Growth Leaders

Casino 19% 6.0

Decathlon 7% 0.4

Source: OC&C Retail Database 2015

In the UK, Discount and Premium/Luxury are in the lead Overview of UK Growth Leaders

Retailer Avg. Annual

Revenue Uplift (£m)

Latest CAGR

11 Poundland 110 13%

12 Ocado 100 15%

13 The Range 85 25%

14 AO.com 85 36%

15 Net-a-porter 80 20%

16 Harrods 75 11%

17 Screwfix 75 14%

18 Costcutter 70 11%

19 Poundworld 70 29%

20 Dunelm Mill 70 12%

Retailer Avg. Annual

Revenue Uplift (£m)

Latest CAGR

1 Aldi 1,250 38%

2 Waitrose 360 7%

3 Sports Direct 290 17%

4 Primark 240 11%

5 Burberry 235 12%

6 John Lewis 195 7%

7 Home Bargains 170 21%

8 B&M Retail 140 18%

9 ASOS 135 25%

10 JD Sports 135 12%

Source: OC&C Retail Database 2015

1. Available on BvD

Growth Leaders are exposed to 6 key tailwinds

1

Convenience

The nature of shopping missions is changing

39%

53%

25%

26%

2012 2009

Twice per

week

3+ times

per week

Frequency of Grocery Shopping

% of Consumers

14%

40%

25%

16%

Early: 7am - 9am

2%

Afternoon: 1pm - 7pm

3%

Evening: 7pm - 9pm

Morning: 9am - 1pm

After Midnight

Late Eve: 9pm - midnight

Time of Online Purchases

% Purchases, n=2,495

59% online

purchases are

made outside

of typical high

street retail

opening hours

Source: OC&C Experience, OC&C analysis

Growth Leaders let customers shop on their own terms

Example Retailers Range of store formats

Optimised web / mobile accessibility

Speedy delivery and collection options

Ownership of last mile delivery

Integrated subscription models

Average

Growth = 23%

Growth Leaders are exposed to 6 key tailwinds

2

Beyond The

Product

1

Convenience

Services and experiences augment the retail offer

In FY14 salon revenue

increased 20% vs FY13, inline

with total sales

Each of the 230 stores has its

own schedule of events and

cooking classes

Webinars are regularly used to

share knowledge

Example Retailers Average

Growth = 22% Combining products with services

Training and developing colleagues

Web that deepens customer knowledge

In-store activities and events

Leaders take every opportunity to reinforce specialism

Growth Leaders are exposed to 6 key tailwinds

2

Beyond The

Product

1

Convenience

3

Importance Of

Value

Shopping at discounters is a democratic phenomenon

Hard Discounter Share of Grocery Retailing

% Retail Value

Usage of Discounters, by Income Band

%

36%

42%

45%Under

£25k

£25k - £50k

£50k or

Above

Source: Euromonitor, Mintel, OC&C Analysis

6%

9%

2019

+3.2%

2014 +26.9%

36%

9%

36%

“Value” has multiple guises

“No frills”

primary focus on

low prices

“Thrills” focus

on quality and

value; luxurious

food made

affordable

Example Retailers Average

Growth = 19% Tight range and choice architecture

Lean operations and supply chain

Understand and eliminate waste across

the value chain

Successful discount is founded on extreme simplicity

Growth Leaders are exposed to 6 key tailwinds

2

Beyond The

Product

1

Convenience

3

Importance Of

Value 4

Aspiration

Example Retailers

Premium Growth Leaders cater to the growing “affluents”

<$50K

$50K - $1M

> $1M

2018

3,968

3,569

388

11

2014

3,785

3,450

326

9

2006

3,345

3,102

237

6

Population by Liquid Asset Band1, Global

# millions

CAGR

5.0%

4.2%

1.2%

Source: Datamonitor, OC&C Analysis

1. Onshore liquid assets, 64 large economies covered by Datamonitor

Average

Growth = 13%

Growth Leaders are exposed to 6 key tailwinds

2

Beyond The

Product

1

Convenience

3

Importance Of

Value

5

Wellbeing

4

Aspiration

Wellbeing is front of mind UK Google Search Volumes, by Word

Indexed: 2015 Volume=100

2004 2015

"Chia"

"Yoga"

"Gym"

"Running"

"Quinoa"

"Superfood"

Source: Google Trends, OC&C Analysis

Example Retailers Average

Growth = 18%

Growth Leaders are exposed to 6 key tailwinds

2

Beyond The

Product

1

Convenience

3

Importance Of

Value

5

Wellbeing

4

Aspiration

6

Adornment

Example Retailers

Customer share of spend on adornment is growing Growth In Consumer Household Expenditure

% CAGR, 2007-2013

Source: ONS, OC&C Analysis

5.2%

4.5%

1.9%

Housing & Home

Improvement

Other Household

Consumer

Spending

Clothing &

Footwear

Average

Growth = 17%

What does this mean for retailers?

How well

have you

exposed

yourself to

the

tailwinds?

How clear are

you about what

makes your

customer offer

distinctive?

How

confident

are you

about your

value

promise?

And most importantly, are you keeping up with customers?