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Understanding the Omnichannel Shift

What Forces are Shaping Today’s Digitally Integrated Shopping Experience

“E-commerce is rapidly evolving into New Retail. The boundary between offline and online commerce disappears as we focus on fulfilling the personalized needs of each customer.”

Jack Ma, Executive Chairman, Alibaba Group, 2017

Source: Alibaba

Each customer has an evolving set of expectations

On-Demand Consumer

Demands Convenience & Flexibility Hyper- Personalization Expectations Seamless & Frictionless Experience Demands Experiential Environments Immediacy Critical – Instant Gratification Accountability Transparency & Traceability Asset-Light Lifestyles Consumer Empowerment

Source: Edge by Ascential Retail Insight, 2019

Store-based only 18-23 (CAGR): +4.1% Pureplay 18-23 (CAGR): +15% Omnichannel 18-23 (CAGR): +10.1%

Global Sales Breakdown by Selling Model (%) – 2013-2023
 (store-based, pureplay, omnichannel*)

Source: Edge by Ascential Retail Insight, 2019 *Omnichannel = These models sell through both online and offline platforms, usually with the same banner name and an overlap in assortments (e.g. Walmart.com).

That are not being met by traditional stores

Stores CAGR (13-18): +2.8% Stores CAGR (18-23): +1.8%

Source: Edge by Ascential Retail Insight, 2019

Store opening rates are slowing worldwide

Ecommerce pureplays have disrupted the landscape

2018

Billions

110952470032 114728086186 118491071644 122664871374 128058721143 138434000000 154152056000 302506647594 405479905838 515702652889

2023e

143105879242 145650074665 147413441896 160760253706 202408730954 231246677440 321110670375 514353802181 633507217255 1006062366281

Top Ten Global Retailers By Sales/GMV (USD bil)

Source: Edge by Ascential Retail Insight, 2019

But even these players recognize the importance of the store

Source: Edge by Ascential Retail Insight, 2019

Technology underlies omnichannel success

Innovators (2.5%) Early adopters (13.5%) Early majority (34%) Late majority (34%) Laggards (16%)

‘The New Normal’ ‘Inevitable’ ‘Detectable’ ‘Clear’ ‘Relevant’

Virtual Reality Blockchain Augmented Reality Facial Recognition Visual Search Voice Internet of Things Robotics & Automation Artificial Intelligence Mobile

Adoption Time Diffusion curve: The evolution

• f new technologies

Source: Edge by Ascential Retail Insight, 2019

This emerging tech continues to be tested to determine true winners

IoT Robotics Artificial Intelligence Mobile Voice AR / VR Blockchain Facial Recognition Visual Search 3D Printing

Source: Edge by Ascential Retail Insight, 2019

Enabling the key features of the ‘Store of the Future’

Source: Edge by Ascential Retail Insight, 2019

Global: Unmanned and Checkout-less Store Count by Retailer, March 2019

213 425 638 850 Auchan Fxbox BINGOBOX EasyGo Bianlifeng Xiaomai JD Banacoo Amazon Go F5 Future Store Suning Shinsegae Alibaba 7-Eleven MobyMart Mama 11 Mart Irispay X-24h Yijie Well Go 24IGO 1 1 1 1 1 2 2 4 4 4 5 6 10 15 20 30 100 100 500 500 750

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The physical store as we know it is under threat

Growth of e-commerce Weakening demand for discretionary purchases New set of consumer expectations Store closures Store of the Future Initiatives Channel & operational diversification

Source: Edge by Ascential Retail Insight, 2019

The Store of the Future is defined by 4 main characteristics

Experiential

Social

Curated

Frictionless

Operational Excellence = Execute in a profitable and sustainable way

Helping shoppers connect with a brand or retailer Helping shoppers connect with each other Build a differentiated proposition Aid the shopper experience

Source: Edge by Ascential Retail Insight, 2019

Experiential elements in-store drive excitement and traffic, as well as promoting product discovery and education

Auchan brand pop-ups Johnnie Walker experience store

Source: Edge by Ascential Retail Insight, 2019

Social elements of stores drive dwell time and become established meeting points, increasing traffic

Lululemon community zones Starbucks Reserve Roastery

Source: Edge by Ascential Retail Insight, 2019

Curation emphasizes carefully evaluated product mix that captures trends and retains shopper attention

Amazon 4-star Budgens sustainability signage

Source: Edge by Ascential Retail Insight, 2019

Frictionless stores focus on payments and item collection process efficiencies

Sam’s Club advanced Scan & Go Casino Franprix robotic shopping cart

Source: Edge by Ascential Retail Insight, 2019

Retailers are leveraging automation and AI to create cost savings

Walmart robotics implementations Ahold Delhaize AI-driven supply chain forecasting

Source: Edge by Ascential Retail Insight, 2019

Not all initiatives work, a test & learn culture is required to uncover true winners

Experiential Social Frictionless Curated

Lidl meal kits, 2015-2019

Walmart Scan & Go handsets, 2013-2018 Barnes & Noble Kitchen, 2016 -2018 Amazon pop-ups, 2016-2019

Source: Edge by Ascential Retail Insight, 2019

What capabilities are required to win in-store?

Experiential retail

Merchandise fundamentals

Rethinking front of store Digital integration New Measures of Success

In what ways will retailers add experiences to stores and what impact will those have? How can the Store of the Future use merchandise to differentiate and drive traffic? How can the front

• f store evolve to

face market challenges and consumer needs? How can retailers provide a truly seamless customer experience between store and online? How can retailers instill a new set of KPIs to reflect the changing role

• f omnichannel
• perations?

Source: Edge by Ascential Retail Insight, 2019

Experiential retail is the execution of in-store experiences that stimulate shoppers and cannot be replicated online

E

The 5 E’s of Experiential Retail

Experiment Entertain Excite Equip Educate

22

Brands can lead with retailers experiential inspiration initiatives

Build Your Own 6-Pack by Coca-Cola & Kroger Revamped Candy Aisle by Hershey’s & Target

Store merchandising strategy should be informed by 3 main components

Store merchandise Fulfillment Services Inventory

≤20% 20-35% ≥50% Medium 35-50% Low High

• 1. Store space mix

split by function

• 2. Private Label % of

total sales Core Destination Seasonal / Events- related Solution-based (e.g. meal, conv.)

• 3. In-store category management breakdown

Category roles:

Source: Edge by Ascential Retail Insight, 2019

24

Case Study: Trader Joe’s operates stores with a small footprint and limited product range that are highly productive

Trader Joe’s Sales Per Sq Ft 2013-2023 (USD), Average Sales Per Sq Ft of Supermarket & Neighborhood Stores Channel in the US

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 $669 $655 $641 $626 $612 $600 $583 $572 $569 $561 $546 $2,124 $2,091 $2,058 $2,023 $1,980 $1,937 $1,894 $1,671 $1,622 $1,608 $1,579 $546 $561 $569 $572 $583 $600 $612 $626 $641 $655 $669

Average

~4,000 SKUs 80% private label

Source: Edge by Ascential Retail Insight, 2019

New touchpoints are emerging to replace the traditional front of store

Serviced click & collect Automated click & collect Just walk out Curbside pickup Collection lockers Home fulfilment Associate Mobile Checkout Self scan Self checkout

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Impulse purchase solutions must evolve with the front of the store

Pickup Prompt: Lidl lockers In-store Innovation: Hershey’s Smile Sampler Online Optimization: Ocado personalized checkout product recommendations

Source: Edge by Ascential Retail Insight, 2019

Digital integration is possible across the entire shopper journey

Discovery/
 Inspiration Selection Purchase Fulfilment Service

AR displays Smart shelf labels Checkoutless technology Automated pickup Navigation Robotic assistants Augmented reality showroom RFID technology License plate recognition Virtual services 
 in-store Social media engagement Digital curation Facial/fingerprint recognition Digital lockers Artificial Intelligence Gamification Motion sensors Contactless payment Artificial Intelligence Endless aisle Digital signage/ kiosks Personalized content VR shopping Drones Transparency

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Digital integration is additive to the in-store shopping experience, guiding and informing

Source: Edge by Ascential Retail Insight, 2019

Carrefour – Coca Cola LED guided shopping Nike social media wall & ‘Shoe Terminal’

Investments in these areas lead to measurable success

Target – Quarterly Comp Sales Growth and Traffic (2016-2018)

• 2%

0% 2% 4% 5% 7% 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

0.0% 0.0%

• 0.2%

0.0% 2.1% 1.4% 3.2% 3.7% 6.4% 5.3% 4.5%

• 1.1%
• 0.2%
• 1.5%
• 1.3%

1.3% 0.9% 3.6% 3.0% 6.5% 5.1% 5.3% Target Comps Target Traffic Start of USD 7 bn 3 year store remodelling program of more than 600 stores 110 store remodels in 2017 325 store remodels planned for 2018

Source: Target Investor Relations

Our vision of the Store of the Future in 2030

Source: Edge by Ascential Retail Insight, 2019

Thank You!

Jack O’Leary, Senior Analyst E: john.oleary@ascentialedge.com

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