Presented by: Laura Kennedy, Principal Analyst Amy Koo, Senior Analyst Prepared by: Robin Sherk, Director February 27, 2014 US Channel Mass Webinar Walmart.

Presented by:

Laura Kennedy, Principal AnalystAmy Koo, Senior Analyst

Prepared by:Robin Sherk, Director

February 27, 2014

US Channel Mass WebinarWalmart and Target – The Year Ahead

2014

© Copyright 2014 Kantar Retail

Copyright © 2014 Kantar Retail. All Rights Reserved.

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(617) 912- 2828

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No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail.

The printing of any copies for back up is also strictly prohibited.

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.


Agenda

• Key Trends Impacting 2014 Mass Expectations

• Walmart & Target Shoppers’ Holiday Behaviors & Spending Plans

• Working with Walmart and Target Today

3


Key Trends Impacting 2014 Mass Expectations

Employment

Rebounding value of investment assets

Inflation effects

Government programs

Source: Kantar Retail research and analysis 4

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

Employment Will Keep Improving SlowlyHave Nots most improved in 2013, but still far behind Haves

Source: U.S. Bureau of Labor Statistics, and Kantar Retail 5

Unemployment Rate by Haves & Have Nots1

(Seasonally Adjusted, Monthly through November)

Have Nots (some college or high school degree or less)

Haves (4-year college

degree or higher)

Overall Unemployment

Rate7.0%

8.7%

3.4%

1 Education is used in place of income as a proxy for Have/Have Not status because it is a good predictor of low versus high income households

-0.8%

-0.5%

-0.7%

YoY change


* Recovered states have gained back nearly all or more than all jobs lost during recession; unrecovered states have gained back less than half of jobs lost

RecoveredPartly RecoveredUnrecovered

Employment Varies by Geography

6

Job recovery highly dependent on region.

States by Jobs Recovery*

Source: U.S. Bureau of Labor Statistics, and Kantar Retail

D.C

Alaska Hawaii

Higher Target concentrationHigher Target concentration

Higher Walmart concentration



Employment Gains Led by Metropolitan Areas

7

30 largest cities and immediate suburbs have led recovery

Source: U.S. Department of Labor and Kantar Retail

•Austin•Baltimore•Boston•Charlotte•Chicago•Columbus•Dallas•Denver•Detroit•El Paso

•Arizona •California •Colorado •Florida •Illinois •Indiana •Maryland •Massachusetts•Michigan •Nevada

•New York•North Carolina •Ohio •Oklahoma •Oregon •Pennsylvania•Tennessee •Texas •Washington •Washington D.C.•Wisconsin

Jobs Lost (Jan 2008-Feb 2010) Jobs Recovered (Feb. 2010 to Oct. 2013)U.S. Jobs Lost and Recovered (in Thousands)

•Fort Worth•Houston•Indianapolis•Jacksonville•Las Vegas•Los Angeles•Memphis•Milwaukee•Nashville•New York City

•Oklahoma City•Philadelphia•Phoenix•Portland•San Antonio•San Diego•San Francisco•San Jose•Seattle•Washington D.C

Urban Areas Non-Urban Areas


0.00

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

1995 1997 2000 2002 2005 2007 2010 2012

Th

ou

san

ds

Rebounding Assets: Net Worth Bounces BackOverall, households’ wealth has recovered since the recession

Source: Federal Reserve Board and Kantar Retail, 1995-2013 Q3 8

Net Worth(in USD billions)

recession periods

+11% YoY


Rebounding Assets: Housing ValuesRecovery through much of the country…but not all

Source: U.S. Bureau of Labor Statistics, Federal Housing Finance Agency, and Kantar Retail 9

27%

At or above pre-recession peak

Still below peak, but growing fast**Measures current home prices (through Q32013) relative to recession low point (% is increase from low)

D.C

Alaska

23%

20%

Hawaii

21%

19%

16%

16%

15%

21%

23%

41%

32%

37%

States by Recovery in Home Prices

RecoveredPartly RecoveredUnrecovered

Higher Target concentrationHigher Target concentration




Rebounding Assets: Feeling the ImprovementsAll see improvement, though more so for Target shoppers

Source: Kantar Retail ShopperScape®, October-December 2012 and October-December 2013 10

0%10%20%30%40%50%60%70%80%90%

100%

Q4 2012 Q4 2013 Q4 2012 Q4 2013 Q4 2012 Q4 2013

All Shoppers Monthly TargetShoppers

Monthly WalmartShoppers

Much/somewhat better off No change from last year

0%10%20%30%40%50%60%70%80%90%

100%

Q4 2012 Q4 2013 Q4 2012 Q4 2013 Q4 2012 Q4 2013


Monthly WalmartShoppers

Much/somewhat better off No change from last year

Note: Arrows indicate a statistically significant year-to-year difference (90% confidence).

Worth of Investments Value of Home


Consumer Prices*Year-to-Year Inflation Rates

2010-2011 2012 2013E 2014F 2014-2018F --

Inflation Expected to be Moderate in 2014

Source: : U.S. Bureau of Economic Analysis, and Kantar Retail 11

0

But anticipate an uptick in the long term

* Consumer prices are based on the price index for household consumption (PCE) as reported by the Bureau of Economic Analysis

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

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

Goods (excluding food & fuel) -0.1% in Oct

Food & Fuel*

-4.3% in Oct

Inflation in 2014 Mainly Limited to Services

12

Retail goods inflation will remain flat, food & fuel to stay down

Services2.4% in

Oct

*Includes Food at Home (i.e., excluding food service) and motor fuels


Inflation Long Term Trend Will Be Hard for Have NotsHave Nots income growth won’t keep pace with necessities

Source: U.S. Department of Commerce, and Kantar Retail analysis 13

Inflation Impact on U.S. Household Income *Nominal Compound Annual Growth Rate

High School/Some College*All Households

4-Year College Degree**

Income Growth By:Food & Fuel Prices

* Yellow bars are average inflation rate Underlying bars are average income growth for households * High school education or only some college is indicator of “Have Not” households **4-year degree or more is indicator of “Have” households


Government Programs: Food AssistanceReduced SNAP benefits for struggling Have Nots

Source: Kantar Retail research and analysis, USDA 14

• SNAP benefits were cut Nov. 1st, 2013, and were made permanent in the 2014 farm bill

• 83% of SNAP households are at or below the poverty line ($19,530 family of 3 in 2013).These HH receive about 91% of all benefits

• Walmart, supermarkets, and dollar stores are most likely to continue to take the brunt of cutbacks, whereas Target will be minimally impacted

• SNAP recipients are expected to cut back and trade down on their spending

Changes to Maximum Allowed Monthly Payout, as of Nov. 1, 2013Changes to Maximum Allowed Monthly Payout, as of Nov. 1, 2013


Government Programs: Affordable Care ActDisproportionately increases coverage for Have Nots, Gen Y/X, and minorities

Source: Kantar Retail ShopperScape®, August 2013 15

Where Does U.S. Population Get Health Insurance?

2013 2014 AFTER REFORM


Government Programs: Shoppers AffectedSmall subset, but significant difference in retailer bases

Source: Kantar Retail ShopperScape®, November 2013 16

16%13%

17%

0%2%4%6%8%

10%12%14%16%18%


MonthlyWalmartShoppers

Share of Shoppers Without Health Insurance in Nov. 2013

7%

5%

8%

0%

2%

4%

6%

8%

10%


MonthlyWalmartShoppers

Share of Shoppers Using Food Assistance During Last Grocery Trip

to Any Store

Note: Arrows indicate a statistically significant difference between monthly shoppers and all shopppers (95% confidence).


2014 Key Trends Closing Considerations

While both Target and Walmart will be affected by all of these trends, their core shopper bases of Haves and Have Nots, respectively, will weigh the impacts differently.

Improvements in economic conditions for all, but particularly for Have Nots, spending will still be cautious

Rebounding asset values will boost shoppers’ comfort in their financial situation, loosening purses – particularly for Haves

Inflation will have a modest effect on fuel, food, and goods, but shoppers may trade out of services, to the benefit of lower-cost home-based alternatives

Changes in government programs will pressure low income household on their food budgets, while encouraging more long-term focus on their health – although at a cost



Agenda




18


Shoppers Have Felt Positive About Their Position

Source: Kantar Retail ShopperScape®, October-December 2013 19

Note: bolding/highlighting indicates a statistically significant year-to-year difference (90% confidence level)

Evaluations of Household Financial Health in Q4 2013 Compared with Same Time a Year Ago

All ShoppersMonthly Target/

SuperTarget Shoppers

Monthly Walmart/WMSC

Shoppers

Job securityBetter off 19% 23% 19%No change 64% 61% 64%Worse off 17% 16% 17%

HH income levelBetter off 28% 34% 28%No change 49% 45% 48%Worse off 23% 21% 24%

Credit card debt level

Better off 23% 26% 24%No change 59% 55% 57%Worse off 18% 19% 19%

Monthly mortgage and car payments


Worth of investments


Value of homeBetter off 28% 34% 26%No change 60% 57% 61%Worse off 13% 10% 13%

Though not everyone is upbeat


Holiday Participation Reflects This Nuance

Source: Kantar Retail ShopperScape®, December 2012, December 2013 20

Yellow arrow indicates significant difference vs. previous year (95% confidence level)

Note: Among monthly shoppers of the given retailers


Mass Shoppers More Mindful of Their Store Sets

The Top Five Retailers/Channels Shopped for Holiday Gifts

Source: Kantar Retail ShopperScape®, December 2012 and December 2013 21

Read as: 64% of Target shoppers who purchased holiday gifts reported shopping Amazon for holiday gifts.

Note: Arrows indicate significant change from previous year (90% confidence level)


Deal Orientation was Rising over the HolidaysAided by the array of options…

Source: Kantar Retail ShopperScape®, December 2013 22

Arrows indicates significantly greater percentage vs. all holiday shoppers (90% confidence level)Note: among monthly shoppers of the given retailer who shopped for holiday gifts


Switching to 2014 Outlook: Mixed ExpectationsTarget shoppers slightly more optimistic than Walmart’s

Source: Kantar Retail ShopperScape®, January 2014 23


Spending Intentions Reflect This View

Source: Kantar Retail ShopperScape®, January 2011 – January 2014 24

Spending Intentions*Percent of Shoppers Planning to Spend About Same or More

* Represents sum of percentage of primary household shoppers planning to spend about the same or more in the coming month


Considering Specific Headwinds:SNAP reductions causing those shoppers to cut back

Source: ShopperScape® 25

Note: among monthly Walmart shoppers who receive SNAP benefits

Arrows indicates significantly greater percentage vs. all shoppers (90% confidence level)


And the Uncertainty Around the Health Care ActCausing some to pull-back on discretionary spending…


Arrows indicates significantly greater/less percentage between Walmart and Target shoppers (90% confidence level)

Note: among monthly shoppers of the given retailer who anticipate spending more on health care this year


Shoppers Continue to Focus on DealsWhile Walmart’s audience displays more limiting behaviors


All ShoppersTarget/


Walmart/ WMSC

Shoppers

Taking advantage of good sales/deals 47% 56% 50%

Buying only things I truly need 45% 46% 47%

Using more coupons 41% 52% 45%

Shopping less often 31% 31% 34%

Doing more price comparison shopping before making a purchase 29% 37% 32%

Buying less expensive versions of products 20% 18% 23%

Buying more store brands instead of national or high-end brands 18% 19% 20%

Shopping online more often 15% 18% 16%

Which of the following describe how you will approach shopping in 2014?

Yellow shading indicates significantly greater percentage vs. all shoppers (90% confidence level)Note: among monthly shoppers of the given retailer


Spending Priorities in 2014

All ShoppersTarget/


Walmart/ WMSC

Shoppers

Products that help you stay healthy 62% 65% 61%

Products that help you better organize or manage your life 52% 55% 54%

Products that help you save time doing household chores 48% 45% 50%

Products that are personalized to meet your specific needs or tastes 39% 37% 40%

Products to help you better enjoy your favorite hobbies or activities 39% 39% 38%

Products that help you stay fit 37% 36% 36%

Products that will allow you to stay in your current home longer 36% 33% 36%

Little indulgences or small luxuries that make you feel special 34% 36% 33%

New digital/mobile, computer or electronics products 24% 25% 24%

Products that make you look more attractive 21% 23% 20%

Products that you can customize to your exact specifications 20% 19% 21%

Health remains a top concern

Source: Kantar Retail ShopperScape®, October-December 2013 28

Note: among monthly shoppers of the given retailerBolding/highlighting indicates a statistically significant difference between Target and Walmart shoppers (90% confidence level)


Closing Considerations

• Mixed sentiment, though Target’s shoppers are feeling slightly better than Walmart’s

• Both audiences are value conscious/deal seeking, while Walmart’s shoppers are also more inclined to be cutting back and trading down

–Walmart’s dollar store defense will also be key

• Health and efficiency are top concerns–Indulgences are less of a focus

Mass shopper outlook

Source: Kantar Retail analysis 29


Agenda




30


Serving the Budget-Strapped Have Nots

Source: Kantar Retail store visits, analysis 31

Helping shoppers spend less through lower-tier solutions, smaller pack sizes, and rounded price points, while reinforcing the deal:


While Helping the Haves Seeking Value



Supporting Purposeful SpendingQuantifying savings, explaining the value for money

Source: Kantar Retail store visits, analysis 33


Supporting Walmart’s Role as a Health Resource

Source: ECRM, Kantar Retail store visits, analysis 34


Three Key Takeaways for Walmart


• Support stock-up and cross-box solutions

• Maintain functional, supportive tone

• Support stock-up and cross-box solutions

• Maintain functional, supportive tone

• Emphasize smaller pack sizes for Have Nots

• Assert savings via brand quality

• Boost EDLP

• Emphasize smaller pack sizes for Have Nots

• Assert savings via brand quality

• Boost EDLP

• Link to Walmart’s health services

• Support cross-box offer• Align with Walmart’s

wellness programs

• Link to Walmart’s health services

• Support cross-box offer• Align with Walmart’s

wellness programs

Insight Retailer implication Supplier implication


Bifurcated Focus on Affluent & Modest Guests

• Best guests still provide bulk of profitability, requiring suppliers to still cater to their tastes

• Target needs to regain less affluent guests, who had turned away because of “Expect More” offerings and prices



Framing Value for All Guests

• Even affluent guests are trading down or out of discretionary service activities, opening opportunities to provide home consumption instead

• As guests cut back on discretionary, cross-box solutions become even more critical



Health & Wellness as a Strategic Focus

• Target’s guests are willing to invest in long-term wellness, so suppliers should orient their messaging accordingly

• Products that are traditionally indulgences can be reframed as improving quality of life


H & W

Rx & OTC

Food

Home & HBA

Fitness


Cluster by Regional & Urban Economic Trends

• Work with Target to better cluster marketing appeals to resonate with sentiments on the ground – not every region is recovering

• Guests in urban metropolitan regions may be more willing to spend on discretionary items, as well as skew better and best



Four Key Takeaways for Target


• Balance EMPL for both upscale and entry priced items

• Smaller pack sizes and whole dollar price points

• Balance EMPL for both upscale and entry priced items

• Smaller pack sizes and whole dollar price points

Insight Retailer implication Supplier implication

• Align with dining/beauty/ service solution alternatives

• Enable discretionary cross-box solution purchase

• Align with dining/beauty/ service solution alternatives

• Enable discretionary cross-box solution purchase

• Align with Target Pharmacy• Emphasize long-term H&W

benefits to guests

• Align with Target Pharmacy• Emphasize long-term H&W

benefits to guests

• Develop assortments by regional spending clout

• Pilot urban initiatives with Target

• Develop assortments by regional spending clout

• Pilot urban initiatives with Target


Walmart & Sam’s Club Workshop: April 15-16, 2014Bentonville, AR

Target Workshop: April 29, 2014Minneapolis, MN

Upcoming Workshops:For more details email [email protected]


Contact:

Laura KennedyPrincipal [email protected]

617.912.2851www.kantarretailiQ.com

Robin [email protected]


Amy KooSenior [email protected]


Presented by: Laura Kennedy, Principal Analyst Amy Koo, Senior Analyst Prepared by: Robin Sherk, Director February 27, 2014 US Channel Mass Webinar Walmart.

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