Retail Industry Outlook Survey

Modest Gains Keep Cautious Optimism in Style

kpmgcom

KPMG LLP the audit tax and advisory firm surveyed C-suite and other top-level executives in the retail industry during the second quarter of 2012

Participants were asked about business conditions in their sector the most significant revenue growth opportunities and any barriers to growth that may exist They were also asked a variety of questions about the economy including factors they perceive might impede or support their sectorrsquos recovery and to assess the impact advancing technologies may have on their business models

These responses were compared to the findings of a similar survey conducted among retail executives in the second quarter of 2011

KPMGrsquos Industry Outlook Survey

KPMGrsquosIndustry Outlook Survey

Foreword 2

Key Findings from KPMGrsquos Retail Industry Survey 4

Business Conditions 5

Revenue 6

Headcount 7

Hope for Recovery Remains on the Horizon 8

A Closer Look at Growth and Profits 8

Capital Spending and Investing 10

Realizing the Value of Data Analytics 11

Exploring Digital Marketing Channels 12

Risk and Regulatory Challenges 13

Conclusion 14

KPMG A Leader in Serving the Retail Industry 15

Contents

2 | Retail Industry Outlook Survey

Foreword

Retail Industry Outlook Survey | 3

I am pleased to present KPMG LLPrsquos 2012 Retail Industry Outlook Survey which provides perspectives and insights of 100 CEOs and other C-level executives in the retail sector Taking the past year into account participants were asked to assess business conditions identify areas of growth and investment estimate a time line for a full economic recovery and identify factors that may help or hinder the economy moving forward

Based on the survey results itrsquos clear that executives believe the sector continues to move in the right direction Survey respondents reported both revenue gains and headcount increases as evidence of the positive sector momentum of the last year However their outlook for the economy to fully recover remains guarded and they have pushed back their expectations for a complete US economic recovery until 2014ndash2015 or beyond

Most of the executives surveyed report having significant cash on their balance sheets and are ready to increase spending in areas such as technology citing data analytics as playing a greater role in their strategic decision making They also note that digital marketing technologies such as online shopping social media platforms and e-mail campaigns continue to have a significant impact on their businesses Additionally they point out that the utilization of mobile technology for shopping promotions and payments is increasingly making its mark on the sector

Moving forward with cautious optimism the majority of survey respondents foresee continued sector growth over the next year with revenue increases being driven largely by the ability to add and retain customers Meanwhile they acknowledge pricing pressures and lower consumer demand as potential growth barriers and point to discounting prices volatile input costs and decreased sales volumes as the most significant threat to profit margins

On behalf of KPMG I would like to thank those who participated in this survey I hope the findings are useful to you in addressing market challenges and opportunities I also welcome the chance to discuss this study and its implications for your business in the year ahead

Mark Larson Global Sector Leader Retail KPMG LLP

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

KPMG LLP the audit tax and advisory firm surveyed C-suite and other top-level executives in the retail industry during the second quarter of 2012

Participants were asked about business conditions in their sector the most significant revenue growth opportunities and any barriers to growth that may exist They were also asked a variety of questions about the economy including factors they perceive might impede or support their sectorrsquos recovery and to assess the impact advancing technologies may have on their business models

These responses were compared to the findings of a similar survey conducted among retail executives in the second quarter of 2011

KPMGrsquos Industry Outlook Survey

KPMGrsquosIndustry Outlook Survey

Foreword 2

Key Findings from KPMGrsquos Retail Industry Survey 4

Business Conditions 5

Revenue 6

Headcount 7

Hope for Recovery Remains on the Horizon 8

A Closer Look at Growth and Profits 8

Capital Spending and Investing 10

Realizing the Value of Data Analytics 11

Exploring Digital Marketing Channels 12

Risk and Regulatory Challenges 13

Conclusion 14

KPMG A Leader in Serving the Retail Industry 15

Contents

2 | Retail Industry Outlook Survey

Foreword

Retail Industry Outlook Survey | 3

I am pleased to present KPMG LLPrsquos 2012 Retail Industry Outlook Survey which provides perspectives and insights of 100 CEOs and other C-level executives in the retail sector Taking the past year into account participants were asked to assess business conditions identify areas of growth and investment estimate a time line for a full economic recovery and identify factors that may help or hinder the economy moving forward

Based on the survey results itrsquos clear that executives believe the sector continues to move in the right direction Survey respondents reported both revenue gains and headcount increases as evidence of the positive sector momentum of the last year However their outlook for the economy to fully recover remains guarded and they have pushed back their expectations for a complete US economic recovery until 2014ndash2015 or beyond

Most of the executives surveyed report having significant cash on their balance sheets and are ready to increase spending in areas such as technology citing data analytics as playing a greater role in their strategic decision making They also note that digital marketing technologies such as online shopping social media platforms and e-mail campaigns continue to have a significant impact on their businesses Additionally they point out that the utilization of mobile technology for shopping promotions and payments is increasingly making its mark on the sector

Moving forward with cautious optimism the majority of survey respondents foresee continued sector growth over the next year with revenue increases being driven largely by the ability to add and retain customers Meanwhile they acknowledge pricing pressures and lower consumer demand as potential growth barriers and point to discounting prices volatile input costs and decreased sales volumes as the most significant threat to profit margins

On behalf of KPMG I would like to thank those who participated in this survey I hope the findings are useful to you in addressing market challenges and opportunities I also welcome the chance to discuss this study and its implications for your business in the year ahead

Mark Larson Global Sector Leader Retail KPMG LLP

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

KPMGrsquosIndustry Outlook Survey

Foreword 2

Key Findings from KPMGrsquos Retail Industry Survey 4

Business Conditions 5

Revenue 6

Headcount 7

Hope for Recovery Remains on the Horizon 8

A Closer Look at Growth and Profits 8

Capital Spending and Investing 10

Realizing the Value of Data Analytics 11

Exploring Digital Marketing Channels 12

Risk and Regulatory Challenges 13

Conclusion 14

KPMG A Leader in Serving the Retail Industry 15

Contents

2 | Retail Industry Outlook Survey

Foreword

Retail Industry Outlook Survey | 3

I am pleased to present KPMG LLPrsquos 2012 Retail Industry Outlook Survey which provides perspectives and insights of 100 CEOs and other C-level executives in the retail sector Taking the past year into account participants were asked to assess business conditions identify areas of growth and investment estimate a time line for a full economic recovery and identify factors that may help or hinder the economy moving forward

Based on the survey results itrsquos clear that executives believe the sector continues to move in the right direction Survey respondents reported both revenue gains and headcount increases as evidence of the positive sector momentum of the last year However their outlook for the economy to fully recover remains guarded and they have pushed back their expectations for a complete US economic recovery until 2014ndash2015 or beyond

Most of the executives surveyed report having significant cash on their balance sheets and are ready to increase spending in areas such as technology citing data analytics as playing a greater role in their strategic decision making They also note that digital marketing technologies such as online shopping social media platforms and e-mail campaigns continue to have a significant impact on their businesses Additionally they point out that the utilization of mobile technology for shopping promotions and payments is increasingly making its mark on the sector

Moving forward with cautious optimism the majority of survey respondents foresee continued sector growth over the next year with revenue increases being driven largely by the ability to add and retain customers Meanwhile they acknowledge pricing pressures and lower consumer demand as potential growth barriers and point to discounting prices volatile input costs and decreased sales volumes as the most significant threat to profit margins

On behalf of KPMG I would like to thank those who participated in this survey I hope the findings are useful to you in addressing market challenges and opportunities I also welcome the chance to discuss this study and its implications for your business in the year ahead

Mark Larson Global Sector Leader Retail KPMG LLP

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

2 | Retail Industry Outlook Survey

Foreword

Retail Industry Outlook Survey | 3

I am pleased to present KPMG LLPrsquos 2012 Retail Industry Outlook Survey which provides perspectives and insights of 100 CEOs and other C-level executives in the retail sector Taking the past year into account participants were asked to assess business conditions identify areas of growth and investment estimate a time line for a full economic recovery and identify factors that may help or hinder the economy moving forward

Based on the survey results itrsquos clear that executives believe the sector continues to move in the right direction Survey respondents reported both revenue gains and headcount increases as evidence of the positive sector momentum of the last year However their outlook for the economy to fully recover remains guarded and they have pushed back their expectations for a complete US economic recovery until 2014ndash2015 or beyond

Most of the executives surveyed report having significant cash on their balance sheets and are ready to increase spending in areas such as technology citing data analytics as playing a greater role in their strategic decision making They also note that digital marketing technologies such as online shopping social media platforms and e-mail campaigns continue to have a significant impact on their businesses Additionally they point out that the utilization of mobile technology for shopping promotions and payments is increasingly making its mark on the sector

Moving forward with cautious optimism the majority of survey respondents foresee continued sector growth over the next year with revenue increases being driven largely by the ability to add and retain customers Meanwhile they acknowledge pricing pressures and lower consumer demand as potential growth barriers and point to discounting prices volatile input costs and decreased sales volumes as the most significant threat to profit margins

On behalf of KPMG I would like to thank those who participated in this survey I hope the findings are useful to you in addressing market challenges and opportunities I also welcome the chance to discuss this study and its implications for your business in the year ahead

Mark Larson Global Sector Leader Retail KPMG LLP

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 3

I am pleased to present KPMG LLPrsquos 2012 Retail Industry Outlook Survey which provides perspectives and insights of 100 CEOs and other C-level executives in the retail sector Taking the past year into account participants were asked to assess business conditions identify areas of growth and investment estimate a time line for a full economic recovery and identify factors that may help or hinder the economy moving forward

Based on the survey results itrsquos clear that executives believe the sector continues to move in the right direction Survey respondents reported both revenue gains and headcount increases as evidence of the positive sector momentum of the last year However their outlook for the economy to fully recover remains guarded and they have pushed back their expectations for a complete US economic recovery until 2014ndash2015 or beyond

Most of the executives surveyed report having significant cash on their balance sheets and are ready to increase spending in areas such as technology citing data analytics as playing a greater role in their strategic decision making They also note that digital marketing technologies such as online shopping social media platforms and e-mail campaigns continue to have a significant impact on their businesses Additionally they point out that the utilization of mobile technology for shopping promotions and payments is increasingly making its mark on the sector

Moving forward with cautious optimism the majority of survey respondents foresee continued sector growth over the next year with revenue increases being driven largely by the ability to add and retain customers Meanwhile they acknowledge pricing pressures and lower consumer demand as potential growth barriers and point to discounting prices volatile input costs and decreased sales volumes as the most significant threat to profit margins

On behalf of KPMG I would like to thank those who participated in this survey I hope the findings are useful to you in addressing market challenges and opportunities I also welcome the chance to discuss this study and its implications for your business in the year ahead

Mark Larson Global Sector Leader Retail KPMG LLP

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

4 | Retail Industry Outlook Survey

Key Findings from KPMGrsquos Retail Industry Survey

Moving Forward in Measured Fashion According to this yearrsquos survey retail executives are cautiously optimistic about the future business outlook expecting continued modest improvements in revenue and hiring over the next year However they remain quite guarded for the longer term not anticipating a substantial US economic recovery until 2014 or beyond While positive momentum continues to slowly build in the sector executives plan to increase spending in areas of priority such as information technology including data analytics and digital marketing channels Online shopping social media platforms e-mail campaigns and mobile technologies are clearly on their radar due to the significant impact each is having on their businesses Looking ahead the vast majority of survey respondents foresee continued sector growth over the next year with revenue increases being largely driven by the ability to add and retain customers

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 5

KPMGrsquos survey reflects the responses of 100 retail sector executives from large ($100 million+ annual revenue) US-based companies Thirty-five percent of respondents work for companies with annual revenue of more than $10 billion while 41 percent represent companies with annual revenue between $1 billion and $10 billion and 24 percent with revenue in the $100 million to $1 billion range Seventy-four percent of these companies are publicly held and 26 percent are privately held

Key findings from the retail sector included bull Sixty-five percent of retail executives surveyed said

their companyrsquos revenue has increased over the last year while 77 percent predict continued revenue growth a year from now

bull Fifty-four percent of survey respondents reported adding US employees in 2011 and expect to add more over the next year Meanwhile 22 percent noted that their companyrsquos US headcount has returned to pre-recession levels

bull While over 50 percent of the executives plan to add headcount in the next year the increases are planned to be modest and consistent with last yearrsquos survey one in five do not expect their companyrsquos headcount to ever return to pre-recession levels

bull When asked about their expectations for the US economy a year from now 65 percent of sector executives expect some improvement while 30 percent believe it will essentially remain the same However 61 percent believe a substantial economic recovery will not occur until 2014ndash2015 or later

Business Conditions Sixty-five percent of retail executives surveyed believe that the economy will improve over the next year representing a slight increase in enthusiasm from the 2011 survey when 59 percent anticipated the economy to improve in a yearrsquos time Meanwhile 30 percent of respondents expect the economy to remain flat over the next year compared to 33 percent the previous year

bull Seventy-seven percent of survey respondents report having significant cash on their balance sheet and 34 percent acknowledge investment is already significantly underway

bull Survey respondents believe adding customers (46 percent) market expansion (32 percent) and retaining customers (29 percent) will serve as the top drivers of revenue growth over the next three years

bull More than half (51 percent) of survey respondents cited information technology including data analytics and digital marketing channels as a top investment priority over the next year

bull Retail executives surveyed indicate that online shopping (59 percent) social media platforms (58 percent) and e-mail campaigns (49 percent) are having the most significant impact on their businesses

100

80

60

40

20

0

30

5 8

33

65 59

2012 (Q2) 2011 (Q2) Key

Better next year About the same Worse next year

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Does not add to 100 due to rounding

6 | Retail Industry Outlook Survey

Revenue Revenue continues on an upward climb according to retail sector executives Nearly two-thirds (65 percent) of respondents reported an increase in revenue over the last year up from 47 percent the previous year

100

80

60

40

20

65

23

12

47

36

17

Revenue Growth Focused on Customers 0 Customers are at the heart of driving revenue growth in 2012 (Q2) 2011 (Q2)

Key the retail sector Survey respondents cited adding customers Increase in revenue About the same Decrease in revenue (46 percent) and retaining customers (29 percent) as top

revenue growth drivers during the next three years along with market expansion

When asked to describe their revenue expectations a year from now 77 percent of executives predict that revenue Biggest Drivers of Companyrsquos Revenue Growth will increase while 16 percent believe revenue will stay Next 1-3 years flat This mirrors the expectations of the prior year when

5072 percent and 24 percent respectively answered the 46

same question 40

100 7

24

4

16

77 72

32 2930

80 26 23

21 20 18

60 15 14

10 10 40 6

0 20

Key

Adding customers Expansion in corenew markets0

Retaining customers Improving economic conditions 2012 (Q2) 2011 (Q2) Increasing consumer spending Focus on emerging markets

Key Changed pricing strategies Innovative merchandising strategies Better next year Same Worse next year Merger and acquisition activity Product innovations

Growth of ldquogreenrdquo1 productsservices

Multiple responses allowed

1 Environmentally friendly

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Multiple responses allowed

Retail Industry Outlook Survey | 7

Headcount Retail executives added more US employees over the last year with 54 percent of respondents reporting an increase in headcount up from 40 percent the previous year

Current headcount

100

80

60

40

20

0

54

22

24

40

29

31

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease

Retailers expect the hiring momentum to continue with 53 percent of sector executives expecting to add employees over the next year and only 10 percent anticipating a decline during this time These results are in line with the previous year

Future headcount expected

2 0100

80

60

40

20

0

10 15

35 33

53 52

2012 (Q2) 2011 (Q2) Key

Increase About the same Decrease Unsuredonrsquot know

Headcount Return to pre-recession levels

30

22 22

20

10

0

5

14 16

21

Key

Already at or greater than pre-recession level Second half of 2012 2013 2014 2015 or later Never

Interestingly 22 percent of survey respondents said that their US headcount has already reached or is greater than pre-recession levels but 21 percent believe it will never return to those levels

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

8 | Retail Industry Outlook Survey

Hope for Recovery Remains on the Horizon Hopes for a full US economic recovery seem to have been pushed back a few years according to the retail executives surveyed The majority (61 percent) believe that it will not actually occur until 2014 or beyond Notably last yearrsquos results revealed that 36 percent of respondents expected a full recovery in 2012 while 62 percent anticipated it would happen in 2013 or later

100

80

60

37 40

32 29

20

2 0

Key

2012 2013 or later

2014 2015 or later

A Closer Look at Growth and Profits Eighty-eight percent of survey respondents expect the retail industry to continue to experience growth increases over the next year Of that amount 63 percent predict only modest gains of about 5 percent or less

Retail industry growth rate

8890

80

70

60

50

40

30

20

10

0 6 6

Key

Increase over next year No change Decrease over next year

Retail executives cite pricing pressures and a lack of consumer demand as the most significant barriers to growth over the next year

Barriers to growth 3030

2020 19 18

16 15 15

13 12 12

10 8

7 7 7

5

3

0

Key

Pricing pressures Lack of customer demand US dollar strength Energy prices Lack of qualified workforce Regulatory and legislative pressures Staying on top of emerging technologies Increased taxation Labor costs Volatile commodityinput prices Inflation Risk management issues Access to and managing capital Foreign competition Exchange rate fluctuations Other

Multiple responses allowed

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 9

Retail factors hindering recovery More than half of survey respondents view decreased consumer confidence (57 percent) and the continued high national unemployment rate (55 percent) as the two top factors hindering the retail sectorrsquos recovery Other top factors cited include limited access to credit for consumers (23 percent) and the distressed real estate market (22 percent)

60 57

0

10

20

30

40

50

55

23 22

16 13

16 13

78

Key

Decreased consumer confidence Continued high national Limited access to credit for consumers unemployment Distressed real estate market Increased government regulation Decreased investor confidence Uncertainty in the credit markets Threats to US business from Limited access to credit for

Asia and abroad businesses Turmoil in the Middle EastNorth Africa

Multiple responses allowed

Greatest threats to profits Merchandise costs (39 percent) discounting and other sales incentives (36 percent) and decreasing sales volumes (32 percent) were widely seen by sector executives as posing the greatest threats to profit margins over the next 12 months

50

39 36

32

40

30

2020 15 14 14

12 10

6

0

Key

Costs of inputs or merchandise Discounting and other sales incentives Decreased sales volumes Administrative costs Regulatory compliance Foreign exchange variability Marketing costs Inventory carrying costs Other

Multiple responses allowed

Strategies to combat costs Volatile input costs continue to challenge retailers To help combat these costs 62 percent of executives report optimizing sales general and administrative (SGampA) and supply chain costs and 52 percent are implementing customer-centric pricing strategies

70

62 60

52 50

40

2930

21 20

10

0

Key

Optimizing SGampA and supply chain costs Customer-centric pricing strategies Revisiting service delivery models Hedging strategies for commodities

(offshoringshared services)

Multiple responses allowed

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

40

10 | Retail Industry Outlook Survey

Capital Spending and Investing Retailers have significant cash on their balance sheets and are ready to invest In fact 77 percent of survey respondents report that their company has significant cash on its balance sheet of which 34 percent acknowledge that investment is already significantly underway

Investment timeframe

34

30

19 20

21

13 12

10

0

Key

Investment is significantly under way Second half of 2012 First half of 2013 Second half 2013 2014 and beyond

Ready to spend Moreover 58 percent of survey respondents expect their companyrsquos capital spending will increase over the next year while 34 percent anticipate that it will stay the same Much of this spending will be in the areas of information technology (51 percent) new products and services (43 percent) and geographic expansion (33 percent)

0

10

20

30

40

50 51

43

33

24 23

18 18

8 7 7 4

Key

Information technology New products or services Geographic expansion Advertising and marketing Expanding facilities Business model transformation Acquisition of a business Employee compensation and training Regulationcontrol environment Research and development Greensustainability initiatives

Multiple responses allowed

When asked about the top initiatives on the mind of management more than a quarter (28 percent) of survey respondents cited the need to improve operational processes and related technology

Top initiatives on the mind of management

30 28

20

10

0

19

14 12

11

6 5

3 1

Key

Significant improvement of operational processes and related technology Significant investment in organic growth2

Significant cost reduction initiatives Significant changes in business model Mergeracquisition Strategic divestiture of current assets Navigating significant changes in the regulatory environment Significant changes to financial processes and related technology Improve enterprise risk management programsprocesses

2 ie new product development pricing strategies geographic expansion

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 11

Realizing the Value of Data Analytics For retailers data analytic capabilities are becoming increasingly important in helping support strategic decision making throughout the organization In fact more than two-thirds (68 percent) of survey respondents say that data analytics plays a key role in helping provide customer insight as well as in the areas of brand and product management (64 percent) and in pricing decisions (50 percent)

Key areas using data analytics to support strategic decisions

6870

64

60

5050 45

40 37

30 23

20

10

0

When asked to describe the organizational maturity regarding usage of data analytics forty percent of executives rate their companyrsquos data analytics literacy as average Data analytics maturity of company

4040

30

24 22

20

10 7

5

2 0

Key

Average when it comes to utilizing analytics3

Rapidly moving toward high analytical literacy High data analytics literacy Average to low analytical literacy4

No formal data analytics capabilities5

Donrsquot know

3 Our management team and workforce have an average analytical literacy Key 4 At the moment we are behind our competitors when it comes to utilizing Customer insight Brand and product management analytics and our management team and workforce have average to low Pricing decisions Market expansion

analytical literacy Operating model optimization Portfolio rationalization

5 Our management team and workforce have low analytical literacy Multiple responses allowed

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

12 | Retail Industry Outlook Survey

Exploring Digital Marketing Channels Not surprisingly retailers are increasing their use of digital marketing channels to explore new ways of doing business and reaching more customers When asked which digital marketing channels are having the greatest impact on their businesses online shopping (59 percent) social media (58 percent) and e-mail campaigns (49 percent) rounded out the top three responses

Digital marketing channels having greatest impact

60 59 58

4950

40 36

30 28

21 20

10

2 0

Key

Online shopping Social media (Facebook Twitter etc) E-mail campaigns Mobile shopping Mobile promotions Mobile payments Other

Multiple responses allowed

Retail executives plan to use digital social and mobile technologies in a variety of ways over the next 12 months In fact 57 percent have plans to use social media for external brand promotion

Digital marketing strategies planned for year ahead

60 57

5150

45 44

40 36

33

30 28 25

24 22

19 19 20 18 18 17

910 5

0 Key Social media for external brand promotion Social media for customer insight Social media for two-way customer engagement Social media for recruiting Customer-facing mobile applications Mobile-specific customer-facing websites Social media for enterprise collaborationknowledge sharing Location-based marketing using mobile technology Social media for customer crowdsourcing Creation and distribution of digital media internal messages using video Mobile-specific enterprise websites (ie mobile intranets) Enterprise mobile applications Creation and distribution of digital media marketing messages using video6

Social media for enterprise crowdsourcing Mobile-commerce technologies (NFC-enabled payments mobile wallets etc) Social media for enterprise risk management Donrsquot know

Multiple responses allowed

6 including company-specific external video channels

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 13

Risk and Regulatory Challenges Evolving regulation and changing marketplace dynamics have added to the need for companies to implement a strong risk framework within their organization When asked to identify any existing challenges preventing the adoption of a formal risk policy nearly half (45 percent) of survey respondents believe culture and behavior pose significant obstacles

Despite obvious challenges 76 percent of the retail executives surveyed believe their company is at least somewhat prepared to seize opportunities as a result of public policy and regulatory reform

Ability to seize opportunities from regulatory change

60

Challenges preventing the adoption of a formal risk policy 54

50 50

45 40

40

30

30 222930 28 20 16

20 818 10

12 010

Key

Somewhat prepared Very prepared0 Donrsquot know Not prepared

Key

Culture and behavior Shared resources across the organization Clearly defined roles and responsibilities Process integrationefficiency of operations Governance framework Donrsquot know

Multiple responses allowed

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

14 | Retail Industry Outlook Survey

Maintaining cautious optimism retail executives expect the industry to proceed on a path of gradual growth over the next year supported by continued modest gains in revenue and hiring Concerns over the US economy are evident as many executives have pushed back their expectations for a substantial recovery until 2014ndash2015 or later While waiting for the recovery to take hold sector executives are focusing on spending the cash built up on their balance sheets by investing more over the next year in information technology including data analytics and digital marketing channels They acknowledge the increasing importance of data analytics in their strategic decision making and recognize the significant impact digital marketing channels such as online shopping social media and mobile technologies are having on their businesses

Conclusion

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 15

The retail sector continues to face a demanding market environment that requires companies to adjust and actively manage change that may impact sales and performance

Having the right professional services firmmdashone with the industry depth knowledge and insight to help clients address their most pressing issues and achieve their goalsmdashis critical KPMGrsquos Retail practice includes professionals with the knowledge experience and skills to help our clients address their most pressing challenges sort through todayrsquos complex business problems and achieve their goals

Working with our international network of member firms we serve clients worldwide developing insights into major business trends and helping to enhance future plans Our long-term experience in retail enables us to offer the company-specific guidance needed to help our clients become or remain market leaders

KPMG A Leader in Serving the Retail Industry

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

16 | Retail Industry Outlook Survey

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

Retail Industry Outlook Survey | 17

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS

SECTORS AND THEMES

Title hereAdditional information in Univers

45 Light 12pt on 16pt leading

kpmgcom

Credits and authors in Univers45 light 12pt on 16pt leading

Key Contacts

Mark Larson Global Sector Leader Retail T 502-562-5680 E mlarsonkpmgcom

Patrick Dolan National Line of Business Leader Consumer Markets T 312-665-2311 E patrickdolankpmgcom

John Atkinson National Audit Leader Retail T 612-305-5459 E jwatkinsonkpmgcom

Brian Campbell National Tax Leader Retail T 614-249-1879 E bcampbellkpmgcom

Ray Kansal National Line of Business Director Consumer Markets T 312-665-3623 E rkansalkpmgcom

Anne Giometti National Marketing Director Consumer Markets T 312-665-2922 E agiomettikpmgcom

kpmgcom

KPMG LLP the audit tax and advisory firm is the US member of KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity KPMG Internationalrsquos member firms have 138000 professionals including more than 7900 partners in 150 countries

copy 2012 KPMG LLP a Delaware limited liability partnership and the US member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (ldquoKPMG Internationalrdquo) a Swiss entity All rights reserved Printed in the USA The KPMG name logo and ldquocutting through complexityrdquo are registered trademarks or trademarks of KPMG International 26285NSS