MAPIC 2015 Retailing USA. Opportunity awaits. Trust our retailntelligence.

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1 MAPIC 2015 Retailing USA. Opportunity awaits.

2 MAPIC 2015 Retailing USA. Opportunity awaits. Naveen Jaggi President, Retail Brokerage JLL Americas Moderator David Zoba Dana Telsey Michael Hirschfeld Nigel Jobson Global SVP Retail Real Estate, Gap Inc. (Recently Retired) CEO and Chief Research Officer Telsey Advisory Group Executive VP National Retail Tenant Services, JLL Head of Group Property Superdry Panelist Panelist Panelist Panelist

3 The U.S. is a huge and fragmented consumer market It is made up of a handful of international cities, and hundreds more markets large and small

4 Understanding the U.S. Market Vastly more shopping options The U.S. has over six times more square feet of retail space per person than the UK Country USA Canada Shopping Center GLA SF Per 100 Inhabitants 2,357 SF 1,536 SF UK 384 France 382 Denmark 380 Finland 355 Portugal 352 Spain 312 Poland 293 Italy 273 Germany 235 Greece 89 Source: ICSC Country Fact Sheets, 2014 (US, France, Germany, Poland, Portugal, Spain), 2013 (Canada, Italy, UK), 2012 (Denmark, Greece), 2011 (Finland).

5 Understanding the U.S. Market Retail is low density Malls and high streets play a role, but most retail is spread out across suburban shopping centers and freestanding buildings Retail SF by type in major U.S. markets 1% Specialty Center 34% Shopping Center 49% General Retail 7% Power Center Source: Q Retail Market Inventory, JLL, Costar. 9% Malls

6 Understanding the U.S. Market Retail geography is fragmented The top 8 U.S. markets only make up 33% of the nation s retail space Major retailers open hundreds of stores across many markets before their presence is truly felt nationally Greater New York 7% 12.8B SF of retail space spread across 137 U.S. markets Greater Los Angeles 6% Chicago 4% Philadelphia 4% Dallas/Ft Worth 3% Houston 3% Atlanta 3% Source: Q Retail Market Inventory, JLL, Costar. Boston 3%

7 Understanding the U.S. Market Primary markets the world over Major retailers generally begin U.S. entry in one of the top 13 U.S. markets Top Retail Markets: U.S., APAC, Europe USA Asia Pacific Europe New York Hong Kong London Los Angeles Shanghai Paris Las Vegas Singapore Moscow Miami Beijing Milan Chicago Tokyo Madrid San Francisco Taipei Istanbul Washington DC Seoul Rome Boston Bangkok Munich Dallas Osaka Barcelona Atlanta Chengdu Berlin Honolulu Kuala Lumpur Brussels San Diego Tianjin Amsterdam Houston Shenyang Hamburg

8 Understanding the U.S. Market Multiple markets combine for big impact New York s GDP is roughly the same size as Spain. If it were a nation it would be ranked #15. The state of California, by itself, is the world s eighth largest economy. It s about the same size as Brazil. Source: 2014 GDP Estimates, U.S. Bureau of Economic Analysis and International Monetary Fund The economy of Texas is roughly the same as all of Scandinavia, including Sweden, Norway and Denmark combined. If it were a nation, it would have the 11 th largest GDP.

9 It s not just about malls and high streets Foreign entrants have found success (and failure) in a variety of retail property types.

10 Understanding U.S. Retail Types High streets are a small percent of retail Downtown shopping with a mix of specialty, department store and luxury often a first choice for foreign retailers new to the market Fifth Avenue, New York City

11 Understanding U.S. Retail Types High streets like 5th Avenue in NY are home to many foreign retailers

12 Understanding U.S. Retail Types For most Americans, malls are still tops for clothing and general merchandise Malls have remained much the same for decades: department stores anchors, specialty retailers often with an emphasis on fashion King of Prussia Mall King of Prussia, PA Simon Property Group

13 Understanding U.S. Retail Types France s Sephora encounters most Americans in a mall setting Sephora entered U.S. in New York Launched JCPenney in-store shops 360 North American stores; 485 JCPenney in-store shops; Sephora owns 12% of U.S. Beauty & Cosmetics market share, according to IBISWorld

14 Understanding U.S. Retail Types Sephora has been less aggressive with new stores than domestic rival Ulta since New U.S. Sephora Stores (Includes JCP in-store) New U.S. Ulta Stores

15 Understanding U.S. Retail Types Store-within-store strategy Sephora s 485 JCPenney in-store shops are ~1,500 SF, compared with the ~5,000 SF stand-alone stores Britain's Topshop is found in 94 of Nordstrom s 121 full-line stores Nordstrom launched 14 Topshop (~2,500 SF) and 14 Topman (~1,500 SF) in-stores in 2012 Topshop/Topman has 3 American flagships at 20,000 SF each

16 Understanding U.S. Retail Types For many, lifestyle centers are the new high street Upscale national tenants in an urban setting Department stores anchors, specialty retailers often emphasizing aspirational and luxury brands Similar tenant mix to traditional mall The Americana at Brand Glendale, CA Caruso Affiliated

17 Understanding U.S. Retail Types H&M demonstrates patient steady growth Sweden s H&M came to the U.S. in 2000 with a Fifth Avenue 57,000 SF flagship Most of H&M s 381 U.S. stores are in malls; 17 are in lifestyle centers H&M opened 51 stores in the U.S. last year 4% Outlet 6% Lifestyle 2% Power 3% Neighborhood/Community 85% Malls

18 Understanding U.S. Retail Types H&M averaged 32 new stores per year since # of stores

19 Understanding U.S. Retail Types Neighborhood and strip centers are daily destinations for grocery and services Centers focused on convenience in areas of high car traffic Tenanted with goods and services retailers, often grocery-anchored Berry Town Center Davenport, FL Phillips Edison

20 Understanding U.S. Retail Types Germany s Aldi has blanketed much of the U.S. in neighborhood centers Aldi entered the country in 1976 in Iowa Currently 1,400 stores (~16,000 SF) in 32 states in the Eastern half of the U.S. 29 West Coast locations opening soon in California 130 locations per year (through 2018)

21 Understanding U.S. Retail Types Germany s Lidl is hot on Aldi s heels Expected to open 500 U.S. locations Broke ground on a distribution center in Virginia (October 2015), and will soon open its national HQ in the state No stores currently open

22 Understanding U.S. Retail Types Power centers offer big boxes, category killers Big boxes of home improvement, discount department and off-price category killers Few foreign retailers have made it to power centers

23 Understanding U.S. Retail Types Outlet centers offer fashion brands at a discount 41 Outlet centers will have opened from new projects and expansions are planned U.S. Outlet Centers 202 Average Outlet Size 395,381 SF Average Occupancy Over 95% Average Sales PSF $ Source: VRN.

24 Pay attention to the differences in the U.S. consumer Millennials have a unique set of shopping habits and their purchasing power is growing. e-commerce is less mature in U.S. than Europe.

25 Understanding the U.S. Consumer Top 4 consumer spending growth trends Americans love their pets U.S. pet industry expenditures will grow to $67.6 billion by 2018 Athleisure explosion U.S. apparel, footwear and accessories spend grew by $2 billion in 2014 driven by active wear, athletic performance footwear and bags Yoga pant sales have skyrocketed Foodie nation Consumers are choosing higher end fast casual options, many retailers are adding food components, shopping centers are devoting more feet to food uses Healthy nation With the increasing availability of data from health trackers, health awareness seems to be rising along with health-retail: fitness centers, juice bars, healthy food, exercise wear

26 Understanding the U.S. Consumer Stocking up for the week Many Americans value time over money one-stop-shopping is important Americans often do all their grocery shopping in one weekly trip - 60% of Americans say they grocery shop to stock up - Only 37% of Europeans said the same thing

27 Understanding the U.S. Consumer Auto driven nation Europeans think 100 km is a far distance to drive for a purchase many Americans call 100 km their daily commute Retailers must pay close attention to parking ratios Trade areas (catchment areas) are often defined by drive time

28 Understanding the U.S. Consumer Millennials are making a major impact At ~80 million strong, millennials 1 represent 25% of the U.S. population Responsible for $600 billion in spending, which is expected to grow to $1.4 trillion by 2020 CONSUMER EXPENDITURE SURVEY COMPARISON MILLENNIALS IN 2013 VS '13 vs. '03 (bps) Under 25 years old years old Millennials Under 25 years old years old Millennials Under 25 years old years old Millennials Food 15% 13% 15% 16% 13% 15% 30 (20) 16 Alcoholic beverages 2% 1% 2% 1% 1% 1% (110) (10) (82) Housing 32% 36% 33% 34% 36% 35% Apparel and services 5% 5% 5% 5% 4% 5% 0 (80) (22) Transportation 21% 20% 21% 19% 19% 19% (220) (90) (184) Health care 2% 4% 3% 3% 5% 4% Entertainment 4% 5% 4% 4% 5% 4% (10) (20) (13) Personal care products and services 2% 1% 1% 1% 1% 1% (40) (10) (32) Reading 0% 0% 0% 0% 0% 0% 0 (10) (3) Education 7% 2% 5% 7% 2% 5% Tobacco products and smoking supplies 1% 1% 1% 1% 1% 1% (30) (10) (24) Miscellaneous 1% 1% 1% 1% 1% 1% (40) (10) (32) Cash contributions 2% 2% 2% 2% 2% 2% (10) 10 (4) Personal insurance and pensions 6% 10% 7% 7% 11% 8% TOTAL 100% 100% 100% 100% 100% 100% Prepared by Telsey Advisory Group Source: Bureau of Labor Statistics, Accenture, Berglass+Associates/WWD study titled What happens when millennials get the wallet. (1) Definitions of age range varies but typically include year olds. Note: Reflects latest available data. Note: Cash contributions represent donations to charities and other entities in cash form. Note: Millennial category represents weighted average between Under 25 and year old segments.

29 Understanding the U.S. Consumer E-commerce less mature than in Europe UK Germany Europe av France Sweden Netherlands US Spain Poland Italy 3.5% 3.0% 3.3% 2.8% 2.5% 2.1% 8.4% 7.2% 8.0% 6.9% 7.8% 7.6% 7.4% 7.1% 7.2% 6.6% 10.0% 11.6% 13.5% 15.2% % 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Source: retailresearch.org. Q U.S. Department of Commerce.

30 Understanding the U.S. Consumer Mobile commerce is gaining traction Mobile devices are causing consumers to spend more time online Mobile commerce is a significant opportunity for brick-and-mortar retailers who can successfully broaden their distribution channels US RETAIL M-COMMERCE SALES AND SHARE OF RETAIL E-COMMERCE SALES 16.0% 19.0% 22.0% 25.0% $ % $ % $ % $24.8 $42.1 $57.8 $ E 2015E 2016E 2017E 2018E Retail m-commerce Sales ($bn) % of Retail e-commerce Sales Prepared by Telsey Advisory Group Source: emarketer. Note: Retail m-commerce sales includes products or services ordered using the internet via mobile devices, regardless of the method of payment or fulfillment; excludes travel and event ticket sales.

31 Understanding the U.S. Consumer E-commerce concentrated in few categories Categories conducive to e-commerce are commodity-like, have low shipping costs relative to the value of product, and are generally not needed for immediate use 51% of online sales are concentrated in just three major categories - Consumer electronics 1 (22%); Apparel and accessories (16%); Pre-recorded media 2 (13%) ONLINE PRODUCT PENETRATION RATES Penetration Rate 100% 90% 80% 70% 60% 50% 40% 30% e-commerce Penetration > 20% Categories expected to increase to more than 20% penetration by e-commerce Penetration <10% 20% 10% 0% 2013E 2017E Prepared by Telsey Advisory Group Source: emarketer. Note: Retail m-commerce sales includes products or services ordered using the internet via mobile devices, regardless of the method of payment or fulfillment; excludes travel and event ticket sales.

32 Understanding the U.S. Consumer E-commerce s long-term impact Prepared by Telsey Advisory Group

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34 Prepared by Telsey Advisory Group

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