ICSC – 2010 RECon Board of Trustees Meeting

Retail Update

“The reports of my death are greatly exaggerated.”

- Mark Twain

2010 RECon Retail Update

• Industry Overview

• Reflections and Expectations

• Musings

• Open Q & A

Industry Overview

Recent Media Comments

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• Strong Prices Boost Luxury Sales in April» MasterCard Advisors’ Spending Pulse May 5, 2010

• US Retail Sales rise for seventh month in a row» Market Watch May 14, 2010

• US Shoppers Eased Off a Little in April, but the General Trend in Retailing Is Up.

» New York Times May 6, 2010

• U.S Retail Sales in April Beat Expectations» New York Times May 14, 2010

Retail HeadlinesThey’re Up

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• Momentum stalls in April clothing sales» MasterCard Advisors’ Spending Pulse May 5, 2010

• The Long Slow Slog to Retail Recovery» Cnbc.com May 6, 2010

• Retailers Fall as April Same-Store Sales Disappoint» Dow Jones Newswire May 6, 2010

• Retailers May Now Be Seeing Too Little Product on Shelves

» Dow Jones Newswire May 6, 2010

Retail HeadlinesThey’re Down

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• Healthier Retail Sales, but Will it Last?» Dow Jones Newswire May 6, 2010

• Retailers Weak in April, But Spring Sales Solid Overall» Investor’s Business Daily May 6, 2010

• Recovery Looks Strong, but Big Risks Remain» Wall St. Journal May 14, 2010

• Weak April retail sales show uneven recovery» Reuters May 6, 2010

Retail HeadlinesThey’re clueless

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• …”big chains, including Macy’s, Gap and Aeropostale, said profit margins were stronger than a year earlier…

» New York Times US Shoppers Eased off a Little in April, May 6, 2010

• An educated investor would look at them both combine (March and April sales) and say ‘Consumers are spending. “It’s definitely showing an upward trend

» Jaronne Maritis, Thomson, Reuters

• In April, the Consumer Confidence index increased to its highest level in 1-1/2 years. “The luxury buyer, and her psyche, has returned”.

» Matthew Katz, AlixPartners

In the media…Half Full

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• We’re still in recovery mode….even though we have seen a rebound, we are still in an environment of high unemployment and relatively high savings rate.

» Kamalesh Rao – SpendingPulse May 13, 2010

• “…in a solid recovery, but it’s not a gangbusters recovery. And we have a new wild card in the picture – the European mess.

» Frederic Mishkin, Columbia Business School May 14, 2010

• The recovery is less than we need to put us on a path that would undo the damage in any reasonable period of time.”

» Bruce Kasman, J.P. Morgan Chase May 14, 2010

In the media…Half Empty

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ShopperScape™ Survey by Kantar Retail

Improving perceptions about investments and credit-related factors are bolstering spending plans. 

•The percentage of shoppers feeling better about their job security and household income levels edged higher from March. Job security also edged higher from a year ago.

•The percentage of shoppers feeling better about the value of their investments and their home increased from March and from a year ago.

•Also edging higher from March and a year ago was the percentage of shoppers that feel better about credit-related factors (credit cards, mortgage or car payments).

•Among shoppers that feel better about investments and credit-related factors, nearly one-third (31%) of them plan to spend more in the coming month. April Survey Update

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Reflections and Expectations

Retail Segment Sales Trends

Luxury Department Stores

They’re Back

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Mainstream Department Stores

Above Water

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Specialty ApparelHanging In

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Hard Goods Hard Times

Furniture, Home Furnishings Electronics and Appliances 15

Grocery and Drug Slow and Steady

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Discounters and Wholesale Clubs

Value wins the day

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Musings

A look forward

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• Consumers are starting to step up their purchases on higher-margin, higher-priced goods.

• Slowly climbing consumer confidence shown in operating profits – Several publicly-traded retailers increased or reaffirmed guidance at 1st Q including TJX, Macy’s, JCPenney, Gap, Target, Kohl’s, Aeropostale

• Consumers keep a persistent focus on value. Average transaction prices remain modest, but traffic is increasing slightly.

Retail RecapNoticeable Trends

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Retail RecapForward Look

• Five Key Trends– Consumer tires of spending furlough – Increased profitability from gross margin improvement and

operating expense efficiencies continue– Multi-channel, customer-centric sales and marketing focus;

online sales increasing– Strategic International Growth– Lifestyle, Internet and Social Networking Influence

• Primary Risks– Lowest Retail Inventory to Sales Ratio in Decades – Continued Consumer concerns about unemployment

and housing foreclosures20

Retailer Q & A

Sporty Dialogue regarding Key Issues

What is the outlook for New Store growth in your company?

What are the primary obstacles facing growth?

2010 ReCon Retail UpdateOpportunities and Challenges

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With all the focus on creating value for the consumer and lowering production costs, have retailers gone too far on reducing quality of their products?

Will lower inventory levels negatively impact retailers ability to respond quickly as consumer demands increase?

2010 ReCon Retail UpdateQuality and Inventory levels

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Understanding that the retail recovery will be a “long slow slog”, how do Landlords and Tenants work together to enhance performance?

Shopping Center traffic, Marketing Alternatives, Evolving Tenant Mix, Contined Pressure on Operating Expenses

2010 ReCon Retail Update

Preserving Profitability

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How do we reconcile the evolving lease terms that Landlords and Lenders are finding more objectionable in the current economic climate?

Kick-outs, co-tenancy clauses, exclusive use provisions, alternative rent scenarios and other downside protections

2010 ReCon Retail Update

Landlord, Lender and Tenant Dynamics

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How can Retailers help Developers and Lenders understand the retail business better?

– Profit & Loss Influence Variables

– Challenges of unpredictable sales trends

– Expense Management

– Deployment of Capital & Sources of Funding for Growth

2010 ReCon Retail Update

The Business of Retail

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International Expansion is heating up for some retailers.

Please give us an overview of your company’s international presence, your view of the markets where you currently do business and your future plans.

2010 ReCon Retail Update

International Growth

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“I’m not dead yet.”

- Not Dead FredMonty Python, “The Search for the Holy Grail”

ICSC – 2010 RECon Board of Trustees Meeting

Retail Update