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2013 OutlOOk | Retail



Retail Sector Tracks the Strengthening Economic Recovery

ANN T. NATuNEwICz Manager, Retail Research | USA

* Compared with prior period ** Projected, relative to prior period

Q1 2013**

With seven of our nine 2012 predictions holding true, Colliers Retail offers up nine Trends to Watch for 2013, including expanded focus on in-store fulfillment, continuing migration of capital to secondary markets, and corporate restructurings to accommodate e-commerce. The housing recovery has strengthened to the point where it will contribute meaningfully to the United States economic growth in 2013. Retailers remain focused on supply-chain enhancements, not only to better manage costs but also to improve the flexibility and functional integration of their omnichannel operations. Retailers initial 2013 Capital Expenditures disclosures are far less transparent than they were in 2012 with respect to allocation of funds between real estate and technology/fulfillment. In the U.S. and Canada, outlet centers figure prominently in development pipelines, with nine slated to open this year and more than three dozen others either announced or rumored.

u.s. RETAIl MARkET *

suMMARy sTATIsTICs, Q4 2012 Vacancy Rate: 10.1% Change from Q3 2012: 0.3% Under Construction: 5.1 Million Square Feet New Supply: 9.7 Million Square Feet Net Absorption: 18.8 Million Square Feet AskINg RENTs pER sF Shopping Center Space: $15.28 Change from Q3 2012: +$0.01 *Subset of Colliers markets Source: CoStar

The overriding theme for many of our recent reportsindeed, whats been repeated throughout the retail real estate sector the past several yearshas been uncertainty. Fluctuations in multiple market indicators have masked weakly improving trends, giving households and companies ample reason to maintain financially defensive outlooks. We saw an expansion in upbeat attitudes and a loosening of purse strings early last year, only to have momentum fizzle as fiscal worries tempered forwardlooking optimism. However, one month into 2013, numerous data-driven trends are converging to support the feeling that the U.S. economy has finally moved into a sustainable growth modedespite ongoing political gridlock and a disappointing advance Q4 GDP number. As we said in our commentary this time last year, we continue to be struck by a theme of opportunity throughout the retail sector. What differentiates our 2013 outlook, though, is the optimism we hear from corporate executives as they discuss long-term strategy, even after acknowledging their concerns about how future policy decisions might affect their core business.

American Apparel Cabelas Men's Wearhouse Williams-Sonoma Pier 1 Imports

Q3 2012 Q4 2012 Q3 2012 Q3 2012 Q3 2013

20.0 12.0 9.5 8.5 7.9

JCPenney hhgregg GameStop Walgreens Supervalu

Q3 2012 Q3 2012 Q3 2012 Q1 2013 Q3 2013

(26.1) (9.7) (8.3) (8.0) (4.5)

HIGHLIGHTS | 2013 OutlOOk | retail | nOrth america

During the fourth quarter of 2012, U.S. national attention turned sharply to the so-called fiscal cliff and the potentially devastating impact its simultaneous budget cuts and tax changes could have on the countrys uneven economic recovery. Although Congress agreed to a basic deal at the absolute last minute (read: New Years Eve), public worry over what-if scenariosmost of them badintensified through the fall and peaked in mid-December, just as the holiday season was in full swing. As a result, despite continued improvement in the housing and employment markets, only four of Colliers twelve Bellwether Economic Indicators trended higher for the quarter.

Further reflecting a lackluster quarter, several of our indicators that came in flat or positive were less than stellar. The Chicago Feds National Activity Index (CFNAI) was essentially unchanged, with a 0.0 reading at the end of Q3, dropping below zero (indicating below-average growth) in October before rebounding to 0.2 in December. Personal incomes shot up 2.6% in December, but only because corporations responded to the threat of higher capital gains rates by shifting 2013 dividend payments to 2012. We dont expect that growth rate to be sustained, at least in the short term: The reversion of social security taxes to 6.2%, up from the from the 4.2% collected during the past two years, removes an estimated $110 billion from consumers pocketsequivalent to the combined U.S. revenues of McDonalds,, and Costco. Although the handful of retailers that report monthly sales turned in better-than-expected January results, retail sales reported by the Commerce Department rose by only 0.1% as household spending adjusted to lower take-home pay. There was encouraging data, too. U.S. auto sales ended the year at 14.5 million vehicles, up 13% from 2011, and the highest volume since 2007. Chinas Q4 GDP growth came in slightly ahead of analysts expectations; rising household incomes there are expected to contribute to domestic consumption/retail sales this year. Conditions in Europe have eased somewhat in the past six months as Northern countries stepped up support for the European Monetary Union, resulting in sharply lower yields on 10-year Spanish and Italian bonds. Here in the U.S., with two more revisions to GDP, the advance Q4 number will likely be revised upward to be weakly positive, but we expect growth for 1H 2013 to come in at or below a 1% annualized rate.

TREND Chicago Fed National Activity Index (CFNAI) GDP U.S. GDP Hong Kong* GDP Germany NFIB Small Business Optimism Index NRA Restaurant Performance Index Citibank Economic Surprise Index (U.S.) CMBS retail delinquencies (% of total) National Unemployment Rate Retail sales growth (Commerce Dep't) Personal Income (% growth) Auto sales (annualized pace in millions)



Retail real estate has tracked in lockstep with the housing market: first, with its 2006 collapse and since then along its painfully uneven recovery. During the past year, we have observed consistently improving trends in the housing market and now are confident that the sector is growing again. In its year-end housing wrap-up, Wells Fargo noted that unlike other economic indicators (namely consumer confidence), residential transaction volume, housing prices, and permit activity were not shaken by broader unease over the countrys fiscal debate last fall. Beginning in September 2011, when the National Association of Home Builders and First American launched their Improving Markets Index (IMI), Colliers has looked to the IMI to quantify the strengthening U.S. residential market. We like the IMI because it aggregates metropolitan area data on employment growth, home price appreciation, and singlefamily permitting activity, and only lists a market as improving if all three trends have been positive for six months. The IMIs list of improving metro areas has grown 14 out of 18 months (see chart on following page), jumping from 99 at the end of Q3 2012 to 201 in Q4 2012. In February 2013, the IMI hit a record level: 259 metro areas, and for the first time, every state in the country has at least one market represented. This broad-based housing recovery bolsters our more positive outlook for 2013 retail sector performance. In mid-2012 we pointed to strengthening year-over-year home goods sales compsreported first by specialty retailers Williams-Sonoma, Bed Bath & Beyond,

Sources: Trepp, National Restaurant Association, Fitch, Commerce Department, Citibank, National Federation of Independent Businesses, Autodata *Colliers projection; data not yet available

Surprisingly solid U.S. retail sales and business investment could not offset sharply lower federal defense spending, which led to the Gross Domestic Product (GDP)s first quarterly contraction (an -0.1% advance reading) since Q2 2010. Germany bucked the Eurozone recession for most of the year, but its advance Q4 reading came in at -0.5% as domestic firms deferred or cancelled planned investments in response to a slowing global economy. The Restaurant Performance Index dropped below 100its threshold level for expansionary activityin October and remained there for the rest of the quarter. The Citibank Economic Surprise Index (CESI) tracked a volatile path in 2012 before turning negative late last month, indicating that more economic reports are coming in below consensus estimates.

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HIGHLIGHTS | 2013 OutlOOk | REtAIl | nORth AmERIcA





200 150 100 50 0

23 30 41 98 76 99 101 100 80 84 80 99 100 125

available spaces in metropolitan Honolulu. Increasing international tourist countspassenger traffic hit a new record high for the first three quarters of 2012especially from Asia, are driving demand for goods and services in Waikiki. A number of high-profile retail developments are progressing, including General Growth Properties expansion plans for the Sears pad at Ala Moana Center, Taubman Centers International Market Place in Waikiki, and Hughes mixed-use, master-planned development in Kakaako.


Sep 2011

Nov 2011

Jan 2012

Mar 2012

May 2012

Jul 2012

Sep 2012

Nov 2012

Jan 2013

# of Improved Markets
Source: National Association of Home Builders

Pier 1, and more recently by home improvement giant Home Depot as anecdotal evidence that households were prioritizing spending on their primary residences. That observation has now been picked up by a broader section of sector analysts and Wall Street. Estimates vary on how much the average new home sale or multifamily move-in generates in retail sales, but our research colleagues on the residential side suggest a one-month rent or mortgage payment as a reliable proxy. To capitalize on move-in spending potential, opportunistic retailers would be well advised to prioritize merchandising and inventory adjustments: Our department store sources have noticed more rapid sell-throughs of small appliances and home dcor items taking place in at stores in hot multifamily submarkets. We project that housingboth retail spending and the impact of higher employment in construction-related positionswill contribute around 50 basis points to 2013 GDP growth. The strength of the U.S. market also presents an attractive opportunity for foreign housewares and furniture brands; we wouldnt be surprised to see some new retailers from Europe or Asia look at U.S. expansion in the coming year.

What follows is an overview of shopping center operating results for Colliers U.S. retail markets, along with a short discussion of a few key trends weve been tracking this quarter that are impacting our national outlook. The average nationwide rental rate ended the year at $15.28/PSF, essentially flat compared with Q3 and down $0.23 (-1.5%) from Q4 2011. Retail sector momentum continues to accelerate in the Hawaii market, which again led the country with an asking rental rate of $40.43/PSF, up 16% year-over-year. Corresponding vacancy rates dropped a stunning 200 basis points, from 6.0% to 4.0%, reflecting heated competition among retailers to secure one of the limited quality

Other Top 5 rental markets included San Francisco ($26.27/PSF), San Jose/South Bay ($26.15), Miami-Dade County ($23.55), and Long Island ($23.35). The burgeoning technology industry is positively impacting real estate fundamentals throughout the entire Bay Area. As companies expand hiring, employees will demand more apartments and more amenities, in some instances creating newly viable commercial corridors that will add desperately needed retail inventory. For the country, we are projecting a slight erosion in rental rates for Q1 2013 due to post-holiday shake-out and store closings announcements, which will pressure landlords to renew marginal tenants in place rather than face store closures. In 2012, nearly 10 million square feet of shopping center space came online nationwide, with a dozen markets contributing nearly one-half of this total. Of those twelve, only fourWashington, D.C., Oakland/ East Bay, and New Yorks Westchester County and Long Islandcould be considered Core, as the strongest performers included Minneapolis-St. Paul (nearly 680,000 SF), Dallas (+470,171 SF), Orlando (+416,855 SF), and Denver (+414,564 SF). We expect this pattern of delivery to continue in 2013 as secondary markets benefit from 1) continuing improvement in housing trends, as evidenced by their concentration in the IMI data cited earlier; 2) employment growth in manufacturing centers such as Ohio, Michigan, and Pennsylvania; 3) the expansion of the Energy sector, not just its impact in powerhouse markets such as Houston (see photo above) but the potential for
Continued on page 5 COllIERs INTERNATIONAl | p. 3

HIGHLIGHTS | 2013 OutlOOk | retail | nOrth america

MARkET INVENTORy* dEC 31, 2012 (sF) uNdER NEw supply VACANCy RATE VACANCy RATE CONsTRuCTION yTd 2012 (sF) dEC 31, 2011 (%) dEC 31, 2012 (%) (sF) yTd ABsORpTION 2012 (sF) QuOTEd RENT y-O-y CHANgE dECEMBER 31, IN RENT (%) 2012 (us$psF)

Atlanta, GA Bakersfield, CA Baltimore, MD Birmingham, AL Boise, ID Boston, MA Charleston, SC** Charlotte, NC Chicago, IL Cincinnati, OH Cleveland, OH Columbia, SC Columbus, OH Dallas/Ft. Worth, TX Denver, CO Detroit, MI Fresno, CA** Ft. Lauderdale-Broward, FL Green Bay, WI Greenville/Spartanburg, SC Hartford, CT Hawaii** Houston, TX Indianapolis, IN Jacksonville, FL Kansas City, MO-KS Las Vegas, NV ** Little Rock, AR Long Island, NY Los Angeles - Inland Empire, CA Los Angeles, CA Louisville, KY Memphis, TN Miami-Dade County, FL Milwaukee, WI Minneapolis, MN ** Nashville, TN New Jersey - Northern Oakland/East Bay, CA Oklahoma City, OK Omaha, NE** Orange County, CA Orlando, FL Palm Beach County, FL Philadelphia, PA Phoenix, AZ Pittsburgh, PA Portland, OR Raleigh/Durham/Chapel Hill, NC Reno, NV Richmond, VA Sacramento, CA San Diego, CA San Francisco, CA San Jose/South Bay, CA Savannah, GA Seattle/Puget Sound, WA St. Louis, MO Stockton, CA Tampa/St Petersburg, FL Washington, DC West Michigan** Westchester County, NY TOTAls

142,642,479 9,216,143 45,713,525 27,124,520 12,974,068 87,564,315 15,241,053 52,055,791 160,237,068 35,677,375 60,308,591 15,034,748 32,265,903 150,748,809 72,675,061 72,425,516 24,786,257 48,509,366 6,663,720 29,480,691 42,749,225 22,322,081 140,973,923 40,132,558 38,930,678 39,252,023 44,201,964 15,150,399 53,283,765 86,905,414 153,552,916 28,334,804 30,725,425 46,696,510 34,307,099 43,032,294 29,814,913 92,198,983 40,769,545 27,158,626 26,814,996 62,659,926 63,333,415 35,269,323 152,177,247 104,240,834 32,233,140 35,292,265 38,477,861 13,993,317 29,725,934 50,888,619 53,768,846 9,439,743 30,557,493 7,455,973 57,974,052 55,502,603 19,445,085 87,575,353 81,568,273 32,212,073 50,646,091 3,283,090,606

301,224 30,937 270,616 14,641 8,260 296,267 292,300 83,795 16,865 80,028 63,713 470,171 414,564 107,287 53,732 161,708 9,200 10,500 159,792 148,799 62,305 29,373 179,657 57,218 195,000 314,562 216,979 184,752 70,778 175,825 167,581 413,803 679,960 60,200 63,200 413,797 6,580 55,520 79,771 416,855 8,092 341,178 212,894 225,851 22,250 69,323 148,442 25,500 222,355 145,522 359,259 114,417 127,200 465,749 28,500 382,794 9,737,441

71,178 30,934 51,363 18,098 5,177 507,000 15,700 124,437 135,093 25,416 20,400 550,000 63,800 35,200 338,515 n/a 42,300 83,334 139,139 26,607 14,080 48,505 5,300 475,916 42,800 132,002 4,000 18,554 163,252 101,087 92,132 39,400 53,424 20,400 3,800 190,383 235,000 57,500 158,000 24,232 387,305 515,299 5,066,062

14.9 9.4 8.2 13.7 11.7 7.0 9.2 11.6 12.3 12.8 13.6 9.1 12.2 14.2 9.6 15.6 12.5 9.9 14.1 9.4 8.4 6.0 (39,354) 11.9 12.1 14.2 12.1 8.8 5.0 11.5 6.8 11.7 13.0 5.5 11.9 7.7 9.7 10.0 6.1 10.4 11.6 6.9 11.5 10.2 9.7 16.4 6.6 8.2 9.1 13.3 11.0 13.7 7.6 4.0 6.3 8.8 10.3 11.0 10.9 10.8 7.5 17.4 6.9 10.4

14.5 9.1 7.8 13.3 11.2 6.5 7.3 12.0 12.2 13.0 13.0 9.3 11.1 12.8 9.4 15.4 12.8 9.0 13.4 10.4 8.5 4.0 13.7 11.4 11.8 13.3 10.7 7.9 5.2 11.9 7.3 10.4 14.4 4.8 11.6 7.5 12.0 9.9 6.2 9.5 11.0 7.2 11.9 9.5 10.0 15.5 5.7 9.4 9.0 14.6 11.6 13.5 7.4 3.8 6.5 9.2 9.1 11.1 9.9 10.6 6.9 17.4 6.8 10.1

1,004,274 72,233 514,444 175,272 29,784 549,034 (75,789) (96,599) 550,102 (23,543) 51,121 317,941 2,193,546 934,929 439,827 104,842 478,726 121,319 (54,870) 389,672 301,649 14.03 261,316 203,795 421,636 825,682 26,415 192,661 117,503 (479,475) 57,603 259,481 476,517 574,712 639,543 (363,765) 41,862 402,499 197,605 463,727 (92,527) 250,641 314,166 58,874 1,880,491 463,288 (288,077) 151,025 (47,829) (91,220) 387,637 501,993 6,227 121,572 (95,728) 1,047,510 287,666 238,299 270,517 708,954 30,171 387,829 18,776,502

12.72 14.00 18.74 8.59 12.00 15.50 15.46 13.23 15.18 10.59 10.37 10.50 11.73 13.32 13.86 12.39 13.47 17.52 9.63 8.93 13.21 4043 2.18 11.61 12.70 11.95 16.32 10.59 23.35 16.94 22.41 10.97 10.84 23.55 11.42 15.48 12.95 19.53 21.04 9.75 11.91 22.70 13.86 16.42 14.33 13.66 11.45 16.28 14.67 14.89 13.12 16.25 20.28 26.27 26.15 14.48 17.80 12.02 15.15 13.07 22.25 9.32 19.34 15.28

(2.60) (6.85) 1.02 (7.03) 2.65 2.51 (1.02) 0.92 (3.19) (8.31) (2.17) (2.87) (6.68) 1.83 0.14 (0.56) (0.88) 0.69 (3.70) 0.00 (0.83) 16.4 (0.57) (2.19) (5.01) (0.91) (1.45) 9.97 (2.30) (7.48) (0.49) (5.67) (0.82) 6.51 0.26 (5.84) (2.41) 0.41 0.14 (0.71) 2.06 0.09 (7.17) (4.48) (1.10) (2.43) (4.02) (5.24) (6.68) (3.12) (4.65) (4.19) (1.79) (4.12) 1.87 (0.28) (1.87) (4.98) (2.82) (1.58) 0.09 0.43 3.04 (0.01)

NOTE: CoStars periodic building reclassifications, rather than actual new supply, can result in larger-than expected changes to inventory numbers. Care should be taken when making quarter-over-quarter comparisons.

* Community and Neighborhood Centers | ** Select Colliers offices track their own retail market data. | Sources: CoStar, Colliers Research

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HIGHLIGHTS | 2013 OutlOOk | REtAIl | nORth AmERIcA

new boomtowns to emerge near shale and natural gas reserves and 4) the 2015 opening of the expanded Panama Canal, which will reorganize the existing hierarchy of U.S. port cities. Well discuss secondary markets again later in this report when we reveal our 2013 Trends to Watch.

sElECTEd RETAIlERs OpENINg 40+ u.s. lOCATIONs IN 2013 RETAIlER Aaron's Advance Auto parts Autozone Best Buy Mobile Big lots Buffalo wild wings Carter's Clark's Chipotle CVs dick's sporting goods dollar general dunkin' donuts Family dollar Five Below Foot locker/lady Foot locker Francesca's Hibbett sports Homegoods Jos. A. Banks Mcdonald's Mattress Firm Holdings Michaels O'Reilly Automotive Qdoba panera pep Boys pizza Hut Ross stores (all) sally Beauty Holdings starbucks sherwin-williams Tractor supply ulta urban Outfitters (all brands) Vitamin shoppe walmart (all) walgreens CATEgORy Home Auto Auto Home discounter Restaurant specialty specialty Fast Food drug Hobby dollar Fast Food dollar specialty specialty specialty Hobby Home specialty Fast Food Home Hobby Auto Fast Food Fast Food Auto Fast Food discounter specialty Fast Food specialty Misc. specialty specialty specialty discounter drug EsT. OpENINgs 80-120 170-190 200 50 100 90 105 60 30-50 165-180 225-250 40 635 330-360 (net) 500 60 82 75 50-55 40 (net) 45-50 220 100 40-50 190 (net) 70-85 115-125 80 150 (net) 80 80-100 300* 70-80 80-85 125 49 48 210-235 120-200


Mobile devices impact on retail sales, which barely registered two years ago, spiked dramatically in 2012. Of the $42+ billion in online sales reported by comScore, between 20% and 25% (depending on the source) were transacted over a mobile device. Several factors are converging to aid the rapid ascent of mobile as a tool for both product research and retail transaction activity. First, increasing penetration of mobile devices has created a significantly larger market of would-be shoppers: Wireless Intelligence, the GSM Associations research arm, estimates there are 354 million mobile devices currently in use by a U.S. subscriber base of 225 million. Second, the surge in applications software development has transformed usage patterns: Citi Research recently reported that 65% of mobile technology activity is non-communications usage. Traditional smartphones small screens hinder users ability to navigate complex websites and view products easily. Enter the phablet: a smartphone with a larger 56 screen that blends phone and tablet (and its a word that makes us smile every time we say it).

Bed Bath & Beyond (all concepts) Home

100 80 60 40 20 0

25 20 15 10 5



2013* 2014* 2015* 2016*

Total Volume ($ Billions)

Source: eMarketer | *projected

% of Total E-commerce Sales

Our periodic monitoring of retailers mobile interfaces and dedicated apps over the past year revealed more user-friendly platforms. Although we dont have complete detail on how companies invested their development spend, its obvious that executives prioritized mobile initiatives which, for some firms, meant addressing internal confidence issues regarding actual or perceived lack of mobile technology knowledge that may have paralyzed previous decisionmaking. As a result of this collective investment, mobile remains extremely well positioned to grow both in absolute volume and as a percentage of total retail sales. By 2016, eMarketer predicts that mobile revenues could come close to quadrupling from their 2012 volumes (see chart above).

*Extrapolating from stated corporate objective to open 1,500 new locations in next five years
Source: PNC Research, Colliers Research, company reports

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HIGHLIGHTS | 2013 OutlOOk | retail | nOrth america






Advance Auto Parts AutoZone (U.S.) O'Reilly Auto Parts Pep Boys

Q4 2012 Q1 2013 Q4 2012 Q3 2012 Q3 2012 Q3 2012 Q3 2012 Q3 2012 Q3 2012 Q1 2013 Q3 2012 Q3 2012 Q3 2012 Q3 2012 Q1 2013 Q3 2012 Q3 2012 Q3 2012 Q1 2013 Q3 2012 Q3 2012 Q3 2012 Q3 2013 Q3 2012 Q3 2013 Q2 2013 Q3 2013 Q3 2012 Q1 2013 Q3 2012 Q3 2012 Q3 2012 Q3 2013 Q3 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2012 Q3 2012 Q3 2012 Q3 2013 Q3 2012 Q3 2012 Q3 2012 Q3 2012

(1.9) 0.2 4.2 (2.7) 5.8 5.0 (26.1) 3.7 10.7 5.4 3.3 (1.6) 1.9 (4.6) 7.0 / 6.0 4.0 1.6 6.3 6.6 (2.5) 1.1 6.0 2.7 2.9 7.0 5.6 1.5 5.6 2.5 3.2 (3.6) 0.2 / 0.1 (4.5) (1.7) 7.2 (2.9) (4.3) 12.0 5.1 (8.3) (9.7) (4.0) (2.6) 6.5 (1.0)

(1.8) 2.1 1.3 flat 4.9 3.0 (21.7) 3.3 4.5 7.9 4.7 (2.9) 0.1 (1.9) 6.0 / 6.0 5.1 4.5 4.2 5.4 (1.0) (2.7) 7.0 4.5 3.1 7.0 1.7 2.2 8.0 3.0 3.6 (3.3) 1.9 / 0.8 (4.3) 0.4 8.5 4.6 (3.2) 3.9 2.9 (9.3) (8.8) (6.0) (1.8) 7.0 (2.0)

BWP acquisition closed December 31, improves competitive positioning in the Northeast higher new car sales beginning to weigh on results, especially for merchandise professional business growing faster than Do-It-Yourself; comps grew on higher avg. ticket dropped CapEx by $5 million by pushing planned new store openings into 2013 converting 15 more stores to flagships through remodels and enhanced premium brands strength in men's apparel, men's and women's accessories; managing expenses well store traffic fell 12%; corporate promotions strategy still confusing customers stronger-than-expected quarter with strength in men's, home, and select women's apparel full-line stores +11.2%, Rack +8.1%; will launch six pop-up shops in February company now sells online in 100 countries; fine jewelry outperforming significant investment in Project Evolution, their omnichannel systems platform new pricing and promotions strategies helping sales of appliances, apparel narrower net loss; managing clearance goods more closely; announced two new stores extensive 2013 focus on remerchandising; insider trading probe of ex-CEO continues planning 5% square footage growth globally in 2013; heightened competition; plans increased investments in price to drive sales volume higher traffic driving sales; continuing to add coolers/freezer cases to stores traffic, conversion, units per transaction all up in Q3; increased FY 2012 earnings guidance consumables as a percentage of total sales increased nearly 400 basis points, to 73.9% traffic, sales trended up in last month of quarter; gaining traction with Pharmacy Citi downgrade following a challenging holiday season for the quarter, juniors performed best; southwest Texas and Florida led regionally continued investment in pricing; testing programs to accelerate membership income opened two more City Targets; strong results from Credit Card division $200M Sierra Trading post acquisition provides them an established ecommerce position stronger-than-expected customer response to Nov./Dec. sales events positive sales comps across all regions of the country and merchandise categories expanded into California: first store opened in Oct.; expecting West Coast to drive growth cautious outlook for FY 2013 but continued expansion in Washington DC metro area record Q3 EPS; will build, expand, or relocate 50 stores during calendar year 2013 reduced quarterly dividend; Chicago-area stores holding up well against competition sales flat, but management team predicting market share gains during the next year sale of five brands removes several weak performers from corporate balance sheet hit unfavorable YoY comp with higher Northeast storm-driven sales in September 2011 opening 11 new stores in FY 2013, including rebranding of six Johnnies Foodmasters gaining traction with third-party Nook distribution, but warned of future store closings flat holiday comps; customers appear to be delaying purchases ahead of product launches record Q4 earnings; comp sales growth driven by sales of guns and ammunition expanded testing of ship-from-store program; launched mobile app in Q3 strong launches of Madden 13, Borderlands 2 couldn't offset declines in hardware business shifting product mix away from video, electronics to appliances, furniture, fitness equip. within next five years, chain will downsize or relocate 500 stores to mid-size formats merchandise mix changes benefitting margins; Office Depot merger speculation significantly raised FY earnings guidance after another strong quarter investing in new product lines; will triple online assortment to nearly 100,000 SKUs

Belk Dillard's JCPenney Macy's Nordstrom Neiman Marcus Saks Fifth Avenue Sears (U.S.) The Bon Ton

Big Lots (U.S.) Costco (U.S., with/excl. fuel) Dollar General Dollar Tree DSW Family Dollar Fred's Super Dollar Kohl's Ross Sam's Club (U.S., excl. fuel) Target TJ Maxx Tuesday Morning Walmart (U.S.)

The Fresh Market Harris Teeter Kroger (excl. fuel) Roundy's Safeway (total / excl. fuel) Supervalu (Retail food) Weis Markets Whole Foods

Barnes & Noble (retail) Best Buy (U.S.) Cabela's Dick's Sporting Goods GameStop (global) hhgregg Office Depot (N. America) OfficeMax (retail) PetSmart Staples (N. America) p. 6


HIGHLIGHTS | 2013 OutlOOk | REtAIl | nORth AmERIcA






Aaron's (corporate-owned) Bed Bath & Beyond Home Depot (U.S.) Lowe's (U.S.) Pier 1 Williams-Sonoma, Inc.

Q4 2012 Q3 2012 Q3 2012 Q3 2012 Q3 2013 Q3 2012 Q4 2012 Q3 2012 Q1 2013 Q3 2012 Q3 2012 Q3 2012 Q2 2013 Q2 2013 Q4 2012 Q4 2012 Q3 2012 Q4 2012 Q2 2013 Q3 2012 Q3 2012 Q4 2012 Q3 2012 Q4 2012 Q3 2012 Q3 2013 Q4 2012 Q2 2013 Q4 2012 Q3 2012 Q4 2012 Q2 2013 Q4 2012 Q4 2012 Q1 2013 Q4 2012 Q3 2012 Q3 2012 Q3 2012 Q1 2013 Q3 2012 Q4 2012 Q3 2012 Q3 2012 Q3 2012 Q3 2012

4.6 1.7 4.3 1.8 7.9 8.5 4.0 (1.5) (8.0) 2.0 2.3 3.6 1.0 0.9 5.8 3.7 2.5 3.8 (2.7) / 0.7 0.4 3.3 3.2 0.2 3.1 0.2 6.8 0.3 (5.6) 5.1 5.0 0.4 0.3 5.4 3.4 7.0 3.0 20.0 / 21.0 4.0 2.4 1.9 6.0 flat 0.1 5.0 9.5 3.7

6.5 3.5 2.6 (0.2) 6.1 7.4 4.3 flat (8.7) 0.7 4.4 2.4 1.0 2.7 6.2 1.6 1.7

Black Friday promotion, immediate delivery with no payment until Jan., drove record results executives continuing to hint at longer-term international expansion plans acquisition of U.S. Home Systems (kitchen/bath refacing) will improve fulfillment more effective promotions management drove outperformance in cabinets/appliances 35% of online orders picked up in-store; half of calendar '13 CapEx going to e-commerce holiday sales up 4.8% year-over-year; planned expansion into Australia in early 2013 raised 2013 guidance; MInuteClinic revenue up 38% for the quarter; +226 bps market share company celebrates its 50th anniversary in 2013; CapEx to increase 20% on add'l remodels growth platform focused on wellness, global expansion, and emphasis on community health chain is fully franchised; Q3 results reflected higher average check, lower traffic comps gain on new loyalty program, bartender education to drive craft beer sales all four core chains comped higher; raised FY guidance for revenues and earnings corporate focus on restaurant updates; post-"refresh" locations lift sales 5%, ROI 20% Chili's gained market share during holidays; Maggiano's achieved 12th qtr of comp growth high chicken wing costs continued in Q4; multi-year partnership with NCAA for March Madness U.S./Canada led global growth in Q4; 55th Anniversary Whopper(R) promtion drove traffic
Cheesecake (+2.9%) with increases across the U.S. and across dayparts

CVS Rite Aid Walgreens


Applebee's BJ's Restaurants Bloomin' Brands Bob Evans Brinker Int'l (system-wide) Buffalo Wild Wings (owned) Burger King (U.S./Canada) Cheesecake Factory (total) Chipotle Darden (Basic/Specialty) Denny's (system-wide) Domino's Dunkin' Donuts (U.S.) Einstein Noah Jack in the Box (system-wide) Kona Grill, Inc. Krispy Kreme (company stores) McDonald's (U.S.) Mimi's Caf Panera Bread Papa John's (N. America) Qdoba (system-wide) Ruby Tuesday, Inc. Ruth's Hospitality Ruth's Chris Mitchell's Fish Market Starbucks (Americas) Yum! Brands (U.S.)

4.8 7.1% comp sales growth for 2012; 165-180 new restaurants planned for 2013 (0.3) / 2.2 all three chains comped lower: Olive Garden (-3.2), Red Lobster (-2.7%), Longhorn (-0.7%) 0.8 1.7 2.8 1.3 2.8 2.3 5.4 1.2 (3.3) 6.2 5.7 2.1 1.9 5.9 4.6 7.0 6.0 16.0 / 14.0 4.7 (0.8) 2.7 6.0 flat 3.9 8.0 4.4 9.5 guest traffic down, but customers willing to trade up to higher-priced limited offerings new store redesign will accommodate higher percentage of carryout purchases strategic development and investment aimed at increasing franchisee profitability company opted to recapitalize itself following a strategic review process last fall quarter sales growth nearly 2x the QSR sandwich segment average; gaining market share operating margins remain near the top of their peer group increased FY 2013 outlook; predicted double-digit earnings growth for FY 2014 refocusing marketing message on value offerings, new products (Fish McBites) $50 million sale to French operator of multiple caf brands should drive ops efficiencies fifth consecutive year that earnings grew 20%+; 2013 investment in marketing, catering raised FY 2012 earnings and sales comps guidance; hurricane expected to boost sales looking to further differentiate from competitors by elevating catering business new CEO; closing 13-unit Marlin & Ray's chain; looking to expand Lime Fresh 3-year growth above 20%; signed agreement to open franchised locations in China higher traffic (+5.4%) compensated for a lower average check execs cited "robust" holiday traffic; one in 10 U.S. adults received a Starbucks gift card both Taco Bell and Pizza Hut expanding into rural areas and with smaller units overall and online sales up; inventory efficiency improving opened first Canadian store; has begun to fufill online orders in stores men's merchandise, private label goods trending higher as a percentage of sell-throughs Q1 revenue lower; opened its first 12 leased departments in BuyBuy Baby Gap N.America (+7.0%), Banana Republic (+6.0%), Old Navy (+9.0%), international (-3.0%) online investments, new brand launch weighed on Q4 profits CFO resigned; Torrid rebranding drove significant (+190 bps) improvement in gross margin Victoria's Secret earned record operating profit in Q3; La Senza business stabilizing comps moved higher on promotional activity, which drove higher units sold cut Q3 earnings guidance based on weak sales in Europe COllIERs INTERNATIONAl | p. 7

American Apparel (incl./excl. online) Ann Taylor The Buckle Destination Maternity The Gap (all) H&M Hot Topic Limited Brands (all) Men's Wearhouse Zumiez

* Sources: Company Reports, Colliers Research

HIGHLIGHTS | 2013 OutlOOk | retail | nOrth america


Within the context of omnichannel integration, retailers have undergone a significant shift in mindset. Gone, for the most part, are defensive attitudes and turf wars between e-commerce and brick-and-mortar operations, even if growth achieved by the former comes at the expense of the latter. The retail industry has finally recognized that to stay relevant, it must fully embrace and invest in a multichannel strategy. Incremental revenue gains achieved by early adopters of this attitude, such as Walmart, Macys, and Nordstrom, only further emphasize the point. Nevertheless, in an environment still defined by the cost-conscious consumer, companies remain focused on thoughtful investment and where best to allocate each incremental dollar of their Capital Expenditures (CapEx) budgets. These investment choices force constant reevaluation of how best to balance real estate and distribution/fulfillment within corporate strategy. Last spring, Colliers proprietary analysis of planned 2012 retailer CapEx illustrated dramatically improved executive confidence: 74% of our sample set (78 of 105 companies) increasing their budgets yearover-year, and 45% of companies by more than 50%. Comparing planned to actual expenditures in 2012, though, revealed a more tempered execution. We acknowledge that we dont yet have complete results: Less than half of our tracked companies released 2012 results before we had to finalize this report. However, based on a combination of year-end comments and extrapolating trends from the end of Q3, we estimate that more than 40% spent less than they initially allocated for the calendar year, with one-quarter of companies pulling back on spending by more than 20%. We suspect that much of the decrease was tied to the slowdown in the economy: Pep Boys, for example, disclosed that it was pushing back some planned 2012 openings into 2013.

estate pipelines, but also detailed investment in their service and online platforms. And dollar stores 2013 expansion counts are roughly in line with 2012, although shrinking margins and some slowdown in comps growth indicate that the segment may be maturing. We continue to monitor the dollar stores performance and their merchandising shift toward food and daily needsand its impact on traditional supermarkets.

The Canadian retail sector continues to expand and demonstrate broad-based health, although the pace of retail sales growth has slowed considerably since 2010 but for some exceptional regional markets. Despite recent layoff announcements from Best Buy/Future Shop (closing 15 stores), and Sears (which closed several stores last year), employment markets remain robust and consumers are generally confident in their future spending ability. We expect that when Canadas 2012 full-year retail sales data are released later this month, they will reflect a national growth rate of approximately 3% even as spending slowed considerably in 2H 2012 following a fairly strong Q1/Q2. Looking ahead to 2013, continued rock-bottom interest rates will support automobile purchases, as is also occurring in the U.S., but higher household debt levels and slowing consumer confidence will affect discretionary sales. Our projected 3% retail sales increase in 2013 masks significant regional variations. Ontario and Quebec still represent well more than half of Canadas $550 billion total retail sales. The natural resource sector will continue to spur Alberta and Saskatchewans nation-leading sales growth, albeit at rates of only 5% over 2012. Development activity will likely continue, if not at the torrid pace of the last few years. If the Canadian dollar weakens on strengthening U.S. jobs and housing markets, its positive impact on Central Canadas vitally important manufacturing sector could prop up national statistics by compensating for flat sales growth on the coasts. Canada has never experienced as much interest from U.S. and international retailers and developers as it has in the last three years. Even if the Canadian dollar weakens, U.S. companies continue to view the Canadian market as an attractive investment opportunity. Targets 120+ Canadian stores will begin to open next month; the company announced a partnership with iconic retailer Roots to stock limitededition product. Meanwhile, Walmart will expand its Canadian network to 388 stores by investing $450 million in construction and other costs. Nordstroms 4-store Canadian rollout wont begin until late 2014 at earliest, but it will be a barometer of the national retail economy and the depth of demand in Canadas luxury market. Finally, Canada will see its first true outlet malls north of the border, as Simon Property Group, Tanger, and other established outlet developers establish Canadian partnerships and stake claims in major markets. Colliers is aware of approximately 12 outlet malls in their planning stages, including two competing projects in the Toronto metro and two in Vancouver. As with most retail developments, must-have anchor tenants are the limiting factor for growth. Multiple centers proposed in markets are intensifying competition as developers vie to secure retailers limited commitments.


25% 7% 28% 41%

Spent more than planned Spent what they planned Spent less than planned No data Sample Size: 105 companies

Source: Company 10-Ks and earnings reports, Colliers Research

Advance disclosures for 2013 CapEx have generally been much less detailed than what we received last year. Large-scale store openings announcements (see chart on page 5) are concentrated in the Quick-Serve and Restaurant categories (Dunkin Donuts, Cheesecake Factory, and BJs Restaurants all investing more in new stores), home furnishings (Bed Bath & Beyond, HomeGoods, Mattress Firm, and Sherwin-Williams), and specialty stores such as Francescas and Urban Outfitters that focus on

accessories. All four major auto supply chains disclosed significant real

p. 8


HIGHLIGHTS | 2013 OutlOOk | REtAIl | nORth AmERIcA

Mexicos economic stability, which continued during the second half of 2012, is reflected in current consumer confidence levels; Decembers reading of 99 was the years highest. Consumers upbeat attitudes have been demonstrated through the upward trend in retail sales. During from 2011 through mid-2012, specialty stores recorded the largest cumulative growth rate, 16.3%, followed by supermarkets at 9.0% and department stores at 6.5%. Mexicos shopping center inventory, as measured by Gross Leasable Area, has grown by 47% since 2007 (see chart below), and currently contains 522 shopping centers larger than 10,000 SM (100,000 SF). Power centers and fashion malls are the formats most often preferred by developers. Retail projects are focused on bringing luxury brands and leading fashion companies to high-end malls. The trend toward planning and construction of mega-projects such as Va Vallejo and Centro Comercial Nuevo Sur has begun. Retailers and developers remain confident doing business in Mexico, judging from retail development and redevelopment pipelines. Colliers is tracking 40 shopping centers under construction, with a total net leasable area of 820,000 SM. All but five of these are ground-up developments. eighteen shopping centers opened in 2012, including Town Center Rosario, a 70,000-SM power center in Azcapoltzalco and anchored by Walmart and Sams Club, and Plaza El Dorado, a 76,000-SM fashion mall in Boca del Rio, Veracruz and anchored by Liverpool and grocer Chedraui Select. For 2013, Colliers is projecting total shopping inventory to grow by 2.7% and to reach a level of nearly 17 million square meters. During 2012 Mexico received large amounts of domestic and foreign investment: USD $27.7 billion in Q3 alone. This trend is expected to continue. Mexican retailers are also paying closer attention to technology as consumers use devices to purchase products.



In addition to the improving U.S. economy, and the spillover effects which that are expected to lift the retail sector, heres what well be watching this year.

The retail industry is facing personnel challenges as it restructures customer service and selling programs to function seamlessly across multiple channels. Even for companies with exceptional reputations in brick-and-mortar customer service, expanding into e-commerce means an accelerated pace of transactionsand dealing with customers who hold omnichannel to the same standards as they do established in-store programs. As the majority of e-commerce infrastructure platforms are still in their infancy, there are far more places for customers to slip through the cracks. We expect that retailers, as they continue to invest in systems upgrades, will opt to mitigate risk by adding more employees in both customer-facing and back-office functions. Restaurant operators are also being pressured to prioritize service improvements and protect market share as patrons continue to scrutinize discretionary spending. Throughout the sector this should translate into more part-time employees.


500 400 300 200 100 0

2007 2008 2009 2010 2011 2012 2013*

15 10 5

The prospect of a 2012 year-end increase in the U.S. capital gains tax rate motivated sellers and made Q4 a record-breaker for retail investment sales. Real Capital Analytics reported that total transaction volume reached $52.8 billion, up 20% from 2011, with individual asset sales driving most of the December surge. The newly adopted 20% capital gains rate, up from 15%, is unlikely to materially impact investors willingness to dispose of propertiesyet. As the tax reform debate expands this year, though, the prospect of an additional increase could launch another period of frenzied dealmaking and then, if implemented, bring transaction activity to a standstill, especially if combined with significant changes to 1031 exchange rules. Extreme cap rate compression over the past two years illustrates the impact that lack of both quality inventory and yield-generating alternatives had on pricing and transaction velocity, especially in the single-tenant net lease space. Investor demand for retail product has become an impetus for new development, just to create inventory that can then be sold. In addition to the prospects of higher future taxes, the specter of higher interest rates (given the coming change in Federal Reserve leadership) should move a broader cross-section of sellers off the sidelines.


# of Centers Total Square Meters (Millions)

Source: Colliers Research | *projected

Free shipping on purchases and returns began as a service differentiator, but it has evolved into a cost of doing business for all retailers, especially brick-and-mortar chains looking to neutralize operational cost advantages enjoyed by pure-play online firms. What retailers gain in customer loyalty, though, they sacrifice in margins. Citi
Continued on page 10 COllIERs INTERNATIONAl | p. 9


HIGHLIGHTS | 2013 OutlOOk | retail | nOrth america

Research estimated in October 2012 that free shipping reduced gross margins by up to 100 basis points for the companies it covers. Whats more, these estimates dont take into account January increases by UPS, FedEx, and the U.S. Postal Service in shipping rates for ground, air, and less-than-truckload freight. As we said in our Q3 2012 report, it would be disastrous for retailers to eliminate free shipping customers would revoltbut executives comments in recent earnings calls suggest there wont be too many sacred cows in their quest to rein in costs. Future program tweaks might include placing limits on the amount of merchandise that can be returned without a penalty, or raising the order dollar value that qualifies for free shipping. Another benefit of more carefully managed shipping programs: fewer fraudulent returns, which the National Retail Federation estimates currently cost U.S. retailers $8.9 billion annually.

As brick-and-mortar retail real estate companies rebuild their organizations to operate multichannel selling platforms, the next changes could come in the executive suites. Traditional corporate structures house separate divisions for real estate, marketing, management, information/technology, and merchandising (for retailers). As e-commerce/internet initiatives gained strategic importance in recent years, CEOs first responded by reassigning or promoting an existing executive to focus on what may still have been viewed as a niche business. Saks Incorporateds February 7 announcement that it is formally tasking its senior executives with broader cross-channel responsibilities, and adjusting their titles accordingly, is the first of many corporate adjustments we expect this year. More broadly, were also looking for realignments in leadership of real estate versus online operations as more retailers combine divisional sales reporting.


IN-sTORE FulFIllMENT: AlTERNATIVE TO sHIppINg? Brick-and-mortar retailers also have the option of expanding in-store fulfillment in lieu of risking potentially unpopular changes to free shipping programs. Walmart, Ann Taylor, Macys, and Pier 1 are among those experimenting with these programs that, in bringing customers back into stores to pick up their orders, provide opportunities for incremental sales of in-store (and potentially higher-margin) merchandise. Effective execution requires significant technology investment to link sales and inventory tracking between distribution centers and store locations, factored against predictive analyses of customer buying patterns to better predict where specific merchandise might be needed. Aside from cost savings at the company level, the future real estate impact of in-store fulfillment could be significant. Retailers that succeed with fulfillment programs could effectively repurpose sections of their existing sales floor without needing to reduce their footprint, mitigating landlords downside risk from vacancies.

Smaller prototype stores will continue to open in 2013 as more leases come up for renewal and companies rationalize real estate operations. While much has been made in the past several years of the impact on real estate (inventory returned to market, difficulty re-leasing marginal spaces), less attention has been paid to how well retailers are executing in these new, smaller spaces. Did they make the correct merchandising decisions? As we toured smaller prototypes of existing box retailers this year, we were struck that the more successful onesCity Target, to name onedid not end up being significantly smaller than the parent chains existing full-line footprint. Therefore, shopkeeping unit (SKU) rationalization didnt need to be dramatic: it could avoid a massive product overhaul and the risk that would accompany it. Looking at other chains that did launch with significantly smaller prototypes, though, we were less comfortable with the execution. Too often, square footage downsizing can turn into an exercise in cost analysis: stock the store with only the most profitable SKUs rather than conduct a thoughtful internal debate on how best to reinvent a retail brand in a smaller space. Well see how the performance of these smaller stores diverges in the coming year, especially as the marketplace provides more opportunities to evolve: Some big box chains that originally announced smaller prototypes (25,000 SF to 15,000 SF) are now moving right into testing of even smaller spaces, 6,000 to 7,000 SF.


Source: ICSC

p. 10


HIGHLIGHTS | 2013 OutlOOk | REtAIl | nORth AmERIcA

During the early days of the economic recovery, outlet projects were among the few ground-up retail projects palatable to risk-averse lenders. Higher sales productivity did, and still does, make retailers more receptive to paying higher rents, and consumers surging demand for value-priced product suggests continued opportunity for sector growth. Late 20122013 marked the beginning of the surge in outlet center openings. Within the U.S. and Canada, we have confirmed nine projects that will open in 2013, with an additional three dozen announced or rumored (and more than half of that total slated to open during the next 24 months). Even with this deep pipeline, retailers expansion plans are robust enough to suggest a shortage of inventory and future demand for even more space. How many of the proposed outlets will actually get built? If they all open, how many will perform well? Time will tell, especially in markets such as Toronto, Charlotte, and St. Louis, where multiple projects are competing fiercely for the same set of tenants.

OuTlETs, OuTlETs, OuTlETs

522 offices in 62 countries on 6 continents

United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118

$1.8 billion in annual revenue 1.25 billion square feet under management Over 12,300 professionals and staff 400+ Retail professionals in 68 U.S. Offices

It remains one of our favorite analogies: The U.S. is the cleanest shirt in the laundry with respect to real estate investment. The concentration of quality assetsapproximately 25% of the world commercial inventory according to Prudential Real Estate Investorsas well as the U.S.s safe haven status will continue to comfort foreign investors and attract capital this year. Overseas investors, even those focused on capital preservation, are moving away from Treasuries and farther out onto the risk curve. Sovereign wealth funds have stepped up, led by Norways NOK3.7 trillion (USD $661 billion) Government Pension Fund Global, which announced before the holidays that it would begin investing in U.S. real estate: one-third of its five percent target for the asset class. Gr anted, its first commitment, announced last week, was for Core office space (a $1.2 billion deal with TIAA-CREF), but we see retail as a viable recipient of sovereign funds seeking partial interest in trophy assets either as an acquisition or a recapitalization opportunity with a good partner.


COllIERs INTERNATIONAl 601 Union Street, Suite 4800 Seattle, WA 98101 TEl +1 206 695 4200 FOR MORE INFORMATION Ann T. Natunewicz | Manager Retail Research | USA TEl +1 202 534 3608 EMAIl James Smerdon | Vice President, Director Retail Consulting | Canada TEl +1 604 661 0808 EMAIl Flavio Gmez Aranzubia | Manager Market Research | Mexico TEl +52 (55) 5209 3682 EMAIl CONTRIBuTORs
KC Conway EMD, Market Analytics | USA Jennifer Macatiag Graphic Designer | USA
Copyright 2013 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Savvy investors recognized improving macroeconomic trends during 2012, but the markets risk-averse nature diverted the lions share of U.S. retail investment capital to Core markets despite their record-low yields. During our meetings with institutions last year, we heard many of them express interest in non-core marketsonly to cite the execution challenge (especially for those representing foreign capital) of coaxing investors away from the top five or ten U.S. cities with wellunderstood market fundamentals. Since Colliers began tracking secondary markets more than 18 months ago, we have tracked their accelerating improvements in housing and employment relative to Core markets. Aided in some areas by business-friendly corporate tax policies, strong secondary markets are becoming the economic growth engines that lift the performance and prospects of local real estate, especially for retail space which is so dependent on employment and consumer spending. This well-defined shift in risk-reward tradeoff is creating attractive yield potential on develop-to-core strategies or the acquisition of higher-vacancy properties. We project a significant increase in secondary market investment, from both domestic and foreign capital, in 2013, especially given future interest rate risk and increasing pressure being placed on institutions to deploy capital after years of conservative investing.


Even as the economy improves, the retail real estate sector remains vulnerable to shocks that affect both consumer and investor sentiment. However, the slow recovery from the 20072008 , while it damaged aspects of the sector, also left behind as its survivors firms primed to outperform: they better understand what differentiates them in the eyes of their customers and know how they must operate to compete effectively. We expect process refinement and brand evolution to continue throughout the retail sector 2013 as competition intensifies, continuing to marginalize weak performers and reward those with the vision and confidence to innovate.

Accelerating success.