SUNRISE BREAKFAST: CIO’S CHALLENGEREFOCUSED IT BUDGETS FOR DIGITAL

GREG BUZEK, President, IHL GroupJEFF ROSTER, VP, Strategy, IHL Group

DAVID STROBELT, SVP/CIO, Modell’s Sporting GoodsSCOTT EMMONS, Director and Founder, Innovation Lab, The Neiman Marcus Group

Sunrise Breakfast The CIO’s Challenge –

Refocused IT Budgets for Digital

About IHL

Helping Retailers/Hospitality Make Better IT Decisions o Managed RFP Process, Contract ReviewsSyndicated Research and Data Serviceso Retail Benchmarkingo IT Forecasts - WorldViewo Sophia Data ServiceAdvisory Programso Retail Executive Advisory Programo Strategic Operations Exchange Custom Research

Sample Clients

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Holiday Sales

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Overall retail sales up 3.6%-4.9%o Not all segments well

o Dept. Stores and Specialty Struggledo Sporting Goods and Electronics shined. o If you extend to restaurants and entertainment, numbers even stronger

o Christmas Week Sales Up 6.5% in Stores

Online sales up 11-17% Online 21-24% of holiday spend 46-60% of sales growthAmazon 38% of all online sales for Holidays, o 49% of all online sales December 18-21o Shipped over 2 Billion items

Sources: NRF, RetailNext, Slice, First Data, Customer Growth Partners, CNBC

Online Dominance

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$3.71B of $12B

Retail’s Biggest ProblemHow To Compete With Amazon

Over 50% of US Households Have Prime Membership66 Million Households

70% of Households > $112k Income

AWS – 10% of Revenue, 60% of Net Income +58% growth

But…. Spent estimated $17B on Shipping (~Starbucks), Lost $9B (~GameStop)

7Sources: Piper Jaffray, Consumer Intelligence Research Partners, Business Insider, Statistica, IHL Group

Retail Is Being Outgunned In IT

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Spending on Innovation

$15.1 B

More Than These Retailers - Combined

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Portion of IT Spend Beyond Just Keeping Lights On

Source: IHL Group Research Studies

According to Top Retail CIOs

87% - 237%Average IT Spend Increase required to

effectively compete with Amazon.

Avg. IT Spend Increase

4.7%

Retailers echnologynnovationapnetail

TIGIR

Amazon has a TIGIR by the Tail

Prime Growth

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Impact on Price Comparisons

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Keeping Retailers Up At Night

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How do you solve a problem like

?

To Effectively CompeteRetailers must….

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1.Make massive investments in Unified Commerce

2.Leverage Cloud Computing for jumpstart

3.Take advantage of Mobile

4.Create the WOW customer experience

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You are either at the table of Unified Commerce

or you are on the menu!!!

You Don’t Have To Beat Amazon

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You Must Simply Out-invest and Out-execute Your Retail Competitors

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Retailers, Leading and OtherwiseRetailers are not all created equal

Average sales growth in the study was 4.1% For purposes of this study, we stratify retailers according to their financial performance in 2016. The results are as follows: o Leaders – We define a Leading Retailer as one who claimed that

their 2016 revenues would represent growth of 5% or more. This comprised 30% of the retailer pool for this study.

o Average Retailers – We define an Average Retailer as one who claimed that their 2016 revenues represented growth of between 0% and 5% from their 2015 revenues. This group consisted of 38% of the retailer pool for this study.

o Below-Average Retailer – We define a Below-Average Retailer as one who claimed that their 2016 revenues were flat or declined. This group consisted of 32% of the retailer pool for this study.

Source: 2017 RIS News/IHL Store Systems Study

Source: 2017 RIS News/IHL Store Systems Study

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Foundational TechnologiesThese are the foundational Unified Commerce technologies

Single View of the Order (OMS) across channels

Single View of the Customer across channels (loyalty works everywhere)

Up-to-date POS that can access the order, inventory, and loyalty in real time

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Study Highlights

Store counts and Remodels up 4.9% & 4.2%

Enterprise & Store IT Spend up 4.5% & 4.7%

POS spend up for 2017 (25% of retailers for HW, 32% for SW)

Cloud spend up for 2017 (34% of all software)

Unified Commerce gains momentum

For 2017…

Source: 2017 RIS News/IHL Store Systems Study

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IT Spend Growth by Retail TierHow the largest and smallest retailers plan to increase their IT spend

Tier III Tier II Tier I2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

4.6%

3.1%

4.7%4.8%

2.3%

4.8%

Enterprise IT Spend Store IT Spend

Enterprise IT SpendAvg. = 4.5%

Store IT SpendAvg. = 4.7%

Source: 2017 RIS News/IHL Store Systems Study

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2017 Spend GrowthPlanned IT Spend Growth for 2016 Leaders, Average, Below Average Performers

Enterprise IT Spend Store IT Spend0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%8.8%

7.4%

3.8%

5.0%

1.3%1.8%

Leading Retailers Average Retailers Below Average Retailers

Source: 2017 RIS News/IHL Store Systems Study

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Store Comms Upgrade

IT Transformation

Empowering Store Associates

WFM Software/Hardware

Mobile for Associates

BI/Analytics for Store Associates

Lowering Supply Chain Costs

Inventory Visibility

Single Order Management Across Channels

Single View of Customer Across Channels

Upgrading CRM Loyaly Programs

0% 10% 20% 30% 40% 50% 60% 70%23%

23%

27%

29%

30%

34%

38%

46%

46%

55%

59%

Top Retail IT PrioritiesWhat Retailers see as the most important technologies going forward

Source: 2017 RIS News/IHL Store Systems Study

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Top Retail PrioritiesRetail Leaders vs. Average Retailers

Leaders rate:

IT Transformation 135% higher priority

Lowering Supply Chain Costs 145% higher

Associate Training / Tools 194% higher

Inventory Visibility 55% higher

Clienteling / Assisted Selling 26% higher Source: 2017 RIS News/IHL Store Systems Study

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Software IT Spend in CloudOverall 34% of software budget in Cloud vs 26% in 2016

27%Store Systems

33%BI/

Analytics

47%eCom

46%Sales/Marketing

30%Core ERP

29%

Merch

25%Supply Chain

31% increase in % of software budget in cloud

Source: 2017 RIS News/IHL Store Systems Study

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Cloud Spend by Retail TierRetailers plan to have this much of their Software Spend in the Cloud

Cloud Solution Tier I Tier II & IIIE-Commerce 39% 57%Sales / Marketing 44% 49%BI / Analytics 33% 33%Core ERP 28% 33%Merchandising 37% 22%Store Systems 20% 40%Supply Chain 28% 21%

Tier 1 Merchandising grew from 19% in 2016 to 37% in 2017 (95% growth in budget)Tier 1 Supply Chain from 18% in 2016 to 28% in 2017 (56% budget growth)1 of every 5 dollars in Store Systems now being spent on Cloud Solutions for Tier 1 (up from 13% in 2016), and 40% of Tier II and III.

Source: 2017 RIS News/IHL Store Systems Study

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Digital Signage

POS Software

POS Client - Base System

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

14%

20%

27%

15%

32%

25%

22%

16%

11%

7%

12%

11%

Up to Date/In Place Within 12 Months 12-24 Months 24-36 Months

Store Systems Purchase TimeframePOS and Digital Signage

Source: 2017 RIS News/IHL Store Systems Study

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Consumer Mobile Checkout

Mobile POS

Mobile for Associates (non-POS)

Mobile for Managers

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

5%

22%

24%

25%

24%

25%

25%

35%

18%

23%

18%

18%

7%

9%

2%

4%

Up to Date/In Place Within 12 Months 12-24 Months 24-36 Months

Store Systems Purchase TimeframeMobile Technologies

Source: 2017 RIS News/IHL Store Systems Study

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Leading Retailers – Store SystemsLeaders vs Average Retailers for Store Systems Readiness for Unified Commerce

Leaders are: 250% more likely to be using Mobile Devices for Associates150% more likely to be using Mobile POS96% more likely to have Up-To-Date POS HW/SW

Source: 2017 RIS News/IHL Store Systems Study

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Holistic Merch. Across Channels

Click & Collect

Ship from Store

Central Order Management

Return Online Purchases at Store

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

22%

21%

33%

33%

46%

25%

14%

11%

24%

5%

23%

21%

13%

20%

14%

9%

4%

9%

9%

4%

Up to Date/In Place Within 12 Months 12-24 Months 24-36 Months

Cross-Channel Commerce Timeframe

Source: 2017 RIS News/IHL Store Systems Study

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Split ticket

Order Inventory at Other Stores

Order Online from POS

Check Inventory at Other Stores

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

24%

32%

32%

45%

25%

16%

30%

16%

18%

16%

11%

15%

2%

7%

4%

4%

Up to Date/In Place Within 12 Months 12-24 Months 24-36 Months

Cross-Channel Commerce Timeframe

Source: 2017 RIS News/IHL Store Systems Study

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Cross-Channel Commerce Leaders Leaders vs Average Retailers

By the end of 2017, Leaders are:

46% more likely to be using OMS 52% more likely to be doing Ship from Store58% more likely to be using Split Ticket

Source: 2017 RIS News/IHL Store Systems Study

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Technologies That Move The Needle 2016 Sales Growth Correlated To Investment

Sales growth increases vs those who don’t: 2.1x for retailers who Market Cross-Channel Capabilities 2.1x who can use Customer Preferences in All Channels 2.0x that do Cross-Channel Demand Planning 1.9X when using Mobile POS 1.8x who use Loyalty Profiles Available in Real Time1.7x have Integrated Marketing Across Channels 1.7x those Mobile Devices for Associates

Source: Joint NCR/IHL Study

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Vendors to Visit 2016 Sales Growth Correlated To Investment

Sales growth increases vs those who don’t: Integrated Marketing Across ChannelsOMSBI

Geospatial 

Cross-Channel Demand Planning Mobile POS Loyalty Profiles Available in Real TimeIT Transformation

Thank YouJeff RosterVP Strategy, IHL Group@jeffpr