To view this email as a web page, click here. Welcome to the ShopperScape™ Newsletter March 2007 PREDICTIONS Expect apparel specialty stores to pump up the sales volume this month as they face fierce competition from department stores on the comeback trail. Anticipate enthusiasm for consumer electronics to overshadow appetites for home furnishings in homegoods markets. Hope for improved prospects for core mass channel shoppers as the weather improves and heating fuel bills ease with the passing of winter. Look for grocery retailers to make shopping easier for the growing number of perplexed male shoppers in their stores.  Give shoppers a reason to wear green apparel, make an Irish meal and eat shamrock-shaped cookies this coming week. HOT OFF THE PRESS Weaker February Sales Especially in Apparel Stores February same-store sales growth weakened to 2.6% from the prior month as well as from the prior year for about 60 retailers reporting monthly results.  February’s result is down from a 4% sales-weighted composite reported last month and the 3.2% composite reported in February 2006.  The tug of war between apparel specialty stores and department stores in February’s numbers was evident in Retail Forward’s February ShopperScape™ survey findings (Figure 1): Department stores gained shoppers in February at the expense of adult apparel specialty stores compared with the same month last year. Home improvement and home furnishings channels continue to feel the effects of a soft housing market. Shopping in these two channels was essentially flat compared with a year ago. Shopper interest in electronic gadgets remains high. Consumer electronics stores gained shopper share in February. Although sales performance at discount stores remains weak, traffic appears to be holding up better. Discount stores/supercenters gained shopper share in February. Figure 1 Percentage of Primary Shoppers Shopping Line of Trade in the Past 4 Weeks Primary Shoppers February, 2006 February, 2007 Y-T-Y Percentage Point Difference Department Stores 49% 56% +7 Discount Stores/Supercenters 80% 85% +5 Consumer Electronics Stores 32% 37% +5 Home Improvement Centers/Hardware Stores 49% 50% +1 Home Textiles/Home Furnishings Stores 28% 28% 0 Adult Apparel Specialty Stores 47% 44% -3 As of January 2007, past four week shoppers are defined by shoppers selecting retailers from lists that organize retailers by channel. Previously, shoppers initially selected retailers they shopped during the past six months. Shoppers’ responses to this past six month question defined the list of retailers from which they selected the retailers they shopped during the past four weeks. ShopperScape™ data is balanced to key demographics, which from January 2007 forward include race and ethnicity. Source: Retail Forward ShopperScape™. The spending power of the Up Market provides them with the ability to shop; their past four week shopping indices show they were doing more than their fair share of shopping in all listed lines of trade except for discount stores/supercenters (Figure 2). Home textiles/home furnishings stores attracted a relatively high percentage (38%) of their past four week shoppers from the Up Market and a higher-than-average percentage of shoppers in the 35–44 year old age range.  Although a large percentage of adult apparel specialty store shopping is accounted for by the Up Market (36%), the 45 and older set was less likely to shop adult apparel specialty stores than department stores in the past four weeks.  As a result, some of the mainstay apparel specialists patronized by older affluent shoppers lost shoppers to upscale department stores. Home improvement centers attracted the appropriate home-owning demographics in expected percentages.  But the weak housing market gives homeowners less incentive to fix up existing houses and buy new ones, which require new furnishings.  Homeowners haven’t abandoned the channel.  But, they are not spending as much as they would in a strong housing market. Figure 2 Past 4 Week Shopping, by Market, Indexed to All Primary Shoppers   All Primary Shoppers Down Market Middle Market Up Market Department Stores 56% 721 102 120 Discount Stores/Supercenters 85% 98 103 97 Consumer Electronic Stores 37% 81 101 113 Home Improvement Centers/Hardware Stores 50% 67 107 114 Home Textiles/Home Furnishings Stores 28% 64 97 133 Adult Apparel Specialty Stores 44% 78 95 125 Demographic Profile of Past 4 Week Shoppers at Lines-of-Trade   All Primary Shoppers Department Stores Discount Stores/ Supercenters Consumer Electronic Stores Home Improvement Centers/ Hardware Stores Home Textiles/Home Furnishings Stores Adult Apparel Specialty Stores Age 18-24 6% 6% 6% 7% 4% 6% 7% 25-34 18% 17% 18% 20% 14% 19% 21% 35-44 21% 22% 21% 23% 21% 24% 23% 45-54 21% 21% 21% 21% 22% 19% 20% 55-64 16% 16% 15% 13% 18% 16% 14% 65+ 19% 18% 19% 17% 22% 17% 15%   Income Market Down Market (Under $22,500) 23% 16% 22% 18% 15% 15% 18% Middle Market ($22,500-$74,999) 49% 50% 50% 49% 52% 48% 47% Up Market ($75,000) 29% 34% 28% 32% 33% 38% 36% 1Read As: In February, 2007 Down Market Shoppers were 28% less likely to shop department stores compared to all shoppers As of January 2007, past four week shoppers are defined by shoppers selecting retailers from lists that organize retailers by channel.  Previously, shoppers initially selected retailers they shopped during the past six months.  Shoppers’ responses to this past six month question defined the list of retailers from which they selected the retailers they shopped during the past four weeks.  ShopperScape™ data is balanced to key demographics, which from January 2007 forward include race and ethnicity Source: Retail Forward ShopperScape™. SHOPPER INSIGHTS Grocery Retailers Leaving Men’s Money on the Table Retail Forward has been conducting research on male grocery shoppers recently.  Observational research, shop-along surveys and ShopperScape™ reveal that grocery retailers are leaving money on the table because a large percentage of men cannot locate some items in grocery stores.  The majority (55%) of men shopping for groceries alone use a list (Figure 3). Most often list-users have a list compiled by the female head of household. Figure 3 Way in which Male Head of Household Shops Alone for Groceries From a grocery list prepared by the male head of household 11% From a grocery list prepared by the female head of household 25% From a grocery list prepared jointly 19% From memory 20% No particular strategy—just pick up what want/need 25% Source: Retail Forward ShopperScape™. When ShopperScape™ asked the main reason why men stray from their grocery lists, findings revealed: On a positive note, grocery lists prepared by the female head of household or jointly are more likely to result in impulse purchasing by the male (29%) than grocery lists prepared by the male alone (Figure 4). But, these grocery lists also result in many men not finding some requested items. Figure 4 How Person Preparing Grocery Lists in “Couple” Households Relates to Most Common Reason Why Males Shopping Alone Vary from the List   Total From a grocery list prepared by the male head of household From a grocery list prepared by the female head of household From a grocery list prepared jointly Is attracted to additional items not included on the list and buys them 28% 16% 29% 29% Cannot find some items 13% 7% 16% 12% Substitutes items on the list for similar items 9% 8% 8% 10% Store out of stock on some items 7% 9% 7% 7% Forgets to buy some items 5% 6% 7% 4% Some items on the list are too expensive to buy at the time 5% 7% 3% 7% Doesn't like some items on the list 1% 1% 1% 1% Other 2% 2% 3% 2% Don't know 3% 2% 2% 4% Note: Highlighting signifies differences between column percentages. Source: Retail Forward ShopperScape™. Shop-along research with men shopping for groceries points to some common reasons why men have trouble locating items in grocery stores: Men are generally not the primary grocery shopper in couple households so they aren’t as familiar with where items are located. Lists are not organized according to the store’s layout and the paths men take. Center store aisles housing multiple categories or even multiple choices within a category—e.g., the cereal aisle—perplex men.  Men focus their attention within a relatively narrow visual range.  They focus on shelf signs more than aisle signs.  They count on butchers and cell phone calls to their wives for directions.  In stores where their cell phones don’t work, they are out of luck.  As per the old cliché, they won’t ask customer service for directions. They would rather tell their wives that the store is out of stock on a specific item than risk buying the wrong item. They don’t fess up when asked at the checkout if they found everything they were looking for. More research findings about men’s grocery shopping behaviors will be published in a report to be issued by the Retail Forward Intelligence System later this month.  St. Patrick Plans Up in the Air Almost six out of 10 households (58%) will be celebrating St. Patrick’s Day on March 17th this year, but the largest percentage of would-be celebrants (25%) don’t yet know what they are going to do (Figure 5). Green apparel will be much more popular than green beer.  Since St. Patrick’s Day falls on Saturday this year, perhaps more last-minute planners will show up for parades and parties than currently planned.  One quarter of respondents say they have yet to make plans.  Down Market shoppers are least likely to have made plans. Figure 5 What are your plans for celebrating St. Patrick's Day? All Shoppers Down Market Middle Market Up Market Wear an item of green clothing 23% 23% 23% 22% Get together with friends 9% 8% 9% 10% Make an Irish meal 9% 7% 9% 11% Send St. Patrick's Day cards 4% 3% 4% 6% Buy or make pastries/candies decorated for St. Patrick's Day 4% 3% 3% 5% Drink green beer 3% 2% 4% 3% Go to an Irish pub 3% 3% 3% 5% Attend a St. Patrick's Day party 3% 3% 3% 4% Buy St. Patrick's Day decorations 3% 3% 3% 4% Attend a St. Patrick's Day parade 2% 3% 2% 3% Attend an Irish festival 1% 1% 1% 1% Give St. Patrick's Day gifts 1% 0% 1% 2% Other 3% 3% 3% 4% Haven't made plans yet 25% 28% 24% 22% I don't celebrate St. Patrick's Day 42% 41% 43% 42% Source:  Retail Forward ShopperScape™, February 2007. POINT OF VIEW Industry Outlook: Home Furnishings “The impact of the housing market slowdown translates into slower forecasted spending growth for durable and textile home furnishings and furniture in 2007, but the pace is expected to pick up slowly through 2011 as conditions start to turn around beginning in the second half of 2007.  Competitive pressures in the home furnishings and furniture sectors continue to intensify as retailers across many channels are developing new formats and merchandising strategies to expand their presence.  Continued growth in Chinese imports and competition from mass merchandisers will continue to exert downward pressure on prices” Nick McCoy , Senior Consultant, Retail Forward, Inc Steve Spiwak, Retail Economist and Senior Consultant, Retail Forward, Inc. For more information on Retail Forward’s Retail Perspectives or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailforward.com. 2007 STRATEGIC OUTLOOK CONFERENCE Retail Forward Intelligence System™ 2007 Strategic Outlook Conference Retailing 2015: New Frontiers 2015 is only eight short years away, but the environment for retailing will be dramatically different than it is today. What are the top 15 trends that will challenge retailers and suppliers in the years ahead? How can your organization best navigate the new frontiers? Attend THE premier industry event for retail and supplier executives for the answers. Hundreds of senior executives in strategy, marketing, consumer insights, merchandising, category management, business development and market research, will convene at Retail Forward’s 2007 Strategic Outlook Conference Retailing 2015: New Frontiers. Join us and learn from the industry’s leading analysts as they explore what lies ahead and help you prepare for the new frontiers of Retailing 2015. Find out: • How the shopper landscape will evolve • Where suppliers will find growth • What new formats and concepts will develop • Which new technologies will change the balance of power • What tomorrow’s retail enterprise will look like DOWNLOAD THE INVITATION REGISTER NOW What's Retail Forward ShopperScape™? Retail Forward ShopperScape™ focuses on today's consumers and their shopping behaviors. Retail Forward ShopperScape™ has been fielded since November 2003 to a sample of 4,000 consumers each month. The survey gathers timely, up-to-date information about where consumers shop and what they buy. Retail Forward ShopperScape™ is administered through TNS/NFO's online household panel, weighted based to be representative of U.S. households. For more information, call Kathy Clarke at 614-355-4009 or visit http://www.retailforward.com/retailintel/ss_default.asp.

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