Battling the Beauty Barrage Part 2 U S

Battling the Beauty Barrage • Part 2 U. S beauty specialists, Amazon, drug, and department stores Brian Owens, Director Tiffany Hogan, Senior Analyst Meaghan Werle, Analyst August 2016 © Kantar Retail 2016

Copyright © 2016 Kantar Retail. All Rights Reserved. 501 Boylston St. , Suite 6101, Boston, MA 02116 T: +1 (617) 912 2828 howard. zimmerman@kantarretail. com No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photography, recording, or any information storage and retrieval system now known or to be invented, without the express written permission of Kantar Retail. The printing of any copies for backup is also strictly prohibited. Disclaimers The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail. The views expressed do not necessarily reflect the views of the management of the retailer(s) under discussion. This seminar is not endorsed or otherwise supported by the management of any of the companies covered during the course of the workshop or within the following slides. © Kantar Retail 2016

Where Does Beauty Fit in Retail Wellness? 3 It’s not just the makeup, hair color, and perfume — it’s also the deodorant, toothpaste, and even the ear hair clippers. It’s not just the salons — it’s the barber shops, tanning beds, massage franchises, and more. Functional Experience HEALTH Engagement Personalized Transforming Massage Therapy Plastic Surgery Tanning Yoga & Pilates High-End Apparel Hair Growth Services Tattoos Salon Services Barber Shops Emotional Indulging Convenience Source: Kantar Retail analysis © Kantar Retail 2016 Deodorants Nail Skin Care Fem Care Perfume Oral Hygiene Shaving Needs WELLNESS

What’s Driving the Growth in Retail? Health, localization, personalization, social, and seamless experiences Clinical in nature Solution-based Digitally Connected and Millennial-Minded Sephora’s New Initiative — Teach, Inspire, Play Transparent and naturally oriented Interactive and fun Source: Kantar Retail analysis © Kantar Retail 2016 This digital concept store launched recently with a test store in San Francisco. The ambitious project features digital stations for communal tutorials, virtual cosmetic try-ons, and a host of other tech-related experiences. 4

U. S. Specialty Beauty © Kantar Retail 2016 5

New Flagship Stores 6 ‒ Sephora has launched test digital concept stores in San Francisco and Boston. ‒ This ambitious project features digital stations for communal tutorials, virtual cosmetic try-ons, and a host of other techrelated experiences. ‒ These beauty workshops are the heart of the store, where Sephora can host communal beauty tutorials at 12 different stations. ‒ Each station is equipped with USB ports, an i. Pad, and Wi-Fi, allowing employees to walk customers through beauty workshops. Boston — Prudential Center Mall Source: Kantar Retail analysis and store visits © Kantar Retail 2016

Seamless Shopping Experience 7 Digitally connected and Millennial-minded: A 2016 Mintel survey revealed that 45% of beauty consumers prefer to search for product information in store on their mobile device. Educate Trial Source: Kantar Retail analysis © Kantar Retail 2016 Review

Showcasing Prestige Beauty 8 Department store-type displays with a strong narrative and carefully curated products Source: Kantar Retail store visit © Kantar Retail 2016

Sephora Virtual Artist Next-generation virtual makeovers use augmented virtual reality technology Source: Kantar Retail analysis, retailer website, retailer mobile app © Kantar Retail 2016 9

The Future Is Here: Next-Gen Customer Service Acting as one part salesperson and one part customer service rep, Sephora’s app helps guide shoppers through the in-store shopping experience in a friendly, conversational way. Source: Socialmediatoday © Kantar Retail 2016 10

Ulta Rewards Loyalty and Invests in Transformative Beauty Services Loyalty customers are at the heart of Ulta’s success. The 17 million active buyers in Ulta’s loyalty program are responsible for more than 80% of sales. Source: Kantar Retail store visit © Kantar Retail 2016 11

Strong Storytelling Ulta creates clean, functional experiences enabling it to tell emotional stories Source: Kantar Retail store visit © Kantar Retail 2016 12

Health Is the Future Beauty Ulta delivers health and wellness solutions to shoppers with skin care Source: Kantar Retail store visit © Kantar Retail 2016 13

Amazon 14 © Kantar Retail 2016

Elevating the Aesthetic 15 Branded advertisements mirror the stylistic features of Amazon’s luxury beauty platform and naturally blend into the browsing experience. Amazon has enhanced the appearance of its beauty site to convey premium brand perception, incorporating design elements — including text font and modularity, an editorial layout, highquality imagery, and gray accents — that align with industry trends. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016

Curating the Assortment 16 Amazon curates its selection to appeal to specific shopping occasions and seasonal events. The retailer also provides inspiration by developing lifestyle content that cross-merchandises beauty with related categories, prompting browsing and discovery. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016

Sponsored Video Content Branded videos drive engagement by creatively educating shoppers on relevant topics. In this case, La Roche-Posay’s brand messaging aligns with Amazon’s skin care protection campaign. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016 17

Integrating Content and Commerce 18 Amazon asserts product and style authority Expert advice links to recommended products to ease the shopping experience. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016 “Style Code Live” incorporates interactive features, such as a live chat to engage viewers, a shoppable carousel that showcases mentioned products, and celebrity guests who provide fashion and beauty advice. The free show also promotes benefits across Prime’s ecosystem, including Amazon video and a song of the day from Prime Music.

Partnering to Establish Credibility 19 Amazon enlists opinion leaders and industry experts to assert product authority Amazon recognizes that other entities may have more brand equity when it comes to talking about products. The retailer is partnering with expert advisers, such as the American Academy of Dermatology, to create content that provides external reassurance and builds the trust needed to sell in these categories. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016

Amazon Links Luxury Beauty With Fashion Aesthetic mirrors Amazon Fashion landing page “Style Code Live” mixes content and commerce and curates apparel and cosmetics categories with style/beauty tips. Lifestyle content crosspromotes beauty and apparel. Source: Kantar Retail analysis, retailer website © Kantar Retail 2016 20

21 Drugstores © Kantar Retail 2016

CVS Health Beauty Mission Source: CVS Health company presentation © Kantar Retail 2016 22

Elevate Beauty 23 New elevated cosmetics wall, self-service customer units, elevated facial displays 1. Elevated Cosmetics Wall 2. Self-Service Customer Units 1, 600 stores 3. Elevated Facial 4, 500 stores 2, 000 stores Source: 2015 Analyst Day and 2016 NACDS Annual Meeting © Kantar Retail 2016

Make Health the Future of Beauty Increased focus on naturals and clinical expertise Source: Kantar Retail store visit and analysis © Kantar Retail 2016 24

WBA Bringing Boots U. K. Personalization and Expert Care to U. S. – New in-store service model focusing on regimen – Online appointments booking for health and beauty services – Technology powering new personalized experience Source: Kantar Retail analysis © Kantar Retail 2016 25

Walgreens’ Unique Assortment and Experience Elevate and differentiate in health, beauty, and convenience Becoming America’s Most-Loved Beauty Destination Source: Kantar Retail store visits and analysis © Kantar Retail 2016 26

Walgreens Uses Prestige Beauty to Target “Look Good, Feel Good” Shoppers Source: Kantar Retail store visits, company reports © Kantar Retail 2016 27

Simplifying the Shopper Experience A new Duane Reade store at New York City’s Penn Station spotlights Walgreens’ exclusive brands, including Boots and No 7, on freestanding displays near the front of the store. Source: Kantar Retail store visits and analysis © Kantar Retail 2016 28

Rite Aid Brings Health to Beauty Rite Aid announced the company-wide launch of Receutics, its exclusive line of dermatologist-strength skin care products. The line complements the retailer’s healthcare strategy. Source: Rite Aid © Kantar Retail 2016 29

Rite Aid Investing in Quality Store Brands Rite Aid Renewal is getting a complete makeover with the launch of Daylogic. More than 500 new and improved items are in development. Source: Rite Aid © Kantar Retail 2016 30

Department Stores © Kantar Retail 2016 31

Importing the Specialty Experience Macy’s has imported the Bluemercury experience into select stores, offering a broader selection of premium brands and services in store to enhance the beauty experience. Source: Kantar Retail store visits and analysis © Kantar Retail 2016 32

Personalized Services 33 Macy’s has offered stylist services for a couple of years, and is leveraging the service in beauty as well as apparel. At this prototype store in Columbus, Ohio, the My Stylist @ Macy’s service is stationed in the revamped beauty department. Source: Kantar Retail store visits and analysis © Kantar Retail 2016

Engaging Experiences 34 Open-sell presentation encourages interaction An open-sell format has been implemented across all brands, including such premium brands as Clarins and Chanel. Dedicated trial space in the Impulse section invites shoppers to interact with products and provides an opportunity for associate interaction. Source: Kantar Retail store visits and analysis © Kantar Retail 2016

Leveraging Services and Events in Stores Source: Kantar Retail store visit © Kantar Retail 2016 35

Simple but Impactful Cross-Category Marketing Something as simple as rack-tag marketing makes shoppers aware of how beauty can supplement their trip and purchase. Source: Kantar Retail store visits and analysis © Kantar Retail 2016 36

Bringing Beauty Out of the Department Source: Kantar Retail store visits and analysis © Kantar Retail 2016 37

Bringing Beauty Into Other Departments 38 Nordstrom is leveraging its Anniversary sale to call out beauty in a big way across all departments. Source: Kantar Retail store visits and analysis © Kantar Retail 2016

Beauty Solutions and Accessories Build Baskets, Invite Impulse 39 Macy’s leverages new products that enhance its assortment to encourage impulse buys and build baskets. Source: Kantar Retail store visits and analysis © Kantar Retail 2016

For further information please refer to Kantar. Retaili. Q. com Contact: Brian Owens Director Tiffany Hogan Senior Analyst brian. owens@kantarretail. com T: +1 (617) 912 2874 tiffany. hogan@kantarretail. com T: + 44 (0) 20 7031 0252 Meaghan Werle Analyst meaghan. werle@kantarretail. com T: +1 (617) 912 2833 @kantarretail © Kantar Retail 2016