Bernstein Conference: Direct-to-Consumer, Parcel Cost and Impact on eCommerce

1. March 2018 Direc-to-Consumer and Parcel Cost: Shaping the eCommerce Logistics Landscape Bernstein – Motor of eCommerce Conference

2. Unique Identifier 2A.T. Kearney xx/ID eCommerce growth is the only game in town 0% 5% 10% 15% 20% 25% 30% 35% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Offline Growth Online Growth Diapers Beauty and Personal Care Skin Care Luxury Leather Goods Sportswear Laundry CareFootwear Men’s Grooming Hair Care Luxury Jewellery Fine Wines/Champagne and Spirits Baby & Child Personal Care Vitamins OTCOral Care Dishwashing Luxury Eyewear Bath & Shower Fragrances Luxury Goods Color Cosmetics Apparel Surface Care Designer Apparel and Footwear Online vs. Offline Growth by Category (2013-2016 CAGR) Apparel & Footwear Baby Care Consumer Health Luxury GoodsHome Care Beauty and Personal Care Source: Euromonitor; Morgan Stanley, IBISWorld, Nielsen, Internet Retailer, A.T. Kearney analysis

3. Unique Identifier 3A.T. Kearney xx/ID DTC Today (% Sales) DTC Growth 20-25% >20% 10-15% 15-20% 10-15% 20-30% 20-30% >15% Trend 1: Direct to Consumer (DTC) a priority for Brands Sample of DTC Growth

4. Unique Identifier 4A.T. Kearney xx/ID Significant value in pursuing DTC Higher Margins (potentially) Consumer Insights and Loyalty Enhanced Innovation Athletic Shoe Illustrative

5. Unique Identifier 5A.T. Kearney xx/ID Brands have mainly focused on demand side, but now rapidly pivoting to the supply side … Digital/Front-EndSupplyChain Shop anywhere Order and fulfill from anywhere Smart Phone / Social Media Customer Service Website Digital Stores CRM Digital Wall Retailer / eRetail Ecom fulfillment centers DSD / Drop Ship Right Inventory @ Right Location B&M stores Ship from store / store pick-up Home Delivery PastFocusEmergingFocus Source: A.T. Kearney

6. Unique Identifier 6A.T. Kearney xx/ID … eCommerce supply chain fundamentally different Pick / Pack / Ship Cost Lead Time Requirement Order Size $0.5-1.0 / unit $3.5-5.0 / unit <1 week <2 days ~30% same day 20-40 units / order 2-3 units / order DTC $0.1-0.4 / unit Weeks to Months 80+ units / order Traditional Wholesale eCom/ DTC Source: A.T. Kearney; Industry average ranges for Beauty and Consumables (e-Retailer) Beauty / Consumable Illustrative

7. Unique Identifier 7A.T. Kearney xx/ID Brands are actively figuring out their DTC network Channel / Customer OrderProfilegroups Full Cases shipped on pallets Wholesale DTC Stores DTC eCom Units in 1 package Multiple cases, totes and units Pallet / Full Case + FTL / LTL network (stable) Mixed Case + LTL / Parcel network (emerging) • Low growth • Simple operations • Stable • High growth • Complex operations • Requires flexibility 3-6 DCs close to production sites Mostly wholesale and B&M retail 3-5 DCs, close to population centers Parcel to home, own stores, partner stores 60-80% Full Case Pick 20-40% Pallet Pick 50/50 FTL vs. LTL 40-50% Mixed Case / Tote 40-50% Full Case Pick 80% LTL 20% Parcel Eachs + Parcel (emerging) • High growth • Complex operations • Requires flexibility 5-10 DCs close to metro areas Parcel and/or last mile to home, own stores, partner stores 100% Detail Pick ~0% Full Case Pick 100% Parcel Traditional Emerging DTC

8. Unique Identifier 8A.T. Kearney xx/ID Trend 2: Parcel cost headwinds will also have an impact on eCommerce landscape $0.4 $2.9 $2.1 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Maintanance and Other Total $0.2 Labor Cost Fuel $0.2 Vehicle Cost With labor constituting 75% of cost of last mile, a 9% inflationary labor environment means 7-8% YoY increases in cost of last mile Estimated last mile cost per package, $ (urban, high-density, e-commerce only route)

9. Unique Identifier 9A.T. Kearney xx/ID Different segments will be impacted differently Online Basket Size ($ / Order) DC Cost Last Mile Cost • Units / Order • Size / Weight • Size / Weight • Distance • INV co- location Footwear Beauty Consum ables Grocery Attractive economics Unattractive economics Supply Chain Cost Insensitive Cost Sensitive Cost Challenged 1 2 3 Source: A.T. Kearney

10. Unique Identifier 10A.T. Kearney xx/ID Implications on supply chain landscape • Expand e-Com DC footprint (2-3) • Push fast moving inventory closer to big city areas (5-10 mini DCs or dark stores) • Build select experience hubs (stores) • Utilize store fulfillment to minimize parcel • Optimize (existing) multi-echelon network flows; limited e-Com capacity expansion • Increased spending on next-gen inventory visibility, forecasting, replenishment capabilities • Limited eCom asset build • Push store based inventory + last mile to minimize parcel 3 to 5 Year Implications Cost insensitive Cost sensitive Cost challenged Source: A.T. Kearney

11. Unique Identifier 11A.T. Kearney xx/ID Additional IC on e-Com supply chain

12. Unique Identifier 12A.T. Kearney xx/ID Thank you! Please reach out to continue the dialog Michael Hu Partner, A.T. Kearney michael.hu@atkearney.com www.linkedin.com/in/mhuspace @mhu_snowcrash

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