US Retail & Apparel Outlook Kim Kitchings Vice President, Corporate Strategy and Program Metrics, Cotton Incorporated

U.S. Retail & Apparel Outlook

Outline • Macro-Economic Environment • U.S. Retail Sales Data • Consumer Issues

U.S. Economic Outlook Compared to Last year…..

GDP Growth

Employment

Consumer Confidence

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, & Conference Board

U.S. Consumer Confidence Consumer Confidence Index

Sources: U.S. Conference Board & Cotton Incorporated’s Lifestyle Monitor™ Survey

May-12

Sep-11

Jan-11

May-06

0

May-10

20

Sep-09

40

Jan-09

60

May-08

80

Sep-07

100

Jan-07

120

Percent Optimistic About Personal Financial Situation 80% 70% 60% 50% 40% 30% 20% 10% 0%

Competition for Apparel Dollars 2.1%

CHANGE IN SHARE OF CONSUMER BUDGETS

0.7%

0.3%

Medical

Apparel

Food @ Home

0.7%

Gasoline & Fuel

House Electronics

-0.8% Source: U.S. Bureau of Economic Analysis, derived from data in current dollars

-0.8%

U.S. Consumer Spending Total & Apparel Retail Sales 10.0 trillions of 2005 USD Overall Apparel 9.5

billions of 2005 USD320 300 280

9.0

260

8.5

240

8.0 7.5

Source: U.S. Department of Commerce

220 200 180

Price Movement & Demand Response: Retail 110

index August 2010 = 100

month-over-month change in apparel spending volumes (SA)

10%

Consumer Apparel Spending - SA Apparel CPI (less footwear)

105

5%

100

0% Holiday

95

Sources: US Department of Commerce, US Bureau of Labor Statistics Notes: Data seasonally-adjusted

Back to school

-5%

U.S. Retail Sales

Average Retail Prices Increase At All Retail Channels 2010

2011

2012

$39

$34

$38

$22 $23 $24 $15 $16 $15

-4%

+4%

Mass

Chain

+12%

Department

Source: Cotton Incorporated’s Retail Monitor™ Survey **Rolling Year Includes Q1

$51 $42 $42

+21%

Specialty

Average Retail Prices for Apparel Q1 2012

Total Apparel Denim Jeans Pants Shorts Dresses Skirts Knit Shirts Woven Shirts Sweaters Athletic Apparel Outerwear

$34 $36

$38 $27 $54 $50 $23 $34 $43 $37 $85

% change Q1 11-12

 Down         

Source: Cotton Incorporated’s Retail Monitor™ Survey, YE Q1 2012

**Rolling Year

Retail Apparel Assortment

Dresses 3% Skirts Outerwear Shorts 2% 4% 4% Sweaters 6%

Knit shirts are the standout for the past twelve months; an easy and inexpensive wardrobe update that retailers are adding to their inventories

from 34%

Pants 10%

Knit Shirts 37%

Woven Shirts 10%



from 13% Source: Cotton Incorporated’s Retail Monitor™ Survey, YE Q1 2012



Athletic Apparel 12%

Denim Jeans 12%

Department Comparable Store Sales Year-over year percent change May

Apr

2012 Mar

Macy’s

4.2

1.2

7.3

4.6

2.4

Nordstrom

5.3

7.1

8.6

10.2

5.0

Saks

4.0

2.0

6.3

6.6

10.5

Kohl’s

-4.2

-3.5

3.6

-0.8

0.6

n/a

n/a

n/a

JCPenny* Source: Financo

*Not releasing comp sales until store revamps are complete

Feb

Jan

Discounter Comparable Store Sales Year-over year percent change May Wal-Mart*

Apr

2012 Mar

Feb

3.0

Jan 2.1

Target

4.4

1.1

7.3

7.0

4.3

TJX

8.0

6.0

10.0

9.0

7.0

Ross

8.0

7.0

10.0

9.0

5.0

Costco

5.0

4.0

5.0

7.0

8.0

Source: Financo *Reported quarterly

Specialty Comparable Store Sales Year-over year percent change May

Apr

2012 Mar

Gap

2.0

-2.0

8.0

4.0

-4.0

Limited

6.0

6.0

8.0

8.0

9.0

Buckle

0.2

1.0

6.4

14.8

7.4

Abercrombie* Victoria’s Secret

Source: Financo *Reported quarterly

Feb

Jan

-5.0 9.0

8.0

0.0 10.0

10.0

7.0

Apparel Retailer/Brand Strategies for 2012: Everyday Low Prices Wal-Mart

J.C.Penny

Stein Mart

Apparel Retailer/Brand Strategies for 2012: Aggressive Colored Clothing Saks Fifth Avenue

Calvin Klein

Target

Gap

J.C. Penny

NY Fashion Week

Apparel Retailer/Brand Strategies for 2012: Expanding Clothing Lines Adidas

H&M

Armani Exchange

Saks Fifth Avenue

The Limited

Urban Outfitters

Apparel Retailer/Brand Strategies for 2012: Exclusive/Celebrity Clothing Lines Target

Macy’s

Kohl’s

Sears

Lord & Taylor

J.C. Penny

Apparel Retailer/Brand Strategies for 2012: Taking From the Fast-Fashion Playbook Macy’s

American Eagle

Gap

Ralph Lauren

Tommy Hilfiger

VF

Consumer Issues

Consumers’ Price-Conscious Shopping Habits Have Accelerated Q1 2008

Q1 2012

Average annual clothes spending

$916

$684

Shop at multiple stores

60%

73%

Plan purchases

63%

68%

Shop on sale

64%

68%

Source: Cotton Incorporated’s Lifestyle Monitor™ Survey

U.S. Consumers Say They Are Paying More, But Getting Less

Nearly 7 out of 10 consumers (69%) say clothing prices have increased from last year… Source: Cotton Incorporated Lifestyle Monitor™ Survey

60%

Thinner fabric

54%

Fiber substitution

53%

Doesn’t last as long

41%

Quality has decreased

How Do Consumers Define “Good Quality” Apparel? 58%

Durable/Long-lasting

23%

Made of good/strong fibers Made well

12%

Good price/Worth the money

11%

Brand

Source: Cotton Incorporated’s Lifestyle Monitor™ Survey

5%

Attributes that Indicate the Level of Quality in Apparel

1

 Thinness/Thickness of fabric  Seams/Stitching

2

 Performance Features  Cleaning Requirements  Fiber Content

Source: Cotton Incorporated Lifestyle Monitor™ Survey

3

 Brand Name  The Store Where Item was Purchase

4

 Country of Origin  Environmentally Friendliness

Consumers Are Bothered by Fiber Switching Percent Bothered by Fiber Substitution Away from Cotton

Percent Willing to Pay More to Keep Cotton in Their Clothing

T-Shirts

58%

58%

Jeans

58%

63%

Sweatshirts

52%

50%

Dress Shirts

52%

52%

Dresses

49%

44%

Casual Pants

49%

48%

Skirts

47%

38%

Source: Cotton Incorporated Lifestyle Monitor™ Survey

Denim Authenticity

Denim: 65% cotton, 31% Denim: 65% cotton, 31% polyester, polyester, 4% spandex 4% spandex

Denim: 70% cotton, 28% polyester, 2% spandex

Denim: 80% cotton, 19% polyester, 1% spandex Denim: 80% cotton, 19% polyester, 1% spandex

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Consumer Reviews I've noticed there seems to more t-shirts made of 100% rayon – the fabric feels nice and soft but, it doesn't withstand washing or keep its shape well, and it seems like it also stains easily. I'm reallyYou annoyed find cotton t-shirts to (oruse even can not that makeI acan't decent shirt if you continue cottonvery blends!) This--paired with what seems totobe thin flimsy material. Whatever happened thea decline in nice heavier youafter used only 10 years ago? the quality of theirweight jeanscotton (mine that ripped 3 months)-would I want such a loose and baggy meansWhy I will be shopping elsewhere from hereneckline on out.and I'm hugely shoulder in a classic t-shit? A normal crew neck would disappointed. be more flattering and could be worn for work and for pleasure…

55% cotton 45% modal

Avid Athletes Embracing Performance Cotton

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Source: www.underarmour.com, www.amazon.com, and www.dickssportinggoods.com

http://lifestylemonitor.cottoninc.com