THE US RETAIL INDUSTRY 2013Digital Ad Spending Forecast and Key Trends

AUGUST 2013

Victoria Petrock

Contributors: Christine Bittar, Tobi Elkin, Stephanie Kucinskas, Martín Utreras

Read this on eMarketer for iPad

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 2

CONTENTS2 Executive Summary

3 Retail Maintains Digital Ad Spending Lead

6 Mobile Investments Accelerate

8 Direct Response Still Trumps Branding

17 Conclusions

17 eMarketer Interviews

17 Related eMarketer Reports

18 Related Links

18 Editorial and Production Contributors

EXECUTIVE SUMMARY

The US retail industry’s advertising spending on

paid digital media will hit $9.42 billion in 2013 and

rise to $13.50 billion by 2017, for a 10.5% compound

annual growth rate (CAGR). While gains in digital

outlays have slowed over the past several years,

retail remains the top spender among US industries

and will retain this lead for the duration of the

forecast period.

This year, eMarketer has taken a deeper dive into digital spending to determine how much marketers are investing in ad tactics primarily focused on obtaining sales or leads compared with those designed to drive favorable opinion about a brand. eMarketer estimates that marketers in the retail industry—led by online and multichannel retailers, but also including catalog retailers and restaurants—will invest 64.6% of their paid digital dollars in direct-response efforts this year. Brand-focused campaigns will make up the remaining 35.4%. Various types of search and display continue to command the largest chunks of digital spending across the category. At the same time, targeted advertising in mobile, local and social channels is growing rapidly as retailers attempt to forge direct and personal relationships with their consumers across multiple screens and platforms.

KEY QUESTIONS ■ How much will retailers spend on US paid digital

advertising in the next five years?

■ How much of their digital budgets are retailers

spending on direct-response vs. branding initiatives?

■ How are online and mobile platforms changing the

way the retail industry approaches advertising?

billions, % of total digital ad spending and % changeUS Retail Industry Digital Ad Spending, 2011-2017

2011

$7.17

22.4%

29.8%

2012

$8.21

22.3%

14.5%

2013

$9.42

22.3%

14.9%

2014

$10.52

22.1%

11.6%

2015

$11.60

22.1%

10.3%

2016

$12.61

22.0%

8.7%

2017

$13.50

22.0%

7.1%

Digital ad spending % of total digital ad spending % change

Note: CAGR (2012-2017)=10.5%; includes advertising that appears ondesktop and laptop computers as well as mobile phones and tablets, andincludes all the various formats of advertising on those platforms; datathrough 2012 is derived from IAB/PwC dataSource: eMarketer, Aug 2013162005 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 3

RETAIL MAINTAINS DIGITAL AD SPENDING LEAD

The US retail industry will invest $9.42 billion in

paid online and mobile media advertising in 2013.

This figure will grow to $13.50 billion by 2017, for a

10.5% CAGR. While spending growth is slowing, the

industry’s share of digital investment, relative to

other industries, will remain high over the forecast

period. Retailers have fast-tracked investment in

targeted mobile advertising and will continue to

embrace new and more dynamic cross-channel search

and display ad formats.

billions, % of total digital ad spending and % changeUS Retail Industry Digital Ad Spending, 2011-2017

2011

$7.17

22.4%

29.8%

2012

$8.21

22.3%

14.5%

2013

$9.42

22.3%

14.9%

2014

$10.52

22.1%

11.6%

2015

$11.60

22.1%

10.3%

2016

$12.61

22.0%

8.7%

2017

$13.50

22.0%

7.1%

Digital ad spending % of total digital ad spending % change

Note: CAGR (2012-2017)=10.5%; includes advertising that appears ondesktop and laptop computers as well as mobile phones and tablets, andincludes all the various formats of advertising on those platforms; datathrough 2012 is derived from IAB/PwC dataSource: eMarketer, Aug 2013162005 www.eMarketer.com

Among the US industries eMarketer tracks, retail—which we define to include brick-and-mortar, mail order/catalog, and online merchants of apparel, home furnishings and textiles, toys, pet food and supplies, appliances, jewelry, accessories, cosmetics, drugs and food, as well as restaurants—is currently the leader in paid online and mobile media spending. Although growth during the period from 2012 to 2017 will fall a bit below the average of all industries, retail will remain by far the largest spender in the digital ad space.

billionsUS Digital Ad Spending, by Industry, 2012-2017

Retail

Financial services

Automotive

Telecom

CPG & consumerproducts

Travel

Computing products &consumer electronics

Media

Entertainment

Healthcare & pharma

Other

Total

2012

$8.2

$4.6

$4.3

$4.3

$3.0

$2.9

$2.8

$1.8

$1.7

$1.1

$2.1

$36.8

2013

$9.4

$5.2

$5.1

$4.8

$3.5

$3.4

$3.2

$2.2

$1.9

$1.2

$2.2

$42.3

2014

$10.5

$5.9

$5.9

$5.3

$4.0

$4.0

$3.6

$2.7

$2.2

$1.2

$2.3

$47.6

2015

$11.6

$6.5

$6.6

$5.8

$4.5

$4.4

$4.0

$3.0

$2.5

$1.3

$2.4

$52.5

2016

$12.6

$7.0

$7.3

$6.3

$5.0

$4.8

$4.4

$3.4

$2.8

$1.4

$2.5

$57.3

2017

$13.5

$7.5

$7.9

$6.7

$5.4

$5.0

$4.7

$3.6

$3.0

$1.5

$2.6

$61.4

CAGR(2012-2017)

10.5%

10.2%

13.1%

9.2%

12.6%

11.3%

10.5%

14.6%

12.2%

5.9%

5.1%

10.8%

Note: includes advertising that appears on desktop and laptop computersas well as mobile phones and tablets, and includes all the various formatsof advertising on those platforms; data through 2012 is derived fromIAB/PwC data; numbers may not add up to total due to roundingSource: eMarketer, Aug 2013161990 www.eMarketer.com

eMarketer also expects the retail industry’s share of the total US digital advertising pie to decline slightly, from 22.3% in 2013 to 22.0% in 2017.

% of totalUS Digital Ad Spending Share, by Industry, 2011-2017

Retail

Financial services

Automotive

Telecom

CPG & consumer products

Travel

Computing products &consumer electronics

Media

Entertainment

Healthcare & pharma

Other

2011

22.4%

12.6%

11.3%

12.3%

7.8%

7.5%

7.8%

4.5%

4.4%

3.2%

6.2%

2012

22.3%

12.5%

11.6%

11.7%

8.1%

8.0%

7.7%

4.9%

4.6%

3.0%

5.6%

2013

22.3%

12.4%

12.1%

11.4%

8.3%

8.0%

7.6%

5.3%

4.6%

2.8%

5.2%

2014

22.1%

12.4%

12.3%

11.2%

8.4%

8.3%

7.6%

5.6%

4.7%

2.6%

4.8%

2015

22.1%

12.3%

12.5%

11.1%

8.5%

8.3%

7.6%

5.8%

4.8%

2.5%

4.5%

2016

22.0%

12.2%

12.7%

11.0%

8.7%

8.3%

7.6%

5.9%

4.8%

2.4%

4.4%

2017

22.0%

12.2%

12.9%

10.9%

8.8%

8.2%

7.6%

5.8%

4.9%

2.4%

4.3%

Note: includes advertising that appears on desktop and laptop computersas well as mobile phones and tablets, and includes all the various formatsof advertising on those platforms; data through 2012 is derived fromIAB/PwC data; numbers may not add up to 100% due to roundingSource: eMarketer, June 2013; confirmed and republished, Aug 2013157350 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 4

eMarketer’s US Digital Ad Spending Forecasts: Scope and Definitions

eMarketer’s US digital ad spending estimates for the years up to and including 2012 are benchmarked against data from the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. Estimates for years subsequent to 2012 are eMarketer’s own projections. Estimates are based on the analysis of reported revenues from major digital ad-selling companies; estimates from other research firms; consumer internet usage trends; and eMarketer interviews with executives at ad agencies, brands, digital ad publishers and other industry leaders.

eMarketer’s digital ad spending figures include advertising that appears on desktop and laptop computers, as well as mobile phones and tablets, and include all the various formats of advertising on those platforms: banner ads (static display), classified ads, email (embedded ads only), mobile messaging (SMS, MMS and P2P messaging), rich media, search ads (including contextual text links, paid inclusion, paid listings and search engine optimization [SEO]), sponsorships, lead generation (referrals) and video (including in-banner, in-stream, in-text).

eMarketer’s breakouts of direct-response vs. branding spending are based on overall estimates of spending by media from the IAB; analysis of third-party retail industry ad spending data; and in-depth interviews with retail brand marketers, agency media planners and other industry marketing strategists.

TOTAL AD SPENDING RISES By most accounts, total retail marketing spending has been growing modestly over the past few years. Earlier this year, Kantar Media reported that overall 2012 retail industry outlays across traditional and internet measured media—including internet display but not paid search—increased 3% year over year and totaled nearly $16.35 billion.

millions and % change

Top 10 US Product Categories, Ranked by Ad Spending,2011 & 2012

2011 % change

1. Retail $15,866 3%

2. Automotive $13,848 7%

3. Local services $8,736 3%

4. Telecom $8,348 4%

5. Financial services $8,074 -2%

6. Personal care products $6,525 5%

7. Food & candy $6,433 2%

8. Direct response $6,224 2%

9. Restaurants $5,912 4%

10. Insurance $4,949 -2%

Total $84,916

2012

$16,345

$14,840

$8,978

$8,660

$7,889

$6,836

$6,567

$6,342

$6,185

$4,860

$87,502 3%Note: excludes FSIs and public service announcement (PSA) activity;numbers may not add up to total due to roundingSource: Kantar Media as cited in press release, March 11, 2013153772 www.eMarketer.com

A survey by Gartner conducted in late 2012 found that retail marketers expected their marketing budgets to grow an average of 7% in 2013.

% change

Average Growth in Marketing Budget in 2013 AmongUS Companies in Select Industries

Media 10%

Retail 7%

Financial services/insurance 6%

Healthcare 5%

High-tech 4%

Manufacturing 4%

Total 6%

Source: Gartner, "US Digital Marketing Spending Report 2013," March 13,2013153636 www.eMarketer.com

And in a June 2013 study by audit, tax and advisory firm KPMG, 24% of 101 US retail executives interviewed planned to increase advertising and marketing spending in the coming year.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 5

The largest retailers currently dominate US retail industry ad spending, though not all retailers—or all categories of retail—are increasing investments across the board. Among mass merchants, for example, Wal-Mart upped advertising by 12% in 2012, while Target’s spending fell 5%, according to Kantar Media. In the food category, The Kroger Co. increased ad outlays by 9%, while SUPERVALU decreased ad expenditures in favor of other types of promotions, including digital couponing.

% change vs. prior year

Growth in Promotional Activity Among Select US Retailers, 2012

MassWal-Mart

Target

FoodThe Kroger Co.

Safeway

SUPERVALU

DrugWalgreens

CVS

Advertisingdollars

12%

-5%

9%

-5%

-20%

29%

23%

FSIpromotion

pages

47%

7%

7%

6%

12%

43%

21%

Digital couponevents* on retailer

websites**

190%

30%

4%

-9%

202%

77%

150%

Note: *a distinct occurrence on a retailer website; **monitored by KantarMediaSource: Kantar Media as cited in press release, March 13, 2013154044 www.eMarketer.com

DIGITAL GROWS AS PART OF THE MIX In aggregate, digital marketing—encompassing paid advertising and other digital tactics—is becoming increasingly critical to retailers’ promotional mix. Retailers of all types are shifting from higher-priced print formats to more inexpensive, targetable and efficient digital options.

Gartner’s research revealed that digital marketing spending made up approximately 23.6% of US retailers’ total marketing budgets in 2012.

% of revenues

Digital and Total Marketing Budgets in 2012 AmongUS Companies in Select Industries

Media3.9%

12.7%

Financial services/insurance2.4%

10.6%

Manufacturing2.8%

10.6%

Retail2.5%

10.6%

Healthcare2.2%

9.2%

High-tech2.3%

9.1%

Total2.5%

10.4%

Digital Total

Note: read chart as saying media companies spent an average of 12.7% oftheir company revenues on total marketing and 3.9% on digital marketingSource: Gartner, "US Digital Marketing Spending Report 2013," March 13,2013153635 www.eMarketer.com

On the paid advertising front, a number of retail marketing experts—representing both brands and agencies that work with them—said in interviews with eMarketer that typical retailers generally spend an average of 25% to 50% of their paid ad budget on digital media.

However, there are wide variations in how much retailers spend based on the type of advertising they do and the channels through which they market. Digitally native retailers, such as Amazon.com and eBay, spend the vast majority of their ad dollars online. At the other end of the spectrum, smaller, regional companies whose revenues primarily come from brick-and-mortar locations spend less on digital.

For the majority of retail marketers, digital spending is growing as a percentage of the total advertising budget. Julie Krueger, retail industry director at Google, said she sees “99% of clients increasing their digital budgets,” and other studies show US retail marketers are far more bullish on digital media than on traditional media, especially print.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 6

In a fall 2012 study, Advertiser Perceptions asked US retail advertising and marketing executives whether they planned to increase or decrease their ad spending in specific media in the next 12 months. It then calculated the difference between percentages. The study’s “optimism index” showed high numbers for most digital media, indicating high intent to increase spending, especially in mobile, digital search, digital video and digital display.

optimism index*

Retail Ad Spending Outlook of US Ad/MarketingExecutives, by Media, Fall 2012

Mobile

Digital search

Digital video

Digital display

Advanced/interactive TV

Broadcast TV

Cable TV

Magazines

National newspapers

Apparel/fashion

61

33

46

40

21

20

15

-9

-19

Baby- orparenthood-

related

52

40

44

47

23

13

19

5

-23

Quick-service

restaurants

60

43

52

43

27

15

14

-2

-20

Retail

59

49

44

38

20

10

5

-6

-27

Note: *difference between the percent of respondents increasing andthose decreasing their ad spending in the next 12 monthsSource: Advertiser Perceptions, "Advertiser Optimism Index Wave 18, Fall2012," March 14, 2013153946 www.eMarketer.com

A Booz & Company analysis of data collected by the Brand Activation Association (BAA) in March 2013 similarly found that digital tactics were expected to have the steepest increases among the US brand marketers and retailers studied.

% of respondents

US Brand Manufacturers and Retailers Who WillIncrease Their Ad and Promotions Spending, by Tactic,March 2013

Total

Mobile marketing 100%

Social media 96%

Internet ads on retailer sites 96%

Internet ads not on retailer sites 96%

Shopper marketing 96%

Paid search 89%

Brand manufacturer sites 89%

Trade promotions 52%

TV advertising 48%

Print advertising

Increase0%-5%

26%

30%

41%

44%

52%

22%

37%

33%

33%

19%

Increase5%+

30%

30%

26%

26%

26%

30%

26%

15%

4%

-

Increase10%+

44%

37%

30%

26%

19%

37%

26%

4%

11%

11% 30%

Note: in the next two yearsSource: Booz & Company and Brand Activation Association (BAA),"Reimagining Shopper Marketing: Building Brands through OmnichannelExperiences," June 6, 2013160773 www.eMarketer.com

MOBILE INVESTMENTS ACCELERATE

Retailers are dramatically increasing their

investments in mobile and local marketing as they

race to keep up with smartphone-toting, tablet-using

consumers who consult their devices at various

stages of the purchase cycle.

“Retailers realize how important mobile devices are in helping people research and narrow down their choices,” said Google’s Krueger. “Mobile devices are also huge drive-to-store tools for multichannel retailers.”

In Q1 2013, Experian Marketing Services reported that US mobile internet users spent about 10.8% of their total mobile time on shopping-related activities. And in a presentation at BAA’s Omni-Channel Shopper Conference in June 2013, Adam Grunewald from Google’s digital research group told attendees that eight in 10 people use their phone in a store to help them shop and that this mobile use led to bigger purchases in the store.

As customers increasingly check and compare prices, seek local product availability and click “buy” via their smartphones, retail mobile marketing spending worldwide is expected to almost double to $55 billion by 2015, according to estimates from Juniper Research.

billions

Retail Mobile Marketing Spending Worldwide, 2013 & 2015

2013

$28

2015

$55

Source: Juniper Research, "Retail mCommerce: Mobile & Tablet Marketing,Advertising & Coupon Strategies 2013-2017" as cited in press release, Jan 23, 2013150777 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 7

The Mobile Marketing Association (MMA) and mLightenment predicted that US retail trade marketers would collectively spend nearly $2.11 billion on US mobile marketing this year, up significantly from around $1.36 billion in 2012. Based on survey results, MMA and mLightenment also expect retailers’ mobile marketing outlays to nearly double by 2015.

millionsUS Mobile Marketing Spending, by Industry, 2010-2015

Finance, insurance, real estate

Retail trade—otherManufacturing—other

Information

Professional, scientificand business services

Manufacturing—consumer packaged goods

Retail trade—consumerpackaged goods

Government

Transportationand warehousing

Wholesale trade

Accommodationand food services

Healthcare andsocial assistance

Resources (agriculture,mining, utilities,construction)

Educational servicesArts, museums, sportsand recreation

Other

Total

2010

$470

$397$269

$240

$152

$139

$107

$116

$93

$72

$68

$56

$42

$20$17

$145

$2,405

2011

$784

$648$471

$389

$245

$227

$171

$179

$156

$119

$110

$95

$74

$36$27

$227

$3,957

2012

$1,332

$1,082$842

$648

$407

$382

$281

$294

$266

$202

$181

$164

$132

$64$44

$371

$6,693

2013

$2,080

$1,676$1,373

$991

$632

$597

$433

$432

$422

$322

$281

$265

$218

$105$67

$562

$10,456

2014

$3,032

$2,425$2,023

$1,401

$903

$867

$625

$622

$612

$473

$403

$396

$323

$156$95

$807

$15,162

2015

$4,017

$3,164$2,691

$1,778

$1,163

$1,123

$804

$771

$814

$630

$512

$539

$446

$204$120

$1,028

$19,806Note: includes mobile media advertising, mobile-enhanced traditionaladvertising and mobile CRM; numbers may not add up to total due toroundingSource: Mobile Marketing Association (MMA) and mLightenment, "MobileMarketing Economic Impact Study" in partnership with IHS Global Insight,May 9, 2013157001 www.eMarketer.com

Though the MMA’s definition of mobile marketing is broader than just paid advertising, the numbers serve to illustrate the massive investment retailers are making—and the future potential they envision—in the mobile platform.

Tata Consultancy Services projected that by 2015, 41.5% of marketing campaigns by retailers in North America would be designed exclusively for mobile consumers, up from 23.2% in 2012. Retail is above average in its use of mobile-only campaigns, the study found, and is expected to remain so.

Percent of Marketing Campaigns Designed Exclusively for Mobile Consumers According to Large Companies in North America, by Industry, 2012 vs. 2015

Projected(2015)

Telecom services 51.8%

Travel, hospitality and leisure 47.8%

Airlines 50.0%

Automotive manufacturing 44.3%

Energy and utilities 36.5%

Retail 41.5%

Industrial manufacturing 36.5%

Media, entertainment and sports 35.8%

Computer (hardware and software) 32.9%

Government (federal, state, local) 35.0%

Banking/financial services/insurance/private wealth management

34.1%

Transportation logistics 31.2%

Consumer products manufacturing (food, beverages and durables)

33.3%

Healthcare services 32.7%

Pharmaceuticals 29.1%

Other 25.1%

Average

Current(2012)

35.0%

29.1%

27.3%

27.1%

26.3%

23.2%

20.9%

20.0%

19.9%

18.9%

18.0%

17.3%

17.2%

16.3%

15.0%

13.4%

21.4% 36.9%Source: Tata Consultancy Services, "The New Digital Mobile Consumer: How Large Companies Are Responding" conducted by Research Now, Sep 26, 2012145893 www.eMarketer.com

Over the past several years, paid mobile advertising in the retail industry has seen significant growth, both in the US and around the world. Millennial Media reported that global 2012 retail and restaurant advertising on its network grew 106% year over year and accounted for the largest share, 16%, of the network’s mobile campaigns.

% of total

Leading Industries Worldwide, Ranked by Mobile AdCampaigns, 2012

Retail & restaurants 16%

Telecommunications 14%

Finance 14%

Entertainment 12%

Travel 9%

Automotive 7%

CPG/FMCG 6%

Technology 3%

Education 3%

Government services2%

Other 14%

Note: based on campaigns on Millennial Media's networkSource: Millennial Media, "Scorecard for Mobile Advertising Reach andTargeting (SMART)," March 12, 2013153694 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 8

An analysis of data from Adobe Media Optimizer found that combined traffic from mobile phones and tablets made up one in five, or 20%, of all US retail impressions and ad spend in Q4 2012. This was up from just 10% in Q4 2011.

TABLETS CONTRIBUTE TO MOBILE MOMENTUM Lately, retailers have devoted particular effort and attention to understanding the different roles smartphones and tablets play in the retail purchase cycle. While consumers access their phones in-store to compare prices, redeem coupons and find retailer locations, they seem to be using tablets in ways more akin to desktop and laptop computers. Tablet ads, however, appear to have significantly higher clickthrough rates (CTRs), a lower cost per click (CPC) and a higher return on investment (ROI). A Q4 2012 Adobe analysis of its network advertising data found that tablet campaigns enjoyed higher conversion rates than comparable desktop campaigns, with CTRs that were 39% higher and CPCs that were 16% lower.

index*

US Retail Mobile Paid Search Metrics, by Device, Q4 2012

Mobile191.0

46.1

Tablet139.0

84.2

Clickthrough rate Cost per click

Note: *vs. desktop campaigns; desktop=100Source: Adobe as cited in company blog, Jan 17, 2013161235 www.eMarketer.com

Adobe also noted growth in tablet advertising. Its research found that mobile phones accounted for 6.6% of US retail impressions during Q4 2012, while tablets made up 12.1%. Tablets’ share of spending was also higher, at 13.9%, vs. just 5.7% for mobile phones. This was an increase from Q4 2011, when mobile phones and tablets, taken together, accounted for approximately 10% of retail impressions.

“I predict that 30% of all traffic will be through mobile by the end of 2013, including 25% that will be tablet,” said Sid Shah, Adobe’s director of business analytics, in a January 2013 AdExchanger article.

DIRECT RESPONSE STILL TRUMPS BRANDING

This year, eMarketer has taken a deeper dive into

US paid digital spending to determine how much

marketers in vertical industries are investing on

ads primarily focused on obtaining sales or leads

compared with those aimed at driving favorable

opinion about a brand. As a result of this analysis,

eMarketer estimates that the US retail industry

will spend 64.6% of its digital ad dollars, or

$6.09 billion, on direct-response tactics in 2013.

eMarketer includes online and mobile paid search,

classifieds, online directories, and paid ads embedded

in email messages in its definition of direct response.

The remaining 35.4%, or $3.34 billion, will go toward brand-focused digital formats. These include online and mobile banner ads, rich media, online video, paid social placements, in-game ads, content sponsorships and native ads.

billions and % of total

US Retail Industry Digital Ad Spending, by Objective,2013

Direct response*$6.09 (64.6%)

Total=$9.42

Branding**$3.34 (35.4%)

Note: includes advertising that appears on desktop and laptop computersas well as mobile phones and tablets, and includes all the various formatsof advertising on those platforms; *includes classifieds & directories, email,lead generation, mobile messaging (SMS, MMS and P2P messaging) andsearch; **includes banner ads, rich media, sponsorships and videoSource: eMarketer, Aug 2013162097 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 9

SEARCH: TOP PRIORITY FOR DIRECT RESPONSE Search engine marketing (SEM) is one of the most important components of retail industry ad spending. A July 2013 survey by Shop.org and Forrester Research found that US online retailers interviewed ranked paid search across devices as one of their top marketing priorities, with 80% of respondents reporting they planned to increase outlays on paid search and email in 2013.

Online, multichannel and brick-and-mortar retailers have historically relied on paid search and SEO to drive traffic to websites, store locations and toll-free phone numbers. Having an effective SEM program is becoming even more important as retailers find themselves competing directly online with manufacturers of the products they sell. “Paid search is a huge driver for a retail-based business,” said Liz Ross, president of North America for media agency BPN. “Because not only do retailers buy their own terms, they also buy the terms of the products that sit inside their stores.”

While Google’s Krueger said most major US retailers have “very solid search programs,” she sees many starting to aim their efforts higher in the funnel. “They are going beyond the base level of bidding on their brand terms and going to higher category terms. They want to be in the consideration set early on, not just at the very end.”

Data released in March 2013 by AdGooroo on US paid search spending showed that shopping and classified industry advertisers spent nearly $498 million on online search advertising on Google AdWords and more than $56 million on Yahoo! Bing in Q3 2012 alone.

millions

US Paid Search Ad Spending, by Search Engine and Industry, Q3 2012

AdWords Yahoo! Bing

Shopping and classified $497.74

Financial services $418.82

Computer and internet $305.97

Business $220.42

Education $201.39

Travel $199.42

$56.05

$81.01

$42.95

$18.31

$17.50

$27.89

Note: PC data only, excludes searches via mobile devicesSource: AdGooroo, "Yahoo! Bing PPC Performance Metrics" What SearchMarketers Need to Know About 'The Other Search Engine'," March 19, 2013

154555 www.eMarketer.com

Search’s influence cannot be understated. A December 2012 survey by MyBuys and the e-tailing group found that search results, in addition to email, figured prominently in a list of messaging vehicles that prompted US online buyers to make a purchase.

% of respondents

Messaging Vehicles that Prompt US Online Buyers toMake a Purchase, Dec 2012

Email from retailers where consumers shop57%

Search results showing local product availability53%

Personalized email from retailers where consumers shop50%

Search results with links to retail website47%

Online ads showing products from retailers where consumersshopped

35%

Note: ages 18+Source: MyBuys and the e-tailing group, "Engage Consumers & IncreaseBuyer Readiness Through Customer-Centric Marketing," Feb 27, 2013153180 www.eMarketer.com

Search is also the top source of upstream, or incoming, traffic for most retailers. For example, a July 2013 report from L2 Think Tank that focused on a sampling of department stores’ digital activities in markets worldwide said that search drove more than 45.1% of upstream traffic to the store websites it studied, topping direct access, referrals, email, social media and display ads. L2 Think Tank also noted in a related blog post that the top 40 global department stores “control, on average, 48% and 36% of all first-page organic and paid results, respectively.”

% of total referral traffic

Average Referral Traffic from Select Sources toDepartment Store Websites Worldwide, Feb-April 2013

Search 45.1%

Direct 28.2%

Referrals 17.6%

Email 6.3%

Social1.9%

Display ads0.9%

Note: n=40Source: L2 Think Tank, "Digital IQ Index: Department Stores," July 9, 2013160543 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 10

Not surprisingly, AdGooroo found that mass retailers were by far the biggest spenders in paid search, with a combined $490 million investment in 2012. Other top retail-related spending categories in the study were apparel and fashion ($271 million) and consumer electronics ($202 million).

millionsUS Paid Search Ad Spending, by Retail Category, 2012

Mass retailers$490

Apparel & fashion$271

Consumer electronics$202

Home improvement$155

Stationery, greeting cards & printing$150

Beauty & cosmetics$101

Shoes$100

Sporting goods$94

Flowers & mail-order gifts$80

Jewelry$78

Health & pharmacy$71

Children's goods$55

Auction & classifieds$47

Books & magazines$42

Grocery & food$37

Note: Google AdWords 2012 and H2 2012 Yahoo! Bing NetworkSource: AdGooroo, "The Top Retailers in Paid Search 2013," April 24, 2013156553 www.eMarketer.com

Search is particularly critical to online-only merchants, though retail chain stores, specialty retailers and other multichannel merchants also spend heavily. Internet Retailer’s “2013 Search Marketing Guide” said that Amazon.com and Zappos.com were the top US retail paid search spenders in 2012, while catalog-based Uline, Lowe’s and JCPenney rounded out the top five.

millions and % change

Leading US Retailers in Paid Search, Ranked by Spending, 2012

Spending (millions) % change

Amazon.com $3.9

Zappos.com $3.9

Uline $2.8

Lowe's $2.8

JCPenney $2.7

Top 5 average $3.2

-5.7%

106.6%

160.0%

25.1%

139.4%

53.9%Source: Internet Retailer, "2013 Search Marketing Guide," April 2, 2013154825 www.eMarketer.com

Another report from Internet Retailer, the “Top 500 Guide,” noted that retail chains, as a category, were the biggest spenders on monthly paid search ads, surging ahead of web-only retailers in 2012, with 62.4% year-over-year spending growth.

millions and % change

US Average Monthly Paid Search Spending per Retailer, by Type, 2011 & 2012

Retail chains

Web-only retailers

Consumer brand manufacturers

Catalog/call center retailers

2011

$1.5

$1.7

$1.0

$0.1

2012

$2.5

$1.9

$1.1

$0.1

%change

62.4%

10.7%

4.9%

-4.7%

# representedin Top 500

158

195

66

81

Source: Internet Retailer, "Top 500 Guide," May 7, 2013157020 www.eMarketer.com

Retailers can justify these high levels of spending because search advertising is working. A Q3 2013 study by AdGooroo found that shopping/classified search advertising had the second-highest CTR on both Google AdWords (3.70%) and Yahoo! Bing (1.13%) in Q3 2012, while CPCs were the least expensive (72 cents and 44 cents, respectively).

Mobile search investments, in particular, are rising dramatically. In an April 2013 Mobile Commerce Daily webinar, Roger Barnette, president of digital marketing solutions provider IgnitionOne, said his clients were “quickly moving budget towards mobile search,” according to an article on the webinar host’s website. The story noted that retailers leading the mobile search charge included Amazon, eBay, Apple, Target, Best Buy and Walgreens, but that “there is still significant room for improvement.” Mobile search, the article added, is expected to overtake desktop search in the coming years.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 11

A report by The Search Agency said that mobile paid search click share grew from 22.5% in Q1 2012 to 39.6% in Q1 2013.

% of total

US Retail Paid Search Click Share, by Device, Q1 2012-Q1 2013

Q1 201277.4% 14.7% 7.8%

Q2 201278.7% 10.9% 10.3%

Q3 201275.3% 13.9% 10.8%

Q4 201272.8% 15.5% 11.8%

Q1 201360.4% 26.2% 13.4%

Desktop Smartphone Tablet

Note: numbers may not add up to 100% due to roundingSource: The Search Agency, "State of Paid Search Report - Q1 2013," April 18, 2013156406 www.eMarketer.com

In polling by L2 Think Tank among specialty retailers, nearly one-third of retail Google searches in specific retail categories were coming from mobile devices. The study, which included 71 US chains, found the highest percentage of mobile searches for brand terms were executed for watches and jewelry (33%) and beauty and skincare (30%). Etailers clocked the lowest percentage of mobile searches, presumably, the source said, because searches in other categories involved local intent.

% of respondents

Monthly Google Retail Searches Conducted viaMobile Devices According to US Specialty Retailers,by Category, April 2013

Watches & jewelry 33%

Beauty & skincare 30%

Apparel 28%

Accessories & shoes 26%

Home & gift 22%

Etailer 19%

Source: L2 Think Tank, "Digital IQ Index: Specialty Retail," June 25, 2013160535 www.eMarketer.com

This high percentage of mobile searches has spurred retailers to further extend and diversify their search campaigns across mobile devices. Forrester Research and Shop.org’s study found that 71% of retailers planned to optimize paid search for smartphones in 2013, while 73% said the same for tablets.

Product Listing Ads Make a Big Splash Since their introduction last year, Google’s Product Listing Ads (PLAs) have been one of the most significant developments in retail paid search. Though controversial at first, the paid listings (which were previously free as part of Google Shopping), appear to have been well received by both advertisers and consumers. An analysis by Marin Software found that by the end of September 2012, more than 100,000 retailers had signed on for PLAs. Marin Software also determined that the share of spend on PLA campaigns jumped from 0.36% in October 2012 to 2.5% in December 2012—a 600% increase. In addition, the research found that some retailers had earmarked up to 30% of their Google AdWords budget to PLAs during the same time period, while the impression share of PLAs rose 60%, most likely from increased holiday shopping use.

In a similar look at PLAs, Adobe reported in a January 2013 blog post that by the middle of December 2012, PLAs made up 17% of all Google ad spending and accounted for 10.7% of overall Q4 2012 Google paid search. In a subsequent blog post in April 2013, Adobe noted “a clear upward trend in CPCs, driven by strong advertiser and consumer adoption overall,” and that these ads were “performing better than text ads” based on CTR. But on the downside, Adobe did say that PLAs resulted in lower average order values because they let consumers easily find the lowest price on the search page. Overall, however, the company observed that retailers appeared willing to pay higher prices for PLAs because they performed well.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 12

AdGooroo, which began collecting and analyzing PLA data earlier this year, said in a July 2013 blog post that the advertisers with the most PLA impressions between March 2013 and May 2013 were “mass retailers that carry a wide variety of products.” The company pegged Wal-Mart as the clear leader, followed by eBay, Target, Best Buy and Overstock.com. Amazon.com, which is the top retail paid search advertiser, ranked only 75th on the list.

Top 20 Product Listing Ad (PLA) Advertisers onAdWords, Ranked by Impressions in the US, May 2013

1. Wal-Mart

2. eBay

3. Target

4. Best Buy

5. Overstock.com

6. Newegg.com

7. Macy's

8. Staples

9. The Home Depot

10. drugstore.com

11. Walgreens

12. Etsy

13. Toys "R" Us

14. Soap.com

15. Sears

16. Lowe's

17. Bhphotovideo.com

18. Rakuten.com

19. Globalindustrial.com

20. Apple

Impressions(millions)

408.0

187.0

180.0

109.0

98.0

84.0

81.0

73.0

53.0

48.0

47.6

47.0

40.0

37.0

36.6

36.0

34.0

33.0

32.0

31.0

Unique productsadvertised

129,381

479,855

39,946

6,744

74,567

47,010

29,363

28,953

33,570

23,910

13,526

109,854

15,598

13,571

49,955

16,936

22,380

37,320

33,235

822

Uniqueads*

262,588

659,333

76,387

15,179

150,565

74,646

124,859

48,219

62,258

84,972

44,209

142,956

33,767

39,882

74,659

38,435

50,852

97,924

51,681

1,803

Note: *displaying a unique product ad copy, image, name, price or URLSource: AdGooroo as cited in company blog, July 9, 2013161054 www.eMarketer.com

Jefferies managing director Brian Pitz told WWD in July 2013 that a study by his firm found that the number of PLA advertisers had jumped 410% between spring 2012 and June 2013, with the total number of ads up 145%. “It’s clear that these paid-for picture ads result in significantly higher conversion rates than just ‘blue links,’” the article said.

BRANDING CAMPAIGNS MIGRATE TO VIDEO, SOCIAL While most retail marketers rely on direct-response ads to drive more immediate actions, brand advertising is experiencing a renaissance in the industry. These efforts are primarily aimed at bolstering company image and “selling” brand attributes that transcend specific products.

Online and mobile brand-focused ad investments are already significant in the retail sector. comScore Ad Metrix reported that advertisers in the retail industry delivered more than 433 billion display ad impressions in the US in 2012, second only to the online media industry.

billions

Number of Online Display Ad Impressions Deliveredin the US for Select Industries, 2012

Online media 453.24

Retail 433.28

Finance 421.62

Telecom 294.25

Consumer goods 255.66

Note: read chart as saying 433.28 billion impressions delivered were fromadvertisers belonging to the retail industrySource: comScore Ad Metrix as cited in "US Digital Future in Focus 2013,"Feb 14, 2013152562 www.eMarketer.com

Industry marketers report today’s brand-advertising mix is evolving fairly rapidly from standard banner units—for which investment is expected to remain flat—to richer and more dynamic units, such as video, as well as social display and hybrid formats that can integrate more tightly with traditional branding workhorses like TV and print. “Retail has very aggressively continued to grow in the context of display,” said Robert Dillon, director of global display sales and strategy at Google. “This is because retailers are willing to pursue the audience base and to embrace the ability to serve dynamic ads, dynamic creative and remarketing.”

Brand-focused campaigns appear to be more popular at certain times of the year and in different sectors of the industry. Retailers tend to do bigger brand buys, including more video, during seasonal pushes. This differs from their investments in search and other types of direct response, which run more continuously throughout the year. And while retailers of higher-value products and those with longer sales cycles often weight their spending mix more heavily toward search, those selling lower-ticket, impulse-based purchases may make larger investments in display campaigns that build awareness and favorability and encourage multiple, repeat purchases.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 13

Digital Video Engages Shoppers Digital video is the rising star among newer digital display formats.

While current investment remains modest, more spending is in the pipeline. “We’re definitely shifting more into video,” said Natalie Crain, senior director of customer acquisition at Lands’ End. “It asks consumers to do a little bit more with us, vs. standard display ads that can be more easily ignored.”

Google’s Krueger said advertisers are finding money for more video in a variety of places. “Some retailers are adding incrementally for it, some are taking money from TV budgets to augment their overall TV plan with additional reach and frequency to reach light or non-TV viewers,” she said.

Q2 2013 statistics from Videology showed that retail advertisers represented nearly 10% of video advertisers on its network.

% of total

US Digital Video Advertiser Share, by Industry, Q2 2013

Consumer goods35%

Automotive13%

Restaurants9%

Retail9%

Healthcare services6%

Financial services5%

Travel5%

Educational services4%

Entertainment4%

Pharmaceuticals3%

Telecom3%

Business products1%

Other3%

Source: Videology, "US Video Market at a Glance Q2 2013," Aug 2013162262 www.eMarketer.com

In its an analysis of US specialty retailer digital marketing, L2 Think Thank found that 28% of companies in its “Digital IQ Index” were purchasing ads on YouTube.

Online ad metrics look reasonably favorable for retail video advertising. A Q2 2012 study by VideoHub determined that retail-related online pre-roll video ads had a click rate of 1.12%, the second highest among industries. However, the completion rate—which some industry experts view as a better measure of success—was much lower than for most other categories tracked.

Completion and Click Rate of US Online Pre-Roll*Video Ads, by Industry, Q2 2012

Food and drink

Business and finance

Entertainment

Automotive

CPG

Computing/tech

Health and lifestyle

Travel

Telecom

Retail

Consumer electronics

Total

Completion rate

78.18%

77.79%

75.50%

73.95%

73.03%

72.66%

72.34%

69.41%

67.51%

60.47%

53.22%

71.65%

Click rate

0.48%

0.82%

0.75%

0.77%

0.51%

0.80%

0.84%

0.71%

1.20%

1.12%

0.56%

0.71%Note: *includes both pre-roll and interactive pre-roll video adsSource: VideoHub, "Performance Replay Report: Q1 2012," Oct 1, 2012146366 www.eMarketer.com

Nielsen research commissioned by the IAB showed stronger results for online video when compared with television. Retail-related online video ads outscored TV commercials by a large margin for general recall, brand recall and message recall.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 14

% of respondents

Ad Recall of US TV vs. Online Video Advertising, by Industry, Jan 2011-March 2012

General recall Brand recall Message recall

Finance

Retail

Restaurants

Hospitality

Pharmaceuticals

Telecom

Food & beverage

Health & beauty

Technology

Automotive

71%

67%

65%

65%

63%

62%

61%

61%

60%

60%

50%

47%

47%

45%

45%

51%

46%

37%

46%

44%

53%

53%

53%

55%

49%

44%

50%

45%

44%

42%

30%

30%

32%

26%

26%

26%

30%

19%

24%

23%

43%

44%

45%

44%

36%

36%

40%

35%

32%

34%

21%

23%

24%

19%

18%

21%

23%

13%

18%

17%

Note: ages 18+; online and TV data based on responses up to 1 day post-adstream; limited to the same brands that streamed online and aired on TVduring the same periodSource: Nielsen, "A Comprehensive Picture of Digital Video and TV Advertising: Viewing, Budget Share Shift and Effectiveness" commissioned by Interactive Advertising Bureau (IAB), Feb 25, 2013153982 www.eMarketer.com

Online video ads in full episode players

TV commercials (broadcast & cable)

For more detailed information about the dynamics of the online video advertising market, see the May 2013 eMarketer report, “Buying Online Video Advertising: Making the Most of Your Budget.”

One form of video-related advertising that is of growing interest to retail brands is “shoppable video,” which enables consumers to make online purchases from within the video frame. Over the past few years, YouTube has launched several products that embed ads in the videos, including “click to buy” and “external annotations.” While it isn’t clear that these features will become widely used, they are something the industry is watching closely.

Retail Leads in Paid Social eMarketer estimates that marketers in the retail industry currently spend between 5% and 8% of their digital budget on social media, with the majority on Facebook and YouTube. But investment will likely grow. “The strategic importance of social is so outsized based on the amount of spend,” said BPN’s Ross. “But it also is dependent on how fast the social networks innovate against their products.”

In a short space of time, social media has made an indelible mark on the way consumers shop and the way the retail industry markets. In a June 2013 report, KPMG noted that social media was the technology-related trend with the most significant impact on retailers’ businesses, according to US senior retail executives.

% of respondents

Technology-Related Trends that Have a SignificantImpact on Businesses According to US Senior RetailExecutives, Spring 2013

Social media (Facebook, Twitter, Pinterest, etc.)71%

Mobile/online shopping52%

Mobile/online promotions and coupons51%

Use of in-store mobile technology by store associates32%

Waning store/brand loyalty as consumers become moreempowered

29%

Ability to scan QR codes, compare products and pricing18%

Influence of peer rankings and reviews on consumers17%

Mobile payments16%

Showrooming12%

Source: KPMG, "2013 Retail Industry Outlook Survey," June 17, 2013160343 www.eMarketer.com

In fact, presence on major social sites has become table stakes for retailers. “Two years ago, social wasn’t even in many marketers’ vocabulary, and certainly not a part of their marketing mix,” Google’s Krueger noted. “Now it’s part of everyone’s.” Results from L2 Think Tank’s study back that point: Nearly all specialty retailers analyzed maintained a presence on Facebook and YouTube, and nine in 10 were active on Pinterest and Instagram as of this year.

% of respondents

Social Networks Used by US Specialty Retailers, 2012 & 2013

2012

Facebook 98%

YouTube 93%

Pinterest 81%

Instagram 75%

Google+ 40%

Tumblr 40%

Vine -

foursquare 28%

2013

99%

99%

90%

90%

51%

44%

38%

10%

Note: 2012 n=57; 2013 n=71Source: L2 Think Tank, "Digital IQ Index: Specialty Retail," June 25, 2013160534 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 15

As retailers increase their paid and owned presences on these social networks, they are also responsible for a high percentage of socially enabled ads—those that appear outside social networks but encourage consumers to engage with brands on social sites. comScore Ad Metrix reported that the retail industry accounted for 19% of socially enabled US ad impressions in 2012, second only to consumer goods.

% of total

Socially Enabled Ad Impressions Delivered in the USfor Select Industries, by Share, 2012

Consumer goods22%

Retail19%

Online media17%

Media &entertainment10%

Finance4%

Other28%

Source: comScore Ad Metrix as cited in "US Digital Future in Focus 2013,"Feb 14, 2013152563 www.eMarketer.com

Retailers are also boosting their paid placements on social networks to draw attention to their own owned and earned content. More than half of respondents to Shop.org and Forrester Research’s survey said they were upping their Facebook spending, one in three were increasing their presence on Pinterest and approximately one-quarter were earmarking more money for Twitter, YouTube and Instagram, according to a July 2013 MediaPost article. The majority of investment is going to the most popular social sites. For example, electronics retailer RadioShack turned to major social channels to help its recently introduced branding campaign for reaching younger shoppers. CMO Jennifer Warren explained the rationale: “We want to be where the majority of our audience is going to be, which is why Facebook, YouTube and Twitter are kind of priority channels for us right now. We’ll always want to test and learn when it comes to other social channels. But I also think we need to focus.”

Though social ads have experienced mixed results, some types are beginning to prove very effective for retailers. A January 2013 study by Nanigans of more than 975 million Facebook desktop ad impressions served to US consumers found that while ads in the sidebar performed poorly, newsfeed ads saw a CTR more than 46 times higher, at 1.87%. The Facebook advertising software company also found that ROI was 14% greater for newsfeed ads, while CPC was less than one-third of Facebook domain ads.

US Retailer Desktop Facebook Ad Metrics, Newsfeedvs. Total Facebook, Jan 2013

CTR

Cost per click

Cost per registration

Newsfeed pagepost ads

1.87%

$0.26

$4.52

Total Facebookdomain ads

0.04%

$0.82

$8.69

Note: participating retailers targeted profitable customers, defined as thosewho generate more revenues in the long term than the cost to acquire themSource: Nanigans as cited in company blog, Jan 28, 2013

151436 www.eMarketer.com

Retailers are also devoting more budget to real-time retargeted ads on social networks, such as Facebook Exchange, and elsewhere. In fact, more than half of specialty retailers in L2 Think Tank’s “Digital IQ Index” were engaged in Facebook advertising, and two-thirds were experimenting with Facebook Exchange. The study also found that CTRs were up to five times as high when dynamic Facebook retargeting ads were used.

In general, retargeting is gaining momentum: 63% of retailer respondents to Shop.org and Forrester Research’s survey said they planned to spend more on retargeting this year than they had in the past.

Beyond Facebook’s universe, retailers see future potential in targeted ads on other social networks, including Twitter, Pinterest, Instagram and Google+. For example, while Twitter’s Promoted Tweets have been helping retailers increase referral traffic, the company recently announced it planned to offer a geolocation component for those ads by the end of 2013. The improved targeting capabilities are expected to let brands serve up Promoted Tweets to consumers within a certain radius of their stores.

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 16

NETWORK AND PROGRAMMATIC BUYING The use of automated systems to target and buy ad placements has not only driven US retail ad spending dollars to digital media, it has also given retailers a better handle on ROI.

Retailers tend to buy a significant amount of display advertising via ad networks and exchanges in their quest for more targeting inventory and bigger impact. Rather than focusing on the “big five” (Google, Yahoo!, Facebook, Microsoft and AOL), some retailers opt for network buys on sites directly related to the product or business they’re advertising (also known as “endemic” sites) to help them accomplish this. Often, they use these venues to test targeting capabilities, new data sets, different segments, and the latest platforms or capabilities within those platforms.

Retailers are also heavy users of programmatic display ad buying, according to statistics from Casale Media. The firm’s quarterly breakouts of ad purchasing on its Index ad-serving platform show the US retail industry consistently tops the list—by a significant margin—in terms of real-time bidding (RTB) impressions purchased.

Top 10 US Industries, Ranked by Share of Real-TimeBidding (RTB) Impressions Purchased, Q1 2012-Q4 2012

Q1 2012

Retail

Financial

Telecom

Travel

Automotive

Computers

Food & drink

Consumerelectronics

Media

Business

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

26.6%

14.1%

11.3%

11.1%

8.4%

8.2%

3.8%

3.7%

2.8%

2.0%

Q2 2012

Retail

Telecom

Financial

Automotive

Travel

Computers

Food & drink

Media

Business

Fashion

24.6%

14.3%

12.0%

11.1%

11.0%

5.0%

4.5%

3.5%

2.3%

2.0%

Q3 2012

Retail

Telecom

Travel

Automotive

Financial

Food & drink

Media

Health

Business

Education

31.6%

16.5%

11.4%

10.5%

9.3%

5.2%

3.0%

2.6%

2.5%

1.8%

Q4 2012

Retail

Telecom

Automotive

Financial

Travel

Food & drink

Media

Health

Entertain-ment

Business

35.9%

13.0%

11.0%

9.7%

7.7%

6.2%

4.0%

3.7%

2.5%

2.3%

Note: data is based on the RTB impressions purchased over the Index ad-serving platformSource: Casale Media, "Index Quarterly Report: Issue 2, Q3-Q4 2012," April 11, 2013155834 www.eMarketer.com

IgnitionOne found that US programmatic display spending by the retail industry grew 130% year over year in Q2 2013, with a 76% rise in impressions and a 25% increase in clicks. As RTB technology becomes more sophisticated, the trend toward more programmatic buying is expected to continue.

% change vs. same period of prior year

US Programmatic Display Metric Growth for theRetail and Travel Industries, Q2 2013

Spending156%

130%

Impressions80%

76%

Clicks79%

25%

Travel Retail

Source: IgnitionOne, "Digital Marketing Report: Q2 2013," June 26, 2013159780 www.eMarketer.com

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 17

CONCLUSIONS Retail will continue to outspend other industries on digital advertising. The US retail industry’s sheer size and diversity, and its ahead-of-the-curve understanding of multichannel marketing, will keep it solidly atop the list.

Mobile is critical to the ad spending mix. Consumers are using smartphones and tablets in nearly every phase of the shopping and purchase cycle. Retail marketers understand that these devices present unique pathways to deliver specific and actionable messaging to target audiences.

Google’s Product Listing Ads have changed the search landscape. SEM has long been a top performer for the industry. The introduction of Google’s new PLAs has bolstered paid search and given retailers a new vehicle to deliver highly visible, high-impact ads to consumers.

Branding campaigns are back. Retailers are turning to video, social media and other dynamic display formats to reinforce brand attributes such as service, integrity and quality.

Social media ads are gaining traction. The jury is still out on whether all types of social ads are performing for retailers. But several formats, including Facebook’s retargeting and newsfeed ads, appear to be worth the cost.

EMARKETER INTERVIEWS

CMO One-to-One: RadioShack Rebranding Relies on Social to Reach Younger Shoppers

Jennifer Warren CMO

RadioShack Interview conducted on June 5, 2013

Natalie Crain Senior Director, Customer Acquisition

Lands’ End Interview conducted on July 11, 2013

Robert Dillon Director, Global Display Sales and Strategy

Google Interview conducted on February 21, 2013

Julie Krueger Industry Director, Retail

Google Interview conducted on February 14, 2013

Liz Ross President, North America

BPN Interview conducted on February 25, 2013

RELATED EMARKETER REPORTS

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Social Video: The Next Wave in Digital Advertising

US Ad Spending: Mid-2013 Forecast and Comparative Estimates

Buying Online Video Advertising: Making the Most of Your Budget

State of Mobile Search 2013: Key Trends in Mobile SEO and SEM

THE US RETAIL INDUSTRY 2013: DIGITAL AD SPENDING FORECAST AND KEY TRENDS ©2013 EMARKETER INC. ALL RIGHTS RESERVED 18

RELATED LINKS

AdGooroo

Adobe

Advertiser Perceptions

Booz & Company

BPN

Casale Media

comScore

Gartner

Google Think Insights

IgnitionOne

Interactive Advertising Bureau (IAB)

Internet Retailer

Kantar Media

KPMG

L2 Think Tank

Millennial Media

Mobile Marketing Association (MMA)

MyBuys

Nanigans

Nielsen

Tata Consultancy Services

the e-tailing group

The Search Agency

VideoHub

Videology

EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Senior EditorKaitlin Carlin Copy EditorJoanne DiCamillo Senior Production ArtistStephanie Gehrsitz Senior Production ArtistDana Hill Director of ProductionHeather Price Copy EditorNicole Perrin Associate Editorial DirectorAllie Smith Director of Charts