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October 5, 2016

Quantifying and Managing the Impact of Weather

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Weather affects everyone, every day.

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Weather has a significant influence on retail sales

•  Retailers monitor and manage numerous external factors such as competitive activity and foreign currency •  Yet most retailers don’t manage a variable that affects customer behaviour and customer demand every day…….the weather. Why? © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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Weather data is difficult to use…… •  Subjective & Emotional •  Requires Experts to “Translate” •  Does Not Quantify Weather’s Impact or Enable Sensible Business Comparisons •  Inefficient & Difficult to Scale

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……and it appears to be random Year-to-Year Variations: London 2013 v 2012 Cooler Early Spring Warmer Autumn

2014 v 2013 Rainer First Half of Year Warmer Spring

2015 v 2014 Consistently Cooler until… Warmer Nov. & Dec.

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…...yet it has a big effect on sales and profits

So what’s the solution?

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What if you had a

FACT-BASED METHOD for quantifying & managing

WEATHER’S FINANCIAL IMPACT to

INCREASE YOUR BOTTOM LINE © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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Sampling of Planalytics’ Clients

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Weatherisation: the solution from Planalytics

Weatherisation “the process of identifying, analysing and applying weather's impact to provide measurable and quantitative returns across an organisation”

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Quantifying weather’s impact……on your business

WEATHER DATA

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WEATHER ANALYTICS

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Quantifying weather’s impact……on your business what seems straightforward

is more complex than you think

REGIONAL & TEMPORAL DIFFERENCES

WEIGHTING & AGGREGATING DATA

BUYING

TRENDS & TRAITS © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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Quantifying weather’s impact……on your business Multi-year analyses.

Isolates weather’s influence on sales. Identifies Weather Drivers. Calculates Weather Sensitivity. A measure of how much changes in the weather increase or decrease demand. © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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Weather data now becomes ……

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…... Business Weather Intelligence •  Fact-based & Objective

N Brown Category

Weather Sensitivity

Outerwear

11%

Knitwear

14%

Sandals

15%

Boots

9%

Garden Furniture

20%

Jersey tops

4%

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•  Provides Easily Understood Answers •  Puts Weather’s Impact in a Business Context for Effective Analysis & Planning •  Efficient & Scalable Sandals

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……all accessible from the BWI web portal

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.…..which provides WDDs for Analysis and Reporting PAST

TODAY

WDDs for ANALYSIS

WDDs for

ANALYSIS

           

Weather Input Actualised Weather (for all days in the past)

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•  Weather Input : Actualised Weather (for all days in the past) •  Business Uses: Evaluate performance, track sales, etc. as the business moves through the week, month or season with WDDs that are updated to reflect the weather that actually occurred. 16

.…..and WDDs for In-Season Optimisation TODAY

2 WEEKS

WDDs for IN-SEASON OPTIMISATION

WDDs for

IN-SEASON OPTIMIZATION

Weather Input Forecasted Weather (up to 14 days into the future)

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•  Weather Input: Forecasted Weather (up to 14 days into the future) •  Business Uses: Enhance marketing/ advertising, inventory management, pricing/ promotions, and other near-term decisions with WDDs that are based on expected weather conditions. 17

.…..and WDDs for Planning 2 WEEKS

11 MONTHS

WDDs for PLANNING

WDDs for

PLANNING

Weather Input Statistical Probability Models (11 months into the future)

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• Weather Input: Statistical Probability Models (11 months into the future) • Business Uses: Remove weather’s impact from last year’s sales to improve budgeting, sales planning and buying/merchandising decisions.

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.…..based on statistical probability models Weather only repeats itself across your business about

15% of the time.

BRIGHTON BEACH · 6 APRIL

HAMBURG · 6 JANUARY

CHICAGO · 2 FEBRUARY

ROME · 5 FEBRUARY

ONE YEAR LATER

ONE YEAR LATER

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ONE YEAR LATER

ONE YEAR LATER

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.…..that “Deweatherises” your sales history

80-85% 15-20%

Weather only repeats itself across your of the time business about weather will trend away from extremes andof back the towards time. normal.

REVERSE THE ODDS with Deweatherisation

Deweatherisation removes weather-driven volatility from sales history © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

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.…..removing weather volatility from your plans

IMPROVE PLAN ACCURACY

REMOVE WEATHER VOLATILITY Weathers impacts are

But… the weather only repeats from one year to the next about 15% of the time

embedded in LY sales

WEEK 21

WEEK 22

WEEK 23

LY Sales Deweatherised Plan Adjustments © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

WEEK 24

WDD

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…... improving plan accuracy

N Brown Category

Accuracy Improvement

Outerwear

2%

Knitwear

4%

Sandals

2%

Boots

7%

Garden Furniture

2%

Jersey tops

2%

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……as illustrated in this example

Accuracy Improvement Actual Sales De-weatherized Plan Plan Variation of Demand Due to Weather Base Sales

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Analysis Results

Quantifying weather’s impact……on your business

• The analytical process starts with a time series analysis which decomposes the sales curve into seasonality, trend, and residual components. Once the sales curve is decomposed, the residuals are run into a multiple regression analysis that results in a measure of the type of weather that affects the sales for each product category at each location in each week. • The output of this process produces a Weather Driven Demand index (WDD), which is a percentage measure of the effect weather has on demand for each week, each product, at each store location.

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Analysis Overview Data Received •  6.7 years of weekly aggregate sales data •  units and price / by store, by week

•  11 Merch FMBs, 125 Departments, 1366 Merch Ranges •  3500 UK Postal Code Regions •  Merchandise hierarchy

Deliverables •  Quantified weather’s impact and the value it returns to the business in improved planning accuracy on several key metrics: •  Reduction in lost sales •  Decreased inventory carrying costs •  Increase in working capital

•  Weather sensitivity values across your merchandise hierarchy

Assumptions •  margin: 40%; turn rate: 3; service level: 92%

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• 26

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Analysis Summary

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Analysis Summary

£450m in revenue is associated with top 100 analysed merchandise ranges

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Analysis Summary

Planalytics’ plan accuracy improvement on the top 100 merchandise ranges results in a reduction in inventory carrying costs and an increase in profit from a reduction in lost sales of

£1.2m+ each year. You also get a one time increase in working capital of

~ £1.1m © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

Weather Volatile Merchandise Ranges

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Weather Analysis Findings - Time Brand Dresses (Plan-MRange-01-R9-HB) Weather   S ensitivity   Through   Time 3500

Weather Sensitivity = 5.83%

3000 2500

Units

2000 1500 1000 500

0 1

3

5

7

9

11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 W eeks

Seasonality

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High  W eather  Sensitivity

Low  W eather  Sensitivity

Weather Analysis Findings - Time Boots Low/Mid (Plan-MRange-04-FO-EZ) Weather   S ensitivity   Through   Time 10000

Weather Sensitivity = 9.68%

9000 8000 7000

Units

6000

5000 4000 3000 2000 1000

0 1

3

5

7

9

11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 W eeks

Seasonality

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High  W eather  Sensitivity

Low  W eather  Sensitivity

Weather Analysis Findings - Time Own Label Jeans (Plan-MRange-01-EZ-FO) Weather   S ensitivity   Through   Time 12000

Weather Sensitivity = 3.68%

10000

Units

8000

6000

4000

2000

0 1

3

5

7

9

11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 W eeks

Seasonality

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High  W eather  Sensitivity

Low  W eather  Sensitivity

Weather Analysis Findings - Time Garden Furniture (Plan-MRange-09-XK-AA) Weather   S ensitivity   Through   Time 1000

Weather Sensitivity = 20.15% 800

Units

600

400

200

0 1

3

5

7

9

11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

-­‐200

W eeks Seasonality

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High  W eather  Sensitivity

Low  W eather  Sensitivity

……all accessible from the BWI web portal

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…...providing simple actionable data

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…...simple actionable data

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…...simple actionable data

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….implemented in phases FINANCIAL MODULE Department-Level Weather Analytics

COMPANY

DIVISION

DEPARTMENT Product-Level Weather Analytics MERCHANDISING MODULE

CLASS SUBCLASS

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..….typical start 1. Implement the Financial Module to optimise in-season trading performance with enhanced Financial Reporting and Financial Planning and Forecasting 2. Prepare Strategic Weatherisation Plan to create a project plan to implement the Merchandise Module to improve demand forecast accuracy via integration into business functions such as merchandise planning, buying, staffing and marketing,

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..….with the following implementation activities Activities

Time

Module Implementation

Data Call Kickoff / Share Data Analyse Data Complete Analysis / Review Results

Future State Definition

Assessment

Onsite Training / Implementation

Finance Module rollout

Prepare for Assessment Meetings Assessment Meetings onsite at Client Prepare Strategic Weatherisation Plan Present Strategic Weatherisation Plan

Formal Touchpoints with Client and Planalytics. © 2015 Planalytics, Inc. All Rights Reserved. Proprietary and Confidential.

We are here. 42

GET WEATHERISED The weather never stops. Let’s get started.

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