ProfitLogic’s Mission

1. Driving Profitability Through Merchandise OptimizationScott C. FriendVice-Chairman & PresidentProfitLogic

2. ProfitLogic’s Mission To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty. ProfitLogic Confidential 2

3. Selected Customers Marshall Field’s bloomingdales TARGET ProfitLogic Confidential

4. Merchandising is Getting Harder Current Retail Environment is Demanding and Complex • Demanding customers who have multiple choices for the same item • Proliferation of stores and the geographies, demographics, and lifestyles of the customers they are serving • Acceleration of fashion trends leading to shorter product lifecycles, more floorsets, more seasons, and more risk • Increased competitive pressure as retail formats continue to merge and compete for the same customer, same dollar • Retailers must provide a differentiated experience in terms of selection, presentation, availability, price, and service to retain customers and stay competitive How do you manage merchandising centrally while fulfilling unique customer demand and store requirements? ProfitLogic Confidential

5. But the fundamental merchandising challenge hasn’t changed After merchants decide what to buy, they need to make the following critical merchandising decisions: Promote Markdown Assort Allocate Pricing Markdown Promote How Much Should I Buy for each store? What stores do I send it to? How Should I Promote it? How Should I Price it to most profitably clear it? How Should I Price it? ProfitLogic Confidential

6. Retail really was a simple business Wall Street CEO • Comp Store Sales • Stock Price • Profitability Buyer: Women’s High Fashion OTB Budget: $15M Buyer: Men’s Casual Clothing OTB Budget: $15M Buyer: Women’s Shoes OTB Budget: $20M Main Street ProfitLogic Confidential

7. 27 years old • Liberal Arts degree • 4 years in merchandising organization • Motivated by fashion and trends Fast changing assortments and large-scale expansion have made it a lot more complex Wall Street Main Street ProfitLogic Confidential

8. Budget: $18M Women’s High Fashion • 27 years old • Merchandising Management degree • 4 years in merchandising organization • Motivated by fashion and trends Would you trust this person to invest your life’s savings? Wall Street Main Street ProfitLogic Confidential

9. Retail is Detail 1,000 Stores X 50,000 SKUs X 26 Weeks X 4 Measures (Sales, Inventory, Receipts, On Order) X Plan, Actuals, Last Year X 4 Seasons One Trillion Numbers Source: Fortune 50 Retailer It’s no longer a simple business Wall Street Main Street ProfitLogic Confidential

10. Store Visits Average Hot Store Average Hot Store Average Cold Store Average Cold Store Average Mall Store Average Mall Store Average Small Store Average Small Store Average Urban Store Average Urban Store Average Suburban Store Average Suburban Store And management by average doesn’t get the job done Wall Street Top-down controls • Open to buy • Top-down merchandise planning • 27 years old • Liberal Arts degree • 4 years in merchandising organization • Motivated by fashion and trends Management by Averages Main Street ProfitLogic Confidential

11. Wall Street • 27 years old • Liberal Arts degree • 4 years in merchandising organization • Motivated by fashion and trends No Insight, Just Infrastructure Main Street Average Hot Store Average Cold Store Average Mall Store Average Small Store Average Urban Store Average Suburban Store Nor does simple automation Implement Integrated Infrastructure • Automation – Integration - Reconciliation ProfitLogic Confidential

12. How Should I Promote It? • Guess work to determine the expected lifts of different promotional events and vehicles • Tendency to promote whatever worked in the past and over estimate the expected lift How Should I Price It? • Historical averages are used to determine markdown candidates • Gut feel is used to determine markdown timing and depth • Tendency to markdown items too late and too deep How Much Should I Buy? • Stores are treated as an average in terms of sales and size profiles • Guess work to determine pre-pack quantities to fit required inventory • Forced to make big bets up front without visibility to future demand Result Increased Sales Higher Margins Better Velocity Where Should I Put It? • Historical store averages are used to plan allocation quantities • Decisions are made at aggregate levels and spread down • Tendency to front load inventory with initial push Traditional Merchandising Today’s merchandising processes do not reflect each store’s unique customer, demand, and capacity Sales Typical Lifecycle Curve X X X Planned Out Date Time Order Date In-Stock Date ProfitLogic Confidential

13. The Result Is Impacting All Retailers Operational Effects Financial Effects • 8% stock-out condition* • 21% overstocking condition* • 40-50% excess inventory or non-performing SKUs** • Cluttered stores • Dissatisfied customers • Lost sales • High markdowns • Lost GM$ • Low inventory turns • Lost market share • Lost brand image * “Putting Products in the Right Places,” Retail Info Systems News, August 2000. ** “Product Replenishment on Merchandise Policy Techniques,” www.stirlingdouglas.com, December 2000. ProfitLogic Confidential

14. Illustrative • Legacy systems run an efficient business • Suited for less complex times • Infrastructure, not insight. Automation, not optimization. • Little impact on largest P&L lines • Need new focus on effectiveness of decisions Misalignment between business imperatives and I/T priorities has only made the problem worse Revenue $1,500K COGS $1,050K -Merchandise -Markdowns -Shrinkage -In-bound Logistics Gross Margin $450K Expenses $400K -Stores -Marketing -Buying -IT -G&A EBITDA $50K 750K 225K 30K 45K 300K 40K 20K 20K 20K Illustrative ProfitLogic Confidential Source: AMR Research

15. The Solution: Merchandise Optimization ProfitLogic Confidential

16. How Should I Promote It? Plan and execute promotions based on store level analysis and forecasted lift How Should I Price It? Maximize lifecycle gross margin by optimizing markdown timing and depth How Much Should I Buy? Maximize profitability and manage risk through local market assortments and optimal order quantities Result Increased Sales Higher Margins Better Velocity Where Should I Put It? Minimize stockouts and overstocks through optimal allocation quantities based on store level analysis and available pre-packs Merchandise Optimization How Does My Customer Buy? Understand each store’s unique customer buying behavior to provide visibility to future demand Sales Typical Lifecycle Curve X X X Planned Out Date Time Order Date In-Stock Date ProfitLogic Confidential

17. Seasonality 1,200 $25.00 1,000 $20.00 800 $15.00 PRICE UNIT SALES AND UNIT INVENTORY / 10 600 $10.00 400 $5.00 200 - $- 4/1/2000 1/8/2000 2/5/2000 3/4/2000 7/8/2000 8/5/2000 9/2/2000 9/4/1999 4/15/2000 1/22/2000 3/18/2000 5/27/2000 6/10/2000 6/24/2000 9/30/2000 9/18/1999 2/19/2000 4/29/2000 5/13/2000 7/22/2000 8/19/2000 10/2/1999 9/16/2000 10/16/1999 11/27/1999 12/11/1999 12/25/1999 10/28/2000 11/25/2000 11/13/1999 10/14/2000 10/30/1999 11/11/2000 Inventory Understanding the Customer Customer Behavior How do customers shop during different seasons and holidays? How customers will respond to different merchandising strategies Sales & Inventory Data by Location Price Changes How do customers respond to price changes and promotions? How do customers respond to broken inventory levels? ProfitLogic Confidential

18. Next Year Sales Forecast 50% MD 25% MD Markdowns Circular Promotions Christmas Seasonal Lift 50% MD 25% MD Circular BOGO Christmas Visibility to Future Demand Last Year Sales Deconstructed Markdowns Promotions Seasonal Lift ProfitLogic Confidential

19. Demand forecasts • How customers will respond to different merchandising strategies • Performance criteria • Best practices • Business rules • Constraints Profitable, Predictable, and Efficient Merchandising Decisions Optimization: • Evaluate a complex set of trade-offs • Analyze all possible scenarios • Asses the risk of each scenario • Determine the most profitable scenario that respects business constraints Optimal merchandising recommendations ProfitLogic Confidential

20. Financial Plan • Performance objectives • Open to buy GM% Local Market Assortments Store Group C Store Group B Store Group A • Assortment breadth and depth by store • Volume • Climate • Size • Seasonality • Demographics • Customer preferences • Volume • Climate • Size • Seasonality • Demographics • Customer preferences • Volume • Climate • Size • Seasonality • Demographics • Customer preferences Sales SKU/Store Forecast • Item attributes • Flow dates • Planned pricing and promotions • Store base Assortment Optimization Store Clustering by Class Local Market Assortments Performance & Attribute Analysis ProfitLogic Confidential

21. Eaches Prepack 1 Prepack 2 Prepack 3 S, M, L, XL 12 S, 24 M, 12 L, 12 XL 16 S, 16 M, 16 L, 16 XL 12 S, 12 M, 24 L, 24 XL Optimal Order Quantities • Purchase order quantities and shipments • Initial allocations Assortment Optimization • Pre-season SKU/Store forecast • Delivery frequency • Flow dates • Presentation minimums and maximums Store level size profiles Receipt Flow Optimization Order Optimization ProfitLogic Confidential

22. Pull Push Push Need by Store Purchase Orders & DC Inventory • SKU/Store forecast • Coverage period • Inventory levels • Min/Max presentations • Multiple prepack configurations and eaches • Min/Max holdback quantities • Min/Max allocations & shipments Allocation Optimization Promotion Promotion Volume Markdown X X X X Second Receipt Initial Receipt Final Allocation Holdback Quantity Minimize Stockouts & Overstocks • Allocation quantity and prepack – eaches configuration by store • Hold back quantity ProfitLogic Confidential

23. Company Wide Event Store Wide Event Circular Promotion Optimization Objective • Determine the the effect of promotional vehicles and offers Analysis • Evaluation of company wide events – department and class level lifts • Evaluation of store wide events – department and class lifts • Evaluation of circular driven events – front/center/back page, size, price Recommendations • Expected demand and profitability of events on the promotional calendar • SKU/Store promotional lift for each promotional event and offer • Halo and cannibalization effects of promoted items • Optimal recommendation promotional events, offers, items, and stores to meet objective (margin, revenue, traffic, etc.) ProfitLogic Confidential

24. Optimal Scenario • Markdown timing and frequency to maximize lifecycle gross margin Business rules and constraints • Min/Max markdowns • Markdown frequency • Price ladders • Outdates & salvage value Markdown Optimization ProfitLogic Confidential

25. Assortment Optimization Promote Assort Allocate Pricing Markdown I have 1000 Stores. What is the best assortment breadth for each of those stores? ProfitLogic Confidential

26. Large Medium Small Case-Pack Optimization Assort Allocate Markdown Promote Promote Markdown I need to buy 50,000 units of a style in pre-packs. What is the optimum configuration of pre-packs for the intended store distribution? ProfitLogic Confidential

27. Allocation Optimization Assort Allocate Markdown Promote Promote Markdown I have 75,000 units of a style to allocate to 700 stores. Based on the latest performance of each store, how much should I allocate to each store so as to optimize the inventory balance, and how much should I hold back for a later allocation? Hold Back Pre-allocate ProfitLogic Confidential

28. Promotion Optimization Promote Assort Allocate Markdown Markdown Promote I want to promote a particular item on the front page of my circular, but I’m not sure what my sales lift will be at each of my locations. How much inventory do I need to cover sales for this promotional period, and what will the impact of this promotion be on sales in related categories of merchandise? ProfitLogic Confidential

29. Markdown Optimization Assort Allocate Markdown Promote Promote Markdown I want to liquidate my inventory of a style by a certain date. When, by how much, and how often should I mark it down in order to maximize my margin Dollars? ProfitLogic Confidential

30. Driving Operational Performance through Merchandise Optimization Merchandise Optimization creates a merchandising organization that: • Focuses on how the customer buys versus how they have bought in the past • Uses science to support the art of merchandising • Focuses on strategic initiatives versus number crunching • Understands and predicts the impact of their decisions on financial performance • Manages merchandise across the entire product lifecycle • Manages centrally and executes locally • Maximizes profitability while managing risk ProfitLogic Confidential

31. Driving Financial Performance through Merchandise Optimization Operational Effects Financial Benefits • Right product, right place, right time, right quantity, right price • Assortments and pricing tailored to local market demand • Fresh presentations • Satisfied customers • Increase sales 2-4% • Increase GM$ 5-15% • Increase sell through 10-15% • Increase inventory turns 10-15% • Increase market share and customer conversion ProfitLogic Confidential

32. Gross Margin Sell Through Inventory Turns Average Customer Benefits 5% - 15% Increase 10% - 15% Increase 10% - 15% Increase ProfitLogic Confidential

33. Keys to Success Executive Sponsorship • Drive the importance of the opportunity, accountability, and long term commitment of the organization Strategy, Process, and Technology Alignment • Ensure merchandising processes align with business goals and performance criteria • Ensure technology and architecture align with merchandising processes Project Management • Stage the implementation to accelerate ROI and manage business process change • Manage the implementation and process change on a day to day basis Education • Educate all impacted areas on process, technology, and accountability • Accelerate user adoption through comprehensive training and support • Develop power users to drive continuous improvement and education Performance Measurement • Document and recognize success to communicate throughout the organization ProfitLogic Confidential

34. Why Now? • Fast • Flexible • Financial Benefits ProfitLogic Confidential

35. Customer Testimonials “We experience a significant improvement in gross margin dollars, GMROI and sell-through when following the ProfitLogic system’s recommendations.” Andy Cowan Senior Vice President, Director of Retail and Catalog Systems ProfitLogic Confidential

36. Customer Testimonials “Our Merchandise Optimization solution was easy to implement and is simple to use. It’s making our lives alot easier and we’re getting better sales and margins.” Steve SchwartzSenior Vice President of Planning and Allocation ProfitLogic Confidential

37. Customer Testimonials “Our Merchandise Optimization solution delivered significant benefits without causing major disruptions to our organization during implementation. We are now using it as the standard merchandising tool that helps us with promotional price and markdown decisions.” Rose Huerta Vice President of Planning ProfitLogic Confidential

38. Customer Testimonials “It’s not just about merchandise anymore. If you add science to the art of merchandising, you can do two things: minimize risks in the event of a bad buy or economic downturn, and maximize profits if you’re hitting everything head on.” Mike Stanek Chief Financial Officer ProfitLogic Confidential

39. Customer Testimonials THE HOME DEPOT “We have a fundamental belief in the value of Merchandise Optimization as a driver of short-term and strategic benefit.” Gary Jones Director of Merchandise Process Management ProfitLogic Confidential

40. Customer Testimonials “Two key benefits drove the decision to use Merchandise Optimization in the Gap division. We were impressed by the financial benefits and quick return on investment we saw at Old Navy, and we were equally impressed by the seamless integration into our merchants’ current processes.”Tom Cawley Senior Vice President of Finance ProfitLogic Confidential

41. Customer Testimonials “I’m not surprised that ProfitLogic has been voted best in customer satisfaction. ProfitLogic is a great partner that is completely focused on our success.” Tom Nakfoor President of Inventory and Supply Chain ProfitLogic Confidential

42. ProfitLogic’s Mission To help retailers transform their merchandising operations and practices with the help of Merchandise Optimization solutions, resulting in dramatically improved financial results and enhanced customer loyalty. ProfitLogic Confidential 42

43. ProfitLogic Confidential

44. Questions? Scott Friend Vice-Chairman & President ProfitLogic 617-218-1914 sfriend@profitlogic.com ProfitLogic Confidential