Transition to Choices On Line Summary Oct 2010

1. Transition to ChoicesOn Line SummaryOct 2010

3. Introduction • This summary is a highly abridged and resorted version of what was presented to the members at the regional meetings held in September and October 2010. • Many elements including video footage, photos and some highly confidential aspects have been removed.

4. Backgound

5. On the issue of brand confusion, 40% of members said there is “total or lots of confusion.” A further 46% said there is some confusion. • Only 14% said there is “not much or no confusion.” • To correct this problem, 60% of Members said keep the Carpet Choice name, but make the marketing “more distinctive.” • Only 12% said change to some form of a new name. • So why are we putting forward a proposition to • evolve the name? Your Feedback Last Year

6. After the membership survey last year identified that members were concerned about brand confusion we sought feedback from six advertising agencies on how they believed we should address the issue. • Their position was clear. The confusion will never effectively be overcome unless we have a more distinctive name, not just distinctive marketing. • We appointed Steve Kulmar of Retail Oasis, one of Australia’s foremost marketing strategists to help develop a new approach. • A teaser of this was presented at the National Members Meeting in Melbourne early this year, and a more detailed presentation at regional meetings in mid 2010. The process so far

7. The process so far • The feedback we got at that stage was that members were mostly supportive, thus we devoted more resources to it. • A taskforce of members was appointed to help resolve key issues. • The latest presentations, in September and October 2010 were detailed and allowed members to formally vote on proceeding with a transition. • The resultant vote was strongly in favour. 91.5% of members supported the decision (although 34% of these had local matters that needed to be addressed) with all but one of the balance agreeing to support the decision.

8. Repositioning our Group to meet the demands of a changing competitive landscape

9. “Re-positioning” is about the opportunity to broaden the brand – to stand for more than just carpet. It is about ensuring the consumer considers us for all floor surfaces. It is not about reducing sales in existing categories. Our objective is to increase sales in all categories. Carpet is now only 50% of the market, whereas 20 years ago it was 75%. As a group, we have not fully moved with this change, thus we a forfeiting profitable sales opportunities and limiting our appeal. The opportunity to be more relevant

10. Current Australian Scene • Over the last 20 years, hard surface areas have grown, in turn generating more rug sales. • The shift to longer wear warranties and nylon may result in longer life cycles, but this may be more than offset by the desire to remain fashionable. • International Trends • Increasing diversity in all categories. • Acknowledging the green and health issues. • Home-centres and the internet are taking share. The Competitive Landscape

11. Percent Distribution of U.S. Retail Floor Coverings Sales The Competitive Landscape 1997 2002 2009(Estimated)

12. The Competitive Landscape Carpet Choice Australian Market

13. The Competitive Landscape • Future Australian Scene • Carpet will most likely stabilise at around 50% market share, but what if it fell to 40%, or even 30%? • Hard surfaces will become more diverse, and more fashionable (LVT). • Retailers will seek a point of difference with innovative product and ways to sell. • Flooring will be offered more by Homemaker and Hardware stores (HN, Bunnings and Lowes) who recognise the value of cash and carry and repeat sales, and setting new customer service benchmarks.

14. Customers are no longer just customers

15. Customers are no longer just customers Society has changed and become more complex. Customers fall into many categories. We cannot meet the expectations of all of them. In the slide that follows, we have identified the broad categories we must aim at. They are Visible Achievement, Something Better, Traditional and Conventional Family Life and Socially Aware. They make up 70% of the population and most of the buying power.

16. 17% 6% 2% 5% 20% 8 % 15% 12% 11% 3% Customer / Clusters Opportunity

17. Customers are no longer just customers Given that women are the main driver and buyer of floor coverings, we then translated this data into three main buying groups and called them Chloe, Claudia and Christine. They are at different stages of their life, have different needs in floor coverings and therefore different expectations on service. In your local area, your mix of these three groups can vary significantly. We believe your store, and particularly your product mix needs to reflect this.

18. Chloe • First timers/young families, practical & price conscious. • Claudia • Mid life females with families, still practical but seeking quality and design cues, but also value conscious. • Christine • Mature, experienced females seeking to finally get the ‘dream’. Three Key Consumer Groups

19. Customer / Clusters Opportunity Meet segment one – Chloe – approx 11% • Conventional Family Life • Demographics • Female, 30s • C, D socio economic; mortgage belt • Married with young children • Average hh income ($68k) • Needs • Best price • Support and advice • Practicality is key • Wants • Aspires to brands • Aspires to home dream • Behaviour • Traditional family values • Activities focused around the children • Nester – responsible for family • Anxiety • Lives • Suburban outskirts eg Colac, Illawarra; regional Australia

20. Customer / Clusters Opportunity Insight on consumer segment one • ‘Home and family is what matters most to me and I love doing things to improve our ‘nest’. But with young kids I have to be practical. I love the idea of buying a new home where you get to choose all the finishes, like floor coverings, but failing that we’ll just make small changes. There’s not much point in laying new floors while the kids are so young”

21. Customer / Clusters Opportunity Meet segment two - Claudia – approx 30% • Something Better/ Visible Achiever • Demographics • Female, 40s • AB, C socio economic, secondary ed • Married with school aged kids • Above-average hh income ($80K+) • Needs • Advice & understanding • Quality over price but still seeks value • Practicality is still on her mind • Wants • Seeks out brands • Service seeker - DIFM mindset • The home dream is firmly on the radar • Behaviour • Busy progressing all areas of life • Lives • Suburban growth corridors eg The Hills District, The ‘Shire’

22. Customer / Clusters Opportunity Insight on consumer segment two “Now the kids are a little bit older, and I’m back to work, we can start to think about improving our home. We thought about moving, but we decided we would be better off to renovate and add some real value to our home”

23. Customer / Clusters Opportunity Meet segment three - Christine– approx 30% • Socially Aware • Demographics • Female, 50 ‘something’ • AB, C socio economic, Tertiary educated • Married with children, paying off home • Above-average hh income ($120K+) • Needs • Quality over price • Knowledge and advice • Wants • Design and innovation (newness) • Seeks out brands • Pristine home sanctuary – finally its about what she wants, not what the family needs • Behaviour • Service seeker - DIFM mindset • Home is sanctuary and centre of entertainment • Home improver/ renovator • Confident and in control • Lives • Affluent, long established, inner suburban and regional areas eg Balgowlah, Neutral Bay, Richmond, Fortitude Valley, Byron Bay

24. Customer / Clusters Opportunity Insight on consumer segment three • ‘‘My home is my sanctuary, but while the kids were growing up, I had to be practical about the improvements we made. Now they’re grown I can finally bring to life my nest’’

25. The Store Cluster Groups The cluster groups identified relate only to the current Carpet Choice store network and are not representative of the total national opportunity for Choices

26. The Store Cluster Groups The four slides show the cluster profile for typical stores that fall in these four demographic mixes. The bars show the proportion that each of the three female categories represent in that market (left scale). The line shows the relative under or over representation of each of the three bars in that market. For example in the first slide, Claudia represents 57% of this local market, which is 27% above the national norm for this type of market (“comprehensive offer”). This analysis was done for all member stores and their local markets and shared with members at the regional meetings.

27. Smithville Carpet ChoiceSegment 1 – Comprehensive Offer Smithville Carpet Choice- Local target market catchment 21,000 - 5km radius Source: Roy Morgan Single Source, Mar 10

28. Anytown Carpet ChoiceSegment 2 – Mid Market Offer Anytown Carpet Choice- Local target market catchment 34,000 - 5km radius Source: Roy Morgan Single Source, Mar 10

29. Newtown Carpet ChoiceSegment 3 – High Value Offer Newtown Carpet Choice- Local target market catchment 41,000 - 5km radius Source: Roy Morgan Single Source, Mar 10

30. Jonesville Carpet ChoiceSegment 4 – Aspirant Offer Jonesville Carpet Choice- Local target market catchment 10,000 - 10km radius Source: Roy Morgan Single Source, Mar 10

31. The market is changing, whether we like it or not. We need to broaden the offer if we want to be known for floor coverings, not just carpet, and have a sustainable business in the future. We have noted that we can cater for the bulk of customers. We can align the stores to the customers. It is not about going up/down market. Customers focused on price will gravitate to price based retailers. If we don’t broaden our offer, then we risk becoming a niche player, restricting our potential. Summary

32. How can we best respond to customers?

33. There are three ways that we will do this: • Re work Brand Awareness to increase traffic. This will entail a transition to the CHOICES name and supporting it with great marketing. This will overcome brand confusion. • Re work Service and Selling skills to match the consumer segment and as a consequence, close more sales more often . Some reworking in the Store Design area will enhance the customers experience as well. • Re work the Product Mix to match the consumer segment each store is in and offer a more complete flooring range with the introduction of new a Product Offering (Rugs & Tiles). How can we best respond to customers?

34. 1. Re – Working Brand Awareness

35. Unlike others, we have the opportunity to carefully evolve….not change • We can own a position in the market… not a niche (carpet) • We can create a personality… for consumer attraction • We have an opportunity to build a Brand…to create real equity Our brand and standing apart from our competitors

36. Apple – evolving to greatness? The Newton Crest: 1976-1976 The first Apple logo was designed in 1976 by Ronald Wayne and depicts Isaac Newton sitting under a tree, an apple dangling precipitously above his head. The Rainbow Logo: 1976-1998 The “bite” in the Apple logo was originally implemented so that people would know that it represented an apple, and not a tomato. It also lent itself a play on words (bite/byte). The rainbow stripes was a means to “humanize” the company. The multi-colored Apple logo was in use for 22 years.

37. Apple – evolving to greatness? The Monochrome Logo: 1998 - Present The return of Jobs and a renewed identity. The company was bleeding money, and Jobs realized that the Apple logo could be leveraged, but the rainbow logo limited use. So the logo was refined into a modern monochromatic look that has taken on a variety of sizes and colors. The shape of the logo remains unchanged from its original inception 33 years ago. The monochrome logo allows Apple greater flexibility in branding products and stores

44. Closer to home • The Snooze brand launched with a bright and friendly identity, presenting ‘Captain’ as the protagonist. A night cap topped of the logo in a cartoon-like identity. Presented in strong colours of white, red and black. • In 2006 CAPT’N Snooze hung up his snooze hat for good. This change was designed to position Snooze as a lifestyle store, not just a bedding retailer. Designed to express quality sleep, the emotional connection you have with your bedroom and offering solutions that deliver on both these things.” Used as the platform to introduce the Kingsdown Body Mapping Mattress with four different levels to suit different pressure points.

45. How does our evolution continue?

46. Drop carpet…undifferentiated About one product category Does not represent total category Undifferentiated/ single category About the offer Expresses the benefit Our differentiator

47. Make More of Choice…Choices • Choices articulates the freedom and discovery our female consumer is seeking • It is friendly, and allows for further business innovation

48. Create a Memorable Unique Device 1. Inspiration: Colour tiles • Pixels in TV screens • Pantone colour books • Paint selectors • Feature tiles • The iPhone 2. Colour tiles bring design and inspiration to our neutral backgrounds

49. Create Ownership…Strapline 1. For our consumer, finding the right floor is a journey of discovery. She searched through magazines, over the internet and in store 2. We want to harness that sense of discovery and position ourselves as the ones that have the answer