bcCompiler:Reviewer:RetailCo.Created:August26,1999Copyright?1998Bain&Company,Inc.SevaRozanovThomasShannon1RetailCo2BackgroundApproachConclusionImplementationResultsAgenda2RetailCo2

RetailCois$10+B“specialityretail”conglomeratewhosefinancialperformancehasdeterioratedsince1990Background3RetailCo2Achievetopquartileperformancemarket/bookvalue:2.8xreturnonequity:17-18%annualearningsgrowth:10-12%DivestbusinessesthatarepoorfitsPreparethecompanytoweatherchallengingindustryconditionsCreateacompellingvisionandgrowthstrategyFinancialObjectivesStrategicObjectivesBackgroundRetailCoObjectives4RetailCo2AgendaBackgroundApproachConclusionImplementationResults5RetailCo2DefinethecharacteristicsofasuccessfulstrategyDeveloparangeofviablestrategicalternativesAssessandprioritisethestrategicalternativesBuildconsensusaroundthepreferredstrategyFullyquantifytheimpactofappropriateactionstepsGainfinalapprovalLaunchimplementationApproach6RetailCo2ComponentsofSuccessfulStrategyDoable:EvolvesfromcurrentbusinessmixFitsRetailCo’scorecompetenciesIsfundableDevelopssignificantcompetitiveadvantagesCapitalizesonthevolatilityofretailcyclesUnderstandable:CommunicatesaclearandcompellingapproachtothebusinessWillbefullyvaluedbyanalystsandshareholdersDesirable:Createscleareconomicvalueandtop-quartilefinancialresultsbuildsaportfolioofhigh-potentialbusinessesmakesbusinessunitsmorevaluabletoRetailCothantoothersAvoidexcessivelayers,overheads,anddecisionprocessesIsattractivetokeymanagersintargetedbusinessesandfunctionsApproach7RetailCo2

MarketsizeMarketgrowthSegmentreturnsSegmentprofitabilitytrendsCompetitiveintensitySupplierpowerSegmentstabilityMarketAttractivenessMarketshareMarketsharetrendGeographiccoverageCurrentprofitability/EVAEarningstrendManagementteamRetailbrandequityInfrastructureandsystemsCustomervaluepropositionStrategicPositionCorporateexperience,skills,

andvaluesCorporatefunctionalsupportCorporateportfoliodevelopmentCross-divisionalsharingFitRetailCobusinesseswereevaluatedalongthreegroupsofcriteriaApproachRevisingtheMixofBusinesses8RetailCo2FactBaseHowstructurallyattractiveisthismarket

segment?(projected)industrysizeindustrygrowthindustryprofitabilitycompetitiveintensitybuyerconcentration/powersupplierconcentration/powercommittedcapitalrequirementsstageinmarketevolutionacquisitionopportunitiesHowdoesthestockmarketvaluethissegment?industryvolatilitymarketvaluationmultipleandtimingvaluetransparencytostockmarketDowehaveastrongpositiontoday?marketshare(local/regional)marketsharegrowthtrendsprofitabilityrelativecostpositionbrandequityconditionofassetsDowehavethekeysuccessfactorstoachieveastrongpositiontomorrow?

(orcanweacquire/buildthem)functionalprocesscapabilitiescoststructurenewproduct/conceptdevelopmenthumanresources/peopleskillscapitalresourcesHowdoesthisbusinessfitwithotherRetailCodivisionsandcapabilities?cashflowgenerations/requirementscommonfunctionalprocessescommoncustomerprofileslinkagetocentralresourcesuniquepeopleskillsThefivequestionsapproachwasusedtobuildfactbaseoneverybusinessofRetailCoApproach9RetailCo2AgendaBackgroundApproachConclusionImplementationResults10RetailCo2BusinessUnitEvaluations(1of2)

DivisionConclusionStrategicPositionMarketAttractivenessFitNorthLargemarketreadyforconsolidation,goodprofitability,verystrongpositionHollandLargepotentialmarketwithopportunitytoboostgrowthandprofitabilitythroughacquisitionsandimprovedoperatingefficiencyItalyRapidlygrowingchannelwithhighreturns.NeedtoinvesttocapturemarketshareandimproveoperatingefficiencyHongKongLargeoverallmarketwithslowgrowth.CashprovidercapableoffundinggrowthbusinessesLuxembourgReevaluategrowthplans.EconomiesofscalenotyetachievedbutsegmentextremelyprofitableConclusion11RetailCo2BusinessUnitEvaluations(2of2)

BritainModeratesizesegmentwithgoodprofitabilitybutstrongcompetition;decliningmarketshare,lowrelativeoperatingmarginsIrelandDecliningmarketsegment,poorposition,littleopportunityforsale,potentialforsavingsbyfoldingintoHongKongFranceOvercapacityinsegment,losingmarketshare,belowaverageprofitabilitySwedenLargeoverallmarketbutrequiressubstantialinvestmenttodevelopnewproductsandachievescaletoimprovecostposition;businesshaspoorfitwithRetailCoskillsSpainSmallsegment,lowgrowth,highvolatility,andseasonalityDivisionConclusionStrategicPositionMarketAttractivenessFitConclusion12RetailCo2BusinessUnitRecommendations

DivisionStrategicPositionMarketAttractivenessFitGrow

(SpinOff)North*

Holland

Italy

HongKong

Luxembourg

Hold

Britain

Divest

Ireland

France

Sweden

Spain

*SpinOffConclusion13RetailCo2StrategicAlternatives

Long-termvision:Corporateprofile:TheleaderinselectedbusinesslineschaindrugapparelfootwearhometoysBusinesslinecompetenciesCostandexperiencesharinginthegroupsAcquisitionstoachievebusinesslinedominanceGroup-basedorganisationAbalancedportfolioofspecialityretailersResourceallocationcompetenciesLeancorporatestructureDecentralisedmanagementGrowandkeepsuccessfulbusinesses.DivesttheunsuccessfulAleadingdeveloperoftargetedgrowth-stageretailersSelectionandexpansioncompetenciesCorporateexpertiseincriticalgrowthfunctionsbusinessdevelopment

(R&Dandresearch)realestatesystemslogisticsCostandexperiencesharinginkeyactivitiesacrossallbusinessesAcquireandgrowpromisingconcepts.Divestwhenvalue-addedpeaksConclusionGroupSpecialistRetailConglomeratesGrowth-stagegreenhouse

(RetailCo.“Classic”)14RetailCo2RevisethemixofbusinessesintheportfolioallowNorthtopursueanindependentstrategysellFrance,SpainandSwedenattherightpriceandtimeEnsureremainingbusinessesaddressthemostimportantstrategicissuesestablishclearstrategiesforgrowthbusinesses

(Holland,Luxembourg,HongKong,Italy)finaliseturnaroundplansforbusinesseswhichcan'tbe

soldatreasonablepricestakewrite-offsasrequiredConsideracquisitionsReducecorporateexpensesAddvaluetothebusinessesintheportfoliobuildR&DcapabilitiesleveragecostsupgradetheorganisationConclusionActionRecommendations15RetailCo2Chaindrugindustryisconsolidatingeconomiesofscaleinsystemsinvestmentsrelationshipswiththird-partypayersAnindependentNorthgeneratessignificantlymoreshareholdervalueasitparticipatesintheevolutionoftheindustryNorthmakesminimaluseofcorporatefunctions;thereislittlecost-sharingamongNorthandtheotherdivisionsMarkettimingisattractiveNorth'svalueisnotbeingfullyrecognizedinthemarketplaceConclusionExample:RationaleForanIndependentNorth16RetailCo2Plannedcapacityadditionswillresultinindustry-widenegativecompstoresalesthrough1998ConsolidationisessentialtoeliminateexcesscapacitylowerscostsallowscompstoresalesgrowthRetailCoisbettersuitedtobeasellerthanabuyersynergyisequalwhetherFrancechoosestoacquireorbeacquiredleadingcompetitor'smarketvalueishighermanagementgroupatFrancehasseveralsignificantholesConclusionExample:RationalefortheSaleofFrance17RetailCo2Continuetopursueopportunitiestoconsolidateandreduceover-capacityFillkeyexecutiveopeningsRestorethehistoricalbargainedgewithcorecustomersincreasethemixofopportunistically-purchasedgoodsdelivervaluesaveraging20%belowdepartmentstoresalepricesReducecoststosupportpricereductionsreduceoverheadcostsbyapproximately$60MMreduceinvestmentcostfornewstoresandremodelsCloseunprofitablelocationsandexitseveralmarketswhichFrancecannotdominateIfthesaleofFrancetakeslongerthananticipated,severalactionswillbetakentoimproveFrance'sperformance:ConclusionExample:France-StrategicImperatives18RetailCo2Vision:Toconsolidateourpositionastheleadingwidgetretailertoourtargetcustomers(high-volumepurchasersoftrendywidgetsintheir20sand30s)Toberecognizedbyourtargetcustomersastheleaderinproductassortmentandcustomerserviceforwidgetretail(ouruniquepositioning)Toreacha10%shareofthenationalwidgetretailmarketbytheyear2000FinancialGoals:ToreachandmaintainROIClevelsof20%Togrowsalesby5%peryearandnetearningsby10%peryear1998salesobjective:$1,225MM1998netearningsobjective:$47MMStrategySummary(1of2)Conclusion19RetailCo2KeyImperativesInitiativesDevelopournewconcept,WidgetFactory,intothesecond-largestnon-mallbasedwidgetretailerRetailCoRealEstateauditofpotentialnewsitesWidgetFactoryrapiddeploymentinitiative(openingof30newstoresperyearClosenon-performingstoresClosingofthe10worstperformingmaturestores(bothXYZandWidgetFactory)eachyearImprovemarginsbychangingmixandreducingcostsMixchangebasedonGMROIapproachImplementationof4-WallssystemRedesignoflogisticsflowbasedonRetailCostudyImprovedensityofmarketsbybackfilllingfivemarketsModifyourimageintheeyesofthecustomerAssortmentredesignbasedondemandandprofitabilitySalesforcetraininginitiativeoncustomerserviceLaunchofanewadvertisingcampaignFocusnewstoresinSoutherngeographiesAcquireandintegrateSouthernWidgetbyendof1996RetailCoRealEstateauditofpotentialnewsitesProposedpartnershipwithSouthernMalls,Inc.StrategySummary(2of2)Conclusion20RetailCo2FitwithRetailCoclearopportunityforvaluecreationpotentialtomaximizesharingwithrelateddivisionsMarketattractivenesssubstantialmarketpotential dominantmarketpositionopportunityconceptinearlystagesofalonglifecycleFinancialopportunitiesaffordablewithintargetcapitalstructuremeetsminimumreturnandgrowthhurdlesLimitedriskfactorsexistingmanagementtalentorsupplementablelowtomoderatevolatilityConclusionCriteriaforAcquisition21RetailCo2CorporateCostReductionOpportunities

*ExcludinginterestConclusion22RetailCo2

PrimaryLevers:CorporateRoles:CorporateportfoliodevelopmentKeepawareofmarketandcustomertrendsdrivingpotentialopportunitiesDevelopcriteriaforscreeningacquisitionsandpartnershipsoralliancesIdentifyandevaluatenewconceptsandconsolidationopportunitiesDevelopanetworkofdealcontactsStructure,negotiateandclosedealsCoordinateeffectiveintegrationplanningEvaluateopportunitiestospin-off/exitbusinessesFinancialcontrolsDefineprimarymeasuresoffinancialperformanceSetspecificfinancialreturnandearningsgrowthtargetsDevelopfinancialplanningandcontrolsystemsAllocatecapitalandotherresourcesBusinessoversightDefinemanagementdecision-makingprocessesCoachdivisionalmanagementfocusmanagersonmeasurableresultsquestionassumptionsandchallengethinkingProvideleadershiponcriticalissues(e.g.,divisionstrategy,valuedisciplines,andpriorityandresourceconflicts)IdentifyopportunitiestoimproveoperationsandsetspecificimprovementgoalsPrimaryLeversAvailabletoAddValue(1of2)Conclusion23RetailCo2

PrimaryLevers:CorporateRoles:ExpertisesharingandoperationalimprovementInstillcompanywidecommitmenttospreadingbestpracticescoordinateregularexperiencesharingatalllevelsfacilitatecommunicationamongdivisionsandfunctionsDrivevaluedisciplinestoimproveoperationsacrossallprocesses,functionsanddivisionsProvideleadershipandexpertisetosupportimprovementsinperformanceManagementallocationanddevelopmentAttract,motivateandretainthebestmanagementrecruittoptiercandidatesrewardbasedonperformancepromotebasedonabilityProvidestrong,profit-relatedincentiveslinkedtocorporateobjectivesRotatemanagersacrossfunctionsanddivisionsDevelopformaltrainingprogramsStrategydevelopmentPerformanalysistosupportstrategicdecision-making(corporateanddivisional)DefinecorporatestrategicdirectionAssessmarketattractiveness,performance,positionandfitofdivisionsworkwithdivisionstobuildhigh-quality,fact-basedstrategicplansIntegratedivisionplanswithcorporatestrategyCentralservices

andinfrastructuresharingProvidescaleservicesandfunctionstoachievelowercostandhigherqualityLeverageinfrastructureacrossbusinessesPrimaryLeversAvailabletoAddValue(2of2)Conclusion24RetailCo2ProjectedEarnings

NorthNewRetailCo*FromMonteCarloanalysisNote:EarningsequalsnetincomeaftertaxesandinterestConclusion25RetailCo2*With$300MMsharerepurchaseGapvs.SBPProjectionsGapvs.RealisticROEtarget:ROE*:(Gap)/surplus:11.1%12.0%$10.8MM15.9%19.2%$35.6MM17.0%21.6%$61.3MM11.1%9.4%($22.4MM)15.9%13.4%($28.6MM)17.0%14.9%($30.2MM)ConclusionGapAnalysis26RetailCo2AgendaBackgroundApproachConclusionImplementationResults27RetailCo2CorporateGovernanceThedecisionsoftheBoardwillbeevaluatedunderthetraditionalbusinessjudgementrulestandardThedistributionofNorthshouldnotrequireshareholderapprovalthedistributionisadividendwhichrequiresonlyboardapprovalAT&TprecedentThepotentialdivestituresshouldnotbeconsideredasaleofsubstantiallyallofRetailCoremainingassetsNewRetailCowillbeasubstantialentitywithestimatedsalesof$4.2B,netincomeofapproximately$119,andassetsof$2.1BImplementation28RetailCo2Note:DistributeNorthstockdividendatappropriatetime3Q954Q951Q962Q963Q964Q961997ApproveallcomponentsofStrategicReviewCloseFrancetransactionCloseSpaintransactionCloseSwedentransactionReorganizeCorporateofficeCloselossstoresCloseNorthIPOCompletemergerofIreland/HongKongCompleteMISandtelecommunicationsoutsourcingprojectsPilotcentralizationofAccountsPayable,GeneralAccounting,andSalesAuditSpin-offNorthInitiatemergerofIrelandandHongKongImplementationTiming29RetailCo2StrategyCorporatemanagementCorporateemployeesDivisionpresidentsDivisionemployeesMediaFinancialcommunityRetailindustryconsultantsIndividualshareholdersLandlordsVendors/factorsLocalofficialsInitiateallcommunicationsfromRetailCoheadquartersinordertomaintaincontrolled,consistentmessagesFullyexplaintherationaleoftheplanandhowitwillenableRetailCototakeadvantageofitsuniquestrengths,skills,andopportunitiesoverthelongtermDefineaclearstrategyandvisio