How Retailers can Adapt to a Post-Pandemic Retail Environment

1. SML RFID STATE OF RETAIL INSIGHT REPORT PART 1 Adapting to a Post-Pandemic Retail Environment

2. The following comments are the first chapter of a report following a survey that SML conducted in the Spring/ Summer of 2021. Over 500 apparel retail executives and decision-makers in the US and UK responded, providing valuable insight into the importance of a New Era in inventory management and omnichannel order fulfillment models. The COVID-19 pandemic, and its following nationwide lockdowns, hit the entire retail ecosystem on a global scale that no one could have predicted. The retail industry, already experiencing disruptions from a transition to e-commerce, was now faced with the task of pivoting to omnichannel and store pickup offerings to preserve their customer base and survive the pandemic. The retail industry has faced a multitude of challenges over the past decade, but these were accentuated like never before in the last 18 months. Rising overheads, shifting consumer habits, and a growing need to cater to more environmentally conscious shoppers. Retailers have had to navigate this evolving landscape and adapt to improve their operations to remain profitable and relevant. Part one of this insight report looks at the sector's current sentiment to growth and the challenges that retailers perceive to be impacting the industry going forward. The report also explores how retailers navigated the pandemic and how they are looking to bounce back. It dives into the avenues that the apparel retail sector will pursue to reach an increasingly shifting consumer base while also delving into how the industry can future-proof itself and prepare for the years to come. ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited 2

3. A Year Like No Other In March 2020, many non-essential retailers were forced to suspend operations and, while they opened stores to varying degrees a few months later, for many, the challenges related to the pandemic proved too challenging to overcome. In the US alone, a record-breaking 12,000 stores closed down throughout 2020 due to the pandemic and the subsequent shift to e-commerce1. Not only were physical retailers negatively impacted, but there were broader implications across the entire sector. The global supply chain came to a grinding halt, leaving hundreds of shipping containers unable to be effectively processed. Consequently, retailers needed to act quickly once supply chains restarted to efficiently identify what inventory they had in transit and begin making decisions on product markdowns and how to navigate missed selling seasons for apparel and goods. It is estimated that over 30% of inventory for clothing and footwear retailers had to be marked down, resulting in significant financial losses and a heavy operational workload that a reduced staff number would have had to execute. 30% of inventory for clothing and footwear retailers had to be marked down What has been the biggest sales channel for you in the last 12 months? Brick & Mortar 36% Home Delivery 42% Omnichannel (BOPIS and Click & Collect) 22% In order to remain operational throughout the pandemic, a large majority of retailers needed to shift their resources to support exploding demand for online and omnichannel fulfillment solutions. Almost half of US and UK retail decision-makers (42%) say that online home delivery has been their biggest sales channel during the last 12 months. Additionally, 22% of those surveyed said that omnichannel solutions such as BOPIS (Buy-Online-Pick-Up-In-Store) and Click & Collect had been their main sales channels throughout 2020. Omnichannel offerings are particularly critical to physical retailers as they act as a catalyst for driving customer traffic to stores and creating opportunities for additional purchases. However, respondents estimated that their enterprises have an average of a 28% BOPIS cancellation rate. With increased competition and shifting consumer demands, the reality is that long-term omnichannel success is not sustainable with cancellation rates that high. 1 https://fortune.com/2021/01/07/record-store-closings-bankruptcy-2020/ ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited 3

4. Retail Prepared to Bounce Back The retail industry remains a resilient sector, adapting to new technologies and implementing new processes to keep up with societal and economic shifts to remain relevant. As an industry, the retail enterprises that succeed are those that consider the future and meet customer demands in a variety of avenues to grow engagement and capitalize on areas to grow sales while reducing friction in the purchasing process. 38% of retailers deemed recovering from the pandemic as the most significant obstacle to business growth Despite a challenging year, 37% of retailers say they are confident their businesses will grow within the next 12 months, with 23% of respondents claiming that they are very confident of achieving growth. While a quarter of respondents (27%) say they are neither secure nor anxious, there remains a generally positive sentiment toward growth. When considering the main challenges to business growth, unsurprisingly, retailers deemed recovering from the pandemic as the most significant obstacle, with 38% of respondents stating this. The key is to identify what specific outcomes correspond to a full recovery and what must be achieved for retailers to move from surviving to thriving in a disrupted industry. The path forward for retailers will be anchored to their ability to deliver frictionless and engaging customer experiences through various sales channels. How confident or anxious are you about your potential business growth this year? Confident 37% Very Confident 23% Neither confident nor anxious 27% ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited 4

5. Obstacles Retailers Face It is imperative to gain insight into the obstacles retailers currently face to understand how they can best walk out of their pandemic recovery process and begin to progress in their selling strategies. When asked about the main obstacles, almost half (48%) of retailers said a key challenge to serving customers was frequently out-of-stock items. Additional challenges identified were health and safety measures resulting from COVID-19 (32%) followed by 24% of retailers having an unclear view of inventory, 21% taking too long to find items, and 14% having the wrong items in store. Retailers are telling us, and consumer experiences validate, that the most fundamental challenge in retail is to understand what you own, where it is in your enterprise, and if it is truly available to fulfill customer orders in various channels, including stores and e-commerce. Which of the following are the main challenges of serving your customers? Frequently out of stock items 48% Health and safety measures as a result of COVID 32% Unclear view of inventory 24% It takes too long to find items 21% Delivering a satisfying customer experience is crucial for establishing brand loyalty and maintaining a healthy sales pipeline. We have seen in the past that regularly out-of-stock items or having the wrong products in-store leads directly to customer dissatisfaction and can deter them from shopping with a particular retailer again. No matter the level of customer service in a store or how well designed a retailer’s online presence is, they cannot deliver a positive customer experience or generate sales if the expected inventory is unavailable. Wrong items in store 14% Outdated Processes 15% Lack of effecient omnichannel solution 11% Poor customer service 11% ................................................................................................................................................................................................................................................ ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited © 2021 SML RFID is a division of SML Group Limited 5 5

6. Future-Proofing Your Business With Long-Term Omnichannel Solutions 43% of retailers say that having real-time visibility of stock levels is critical in delivering a better customer experience As the retail sector navigates uncertainty around COVID variants and fluctuating case numbers in different geographic regions, specific processes and technologies that were adopted during the pandemic will continue to be used in the industry. With more consumers returning in-store, retailers must review current customer service processes and practices and use learnings from the height of the pandemic to continue to inform future decision- making. Honing in on growing avenues of sales will be critical for continued long-term success. When asked how confident they would deal with a future lockdown, 39% of retailers said they are prepared. However, 17% of respondents claimed they were either slightly or very anxious at the prospect of another lockdown. These retailers need to consider implementing the right tools and solutions to ease this anxiety and better equip them for any future uncertainties. 55% of US and UK retailers surveyed said they currently have a BOPIS offering, with a third of respondents (34%) saying they would invest more in BOPIS and Click & Collect solutions. An additional 13% state they want to invest and improve their current omnichannel offering, and 29% want to improve their current e-commerce platforms. The pandemic has taught the retail industry the importance of diversifying the platforms they utilize to reach their customers. With the majority of retail sales now taking place online, retailers need to continue adapting their online platforms to ensure they work across a range of devices while delivering an immersive and user- friendly experience. When asked how retailers could better serve their customers, 43% of respondents say that having real-time visibility of stock levels would be one of the most critical factors in delivering an optimum experience. Of those surveyed, 37% say they would like to invest in technology that enables a clearer view of inventory, and 34% would invest in technology that allows them to find items quicker, with 31% looking to invest in more staff training. With e-commerce and online retail experiencing such significant uplift in the past year, retailers should expect to invest in ways to refine their fulfillment of these online orders and enhance their omnichannel solutions. Not only do these solutions keep up with changing consumer habits by providing more fulfillment options, but they also enable retailers to future-proof their businesses should there be any further lockdowns or supply chain disruption from COVID variants or other outside factors. 17% of retailers are anxious for another lockdown What avenues are you going to take to future proof your business? Invest more in BOPIS and Click & Collect solutions 34% Invest and improve current omnichannel offering 13% Improve current e-commerce platforms 29% ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited 6

7. The retail market remains resilient as the industry acquaints itself with this new era. While the past year has been a challenging one for many, there have been critical lessons learned that can be leveraged for future growth and profitability. Sentiments around the prospect of growth are high, and retailers have identified pre-pandemic processes that can be adapted and refined to better align with a true omnichannel vision that allows each unique channel to drive customer engagement. Consumer behaviors have changed permanently. Retailers must adapt by considering not just product assortment and price, but also the most convenient fulfillment options that can be done effectively. Having multiple channels that operate in union and complement each other will be the driving force required to meet consumer demand and retain market share. Driven by technology such as item-level RFID, retailers that had implemented the technology and solutions were able to recover and strive forward rapidly as compared to competitors that had not adopted the technology. Item-level RFID solutions, tags, and software solutions have proven to improve their real-time visibility of stock, locate items faster and deliver a truly enhanced BOPIS and omnichannel experience. Retailers that fail to act to address their underlying inventory discrepancies and their impact on omnichannel selling will face the prospect of falling further behind in serving consumers with best practices.. Part 2 of SML’s ‘State of Retail’ industry report will take a deeper dive into how retailers have implemented technological advancements in order to address inventory management challenges. Due to be released in late 2021, the report will explore how retailers have approached a shortage of staff while trying to roll out or enhance their omnichannel strategies. For more information contact: info@sml-rfid.com ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited 7

8. POWERING BRANDS OF TOMORROW About SML With a presence in over 30 countries, SML Group is the global end-to-end RFID and brand identification solutions provider, delivering proven results and rapid ROIs to brands in the new era of retailing. We offer innovative Inspire™ and EcoInspire™ labeling and packaging products, high-performance RFID tags, and encoding services across industries. Our proprietary software Clarity® is the only item-level RFID solution that is engineered and deployment-proven for vertical retailers and brand owners with stores. As an invaluable partner of brands, SML is committed to developing tech-driven solutions that power brand transformation and prosperity. @SMLRFID www.sml-rfid.com SML RFID info@SML-RFID.com ................................................................................................................................................................................................................................................ © 2021 SML RFID is a division of SML Group Limited W12202111A