Assessment of Potential Demand for Additional Soft Goods Retail at the Cedar Grove Redevelopment in Eagan, Minnesota

May 9, 2012 MEMORANDUM TO: FROM: RE: Mr. Jon Hohenstein City of Eagan Ms. Mary C. Bujold Maxfield Research Inc. Assessment of Potential Demand for Additional Soft Goods Retail at the Cedar Grove Redevelopment in Eagan, Minnesota Introduction This memorandum discusses the potential demand for the additional of additional retail space in the form of an outlet mall that would be developed in the Cedar Grove area of Eagan, Minnesota. Specifically, the analysis addresses how the proposed outlet mall would complement the existing retail base in Eagan and the development of additional retail space planned for the intersection of Yankee Doodle Road and Pilot Knob Road. Brief Background of the Outlet Mall Manufacturers retail outlets have come a long way in size, geographic reach, and popularity since men s-clothing-maker Anderson-Little opened the first non-factory-adjacent outlet stores in 1936. Until the 1970s, such outlets, inevitably single stores located far from primary retail centers, served mainly to dispose of excess or damaged merchandise. But since then, they have grown to include multiple manufacturer-branded and non-branded stores at the same site, great breadth of designer label offerings, and an increasing proportion of in-season alongside irregular and overstocked items. And these trends show in outlet stores performance: manufacturers outlets in the United States generated $15 billion annual revenue by 2003, which represented 250% of 1990 sales. Importantly, outlet malls sales per square foot often outstrip those of conventional malls; shoppers spend up to 79% more per visit at outlets than regional malls and, though they are still typically located outside of city retail centers, outlet malls are moving closer to central commercial district. 1221 Nicollet Mall Suite 218, Minneapolis, MN 55403 (612) 338-0012 fax (612) 904-7979 www.maxfieldresearch.com

City of Eagan Page 2 These trends raise an important question: How viable a channel strategy is distribution through outlet stores in addition to primary retailers? With this exact query in mind, Kellogg School of Management marketing professor Anne Coughlan and co-author David Soberman presented several rationales for retail outlets, along with an assessment of their current state and future trends, in a 2005 article in the International Journal of Research in Marketing. A Case for Retail Outlets Coughlan and Soberman present several reasons that outlet stores are more than just dumping grounds for unforeseen overstocks, end-of-season leftovers, and damaged products. They cite research showing that the last category comprises only about 15% of all outlet merchandise. Rather, the authors state that a stronger rationale for outlets is that they actually expand market coverage by serving a previously unserved set of consumers; these buyers are typically too price-sensitive to frequent primary retail stores. As evidence for this reasoning, Coughlan and Soberman cite studies demonstrating that outlet malls attract segments that previously bought primarily unbranded items. Outlet stores are, in fact, a sound distribution channel for fashion and other merchandise. While Coughlan and Soberman acknowledge that manufacturers may use outlet malls in part to challenge their primary retailers power or keep them in line by offering the same merchandise simultaneously through retailers and outlets, they also propose what is perhaps the strongest rationale for outlets: manufacturers can use outlet retailing to implement simple market segmentation through dual distribution. In other words, while highly service-sensitive customers will continue to shop at primary retailers, those with less of a service focus will look easily past the no-frills environments of the outlets for their lower prices. Retail and the Current Recession In an uncertain economy, outlet malls are thriving by targeting price-sensitive fashion shoppers. Before the recession, many Americans satiated their desires for designer labels by tapping their credit cards and home equity lines. In these frugal times, Americans still want their polo shirts and designer denim. They are just unwilling, or unable, to pay much for them. "Americans are highly focused on price," said Lee Peterson, executive vice president of creative services at WD Partners, a retail design firm in Dublin, Ohio. "It is the No. 1 motivation when shopping. It's an American obsession." Instead of planning a once-a-year excursion, consumers are increasingly making outlet malls a part of their regular shopping routine. This shift in shopping behavior comes as traditional regional shopping malls are struggling. And it is prompting retailers and developers to take a fresh look at the outlet as a vehicle for growth.

City of Eagan Page 3 In the Chicago region alone, developers are working on separate transactions to develop three outlet malls, one each in Rosemont, New Lenox and Country Club Hills, totaling more than 1.5 million square feet. In addition, Simon Property Group Inc., owner of Chicago Premium Outlets, announced last week that it plans to add a 130,000-square-foot wing to the 440,000-squarefoot Aurora Center, increasing its size by one-third to 570,000 square feet. The Aurora outlet is one of four Simon outlet malls nationwide slated to expand in 2012. The prospect of so much outlet mall development at one time is bound to lead to "site fights," according to Linda Humphers, who tracks the outlet mall industry for the International Council of Shopping Centers as editor of Value Retail News. By her count, there are about 300 brands operating outlet stores in the U.S. That means there is bound to be some overlap, as mall developers compete for tenants. "Everybody's planning outlet malls," said Humphers. "That doesn't mean everyone's going to build them. Retailers are not going to open that many stores." However, the economics of outlet malls are enticing. For retailers, operating an outlet store requires less investment than a traditional indoor shopping mall. Outlet malls are typically on one level and outdoors, so lease rates are less expensive that at traditional indoor shopping malls. The common area assessments are also lower compared with traditional malls, since there are no elevators or escalators, no heat or air conditioning for large common area spaces and generally fewer frills in the mall. The stores themselves are also less highly designed. For developers, the revenue potential is hard to ignore. A healthy regional mall filled with fullprice stores typically generates annual sales of $400 to $500 a square foot. But Chicago Premium Outlets in Aurora generates $700 a square foot, a figure that has been steadily climbing since the mall opened in 2004, according to Simon, the nation's largest shopping mall owner. Simon's top-performing outlet mall, Orlando Premium Outlets in Florida, generates $1,300 a square foot, on par with the best-performing, full-priced luxury malls in the nation. A Simon premium outlet typically attracts 5 million to 10 million shoppers per year. In another sign of the growing appeal of the outlet mall, Bloomingdale's and Lord & Taylor are jumping into the outlet market for the first time, after watching sales soar at Nordstrom Rack, Saks' Off Fifth and Neiman Marcus' Last Call outlets. Niche brands are opening outlets as well, most recently Not Your Daughter's Jeans, Vince Camuto shoes and Under Armour athletic wear. Given that about ten years ago department stores fought fiercely to keep branded outlet stores on the outskirts of major metropolitan areas, far away from the full-price collections that filled their traditional mall stores, the increase in manufacturers strategy of dual distribution can actually help both stores in traditional malls and those at outlet malls.

City of Eagan Page 4 "We've all come out of the recession with this whole new awakening that maybe we've got to do things a little differently," said Michele Rothstein, senior vice president of marketing at Simon's Premium Outlets division in Roseland, N.J. "The brands recognize now more than ever that an outlet shop may be their first connection with the consumer." Alison Witkin, 45, visits Lighthouse Place, another Simon-owned outlet mall, in Michigan City, IN., whenever her family comes for a visit or she wants to pick up some end-of-the-season deals. The Valparaiso resident does most of her shopping at J.C. Penney and Kohl's but on occasion gets an itch to shop among higher-end brands at the outlet mall. "Every now and then I get the taste for something a little more up-market," said Witkin. "I'm not knocking J.C. Penney or Kohl's, because I've picked up some great things there, but it's nice to go to the smaller stores (at the outlet). I like to get the feel of a little more glamour." Even though outlet malls have been growing rapidly over the past ten years, they still represent a small part of the U.S. shopping landscape. There are approximately 325 outlet malls in the U.S., compared with 1,500 traditional shopping malls nationwide, according to the International Council of Shopping Centers (ICSC). Outlet malls comprise a small 1% of the total square footage of shopping centers nationwide, the trade group says. Meanwhile, some of the malls calling themselves outlets in reality are a hybrid of discount stores, regular-price stores and outlets. Earlier this year, Gurnee Mills, owned by Simon properties and located in the far northern suburbs, announced an unusual deal to bring department store Macy's as anchor of a new full-price wing. The full-price Macy's store, which is slated to open in 2013, would have been unthinkable when Gurnee Mills debuted in 1991. But today, Macy's, like many retailers, relies more heavily on inhouse and exclusive brands than the big-name vendors that once populated its shelves. At the same time, popular brand names such as Coach and Banana Republic and many others create products specifically for the outlet stores that differ from the merchandise in their fullprice locations, eliminating some of the conflict inherent in locating outlets close to full-price malls. As for the Chicago area's trio of planned outlet malls, all three projects were on the drawing board before the recession put a halt to development. If they are resurrected, they would mark the first major new shopping centers in the region since the Arboretum of South Barrington and Block 37 in the Loop. (Both of those malls, while still operating, ended up in foreclosure.)

City of Eagan Page 5 The Spring Creek Outlets of Chicago is planned to go into a farm field in New Lenox near the interchange of Interstate 355 and U.S. Highway 6. The 550,000-square-foot, $225 million outlet center is scheduled to begin construction in the second quarter of 2012 and open in 2013. The outlet is expected to anchor a million-square-foot mixed development across from a new hospital. Another, 400,000-square-foot outlet mall is expected to open about 20 miles away from New Lenox in Country Club Hills at Interstates 80 and 57. The construction of Chicago Outlets at Country Club Hills is targeted to start next spring and open in 2013. The project has five signed leases so far: Esprit, Timberland, Levi's, Le Creuset and Perfumania, according to Steve Craig, president and CEO of Newport Beach, Calif.-based Craig Realty Group, who along with Chicago-based Capri Capital Partners LLC of Chicago is developing the project. A third area project is in the works for Rosemont a two-level, 550,000-square-foot outlet mall called the Fashion Outlets of Chicago, across from the Muvico cinema complex. The developers are Coral Gables, Fla.-based outlet mall developer AWE Talisman LLC and Chicagobased Silver Rock Development Group LLC. The plans come as traditional shopping mall development slows. Since 2009, there have been only four traditional regional malls built in the U.S., according to the ICSC. The average vacancy rate at U.S. regional malls in the second quarter reached 9.3 percent, a 10- year high, according to Reis Inc., as the specialty chains that once populated their corridors from Ann Taylor to the Gap are closing stores and seeking smaller footprints. "People are flocking to these outlets," said Jeff Middlebrook, principal with Center Creek, one of the developers behind the Spring Creek Outlets. "They still want to wear the Polo guy or alligator on their shirt, but they don't feel special paying $80 at Macy's. But, they feel special paying $25 at the outlet mall. Brand consciousness still exists, but now, it is all about pricing." Niche Marketing and Dual Distribution Outlet malls have changed since they first started popping up in out-of-the-way sites around the country. While major retailers used to send over seconds or outdated fashions, many now manufacture items specifically for their outlets through separate outlet divisions. It is believed that with different product lines being placed into outlet malls that retailers are no longer concerned about having an outlet store compete directly with their stores in traditional malls and shopping areas.

City of Eagan Page 6 Tanger Outlets describes the typical outlet shopper as distinctive. The majority of outlet shoppers are "affluent, well-educated working women, 25-54, who are shopping for their favorite brands," a company release said. Discounts on brand names can run from 30% to 70%, with merchandise coming directly from the manufacturer. Smaller community centers and lifestyle centers that are located near outlet malls may feel some impacts, but according to most developers, the impact appears to be minimal. The outlet mall tends to carry primarily branded merchandise. Outlet malls tend not to have many restaurants, if any, unlike most lifestyle centers. And, the impact on more traditional malls is also expected to be minimal because of the targeted customer base. According to the industry, customers are either a traditional shopper or an outlet shopper. Despite the general viewpoint that outlet malls do not impact traditional malls to any significant degree, there is still some uncertainty out there among retailers because locating in such close proximity to retail malls is a relatively new approach. Profitability of Outlet Centers Simon Property Group operates regional malls and 57 outlet centers across the country, including Williamsburg Premium Outlets, which has stores such as children clothing retailer The Children's Place and teen apparel chain Aéropostale. The company said that its total sales per square foot were up 9.4 percent to $513 for the three months ended June 30, 2011 over the same period last year. It is planning major expansions at four of its outlet centers in Seattle, Orlando, Chicago and Southern California, which will add over 450,000 square feet of space. Outlet mall developers see shoppers as re-emerging from the recession and returning to buying, but it is considered to be a new normal one that focuses more on value. Tanger Factory Outlet Centers Inc., which owns or operates 37 outlet shopping centers in the U.S., reported on August 2, 2011 that its tenants' sales at stores open at least a year a key indicator of a retailer's health were up 6.8 percent over the previous quarter to $361 per square foot. Tanger is hearing from their retailers that the retailers outlet stores are either the most profitable or one of the most profitable business units in their corporation. Now many apparel brands are relying on outlet divisions for growth.

City of Eagan Page 7 At Ann Taylor, revenue from its traditional stores open at least a year was up just 0.6 percent, while Ann Taylor Factory stores had a 6.5 percent increase. American Eagle recently indicated that 90% of the company's new locations will be outlet stores. Gap recently said it was increasing the number of new stores it plans to open in 2012 from 65 to 75, driven primarily by additional outlet store openings in North America. At Children's Place, the chain is rolling out its first clothing assortment made specifically for its outlet stores for back-to-school this year. When its manufacturing transition is complete, Children's Place expects up to 75% of the merchandise in its outlet stores will be made-for-outlet a ratio that matches what many other companies are already doing. Draw Area for the Proposed Outlet Mall The draw areas of outlet malls can vary dramatically depending on where they are located. Many outlet malls draw from as far as 80 miles away. The proposed outlet mall is expected to draw primarily from the south, west and north in addition to capturing visitor traffic from the Mall of America. The closer the distance to Albertville Outlets, considered to its primary competitor, there will be greater overlap and if customers are in closer proximity to the Albertville Outlets, they are more likely to patronize the center closest to them. Developing more outlet malls and locating them closer to urban areas has reduced the amount of travel time that customers can expect to travel to reach an outlet center. The draw area for the proposed outlet mall is expected to be similar to that of the proposed CSM center. It is this area from which both centers can be expected to draw the majority of their customer base. However, based on the format of the outlet mall, it is our opinion that the outlet mall can be expected to draw from a somewhat broader area as its close proximity to the Mall of America and its similar focus toward fashion goods will give the outlet mall access to the significant tourist base that shops at the MOA. The map on the following page illustrates drive times from the Central Commons property, located within one mile of the proposed site for the Outlet Mall. As shown on the map, the Site can be reached within a 30-minute drive from much of the Metro Area. This 30-minute drive time reaches as far as Lino Lakes to the north, Hudson to the east, Wayzata to the west, and northern Rice County to the south. Although communities furthest to the north may choose to shop at the Albertville Outlets, in closest proximity to their place of residence, households in other areas of the Metro and within this 30-minute drive time are likely to consider shopping at the proposed Paragon Outlet center.

City of Eagan Page 8 Central Commons Drive Time

City of Eagan Page 9 Central Commons Market Area Seven-County Metro Area (Tertiary Market Area) SITE PMA Dakota County (Secondary Market Area) The above map shows the Primary Market Area (PMA), the Secondary Market Area (SMA) and the Tertiary Market Area (TMA) for the Central Commons Center. The proposed Paragon Outlet Mall is expected to draw from an area most similar to the Tertiary Market Area that is shown. As mentioned previously, the closer the market area extends toward the Albertville Outlet Mall, the more likely it will be that prospective customers would shop there rather than drive the additional time to Paragon. However, Paragon expects to also draw customers from further south partially into Rice County and Goodhue County because of its location at Cedar Avenue and Highway 77.

City of Eagan Page 10 Retail Market Analysis Introduction This section presents and analyzes information relating to the condition of the retail market and the potential for future retail development in the Market Area. The potential for new retail development in Eagan is influenced by overall market conditions in the Trade Area, also referred to as the Market Area. The Market Area for the proposed Paragon Outlet Mall is essentially considered to be the Tertiary Market Area for the Central Commons development. As such, the potential market area is potentially much broader for the Outlet Mall, consistent with its proposed fashion format. The tables in this section are referenced from a recent report completed by Maxfield Research for the City of Eagan on the proposed Central Commons development. Tables 10 through 16 and Tables 18 and 19 are shown in this document and with additional assessment as it relates to the potential development of the proposed Paragon Outlet Mall. Table 20 is a calculation of demand potential focusing on the Tertiary Market Area and the proposed expenditures for clothing and accessories goods. Information analyzed in this section includes consumer expenditures by Eagan area and surrounding immediate area residents, regional retail development trends, the commercial supply in the general Eagan Area, retail businesses by type, and an inventory of competitive retail shopping centers. Based on an analysis of this information, calculations of the retail potential for the Paragon Outlet Mall in conjunction with the Central Commons development are presented. Consumer Expenditure Patterns Table 10, excerpted from the Central Commons analysis shows consumer expenditures on retail goods and services in Eagan and the immediate surrounding area in 2010, according to data obtained from ESRI based on Consumer Expenditure Surveys from the Bureau of Labor Statistics. The table shows the average expenditures per household and the amount spent in Eagan and the immediate surrounding area by product or service. In addition, a Spending Potential Index (SPI) is illustrated for comparison purposes. The SPI is based on households and represents the amount spent for a product or service relative to the national average of 100. An SPI of 115 shows that the average annual expenditure by local consumers is 15% above the national average. The average expenditure reflects the average amount spent per household, while the total expenditure reflects the aggregate amount spent by all households in the area. Consumer spending is influenced by market conditions and trends. In times of economic troubles, market conditions drive spending patterns, whereas in times of a booming economy consumer trends feature opportunity and convenience. Two-thirds of the national economy is

City of Eagan Page 11 TABLE 10 HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE PRIMARY MARKET AREA 2010 MA Annual Expenditures MSA Expenditures Spending Potential Index to USA Total Average Average Market MSP/St. Paul Category ($000's) Per HH Per HH Area MSA Goods & Services Index Index Apparel & Services 177,406 2,544 2,148 106 90 Entertainment and Recreation 344,951 4,946 4,146 153 129 Nonprescription Drugs 9,843 141 121 137 118 Prescription Drugs 45,339 650 576 130 116 Eye Glasses & Contact Lenses 7,954 114 97 148 126 Personal Care Products 41,575 596 502 149 126 Day Care 55,460 795 631 172 136 School Books & Supplies 11,033 158 138 148 129 Smoking Products 38,661 554 501 130 117 Computer Hardware 20,513 294 247 154 129 Computer Software 3,084 44 37 155 130 Pets 119,410 781 655 182 152 Food Index Index Food at Home 448,561 6,431 5,531 144 124 Food Away from Home 337,345 4,837 4,093 150 127 Alcoholic Beverages 60,905 873 747 153 131 Misc. Beverages at Home 43,821 628 540 144 123 Home Index Index Home Mortgage Payment/Rent 1,076,528 15,435 12,420 165 133 Maintenance & Remodeling Services 222,391 3,188 2,598 161 131 Maintenance & Remodeling Materials 38,589 553 453 149 122 Utilities 450,747 6,463 5,552 143 123 Household Furnishings, Equipment, & Operations Index Index Household Textiles 14,051 201 169 151 127 Furniture 65,719 942 778 157 129 Floor Coverings 8,068 116 98 154 131 Major Appliances 31,082 446 372 147 123 Small Appliances 7,997 115 97 133 112 Housewares 3,280 47 41 143 124 Luggage 1,039 15 12 161 132 Telephone & Accessories 3,102 44 37 104 87 Lawn & Garden 43,396 622 517 149 124 Moving/Storage/Freight Express 6,309 90 76 149 125 Housekeeping Supplies 70,875 1,016 865 145 123 Financial & Insurance Index Index Investments 170,400 2,443 2,089 140 120 Vehicle Loans 509,095 7,299 6,042 148 123 Owners & Renters Insurance 48,043 689 572 149 123 Vehicle Insurance 119,410 1,712 1,454 147 125 Life/Other Insurance 43,198 619 519 148 124 Health Insurance 184,370 2,643 2,316 137 120 CONTINUED

City of Eagan Page 12 Annual Expenditures Metro Area Spending Potential Index to USA Total Average Average Market MSP/St. Paul Category ($000's) Per HH Per HH Area MSA Transportation Index Index Cars and Trucks (Net Outlay) 460,154 6,597 5,478 150 125 Gasoline and Motor Oil 287,724 4,125 3,497 144 122 Vehicle Maintenance/Repair 97,336 1,396 1,180 148 125 Travel Index Index Airline Fares 51,999 746 616 162 134 Lodging 48,035 689 569 158 131 Vehicle Rental 4,343 62 51 169 137 Food & Drink 46,931 673 560 155 129 Summary Goods & Services 875,230 10,836 9,144 Food 890,632 12,769 10,911 Home 1,788,255 25,639 21,024 Household 254,920 3,655 3,062 Financial and Insurance 1,074,516 15,406 12,992 Transportation 845,215 12,118 10,155 Travel 151,309 2,169 1,795 Total 5,880,077 82,593 69,082 Sources: ESRI; Maxfield Research Inc. TABLE 10 (CONTINUED) HOUSEHOLD EXPENDITURES BY SELECTED PRODUCT TYPE PRIMARY MARKET AREA 2010 Note: The Spending Potential Index is based on households and represents the amount spent for a product or service relative to the national average of 100. driven by consumer spending. During the current recession, households have decreased spending, increased savings, and reduced credit card debt as many households have been faced with job losses. In essence, when the housing market began its decline in late 2006 into 2007, consumer spending and consumer confidence followed. The following are key points from Table 10. Overall, residents from the Central Commons Trade Area were estimated to have spent approximately $2.4 billion on retail goods and services in 2010, excluding housing, finance/insurance, and travel expenditures as well as vehicle purchases Average annual expenditures (excluding the categories mentioned above) are estimated to be $32,781 per household in the Central Commons Trade Area. This compares to a Metro average of $27,793 per household in 2010. In virtually every product and service category, expenditures by Central Commons Trade Area households are substantially higher than the national average and somewhat higher than the Twin Cities Metro Area.

City of Eagan Page 13 Housing expenses account for approximately one-third of total consumer expenditures in the Central Commons Trade Area with residents spending between 15% and 25% more than the Metro average. Average annual expenditures per household in the Central Commons Trade Area are estimated to be approximately 20% higher than the Twin Cities Metropolitan Area. Average annual expenditures in the Metro Area are estimated to be $69,082, compared to $82,593 per household in the Central Commons Trade Area. The roughly 69,748 households in the Central Commons Trade Area spent a total of $5.9 billion on retail expenditures in 2010. With the number of households projected to grow to 72,491 in 2015, they would generate an additional $21 million in expenditures annually, not factoring in inflation. What is most notable regarding consumer expenditures in relation to the proposed Paragon Outlet Mall is the amount of expenditures on fashion and soft goods products. As shown on the Table, households spent an average of $2,544 per household annually on apparel and services as of 2010. Household textiles added another $201 per household annually to this total. The proposed Paragon Outlet Mall would compete to for this retail potential. In addition, the Metro Area spent an average of $2,148 on apparel and services. Retail Demand Potential and Leakage Table 11 presents retail sales for Eagan and the immediate surrounding area in 2010. The sales information is from ESRI based on household counts from the U.S. Census Bureau. This information lists retail demand (potential sales), retail supply to consumers (retail sales) and provides a picture of the gap between the area s retail supply and demand. A positive value represents leakage of retail opportunity to stores outside of the PMA, while a negative value represents a surplus of retail sales, where customers are drawn to area retailers from outside the PMA. The following are key points of the retail demand potential. In 2010, Eagan and the immediate surrounding area had leakage in retail sales in nearly all retail industry groups except for Other Motor Vehicle Dealers, Electronics and Appliance Stores, Florists, Direct Selling Establishments, and Special Food Services.

City of Eagan Page 14 Highest leakage in retail sales occurs in Clothing Stores and Furniture Stores with factors of 74.0 and 60.0, respectively. Other sectors with high leakage include: Shoe Stores; Jewelry, Luggage, and Leather Goods Stores, and Specialty Food Stores. It is predominantly these types of stores that would be the focus of tenants in the Paragon Outlet Mall. The development of the Paragon Outlet Mall would enable Eagan to retain some of this lost revenue potential and capture revenue from other groups that had been either going outside of Eagan or bypassing Eagan to spend these dollars at MOA and other traditional regional shopping malls and lifestyle centers. Leakage/Surplus by Industry Food Services & Drinking Places Nonstore Retailers Miscellaneous Store Retailers General Merchandise Stores Sporting Goods, Hobby, Book, and Music Stores Clothing and Clothing Accessories Stores Gasoline Stations Health & Personal Care Stores Food & Beverage Store Bldg Materials, Garden Equip. & Supply Stores Electronics & Appliance Stores Furniture & Home Furnishings Store Motor Vehicle & Parts Dealers (10.0) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0

City of Eagan Page 15 TABLE 11 RETAIL DEMAND POTENTIAL AND LEAKAGE PRIMARY MARKET AREA 2010 Demand Supply Retail Gap Surplus/Leakage Number of Industry Group (NAICS Code) (Retail Potential) (Retail Sales) (Demand - Supply) Factor Businesses SUMMARY Total Retail Trade and Food & Drink (NAICS 44-45, 722) $50,581,253,521 $33,636,517,150 $16,944,736,370 20.1 994 Total Retail Trade (NAICS 44-45) $42,944,718,064 $27,858,382,055 $15,086,336,008 21.3 717 Total Food & Drink (NAICS 722) $7,636,535,457 $5,778,135,095 $1,858,400,362 13.9 277 EXPENDITURE TYPE Motor Vehicle & Parts Dealers (NAICS 441) $10,268,277,578 $6,508,308,779 $3,759,968,799 22.4 76 Automobile Dealers (NAICS 4411) $8,720,318,918 $4,705,211,711 $4,015,107,207 29.9 19 Other Motor Vehicle Dealers (NAICS 4412) $842,330,186 $1,275,357,414 ($433,027,228) (20.4) 17 Auto Parts, Accessories, and Tire Stores (NAICS 4413) $705,628,474 $527,739,654 $177,888,820 14.4 40 Furniture & Home Furnishings Stores (NAICS 442) $1,333,236,194 $549,550,223 $783,685,970 41.6 38 Furniture Stores (NAICS 4421) $906,489,385 $226,773,282 $679,716,103 60.0 9 Home Furnishings Stores (NAICS 4422) $426,746,809 $322,776,942 $103,969,867 13.9 29 Electronics & Appliance Stores (NAICS 443/NAICS 4431) $1,585,128,893 $1,729,054,096 ($143,925,203) (4.3) 95 Bldg Materials, Garden Equip. & Supply Stores (NAICS 444) $1,969,772,684 $1,665,310,062 $304,462,622 8.4 73 Building Material and Supplies Dealers (NAICS 4441) $1,561,455,253 $1,476,367,696 $85,087,557 2.8 60 Lawn and Garden Equipment and Supplies Stores (NAICS 4442) $408,317,431 $188,942,366 $219,375,065 36.7 13 Food & Beverage Stores (NAICS 445) $8,223,880,023 $5,435,811,930 $2,788,068,094 20.4 78 Grocery Stores (NAICS 4451) $7,261,850,209 $4,929,394,067 $2,332,456,142 19.1 35 Specialty Food Stores (NAICS 4452) $296,729,854 $97,465,885 $199,263,969 50.5 13 Beer, Wine, and Liquor Stores (NAICS 4453) $665,299,960 $408,951,977 $256,347,983 23.9 30 Health & Personal Care Stores (NAICS 446/NAICS 4461) $1,244,439,335 $561,618,046 $682,821,289 37.8 55 Gasoline Stations (NAICS 447/NAICS 4471) $7,139,547,502 $4,342,284,452 $2,797,263,049 24.4 50 Clothing and Clothing Accessories Stores (NAICS 448) $1,514,392,473 $281,280,280 $1,233,112,193 68.7 55 Clothing Stores (NAICS 4481) $1,174,380,475 $175,749,633 $998,630,843 74.0 32 Shoe Stores (NAICS 4482) $187,598,317 $57,946,493 $129,651,824 52.8 9 Jewelry, Luggage, and Leather Goods Stores (NAICS 4483) $152,413,681 $47,584,154 $104,829,526 52.4 14 Sporting Goods, Hobby, Book, and Music Stores (NAICS 451) $462,107,365 $334,117,078 $127,990,287 16.1 48 Sporting Goods/Hobby/Musical Instrument Stores (NAICS 4511) $281,533,564 $192,214,511 $89,319,054 18.9 39 Book, Periodical, and Music Stores (NAICS 4512) $180,573,801 $141,902,567 $38,671,233 12.0 9 General Merchandise Stores (NAICS 452) $7,171,207,325 $5,416,873,126 $1,754,334,199 13.9 32 Department Stores Excluding Leased Depts. (NAICS 4521) $3,674,918,226 $2,362,556,324 $1,312,361,902 21.7 11 Other General Merchandise Stores (NAICS 4529) $3,496,289,099 $3,054,316,802 $441,972,297 6.7 21 Miscellaneous Store Retailers (NAICS 453) $743,970,384 $353,636,101 $390,334,283 35.6 104 Florists (NAICS 4531) $38,567,806 $45,557,971 ($6,990,165) (8.3) 18 Office Supplies, Stationery, and Gift Stores (NAICS 4532) $251,630,472 $179,064,418 $72,566,054 16.8 34 Used Merchandise Stores (NAICS 4533) $30,532,467 $10,401,171 $20,131,297 49.2 7 Other Miscellaneous Store Retailers (NAICS 4539) $423,239,639 $118,612,541 $304,627,097 56.2 45 Nonstore Retailers (NAICS 454) $1,288,758,309 $680,537,882 $608,220,426 30.9 13 Electronic Shopping and Mail-Order Houses (NAICS 4541) $1,022,466,176 $352,939,909 $669,526,267 48.7 3 Vending Machine Operators (NAICS 4542) $109,499,319 $90,094,720 $19,404,599 9.7 6 Direct Selling Establishments (NAICS 4543) $156,792,813 $237,503,254 ($80,710,440) (20.5) 4 Food Services & Drinking Places (NAICS 722) $7,636,535,457 $5,778,135,095 $1,858,400,362 13.9 277 Full-Service Restaurants (NAICS 7221) $3,162,854,678 $2,216,579,361 $946,275,317 17.6 136 Limited-Service Eating Places (NAICS 7222) $4,062,765,142 $3,088,026,873 $974,738,269 13.6 122 Special Food Services (NAICS 7223) $220,732,351 $376,563,347 ($155,830,997) (26.1) 10 Drinking Places - Alcoholic Beverages (NAICS 7224) $190,183,287 $96,965,514 $93,217,773 32.5 9 Note: All figures quoted in 2010 dollars. Supply (retail sales ) estimates sales to consumers by establishments, sales to businesses are excluded. Demand (retail potential) estimates the expected amout spent by consumers at a retail establishment. Leakage/Surplace factor measures the relationship between supply and demand and ranges from +100 (total leakage) to -100 (total surplus). A positive value represents "leakage" of retail opportunity outlide the trade area. A negative value represents a surplus of retail sales, a market where customers are drawn in from outside the trade area. Sources: ESRI; Maxfield Research Inc.

City of Eagan Page 16 By dollar volume, retail leakage was greatest in Automobile Dealers, Gasoline Stations and Grocery Stores. Data indicates that, while surpluses exist in a few categories, the proposed Paragon Outlet Mall should be able to capture sales that are currently being transacted outside of Eagan and the immediate area and is not likely to compete with existing retailers in the immediate area to a significant degree. Considering the forecasted age distribution and household incomes of the PMA population, store types with high potential include: Clothing Stores; Furniture Stores; Home Furnishings Stores; Sporting Goods, Hobby, Musical Instrument Stores; and, Health and Personal Care Stores. Clothing Stores and Home Furnishing Stores are those that will be targeted by the proposed outlet mall. Demand potential in the Eagan Trade Area will increase along with household growth over the coming years, especially as the economy continues to rebound. Retail Sales Trends Tables 12 and 13 show retail sales for Eagan and the immediate surrounding communities as of 2005 and 2009. The sales information is from the Minnesota Department of Revenue, Tax Research Division. This information provides a picture of the economic growth and composition of the area s retail sales market over the three year period. It should be noted that companies operating businesses at multiple locations in Minnesota can file one consolidated tax return and the sales numbers are reported for only that one location. By comparison, the sales data in Table 11 was cleaned by ESRI to reflect sales at individual locations by removing the headquarters location. This reporting difference creates disparities in the sales numbers between Table 11 and Tables 12 and 13. The following are key characteristics of the retail sales displayed in Tables 12 and 13. Food and beverage purchases accounted for 6.2% of retail sales in Eagan and the immediate surrounding area in 2009. Due to the economic recession s impact on consumer spending, retail sales in the area (minus food and drinking places) decreased by -19% from 2005 to about $2.728 billion in 2009. Including food and drinking places, Eagan and the immediate surrounding communities had $2.908 billion in sales in 2009. Retail sales throughout Dakota County declined by -11%. All of the Trade Area communities experienced weakening gross retail sales between 2005 and 2009. With a drop of -77%, Mendota Heights experienced the largest drop during that time period. Retail sales in Inver Grove Heights (-25%) and Rosemount (-11%) also experienced double-digit declines. The smallest gross retail sales declines occurred in Eagan and Apple Valley, at -2% and -4%, respectively.

City of Eagan Page 17 TABLE 12 RETAIL SALES GROWTH CENTRAL COMMONS MARKET AREA 2005 and 2009 Gross Retail Sales* Change 2005-2009 City 2005 2009 No. Pct. Apple Valley $845,279,886 $815,341,910 -$29,937,976-4% Eagan $1,008,075,086 $989,818,694 -$18,256,392-2% Inver Grove Heights $948,161,974 $715,375,123 -$232,786,851-25% Mendota Heights $441,816,845 $103,505,535 -$338,311,310-77% Rosemount $116,555,763 $104,086,558 -$12,469,205-11% Dakota County $6,636,695,083 $5,925,883,506 -$710,811,577-11% * Excludes Food Service-Drinking Places Sources: MN Dept. of Revenue: Tax Research Division; Maxfield Research, Inc. At $1.105 billion, total retail sales in 2009 were highest in Eagan with Electronics stores posting the highest sales volume. Throughout Eagan and the surrounding communities, retail sales were highest at General Merchandise stores and Gasoline Stations. NAICS Code Retail Industries Apple Valley Eagan Inver Grove Heights Mendota Heights Rosemount Dakota County 441 Vehicles, Parts $138,329,597 $35,075,957 $187,484,783 -- $8,081,651 $1,046,090,131 442 Furniture Stores $12,950,785 $35,181,388 $4,350,603 $58,357,058 -- $180,663,053 443 Electronics $49,396,281 $266,578,942 $30,571,265 $2,133,623 $170,267 $430,090,800 444 Building Material $78,643,496 $38,034,695 $54,736,259 -- $2,427,809 $418,198,036 445 Food Beverage Store $96,111,869 $155,527,163 $49,405,823 $1,812,098 $51,613,592 $759,747,984 446 Health, Personal $35,935,664 $43,646,899 $27,717,627 $4,411,588 -- $267,400,969 447 Gasoline Stations $54,115,106 $139,089,480 $203,431,163 -- $21,666,652 $821,582,540 448 Clothing, Accessory $39,151,493 $49,152,672 $745,252 $732,493 $262,219 $233,443,716 451 Leisure Goods $20,555,453 $14,505,372 $391,857 $1,237,475 $567,928 $394,743,441 452 General Merchandise $252,022,499 $160,188,217 $125,874,708 -- -- $990,720,953 453 Misc. Store Retailer $36,418,838 $46,013,787 $13,857,471 $34,316,806 $18,434,813 $305,284,121 454 Non-Store Retailer $1,710,829 $6,824,122 $16,808,312 $504,394 $861,627 $77,917,762 722 Food Serv, Drinking Pl $4,492,046 $116,089,443 $31,562,056 $7,947,942 $20,210,379 $520,874,969 Subtotal $819,833,956 $1,105,908,137 $746,937,179 $111,453,477 $124,296,937 $6,446,758,475 * Sales & tax data are suppressed when there are fewer than four businesses in any given industry code. Sources: MN Dept. of Revenue: Tax Research Division Maxfield Research Inc. TABLE 13 RETAIL SALES BY INDUSTRY PRIMARY MARKET AREA 2009 Communities As illustrated in the following chart, all retail industries experienced declining retail sales between 2005 and 2009 except for Food and Beverage, Personal Health, and General Merchandise stores.

City of Eagan Page 18 Gross Retail Sales (Primary Market Area) $0 $150,000,000 $300,000,000 $450,000,000 $600,000,000 Vehicles, Parts Furniture Stores Electronics Building Material 2005 2009 Food Beverage Store Health, Personal Gasoline Stations Clothing, Accessory Leisure Goods General Merchandise Misc. Store Retailer Non-Store Retailer Types of Retail Goods and Customer Shopping Patterns The following describes the various types of retail goods and the manner in which customers generally shop for these goods. Because of the significant diversification of retail outlets, some of these categories overlap in certain cases. Shopping goods are those on which shoppers spend the most effort and for which they have the greatest desire to comparison shop. The trade area for shopping goods tends to be governed by the urge among shoppers to compare goods based on selection, service and price. Therefore, the size of the trade area for shopping goods is affected most by the overall availability of goods in alternate locations. Some examples of shopping goods include furniture, appliances, clothing and automobiles. It is this category of goods that will be offered at the proposed Outlet Mall. Convenience goods are those that consumers need immediately and frequently and are therefore purchased where it is most convenient for shoppers. Shoppers as a rule find it most convenient to buy such goods near home, near work or near a temporary residence when traveling. Examples of these types of goods include gasoline, fast food, liquor, groceries, pharmaceuticals, health and beauty aids, among others. Specialty goods are those on which shoppers spend more effort to purchase. Such merchandise has no clear trade area because customers will go out of their way to find specialty items wherever they are sold. By definition, comparison shopping for specialty goods is much less significant than for shopping goods. Examples of these include gift shops, florists, pet stores,

City of Eagan Page 19 art gallery, antiques, home furnishings, textiles (needlework and fabrics), art supplies, books. The home furnishings segment has some overlap between shopping goods and specialty goods. Impulse goods are those that shoppers do not actively or consciously seek. In stores, impulse goods are positioned near entrances or exits or in carefully considered relationships to shopping goods. Impulse goods are most likely to be located as a segment within other stores to capture additional impulse revenue from customer traffic. Examples of these types of goods are: candy and drinks at a dry cleaning establishment, candy or small novelty items near the cash register at a gift shop, accessories or jewelry at the counter in a clothing store. These may be located within existing stores, but would not be a separate establishment. Retail Mix in Eagan Table 14 and the charts that follow display information on the mix of retailers in Eagan as well and the surrounding adjacent communities. The information is based on the North American Industry Classification System (NAICS) for businesses in the Retail Trade and Food Services and Drinking Places sectors. This data is compiled by ESRI from Infogroup and is current as of January 2010. Infogroup references several sources to obtain their information including directory listings such as Yellow Pages and business white pages; annual reports; SEC (Securities and Exchange Commission) information; federal, state, and municipal government data; and, information from the US Postal Service. Food Services and Drinking Places represent the largest number of retailers in Eagan at 29.3%. Electronics and Appliance Stores represent 9.9% of all retailers in the City while Miscellaneous Store Retailers represent 10.2% of all retail businesses. In comparison, Food Services and Drinking Places represent 35.5% of all retailers in Eagan and the surrounding communities. Personal Care Service businesses are the second most common retailer in the area, at 9.1%.

City of Eagan Page 20 Number of Businesses by Retail Subsector: City of Eagan Motor Vehicle & Parts Dealers Furniture & Home Furnishings Stores Food Services & Drinking Places Electronics & Appliance Stores Bldg Materials, Garden Equip. & Supply Stores Nonstore Retailers Miscellaneous Store Retailers Food & Beverage Stores General Merchandise Stores Sporting Goods, Hobby, Book, and Music Stores Gasoline Stations Clothing and Clothing Accessories Stores Health & Personal Care Stores Number of Businesses by Retail Subsector: Central Commons Area Food Services & Drinking Places Health & Personal Care Stores Furniture & Home Furnishings Ambulatory Health Care Services Personal Care Services General Merchandise Stores Motor Vehicle & Parts Dealers Wireless Telecomm Carriers Sporting Goods, Hobby, Book & Music Food & Beverage Stores Electronics & Appliance Stores Automotive Repair & Maintenance Banks & Credit Unions Other Clothing & Clothing Accessories Miscellaneous Store Retailers

City of Eagan Page 21 TABLE 14 RETAIL BUSINESSES LOCATED IN EAGAN NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM (NAICS) Business Address ZIP NAICS Industry Group Emps AUTC 1519 CENTRAL PKWY 55121 Motor Vehicle & Parts Dealers NA TRANSPORT PARTS INC 1000 APOLLO RD 55121 Motor Vehicle & Parts Dealers 5 CATCO 3380 MIKE COLLINS DR 55121 Motor Vehicle & Parts Dealers 9 ROAD EQUIPMENT 3275 DODD RD 55121 Motor Vehicle & Parts Dealers 34 MOTOPRIMO SOUTH LLC 3150 SIBLEY MEMORIAL HWY 55121 Motor Vehicle & Parts Dealers 8 REVOLUTION MARINE INC 3432 DENMARK AVE # 213 55123 Motor Vehicle & Parts Dealers 3 AVIALL INC 2995 LONE OAK CIR # 5 55121 Motor Vehicle & Parts Dealers 3 EMBRAER AIRCRAFT 1279 TRAPP RD # 110 55121 Motor Vehicle & Parts Dealers 9 WORTHINGTON AVIATION PARTS INC 2995 LONE OAK CIR # 10 55121 Motor Vehicle & Parts Dealers 30 STINAR CORP 3255 SIBLEY MEMORIAL HWY 55121 Motor Vehicle & Parts Dealers 50 GOODRICH SENSORS & INTGRD SYST 1256 TRAPP RD 55121 Motor Vehicle & Parts Dealers 250 ELLIOTT AUTO SUPPLY CO INC 1380 CORPORATE CENTER CURV 55123 Motor Vehicle & Parts Dealers NA NAPA AUTO PARTS 1446 YANKEE DOODLE RD 55121 Motor Vehicle & Parts Dealers 7 O'REILLY AUTO PARTS 1988 RAHNCLIFF CT 55122 Motor Vehicle & Parts Dealers 7 O'REILLY AUTO PARTS 1190 YANKEE DOODLE RD 55121 Motor Vehicle & Parts Dealers 7 APPLIED DYNO TECHNOLOGY 3925 CEDARVIEW DR 55122 Motor Vehicle & Parts Dealers 1 NORTHWEST FILTER SUPPLY INC 625 YANKEE DOODLE RD # 120 55121 Motor Vehicle & Parts Dealers 3 GOODYEAR EAGAN TIRE & AUTO 1835 DIFFLEY RD 55122 Motor Vehicle & Parts Dealers NA GOODYEAR TIRE DEALER HIGHWAY 13 & CEDAR AVE 55121 Motor Vehicle & Parts Dealers NA SAM'S CLUB TIRE & BATTERY 3035 DENMARK AVE 55121 Motor Vehicle & Parts Dealers NA TIRES PLUS GENERAL OFFICE 2015 SILVER BELL RD 55122 Motor Vehicle & Parts Dealers NA WHEEL CITY WHOLESALERS 1926 SHAWNEE RD 55122 Motor Vehicle & Parts Dealers 4 JIM COOPER'S TIRE & AUTO SVC 1835 DIFFLEY RD 55122 Motor Vehicle & Parts Dealers 14 WINGFOOT COMMERCIAL TIRE SYSTS 3815 NICOLS RD 55122 Motor Vehicle & Parts Dealers 14 TIRES PLUS IH 35E & PILOT KNOB RD 55121 Motor Vehicle & Parts Dealers 25 UNIVERSAL COOPERATIVES INC 1300 CORPORATE CENTER CURV 55121 Motor Vehicle & Parts Dealers 100 GRAIN EXPECTATIONS 1587 SHERWOOD WAY 55122 Furniture & Home Furnishings 1 WHITEHOUSE MATTRESS & FURN INC 2975 LONE OAK CIR 55121 Furniture & Home Furnishings 3 SLUMBERLAND 1257 NORTHWOOD PKWY 55121 Furniture & Home Furnishings 16 PIER 1 IMPORTS 1275 PROMENADE PL 55121 Furniture & Home Furnishings 20 ORIGINAL MATTRESS FACTORY 1380 DUCKWOOD DR 55123 Furniture & Home Furnishings 1 MATTRESS GIANT 1245 TRAPP RD # 190 55121 Furniture & Home Furnishings 15 JERRY'S FLOOR STORE 1964 RAHNCLIFF CT # 500 55122 Furniture & Home Furnishings 2 CARPET KING 2020 CLIFF RD # 100 55122 Furniture & Home Furnishings 3 VALUE PLUS FLOORING 3109 NEIL ARMSTRONG BLVD 55121 Furniture & Home Furnishings 3 PRO-CISION FLOORING INC 3109 NEIL ARMSTRONG BLVD 55121 Furniture & Home Furnishings 6 ST PAUL LINOLEUM & CARPET 2956 CENTER CT 55121 Furniture & Home Furnishings 90 RUGS BY DESIGN 2915 COMMERS DR # 1200 55121 Furniture & Home Furnishings 2 SHAW INDUSTRIES INC 1090 GEMINI RD 55121 Furniture & Home Furnishings 23 FLOORING MD INC 4387 N WOODGATE LN 55122 Furniture & Home Furnishings 1 SPECIAL TOUCHES WINDOW TRTMNTS 4351 DUNROVIN LN 55123 Furniture & Home Furnishings 1 VALLEY BLINDS & DRAPERIES 1853 NARVIK CT 55122 Furniture & Home Furnishings 1 WINDOW FASHION EXPO 1606 CLEMSON DR 55122 Furniture & Home Furnishings NA FIRESIDE HEARTH & HOME 3235 DENMARK AVE 55121 Furniture & Home Furnishings 7 BED BATH & BEYOND 1295 PROMENADE PL # 2 55121 Furniture & Home Furnishings 1 AMERICAN GLASS & MIRROR NOT PROVIDED 55122 Furniture & Home Furnishings 5 MARCONE APPLIANCE PARTS CTR 3199 PILOT KNOB RD 55121 Electronics & Appliance Stores NA SEARS HOME APPLIANCE SHOWROOM 1294 TOWN CENTRE DR 55123 Electronics & Appliance Stores 6 ORECK 3428 DENMARK AVE 55123 Electronics & Appliance Stores NA BEST BUY 1235 TOWN CENTRE DR 55123 Electronics & Appliance Stores NA RADIO SHACK 3035 DENMARK AVE 55121 Electronics & Appliance Stores NA TAYLOR INDUSTRIAL ELECTRONICS 1301 CORPORATE CENTER DR # 150 55121 Electronics & Appliance Stores NA RADIO SHACK 1288 TOWN CENTRE DR 55123 Electronics & Appliance Stores 5 REBOOT 2805 W SERVICE RD 55121 Electronics & Appliance Stores 100 SAMSUNG TELECOMMUNICATIONS 2150 JAMES ST 55122 Electronics & Appliance Stores 4 BURNSVILLE EAGAN COMM TV 4155 SIBLEY MEMORIAL HWY 55122 Electronics & Appliance Stores NA TRAIL TV INC 4215 NICOLS RD 55122 Electronics & Appliance Stores 6 MAGNOLIA HOME THEATER 1235 TOWN CENTRE DR 55123 Electronics & Appliance Stores 10 ACTIVISION BLIZZARD INC 2600 EAGAN WOODS DR # 470 55121 Electronics & Appliance Stores 14 SHARED MINISTRY SYSTEMS 1007 CLIFF RD 55123 Electronics & Appliance Stores 1 DATA DISTILLATION SYSTEMS LLC 4705 PEBBLE BEACH WAY 55123 Electronics & Appliance Stores 3 BUILDING BLOCK COMPUTERS 3209 TERMINAL DR # 100 55121 Electronics & Appliance Stores 5 GUARATEE BUSINESS SYSTEMS 1230 EAGAN INDUSTRIAL RD # 160 55121 Electronics & Appliance Stores 5 CONTINUED