Annual Report 2014 by Michigan Retailers Association

“Making History” “Making History” 2014 ANNUAL REPORT

Who We Are The retail industry is vital to Michigan’s economy and quality of life. It provides more than 850,000 jobs to Michigan workers and is responsible for 18 percent of Michigan’s total economic activity. Michigan Retailers Association is the unified voice of retailing in Michigan and the nation’s largest state retail association. We serve as a valuable and trusted business resource for our 5,000 member businesses and their more than 15,000 stores and websites across the state. Through our expanding

national network of credit card processing referral partners, MRA serves businesses of all types in all 50 states and the District of Columbia.

encourages all Michiganders to shop at retail businesses in the state to strengthen our local communities and overall economy.

Membership services range from legislative advocacy and expert credit card processing to business insurances – including workers’ compensation and group dental through Retailers Insurance Company – discount programs and college scholarships. We also established the fun and effective Buy Nearby campaign, which

MRA’s affiliated corporate entities are: Michigan Retailers Services, Inc.; Retailers Insurance Company; Retailers Mutual Holding Company; Retailers Stock Company; Michigan Retailers Foundation; and Michigan Retailers Association Political Action Committee.

2014 ANNUAL REPORT 1

Contents

Who We Are..............................................................1 Contents....................................................................2 Leadership Message: Making History.......................3 Legislative Achievements: Fairness, Finally!.............4 Buy Nearby: The $9 Billion Reminder.......................7 Membership Services: Surpassing $1 Billion..........10 Member Giving........................................................12 MRA Financial Summary.........................................14 RIC Leadership Message: Historic Steps................15 RIC Year in Review: Focused on Growth................16 RIC Financial Summary..........................................17 Boards of Directors..................................................18 Professional Management.......................................20

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Leadership Message Making History

Michigan Retailers Association’s annual achievements not only add to the positive history of our membership organization, they are essential to achieving future success. This past year was no exception. Efforts that were underway for years – in many cases, decades – paid off in a big way and made 2014 a remarkable year. Michigan Retailers made history in 2014 with major accomplishments in four key areas: • Winning legislative passage of our Main Street Fairness package after decades of working to level the retail playing field for Michigan businesses. • Surpassing the $1 billion mark in annual credit card processing

Dan Marshall Chair, MRA Board of Directors President, Marshall Music Company, Lansing

volume for the first time since we pioneered this membership service in the late 1960s. • Creating a strategic and exciting new framework for success through faster and more diverse growth by our Retailers Insurance Company, whose roots reach back to 1981. • Catapulting our young Buy Nearby campaign to a higher level by adding the colorful Buy Nearby Guy mascot to our activities on behalf of Michigan retail. These major accomplishments didn’t happen by accident. In every case, success was the result of all the work and smaller victories that came before. Achievement by your association is no different than it is for your business. Progress is incremental, and accomplishments

are not ends in themselves but steps toward new goals and larger triumphs. As we celebrate these landmark achievements of 2014, we are also mindful that the countless daily tasks Michigan Retailers performs, such as making sure a member’s request for information or assistance is handled swiftly, professionally and courteously, are just as important. Michigan Retailers serves the membership in everything it does. In 2015, the association observes its 75th anniversary. This past year, together with all the years of work that went into building these successes, provides us all with great confidence for the next 75 years.

James P. Hallan President and Chief Executive Officer Michigan Retailers Association

2014 ANNUAL REPORT 3

Legislative Achievements Fairness, Finally!

Passage of the Main Street Fairness bills in the final, frantic, pre-dawn hours of the 2013-14 session of the Michigan Legislature topped a year of big victories for the retail industry. The action on December 19, 2014, followed by Governor Rick Snyder’s signing of the legislation on January 15, capped MRA’s decades-long quest to close the state tax loophole that allows “remote sellers” to avoid collecting sales tax on goods sold to Michigan residents. The victory means Michigan will begin leveling the retail playing field on October 1, 2015, when online giant Amazon and out-of-state merchants will be required by the new law to play by the same sales tax collection rules as Main Street retailers. The historic, bipartisan legislation was cheered by retailers large and small and hailed by MRA President and CEO James P. Hallan as “a great victory for the home team.” He thanked the governor and lawmakers on behalf of the thousands of Michigan retail businesses and their hundreds of thousands of Michigan workers. MRA board member and past chair Barb Stein, of Great Northern Trading Co., in Rockford, spoke for retail owners and employees at the bill-signing news conference when she said, “All we asked for was that outof-state merchants no longer be given an unfair competitive advantage over those of us doing business here in Michigan. And that’s what this legislation does. It treats us fairly.” Following the successful lead of New York and other states, the new law redefines physical pres4 MICHIGAN RETAILERS ASSOCIATION

ence to include certain practices that out-of-state companies such as Amazon are using to generates sales in Michigan, either online or through phone or catalog sales. These include selling through subsidiaries, affiliate networks or other persons with substantial nexus in the state. The new law will not force all out-of-state retailers to collect sales tax, only the ones that fall under the new, expanded definition of physical presence. Congressional action is still necessary to require all out-of-state merchants to collect sales tax. The governor was quick to point out that the additional revenue, estimated at $60 million initially, does not represent a new tax because purchasers have been required by existing law to pay the sales tax when they file their income tax – but few actually do.

MRA has been involved constantly in the fairness issue since the 1960s, when furniture retailers complained about unfair competition from catalog and drop-ship merchants, primarily in North Carolina, who escaped collecting Michigan’s sales tax on items sold and delivered to Michigan residents.

Rockford retailer and MRA board member Barb Stein speaks for the retail community during Gov. Snyder‘s bill-signing ceremony. Photo by David Trumpie

Gov. Snyder signs the Main Street Fairness bills. Standing, from left: Lt. Gov. Brian Calley, Okemos jeweler and MRA board member Becky Beauchine Kulka, former State Rep. Eileen Kowall, Senate Minority Leader Jim Ananich, Rockford retailer and MRA board member Barb Stein, and MRA President and CEO James P. Hallan. Photo by David Trumpie

This latest and ultimately successful legislative push for fairness began in late 2011 and was fueled by the explosive growth of Internet retailing, which transformed the problem from an aggravation to a jobs- and business-killing crisis. Main Street was only one of the year’s

major legal and political changes. Others revolved around both legislative and ballot activity. In August, voters overwhelmingly approved a plan to phase out the Personal Property Tax, providing relief to retailers with commercial personal property valued at less than $80,000. MRA supported the proposal and campaigned for a “yes” vote. The successful vote completed efforts that had been in the works for several years and provided small businesses instant relief from the onerous paperwork and tax. Under pressure from a potentially harmful but popular November ballot initiative, legislators raised the minimum wage in May as a pre-emptive strike. While the final legislation did include future costof-living adjustments – which MRA opposed – after the wage reaches

$9.25 in 2018, the legislation was far less costly to retail than the proposed initiative, which never made it to the ballot after the legislature acted. That measure would have raised Michigan’s minimum wage to $10.10 an hour and indexed it to inflation. The last day of lame-duck session also saw narrow approval of a road-funding package that required more compromise and horsetrading than was seen during most of the 2013-2014 session. The plan will appear on a special statewide ballot on May 5, 2015. Lawmakers agreed on a complicated roadfunding plan that hinges on voter approval of a one-penny increase in the state’s sales tax, from 6 percent to 7 percent to backfill the repeal of the sales tax on fuel. The proposal also asks voters to eliminate the sales tax on gasoline, remove continued on page 6

Participating in MRA’s annual Legislative Reception are (from left) MRA board members Jim Walsh and Joe McCurry and State Rep. Ray Franz. Photo by David Trumpie

Sponsors of Main Street Fairness legislation were named MRA Legislators of the Year for 2014. From top: Jim Hallan with Rep. Eileen Kowall (R-White Lake Township), Rep. Rob VerHeulen (R-Walker) and Sen. Jim Ananich (D-Flint). Photos by David Trumpie 2014 ANNUAL REPORT 5

Reaction by local retailers to the Main Street Fairness victory was overwhelmingly positive. Comments from many who have been involved in the fight from the grassroots level include: BILL GOLDEN, Golden Shoes, Traverse City, and MRA board member – “I’m happy to see it. It’s just being fair to everybody. I have to charge sales tax. These companies should, too.” DAN MARSHALL, Marshall Music Co., Lansing and chair of the MRA Board of Directors – “It’s everything I could have asked for from the State of Michigan. Michigan has done the right thing in leveling the playing field to the extent it can, but it’s a brick in the wall. State after state passing these bills is building a momentum that most definitely is going to force federal action.” MATTHEW NORCROSS, McLean & Eakin Booksellers, Petoskey – “It’s long overdue. Obviously, it’s good news and I’m very happy for it. The Amazon trucks are tearing up our roads … and we need new roads.” PETER ROSE, The Chelsea Group, Wyandotte – “For three years, the pressure has been mounting. We’ve gotten the ball rolling. This is a very good day.” KIM VOLZ, The Dive Shop Inc., Flint. – “[$2,000 to $3,000 to outfit a customer] is a pretty good chunk of change somebody can save if they buy it online. It’s hurting a lot of places. We just want to make it fair.” BERT WEIDNER, Woodward Camera, Birmingham – “One million dollars in sales is what I’m losing in a year. Anybody in the country – I’ll match your price. I can’t match the sales tax.” “[The new tax revenues] would be phenomenal for the whole state. They wouldn’t have to do a 7 percent sales tax. They could do the roads just with what they’re losing in sales tax.” LYNNE MACDOWELL, MacDowell Fireplace and Floral, Grand Ledge – “You want to keep your employees employed. Selling product is how you do that.” BARB STEIN, Great Northern Trading Co., Rockford and MRA board member – “I think it’s fantastic and about time.” 6 MICHIGAN RETAILERS ASSOCIATION

continued from page 5

higher education funding from the school aid fund and amend the Use Tax distribution formula to increase funding to schools.

Michigan consumers to buy from retail businesses in Michigan. Committee members heard about the success of 2013’s initial “Get Caught Blue-Handed Day,” met the new Buy Nearby Guy mascot, saw photos of him attending community events, and heard first-hand from retailers about the positive impact Buy Nearby is making. Legislators in both chambers received materials to share with their constituents, and each lawmaker had an opportunity to be photographed with Buy Nearby Guy on the Capitol steps.

Also at the polls, what had been expected to be a tough political battle for power on November’s Election Day did not amount to much change in the political landscape. MRA endorsed Governor Rick Snyder and Attorney General Bill Schuette, who both were re-elected by comfortable margins. Michigan Senate Republicans added one seat to their super majority and the Michigan House added Wyandotte retailer Peter Rose (left) speaks with Senator to its Republican majority Mike Kowall, chairman of the Senate Economic Development as well. Committee, after testifying on the need for Main Street Fairness legislation.

There was a softer side to the political arena, too. For the second consecutive year, MRA was invited by the House Tourism Committee to make a presentation on our Buy Nearby campaign to encourage all Buy Nearby Guy with the House Tourism Committee. Photo by David Trumpie

Buy Nearby The $9 Billion Reminder MRA’s year-round campaign to get people excited about all the great shopping in Michigan and encourage them to buy from retail businesses in the state made exciting progress in 2014, its second year.

A new, larger-than-life mascot helped deliver a reminder and more datafocused message on the importance of shopping close to home to thousands of shoppers, who enjoyed

seeing and posing for photos with Buy Nearby Guy. The campaign’s second celebration of Michigan shopping, branded as “Get Caught Blue-Handed Day,” took place on October 4.

continued on page 9

Right: A Woodward Dream Cruise fan in downtown Birmingham shows her affection for Buy Nearby Guy. Below: Governor Rick Snyder signals his support for MRA’s efforts to boost Michigan’s economy.

2014 ANNUAL REPORT 7

“Better retail sales, thousands of new supporters, a wildly popular new mascot in the shape of the state of Michigan, compelling new economic research, soaring social media activity, greater news coverage and stronger participation by retailers and shoppers – this past year was a major step forward for Buy Nearby.”

Clockwise from top: An adventurous youngster “joins” a Buy Nearby Guy news conference at Playmakers in Okemos as MRA President and CEO Jim Hallan makes room for her; Jim Hallan introduces the new mascot to West Michigan news media with Retailers Insurance Company board chair Jeff Joyce at Joyce’s Mieras Family Shoes in Grand Rapids; the big guy tours downtown Blissfield with Miss River Raisin Festival Joslyn Near on Get Caught BlueHanded Day; a copy of the thankyou cards Buy Nearby Guy hands out at his appearances to remind shoppers of the importance of buying nearby; a young shopper in downtown Marshall embraces her new friend; the mascot participates in downtown Davison’s Christmas Parade. Photos by David Trumpie

8 MICHIGAN RETAILERS ASSOCIATION

continued from page 7

The highlights include: • Retail sales across Michigan on the Second Annual Get Caught BlueHanded Day rose over last year’s first Saturday in October, according to MRA’s analysis of members’ credit and debit card transactions. • Campaign mascot Buy Nearby Guy (created at MRA’s request by Detroit-based The Parade Company) was introduced to the public on July 23. He traveled 3,770 miles, visited 31 communities and posed for countless photos with shoppers, retailers and local and state leaders before the end of the year. • Michigan’s economy would grow by more than $9 billion and nearly 75,000 new jobs would be created if all Michigan consumers who buy from “remote sellers” switched to buying nearby, according to new research conducted by Anderson Economic Group in East Lansing and commissioned by MRA. • Regular postings and low-cost advertising on Facebook produced more than 1.1 million impressions this past year while driving up the number of “likes” four-fold since last year to nearly 20,000.

• Sponsors provided an important financial boost to the campaign. They included Title Sponsor DTE Energy and Supporting Sponsors AT&T, Michigan State Housing Development Authority (MSHDA) and Retailers Insurance Company. In addition, dozens of small members contributed more than $1,000 in individual donations ranging from $25 to $100. The progress achieved in 2014 puts the campaign in good position to keep moving forward in 2015, when Buy Nearby Guy will enjoy a first full year of appearances across the state. The ultimate goal is to make Buy Nearby not only a rallying cry, but also a household phrase that drives consumer activity and benefits every community and household in Michigan.

Buy Nearby SHOPPING AT NEARBY RETAILERS MEANS MORE JOBS, THRIVING COMMUNITIES AND A STRONGER MICHIGAN ECONOMY.

DID YOU KNOW? $9

74,000 $2.5

BILLION

MICHIGAN JOBS The number of additional jobs in Michigan if residents Buy Nearby.

The amount of additional economic activity Michigan would gain in 2015 if residents Buy Nearby.

866,000 110,000 1in4

The additional wages those new workers would earn if residents Buy Nearby.

Michigan jobs directly depend on retail sales. retail locations in Michigan.

MICHIGAN JOBS ARE SUPPORTED BY MICHIGAN RETAILERS.

18%

17%

18% of Michigan’s total economic activity (GDP) comes from the retail sector.

17% of Michigan’s labor income comes from retail jobs.

HALF

OF EVERY DOLLAR SPENT IN A MICHIGAN STORE GOES BACK INTO MICHIGAN’S ECONOMY.

buynearbymi.com fb.com/BuyNearbyMI @BuyNearbyMI ®

From top: MRA commissioned new economic research on the importance of shopping at retail businesses in Michigan and then turned the data into a colorful infographic; Buy Nearby Guy is all aglow for Lansing’s Silver Bells in the City light parade; MRA repurposed a high-mileage minivan to carry the giant mascot around the state, making sure the license plate sends drivers the campaign message.

2014 ANNUAL REPORT 9

Membership Services Surpassing $1 Billion MRA membership services reached two milestones in 2014, both in the merchant processing arena. Annual processing volume topped $1 billion for the first time – and kept on climbing toward a 2015 goal of $1.1 billion. Along the way to that remarkable achievement we also “covered the map” by adding customers in North Dakota – making it all 50 states and the District of Columbia where businesses take advantage of Michigan Retailers’ expert processing. We now process for businesses from coast to coast and from the U.S. southern border with Mexico to the northern border with Canada.

We also rolled out a new processing option to make it easier for members to understand their processing statements and

charges and determine their future expenses. The new offering also enables MRA to better compete with low price/low service providers such as Square. Called Flat-Rate Processing, MRA’s new option offers members the simplicity of a single rate on all transactions, regardless of whether the sale is made in person, online or on the phone. Flat-Rate Processing was immediately well received and has drawn interest from prospects and partner members as well as our core members. MRA’s advantage, of course, is that we provide the same high level of personal customer service for Flat-Rate Processing that we provide for all of our other processing choices. Our experience, expertise, customer

service and range of choices distinguish us from the young, low-service providers. Throughout the year we continued to focus marketing and outreach efforts on collaborating with local communities, especially organizations such as chambers of commerce, downtown development authorities and principal shopping districts. These efforts, combined with our Buy Nearby campaign and the availability of the new campaign mascot, demonstrate MRA’s commitment to local, independent businesses within the retail universe, as well as to downtowns, the lifeblood of Michigan’s communities. Another initiative to foster greater contact between members and

MRA Customers in 50 States

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MRA staff and provide members with additional, tangible value of membership, involved development of a large poster containing all of the standard required government posters that a business must post. These types of posters are available elsewhere at various prices (sometimes sold for more than $60), but MRA created its own and has been distributing them for free to members. Management requires the regional marketing representatives to deliver a certain number, face to face, every month as a better way to engage members in a dialogue about their business and how MRA can help them achieve greater success. Another valuable service that was added the past year was assistance to members in securing their share of the more than $5 billion settlement in the class-action lawsuit against Visa and MasterCard. Members that accepted Visa or MasterCard payments between January 1, 2004, and November 28, 2012, may be eligible to recover funds from the settlement. The lawsuit claims that merchants paid more fees than they should have for accepting Visa and MasterCard as payment from consumers. To assist members in recovering their share of the settlement, MRA has partnered with MCAG, a classaction settlement expert. MCAG will simplify and streamline the filing process for MRA members.

$1B $900M $800M

Steps to $1 Billion Processing Volume

$700M

$751.8 million

$813.4 million

$900.0 million

$984.1 million

$1.014 billion

$600M $500M $400M $300M $200M $100M 2010

2011

2012

2013

2014

2014 ANNUAL REPORT 11

Member Giving Generous Donors

Our members give generously to worthy causes undertaken by their Association, including the annual scholarship program, Buy Nearby campaign and MRA’s political action committee. In May, MRA awarded 35 scholarships totaling $34,000 for the 2014-15 academic year. Those amounts brought the program’s totals since 1999 to $398,500 awarded through 428 one-year scholarships – $1,000 for those attending four-year colleges and universities and $500 for those at community colleges and approved vocational schools or training institutes. All scholarships are funded by Michigan Retailers Foundation, a 501(c)3 organization whose revenues come from member contributions and investment earnings. During the 2013-14 fiscal year, the Foundation’s assets grew 13.6 percent over the previous year to $1,500,919. Contributions totaled $29,860. The Foundation’s policy is to spend no more each year than 5 percent of the average market value of assets over the previous five years. The Foundation’s largest donation opportunity is the “Links to a Legacy” program that enables members to leave a lasting legacy by having an annual scholarship named for themselves, their business, a family member or someone else. Contributors receive the legacy honor when their cumulative donations reach $10,000, and an additional scholarship is created for each added $10,000 donated. To date, there are 19 named scholarships:

• James P. Hallan President and CEO Scholarship (established by D. Larry Sherman) • Helen McCurry Legacy Scholarship (established by Joseph McCurry) • Michigan Retailers Services Scholarship • Retailers Insurance Company Scholarship • Nathan Rosenfeld Legacy Scholarship* • Mark Schrag Legacy Scholarship* (established by Mark Schrag and friends) • D. Larry Sherman Legacy Scholarship

2014 2015

Michigan Retailers also has an active PAC that supports officeholders and candidates who support the retail industry’s agenda in Michigan. The PAC works in tandem with our faceto-face advocacy and has helped

Calculating how to fund college? We can help!

ACADEMIC YEAR

SCHOLARSHIPS How Many?

More than 30 $1,000 Scholarships are available from the Michigan Retailers Association Scholarship Program, established to benefit members and their employees.

Who’s Eligible? • Dependent children of owners or employees of the thousands of MRA-member businesses.

OR • Part-time employees at MRAmember businesses who are also full-time students. Scholarships are not based on financial need. The program is open to high school seniors and college* undergraduates. *Includes Gemological Institute of America and other approved educational and professional training institutes.

• Fred and Lillian Sherman Legacy Scholarship (established by D. Larry Sherman) • Raymond A. and Mildred C. Sobelton Legacy Scholarship (2) (established by Peter Sobelton and family) • Barb Stein Legacy Scholarship • Joseph Swanson Legacy Scholarship (2) • Target Scholarship (5) • Walsh Family Legacy Scholarship (established by Jim & Kathy Walsh) * Donor is deceased

12 MICHIGAN RETAILERS ASSOCIATION

Members are able to contribute additional money to the Foundation and the Buy Nearby campaign when they renew their annual dues investment in Michigan Retailers. Fifty-one members contributed to Buy Nearby in 2013-14 and 56 contributed to the Foundation.

Questions? See your employer for details or contact the Michigan Retailers Association at . . .

Apply online: www.retailers.com (access code is MIRA)

800.366.3699 ext. 313

www.retailers.com Application deadline is April 1, 2014

make possible such recent dramatic legislative victories as modernization of the costly and burdensome item pricing law in 2011 and passage of landmark Main Street Fairness legislation in 2014. MRA PAC had 33 contributors in fiscal year 20132014 and is working to increase the number of politically active members in fiscal year 2014-2015. Major members also contribute to Michigan Retailers’ annual

Legislative Reception, which provides an opportunity for retailers and lawmakers to get better acquainted and talk about issues in a more relaxed, social setting. Buy Nearby Contributors FY 2013-14 Golden Shoes Kimberly’s Boutique Borr’s Bootery Dan & Chucks Kar Kare LLC Mieras Family Shoes Inc F David Barney Inc Props Prenger & Co LLC Farmington Shoe Repairs Fields Fire Protection Inc Horrocks Farm Market Inc Side Street Garage Inc Hart’s Jewelry Hogan’s Jewelers Benchley Amish Furniture & Gifts Captain of the Fleet Becky Thatcher Designs Decors by Sandra Inc Buckley’s Shoes Brooklyn Plumbing Heating & AC Inc Flying Eagle Coins & More The Luminous Group LLC Orin Jewelers Inc Oak Heirlooms Rolison Pro Hardware South Lyon Cycle & Sports Inc Great Northern Trading Co McLinden Shoes Little Forks Outfitters Inc Votruba Leather Goods Co Muriel’s Gazelle Sports Inc Ben Franklin Mooney’s Store Inc Horrocks Market Inc Doral Income Tax Service PC V & A Bootery Inc Coin Zone Keane & Associates Inc Baumans Running Center-Term 1 Diversions Mosher’s Jewelers Inc Art Cook Marine Services Inc Maple Street Mall Comar & Comar PC Sports Stop Go Greener Andrea’s Italian Pizza & Family Restaurant Compaan Door & Operator Co Stuart Farm Inc Dentures In A Day Katy’s Kards

Michigan Retailers Foundation Contributors FY 2013-14 AA Financial Services Andrea’s Italian Pizzas & Family Restaurant Art Cook Marine Services Inc Becky Thatcher Designs Ben Franklin Mooney’s Store Inc Benchley Amish Furniture & Gift Bo Brines Brooklyn Plumbing Heating & AC Inc Cardware International Coin Zone Comar & Comar PC Dan & Chuck’s Kar Kare LLC Dentures In A Day Doral Income Tax Service PC Brian Ducharme F David Barney Inc Farmington Shoe Repair Fields Fire Protection Inc Flying Eagle Coins & More Go Greener Bill Golden Golden Shoes Goldstein Bershad & Fried P James Hallan Horrocks Farm Market Inc Horrocks Market Inc Jeff Joyce Katy’s Kards Keweenaw Agate Shop Becky Beauchine Kulka Little Forks Outfitters Inc Dan Marshall M Mazzoni Jewelers LLC Maple Street Mall John Mayleben Orin Mazzoni Joe McCurry Larry Meyer Michigan Business Network Miera’s Family Shoes Inc Mark Miller Larry Mullins Muriel’s Dan Musser Orin Jewelers Rod Phillips Rolison Pro Hardware Jean Sarasin Peter Sobelton Sports Stop Barb Stein Stuart Farm Inc Joe Swanson Tom Ungrodt Jim Walsh Lisa-McCalpine-Wittenmyer

Michigan Retailers Association Political Action Committee Contributors FY 2013-14 Becky Beauchine Kulka Teresa Breed Bo Brines Kurt Dettmer Amy Drumm Ron Dufina Bill Golden Bill Hallan Jim Hallan Jeff Joyce Patrick Kerwin Dan Marshall John Mayleben Orin Mazzoni Joe McCurry Larry Meyer Mark Miller Larry Mullins Dan Musser Ally Nemetz Craig Ohm Rod Phillips Don Rapson Lawrence Ruhstorfer Burke Sage Jean Sarasin Tom Scott William Spreder Barb Stein Joe Swanson Tom Tuggle Jim Walsh Kathy Wilson 2014 Legislative Reception Sponsors Amway Best Buy Capitol Strategy Group Genoa, a QoL Healthcare Company Kroger Meijer Michigan Nursery and Landscape Association National Association of Chain Drug Stores National Retail Federation Retail Industry Leaders Association Target Walgreen’s Walmart

2014 ANNUAL REPORT 13

MRA Financial Summary Michigan Retailers Association Subsidiary and Related Entities Consolidated and Combined Statements of Financial Information JUNE 30â&#x20AC;Ś

2014

2013

ASSETS Current Assets Property & Equipment Less Depreciation Other Assets

$ 5,962,462 $ 2,371,598 $21,210,090

$ 6,019,731 $ 2,327,556 $20,142,312

TOTAL ASSETS

$29,544,150

$28,489,599

LIABILITIES & NET ASSETS Total Liabilities RIC Surplus Net Assets - unrestricted TOTAL LIABILITIES & NET ASSETS

$11,797,099 $11,196,660 $ 9,847,628 $ 9,146,150 $ 7,899,423 $ 8,146,789 $29,544,150

$28,489,599

These financial highlights are derived from the audited financial statements. The audit was performed by Andrews Hooper Pavlik PLC. To obtain a copy of the audited financial statements, please contact: William J. Hallan, Michigan Retailers Association, 603 South Washington Avenue, Lansing, MI 48933.

14 MICHIGAN RETAILERS ASSOCIATION

RIC Leadership Message Historic Steps

On August 19, 2014, our insurance policyholders made history by giving unanimous approval to a new form of governance for Retailers Insurance Company. Their ratification of the plan, which was developed and recommended unanimously by the Board of Directors and management, enabled state regulators to give their full blessings to the forwardlooking change. It was only the second time in history that a Michigan insurer’s request for such a move was approved. As with most historic moments, the specific results of those actions won’t be known for some time. But we know that the

Jeff Joyce Chair, Retailers Insurance Company Board of Directors Vice President and Co-Owner Mieras Family Shoes, Grand Rapids

change from a mutual company to a mutual holding company provides the framework necessary to raise the capital needed to invest in growth, expansion and improvement.

Our task, then, is to move at good speed on two levels: 1) keep the company growing by continuing to operate efficiently and effectively, while 2) preparing for accelerated growth by implementing a detailed plan for achieving the greater benefits made possible by the

change in corporate structure. Our organization’s board and management are united in accepting the challenges of this dual task. We are committed to building a stronger and more nimble, homegrown insurance company that provides excellent protection to employers and their workers and personal attention to the needs and everyday concerns of our excellent network of Independent Agents and growing body of policyholders. It is a pleasure to report on this year’s accomplishments. We look forward next year to reporting even greater progress by Retailers Insurance Company.

James P. Hallan President and Chief Executive Officer Retailers Insurance Company

2014 ANNUAL REPORT 15

RIC Year in Review Focused on Growth Retailers Insurance continued growing in 2014 and received approval from state regulators to move forward with our longterm strategic plan to speed and broaden future growth.

For the year, the company increased the number of policyholders by 8.5 percent to 1,228, and gross written premium by 25.4 percent to $7.7 million. Unearned premium as of December 31 was a healthy $2.4 million, up significantly from the previous year, and the positive effects of writing this premium will be seen going forward. Sales of new premium rose by a record $2.1 million, the third consecutive year of increases topping $1 million. Average premium also rose, by 13.8 percent, indicating that RIC continues to attract larger and more diverse businesses.

In a key measure of overall operations, RIC posted a positive combined ratio of 99.6 percent for 2014, meaning the company, on average, paid out less than $1 in claims for every $1 received in premium. The company’s “A, Exceptional” financial stability rating was affirmed for another year by Demotech, the national actuarial financial analysis and consulting firm that provides financial stability ratings for property and casualty insurers. We are 16 MICHIGAN RETAILERS ASSOCIATION

proud to say we have been awarded a rating of “A, Exceptional” each year from Demotech. Demotech says its rating means: “Regardless of the severity of a general economic downturn or deterioration in the insurance cycle, insurers earning a Financial Stability Rating® of A possess Exceptional financial stability related to maintaining surplus as regards policyholders at an acceptable level.”

We enhanced our differentiation in the marketplace by including protection in our workers’ compensation insurance policies for online business banking. No other workers’ compensation insurers in Michigan are providing this valuable protection, called EFT Guard, against online theft from business accounts. The threat comes from the fact – unknown to the average business person – that federal banking regulations obligate financial institutions to reimburse individual banking customers for online losses from unauthorized electronic transfers, but the protection does not extend to business banking customers. Retailers Insurance partnered with RGS, Limited LLC, a Michigan-based risk services company, to bring the EFT Guard solution to our current and future workers’ compensation insurance policyholders. EFT Guard is an automatic and free endorsement that was added to

new and renewal policies as of November 1, 2014. In addition, we introduced a Performance Incentive Plan to our network of Independent Agencies. This marketing and sales tool rewards our best Independent Agencies for their loyalty and efforts working with Retailers Insurance. It also encourages Agents to submit less risky and more profitable business, because it requires qualifying Agents to meet minimum written premium and loss-ratio levels. For the future, the company spent much of 2013 and the first half of 2014 creating a plan to change the company’s confining corporate structure to enable it to grow more quickly by raising the capital necessary to benefit policyholders in a number of possible ways. These include upgrades in technology, greater operational efficiencies, enhanced claims management and development of new product lines. The Board of Directors gave unanimous approval to the plan. In August 2014, policyholders also unanimously approved the proposed change to a mutual holding company form of governance. Following the affirmative vote, the Michigan Department of Insurance and Financial Services gave final approval to our request and strategic plan on October 23. As part of the change in corporate structure, the corporation became Retailers Insurance Company and the corporate logo was revised. Otherwise, the change was seamless for Agents and policyholders.

RIC Financial Summary Retailers Insurance Company Statutory Statement of Admitted Assets, Liabilities, and Policyholders’ Surplus DECEMBER 31… 2014 2013

ADMITTED ASSETS Cash and investments Bonds, at amortized cost $14,390,924 $12,975,742 Common stocks, at fair value $2,029,614 $1,946,612 Cash and short term investments $1,256,386 $1,969,106 TOTAL CASH AND INVESTMENT $17,676,924 $16,891,460 Uncollected premiums $329,135 $257,204 Deferred premiums $1,587,329 $1,062,084 Accrued investment income $75,692 $63,428 Federal income taxes recoverable $11,592 $241,111 Net deferred tax asset $306,500 $275,300 Other assets $43,600 $43,677 TOTAL ADMITTED ASSETS $20,030,772 $18,834,264 LIABILITIES Losses and loss adjustment expenses $7,074,560 $6,733,925 Commissions payable $211,477 $137,052 Unearned premiums $2,345,018 $1,643,812 Premiums paid in advance $205,269 $54,278 Federal income taxes payable $0 $0 Ceded reinsurance premiums payable (receivable) $97,536 $142,643 Taxes, licenses, and fees, excluding federal income taxes $104,883 $87,787 Payable to affiliates $87,723 $128,862 Other liabilities $67,815 $58,267 TOTAL LIABILITIES $10,194,281 $8,986,626 POLICYHOLDERS’ SURPLUS Common Capital Stock $100 $0 Surplus note $750,000 $750,000 Unassigned surplus $9,086,391 $9,097,628 TOTAL POLICYHOLDERS’ SURPLUS $9,836,491 $9,847,628 TOTAL LIABILITIES & POLICYHOLDERS’ SURPLUS

$20,030,772

$18,834,254

Boards of Directors Michigan Retailers Association Dan Marshall | Chair Marshall Music Company, Lansing Dan Marshall is president of Marshall Music Company, one of the largest full-line music retailers in the country. The Lansing-based, family owned company was established in 1948 and operates stores in Lansing, Kalamazoo, Grand Rapids, Troy, West Bloomfield, Allen Park and Traverse City. He is a past member of the National Association of Music Merchants Board of Directors.

James P. Hallan | President and CEO Michigan Retailers Association Jim Hallan became president and CEO of Michigan Retailers Association in 2008 after serving as president and chief operating officer since 1989. He also serves as president and CEO of Retailers Insurance Company. He joined Michigan Retailers as general counsel in 1985 and is a former assistant county prosecutor. He serves as chair of the Delta Dental Foundation, as past chair of the national Council of State Retail Associations and is a former member of the board of Fremont Insurance Company.

Orin Mazzoni, Jr. | Vice Chair Orin Jewelers, Garden City

Orin Mazzoni, Jr. is president of Orin Jewelers, Inc., a family owned business with stores in Garden City and Northville. He is past president of the Michigan Jewelers Association board, a member of the Garden City Downtown Development Authority and past Garden City Chamber of Commerce president and “Member of the Year.”

Peter R. Sobelton | Treasurer Birmingham Peter Sobelton is owner-partner in several retail property companies and the former owner of two retail businesses in Birmingham. He is past president of the Tobacconists Association of America and serves on the board of the downtown Birmingham Principal Shopping District.

William J. Hallan | Secretary Chief Operating Officer and General Counsel Michigan Retailers Association William J. Hallan joined Michigan Retailers in August 2011 as vice president and general counsel. His responsibilities were expanded to include oversight of legislative advocacy in 2012 and overall operations in 2013. He also serves as COO and General Counsel for Retailers Insurance and was appointed by Governor Rick Snyder to the new Organized Retail Crime Board.

Thomas Ungrodt | Past Chair Ideation, Ann Arbor Tom Ungrodt is president and CEO of Ideation, Inc., Ann Arbor, a leading producer of marketing solutions for independent gift retailers across the nation. He also oversees a Michigan gift store in Chelsea and serves on the board of the Northern Michigan University Foundation.

Brian Ducharme AT&T Mobility Division Brian Ducharme is vice president and general manager of the Mobility Division of AT&T for Michigan, Indiana and Ohio. He is responsible for AT&T’s wireless operations in those states, where he oversees all business and financial matters for AT&T’s 187 company-owned retail stores and 120 indirect retail locations in the states.

Becky Beauchine Kulka Becky Beauchine Kulka Diamonds and Fine Jewelry, Okemos The founder and CEO of Becky Beauchine Kulka Diamonds and Fine Jewelry in Okemos also serves as president of the Michigan Jewelers Association board. Her store was Michigan Retailer of the Year in 2006 and named one of the “coolest” jewelry stores in the nation by Instore magazine in 2005. She also received the 2002 Entrepreneurial Award from the Greater Lansing Business Monthly.

18 MICHIGAN RETAILERS ASSOCIATION

Joseph McCurry Credit Card Group Joe McCurry is an executive with Credit Card Group and is based in Georgia. He previously was an executive with the furniture industry’s Dovetail Alliance and The High Point Group and is a retired Detroit district general manager for Sears, Roebuck and Co. He also served as a store general manager for Sears in Illinois and Wisconsin.

Larry Mullins Brandon Tire & Auto Service Center, Ortonville Larry Mullins is owner of Brandon Tire & Auto Service Center in Ortonville and a former district manager for General Tire. He is a past president of the Michigan Tire and Vehicle Service Association, past board member of the National Tire Industry Association and past president of the North Oakland Chamber of Commerce.

R.D. (Dan) Musser III Grand Hotel, Mackinac Island R.D. (Dan) Musser lll is president of Grand Hotel, the historic hotel built in 1887 on Mackinac Island. Along with his sister, Mimi, he represents the third generation of Musser family ownership and operation of the world’s largest summer resort. His service on boards includes the Mackinac Bridge Authority and Albion College.

Barb Stein Great Northern Trading Co., Rockford Barb Stein is owner/operator of Great Northern Trading Co., Rockford, a specialty gifts and home décor store she opened in 1977. She is active in the Rockford Area Chamber of Commerce and is chair of the Rockford Downtown Development Association, chair of the HEART of Rockford Business Association and member of the Rockford Brownfield Redevelopment Authority.

Joe Swanson Target Corp. Joe Swanson is District Team Leader for Southwest Ontario, Target Canada and is responsible for operations, profitability and human resources for 10 Target stores, with a total of 2,000 employees. He has been a member of the Target team for more than 25 years.

James Walsh Meijer, Inc., Grand Rapids Jim Walsh is retired chief financial officer of Meijer, Inc. and an adjunct professor of finance at Aquinas College. He joined Meijer in 1992 after holding executive positions with several large retailers in Illinois. He is also a member of the board of the Michigan Strategic Fund, appointed by Gov. Snyder.

D. Larry Sherman Board Member Emeritus D. Larry Sherman is retired president of the former Sherman Shoes, Inc., Birmingham. He is a former chairman of MRA, the former Retailers Fund and the National Shoe Retailers Association. He was named “Business Person of the Year” by the Birmingham-Bloomfield Chamber of Commerce in 1992.

Retailers Insurance Company Jeff Joyce | Chair Mieras Family Shoes, Grand Rapids

Larry Meyer Lansing Community College

Jeff Joyce is vice president and co-owner of Mieras Family Shoes, Grand Rapids. The fourth-generation, family owned company founded in 1922 has three stores, four mobile sales vans and a sales unit inside a major manufacturer. He has spent more than 30 years working in the family business.

Larry Meyer is retired chairman and CEO of MRA. The former U.S. Navy officer received appointments from three Michigan governors, including director of the Michigan Department of Commerce. He served two terms on the Lansing City Council and was elected in 2009 to the Lansing Community College Board of Trustees, which he chairs.

James P. Hallan | President and CEO (see MRA Board of Directors)

Mark Miller | Vice Chair Hylant Group, Ann Arbor Mark Miller is executive vice president of Hylant Group, president of its Ann Arbor office and is also responsible for the Troy and Grand Rapids offices. Hylant is among the largest privately held insurance brokerage firms in the United States and maintains strong international brokerage relationships. Prior to joining Hylant, he was managing director of Marsh USA, Inc. for 20 years.

Peter R. Sobelton | Past Chair

Rod Phillips Country Casuals, Petoskey Rod Phillips is owner of Country Casuals, Petoskey, a small chain of year-round and seasonal ladies’ apparel stores located throughout northwest Michigan. He worked as a commercial pilot before starting the retail business with his wife, Judy, in 1974.

Jean Sarasin

Jean Sarasin is retired executive vice president and chief operating officer of Michigan Retailers Association and Retailers Insurance. Her management career at Michigan Retailers spanned 33 years, including service on the insurance board since 1997.

(see MRA Board of Directors)

Dan Marshall Marshall Music Company, Lansing (see MRA Board of Directors)

Thomas Ungrodt Ideation, Ann Arbor

(see MRA Board of Directors)

Michigan Retailers Services, Inc. James P. Hallan | President and CEO (see MRA Board of Directors)

Bo Brines Little Forks Outfitters, Midland Bo Brines is owner and president of Little Forks Outfitters, an Orvis shop and retailer of quality fly fishing equipment and outdoor clothing, located in downtown Midland. A Midland native, he took over an office products supply store from his father in 1989, then started his current business in 1995. He is a member of the Midland DDA, former president of the Midland Downtown Business Association and was that organization’s 2004 “Business Person of the Year.”

Lisa McCalpine-Wittenmyer Lisa McCalpine-Wittenmyer is senior regional director, state government relations for Illinois-based Walgreens. Prior to joining Walgreens in 2008, she was the health and human services senior writer and policy point person for the Minnesota Senate DFL Caucus. She also has served as political representative for the National AFL-CIO in Minnesota, Midwest political director for the Bill Bradley for President Campaign, and chief of staff for two congressmen. She is also a board member of the Minnesota, Wisconsin and Iowa state retail organizations.

Bill Golden Golden Shoes, Traverse City Bill Golden is co-president, with his brother Craig, of Golden Shoes, a family owned and operated shoe store in downtown Traverse City since 1954 and which succeeded a shoe retailer dating back to 1883. A Traverse City native, he began working in the store at age 14 and joined the store full time in 1981. He is active in numerous community projects and serves on the board of the Traverse City Downtown Development Authority. Golden Shoes was honored as Michigan Retailer of the Year in 2005.

2014 ANNUAL REPORT 19 2014 ANNUAL REPORT 19

Professional Management Michigan Retailers Association EXECUTIVE TEAM

SALES

COMMUNICATIONS & MARKETING

James P. Hallan President and Chief Executive Officer

Burke Sage Manager, Sales

Patrick Kerwin Manager, Design and Printing

William J. Hallan Chief Operating Officer and General Counsel

Darcy Gates, CPP Manager, Sales Support

Ken Sierakowski Printing Operations Coordinator

Tom Scott Senior Vice President, Communications and Marketing

Chris Smith Manager, National Sales

Laura Schilling Communications Assistant

John Mayleben, CPP Senior Vice President, Technology and New Product Development Tom Tuggle Senior Vice President, Insurance Sales & Membership

EXECUTIVE SUPPORT STAFF Amy Jolley Manager, Human Resources and Executive Assistant Kathleen Wilson Administrative Assistant

GOVERNMENT AFFAIRS Amy Drumm Director, Government Affairs

Michael Dorland, CPP Regional Marketing Representative Katie Jensen Business Development Representative Miranda Piersol Business Development Representative Harmony Clouse Administrative Assistant, Sales

CUSTOMER SERVICE Penny Sierakowski Manager, Customer Service Tamara Baker Customer Service Representative Connie Minster Customer Service Representative Christain Shaull Customer Service Representative

ADMINISTRATION AND OPERATIONS Ally Nemetz Director, Customer Service and Data Administration Cheryl Szczubialka Controller Dave Papp Manager, Information Technology Francine Bushrey Accounting and Membership Assistant Debbie Johnson Customer Data Representative Larain Pearsall Accounting Assistant and Bookkeeper Dora Serna Receptionist Melody Totten Customer Data Representative Ge Xiong Customer Data Representative

Retailers Insurance Company Tom Tuggle Senior Vice President, Insurance Sales & Membership Kurt M. Dettmer Senior Vice President, Insurance Sales & Business Development

20 MICHIGAN RETAILERS ASSOCIATION

Teresa Breed Director, Insurance Sales

Mark Baynai Staff Accountant

Patty Zaskowski Director, Underwriting

Laura Schilling Associate Underwriter

Judy Schafer Manager, Operations

2014 ANNUAL REPORT 21

BLUE-HANDED DAY

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Michigan Retailers Association

603 South Washington Avenue | Lansing, Michigan 48933 517.372.5656 | toll-free: 800.366.3699 | fax: 517.372.1303 mra@retailers.com www.Retailers.com