Competitive Positioning framework to navigate retail paradigm shift
* Present new approach as channels blur
We are at a unique juncture to outline the
opportunity set for the global retail sector,
incorporating store-based retailers, e-commerce
pureplays, and brands selling direct and through
stores. We introduce our GS Competitive
Positioning (CP) framework to rank the 197
companies in our coverage universe, with $2.84tn
of revenue and $2.1tn in market cap. In an
industry undergoing disruptive change from ecommerce,
our framework compares retailers
using both traditional methods (access to growth,
pricing power, and volatility), as well as newer
means to address e-commerce suitability/risk.
* Assessing e-commerce is essential
E-commerce represents about 4.7% of global retail
sales and is expected to grow at a 16% CAGR over
the next five years, exceeding 10% of retail sales.
This growth will impact retailers’ margins (price
transparency), returns (omnichannel investment),
and sales (share losses). To discern positioning,
we assess three factors: (1) category exposure to
online disruption; (2) online penetration to gauge
success; and (3) real estate flexibility.
* New framework, but same opportunity
for outsized growth and returns
Organized retail remains a key driver of the global
economy at 18.5% of GDP or 33% of consumer
expenditures. Global retail sales have grown 4.3%
annually over the past 10 years and our coverage
has generated a 16% return on capital on average
(vs. the MSCI World Index at 10%). These attractive
fundamentals have been led by increasing global
wealth, consolidation within organized retail, and
improving supply chains. In our view, retailers can
still outperform by (1) adapting to the global rise of
e-commerce by driving online sales, rationalizing
real estate, and capitalizing on brand strength; (2)
driving growth (in categories or share); (3) exercising
pricing power (driving high gross margins and asset
turnover); and (4) managing profitability across
cycles (via cost control and execution).
* Our best positioned global retailers
We identify 50 top-quartile global retailers based
on Competitive Positioning that also generate
high returns. When coupled with valuation and
our fundamental views, our top picks, all Buy
rated, are Amazon, Dufry, Nitori, Ocado, Tiffany,
and VIP shop.