September 18, 2017 05:04 AM GMT
September 18, 2017
Amazon Disruption Symposium
MORGAN STANLEY RESEARCH North America
Where so Far? Where to Next? Who is Safe?
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Table of Contents Agenda……………………………………………………………………………………………………………
3
Morgan Stanley Biographies…………………………………………………………………………………...
4
Presentations The Amazon Effect…………………………………………………………………………………
11
Consumer Retail: Where Are We Now?...............................................................................
22
Food Retail: A 10 Year Journey?..........................................................................................
36
Amazon’s Impact on the eCommerce Supply Chain…………………………………………...
46
Digging Into Distribution……………………………………………………………………………
54
AlphaWise……………………………………………………………………………………………
61
Amazon is Everywhere: Media, Entertainment, Advertising & Telecom……………………...
68
Hot Button Industries: Disrupted or Protected?.....................................................................
75
Disclosures…………………………………………………………………………………………..
82
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon Disruption Symposium SEPTEMBER 18, 2017
|
MORGAN STANLEY
|
522 FIFTH AVENUE
|
NEW YORK CITY
Agenda 7:00 a.m. – 7:30 a.m.
Breakfast & Registration
7:30 a.m. – 7:35 a.m.
Welcome & Opening Remarks David Adelman, Managing Director, Director of Equity Research for the Americas
7:35 a.m. – 8:00 a.m.
The Amazon Effect Brian Nowak, Executive Director, Internet Equity Research Analyst
8:00 a.m. – 8:10 a.m.
Introducing the AMZN Basket Joanie Kim, US Derivatives Sales Desk
8:10 a.m. – 8:55 a.m.
Consumer Retail: Where Are We Now? Moderator - Bob Leask, Managing Director, US Core Sales
9:50 a.m. – 10:35 a.m.
• Ravi Shanker, Executive Director, Transportation Equity Research Analyst • Vikram Malhotra, Executive Director, REITS Commercial/Retail Equity Research Analyst 10:35 a.m. – 10:55 a.m.
• Kimberly Greenberger, Managing Director, Softlines/Department Store Equity Research Analyst
• Ricky Goldwasser, Managing Director, Healthcare Services & Distribution Equity Research Analyst
• Jay Sole, Executive Director, Branded Apparel & Footwear Equity Research Analyst
10:55 a.m. – 11:10 a.m.
• Richard Hill, Executive Director, REITS Commercial/Retail Equity Research Analyst
AlphaWise Shaivali Shah, Executive Director, Americas Head of AlphaWise
11:10 a.m. – 11:55 a.m.
Amazon is Everywhere: Media, Entertainment, Advertising & Telecom Discussion Moderator - Sean Diffley, Executive Director, Media/Telco Sector Sales
Food Retail: A 10 Year Journey? Moderator - Ashton Curtis, Managing Director, Sector Sales • Brian Nowak, Executive Director, Internet Equity Research Analyst
• Ben Swinburne, Managing Director, Cable/Satellite & Media Equity Research Analyst
• Simeon Gutman, Executive Director, Hardlines & Broadlines Equity Research Analyst
• Simon Flannery, Managing Director, North American Telecom Equity Research Analyst
• Vincent Sinisi, Executive Director, Food Retailers / Distributors & Dollar Stores Equity Research Analyst • Dara Mohsenian, Managing Director, Household Products and Beverages Equity Research Analyst • Matthew Grainger, Executive Director, Food and Tobacco Equity Research Analyst 9:40 a.m. – 9:50 a.m.
Digging Into Distribution Moderator - Brian Nowak, Executive Director, Internet Equity Research Analyst • Jiayan Zhou, Vice President, Industrial Conglomerates Equity Research Analyst
• Brian Nowak, Executive Director, Internet Equity Research Analyst
8:55 a.m. – 9:40 a.m.
Amazon’s Impact on the eCommerce Supply Chain Moderator - Brian Nowak, Executive Director, Internet Equity Research Analyst
BREAK
• Brian Nowak, Executive Director, Internet Equity Research Analyst 11:55 a.m. – 12:40 p.m.
Hot Button Industries: Disrupted or Protected Moderator - Morag Sutherland, Managing Director, US Core Sales • Simeon Gutman, Executive Director, Hardline/Broadline Retail Equity Research Analyst • Brian Nowak, Executive Director, Internet Equity Research Analyst • Vincent Sinisi, Executive Director, Food Retailers / Distributors & Dollar Stores Equity Research Analyst
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Biographies Brian Nowak Internet
[email protected], (212) 761-3365 Brian Nowak joined Morgan Stanley in January 2015 to lead the department’s US Internet research team and was named a Runner Up in the 2016 Institutional Investor poll. Previously, he worked at Susquehanna Financial Group and Nomura Securities, also covering US Internet stocks, and during that time was voted II “Rising Star” in US Internet. Prior to Nomura, Brian worked at Sanford C. Bernstein & Co. as part of a four-time II No. 1-ranked US Media research team. Brian began his career at PricewaterhouseCoopers LLP, after graduating from the University of Michigan with a Bachelor’s degree in Business and a Master’s in Accounting. He also holds the Chartered Financial Analyst designation.
Simon Flannery Telecom Services
[email protected], (212) 761-6432 Simon Flannery is a Managing Director covering the North American Telecom Services sector within Equity Research. He has consistently ranked among the leading analysts in the sector and has been recognized in a variety of investor polls. He joined Morgan Stanley in 1999 from JP Morgan where he had covered the US and Latin American Telecom sectors. He followed the European Telecom and Media sectors for JP Morgan from London, before moving to New York in 1993. Simon has been analyzing the Telecom industry for some 20 years. Before joining JP Morgan, Simon worked at Price Waterhouse. Simon holds a BA in Economics from Trinity College, Dublin, and an MBA from Cass Business School, London. He is also a Chartered Accountant. AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Biographies Benjamin Swinburne Cable/Satellite & Media
[email protected], (212) 761-7527 Benjamin Swinburne is a Managing Director at Morgan Stanley Research covering the Cable/Satellite, Entertainment, and Advertising industries, areas he has followed for over a decade. He has consistently ranked among the leading analysts in multiple media sectors and been recognized in a variety of investor polls. Prior to joining Morgan Stanley as a member of the media research team in 1999, he worked at Lucent Technologies as an analyst in the mergers and acquisitions division. Benjamin holds a B.A. in public policy with a concentration in finance from Washington & Lee University and an M.S. in accounting from Babson College. He also holds the Chartered Financial Analyst designation.
Ricky Goldwasser Healthcare Services & Distribution
[email protected], (212) 761-4097 Ricky Goldwasser is a Managing Director at Morgan Stanley who joined the firm in 2009 and covers the Healthcare Services and Technology industry. Prior to joining Morgan Stanley, Ricky was co-head of the US Healthcare research team at UBS, where she covered Healthcare Services, Diagnostics, and Generic companies. She started her research career as an associate at Salomon Smith Barney in 1998. Ricky has ranked in the Institutional Investor All America research team for the last ten years. She holds an MBA degree from The Kellogg School of Management and a BA in Economics and Political Science from Tel-Aviv University.
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Biographies Kimberly Greenberger Specialty Retail & Department Stores
[email protected], (212) 761-6284 Kimberly Greenberger is a Managing Director who covers North American Specialty Apparel & Department Store retailers. She joined Morgan Stanley in 2010. Kimberly has covered the industry for 17 years, including prior positions at Citigroup, Lehman Brothers, and Credit Suisse. Before becoming an equity research analyst, Kimberly gathered industry experience working for bebe stores, inc. and the Mervyn's division of Target, Inc. Kimberly has recently been ranked No. 1 by Institutional Investor and No. 1 in the Greenwich survey. She has also been recognized for her stock-picking record, ranking highly in the 2009 Wall Street Journal "Best on the Street" survey and by Zacks Investment Research.
Simeon Gutman Hardlines & Discount Retail
[email protected], (212) 761-3920 Simeon Gutman is an Executive Director who covers the Retail Hardlines and Discount spaces. He joined Morgan Stanley in 2014 and has more than 16 years of US Retail industry research experience. Prior to Morgan Stanley, Simeon covered Retail Hardlines at Credit Suisse and retail stocks at Canaccord and Goldman Sachs. Simeon has received Honorable Mentions in the Institutional Investor All-America Research Poll in Retail Hardlines. Simeon holds a BA in Economics from Brandeis University, an MBA from the NYU Stern School of Business, and is a CFA charterholder.
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Biographies Richard Hill REITs & CRE Debt Research
[email protected], (212) 761-9840 Richard Hill is the Head of U.S. REIT Equity and Commercial Real Estate Debt Research at Morgan Stanley. He has been an II ranked CMBS analyst for the past several years. Prior to his current role, Richard was a Director of CMBS Strategy at Royal Bank of Scotland ("RBS") Securities where he was responsible for developing and communicating investment strategies , working with both internal and external clients. Richard started his career at Banc of America Securities. From 2004 to 2008 he was Vice President in the Structured Securities Group where he managed a deal team of four professionals responsible for the origination, structuring and distribution of securitization backed by commercial real estate debt. From 2001 to 2004 he was an Associate in the Interest Rate Derivatives group where he structured hedging strategies for commercial real estate developers. Richard is a graduate of Georgetown University with B.S.B.A in finance.
Vikram Malhotra REITs
[email protected], (212) 761-7064 Vikram Malhotra is an Executive Director who covers the REIT industry and previously covered Machinery and Business Services. Vikram joined Morgan Stanley in 2007 after serving as a Senior Manager with Jones Lang LaSalle, a global real estate solutions firm. He has also worked for Colliers International as a real estate investment consultant. Vikram holds a BS in industrial management from Purdue University and an MBA from the University of Michigan’s Ross School of Business.
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Biographies Dara Mohsenian Beverages & Household Products
[email protected], (212) 761-6575 Dara Mohsenian, a Managing Director, joined Morgan Stanley in 2009 to cover the Household Products and Beverages industries. He is ranked a top 3 analyst in both industries in the Institutional Investor survey and the Greenwich survey. Prior to joining Morgan Stanley, Dara covered consumer staples for a decade at JP Morgan and was an associate at Sanford Bernstein and Paine Webber. Dara holds a BA in economics from Tufts University, is a CAGNY board member, and has the Chartered Financial Analyst designation.
Matthew Grainger Food & Tobacco
[email protected], (212) 761-8023 Matthew Grainger is an Executive Director who joined Morgan Stanley in 2008 and heads the US Food and US/European Tobacco research teams. He was voted an All-America Rising Star by Institutional Investor in 2012, 2013, and 2014. Matthew has a BA in Classics from Williams College and an MBA from Columbia Business School.
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Biographies Vincent Sinisi Food Retailers, Foodservice Distributors, and Dollar Stores
[email protected], (212) 761-1358 Vincent Sinisi is an Executive Director covering Food Retailers, Foodservice Distributors, and Dollar Stores. He was named a Runner Up in the 2016 Institutional Investor poll. Prior to joining Morgan Stanley, he covered Retail Hardlines companies at Bank of America Merrill Lynch in 2008-13. Vinnie worked at Lehman Brothers in 2004-08, primarily within Retail Hardlines. He holds a BS in finance, as well as a Business Law Certificate, from Seton Hall University.
Ravi Shanker Freight Transportation
[email protected], (212) 761-6350 Ravi Shanker is an executive director at Morgan Stanley and covers the North American transportation industry. Ravi joined the firm’s global automotive industry research team in 2004 as a research associate before picking up lead coverage of North American Autos in 2009 through 2015. Ravi holds Bachelor of Commerce and Master of Management (Finance) degrees from the University of Mumbai, India. Ravi has been recognized by The Financial Times/StarMine as a top10 stock picker across Wall Street, top Auto stock picker and been named a "Rising Star" by Institutional Investor.
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Biographies Jay Sole Branded Apparel & Footwear
[email protected], (212) 761-5866 Jay Sole is an Executive Director covering the branded footwear and apparel space. Jay began his career in 2006 when he joined Morgan Stanley's retail research team. In 2009, he moved to the single-name options research team before returning to retail equity research in 2011. Jay holds a BS degree in biology from the Oakland (MI) University and has an MBA from Fordham University.
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon Disruption Symposium
The Amazon Effect
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
US Retail Spend a ~$2.5tn TAM …with Spend Shifting Online
US Retail Spend*: eCommerce Mix ($bn) 3,000 2,500
2,485
2,535
2,585
2,379
2,440
11.0%
12.1%
13.3%
14.7%
16.1%
17.6%
2013
2014 2015 US eCommerce
2016 US Retail (Offline)
2017E
2018E
2,302
2,000
1,500 1,000 500 -
Note: * US Retail Spend = USCB Retail Total (ex- building materials, gasoline stations, motor vehicles, and non-store retailers) AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017 Sources : US Census Bureau, comScore, Forrester, Company Data, Morgan Stanley Research;
12
Amazon’s Share of eCommerce Continues Growing
US eCommerce Marketplace Mix % 100% 90% 80%
70%
68%
66%
62%
64%
59%
55%
60% 50% 40%
30%
12%
11%
20%
22%
2013
2014
20% 10%
9%
10%
28%
25%
9% 33%
8% 37%
0% 2015 Amazon
2016 eBay
2017E
2018E
Other
Note: * US Retail Spend = USCB Retail Total (ex- building materials, gasoline stations, motor vehicles, and non-store retailers) AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017 Sources : US Census Bureau, comScore, Forrester, Company Data, Morgan Stanley Research;
13
Amazon Driving 50% of All US PCE Growth
17%
30%
20%
10%
0%
56%
60% 54% 47%
50%
38%
29%
40%
60%
40% 30% 20%
15%
50%
Amazon % Contrib. to US eCommerce Growth
70% 51%
49%
... As AMZN Driving More than 50% of eComm Growth
9%
Amazon % Contribution to US Retail Growth
60%
52%
From 9% to ~50% in 3 Years...
10% 0%
2013
2014
2015
2016
Sources: BEA PCE, Company Data, Morgan Stanley Research
2017E
2018E
2013
2014
2015
2016
2017E
2018E
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Largely Driven by Prime, aka Behavior Modification 101
How much have you spent on Amazon in the past 12 months?
AMZN Prime US HH Penetration 60% Weighted Average Spend per Shopper
50%
45%
40%
35%
30% 23% 20% 10% 0% 2015
2016
2017E
Sources: Company Data, Morgan Stanley Research;, AlphaWise Survey
2018E
4.6X More
$3,000
51%
$2,500
$2,486
$2,000 $1,500
$1,000 $544 $500 $0 Prime
Non-Prime
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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What Happens in Behavior Modification 201? Customer Pain Point 1-2 Hour Shipping
Amazon Innovation
Voice IoT Smart-Home
Alexa Echo Products Dash Buttons
Prime Now Last-mile Brick & Mortar
Physical presence
Customer
Prime 1.0 Prime 2.0
Sources: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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A Growing AWS Profit Pool Allows for Continued Heavy Retail Investment
$12,000
14,000
AWS CSOI Growth '13-'15 CAGR: 66% '15-'17 CAGR: 71%
$10,000
12,000 10,000
$8,000 7,327
6,918
CSOI ($mn)
$6,000 4,524
5,428
3,706
$4,000
8,000 6,000 4,000
1,864 1,993 $2,000
673 154 1,166
$0
1,808 660
4,266
4,099 2,751
0
1,292 -144
2,000
-91
-478 -2,000 -2,776
-$2,000
-4,000
-$4,000
-6,000 2013
2014 North America Retail
Sources : Company Data, Morgan Stanley Research;
2015 International Retail
2016 AWS
2017E Total
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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As Do AMZN’s Growing High Margin Revenue Streams
Credit Card
'16-'18 CAGR 51%
Advertising
34%
Retail subscriptions
36%
20,000
Amazon Gross Profit ($ mn)
18,000 16,000
655 13,954 455
14,000 12,000
4,045
8,000 6,000
2,000
5,280
9,630 286
10,000
4,000
17,811
4,084 157 1,165
6,177 200 1,510
2,951 11,876 9,455 6,393
4,467 2,762
0 2014
Sources : Company Data, Morgan Stanley Research;
2015
2016
2017e
2018e
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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20,000
Y/Y Abs. Growth
18,000
Y/Y % Growth
18,506
60%
15,788
16,000
70%
50%
14,000 11,118
12,000
32%
10,000 8,000
7,038
6,000
25%
40%
34% 30%
30% 20%
4,000 10%
Core Retail Opex*, Y/Y % Growth
Core Retail Opex*, Y/Y Abs. Growth ($ mn)
Allowing for Accelerating Investment, Share Gains and Expanding TAMs
2,000 0
0% 2015
2016
2017e
2018e
*Gross Shipping Costs, Fulfillment, Marketing, Technology & Content (ex AWS)
Sources : Company Data, Morgan Stanley Research;
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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From Books…to ~5 Trillion? We See Amazon Attacking a Core $2.5tn Bucket of Consumer Expenditure… in $ millions (U.S. Only)
Retail Product Categories Grocery Clothing Personal care & household products Home furnishings & accessories Consumer electronics Jewelry & Watches Shoes Sporting goods Auto parts & accessories Eye Glasses/Contacts/Orthopedic Appliances Children's Toys and Children's Durables Pet food & pet supplies Home improvement items & tools Office & school supplies for home use Large home appliances Books Luggage Other Total Personal Consumer Expenditure*
2015 Spend ($ mn) % of Total 766,836 30% 305,069 12% 301,175 12% 241,645 10% 216,911 9% 77,167 3% 74,433 3% 72,429 3% 67,000 3% 67,499 3% 64,385 3% 60,035 2% 50,732 2% 47,013 2% 41,509 2% 41,068 2% 35,132 1% 12,575 0% 2,542,613 100%
…and Expanding Into New Categories Outside of Traditional Retail and Consumer in $ millions (U.S. Only)
New/Emerging Categories New/Used Motor Vehicles (Autos) Pharmacy/Prescription Drugs Online Restaurant Delivery Total Advertising (Traditional and Online) Industrial Supply/B2B Postal & Delivery (Transports) Repair of Equipment (e.g. IT Home Services) Total New/Emerging Categories
2015 Spend ($ mn) % of Total 1,200,000 54% 410,071 18% 221,606 10% 181,031 8% 150,000 7% 70,000 3% 8,407 0% 2,241,114 100%
~$4.8 Trillion Note: Total PCE = **ex Services, Energy Goods, Motor Vehicles, Boats/Aircrafts/Motorcycles, Newspapers, Prescription Drugs and Medical Products Sources: BEA PCE, Company Data, Morgan Stanley Research AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Examples
Barriers
BRIAN: A Framework to Assess Competitive Moat Against Amazon Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N
Bespoke
Regulatory
Industry
Attention
Nuances
• Non-commoditized • Low product uniformity • Bespoke design elements • Specificity, fit and customization
• Legal complexity (Local, State, and Federal laws) • Agency approval / scrutiny (FDA, FCC, etc.) • Costly R&D and trials required
• Low order frequency/ inventory turnover • High SKU mix requirements • Low reliance on retail for distribution • Logistical complexities • Low prices/gross margins
• Experiential component • Specialized service • Installation and expertise requirement • Relationship-based sales
• Contractual structures • Financing agreements • Insurance reimbursement • High time sensitivity
• Bespoke suits/shoes • Custom clothing • Custom fabricated parts • Exclusive or limited item • Luxury goods
• • • •
• Large items that don’t ship well (furniture, HVAC, autos) • Low turnover (auto parts, lumber, home improv.)
• Concierge service • Appliances/automechanic installation • B2B relationships
• Prescriptions/Pharma • Personal home/autos • B2B long-term agreements / projects
Pharmaceutical trials Franchise laws Health inspections FCC build out requirements
Sources: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon Disruption Symposium
Consumer Retail Where Are We Now?
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Kimberly Greenberger
[email protected] +1 212 761 6284
Jay Sole
[email protected] +1 212 761 5866
Richard Hill
[email protected] +1 212 761 9840
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Consumer Retail…Where are We Now?
…as Apparel Suppliers/Brands Are Increasingly Partnering with Amazon…
AMZN is Now the Second Largest US Apparel Retailer…
Protected Burberry Channel Gucci Louis Vuitton Lululemon (LULU)
Brand Quality/Perception
High
The Suppliers Calvin Klein (PVH) Carters (CRI) Champion (HBI) Columbia (COLM) Fruit of the Loom Hanes (HBI) Lee (VFC) Maidenform (HBI) Nautica (VFC)
North Face (VFC) Perry Ellis (PERY) Ralph Lauren (RL) Soffes (DLA) The Children’s Place (PLCE) Tommy Hilfiger (PVH) Under Armour (UA) Wrangler (VFC) Nike (NKE)
Threatened Gap (GPS) J.C. Penney (JCP) Kohl's (KSS) Macy’s (M) Old Navy (GPS) Target (TGT) Walmart (WMT)
Low
Sales Velocity Low
Sources: Company Data, Morgan Stanley Research
High
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon is Now the Second Largest Apparel Retailer in the US, but the Overall Market Remains Highly Fragmented
Source: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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46% of Surveyed Consumers Purchased Clothing on AMZN Over the Last 12 Months
Source: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Consumers Shop for Clothing on Amazon Because of Convenience, Prime Membership/fast-shipping, and its Wide Selection Top Reason for Purchasing Clothes on Amazon 0%
5%
10%
15%
20%
35%
40%
18%
I am a Prime member and can get free 2-day shipping
12%
Amazon has the widest selection
11%
Amazon has the lowest/best prices
8%
Amazon offers fashionable clothing and the brands I like
Amazon offers basic items I need (t-shirts, socks, underwear)
6%
Amazon offers free returns
6%
Source: AlphaWise, Morgan Stanley Research
30%
36%
Amazon is an easy/convenient shopping experience
A different reason
25%
3%
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Casual Tops, Shoes, and Athletic Apparel are the Top Apparel Categories Purchased on AMZN
Source: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Nike and adidas are the Most Purchased Clothing Brands on Amazon
Source: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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At 14% of sales, Apparel and Accessories was relatively underpenetrated in 2014 compared to other categories
Source: Forrester, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Apparel Lends Itself to Online Shopping: 18-19% of Department Store and Specialty Apparel Sales are Online Today eCommerce penetration has increased ~670 bps for Dept Stores and ~310 bps for Specialty Apparel since 2013 Category Online Sales Penetration (Sales Weighted) 25% 19%
20%
18% 16%
15%
13% 11%
10% 7% 5% 0% Department Stores 2011 Sources: Company Data, Morgan Stanley Research
2012
Specialty Apparel 2013
2014
2015
2016
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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eCommerce Growth Cannibalizes Store Sales, Eroding Store Profitability While Adding Variable Fulfillment & Shipping Expense, Which Drives Overall Company EBIT Margins Down
Subsector EBIT Margin (sales weighted) vs. U.S. eCommerce Retail Sales Penetration 14.0% 11.7%
12.0%
11.7%
10.8%
10.8%
10.0% 8.0%
6.5%
6.8%
10.1%
6.4%
6.0% 4.0% 2.0% 0.0% U.S. eCommerce as a % of Retail Sales
Sources: Company Data, Morgan Stanley Research
Off-price
Specialty Apparel 2006
Department stores
2016
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Closing Stores to Cut Costs, or Moving to a Variable Store Expense Structure Could Help Stabilize Apparel Retailer Margins
Sources: ICSC, Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Retail Strip REITs (Indirect Impact from AMZN/WFM Announcement) What Happened: With the 6/16/17 announcement that AMZN is set to potentially acquire WFM, Strip Mall operators equity values are struggling too (major strip REITs’ portfolios have ~70% grocery store component).
AMZN’s Growing Brick and Mortar Presence Could Further Pressure Mall REITS…
…Hurting the Strip Mall Operators, as the REITs Fell ~7% ($2.3bn in Mkt Cap) on the News
Mkt Cap Impacted by Amazon Effect ($bn)
0.0 -0.1 -0.2
-0.2
-0.3
-0.3 -0.3
-0.4 -0.5
Total of ~$2.3bn in Retail REITs Market Cap (-6.7%)
-0.6 -0.7
-0.7
-0.8
-0.9
-0.8 KIM
REG
FRT
DDR
RPAI
Note: Collaborated with MS Research Analyst (Richard Hill - US REIT Equity and Commercial Real Estate Debt) Sources: Thomson Reuters (stock price performances from 6/19/17-6/24/17), Company Data, Morgan Stanley ResearchAMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
33
Branded Apparel and Footwear Neutral Exposure
Favorable Exposure
• Retailers with truly differentiated value proposition and strong ecomm platform likely to remain insulated
• Branded wholesalers with value positioning who embrace Amazon opportunity likely to win • CRI, SKX, SHOO
• Exclusive, sought-after product • GOOS, FL
Amazon Fashion Unfavorable Exposure
Mixed Exposure
• Retailers competing on price with undifferentiated assortment likely to face greatest challenges
• Wholesalers with premium positioning must segment offering, sell lower-end product on Amazon
• DSW, EXPR
• Premium product will need to be sold through DTC and higher-end wholesale channels • NKE, UA, PVH, VFC
Sources: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Consumer Retail: Where Are We Now? Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
REITS Branded Apparel / Footwear Commercial/Retail
Softlines/ Dept. Stores
Most Protected
Off-Price
Brands Embracing
Sources: Morgan Stanley Research
Department Stores
Specialty
Differentiated Brands
Strips
Retailers Competing
Malls
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon Disruption Symposium
Food Retail A 10 Year Journey?
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Simeon Gutman, CFA
[email protected] +1 212 761 3920
Vincent Sinisi
[email protected] +1 212 761 1358
Dara Mohsenian, CFA
[email protected] +1 212 761 6575
Matthew Grainger
[email protected] +1 212 761 8023
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Grocery/Food Retail: A 10 Year Journey…as WFM the Latest Shoehorn
•
Last mile acquired: no need to spend next 5 years brick building
•
Focus on price and convenience: under-penetrated user opportunity (13mn shoppers)
•
WFM + Prime Now: personalized 1-2 hour shopper
•
Private label: high margin opportunity
•
Opens new doors: Pharma, SKU intensive sectors
•
Next gen store?: machine vision, etc
Sources: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
37
We Expect AMZN’s Lowered WFM Prices to Drive Shopper Growth
Our Survey Shows ~13mn Households Shop at WFM vs. 45mn AMZN Prime and ~24mn for Kroger…
Source: AlphaWise, Morgan Stanley Research, Company Data
… and Pricing Continues to be the Primary Reason Consumers Don't Shop at Whole Foods
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
38
Expect Prime Now 1-2 Hour Delivery To Drive Growth and Change Behavior
PrimeNow Grocery Delivery Unit Economics Prime Now Amazon Unit Economic P&L $ Average Order Value (AOV) x Avg WFM Gross Margin (post ~6% Price Cut) = Total Gross Profit
Source: Morgan Stanley Research, Company Data
$40.0 30% $12.00
- Pick and Pack
$3.75
- Delivery Wage Costs
$3.60
- Other Delivery Costs (Truck/Fuel/OH)
$2.07
= Order Gross Profit Order Margin
$2.58 6%
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
39
We Expect AMZN to Drive Incremental Prime Membership
We Expect Amazon to Capture Half of the ~5mn WFM Shoppers Who Are Not Prime by the End of 2019
Source: AlphaWise, Morgan Stanley Research, Company Data
Amazon Prime Members Spend 4.6X More on Amazon Annually than non-Prime Members, on Average
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
40
Consumers Skew 'Unlikely' to Purchase Groceries Online, but Purchase Resistance is Decreasing Likelihood to Order Groceries Online N6M 100%
Very unlikely
90% 80% 46%
41%
38%
41%
36%
48%
Somewhat unlikely
70% 60% 50%
12% 13%
40% 30%
13%
13%
13% 14%
14%
17%
17%
19%
16%
17%
20% 13% 10%
9%
15%
19%
15%
14%
Very likely
7%
0%
Source: AlphaWise, Morgan Stanley Research
15% 12%
17%
2015: Shipped
Somewhat likely
19% 15%
Neither likely nor unlikely
2016: Shipped
2017: Shipped
2015: Picked up 2016: Picked up 2017: Picked up at a store at a store at a store
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
41
Perishables Less Likely to Be Ordered Online For Delivery; More Even Category Split For Pick-Up At-Store
Source: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
42
E-Commerce as a % of Total Category Sales
E-Commerce as a % of 2016 Sales (US) 12%
% of Global Sales
11%
10% 8% 8% 5%
6%
3%
4%
2%
2%
1%
1%
Packaged Food
Soft Drinks
0% Consumer Beauty & Health Personal Care
Pet Care
Source: Company Data, Euromonitor, Morgan Stanley Research Estimates
Tissue & Hygiene
Home Care
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
43
E-Commerce as a % of Total Company Sales Weighted E-Commerce % of Sales - US 9% ~8% 8%
7% ~6%
6%
5%
~5%
~4% ~4%
4% ~3% 3%
~3% ~2%
~2%
2%
~2%
~2% ~1%
~1%
~1%
~1%
~1%
KHC
KO
PEP
DPS
1%
0% EL
CL
PG
CHD
EPC
ENR
Source: Company Data, Euromonitor, Morgan Stanley Research Estimates
CLX
MDLZ
SJM
GIS
K
CPB
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Food Retail: A 10 Year Journey? Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
Household Products
Wholesome Pet Food
Dollar Stores
Hardlines / Broadlines Sources: Morgan Stanley Research
Food Retail
Food Distributors
Food and Tobacco
Food Retail / Dollar Stores
HPC / Beverages
Most Protected
Packaged Foods
Club
Broadline Retail
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
45
Amazon Disruption Symposium
Amazon’s Impact on the eCommerce Supply Chain
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Ravi Shanker
[email protected] +1 212 761 6350
Vikram Malhotra
[email protected] +1 212 761 7064
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Amazon’s Impact on Transportation and Logistics AMZN continues building its own logistics network past 2-3 years: 1) Deployed last-mile delivery in several US and European cities 2) Acquired 1000’s of truck trailers/hundreds of trucks 3) Building $1.5B Kentucky air hub to house its aircraft 4) Leased 40 B767 air freighters with the option to pick up equity stakes air lessors 5) Acquired ocean freight forwarding license 6) Building in-house freight mgmt tech platform/app
Source: NBC News, Company data, Morgan Stanley Research estimates
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
47
AMZN Network Cost per Package Breakeven Analysis
Cost Per Package
$14 $12 $10
UPS/FDX Rev per Package
$8 Est. AMZN Cost per Package
$6
Est. UPS Last Mile Cost per Pkg
$4
USPS Rev per Package
$2 $0
40
60
80
100 120 140 160 Packages per Day per Driver
180
200
Source: Company data, Morgan Stanley Research estimates AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
48
AMZN’s Prime Subscriber Base and Consumer Expectations for Faster Deliveries Continue to Rise…
Amazon's growing Prime subscriber base is driving its fulfillment capacity demands
Delivery expectations for Free Shipping have Declined
Est. # of Prime Members
100
87 45
80 International
US
60
60 41
40 27 20
0
18
5 13 2013
2014
18
12
8
19
34
28
42
54
62
Avg Expected Wait Time for free delivery in days
105 '16-'18 CAGR US: 21% Int'l: 58% Total: 32%
5.6
5.5
5.4 5.2 5.0
5.0
4.8
4.8
4.6 4.4
2015
2016
2017e
2018e
2012
2014
2016
Source: AlixPartners "Final Mile Delivery, July 2016", Morgan Stanley Research AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
49
…Boosting Demand for Last Mile Warehouse Space that Increases Proximity to the Consumer
Amazon's leasing patterns have recently emphasized last-mile warehouses driving proximity to the consumer
AMZN's warehouse expansion represents over 10% of US warehouse leasing since 2010
Avg Population within 10 miles in 000s
1,200
90 80 70 60 50 40 30 20 10 -
1,061
1,000 800
600 400
477 385
200
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-
1999
Amazon Growth of Distribution center space Million of Sq.ft Leased
100
Phase 1: Pre-2009
Phase 2: 2010-13
Phase 3: 2014-16
Source: AlphaWise, Costar, Company documents, various media articles, Morgan Stanley Research AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
50
Omnichannel Benefits from AMZN’s Acquisition of WFM; Warehouse Leasing to Accelerate as AMZN & Peers Compete to Increase Market Penetration The race for space has likely escalated as AMZN will need to significantly increase their warehouse footprint if they want to increase market penetration
Population within 10 miles of store/warehouse (A) Total US Census population in footprint in millions (B)
147
85
164
151
172
290
216
180
221
184
229
324
68%
47%
74%
82%
75%
90%
$103k
$91k
$100k
$85k
$97k
$82k
Millennial Penetration within 10 miles of store or warehouse in millions
35
21
40
36
41
68
Number of stores + distribution centers
~450+
~200+
~650+
~2800+
~500+
~3950+
Market penetration (A divided by B) Avg income within 10 miles
Source: AlphaWise, Costar, Morgan Stanley Research estimates AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
51
Prologis (PLD) Best Positioned Among Industrial REITs
46% of PLD's US Portfolio is within 10 miles of top 15 most densely populated MSAs
PLD's 10 last mile warehouses per million people is 3 times the average of all other REITs 12
Last-mile Warehouses per 1 million people in Top 15 MSAs
10 10 8 6 4
3 2
2
2
2
2
TRNO
LPT
1
0 PLD
EGP
FR
DCT
DRE
Source: AlphaWise, CoStar, Morgan Stanley Research. Note: grey bars are not-covered AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
52
Amazon’s Impact on the eCommerce Supply Chain Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
REITS Commercial / Retail
Transportation
Most Protected
Logistics
Freight Brokers
Parcel
Industrial REITS
Sources: Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
53
Amazon Disruption Symposium
Digging Into Distribution
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Jiayan Zhou, CFA
[email protected] +1 212 761 5766
Ricky Goldwasser
[email protected] +1 212 761 4097
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Amazon’s Impact on Industrial and Medical Suppliers
We Believe AMZN Business Created Pricing Pressures in 1Q17 in Industrial Supply Sector
Sources: Company Data, Morgan Stanley Research
AMZN Hired a Healthcare Exec and a Source Said is Building an Internal PBM for Employees
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
55
Industrial Distribution – The Amazon Effect What makes Industrial Distribution an attractive market for Amazon?
1,000 500
Aug-17
Feb-17
Source: Google Trends; Note: Search volumes are relative for the terms presented in the chart; indexed to 100 at start date.
May-17
Nov-16
Aug-16
Feb-16
May-16
Nov-15
Aug-15
Feb-15
May-15
Nov-14
Aug-14
Feb-14
May-14
Nov-13
Aug-13
Feb-13
May-13
Nov-12
Aug-12
May-12
-
3Q17E
1,500
1Q17
2,000
3Q16
2,500
1Q16
Name change from Amazon Supply to Amazon Business
3Q12
3,000
1Q12
W. W. Grainger
3Q11
4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% -7%
Amazon Business
1Q11
Google Trends search indexed
3Q10
GWW Pricing Trend
1Q10
Web Traffic – Amazon Business vs. Grainger
3Q15
For the incumbents, volumes are at risk, but the larger impact could be from price discovery.
1Q15
•
3Q14
There has been a shift towards e-Commerce in the Industrial Distribution space, which is likely to continue as the millennials enter into the workforce.
1Q14
•
3Q13
US Industrial Distribution is a large (~$150bn), highly fragmented market, with relatively high margins and low supply chain/ regulatory complexity.
1Q13
•
Source: Company Data, Morgan Stanley Research AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
56
Industrial Distribution – Who’s More Exposed to Amazon? BRIAN Framework for Amazon Disruption: Industrial Distribution Category
Bespoke Products
Regulatory Hurdles
GWW Industrial MRO
More standardized
Relatively Low
Industrial MRO (~65%)
More standardized
Fasteners (35%)
Nonstandardized
HDS
Facility MRO
More standardized
WSO
HVAC
More standardized
Risks High FAST
Industry/ Business Model
Low supplier and customer concentration Low supplier and Relatively Low customer concentration Lower inventory Relatively Low turnover, high SKU Low supplier and Relatively Low customer concentration Bulky items that don't Medium ship well
Low WCC
Source: Morgan Stanley Research
Electrical Equipment
More customized
Medium
Low reliance on retail distribution
Attention Post Sale/ Service Element
Nuances/ Complexities Behind Transaction
Less technical
na
na Less technical na Less technical
Break & fix products, high time sensitivity
Installation required
na
More technical products and valueadded services required (kitting, assembly, prefabrication, etc.)
Large project oriented (~50%)
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
57
Amazon Makes Healthcare Headlines Japan Times 4/19/17
CNBC 5/17/17
CNBC 7/26/17
Bloomberg 9/15/17
“Amazon.co.jp also started selling category No. 1 drugs, which require consultation with a pharmacist before purchase, at its website.”
“Amazon is hiring a business lead to figure out how the company can break into the multibillion-dollar pharmacy market.”
“Amazon has a secret skunkworks lab called 1492, dedicated to health care tech.”
“Earlier, Shop Apotheke Soars on Report Amazon Wants Dutch Online Pharmacy”
“Before placing orders, customers need to report their symptoms and medical history via a form on Amazon’s site. Items will only be delivered after approval by a pharmacist.”
“[Amazon] recently started selling medical supplies and equipment in the U.S., and is hiring for its "professional health care program" to ensure that the company is meeting regulatory requirements.”
“Areas of exploration include a platform for electronic medical record data, telemedicine and health apps for existing devices like the Amazon Echo.”
“Currently there are no talks or negotiations with Amazon, online pharmacy company Shop Apotheke says in statement.”
“…Lyons is tasked with building an internal pharmacy benefits manager for Amazon employees, which might be later scaled out” Note: Amazon to our knowledge has not commented on the indicated news reports Source: Japan Times, CNBC, Bloomberg, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
58
Next on Amazon’s List?
Complexity
Pharmaceutical Drugs
Medical Supplies
Frequency of Purchase Source: Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
59
Digging Into Distribution Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
Electrical
Healthcare Services & Distribution
Industrial Conglomerates
Most Protected
Sources: Morgan Stanley Research
HVAC
Pharmaceutical Supply Chain
Facility MRO
Industrial MRO
Medical Supply Supply Chain
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
60
Amazon Disruption Symposium
AlphaWise
MORGAN STANLEY RESEARCH North America
Angus Lund
[email protected] +44 (0)20 7677 6620
Brian Kelleher
[email protected] +1 852 3407 0702
Shaivali Shah is Executive Director, Head of AlphaWise in the Americas
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
About AlphaWise Links qualitative intelligence with quantitative evidence to give analysts an edge
AlphaWise combines unique data with rich analytics and visualization
MS Analysts harness the power of AlphaWise to highlight meaningful patterns and alphagenerating investment insights
Sources: AlphaWise
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
62
Amazon Related Pieces
Sources: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
63
Grocery is Not a Winner-take-all Industry Sprouts more at risk than Kroger
Online grocer awareness overall low
2016 & 2017: 84%
Room for price-driven share gains
Sources: AlphaWise, Morgan Stanley Research
7 in 10
40%
Non-WFM shoppers see price as main adoption barrier
WFM shoppers not AMZN Prime members
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
64
Increasing Flexibility Over the Last Mile of the Supply Chain Warehouse leasing behavior shifts
WFM expanding the AMZN Network
Distribution and retail footprint of key players
Sources: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
65
Digital Food Delivery is Surging Resizing the total addressable market
2016: $60B
Delivery is replacing dine-in
2017: $220B
12% 40%
2016: 38% 2017: 43%
Competition is on the rise
1. GrubHub: 43% 2. UberEats: 28% 3. Amazon Restaurants: 25% 4. Yelp Eat24: 21%
Sources: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Disrupting Traditional Business Models Amazon’s credit card impact on PLC
Amazon taking share from traditional dept stores
1. WMT: 60% 2. AMZN: 48% 3. TGT: 42% 4. KSS: 41% 5. JCP: 38% 6. Macy’s: 35% Sources: AlphaWise, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
67
Amazon Disruption Symposium
Amazon is Everywhere Media, Entertainment, Advertising & Telecom
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Benjamin Swinburne, CFA
[email protected] +1 212 761 7527
Simon Flannery
[email protected] +1 212 761 6432
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Behavior Modification 201 Customer Pain Point 1-2 Hour Shipping
Amazon Innovation
Voice IoT Smart-Home
Alexa Echo Products Dash Buttons
Prime Now Last-mile Brick & Mortar
Physical presence
Customer
Prime 1.0 Prime 2.0
Sources: Company Data, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
69
We See Amazon Continuing to Invest in Prime Instant Video
We See Amazon Content Spend Reaching $6bn by 2018
Sources: AlphaWise, Morgan Stanley Research
Prime Video is a Popular Reason Why Shoppers Sign Up for Prime in the UK, Germany and Japan
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
70
Roughly 60% of Prime Members Use Netflix & Instant Video, Both Up YoY
% Using Amazon Prime Video Service
Sources: AlphaWise, Morgan Stanley Research
% Using Netflix Streaming Service
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
71
Amazon is Everywhere: Media, Entertainment, Cable, Satellite, Music, Advertising
Direct Competition - Today
Indirect Negative Impact
• Subscription music & downloads
• Advertising & marketing budgets
• General entertainment TV & Film viewing • Direct response advertising
Potential Direct Competition • Pay-TV bundles • Sports networks • Concert ticketing • Movie theaters
Amazon is directly or indirectly impacting all 31 of our covered companies.
Driving Value • Rights owners (sports, music, etc.)
• Content producers • OTT services (premiums, int’l markets) • ISP business • Spectrum
Coverage group: AMCX, ATUS, BATRK, CBS, CHTR, CMCSA, CNK, DIS, DISCK, DISH, FOXA, FWONK, IPG, LAMR, LBRDK, LBTYA, LGFb, LSXMK, MSG, MSGN, NFLX, OMC, OUT, P, RGC, SIRI, SNI, TRCO, TWX, VIAB, WWE Sources: Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Wireless, Wireline, Data Centers – Amazon Relies on Connectivity Wireless - Remember the Fire Phone?
Wireless Carriers still dominate phone sales via Retail stores (for now?)
• Data Centers – Is AWS friend or foe? • Wireline – AWS drives bandwidth demand, but it’s competitive • Stay Tuned – What does Amazon do next in Communications? • 5G/IoT/Carrier purchase? … Watch Broadband battles in D.C. • Space/Satellites – Don’t forget about disruption from Bezos via Blue Origin
Sources: Consumerist ,Company website, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
73
Amazon is Everywhere: Media, Entertainment, Advertising & Telecom Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
Most Protected Search
US Internet
Display
N.A. Telecom
Cable/Sat. & Media
Content
Sources: Morgan Stanley Research
Towers
Streaming
Networks
Satellite
Cable
Exhibitors
Music
Agencies
Telecom
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
74
Amazon Disruption Symposium
Hot Button Industries Disrupted or Protected?
MORGAN STANLEY RESEARCH North America
Brian Nowak, CFA
[email protected] +1 212 761 3365
Simeon Gutman, CFA
[email protected] +1 212 761 3920
Vincent Sinisi
[email protected] +1 212 761 1358
Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.
Hot Button Industries: Disrupted or Protected? Bespoke Products
Regulatory Hurdles
Industry/Business Model
Attention Post Sale/ Service Element
Nuances/Complexities Behind Transaction
B
R
I
A
N Most Exposed
Travel
Hardline / Broadline Retail
Display
Dollar Stores
Food Retail / Dollar Stores
US Internet
Most Protected
Home Impr.
Sources: Morgan Stanley Research
Auto Parts
Search
Food Distributors
Arts & Crafts
Club
Beauty
Food Retail
Home Furnishings
Broadline Retail
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Amazon Advertising Cometh…
Amazon Sponsored Product Ad Units
Sources: Company Data and Website, Morgan Stanley Research
Amazon Advertising on Kindle Devices
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
77
How Big Could This Business Become?
Advertising is a Growing High Margin Revenue Stream for AMZN Credit Card
'16-'18 CAGR 51%
Advertising
34%
Retail subscriptions
36%
20,000
Amazon Gross Profit ($ mn)
18,000 16,000
13,954 455
12,000
5,280
4,045 9,630 286
10,000 8,000 6,000
2,000
17,811 655
14,000
4,000
We See Amazon Share of Advertising Continuing to Grow to MSD%
4,084 157 1,165
6,177 200 1,510
2,951 11,876 9,455 6,393
4,467 2,762
0 2014
2015
2016
2017e
Source: Magna Global, IAB, Company data, Morgan Stanley Research
2018e
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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The Best Offense Is A Strong Defense
DIY Auto
Sporting Goods Arts & Crafts Electronics Party Supply
Home Furnishings
Average Basket Price
SKU Count
Inventory Turnover
Average Basket Price
SKU Count
Inventory Turnover
ORLY AAP AZO
$50 $44 $35
23,000 26,000 23,000
1.5x 1.2x 1.4x
WMT TGT COST
$25* $30* $85*
120,000 80,000 3,700
8.4x 5.8x 11.5x
DKS MIK BBY PRTY
$75* $21 $200* $23
45,000* 33,000 5,000* 30,000
3.4x 2.9x 6.0x 2.4x
ULTA SBH GNC VSI
$40 $18 $50 $35
20,000 8,000 2,000 7,000
3.1x 2.2x 2.9x 3.7x
BBBY PIR WSM TCS HOME
$55* $45* $250* $57 $60
30,000* 6,000 10,000* 10,500 50,000
2.6x 2.9x 2.7x 3.7x 1.8x
HD LOW LL TSCO
$57 $65 $1,700 $47
35,000 37,000 400 17,500
5.0x 4.3x 2.1x 3.4x
ODP SPLS
$38* $40
8,000* 7,500
6.8x 7.8x
Discount / Club
Beauty Supply Vitamin Retail
Home Improvement
Office Supply
* Morgan Stanley estimate
Source: Company reports, Morgan Stanley Research
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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The Omni-Channel Bullseye: Degrees of Separation From E-Tail Defense • SKU Intensive • Low Inventory Turns • Low Average Purchase Size • Flexibility in Store Base
High Level of Exclusivity
Farm Supply
Beauty Home Furnishings Arts & Crafts
Office Supply Consumer Electronics
High Level of Service
e-tailers
Home Improvement
•
Risks • Key Item Concentration • Vendor Concentration • Supplier Mindset Product Vulnerability (Exclusivity vs. Service)
Sources: Morgan Stanley Research
High Level of Service
e-tailers
Discount
Sporting Goods
Vitamins / Supplements
DIY Auto
High Level of Exclusivity
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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The Most & Least Protected in an Omni-Channel World THREATS (1-3 ranked best to worst) Key Item Concentration Home Improvement
Supplier Concentration
Supplier Mindset
Superior Product Distribution Vulnerability
INSULATION (1-3 ranked best to worst) SKUs, Turns & ASPs
Leverage Leases Point
Omni-Channel Ready
Total 200
199
DIY Auto
198
197
Club Stores
196
195
Arts & Crafts
194
193
Beauty
192
191
Consumer Electronics
190
189
Home Furnishings
188
187
Vitamins/Supplements
186
185
Sporting Goods
184
183
Broadline Retail
Sources: Morgan Stanley Research
182
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
81
Disclosures
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
82
Disclosures
AMAZON DISRUPTION SYMPOSIUM | SEPTEMBER 2017
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Disclosures
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Disclosures
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Disclosures
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Disclosures
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© 2017 Morgan Stanley
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