eCommerce Disruption 2.0: We Are More Bullish on eCommerce Growth We updated our proprietary Cowen US eCommerce vertical model, which provides investors with a clean digestible framework for quantifying eCommerce’s disruption overall and by vertical. What is new: (i) We now expect 13.4% US eCommerce growth ’17-’22 vs. 12.0% prior, based on higher growth in Home, Auto, Consumables and Clothing & Accessories offset somewhat by lower Food & Bev eCommerce revenue; (ii) In terms of stages of eCommerce disruption by vertical, Clothing & Accessories and Consumables are progressing to the next phase of eCommerce maturity relative to our initial view last year; (iii) We introduce our Cowen US Retail Store Closure database, which suggests ~7,100 major chain / brand retail store closures in ’17; (iv) US retail footprint being rightsized as Cushman & Wakefield expects US retail store closures to accelerate in ’18; (v) Smart Speaker penetration, usage and direct purchasing rose throughout ’17 per our proprietary data, ~20% of respondents owned an Amazon Echo device in Dec ’17, and ~10% owned a Google Home. US eCommerce Growth Playing Out As Expected; More Bullish L-T Outlook We continue to believe that we are still in the early days of eCommerce disruption. We expect US eCommerce sales to rise from ~10% of US retail sales in ‘18 (x-Gas, & Non-merch. receipts) to ~15% in ’23. Moreover, we now expect the US eCommerce market to accelerate for the fifth year in a row in ’18, rising ~16% y/y vs. our prior forecast of +14%. Our estimates could once again be conservative given current market dynamics. Long term we estimate US eCommerce sales rise from $481BN in ’18 (vs. $476BN prior) to $860BN in ‘23, a 12% CAGR. While we expect higher long-term US eCommerce growth, per our ’17 estimates, total US retail sales were $5.1TN, +4% y/y, with $195BN incremental spend. We estimate an incremental $56BN in US eCommerce spend in ’17, accounting for ~29% of total incremental US retail sales. In other words, while we are more bullish on US eCommerce, it is not cannibalizing overall US retail sales. Cowen Store Closure Database: Brick & Mortar Is Being Right-Sized The narrative of retail closures is playing out amid a stream of announcements that continued through late ’17. Based on our store closure database, we estimate major chains / brands closed ~7,100 stores in ’17 vs. around 2,200 in ’16. The majority of ’18 announcements likely haven’t taken place yet; last year we estimate 25% of announcements came in Mar/April and 2/3 of announcements came in 2Q-4Q. Apparel was among the hardest hit in ’17, with ~2,400 closures vs. ~1,100 in ’16, and Electronics, Appliances, and Home also faced increased closures last year. Our closure tracker only covers major brands, which could mask mom & pop closures. Also, Cushman & Wakefield expects US retail store closures of 11,000 in ’18 accelerating vs. their estimated 9,000 closures in ’17. AMZN Biggest Winner Of Accelerating eCommerce Growth Amazon remains both the biggest driver of eCommerce disruption and beneficiary of accelerating eCommerce growth, in our view. As a result, AMZN remains our top pick for a 3rd consecutive year (LINK), Price Target is $1,500. We provide our 4Q17 preview in the body of the note. eBay: We extended our EBAY model to ’23 and raised our topline estimates slightly, though are still slightly below consensus. We modestly raised our EPS estimates ’18-’22 given slightly lower overall taxes. Given our estimate changes and extending the model to ’23, our DCF-derived Price Target increases to $40 from $37 prior. We provide our 4Q17 preview in the body of the note. Maintain Market Perform. Wayfair: We recently hosted a fireside chat with Wayfair CEO Niraj Shah at the Annual ICR Conference in Orlando. Overall, business trends appear to remain strong and W seems to be well-positioned for another solid year in ’18. We modestly raised est’s ’18-’22 and rolled our model forward to ’23, and as a result, our DCF-based PT goes to $90 vs. $72 prior. We provide our 4Q17 preview in the body of the note. Maintain Outperform. For more information, contact your Cowen sales representative.
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