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Gen Z And Millennials Reshape Apparel, Footwear, Accessories

Amazon, Nike, Calvin Klein, Michael Kors, and Kohl’s are well ahead of competitors among the 1,200 Gen Z and Millennial consumers we surveyed. Expanding influence of AMZN and social media amplifies the need for speed in design, merchandising, supply chain and will require significant investments. Our Outperform rated stocks best positioned: AMZN, ADS.GR, SKX, TJX, ROST, BURL, PVH.

Thematically Defining Gen Z And Millennials
Our proprietary data set and work on demographics indicate that Gen Z and Millennial consumers have distinct views of brands and retail channels. Gen Z and Millennial consumers are expected to grow to roughly 70% of the global population by 2028 vs. 60% today – rendering them a critical demographic for investor focus.

It Begins And Ends On Amazon For Gen Z And Millennials
Our survey indicated Amazon was the clear preferred shopping destination for all verticals as ~90% of A18-54 and 82% of A55+ indicated Amazon was their preferred channel either solely or blended with other online and physical store options. For younger demos, Amazon again fared well, as 24% of A18-24 and 25% of A25-34 indicated Amazon was their sole preferred channel tracking ahead of older demos vs. 16% of A45-54 and 9% of A55+. For Apparel, we found Amazon was instrumental in all steps of the process of finding new items. Overall, ~33% of A18-34 said they are most likely to begin their search for a new apparel item on Amazon, well above Google Search (16%) and in a multi-line store (16%). Only 22% of A55+ begin a search for a new apparel item on Amazon vs. 45% of A55+ at a multi-line store. ~44% of A18-34 reference Amazon during the process regardless of where they buy. Finally, ~33% of A18-34 said they completed an Apparel purchase on Amazon vs. ~23% for multi-line store.

Nike, Calvin Klein And Kors Led Gen Z And Millennial Preferences 
Nike maintains a dominant lead in athletic brand preferences (~45%+) but when indexed to dollars sold at retail, adidas and Vans represent formidable competition in footwear within the 18-24 year old group. Calvin Klein brand preference (26%) was 2x above apparel competition and suggests opportunity to reignite N. America growth (raising PVH estimates and price target to $165, 18x FY18E EPS). Michael Kors led Gen Z and Millennial brand preference in accessories while KSS led department stores. UAA footwear preference vs. current revenue suggests opportunity to improve sales.

Investment Conclusions – Speed Investments Will Define Winners And Losers
Rapid changes in styles, trend influencers and a heavy emphasis on price/value characterize Gen Z and Millennial consumers. Superior data analytics, combined with speed in design and merchandising supported by robust supply chain capabilities and shorter lead times and development cycles will define sell through, gross margin and return on capital. Brands/retailers best positioned for speed and modeled for record high merch margin and returns on capital in FY18 and beyond – NKE, adidas, BURL, ROST, COLM, SKX and CRI. Conversely, many likely need to make SG&A investments greater than consensus is modeling. Most cautious on consensus estimates for DKS, FL, FINL. Our analysis of merch margin, inventory growth and ROIC shows a dramatic gap in performance between alpha generators and laggards while ROIC exhibits an 81% R^2 to enterprise value relative to invested capital.

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