Global Retail-PM Summary: A new framework to identify retailers in an omnichannel world

Present new approach as channels blur

    We are at a unique juncture to outline theopportunity set for the global retail sector,incorporating store-based retailers, e-commercepureplays, and brands selling direct and throughstores. We introduce our GS CompetitivePositioning (CP) framework to rank the 197companies in our coverage universe, with $2.84tnof revenue and $2.1tn in market cap. In anindustry undergoing disruptive change from ecommerce,our framework compares retailersusing both traditional methods (access to growth,pricing power, and volatility), as well as newermeans to address e-commerce suitability/risk.

    Assessing e-commerce is essential

    E-commerce represents about 4.7% of global retailsales and is expected to grow at a 16% CAGR overthe next five years, exceeding 10% of retail sales.

    This growth will impact retailers’ margins (pricetransparency), returns (omnichannel investment),and sales (share losses). To discern positioning,we assess three factors: (1) category exposure toonline disruption; (2) online penetration to gaugesuccess; and (3) real estate flexibility.

    New framework, but same opportunityfor outsized growth & returns

    Organized retail remains a key driver of the globaleconomy at 18.5% of GDP or 33% of consumerexpenditures. Global retail sales have grown 4.3%annually over the past 10 years and our coveragehas generated a 16% return on capital on average(vs. the MSCI World Index at 10%). These attractivefundamentals have been led by increasing globalwealth, consolidation within organized retail, andimproving supply chains. In our view, retailers canstill outperform by (1) adapting to the global rise ofe-commerce by driving online sales, rationalizingreal estate, and capitalizing on brand strength; (2)driving growth (in categories or share); (3) exercisingpricing power (driving high gross margins and assetturnover); and (4) managing profitability acrosscycles (via cost control and execution).

    Our best positioned global retailers

    We identify 50 top-quartile global retailers basedon Competitive Positioning that also generatehigh returns. When coupled with valuation andour fundamental views, our top picks, all Buyrated, are Amazon, Dufry, Nitori, Ocado, Tiffany,and VIP shop.