A question worth ~$8T – how much of US Retail sales will end up online?

COVID-19 has accelerated the shift to online in 2020 and we expect further disruption going  forward.    To  answer  how  much  this  can  affect  hundreds  of  US  stocks  worth  ~$8T, this report leverages our previous Q-Series and this year's US eCommerce survey.  UBS built an interactive eCommerce penetration model based on 7 years of proprietary survey  data  from  UBS  Evidence  Lab.    Based  on  this  analysis,  we  now  forecast  online  share will reach 31% of US Retail sales by 2024 vs. our prior Q-Series forecast of 20% by 2022 and up from 14% in 2019.  This ongoing shift implies eCommerce gains 340 bps of share annually.  Our new forecast entails eCommerce sales rising at a 12% 5-yr. CAGR versus our previous Q-Series estimate of 11%.

COVID-19 accelerated eCommerce penetration, but stores still have a place:

Our work suggests brick and mortar sales can marginally grow (less than 1% annually), assuming overall US retail sales rise at 3%.  Thus, we think there could be more retail store closures.  One of the enduring outcomes of COVID-19 is that it inspired broader digital  adoption,  especially  in  older  age  cohorts.    However,  consumers  indicated  they  still shop in stores (i) to see and try products and (ii) because they enjoy the experience.

UBS Evidence Lab market research and data science analysis power our views:

UBS  Evidence  Lab  surveyed  2,500  US  adults  age  18+  regarding  online  and  offline  shopping  habits  by  category.    The  survey  has  been  administered  annually  since  2014,  with questions kept consistent in order to provide y/y comparisons.  We then leveraged data science techniques to build detailed penetration models for each retail category. We  acknowledge  the  math  for  how  we  formulate  eCommerce penetration heavily relies on the most recent survey data.  This data point was attained during  a  pandemic,  when  behaviors  may  differ  from  a  steady  state  or  normalized  behavior, potentially influencing the long run forecast from the data science team.

What sectors and stocks are best positioned? Who has most to lose?

Our  interactive  model  suggests  grocery,  apparel  &  footwear,  and  home  improvement  are  likely  the  three  biggest  contributors  to  the  shift  by  dollar  volume.    We  forecast  faster  online  adoption in  under-penetrated  categories  (groceries,  household  products  and  personal  care).

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