Q-Series Redux: eCommerce Migration - More Gradual Shift to Digital Beyond 2022?

We think online penetration remained elevated in 2022 vs. pre-pandemic levels and we expect further disruption going forward. To answer how much this can affect hundreds of US stocks worth ~USD8.0T, this report leverages our previous Q-Series and US eCommerce 2022 survey. UBS built an interactive eCommerce penetration model based on 9 years of proprietary survey data from UBS Evidence Lab. Based on this analysis, we now forecast online share will reach 24% of US Retail sales by 2026, up from 21% in 2022. This implies 75 bps of annual digital share gains. Our new forecast implies eCommerce sales will rise at a 6% 4-yr. CAGR vs. our previous Q-Series estimate of 11%. While the pandemic has driven accelerated online adoption, the latest survey iteration shows consumers continue to value in-person shopping (> Access Dataset). We therefore anticipate more modest online annual share gains. This trend combined with softer total industry growth lead to a lower eCom sales growth rate vs. our prior forecast.

We believe the shift to eCommerce is structural. Penetration rates are likely to increase as young people, who buy goods online more often, gradually become a bigger part of the demographic mix. We forecast brick and mortar sales expanding less than 2% annually, assuming US retail sales rise at a 3% CAGR. We think this relatively low sales growth rate will result in more physical store closures since slow sales growth likely pressures margins. However, we believe brick and mortar stores will remain relevant because survey results indicate many consumers still like to try products in stores before buying and enjoy the in-store experience.

UBS Evidence Lab surveyed 2.5K 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. UBS Evidence Lab then leveraged data science techniques to build detailed penetration models for each retail category. We derive our eCommerce sales growth forecasts based on these models and channel trends within each category. We acknowledge the math for how we formulate eCommerce penetration partially relies on the most recent survey data. As such, behaviors may differ from a steady state or normalized behavior, potentially influencing the long run forecast from the data science team.

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