THE FUTURE OF RETAIL 2016

BI Intelligence
Providing in-depth insight, data, and analysis of everything digital.
EVEN THOUGH E-COMMERCE MAY NOT SEEM LIKE MUCH
COMPARED TO IN-STORE RETAIL...

Overall US Retail Sales

E-Commerce In-Store

$1,400
$1,200
$1,000
Billions

$800
$600
$400
$200
$0
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Source: US Census Bureau

NEARLY ALL GROWTH NOW COMES FROM ONLINE
SALES

US Retail Average Growth Rate During 1H 2016

16%

2%

Total retail E-Commerce

Source: US Census Bureau

AND WHILE PURCHASES MADE ON DESKTOP REMAIN
STRONG AND STEADY

US E-Commerce Sales On Desktop

$90
$80
$70
$60
Billions

$50
$40
$30
$20
$10
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016

Source: comScore
 ITS MOBILE COMMERCE THATS TAKING OFF

US E-Commerce Sales On Mobile

$18
$16
$14
$12
Billions

$10
$8
$6
$4
$2
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016

Source: comScore
SO WHATS DRIVING THIS GROWTH?

Source: Rawpixel, Shutterstock

CONSUMERS ARE GOING DIGITAL THE NUMBER OF ONLINE
SHOPPERS HAS GROWN NEARLY 20 MILLION SINCE 2015

Number Of US Online Shoppers In millions

224

208

Q1 2015 Q1 2016

Source: comScore
AND THEYRE SPENDING MORE THE AMOUNT OF
MONEY SPENT ONLINE GREW BY $7 BILLION

Online Spending By US Consumers In billions

$68

$61

Q1 2015 Q1 2016

Source: comScore
 CONSUMERS ARE ALSO SHOPPING ONLINE MORE OFTEN THE
NUMBER OF ONLINE TRANSACTIONS HAS INCREASED BY 115 MILLION
SINCE 2015

US Online Transactions In millions

895

780

Q1 2015 Q1 2016

Source: comScore
MEDIA, SPORTING & HOBBY GOODS ARE LEADING THE
WAY IN THE SHIFT TO DIGITAL

Digitals Share Of US Retail Sales

Clothing & accessories
Health & personal care
60%
Electronics, appliances, computers
Food & beverage
Furniture & home furnishings 40%

Media, sporting & hobby goods

20%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

OVER HALF OF THESE SALES WILL OCCUR ONLINE IN 2016

US Sales Of Media, Sporting & Hobby Goods

$100
$90
$80
$70
$60
Billions

$50
In-Store
$40
$30
$20
Digital
$10
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

THAT MEANS RETAILERS NEED TO GO ALL IN ON DIGITAL

Source: Random Retail, Flickr

THE STAKES ARE HIGH: THE SPORTS AUTHORITY COULDNT KEEP UP
AND FILED FOR BANKRUPTCY IN APRIL

Source: Mike Mozart, Flickr

 ELECTRONICS HAS REMAINED STEADY

Digitals Share Of US Retail Sales

Clothing & accessories
Health & personal care
60%
Electronics, appliances, computers
50%
Food & beverage
Furniture & home furnishings 40%

Media, sporting & hobby goods 30%

20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

NEARLY ONE IN FOUR ELECTRONICS PURCHASES HAVE
BEEN MADE ONLINE EACH YEAR SINCE 2014

US Sales Of Electronics & Appliances

$120

$100

$80
Billions

$60
In-Store
$40

$20
Digital
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

 BEST BUY HAS BEEN CAPITALIZING ON THIS

Best Buy E-Commerce Sales In millions

$2,500

$1,950
$1,720
$2,000

$1,500

$832 $835
$709
$1,000

$639 $581 $601 $673 $676

$500

$0

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Source: Company filings

 BUT AMAZON IS CHALLENGING BEST BUYS
DOMINANCE

US Consumer Electronics Market Share, By Retailer

Best Buy Amazon Apple

30%
25%
20%
15%
10%
5%
0%
2010 2011 2012 2013 2014 2015

Source: Deutsche Bank, Twice

DESPITE LOGISTICAL BARRIERS, CONSUMERS ARE ALSO
INTERESTED IN BUYING FURNITURE ONLINE

Digitals Share Of US Retail Sales

Clothing & accessories
Health & personal care
60%
Electronics, appliances, computers
50%
Food & beverage
Furniture & home furnishings 40%

Media, sporting & hobby goods 30%

20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

ONLINE FURNITURE SALES ARE RAPIDLY APPROACHING A QUARTER
OF THE TOTAL MARKET

US Sales Of Furniture
$180
$160
$140
$120
Billions

$100
$80
$60
In-Store
$40
$20 Digital
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

WAYFAIR LAUNCHED AN AR APP CALLED WAYFAIRVIEW THAT LETS
SHOPPERS SEE HOW FURNITURE WOULD LOOK IN THEIR HOME

Source: Scott Lewis, Flickr

MOVES LIKE THIS MAY HELP WAYFAIR KEEP UP ITS RAPID GROWTH
SALES HAVE MORE THAN DOUBLED IN TWO YEARS

Wayfair E-Commerce Retail Revenue Growth

$800
$700 $756
$686 $712
$600
Millions

$500 $545
$400 $440
$300 $347 $369
$200 $286

$100
$0
Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Source: Company filings

ALTHOUGH APPAREL AND ACCESSORIES ARE SLOWER IN
THE SHIFT TO DIGITAL

Digitals Share Of US Retail Sales

Clothing & accessories
Health & personal care
60%
Electronics, appliances, computers
50%
Food & beverage
Furniture & home furnishings 40%

Media, sporting & hobby goods 30%

20%
10%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

 ONE QUARTER OF PURCHASES OCCUR ONLINE

US Sales Of Apparel
$350

$300

$250

$200
Billions

$150
In-Store
$100

$50
Digital
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

ACCOUNTING FOR NEARLY $80 BILLION IN ONLINE SALES

US E-Commerce Sales, By Category

Clothing & accessories
$80
Media, sporting & hobby goods
Furniture & home furnishings
$60
Electronics, appliances, computers

Billions
Health & personal care
$40
Food & beverage

$20

$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

E-COMMERCE WILL ACCOUNT FOR 8% OF ALL HEALTH
AND PERSONAL CARE ITEMS SOLD THIS YEAR

US Sales Of Health & Personal Care Products

$350

$300

$250

$200
Billions

$150

$100 In-Store

$50
Digital
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

AND SUBSCRIPTION SERVICES ARE CAPITALIZING ON CONSUMERS
NEED TO STOCK UP ON THESE PRODUCTS

Source: Sean Locke Photography, Shutterstock

BUYING THESE FREQUENTLY PURCHASED ITEMS ONLINE ELIMINATES
IN-STORE FRUSTRATIONS

Source: Gemenacom, Shutterstock

IN JULY 2016, SUBSCRIPTION-BASED COMPANY DOLLAR SHAVE CLUB
WAS ACQUIRED BY UNILEVER FOR $1 BILLION

Source: Dollar Shave Club

AMAZON IS THE MOST POPULAR E-COMMERCE DESTINATION FOR
EVERYDAY GOODS LIKE HEALTH AND BEAUTY PRODUCTS

Monthly US Visitors To Online CPG Shopping Destinations In thousands, 2015

Amazon 175,094

Walmart 81,919

Target 50,843

Kroger 7,844

Safeway 3,377

SuperValu 2,982

Albertsons 910

Source: comScore
AND HIGH-END CONSUMERS ARE FLOCKING TO THE E-COMMERCE
GIANT IN GREATER NUMBERS

Affluent US Consumer Behavior On Amazon 2015

Affluent consumers (HHI $75,000+) Upper affluent consumers (HHI $250,000+)
Top 1% consumers (HHI $500,000+)

Think Amazon is better than other stores 71% 73% 83%

Buy from Amazon once a month or more often 58% 66% 72%

Have bought from Amazon in the past 12 months 67% 70% 62%

Source: Shullman Research Center

AMAZONS RECCURRING ORDER CAPABILITIES
ARE POPULAR
Amazon Subscribe & Save Growth As Part Of Total CPG E-Commerce Year-Over-
Year Sales Growth 2015

22%

20%

YoY growth

Source: 1010data
 AND AMAZONS 2015 LAUNCH OF THE DASH BUTTON MADE
REORDERING HOUSEHOLD GOODS AS EASY AS PUSHING A BUTTON

Source: Amazon
 BUT GROCERIES ARE THE BIGGEST OPPORTUNITY
IN E-COMMERCE

Digitals Share Of US Retail Sales

Clothing & accessories
Health & personal care
60%
Electronics, appliances, computers
Food & beverage
Furniture & home furnishings 40%

Media, sporting & hobby goods

20%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

EVEN THOUGH ONLY 2% OF ALL GROCERY SALES WILL TAKE PLACE
ONLINE

US Grocery E-Commerce Sales

$500
$450
$400
$350
$300
Billions

$250
$200
$150
$100
$50
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016

Source: US Census Bureau, BI Intelligence estimates

AMERICANS WILL SPEND OVER $700 BILLION TOTAL ON GROCERIES
IN 2016

Total US Sales Of Grocery

$800
$700
$600
$500
Billions

$400
$300
$200
$100
$0
2005 2006 2007 2008 2009 2010 2011 2012 2013 E2014 E2015 E2016
Source: US Census Bureau, BI Intelligence estimates
 DESPITE CONSUMER CONCERNS OVER BUYING PERISHABLES
ONLINE

SURVEY: Why Dont You Shop Online For Groceries? US, 2015
I like to select my own fruits & vegetables 59%
I like to touch, smell, and see what I'm buying 49%
I want to take advantage of special in-store deals 39%
I have the Hme to go grocery shopping 33%
I shop with a parHal list and by browsing the 29%
I use a lot of coupons 19%
I can nd the products I want in-store 17%
I use grocery shopping to get out of the house 14%
Ordering groceries online is more eort than it's 13%
I enjoy talking with people in the store 12%
I prefer to buy groceries at certain stores 10%
It's too expensive 9%
I haven't received any special oers 7%
I'm not very tech savvy 6%
Buying anything online scares me 6%

Source: Brick Meets Click

CONSUMERS OF ALL AGES HAVE SHOWN INTEREST

US Shoppers That Have Bought Groceries Online

2014 2015
37%
34%
32%
28%
25% 25%

11%
7% 7% 6% 7%
5%

18-24 25-34 35-44 45-54 55-64 65 and older

Source: AT Kearney
INSTACART WILL PROCESS $600 MILLION IN ONLINE ORDERS IN 2016

Instacart Annual Sales Handled

$700
$600
$500

Millions
$400
$300
$200
$100
$0
2012 2013 2014 P2015 E2016

Source: BI Intelligence estimates

 NOW LETS SEE HOW E-COMMERCE MASS MERCHANTS ARE
PERFORMING THE RETAILERS THAT SELL ALL OF THESE PRODUCTS

Source: Tookapic; Pexels

AMAZON HAS BEEN THE BIGGEST BENEFICIARY OF
E-COMMERCE'S GROWTH
Amazon Global Retail Revenue In billions ($)

YoY Growth
$30,000

100%
$25
80%
$25,000

$20 $20 $21

$17 $16 $17
$20,000

$15 60%
$15,000
$13 $13 $13 $13
$10 $10 $11 40%
$10,000

$7 $8 $8

$5,000
20%

$0

0%
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Source: Company filings

 AND DESPITE A SLOWDOWN IN GROWTH, EBAYS GROSS
MERCHANDISE VOLUME HAS REMAINED FAIRLY STEADY

eBay Global Gross Merchandise Volume In billions ($); Ex-auto

YoY Growth
$25,000

$21 $21 20%

$21 $20 $20 $20 $20
$20 $20 $20 $19
$19 $18 $18 $18
15%
$16 $16 $16
$20,000

$15,000

10%
$10,000

5%
$5,000

0%
$0

-5%
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Source: Company filings

BUT LEGACY BIG-BOX RETAILERS ARE STILL STRUGGLING
TO SUCCESSFULLY SHIFT TO DIGITAL

Source: SFIO CRACHO, Shutterstock

WALMARTS E-COMMERCE SALES HAVE BEEN SUFFERING

Walmart Global E-Commerce Sales Year-Over-Year Growth

30%

25%

20%

15%

10%

5%

0%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Source: Company filings

AND LESS THAN 5% OF TARGETS TOTAL SALES COME
FROM E-COMMERCE
Target E-Commerce Sales

E-commerce as % of total sales

$1,200 $1,081
10%

9%

$1,000 8%

$800
7%
Millions

$567
6%

$600 $534
$479 $471 $463
5%

5%
4%

$400
4%
3%

3%
$200 3% 3% 3%
2%

1%

$0 0%

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Source: Company filings

RETAILERS NEED TO EMBRACE MULTIPLE CHANNELS TO
REACH CONSUMERS

Source: Tanay Mondal, Flickr

SHOPPERS THAT ENGAGE WITH RETAILERS ON MULTIPLE CHANNELS
MAKE PURCHASES MORE OFTEN

SURVEY: How often do you make purchases from your favorite retailers
website?
Number of channels engaged
1-4 5-9 10+
52%
49%
43%
36%
32%
28%
25%
21%
14%

Once a week or more At least once a month, less than Less than once a month
once a week

Source: Fluent
AND SOCIAL MEDIA IS ONE OF THE MOST IMPORTANT CHANNELS

US Shoppers That Tried A New Brand Or Product, By Digital Tool Influencer 2015
Retailer social 29%
Brand social 28%
Daily deal sites 23%
Friend social 22%
Product reviews 21%
Mobile payment 18%
Brand texts 18%
Shopping apps 17%
Brand emails 17%
Mobile coupons 15%
Brand websites 15%
Retailer emails 14%
Search engines 13%
Retailer websites 11%

Source: Epsilon
BECAUSE DESPITE E-COMMERCES SMALL PORTION OF
TOTAL RETAIL SALES

Overall US Retail Sales

E-Commerce In-Store

$1,400
$1,200
$1,000
Billions

$800
$600
$400
$200
$0
Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Source: US Census Bureau

 IT IS CONTINUALLY DRIVING GROWTH IN THE TOTAL
MARKET

US Retail Average Growth Rate During 1H 2016

16%

2%

Total retail E-Commerce

Source: US Census Bureau

MAKING IT IMPORTANT TO STRADDLE THE DIVIDE BETWEEN
PHYSICAL AND DIGITAL RETAIL

Source: Andrey_Popov, Shutterstock

 YOUNGER CONSUMERS HAVE A SUSTAINING INTEREST IN
IN-STORE RETAIL

US Teens Time Spent In Shopping Channels

Online-only retailers Physical retailers with online stores

90% 87% 89% 87% 86% 86%

85% 82%

15% 18% 14% 14%

10% 13% 11% 13%

Fall 2012 Spring 2013 Fall 2013 Spring 2014 Fall 2014 Spring 2015 Fall 2015 Spring 2016

Source: Piper Jaffray

 AND 65% OF MILLENNIALS USE THEIR SMARTPHONE WHILE
SHOPPING IN-STORE

US Millennial Smartphone Behaviors When Shopping 2016

Use smartphones while waiting in line to make

65%
a purchase

Use a smartphone in store to search for a

53%
discount or coupon

Use a smartphone to look at product reviews

34%
while shopping in store

Use a smartphone to pay for an in-store

14%
purchase

Source: Alliance Data

BEACONS ARE ONE OF THE BEST WAYS TO LEVERAGE
THIS IN-STORE BEHAVIOR

Source: Estimote
BEACONS COMMUNICATE WITH IN-STORE SHOPPERS
SMARTPHONE APPS VIA BLUETOOTH

Source: Estimote
 AND HAVE THE POTENTIAL TO DRIVE UP IN-STORE SALES

Percentage Of US CPG Sales* Influenced By Beacon-Triggered Messages

Actual vs. addressable, 2016

87%
98%

2% 13%

Actual beaconized Addressable CPG

sales sales**
$8 billion $35 billion

*Total US CPG market = $407 billion

**Based on the requirements to be beacon receptive

Source: BI Intelligence estimates

TARGETS CARTWHEEL MOBILE APP LEVERAGES BEACONS
TO PUSHES PROMOTIONS TO SHOPPERS

Source: Mike Mozart, Flickr

TARGET SHOPPERS HAVE SAVED OVER $275 MILLION IN
COUPONS AND DISCOUNTS THROUGH CARTWHEEL

Number Of Target Cartwheel Mobile App Downloads In millions

18

Source: Target
BEACONS HAVE BEEN ADOPTED BY A NUMBER OF
TOP CPG RETAILERS

Source: Mike Mozart; Shaggy Paul, Flickr

CLICK AND COLLECT IS ANOTHER CROSS-CHANNEL STRATEGY THAT
ALLOWS SHOPPERS TO PICK UP ONLINE ORDERS IN-STORE

Source: Nejron Photo, Shutterstock

ONLINE SHOPPERS ARE QUICKLY ADOPTING THIS METHOD, WHICH
MADE UP ONE-THIRD OF SAMS CLUBS ONLINE SALES IN 2015

Percentage of Online Sales That Are Click and Collect, By Retailer 2015
Sam's Club 30%

Kmart 23%

Toys R Us 15%

Best Buy 12%

Home Depot 9%

Walmart 8%

Target 7%

Bloomingdale's 3%

Source: Slice Intelligence

 IN ADDITION TO BEACONS, CVS HAS ROLLED OUT
CLICK AND COLLECT

CVS Net Revenue In billions

YoY growth
$50,000

$44 50%
$41 $43
$39
$45,000

$37 $36 $37 40%

$35 $35
$40,000

$35,000
$33
$30,000

30%
$25,000

$20,000

20%
$15,000

$10,000

10%
$5,000

$0

0%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016

Source: Mike Kalasnik, Flickr

EVEN E-COMMERCE GIANT AMAZON OPENED ITS FIRST-EVER BRICK-
AND-MORTAR LOCATION AS IT GOES OMNICHANNEL

Source: Amazon
THE RISE OF ONLINE SHOPPING WILL INCREASINGLY BLUR THE LINES
BETWEEN DIGITAL AND PHYSICAL RETAIL
MAKING OMNICHANNEL STRATEGIES NECESSARY FOR BOTH LEGACY
RETAILERS AND NEW ENTRANTS

Source: gpointstudio, Pexels

MEET THE BI INTELLIGENCE E-COMMERCE TEAM

Evan Bakker Nancee Halpin

Senior Research Research Analyst
Analyst