Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

E-commerce retailers have proliferated and gained share the last 10 years, and we don't foresee these pressures abating. In this light, we contend brick-and-mortar players will face headwinds related to pricing, brand differentiation, and traffic, particularly those operating in commodified categories (such as small kitchen appliances or bath towels). As such, we recently modified our profit outlook for players in the home furnishing and furniture industry, including <a href="https://www.smartkarma.com/entities/18231" target="_blank" data-smartkarma-citation="entities:18231:1">Bed Bath &amp; Beyond Inc (BBBY US)</a> , <a href="https://www.smartkarma.com/entities/9694" target="_blank" data-smartkarma-citation="entities:9694:1">Restoration Hardware Holdings Inc (RH US)</a> , and <a href="https://www.smartkarma.com/entities/11383" target="_blank" data-smartkarma-citation="entities:11383:1">Williams Sonoma Inc (WSM US)</a> .However, we perceive the opportunities and challenges across the space as varied. Beyond playing in categories that are more challenging to penetrate online (knowledge on DIY projects is hard to replicate, and lumber is costly to ship), we think those best equipped to defend their competitive position are already investing in e-commerce as a means by which to protect their intangible asset moat source (including <a href="https://www.smartkarma.com/entities/8399" target="_blank" data-smartkarma-citation="entities:8399:1">Home Depot Inc (HD US)</a> and <a href="https://www.smartkarma.com/entities/4156" target="_blank" data-smartkarma-citation="entities:4156:1">Lowe's Cos Inc (LOW US)</a>). Further, some will hold their brand relevance, as e-commerce already composes an important part of the operating profile, which should sustain the brand intangible asset (such as Williams-Sonoma and <a href="https://www.smartkarma.com/entities/6092" target="_blank" data-smartkarma-citation="entities:6092:1">Wayfair Inc Class A (W US)</a>). Conversely, we maintain that despite efforts to amass a more sizable presence, some brick-and-mortar companies will remain uncompetitive in the e-commerce realm (Bed Bath &amp; Beyond, for example) given rising price transparency and discounting as well as the proliferation of firms catering to the space. In this context, we view narrow-moat Williams-Sonoma and wide-moat Lowe's as attractively valued, given their competitive positioning and opportunity sets.Analyst: Jaime M. Katz, CFA

E-commerce retailers have proliferated and gained share the last 10 years, and we don't foresee these pressures abating. In this light, we contend brick-and-mortar players will face headwinds related to pricing, brand differentiation, and traffic, particularly those operating in commodified categories (such as small kitchen appliances or bath towels). As such, we recently modified our profit outlook for players in the home furnishing and furniture industry, including Bed Bath &amp; Beyond Inc (BBBY US) , Restoration Hardware Holdings Inc (RH US) , and Williams Sonoma Inc (WSM US) .However, we perceive the opportunities and challenges across the space as varied. Beyond playing in categories that are more challenging to penetrate online (knowledge on DIY projects is hard to replicate, and lumber is costly to ship), we think those best equipped to defend their competitive position are already investing in e-commerce as a means by which to protect their intangible asset moat source (including Home Depot Inc (HD US) and Lowe's Cos Inc (LOW US)). Further, some will hold their brand relevance, as e-commerce already composes an important part of the operating profile, which should sustain the brand intangible asset (such as Williams-Sonoma and Wayfair Inc Class A (W US)). Conversely, we maintain that despite efforts to amass a more sizable presence, some brick-and-mortar companies will remain uncompetitive in the e-commerce realm (Bed Bath &amp; Beyond, for example) given rising price transparency and discounting as well as the proliferation of firms catering to the space. In this context, we view narrow-moat Williams-Sonoma and wide-moat Lowe's as attractively valued, given their competitive positioning and opportunity sets.Analyst: Jaime M. Katz, CFA

Brick-And-Mortar Retailers Continue to Cede Share to Online Peers, but Not All Players Created Equal

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul><li><a href="https://www.smartkarma.com/entities/15584" target="_blank" data-smartkarma-citation="entities:15584:1">Hyundai Livart Co Ltd (079430 KS)</a>, a mid-sized maker and distributor of furniture in Korea, recently clinched a deal with <a href="https://www.smartkarma.com/entities/11383" target="_blank" data-smartkarma-citation="entities:11383:1">Williams Sonoma Inc (WSM US)</a> as the sole franchisee of Williams Sonoma stores in Korea. This is a major deal for Hyundai Livart Co, one that should help its long-term sales and profit growth. Hyundai Livart plans to open 5-6 Williams Sonoma stores in 2017 and about 30 stores over the next decade in Korea. In this business relationship, Hyundai Livart purchases various Williams Sonoma home furnishing products and Hyundai Livart sells this in Korea as its exclusive franchisee. </li><li>The home furnishing market is a big industry in Korea. It was estimated to be about 11.2 trillion won (US$10 billion) in 2016. One of the key attractions of having Williams Sonoma stores in Korea is that it is a well-known home furnishing brand among many Koreans, especially those that have visited the US. Because it is difficult to purchase home furnishing items when one is traveling in the US and bring them back to Korea because they are bulky and may break, having Williams Sonoma stores in Korea will make it more convenient for Korean consumers to purchase these home furnishing items.</li><li>If we conservatively assume a 10% discount to the consensus net profit estimate of 48.6 billion won in 2018 (44 billion won), and apply the same 14x P/E multiple (Hyundai Livart shares are trading at 14x 2016 net profit estimate righ now), this would result in a price target of 36,000 won, which is nearly 29% upside from current levels. In addition, we believe that the company has a strong potential to slightly improve its profit margins with the premium Williams Sonoma branded products, which could increase the valuation multiples on Hyundai Livart.</li><li>Other major domestic competitors in the home furnishing market in Korea - In addition to the competitors such as Hanssem, Fursys, and IKEA, there are other major competitors including Jaju (part of <a href="https://www.smartkarma.com/entities/4454" target="_blank" data-smartkarma-citation="entities:4454:1">Shinsegae International Co (031430 KS)</a>, Modern House (part of Newcore Department Store), Zara Home (part of Zara), and Muji (part of Lotte Department Store).</li></ul>

Hyundai Livart Co Ltd (079430 KS), a mid-sized maker and distributor of furniture in Korea, recently clinched a deal with Williams Sonoma Inc (WSM US) as the sole franchisee of Williams Sonoma stores in Korea. This is a major deal for Hyundai Livart Co, one that should help its long-term sales and profit growth. Hyundai Livart plans to open 5-6 Williams Sonoma stores in 2017 and about 30 stores over the next decade in Korea. In this business relationship, Hyundai Livart purchases various Williams Sonoma home furnishing products and Hyundai Livart sells this in Korea as its exclusive franchisee. The home furnishing market is a big industry in Korea. It was estimated to be about 11.2 trillion won (US$10 billion) in 2016. One of the key attractions of having Williams Sonoma stores in Korea is that it is a well-known home furnishing brand among many Koreans, especially those that have visited the US. Because it is difficult to purchase home furnishing items when one is traveling in the US and bring them back to Korea because they are bulky and may break, having Williams Sonoma stores in Korea will make it more convenient for Korean consumers to purchase these home furnishing items.If we conservatively assume a 10% discount to the consensus net profit estimate of 48.6 billion won in 2018 (44 billion won), and apply the same 14x P/E multiple (Hyundai Livart shares are trading at 14x 2016 net profit estimate righ now), this would result in a price target of 36,000 won, which is nearly 29% upside from current levels. In addition, we believe that the company has a strong potential to slightly improve its profit margins with the premium Williams Sonoma branded products, which could increase the valuation multiples on Hyundai Livart.Other major domestic competitors in the home furnishing market in Korea - In addition to the competitors such as Hanssem, Fursys, and IKEA, there are other major competitors including Jaju (part of Shinsegae International Co (031430 KS), Modern House (part of Newcore Department Store), Zara Home (part of Zara), and Muji (part of Lotte Department Store).

Hyundai Livart - Beneficiary of Williams Sonoma's Expansion in Korea

United States

Dick's Sporting Goods, Inc. operates as a sporting goods retailer that manages stores primarily in the eastern and central United States. The Company owns stores that offers a broad selection of brand name sporting goods equipment, apparel, and footwear.

Burlington Stores, Inc. owns and operates clothing retail stores. The Company offers, through its stores and internet sites, men's, women's, and children's apparel. Burlington Holding operates within the United States and Puerto Rico.

Tractor Supply Company operates a retail farm store chain in the United States. The Company provides farm maintenance products, animal products, general maintenance products, lawn and garden products, light truck equipment, work clothing, and other products.  Customers include hobby, part-time, and full-time farmers and ranchers, as well as rural customers, contractors, and tradesman.

Abercrombie & Fitch Co.  a specialty retailer that operates stores and direct-to-consumer operations. Through these channels, the Company sells: casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women and kids.

Murphy USA Inc. produces and distributes petroleum products. The Company engages in refining, marketing, and transportation of oil and gas products. Murphy USA provides products and services worldwide.

The Gap, Inc., is an international specialty retailer operating retail and outlet stores.  The Company sells casual apparel, accessories and personal care products for men, women, and children. The Gap operates stores in the United States, Canada, the United Kingdom, France, Ireland, and Japan.

Ulta Beauty, Inc. operates a chain of beauty stores. The Company offers cosmetics, fragrance, skin, and hair care products, as well as salon services. Ulta Beauty serves customers throughout the United States.

Lithia Motors, Inc. retails, finances, and services new and used vehicles. The Company also provides other related services and products, such as the sale of parts and accessories, extended service contracts, aftermarket automotive products, and collision repair services. Lithia Motors operates throughout the United States.

GameStop Corporation operates specialty electronic game and PC entertainment software stores throughout the United States, Australia, Canada and Europe. The Company stores sell new and used video game hardware, video game software and accessories, as well as PC entertainment software, and related accessories and other merchandise.

Penske Automotive Group, Inc. operates franchised automobile dealerships. The Company's franchises are located throughout the United States, Puerto Rico and the United Kingdom.  Penske Automotive sells new and used vehicles as well as offers maintenance and repair services on all brands it represents.

Chow Tai Fook Jewellery Group Limited retails jewelry.  The Company sells rings, necklaces, earrings, pendants, bracelets, and small statues.  Chow Tai Fook Jewellery operates retail stores in China, Hong Kong, Macau, Taiwan, Malaysia, and Singapore.

HIKARI TSUSHIN, INC. is a mobile telecommunication service subscription agency. The Company also operates telecommunication services stores, HIT SHOP, which sell cellular telephones, and related goods.  Hikari Tsushin also sells office automation equipment and insurance.

Hotai Motor Company Ltd. operates as an automobile dealership. The Company sells and services new and used cars and trucks in Taiwan.

Nitori Holdings Co., Ltd., is based in Hokkaido and operates a furniture retail chain.  The Company sells living room furniture, storage furniture, dining furniture, office furniture, beds, and interior goods.  Nitori Holdings also sells original brand merchandise and imported merchandise.

JD Sports Fashion PLC operates a chain of retail stores which sell brand-name sports and leisure wear. The Company sells sports and leisure footwear, clothing, and accessories, among other items. JD Sports Fashion serves customers in the United Kingdom.

Hennes & Mauritz AB (H&M) designs and retails fashions for women, men, teens, and children.  The Company sells a variety trendy, sporty, and classic garments in addition to accessories such as jewelery, bags, and scarves, and cosmetics. H&M owns and operates stores in many European countries and the United States.

JB Hi-Fi Limited is a music and electronic goods retailer in Australia.  The Company operates stores at sites located in most Australian States.  Products include consumer electronics, car sound systems, music and DVDs.

ABC-MART, INC. plans, develops, wholesales, and retails shoes.  The Company also plans and develops brand name shoes such as VANS and G.T. HAWKINS.  ABC-Mart imports and wholesales shoes, apparel, bags, and sundries as well.

L'Occitane International S.A. is a global, natural and organic ingredient based cosmetics and well-being products enterprise.  The Company designs, manufactures and markets a wide range of cosmetics and well-being products based on natural and organic ingredients sourced principally from or near Provence.

Zhongsheng Group Holdings Ltd. retails automobiles.  The Company imports and retails primarily luxury and mid- to high-end automobile brands.

Williams-Sonoma, Inc. retails cooking and serving equipment, home furnishings, and home accessories through retail stores, mail order catalogs and e-commerce. The Company offers its merchandise under the Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Teen, and West Elm.

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Williams Sonoma (WSM US)

Hyundai Livart - Beneficiary of Williams Sonoma's Expansion in Korea

Hyundai Livart Co Ltd (079430 KS), a mid-sized maker and distributor of furniture in Korea, recently clinched a deal with Williams Sonoma Inc...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Brick-And-Mortar Retailers Continue to Cede Share to Online Peers, but Not All Players Created Equal

E-commerce retailers have proliferated and gained share the last 10 years, and we don't foresee these pressures abating. In this light, we contend...

Morningstar, Inc.

Hyundai Livart - Beneficiary of Williams Sonoma's Expansion in Korea

Hyundai Livart Co Ltd (079430 KS), a mid-sized maker and distributor of furniture in Korea, recently clinched a deal with Williams Sonoma Inc...

Douglas Kim