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Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

Greece Consumer discretionary / 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