Experience Is the New Moat
Although Amazon's acquisition of Whole Foods blows open the dam protecting thesupplier and structural channels, most of the value erosion has taken place along the
customer channel, as evidenced by the year-to-date performance of the 289 companies
lying in the 21 sub-industries along each of the three channels:
ï‚· Overall: -2.6% versus +18.3% for S&P 500 (negative delta of 2,090 basis points)
ï‚· By Channel: Customer (-13.2%), Supplier (+2.6%), Structural (+7.4%)
To protect themselves from the raging Amazon river, companies need to build an
experience moat by ascending the following two pyramids:
ï‚· Customer Capital Pyramid: We believe the best-positioned companies to
advance beyond the functional value proposition are luxury brands like Starbucks,
Tiffany & Co, Coach and Nike that can dig into their roots to create authentic
experiences to enhance the emotional connection with their customers.
ï‚· Structural Capital Pyramid: We expect to see more companies partnering with
technology companies like Amazon, Apple, Alphabet, Alibaba and Pinterest to
leverage their AI to enhance the shopping experience. However, we believe the
value will ultimately flow up the pyramid to the technology companies themselves
and companies like Walmart and Stitch Fix, which are building their own AI.
Looking to 2018, we caution investors against setting foot along the treacherous
eroding retail banks of all the channels which are laden with value traps. However, we
believe the following sub-industries could present opportunities for investors:
ï‚· Customer Channel: Apparel, Accessories & Luxury Goods (luxury companies
that feature forward integration and high margins)
ï‚· Structural Channel: Hypermarkets & Super Centres (Walmart) and Industrial
REITs (warehouses with no legacy exposure)
ï‚· Supplier Channel: Restaurants (Starbucks), Soft Drinks
Bezos is transforming Alexa into the Amazonian Queen ruling over both the smart
home and the smart office as he aspires to transform not only how we shop, but also
how we live and work:
ï‚· Smart Home: Alexa is now up to 25,000 skills and Amazon sold millions of Echo
devices over the holiday weekend.
ï‚· Smart Office: Amazon just launched Alexa for Business, complementing its $1-
billion Amazon Business division, which just started offering Business Prime
Shipping
Target provides its customers everyday essentials and merchandise. The company sells an assortment of general merchandise and food. The majority of the company's general merchandise stores provide an edited food assortment, including perishables, dry grocery, dairy, and frozen items. The company's small format stores provide curated general merchandise and food assortments. The company's digital channels include merchandise assortment, including various items found in its stores, along with a complementary assortment. The company also sells merchandise through periodic design and partnerships. The company's owned brands merchandise include: A New Day?, Archer Farms?, Art Class?, Ava & Viv?, Cat & Jack?, and Cloud Island?, among others.
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