As penetration continues to rise, more stores will close

An enduring legacy of the pandemic is that online penetration rose sharply. We expectthat it will continue to increase, which will drive further rationalization of retail stores,especially as some of the unique support measures from the government subside. Ourdeep dive analysis lays out our base scenario where we expect ~80k stores to close overthe next five years. This will bring the total number of retail stores to 797k from 878k in‘20. This assumes that online penetration grows to 27% in CY'26, from 18% in 2020.Yet, our analysis also presumes that retailers evolve and adapt their store formats to bethe centerpiece of interacting with consumers, including fulfilling online orders. In thiscase, we assume that eCommerce sales fulfilled by retail stores grows from 10% inCY'20, to 20% in CY'26. Overall, under this framework, every 100 bp increase in onlinepenetration results in the equivalent sales of 8k stores shifting to eCommerce. Goingforward, we think retailers best positioned to adapt their store formats or levered tocategories with less disruption from the shift online will be best positioned. This includesCOST, WMT, HD, LOW, AAP, TJX, and others.