Consumer Technology June 14, 2018 Industry Update

Prices: 6/13/2018 Brand Amazon - Implications of Company's Private-Label Efforts Industry: To analyze Amazon’s private label efforts, we reviewed where its items ranked in product searches Consumer Technology as a means of gauging their sales. Of the 100 items we analyzed, 24% were ranked first, 56% were in the top 10%, 65% were in the top 20, and 35% were outside the top 20. While encouraged by Tom Forte, CFA the results, we consider Amazon to be in the early innings of its private label efforts, with significant 212-223-5364 opportunities to expand into more products and categories. [email protected] While gathering data, we noticed the increasing prevalence of Amazon’s advertising efforts. Ninety four of the 100 product searches had advertisements. We believe Amazon’s private-label efforts are important to the company for several reasons: • SALES IMPLICATIONS: First, when considering the impact of its private-label sales efforts in a vacuum, we project Amazon has greater than a 25% chance of increasing our near-term sales CAGR by 100 basis points from its private-label efforts. A 100 basis points increase would raise our 2020 forecast to $348.6B from $340.3B for a delta of $8.3B. However; when including its advertising sales, which should benefit from its private-label efforts, we increased our near-term and long-term sales projections by 100 basis points to reflect our confidence in both initiatives moving the needle. • MARGIN IMPLICATIONS: Second, again looking in a vacuum, we forecast the incremental revenue growth would negatively impact our near-term adj. EBITDA margin projection by 35 basis points to 14.4% from 14.8%. We estimate the contribution margin is only higher than its first-party sales, while lower than its cloud computing efforts, advertising, and third-party sales. However, when considering the high contribution margin of its advertising sales, at this time, we are not forecasting margin degradation on the assumption ad-sales related margin gains could offset dilution from its private-label efforts. • CATEGORY PENETRATION: Third, they provide it a means to further penetrate significant categories, such as apparel and groceries. This is important because it needs to expand its efforts in both to sustain its elevated growth rates, especially groceries. • IMPROVE PROFITABILITY: Fourth, it provides the company a means to improve the profitability of its first-party sales, which are much lower margin than third party and its cloud- computing service (AWS). • DRIVING ADVERTISING: ;Fifth, we believe the company’s private-label efforts provide sellers even more motivation to advertise on Amazon, which is an important source of high-margin revenue. • 365 OPPORTUNITY: Sixth, within groceries, we believe its 365 brand is underutilized online and it provides the company an opportunity to expand its physical grocery store footprint to pursue sales from more value-conscious consumers. • M&A: Seventh, we see private label as an important part of Amazon’s M&A strategy of building first and buying second. If it is unable to penetrate markets with private label, such as women’s apparel, we believe it will make acquisitions to do so. For example, we still consider lululemon as an attractive target and additionally see strategic value in Amazon acquiring startup Everlane and privately held Vineyard Vines. • ANTITRUST RISK: In addition, our industry experts suggested Amazon could face antitrust scrutiny if it unilaterally ranked its private-label products first in its natural search results, regardless of their sales performance. • GOOGLE SHOPPING ACTIONS: Lastly, following our conversations with industry experts, we will be closely monitoring the performance of Google Shopping Actions (Google’s latest e- commerce effort to reduce friction between product searches and purchases) to see if it has a negative impact on Amazon’s sales growth. • STOCK RECOMMENDATIONS: Conducting research for this report increased our conviction in our BUY ratings for Amazon, ChannelAdvisor, Overstock, Park City Group, Quotient Technology, and Qurate Retail Group. While it also made us more confident regarding Wayfair’s business model, we continue to see its shares as overbought and are reiterating our UNDERPERFORM rating.

Please refer to pages 57 - 58 of this report for detailed disclosure and certification information. D.A. Davidson & Co. Member SIPC D.A. Davidson & Co.

TABLE OF CONTENTS EXECUTIVE SUMMARY ...... 3 THE INCREASING VALUE OF AMAZON’S BRAND ...... 8 AMAZON’S PRIVATE LABEL EFFORTS ...... 9 Category Penetration ...... 11 Category Penetration – Easy Categories ...... 11 Category Penetration – Millenials...... 20 Category Penetration – Difficult Categories ...... 21 Product Development ...... 26 Product Development – Strengths ...... 26 Product Development – Weaknesses ...... 26 Advertising ...... 27 Advertising – Ad Load ...... 30 365 Opportunity...... 30 Private Label and M&A ...... 32 Antitrust ...... 33 Google Shopping Actions ...... 35 APPENDIX ...... 36

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EXECUTIVE SUMMARY Figure 1. Amazon: Private Label

Source: Amazon and D.A. Davidson.

Amazon’s Private-Label Efforts – Important for Several Reasons We believe Amazon’s private-label efforts enable it to further penetrate categories (including apparel and groceries), improve the profitability of first-party sales (relative to branded merchandise), and drive high-margin advertising revenues. Further, we see an opportunity for it to advance the online and offline efforts of its 365 groceries private label.

Sales and Margin Implications Note, as a result of our research for this white paper, we increased our sales growth projections by 100 basis points per year, given our increased confidence in Amazon’s ability to generate incremental revenue from its private-label AND advertising sales; especially when considering we see its private-label efforts as a catalyst for its advertising. In this section and the next one, we discuss the sales and margin implications specific to its private-label efforts, without consideration of its advertising.

Sales Implications Our base-case near-term sales CAGR forecast for Amazon (see Figure 2) is 24.1% with revenue increasing to $340.3 in 2020 from $177.9B in 2017. If Amazon were able to increase its CAGR by 100 points (from its private-label efforts) our new forecast for 2020 would be $348.6B, for a delta of $8.3B. We estimate the likelihood of Amazon generating an incremental 100 basis points of sales growth from its private-label efforts to be greater than 25%.

Figure 2. Base-Case Sales Projections, 2014-2027E CAGR 2014- 2017- 2017- ($B) 2014 2017 2020E 2027E 2017 2020E 2027E North American Revenue 50.8 106.1 204.9 326.7 27.8% 24.5% 11.9% International Revenue 33.5 54.3 93.9 139.2 17.5% 20.0% 9.9% AWS Revenue 4.6 17.5 41.5 99.9 55.5% 33.4% 19.1% Total Amazon Revenue 89.0 177.9 340.3 565.8 26.0% 24.1% 12.3% Source: Company reports and D.A. Davidson.

Figure 3. Base-Case Margin Projections, 2014-2027E Change (Basis Points) 2014- 2017- 2017- 2014 2017 2020E 2027E 2017 2020E 2027E Amazon 7.2% 11.1% 14.8% 20.0% 392 364 888 Source: Company reports and D.A. Davidson.

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Figure 4. Sales and Margin Implications: Private Label Base Potential Base Potential Odds 2017- 2017- Upside/ 2020E 2020E Upside/ of 2020E 2020E (Downside) Adj. Adj. (Downside) Achieving Sales Sales Basis EBITDA EBITDA Basis Upside/ CAGR CAGR Points Margin Margin Points (Downside) Private Label 24.1% 25.1% 100 14.8% 14.4% (35) >25%

Source: Company reports and D.A. Davidson.

By way of comparison, Costco, which in our view operates one of the best private-label efforts, with its Kirkland products, generates approximately 25% of sales from them (excluding its private-label gas sales), or roughly $32.3B on FY17 sales of $129.0B. Working in Amazon’s favor, it offers a much larger selection of merchandise than Costco (millions versus thousands) and, therefore, has more opportunities to offer private-label products. Additionally, when considering its private-label sales are first-party (not third party) where Amazon records revenue at the full value of the item sold (instead of the commission generated on the sale).

Viewed differently, the incremental $8.3B would represent 2.7% of Amazon’s non-AWS revenue in 2020.

We would note the following. Longer term, at some point, with a fully rolled out private label assortment, the possibility remains that Amazon’s sales could by cyclical, similar to trends for private label products, in general. That said, Costco indicated it has not witnessed cyclicality in the performance of its Kirkland brand of products, which has experienced steady growth over time, independent of economic cycles (including the great recession of 2008 and 2009). For its part, Amazon noted it has not been selling private-label merchandise long enough for it to experience cyclical trends.

Margin Implications If Amazon is able to achieve an incremental 100 basis points of sales from its private-label efforts, we estimate it would negatively impact our near-term adj. EBITDA margin forecast by 35 basis points to 14.4% from 14.8%. Our analysis is based on our forecast of Amazon’s contribution margin from its private-label sales (gross margin less marketing expenses).

In the following table, we illustrate our projections on Amazon’s contribution margins by product type. Among its efforts, we see private-label as one of its lowest margin efforts, ahead of only its first-party retail sales. While its contribution margin is superior to first-party branded sales, we see it as much lower than its contribution margin from AWS, advertising, and third- party sales. Note, our 10% gross margin for Amazon’s private-label efforts may be conservative, but we are confident in our assumptions on how it ranks relative to its other efforts. Further, we believe it is fair to assume Amazon employs a low markup on its private- label merchandise, as that would be consistent with its overall pricing philosophy.

Figure 5. Margin Implications: Contribution Margin by Product Type

Product Gross Marketing Contribution Type Margin Expense Margin AWS 100.0% 7.5% 92.5% Advertising 85.0% 2.5% 82.5% Third Party 60.0% 5.0% 55.0% Total Company 37.1% 5.4% 31.7% Private Label 10.0% 2.5% 7.5% First Party 2.5% 5.0% (2.5%)

Source: Company reports and D.A. Davidson.

Lastly, advancements in its private-label revenues could slow its increasing penetration of third-party sales, which we see as a significant factor in its improving margin trends (outside of AWS). Between 4Q14 and 4Q17 its mix of third-party sales increased to 51% from 43% and its adj. EBITDA margin expanded by 392 basis points to 11.1% from 7.2%, over that time frame (full-year 2014 to full-year 2017).

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We discussed the company’s relative margins with industry experts, who pointed out the following. Amazon likely generates higher margins in a limited set of certain private-label products than its third-party retail efforts, according to Overstock, such as electronics accessories. Additionally, Overstock noted Wayfair is able to generate incremental profits from its private-label efforts by making it more difficult for consumers to competitively match products, enabling it to charge higher prices on the same item. We believe Amazon could employ a similar strategy.

OTHER CONCLUSIONS FROM OUR RESEARCH  We see electronics accessories, furniture, household products, and men’s apparel, as categories well suited for Amazon’s private-label efforts.  We consider beauty, branded electronics, jewelry, luxury apparel, toys, and women’s apparel as categories less well suited for Amazon’s private-label efforts.  Except for Amazon’s Echo Alexa-powered devices, we see product development as an area of weakness for Amazon. While it has great data on not only what consumers are searching for but also what they are buying, it is reliant on third-parties to innovate so it can determine which private-label products to make.  Should Amazon unilaterally rank its products first in natural search rankings (after sponsored), a number of our industry experts suggested Amazon may increase the likelihood of a Department of Justice antitrust inquiry.  We see private label as an important part of Amazon’s M&A strategy of building first and buying second. If it is unable to penetrate markets with private label, such as women’s apparel, we believe it will make acquisitions to do so. For example, we still consider lululemon as an attractive target (in the athleisure category), and additionally see startup Everlane (in basics), and privately-held Vineyard Vines (in fashion) as attractive targets for Amazon to advance its apparel efforts.  We will be closely monitoring the performance of Google Shopping Actions (Google’s latest e-commerce effort to reduce friction between product searches and purchases) to see if it has a negative impact on Amazon’s sales growth.

Stock Recommendations Overview Conducting research for this report increased our conviction in our BUY ratings for Amazon, ChannelAdvisor, Overstock, Park City Group, Quotient Technology, and Qurate Retail Group. While it also made us more confident regarding Wayfair’s business model, we continue to see its shares as overbought and are reiterating our UNDERPERFORM rating.

 AMAZON (AMZN): We are reiterating our BUY rating and $2,100 price target for AMZN , which is based on discounted cash flow analysis, including our long-term adj. EBITDA margin forecast of 20.0% versus 11.1% in 2017.  CHANNELADVISOR (ECOM): We are reiterating our BUY rating and $17 price target for ECOM, which is based on our discounted cash flow analysis, including our long- term adj. EBITDA margin forecast of 30.0% versus 3.7% in 2017. With Amazon advancing its private-label and advertising efforts, we see maximizing sales on Amazon as becoming more challenging for third-party sellers and brands, increasing the need for them to work with ChannelAdvisor, including its repricing algorithm tool.  OVERSTOCK (OSTK): We are reiterating our BUY rating and $100 price target for OSTK which includes $48 per share on the sale of the e-commerce business and $52 per share for its Medici Ventures (primarily tZero, Bitt, and Desoto). While not to the same scale as Amazon, Overstock’s efforts to increase its mix of private-label merchandise should be beneficial to its adj. EBITDA margin.  PARK CITY GROUP (PCYG): We are reiterating our BUY rating and $14 price target for PCYG; which is based on our discounted cash flow analysis, including our long- term adj. EBITDA MARGIN forecast of 45.0% versus 31.3% in FY17. Amazon’s August 2017 acquisition of Whole Foods and its increasing influence (as evidenced by its increasing private-label efforts) has lit a fire under food retailers to embrace technology to prevent disruption in a way few other things have, to date. For its part, Park City Group provides the necessary technology to enable food retailers to protect their businesses from Amazon’s advances, including its budding MarketPlace’s effort. It further empowers food retailers to maximize sales and minimize risk via its supply chain and food safety offerings. The company is well positioned to generate greater than 20% revenue growth, while achieving GAAP profitability, for years to come.

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 QUOTIENT TECHNOLOGY (QUOT): We are reiterating our BUY rating and $22 price target for QUOT, which is based on our discounted cash flow analysis, including our long-term adj. EBITDA margin forecast of 37.5% versus 14.6% in 2017. Similar to Park City Group, we see Amazon’s Whole Foods acquisition and continued ascent as increasing the need for large, consumer packaged goods brands to step up their efforts to promote via digital means, leveraging Quotient Technology’s services, including the ability to measure the efficacy of their advertising spending.  QURATE RETAIL GROUP (QRTEA): We are reiterating our BUY rating and $31 price target for QRTEA, which is based on our discounted cash flow analysis, including our long-term adj. EBITDA margin forecast of 20.0% versus 19.1% in 2017. We see Qurate’s discovery-based retail business model as complementary to Amazon’s, suggesting long-term durability. In particular, we believe it is well suited to succeed in categories that are difficult for Amazon to penetrate, including via private label, such as beauty and women’s apparel.  WAYFAIR (W): We are reiterating our UNDERPERFORM rating and $60 price target for W, which is based on our discounted cash flow analysis, including our long-term adj. EBITDA margin forecast of 8.0% versus negative 1.4% in 2017. While our research for this report increased our appreciation for Wayfair’s business model, including its use of private-label merchandise in the home category, we consider shares overbought at current levels.

Financial Projections For our financial estimates, we have included both e-commerce and total retail sales. We Industry project global retail sales will expand at a 5.7% compound annual growth rate (CAGR) between 2017 and 2020 (our near-term forecast). This would be a little slower than the 6.1% pace projected in the prior 3-year period. Our 10-year (long-term) forecast is a 5.2% CAGR. We forecast global e-commerce to achieve a near-term rate of 24.0% (versus 19.9%) and a long-term one of 13.7%. Note, our projections reflect eMarketer’s estimates through 2020 and our own projections for 2021-2027.

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Figure 6. Consumer Technology Forecast: 2014-2027E CAGR 2014- 2017E- 2017E- ($B) 2014 2017A 2020E 2027E 2017 2020E 2027E Global Retail Sales 19,655.0 23,445.0 27,726.0 39,013.3 6.1% 5.7% 5.2% Global E-Commerce 1,233.5 2,352.0 4,058.0 8,526.0 24.0% 19.9% 13.7% Wal-Mart 482.2 495.8 NA NA 0.9% NA NA Amazon (GMV) 150.1 305.4 472.1 609.7 26.7% 15.6% 7.2% Amazon 84.3 160.4 298.9 465.9 23.9% 23.1% 11.3% Apple 182.8 229.2 294.9 379.5 7.8% 8.8% 5.2% ChannelAdvisor (GMV) 5.7 8.9 12.8 17.7 16.0% 13.0% 7.1% ChannelAdvisor 0.1 0.1 0.2 0.3 13.0% 7.8% 8.1% Control4 0.1 0.2 0.3 0.5 18.0% 10.5% 6.3% eBay (GMV) 82.6 88.5 110.4 143.9 2.3% 7.6% 5.0% eBay 7.0 7.5 10.4 13.6 2.2% 11.5% 6.2% Etsy (GMV) 1.9 3.3 4.9 8.4 19.0% 15.0% 9.9% Etsy 0.2 0.4 0.8 1.7 31.2% 21.1% 14.7% EVINE Live 0.7 0.6 0.7 0.9 (1.3%) 2.5% 2.9% Fitbit 0.7 1.6 0.7 0.7 29.4% (22.7%) (7.4%) Groupon (GMV) 7.6 6.1 6.1 8.4 (7.1%) 0.0% 3.3% Groupon 3.2 2.8 2.8 3.9 (3.8%) (0.1%) 3.2% GrubHub (GMV) 1.8 3.8 7.5 15.2 28.4% 25.4% 14.9% GrubHub 0.3 0.7 1.6 4.0 39.1% 33.3% 19.4% Logitech 2.0 2.6 3.3 4.9 8.6% 8.9% 6.7% Overstock 1.5 1.7 2.2 3.0 5.2% 7.5% 5.7% Park City Group 0.01 0.02 0.04 0.14 16.3% 24.7% 21.4% Quotient Tech. 0.22 0.32 0.54 0.89 13.3% 19.1% 10.6% QVC Group 8.8 10.4 14.9 18.7 5.7% 12.9% 6.1% Roku NA 0.5 1.2 2.6 NA 32.4% 17.5% Shopify (GMV) 3.8 26.1 70.9 179.1 90.7% 39.5% 21.2% Shopify 0.1 0.7 2.0 6.2 85.8% 43.3% 24.9% Wayfair 1.3 4.7 10.3 21.0 53.0% 29.6% 16.1% Yelp Platform 0.0 0.1 0.0 0.0 250.4% (35.3%) (10.4%) ZAGG Inc 0.3 0.5 0.6 0.8 25.7% 7.1% 4.1%

Market Share - Global Commerce Change (Basis Points) Wal-Mart 2.45% 2.11% NA NA (33.9) NA NA Amazon.com (GMV) 0.76% 1.30% 1.70% 1.56% 53.9 40.0 26.0 Amazon.com 0.43% 0.68% 1.08% 1.19% 25.5 39.4 51.0 Apple 0.93% 0.98% 1.06% 0.97% 4.8 8.6 (0.5) ChannelAdvisor (GMV) 0.03% 0.04% 0.05% 0.05% 0.9 0.8 0.7 ChannelAdvisor 0.00% 0.00% 0.00% 0.00% 0.0 0.0 0.0 Control4 0.00% 0.00% 0.00% 0.00% 0.0 0.0 0.0 eBay (GMV) 0.42% 0.38% 0.40% 0.37% (4.3) 2.1 (0.9) eBay 0.04% 0.03% 0.04% 0.03% (0.4) 0.6 0.3 Etsy (GMV) 0.01% 0.01% 0.02% 0.02% 0.4 0.4 0.8 Etsy 0.00% 0.00% 0.00% 0.00% 0.1 0.1 0.3 EVINE Live 0.00% 0.00% 0.00% 0.00% (0.1) (0.0) (0.1) Fitbit 0.00% 0.01% 0.00% 0.00% 0.3 (0.4) (0.5) Groupon (GMV) 0.04% 0.03% 0.02% 0.02% (1.3) (0.4) (0.4) Groupon 0.02% 0.01% 0.01% 0.01% (0.4) (0.2) (0.2) GrubHub (GMV) 0.01% 0.02% 0.03% 0.04% 0.7 1.1 2.3 GrubHub 0.00% 0.00% 0.01% 0.01% 0.2 0.3 0.7 Logitech 0.01% 0.01% 0.01% 0.01% 0.1 0.1 0.2 Overstock 0.01% 0.01% 0.01% 0.01% (0.0) 0.0 0.0 Park City Group 0.00% 0.00% 0.00% 0.00% 0.0 0.0 0.0 Quotient Tech. 0.00% 0.00% 0.00% 0.00% 0.0 0.1 0.1 QVC Group 0.04% 0.04% 0.05% 0.05% (0.0) 1.0 0.4 Roku NA 0.00% 0.00% 0.01% NA 0.2 0.4 Shopify (GMV) 0.02% 0.11% 0.26% 0.46% 9.2 14.4 34.8 Shopify 0.00% 0.00% 0.01% 0.02% 0.2 0.4 1.3 Wayfair 0.01% 0.02% 0.04% 0.05% 1.3 1.7 3.4 Yelp Platform 0.00% 0.00% 0.00% 0.00% 0.0 (0.0) (0.0) ZAGG Inc 0.00% 0.00% 0.00% 0.00% 0.1 0.0 (0.0)

Market Share - Global E-Commerce Change (Basis Points) Wal-Mart 0.99% 0.65% NA NA NA NA NA Amazon 6.84% 6.82% 7.37% 5.46% (1.8) 54.5 (135.6) Amazon (GMV) 12.17% 12.99% 11.63% 7.15% 82.0 (135.2) (583.5) Apple 0.81% 0.80% 0.87% 0.64% (0.2) 6.4 (16.0) ChannelAdvisor (GMV) 0.46% 0.38% 0.32% 0.21% (8.4) (6.2) (17.1) ChannelAdvisor 0.01% 0.01% 0.00% 0.00% (0.2) (0.1) (0.2) Control4 NA NA NA NA NA NA NA eBay (GMV) 6.70% 3.76% 2.72% 1.69% (293.2) (104.3) (207.6) eBay 0.57% 0.32% 0.26% 0.16% (24.9) (6.2) (15.7) Etsy (GMV) 0.16% 0.14% 0.12% 0.10% (1.8) (1.6) (4.0) Etsy 0.02% 0.02% 0.02% 0.02% 0.3 0.1 0.2 EVINE Live 0.05% 0.03% 0.02% 0.01% (2.7) (1.0) (1.7) Fitbit 0.02% 0.01% 0.01% 0.00% (1.2) (0.4) (0.8) Groupon (GMV) 0.61% 0.26% 0.15% 0.10% (35.6) (10.9) (16.0) Groupon 0.26% 0.12% 0.07% 0.05% (13.8) (5.1) (7.5) GrubHub (GMV) 0.14% 0.16% 0.18% 0.18% 1.6 2.3 1.7 GrubHub 0.02% 0.03% 0.04% 0.05% 0.8 1.1 1.8 Logitech 0.04% 0.03% 0.02% 0.01% (1.3) (0.7) (1.3) Overstock 0.12% 0.07% 0.05% 0.04% (4.7) (2.1) (3.8) Park City Group NA NA NA NA NA NA NA Quotient Tech. 0.02% 0.01% 0.01% 0.01% (0.4) (0.0) (0.3) QVC Group 0.71% 0.44% 0.37% 0.22% (27.2) (7.3) (22.2) Roku 0.09% 0.06% 0.05% 0.03% (3.5) (0.9) (2.8) Shopify (GMV) 0.31% 1.11% 1.75% 2.10% 80.5 63.8 99.1 Shopify 0.01% 0.03% 0.05% 0.07% 2.0 2.0 4.4 Wayfair 0.11% 0.20% 0.25% 0.25% 9.4 5.3 4.6 Yelp Platform 0.00% 0.00% 0.00% 0.00% 0.0 (0.0) (0.0) ZAGG Inc 0.01% 0.01% 0.00% 0.00% 0.0 (0.2) (0.3) Source: Company reports, Capital IQ, eMarketer, and D.A. Davidson.

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THE INCREASING VALUE OF Figure 7. Amazon’s Brand and Stock Value, 2007-2017 AMAZON’S BRAND 70,000 1,400.00

60,000 1,200.00

50,000 1,000.00

40,000 800.00 Brand 30,000 600.00 Stock 20,000 400.00

10,000 200.00

0 0.00

Source: Interbrand, Yahoo! Finance, and D.A. Davidson.

Overview We believe the increasingly value of Amazon’s brand gives it the power to expand into new categories, including private-label, and also non-retail efforts, such as business services, financial services, pharmacy, and maybe (even) real estate/housing.

Amazon’s Brand Value – Increasing, Like Its Shares To gauge the value of Amazon’s brand over time, we reviewed annual rankings from Interbrand, a brand consultant and part of advertising conglomerate Omnicom. During the 10- year period between 2007 and 2017, the ranking of Amazon’s brand improved to 5th from 62nd. Over that time frame, the CAGR for its brand value was 28%. By way of comparison, among the other top 10 brands of 2017, only Apple outperformed Amazon with a 33% CAGR. Lastly, as a way of considering how the top 10 brands change over time, for the top 10 brands in 2007, only eight were in the top day in 2010 (three years later), only seven for 2012 (five years), and only five for 2017 (10 years). Additionally, during that period, Amazon’s shares increased in value at a 29% CAGR to $1,169.47 from $92.64.

Figure 8. Interbrand’s Top 10 Brands 2007-2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CAGR Value Value Value Value Value Value Value Value Value Value Value 3- 5- 10- Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Rank Brand ($M) Year Year Year 1 Coca Cola 65,324 1 Coca Cola 66,667 1 Coca Cola 68,734 1 Coca Cola 70,452 1 Coca Cola 71,861 1 Coca Cola 77,839 1 Apple 98,316 1 Apple 118,863 1 Apple 170,276 1 Apple 178,119 1 Apple 184,154 16% 19% 33% (YOY Change) (3%) 2% 3% 2% 2% 8% 28% 21% 43% 5% 3% 2 Microsoft 58,709 2 IBM 59,031 2 IBM 60,211 2 IBM 64,727 2 IBM 69,905 2 Apple 76,568 2 Google 93,291 2 Google 107,439 2 Google 120,314 2 Google 133,252 2 Google 141,703 10% 15% 23% (YOY Change) 3% 3% 2% 7% 8% 129% 34% 15% 12% 11% 6% 3 IBM 57,090 3 Microsoft 59,007 3 Microsoft 56,647 3 Microsoft 60,895 3 Microsoft 59,087 3 IBM 75,532 3 Coca Cola 79,213 3 Coca Cola 81,563 3 Coca Cola 78,423 3 Coca Cola 73,102 3 Microsoft 79,999 9% 7% 3% (YOY Change) 2% 1% (4%) 7% (3%) 8% 2% 3% (4%) (7%) 10% 4 GE 51,569 4 GE 53,086 4 GE 47,777 4 Google 43,557 4 Google 55,317 4 Google 69,726 4 IBM 78,808 4 IBM 72,244 4 Microsoft 67,670 4 Microsoft 72,795 4 Coca Cola 69,733 (5%) (2%) 1% (YOY Change) 5% 3% (10%) 36% 27% 26% 4% (8%) 11% 8% (5%) 5 Nokia 33,696 5 Nokia 35,942 5 Nokia 34,864 5 GE 42,808 5 GE 42,808 5 Microsoft 57,853 5 Microsoft 59,546 5 Microsoft 61,154 5 IBM 65,095 5 Toyta 53,580 5 Amazon 64,796 30% 28% 28% (YOY Change) 12% 7% (3%) (10%) 0% (2%) 3% 3% (10%) 9% 29% 6 Toyota 32,070 6 Toyota 34,050 6 McDonalds 32,275 6 McDonalds 33,578 6 McDonalds 35,593 6 GE 43,682 6 GE 46,947 6 GE 45,480 6 Toyota 49,048 6 IBM 52,500 6 Samsung 56,249 7% 11% 13% (YOY Change) 15% 6% 4% 4% 6% 2% 7% (3%) 16% (19%) 9% 7 Intel 30,954 7 Intel 31,261 7 Google 31,980 7 Intel 32,015 7 Intel 35,217 7 McDonalds 40,062 7 McDonalds 41,992 7 Samsung 45,462 7 Samsung 45,297 7 Samsung 51,808 7 Toyota 50,291 6% 11% 5% (YOY Change) (4%) 1% 25% 4% 10% 13% 5% 15% 0% 14% (6%) 8 McDonalds 29,398 8 McDonalds 31,049 8 Toyota 31,330 8 Nokia 29,495 8 Apple 33,492 8 Intel 39,385 8 Samsung 39,610 8 Toyota 42,392 8 GE 42,267 8 Amazon 50,338 8 Facebook 48,188 50% 55% NA (YOY Change) 7% 6% (8%) (15%) 58% 12% 20% 20% (7%) 33% 48% 9 Disney 29,210 9 Disney 29,251 9 Intel 30,636 9 Disney 28,731 9 Disney 29,018 9 Samsung 32,893 9 Intel 37,257 9 McDonalds 42,254 9 McDonalds 39,809 9 Mercedes 43,490 9 Mercedes 47,829 4% 10% 7% (YOY Change) 5% 0% (2%) 1% 1% 40% (5%) 1% (6%) 18% 10% 10 Mercedes 23,568 10 Google 25,590 10 Disney 28,447 10 HP 26,867 10 HP 28,479 10 Toyota 30,280 10 Toyota 35,346 10 Mercedes 34,338 10 Amazon 37,948 10 GE 43,130 10 IBM 46,829 (13%) (9%) (2%) (YOY Change) 8% 43% (3%) 12% 6% 9% 17% 8% 29% 2% (11%)

62 Amazon 5,411 58 Amazon 6,434 43 Amazon 7,858 36 Amazon 9,665 26 Amazon 12,758 20 Amazon 18,625 19 Amazon 23,620 15 Amazon 29,478 10 Amazon 37,948 8 Amazon 50,338 5 Amazon 64,796 30% 28% 28% (YOY Change) 15% 19% 22% 23% 32% 46% 27% 25% 29% 33% 29% Sources: Interbrand and D.A. Davidson.

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AMAZON’S PRIVATE LABEL Overview EFFORTS We believe Amazon’s private-label efforts enable it to further penetrate categories (including apparel and groceries), improve the profitability of first-party sales (relative to branded merchandise), and drive high-margin advertising revenues. Further, we see an opportunity for it to advance the online and offline efforts of its 365 groceries private label.

The Meaning of Brand Amazon While we illustrated earlier in the report that Amazon’s brand is increasing in value, along with its share price, when it comes to determining its ability to create private-label brands we believed it was important to considering the meaning of its brand and how that may or may not translate well to private labels.

There was much debate, amongst our industry experts, on the meaning of Amazon’s brand. In our view, Amazon’s brand is built on convenience, price, and selection. That would translate into offering a wide selection of private-label brands, at compelling prices, and with the ability to get us the products quickly (with free shipping). That brand perception bodes well for its proprietary hardware; for example, I can purchase its Kindle e-reader at a reasonable price, and buy an almost unlimited supply of books (also reasonable processes) and I can even get them delivered to me instantly (electronically). A similar story can be told on its Amazon Fire TV. Where it becomes difficult is, what is the brand of Amazon’s apparel. While a consumer may appreciate the elements of convenience, price, and selection if the products aren’t compelling (e.g. fashionable), then the meaning of the brand may not resonate with consumers.

According to Brand Foundry, Amazon’s brand story is providing consumers opportunities to buy what they need and taking over the world. However, its brand is NOT about creating disruption in actual products and or product trends. While Amazon has everything and consumers trust them most of the time, consumers are not likely to fall in love with Amazon’s brand as they are others and, in those instances, they will continue to buy the brands they love and remain hesitant to go all in on Amazon’s (or anyone’s) private-label products.

Overstock suggested, when it comes to private label merchandise Amazon does not benefit the way Costco does with Kirkland, because of its reputation for standing by its products.

ChannelAdvisor noted that Amazon’s brand it built on trust and convenience and those are the threads that lead through everything the company does.

Amazon’s Private Label Strategy According to Amazon, its private-label strategy is part of its overall customer-focused philosophy and its emphasis is to bring consumers more selection, supplementary product offerings from third-party sellers and vendors. Additionally, it has been advancing the efforts more recently, including in home (furniture) and apparel (fashion); compared to its long- standing Amazon Basics line (including batteries and electronics cables). The goal of its private-label products is to provide consumers a large selection as well as good prices and quality.

From an operational standpoint, Amazon’s basic strategy for private label is to roll out a limited number of SKU’s and test how they perform, then adjust accordingly. If they perform well, then the company invests more in the effort and if they don’t it invests less.

In general, Amazon pointed out that it is newer to the space when it comes to rolling out private label merchandise, especially in apparel.

ChannelAdvisor suggested Amazon’s private-label efforts strategy is the following. It wants to be the most customer centric company on the globe. When determining products to offer as private label it seeks items that increase the attractiveness of Amazon by enabling the company to offer as broad of selection as possible, with good value (competitive prices), and convenience (shipping and logistics/fulfilment). The company is always looking for ways to improve its value proposition across those three dimensions. ChannelAdvisor does not believe Amazon creates private-label products to compete, per se, with other sellers in the category. Instead, Amazon has concluded consumers are searching for products and existing ones are not satisfying their demand or meeting those consumers’ specific search criteria, which provides Amazon an opportunity to improve their experience by offering a suitable private-label product. Contrary to what others may think, ChannelAdvisor believes Amazon’s intent is not to compete with other sellers on its platform but to bring consumers the best price, selection, and convenience.

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We asked ChannelAdvisor if it thought one of the pillars of Amazon’s strategy was more important than another, between convenience, price, and selection, and it noted that the three formed a trinity and none was more important than the other.

Forrester noted Amazon’s private label strategy has three components – its proprietary hardware (such as the Amazon Fire TV), Amazon branded merchandise (e.g. Amazon Basic AAA batteries), and items not-branded Amazon (such as Lark & Ro women’s apparel). On the latter two, Forrester sees Amazon’s strategy as offering products of comparable quality to branded one at lower prices, which we would refer to as the typical business model for private- label merchandise. Amazon is able to advance its efforts, noted Forrester, because of its data, it knows what consumers are searching for and what products are selling. Forrester believes its strategy is much more than filling gaps in products as others we spoke to suggested.

Remodista suggested Amazon’s private-label efforts will help it expand globally (including third-world countries) by providing consumers basic necessities on a consistent basis, such as diapers and toilet paper.

For its part, Costco’s strategy is to be thoughtful and opportunistic with an emphasis on the value proposition for its warehouse club members. For example, its private-label efforts have contributed to its standing as the largest seller of organics, globally. On margins, it caps its mark up on its private-label products at 15% compared to its 14% cap for branded products, providing it a superior margin on their sales; thereby enabling it to both offer its members great value and protect its margins. Examples of Costco being opportunistic include its private-label caramel cluster cashews food product (enabling it to convert its excess broken cashews into profits) and its rotisserie chicken salad.

Could Amazon Take the Soul out of Retail? While Amazon is able to create private-label products to provide consumers lower-priced alternatives it is, for the most part, unable to match the power of certain brands that understand the following notion – that content feeds commerce, noted Brand Foundry. Therefore, if Amazon succeeded in eliminating branded products it would be taking the soul out of retail, which would result in an extremely boring world, concluded Brand Foundry. A brand captures consumer’s attention because it is driven by a purpose and content feeds why it exists enabling it to become a cult, according to Brand Foundry.

Ranking Amazon’s Private Label Efforts To analyze Amazon’s private label efforts, we reviewed where its items ranked in product searches as a means of gauging their sales. Of the 100 items we analyzed, 24% were ranked first, 56% were in the top 10%, 65% were in the top 20, and 35% were outside the top 20. In addition, its 100 private-label items averaged 2,092 reviews and a 4.2 (out of 5.0) star rating. While encouraged by the results, we consider Amazon to be in the early innings of its private label efforts, with significant opportunities to expand into more products and categories.

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Figure 9. Amazon’s Private-Label Efforts – 100 Products Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller AAA Batteries Household Products NA >1K 0 AmazonBasics 1 20,635 4.5 NA AmazonBasics Advil Health, Household & Baby Care Advil 335 3 Basic Care 8 128 5.0 Advil Advil Athletic Socks (men's) Men's Clothing New Balance >40K 0 Kold Feet 30 4 3.5 Adidas Nike Athletic Socks (women's)Women's Clothing Road Runner Sports >40K 7 Kold Feet 69 4 4.5 Under Armour Physix Baby Shampoo Health, Household & Baby Care Johnson's >8K 6 Mountain Falls 25 19 4.5 Johnson's Aveeno Baby Wipes Health, Household & Baby Care Pampers >20K 2 Amazon Elements 1 10,447 4.5 Amazon Elements Pampers Backpack Luggage & Travel Gear Hynes Eagle >200K 2 AmazonBasics 1 3,490 4.5 AmazonBasics Jansport Bed Sheets Home & Kitchen Cariloha >10K 2 AmazonBasics 2 13,418 4.5 AmazonBasics HOMEIDEAS Benadryl Health, Household & Baby Care Benadryl 136 6 Basic Care 11 68 4.5 Benadryl NA Black Dress Women's Clothing NA >40K 8 Lark & Ro 22 12 4.5 Heloise Fashion NA Bra Women's Clothing Bravity >20K 8 Mae 21 450 4.0 Warner's NA Cat Litter Pet Supplies Purina 803 6 AmazonBasics 33 213 4.0 Dr. Elsey's IRIS USA, Inc. Coat (men's) Men's Clothing Under Armour >20K 8 Amazon Essentials 23 193 4.0 NA NA Coat (women's) Women's Clothing BGSD >10K 4 Lark & Ro 8 7 4.0 NA NA Coat (boys') Boys' Clothing Under Armour >20K 4 Amazon Essentials 3 55 4.0 NA Columbia Coat (girls') Girls' Clothing La Chaquerteria >40K 4 Amazon Essentials 5 63 4.0 The Children's Place Favorland Coffee Maker Home & Kitchen Nepresso De'Longhi >2K 5 AmazonBasics 31 192 4.0 Hamilton Beach BLACK+DECKER Couch Home & Kitchen Rivet >5K 6 Rivet 19 37 4.0 NA Best Choice Products Diaper Pail Refills Health, Household & Baby Care Diaper Genie 188 3 Mama Bear 5 317 4.0 Munchkin Playtex Diaper Rash Cream Health, Household & Baby Care Babyganics >1K 6 Mountain Falls 20 16 4.0 Desitin Aquaphor Diapers Health, Household & Baby Care Pampers >30K 3 Mama Bear 2 1,401 4.0 NA Huggies Dishwasher Pods Health, Household & Baby Care Cascade >3K 7 365 Everyday Value 48 13 3.0 Cascade Finish Dog Bed Pet Supplies Laifug >10K 0 AmazonBasics 22 2,103 4.0 Furhaven Pet Best Friends by Sheri Dog Bowl Pet Supplies Neater Pet Brands >7K 3 AmazonBasics 1 1,015 4.5 AmazonBasics Outward Hound Dog Crate Pet Supplies AmazonBasics 795 3 AmazonBasics 2 8,010 4.5 AmazonBasics AmazonBasics Dog Food Pet Supplies Hill's Science Diet >3K 9 Wag 21 23 4.0 Taste of the Wild NA Dog Waste Bags Pet Supplies AmazonBasics >2K 3 AmazonBasics 1 6,680 4.5 AmazonBasics NA Dress Shirt (men's) Men's Clothing Buttoned Down >40K 8 Buttoned Down 25 311 4.0 Van Heusen NA Dress socks (men's) Men's Clothing Chaps >4K 4 Amazon Essentials 16 84 4.0 Alpine Swiss NA Dry Erase Markers Office Products Quartet >1K 1 AmazonBasics 1 700 4.0 Expo Expo Dutch Oven Home & Kitchen AmazonBasics 786 4 AmazonBasics 3 39 5.0 Lodge NA Ear Buds Electronics Symphonized >10K 3 AmazonBasics 16 49 4.0 Panasonic Apple Ear Plugs Health, Household & Baby Care Decibullz >20K 6 AmazonBasics 41 936 4.5 Mack's Decibullz Extension Cord Tools & Home Improvement Kasonic >20K 2 AmazonBasics 1 2,504 4.5 GE AmazonBasics Fire Pit Garden & Outdoor Balie Outdoors >3K 3 AmazonBasics 3 114 4.0 AmazonBasics NA Foam Roller Sports & Fitness Trigger Point Performance 822 2 AmazonBasics 1 2,904 4.5 AmazonBasics LuxFit Forks Home & Kitchen Hiware >1K 5 AmazonBasics 25 56 4.5 Hiware Hiware Grill Cover Patio, Lawn & Garden Classic Accessories >10K 2 AmazonBasics 4 51 4.5 AmazonBasics VicTsing Hammock Patio, Lawn & Garden Flagship-X >20K 2 AmazonBasics 7 95 4.0 AmazonBasics Honest Outfitters Hand Sanitizer Health, Household & Baby Care Purell >10K 9 365 Everyday Value 43 3 4.5 Mountain Falls Purell-Advanced Hangers Home & Kitchen AmazonBasics >5K 1 AmazonBasics 1 1,833 4.5 AmazonBasics ZOBER Headphones Electronics cowin >100K 2 AmazonBasics 1 4,761 4.0 AmazonBasics Panasonic HDMI Cable Electronics AmazonBasics >6K 2 AmazonBasics 1 16,111 4.5 AmazonBasics Syncwire Highlighters Office Products Sharpie >1K 3 AmazonBasics 2 260 4.5 AmazonBasics Sharpie Hydrocortisone Health, Household & Baby Care Truelipids 607 0 Basic Care 12 6 3.0 Cortizone-10 NA Jeans (men's) Men's Clothing 7 For All Mankind >8K 4 Quality Durables 13 10 3.5 Wrangler NA Jeans (women's) Women's Clothing Democracy >10K 8 Madison 70 6 4.5 Signature by Levi Strauss & Co. NA Jeans (boys') Boys' Clothing Democracy 830 8 Kid Nation 22 19 4.5 The Children's Place NA Jeans (girls') Girls' Clothing Democracy >20K 8 Kid Nation 36 12 4.5 The Children's Place NA Jump Rope Sports & Fitness Epitomie Fitness >1K 7 AmazonBasics 44 34 3.5 Survival and Cross WOD Nation Kettle Home & Kitchen Remy Olivier >4K 4 AmazonBasics 2 508 4.5 AmazonBasics Mueller Austria Khaki Pants (men's) Men's Clothing Dockers >1K 3 Amazon Essentials 2 735 4.0 Lee NA Kitchen Knife Home & Kitchen Vremi >10K 12 AmazonBasics 28 227 4.5 NA Vremi Lamp Home & Kitchen Brightech >20K 9 Rivet 23 49 4.0 NA Ikea Laptop Case Electronics Tumi Luggage >60K 2 AmazonBasics 1 12,394 4.5 AmazonBasics AmazonBasics Laundry Detergent Health, Household & Baby Care Tide & Gain >3K 6 365 9 1 5.0 Tide Tide Lightbulbs Tools & Home Improvement Finally Light Bulbs >60K 2 AmazonBasics 1 1,038 4.5 AmazonBasics Philips Loveseat Home & Kitchen Rivet >1K 9 Rivet 22 8 5.0 Zinus Best Choice Products Mouse Pad Electronics PC Gaming Race >20K 2 AmazonBasics 6 505 4.5 AmazonBasics VicTsing Napkins Health, Household & Baby Care Bounty >70K 2 AmazonBasics 9 5 2.5 Bounty Vanity Fair Notebook Office Products Intel >200K 2 AmazonBasics 1 534 4.0 AmazonBasics BooQool Office Chair Office Products Modway >50K 2 AmazonBasics 1 2,949 4.0 AmazonBasics Furmax Pan Home & Kitchen Utopia Kitchen >10K 6 AmazonBasics 30 26 4.0 Utopia Kitchen Utopia Kitchen Pantyhose Women's Clothing L'eggs >8K 28 StockingFox 183 30 4.5 Manzi NA Paper Clips Office Products Officemate >2K 3 AmazonBasics 1 105 4.5 NA NA Paper Towels Health, Household & Baby Care Bounty >30K 0 Presto! 5 508 4.5 Presto! Bounty Pencils Office Products AmazonBasics >7K 3 AmazonBasics 2 126 4.5 AmazonBasics BIC Pens Office Products Pentel >20K 6 AmazonBasics 28 71 4.0 BIC MyLifeUNIT Phone Charger Electronics RAVPower >100K 2 AmazonBasics 3 57,185 4.0 DEEGO Anker Pillow Home & Kitchen Coop Home Goods >10K 9 AmazonBasics 27 85 4.0 Utopia Coop Home Goods Plates Home & Kitchen Dixie >300K 2 AmazonBasics 1 955 4.5 AmazonBasics Melange Polo Shirt Men's Clothing Jack Wolfskin >40K 4 Amazon Essentials 1 940 4.0 Amazon Essentials Amazon Essentials Power Strip Electronics Holsem >20K 2 AmazonBasics 1 2,787 4.5 AmazonBasics AmazonBasics Prilosec Health, Household & Baby Care Prilosec 104 4 Basic Care 9 87 4.5 Prilosec GoodSense Printer Paper Office Products AmazonBasics >7K 2 AmazonBasics 1 1,104 4.5 AmazonBasics HP Pumps Women's Clothing Dailyshoes >20K 32 The Fix 189 36 3.5 City Classified Comfort NA Sandals (women's) Women's Clothing Katy Perry Footwear >70K 28 The Fix 189 10 3.5 NA NA Scissors Office Products CoCo's Closet >90K 2 AmazonBasics 1 628 4.5 AmazonBasics Equinox International Shoe Rack Home & Kitchen Songmics >1K 5 AmazonBasics 29 93 4.5 Seville Classics Songmics Shredder Office Products AmazonBasics 917 3 AmazonBasics 1 9,750 4.0 AmazonBasics AmazonBasics Skirt Women's Clothing Flatseven >10K 8 Lark & Ro 24 13 3.5 NA NA Stapler Office Products Swingline >3K 3 AmazonBasics 2 432 4.0 AmazonBasics EcoElectronix Summer Dress Women's Clothing Cultro >30K 7 Lark & Ro 56 2 5.0 KIRA Aelson Sweater (men's) Men's Clothing Moconto >60K 12 Buttoned Down 77 21 4.5 Hanes Hanes Sweater (women's) Women's Clothing Kuna >40K 15 Lark & Ro 88 60 4.0 Urban Coco NA Tampons Health, Household & Baby Care Tampax >2K 2 Solimo 4 20 4.5 Playtex NA TV Wall Mount Electronics Perlesmith >7K 6 AmazonBasics 41 649 4.5 NA VideoSecu Toilet Paper Health, Household & Baby Care Charmin >30K 2 Presto! 4 881 4.5 Presto! Charmin Towels Home & Kitchen Pinzon >10K 3 AmazonBasics 2 2,134 4.0 AmazonBasics NA Trash Bags Health, Household & Baby Care Hefty >10K 6 AmazonBasics 21 30 4.0 Glad Hefty Tripod Electronics Neewer >30K 2 AmazonBasics 1 6,590 4.5 AmazonBasics AmazonBasics Tylenol Health, Household & Baby Care Tylenol 367 3 Basic Care 2 128 5.0 Tylenol Basic Care Umbrella Luggage & Travel Gear LifeTek >70K 4 AmazonBasics 18 421 4.0 Repel Unbrella G4Free Underwear (men's) Men's Clothing Andrew Christian >30K 4 Amazon Essentials 4 250 4.0 Amazon Essentials NA Underwear (women's) Women's Clothing Under Armour >10K 0 Amazon Essentials 1 1,608 4.5 Amazon Essentials NA USB Cable Electronics Aukey >50K 2 AmazonBasics 2 1,617 5.0 AmazonBasics BrexLink Vitamins Health, Household & Baby Care Dr. Tobias >50K 2 Amazon Elements 6 15 5.0 Vitafusion Vitafusion White T Shirt (men's) Men's Clothing J. Lindeberg >70K 2 Goodthreads 7 237 4.5 Gildan Under Armour Yoga Mat Sports & Fitness Shandali >4K 2 AmazonBasics 3 518 4.0 NA BalanceFrom Yoga Pants Women's Clothing Ododos >30K 4 Core 10 14 175 4.5 IUGA Tesla

Average 26,087 5 20 2,092 4.2 Median 10,000 3 7 184 4.5 Source: Amazon and D.A. Davidson.

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Category Penetration Overview While private-label can be an effective means for a company, such as Amazon, to drive incremental sales and profits, we believe some categories are more well suited than others. In the following two sections we discuss the easy and difficult categories based on our own views and those of the industry experts we talked to.

Category Penetration – Easy Overview Categories Based on our conversations with a number of industry experts, we see electronics accessories, furniture, household products, and men’s apparel, as categories well suited for Amazon’s private-label efforts. Our data (see Figure 10) suggested Amazon is strong in office (91% ranked in the top 20), electronics accessories (90%), and household (76%). Its performance is respectable in home (56%) and pets (50%) but has room for improvement in apparel (41%). In addition, when looking at its number of reviews and average ratings, it was strongest in electronics accessories (10,265 reviews and 4.4 stars), followed by pets (3,007 and 4.3), household (1,698 and 4.3), office (1,514 and 4.2), and home (1,107 and 4.3), but with room for improvement in apparel (198 and 4.1).

Overstock commented, in general, the following rule applies when determining if a category is easy or hard to penetrate with private label. When products do not have brand strength, such as those in furniture and jewelry, the consumer relies on the brand strength of the retailer. In all other instances, consumers’ decisions are determined by price.

Figure 10. Amazon’s Private-Label Efforts – Rankings by Category Rank First Top 10 Top 20 >Top 20 Apparel 7% 30% 41% 59% Electronics 50% 80% 90% 10% Home 11% 50% 56% 44% Household 10% 62% 76% 24% Office 64% 91% 91% 9% Pets 33% 50% 50% 50% Total 24% 56% 65% 35% Source: Amazon and D.A. Davidson.

Figure 11. Amazon’s Private-Label Efforts – Reviews/Ratings by Category Average Median Reviews Ratings Reviews Ratings Apparel 198 4.1 36 4.0 Electronics 10,265 4.4 3,774 4.5 Home 1,107 4.3 94 4.5 Household 1,698 4.3 68 4.5 Office 1,514 4.2 534 4.0 Pets 3,007 4.3 1,559 4.3 Total 2,092 4.2 184 4.5 Source: Amazon and D.A. Davidson.

Apparel (excluding luxury) While some of our industry experts suggested Amazon should be able to succeed in private- label apparel, ex-luxury, we believe it may be difficult for the company to do so in women’s fashion apparel.

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Figure 12. Amazon’s Private-Label Efforts – Apparel

Source: Amazon and D.A. Davidson.

For example, Brand Foundry suggested Amazon should be able to develop private label brands to compete against products from retailers offering products that do not warrant aspiration, such as those offered by J. Crew and Zara.

The following table illustrates how Amazon performed in the apparel, in general. Of the 27 items we analyzed, 7% were ranked first, 30% were in the top 10%, 41% were in the top 20, and 59% were outside the top 20. In addition, its 27 private-label items averaged 198 reviews and a 4.1 (out of 5.0) star rating. Both sets of data were the lowest among the categories we reviewed. In the following paragraphs we will examine its performance within apparel subcategories.

Figure 13. Amazon’s Private-Label Efforts – Apparel Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Coat (boys') Boys' Clothing Under Armour >20K 4 Amazon Essentials 3 55 4.0 NA Columbia Jeans (boys') Boys' Clothing Democracy 830 8 Kid Nation 22 19 4.5 The Children's Place NA Coat (girls') Girls' Clothing La Chaquerteria >40K 4 Amazon Essentials 5 63 4.0 The Children's Place Favorland Jeans (girls') Girls' Clothing Democracy >20K 8 Kid Nation 36 12 4.5 The Children's Place NA Athletic Socks (men's) Men's Clothing New Balance >40K 0 Kold Feet 30 4 3.5 Adidas Nike Coat (men's) Men's Clothing Under Armour >20K 8 Amazon Essentials 23 193 4.0 NA NA Dress Shirt (men's) Men's Clothing Buttoned Down >40K 8 Buttoned Down 25 311 4.0 Van Heusen NA Dress socks (men's) Men's Clothing Chaps >4K 4 Amazon Essentials 16 84 4.0 Alpine Swiss NA Jeans (men's) Men's Clothing 7 For All Mankind >8K 4 Quality Durables 13 10 3.5 Wrangler NA Khaki Pants (men's) Men's Clothing Dockers >1K 3 Amazon Essentials 2 735 4.0 Lee NA Polo Shirt Men's Clothing Jack Wolfskin >40K 4 Amazon Essentials 1 940 4.0 Amazon Essentials Amazon Essentials Sweater (men's) Men's Clothing Moconto >60K 12 Buttoned Down 77 21 4.5 Hanes Hanes Underwear (men's) Men's Clothing Andrew Christian >30K 4 Amazon Essentials 4 250 4.0 Amazon Essentials NA White T Shirt (men's) Men's Clothing J. Lindeberg >70K 2 Goodthreads 7 237 4.5 Gildan Under Armour Athletic Socks (women's)Women's Clothing Road Runner Sports >40K 7 Kold Feet 69 4 4.5 Under Armour Physix Black Dress Women's Clothing NA >40K 8 Lark & Ro 22 12 4.5 Heloise Fashion NA Bra Women's Clothing Bravity >20K 8 Mae 21 450 4.0 Warner's NA Coat (women's) Women's Clothing BGSD >10K 4 Lark & Ro 8 7 4.0 NA NA Jeans (women's) Women's Clothing Democracy >10K 8 Madison 70 6 4.5 Signature by Levi Strauss & Co. NA Pantyhose Women's Clothing L'eggs >8K 28 StockingFox 183 30 4.5 Manzi NA Pumps Women's Clothing Dailyshoes >20K 32 The Fix 189 36 3.5 City Classified Comfort NA Sandals (women's) Women's Clothing Katy Perry Footwear >70K 28 The Fix 189 10 3.5 NA NA Skirt Women's Clothing Flatseven >10K 8 Lark & Ro 24 13 3.5 NA NA Summer Dress Women's Clothing Cultro >30K 7 Lark & Ro 56 2 5.0 KIRA Aelson Sweater (women's) Women's Clothing Kuna >40K 15 Lark & Ro 88 60 4.0 Urban Coco NA Underwear (women's) Women's Clothing Under Armour >10K 0 Amazon Essentials 1 1,608 4.5 Amazon Essentials NA Yoga Pants Women's Clothing Ododos >30K 4 Core 10 14 175 4.5 IUGA Tesla

Average 27,105 9 44 198 4.1 Median 20,000 7 22 36 4.0 Source: Amazon and D.A. Davidson.

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Figure 14. Amazon’s Private-Label Efforts – Apparel Subcategories Rank First Top 10 Top 20 >Top 20 Kids' 0% 50% 50% 50% Men's 10% 40% 60% 40% Women's 8% 15% 23% 77% Total 7% 30% 41% 59% Source: Amazon and D.A. Davidson.

Figure 15. Amazon’s Private-Label Efforts – Apparel Subcategories Average Median Reviews Ratings Reviews Ratings Kids' 37 4.3 37 4.3 Men's 279 4.0 215 4.0 Women's 186 4.2 13 4.5 Total 198 4.1 36 4.0 Source: Amazon and D.A. Davidson.

Apparel – Kids’ In our view, Amazon should be able to penetrate kids’ apparel with its private-label products, especially basics, as parents seek opportunities to save money on their purchases, especially for young children. As children get older, however, we believe it will be more difficult for Amazon to gain traction outside of basics as, today, we do not see making trendy merchandise as a core competency of Amazon.

Recognizing that we had limited data on kids’ apparel, of the four items we analyzed, zero were ranked first, 50% were in the top 10%, 50% were in the top 20, and 50% were outside the top 20. This was better than women’s apparel but worse than men’s. In addition, its four private-label items averaged 37 reviews and a 4.3 (out of 5.0) star rating. That was the lowest number of reviews, but highest ratings, amongst the apparel categories we examined.

Figure 16. Amazon’s Private-Label Efforts – Kids’ Apparel

Source: Amazon and D.A. Davidson.

Anecdotal Observations While we have not purchased Amazon’s private label kids’ apparel, we have done so with Costco’s Kirkland, such as pajamas, and would feel comfortable doing so with Amazon in the future.

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Figure 17. Amazon’s Private-Label Efforts – Kids’ Apparel Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Coat (boys') Boys' Clothing Under Armour >20K 4 Amazon Essentials 3 55 4.0 NA Columbia Jeans (boys') Boys' Clothing Democracy 830 8 Kid Nation 22 19 4.5 The Children's Place NA Coat (girls') Girls' Clothing La Chaquerteria >40K 4 Amazon Essentials 5 63 4.0 The Children's Place Favorland Jeans (girls') Girls' Clothing Democracy >20K 8 Kid Nation 36 12 4.5 The Children's Place NA

Average 20,208 6 17 37 4.3 Median 20,000 6 14 37 4.3 Source: Amazon and D.A. Davidson.

Apparel – Men’s Amazon may be able to succeed in private label in men’s fashion, because, as noted by Brand Foundry, men are lazy (when it comes to shopping to find products) and transactional oriented and, therefore, more willing to purchase apparel sold by Amazon, so long as the prices are reasonable.

Of the ten items we analyzed, 10% were ranked first, 40% were in the top 10%, 60% were in the top 20, and 40% were outside the top 20. As a result, Amazon’s performance was strongest in men’s apparel (60% top 20%), followed by kids (50%), then women’s (a distant third at 23%). In addition, its ten private-label items averaged 279 reviews and a 4.0 (out of 5.0) star rating. That marks the highest reviews among the apparel subcategories, with ratings better than women’s but worse than kids’.

Figure 18. Amazon’s Private-Label Efforts – Men’s Apparel

Source: Amazon and D.A. Davidson.

Costco commented that its private-label men’s apparel does well, including jeans and basics, such as shirts, shorts, and socks.

Anecdotal Observations We have worn Amazon’s men’s private-label merchandise for some time. Overall, our experience has been favorable. We consider the company’s Button Down dress shirts and Goodthreads khaki pants to be of similar quality to those of Brooks Brothers and Ralph Lauren, respectively, at roughly half the cost. We also consider the price-to-quality ratio to be favorable for its Goodthreads men’s t-shirts; however, we view its Amazon Essentials polo shirt and pants to be of comparable quality to Old Navy AND at similar price points.

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Figure 19. Amazon’s Private-Label Efforts – Men’s Apparel Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Athletic Socks (men's) Men's Clothing New Balance >40K 0 Kold Feet 30 4 3.5 Adidas Nike Coat (men's) Men's Clothing Under Armour >20K 8 Amazon Essentials 23 193 4.0 NA NA Dress Shirt (men's) Men's Clothing Buttoned Down >40K 8 Buttoned Down 25 311 4.0 Van Heusen NA Dress socks (men's) Men's Clothing Chaps >4K 4 Amazon Essentials 16 84 4.0 Alpine Swiss NA Jeans (men's) Men's Clothing 7 For All Mankind >8K 4 Quality Durables 13 10 3.5 Wrangler NA Khaki Pants (men's) Men's Clothing Dockers >1K 3 Amazon Essentials 2 735 4.0 Lee NA Polo Shirt Men's Clothing Jack Wolfskin >40K 4 Amazon Essentials 1 940 4.0 Amazon Essentials Amazon Essentials Sweater (men's) Men's Clothing Moconto >60K 12 Buttoned Down 77 21 4.5 Hanes Hanes Underwear (men's) Men's Clothing Andrew Christian >30K 4 Amazon Essentials 4 250 4.0 Amazon Essentials NA White T Shirt (men's) Men's Clothing J. Lindeberg >70K 2 Goodthreads 7 237 4.5 Gildan Under Armour

Average 31,300 5 20 279 4.0 Median 35,000 4 15 215 4.0 Source: Amazon and D.A. Davidson.

Electronics Accessories We see electronics accessories as incredibly well suited for Amazon, with the added benefit of being able to leverage its brand name is built on technology.

Figure 20. Amazon’s Private-Label Efforts – Electronics Accessories

Source: Amazon and D.A. Davidson.

Our data supports this view as electronics was second only to office supplies. Of the ten items we analyzed, 50% were ranked first, 80% were in the top 10%, 90% were in the top 20, and 10% were outside the top 20. In addition, its 10 private-label items averaged 10,265 reviews and a 4.4 (out of 5.0) star rating. That marked the highest number of reviews among the categories we examined, by a multiple of the second highest (pets at 3,007). With its average rating also the highest amongst the categories reviewed.

Figure 21. Amazon’s Private-Label Efforts – Electronics Accessories Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Ear Buds Electronics Symphonized >10K 3 AmazonBasics 16 49 4.0 Panasonic Apple Headphones Electronics cowin >100K 2 AmazonBasics 1 4,761 4.0 AmazonBasics Panasonic HDMI Cable Electronics AmazonBasics >6K 2 AmazonBasics 1 16,111 4.5 AmazonBasics Syncwire Laptop Case Electronics Tumi Luggage >60K 2 AmazonBasics 1 12,394 4.5 AmazonBasics AmazonBasics Mouse Pad Electronics PC Gaming Race >20K 2 AmazonBasics 6 505 4.5 AmazonBasics VicTsing Phone Charger Electronics RAVPower >100K 2 AmazonBasics 3 57,185 4.0 DEEGO Anker Power Strip Electronics Holsem >20K 2 AmazonBasics 1 2,787 4.5 AmazonBasics AmazonBasics TV Wall Mount Electronics Perlesmith >7K 6 AmazonBasics 41 649 4.5 NA VideoSecu Tripod Electronics Neewer >30K 2 AmazonBasics 1 6,590 4.5 AmazonBasics AmazonBasics USB Cable Electronics Aukey >50K 2 AmazonBasics 2 1,617 5.0 AmazonBasics BrexLink

Average 40,300 3 7 10,265 4.4 Median 25,000 2 2 3,774 4.5 Source: Amazon and D.A. Davidson.

Home We see home as an opportunity for Amazon to penetrate via private label as it is, in general, a very fragmented category. In fact, the fragmented nature of home was one reason the management of Wayfair chose to pursue the opportunity having successfully developed and sold its two prior companies, outside of home e-commerce.

Further, Overstock, which offers its own private-label furniture, sees the category as well suited for private label merchandise because no one cares about brand.

For its part, while not private-label per se, Costco has had a lot of success in furniture, for example, as it works with manufacturers to offer its warehouse club members the few variations of a furniture set that represent the largest portion of its sales at much lower costs than its competition (such as $849 versus $1,999).

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Additionally, its ability to make large, targeted buys from manufacturers gives it a leg up on the competition, which spreads their purchases thin because of their efforts to provide a, relatively speaking, much broader selection. Costco also noted that furniture is structurally a favorable category for selling private-label merchandise because there are only a few brands out there with broad consumer awareness, such as Ethan Allen. Lastly, Costco pointed out that Ikea has created a very successful private-label business for furniture.

Figure 22. Amazon’s Private-Label Efforts – Home

Source: Amazon and D.A. Davidson.

Our data suggested Amazon is doing reasonably well in home, with room for improvement. Of the 18 items we analyzed, 11% were ranked first, 50% were in the top 10%, 56% were in the top 20, and 44% were outside the top 20. In addition, its 18 private-label items averaged 1,107 reviews and a 4.3 (out of 5.0) star rating.

Figure 23. Amazon’s Private-Label Efforts – Home Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Fire Pit Garden & Outdoor Balie Outdoors >3K 3 AmazonBasics 3 114 4.0 AmazonBasics NA Bed Sheets Home & Kitchen Cariloha >10K 2 AmazonBasics 2 13,418 4.5 AmazonBasics HOMEIDEAS Coffee Maker Home & Kitchen Nepresso De'Longhi >2K 5 AmazonBasics 31 192 4.0 Hamilton Beach BLACK+DECKER Couch Home & Kitchen Rivet >5K 6 Rivet 19 37 4.0 NA Best Choice Products Dutch Oven Home & Kitchen AmazonBasics 786 4 AmazonBasics 3 39 5.0 Lodge NA Forks Home & Kitchen Hiware >1K 5 AmazonBasics 25 56 4.5 Hiware Hiware Hangers Home & Kitchen AmazonBasics >5K 1 AmazonBasics 1 1,833 4.5 AmazonBasics ZOBER Kettle Home & Kitchen Remy Olivier >4K 4 AmazonBasics 2 508 4.5 AmazonBasics Mueller Austria Kitchen Knife Home & Kitchen Vremi >10K 12 AmazonBasics 28 227 4.5 NA Vremi Lamp Home & Kitchen Brightech >20K 9 Rivet 23 49 4.0 NA Ikea Loveseat Home & Kitchen Rivet >1K 9 Rivet 22 8 5.0 Zinus Best Choice Products Pan Home & Kitchen Utopia Kitchen >10K 6 AmazonBasics 30 26 4.0 Utopia Kitchen Utopia Kitchen Pillow Home & Kitchen Coop Home Goods >10K 9 AmazonBasics 27 85 4.0 Utopia Coop Home Goods Plates Home & Kitchen Dixie >300K 2 AmazonBasics 1 955 4.5 AmazonBasics Melange Shoe Rack Home & Kitchen Songmics >1K 5 AmazonBasics 29 93 4.5 Seville Classics Songmics Towels Home & Kitchen Pinzon >10K 3 AmazonBasics 2 2,134 4.0 AmazonBasics NA Grill Cover Patio, Lawn & Garden Classic Accessories >10K 2 AmazonBasics 4 51 4.5 AmazonBasics VicTsing Hammock Patio, Lawn & Garden Flagship-X >20K 2 AmazonBasics 7 95 4.0 AmazonBasics Honest Outfitters

Average 23,488 5 14 1,107 4.3 Median 7,500 5 13 94 4.5 Source: Amazon and D.A. Davidson.

The Case Against Home - Furniture We also wanted to take this opportunity to reiterate our findings from our 11th white paper, published last November, titled Embracing Amazon and Unleashing the Revolutionary Potential of AI. In it we discussed categories where Amazon may struggle and noted the following argument for the furniture category:

According to an industry source, Amazon may struggle with furniture because the model is different from its core – offering standardized products on a fast and efficient basis with aggressive pricing on similar items. Adding furniture would require a lot of category-specific development. For example, this represents the first time in a long time that Amazon is using a third-party logistics provider to outsource its supply chain.

An industry source commented that while Amazon has all it needs to continue to advance its apparel and grocery efforts, it is still lagging when it comes to selling larger items such as furniture and home improvement.

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TalkLocal expects furniture to be challenging for Amazon because of significant competition, including Wayfair.

Forrester believes there are enough consumers in furniture that want to touch and feel the product before purchasing that could slow Amazon’s advancements.

According to an industry source, Wayfair’s efforts in furniture are superior to Amazon’s because the company does a better job with merchandizing – selling the same item that is offered on Amazon at a HIGHER price because it makes it easier for the consumer to find the item on its website and does a better job with content on the product, for example, to explain to the consumers its positive attributes.

For its part, Amazon noted that while larger and bulkier items are more challenging to ship its Prime offering is still effective in the furniture category as consumers appreciate the ability to get bulky items shipped for free, even if they are unable to receive them on a two-day basis. The company continues to work at improving the shopping experience for furniture.

Household Products We see household products as an area ripe for Amazon’s private-label efforts with consumers seeking opportunities to save on everyday items from batteries to paper towels to toilet paper. As an example, Brand Foundry pointed out that most products sold at Drug Stores could be easily replicated as private label by Amazon, because they could be easily shipped by Amazon.

Our data supported our favorable view. Of the 21 items we analyzed, 10% were ranked first, 62% were in the top 10%, 76% were in the top 20, and 24% were outside the top 20. In addition, its 21 private-label items averaged 1,698 reviews and a 4.3 (out of 5.0) star rating.

Figure 24. Amazon’s Private-Label Efforts – Household Products

Source: Amazon and D.A. Davidson.

Anecdotal Observations We were amenable to purchasing household private-label products from Amazon, having had favorable experiences with private label at both Costco (Kirkland) and Walmart (Equate and Great Value). We have had positive experiences with a number of Amazon’s household products from batteries to OTC drugs to paper towels to toilet paper to trash bags. As a result, most of the time, when we are searching for household products we are looking for its private- label offerings. Lastly, while Jet.com’s private-label toilet paper was less expensive than Amazon’s, we considered Amazon’s to be higher quality.

Figure 25. Amazon’s Private-Label Efforts – Household Products Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller AAA Batteries Health, Household & Baby Care NA >1K 0 AmazonBasics 1 20,635 4.5 NA AmazonBasics Advil Health, Household & Baby Care Advil 335 3 Basic Care 8 128 5.0 Advil Advil Baby Shampoo Health, Household & Baby Care Johnson's >8K 6 Mountain Falls 25 19 4.5 Johnson's Aveeno Baby Wipes Health, Household & Baby Care Pampers >20K 2 Amazon Elements 1 10,447 4.5 Amazon Elements Pampers Benadryl Health, Household & Baby Care Benadryl 136 6 Basic Care 11 68 4.5 Benadryl NA Diaper Pail Refills Health, Household & Baby Care Diaper Genie 188 3 Mama Bear 5 317 4.0 Munchkin Playtex Diaper Rash Cream Health, Household & Baby Care Babyganics >1K 6 Mountain Falls 20 16 4.0 Desitin Aquaphor Diapers Health, Household & Baby Care Pampers >30K 3 Mama Bear 2 1,401 4.0 NA Huggies Dishwasher Pods Health, Household & Baby Care Cascade >3K 7 365 Everyday Value 48 13 3.0 Cascade Finish Ear Plugs Health, Household & Baby Care Decibullz >20K 6 AmazonBasics 41 936 4.5 Mack's Decibullz Hand Sanitizer Health, Household & Baby Care Purell >10K 9 365 Everyday Value 43 3 4.5 Mountain Falls Purell-Advanced Hydrocortisone Health, Household & Baby Care Truelipids 607 0 Basic Care 12 6 3.0 Cortizone-10 NA Laundry Detergent Health, Household & Baby Care Tide & Gain >3K 6 365 9 1 5.0 Tide Tide Napkins Health, Household & Baby Care Bounty >70K 2 AmazonBasics 9 5 2.5 Bounty Vanity Fair Paper Towels Health, Household & Baby Care Bounty >30K 0 Presto! 5 508 4.5 Presto! Bounty Prilosec Health, Household & Baby Care Prilosec 104 4 Basic Care 9 87 4.5 Prilosec GoodSense Tampons Health, Household & Baby Care Tampax >2K 2 Solimo 4 20 4.5 Playtex NA Toilet Paper Health, Household & Baby Care Charmin >30K 2 Presto! 4 881 4.5 Presto! Charmin Trash Bags Health, Household & Baby Care Hefty >10K 6 AmazonBasics 21 30 4.0 Glad Hefty Tylenol Health, Household & Baby Care Tylenol 367 3 Basic Care 2 128 5.0 Tylenol Basic Care Vitamins Health, Household & Baby Care Dr. Tobias >50K 2 Amazon Elements 6 15 5.0 Vitafusion Vitafusion

Average 13,797 4 14 1,698 4.3 Median 3,000 3 9 68 4.5 Source: Amazon and D.A. Davidson.

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Office Products We see office products as incredibly well suited for Amazon, given its brand is built on providing consumers access to a large supply of products, at low prices, and quickly. We see this category becoming even more of a strong one for Amazon as it continues to roll out its expedited shipping efforts, including one-day prime and Prime Now (same day one- and two- hour shipping initiative).

Our data supports this view as office products was its top-performing category. Of the 11 items we analyzed, 64% were ranked first, 91% were in the top 10%, 91% were in the top 20, and 9% were outside the top 20. Further, Amazon’s private-label efforts in office products ranked first or second on nearly every item we looked at, with, interestingly, the exception being pens. In addition, its 11 private-label items averaged 1,514 reviews and a 4.2 (out of 5.0) star rating.

Remodista suggested Amazon was well suited to penetrate office supplies with private-label merchandise because almost all the products in the category are generic.

Figure 26. Amazon’s Private-Label Efforts – Office Products

Source: Amazon and D.A. Davidson.

Anecdotal Observations We have used a variety of Amazon’s private label office products for some time and have found them to be of good quality for the price, including the pens (which ranked surprisingly low).

Figure 27. Amazon’s Private-Label Efforts – Office Products Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Dry Erase Markers Office Products Quartet >1K 1 AmazonBasics 1 700 4.0 Expo Expo Highlighters Office Products Sharpie >1K 3 AmazonBasics 2 260 4.5 AmazonBasics Sharpie Notebook Office Products Intel >200K 2 AmazonBasics 1 534 4.0 AmazonBasics BooQool Office Chair Office Products Modway >50K 2 AmazonBasics 1 2,949 4.0 AmazonBasics Furmax Paper Clips Office Products Officemate >2K 3 AmazonBasics 1 105 4.5 NA NA Pencils Office Products AmazonBasics >7K 3 AmazonBasics 2 126 4.5 AmazonBasics BIC Pens Office Products Pentel >20K 6 AmazonBasics 28 71 4.0 BIC MyLifeUNIT Printer Paper Office Products AmazonBasics >7K 2 AmazonBasics 1 1,104 4.5 AmazonBasics HP Scissors Office Products CoCo's Closet >90K 2 AmazonBasics 1 628 4.5 AmazonBasics Equinox International Shredder Office Products AmazonBasics 917 3 AmazonBasics 1 9,750 4.0 AmazonBasics AmazonBasics Stapler Office Products Swingline >3K 3 AmazonBasics 2 432 4.0 AmazonBasics EcoElectronix

Average 34,720 3 4 1,514 4.2 Median 7,000 3 1 534 4.0 Source: Amazon and D.A. Davidson.

Pet Supplies We see private-label pet supplies products as well suited for Amazon, as consumers look for ways to save money and given pets’ inability to talk (i.e. demand branded products over private label).

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Figure 28. Amazon’s Private-Label Efforts – Pet Supplies

Source: Amazon and D.A. Davidson.

Our data suggests Amazon has room for improvement, when it comes to rankings. Of the six items we analyzed, 33% were ranked first, 50% were in the top 10%, 50% were in the top 20, and 50% were outside the top 20. In addition, its six private-label items averaged 3,007 reviews and a 4.3 (out of 5.0) star rating. The reviews number was impressive, second to only electronics accessories.

Figure 29. Amazon’s Private-Label Efforts – Pets Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Cat Litter Pet Supplies Purina 803 6 AmazonBasics 33 213 4.0 Dr. Elsey's IRIS USA, Inc. Dog Bed Pet Supplies Laifug >10K 0 AmazonBasics 22 2,103 4.0 Furhaven Pet Best Friends by Sheri Dog Bowl Pet Supplies Neater Pet Brands >7K 3 AmazonBasics 1 1,015 4.5 AmazonBasics Outward Hound Dog Crate Pet Supplies AmazonBasics 795 3 AmazonBasics 2 8,010 4.5 AmazonBasics AmazonBasics Dog Food Pet Supplies Hill's Science Diet >3K 9 Wag 21 23 4.0 Taste of the Wild NA Dog Waste Bags Pet Supplies AmazonBasics >2K 3 AmazonBasics 1 6,680 4.5 AmazonBasics NA

Average 3,933 4 13 3,007 4.3 Median 2,500 3 12 1,559 4.3 Source: Amazon and D.A. Davidson.

Category Penetration – Millenials Overview We believe demographics play favorably into Amazon’s private-label efforts as Millennials are much less loyal to national brands and have grown up shopping on Amazon.

Our industry experts mirrored our view, as ChannelAdvisor remarked that Millennials are much less apt, than the generations before them, to be loyal to national brands. Additionally, what was first evident in beers, with the emergence of craft brews, is now expanding into additional categories. Consumers grew tired of big brands and sought ones that were unique to their personalities. ChannelAdvisor attributes this partly to the new generation’s use of social networks.

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Figure 30. Millenials and Craft Beers

Source: Brewers Association and D.A. Davidson.

Category Penetration – Difficult Overview Categories Based on our conversations with a number of industry experts, we see beauty, branded electronics, luxury apparel, toys, and women’s apparel as categories less well suited for Amazon’s private-label efforts.

ChannelAdvisor remarked when it comes to categories that are hard to penetrate with private- label products, any company that thinks its business is immune to digital disruption is delusional.

Apparel Our industry sources suggested apparel is a difficult category for private-label because consumers rely on brand names for cues on product quality, among other attributes. In particular, we see women’s apparel (outside of basics) as challenging for Amazon along with luxury apparel.

Overstock commented that private-label apparel is challenging because a consumer gathers so much information on products from brand value cues. By way of comparison, there are not as many brand value cues in furniture and home goods. For example, if you asked a consumer his/her favorite sofa brand, he/she may answer Lazy Boy; but then if you asked for a second favorite, the answer may be nothing. As a result it is easier for retailers to sell private label merchandise for furniture and home goods than apparel.

The more highly considered the purchase, the greater the challenge for private label, according for Overstock. Amazon will struggle in apparel, according to Overstock, because when there is a high level of consideration involved by the consumer then convenience is a lot less relevant to drive purchases. For example, a consumer looking to purchase a sofa is not willing to make big tradeoffs and a consumer, therefore, is less willing to gamble on purchasing a private-label product to save money.

Apparel – Luxury We see luxury apparel as a challenge to Amazon for multiple reasons. First, while it will most likely create brands with names not directly associate to Amazon, while fond of its brand, we don’t believe it carries the cache for luxury. For example, its hardware brand is built on affordability not luxury.

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Brand Foundry agreed with our sentiment noting that it seems unlikely that Amazon will be able to create fashion brands that consumers will aspire to purchase, such as Armani and Gucci. When consumers want to purchase products representative of their behavior, they will invest the time to do so and, more than likely, will not be purchasing it from Amazon.

We also wanted to take this opportunity to reiterate our findings from our 11th white paper, published last November, titled Embracing Amazon and Unleashing the Revolutionary Potential of AI. In it we discussed categories where Amazon may struggle and noted the following argument for the luxury goods category:

An industry source commented that Amazon may struggle in the luxury category because most luxury retailers would want the company to improve the presentation of their brand on Amazon’s website before considering them as a potential partner. Further, luxury consumers expect both high touch and high quality customer service and Amazon’s standard offering, including click to call or click to chat, may not be sufficient.

Ms. Mulpuru thinks Amazon will continue to struggle in luxury. When we suggested to her the notion that it was just a waiting game for Amazon (for brands to capitulate and sell on its platform), she noted that we have been saying that for a long, long time. That said, there are examples today within luxury. For example, Tory Burch saturates the market then has to go to Amazon for sales, which is the beginning of the end for the brand. Ms. Mulpuru, however, noted there are enough luxury brands like Chanel that would rather suffer one bad year of sales and preserve their brand integrity instead of selling merchandise on Amazon, which does not care about brand integrity. Lastly, Amazon will struggle in the category because luxury does not want to be mass.

Another industry source also suggested Amazon may struggle in luxury apparel sales because of problems with counterfeit merchandise offered on its platform.

An industry source echoed the sentiments of others, noting that luxury brands are reluctant to sell merchandise on Amazon because it may cheapen their brands, with Amazon commoditizing their products. The company commoditizes items to a price point.

Apparel – Women’s We see women’s apparel (outside of basics) as challenging for Amazon to penetrate with private label because 1) we believe women prefer to buy apparel in physical stores because of a superior browsing experience and the ability to try on products before buying them and 2) it is difficult for consumers to find products on Amazon when they don’t know exactly what they are looking. Later in this white paper we offer suggestions on M&A Amazon could engage in to advance its women’s apparel private-label efforts.

Our data supports our view; of the 13 items we analyzed, 8% were ranked first, 15% were in the top 10%, 23% were in the top 20, and 77% were outside the top 20. This was Amazon’s weakest subcategory in apparel, behind men’s and kids’. Further its score of only 23% in the top 20 was the lowest among the general categories In addition, its 13 private-label items averaged 186 reviews and a 4.2 (out of 5.0) star rating.

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Figure 31. Amazon’s Private Label Efforts – Women’s Apparel

Source: Amazon and D.A. Davidson.

We also wanted to take this opportunity to reiterate our findings from our Embracing Amazon and Unleashing the Revolutionary Potential of AI. In it we discussed categories where Amazon may struggle and noted the following:

According to an industry source, Amazon may continue to struggle with apparel. Normally, when the company invests as heavily as it has in a category over a four- or five-year period it is able to secure the leadership position. In apparel, however, the company has strict guidelines on how product photos for its website need to be taken, which may slow its third- party efforts in the category. Additionally, there are other structural challenges in apparel for Amazon. For example, women, often, do not want to wear what others are, which makes mass merchandising difficult.

For its part, Amazon noted that it continues to work at improving the shopping experience for apparel on its platform. For example communicating to the consumer what it means to have a certain red blouse and leveraging all of its technological tools, including AI, to improve its apparel sales. The company noted that it benefits from having consumers’ trust and it is seeing that more apparel brands want to sell on its platform. Lastly, it acknowledges the process will take years and not quarters.

Here is what our industry sources had to say. Because of how women shop for merchandise, noted Brand Foundry, it will be more difficult for Amazon to succeed in private-label high(er) end women’s apparel. They are more likely to research products before buying them and, therefore, less susceptible to purchasing ones based on convenience. Further, most of the media content on fashion is targeted at women. Lastly, 80% of consumer’s purchases are influenced by women.

The Case for Women’s Apparel Forrester believes Amazon can succeed in private-label women’s apparel, because Walmart does. It will never compete against Chanel, but when it comes to competing for mass-market women’s apparel against Kohl’s and Macy’s, Amazon has a great shot at succeeding. The company has as much equity in fashion as Gap or Old Navy and should, at least, be able to mirror their online sales but, without physical stores, it is unlikely to match their total sales. Forrester noted that the mix of online apparel sales is in the double digits and most of that is women’s apparel. Some of the keys for Amazon to succeed in private-label women’s apparel are having strong reviews, delivery quality merchandise, and being realistic about the size of the market. Amazon would not be able to generate $20B in sales but it could hit $2B. That leads to another challenge for Amazon, when you are a $200B company, $2B of incremental revenues is not going to be a needle mover.

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When it comes to sustaining its growth rate Amazon needs to find ways to generate an incremental $20B-$30B of revenue and it is unlikely to achieve that via apparel (it is more likely to achieve that via its cloud computing efforts or via new categories, such as taking another pass at smartphones). There have not been many companies in history able to generate incremental revenue of $20B-$30B per year.

For its part, Costco acknowledged that while it has had success with private-label men’s jeans but not women’s, it has done very well with its women’s private-label athleisure products, where it is able to offer high-quality products at significant discounts to premium brands and sell millions of units at a full margin.

Figure 32. Amazon’s Private-Label Efforts – Women’s Apparel Amazon Brand Sponsored Amazon Rank Customer Rating Amazon's Best Product Category By Results Sponsored Brand Reviews Choice Seller Athletic Socks (women's)Women's Clothing Road Runner Sports >40K 7 Kold Feet 69 4 4.5 Under Armour Physix Black Dress Women's Clothing NA >40K 8 Lark & Ro 22 12 4.5 Heloise Fashion NA Bra Women's Clothing Bravity >20K 8 Mae 21 450 4.0 Warner's NA Coat (women's) Women's Clothing BGSD >10K 4 Lark & Ro 8 7 4.0 NA NA Jeans (women's) Women's Clothing Democracy >10K 8 Madison 70 6 4.5 Signature by Levi Strauss & Co. NA Pantyhose Women's Clothing L'eggs >8K 28 StockingFox 183 30 4.5 Manzi NA Pumps Women's Clothing Dailyshoes >20K 32 The Fix 189 36 3.5 City Classified Comfort NA Sandals (women's) Women's Clothing Katy Perry Footwear >70K 28 The Fix 189 10 3.5 NA NA Skirt Women's Clothing Flatseven >10K 8 Lark & Ro 24 13 3.5 NA NA Summer Dress Women's Clothing Cultro >30K 7 Lark & Ro 56 2 5.0 KIRA Aelson Sweater (women's) Women's Clothing Kuna >40K 15 Lark & Ro 88 60 4.0 Urban Coco NA Underwear (women's) Women's Clothing Under Armour >10K 0 Amazon Essentials 1 1,608 4.5 Amazon Essentials NA Yoga Pants Women's Clothing Ododos >30K 4 Core 10 14 175 4.5 IUGA Tesla

Average 26,000 12 72 186 4.2 Median 20,000 8 56 13 4.5 Source: Amazon and D.A. Davidson.

Lastly, Amazon acknowledged it was behind its retail peers when it came to offering private- label products, especially in women’s fashion. To that end, its prime wardrobe initiative (launched in April 2018, according to Techcrunch) is designed at advancing its private-label efforts in women’s and men’s apparel.

Figure 33. Amazon’s Private-Label Efforts – Women’s Apparel

Source: Amazon and D.A. Davidson.

Additionally, Amazon made two small acquisitions, one of a shoe fitter and another of a body lab to help consumers with sizing, which should advance its private-label efforts in apparel.

In general, when it comes to apparel, including women’s, Amazon is continuously working on ways to make it easier for consumers to find and not find what they are looking for on its platform. Further, it strives to make online apparel buying a more comfortable experience for consumers.

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Beauty The basic premise is that the branded nature of beauty makes it a difficult category for companies, including Amazon, to penetrate.

Our research was consistent with this notion. We searched for Amazon private-label merchandise on its website (such as blush, lipstick and mascara) and, for the most part, came up empty.

Overstock agreed with the notion that beauty would be a tough category for private label because it is heavily branded.

Costco made a similar comment that beauty is a difficult one because brand is important. For its part it had sold a line of Kirkland Signature by Borghese, but it was not a big seller for the company. That said, the company is always willing to try new things, such as its recently launched Kirkland Signature fragrance blending collection.

ChannelAdvisor acknowledged that brand is important in the beauty category, which, at least insulates it a little compared to others when it comes to private-label merchandise.

Remodista agreed with the assertion that beauty is a difficult category for companies’ to penetrate with private label as consumers way worry about the product quality of private-label products.

Amazon seems to understand the importance of brands in beauty, when considering, according to an article published in online trade website Glossy in early June, it plans on opening a new online store focused on independent beauty branded merchandise. When considering the same article suggested beauty sales on Amazon’s platform were $900M (a 30% increase), it does not seem like its lack of private-label products has hurt its performance.

The Case for Beauty Conversely, Forrester suggested beauty would not be a difficult category to penetrate with private-label merchandise because of low barriers to entry. Further, margins are high, which would incent Amazon to pursue the opportunity and a playbook has been well established – employ vloggers and show their videos on YouTube to drive sales.

Brand Foundry suggested Amazon could create private-label beauty products. While consumers may continue to want premium beauty products (not Amazon private label) for special events, such as weddings, they may be willing to buy lower-priced Amazon private label ones for everyday use, such as touching up makeup before heading to the grocery store.

Electronics (Branded) While it is easy for Amazon to sell USB cables it was more difficult for it sell proprietary hardware. It took time for it to penetrate tablets and its sole effort, to date, in smartphones was a failure.

Overstock suggested in-line electronics are a difficult category for private-label merchandise, such as private-label computers. For example, Samsung and Sony both have powerful brands for electronics merchandise.

Jewelry Based on our conversations with industry experts, jewelry was another category mentioned as difficult for companies, including Amazon, to offer private-label merchandise. For example, even Costco does not offer Kirkland jewelry.

Toys The basic premise here is that children want branded toys, such as Barbie, Lego, and Nerf.

Our research was consistent with this notion. We searched for Amazon private-label toys on its website and, for the most part, came up empty.

Overstock commented that toy sales are heavily dependent on licensing rights. For example, should Amazon secure the licensing rights for Nick Jr.’s popular TV show, Paw Patrol, it could make the products itself and sell Amazon-branded Paw Patrol toys; however, the cost of the securing the licensing rights could remove the opportunity for Amazon to capture incremental margin.

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Remodista suggested parents may be concerned about child safety when it comes to private- label toys, which could make it difficult for Amazon to penetrate the category.

Costco had a slightly different take on toys. While agreeing that girls do not want private-label dolls, the company indicated it has had little need to offer private-label toys because it is able to get great prices on toys from manufacturers and, therefore, hasn’t had to offer private-label items for the category.

The Case for Toys Inspired by our conversations with industry experts, we believe Amazon could come up with a line of private-label STEM (science, technology, engineering, and math) toys under its private label Jeff & MacKenzie. Further it could have toys tied into Mr. Bezos’ private space travel effort, Blue Origin. Lastly, we think Amazon could sell a Jeff Bezos action hero toy. Among other things, it could destroy the competition, with disruption as its super power.

Given its brand is built on technology and its founder’s fondness of space travel, so Brand Foundry suggested Amazon could create private-label toys, such as by mirroring Melissa & Doug’s strategy of creating common toys with higher-end materials. Further the high margins in beauty products are likely to lure Amazon to, at least, try to penetrate the category.

Forrester agreed that toys would be difficult, but believes it could be done so long as Amazon was able to employ an R&D group and buy its way into innovative toy products. While Barbie and Lego have intellectual property and would be difficult to knock off, Amazon could innovate to create a successful private label effort. To that end, the lack of innovation in the toys category was one reason Toys ‘R Us failed, according to Forrester.

ChannelAdvisor suggested there are times where brands are important in toys (and games), such as Barbie and Fortnite; however, there are others where it does not matter. For example, if Amazon had created the fidget spinner and sold it under a private label would it have not taken off because of the Amazon brand?

Product Development Overview The basic premise, after our conversations with industry experts, is that Amazon’s extensive data and analytics expertise enables it to determine the private-label products to make based on the performance of existing ones. That is the good news. The bad news, is that, save the Alexa empowered Echo devices, product development has not, historically, been Amazon’s strong suit. Therefore, it’s dependent on others’ product development prowess.

We find this particularly interesting that a company so good at developing new services to disrupt retail, such as Amazon Prime, struggles with product development.

Product Development - Strengths Product Development – Strengths The company’s data analytics efforts enable it to determine the products it should offer consumers and it is able to come up with several of them, based on the data.

The power of Amazon, according to Brand Foundry, is that it has an amazing dashboard with information on sales of products on its platform that enables it to determine the products it should make itself.

Forrester made a similar comment that the benefit of Amazon’s third-party marketplace model is that it is able to see what others are selling to find opportunities for its own products and, therefore, sales.

ChannelAdvisor noted that when it comes to apparel, Amazon doesn’t have one private-label brand it has 50-60. They are made from the same factory but each one is created to satisfy a specific set of needs for the customer. As a result, Amazon can slice a category into infinitely small pieces, aided by its search algorithm and tremendous consumer data. An argument could be made there is no limit to how tailored a private-label brand can be, created by Amazon. Today, Amazon, and others, can create online brands that appeal to narrow segments of consumers and generate favorable sales without having to worry about scaling. In that way, digital eliminates the barriers that limited physical sales.

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Product Development - Product Development – Weaknesses Weaknesses For the most part, Amazon is dependent on others to develop new products first then gather data on their successes and failures before creating its own ones.

Its dashboard isn’t functional, according to Brand Foundry, until another company creates a product and makes a market, such as Allbirds and wool sneakers. Overstock agrees with Brand Foundry’s assertion that Amazon needs someone else to innovate to enable it to knock them off and that product development has not been one of Amazon’s strengths.

Another example is Warby Parker, with its greatest disruption, according to Brand Foundry, of removing the middlemen. Amazon, too, could create a brand, name it Duffy Parker, and find a supplier, take out the middlemen, and sell prescription glasses to consumers at much lower prices than was the prior norm; however, from a branding point of view, Amazon still needed Warby Parker to show it the way, rather than creating the initial disruptive force on its own.

Creating Products but Not Brands – Amazon Has No Soul While Amazon is able to create private-label products to provide consumers lower-priced options in several categories, it is much more difficult for it to develop new brands.

As Brand Foundry noted, Amazon is a brand but it does not care about socks or plus-size fashion; instead, it cares about making money. For example, in its private label dog food effort, what is the soul or what is the ethos of Wag dog food?

In Forrester’s opinion, Jeff Bezos does not truly understand brands. He thinks of brands as something that are easy, reliable, and seamless and having great customer service. He doesn’t understand the notion of being cool. When Amazon has been successful in creating a brand, it is because it stumbled onto it, such as its echo devices . Further, Mr. Bezos does not understand the notion of scarcity, nor is he an advocate of scarcity. It is difficult for any company to create private-label products with soul. For its part, Amazon is essentially the equivalent of Honda in cars, which isn’t necessarily a bad thing. Honda generates a lot of sales volume, despite not having many unique qualities. Meanwhile, BMW and Tesla have much more elaborate brands.

Advertising Overview We believe the company’s private-label efforts provide sellers even more motivation to advertise on Amazon, which is an important source of high-margin revenue. While gathering data, we noticed the increasing prevalence of Amazon’s advertising efforts. Ninety four of the 100 product searches had advertisements.

Further, as illustrated in the following table, our product searches resulted, on average, in more than 26K results. With so many search results, sellers/brands need to advertise to stand out from the crowd.

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Figure 34. Amazon’s Product Selection and the Need for Advertising

Sponsored Product Category By Results AAA Batteries Health, Household & Baby Care NA >1K Advil Health, Household & Baby Care Advil 335 Athletic Socks (men's) Men's Clothing New Balance >40K Athletic Socks (women's)Women's Clothing Road Runner Sports >40K Baby Shampoo Health, Household & Baby Care Johnson's >8K Baby Wipes Health, Household & Baby Care Pampers >20K Backpack Luggage & Travel Gear Hynes Eagle >200K Bed Sheets Home & Kitchen Cariloha >10K Benadryl Health, Household & Baby Care Benadryl 136 Black Dress Women's Clothing NA >40K Bra Women's Clothing Bravity >20K Cat Litter Pet Supplies Purina 803 Coat (men's) Men's Clothing Under Armour >20K Coat (women's) Women's Clothing BGSD >10K Coat (boys') Boys' Clothing Under Armour >20K Coat (girls') Girls' Clothing La Chaquerteria >40K Coffee Maker Home & Kitchen Nepresso De'Longhi >2K Couch Home & Kitchen Rivet >5K Diaper Pail Refills Health, Household & Baby Care Diaper Genie 188 Diaper Rash Cream Health, Household & Baby Care Babyganics >1K Diapers Health, Household & Baby Care Pampers >30K Dishwasher Pods Health, Household & Baby Care Cascade >3K Dog Bed Pet Supplies Laifug >10K Dog Bowl Pet Supplies Neater Pet Brands >7K Dog Crate Pet Supplies AmazonBasics 795 Dog Food Pet Supplies Hill's Science Diet >3K Dog Waste Bags Pet Supplies AmazonBasics >2K Dress Shirt (men's) Men's Clothing Buttoned Down >40K Dress socks (men's) Men's Clothing Chaps >4K Dry Erase Markers Office Products Quartet >1K Dutch Oven Home & Kitchen AmazonBasics 786 Ear Buds Electronics Symphonized >10K Ear Plugs Health, Household & Baby Care Decibullz >20K Extension Cord Tools & Home Improvement Kasonic >20K Fire Pit Garden & Outdoor Balie Outdoors >3K Foam Roller Sports & Fitness Trigger Point Performance 822 Forks Home & Kitchen Hiware >1K Grill Cover Patio, Lawn & Garden Classic Accessories >10K Hammock Patio, Lawn & Garden Flagship-X >20K Hand Sanitizer Health, Household & Baby Care Purell >10K Hangers Home & Kitchen AmazonBasics >5K Headphones Electronics cowin >100K HDMI Cable Electronics AmazonBasics >6K Highlighters Office Products Sharpie >1K Hydrocortisone Health, Household & Baby Care Truelipids 607 Jeans (men's) Men's Clothing 7 For All Mankind >8K Jeans (women's) Women's Clothing Democracy >10K Jeans (boys') Boys' Clothing Democracy 830 Jeans (girls') Girls' Clothing Democracy >20K Jump Rope Sports & Fitness Epitomie Fitness >1K Kettle Home & Kitchen Remy Olivier >4K Khaki Pants (men's) Men's Clothing Dockers >1K Kitchen Knife Home & Kitchen Vremi >10K Lamp Home & Kitchen Brightech >20K Laptop Case Electronics Tumi Luggage >60K Laundry Detergent Health, Household & Baby Care Tide & Gain >3K Lightbulbs Tools & Home Improvement Finally Light Bulbs >60K Loveseat Home & Kitchen Rivet >1K Mouse Pad Electronics PC Gaming Race >20K Napkins Health, Household & Baby Care Bounty >70K Notebook Office Products Intel >200K Office Chair Office Products Modway >50K Pan Home & Kitchen Utopia Kitchen >10K Pantyhose Women's Clothing L'eggs >8K Paper Clips Office Products Officemate >2K Paper Towels Health, Household & Baby Care Bounty >30K Pencils Office Products AmazonBasics >7K Pens Office Products Pentel >20K Phone Charger Electronics RAVPower >100K Pillow Home & Kitchen Coop Home Goods >10K Plates Home & Kitchen Dixie >300K Polo Shirt Men's Clothing Jack Wolfskin >40K Power Strip Electronics Holsem >20K Prilosec Health, Household & Baby Care Prilosec 104 Printer Paper Office Products AmazonBasics >7K Pumps Women's Clothing Dailyshoes >20K Sandals (women's) Women's Clothing Katy Perry Footwear >70K Scissors Office Products CoCo's Closet >90K Shoe Rack Home & Kitchen Songmics >1K Shredder Office Products AmazonBasics 917 Skirt Women's Clothing Flatseven >10K Stapler Office Products Swingline >3K Summer Dress Women's Clothing Cultro >30K Sweater (men's) Men's Clothing Moconto >60K Sweater (women's) Women's Clothing Kuna >40K Tampons Health, Household & Baby Care Tampax >2K TV Wall Mount Electronics Perlesmith >7K Toilet Paper Health, Household & Baby Care Charmin >30K Towels Home & Kitchen Pinzon >10K Trash Bags Health, Household & Baby Care Hefty >10K Tripod Electronics Neewer >30K Tylenol Health, Household & Baby Care Tylenol 367 Umbrella Luggage & Travel Gear LifeTek >70K Underwear (men's) Men's Clothing Andrew Christian >30K Underwear (women's) Women's Clothing Under Armour >10K USB Cable Electronics Aukey >50K Vitamins Health, Household & Baby Care Dr. Tobias >50K White T Shirt (men's) Men's Clothing J. Lindeberg >70K Yoga Mat Sports & Fitness Shandali >4K Yoga Pants Women's Clothing Ododos >30K

Average 26,087 Median 10,000 Source: Amazon and D.A. Davidson.

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Amazon’s Advertising Strategy Amazon’s goal with its advertising is to improve customers’ shopping and purchase decisions. It encompasses display advertising and sponsored products. Display advertising is an impression-based business, where it works with advertising agencies and uses data and machine learning to provide third-party sellers and vendors opportunities to display ads. Its sponsored products advertising effort is newer to the company and is auction based, where advertisers bid on terms. That said, they still have to win the buy box and high bids, alone, for advertising will not guarantee placement. For example, it will not show up as sponsored if its products have low reviews. Its budding advertising business benefits from the increasing consumer traffic to its websites and its extensive data on customer behavior. The company is thoughtful when designating space on its platform for ads, because it could also be used for self-promotion, such as showcasing its Alexa-related efforts or other of its own products and services.

Redodista commented that as advertising expands on Amazon it will be more difficult for some of its sellers (who are not able to afford it) to be able to compete.

In some regards, we see Amazon enabling sellers and brands to advertise on it as a way to offset some of the competitive pressure caused by its private-label sales.

Advertising Is Table Stakes for Selling on Amazon Forrester absolutely agrees with this assertion. There are a lot of pros and cons when it comes to selling on Amazon. Pro – it gets a lot of visitors. Con – it is very crowded and hard for a seller to stand out. Con – there are too many products and several products never move. Con – consumers only visit Amazon for short periods of time – they move into and off of the website quickly. Amazon is smart to monetize its efforts with advertising. While we noticed several prominent brands advertising on Amazon, such as Advil, Cascade, and Pampers, Forrester made the argument that similar to Google, big brands do not have to advertise on Amazon to succeed (though many nonetheless choose to do so due to the dog-eat-dog nature of packaged goods), whereas under the radar ones almost have to for the exposure. This points to tremendous upside potential for Amazon as it has seemingly become the launching pad for many new packaged goods brands like Bai and RX Bars.

Headline Search Ads (HSA) In the following figure we show Amazon’s headline search ads, banner ads that frequently show up when a consumer looks for a product, such as diapers.

Figure 35. Amazon Headline Search Ads (HSA)

Source: Amazon and D.A. Davidson.

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The Advertiser for Products on Amazon is Amazon? In a number of instances the company sponsoring products in search results was Amazon itself. An industry source said, for its part, it sees nothing wrong with Amazon sponsoring its own private-label merchandise, especially if it was trying to liquidate a product that wasn’t performing well.

ChannelAdvisor’s Repricing Algorithm The large number of search results also showcased the value of ChannelAdvisor’s repricing algorithm aimed at empowering its seller customers to win the buy box. It wants its customers to be as competitive as possible, especially when it comes to selling on Amazon. Its repricing algorithm also helps sellers when they are looking to clear inventory and willing to accept lower prices as well as maximizing sales, without lowering prices, when they have a competitive advantage on an item.

Figure 36. ChannelAdvisor Repricing Algorithm

Source: ChannelAdvisor and D.A. Davidson.

Advertising – Ad Load Ad Load and Ad Fatigue? How many ads is too many? We discussed this with Amazon and our industry sources and came up with the following. Additionally, we will continue to monitor Amazon’s ad load given the risk that too many ads could negatively impact the customer experience and, therefore, its sales. Working in its favor, in our view, is the precedent set by Google, which shows a lot of ads next to consumer searches.

For its part, Amazon is well aware of the risks of showing too many ads. It also is thoughtful when it comes to importance of showing consumers contextual promotions. One, it does not allow poorly reviewed products to be sponsored. Two, if customers do not like the ads they will stop shopping on Amazon. Importantly, Amazon operates a click-based revenue model; therefore, its success is dependent on consumers responding favorably to its ad-related efforts.

ChannelAdvisor does not believe Amazon is at risk of tuning out consumers by having too many sponsored search results, even considering times where ALL search results are sponsored. It likened the experience to the gradual changes at Google, which have not negatively affected Google. Further, Amazon is too smart to do something that would negatively impact the customer experience. ChannelAdvisor is convinced advertising can increasingly become part of the Amazon experience so long as the company is careful, which is why it has referred to advertising as table stakes on Amazon. As a result, Amazon is a more complex selling platform and sellers need to employ a multidimensional approach to manage the platform.

365 Opportunity Overview Within groceries, we believe its 365 brand is underutilized online and it provides the company an opportunity to expand its physical grocery store footprint to pursue sales for more value- conscious consumers.

Online Opportunity While conducting our research, we found most 365 products were only available to Amazon Prime members. In our view, this is much too limiting and we see a greater opportunity for the company to, ultimately, offer the private-label grocery products to all of its customers, given our favorable view of the brand and the importance of the grocery category to Amazon. For example, to purchase 365 ketchup, a customer needed to be a Prime Member to buy it via Amazon Fresh or Amazon’s prime pantry offerings.

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Offline Opportunity If successful, we see the potential for more than a hundred, if not hundreds of locations, compared to today’s nine with a pipeline of adding 15 more (according to press releases on Whole Foods’ website)

Whole Foods Market 365 stores were first introduced in June 2015 as a more millennial- focused sister chain to the traditional Whole Foods stores. The 365 stores primarily carry Whole Food’s private label, resulting in generally lower prices than the traditional stores. Additionally the stores typically have a smaller store filled with high-tech devices (including digital price tags and interactive kiosks) utilized to drive down cost and create a quicker and more efficient experience. In addition to groceries, the stores include “Friends of 365” which are local vendors such as restaurants, coffee shops, and lifestyle companies, which meet Whole Food’s quality standards. The “Friends” works to provide a more complete experience that goes beyond shopping.

The first 365 store was opened in May of 2016 in Los Angeles with a total of nine stores currently open and another 15 stores planned. While the concept is in its early stages, management has stated its optimism thus far, given demand in the first handful of stores, as well as the store’s attractive profit model which has much lower costs than their larger Whole Foods stores. At the end of May, Amazon announced they would be extending a 10% discount on select items for Prime members to all 365 stores. We see this as a key development for the stores, further increasing the attractiveness of the 365 stores to the key millennial demographic who are the largest percentage holders of a Prime membership. As such, while the current pipeline of 15 stores is encouraging, we see further expansion and success by the concept going forward.

Figure 37. 365 Physical Footprint, June 2018 City State Current Stores Concord CA Long Beach CA Santa Monica CA Los Angeles CA Upland CA Brooklyn NY Akron OH Lake Oswego OR Cedar Park TX Opening Soon Houston TX Future Stores Tempe AZ Los Angeles CA San Francisco CA South Lake Tahoe CA Oakland CA Delray Beach FL Decatur GA Atlanta GA Evergreen Park IL Weehawken NJ Sycamore Twp OH Toledo OH Austin TX Fairfax VA

Source: ChannelAdvisor and D.A. Davidson.

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Anecdotal Observations As long-time Whole Foods’ customers we are very familiar with its 365 private-label brand. We find the quality of its products to be high and appreciate its pricing, which tends to be much lower than the branded merchandise offered at Whole Foods. We have purchased 365 branded products across several grocery categories from beverages (seltzer) to condiments (mustard) to frozen foods (ice cream and pizza) to grains (breads/cereals/pastas) to snacks (potato chips).

In June, we visited the 365 location in Lake Oswego, Oregon and here are our observations:  The location was built on an old Albertson’s location and was, therefore, bigger than the average location.  As such, the supermarket was quite spacious, probably a result of available real estate rather than the concept of the store which is supposed to be around a quick shopping experience.  While the supermarket was modern, it didn't have the same high-class feel as the typical Whole Foods location.  Prices seemed comparable to Trader Joe’s, maybe slightly higher, but certainly lower than a typical Whole Foods.  Products were clearly marked when they were eligible for the 10% Amazon Prime discount. Yellow signs on the product said, "Members save an extra 10% off on yellow sale signs," with a prominently displayed Prime logo.  Interestingly, there was a table set up to help users sign up for Amazon Prime with an associate to explain the benefits  The supermarket had a lot of technology, including all-digital labels on food, which an associate said could be changed remotely as the tags were connected via Bluetooth. Additionally, electronic weigh stations with label printers and kiosks to look up food parings for wines and beers.  There was a wide selection of wine and beer, comparable to Trader Joe’s.  It didn't feel inundated with the 365 brand, even though a majority of the items were 365.  It was lacking the various displays and stations that Whole Foods has to highlight certain products, such as cheese.  It had a frozen food section with frozen meals for one person at roughly $8 per.  There was a hot food section with pizza, rotisserie chicken, and some cooked vegetables but it didn't have the large hot food deli section like a typical Whole Foods and the location didn't require an associate to monitor the hot food.  This store had three "Friends of 365," an organic juice bar, coffee stand, and a burger restaurant.

Private-Label and M&A Overview We see private label as an important part of Amazon’s M&A strategy of building first and buying second. If it is unable to penetrate markets with private label, such as women’s apparel, we believe it will make acquisitions to do so. For example, we still consider lululemon as an attractive target and additional see strategic value in Amazon acquiring startup Everlane and privately held Vineyard Vines.

Our reasoning is as follows, lululemon would give Amazon a premium athleisure brand (just as Whole Foods gave it a premium grocer) and athleisure is one of the stronger performing categories in women’s apparel. Further, lululemon does not have an overbuilt physical store presence with only 404 stores (as of December 2017) in 12 countries. We believe adding physical stores was an important element of the Whole Foods acquisition and believe lululemon has a lot of A and B locations, akin to Whole Foods.

We see Everlane as a big idea – offering consumers fashionable basics with an emphasis on transparency (not only on ethically sourcing products but also on its pricing and markups). In some regards it is Gap 3.0, with American Apparel the failed attempt at Gap 2.0. We have discussed the notion of private-labels and lacking soul, we believe Everlane has a lot of soul. While it lacks a significant physical store footprint, we believe Amazon could put one together as Apple did for its physical stores.

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Figure 38. Everlane’s Transparency

Source: Everlane and D.A. Davidson.

Lastly, we see Vineyard Vines as checking a number of boxes for Amazon, though acknowledging its sweet spot is more men’s apparel than women’s. Similar to lululemon it would provide Amazon a lifestyle brand and one with a premium consumer perception to Amazon, standalone). It has a strong retail footprint, not overbuilt, with a several A and B locations, including 106 stores (in 31 states in the U.S. and Bermuda). Amazon’s could expand its vision beyond apparel into home. Vineyard Vines has a narrative and a soul.

Figure 39. Vineyard Vines’ Story

Source: Vineyard Vines and D.A. Davidson.

The Challenge for M&A – President Trump An industry source suggested it may be difficult for Amazon to get M&A approval given the current President, who appears to have a personal vendetta against the company.

Antitrust Overview One of the surprises to us from our research was the notion, from our industry experts that suggested Amazon could face antitrust scrutiny if it unilaterally ranked its private-label products first in its natural search results, regardless of their sales performance.

Remodista suggested Amazon’s private-label efforts could open them to an antitrust inquiry as they operate the de facto search engine for products AND the e-commerce platform and could abuse that fact by always showing their products first in search results. Remodista likened it the EU’s antitrust actions against Google for biasing its own content in search results.

An industry source noted that while it believes Amazon ranks its product sort based on a meritocracy it would not take a lot for the company to look like a vertically integrated monopoly, which coupled with the notion that Congress sniffs around Amazon, a lot, could lead to antitrust action by the Department of Justice.

Forrester sees an antitrust inquiry by the Department of Justice as a matter of when not if, because of Amazon’s size. That said, whether or not there is a legitimate case to be made is debatable. An argument can be made that Amazon is not dominate in anything. For an antitrust cast you generally have to hurt someone you have to operate in a way that is anti- competitive. Otherwise, Walmart would have been subject to antitrust a long time ago.

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While antitrust may not be applicable, commented Forrester, if President Trump wanted to hurt the company he could pass regulations for third-party sellers (which is akin to the wild west today with few consumer protections), such as requiring them to have licenses to sell products on marketplaces or enforcing their often lackluster efforts when it comes to honoring warranties on the products they sell. As Forrest pointed out, there are more hoops for consumers to sell products at garage sales than there are for them to do so on Amazon and eBay. Note, this would affect all marketplaces, including Alibaba and eBay, and not just Amazon.

Thoughts on How Amazon Ranks Products in Search Amazon’s goal is to surface products that consumers want the most. The company noted if it always displayed its own private-label products at the top of the sort, regardless of their efficacy, then consumers would not buy them. Doing what is right for the customer is the most important consideration for Amazon. For example, Amazon Basic’s offering shows up as the first natural search results for AAA batteries because the product is the most popular with consumers.

What did our industry experts think about how Amazon ranks its product search results?

Overstock noted that Amazon’s private-label products have to perform well to justify high rankings in its sort, it could not rank them higher if they were not performing well.

Amazon’s Choice In a number of product searches, Amazon distinguishes products as Amazon’s choice. Note, when you scroll over the word’s Amazon’s Choice, you get the following explanation: “Amazon’s choice recommends highly rated, well-price products available to ship immediately.”

Figure 40. Amazon’s Choice

Source: Amazon and D.A. Davidson.

Additionally, our industry experts had thoughts on its policy for products to earn the distinction.

ChannelAdvisor suggested the “Amazon’s Choice” designation was for products that are well priced and available for immediate shipping. It is an important one because 85% of the time consumers purchase products based on Amazon’s recommendation. When Amazon considers products for the distinction of Amazon’s Choice it factors in the item’s return rates, as it equates low return rates with high customer satisfaction. ChannelAdvisor considers that an important point which more sellers need to consider, along with customer reviews, to maximize their sales on Amazon. Further, ChannelAdvisor noted that Amazon’s Choice is an increasingly important distinction because it drives the first or second search result when consumers are searching for products via voice means, such as Alexa, instead of typing in queries on their laptops or smartphones.

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Overstock noted for a product to be referred to as Amazon’s Choice it has to meet certain requirements.

User-Generated Content – Amazon’s Secret Sauce Amazon’s user-generated content also provides cues to consumers on which products to purchase.

Overstock noted that Amazon’s user-generated content, including product reviews, is one of its most valuable assets.

Amazon: The De Facto Search Engine for Products

ChannelAdvisor does not consider Amazon to be the de facto e-commerce search engine, though acknowledges that 50% of product searches in the U.S. start on Amazon.

Google Shopping Actions Overview Following our conversations with industry experts, we will be closely monitoring the performance of Google Shopping Actions (Google’s latest e-commerce effort to reduce friction between product searches and purchases) to see if it has a negative impact on Amazon’s sales growth. We see it as the latest example of Amazon’s important co-opetition efforts with Google. To that end, we heard that Amazon is, once again, discontinuing its product listing ads on Google.

ChannelAdvisor suggested it will be interesting to see how Google’s latest e-commerce effort, Google Shopping Actions, will impact Amazon’s product search market share, as Google is now closing the loop and doing transactions, which is eliminating the friction.

Figure 41. Google Shopping Actions

Source: Google and D.A. Davidson.

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APPENDIX Figure 42. Amazon’s Performance Against Guidance, 1Q15-2Q18E Date Provided 1/29/15 4/23/15 7/23/15 10/22/15 1/28/16 4/28/16 7/28/16 10/27/16 2/2/17 4/27/17 7/27/17 10/26/17 2/1/18 4/26/18

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Beat (%) Miss (%) Sales ($M) Low 20,900 20,600 23,300 33,500 26,500 28,000 31,000 42,000 33,250 35,250 39,250 56,000 47,750 51,000 High 22,900 22,800 25,500 36,750 29,000 30,500 33,500 45,500 35,750 37,750 41,750 60,500 50,750 54,000 D.A. Davidson NA NA NA NA NA NA NA NA NA NA 42,359 60,539 49,510 52,940 Consensus 22,377 22,398 24,903 35,976 28,008 29,552 32,673 44,699 35,320 37,177 42,260 59,851 49,937 53,382 Actual 22,717 23,185 25,358 35,747 29,128 30,404 32,714 43,741 35,714 37,955 43,744 60,453 51,042 NA 11 85% 2 15% 13

Sales Growth Low 6.0% 7.0% 13.0% 14.0% 17.0% 21.0% 22.0% 17.0% 14.0% 16.0% 20.0% 28.0% 34.0% 34.0% High 16.0% 18.0% 24.0% 25.0% 28.0% 32.0% 32.0% 27.0% 23.0% 24.0% 28.0% 38.0% 42.0% 42.0% D.A. Davidson NA NA NA NA NA NA NA NA NA NA 29.5% 34.0% 38.6% 39.5% Consensus 13.4% 15.8% 21.0% 22.7% 23.3% 27.5% 28.8% 25.0% 21.3% 22.3% 29.2% 36.8% 39.8% 40.6% Actual 15.1% 19.9% 23.2% 21.9% 28.2% 31.1% 29.0% 22.4% 22.6% 24.8% 33.7% 38.2% 42.9% NA 11 85% 2 15% 13

FX Impact (Basis Points) (460) (750) (620) (340) (130) 70 30 60 (250) (240) (40) 270 330 320

Sales Growth (FX Neutral) Low 10.6% 14.5% 19.2% 17.4% 18.3% 20.3% 21.7% 16.4% 16.5% 18.4% 20.4% 25.3% 30.7% 30.8% High 20.6% 25.5% 30.2% 28.4% 29.3% 31.3% 31.7% 26.4% 25.5% 26.4% 28.4% 35.3% 38.7% 38.8%

Operating Income ($M) Low (450) (500) (480) 80 100 375 50 0 250 425 (400) 300 300 1,100 High 50 50 70 1,280 700 975 650 1,250 900 1,075 300 1,650 1,000 1,900 D.A. Davidson NA NA NA NA NA NA NA NA NA NA 244 1,516 1,000 1,874 Consensus 15 48 23 1,264 548 912 678 1,151 910 1,076 118 1,510 1,052 1,138 Actual 255 464 406 1,108 1,071 1,285 575 1,255 1,005 628 347 2,126 1,927 NA 10 77% 3 23% 13 Source: Company reports and D.A. Davidson.

Figure 43. Amazon’s Senior Management Team Experience Name Title Tenure Company Title Tenure Jeff Bezos Founder, Chairman, CEO, 2000 - Present President Founder, Chairman, CEO, 1997 - 1999 President Founder, Chairman, 1996 - 1997 Secretary, CEO, President, Treasurer Founder, Chairman, President 1994 - 1996 The Washington Post Owner 2013 - Present Blue Origin Founder 2000 - Present D.E. Shaw SVP 1990 - 1994 Bankers Trust VP 1988 - 1990 Jeff Blackburn SVP, Business Development 2006 - Present VP, Business Development 2004 - 2006 VP, European Customer 2003 - 2004 Service VP, Operations Integration 2002 - 2003 Product Development and 1998 - 2002 Operations Deutsche Bank AVP 1996 - 1998 Morgan Stanley Associate 1995 - 1996 Andy Jassy SVP, Amazon Web Services 2003 - Present Brian Olsavsky SVP, CFO 2015 - Present CFO, Global Consumer 2012 - 2015 Business VP, Finance - International 2010 - 2012 Retail VP, Finance - North America 2007 - 2010 Retail VP, Finance - Global 2002 - 2007 Operations Fisher Scientific VP, Finance - Global 1997 - 2002 Logistics Fisher Scientific VP, Finance - Fisher 1995 - 1997 Chemicals Diego Piacentini SVP, International Consumer 2012 - Present Business SVP, International Retail 2007 - 2012 SVP, Worldwide Retail and 2001 - 2006 Marketing SVP & GM, International 2000 - 2001 Apple VP Sales and GM Europe 1997 - 2000 Jeffrey Wilke SVP, Consumer Business 2012 - Present SVP, North American Retail 2007 - 2012 SVP, Worldwide Operations 2002 - 2006 VP, GM 1999 - 2001 Source: Company reports, LinkedIn, and D.A. Davidson.

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Timeline – Amazon’s Private Label Efforts  2007, Amazon begins selling private-label products; such as outdoor furniture, utensils, textiles, and other household goods under the brands Pinzon and Strathwood.  July 2009, on its 2Q09 earnings call, Amazon’s management indicated it had a small number of private-label products and was experimenting in a number of different areas.  September 2009, the company introduced AmazonBasics, its first private-label brand with the Amazon name. The initial line included accessories, blank DVD media, and cables.  October 2009, on its 3Q09 earnings call, Amazon’s management reaffirms that the amount of private label products was still a small part of its overall business.  April 2010, on its 1Q10 earnings call, Amazon’s management reaffirmed that the vast majority of products it sells are not private label.  December 2014, Amazon launched Amazon Elements, a line of premium everyday essentials, which have a high degree of transparency as to when and where items are made as well as to the ingredients in the products.  January 2015, Amazon discontinued Amazon Element diapers, citing design flaws. Additionally the diapers had received bad reviews citing poor quality.  Early in 2016, Amazon launched Amazon Fashion with brand names such as Franklin & Freeman, Franklin Tailored, Lark & Ro, Scout + Ro, and Society New York.  Mid-2016, Amazon launched Happy Belly, Mama Bear, and Presto!, entering the baby products, detergent and baby products markets.  December 2016, Amazon launched Wickedly Prime, an Amazon Prime exclusive brand offering snack foods.  July 2017 Amazon acquired Whole Foods for $13.7B, giving access to Whole Food's 365 Everyday Value private label.  August 2017, Amazon launched Basic Care, an over-the-counter generic medication line.  November 2017, Amazon launched Rivet and Stone & Beam, two furniture brands. Source: • Amazon, Business Insider, ChannelAdvisor and D.A. Davidson.

In this section we provide brief overviews of a number of the public and private companies we will be tracking in our effort to determine the future of retail. INDUSTRY EXPERTS Sucharita Mulpuru Leads Forrester’s research on E-Commerce, Retail, and Marketing. Kelly Stickel Founder & CEO of Remodista, a social think tank examining disruption in global retail.

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PUBLIC COMPANIES Alibaba

Figure 44. Alibaba

Source: Company reports and D.A. Davidson. Alibaba is a global e-commerce company that operates the largest e-commerce platform, according to IDC. Alibaba’s headquarters is in Hangzhou, China. The company was founded in 1999 and went public in 2014. Its businesses include cloud computing, core commerce, digital media and entertainment, and innovation initiatives as well as logistics and local services sectors through its affiliates. As of December 2017, Alibaba has 515M active buyers and 580M monthly mobile active users.

Alphabet (Google) Figure 45. Alphabet

Source: Google.com and D.A. Davidson Alphabet is a holding company comprised of the Google search engine, YouTube social video network, and Android mobile operating system, among a wide portfolio of Internet assets. Alphabet’s headquarters is in Mountain View, California. The company was founded in 1998 and went public in 2004. According to Statista, 63.5% of the U.S. core search market was attributable to Google Sites during April 2018.

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Amazon

Figure 46. Amazon: Sphere of Influence

Source: Company reports and D.A. Davidson. Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Amazon operates the second largest global e-commerce platform. It also runs the largest cloud computing effort, Amazon Web Services (AWS). According to the National Retail Federation (NRF), it is the seventh largest retailer in the U.S. (based on 2016 sales). Additionally, the company acquired Whole Foods (ranked 30th) in late August. Amazon boasted approximately 285M active customers (as of 1Q16, the last time it provided the data point), with 52% of paid units sold by third-party vendors on its platform (as of 1Q18). Its physical store footprint includes 15 book stores (as of April 2018), an Amazon Go location (in Seattle), and 481 Whole Foods grocery stores (as of April 2018). Its headquarters is located in Seattle, Washington. Amazon’s headcount was 563,000 (including part-time and full-time employees) as of 1Q18. The company went public in 1997.

Apple

Figure 47. Apple

Source: cultofmac.com, “Steve Jobs” by Walter Isaacson, and D.A. Davidson. Apple strives to provide consumers the best experience via its hardware, services, and software. Its proprietary hardware lineup includes iPhones (smartphones), iPads (tablets), and Macs (desktop and laptop computers). Its suite of services includes Apple Music (music), Apple Pay (payments), and iCloud (cloud computing). As of April, it operated more than 500 stores across the globe. Its headquarters (dubbed Apple Park – opened in 2017) is located in Cupertino, California. Apple’s headcount was roughly 123K as of September 2017. The company went public in 1980.

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Burberry

Figure 48. Burberry

Source: burberryplc.com and D.A. Davidson Burberry, a global British luxury brand with a heritage of innovation, craftsmanship, and design, is the seventh-most valuable global luxury brand, according to Statista. Its headquarters is in London. Burberry was established in 1856 and went public in 2002. As of March 2018, there were 495 stores, including 449 directly operated (240 mainline stores, 155 concessions, and 54 outlets) and 46 franchised locations. Additionally, its merchandise is sold on a wholesale basis in approximately 1,400 department and specialty stores in more than 80 countries. The company’s ecommerce website, burberry.com, services 47 countries and spans 11 languages.

ChannelAdvisor

Figure 49. ChannelAdvisor

Source: Amazon, eBay, Jet.com, and D.A. Davidson. ChannelAdvisor is a leading e-commerce cloud platform whose mission is to connect and optimize the world’s commerce. It is a Software as a Service (SaaS) company that enables retailers and brands to maximize their sales on hundreds of online platforms, including approximately 107 marketplaces (as of 1Q18) such as Amazon, eBay, Jet.com, and Walmart, search engines (e.g. Google), and, even, social networks (such as Facebook, Instagram, and Pinterest). The company had 2,855 customers as of 1Q18. Its customers generated $8.9B in gross merchandise value (GMV) in 2017. Its headquarters is located in Morrisville, North Carolina. ChannelAdvisor’s headcount was 737 as of the end of 2017. The company went public in 2013.

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Control4

Figure 50. Control4

Source: Information Age and D.A. Davidson. Control4’s mission is to deliver a more intelligent and affordable way to control all aspects of your home or business. By providing personalized automation and control solutions in efforts to achieve complete customization; Control4 has leveraged its synchronized software platform as well as its integrated software applications to make everyday life more enjoyable. With more than 5,600 independent dealers and 11,700 third-party products as of 1Q18, Control4 has been able to expand within the high end of the market. Control4 went public in 2013 and is headquartered in Salt Lake City, Utah. As of December 2017, the company had 635 employees.

Costco

Figure 51. Costco

Source:BusinessInsider, Costco, and D.A. Davidson Costco, the third largest retailer in the U.S. (based on 2016 sales), according to the National Retail Federation (NRF), has stated it aims to continually provide its members with quality goods and services at the lowest possible prices. Its headquarters is in Issaquah, Washington. The company was founded in 1983 and went public in 1985. Costco operates 750 warehouses worldwide, with 520 in the U.S. and 230 international locations, as of May 2018. Its membership spans more than 50.9M households and 93M cardholders.

41 D.A. Davidson & Co. eBay

Figure 52. eBay

Source: Company reports and D.A. Davidson. The company aspires to be where the world goes to shop, sell, and give. It strives to offer consumers a large selection of merchandise, including both new and used, and common and rare products. Its mission is to be the world’s favorite destination for discovering great value and unique selection; it provides sellers a platform, solutions and support to grow their businesses, and it measures success by its customers' success. The company operates one of the largest global marketplaces, with 171M buyers (as of 1Q18), 25M sellers (as of June 2015), and more than 1.1B listings (as of 1Q18). Its headquarters are located in San Jose, California. Its headcount was roughly 14,100 as of the end of 2017. The company went public in 1998.

Etsy

Figure 53. Etsy

Source: Company reports and D.A. Davidson.

Etsy’s mission is to reimagine commerce in ways that build a more fulfilling and lasting world. Its global e-commerce marketplace focuses on unique merchandise (such as handcrafted and vintage items) and generated $3.3B in gross merchandise sales (GMS) in 2017, with 34.7M active buyers and 2.0M active sellers (in 1Q18). Etsy also offers a number of Seller Services to improve their productivity, including those focused on advertising, logistics, and payments. Its headquarters is located in Brooklyn, New York. Etsy’s headcount was 744 as of 4Q17. The company went public in 2015.

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EVINE Live

Figure 54. EVINE Live

Source: EVINE Live and D.A. Davidson.

The company operates the third largest video retailer in the U.S., EVINE Live. In FY17 it had 1.3M customers and shipped more than 10M units. The headquarters of EVINE Live is in Eden Prairie, Minnesota. Its headcount was approximately 1,200 as of February 2018. The company went public in 1991.

Fitbit

Figure 55. Fitbit

Source: Fitbit and D.A. Davidson.

Fitbit’s mission is to empower consumers to improve their health via guidance, insights, and motivation. To accomplish these goals it offers consumers both a lineup of devices (both smartwatches, such as the Fitbit Ionic and Fitbit Versa and trackers, such as the Fitbit Flex 2 and Fitbit Alta) and an online coaching effort, dubbed Fitbit Coach. It also provides health solutions for corporations. As of 4Q17, it boasted more than 25M active users. Its products are sold in more than 47K retail stores and in 86 countries, as of 1Q18. Its headquarters is located in San Francisco, CA and has 1,652 full-time employees as of 3Q17. The company went public in 2015.

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Groupon

Figure 56. Groupon

Source: Groupon and D.A. Davidson. Groupon’s mission is to be the daily habit in local commerce. Since inception it has sold more than 1B Groupons. It has 49.6M active customers (as of 1Q18). Consumers have downloaded its mobile app more than 177M times. Its headquarters are located in Chicago, Illinois. Its headcount was 6,639 as of 1Q18. The company went public in 2011.

GrubHub

Figure 57. GrubHub

Source: GrubHub, The Northwestern Business Review, and D.A. Davidson. Grubhub's mission is to move eating forward by connecting diners with the food they love from their favorite local restaurants. It aspires to build the most comprehensive marketplace for takeout restaurants and diners. The company operates one of the largest online ordering services, with more than 80K restaurants and approximately 15.1M consumers, across greater than 1,600 cities in the U.S. and London in the U.K. (as of 1Q18). Its efforts with consumers and restaurants have created a network effect. Further, we appreciate GrubHub’s performance-based business model where the company only gets paid when a consumer actually places an order. It operates multiple brands, including GrubHub (its national brand focused on consumers) and Seamless (which it merged with in August 2013 and is operating as a primarily New York City brand with an emphasis on corporate accounts). Its headquarters is located in Chicago, Illinois. Its headcount was 2,125 as of February 2018. The company went public in 2014.

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Netflix

Figure 58. Netflix

Source: The Verge and D.A. Davidson Netflix, the world’s leading internet entertainment service, strives to provide customers around the globe with the highest quality of online streaming and content production. Netflix subscribers watch more than 140M hours of TV shows and movies per day, including documentaries, original series and feature films. The company takes pride in having 125M members in over 190 countries. The company’s headquarters is in Los Gatos, California. Netflix was founded in 1997 and went public in 2002.

Nordstrom

Figure 59. Nordstrom

Source: Fortune.com and D.A. Davidson Nordstrom, the 32th-largest retailer in the U.S. based on 2016 retail sales, according to the National Retail Federation (NRF), strives to provide the best customer experience possible. Its headquarters is in Seattle, Washington. The company was founded in 1901 as a shoe retailer and went public in 1986. Its store portfolio spans 122 full-line Nordstrom stores (118 in the U.S. and four in Canada), 239 Nordstrom Rack outlets, two Jeffrey boutiques, two Last Chance (clearance store), and seven Trunk Club clubhouses (as of March 2018).

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Logitech

Figure 60. Logitech

Source: Company reports and D.A. Davidson.

Logitech’s mission is to empower consumers with a more streamlined user experience with absorbing, distributing, and creating digital content. Through its five brands (Astro, Jaybird, Logitech, Logitech G, and Ultimate Ears), the company develops peripherals and computer accessories to enhance consumers’ experiences in the computing, gaming, music, and video categories. Its headquarters is located in Lausanne, Switzerland and has 6,400 employees as of FY17. The company went public in the U.S. in 1997.

Overstock

Figure 61. Overstock

Source: Company reports and D.A. Davidson. Overstock’s mission is to empower all consumers to furnish their dream homes, with great products, selection, and convenience. It addresses its mission by operating one of the largest profitable e-commerce companies, including its website Overstock.com. As of 2017, its product catalogue included approximately 2.8M items. In 2016, it fulfilled around 6% of its 11.4M orders, with the remainder completed by a network of roughly 4,100 third-party vendors. Overstock had 1.8M unique customers in 2Q17.

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Additionally, via its Medici Ventures subsidiary the company owns a portfolio of FinTech investments, including several that leverage the blockchain to varying degrees. Its headquarters (dubbed Peace Coliseum – opened in 2016) is located in Salt Lake City, Utah. Overstock’s headcount was 1,800 as of 4Q17.The company went public in 2002.

Park City Group

Figure 62. Park City Group

Source: Company reports and D.A. Davidson. Park City Group is a Software as a Service (SaaS) company focused on two areas: 1) food safety compliance and 2) supply-chain efficiency for in-stocks. Through its ReposiTrak food safety subsidiary, the company’s mission is to help food retailers, wholesalers, and product suppliers ensure the compliance of their suppliers (the company estimates there are approximately 1M companies globally that produce, process, and distribute food for consumption in the U.S.) The mission of its supply chain effort (branded Park City Group) is to empower its customers (including supermarkets) to sell more, stock less, and see everything. As of the end of the company’s fiscal 2017 (June), ReposiTrak had over 250K supplier connections monitored for food safety compliance. Its supply chain effort boasts approximately 300 customers with roughly 800 connections. Its headquarters is located in Salt Lake City, Utah. Park City Group’s headcount was 77 as of the end of fiscal 2017. The company went public in 1999.

Quotient Technology

Figure 63. Quotient Technology

Source: Company reports and D.A. Davidson. Quotient Technology leverages online and in-store data to provide digital promotions and advertising solutions. Its market-leading network connects millions of shoppers with consumer packaged goods (CPG) brands and retailers. It enabled more than 3.5B digital coupon transactions in 2017. As 4Q17, 28 retailers were live on its Retailer iQ platform with 23 marketing. Its headquarters is located in Mountain View, California. Its head count was 727 at the end of 2017. The company went public in 2014.

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Qurate Retail Group

Figure 64. QVC Group

Source: Company reports and D.A. Davidson. Qurate Retail Group (previously known as QVC Group) comprises Liberty Interactive Corp.’s subsidiaries QVC, HSN, Cornerstone, and Zulily. Qurate aspires to change the way the world shops by reimagining retail, social media, and entertainment as one. According to the National Retail Federation (NRF), QVC is the 58th largest retailer in the U.S. (based on 2016 sales). HSNi strives to create boundary-less retail by creating a non-channel, seamless experience for consumers. HSNi operates the second-largest video retailer in the U.S. (HSN) and the Cornerstone portfolio of catalogs (Ballard Designs, Frontgate, Garnet Hill, Grandin Road, and Improvements). Lastly, Zulily aspires to be the leading platform for discovery-based retail, and the company operates a multiplatform effort, including Internet, mobile, and video. The headquarters of Liberty Media is in Englewood, Colorado, while QVC operates out of West Chester, Pennsylvania; HSNi is domiciled in Tampa-St. Petersburg; and Zulily is based in Seattle, Washington.

Roku

Figure 65. Roku

Source: Roku and D.A. Davidson.

Roku is one of the leading platforms for streaming TV in the U.S., via both its branded and white-label efforts (licensed operating system for TVs). For example, one out of every five smart TV’s sold in the U.S. in 2017 was Roku-empowered sets. As of 1Q18, it boasted 20.8M active accounts, its users consumed 5.1B hours of streaming video in that quarter, and its average revenue per user (ARPU) was $15.07 (on a last-12 months basis). Its headquarters is located in Los Gatos, California and has 817 full-time employees as of 4Q17. The company went public in 2017.

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Shopify

Figure 66. Shopify

Source: Company reports and D.A. Davidson. Shopify’s vision is to make commerce better for everyone. Its five core values are: 1) Get (things) done, 2) Act like an owner, 3) Thrive on Change, 4) Simplicity, and 5) Build for the long-term. Shopify is a software as a service (Saas) company focused on enabling small-to- medium sized enterprises (primarily) and large ones (secondarily) to sell online. As of 1Q18, Shopify had more than 600K merchant customers (across approximately 175 countries). Gross merchandise volume (GMV) through its platform was $8.0B in 1Q18 and has been greater than $72B since its inception. Its headquarters is located in Ottawa, Canada. Shopify’s headcount (including contractors) was approximately 3,000 as of the end of 2017.The company went public in 2015.

Target

Figure 67. Target

Source: Company Reports and D.A. Davidson Target, the second-largest general merchandise retailer in the U.S. behind Walmart, is focused on convenient shopping at competitive discount prices. Its headquarters is in Minneapolis, Minnesota. The company was founded in 1902 and went public in 1978. In the U.S., Target has over 1,800 stores in 49 states with over 300,000 team members, and its distribution centers span over 37 locations in 22 states with over 16,000 team members.

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TJ Maxx

Figure 68. TJ Maxx

Source: Boston Herald and D.A. Davidson TJ Maxx with Marshalls creates The Marmaxx Group, the largest off-price retailer of apparel and home fashions in the U.S. TJ Maxx distinguishes itself from Marshalls by offering a high- end designer department, The Runway, and with a collection of fine jewelry and accessories. In 2013, TJ Maxx launched its e-commerce site, tjmaxx.com. The company’s headquarters is in Framingham, Massachusetts. TJ Maxx was founded in 1976 and went public in 1989.

UPS

Figure 69. UPS

Source: UPS and D.A. Davidson

UPS seeks to expand its global business by servicing customers’ logistics needs. Its headquarters is in Atlanta, Georgia. The company was founded in 1907 and went public in 1999. The company serves more than 220 countries and territories worldwide. In 2017, it delivered an average of 20M pieces per day, totaling 5.1B packages.

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Walmart

Figure 70. Walmart

Source: Company Reports and D.A. Davidson

Walmart strives to empower the consumer to save money to live a better life, through its retail stores, e-commerce websites, and on mobile devices. It aims to be the first retailer in the U.S. to offer a seamless online and offline shopping experience at scale. The company is the largest retailer in the U.S. based on 2017 retail sales, according to the National Retail Federation (NRF), and its retail sales were more than triple that of the next largest retailer. The company’s headquarters is in Bentonville, Arkansas. As of May 2018, each week approximately 270M customers and members visit its more than 11,700 stores (under 65 banners) in 28 countries, with e-commerce websites in 11 countries. In September 2016, Walmart completed the acquisition of Jet.com for $3B in order to bolster its e-commerce presence. It was founded in 1962 and went public in 1972.

Wayfair

Figure 71. Wayfair

Source: Company reports and D.A. Davidson. Wayfair’s mission is to transform the way consumers shop from home by targeting a mass- market consumer and providing a more engaging and immersive experience. As of 1Q18, its company’s catalog includes more than 10M products, with a supplier network of greater than 10K. It operates six brands: AllModern, Birch Lane, DwellStudio, Joss & Main, Perigold, and Wayfair. Wayfair is a leading e-commerce company focused on the home category. In 1Q18, the company boasted 11.8M active customers, in 2017 it delivered 19.4M orders (with 61.4% of orders coming from repeat customers), and had an average order size of $239. Its headquarters is located in Boston, Massachusetts. Wayfair’s headcount was 8,753 as of 1Q18. The company went public in 2014.

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Xcel Brands

Figure 72. Xcel Brands

Source: Company reports and D.A. Davidson Xcel Brands is a leading brand management and media company with a vision to reimagine shopping, entertainment and social as one. The company is involved in the design, licensing, marketing, production and sales of branded consumer goods, including apparel, footwear, jewelry and other accessories. Its growing brand portfolio comprises C Wonder, H Halston, Highline Collective, Isaac Mizrahi, and Judith Ripka. Xcel Brands is headquartered in New York, New York. The company was founded in 2011 and went public in 2015.

Yelp

Figure 73. Yelp

Source: Company reports and D.A. Davidson. Yelp’s mission is to connect consumers with great local businesses. With 155M reviews since its launch in 2004, Yelp operates the largest crowd-sourced local business directory in the world. It boasts an audience of 93M monthly mobile users (when combining data on unique visitors and devices) and 74M monthly desktop users (as of 1Q18). Its headquarters are located in San Francisco, California. Headcount was 5,250 as of 1Q18, including 3,300 for sales. The company went public in 2011.

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Zagg

Figure 74. ZAGG

Source: Company reports and D.A. Davidson.

ZAGG’s mission is to optimize the mobile experience by developing products that boost the capabilities and longevity of smartphones and tablets. The company is the market leader in the battery case and screen protector market under its mophie and InvisibleShield brands, and holds significant market share in the external power, personal audio, mobile keyboards and wireless charging categories. ZAGG Inc is headquartered in Midvale, UT and has 431 full-time employees as of 2017YE. The company went public in 2007.

Zara

Figure 75. Zara

Source: Inditex and D.A. Davidson Zara, the flagship brand of the Inditex group, is a Spanish clothing and accessories retailer. Over the years, Zara has been able to keep with the latest international fashion trends while maintaining high quality, yet affordable, clothing products. The company takes pride in the fact that up to 85% of its stores are eco-friendly. These stores save up to 20% in energy and 50% in water. The company’s headquarters is in Arteixo, Spain. Zara was founded in 1974 and went public in 2001.

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PRIVATE COMPANIES Allbirds

Figure 76. Allbirds

Source: Allbirds and D.A. Davidson Allbirds is a startup based out of San Francisco that gained popularity through their shoes made from Merino wool. The company has primarily sold direct-to-consumer through their website, though now have three stores and have more recently began selling in a limited-time Pop-In store at Nordstrom. The company was founded in 2014 and as of 2017 has 50 employees in the San Francisco headquarters, 40 employees in Nashville, and 3560 contractors in South Korea.

Brand Foundry Ventures

Figure 77. Brand Foundry Ventures

Source: Brand Foundry VC and D.A. Davidson Brand Foundry Ventures is a venture capital firm geared towards stimulating the growth of early-stage consumer focused brands. It invests in businesses in the e-commerce, mobile commerce, consumer products and consumer devices space. The company’s headquarters is in New York, New York and was founded in 2014.

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CommerceHub

Figure 78. CommerceHub

Source: Company reports and D.A. Davidson. CommerceHub is a software-as-a-service (Saas) focused on enabling brands, distributors, marketplaces, and retailers to drive e-commerce revenues, including by leveraging drop shipping. It had 11,600 clients (including 50 retailers) in 4Q17. Its customers generated $16B in GMV in 2017. Its headquarters are located in Albany, New York. Its headcount was 323 as of December 2017. Its shares were spun out of Liberty Ventures in July 2016. GTCR and Sycamore Partners acquired CommerceHub and took it private in May 2018.

Lovesac

Figure 79. Lovesac

Source: Lovesac and D.A. Davidson Lovesac is a revolutionary furniture company leveraging the internet to change the way people think of furniture. The company creates proprietary designed-for-life product platforms and innovates to continually expand their appeal. Its primary product, the sactional, is a washable and changeable couch utilizing two patented pieces (a seat and a side) in order to create endless seating options and fit into any sized room. It is able to be shipped nationwide and comes with a lifetime warranty. Lovesac’s headquarters is in Stamford, Connecticut. The company operates 66 stores across 30 states, as of May 2018. It was founded in 1995.

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TalkLocal

Figure 80. TalkLocal

Source: TalkLocal and D.A. Davidson In the home improvement retail market, TalkLocal will play a role in the growing full-service retail business. Its mission is to help people connect with the right businesses no matter how or where they search online – bridging the tech divide between old school businesses and tech-savvy consumers who search online, via mobile, on social media, by voice, and more. More and more retailers are partnering with local businesses and local service startups to outsource installation services. Because TalkLocal only relies on the installation of a widget and finds local pros regardless of membership status, the company makes it easier for even small online retailers in lowtech communities to compete with offerings such as Home Depot's Redbeacon. The company’s headquarters is in College Park, Maryland. The company launched in 2012. According to CrunchBase, its latest round of funding (of an undisclosed amount) in December 2014 brought the cumulative total to $4M.

Walker Edison

Figure 81. Walker Edison

Source: Walker Edison and D.A. Davidson Walker Edison is a ready-to-assemble furniture manufacturer that sells its products via e- commerce and traditional retail channels. By offering a variety of style and design categories, Walker Edison provides even greater flexibility to its customers. The company strives to be an innovator of the next generation of ready-to-assemble furniture. The company’s headquarters is in Salt Lake City, Utah and it was founded in 2006.

56 D.A. Davidson & Co. 222 SW Columbia Street, Suite 1400 • Portland, Oregon 97201 • (800) 755-7848 • www.davidsoncompanies.com/ecm Copyright D.A. Davidson & Co., 2018. All rights reserved.

Required Disclosures

D.A. Davidson & Co. makes a market in Amazon.com, Inc.. D.A. Davidson & Co. expects to receive, or intends to seek, compensation for investment banking services from one or more of the companies mentioned in this report in the next three months. D.A. Davidson & Co. is a full service investment firm that provides both brokerage and investment banking services. Tom Forte, CFA, the research analyst principally responsible for the preparation of this report, will receive compensation that is based upon (among other factors) D.A. Davidson & Co.’s investment banking revenue. D.A. Davidson & Co.’s analysts, however, are not directly compensated for involvement in specific investment banking transactions. I, Tom Forte, CFA, attest that (i) all the views expressed in this research report accurately reflect my personal views about the common stock of the subject company, and (ii) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Rating Information D.A. Davidson & Co.’s Institutional Research Rating Scale Definitions (maintained since October 10, 2017); information regarding our previous definitions is available upon request: BUY: Expected to produce a total return of over 15% on a risk adjusted basis over the next 12-18 months NEUTRAL: Expected to produce a total return of -15% to +15% on a risk adjusted basis over the next 12-18 months UNDERPERFORM: Expected to lose value of over 15% on a risk adjusted basis over the next 12-18 months Rating Distribution (as of 3/31/18) Coverage Universe Distribution Investment Banking Distribution * IR WMR Combined IR WMR Combined BUY (Buy) 53 % 84 % 55 % 12 % 3 % 11 % NEUTRAL (Hold) 46 % 16 % 44 % 7 % 0 % 6 % UNDERPERFORM (Sell) 1 % 0 % 1 % 0 % 0 % 0 % IR denotes Institutional Research; WMR denotes Wealth Management Research whose rating scale is Buy/Add, Neutral, Sell/Reduce. Investment Banking Distribution denotes companies from whom D.A. Davidson & Co. has received compensation in the last 12 months.

Target prices are our Institutional Research Department’s evaluation of price potential over the next 12-18 months and 5 years, based upon our assessment of future earnings and cash flow, comparable company valuations, growth prospects and other financial criteria. Certain risks may impede achievement of these price targets including, but not limited to, broader market and macroeconomic fluctuations and unforeseen changes in the subject company’s fundamentals or business trends.

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Other Disclosures Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, express or implied, as to future performance. Investors should note this report was prepared by D.A. Davidson & Co.’s Institutional Research Department for distribution to D.A. Davidson & Co.’s institutional investor clients and assumes a certain level of investment sophistication on the part of the recipient. Readers, who are not institutional investors or other market professionals, should seek the advice of their individual investment advisor for an explanation of this report’s contents, and should always seek such advisor’s advice before making any investment decisions. Further information and elaboration will be furnished upon request.

Other Companies Mentioned in this Report Company Name Ticker Rating Price Apple Inc. AAPL BUY $190.70 Amazon.com, Inc. AMZN BUY $1,704.86 Control4 Corporation CTRL BUY $26.06 ChannelAdvisor Corp. ECOM BUY $14.75 Etsy, Inc. ETSY BUY $32.99 EVINE Live Inc. EVLV BUY $1.17 Fitbit, Inc. FIT NEUTRAL $7.39 Groupon, Inc. GRPN BUY $4.52

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Company Name Ticker Rating Price GrubHub Inc. GRUB NEUTRAL $115.98 Logitech International S.A. LOGI BUY $45.02 Overstock.com, Inc. OSTK BUY $38.20 Park City Group, Inc. PCYG BUY $7.10 Qurate Retail Group, Inc. QRTEA BUY $21.34 Quotient Technology Inc. QUOT BUY $13.70 Roku, Inc. ROKU NEUTRAL $43.43 Shopify Inc. SHOP NEUTRAL $165.09 Wayfair Inc. W UNDERPERFORM $107.43 Yelp Inc. YELP BUY $41.05 ZAGG Inc ZAGG BUY $17.35

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