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Saying this with the caveat that Black Friday numbers didn't set the world on fire and Cyber Monday sales declined for the first time, but this is the time of the year when clients seem to renew interest in retail-related investments, including e-commerce.
Motivations for retail investing aside, something interesting is happening in the space this year. E-commerce juggernaut Amazon (NASDAQ:AMZN) is up just 7.68% while the SPDR S&P Retail ETF (NYSEARCA:XRT), an exchange traded fund chock of brick-and-mortar retailers, some of which were previously left for dead, is higher by 46%.
That's staggering reversal from what was seen last year when online retailers thrived amid the coronavirus pandemic while investors were led to be the death of malls and brick-and-mortar retailers was upon us due to the global health crisis.
Indeed, data confirm online retail sales are in a “slump.” The U.S Census Bureau recently stated that e-commerce represents 13.3% of all U.S. retail sales, down from 16% at the height of the pandemic. Who would have thought that folks wanted to get and shop again? (Insert sarcasm here.)
The Number to Pay Attention
Of the two percentages above, many clients are likely to pay attention to 16%, relate it to the 13.3% and see a decline. Obviously, that's a drop, but this where advisors step in. Whether it's 13.3% or 16%, the fact of the matter is online retail, despite what seems like a never ending stream of Amazon deliveries, is a scant percentage of overall retail activity in this country. And yes, holiday shopping is likely to further cement e-commerce as the growth engine of retail consumption.
“A September 2021 report from Deloitte predicted that holiday shopping could reach $1.3 trillion this year—an increase of 7%-9% over 2020,” according to ProShares research. “The projected increase is a good sign for retailers in general, but even better for online retailers. The same report projected an 11%-15% year-over-year increase for e-commerce, which would translate to a 16% market share of sales and outpace e-commerce’s pandemic Q2 2020 high of 15.7%.”
Something else clients are likely to be interested in is the expanse of e-commerce. No longer is it solely about Amazon delivering electronics. There are significant implications for consumer staples in the world of online shopping, too.
“Onine food and beverage spending has been steadily increasing. In 2018, $6.1 billion was spent in this category; compare this to 2021, when $6.2 billion was spent in just the second quarter,” adds ProShares. “While this may have been accelerated because of the pandemic, spending in online food and beverage has not yet dropped below the $6.2 billion mark on a per-quarter basis, suggesting sticky consumer habits.
That's a sign there's durability in e-commerce and might ultimately prove less economically sensitive than many clients expect.
Still the Early Innings
With Amazon dithering this year, it's easy for clients to get frustrated and assume e-commerce is faltering. It's not and it remains a practical cornerstone for investors seeking early-stage disruptive growth opportunities.
“Americans may still face long lines at grocery and department stores this holiday season, but increasingly, it appears that holiday shopping may be done from our couches,” concludes ProShares. “The growth of e-commerce is a trend that was in place long before stay-at-home orders and is still in the early stages. Investors looking to participate in an ongoing transformative trend may want to consider the long-term opportunity of e-commerce.”
The point: E-commerce is where the growth is at in retail. Advisors shouldn't let a sluggish year on this front frustrate clients.