Retail e-commerce, or e-tail, is a megatrend in full swing. Investors should be considering ways to capitalize on it.
At a time where overall U.S. consumer spending has crept along at an average annual growth rate of under 2%, e-commerce has been growing by leaps and bounds. E-tail sales were up by 15% in 2012. And that held true to a sustained trend. Year-over-year growth in online commerce has been in the double digits in each quarter since mid-2010, according to comScore.
What’s more, the trend looks to be accelerating out of the recession. There appears to be plenty of opportunity for investors to cash in, so I’d like to devote a few posts to the potential winners and losers in this e-tail megatrend.
Let’s get it right out there. The company you just can’t ignore in this sector is Amazon.com, Inc. (NASDAQ:AMZN). It has been on an absolute tear, gobbling up market share every step of the way. Amazon has grown its annual revenues by some 314% since 2008. Amazon’s growing popularity and ever-expanding offerings are pummeling brick-and-mortar stores across the U.S.
Best Buy Co., Inc. (NYSE:BBY) is among the victims. As Amazon posted sales increases of 40.6% from 2010 to 2011 and 27% from 2011 to 2012, Best Buy’s sales grew by less than 1% per year. What’s more, Best Buy has been hurt by the phenomenon of “showrooming.” It’s when customers visit a physical store, have a look at a product, even test it out, only to return home and order it from Amazon or another e-tailer that’s selling it cheaper and shipping it fast.
Best Buy promised a push for the Christmas quarter in 2012, vowing to match prices and ship for free. We’ll find out if it had much success later this month. Best Buy reports on Feb. 28.
The electronics seller is far from the only traditional retailer feeling the Amazon squeeze. Target Corporation (NYSE:TGT) last month unveiled a plan to match prices of the e-tail king, hoping to stem customer showrooming and retain business. Consider that in 2009, Amazon executed less than one-third of Target’s $64 billion sales that year. Yet in 2013, Amazon is expected to eclipse Target’s estimated $73 billion in revenue. It’s easy to see why Target has needed to take action.
Even Wal-Mart Stores, Inc. (NYSE:WMT), the undisputed king of American retail, has taken some measures to fight off Amazon. Last fall, Wal-Martannounced plans to offer same-day shippingin some markets, a move that coincides with Amazon’s strong push to get goods to customers faster. For Wal-Mart, the move seems more proactive, since the retail giant has been able to keep growing – revenues were up almost 10% between early 2010 and early 2012 – despite having more than 9,000 stores around the globe. But still, the fact that it’s making the moves in response to Amazon’s growing market share speaks volumes of just how disruptive Jeff Bezos’ company has been in the retail world.
No slam dunk
It’s a pretty compelling story for Amazon, a company that not too long ago was a mere online bookseller. With rocket-like growth, great name recognition and competitors on their heels, Amazon looks like a lock to capitalize on the e-tail trend, right?
Well, maybe not. There’s no question Amazon has been great for its customers. And there’s no question that it’s one of the most alluring business stories of this generation. But as an investment, there are still some significant areas of concern for this fast-growing company.