E-commerce

E-commerce continues to outperform brick-and-mortar sales, with even discount stores struggling. 

This central bank tightening cycle has been brutal on household consumption, particularly on lower-income households, underscored by the latest Dollar General crash, the most on record, after management warned of financially constrained core customers. 

Lockdowns, a golden era for E-commerce

During the 2020 lockdown, only essential retailers, pharmacies and grocery stores were operating.

All non-essential retailers had to close their doors as e-commerce sales exploded.

During the lockdowns, the share of e-commerce sales of total retail sales spiked to 16.4% in Q2 2020, up from 9.9% a year earlier. 

Then, emerging from the lockdowns, stores reopened, and e-commerce sales continued growing.

Brick-and-mortar sales have some respite from revived auto and gasoline sales, reviving in the immediate post-lockdown era.

So, the share of e-commerce of total retail sales eased off the Q2 2020 spike but remained much higher than pre-lockdowns. 

The share of e-commerce sales of total retail sales rose to 16.0% in Q2 2024, just slightly below where it had been in Q2 2020 (16.4%). 

In Q4 2023, during the holiday binge, the share of e-commerce sales had risen to 17.1%.

E-commerce is accelerating, widening the brick-and-mortar sales gap. 

E-commerce has been growing faster than brick-and-mortar retail from the beginning.

In the first half of 2020, e-commerce sales shot higher, while brick-and-mortar sales fell.

In the second half of 2020 and through the high inflation years 2021 and 2022, they bounced back, but not enough to prevent the gap from continuing to widen.

But starting in Q2 2022, with inflation in goods beginning to fade, brick-and-mortar sales stagnated while e-commerce sales kept surging.

Surviving traditional retailers see the benefit of e-commerce to their profits

Walmart, the largest grocer in the US, continues to see its e-commerce sales booming as it recently reported 22% year-over-year growth in e-commerce sales for its second quarter.

Walmart reported strong grocery sales, while its remaining brick-and-mortar stores remain lacklustre. 

Brick-and-mortar chain stores, countless regional chains and independent stores that didn’t see the opportunities in e-commerce, such as department stores, have gone into bankruptcy, disappearing from the retail landscape.

I flagged the impact of e-commerce in a piece entitled Brick-and-Mortar Meltdown, dated 2019 pre-lockdowns. 

E-commerce hits a barrier with some stuff

Gasoline sales at gas stations still account for about 9% of retail sales.

But the electrification of mass transport could change that with a national fleet of EVs.

Moreover, groceries continue to remain primarily brick-and-mortar.

Food and beverage stores alone account for about 14% of retail trade, not including general merchandise stores that sell food, such as Walmart, the largest grocer in the US with reportedly a 24% share of grocery sales.

However, some grocery sales have moved online over time. 

For example, online-only grocers have mushroomed to sell specialty foods, such as Weee, which specializes in Asian and Hispanic foods and delivers directly from its local fulfilment centres via its fleet of vehicles and contractors.

Auto dealers, which account for about 22% of retail trade sales, have seen used-vehicle sales move online for years, and all the big dealers are following the trend in addition to the online-only used vehicle dealers, such as Carvana. 

However, some laws in the US protect dealers from e-commerce competition.

New vehicle sales are under the rule of state franchise laws, which prohibit automakers from selling directly to consumers.

These laws protect new-vehicle dealers from e-commerce competition, but cracks are forming.

Tesla has found a way around the state franchise laws; it sells vehicles online directly to consumers.

More EV startups are also selling directly to the public. 

Retail businesses vulnerable to e-commerce

From day one, electronics stores, department stores, bookstores, record stores, gift shops, and nearly all stores that occupy populated indoor shopping malls have been the most vulnerable to e-commerce.

Large furniture retailers have also moved most of their sales to e-commerce businesses.

One such furniture retailer is Wayfair, an online-only retailer with $12 billion in sales revenue in 2023.

Over the past three decades, e-commerce has decimated department stores. In 1992, retail sales accounted for 10% of retail trade sales.    

By July 2024, the brick-and-mortar sales of the few surviving department stores accounted for just 1.8% of total retail sales.

Today, you can find everything online, and the surviving department stores have e-commerce operations. Macy’s is one of the biggest e-commerce retailers in the US and continues closing its brick-and-mortar operations.

How to invest in E-commerce

The best time to buy these stocks and ETFs at a low price is near the end of an economic downturn and ride prices up as the economic cycle turns bullish. 

The king of e-commerce is Amazon.

But a wise investment strategy is to widen the net and spread the risks by investing in the best E-Commerce ETFs.

In the past six months, the top-performing e-commerce ETF is Global X E-commerce UCITS ETF USD  has appreciated 20.18%.

Amazon has had a volatile ride, appreciating 17.76% over the same period.