Yahoo Finance How Investors Can Capitalize on the Growing Success of E-Commerce
Although it's been an option for a while now, shopping online is just getting started and there's a lot more room to run, analysts say.
In other words, investors still have opportunity to capitalize on potential growth in the e-commerce sector.
Department store sales fell 0.5 percent in July and were down 4 percent from last July, according to the U.S. Census Bureau's latest retail sales report. Meanwhile, e-commerce continues to shine. Non-store retail sales, or online purchases, jumped 1.3 percent in July.
"Online shopping has become a truly disruptive theme. It's an exciting place to invest in a kind of dot-com renaissance," says Hilary Kramer, editor of the New York City-based GameChangers stock newsletter.
Online is where just about all the net retail growth has been for the last few years, but it still accounts for a small fraction of most of the key categories, Kramer says.
"There's vast room for ambitious start-ups to carve out tiny shares but big dollars," Kramer says.
According to the U.S. Department of Commerce's latest quarterly retail e-commerce report, just 7.8 percent of all U.S. retail sales are being done via e-commerce, says Christian Magoon, CEO of Amplify Investments in Chicago. "It's still in its early stages."
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Double-digit growth has been recorded since the Department of Commerce began measuring online sales in 1999, averaging about 20 percent per year, Magoon says.
Macy's (M) made headlines recently with its plan to close 100 stores nationwide, and this just may be the tip of the iceberg.
"I think we will continue to see brick-and-mortar retailers reduce their physical footprint through store closures as consumers increasingly shift to online shopping," Magoon says.
Magoon highlights three reasons that support continued growth in the online retail sector:
Minimum wage increases. Brick-and-mortar retailers rely on staff to provide in-person assistance to customers, so they will be at a severe disadvantage compared to online retailers when labor costs rise.
Greater selection at competitive prices. Individual stores simply do not have the shelf space to hold the selections online companies are able to house.
Evolving global trends. "Increased internet penetration, greater mobile and smartphone adoption, frictionless payment options, competitive pricing, increased labor costs for brick-and-mortar retailers and virtual reality enhancements are likely to be key drivers in the future growth of e-commerce around the world," Magoon says.
The biggest trend this year is the way shoppers have started shifting part of the grocery cart online, Kramer says.
"Products like detergent and packaged food are commodities that we'll buy from whoever provides the best overall cost and convenience, and sites like Amazon (AMZN) and Walmart.com (WMT) generally beat every brick-and-mortar grocery in terms of convenience."
Repeating deliveries are an online convenience.
"Amazon is getting aggressive about the category too with its reorder buttons. Brand by brand, SKU by SKU, [founder and CEO] Jeff Bezos is hoping to carve out the grocery cart and lock otherwise fickle shoppers into the convenience of, for example, never having to look for Goldfish crackers again," Kramer says.
S&P Global Market Intelligence currently rates Amazon.com a "buy" with a 12-month target price at $850. Tuna Amobi, senior media and entertainment analyst at S&P Global Market Intelligence, forecasts double-digit net sales growth for Amazon at 28 percent in 2016 and 22 percent in 2017.
"We see further market share gains, versus traditional retailers, in Amazon's core electronics and general merchandise offerings thanks to a focus on providing value to consumers through selection, price and convenience," Amobi says.
There's also global reach for Amazon. "We see a potentially significant upside across several underpenetrated international markets -- notably including China and India," Amobi says.
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Kramer agrees that Amazon is a worthy pick.
"I often recommend Amazon to my subscribers on the dips and know people whose strategy on that stock is to buy and hold forever," Kramer says. "The company is a literal category killer."
Kramer points to Gap Inc. (GPS) as having the best online presence of publicly traded apparel chains.
"It's a long-term play while we wait for the company to dump excess brick-and-mortar locations," she says. "It's going to be a long evolution, so nibble on the dips."
Another option investors can consider in this arena is Shopify (SHOP). This company isn't a retailer but supports the chains online with software and other services, Kramer says.
"The stock has had a rocky year but the outlook is brightening now," she says. "And as everyone with a store decides whether to fight Amazon or roll over, there are a lot of potential customers out there for this company."
A recently launched exchange-traded fund in this space is Amplify Online Retail ETF (IBUY). The fund began trading in April, and Magoon says it "offers exposure to a diverse group of 44 companies with 75 percent of the portfolio weighting in U.S.-based companies and the remaining 25 percent comprised of international firms."
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IBUY's holdings include traditional retailers such as Wayfair (W), Amazon and Land's End (LE), marketplaces such as eBay (EBAY), Etsy (ETSY) and Alibaba Group Holding (BABA), and travel sites such as Expedia (EXPE), TripAdvisor (TRIP) and Priceline Group (PCLN).
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