E-commerce, or commerce conducted over the Internet, is the future of business with over 1.8 billion people worldwide purchasing products online in 2018. By the year 2040, it is estimated that 95% of transactions will be done online. This rush for online products has only been accelerated by the COVID-19 pandemic. As a majority of the population are forced to shop online, companies adapt, adding additional services to accommodate consumers such as more shipping options and a larger range of goods available online. Even after pandemic restrictions are lifted, the changes in e-commerce are expected to be long-lasting, permanently changing the retail market (valued at 23.46 billion USD in 2017). At the same time, the virus does not favor physical stores, being especially hard on small businesses. As the future moves toward e-commerce, investors must take note of its impacts on the marketplace and opportunities it opens.
Benefits of E-commerce
As the needs of consumers change, the market must adapt to keep up. As technology has improved and expanded, more and more people discover new digital experiences through mobile apps and websites. Though the number is sure to rise, the US currently has the highest e-commerce penetration rates. Approximately 80% of the population conducted online shopping in 2020. This is due to the advantages online shopping opens up including easy accessibility and convenience. Products can be easily found without having to wander around in search of an employee. Websites are open 24 hours (the largest reason people make online purchases). There are no geographic limitations. And, a wide range of different products is available at only the click of a mouse.
One of the most well-known examples is Amazon, the popular e-commerce company. They have over 304 million daily users and customers adding 1 million new items to the marketplace daily. As the second company behind Apple to hit over a market cap of $1 trillion, Amazon’s success stems from its innovative mindset. The company has branched out into the Amazon E-commerce Marketplace in 2000 (for third-party sellers), Amazon Prime in 2005, the Kindle ebook in 2007, and the Amazon Echo and Alexa in 2014.
Through its innovation, Amazon has fully embraced the advantages of e-commerce. They’ve taken customer service, user experiences, and execution to the next level. Amazon is known for its ability to track packages, handle returns and exchanges, and utilize social media to engage with customers while promoting their brand. Their web development has perfected a seamless user experience to boost sales and streamline shopping. Finally, Amazon executes customer orders through multiple distribution centers placed around the globe to maximize shipments. As the world of e-commerce moves forward, Amazon remains at the helm.
Impact on Physical Stores
On the other end, physical stores suffer from an increase in internet traffic. In 2017, brick-and-mortar sales only increased by 2% ($2.985 trillion to $3.043 trillion) compared to the online retail sales increase of 16% ($390 billion to $453 billion). Despite being around for much longer, physical stores are fighting a losing battle. Of course, realistically, physical stores won’t completely disappear any time soon. Customers still enjoy in-person experiences especially with trying on clothes, inspecting products, or making quick purchases without waiting for even one-day shipping. Still, stores are challenged to enhance the shopping experience to increase foot traffic in their shops.
Impact of COVID
Furthermore, the COVID-19 pandemic hasn’t been easy on physical retail. Forced to close doors or reduce hours to meet health regulations, many chains of stores have reported major losses, including Bath & Body Works, Macy’s, and Starbucks. Businesses such as Sweet Tomatoes, Pier 1 Imports, 24 Hour Fitness, and JC Penney have filed for bankruptcy and permanently closed its stores. Small businesses are also at risk. Despite the federal government supplying them with low-interest and forgivable loans, it is expected that 7.5 million small businesses will shut down if conditions stay the same.
From the start, the virus crisis has favored e-commerce. Due to social distancing procedures enforced worldwide, many have become wary of public spaces. Subsequently, a shift in consumer spending has become increasingly evident. The transition has only boosted e-commerce use.
Back to Amazon: the lead provider of online goods has seen the largest spike in orders in over three years. With the expansion of Amazon Fresh and ownership of Whole Foods for groceries and Amazon Prime for speedy deliveries, this company is practically tailored to this situation. To meet the immense demand caused by stay-at-home regulations, Amazon has expanded its workforce by almost 200,000 employees since the start of the outbreak. Their success in this new environment is evident on the stock market too; the average price target on the Amazon stock is $2721, up around $300 compared to later 2019.
Implications for Investors
For investors, it’s important to understand the impact of Covid-19 on the market. This includes impacts on businesses, employees, suppliers, and recovery plans. As for the transition to e-commerce, investors have the opportunity to capitalize on potential growth in the e-commerce field.
E-commerce is one of the fastest-growing markets in the world, and the virus is only a catalyst. The pandemic has expanded online shops to include more groceries and household items and forced an increase in virtual traffic and in return, physical stores have suffered. These changes are expected to be long-lasting due to the increasing accessibility and demand for online shopping. As our technology improves and the future of physical stores remains uncertain. However, one thing stands true: e-commerce is here to stay.
Source: streetfins.com ~ By: Colleene Zheng ~ Image: Canva Pro