Ecommerce growth can continue strongly - SwiftERM

Ecommerce growth continues strongly. Despite overall slowing economic activity, key trends suggest ecommerce still has room to grow. What it means for economies, industries and investors.

Online shopping provided a practical alternative as retail locations closed and people stayed in to avoid the virus.According to Morgan Stanley, global ecommerce rose from 15% of total retail sales in 2019 to 21% in 2021. It now sits at an estimated 22% of sales.

But as consumers began shopping in person again, investors started to ask: Was the Covid-bump a one-and-done deal, or could e-commerce growth continue?

Over the long term, the ecommerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026.

“We believe that the Covid-driven bump will not flatten future ecommerce growth,” says Brian Nowak, an equity analyst covering the U.S. internet industry. He sees ecommerce reaching 27% of retail sales by 2026. “Across the world, we have yet to see a ceiling for ecommerce penetration.”

Many factors are driving growth, including logistics, mobile device ownership and marketplace expansion. For investors, this means the ecommerce boom will likely continue, offering opportunities for gains across multiple businesses, regions and verticals—and at a time when recent stock valuations don’t necessarily reflect that growth.

Ecommerce Adoption Continues

The growth of digital commerce represents a permanent change in how people shop. In fact various industry models suggests that e-commerce will continue to gain traction, even in countries where online shopping is already popular.

In South Korea, thanks to a well-developed payments and logistics infrastructure, online sales already account for 37% of all retail activity. But the growth there isn’t done. E-commerce in South Korea could increase to 45% in the next five years, driven by food delivery and same-day options.

Likewise, in the U.S. e-commerce could reach 31% of sales by 2026, up from 23% now, as brick-and-mortar stores close and consumers prioritise convenience.

“While the rise of e-commerce during the first year of Covid-19 in 2020 is easily explained, the fact that growth persisted in 2021 is evidence of a real behavioural shift to shopping online,” says Nowak.

Ecommerce growth continues strongly

New Markets and Segments to Watch

Earlier-stage e-commerce markets and new segments are also poised for significant growth. In parts of Southeast Asia and Latin America, for example, ecommerce could grow 17% and 20%, respectively, over the next five years and compound annually.

Turning to segments, electronics—which leads all the categories of ecommerce activity—is slated to grow from 38% of retail sales to 45% of global retail sales. Digital sales are also growing across newer verticals, including beauty, apparel and grocery.

“Though there are headwinds in certain countries and verticals, we believe these barriers will continue to come down,” says Andrew Ruben, who covers retail and ecommerce in Latin America.


Better Technology Is a Tailwind

Behind the scenes, improvements in everything from digital payments to supply chain and fulfillment capabilities improve the customer experience—further driving changes in consumer behaviour.

“One of the top differentiating factors for ecommerce platforms could be supply chain and fulfilment capabilities, which could empower better customer servicing,” says Gary Yu, who covers telecom and internet stocks in China, where grocery delivery is growing faster than China ecommerce overall.

Internet use and increased connectivity are also significant drivers, particularly in emerging markets, where populations skew younger and spend more time online than their counterparts in developed markets. Consumers in Colombia and Brazil, for instance, spend more than five hours online each day, on average, creating a significant opportunity for retailers to reach a new market of customers.

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