As consumer spending weakens, online shopping emerges as a popular method for discount shopping, with e-commerce projected to continue its growth through the end of 2023.
As we approach the final months of 2023, consumer strength in the retail sector has been waning due to high grocery prices and increased housing costs. However, consumers are still finding ways to indulge in experiences like concerts, movies, and dining out. To afford these experiences, they are turning to discount shopping, with online shopping emerging as a popular method. This article explores the rise of e-commerce as a discount shopping platform and its projected growth in the coming months.
E-commerce: The Next Generation of Retail
The question arises: if overall retail sales are declining, won’t this negatively impact consumer retail-oriented investments? While this may be true, e-commerce is seen as the next evolution of retail and has the potential to withstand market downturns. E-commerce has been steadily gaining market share for years, driven by increasing access to technology and a higher proportion of remote work. As consumers continue to seek ways to save money, the market share of e-commerce is expected to grow even further.
Proprietary Estimates Show Strong E-commerce Market Share in Future Quarters
Preliminary estimates indicate that e-commerce sales in the third quarter of 2023 will show a 9.0% year-on-year growth on an adjusted basis. This translates to a 15.8% market share of total retail sales, compared to 14.8% in the same period last year. The increase in e-commerce growth is expected to be driven by discretionary items like clothing and general merchandise, as well as non-store retailers. Consumers, looking to save money, are turning to online shopping for its convenience in comparing prices and finding discounts.
What Companies Can Benefit?
E-commerce giants like Amazon and Alibaba are expected to be the primary beneficiaries of the e-commerce trend. These companies not only dominate the e-commerce market but also have diversified into areas such as entertainment, cloud computing, and logistics. Traditional retailers, on the other hand, need to adapt their operations to accommodate both in-person and online shopping. Companies like Walmart have successfully transformed their operations to incorporate e-commerce, with e-commerce sales accounting for 14.0% of U.S. net sales in the second quarter of 2023. Logistics companies, especially those with last-mile operations, such as FedEx and United Parcel Service, need to modernize their operations to meet the increasing demands of e-commerce.
What ETFs Can Benefit?
Several e-commerce ETFs hold the companies mentioned above, offering investors exposure to the e-commerce market. These ETFs, falling under the thematic category, also have ties to consumer discretionary/retail ETFs. While these ETFs may experience a decline in performance alongside retail sales, they are better equipped to withstand downturns in consumer demand as e-commerce continues to gain market share.
Conclusion:
As consumer spending weakens in certain sectors, consumers are turning to discount shopping to save money. Online shopping, in particular, has become a popular method for finding discounts, with e-commerce projected to continue its growth through the end of 2023. Companies like Amazon and Alibaba are poised to benefit from this trend, along with traditional retailers that adapt to incorporate e-commerce into their operations. Logistics companies also need to modernize their operations to meet the demands of e-commerce. While retail sales may decline, e-commerce ETFs offer investors exposure to the growing e-commerce market. As we enter the holiday season, consumers’ focus on discounts may further drive the success of online retailers and other retail giants.
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