The growing presence of e-commerce will continue to accelerate in the global markets, and investors can turn to targeted exchange traded funds to access this growth opportunity.
In the recent webcast, The Whale of Retail: Investing in E-Commerce, Christian Magoon, Founder and CEO, Amplify ETFs; and Jane Edmondson, Founder & CEO, EQM Indexes, pointed out that the coronavirus pandemic has transformed the way we interact with the world, and has fueled a shift toward online shopping and e-commerce. Online retail is the fastest growing segment of retail sales, growing globally at a double-digit pace. It is a disruptive force here to stay as consumers have embraced value-added features in online retail such as competitive pricing, greater product selection, 24/7 shopping convenience, and rapid delivery options.
Even before the pandemic struck, online retail was already the fastest growing segment of retail sales, contributing to 13.6% of overall U.S. retail sales. The COVID-19 global pandemic has only accelerated this trend as shoppers avoided physical stores and used online pickup and delivery services. U.S. Non-store retail sales expanded 39.1% year-over year in the 1st quarter of 2021.
According to new data from IBM’s U.S. Retail Index, the pandemic accelerated the shift away from physical stores to digital shopping by roughly five years. The pandemic also helped establish new online categories, buying habits, and preferred delivery methods. The Amplify strategists argued that the habits consumers formed during lockdown are set to endure.
Looking ahead, the strategists also argued that while many categories may be facing tough comparisons, there is enough fiscal stimulus and pent-up demand to drive further growth in many segments of online retail, marketplace, and travel.
On the other hand, the ongoing shift in consumer trends could signal a slow death for brick-and-mortar retail. According to a report by UBS, another 80,000 stores in the U.S. are expected to close over the next 5 years. Roughly 25% of American malls are expected to close in the next 3-5 years. Seven retailers have filed for bankruptcy so far in 2021, including Paper Source, Belk, Solstice Marketing Concepts, L’Occitane, Christopher & Banks, Loves Furniture, and The Collected Group.
E-commerce growth is not only a phenomenon in the U.S.; it is an increasingly global trend. China, the U.S., and the U.K represent the three largest markets for e-commerce in terms of sales. While growth has slowed for traditional brick-and-mortar retailers, online retail continues to exhibit strong growth characteristics, gain market share, and expand globally. Global e-commerce sales rose to $4.3 trillion in 2020.
The strategists also argued that the increased global access to the internet has contributed to growing demand for more convenient online shopping. More than 63% of the globe now has access to the internet, and the opportunity set has rapidly expanded thanks to smart mobile devices allowing consumers to shop online anywhere, anytime. Mobile commerce is predicted to grow by 250% over the next 5 years, driven by consumer adoption in the U.S. and China.
For those interested in the e-commerce growth story, the Amplify Online Retail ETF (NasdaqGM: IBUY), which tries to reflect the performance of the EQM Online Retail Index, can provide exposure to global equity securities of publicly traded companies with significant revenue from the online retail business. IBUY has been a popular thematic play that targets global companies that generate at least 70% of revenue from online or virtual sales.
IBUY has an international counterpart, the Amplify International Online Retail ETF (NYSEArca: XBUY). XBUY tracks the EQM International Ecommerce Index, which takes on foreign companies or those outside the U.S. that are expected to benefit from the increased adoption of e-commerce around the world.
Financial advisors who are interested in learning more about investing in e-commerce can watch the webcast here on demand.