VettaFi’s associate director of research Roxanna Islam appeared on TD Ameritrade’s Market at Close with Oliver Renick to talk about some conflicting news in terms of retail consumers. On the one hand, an internal memo from FedEx is slashing volume predictions for holiday packages. This memo comes on the heels of an unexpected first-quarter profit drop of 20%. On the other hand, data from credit card companies is showing that e-commerce firms may have a stronger holiday spending season than expected.
“This is one of the biggest questions we have in the current environment – what is the retail consumer doing?” Islam said, noting that, “current data shows that consumers are still spending. They might be shifting where they are spending, but they are still spending.”
Islam indicated that the real questions here are how much of this news is company-specific, how much can be attributed to the broader retail market, and if any of this indicates disinterest in e-commerce. “I don’t think there is going to be disinterest in e-commerce, I don’t think people will start shifting away from that – I think people are shifting towards it,” Islam said.
Looking more closely at the data, when you remove data around autos in 2Q22, e-commerce sales growth starts outpacing general retail. “I think it still has a lot of legs and e-commerce sales will still be a huge driver in the future,” Islam stated, underscoring that the likely future will involve a mix of both e-commerce and brick-and-mortar retail sales.
Renick wondered if the failures of the auto sector in e-commerce represent the limits of what can be sold online, asking Islam if cars and homes are potentially more suited to in-person purchasing. Islam concurred that auto sales were weak, and also pointed out how online food orders surged for a while before petering out. “I think a lot of what is sticking for e-commerce is clothing, apparel, accessories sales in addition to home goods and electronic sales. That’s where we’re seeing the bulk of this e-commerce growth,” she said.
Islam believes that though COVID pulled online retailers’ growth forward, there are still a lot of opportunities to find growth. She pointed to ETFs like the First Trust S-Network E-Commerce ETF (ISHP) which offers exposure to a wide array of e-tail related stocks and the ALPS O’Shares Global Internet Giants ETF (OGIG) which is more focused on the internet technologies, such as cloud computing, that make online shopping possible. Islam sees another possible play in First Trust Alerian Disruptive Technology Real Estate ETF (DTRE) which plays an important part in the e-commerce story going forward – namely the real estate that is essential for the storage and transportation of goods.
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