The Electronic Commerce, or e-commerce, industry is one of the
most progressive sectors of the economy. The industry is evolving
very rapidly, so data collection and evaluation are particularly
difficult. Consequently, one has to rely largely on surveys by
both government and private agencies.
According to the U.S. Census Bureau, the manufacturing sector is
the largest contributor to e-commerce sales (46.4% of their total
shipments), followed by merchant wholesalers (24.6% of their
total sales). These two segments make up the business-to-business
Retailers and service providers generated just 4.4% and 2.3%,
respectively of their revenues online, a slightly higher
percentage than they were in the prior year. The Bureau
categorizes these two segments as business-to-consumer.
This places the business-to-business category at 90% of total
e-commerce sales, with the balance coming from the
business-to-consumer category. The latest numbers from the Bureau
suggest that the fastest-growing segments were manufacturing and
retail. [All the above data from the U.S. Census Bureau relate to
2010, as published in May 2012]
Total retail e-commerce was 5.4% of total retail sales in the
fourth quarter of 2012, up slightly from 5.2% in the third
quarter, according to the quarterly retail trade survey by the
Census Bureau. Forrester Research estimates that this share will
go up to 11% by 2015.
Recent data from comScore (as compiled in the table below)
indicates that this segment recovered much faster from the
economic downturn and continued to grow at an accelerated rate
over the last few years.
Since the industry is in evolution, the drivers are changing. For
instance, the initial push came from the time savings and
convenience of online transactions. To this were added the
benefits of comparison shopping and personal recommendations. As
technology required for personalized recommendations developed,
became more available and its benefits more evident, most
"e-tailers" started adding the feature until it is now considered
Today, the biggest driver of growth in the industry is the
adoption of smartphones, tablets and other mobile Internet
devices. In fact, trends indicate that consumers prefer mobile
browsers when shopping, searching and entertaining themselves,
while preferring apps for navigation and acquiring information.
comScore sees global mobile Internet users increasing very
rapidly and surpassing desktop Internet users by 2014. A June
2012 study by comScore on behalf of Paypal revealed that mobile
e-commerce tripled from 3% in the fourth quarter of 2010 to 9% in
the fourth quarter of 2011. Forrester Research estimates that
retail sales made on smartphones touched $8 billion in 2012, with
sales expected to grow at a single-digit clip over the next five
years, touching $31 billion in 2017 (Jan 2013).
A Sep 2012 study by comScore supports this view. According to
this study, 4 out of 5 smartphone owners had already used the
devices for shopping and related activities in July last year.
Men and women in the 25-to-44-year age group were doing most of
the shopping on both Android and iOS devices.
While smartphones are extremely convenient when on the move,
tablets have several advantages of their own. In fact they are a
boon to the e-commerce industry, since the larger screens offer
better visibility of online stores and merchandise, thus
This is the reason that tablets remain the device of choice
for making online purchases while smartphones are the preferred
devices for store location, coupon redemption and such other
"ön-the-go" activities. Given the unique advantages of
smartphones and tablets, it appears that they are working in
conjunction to boost total online retail sales.
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Overall retail trade through smartphones and tablets grew 81% in
2012 and is expected to grow over 55% in 2013 (eMarketer Jan
2013). While growth rates will come down thereafter, they will
remain in the strong double-digits range. Moreover, the
percentage of m-commerce sales to total retail ecommerce sales
will grow from 11% in 2012 to 24% in 2016.
Around 37% of customers in the third quarter were comparison
shopping on their mobile devices while in retail stores,
something the industry now calls "showrooming." Because of the
resultant cost savings and convenience, this trend is likely to
continue (comScore, November 2012).
Continued advancements in technology are improving navigation and
customer experience on ecommerce sites, which is improving
reviews and thus drawing more traffic to the sites.
The digital consumption of books, music, video and games all over
the world is extending the reach of these goods and thereby
boosting sales. Therefore, previously unconnected electronic
goods, such as TVs and game consoles are now being modified to
enable connectivity. On the other side of the fence, online
versions of books, music, video and games that can be downloaded
and consumed on a traditional computer or any other connected
device are becoming available.
Since the shift in consumption patterns is resulting in
multi-functional electronic gadgets that are no longer optimized
for a particular activity, there is a great drive to develop
technologies that could improve the quality of each experience.
Free shipping remains a major lure, as seen from the recent
e-tailing group survey, where 85% of surveyed consumers said they
intended to make use of it this holiday season.
A July 2012 study by Forrester Research points to the most
popular products being sold online. The 10 hottest individual
product categories are women's apparel, books, computer hardware,
computer software, apparel, toys/video games, video DVDs, health
and beauty, consumer electronics and music.
Apparel is a huge market and although online sales are currently
under 10% of total apparel sales, the category already generates
the most dollars. Selling tools, such as zoom, color swatching
and configurators are helping the process. Even primarily
brick-and-mortar outfits like
) sees that consumers purchasing through multiple channels
(online and offline stores) tend to spend more.
This is encouraging traditional retailers to offer an online
store to supplement their physical stores. Online sales also show
better conversions since searches usually draw consumers with a
prior intention to purchase. eMarketer estimates that apparel
will be the fastest-growing category over the next few years,
making up around 20% of total retail e-commerce sales by 2016.
The increase in technology purchases over the Internet is driven
by not only individual consumers, but also companies and
governments. The efficient and timely processing of orders,
choice of payment options, subscription-selling and sales under
the SaaS model are all facilitators. eMarketer estimates that
online sales of consumer electronics goods will nearly double
over the next four years to touch $80.2 billion by 2016.
The Association of American Publishers says that ebook sales in
the U.S. grew 34% in 2012, following triple-digit growth in the
four preceding years. With a penetration of just 16%, scope for
market expansion is possible. However, the shift in preference
from e-readers to tablets that offer other forms of
entertainment, such as movies, games, songs and so on, is a
deterrent. (a Bowker Market Research survey and wsj.com).
U.S. players continue to see strength in international markets
(sales up 333% in 2011).
) are the primary channels facilitating international expansion,
Barnes & Noble
), other smaller players and local companies in international
markets are also playing a part.
) YouTube remains the forerunner facilitating online video
consumption, with significantly higher unique viewers (UVs) and
unique streams. VEVO and AOL Media Network are in second and
fourth positions, respectively in both respects. While
) in terms of UVs, Hulu took its place with respect to the number
of streams. Highest hours of viewership however went to
), which pushed Youtube and Hulu to numbers two and three,
respectively. [Nielsen estimates, September 2012]
The digital consumption of music has grown greatly since Apple
announced its first iPod. Amazon and others are also seeing their
business grow. Nielsen estimates that in 2012, U.S. digital album
sales increased 14%, with tracks up 5% and overall music
shipments at an all-time high of 1.65 billion.
The gaming segment has suffered over the last few quarters,
impacted by the economic slowdown that affected consumer
spending. However, while this affected total gaming spend, it did
not affect the online segment, which gained from the increasing
digitization of games, the desire to play across multiple
platforms and the availability of free-to-play games to draw
customers. As a result, sales through online channels continue to
grow at the expense of traditional retail.
Since video, games and music are often social activities, they
are increasingly being marketed on social platforms such as
) and Pinterest.
Facebook's SocialStore, as it is called uses MarketLive's
Intelligent Commerce Platform that enables marketers to display
product information, promotions/discounts, shopping carts and
check-out options. Both comparative shopping and comparative
pricing are possible. The basic advantages of the system that are
currently being touted are that it allows easy brand building,
creates meaningful commercial relationships and makes use of
account-holders' social connections to attract new buyers.
A recent study by the E-tailing Group reveals that of 100 U.S.
consumer product merchants with e-commerce websites surveyed, 98
had a Facebook account. Around 90% of these redirected the user
to the merchant's own page, 96% had loaded brand-building videos,
56% had product-oriented videos, 44% had store locators and 38%
According to recent research from comScore, Facebook led the
social networking space in Dec 2012, with 83% of total time spent
on social networking platforms, followed by Tumblr, Pinterest,
Twitter, LinkedIn and Others. However, Pinterest and Instagram
are growing in popularity, going by the strong triple-digit
growth they saw during the month.
Selling discount coupons is also helping retail.
) is the leader here, which along with its closest rival
LivingSocial offer discount coupons with a very low shelf life
from local players looking for sales. The company offers huge
discounts to attract buyers and collects a percentage of the
sales thus generated. This kind of business is very competitive,
since it has very low barriers to entry.
As a result, not just Amazon and Google, but also a host of other
much smaller parties have started doing some business in this
format. Technology investments are also required in order to
serve customer needs effectively. Considering the prospects, we
don't see the platform as a major contributor to e-commerce sales
in the near term.
comScore estimates that Amazon remains the leading Internet
retailer based unique visitors (UVs), followed by
), in that order. The top 3 have a much higher penetration on
both Android and iOS platforms.
Because of the gradual receding of boundaries between online and
physical store retailers, a few traditional retailers have also
been considered in the table above.
Of these, Macy's looks like a stock worth considering, given its
Zacks Rank #1, positive estimate revision momentum and positive
surprise history. Valuation also looks attractive. Streaming
company Netflix is not far behind, given its Zacks Rank #2 and
stronger earnings potential, which however comes at a higher
) has not had a good history and its valuation appears rich, the
estimate revision trend indicates positive momentum. So more
speculative investors could be interested in the stock. If
considering a slightly longer-term investment, Amazon remains the
favorite here. The company has built a lot of leverage over the
past few years and we expect some of that to translate to higher
profits this year. Another company worth considering is Groupon.
The sector is facing the brunt of economic uncertainties and weak
consumer spending, but we don't really see any major