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
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 a must-have.
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.
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
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
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% had
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
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 price.
) 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 weaknesses.
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