Pundits have been writing off the U.S. consumer for years,
particularly in the post-recession era with households unwinding
debt and tightening their budgets. But time and again, those dour
expectations have been proved wrong.
Sure, most of us look for ways to make our dollars stretch further
these days. And we might not be so quick to make impulsive
big-ticket purchases without doing some homework first. But at
heart, we are still a nation of shoppers. It's what we do.
And increasingly, the Internet is our favorite shopping medium.
That has been clearly visible this holiday shopping season.
According to comScore, a digital-business analysis company, 50
million Americans visited an online retail outlet on
, the day after Thanksgiving. And they weren't just browsing. In
fact, virtual cash registers rang up $816 million in online
purchases -- a 26% surge compared with last year.
Sites dedicated to health and beauty, apparel, and home improvement
were really buzzing, reporting sales growth of 34%, 47% and 49%,
But that was nothing compared to Cyber Monday, the Monday following
Black Friday, when Internet shoppers spent a whopping $1.25
billion. Since then, online sales topped the $1 billion mark five
more times. Remarkably, there have only been seven billion-dollar
days in the entire history of e-commerce -- and six of them have
occurred in the past few weeks.
Total online holiday spending is currently tracking 15% ahead of
last year's heated pace. By the time you read this, online shoppers
will have spent more than $25 billion so far -- and there are
plenty of beneficiaries.
has sold four times as many Kindle devices as this time last year.
reports that its mobile channel did nearly triple last year's
, led by shoes, jewelry, toys and sporting goods.
But regardless of where those purchases were made, they all have to
be shipped to someone's front door. And while there might be
hundreds and hundreds of sites competing for your money, there are
really only a handful of package-delivery companies.
United Parcel Service (Nasdaq:
is the world's largest, with a global fleet of 500 jets and 100,000
vans. On an average day, the company delivers about 15 million
parcels to 220 countries around the globe. But it was really put to
the test the week before Christmas -- delivering 120 million gifts
to be put under the tree.
On the Dec. 22 shipping peak, it's estimated that brown-clad UPS
drivers rang 300 doorbells every second.
Of course, those vans didn't stop running the day after Christmas.
There really is no shipping off-season. Consumers are placing more
Internet orders year round. Some do it for the cost savings, others
for the hassle-free convenience of skipping crowded stores and
Whatever the reason, market-research agency Forrester Research
reports that U.S. e-commerce rose 12.6% in 2010 to $176 billion.
And by 2015, this total is forecast to reach $279 billion -- or 11%
of all retail sales.
That's an extra $100 billion (on top of today's spending) worth of
goods that used to go home at the point of sale that will need to
be shipped instead.
This growing demand would ordinarily attract competition in most
other industries. But there is little chance of that here -- not
unless a new rival wants to spend billions acquiring hundreds of
planes and thousands of delivery vans. I don't see any real
competitive threat to this tight
In fact, No. 3 player DHL couldn't compete and was forced to
surrender, exiting the U.S.
That size and scale not only give UPS a protective
, but its huge delivery volume (more than double that of Fed-Ex)
spreads expenses, while its highly-efficient delivery and
network means much higher
UPS currently sports an
near 12%, compared with 6% for Fed-Ex.
That's one reason why the company has generated $3.7 billion in
free cash flow
during the past nine months. And management has returned every
penny, repurchasing $2.2 billion worth of stock and dishing out
$1.5 billion in
Risks to Consider:
Rising fuel prices could increase costs faster than price hikes
can be passed through to customers. The company is also susceptible
to weaker shipping arising from a protracted global economic
Action to Take -->
UPS is enjoying record volume right now, despite poor consumer
confidence and dismal employment figures.
I could talk about rising exports to Asia or the expansion of a
major European air hub in Germany. But there's no need to
complicate the picture -- global economic expansion means greater
shipping demand. Plain and simple.
won't break any speed records. But they should reach a destination
near $80 next year, which along with a 3%
could deliver a nice total return for very little risk.
-- Nathan Slaughter
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.