You Don't Need to Pick Just One E-Commerce Winner. Here's Why.
Investing behind broad secular changes can be a powerful strategy to achieving outstanding stock returns. And this is generally not a difficult thing to do, as investors can put on their consumer hats, using their own real-life perspectives, to see how the world is shifting around them. There's always an investing angle.
Without a doubt, the rise of e-commerce has been one of the most noticeable changes over the past decade. The popularity of the internet, smartphones, digital payments, and expanded logistics networks have certainly helped propel this movement as well.
A lot of businesses have exposure to online shopping. This means that investors don't necessarily have to pick a specific winner in the e-commerce space. They can simply own a basket of various stocks to gain the benefits.
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The dominant players
Mention the term e-commerce, and I'm sure Amazon immediately comes to mind. The tech behemoth started as an online bookstore, but it now has become the online everything store. Driving even more demand from customers is Amazon Prime, which offers free same-day, next-day, and two-day delivery on millions of items for a monthly or yearly subscription fee.
According to Statista, Amazon is the most popular online retailer in the U.S., commanding 37.8% of the overall market (as of June 2022). That's not a surprise.
It's also probably not a huge shock that Walmart is a distant second on that list, with a 6.3% share. Dependent on its massive footprint of more than 10,500 stores, Walmart was late to the game in terms of investing in its omnichannel capabilities. After all, this would mean disrupting itself, something that's challenging for most management teams to do. But the introduction of Walmart+, a subscription offering that lets customers get free shipping, is gaining some traction.
Target is another general merchandiser focused on increasing accessibility for its customers. During its fiscal 2023 first quarter (ended April 29), 17.5% of the retailer's overall revenue originated from digital channels. Target does a good job of using its network of almost 2,000 stores as mini-distribution centers as well, driving greater efficiencies.
Investors could consider all three stocks as plays on the ongoing growth of e-commerce.
Looking at industry-specific businesses
Besides the big players I just mentioned, there are smaller e-commerce stocks to consider. Etsy is an online marketplace that focuses entirely on unique, handcrafted goods. It doesn't own any inventory, which results in a capital-light model.
And because it has an active seller base of 7.9 million (as of March 31), products offered on the site can be shifted to what's in demand from buyers. That's what happened in 2020, when sales of face masks soared on Etsy's platform.
In the apparel industry, Nike and Lululemon have been making investments in their digital capabilities. Nike's leadership team said it wants the business to generate half of its sales from digital channels one day. And in its last fiscal year (ended April 30), e-commerce revenue accounted for 42% of Lululemon's business.
A discussion about e-commerce stocks isn't complete without mentioning Carvana. Although the used car retailer has been meaningfully impacted by macro headwinds over the past several quarters that have resulted in financial troubles and pressured demand, it's hard to deny the company's disruptive potential. In the U.S., roughly 40 million used cars are sold every year, with the vast majority at traditional brick-and-mortar dealerships. Carvana has just a tiny 1% share of the market, but because it offers consumers a far better experience, it could see massive gains.
The e-commerce industry is a vast area that provides numerous investment opportunities, from larger enterprises to more specialized businesses. Owning multiple stocks ensures adequate exposure to the space, which has tremendous growth potential in the decades ahead.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com, Etsy, Lululemon Athletica, Nike, Target, and Walmart. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
