By GERRIT SMIT
The Covid-19 pandemic has accelerated the adoption of e-commerce in a way no company could have imagined. In fact, in many instances, it has brought three- to five-year sales projections forward in just a matter of months. Many businesses are already living in the future. A good example is Amazon.com, which has experienced record levels of demand, comparable to a usual Christmas period. Not only has its online retail operation thrived, but its video and Web services have also flourished during the lockdown periods around the world.
Then there are digital payment companies such as PayPal, which has recorded a remarkable increase in transactions across its network. It took on 7.4m new customers in April alone — a 135% increase. Those new customers are doing more transactions than ever and the business is experiencing retention rates to match.
This must be one of the biggest economic shifts in the world for a long time, if not ever. Nor is this trend likely to reverse materially…
Visa, too, is benefitting. Quite apart from an increase in online purchases, hygiene-conscious consumers’ reluctance to touch cash has further boosted business. This is a game-changer for all payment companies whose biggest competitor is cash.
E-commerce is perhaps the most striking example of structural shifts in the economy. Since the beginning of Covid-19 alone, e-commerce penetration as a percentage of retail sales in the US has increased in a matter of three months as much as it previously took a decade to achieve. This must be one of the biggest economic shifts in the world for a long time, if not ever. Nor is this trend likely to reverse materially once economies have fully opened and the virus has receded.
Economic shift
With millions of people working and learning from home, consumers have been forced to rely on e-commerce, and have come to understand the benefits of obtaining goods and services through the Internet. These include variety, safety, convenience and certain cost savings.
From an investor’s perspective, the economic shift to online is revitalising important investment opportunities. In addition to large retailers like Amazon and payment systems like PayPal and Visa, technology companies that enable working from home have also benefited. Consider 5G network providers, data and voice providers, cloud services, data handling and office automation services.
More time at home has also meant more home cooking, to the benefit of many food and spices companies, as well as an increase in home design and décor products and services as people adapt their homes for new requirements.
Entertainment and streaming services have also benefited from people spending more time at home, as have online exercise offerings. And of course, this has translated into an increased interest in leisure and sports clothing lines.
Investors will find no shortage of newly energised investment opportunities. High uncertainty and market volatility, however, will remain a challenge. Good stock selection is as critical as it has ever been. Investors should be very selective with their investments – buying only quality businesses with strong balance sheets.
Gerrit Smit is head of equity management UK at Stonehage Fleming. He manages the Stonehage Fleming Global Best Ideas Equity Fund.