Are you planning on spending big this holiday season?
If so, you’re not alone.
Consumers are broadly expected to shrug off Covid-19 risks, economic turbulence, and geopolitical noise, and spend more this holiday season than ever before.
The National Retail Federation forecasts that holiday retail sales will grow around 4.4% this year, above what has been the “average” holiday sales growth rate of 3.5% in previous years.
Why are consumers opening up their wallets this holiday season?
A few reasons.
Low rates. Optimism about a 2021 economic recovery. Good news on the Covid-19 vaccine front. Pent-up demand from being cooped up all year long. Tons of financial firepower from not spending on traveling or eating out.
Put together, all those reasons paint a picture of a U.S. consumer who is ready and able to buy a lot of gifts this holiday season.
But physical stores are closing back down in some places of the country. Elsewhere, they are operating at limited capacity…
So, all this pent-up holiday spending firepower is going to be directed into the e-commerce channel.
And that, of course, means e-commerce companies like Amazon (NASDAQ:AMZN) are positioned to have a blockbuster holiday season.
We are already seeing this play out.
According to Adobe Analytics, 2020 Black Friday online sales rose 22% year-over-year to $9 billion, while Cyber Monday spending soared 15.1% to a record $10.8 billion.
Those are big numbers – but they don’t do justice to the hypergrowth companies in the e-commerce sector.
You see… the online retail revolution before Covid-19 was “uneven.” It was led by big retailers who sold items that could be easily digitized.
Think general merchandise retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT). Or consumer electronics retailers like Best Buy (NYSE:BBY). Those companies had the resources to develop robust online selling channels, and sold products that consumers wanted to buy online.
The result? Those big retailers were already largely “digitized” before the Covid-19 pandemic.
But small businesses were not. Prior to the pandemic, less than two-thirds of small businesses even had a website.
Nor were businesses who sold less “digitizable” products, like home goods. Prior to the pandemic, only 13% of home goods sales happened online, versus nearly 50% online share for consumer electronics.
Covid-19 has provided an impetus for small businesses and physical-first retail shops to play catch-up.
They’re doing just that – and at breakneck speeds.
Shopify (NYSE:SHOP) – the e-commerce solutions provider who is increasingly turning into the technology backbone of small business e-retail – said that its Black Friday Cyber Monday weekend sales surged 76% year-over-year to $5.1 billion. That follows 119% revenue growth in the second quarter of 2020, and 109% revenue growth in the third quarter.
Meanwhile, Etsy (NASDAQ:ETSY) – the e-commerce platform that sells arts and crafts – saw Google search interest related to its website soar 67% year-over-year in the last week of November to all-time highs. That follows 137% revenue growth in the second quarter, and 128% revenue growth in the third quarter.
Folks… the writing is on the wall.
Just as the pre-Covid e-commerce revolution was “uneven,” so, too, is this Covid-inspired acceleration in e-commerce.
It is disproportionately benefitting small businesses and physical-first product retailers – the companies that have been forced to quite literally go from 0 to 100 in just a few months.
To that extent, companies servicing these niches – like Shopify, Etsy, Wayfair (NYSE:W), Carvana (NYSE:CVNA), Chewy (NYSE:CHWY), and Farfetch (NYSE:FTCH) – are positioned to have a great 2020 holiday season.
But… more importantly… these companies are positioned to have a great next few years, too.
Because the Covid-inspired online retail acceleration in these underpenetrated categories is not temporary.
Once a retail category goes digital, it stays digital. Never before in the history of e-commerce has a retail category digitized, and then reverted back to the physical channel.
It just doesn’t happen, because digital offers certain unmatchable convenience benefits – and to the consumer, convenience is king.
All of that is really just a long-winded of way saying it is time to get bullish and stay bullish on hypergrowth e-commerce companies in underpenetrated retail niches.
Again, I’m talking names like Shopify, Etsy, Wayfair, Carvana, Chewy, Farfetch…
Those companies have very bright futures – and investments in them today could yield multi-bagger returns over the next several years as all retail categories and companies leapfrog into the modern digital era.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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