Ecommerce Outlook: Strong Holiday Season Launches A Great 2018

Ecommerce, i.e. the most growth-oriented part of the retail industry, doesn’t operate exactly like its brick-and-mortar counterpart. While goods and services do change hands, there’s a completely different infrastructure involved, whether it’s the marketplace, or logistics, or payments system, or ancillary services. That’s because each of these things is necessarily driven by technology.

The recent past has, however, seen traditional retailers like Wal-Mart investing increasing amounts in building this technological infrastructure even as Amazon takes an increasing interest in brick-and-mortar operations to drive efficiencies in its delivery system.

Retail ecommerce is also unique because a single company (Amazon) accounts for the largest chunk of it, is the major trend-setter and the greatest influencer on the entire industry, at least in the U.S. While new players are emerging, it won’t be easy to unseat Amazon simply because of its size, experience, prices and loyalty program.

So it’s only a company like Wal-Mart, which has similar resources and huge experience that can hope to truly challenge the ecommerce leader. And that’s still a work in progress because Wal-Mart, while reporting strong ecommerce growth and offering attractive growth projections, still isn’t statutorily required to say how much the business contributes.

The other major point of difference is the fact that unlike traditional retail it’s relatively easy for an advertiser or other Internet service provider to also get involved in the retail process and thereby siphon off some of the profits.

The Strongest Holiday Season Ever

The holiday season is the biggest for all retailers, and electronically-enabled commerce is no different. 2017 was a particularly strong year for the job market, marking 86 consecutive months of job growth and the lowest unemployment rate since 2000. As a result, consumer confidence was also at its peak. To top it all, the recent tax reform bill has raised expectations of higher wages and bonuses. Consumer spending numbers reflect the positive sentiment.

The National Retail Federation has said that total holiday spending, including physical and online sales, grew 5.5% in 2017, the biggest jump in 12 years.

According to Mastercard SpendingPulse, holiday retail sales between Nov 1 and Dec 24 grew 4.9% from last year, the biggest jump since 2011 that Mastercard has tracked. Mastercard estimates are based on sales activity in Mastercard’s own payment network and survey-based estimates for payment forms it doesn’t track directly, such as cash and check. Electronics and appliances were the most popular category, with sales growing 7.5%. Online sales grew 18.1% as more retailers adopted online channels.

According to Adobe Analytics, which measures 80% of all online transactions from the top 100 U.S. web retailers, U.S. shoppers spent a record $108 billion this holiday season, up 14.7% from last year. Mobile platforms made up 52% of traffic to retail websites and a third of all online spending. Cyber Monday, on which $6.6 billion was spent, was the biggest U.S. shopping day ever, driven by electronics goods like Nintendo’s Switch gaming console, Google’s Chromecast, Roku, Hatchimals and Colleggtibles toys, and Amazon’s Echo speaker.

According to Slice Intelligence, there were 12% more buyers this year than last year, with average spending per buyer up by $62.03. Amazon accounted for 38% of online holiday sales, with Best Buy a distant second at a mere 4%. Amazon increased its share by half a percentage point, while Target increased by 0.6%. Amazon’s biggest month is no longer in the holiday season but in July, when its Prime Day enabled it to command a 41.7% market share.

The two biggest shopping days were Black Friday and Cyber Monday, which accounted for 4.7% and 4.8% of the 61-day holiday season, respectively. The data was collected from a panel of 5 million online shoppers.

According to Salesforce, 46% of all online orders on Thanksgiving Day and 50% of all orders on Christmas Day were placed from a mobile device. Mobile shopping saw its biggest increase on Christmas Day.

According to NetElixir, search marketers saw a 19.4% increase in average order values (AOV), with conversions up 15.6%, impressions up 12.8% and the average cost per click up 14.2%.

To sum up, certain predictions from market research firms held up: that overall retail would strengthen from last year, that traditional retail would also strengthen and that ecommerce would continue to grow much stronger than traditional retail. But overall results were even stronger than market researchers expected.

Ecommerce Industry at a Glance

The following diagrams seek to define the broad spectrum of companies primarily dependent on the Internet for the distribution of their goods and services, as well as companies that enable these exchanges:

Zacks also breaks down each large sector such as Retail/Wholesale and Computer & Technology into groups of companies such that there are a total of 256 such sub-sectors or industries.

These “X” industries are then grouped in two: the top half (i.e., industries with the best average Zacks Rank) and the bottom half (industries with the worst average Zacks Rank). Over the last 10 years, using a one week rebalance, the top half beat the bottom half by a factor of more than 2 to 1. (Click here to know more: About Zacks Industry Rank)

Therefore the Zacks Industry Rank is a good indicator of investment opportunities within an industry at any given time. Moreover, because stocks in the same X industry have certain common positive or negative factors affecting them, it has been observed that there is some positive correlation between them.

As depicted above, the Internet-supported buying and selling process includes four Zacks categorized segments, i.e. Internet - CommerceInternet - Services and Internet Services - Delivery and Internet – Software/Services.

In the last six months, the Internet - Commerce segment outperformed the S&P 500 by a wide margin. The market appreciated 22.0% during the period, compared to the S&P 500’s 7.9%. It also appreciated 9.9% year to date compared to a decline of 0.7% for the S&P 500.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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