One of the biggest beneficiaries of the coronavirus pandemic was the e-commerce industry. The pandemic’s initial lockdowns resulted in people working from home, social distancing, and, more importantly, shopping online. Out of an abundance of fear of catching the virus, people ordered essentials and electronics on Amazon (AMZN) and other online shops and used Instacart for groceries.
While e-commerce was already growing by leaps and bounds, 2020 was a game-changing year for the industry and e-commerce stocks. E-commerce went from a convenience to a necessity. It changed how we shop and how retail companies operate. Even as the economy continues to open up and more stores and businesses open their doors again, these changes are here to stay.
E-commerce as a percentage of overall U.S. retail sales increased from 16% in 2019 to 21% in 2020, and there’s a lot more room for growth. Long-term, the industry is a great investment opportunity, but there are some hurdles in the months ahead. In this article, I will evaluate 5 of the biggest names in e-commerce at the moment: Amazon.com, Inc. (AMZN), eBay Inc. (EBAY), Shopify Inc. (SHOP), Alibaba Group Holding (BABA), and Wayfair Inc. (W).
Let’s take a closer look at the e-commerce industry as a whole before we analyze these five stocks:
What is E-commerce?
E-commerce is a business model that allows businesses and individuals to buy and sell items and services over the internet. Shopping can be done through computers, tablets, and smartphones. E-commerce can be a substitute for shopping at traditional brick-and-mortar stores but some retailers offer both. The business model also provides companies with a wider market presence since they can sell to almost anyone in the world.
The industry can be categorized into four segments: Business to Business, Business to Consumer, Consumer to Consumer, and Consumer to Business.
Business to Business (B2B)
The B2B e-commerce model is when businesses sell their goods and services to another company. Businesses can buy products and services for their own business or sell to an end customer. SHOP is a perfect example of this model.
Business to Consumer (B2C)
The B2C e-commerce model involves businesses selling goods or services directly to individual consumers for their own personal use. This method bypasses third-party retailers, such as retail stores, and delivers their goods or services to the end customer through online stores. A great example of this is the Nike (NKE) website, where consumers can purchase sneakers directly from the company.
Consumer to Consumer (C2C)
The C2C business model is considered an online marketplace, where individual consumers can exchange goods and services through personal or third-party sites. EBAY and Etsy (ETSY) are great examples of this type of model
Consumer to Business (C2B)
The C2B model is the final model, where individuals such as freelancers sell their goods or services to a business. The consumer can set their own pricing for their work, and businesses come to them to purchase their services. The freelancing company Upwork (UPWK) is an excellent example of this type of model.
Benefits of E-commerce
The reason e-commerce has been growing, even before the pandemic, is due to its many benefits.
First and foremost, e-commerce provides a convenience that physical storefront can’t match. Unlike physical storefronts, you can buy and sell products whenever or wherever you want.
When you shop online, you have an enormous number of products to go through. Even at the same online store, you are likely to see more variety than you ever would at a physical store. For instance, if you go to the store and can’t find something, you will likely find that item somewhere online.
If you’ve ever shopped, I’m sure you’ve tried to compare prices at different stores. With e-commerce, you can compare online prices almost in an instant. Whether it’s through Google (GOOGL) Shopping or on sites specifically made to compare prices, e-commerce makes it easier and faster to compare the prices of goods.
Unlike physical storefront, online businesses don’t need to pay for a physical space. This cost-savings is typically passed onto the consumer in the form of lower prices for goods and services.
While there are many advantages, there are a couple of disadvantages for e-commerce. For instance, customer service is typically delayed. When you’re in a physical store, you can find an associate to answer your questions. In an online store, you may have to wait a day or two to get a response to your question.
In addition, you also can’t touch products or look at them up close at an online store. The online shop images don’t always give you a complete impression of a product or meet your expectations. Even so, the advantages greatly outweigh the disadvantages when it comes to shopping online.
History of E-commerce
Believe it or not, the beginning of e-commerce started in the 1960s when the Electronic Data Interchange (EDI) replaced the traditional mailing of documents by allowing a digital transfer of data from one computer to another. Then in 1979, English inventor Michael Aldrich introduced electronic shopping. He connected a modified TV to a transaction-processing computer through a telephone line.
This allowed him to connect his television to a supermarket to have them deliver the groceries. Aldrich named his invention “teleshopping.” In 1982 Boston Computer Exchange launched as the world’s first e-commerce company. It served as an online marketplace for people selling their old computers. Ten years later, Book Stacks Unlimited launched as the first online book marketplace. Originally, the company used the dial-up bulletin board, but then switched to the internet two years later.
On August 11, 1994, Phil Brandenberger of Philadelphia made the first-ever credit card purchase using encryption over the internet. This marked the beginning of the modern e-commerce era. One year later, AMZN launched as an e-commerce platform for books. In 1998, PayPal (PYPL) launched as an e-commerce payment system. The 2000s saw AMZN expand and implement Prime and other major sites such as EBAY launch. Over the past decade and more, every major store has created an e-commerce presence.
Future of E-Commerce
While the history of e-commerce is filled with significant milestones, the future hasn’t been written yet. But there are three major themes we can expect.
The first major theme is personalization. While we are accustomed to knowing what we want when we shop, stores are likely to make the online shopping experience more personalized. That means knowing a customer’s buying habits through prior items purchased, items added to carts, demographics, and other actions through the use of internet cookies that track your movements.
This allows businesses to increase profits and consumers to get a more personalized experience. While this has already started at many online stores, expect much more personalization in the years to come.
More and more consumers are purchasing through their mobile devices. Over half of e-commerce sales are done through a mobile device. Mobile devices are getting faster and more efficient, which means this percentage is likely to continue growing. Companies will continue to make the mobile shopping experience easier and more enjoyable.
The pandemic led to brick-and-mortar stores developing an online presence and omnichannel capabilities and online-only stores to creating physical storefronts. The future isn’t just online shopping. The companies that offer a seamless omnichannel experience will be the future winners.
This is one reason why AMZN purchased Whole Foods. Walmart (WMT) has become a threat through its vast online shopping portal and the sheer number of physical storefront locations. With an omnichannel experience, you can order online and pick up the product at a physical location within hours. In many cases, you don’t even need to leave the car. You get the convenience of ordering online, but the quickness of getting your product within an hour.
E-commerce Stocks in 2021
Amazon.com, Inc. (AMZN)
AMZN is one of the largest e-commerce companies, with operations in North America and spreading worldwide. The company’s business model revolves around its Prime membership program and is supported by its vast…