- In just 8 weeks' time, the e-commerce gained 11% in market share of all retail sales
- 24% of consumers said they wouldn't feel comfortable shopping in a mall for more than six months
- Walmart, Target and Home Depot saw their online sales skyrocket, pushing shares to annual highs
The year or 2020 is likely to go to history books due to many different reasons. The COVID-19 pandemic is likely to dominate the headlines for years to come as the year when the materialization of a true “black swan” concept occurred.
What is rarely known is that a “black swan” term, used widely across the society, is a term coined by the former options trader Nassim Taleb. The idea behind this term was to explain a situation with a very low probability of happening and an extremely high risk.
“First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact.’ Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable,” Taleb explained.
E-commerce businesses surging
We can spend hours arguing whether the COVID-19 meets all criteria to be classified as a black swan, but one is for sure – the stock market reacted as the black swan really occurred.
The VIX index, the market’s preferred gauge of volatility, hit the highest level recorded since the global financial crisis in 2008. This situation with an extreme risk-off trading sentiment has yielded market opportunities on different sides of the market.
One of the most striking charts of the year, published by an industry newsletter 2PM, shows what a one-off event can do to markets. “10 years vs 8 weeks” chart shows that e-commerce needed just 8 weeks to gain 11% in market share of all retail sales, compared to less than 11% it had gained between 2009 and 2019.
This chart is a direct result of hundreds of millions of people being confined to their homes in a few weeks’ time. Numerous companies from the teleworking, home entertainment and e-commerce sectors saw their online sales go through the roof for the first quarter.
Even more importantly, the COVID-19 outbreak may make a significant contribution to a change in the way we live. In the near future, people are likely to spend less time in restaurants, cafes and shopping malls despite the lifting of lockdown measures.
The recent study conducted by Morning Consult shows that 24% of consumers said they wouldn’t feel comfortable shopping in a mall for more than six months, while 20% say they would feel comfortable to eat at a restaurant or cafe in more than six months time. Therefore, the online space is now likely to become a dominant method of shopping and paying for goods and services. The data from Emarsys’ “CC Insight” show that growth in e-commerce has accelerated to forecasted levels 5 years ahead (or more).
“It’s not a “rising tide lifts all boats” market. We’re seeing more winners and losers at this point,” as the environment “has tended to favor larger, more sophisticated sellers,” said Scott Galit, CEO of money transfer company Payoneer.
Here, we take a look at 3 e-commerce stocks that excelled in the past few months and remain well-positioned to continue being a prime beneficiary from the stay-at-home regime.
Home Depot (NYSE: HD) same-store sales grew 6.4% in the first quarter while revenue jumped 7.1%. As expected, the earnings didn’t match the increase in revenue and sales due to higher costs related to the coronavirus pandemic.
The retailer said that the average ticket also jumped 11% due to an increase in basket size on the panic buying in supermarkets at the beginning of the coronavirus pandemic. The e-commerce sales skyrocketed 79% compared to the same period last year, at the expense of physical retail.
“As shelter-in-place orders rolled out across the country in mid- to late-March, we saw our digital businesses accelerate from approximately 30% growth in early March to triple digit growth in early April. During the last three weeks of the quarter, traffic to HomeDepot.com was consistently above Black Friday levels,” the executive vice president of merchandising Ted Decker said.
As a result, shares of Home Depot hit the record high this month to trade above $248. The investors rushed to buy Home Depot stock, expecting a surge in demand during the pandemic lockdown measures, which ultimately pushed the price to record highs.
Target’s (NYSE: TGT) comparable sales (a combination of traffic and average purchase size) increased by 10.8%, compared to last year. Online sales skyrocketed more than 140%, with the company saying that 9.9% out of 10.8% of comparable sales came from digital channels.
It is estimated that Target’s e-commerce business has as much as $2 billion in sales. Percentage-wise, Target is generating more e-commerce of total revenue than its bigger competitors, such as Walmart.
The Minnesota-based giant is now looking to build on the increase in e-commerce sales by selling products directly on Instagram.
“We know our guests are already using Instagram, so we’re making it even easier for them to find and buy the quality, affordable products they expect from Target,” Block said.
Shares of the company hit a new 2020 high a few days ago, completely erasing all losses recorded in March due to the COVID-19 outbreak. The buyers are likely to target a trip towards the $130 mark, which represents a premium of 10% on the current market price. To learn how to choose winning stocks, click here.
Similar to other retail companies that offer online sales, Walmart (NYSE: WMT) recorded a huge increase in the demand as one would expect in an environment such as the current one. Its e-commerce sales jumped 74% compared to the same period last year.
Moreover, the company recorded a pickup/delivery growth of nearly 300% at its peak, with the number of new customers rising four times since the beginning of the pandemic.
“For many of these items we were selling in two or three hours what we normally sell in two or three days,” CEO Doug McMillon said.
Walmart, as well as Target and Home Depot, will try to capitalize on the surge in demand for online sales and try to hurt Amazon’s dominant position in the long-term.
Walmart stock price hit the all-time high in April, quickly erasing previous losses. Since, shares pulled back around 10%, offering a chance to new investors to get on the long side. The stock price still trades in a bullish environment with the buyers targeting the resistance at $140, an increase of around 13% compared to the current market price.
While Amazon has cemented itself as an absolutely dominant force in e-commerce, the fact that it has been able to fulfill only so much demand in the near-term has left space to companies such as Walmart, Target and Home Depot to grab a part of the e-commerce market share.