Online Retail Monthly Report | October

24 October 2022

Online Retail ETF Monthly Report: Key Takeaways

• Online Retail Alive and Well – While global ecommerce stocks soared in the days of Covid-19, their path since has been a rocky one. Thanks to the pandemic, global e-commerce rose from 15% of total retail sales in 2019 to 21% in 2021. Today, that figure sits at an estimated 22% of sales, above last year’s peak levels. The COVID-19 global e-commerce surge was initially born out of necessity. Online shopping provided a practical alternative as retail locations closed and people stayed in to avoid the virus. But as consumers began shopping in person again, investors started to ask – “was the Covid-bump a one-and-done deal, or could e-commerce growth continue?” Morgan Stanley’s view is that ecommerce still has plenty of room to grow and expects it to increase from $3.3 trillion today to $5.4 trillion in 2026. They expect ecommerce to reach 27% of total global retail sales by 2026 as across the world, as we have yet to see the ceiling for ecommerce growth and penetration. [1]

• 2022 A Perfect Storm for Online Retailers – Despite the positive long-term outlook for online retail, 2022 has been a perfect storm of challenges: 1) Higher costs and inflation, 2) Rising interest rates, and a 3) Strong dollar. Due to the pandemic surge in activity, many companies spent too much money on hiring, logistics capacity, and infrastructure to support the pandemic-fuelled boom, acting like the growth would last forever. As a result, many companies had lower revenues on a higher cost base. Secondly, ecommerce growths are growth stocks with little or no current profits. Online retailers have been impacted, along with other high growth, technology-related names, by higher interest rates. And finally, international ecommerce stocks have also been hurt by a strong dollar. [2]

• Recent Headwinds Show Signs of Reversing – Faced with higher costs, slowing demand, rising interest rates, and a strong dollar, it is no wonder that online retail stocks have fallen, despite their growth leadership positions in their respective categories, solid operating execution, and long-term growth runways. But those headwinds show signs of reversing going into the end of the year. Inflation indicators show signs of improving. The US Job Openings and Labor Turnover Survey (JOLTS) report declined more than expected and housing shows sign of cooling. Central bankers may not “pivot”, but they could “pause and reflect” to measure the impact of higher rates already in the system. This could c calm currency markets as well. [3]

• Online Fashion Resale Platform Poshmark Acquired – With many online retailers trading a discount prices, merger and acquisition could pick up as the macro-outlook improves. South Korean internet conglomerate Naver, just agreed to purchase online fashion resale platform Poshmark for $1.2 billion USD, representing a 15% premium to is closing price. The move certainly provides validation for the long-term case for online retail stocks. Many beaten-down online retail stocks look like good deals, especially going into the holiday season if inflation is on the downturn. [4]

• Amazon Prime Day 2.0 – On the heels of its successful summer event, Amazon plans to host another Prime Day event on October 11-12th. Like all online retailers, Amazon is in the midst of a challenging period due to inflation, rising interest rates and overexpansion during the pandemic. It is hoping to capture early holiday shoppers looking for bargains.

 

Please note that past performance is not indicative of future performance.

 

Macro Outlook

Will More Beaten Down Names Become M&A Targets?

As consumers become more “discretionary” with their purchases confronted with higher energy costs and inflation, they have been returning online for better prices, selection, and 24/7 convenience. In the US, for the first time since 2021, online retail is once again outpacing in-store, brick and mortar retail. As macro headwinds like higher interest rates and inflation dissipate, the outlook for beaten down online retailers going into the end of the year continues to improve. This could support an M&A shopping spree for beaten down, quality platforms like the recent Poshmark acquisition. (EQM)

 

Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs, your capital is at risk .

 

Online Retail ETF Performance (As of 30.09.2022)

 

1M

3M

6M

YTD

12M

SI

Global Online Retail UCITS ETF

-18.65%

-10.45%

-48.85%

-68.14%

-75.66%

-77.47%

EQM Global Online Retail Growth Index

-18.61%

-10.29%

-48.62%

-67.81%

-75.36%

-77.11%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 30/09/2022

Performance before inception is based on back tested data. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 30/09/22. Please note that all performance figures are showing net data.

 

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