The Investment Case for Online Retail
Online retail has permanently disrupted the traditional
brick-and-mortar store retail landscape as “clicks” have replaced “bricks.”
According to research firm eMarketer, global ecommerce is expected to exceed
$3.9 trillion this year,
providing online retailers fertile ground to grow their business in this new
era of contactless shopping. In the United States, ecommerce sales were projected
to reach $794.5 billion in 2020, a 32.4% increase over 2019, versus previous
forecasts of 18% growth.
The global coronavirus pandemic accelerated
the pace of ecommerce growth in 2020, propelling online sales to levels not
previously expected until 2022—helping existing online retailers expand their
dominance in retail. Value-added features such as competitive pricing, shopping
convenience, greater product selection and rapid delivery options have
solidified online commerce as a disruptive technology that is here to stay.
Ever-increasing internet and mobile penetration is one of
the key drivers contributing to this growth, enabling more consumers to shop
online anywhere and anytime. New technological innovations in electronic
payment, rapid delivery, artificial intelligence and voice-assisted shopping,
as well as virtual and augmented reality continue to enhance the online
shopping experience, further driving the expansion and growth of this
Additionally, due to the pandemic in 2020, digital commerce
added new shoppers that had not previously shopped online, fuelling new buying
habits such as online grocery, which grew 43%. This trend has accelerated traditional
retail’s woes, with 27 U.S. retailers having filed for bankruptcy as of
on the heels of 17 major retailer bankruptcies in 2019, pre-pandemic.
Amid this marketplace evolution, online retail has become a transformational
and dominant force in global retail.
A Brief History of
Online commerce has permanently transformed the retail
sector and the way consumers and businesses shop for everything—from books to
office supplies, to shoes and furniture. But how did it all begin?
The origins of online commerce pre-date the internet age.
Indeed, the first predecessor of online commerce was the mail-order catalogue.
In the 1970s, protocols such as Electronic Data Interchange (EDI) and
Electronic Funds Transfer (EFT) were created, providing the infrastructure
needed to support electronic transactions. In 1979, the British inventor
Michael Aldrich  was
credited with being the official “inventor of ecommerce.” Aldrich connected a
television and a telephone line and invented “teleshopping” or shopping at a
Meanwhile in the United States, infomercials (paid
television advertisements) gained popularity, paving the way for the first
cable home shopping channels. Finally, the internet came along and changed the way we shop forever.
See below a brief timeline highlighting some of the
historical milestones that cleared the path for modern day e-retail commerce:
“The mall isn’t dead, it has just moved
– EQM Indexes
For illustrative purposes only Source: EQM Indexes
A number of key benefits serve as the driving forces behind
the growth of ecommerce. These benefits have proven to be valuable for
businesses, consumers and society as a whole.
Lower costs associated with not having a physical presence
Enhanced product selection
Less traffic and crowds
Automated inventory management
No geographic sourcing boundaries
Price competition and democratization of selection
Competitive pricing, virtual auctions
Expanded access to rural areas
Unlimited geographic presence
Convenience of shopping from home/office/ mobile device 24/7/365
Shopping and delivery access for housebound consumers
Open for business
Time savings for consumers, one-stop shopping
Facilitated delivery of public services, such as education and health care
Reduced advertising and marketing costs
Customer reviews and social input
Global in scope
Source: EQM Indexes
Growing Global Opportunity
Given the superior benefits online and virtual commerce
provide, it is no wonder that this channel has grown at a superior pace than
traditional retail. U.S. ecommerce sales now represent 14.0% of total retail
sales, after declining slightly from its pandemic lockdown peak in the second
quarter of 2020.
For illustrative purposes only
Source: U.S. Department of Commerce Quarterly Retail Ecommerce Sales, 2nd
Quarter 2020, reported 8/18/2020.
Globally, ecommerce is also growing at a rapid pace, with
year-over-year percentage growth of 27.6% in 2020, with sales approaching $4.3
trillion in 2020, up from $3.3 trillion in 2019, according to eMarketer. By
2022, it is forecasted that ecommerce’s percentage of total retail sales
worldwide will surpass the 20% mark. 
Source: eMarketer, December 2020.
While U.S. online retail sales comprise only 14% of total
retail sales, other large ecommerce markets such as the United Kingdom and
China have a much higher proportion of online-to-total retail sales. In
addition to the U.S. market, here are some of the other top global markets for
China – China is the world’s
biggest ecommerce market led by companies such as Alibaba Group and JD.com and
sites such as Taobao, TMall and others, with retail ecommerce sales penetration
of 44.8% in 2020.
With an annual growth rate last year of 27.5%, China’s ecommerce market is also
one of the fastest growing. In 2020, driven by popular sales events like
Alibaba’s Singles Day, the world’s largest 24-hour shopping event which
generated $115 billion in record sales alone,
China’s ecommerce sales totaled almost $2.3 trillion.
United Kingdom – Despite
its small size, the United Kingdom is a big player in the area of ecommerce,
securing third position with $180 billion in annual sales. Amazon UK, eBay UK,
Asos, Currys PC World, Gumtree, Argos and John Lewis are some the U.K.’s
biggest ecommerce sites.
Moreover, the country has one of the highest ecommerce sales percentages at
30.9% of total retail sales in 2020.
Japan – The fourth largest ecommerce
player in the world, Japan is the leading mobile commerce (m-commerce) player.
Rakuten, Mercari, and Yahoo! Japan are some of Japan’s leading ecommerce
platforms. Annual online sales are $141 billion, and it ranks among the
fastest-growing globally, boosted by a developed economy, highly urbanized
population, 93% internet penetration and single-language culture. Japan’s
ecommerce businesses also benefit from the small country size and excellent
infrastructure, allowing for rapid delivery.
Germany – Germany is Europe’s second largest ecommerce
market with $97 billion in sales in 2020, behind the United Kingdom. Amazon has
a good foothold in the German market, similar to the U.K. market. eBay also has
a large presence in Germany.
For illustrative purposes only
Source: eMarketer, Dec 2020
Ecommerce has emerged as a global shopping phenomenon. From Cyber Monday to
Singles Day, here are some of the year’s busiest online shopping days around