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The BetaShares Online Retail & E-Commerce ETF (ASX: IBUY) was launched in February 2022, offering Australian investors access to the online retailing thematic.
In this contributed article, Jane Edmondson, Co-founder and CEO at EQM Indices, co-developer of the Solactive EQM Online Retail and E-Commerce Index that IBUY aims to track, looks at how the Covid-19 pandemic has permanently changed retail shopping habits, and other factors driving the e-commerce revolution.
Online retail trend accelerated by the pandemic
Retail was already under a massive transformation prior to the pandemic, with shoppers shunning brick-and-mortar stores in favour of online retail’s 24/7 shopping convenience, greater product selection, competitive pricing, and rapid delivery options. But the pandemic has changed retail shopping habits forever.
Retail shopping habits have permanently changed – While physical retail venues have reopened, shopping trends have not gone back to the way they were pre-pandemic. Just like many companies temporarily adopting remote-working practices during the pandemic are expected to continue them, many shoppers with limited online shopping experience pre-pandemic, are now firmly hooked on the practice, creating new buying habits, emerging categories, and continued sales growth. The need for a digital presence in retail has never been clearer. Fast-growing categories include social commerce, online grocery sales, and the buy-now-pay-later (BNBL) option.
The need for a digital presence in retail has never been clearer
Global online retail grew 16% in 2021 – Enhanced by new pandemic-related buying habits around the world, global e-commerce grew 16% last year. In 2022, most of the strength is expected to come from emerging market countries like the Philippines, India, Indonesia and Brazil, growing the fastest by at least 22%. E-commerce is expected to grow its share of total global retail sales from an estimated 21% this year to 24.5% by 2025 (eMarketer Insider Intelligence).
US e-commerce sales up 9.4% YOY in Q4 2021 –The US Commerce Department reported that non-store retail sales gained 9.4% over Q4 2020 and up 1.7% sequentially with ecommerce accounting for 12.9% of total retail sales, unsurprisingly indicating that some of the traffic that moved online last year during lockdowns, has moved back into stores as the economy has reopened. (US Census Bureau)
Technological innovation creates competitive moat – In the old days of retail, personalised customer service created brand and store loyalty. Today, technology such as ARVR to enhance showcasing of items such as furniture in the home and AI and big data that provide a window into customer’s tastes, preferences and buying habits, collaborate to maximise customer satisfaction and drive engagement and sales.
Online retail like so many segments in correction territory – Online retail, like so many disruptive-technology market segments, is in correction territory, down more than 20% YTD, shunned as a stay-at-home trade, stunted by inflationary pressures and supply-chain constraints, and facing difficult year-over-year comparisons.
Indiscriminate sell-off creates buying opportunity
Facing tough year-over-year pandemic comparisons and plagued by a host of issues such as higher operational expenses due to a sudden, accelerated ramp-up of demand, compounded by supply chain shortages and inflationary pressures, online retail sits in correction territory. And yet its positioning, relative to physical retail remains stronger than ever as retail buying habits have been permanently transformed by the pandemic.
Just like many companies temporarily adopting remote-working practices during the pandemic are expected to continue them, many shoppers with limited online shopping experience pre-pandemic are now firmly hooked on the practice, creating new buying habits, emerging categories, and continued sales growth.
As online retailers cut costs and re-pivot to manage sales in the new normal, post-pandemic environment, online retail sales growth remains above pre-pandemic 2019 levels. And amid the indiscriminate sell-off, strong categories with superior fundamentals will once again be rewarded.
Online retail is alive and well, and still taking over the world, with much of the new growth coming from developing markets transitioning from a cash-based to digital economies.
Editor’s note: How can Australian investors gain exposure?
Australian investors can gain exposure to the online retail thematic via the BetaShares Online Retail & E-Commerce ETF (ASX: IBUY), which provides cost-effective and convenient access to a portfolio of the world’s leading online retailers. To qualify for inclusion in the index IBUY aims to track, a company must derive at least 65% of its revenues (or > $US90B) from online retail business.
There are risks associated with investment in IBUY, including market risk, sector risk, international investment risk and concentration risk. IBUY’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its more concentrated exposure. IBUY should only be considered as a component of a diversified portfolio. For more information on risks and other features of the Fund, please see the Target Market Determination (TMD) and Product Disclosure Statement, available at www.betashares.com.au.
EQM Indexes is the co-developer of the Solactive EQM Online Retail and E-Commerce Index licensed by BetaShares in Australia. EQM Indexes does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. EQM Indexes makes no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. EQM Indexes is not an investment adviser, and makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth on this website. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other vehicle. Inclusion of a security within an index is not a recommendation by EQM Indexes to buy, sell, or hold such security, nor is it considered to be investment advice.