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Why E-commerce is the Hottest Investment in 2020.
E-commerce is rapidly becoming the top way consumers look for products. 2020 will prove to be the year that e-commerce took over the world. And it is fairly certain that E-commerce investments will prove to make some of the best investments in 2020. Here's why. (6 min. read)
2020 has proven to be a year like no other.
With Canadian retail sales plummeting amidst the coronavirus pandemic, retailers are feeling the pain of waning consumer interest towards in-person buying experiences.
But one retail sector has managed unprecedented growth throughout all of this: e-commerce.
eMarketer predicts that “retail e-commerce will reach $52.04 billion ($39.22 billion) this year.” That’s a 20.7% increase over 2019.
Canadians haven’t stopped spending—but e-commerce has upended the way they spend their money.
COVID-19 has not only taught us about the importance of e-commerce, but has given us more than enough evidence that the effects on shopping habits will be long-standing.
Here is why e-commerce investments will be among the hottest investments in 2020 and beyond:
In-store Sales May Never Bounce Back
While Canadian retailers began to reopen their doors this summer, many more have closed their doors for good.
In-store retail sales in Canada fell to record-low levels in March 2020, at the beginning of the country-wide lockdown caused by COVID-19.
While the fallout from this continues to be monitored by economists, we may not see the full impact until far beyond 2020.
But the outlook for brick-and-mortar based operations is bleak.
eMarketer June 2020 forecast, shows how badly the pandemic has hit retail sales in the U.S. Brick-and-mortar retail sales are predicted to fall by 14% (representing $4.184 trillion) by the end of 2020.
Their analysts note “it will take up to five years for offline sales to return to pre-pandemic levels.”
Massive store closures hit Canada in 2020
Not all stores in Canada will have 5 years to recover.
A growing list of independent retailers and medium-to-large chains have either filed for bankruptcy, have shut down stores or are in the process of doing so, amid financial turmoil.
Canadian retailers closing stores in 2020 (so far)
Lole: Lululemon athleisure competitor Lole filed for bankruptcy protection.
Frank and Oak: Montreal-based fashion retailer Frank and Oak filed for bankruptcy protection.
Scholar’s Choice: Ontario’s education retailer Scholar’s Choice will close 13 of 16 stores permanently.
SAIL: Sporting goods retailer SAIL has filed for bankruptcy protection and shut down all stores under their Sportium banner, including two SAIL stores in Ontario.
Nygard: Winnipeg-based retail chain giant Nygard is liquidating their Alia and Tan Jay storefronts.
Toys Toys Toys: Toronto-based toy retailer, Toys Toys Toys, has filed for bankruptcy and is liquidating all products.
Conmark Holding: The parent company of Ricki’s, Cleo, and Bootlegger, has filed for bankruptcy protection.
La Senza: Popular Montreal-based lingerie retailer La Senza will close 30 of 100 Canadian storefronts.
Aldo: Footwear and accessory retailer Aldo Shoes has gone into creditor protection and shuttered 40% of its Canadian storefronts.
Reitmans: Fashion retailer Reitmans has closed 77 stores under its Addition Elle banner, and have completely shut down its Thyme Maternity banner.
David’s Tea: Montreal-based tea retailer, David’s Tea, filed for bankruptcy protection and will close 124 of the company’s 210 North American stores (82 units in Canada, and all U.S. stores).
Popular Montreal-based fashion retailer Le Chateau could also be joining this list, with their July 2020 press release noting they will not survive the next year without outside investors.
International retailers closing Canadian stores
International retailers haven’t been immune to the retail slump either. The following companies also closed many stores in Canada:
- Tech-giant Microsoft will close all brick-and-mortar stores, including 7 in Canada
- Fashion king The Gap Inc. is rumoured to be quietly closing Canadian units under The Gap, Banana Republic, and Old Navy banners
- Lingerie market leader Victoria’s Secret begun closing Canadian storefronts even before COVID-19, and is expected to reduce storefronts over the summer
- Coffee mogul Starbucks has announced the closing of 200 locations across Canada
In-store retailers around the globe are struggling to continue operations and are scrambling to make the swift shift to online-marketplaces as their primary source of revenue.
As time progresses and more financial quarterlies are released, it is expected that even fewer national and international brands will have a chance of reaching the 5-year recovery mark.
Online Retailers Are Getting Stronger
On the other side of the retail market, e-commerce sellers are only getting stronger.
Statistics Canada reported that retail e-commerce sales have soared to an all-time high, stating that year-over-year e-commerce sales have more than doubled—with a 110.8% increase compared to the same period in 2019.
Many Canadians started returning to their offices as retailers began to reopen their doors, yet consumers continued to shop online in never-seen-before numbers.
Retailers that rely mostly on online sales through platforms like Amazon or Shopify are reporting strong sales and from more customers, and are demonstrating the strength of e-commerce during economic disaster.
Retail e-commerce sales have soared in Canada during the first two quarters:
In BDO’s Retail Trends in Canada 2019-2020 report, they advise that “change is necessary” for retailers:
“Customers are constantly evolving in terms of their shopping habits. Younger generations are digital natives and expect an omnichannel experience that is enabled by technology. Retailers must be able to deliver.”
E-Commerce Market Leaders
Online retailer Amazon (NASDAQ: AMZN) dominates the e-commerce space, accounting for nearly 40% of the market share.
Amazon.ca reported $3.512 billion (USD) in e-commerce revenue in 2018 alone.
Their third-party marketplace takes an even bigger share of gross merchandise volume. Amazon’s fulfillment service allows third-party sellers the ability to offer Prime shipping options (with one- and two-day shipping options) from vendor marketplaces.
Delivery speed is what is keeping Amazon at the forefront of the e-commerce market. Canada Post’s 2020 Canadian E-Commerce Report found that 67% of consumers stated that they would shop more often from retailers who offer flexible delivery solutions.
Canadian founded e-commerce platform Shopify (TSE: SHOP) is closing in on Amazon, with its stock skyrocketing up 106% since mid-February.
It provides a shopping engine for more than 800,000 customers and includes break-out brands like Kylie Jenner’s beauty storefront, Kylie Cosmetics.
Shopify also displaced RBC to become Canada’s most valuable company in 2020.
With plans to build and operate a warehouse and fulfillment network in the U.S., allowing for two-day shipping options, Shopify will be a game-changer in the e-commerce space.
While Shopify has yet to announce any plans for a Canadian-based fulfilment network, BDO predicts this “network could foreseeably extend to merchants here as well...allowing for small and mid-size retailers” to make the shift to omnichannel.
eBay (NASDAQ:EBAY) is the pioneer of e-commerce and remains a strong leader in the online market space.
Founded in 1995, it has expanded out of the U.S. into more than 20 countries, including Canada.
With estimated monthly traffic of 30.5 million visits, ebay.ca facilitates the sale of everything from cars to heirlooms.
Second-quarter gross merchandise value (GMV) rose 29% worldwide to $27.1 billion (USD), which is the highest growth the company has seen in 15 years.
The parent company’s (ebay.com) CEO, Jamie Iannone (former COO for Walmart’s e-commerce division) plans to help eBay regain its place as “the best global marketplace” with “tech-led reimagination”.
The company is simplifying its listing flow for consumers and making the registration and onboarding process easier for small-business marketplace sellers.
It’s also attempting to appeal more to Gen Z consumers, by adding features to its mobile app, most recently releasing Dark Mode, which allows a dark screen background within the app, one of the most requested features by its younger demographic.
Etsy (Nasdaq: ETSY) is a marketplace that focuses on unique products, featuring handmade and vintage products, making it a popular platform for homemakers and small-businesses to launch their products and test the markets.
As the company continues to strive to be a viable e-commerce investment, starting public trading in 2015, it is proving to push through some early change-resistance from sellers (free shipping push and automatic advertising) and come out on top.
Etsy’s 2019 full-year revenue was nearly double that of 2017, with a 110.7% growth year-over-year reported in the second-quarter financial results.
Active buyers also saw a substantial increase in their second quarter, up 41%. This is the result of Etsy’s “Right to Win” long-term strategy, which focuses on their competitive advantage of four key elements: unique items, innovative search and discovery, human connections, and trusted brand.
Is E-Commerce a Good Investment?
E-commerce has completely upended the way shoppers spend their money.
The perfect storm that the COVID-19 pandemic has only accelerated this sector’s growth.
Smart investors know they will benefit from the chaos that 2020 has brought by adding more e-commerce investments to their portfolio.
As smart business owners continue to move their brick-and-mortar business models towards e-commerce solutions, the opportunities to invest in e-commerce will continue to flourish.
This article is provided for informational purposes only and should not be construed as legal or investment advice. It is important to always do your own research before deciding whether or not to invest in any particular company or category of products and services.