The e-commerce revolution continues – Expert Investment Views: Invesco Blog

As we explained in our last blog, in the 25 years since we opened Invesco International Growth Fund, we have invested in structural growth trends created by four major forces that we refer to by the acronym MANTRA: the forces of Mass Affluence, New Technology, and Aging that are constantly Restructuring the world economy. The constant interplay of these forces produces fundamental, long-term growth in demand for some things while causing demand to ebb, slowly and inexorably, for others.

One example from early in the last century was the rise of the automobile and the decline in the use of horses for transportation. A glaring example now is the rise of e-commerce and the decline of brick-and-mortar retailing.

The force of Mass Affluence has raised disposable income throughout the world, and New Technology has enabled a new form of shopping, through the internet. Together, these forces have created an investment theme that we call the “reorganization of retail,” which encompasses the trend of strongly growing demand for online shopping, or “e-commerce.”

This activity, which is supported by a deep, structural demand growth trend among shoppers around the world, offers potentially rewarding opportunities for investors in the companies that can benefit from it. These companies are found all along the chain of activities that are necessary to online shopping. As we break down an e-commerce transaction, we find at every step companies that are enabling and enhancing it.

For retailers wanting to sell their goods online, there are e-commerce platform firms that can provide them with the ability to build their own online store, such as a website on which customers can see, choose and pay for their goods securely.

Payments are a particularly sensitive part of this transaction, and there are companies that specialize in digital payments, providing their services to the platform firms.

Multiple activities involved in every sale

Fulfilling a customer order requires a constellation of activity, including: finding the product in a warehouse, packing, addressing and delivering it correctly, and providing customers with the ability and instructions to return it if necessary; plus ordering, accepting delivery of, and properly storing new stock to replace what is sold.

Each of these activities is highly specialized. Moreover, that specialization varies dramatically with the items being sold and delivered. The presentation, promotion, handling and delivery required for a dress are markedly different from those required for fresh groceries. In addition to all of that, there is a rising preference for automating as much of the process as possible to increase speed while reducing cost and error. As a result, we’ve seen the rise of some highly specialized “category killers” with significant technological leads, in various industries, at each of these chokepoints.

This year has been a particularly strong growth year for online shopping for all products. As COVID-19 concerns kept people away from stores, many shopped online for the first time. Online grocery shopping especially received a boost. While some may see this as a temporary state of affairs, we do not agree. In our opinion, the growth of e-commerce is a fundamental structural trend that has been accelerated by recent events, one whose “demand has been brought forward,” as the economists would say, so that the base level will remain higher even when we’re past the pandemic.

This “step-up” in demand was caused by an unforeseen event, but this long-term structural growth trend was and is clear. We expect the reorganization of retail to continue, and we expect to continue finding investment opportunities among companies benefitting from this theme.

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The opinions referenced above are those of the authors as of October 13, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

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