Amazon just released sales numbers for 2018 and the details indicate that the mother of all e-commerce is confronted with new growth realities.
And Amazon is not the only one.
- GLORE, the stock index for global online retailers stayed far behind old economy stocks.
- E-commerce became ‘weather sensitive’, had bankruptcies and major players missed sales forecasts by far.
- Almost all online pure players are working on brick & mortar concepts, already leading to over 20 stores in Berlin.
So let’s look at the fundamentals behind the e-commerce trends 2019 that indicate a new direction in growth.
Market Facts First
E-commerce is expected to grow globally by another US$ 500bn this year, reaching a market share of almost 12%.
While the outlook continues to be positive, compound annual growth rates are expected to drop below 10% in all major developed economies.
Only smaller e-commerce markets are expected to show double-digit growth within the coming years. But don’t get too relieved, none of the major reports forecast a true cooling down, not yet. Without any doubt, however, stock markets are becoming more critical, and that may well create a new climate.
Capital Drives E-commerce Growth
After several years of growing market capitalisation, global e-commerce stocks had a year of losses, despite overall positive e-commerce trends. The Global Online Retail Fund (GLORE), which indexes 37 of the largest global e-commerce stocks, lost 15.6% last year.
The looming question mark over stock market investments grows even more significant when comparing GLORE with the Fortune 500 top ‘old economy’ stocks. As of December, Fortune 500 companies showed a 3-year CAGR of 12.2%, which is looking quite solid in comparison to that of global e-commerce retailers at less than CAGR 2%. Does this mean that the e-commerce investment hype is finally over?
Not at all. And the reason is as simple as it is powerful. Too much cheap capital is still looking for promising investment opportunities. The market will continue to throw money at companies that promise the future in retail by targeting millennial consumers. In other words, financially subsidised competition continues.
What Can the Brand Industry Take Away From This?
You might complain about these e-commerce trends and an unfair competition that is measured in LTV (Life Time Value) or CAC (Customer Acquisition Cost), but never in sound profitability. Or you can simply accept that private equity won’t leave the brand distribution market anytime soon. In fact, the finance industry has become an essential part of the consumer goods supply chain. In one way or another, 90% of e-commerce marketplaces in the US and Europe are private equity funded.
In other words, major parts of 2018 retail brand distribution were heavily subsidised, and you’d best expect this trend to continue. The investor threat may seem somewhat unfair, but hey, that’s what competition looks like today.
Have E-commerce Trends Changed in 2018?
“…long and hot summer and delayed switch to fall/winter season weigh on revenue growth and adjusted EBIT…” Zalando
The past few years saw online multibrand marketplaces like Amazon and Zalando broaden their business model to include different forms of third-party business. In 2018, they added climate sensitivity to their business model. Not only Zalando adjusted their forecast more than once and blamed the weather for it.
For those who’ve grown up in the ‘old economy’, the weather excuse may feel familiar and come as a kind of relief. I’m not convinced this is a positive signal. It may in fact be just the opposite, as it drives e-commerce managers and investors to build new distribution channels, such as retail.
Online Pure Players Are Investing in Brick & Mortar
You’ve heard it before, the latest e-commerce trend is that e-commerce is going brick & mortar, and it’s happening faster than you can think. Almost all online pure players increased their investment in some form of brick & mortar format during 2018.
For most companies, this is not yet a clear strategy. But e-commerce testing out brick & mortar formats bears resemblance to times when brands first began to test their retail concepts years ago. And online testing brick & mortar is happening quite fast. Already today, cities like Berlin have 20+ stores by online born companies (click below to see some more details)
And this may be only the beginning, as 85% of consumption still happens offline, despite all capital influx. As long as consumers leave home for work or leisure they get tempted by brick & mortar offers. So if online pure players don’t want to wait 50 years to reach that share of the market, they will seek more ways to grow multichannel. E-commerce retailers may face a long learning curve before their retail becomes profitable, but they do have the capital to create great consumer experiences (as Christoph experienced when he was ‘shoplifting’ at Amazon).
The Mid-Term E-commerce Trend: Jeff Bezos Promises Bankruptcy
There is no reason for retailers and brands to slow down investment in seamless online-offline consumer experiences. Rather the opposite. Despite a heavily over-capitalised e-commerce business, don’t expect the current online bubble to burst like it did in 2001. Consumers have changed and so has e-commerce: it has become too big to fail. It won’t be the central banks that bail out marketplaces, but the finance industry will.
But new millennium companies are not immune against takeover, restructuring or bankruptcy. Will Amazon of 2030 struggle for survival? Who knows. Jeff Bezos at least thinks so and warned his staff that someday soon it may happen.
“Amazon is not too big to fail … In fact, I predict one day Amazon will fail. Amazon will go bankrupt…” Jeff Bezos
Brands and retailers can utilise these subsidised e-commerce markets to broaden their own distribution. But they can also beat the e-commerce industry with a seamless omnichannel experience online and offline.
Continue to invest in multichannel growth to beat the competition. And it is worth putting in the work, as the majority of startups continue to go bankrupt despite (or because of) all the capital influx. And changing e-commerce trends notwithstanding, one thing remains the same: competitive business models and solid financials are still a competitive advantage.