Zacks Industry Outlook Highlights: Groupon, Amazon and eBay

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Nov 05, 2014, 09:30 ET

CHICAGO, Nov. 5, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the eCommerce, including Groupon (Nasdaq:GRPN-Free Report), Amazon (Nasdaq:AMZN-Free Report) and eBay (Nasdaq:EBAY-Free Report).

Industry: eCommerce

Link: http://www.zacks.com/commentary/35169/retail-ecommerce-eyes-2014-holiday-season

The Electronic Commerce -- or e-commerce -- industry is evolving very rapidly, so data collection and evaluation are particularly difficult. Consequently, one has to rely largely on surveys by both government and private agencies.

According to the U.S. Census Bureau, the manufacturing sector is relatively more reliant on e-commerce (51.9% of their total shipments), followed by merchant wholesalers (26.4% of their total sales). These two segments make up the business-to-business (B2B) category.

Retailers and service providers generated just 5.2% and 3.1%, respectively of their revenues online, with retailers growing faster than service providers. The Bureau categorizes these two segments as business-to-consumer (B2C).

All except the services segment grew around 5% over the prior year. Services grew 4%. [All the above data from the U.S. Census Bureau relate to 2012, as published in May 2014].

The U.S. Commerce Department estimates that ecommerce sales in the country grew 16.9% in 2013 to reach $263.3 billion.

Retail

Total retail e-commerce grew 2.8% sequentially and 15.0% year over year to 6.2% of total retail sales in the first quarter of 2014, according to the quarterly retail trade survey by the Census Bureau. Forrester Research estimates that this share will go up to 11% by 2018. Another Forrester study indicates that online spending (excluding travel) in the U.S. will increase at a 9.5% CAGR to reach $414 billion by 2018.

comScore data indicates that this segment recovered very quickly from the economic downturn and continued to grow rapidly over the last few years.

Key Drivers

The holiday season will be the strongest driver of retail ecommerce sales in the next two months. eMarketer estimates that Nov and Dec 2014 ecommerce sales will jump 16.6%, up from 15.5% in the last two months of 2013. Overall improvement in the retail selling climate will help.
The biggest underlying factor driving ecommerce sales remains the adoption of smartphones, tablets and other mobile Internet devices. M-commerce sales in 2014 will grow over 37% (it was up 70% last year). Product categories driving this growth are event tickets, digital content/subscriptions and to a lesser extent, books, apparel and CE. Larger screen sizes (phablets and larger tablets) make it easier to shop. Currently at 19% of total retail, m-commerce share is expected to go up to 25% by 2016. In-app purchases to grow 16.3% in 2014 and 16.9% in 2015. [eMarketer estimates]
Continued advancements in technology are improving navigation and customer experience on ecommerce sites, which is improving reviews and thus drawing more traffic to the sites. For instance, beacon technology -- which enables retailers to track customers in the store and push promos and offers to them -- is expected to assume great importance this holiday season. New payment technologies such as near field communication (NFC), quick response (QR) code, Soundwave and Bluetooth low energy (BLE) are facilitating the process. Additionally, TVs and game consoles are increasingly getting connected and digital versions of books, music, video and games are becoming available. Since the shift in consumption patterns is resulting in multi-functional electronic gadgets that are no longer optimized for a particular activity, there is a great drive to develop technologies that could improve the quality of each experience.
Retailers generally provide discount coupons that do particularly well during the holiday season. Some like Groupon (Nasdaq:GRPN-Free Report) have entered the coupon-selling business in a big way. The company offers huge discounts to attract buyers and collects a percentage of the sales thus generated. A deals marketplace is also in the making.
Traditional retailers these days have an online presence as well in order to maximize the advantages of customer reach and local presence. Online sales also show better conversions since searches usually draw consumers with a prior intention to purchase. Big online retailers like Amazon (Nasdaq:AMZN-Free Report) on the other hand are seeing the advantages of local pickup. Logistics is a major challenge for online retailers so an omni-channel model is useful. Tying up with marketplaces like eBay (Nasdaq:EBAY-Free Report) is also helping.

Since the industry is in evolution, the drivers are changing. For instance, the initial push came from the time savings and convenience of online transactions. To this were added the benefits of comparison shopping and personal recommendations.

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