Thematic Times: Digging Deeper Into E-Commerce Data

09/15/22 | Roxanna Islam, CFA

On the surface, quarterly e-commerce sales data show that e-commerce growth is still strong (above pre-pandemic levels) but has been trending sideways/slightly down for the past few quarters. According to data from the U.S. Census Bureau, e-commerce sales have grown at a higher year-over-year rate relative to total retail sales each quarter since data became available in 4Q99 until recently in 2Q21.(1) From 2Q21, e-commerce sales continued to grow at a positive rate, but at a slower pace than total retail sales. But digging deeper into the data shows a different story—when excluding volatile motor vehicles and gasoline sales, e-commerce sales have returned to growing at a faster pace relative to total retail sales in 2Q22. And when accounting for seasonality issue between quarters, strong year-over-year growth in certain consumer discretionary categories (e.g., clothing, general merchandise, furniture, building products, and electronics) continues and drives the bulk of total e-commerce sales. 

After stripping out motor vehicles and gasoline sales, e-commerce sales grew at a faster rate than total retail sales in 2Q22.

The U.S. Census Bureau’s quarterly e-commerce report shows e-commerce sales relative to total retail sales, which includes both motor vehicles and parts sales and gasoline sales. These categories are often adjusted out manually by analysts due to volatility to illustrate “core” retail spending. This has had a particularly significant effect in the last few quarters where sales in both categories have grown at a higher pace due to inflation. Neither of these categories, however, are large e-commerce categories—gasoline sales are an insignificant portion of e-commerce sales (the average retail consumer does not order gasoline online). And e-commerce motor vehicle sales contribute only a small, relatively stable amount to total retail sales—about 4.3% of total retail motor vehicle sales in 2Q22, which is up only around half a percent from pre-pandemic levels. This means that higher gasoline and motor vehicle prices contribute to a much higher total retail sales figure while e-commerce sales are mostly unaffected, resulting in a lower proportion of e-commerce sales to total retail sales. After excluding motor vehicles and gasoline sales, e-commerce sales were actually 19.6% of total retail sales (up from 19.3% in 2Q21) compared to the reported 13.9% in 2Q22 (flat from the reported 13.9% in 2Q21). Additionally, e-commerce sales grew at a faster rate than total retail sales in 2Q22 for the first time in five quarters, breaking the earlier trend that started in 2Q21.

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Besides dedicated online retailers and marketplaces, clothing and general merchandise drives the bulk of e-commerce.

On a segment level, clothing and general merchandise sales contributed to over 17% of total e-commerce sales (the largest segment after nonstore retailers, which drives almost 60% of e-commerce sales). In 2Q22, e-commerce was 13.5% of total retail sales in clothing and general merchandise. This was down almost half a percent when compared to 1Q22; however, this segment has strong seasonality during the holiday season (typically peaking in 4Q and remaining slightly elevated in 1Q), so it is usually easier to make comparisons to year-over-year quarters. Compared to 2Q21, e-commerce’s share of clothing and general merchandise was actually up slightly in 2Q22 and 5.5% larger than pre-pandemic levels (see the following chart).

Furniture, building products, and electronics is the next largest segment driving over 11% of total e-commerce sales. In 2Q22, e-commerce was 12.4% of total retail sales in this segment, which is higher than the 12.0% in 2Q21. While this segment continues to show some strength, outlook for this segment should be more cautious because many of these items are large-sized, high unit price items which may not require repeated purchases from customers and also may be more susceptible to supply chain disruptions (i.e., less methods of storage/transportation) compared to smaller clothing items which can easily be stored and moved via rail, truck, and smaller delivery vehicles. 

 

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Opportunities to invest in e-commerce extend beyond traditional marketplaces/retailers.

In addition to online marketplaces and online retailers like Amazon (AMZN), investors who want to access long-term e-commerce trends may be interested in retailers that have the scale and technology to convert or adapt existing brick and mortar sales into online sales. For example, large retailers like Wal-Mart (WMT) which sell clothing, merchandise, furniture, and electronics have been able to increase U.S. e-commerce sales from 5.4% of total sales in 2Q19 to 11.9% of total sales in 2Q22.(2) AMZN, WMT, and other e-commerce related companies are included in the S-Network Global E-Commerce Index (ECOMX). As retailers shift distribution models to prioritize strategic location of fulfillment centers, industrial REITs could also benefit. E-commerce tenants typically require three times the logistics real estate as a traditional retailer due to wider product levels, greater inventory levels, and larger outbound shipping requirements, according to Prologis (PLD).(3) PLD and other REITs with significant exposure to e-commerce warehousing make up 58.6% of the Alerian Disruptive Technology Real Estate Index’s (LANDX) index weight.(4)

 

Bottom Line:

If you dig deeper into e-commerce data, data shows that e-commerce sales are still increasing on a year-over-year basis. Excluding more volatile auto and gasoline sales, consumer discretionary items like clothing, furniture, and electronics continue to support the long-term e-commerce story. Investors looking for other ways to access e-commerce trends might consider index-linked products which invest in traditional retailers, supply chain companies, and industrial REITs in addition to online marketplaces and online retailers.

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Related Research: 

Four Megatrends Underlying Amazon: E-Commerce and More

Thematic Times: Secular Shift to Online Shopping Continues

Investing in E-Commerce: The Future of Search, Shop, & Ship

LANDX Provides Solid Ground for Future of Disruptive Tech

 

(1) Monthly Retail Trade - US Census Bureau

(2) Walmart 2Q22 10-Q

(3) Global E-Commerce Impact on Logistics Real Estate | Prologis

(4) All weights as of September 9, 2022.

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