The rise of e-commerce will continue after the pandemic

Frank Schwarz, manager at MainFirst, notes that Internet sales are not declining in countries where health restrictions have been lifted.

E-commerce continued to grow in 2020, benefiting from health restrictions imposed in most countries around the world. As a result, the share of online sales fell from 16 to 19% of the total last year due to the pandemic, estimates a report published in early May by the United Nations Conference on Trade and Development (UNCTAD). South Korea is the country with the largest share of e-commerce. It is ahead of China, which, on the other hand, ranks first in terms of total online sales, and Great Britain.

What development can we expect when the health crisis comes to an end? And what is the environmental impact of e-commerce compared to traditional retail sales? Based on the results of a case study by the Öko-Institut (Institute of Applied Ecology), a German institute specializing in environmental research, asset manager MainFirst points out that in many cases online purchases have a more positive overall rating than those made in traditional stores. executed. A look at the prospects for e-commerce with Frank Schwarz, portfolio manager at MainFirst.

“Switzerland remains a special case for e-commerce.”

E-commerce has often been criticized from an environmental point of view due to the high volume of parcel returns by customers. According to a case study conducted by the Öko Institute in Berlin, purchases made through e-commerce generally cause less damage to the environment than purchases made through traditional stationary trade. Which products does this apply to?

Customer behavior regarding the return of ordered items naturally varies widely by product category. On the one hand, there are products such as cosmetics, medicines, books or foodstuffs that are very rarely returned to the sender. The return rate for these products is estimated to be less than 1%.

On the other hand, there are certain items, such as sports shoes, that have the highest return to sender rate: for sneakers this rises to 0.7 per item ordered. In spite of everything, the Öko-Institut’s analysis comes to the conclusion, taking into account several parameters for electronic commerce – shipment of the goods to wholesalers, use of servers, storage, preparation of packages and home deliveries and return of part of the items – that even in this case the overall environmental balance is slightly more favorable for online shopping than for purchases in traditional stores.

Traditional stores also need to take into account the electricity consumption of shopping areas, outdoor lighting and, of course, the movement of consumers to get from their homes to the mall. In detail, the case study concluded that an online order of a pair of sneakers 919 grams of CO. had caused2slightly less than the 1270 grams for a purchase in a traditional store.

“What if Amazon decides to enter the Swiss market, the trading share?
online would go from the current 9% to about 15% very quickly.”

Are there any important parameters to consider for these types of case studies? If the buyer goes to the shopping center by car or by public transport; if the delivery is done with an electric vehicle or a diesel truck, it will greatly affect the ecological balance, right?

Yes it is correct. However, we notice that many improvements have already been made in the field of e-commerce – for example establishing fleets of all-electric vehicles for delivery, using electricity from renewable energy sources, etc.

However, the high percentage of items returned by customers remains a delicate issue. E-commerce companies, such as Zalando, are promising innovations in the ordering process that will reduce the number of items returned. Should we expect major improvements in this area?

The improvement will be only marginal in my opinion. We can go from referral rates from 70 to 65%. However, it seems unlikely to me that we will go back to 60 or 50% return of packages.

During the lockdown, or as long as there are various restrictions on going to stores, e-commerce is booming. What happens if all these restrictions are lifted? Won’t people go back to stores more than they spend most of their time in front of their screens?

Interesting in this regard is the example of China. When people could freely return to malls, online shopping continued to grow. Once the pandemic restrictions are fully lifted, people will return to stores more often, but that won’t stop the boom in e-commerce. The one area where I believe the share of e-commerce will remain marginal for many years to come is food.

“In countries like Australia or New Zealand it is already ‘off’
Due to the pandemic, home delivery orders continued to grow.”

Based on trends observed in recent years, what will the share of online commerce in total sales be in the next 5 or 10 years?

There have been several stages in the evolution of e-commerce. It took 10 years for a stock to go from 0 to 10%. It took just three months in some countries in the spring of 2020 to go from 10 to 20%. Now, to go from a stock of 20 to 30 or 40%, it won’t happen that quickly and it won’t happen. produce the same everywhere. Currently, the world record is certainly South Korea, with about 45% of purchases made online. In China this share is around 25%, just like in the United Kingdom, while in the United States it is around 20%. Europe is still a long way off: in Germany this share is around 13%, in France around 10-11%, in Italy and Spain only around 5%. In Switzerland it is around 9%.

How can this relatively low share in Switzerland be explained?

Switzerland remains in many ways a special case, a “Sonderfall” as it is called in German, in the field of electronic commerce. This can be explained by many factors: on the one hand, the country is multilingual, which complicates the task for distributors from neighboring countries and there are many regulations specific to Switzerland that must be taken into account. On the other hand, international e-commerce giants like Amazon prefer to target large markets. However, assuming Amazon decides to enter the Swiss market, we can estimate, without taking much risk, that the share of online commerce would rise very quickly from 9% to about 15%.

In terms of investment, which companies will benefit most from the rise of e-commerce?

On the one hand, there are global giants like Amazon or Alibaba that continue to grow globally. From an investment perspective, there are many companies present in more specific segments, or operating at a more regional level, which also have very interesting growth potential. In Germany, HelloFresh, a company specializing in the home delivery of food ingredients, will certainly continue to grow steadily. It will no longer necessarily be a 100% revenue growth as in 2020, but maybe 40 or 50%. It is interesting to look at the experience gained in countries such as Australia or New Zealand that have already “emerged” from the pandemic: orders for home-delivered meals have continued to increase in these countries. In China, we can also mention Meituan Dianping who delivers 40 million meals a day.

“Some very reputable companies like Adidas or Nike
have benefited doubly from the rise of e-commerce.”

There are also companies that focus on one specialized segment, such as the supply of medicines. This is the case, for example, at Shop Apotheke in Germany or Zur Rose in Switzerland.

We should also not forget companies that do not sell items online themselves, but operate in the background: for example, Shopify, a Canadian company that provides the infrastructure for e-trade. Not to mention money management, PayPal is benefiting immensely from e-commerce, as are credit card issuers like Visa. Facebook and Google are also benefiting enormously from the rise of online advertising.

What about companies with high-end brands: doesn’t e-commerce expose them to strong pricing pressure?

Not necessary. On the contrary, we even see that some highly reputable companies such as Adidas or Nike have benefited doubly from the rise of e-commerce. On the one hand, they managed to develop their own distribution channels that made it possible to compensate for the drop in retail sales during the pandemic. On the other hand, they have been able to reduce their real estate costs, because they need less retail space, and lower their personnel costs. This also applies to brands such as Estée Lauder or L’Oréal that sell high-quality cosmetic products.

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