As we approach the final months of 2023, consumer strength has been somewhat mixed but has overall been running out of steam due to stubbornly high grocery prices and higher housing costs. Interestingly, consumers continue to spend on experiences like concerts, movies, and restaurants. But to do this, they are cutting back on prices by discount shopping.
This note examines one way consumers discount-shop — online shopping — which I expect to continue to take market share through the end of 2023 as the holiday shopping season approaches. Another method of discount shopping — discount retailers/groceries — will be discussed in part two next week as retailers report earnings throughout this week.
E-commerce: The Next Generation of Retail
A big question is, if overall retail sales are down, won’t that be bad for consumer retail-oriented investments including ETFs? The answer is yes, probably. And e-commerce ETFs, while slightly broader than retail ETFs, would likely follow similar performance trends on an absolute basis.
But in the long- erm, I believe e-commerce is a further evolution of retail and should be able to withstand market downturns as it takes share from traditional retail. Although e-commerce has been gaining share for several years (far before the pandemic occurred and independent of the current market environment due to increasing access to technology and a higher proportion of remote work), I believe the market share will continue to grow as consumers look for ways to save money.
Proprietary Estimates Show Strong E-Commerce Market Share in Future Quarters
3Q23 quarterly retail e-commerce report will be released on November 17, but signs point to growth. My estimates based on retail sales data and proprietary adjustments places 3Q e-commerce sales at a 9.0% y/y growth on an adjusted basis. This translates to a 15.8% market share of total retail sales compared to 14.8% in 3Q22.
I also believe this increase in growth will be driven by discretionary items like clothing and general merchandise, along with nonstore retailers, rather than segments like food, healthcare, and home improvement. Demand for discretionary items has generally weakened. But consumers looking to save money may turn to shopping online, where it is easier to compare prices and find discounts.