Online shopping is booming.
The move toward buying more things online has gotten a big push from the COVID-19 pandemic — as if online retailers needed a greater advantage over brick-and-mortar stores.
Amazon (AMZN) is still the industry powerhouse when it comes to buying things online, despite its warehouse and logistics struggles to meet demand during mandated lockdowns.
Other companies have managed to grab market share from Amazon over the last few months, such as Target (TGT) and Walmart (WMT). But the better play in e-commerce, and dare I say — “next Amazon” — might not be a retailer at all.
Online sales in the U.S. will hit $710 billion this year — rising 18% from 2019. Yet that’s still just under 15% of the total retail sales in the U.S.
Last year, online sales made up 11% of total retail sales. Online sales have taken more of the overall retail market share this year than in any other year. The market share for online sales is expected to hit 15.5% in 2022.
This bodes well for Amazon, but also for retailers that have invested heavily in online sales, such as Walmart. Amazon owns 38% of the e-commerce market in the U.S., while Walmart is at 5.8%.
After that, the market is relatively fragmented, leaving opportunities for small and growing e-commerce stores.
Households aren’t just shopping online to avoid going out in public, they also have extra money to spend — money that would have been used for leisure activities or vacations.
The new normal
The further rise in online shopping due to the pandemic is a trend that likely won’t be reversed even as all COVID-19-related restrictions are removed.
That means more small businesses will need to embrace e-commerce. With that, the undisputed leader in creating and managing an online store is Shopify (SHOP). Shopify is not an e-commerce store or retailer. It helps retailers bring their businesses online.
There’s a saying, “Don’t invest in gold mines, invest in shovels.”
The idea comes from the gold rush in California during the mid-1800s. Investing in a gold mine was high-risk, as they’re no guarantee of finding gold.
However, all the miners needed shovels. Investing in shovel makers meant you’d profit nicely regardless of which gold miners got lucky.
Shopify is the epitome of a pick-and-shovel company. It provides the underlying technology retailers need to become an online success. Shopify helps companies open an online store, and handle online order processing, payments, and shipping.
Picking which retailer will overthrow Amazon is a tough ask, if not impossible. But it’s clear that Shopify will benefit regardless of who takes the crown.
The next Amazon
Shopify runs many sites or online stores and shoppers don’t even know it. The stock is up 170% in 2020, driven by the number of new stores — a 60% increase — during the lockdowns. But there’s still plenty of market share for Shopify to grab over the next 10 years.
Add that to the fact that there are over 30 million small businesses in the United States, many of which don’t have an online store but will certainly need one going forward.
Companies that were atop the rankings in terms of sheer size in 2000 — whether by market cap or sales — are not the same today. Twenty years ago, General Electric (GE) and Intel (INTC) were on that list of the world’s largest companies.
Just 10 years ago, Nestle (NSRGY) and BHP Billiton (BBL) were on that list. Today, it’s the likes of Visa (V), Alphabet (GOOG), and Amazon (AMZN).
The point is, the companies dominating the market today likely won’t be the same ones in a decade. Shopify already has landed high-profile customers, including Tesla (TSLA), Red Bull, and Sephora.