The state of the global retail industry has been in flux because of e-commerce for over a decade, and those trends accelerated in 2020 because of the pandemic. Given new consumer behavior that is emerging as a result, e-commerce looks like a secular growth movement that has many years left ahead of it. Two trends within the larger digital retailing landscape that have my attention as 2021 nears are emerging markets and luxury e-commerce.
Image source: Getty Images.
Lots of catching up in the digital age
Thanks in no small part to a company named Amazon (AMZN +1.25%), making purchases via the internet has become all but commonplace in the U.S. According to the U.S Census Bureau, e-commerce commands a mid-teens percentage market share of the entire retail industry. China's digital market share estimate is even higher at over 20%, proving that even emerging markets can surmount logistical challenges in the digital age.
But outside of China, digital commerce is still a tiny fraction of total consumer spending. A single-digit market share is the norm. In fact, this past summer, Brazilian digital payments leader StoneCo (STNE +1.00%) indicated e-commerce garnered just a mid-single-digit percentage of retail spending in Brazil. It's a similar story in Latin America in general, as well as other geographies like Southeast Asia, Russia, and Eastern Europe.
Besides StoneCo, MercadoLibre (MELI +3.06%) is more than worthy of your attention on the Latin American front. The company is the clear-cut leader in e-commerce throughout the region and operates in 18 countries, including Brazil, Mexico, and Argentina. A digital payments service rides sidecar. MercadoLibre has been growing in the triple digits this year (excluding exchange rates from local currencies into U.S. dollars) as a result of its exposure to these two critical shopping features.
For more focused exposure on higher-profit-margin (but also more heavily affected by the pandemic) digital payments, I like StoneCo. It is helping merchants in Brazil make the transition away from the cash economy and offers other value-added financial services. After taking a hit in March and April, the company has been steadily rebounding and is nearing pre-pandemic growth rates.
And then there's Sea Limited (SE +1.55%), the video gaming platform turned e-commerce giant of Southeast Asia. Based in Singapore, Sea Limited's Shopee app has been a top download in its home market as well as in other countries like Indonesia, Thailand, and Malaysia. Video games are still a robust area of growth, but it's digital commerce led by Shopee that has put Sea Limited on the map this year. E-commerce penetration is a low single-digit concern in most of the countries of Southeast Asia, and this high-growth outfit is in the early stages of crossing the Pacific into Latin America as well. An epic battle between it and MercadoLibre might be brewing. Rather than bet on which of the above companies will emerge as the leader, I've begun accumulating (or planning to accumulate very soon) small positions in all of them.
Luxury gets up to speed with the times
The historically conservative and traditional luxury market is another corner of the retail world that has been stubborn on the digital front. Many individual high-end brands have launched their own direct-to-consumer sites, but this is an area that still relies heavily on in-person sales and physical storefronts. COVID-19 obviously necessitated some changes.
That's where Farfetch (FTCH +0.00%) comes in. It too has been growing in spades this year, and the management team thinks a permanent shift in thinking is taking place among designers and in high fashion. The company also recently struck a deal with Alibaba (BABA 0.31%) to bring its online marketplace to mainland China, the world's largest purchaser of luxury goods. I think this story is just getting started.
Speaking of China, I'm also planning on adding to my tiny position in Baozun (BZUN +0.73%) after its latest quarterly update. The company isn't posting nearly the growth the other stocks on this list are (in a normal year, revenue growth north of 20% is pretty darn good), but I like the path the company is on. It acts as a logistics management firm for companies looking to build direct-to-consumer relationships in China. Many of these brands are of the luxury and high-end variety -- just the type of items in demand among the Middle Kingdom's growing middle class.
Besides a general migration of luxury to the internet, some other developments could work in favor of high-end retail. Because of changing circumstances related to remote work and moves to less expensive suburban and rural areas, many consumers in the U.S. have more cash than ever. Many of them are finding themselves in need of fewer clothes than pre-pandemic -- but might consider higher-quality options in lieu of quantity.
This could be a boon for homemade and custom marketplace Etsy (ETSY 1.82%). Incidentally, Etsy has a sizable presence outside of the U.S., which I like given the emerging market trend discussed above. Household decor, furniture, and clothing are also top sales categories for Etsy, and all of them have been booming while retail overall in these areas has been in decline this year in the States. I see Etsy holding onto that market share as many consumers look for fewer (but nicer) things.
Emerging markets and luxury e-commerce are both, on average, behind the curve as the world enters a new digital era, and there are many small players on the field that could become a dominant force in the decade ahead. As 2020 draws to a close, it's these smaller stocks I'm shifting my attention to. If you join me, remember that with high growth comes high stock price volatility. Stay diversified (don't bet the farm on one name), think long-term (years rather than months or quarters), and keep those positions small so you're able to purchase more over time -- perhaps on a quarterly basis.
