Last year, consumers flocked to online retailers as the pandemic closed non-essential brick-and-mortar stores. Now that a year has passed, and we are beginning to get vaccinated, will consumers continue their online shopping habits in 2021 and beyond? On a Fool Live episode recorded on Jan. 19, Fool contributors Jason Hall, Danny Vena, Brian Withers, and Fool analyst Dylan Lewis discuss the trend in e-commerce and whether buying habits have permanently changed.
Jason Hall: Our next question here, this comes from Brian Withers. I think this is really good. Brian, you're asking, "With e-commerce, have consumer habits permanently changed toward online buying?" Tell us what you mean.
Brian Withers: Yeah, a number of the companies that are in the e-commerce business, Shopify (NYSE:SHOP), Etsy, I think even Wayfair management has come out and said that, I think it's a little bold, that consumer habits have changed permanently. Certainly, as coronavirus came around, I'm going to share a little chart from St. Louis Fed, given that it's Janet Yellen's day in Congress.
Jason Hall: We're competing against Yellen right now, that's tough.
Brian Withers: Yeah, there we go. This is e-commerce retail sales from 2000 and just upticks, upticks, upticks, upticks, going up, and then what's interesting is let me open it up to the 2020. From Q1 to Q2, just a huge bump in activity and overall retail sales. In fact, third quarter as the brick-and-mortar stores started opening back up again, e-commerce held its own. It dropped a little bit, and overall, the percentage dropped a little bit. If you look at the percentage here, the percentages are more marketable, downturn from 16 percent to 14.3.
But as we look at holiday forecasts and overall forecast, we're up two percent range, but online businesses were set to grow at least 35 percent. Certainly, as consumers look to avoid crowds and getting out, e-commerce certainly was a viable option for many, many folks.
I can attest. I'm at the end of the court, and I see the UPS [United Parcel Service] Truck, the FedEx truck, the mail truck, [laughs] the Amazon truck, and some of them several times a day. What's interesting, what I'm really diving into is companies report and things like Etsy, are they capturing customers, and are those customers coming back when it's not holiday season and as the vaccine rolls out? My hope is some of these companies not named Amazon. [laughs]
Jason Hall: More specialized.
Brian Withers: Yeah, e-commerce companies not named Amazon, Shopify, Wayfair, Etsy, are they gaining customers? Are those customers having a good experience and got over the hump [of trying it for the first time] and are going to come back again and again? I think that's pretty much the case, but we'll see what the level is, and then the blowback a little bit is who is going to suffer I think is the local small businesses which will be interesting to see.
There's been a significant number of small business closures, probably mostly restaurants and bars, but local shopping too is taking a hit. It will be interesting to see how this whole thing plays out over the next 12 months as the vaccine ramps up.
Dylan Lewis: Brian, I love that you pulled the chart there because I think one thing that I have to constantly remind myself when we're talking about companies and we're talking about megatrends is just because we've been following something for several years, does not mean that it has hit complete market saturation. I think e-commerce is maybe the perfect example of that where prior to COVID if you'd ask someone, what is e-commerce penetration, somebody who generally doesn't follow-up business news or investing, they would probably say somewhere in the 30, 40 percent range.
Brian Withers: Yeah.
Dylan Lewis: It's in the low teens, double-digits somewhere, depending on who you get your data from. This field already had so much green space in front of it for the grabbing, and I think that we've talked about it on the podcast a couple of times, but companies like MercadoLibre coming in and getting a lot of customers to try it. What we've seen with a lot of digital businesses is this a tryout period for people to adopt.
I have a hunch that when people get confronted with something that's more convenient, they're probably going to stick around if it makes their life easier, but I think there are probably some categories where people will go back to the physical goods just because there's some element of that shopping experience that they miss.
Jason Hall: Danny, I know this is a space you cover closer. I'd love to hear your thoughts here.
Danny Vena: I agree with Dylan and that I think, first of all, I do think that a lot of people who have adopted e-commerce over the course of the last year are going to stick around. Data says it only takes about 30 days to change a habit. Once people adopt e-commerce, they see the ease and convenience, they understand what the options are, I think many of them are going to stick around. I don't think we're going to see a huge drop-off.
But to Dylan's point, I absolutely think there are going to be those people that like shopping, they like going out into physical stores, they like the tactile part of handling the merchandise, looking at things, taking their time, and just enjoying the experience. I think we're going to see a drop-off, but I don't think it's going to be dramatic.
I do think the fact that we are still in the early stages, yes e-commerce has been around for 20 years, but in the grand scheme of things, we're still in the early stages of e-commerce adoption, and I think we're going to see it continue to grow from here.
Jason Hall: I tend to agree. I also think that there's really a compelling case. It seems like every few years we figure this out. I remember once upon a time there was the idea that people wouldn't buy large electronics or large appliances on the internet. They never would, they want to go see that TV, they want to go to Best Buy and look at it. They want to go to Sears, and they want to look at that washer and dryer and see if they like exactly how it's laid out and put their hands on the control panels.
Coming into this year, we thought the same thing for furniture, [laughs] and then Wayfair grows their sales by 9,000 percent. It's not that much, but you get the point. I think that I've learned two things this year. Number one, is there's a lot of things people are far more comfortable buying on the internet than anybody realized. I think that's going to continue to prove the case for more and more things over time, because it's a trust issue, that's the big thing. When people figure out that they can trust whoever they're buying it from online, that they're seeing accurate descriptions, that the measurements make sense, the pictures look good, and then if it's not what they want that they can actually send it back, that solves so much of the problem.
I do want to go back to the mall every once in a while and experience that, but mainly to remember why I prefer [laughs] ordering stuff on Amazon. I think as much as that's true, I think the convenience factor is still going to kill, it's still going to make e-commerce such a big deal.
Here's my sleeper. This is the last thing I'm going to say, and then if any of you guys have anything follow-up on. I think a lot of people are still sleeping on Target and Walmart, and some of these other mass merchants, big-box retailers that already have the last mile built. I think they're going to take more e-commerce market share this year than the Amazons of the world, because they're not going to have to continue to spend to build out infrastructure to get closer to customers. Anybody have any thoughts on that before we pivot to our next question?
Brian Withers: Yeah, I'll jump on that. Certainly, I've taken advantage of the buy-online-pickup-in–store stuff from Target. Where a lot of times it's easier to compare online, you can get all the specs, and you can look at the measurements. Then once you're in the store, it's easy, if it's like, "Oh crap, this isn't what I wanted," you can easily return it and get a do-over.
One of the surprising players in this too is, don't forget about Home Depot and Lowe's who've seen a tremendous uptick in their online capability and continue to get more online traffic than ever before.
Jason Hall: Yeah, Home Depot's fantastic. Their omnichannel strategy might be the best in retail. They're really good.