Don't call it a comeback, but e-commerce is on the upswing again. After peaking in the early days of the pandemic lockdowns, the proportion of overall retail sales that occurred online shrank for much of the next two years. This shift surprised many e-commerce specialists, whose executives had predicted a new normal had been established for online shopping.
That didn't happen, but the e-commerce rate did rise for a second straight time this past quarter, according to the latest government statistics, improving to 15.4% of all retail sales from 15.1% in the prior quarter. The peak e-commerce figure of 16.5% occurred in mid-2020, and the lowest point since the pandemic was 14.4% in mid-2022.
Most retailing businesses have a digital component that will benefit from this return to growth. But below, I'll highlight two companies that seem ideally positioned to capitalize on the rebound. Read on for some good reasons to like Amazon (AMZN 3.43%) and Lululemon Athletica (LULU 1.31%) right now.
1. Amazon
Amazon proved in its most recent earnings report that it doesn't need a lot of growth in its e-commerce business to achieve strong overall results. Booming demand in its services segment, which accounted for 56% of the business last quarter, helped lift sales 11% to $134 billion in the second quarter.
Amazon generated excellent cash flow from that result, too, in part thanks to the cost cuts that management has been rolling out for the last year. Operating cash flow over the 12 months is up to $62 billion, compared with $36 billion a year earlier.
AMZN free cash flow data by YCharts.
Many investors are rightly excited about Amazon's growth potential in areas like its cloud services platform. But its more-efficient fulfilment network promises to deliver higher profits and cash flow as e-commerce rates begin steadily rising again, as they have for most of the past few decades.
And with both business segments on the upswing, shareholders could see some impressive financial wins from Amazon over the next several years.
2. Lululemon
Direct e-commerce sales peaked at around 50% of Lululemon Athletica's business during the pandemic, and the segment now accounts for 42% of sales. There's every reason to expect the athleisure retailer to set new records in this arena over time, though, as that industry expands.
That's great news for the business, because direct e-commerce sales are more profitable and help establish enduring relationships with customers. Its success here helps explain how it could boost gross profit margin to a blazing 57% of sales in the latest quarter. Compare that with Nike's 44% rate for context. And Lululemon is highly profitable on the bottom line, too, as operating income is currently just above 20% of sales.
The company is due to report second-quarter results in late August, and most Wall Street pros are expecting to see sales rise by about 16% in that announcement. Lululemon might update its fiscal 2023 outlook as well, which currently calls for sales to reach as high as $9.5 billion versus last year's $8.1 billion.
Higher demand for e-commerce might speed along the retailer's movement toward $10 billion in annual revenue. But its push into new demographics, new markets, and new product categories should ensure that there's plenty more growth to come over the next several years.
