How companies and investors can position for a '10-year' ecommerce tailwind

COVID-19 has completely revamped the landscape for online sales, but industry players say there’s still plenty of time to get a slice of the growing ecommerce pie.

A number of ASX players tied to the broader ecommerce wave have already posted outsized gains over the last few months. And looking ahead, investors are now reassessing how to position for what looks like an accelerating long-term trend.

For Domm Holland, co-founder and CEO at San Francisco-based payments company Fast, “there’s no denying COVID-19 has rapidly expanded the typical ecommerce market”.

“One way I’d describe it is now the way to buy things is primarily online, whereas the internet used to be the secondary way of buying things. But when everyone was locked in their house it became the primary channel, and stores have become secondary,” Holland told Stockhead.

“Of course we’ve had some record breaking months with people being required to buy everything online. But it’s also happened in the midst of a lot of economic instability.”

“So I think we’re going to continue to see record months as more spending shifts online permanently in the wake of that disruption.”

Holland founded Fast to address the bottlenecks associated with online checkout procedures. The company offers a one-click checkout solution that customers can use for any website integrated with a Fast button.

In early March it got a vote of confidence from $US36bn ($50bn) US payments company Stripe, which made a $US20m investment to finance development of one-click checkout technology to compete against incumbent online players with vertically integrated payment systems.

Industry reversal

In assessing the long-term trend, Holland said the shift would manifest as something of a role reversal from the current paradigm, where traditional retailers use online to complement their bricks and mortar offering.

“I think over the next 10 years, physical retail is going to become more of a boutique add-on to ecommerce,” he said.

“It will be an interesting way to demo products to people that you’re going to sell online, as opposed to the primary channel.

“If you look over the last 10 years we’ve seen more and more retail closures. With the instability of a pandemic over the top, I can’t see any large companies racing to open retail locations.”

Holland said consumers would continue to shift online and sectors that would perform well were ecommerce, fintech and physical logistics.

“Those are the sectors that will perform really strongly over the next 10 years,” he said.

“In my opinion I can’t overstate how bullish people can be on ecommerce, because that sector is only going to continue to increase.”

ASX leaders

Turning to the local market, Holland highlighted that retail success stories in recent years had all been companies that executed on a first-mover advantage tied to the online shift.

But he added that investors should be on the lookout for all companies building a viable business model based on the broader ecommerce trend.

“If you look at Kogan.com (ASX:KGN) and Temple & Webster (ASX:TPW), they’re both digitally native businesses,” Holland said. “No bricks and mortar, this is what they do.

“KGN built its own platforms for simple purchases with a large brand and the infrastructure to transact easily, and then found more things to sell into that audience.

“TPW have kind of done the opposite, they started with multiple brands and are now focused in on one brand and that’s worked well for them.”

Holland also pointed to meals provider Marley Spoon (ASX:MMM), which has seen its share price climb by around 1,000 per cent since March, as a key beneficiary of the COVID-19 tailwind.

And he added the outsized success of the listed BNPL cohort is because they were tied into that broader trend.

“They’re helping ecommerce companies transact online, so it’s a good example of how fintech companies with infrastructure solutions can benefit from the shift to pure-play ecommerce,” Holland explained.

Keep it simple

In that context, Holland said Fast’s offering was tied to the broader opportunity around ecommerce infrastructure — specifically the checkout process.

“In simple terms a business really lives or dies by how many people will complete the checkout. Everything else is important — you need to present products well, and execute on a customer acquisition strategy,” he said.

“But all that boils down to how many people will actually buy their product. The reality is that process is critically important for an online business, but it’s typically the worst part of experience for buyers.”

Holland said the challenge was to make it as easy as possible, and enterprise businesses were typically the worst at that.

“They’ve got legacy infrastructure from investing in bricks mortar, and now they have to reinvent themselves online,” he said.

“In our view, checkout is the best place they can do it. What we offer is a one-click solution, and I think over time that will become the essence of how to conduct commerce online.”