TMX POV - The Growing Importance of Ecommerce; A Blessing in Disguise for Retail

In 2004, an Ottawa-based ecommerce startup launched a website called Snowdevils to sell snowboards. It then quickly became a platform where folks like you and I can create our own websites to sell stuff. Ten years later, the platform had 140,000 active stores, $3.5 billion in sales and became one of Canada's most innovative companies. In May of 2015, the once little startup out of Ottawa decided to go public. They raised $131 million at a value of $1.3 billion.

The company in question?

Shopify - and what is today one of Canada's largest publicly-traded companies on Toronto Stock Exchange (TSX), surpassing most of the big banks. Since then, the ecommerce space has not stayed quiet - in fact, it's been making a dent that is difficult not to take notice of.

For those wondering and who may not be as familiar with ecommerce; here we are referring to the buying and selling of goods and services online. Chances are you're doing a lot of this already - I know I am. Having moved to the U.S. a year ago, nearly everything I transact is done online; from hummus on Amazon Fresh to Web Design services on Fiverr. Ecommerce is all around us and has become more integral to our daily lives than we give it credit for.

Here are some cool facts about the subsector from Digital Commerce 360 to get you up to speed:

1. In 2020, consumers spent $861.12 billion online - the highest annual U.S. ecommerce growth in at least two decades. This represented 21.3% of total retail sales for the year (according to Digital Commerce 360). Amazon alone accounted for nearly a third of all ecommerce in the U.S.
   
   
   
   
   
2. COVID-19-related shopping resulted in an additional $174.87 billion in ecommerce revenue in 2020 - as the world translated fully to virtual-mode, the need for ecommerce platforms provided a strong convenience for at-home shoppers.
    
3. Online sales accounted for 101% of all gains in retail in 2020 - this is the first time in history that ecommerce sales accounted for all retail sales gains. The below chart comparing the growth between U.S. ecommerce vs. total retail sales says enough.
   
   

Similar trends can be spotted in Canada, one of the top 10 markets for ecommerce in the world.

A report by Group M found that online spending in Canada grew by more than 72.7% over the course of 2020, totalling $28.6 billion USD. To give you a comparison, that number was $16.6 billion in 2019.

Although Canada is still a smaller ecommerce nation than, say, the U.S. or China, it was the fastest growing market in Group M's study (which includes the U.S., China, the U.K., Japan, Germany and Australia). The study predicts that Canadians will spend even more online next year - with 2021 projections in the $40 billion range.

So, as you can see, the ecommerce market has come a long way since the birth of Shopify. With that market growth came a rise in new innovation and companies looking to tackle the expected US$6 trillion global market cap industry.

In 2020-21 alone, we saw four new ecommerce companies go public on TSX and TSX Venture Exchange (TSXV) (data provided via S&P Capital IQ as at February 23, 2021):

EMERGE Commerce (TSXV:ECOM)

• Acquires and operates ecommerce websites across North America; portfolio includes trulocal.ca, UnderPar.com, WagJag.com, etc.

WeCommerce Holdings (TSXV:WE)

• Operates as a holding company that owns a family of brands in the Shopify partner ecosystem; portfolio includes Pixel Union, Out of the Sandbox, Yopify, SuppleApps, etc.

Pivotree (TSXV:PVT)

• Provides services focused on the design, implementation, management and maintenance of complex ecommerce solutions for large enterprises worldwide.

Kits Eyecare (TSX:KITS)

• Operates a digital eyecare platform in the U.S. and Canada; offers contact lens products, glasses, sunglasses and virtual-try-on services.

So far, we've talked about the rise in Ecommerce and what that has looked like over the past couple of years, but haven't yet answered why. Here are two broader themes that may explain why Ecommerce is growing;

1. Adaptivity & Accessibility: think about it, with Amazon Prime Now, you can get access to tens of thousands of daily essentials and groceries delivered in 1 to 2 hours with a click of a button. Ecommerce offers 24/7 accessibility, all-year round, with no downtime for holidays, interruptions from bad weather, or frustrations from zero parking space. Users can buy and sell stuff at any time of the day from anywhere (so long as there's internet), using a computer, tablet, or phone - that is real accessibility. According to Oberlo, mobile commerce sales are projected to reach $3.56 trillion in 2021. And the growth of voice search is helping as well, Loop Ventures forecasts that 75% of U.S. households will own a smart speaker by 2025. This means that aside from just using phone, people are projected to shop more via voice (using Alexa as an example).
    
2. Tailored Experiences: Gartner predicted that 100 million customers will shop using Augmented Reality by 2020. An example of this is shopping via your favourite clothing store, using your phone to select outfits you want to try on and then standing in front of the camera to see how they would look on you without having to be at the store. Meanwhile, Artificial Intelligence is collecting lots of data on how customers shop, what they buy, how long they browse items, etc. - which leads to more personalized offerings that fit your profile (think Netflix's recommendations that appear at the top of your dashboard). One study published by BCG suggested that retailers who provide personalized capabilities for customers saw a 25% lift in revenues. This also addresses convenience for customers - making finding the right products easier therefore spending less time searching for or second-guessing their purchase.

And to bring this article full-circle, feel free to check out / listen to the podcast interview with Tobi Lutke, Shopify's CEO & Founder, on Tim Ferriss's show titled "From Snowboard Shop to Billion Dollar Company." It dives into the full journey of the company's growth, from startup to a multinational e-commerce giant.

Copyright © 2021 TSX Inc. All rights reserved. Do not copy, distribute, sell or modify this article without TSX Inc.'s prior written consent. This information is provided for information purposes only. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this article, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This article is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. TMX Group and its affiliated companies do not endorse or recommend any securities referenced in this publication. TMX, the TMX design, The Future is Yours to See., Toronto Stock Exchange, TSX, and Voir le futur. Réaliser l'avenir. are the trademarks of TSX Inc. All other trademarks used in this article are the property of their respective owners.