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‘Twas the week before Christmas, and all through the Amazon house, every creature is stirring, especially those buzzing elves….’
The stakes are high this year, even higher than Santa’s sleigh and those 8 tiny reindeer.
Never before have we ordered TRILLIONS worth of presents to go to BILLIONS of homes without transporting much of anything ourselves.
“An estimated 3 billion packages will course through the U.S shipping infrastructure — 800 million more than delivered last year.”
Clearly, there’s going to be some hiccups during this E-Commerce ‘Amazing Race.’
But, since necessity is the birthplace of innovation, I believe there will be game-changing technological leaps made under this much pressure.
In fact, it’s already happening.
Toto, we're not in Kansas anymore.
Last week, I was invited on a private Zoom with heavy-hitters courtesy of NEXT Canada. Guest speaker was Jon Rubinstein, lead Independent Director at Amazon & former CEO of Bridgewater, the largest hedge fund in the world.
Attendees were CEOs of Canada’s largest pension funds and corporations.
“We have compressed 10 years of digitization in less than 5 months (due to COVID). Look at the ‘lip’ on this chart. We’ve gone from 10% to 20% in the blink of an eye.”-Ajay Agrawal
But, it’s not just E-Commerce that’s undergoing a rapid shift, it’s the digitization of everything.
This chart is a proxy for ‘E-Health, E-Banking, E-Education’
I joke with my friend who’s taking his company public tomorrow under the ticker ‘ECOM.’
“You know they are going to drop the ‘E’ soon, right? That’s where this is all headed. Entirely online.”
He says "Absolutely, you shop for groceries online for the first time, and it works like magic, there's no turning back.”
This sea change will kill a lot of companies but enrich many more.
Let’s dive into E-Commerce and how we can profit from the 3 big changes I am seeing:
PHYSICAL: Ghost Malls & Robotic Arms
No one wants to drive to a giant concrete box with no windows in the suburbs.
Even pre-COVID malls were dying.
20% closures in the last 5 years. Another +30% expected in the next 5 years.
Personally, I think it will be much more.
“To thrive in the digital age, traditional retailers and malls face a reinvent-or-die reality.”
In its place, “Experimental Shopping” & pop-ups are gaining traction.
In Toronto, Canada Goose built a room which mimics the visceral elements of winter. It snows and the floor cracks like ice. But, there is no inventory. Only a handful of samples to try on while you enjoy ordering a coat from your iPad.
In Las Vegas, an ‘immersive bazaar’ mall called AREA15 just opened. It’s like Burning Man but wired by Silicon Valley. Your senses are firing and so is your credit card!
In Durham, a mega-popular +$800/night treehouse has been turned into a living and breathing e-commerce store with +4MM social media visitors a month. Everything in the treehouse is for sale!
The common theme: experience items in real life but leave the heavy lifting to the supply chain instead of your car.
This is causing a surge in shipping, logistics and a MOUNTAIN of packages.
I saw this evolve first-hand during my morning chats with my favourite concierge, Shallun. It became harder and harder to have an interrupted talk without FedEX or UPS buzzing in. Or his desk getting so swamped with packages I could barely see his face.
As such, I started paying attention to all the cool and weird tech trying to solve these logistics problems:
Smart Parcel Lockers. These have popped up all around my neighbourhood over the last few years. It’s now a multi-billion-dollar business.
Drone Delivery. Just passed a key FAA hurdle. Cat food and toothpaste coming to a condo window near you!
Ghost Malls & Dead Office Space. Converting to Amazon & Shopify fulfilment centres & offices. This may also happen with bankrupt movie theatres!
Recently during COVID, NYC proposed surcharges on packages and robotic arms in fulfilment centres has gone up 30x.
But the craziest changes I have seen are not physical – they are digital!
DIGITAL: “Live, Social, and Shoppable”
Newspapers are on life support and cable TV is a living fossil.
2019 was a watershed moment when digital advertising overtook traditional channels.
Within 4 years, digital will make up 2/3 of ad dollars.
Revenues are being eaten alive by kids with iPhones selling billions for brands off 15-second videos.
Social media content is unbeatable – interactive, shareable, highly addicting & incessant – allowing it to take on a virality never seen before.
Headlines like these are minute-by-minute occurrences: “These ‘Butt-Lift’ Leggings Have Gone Viral on TikTok — and They’re Just $22 on Amazon!”
There are even bigger jaw-dropping changes in digital shopping happening in China that will soon come to North America.
JD.com, a top popular shopping website with $80B in revenue, uses ‘Video E-Commerce’ – like the Shopping Network but on steroids!
“In this app, you can see a celebrity hosting a video marathon. Imagine Bono or Beyonce doing QVC, but doing it in an interactive way where they can answer questions directly, where shoppers can ‘heart’ and show feedback, and where browsers can claim different offers.” -Andressen Horowitz
Pinduoduo is another company that’s growing quickly due to functions like ‘Group Buying’ where more people buying a product leads to a lower price.
And the devil is the data.
Those who own it will thrive, does who don’t will be enslaved.
COVID was a wakeup call for many companies. With stores shuttered, their ONLY channel was digital. Many realized they were overly dependent on Amazon, their customers and data hostage to Bezos.
Which is why, in E-Commerce 3.0, you see companies revert back to a ‘Direct to Customer’ relationship, where they control the narrative and the entire customer journey.
E-Commerce 1.0: Set up a website to showcase your product.
E-Commerce 2.0: Sell your product through the largest digital mall in the world: Amazon.
E-Commerce 3.0: Sell your product through a “Direct to Customer” relationship.
Shopify has emerged as that solution. Dubbed the “Anti-Amazon,” stores created on their platform jumped 71% during COVID.
“Amazon is trying to build an empire. Shopify is trying to arm the rebels.” -Tobi Lutke, Founder & CEO Shopify
The data is enabling companies to make extremely precise decisions on spending, advertising, products etc. Every cent is measurable.
But, it’s also unlocking financial tools and pools of capital previously unavailable.
Take Clearbanc for example, it’s a fintech which allows E-Commerce businesses to connect their bank account & online store and qualify for financing instantaneously. The money is used to run advertising campaigns on Facebook & other social media sites to drive sales.
“Equity is the most expensive way to fund digital ad spend and repeatable growth. So we created something new.” – Michele Romanow, Co-Founder & President, Clearbanc
Originally laughed off Wall Street, they’ve now funded $1B and +3k companies and a spawned many copy cats:
Walmart partnered with Goldman Sachs to offer financing to their marketplace sellers
Shopify Capital launched in Canada to provide small business loans to merchants
Lightspeed partnered with Stripe to offer capital to their retailers
Andreessen Horowitz, the smartest VC in the world, recently wrote, “Incorporating FinTech capabilities into existing business models can increase revenue per user by 2 to 5x.”
Someday every company will be a FinTech company (in some way)!
How is Grit Playing it?
I still remember attending the Shopify IPO lunch at the King Edward hotel in Toronto in 2015. Something special was in the air. Five years later, a guy who had perfected selling snowboards online would become a juggernaut bigger than RBC!
You are likely already long $SHOP. So, here are some other ways to play the E-Commerce theme:
Shipping & Logistics
Descartes (DSG-T, $6B): I have owned this one for ~10 years. World’s largest multi-modal logistics network. They power FedEX, American Airlines, Home Depot and thousands more. Every time a package ships from point A to point B, they make money. Add on the complexity of customs and they make even more money.
Kinaxis (KXS, $4.7B): Owned this one for +5 years. In a nutshell, they add ‘digital’ WD40 lubricating your entire supply chain. It’s like moving from dial-up modem to 5G using Kinxasis. They cut down on delivery time, increase efficiency, use predictive data for better purchasing decisions.
A new portfolio manager friend told me about this obscure stock (it’s one of his largest positions now). I am going to buy some this week. Richard Packaging Income Fund (RPI.UN-T, $700MM) Riding the E-Commerce & COVID waves simultaneously. 3rd largest packaging distributor in North America. Backed by private equity. Only major player with a healthcare focus. Pristine balance sheet with minimal leverage and virtually zero equity dilution since IPO in 2004. Growing nicely organically & through progressively larger acquisitions.
Play on growing E-Commerce but also eventual economic recovery. For months, I have been picking away at Air Canada (AC-T), Chorus Aviation (CHR-T) & Cargo Jet (CJT-T) – more recently I have added American Airlines (AAL-US).
WPT Industrial Real Estate Investment Trust (WIR.U-T, $1.1B) Super boring name for boring business with unboring growth. I started buying this year. They own +100 distribution & logistics centres throughout the U.S. Their tenants are Amazon, FedEX, IKEA etc. Smart money has been selling commercial REITs (in trouble because of COVID) and buying industrial REITs. Now seen as safer yield with growth!
Don’t forget to follow me on Twitter. Where I give daily insights on stocks.
Until next time. Always Yours. Incessantly Chasing ROI,
-Genevieve Roch-Decter, CFA
P.S A company older than your grandmother & great grandmother invested $100MM in bitcoin this week. Would you call 169-year-old Mass Mutual an early but senior adopter? 🤷♀️
What else we Grittin’ On:
Rock On’. Bob Dylan sells rights to all his songs for $300MM. I’ve seen cool music royalty funds pop-up recently as alternative income investments.
OnlyFans. Billion-dollar media giant hiding in plain sight. nnstagram but with a paywall (mostly for porn). I would like to do this for investing & deals. Calling it OnlyStocks.
‘Great Wall’ of (Chinese) Debt. “We have never seen an economy of this size being so levered. Matter of fact, the world has never been so levered.” China banking assets hits new high at 330% of GDP.
Party Like It’s 1999. Nothing stands out from the number of IPOs that have doubled on day one👇
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