Online retail giants Amazon and Walmart recently reported slower ecommerce sales growth as vaccination rates rose and consumers felt more comfortable shopping at brick and mortar retail stores. US retail sales data, reported last week, show a drop off in overall ecommerce sales as well.
That slowdown can also be chalked up to tough comparisons against abnormally high online sales volume experienced last year during the height of COVID-induced lockdowns – a record level of growth that will be hard to match in the future. However, investment in ecommerce has not stalled and social media applications have proven to be a powerful booster for online sales. eCommerce remains a key component of every major retailer’s future and, if the delta variant continues to raise the number of new coronavirus cases, online retail sales could be in for a strong rebound from a slower second quarter.
Related ETFs: ProShares Long Online/Short Stores ETF (CLIX), ProShares Online Retail ETF (ONLN), Global X Social Media ETF (SOCL)
eCommerce Growth Shows Signs of Slowing
US retail sales fell 1.1% in the month of July, led by a significant 3.1% drop in ecommerce sales. While TradingEconomics partially attributes the decline to Amazon moving their prime day to June instead of July, that only tells part of the story. Additional retailers have noted their sales growth in ecommerce channels has stalled over the last month as consumers began returning to stores.
In Walmart’s latest earnings report, the second largest US online retailer stated in store transactions were up 6.1% in the quarter, a significant reversal from a year earlier when online sales dominated. The Wall Street Journal writes that Walmart’s online sales rose 37% in the first quarter of this year, but only grew 6% in the most recent quarter.
Amazon also reported that their ecommerce sales slowed to a 16% YoY growth rate in the second quarter. That figure is below the higher double-digit growth rate the company saw throughout the pandemic and is even more disappointing when you take into account Amazon’s annual Prime Day was during this quarter.
UBS analysts reported that overall non-store sales, primarily comprised of ecommerce, grew 12% in the second quarter, following sales growth of 26% over the previous four quarters. Not only have rising confidence vaccination rates helped spur consumers to return to stores, but the slowdown can be attributed to a summer season when consumers focus on leisure activities and travel, according to MarketWatch.
Similarly, it’s likely that the last year’s record-breaking ecommerce growth could be a detriment to online retailers this year, as the surge in online sales during the pandemic reached a level that companies will have a hard time replicating.
However, even if the pandemic highs are out of reach in the short-term, long-term trends for online retail should remain in-tact, as investment is still climbing, and further pandemic disruptions could boost online retail through the end of 2021 during holiday shopping season.
MRP noticed early this year that a re-opening of the economy, following massive declines in retail foot traffic throughout 2020, would begin to swing the pendulum back toward strength in brick and mortar stores. As such, we suspended our LONG eCommerce & SHORT Brick and Mortar Retail theme (Clicks vs Bricks 2.0) on January 29, 2021.
Over the life of that theme, which we added to our active list on April 20, 2020, the ProShares Long Online/Short Stores ETF (CLIX) returned 46%, outperforming the S&P 500 return of 31% over the same period. Since we closed that theme, the CLIX has tumbled more than 25%, demonstrating a weakening of ecommerce growth.
Online Retail Still Poised For Long-Term Growth
A temporary slowdown in online sales has adversely affected valuations among top ecommerce firms, but it is unlikely to reverse the long-term downward trajectory of foot traffic…
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