According to a presentation by ComScore on August 14, the channel shift to online in the US appears to be accelerating as online sales increased by +15% YoY in Q2, while on a comparable category basis, offline sales increased only 2%. US Retail e-Commerce in 2Q12 saw an increase in every key metric, including dollars per buyer, total buyers & transactions per buyer when compared to 2Q11. Furthermore, all significant product categories showed a minimum of 10% growth as digital content and consumer electronics showed the highest growth.
Online Ecommerce Key Metrics| Source: ComScore
With such astonishing growth in the online retail segment many traditional retail companies like Wal-mart (NYSE:WMT) and Best Buy (NYSE:BBY) are also bulging in to take a slice of the pie. While Amazon (NASDAQ:AMZN) remained as the segment leader in overall number of unique visitors in Q2, Apple (NASDAQ:AAPL) and Wal-Mart showed high YoY growth of 24% and 23% respectively in monthly unique visitors. We believe that this gain was mostly brought out by the increasing usage of Tablets and smartphones as customers are becoming more comfortable with ordering goods in the comfort of their homes. Free shipping is increasingly becoming a priority for internet shoppers as was validated by a survey by ComScore in July 2012. Although Amazon is the best player here also with its Amazon Prime platform, retailers like Wal-mart and Best Buy have started competing with Amazon as they are now providing customers with the functionality to order goods online and pick them up from store within a day at a selected location, forgoing shipping charges. Furthermore, Best Buy has also tried to stop the phenomenon of showrooming (where shoppers check out products in stores and then buy them at best prices through online retail sites) by changing the bar codes on its products with special codes so that they cannot be scanned and compared online. We believe that Amazon could see a growing problem as the offline retailers try to counter-sabotage Amazon’s business in the near term.
According to ComScore, Mobile and tablets accounted for 9% of all retail e-Commerce sales in Q2 with tablet owners being more engaged in comparison to the smartphones owners. When compared to the overall tablet market, iPad owners significantly over-performed Kindle Fire on every e-Commerce engagement metric, including purchasing items. We believe that the high consumer’s level of engagement on Apple devices could help Yelp (NASDAQ:YELP) and Opentable (NASDAQ:OPEN) to generate incremental usage through their integration in the Apple iO6 platform (like Twitter has seen after its Apple integration), when Apple launches its new line of products in September. We also see a revenue headwind for Google (NASDAQ:GOOG) as Yelp taking place in iO6 could negatively impact the traction of Google’s products like Google Places. The integration of Yelp in iO6 makes us a little positive about the stock and as we believe that the market sentiments could provide an upside to the stock in the near term and hence, we upgrade it to hold from our sell rating at the current prices.
Tablet Engagement Metrics| Source: ComScore
As Retail industry is getting increasingly competitive with every passing day, it is difficult to say who will be the king tomorrow. Going forward, we believe that Amazon’s business is not as stable as the market tends to believe. A small initiative by the offline retail megabrands could spell doom for it. With the clustering of so many players in the online retail, consumers are getting incremental choices to switch to. As retailers like Wal-mart and Best Buy have started offering their services online, Amazon could see a downfall in the sales of bulky goods that do not qualify for free shipping. Amazon at a high PE of 101.45 continues to baffle us and we are becoming increasingly bearish on Amazon by every passing day.
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