The surge in popularity for shopping online creates a wealth of opportunities for investors wanting exposure to the global revolution of the retail industry. There are a large number of companies whose shares trade on the London Stock Exchange which either sell goods online or deliver the goods to the end customer, writes Daniel Coatsworth, editor of SHARES magazine.
The statistics highlighting the rise of e-commerce in the UK are astonishing. Nearly one in four UK households now buy groceries online, spending more than four times as much per trip than in a physical store, according to Kantar Worldpanel. Twenty years ago, online supermarket Ocado didn't exist; today is it worth more than £2bn.
The broader retail industry is also enjoying a surge in demand for orders placed via computers, mobile phones or tablet devices. IMRG Capgemini's E-retail Sales Index shows that UK online retail sales grew by 12 per cent year on year in July 2015.
IMRG says this if this trend is maintained, UK retailers will send over 1 billion orders through UK parcels this year, the first time such a milestone will have been reached.
One of the best performing stocks on the UK market tied to this trend is Clipper Logistics. Its share price has increased by more than 150 per cent since its IPO (initial public offering) in June 2014, helped by growing awareness among investors of the company's impressive client list.
This is not simply a parcel delivery company. Clipper Logistics specialises in retail support services, principally handling the movement of clothes being delivered to customers of big fashion brands. There is a good chance that when you make an online order with the likes of ASOS, Zara and New Look, the whole process will be managed by Clipper.
What makes the stock even more interesting is that it handles items being returned as well as goods ordered through click and collect, which is the fast-growing concept of people ordering online and picking up from their local store. Clients in this space include John Lewis and Waitrose.
Many online-only brands are using click and collect as a way of strengthening relationships with customers. For example, Argos stores are being used as collection hubs for people using auction website Ebay and ASOS has a pilot with Boots stores in London.
Analysts at RBC Capital Markets are getting excited about ASOS’s opportunities with click and collect, later cut-off times for orders and the potential roll-out of a loyalty scheme. They believe ASOS is one of the best-placed among its peer groups to benefit from the growing penetration in online sales “owing to its best-in-class technological capabilities and leading delivery proposition.”
Helping the web giants
Even retail giant Amazon is making a big push with click and collect, having partnered with local shops, Co-op supermarkets and lots of shopping centres which house its collection lockers. Part of this service includes a same-day parcel click and collect facility which is powered by Connect, a UK-listed stock previously known as Smiths News.
Connect has slowly shifted its business from magazine and newspaper distribution to also include education supplies, books and more recently irregular dimension and weight freight and parcel consignments. The latter has been made possible through 2014’s acquisition of Tuffnells Parcels, owner of the green vans which you have no doubt seen racing up and down Britain’s roads.
Parcels have also been crucial to the success of Royal Mail which continues to battle a decline in letters as most people now prefer to communicate via email or text message. A push on improving operational efficiencies and slashing costs across the group is so far working, with the group reporting £740m operating profit for the financial year to 29 March 2015.
The privatised delivery group has a large number of retail investors who bought stock at its IPO in October 2013 at 330p. The shares initially shot up in value, peaking at 600p in February 2014 but have since pulled back below 500p due to market concerns about growing competition and the threat of a price cap being imposed by regulator Ofcom. However, it is worth noting that the price-regulated part of the business only represents 5 per cent of group revenues.
For a different way of playing the e-commerce boom, why not consider the food takeaway market? A clear winner of this trend is Domino's Pizza. The company that owns the master franchise to the UK and Ireland markets trades on the London stock market and said 77 per cent of its delivered sales in these regions in the first six months of 2015 came from online orders, up from 69.7 per cent a year earlier.
Domino’s says digital channels offer a number of benefits for both the customer and its franchisees. “From a consumer perspective, orders are more accurate and offers more easily accessed, ensuring that they get the best value,” it says. Franchisees benefit through store labour efficiencies and being better able to target local marketing campaigns.
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