As America shifts to a mobile environment, and the convenience of online shopping becomes evident to all, the opportunity to invest in this ever growing market should not be passed up. E-commerce sales in the United States are expected to grow at a compound annual growth rate of 10% in the next five years, according to a new report from Forrester Research. So where is the best place to get in on this growing trend?
The big dog
The obvious name that is synonymous with online retailing is Amazon.com, Inc. (NASDAQ:AMZN). Amazon recently reported its best holiday season ever in 2012, selling 26.5 million products around the world, equivalent to 306 items per second. Their share price reflects this, trading at a ridiculous premium to their -$0.09 EPS in 2012. Amazon’s profit margin has been sinking and came in for Q4 of 2012 at 0.46%, that is terrible and their biggest problem. The current focus is more on cash flow, market share, and customer base. Management believes if they continue to grow those now, the profits will come bigger and better later in the company’s life. If Amazon.com, Inc. (NASDAQ:AMZN) can continue to drive their Prime membership numbers up, (12% profit margin) profitability could improve much faster. Amazon is projected to have massive growth with projected EPS of $1.48 in 2013 and $3.60 in 2014. Over half of Amazon’s users visited the site from a mobile device, and 27% used mobile exclusively. Amazon is the clear current leader in the field, but time will tell if they can bring success out of a massive customer base.
The challenger
Wal-Mart Stores, Inc. (NYSE:WMT) arrived to the e-commerce scene a bit later than Amazon, but with their massive market cap they are looking to carve out a bigger space and challenge Amazon.com, Inc. (NASDAQ:AMZN). Recently, Wal-Mart has announced that they will be testing in store lockers for online orders where customers do not need to interact with a sales associate. I like the idea because most people have a Wal-Mart close by and would be willing to pick an item up while they are out to avoid a shipping charge. On Wal-Mart Stores, Inc. (NYSE:WMT)’s end it draws people into the store and odds are they will buy something else they need even if it is just a gallon of milk.
Mobile devices currently attract a third of Wal-Mart’s customers and it comes as no surprise they are planning on improving their mobile interface. Ideas include letting customers scan and track what they’re buying as they walk through a store, browse coupons, and transfer the list of items scanned from a mobile phone to a self-checkout machine with just a few clicks — without removing anything from the physical cart. Wal-Mart Stores, Inc. (NYSE:WMT) purchased 10,000 additional self checkout machines this year and according to Shannon Letts, vice president for U.S. innovations the number of stores with self-checkout capabilities will be increased to 3,000 from 1,800. Wal-Mart is attempting to avoid what most brick and mortar stores have already become – a showroom. With their reputation for low prices, and newly announced connections between their e-commerece strategy and stores I believe they will succeed.
A smaller play
Almost every clothing store has an online marketplace, some more successful than others. One of the first of these companies to form an online presence was Nordstrom, Inc. (NYSE:JWN) through the releasing of their app. Recently Nordstrom has announced they will invest nearly $1 billion over the next five years on their e-commerce capacity. As a web designer I am impressed by their sites navigation and layout. It’s very clean and easily magnifies their products. They also proudly display their “Free Shipping. Free Returns” motto.
Nordstrom has also seen that America’s younger audience is not willing to pay the high luxury prices for a lot of their products, and in turn have introduced Nordstrom Rack which offers similar products for 60% of the price. Nordstrom Rack is expanding through their online presence and also adding physical stores. This year Nordstrom also improved their Fashion Rewards program, in a attempt to make it more customer friendly. It paid off as sales from Fashion Rewards members increased over 23% as cardholders increased spending. With a healthy 7.67% profit margin in their last quarter I feel Nordstrom will have success in the years to come as they continue to improve many areas of their company.
Personally I feel Amazon.com, Inc. (NASDAQ:AMZN) has been bought into a little to much at the moment, and find the current valuations of Wal-Mart Stores, Inc. (NYSE:WMT) and Nordstrom to be more appealing. Others will argue that Amazon is going to the moon and there is no stopping them. Either way these three companies are all a part of the fast-growing online marketplace, and even it is not one of these stocks all investors should find a spot in their portfolio to make a play on e-commerce.
The article Who Will Have Online Success? originally appeared on Fool.com and is written by Grant Hosticka.
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