The coronavirus will provide a long-term boost for online retailers—if they can stay in business during what will likely be a rocky economy, say three investment professionals who specialize in evaluating the financial prospects of online retailers and other direct-to-consumer brands.
Threats include Amazon seizing the pandemic as an opportunity to take more market share, while the opportunity includes the possibility that the coronavirus will still be a factor during the 2020 holiday season, pushing more consumers to shop online.
“Ecommerce is better off because stores are closing and people are at home playing on the internet,” says Stuart Rose, a partner at investment bank Mirus Capital Advisers who has decades of experience managing mergers and acquisitions of direct retailers.
However, Rose adds that layoffs and a fast-dropping stock market could minimize short-term sales gains, especially for discretionary items. “The question becomes how employment, income and the wealth effect play into all of this: If you lose 30% of your 401K, you might not want to buy that extra sweater or other non-essentials,” Rose says.
In the long term, online shopping will get a boost from the lifestyle changes being forced on consumers because of the coronavirus, says Amish Jani, a partner at venture capital firm FirstMark, which has invested in several direct-to-consumer retailers.
“There are going to be people who thought, ‘I could never not touch an apple before I put in my basket’ who now have been forced to use FreshDirect or AmazonFresh and have now said, ‘That’s a pretty convenient experience. I might do that more.’ Or who have bought meal kits to make home-cooked meals and thought, ‘That’s a much better experience than I would have thought, and I waste less.’” Jani adds, “This is a forced way to retrain a broad swath of consumers.”
As evidence of the boost to meal-kit retailers, Jani notes that Blue Apron Inc.’s stock price has increased about five times in the past week.
Other retailers selling food and household staples will benefit, and not just this week, he says. “It will be a net positive for all digital commerce, especially grocery and household supplies and things like that,” Jani says. “You’ll see a bump from this and that behavior will persist going forward.”
Online grocery retailer FreshDirect LLC is No. 92 in the 2019 Digital Commerce 360 Top 1000. Amazon.com Inc., which operates the AmazonFresh grocery-delivery service, is No. 1. Blue Apron is No. 92.
Amazon goes on a buying spree
“Yes, ecommerce will benefit in the longer term, “but the longer term could be 2021,” says Eric Roth, managing director, consumer, at private equity firm MidOcean Partners, who specializes in deals involving online retailers. “Meanwhile,” Roth says, “a lot of smaller guys are going to go out of business.”
One problem online retailers face is sourcing supplies, given the widespread factory closings in China, where many online retailers buy their merchandise, Roth says. “If you were shut off for 6 weeks, you can’t just catch up that supply,” he says.
Another challenge e-retailers face is that Amazon appears intent on taking advantage of the closing of many bricks-and-mortar stores to increase its already-dominant online market share, Roth says. To do that, he says, it’s placing orders for all kinds of merchandise—not just hand sanitizers and bleach—in a bid to garner sales from consumers unable or unwilling to go to physical stores.
He says Amazon has placed “massive orders” with two companies he’s in touch with that sell goods not related to healthcare or cleanliness, Roth says.
“That tells me Amazon is saying, ‘If we have the supply, we’re going to get the sales,’” he says. “Amazon is going to look at this as an opportunity to take share.” He declined to name the companies receiving the orders from Amazon.
Amazon did not immediately respond to a request for comment.
Will the coronavirus impact the holiday season?
Online retailers may have another edge during the holiday season, Roth says, if the coronavirus follows the normal trajectory of the flu and dissipates during the summer but returns in the fall. That could cause consumers again to shun stores during the upcoming holiday season. “Consumers will wonder, ‘Should I go to the mall, what if there is something there?’” Roth says. Instead of going to the mall, many shoppers may choose to buy their gifts online.
Meanwhile, Roth says online grocery sales are likely to “explode,” and he foresees especially strong sales for online sellers of beer, wine and liquor. “The direct-to-consumer wine and spirits business? I’d like to be there today and for the next 12 months,” he says. “The only question is, can they get the supply?”