Digital trending, with even more growth on the horizon
This content was paid for and produced by AXA IM in partnership with the Commercial Department of the Financial Times
Shifts in consumer behaviour and online retail highlight certain trends are here to stay
Last year PayPal enjoyed the most successful 12 months in its 22-year history. With total volume surging 31 per cent to $936bn, the California-based online payments company also added 73m net new accounts — almost double the previous year’s number.
“Calling 2020 a “historic year”, Dan Schulman, PayPal’s president and chief executive officer, observed that “businesses of all sizes have digitised in the wake of the pandemic.”
The Covid-19 outbreak has accelerated the adoption of online purchases all around the world, consolidating the habits of existing online consumers, adding millions of converts and speeding up a structural shift that stands to drive the evolving economy for years to come.
“Jeremy Gleeson, Lead Portfolio Manager of AXA Investment Managers' (AXA IM) Digital Economy strategy, says: “It isn’t just a pull-forward of opportunity. It’s also an expansion of the opportunity.”
By 2023 global online sales are forecast to reach $6.54tn US, nearly double the $3.53tn they notched up in 2019. Yet only 13 per cent of retail transactions are currently carried out online — a figure that underlines the size of opportunity that awaits.1
China shows the way
The shift towards the connected consumer is most evident in China, home to what McKinsey describes as consumers who are “remarkably resilient and remain a powerful, transformative force not just in China but also across the globe”.2
Meituan is China’s biggest platform for lifestyle services and products, backed by Tencent, the Chinese technology conglomerate.* It runs an app that lets users orders a range of services — anything from meal delivery to hotel and restaurant bookings.
The company is also a big player in what is fast becoming an established niche in the country’s growing e-commerce market: community group buying, where people group together to buy food and household goods at lower prices than they would be able to achieve as individuals.3
Meituan is even building up its logistics network as it expands into more Chinese cities and counties. Last summer, the company launched a new venture aimed at bringing next-day shipping of cheap fruit to some of the country’s more remote towns and cities.4
The growth of e-commerce is creating huge demand for new types of supporting infrastructure and services. Companies such as Prologis, the logistics and warehousing giant, are providing smaller businesses with more — and often cheaper — storage facilities for online trade by using economies of scale.
Their state-of-the-art warehouses, located in city outskirts and close to transport hubs, are specifically designed for online trade; Prologis says that e-commerce requires three times more space than traditional retail operations and facilities that can cater to a greater number of vehicle sizes.5
As e-commerce accelerates, social media has become the main channel through which to interact with new and existing users — and in particular with Gen Z, the generation born between 1997 and 2012 who are considered true digital natives.
Gleeson argues that social media’s particular strong point is its ability to offer businesses highly effective advertising. For one thing, he says, using social media as an advertising platform allows retailers to target their audience by demographics, geography and a host of other parameters.
Click-through rates provide businesses with instant data to analyse the effectiveness of their advertising strategy and investment. Social media tracking allows retailers to directly monitor the performance of their advertising and shift it to where it performs best.
“It’s been a game changer for retail, especially for smaller businesses, because they can see the direct impact of their advertising budgets,” Gleeson says. “You no longer have to be the biggest spender in order to get good returns on your budget.”
Small and medium-sized enterprises are also turning to companies such as HubSpot, a customer relationship management platform that helps businesses to scale.* Whether it is through blogs, YouTube content or an Instagram profile, HubSpot’s software helps companies manage their marketing and sales.
In a digital-first world, everything has to appear seamless, but big businesses have to think about their digital storefronts while small businesses may not have the know-how to put a digital strategy in place.
That is where companies such as Twilio come in.* Twilio’s cloud communications platform helps companies interact with their customers and provides tools that let developers add text messaging, voice and video calls, emails and other functions into its applications.
- ] https://www.mckinsey.com/featured-insights/china/china-consumer-report-2020-the-many-faces-of-the-chinese-consumer
- ] https://www.wsj.com/articles/groceries-help-meituan-grow-into-one-of-chinas-biggest-tech-companies-11612348203
Step back, argues Gleeson of AXA IM, and the picture that emerges is one of technological progress linking important parts of the connected-consumer universe for the first time — and in ways that spell a seismic shift in the evolving economy.
“Many of these trends were already in play prior to 2020,” he says. “But they have accelerated and deepened as a result of the pandemic.”
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