The Investment Case for Online Retail - Global Online Retail UCITS ETF | IBUY Written by EQM Indexes - HANetf
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The Investment Case for Online Retail Global Online Retail UCITS ETF | IBUY Written by EQM Indexes For professional clients only. Capital at risk. The content of this document does not constitute investment advice nor an offer for sale nor a solicitation to buy any product or make an investment. The content in this document is issued by HANetf Management Limited (“HML”) acting in its capacity as management company of HANetf ICAV. HML is authorised and regulated by the Central Bank of Ireland. HML is registered in Ireland with registration number 621172.
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Contents
03 Introduction
05 Online Retail Value Proposition
12 Investment Case for Online Retail
17 Global Online Retail UCITS ETF | IBUY
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Introduction
Online retail has permanently disrupted the Ever-increasing internet and mobile penetration
traditional brick-and-mortar store retail is one of the key drivers contributing to this
landscape as “clicks” have replaced “bricks.” growth, enabling more consumers to shop
According to research firm eMarketer, global online anywhere and anytime. New
ecommerce is expected to exceed $3.9 trillion technological innovations in electronic payment,
this year 1, providing online retailers fertile rapid delivery, artificial intelligence and voice-
ground to grow their business in this new era of assisted shopping, as well as virtual and
contactless shopping. In the United States, augmented reality continue to enhance the
ecommerce sales were projected to reach online shopping experience, further driving the
$794.5 billion in 2020, a 32.4% increase over expansion and growth of this investment theme.
2019, versus previous forecasts of 18% growth. 2
Additionally, due to the pandemic in 2020,
The global coronavirus pandemic accelerated
digital commerce added new shoppers that had
the pace of ecommerce growth in 2020,
not previously shopped online, fuelling new
propelling online sales to levels not previously
buying habits such as online grocery, which
expected until 2022—helping existing online
grew 43%. 3 This trend has accelerated
retailers expand their dominance in retail.
traditional retail’s woes, with 30 U.S. retailers
Value-added features such as competitive
filing for bankruptcy in 2020, on the heels of 17
pricing, shopping convenience, greater product
major retailer bankruptcies in 2019, pre-
selection and rapid delivery options have
pandemic. 4 Amid this marketplace evolution,
solidified online commerce as a disruptive
online retail has become a transformational and
technology that is here to stay.
dominant force in global retail.
1
Global Ecommerce 2020, eMarketer, June 22, 2020, https://www.emarketer.com/content/global-ecommerce-2020
2
US Ecommerce Growth Jumps to More than 30%, Accelerating Online Shopping Shift by Nearly 2 Years, eMarketer,
October 12, 2020, https://www.emarketer.com/content/us-ecommerce-growth-jumps-more-than-30-accelerating-online-
shopping-shift-by-nearly-2-years
3
Koetsier, John, 44% Of Global eCommerce Is Owned By 4 Chinese Companies, Forbes, October 21, 2020,
https://www.forbes.com/sites/johnkoetsier/2020/10/21/44-of-global-ecommerce-is-owned-by-4-chinese-
companies/?sh=547230a21645
4
The running list of 2020 retail bankruptcies, Retail Dive, September 14, 2020, https://www.retaildive.com/news/the-
running-list-of-2020-retail-bankruptcies/571159/
3
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A Brief History of Online Retail
Online commerce has permanently transformed Meanwhile in the United States, infomercials
the retail sector and the way consumers and (paid television advertisements) gained
businesses shop for everything—from books to popularity, paving the way for the first cable
office supplies, to shoes and furniture. But how home shopping channels. Finally, the internet
did it all begin? came along and changed the way we shop
forever.
The origins of online commerce pre-date the
internet age. Indeed, the first predecessor of See below a brief timeline highlighting some of
online commerce was the mail-order catalogue. the historical milestones that cleared the path
In the 1970s, protocols such as Electronic Data for modern day e-retail commerce:
Interchange (EDI) and Electronic Funds
Transfer (EFT) were created, providing the
infrastructure needed to support electronic
transactions. In 1979, the British inventor “The mall isn’t dead, it has
2
Michael Aldrich was credited with being the just moved online.”
official “inventor of ecommerce.” Aldrich
connected a television and a telephone line and – EQM Indexes
invented “teleshopping” or shopping at a
distance.
For illustrative purposes only
Source: EQM Indexes
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Online Retail
Value Proposition
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A number of key benefits serve as the driving forces behind the growth of ecommerce. These benefits
have proven to be valuable for businesses, consumers and society as a whole.
Business Consumer Society
Lower costs
associated with not Enhanced product
Less traffic and crowds
having a physical selection
presence
Price competition and
Automated inventory No geographic
democratization of
management sourcing boundaries
selection
Competitive pricing, Expanded access to
Customer analytics
virtual auctions rural areas
Convenience of
Shopping and delivery
Unlimited geographic shopping from
access for housebound
presence home/office/ mobile
consumers
device 24/7/365
Facilitated delivery of
Open for business Time savings for
public services, such as
consumers, one-stop
24/7/365 education and health
shopping
care
Reduced advertising Customer reviews and
Global in scope
and marketing costs social input
Source: EQM Indexes
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Growing Global Opportunity
Given the superior benefits online and virtual commerce provide, it is no wonder that this channel has
grown at a superior pace than traditional retail. U.S. ecommerce sales now represent 14.0% of total
retail sales, after declining slightly from its pandemic lockdown peak in the second quarter of 2020. 5
14% Percentage of U.S. retail sales
derived from online retail
18.0%
15.0%
12.0%
9.0%
6.0%
3.0%
0.0%
12/1999 12/2004 12/2009 12/2014 12/2019
For illustrative purposes only
Source: U.S. Department of Commerce Quarterly Retail Ecommerce Sales, 2nd Quarter 2020, reported
8/18/2020.
Globally, ecommerce is also growing at a rapid pace, with year-over-year percentage growth of 27.6% in
2020, with sales approaching $4.3 trillion in 2020, up from $3.3 trillion in 2019, according to eMarketer.
By 2022, it is forecasted that ecommerce’s percentage of total retail sales worldwide will surpass the
20% mark. 6
Global Retail Ecommerce Sales (US$ Trillions)
$6,000 Retail ecommerce sales 25.0%
$5,424
% of total retail sales $4,891
$5,000
20.0%
$4,280
$4,000
$3,354 15.0%
$3,000
10.0%
$2,000
5.0%
$1,000
$0 0.0%
2019 2020 2021 2022
For illustrative purposes only
Source: eMarketer, December 2020.
5
US Census Bureau, Quarterly Retail E-Commerce Sales 4th Quarter 2020, February 19, 2021,
https://www2.census.gov/retail/releases/historical/ecomm/20q4.pdf
6
Cramer-Flood, Ethan, Global Ecommerce Updated 2021, eMarketer, January 13, 2021,
https://www.emarketer.com/content/global-ecommerce-update-2021
7
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While U.S. online retail sales comprise only 14% John Lewis are some the U.K.’s biggest
of total retail sales, other large ecommerce ecommerce sites 9. Moreover, the country has
markets such as the United Kingdom and China one of the highest ecommerce sales
have a much higher proportion of online-to-total percentages at 30.9% of total retail sales in
retail sales. In addition to the U.S. market, here 2020.
are some of the other top global markets for
ecommerce: Japan – The fourth largest ecommerce player
in the world, Japan is the leading mobile
China – China is the world’s biggest commerce (m-commerce) player. Rakuten,
ecommerce market led by companies such as Mercari, and Yahoo! Japan are some of Japan’s
Alibaba Group and JD.com and sites such as leading ecommerce platforms. Annual online
Taobao, TMall and others, with retail sales are $141 billion, and it ranks among the
ecommerce sales penetration of 44.8% in fastest-growing globally, boosted by a
2020. 7 With an annual growth rate last year of developed economy, highly urbanized
27.5%, China’s ecommerce market is also one population, 93% internet penetration and
of the fastest growing. In 2020, driven by single-language culture. Japan’s ecommerce
popular sales events like Alibaba’s Singles Day, businesses also benefit from the small country
the world’s largest 24-hour shopping event size and excellent infrastructure, allowing for
which generated $115 billion in record sales rapid delivery. 10
alone 8, China’s ecommerce sales totaled almost
$2.3 trillion. Germany – Germany is Europe’s second
largest ecommerce market with $97 billion in
United Kingdom – Despite its small size, the sales in 2020, behind the United Kingdom.
United Kingdom is a big player in the area of Amazon has a good foothold in the German
ecommerce, securing third position with $180 market, similar to the U.K. market. eBay also
billion in annual sales. Amazon UK, eBay UK, has a large presence in Germany.
Asos, Currys PC World, Gumtree, Argos and
For illustrative purposes only
Source: eMarketer, Dec 2020
7
eMarketer, December 2020.
8
Kharpal, Arjun, Alibaba, JD set new records to rack up $115 billion of sales on Singles Day, CNBC, November 12, 2020.
https://www.cnbc.com/2020/11/12/ singles-day-2020-alibaba-and-jd-rack-up-record-115-billion-of-sales.html
9
Top 10 Ecommerce Sites in the UK, 2019, https://ecommerceguide.com/top/top-10-ecommerce-sites-in-the-uk/
10
Gillani, Amyn, Japan: An Overlooked E-Commerce Opportunity, April 6, 2020,
https://www.entrepreneur.com/article/348787
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Ecommerce has emerged as a global shopping phenomenon.
From Cyber Monday to Singles Day, here are some of the year’s
busiest online shopping days around the world.
For illustrative purposes only
Source: Bloomreach, Statista, RedSeer, Alibaba, Adobe Analytics, SimilarWeb
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Expanding Internet and Mobile Penetration
Mobile commerce sales reached $2.8 trillion in 2020, an increase of 32% over the $2.1 trillion registered
in 2019. 11
For illustrative purposes only
Source: Bloomreach, Statista, RedSeer, Alibaba, Adobe Analytics, SimilarWeb
Bigger screens, engaging mobile shopping of mobile commerce’s potential. 14 China’s more
applications and secure payment options have than 1 billion WeChat users can make purchases
helped encourage mobile commerce growth. on their smartphones using WeChat Pay without
Mobile has exploded as a shopping channel, not leaving the messaging and social commerce
just from a traffic standpoint, but in terms of platform. More than 18% of these mini-program
sales and dollar growth. Mobile commerce is sites are devoted to ecommerce. 15 China
expected to account for more than half of generated $268 billion in social commerce sales
ecommerce by the end of 2021. 12 in 2020. 16
More than 63.2% of the world now has access Brands, retailers and ecommerce can design a
to the internet 13 and the opportunity set has customer-user interface with pictures, videos
rapidly expanded with broad availability and GIFs to increase user engagement. These
worldwide, thanks to smart mobile devices mini-program stores provide access to
allowing consumers to shop online anywhere, customer data and promote organic sharing,
anytime. reducing new customer acquisition costs. For
example, Chinese e-retailer Pinduoduo utilises
The growth of mobile ecommerce in China, now
group-buying promotions to encourage sharing
$873.3 billion in market size, is a prime example
among customers.
11
Mobile Commerce Sales 2020, eMarketer
12
Brandt, Ari, How the pandemic transformed mobile apps into the new storefront, February 17, 2021.
https://www.digitalcommerce360.com/2021/02/17/how-the-pandemic-transformed-mobile-apps-into-the-new-storefront/
13
Internet World Stats, 2020 Q4 Estimates, https://www.internetworldstats.com/stats.htm
14
Ecommerce payment trends: China, 2019 JP Morgan Global Payment Trends,
15
Chu, Franklin. Why China ecommerce is going crazy for WeChat mini-programs, April 16, 2019, Digitalcommerce360,
https://www.digitalcommerce360.com/2019/04/16/why-china-ecommerce-is-going-crazy-for-wechat-mini%E2%80%91programs/
16
eMarketer, January 2021.
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Technological Innovation
While mobile penetration is a big driver of current online retail growth, future technological innovations
such as seamless and secure methods of electronic payment, voice-assisted shopping, virtual and
augmented reality and artificial intelligence will take the online shopping experience to the next level and
further drive market expansion.
+ Electronic Payments
Many consider the Uber and Lyft models as the proverbial “gold standard” for invisible payment that
digital commerce players want to replicate. In the future, payment will be something that just happens
seamlessly in the background without much thought or input from the consumer. As a nation of
smartphone users, China has quickly adopted digital- wallet brands such as Alibaba’s Alipay and
Tencent’s WeChat Pay, which are now used to pay for the majority of their ecommerce purchases.
+ Voice-Assisted Shopping
In the end of 2020, 50% of all searches in the United States have been voice searches and voice
shopping is estimated to reach $40 billion in the United States by 2022, with almost 75% of households
owning a smart speaker by 2025. 17 Almost two-thirds of voice-enabled speaker owners such as the
Amazon Echo and Google Home devices, already have purchased items via voice commerce. 18 But
these devices also have “push” capabilities, making recommendations based on past purchases or
customer data.
+ Virtual and Augmented Reality
Virtual and augmented reality is another promising growth driver as online shopping aims to marry the
“real-life” shopping experience with the convenience of ecommerce on mobile devices. Already,
consumers can use their smartphones to visualize product purchases like furniture in their home.
+ Artificial Intelligence
Accounting for an impressive 35% of its overall sales revenue, artificial intelligence (AI) product
upselling and cross-selling on Amazon’s ecommerce platform, is a major success story. AI is also being
used in ecommerce for providing chatbot customer service, analysing customer comments, and
personalized shopping services. Research firm Gartner predicted that 80% of all online customer
interactions will be managed by AI technologies by year-end 2020. 19
17
Kinsella, Brett, Loup Ventures Says 75% of U.S. Households Will Have Smart Speakers by 2025, Google to Surpass
Amazon in Market Share, June 18, 2019, https://voicebot.ai/2019/06/18/loup-ventures-says-75-of-u-s-households-will-
have-smart-speakers-by-2025-google-to-surpass-amazon-in-market-share/
18
Shukairy, Ayat. The State of Voice Shopping – Statistics and Trends, Invesp, https://www.invespcro.com/blog/voice-
shopping/
19
How Artificial Intelligence is transforming the E-commerce Industry, Countants, May 9, 2019,
https://medium.com/@Countants/how-artificial-intelligence-is-transforming-the-e-commerce-industry-countants-scalable-
custom-73ae06836d35
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Investment Case for
Online Retail
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Despite the recent acceleration of online commerce spurred by the global pandemic, online retail still
makes up a relatively small part of total retail sales at 14%, per the latest statistics for 2020. However,
nearly all growth in retail sales came from online sales, which was up 32.1% year-over-year through
December 31, 2020, versus a gain of 6.9% for total retail sales. 20
Research firm eMarketer forecasts that global retail ecommerce sales will grow 17.1% in 2021,
generating $4.9 trillion in ecommerce sales. Latin America was the fastest growing ecommerce market
in 2020, as the pandemic had a profound impact on Latin America’s retail industry. Mandated stay-at-
home orders in several countries like Brazil and Argentina forced retailers to close physical stores.
Ecommerce sales in Argentina grew 79% in 2020, followed by 71% in Singapore and 36% in Spain.
For illustrative purposes only
Source: eMarketer, Dec 2, 2020
Explicit exposure to ecommerce retail may provide investors with access to superior growth
characteristics than traditional brick-and-mortar retail holdings. A universe of global online retail stocks,
as represented by the EQM Global Online Retail Growth Index, exhibits better long-term earnings growth
estimates than traditional retail indices.
Over the last five years, the investment performance of the EQM Global Online Retail Growth Index
relative to traditional retail indexes has also been superior, reflecting this surging earnings and sales
expansion.
20
https://www2.census.gov/retail/releases/historical/ecomm/20q4.pdf
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Global Online Retail vs. Retail: 5-Year Performance
1050
834.1%
EQM Global Online Retail Growth Index
800
S&P Select Retail Index
Bloomberg World Index
550
300
98.9%
50 57.2%
2015 2016 2017 2018 2019 2020
Performance before inception is based on back tested index data. Back testing is the process of evaluating an
investment strategy by applying it to historical data to simulate what the performance of such strategy would
have been. Back tested data does not represent actual performance and should not be interpreted as an
indication of actual or future performance. Past performance for the index is in USD. Past performance is not an
indicator for future results and should not be the sole factor of consideration when selecting a product. Investors
should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the
Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source:
EQM Indexes. Data as of 15.02.2021
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Online shopping is expected continue growing 30 U.S. Retailers Filed for
at a fast clip globally, given the continued
expansion of internet access and mobile
Bankruptcy in 2020 22:
penetration, as well as the introduction of new Century 21 (Sept. 10)
Stein Mart (Aug. 12)
technological innovations that will further
Tailored Brands (Aug. 2)
enhance the online shopping experience.
Lord & Taylor (Aug. 2)
Furthermore, the pandemic has accelerated the Ascena (July 23)
pace of growth and consumer adoption of new The Paper Store (July 14)
channels such as online grocery and e-fitness. RTW Retailwinds (July 13)
Muji USA (July 10)
Over the past year, the bifurcation in retail
Sur La Table (July 8)
between the brick-and-mortar traditional
Brooks Brothers (July 8)
retailers, “the bricks” and online retailers, “the G-Star Raw (July 3)
clicks,” has been quite pronounced. Retail Lucky Brand (July 3)
bankruptcies have skyrocketed over the last few GNC (June 23)
years, being coined the “retail apocalypse.” 21 Tuesday Morning (May 27)
Starting in 2010 until today, numerous brick- Centric Brands (May 18)
and-mortar retail stores, especially those of J.C. Penney (May 15)
large chains worldwide, have been forced to Stage Stores (May 11)
close. Aldo (May 7)
Neiman Marcus (May 7)
In 2019, 17 major retailers filed bankruptcy and J. Crew (May 4)
retailers closed more than 9,500 stores. In Roots USA (April 29)
2020, retailers have faced even tougher True Religion (April 13)
challenges as the COVID-19 outbreak caused Modell's Sporting Goods (March 11)
many retail establishments to temporarily Art Van Furniture (March 9)
shutter, keeping customers away, forcing Bluestem Brands (March 9)
retailers to negotiate with landlords and Pier 1 (Feb. 17)
suppliers to tackle unforeseen inventory and SFP Franchise Corp (Jan. 23)
liquidity issues.
21
Retail Apocalypse, Wikipedia, last edited October 26, 2020, https://en.wikipedia.org/wiki/Retail_apocalypse
22
Retail Dive, September 24, 2020
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In 2017, a Business Insider report dubbed this phenomenon as the “Amazon Effect”, calculating that
Amazon.com was generating more than 50% of the growth in retail sales. 23 Amazon’s global
ecommerce sales are expected to reach $416.5 billion in 2020, up 20.2% from 2019, as consumers rely
even more heavily on ecommerce due to COVID-19. 24 However, there is recent evidence that as the
pandemic has pushed many more consumers online, they are not all going to Amazon, to the benefit of
other sites. 25
The broader theme in play is the transformation from the physical world to the virtual world, a theme
that is not limited to retail and has impacted other sectors and industries. Below are some of the biggest
beneficiaries of this theme:
Source: EQM Indexes
One could argue, as consultant Deloitte does, that the retail apocalypse is really a retail “renaissance.” 26
A renaissance upends many of the ideas and conceptions that have long governed human behaviour,
uprooting traditions, institutions and habits of thought. The rapid growth and expansion of retail
ecommerce has led many to proclaim “the mall is dead.”
But we see it differently. The renaissance of retail in online shopping offers consumers a wider selection
of merchandise, better prices, and a superior level of convenience. The mall isn’t dead, it has just moved
online.
“The mall isn’t dead, it has just
moved online.” – EQM Indexes
23
Taylor, Kate, One statistic shows how much Amazon could dominate the future of retail, Business Insider, November 1,
2017, https://www.businessinsider.com/retail-apocalypse-amazon-accounts-for-half-of-all-retail-growth-2017-11
24
Droesch, Blake, Amazon's worldwide sales will rise 20.2% this year as reliance on e-commerce grows, Business Insider,
July 9, 2020, https://www.businessinsider.com/amazon-global-ecommerce-sales-will-reach-416-billion-in-2020-2020-7
25
David, Don, Amazon’s share of US online retail revenue dips slightly in Q3, November 3, 2020, Digital Commerce 360,
https://www.digitalcommerce360.com/2020/11/03/amazons-share-of-us-online-retail-revenue-dips-slightly-in-q3/
26
The great retail bifurcation, Deloitte Insights, 2018,
https://www2.deloitte.com/content/dam/insights/us/articles/4365_The-great-retail-bifurcation/DI_The-great-retail-
bifurcation.pdf
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Conclusion
In our view there are many reasons to own a basket of global stocks directly focused on online retail
sales:
• Get explicit investment exposure to the fastest growing global segments of online commerce:
online retail, online marketplace and online travel.
• Participate in the exciting growth potential fuelled by the technological innovation driving the
“retail renaissance.”
• Gain access to the online-retail growth opportunities worldwide
Global Online Retail UCITS ETF
IBUY
EQM Online Retail UCITS ETF (IBUY) is a UCITS compliant exchange traded fund domiciled in Ireland.
The fund seeks to provide exposure to the rapidly growing online e-commerce market as competitive
pricing, shopping convenience, greater product selection and rapid delivery have made online shopping
a disruptive technology that continues to exhibit strong growth characteristics, gain market share, and
expand globally.
IBUY is a passive, rules-based fund provide exposure to global companies that derive significant
revenue from direct online retail, marketplace and online travel. The index is revenue weighted with a
maximum of 20% exposure to Emerging Markets.
Exchange BBG Code RIC ISIN SEDOL Currency TER
London Stock Exchange IBUY LN IBUY.L IE00BN7JGL35 BNG9658 USD 0.69%
London Stock Exchange PBUY LN PBUY.L IE00BN7JGL35 BNG9670 GBP 0.69%
Deutsche Boerse Xetra IB0Y GY IB0Y.DE IE00BN7JGL35 BMT6499 EUR 0.69%
Borsa Italiana IBUY IM IBUY.MI IE00BN7JGL35 BMT64D3 EUR 0.69%
Risks
Investors' capital is fully at risk and investors may not get back the amount originally invested
The value of equities and equity-related securities can be affected by daily stock and currency market
movements
Exchange rate and interest rate fluctuations could have a negative or positive effect on returns.
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About
EQM Indexes LLC is a woman-owned firm dedicated to creating and supporting innovative indexes that
track growth industries and emerging investment themes. Co-founded by Jane Edmondson, a former
Institutional Portfolio Manager with nearly 30 years in the investment industry, our index design
expertise spans a wide range of asset classes and financial instruments.
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About
HANetf is an independent ETF specialist founded by two of Europe’s leading ETF pioneers, Hector
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with an investment in the ETFs. Any decision to invest should be based on the information contained in
the Prospectus.
The Prospectus can all be downloaded from www.hanetf.com.
The decision and amount to invest in any ETF should take into consideration your specific
circumstances after seeking independent investment, tax and legal advice.
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