Economic wealth is created by innovation. To outperform the markets over the long term, we believe investors should focus a portion of their investments on innovation. Innovation in the economy is everywhere, and it is accelerating—but identifying the best companies, those that are engaging in innovation that is both meaningful and profitable, demands active management.
One of the most compelling areas of innovation is “disruptive commerce,” or e-commerce, which refers to the ecosystems of companies and industries that have been impacted by and are harnessing the global shift to digitalized commerce.
The U.S. e-commerce space is estimated to have achieved only 21% penetration, based on data from eMarketer, and this percentage is lower internationally. As its disruption of many industries is only just beginning, global e-commerce is an area of tremendous opportunity for investors.
Advances in e-commerce really started with the retail sector, which is now more than half penetrated, and includes areas like books, office supplies, toys and travel. Yet huge potential e-commerce profit pools remain virtually untouched. Autos, real estate, furniture, health care and groceries, for instance, are only starting to develop online.
E-commerce will continue to disrupt retailing as it moves into more industry verticals. Convenience and social interactions are key themes, with the sharing economy, group buying, micro influencers, location-based recommendations, checkout lending and even virtual dressing rooms pushing technology forward.
Some e-commerce technological advancements are so dramatic that they can rapidly shift huge portions of demand to a completely new market, leaving old markets reeling even as they unlock new business models and methods of interaction.
Beyond retail, disruptive commerce is poised to have massive ramifications on industries such as finance and payments, media and entertainment, cybersecurity and transportation as innovations emerge.
Businesses continue to expand services such as virtual veterinary visits, e-learning, digital exercise classes with a social media element, at-home blockbuster movie launches, malls in the metaverse, virtual dating, online live concerts and new browsing experiences designed for discovery. Consumers have only begun to access the potential of the new global digital marketplace.
Meanwhile, the globally devastating Covid-19 pandemic has affected almost every aspect of the economy. Unprecedented changes in consumer behaviors over the past year have accelerated the adoption of e-commerce, despite GDP declining worldwide.
As this has created some of the greatest retail, payment and distribution challenges in our lifetimes, e-commerce is responding with agility, speed and continuous innovation.