Two noteworthy pieces of data this week suggest that the pandemic-induced explosion in e-commerce we continue to witness may be moving towards equilibrium. Shopify and Walmart both released Q4 results. Shopify sailed past top and bottom-line expectations with beats of $64.43M and $.37/share, respectively. Walmart came in with a top-line beat of $3.77B and a bottom-line miss of $.12/share. In sum, it was an outstanding quarter for $SHOP and a very solid quarter for $WMT, especially when you factor in two extraordinary outflows: a large UK tax liability and $1.1B in COVID-related expenses. However, as is usual, the more interesting bits of data came in the earnings calls.
Walmart did not deliver guidance for the upcoming quarter but did say to expect a significant increase in capital expenditures for 2021, particularly in relation to omni-channel, e-commerce, and logistics. Walmart CFO, Brett Biggs said in reference to its continued spend, “ The transformation we invested in when we initiated our position remains intact. While it may hit the bottom line in the near-term, the moves management is making are exactly what is required and will allow Walmart the ability [to] maintain its leadership position in commerce as consumer habits change. Investments in areas such as the supply chain, automation and technology will allow Walmart to differentiate itself as the one retailer that started as a brick-and-mortar operation has transformed in such a way that it can compete head-to-head with the likes of Amazon.” This is a big statement. Walmart wouldn’t be investing in this “transformation” if it didn’t truly believe the growth in e-commerce and omni-channel was permanent. We can conclude from Walmart’s position that despite the anticipated brick-and-mortar “awakening” attributable to mass vaccination, e-commerce will continue to constitute a large portion of total commerce in the foreseeable future.
Likewise, Shopify is also going to continue its spend on capex, specifically in logistics and fulfillment. Though echoing Walmart’s position, this isn’t the most interesting part of the release. Shopify, whose business is entirely e-commerce, is anticipating a 2021 slow-down in revenue and sales volume as a consequence of the vaccination roll-out. Management said, “ Our outlook coming into 2021 assumes that as countries roll out vaccines in 2021 and populations are able to move about more freely, the overall economic environment will likely improve, some consumer spending will likely rotate back to offline retail and services, and the ongoing shift to e-commerce, which accelerated in 2020, will likely resume a more normalized pace of growth.”
Like Walmart, even though Shopify expects to see a shift back to brick-and-mortar activity, there’s a strong suggestion of permanence relating to the putative consumer spending shift to e-commerce that was brought about by the pandemic.
So what are we to conclude from the above? My takeaway is that the pandemic-induced consumer shift to on-line commerce is permanent, but not to the degree that we’ve witnessed in the past year. There’ll be a sizable shift back to brick-and-mortar spending, but not to pre-pandemic levels, with the likely exception of service oriented businesses. E-commerce is slowly finding its equilibrium, and in doing so, is moving closer to securing a permanent share of all future commerce – greater than before the crisis, but not as much as it commands right now.
– Adam T. Hark, Managing Director, Wellesley Hills Financial, LLC