China's "6.18" online shopping festival offered us a timely opportunity to review the competitive landscape of the nation's eCommerce sector. We saw some non-trivial growth pressure for high penetration and intensified competition. On the other hand, we are more convinced that the growth of the U.S. eCommerce is accelerating even in the post-pandemic world, driven by the confluence of three powerful forces:
The penetration rate has ample room to improve By the end of Q4'20, the U.S. eCommerce penetration rate, defined by the eCommerce sales as a percentage of the total retail sales, stood at 13.6%. That's only slightly more than half of the eCommerce penetration in China and suggests a long runway for future improvement. It's worth noting that the penetration rate rose to 15.7% temporarily in Q2'20 at the peak of the pandemic.
Significant Capex investment in logistics Logistics providers such as UPS and FedEx have articulated their investment plans to improve their same-day, next-day, and weekend delivery services. This month UPS announced to increase its Capex, from $13.5 billion to $14.5 billion, from 2021 to 2023. FedEx also raised its FY'22 Capex guidance to $7.2 billion, 26% above its 2021 level. In addition to large delivery networks, many vendors are also investing heavily in new eCommerce delivery methods such as a) decentralization, shifting from "big centralized distribution hub" to "small-box warehouses," and b) warehouse automation.
Rebel alliance against Amazon Amazon's lead in the U.S. eCommerce market is hard for any single company to match. Realizing the sector's vast potential, competitors are now working together to enhance the entire eCommerce value chain to better compete with Amazon. For example, Google and Facebook have struck partnerships with payment companies (PayPal/Square) to provide consumers with convenient checkout. They have also integrated Shopify tools for merchants to launch customized online stores efficiently. In addition to large public companies, many private companies outside the Amazon ecosystem have developed innovative business models. We believe many of them stand a chance of exponential growth if they execute well. Below is a summary of some public and private eCommerce companies.
“And if anything has become clear over the past year, it’s the contribution of our industry provides to the eCommerce value chain. The U.S. domestic parcel market is expected to surpass 107 million packages a day in the calendar year 2022, with e-commerce contributing 88% of total U.S. market growth. As we look beyond the calendar year 2022, we forecast that the U.S. domestic parcel market will reach 172 million packages a day in the calendar year 2026.” -- Brie Carere, Chief Marketing Officer of FedEx
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