1. UK E-Commerce Landscape

E-commerce refers to transactions conducted via internet. Moreover, it also encapsulates other activities including online auctions, internet banking, payment gateways, and online ticketing. The industry had witnessed new online shoppers, existing shoppers buying more food and grocery, and mature shoppers moving majority of their spending to online platforms. The United Kingdom (UK) has the most prominent E-commerce market in Europe. According to the most recent figures from the Office of National Statistics, the UK had reported E-Commerce revenues of £688.4 billion during 2018, witnessed a sharp growth from its prior year. On sectoral basis, wholesale and manufacturing remained two biggest sectors that generated the highest e-commerce sales in the period.

The retail sector in UK accounted for around eight percent of E-commerce sales across all industries. In the retail sector alone, online sales constituted 19.4% of all retail in 2019, and is forecast to reach higher levels in the coming years due to the impact of the Covid-19 pandemic. The mobile commerce and mobile shoppers are taking precedence within e-commerce in several markets of the Europe. Moreover, the share of smartphone users who shopped via mobile devices, especially smartphones, increased over the years in the UK too.

Key Trends in the E-Commerce Sector

• Mobile Commerce – Progressive Web Application is an innovative trend that E Commerce has picked up lately. PWA delivers an enriched experience that helps in improving conversion rate by using lesser amount of data and enabling search engine optimization.
• Robot at fulfilment centers – Robot brings down the human effort and make efficient utilization of time at the e-commerce fulfilment centers and they have optimized the supply chain.

Risk Exposures to the E-Commerce Sector

• Client Disputes and Refunds – The dispute emerges when the product does not arrive, and the amount has been deducted from the customer’s account.
• Online Security Threats – There are lots of spams and frauds happening while browsing a website for buying a product. It may dampen the consumer confidence in online shopping.
• Violation of Intellectual Property - Protection of IP is very important in the e-commerce industry and includes website logos, content, taglines, products and other images and icons. 

SWOT Analysis

Benchmark Index Performance

Based on the last one-year performance, the FTSE All-Share Retailers index has outperformed the FTSE 100 index and FTSE All Share index, while it remained at par with the FTSE AIM UK 50 index. The FTSE All-Share Retailers index generated a return of about 57.53%; however, the FTSE 100 generated a return of around 18.78%, FTSE All-Share produced a return of around 23.30% and the FTSE AIM UK 50 index generated a return of about 57.84%.

Figure 1: One Year Benchmark Index Performance

 (Source: Refinitiv, chart created by Kalkine Group)

E-Commerce Sector Outlook

The retail sales volume had demonstrated a significant recovery during March 2021 as it had shown an increase of 5.4% as compared to February 2021 reflecting the positive impact of the easing of COVID-19 restrictions on consumer spending. The retail e-commerce sales accounted for USD 4.28 trillion worldwide during 2020, and e-retail revenues are forecasted to reach USD 5.4 trillion by 2022. Online shopping remained one of the most popular online activities worldwide. According to the latest eMarketer’s 2021 global e-commerce report, the Latin America witnessed a highest growth in e-commerce business of around 36.7% during 2020, while Middle East & Africa region had recorded lowest growth of19.8%.

It is difficult to sustain the massive growth in e-commerce witnessed during 2020 as sales will experience a slowdown in 2021 as consumers re-enter brick-and-mortar stores, and online competition increases once Covid-19 restrictions are eased down. The B2B vendors may get relatively lesser impacted as businesses continue to appreciate the convenience of online sales. Firms must be ready for holiday sales during 2021 to meet the increased demand of customers.

2. Investment analysis and stocks under discussion (TSCO, ASC, JOUL)

After gaining insights into the E Commerce sector, we would look at the business model of three E Commerce players listed on the London Stock Exchange.

A. Tesco PLC (LON: TSCO)

(Recommendation: Buy, Potential Upside: 20.32%, Market Capitalization: GBP 17.12 billion)

Tesco PLC (LON: TSCO) is a United Kingdom-based leading retailer Company. It serves millions of clients every week through stores as well as online space. It is a constituent of the FTSE 100 Index.

On 18 June 2021, the Company will release its Q1 FY22 trading statement.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 20.32% over the closing price of GBX 221.45 (as of 27 April 2021).

B. ASOS PLC (LON: ASC)

(Recommendation: Speculative Buy, Potential Upside: 16.04%, Market Capitalization: GBP 5.35 billion)

ASOS PLC is the FTSE AIM UK 50 Index listed fashion retailer (United Kingdom-based), operating globally. It was founded in the year 2000 and serving with over 850 brands and 85,000 products and catering to 24.5 million active customers.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 16.04% over the closing price of GBX 5,354.00 (as on 27 April 2021).

C. Joules Group PLC (LON: JOUL)

(Recommendation: Hold, Potential Upside: 12.00%, Market Capitalization: GBP 289.22 million)

Joules Group PLC (LON: JOUL) is a general retailer Company, which design and sells clothing, footwear, homeware, and accessories. It is a constituent of the FTSE AIM All-Share Index.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 12.00% over the closing price of GBX 260.00 (as on 27 April 2021).

*All forecasted data and peer information have been taken from Refinitiv, Thomson Reuters.

*The "Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 28 April 2021.

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