- Simeon Hyman, global investment strategist at the $44 billion ProShares ETFs, said many investors believe they have "missed the boat" on investing in the next big retail disruption stocks.
- However, even in the midst of a COVID lockdown, only 16% of US sales were online in the second quarter, according to the Census Bureau of the Department of Commerce.
- Hyman said Amazon Prime Day is a great catalyst for people to think about the importance of this accelerating long-term trend of online retail disruption.
- He shares 5 retail stocks other than Amazon to watch ahead of the much-anticipated annual event.
- Visit Business Insider's homepage for more stories.
Ahead of Prime Day, Amazon's annual marquee shopping event on Tuesday, Simeon Hyman wants investors to think about the accelerating long-term trend of online retail.
While brick-and-mortar shops have been forced to shut down during the COVID-19 pandemic, online retail has become the front and center of everyday lives.
The pandemic-fueled demand for e-commerce has caused such an unprecedented strain on Amazon's warehouse, shipping, and logistics that it had to delay the typically July-held Prime Day to October.
However, even in the midst of the pandemic lockdown, only 16.1% of US sales were online during the second quarter, a slight uptick from the 11.3% online sales at the end of 2019, according to the Census Bureau of the Department of Commerce.
"When you alert people that's how early we are in this transition, that gets their attention," said Hyman, global investment strategist at $44 billion ProShares ETFs. "Because a lot of people think they missed the boat on this transition."
He added, "It's just a reminder that we are a lot earlier in the transition than people appreciate, but it is accelerating from 11% to 16%. I think we're going to continue to see that acceleration. Prime Day, of course, is part of that."
Amazon, whose stock has gone up almost 80% this year, may get all the limelight on Prime Day, but there are other contenders for its throne in online retailing.
Hyman shared with Business Insider five key players that investors should watch on Prime Day and take note of what their respective strategies might mean for the online retail space.
5 stocks to watch other than Amazon
Walmart (WMT), the world's largest retailer, is the obvious contender. The stock has gone up almost 20% year-to-date.
However, the superstore has seen its margins deteriorating as it has grown its online business over the last decade. Amazon's margins doubled, according to Hyman.
"If I'm thinking about what Walmart might do on Prime Day, I'm curious about what kind of deals will Walmart offer to keep up with Amazon," he said.
But the most intriguing part of Walmart's business is its rapidly-growing grocery business.
"One of the things we saw in the second quarter was a dramatic uptick in the overall online penetration in groceries, but today that is still the lowest penetrated category of online retail," Hyman said. "That caught my attention because habits are hard to break. Once I get my groceries delivered and they are okay, I think I can always buy my groceries online."
But groceries are hard to make money in and Hyman is watching whether the firm will shift its focus away from the margin-challenged segment.
Target (TGT), which has run up about 27% this year, is also on his radar.
In addition to the deals it offers, Hyman is watching to see if Target aggressively promotes its in-store pick-up, which is "a key part of its uphill battle to mitigate the high cost of home delivery."
"It's been a nice chunk of what Target's been doing of late," he said, adding that Target has emerged as a key player in providing customers with a fully integrated brick-and-mortar and online shopping experience.
Another competitor on Prime Day is Chewy (CHWY), an online retailer of pet food and supplies. The stock has risen 116% year-to-date.
"What I find interesting about Chewy is that 70% of its business comes from subscriptions," Hyman said. "The extra business that Chewy picked up in the pandemic, that's going to be some sticky stuff, because a lot of those people have become subscription customers."
He is watching how aggressively Amazon intends to compete in the pet food category on Prime Day.
"It's a moat," he said of Chewy's subscription-based business model. "It's sticky, but also it's a cost advantage because it is reducing the cost of customer acquisition."
Etsy (ETSY), a unique online retailer that has historically sold homemade crafts, clothing, and jewelry, etc., is also becoming a more mainstream rival to Amazon.
"It's interesting that 14% of their second-quarter sales were from selling masks," he said. "I'd be curious to see how they capitalize on those extra new customers. It's not as sticky as Chewy picking up new subscriptions, but it's still a huge amount of more people who are now familiar with the platform."
The stock, which was added to the S&P 500 index in September, has shot up over 230% this year.
The last stock on Hyman's Prime Day watchlist is Qurate (QRTEA), the parent company of the television shopping channel QVC.
"They actually had a very interesting capital distribution recently, which is a one-time special dividend of cash and preferred stock to its common shareholders," Hyman said.
"I'll be curious to know what that means with regards to how hard they're pushing on the accelerator to continue to integrate their super-unique direct channel business with their online business," he added. "And how it impacts the continued speed and aggressiveness of their integration of the two channels."
The Qurate stock was down about 7% year-to-date.
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