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Global eCommerce growth for a longer: Morgan Stanley

The Covid-19 global eCommerce surge was initially born out of necessity. Online shopping provided a practical alternative as retail locations closed and people stayed in to avoid the virus. In fact, global e-commerce rose from 15% of total retail sales in 2019 to 21% in 2021. It now sits at an estimated 22% of sales.

But as consumers began shopping in person again, investors started to ask: Was the Covid-bump a one-and-done deal, or could eCommerce growth continue? Our view said, over the long term, the eCommerce market has plenty of room to grow and could increase from $3.3 trillion today to $5.4 trillion in 2026.

“We believe that the Covid-driven bump will not flatten future e-commerce growth,” says Brian Nowak, an equity analyst covering the U.S. internet industry. He sees eCommerce reaching 27% of retail sales by 2026. “Across the world, we have yet to see a ceiling for e-commerce penetration.”

Many factors are driving growth, including logistics, mobile device ownership and marketplace expansion. For investors, this means the eCommerce boom will likely continue, offering opportunities for gains across multiple businesses, regions and verticals and at a time when recent stock valuations don’t necessarily reflect that growth. 

The growth of digital commerce represents a permanent change in how people shop. In fact, Morgan Stanley’s industry model, along with other data, suggests that eCommerce will continue to gain traction, even in countries where online shopping is already popular.

In South Korea, thanks to a well-developed payments and logistics infrastructure, online sales already account for 37% of all retail activity. But the growth there isn’t done. eCommerce in South Korea could increase to 45% in the next five years, driven by food delivery and same-day options.

Likewise, in the U.S. e-commerce could reach 31% of sales by 2026, up from 23% now, as brick-and-mortar stores close and consumers prioritize convenience. “While the rise of eCommerce during the first year of Covid-19 in 2020 is easily explained, the fact that growth persisted in 2021 is evidence of a real behavioral shift to shopping online,” says Nowak.

Earlier-stage e-commerce markets and new segments are also poised for significant growth. In parts of Southeast Asia and Latin America, for example, e-commerce could grow 17% and 20%, respectively, over the next five years and compound annually.

Turning to segments, electronics—which leads all the categories of eCommerce activity—is slated to grow from 38% of retail sales to 45% of global retail sales. Digital sales are also growing across newer verticals, including beauty, apparel and grocery.

“Though there are headwinds in certain countries and verticals, we believe these barriers will continue to come down,” says Andrew Ruben, who covers retail and e-commerce in Latin America.

Behind the scenes, improvements in everything from digital payments to supply chain and fulfillment capabilities improve the customer experience—further driving changes in consumer behavior.

“One of the top differentiating factors for e-commerce platforms could be supply chain and fulfillment capabilities, which could empower better customer servicing,” says Gary Yu, who covers telecom and internet stocks in China, where grocery delivery is growing faster than China e-commerce overall.

Internet use and increased connectivity are also significant drivers, particularly in emerging markets, where populations skew younger and spend more time online than their counterparts in developed markets. Consumers in Colombia and Brazil, for instance, spend more than five hours online each day, on average, creating a significant opportunity for retailers to reach a new market of customers.

For more Morgan Stanley Research on the outlook for global e-commerce, ask your Morgan Stanley representative or Financial Advisor for the full report, “Stronger for Longer in Global eCommerce”. Plus more Ideas from Morgan Stanley’s thought leaders.

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