The rumors of the death of U.S. retail were greatly exaggerated.
There are good reasons for a retail renaissance. The economy is strong, and unemployment's low. The consumer is feeling good about the present and optimistic about the future.
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That explains why total retail spending, according to the U.S. Census Bureau, has been increasing at the fastest pace in seven years -- as illustrated by the chart below.
But while some of the brick-and-mortar retailers are definitely feeling better than they used to, several -- such as Sears (Nasdaq: SHLD), a shadow of its former self, or the now liquidated Toys-R-Us -- have suffered under the load of heavy debt, declining sales, and fierce competition.
Redesigned, rethought, and reimagined, others have come back.
If You Can't Beat 'Em, Join 'Em
Several old-school companies have succeeded in combining traditional retailing with at least some elements of e-commerce. In a great example of the good old "If you can't beat 'em, join 'em" strategy, Kohl's (NYSE: KSS) has decided not to fight the mighty Amazon (Nasdaq: AMZN) but rather to take advantage of its lack of physical locations. The company now accepts Amazon returns in its stores, and also sells some of Amazon's merchandise. This drives traffic to Kohl's storefronts and is working well to mutual advantage.
Best Buy (NYSE: BBY) is another example. This electronics retailer has made good use of the significant number of its brick-and-mortar stores by making it easy to buy stuff online and pick it up at a store at your convenience.
While you might not be able to tell just by looking at its stock price or market capitalization, Walmart is still the world's largest retailer. Its annual revenues are more than two times that of Amazon's ($510 billion versus $210 billion, respectively). As is rather typical these days, the market values growth and, not too surprisingly, exposure to the cloud. (It's important to remember that in 2017 about 10% of AMZN's total revenue was generated not from ecommerce but by Amazon Web Services.) Amazon is worth about 3.6 times more than WMT.
All this points to an important trend -- something that has become a part of our daily lives: the growing importance of the internet and the growing share of internet commerce in retail. As you can see from this chart from the St. Louis Fed, e-commerce has grown, without interruption, from a 0.6% share of total U.S. retail sales (in 2000) to 9.6% today.
E-Commerce Retail Sales as a Percent of Total Sales
Source: U.S. Bureau of the Census
How You Should Invest
Some of this information may not come as a huge surprise to investors. The real question is... what's the best way to profit if you're looking for truly big-time gains?
Well, a huge part of this trend is and has always been Amazon. And while Walmart, for instance, has been managing its own e-commerce path, others, such as Kohl's, have been more flexible. And the same goes for the so-called "third-party sellers," which make up a big part of Amazon's business.
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Third-party sellers are simply independent sellers who use Amazon as a convenient marketplace to sell their goods. Last year, third-party sales accounted for nearly 18% of total Amazon revenue (and for nearly 30% of its e-commerce business). And because these independent sellers tend to be smaller, they make the Amazon marketplace a vibrant one by offering a variety of goods, often in small quantities, refurbished, collectible, or even used.
The more sellers that are on the platform, the greater the need for a suite of services that helps these sellers accomplish their goals, from advertisement to listing to fulfillment to shipping. This is where much of the future growth is, and my latest Game-Changing Stocks recommendation is set to benefit from this trend, too.
Think about it this way: Would a manufacturer such as Whirlpool (NYSE: WHR) rather concentrate on selling washing machines or running a fully staffed in-house e-commerce operation? Especially when a company like my latest pick also offers a full suite of services, including fulfillment and marketing solutions that allow branded manufacturers to send their web visitors or digital marketing audiences directly to authorized resellers.
Make no mistake: niches like this will lead the charge in online retail. Sure, the mainstream financial media may focus on what the big-name players (like Amazon or Wal-Mart) are doing to adapt to the online marketplace, but many others simply can't do it without the expertise of smaller providers that can connect retailers and branded manufacturers to their buyers.
Note: Finding under-covered areas that are at the cutting-edge of innovation is key to finding truly life-changing gains. Thankfully, my team and I over at Game-Changing Stocks have got you covered. If you'd like to view our latest research, simply go here. You'll also have the chance to learn the name of the pick I recently shared with my subscribers, and get access to all of our other picks.