My daughters, ages 20 and 23, are a little bit bummed right now.
See, one of their favorite retail stores has just filed for bankruptcy protection. As a result, Forever 21 intends to close 178 stores in the U.S. and another 172 around the world.
Kendall and Jordan have been going to one of the local stores for many years. They like the wide selection of trendy clothes, shoes, and accessories at discount prices.
Here’s the thing: their other favorite place to shop continues to put lagging retailers under pressure to perform in the fast moving online world.
Growing up in a tech-centric home, both my daughters take shopping at Amazon.com Inc. (AMZN) as a given. Much to their dad’s chagrin, they do it all the time – and I do mean all the time.
But what most people miss here is that Amazon now relies on thousands of other companies to sell through the firm’s unbeatable storefront.
According to Statista, Amazon’s websites receive 209.7 million unique visitors every month from the U.S. alone, with most of the purchases they make coming from third-party sellers.
Who Else is Disrupting Retail
Now then, retailing continues to shift away from physical stores and malls. According to none other than The Wall Street Journal, the 40 malls tracked by the CMBX Series 6 commercial real estate index are currently experiencing rates of vacancy in their storefronts of up to 32%. Meanwhile, a further recent market outlook from Statista notes that online sales will rise by 58% from the base year of 2017 through 2023. They’ll will have risen from $468 billion to $740 billion, suggesting that this disruptive trend will continue for years to come.
And Amazon is set to dominate the U.S. market over the long haul.
Just look at its recent results. For this year’s second quarter, it had sales of a stunning $63.4 billion, up 20% from the year before.
And like I mentioned a second ago, Amazon now relies on thousands of other companies to sell through the firm’s unbeatable storefront.
That’s why the percentage of third-party sellers has more than doubled in about 12 years. It was just 26% back in 2007. But, in this year’s second quarter, that figure came in at 54%.
And there’s a hidden reason for it all. See, most firms don’t have the talent or the cash to build a winning web site. Ditto for those who want to sell through Amazon’s portal.
The Wall Street Journal haseven likened the reseller program to that of the stock market, complete with the use of very sophisticated computer coding and artificial intelligence algorithms.
Enter Shopify Inc. (SHOP), a firm that doesn’t come close to getting the attention Big Media and Wall Street shower on Amazon.
Make no mistake, Amazon’s Hidden Supercharger has become an integral part of the king of e-commerce’s success.
Shopify provides e-tailers with sophisticated software that allows them to plug into Amazon, manage orders, collect payments, and send out emails to buyers.
Amazon’s Hidden Supercharger can also help them build their own online sites, handle multiple sales channels, and plug into social media. The idea is to ramp up sales by giving buyers a great shopping experience.
Shopify hosts software in the cloud that merchants use to run their businesses across all their sales channels. These include web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.
With this robust platform, merchants gain a single view of their business and customers across all of their sales channels. The system ships orders, manages inventory, and gets data analytics that yield sophisticated business intelligence.
Shopify defines high-octane firm. Last year, it had $41.5 billion in gross merchandise volume pass through its channels. That compared to just $750 million back in 2012.
Revenue for the firm during that period is just as impressive. In 2012, the young company had just $23 million in sales. In 2018, that figure soared to nearly $1.1 billion, an increase of an amazing 4,772%.
How SHOP Will Win Big from the Cannabis Boom
If all Shopify gave us was the chance to cash in on e-commerce, that alone would make it worth buying the stock.
But this company is actually also a backend play on the emerging world of online cannabis sales, making it a great twofer.
When Canada legalized recreational cannabis roughly a year ago, Shopify quickly emerged as the go-to firm for online sales. It even became the exclusive provider of online sales for the province of Ontario.
I believe all of Canada is up for grabs as e-commerce cannabis transactions gain steam. There’s a lot at stake here. We’re expecting that cannabis sales in the world’s 10th largest economy could hit $22 billion in the next few years.
Shopify has set up a page on its Canadian website where it lists a robust set of tools. For licensed cannabis firms, it’s a pretty impressive look at merchant solutions that include both smart phones and tablet apps.
Turns out, Shopify is already working with a pair of industry leaders that are household names among cannabis investors.
Canopy Growth Corp. (CGC) is such an important marijuana provider that, last year, it drew a $3.8 billion investment from Constellation Brands Inc. (STZ). Constellation is the beverage giant behind Corona beer and Robert Mondavi wines.
For its part, medical marijuana supplier Aurora Cannabis Inc. (ACB) is growing faster than a weed. In its 2019 fiscal fourth quarter, it had sales of $98.9 million, up 418% from the year before.
So, with your investment in Shopify, you can cover the broad waterfront of legal cannabis sales in Canada. I have no doubt that when the U.S. adopts nationwide legalization, Shopify will be the preferred e-commerce enabler in that market too.
Add it all up and you can see that Shopify is a great backend play on the booming cannabis sector. You could profit from the industry’s growth without buying those stocks directly, if you so choose.
At any rate, this remains one of the best e-commerce stocks around. And with the software sector out of favor at present, you can grab SHOP at a nice entry point of only $331.84, less than 20% of the price of Amazon.
That way, when the rally resumes, you will bank even more long-term profits that will help you drive down the road to wealth even faster.
Cheers and good investing,
Michael A. Robinson