Expect online marketplaces like Etsy, Amazon and Farfetch to be standouts this holiday season in the face of the current supply chain headwinds, according to recent research from investment bank Oppenheimer and Co.
Despite the differences in their respective supply chain structures, all three of these e-commerce giants could be well equipped to handle the glut of goods set to ship over the coming weeks.
Oppenheimer cited Etsy’s mostly domestic seller base, 68 percent of which is based in the U.S., as one factor setting the marketplace up for success. According to Etsy’s 2020 Seller Census, 98 percent of sellers operate their businesses from their homes, while 95 percent source their supplies domestically, indicating just how U.S.-centric the business is and how it could be better prepared to evade much of the supply chain disruption plaguing the industry.
Additionally, 78 percent of the top-100 Etsy shops by 30-day sales are based in the U.S., according to MarketPulse data. And the marketplace’s largest category—homewares and home furnishings at 31 percent of gross merchandise sold—is “traditional retailers’ largest pain point,” the report said.
Adding 10 percent attributed to apparel and another 17 percent related to personal accessories, the report said roughly half of Etsy GMS overlaps with verticals experiencing supply chain issues, suggesting that Etsy is poised to gain market share.
“With 41 million active buyers and 2.5 million active sellers added to the marketplace since Covid-19, Etsy has evolved into a much larger business vs. pre-pandemic,” wrote Jason Helfstein, an Oppenheimer senior analyst covering the e-commerce sector. “As a result, we believe the market will continue to give Etsy shares a premium to historical averages as the company increases its scale organically and through acquisitions.”
Amazon’s continued supply chain investments will benefit the e-commerce giant this holiday season in North America, Oppenheimer says. The investment bank’s research note said Amazon spent $13 billion to diversify away from overseas shipment containers and fulfillment centers and is expanding its internal logistics engine.
Per the Chaddick Institute of Metropolitan Development, Amazon now has 75 planes in operation. As a result, it is estimated that 70 percent of the U.S. population now lives within 100 miles of an Amazon Air airport, up from 54 percent in April 2020, indicating that the company’s supply chain is now better prepared to meet an influx of consumer demand.
According to Jungle Scout, a top Amazon seller analytics provider, nearly 50 percent of Amazon’s third-party sellers operate in the U.S. compared to just 7 percent each in the U.K., Canada and China. All other countries represent 18 percent of sellers.
Unlike Etsy, Amazon’s robust network is not as insulated due to its overseas production. Per Amazon’s supply chain map, 75 percent of facilities that produce Amazon-branded products such as private brands and devices are located in the APAC region with the majority based in China (46 percent), India (14 percent), and Vietnam (4 percent), where Covid-19 has severely disrupted production, supply and logistics. Facilities based in the U.S. represent 15 percent of factories manufacturing these goods.
Farfetch, the high-end, luxury marketplace offering designer brands including Gucci, Balenciaga and Tory Burch, also appears to have an advantage this season, thanks to its diversified sellers.
Oppenheimer observed that the marketplace can source products from thousands of inventory points in more than 50 countries. Additionally, 85 percent of orders are available from multiple sellers and can be shipped from different locations.
“Farfetch’s fulfillment network is based on a distributed inventory model, which aggregates inventory from multiple stock points in real-time. This gives Farfetch the capability to get shipments (using flight carriers) to consumer quickly,” Helfstein said. “Luxury sellers on the platform use Farfetch’s technology to integrate inventory/stock with its distribution delivery carriers such as DHL and UPS to create efficient delivery times (three to five business days).”
Luxury brands are better insulated against risk impacts such as higher raw material prices—Oppenheimer indicated that raw cotton prices jumped 18 percent year over year and cotton yarn prices increased 23 percent. The investment bank also said high-end brands typically use air freight instead of ocean transport, mitigating price inflation risks.
Oppenheimer reiterated the “outperform” rating for all Etsy, Amazon and Farfetch, which means the companies’ stocks are projected to beat the S&P 500 within the next 12 to 18 months.
Wish remains most vulnerable to shipping, reliance on China
The biggest loser here may be mobile shopping marketplace Wish, which sells across categories including fashion, home, electronics, health and beauty, toys, arts and crafts and outdoor gear among others.
Wish, officially doing business as ContextLogic Inc., went public at the end of last year but has seen its stock dip nearly 80 percent since its IPO, from $24 per share to less than $5 per share.
Oppenheimer downgraded the company’s shares from “perform” to “underperform,” largely due to the increasing shipping costs in tandem with rising digital media and advertising expenses, as well as decreasing U.S. app downloads. Store-based dollar stores are similarly struggling.
Earlier in 2021, Wish shifted more of its cargo to air freight to combat the ocean shipping delays. But this will further exacerbate cost of goods sold (COGS) pressure, while limiting growth as unit economics remain unfavorable, the investment bank said.
Additionally, the firm pointed to Wish’s own 10-K statement as to why it will face a “perfect storm” in the second half.
“‘China accounted for substantially all of marketplace and logistics revenue in 2020, 2019, and 2018, respectively, based on the location of the merchants’ operations,’ significantly exposing the supply chain to rising shipping costs and delays,” Helfstein wrote. “Per Freightos, average cost to ship containers from China to Calif. is [up] 393 percent year over year, while days to deliver has increased 83 percent year over year.”
As a result of the headwinds, Oppenheimer believes that Wall Street revenue estimates for Wish are 10 percent higher than where they should be.