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The evolution of commerce

We look at how commerce is changing, share a fund manager’s view on the shift to online and give 3 share ideas that could thrive in the changing retail landscape.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

All information is correct as at 31 December 2021 unless otherwise stated.

Joseph Hill, Investment Analyst

Historically, if you wanted to buy a product you would go into the store. It would be on the high street, or in the city centre. You could pick the product off the shelf, have a closer look, and if it were clothing you could try it on to see how it fits.

But what about the price? If you thought it was too expensive or you could get it cheaper elsewhere, you’d have to traipse around other stores, looking for a better deal. And that’s if you could find it in stock anywhere else. A time consuming and less than ideal way to shop for many.

Then came the out-of-town retail parks, most offering free parking, easy access, and a good choice of retailers. And since the start of the pandemic, many have felt a greater sense of safety shopping there. Being able to arrive and leave in your own car and social distance in larger stores will likely make shoppers feel more comfortable as long as Covid-19 remains an issue.

The rise of online

Even before the pandemic, the way we shopped as consumers was quickly changing. The rise of online retailers has shaken up the market, offering greater choice and giving price transparency to consumers. So before even going into store to see how much something is, you can check lots of different prices online and head straight for the best deal – saving both time and money. This puts the profit margins of those high street businesses under pressure.

Of course, government restrictions causing shop closures through the pandemic have accelerated the e-commerce trend as for many, online shopping was the only answer. But more consumers have now seen how easy and convenient online shopping can be, which has the potential to shape our shopping habits forever. Even as more of us have returned to the high street and shopping centres as restrictions have allowed, the physical retail industry is still in overall decline.

We now live in a digital age. With computers, the internet and smartphones, we can browse for whatever we want in seconds, whenever it suits us. And for companies willing to adapt and improve their online offering, it can complement the in-store experience and offer a valuable extra stream of revenue. E-commerce sites like Amazon, Shopify and Wayfair also offer the potential for smaller businesses to expand their reach, opening themselves up to new markets.

With the online trend showing no signs of slowing, companies that don’t adapt and beef up their online offerings are looking increasingly out of place. In 2020, 5bn parcels were delivered to UK consumers, a third higher than in 2019.

When change is happening at speed, businesses need to evolve to survive and thrive. Those that don’t, might not make it.

Evolve to survive

Despite the acceleration of the shift to online, it’s unlikely we’ll be doing all of our shopping online for some time yet, if ever. There are certain items we’ll always want to talk to a knowledgeable shop assistant about. This could be if the item is particularly high value, if you’re in a rush and need the product there and then, or if there’s a loyalty to a particular brand with a weaker online presence.

Engaging with customers is now a lot more complex and digitally focused. Companies in the sector need to reimagine the role of stores and the store experience itself. As tastes and preferences are constantly changing, companies need to adapt to stay relevant in an increasingly competitive world.

When change is happening at speed, businesses need to evolve just to survive and definitely to thrive.

A fund manager’s view

We asked Dave Bujnowski, co-manager of the Baillie Gifford American fund, for his take on the shift to online.

"The pandemic saw e-commerce growth accelerate. Estimates suggest online reached 20% of total US retail in 2020, up from 15.8% in 2019 and 14.3% in 2018, by far the biggest annual jump ever recorded. Some of this pull-forward of demand will fade as economies open up, but a lot will stick. Behaviours have changed, businesses have adapted and evolved, and we won’t return to the economy of December 2019.

Why didn’t some people order groceries or food online in 2019 (Doordash)? Or pet supplies (Chewy)? Or home furnishings (Wayfair)? It was because of habit, and these habits were laced with trade-offs. People finally tried these emerging online services and their experience was overall a good one, removing a ‘deterrent’ and meaning they are unlikely to revert to previous habits.

Take Wayfair, the online home furnishing company. It’s retained its new cohorts as the economy has opened up again, with orders per customer and the percentage of orders from repeat customers continuing to grow at levels higher than pre-pandemic. It had 31 million active customers at the end of June, 20% higher than the middle of 2020.

This is but one of a number of structural changes accelerated by the pandemic."

3 share ideas

Laura Hoy, Equity Analyst

Investing in individual companies isn’t right for everyone – it’s higher risk as your investment is dependent on the fate of that company. If a company fails, you risk losing your whole investment. You should make sure you understand the companies you’re investing in, their specific risks, and make sure any shares you own are held as part of a diversified portfolio.

DS Smith

Trying to pick a winner in the race online is a tricky business. Over the past year we’ve seen new hurdles like higher return rates and supply chain issues emerge. However, there’s no denying that the shift is happening and cardboard box-maker DS Smith is planted firmly at the centre of the revolution.

While individual stores might be plagued with their own issues, the industrywide need to package and ship items remains. That’s kept demand afloat for DS Smith.

Plus, the group’s responsible for more than just the cardboard boxes stacked up outside houses these days. DS Smith also supplies ‘shelf-ready’ boxes, like those you find in the supermarket. This adds some welcome insulation that lots of other retailers don’t have. If inflation rises, people could start to cut back on their Amazon orders – but they’ll still need to buy cereal, soap and a range of other products that DS Smith can outfit.

DS Smith is also in a relatively strong position if input costs continue to rise. The group can pass these costs on to customers, and they’re unlikely to put up much of a fight as the cost of packaging materials is just a fraction of overall shipping costs.

Plus, the group has an attractive prospective dividend yield of 3.6%, something that’s hard to come by among the retailers. However, yields are variable, and no dividend is ever guaranteed.

There are some potential headwinds that could upset the rosy case for DS Smith. Chief among them is the cyclical nature of the business. DS Smith’s fortunes wax and wane with the wider economy, so a slowdown would put pressure on the business. The size and shape of the post-pandemic recovery is still a question mark, so we can’t rule out some near-term turbulence for the box-maker.

Shares currently change hands for a hair above 11 times future earnings – slightly below the long-term average. We think this creates an opportunity considering the group’s strong position at the centre of the e-commerce revolution.



In the age of the internet, traditional bricks and mortar retailers have their work cut out. But out-of-town retail parks have managed to escape the same level of pain that high streets have been experiencing. Dunelm is a beneficiary of this trend.

The group’s focused on sharpening its multi-channel experience and it showed – last year, in-store demand remained strong even as online sales grew 115%. The number of customers using online and multi-channel shopping options more than doubled, evidence that the digital strategy is working.

We think the group’s bricks and mortar stores have potential as well. Most of its 175 stores are out-of-town locations. And a focus on linking up the wide range of choices available online, with the benefit of in-store viewing and service, means Dunelm offers customers something online-only retailers can’t.

Dunelm is somewhat insulated from the impact of supply chain issues as well. Dunelm doesn’t have to refresh its inventory quite as much as, say, a clothing retailer. Sofas, curtains, pillows and plates can be sold any time of year. That’s not the case for winter coats or swimsuits, so it gives Dunelm some breathing room. Although the risk can’t be completely erased.

Like its peers, Dunelm will be at the mercy of the economy. Redecorating could fall to the bottom of the to-do list when money’s tight. And the group’s been enjoying goldilocks conditions over the past two years – once we’re able to roam the globe more freely, the look of our living rooms might not be quite as important.

If demand is sticky in the years to come, profits are expected to continue improving, albeit at a slower clip. Together with a relatively strong balance sheet, this could underpin the group’s 3.2% prospective dividend yield. Remember though, this is variable and isn’t guaranteed.



Currys, previously Dixons Carphone, has been quite the shapeshifter throughout the pandemic. The group’s in a tough spot as e-commerce behemoths like Amazon encroach on its territory selling appliances and electronics. But it’s managed to hold its own against the onslaught after sharpening its value proposition over the course of the pandemic.

Currys’ defining feature is its knowledgeable staff, on-hand to help customers make decisions that will work for their needs. This is something online only retailers don’t tend to offer, and big-box discounters lack. It puts Currys in a unique position, but one that was all-but lost during lockdowns.

The group moved the service aspect of its business online, offering its instore experience to customers through a screen. Plus, the group’s closed its Carphone Warehouse locations to bring all of its products together under one roof. This should increase cross-selling opportunities, while also lowering the overall cost base.

It’s an exciting way to merge online and in-store, and it also means Currys is prepared if we’re heading for any more restrictions.

On paper, Currys looks well prepared to emerge victorious in the new retail landscape, but there are a few niggles. Top of the list for us is operating margins – which are thin at just 2%. Online sales are less profitable than those in-store. So, if we’re on track for a shift toward majority e-commerce, Currys will have to find a way to boost profitability.

Inflation also presents a problem. Consumers are likely to be more conscious about what they’re spending. And with the rapid rise in prices, they might put off the big-ticket purchases Currys specialises in.

So far, the group’s strategy is paying dividends. At the half-year, it was sitting on £250m in net cash, an enviable position in the retail space. This means the group’s been able to restart dividend payments, though this is variable and not guaranteed.

Currys is a unique player in the retail space. If the group continues to build out its online platform in a way that supports profits, we see the business continuing to thrive.



This article isn’t personal advice. If you’re not sure if an investment is right for you, seek advice. All investments fall as well as rise in value, so you could get back less than you invest. Remember, past performance isn’t a guide to the future.

Unless otherwise stated estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future.

Investments and income they produce can rise and fall in value so investors could make a loss. This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.


Explore our Investment Times January 2022 edition for more articles like this.

See all articles

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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