Full digital: temporary or permanent?
We all know that the way we consume has changed dramatically in recent years. There’s now an app for almost everything. We use our phones to read the news, order food, monitor our sleep, and even invest!
Well-known names, like Amazon or Uber, or their emerging counterpart, JD.com, Sea Limited, and MercadoLibre have skyrocketed in 2020, as stay-at-home dynamics have forced people to consume differently. Now the key question for these companies is whether the adoption rate was only lockdown-driven, leading user engagement to drop as economies reopen. Have we reached the full potential of those Covid names?
At Carmignac, we are convinced that the overall digitization thematic hasn’t quite played out yet, for several reasons:
The importance of habits. We can already notice in some countries that have already reopened that consumers keep ordering food delivery, buy online, etc.
Penetration is still low. Especially in some areas like grocery and in some regions like Europe and Emerging markets
Margin expansion. After years of strong growth, these platforms should see their profit margin improve as they increase the monetization of their ecosystems.
Beyond ecommerce, digitization should continue to extend to other parts of our daily life. For example, one area where digitization is accelerating is education, but it is at the early stages of technology adoption despite growing very fast since the virus outbreak.
The need for a change
Interestingly, if digitization has revolutionized the way we consume, it has also strengthened our need for authenticity and experience.
We are increasing our focus on those companies that go the extra mile in humanizing transactions or reinventing the way we shop. For example, some platforms offer a strong differentiation vs. other marketplaces, as it makes people feel that there’s a person behind every item. One example is Etsy, an ecommerce platform with a “community of sellers” that are creative entrepreneurs / artists enabling Etsy to have a collection of unique products.
In terms of experience, we are looking at companies able to offer a unique in-store consumer experience like Ferrari or Lululemon in athletic apparel that are using augmented reality to enable customer to try their products.
Another interesting change that we are witnessing is a preference for a more sustainable consumption. We have seen a clear uptrend in the production and sale of electric vehicles. While this is underpinned by government subsidies and adapting infrastructures, it also denotes a shift in consumer preferences, which we have been trying to benefit from in our portfolio.
The need for uniqueness
Finally, this new consumer is still looking for uniqueness, which luxury companies clearly aim to offer. People still want things that not a lot of people can get. A company like Hermès deliberately makes it hard for consumers to access some of its most coveted bags, such as the Birkin and the Kelly. You can’t buy these items online, and since the brand no longer offers waiting lists through its stores, you need to have an existing relationship with Hermès to buy one. Moreover, scarcity also means these bags retain their value on second-hand markets. Hermès bags fetch 80% of their retail price when resold, while Chanel and Louis Vuitton only fetch 63%.
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Source: Carmignac, 30/04/2021