This year, festive shoppers are welcomed by businesses more than ever. But the Covid-19 pandemic with its social distancing measures, travel restrictions, and lockdowns has impacted consumer behaviour and many shoppers will be snapping up gifts online or forgoing cash in favour of contactlessp payments.
We have identified three wide-moat stocks that could benefit from this year’s Christmas shopping.
Source: Morningstar Direct. Data as per December 1st, 2020.
Amazon
It probably comes as no surprise that wide-moat Amazon (AMZN) is on this list. The social distancing measures enforced by governments worldwide have provided a tremendous boost to e-commerce, where Amazon is the ruling giant. Amid the second wave of Covid-19 infections, it is expected that a record number of Santa’s friendly helpers will purchase their festive gifts online this year. Global Survey reports a significant shift in Christmas shopping patterns as shoppers seek safe in-store and online experiences. According to the survey, more than half (56%) of UK consumers and more than a third (36%) of US consumers will complete their ad-hoc Christmas shopping purchases online.
This shift in Christmas shopping behaviour will likely benefit Amazon, a company with more than 540 million estimated global active users. Sector strategist R.J. Hottovy says: “The combination of competitive pricing, unparalleled logistics capabilities and speed, and high-level customer service makes Amazon an increasingly vital distribution channel for consumer brands (especially in light of Covid-19 operating restrictions hindering physical retailers).”
Since Santa’s reindeers did not have time to share their opinions about the three wide-moat companies in this article (too busy preparing for Christmas), we have instead included what the bulls and bears say.
Visa
Wide-moat Visa (V) is a facilitator of electronic funds transfers throughout the world and is another company expected to benefit from Christmas shopping in 2020. Visa generates its revenue from transaction fees, and transactions are, not surprisingly, tied to consumer spending. Visa earns its fee regardless of whether a payment is credit, debit, or mobile, according to senior equity analyst Brett Horn, who points out that digital payments surpassed cash payments a couple of years ago and this shift has aided Visa’s growth.
Christmas is definitely a time for Visa card tapping, and this year will be no different. Christmas shoppers are expected to swipe or tap their debit and credit cards even more than last year. According to Deloitte, US consumers are forecasted to spend between $1,147 billion and $1,152 billion on retail shopping between November and January timeframe, an increase of almost 1.5% year-on-year.
The lion’s share of the Christmas shopping transactions is expected to be facilitated by Visa. Horn says: “According to the Nilson Report, Visa holds over 50% market share (by purchase volume) in the US, Europe, Latin America, and the Middle East and Africa. Visa also processes roughly twice as many transactions as its closest competitor, Mastercard. Simply put, Visa’s position in the world of electronic payments is unparalleled.”
Richemont
While the luxury goods industry has suffered a huge blow due to the coronavirus pandemic, wide-moat Cie Financiere Richemont (CFR), a global luxury goods conglomerate whose brands include Cariter and Mont Blanc, might still benefit from this year’s Christmas shopping.
Strict social distancing measures and travel restrictions have prevented high-end consumers from splashing their wealth on luxury hospitality and fine dining, an estimated $250 billion industry according to Bain. This unspent wealth could be funneled towards hard luxury goods, replacing soft gifts such as luxurious vacations and entertainments with glittering jewellery.
Morningstar equity analyst Jelena Sokolova says: “Richemont’s jewellery houses, which include Cartier watches and jewellery and Van Cleef & Arpels, enjoy best-in-class profitability in the hard luxury segment.”
She adds: “Cartier, 'the king of jewellers and jeweller of kings', is arguably one of the best-known and strongest brands in the essentially nonbranded precious jewellery industry. We believe that the high share of gifting in the case of jewellery (about 70% in major jewellery-consuming countries, such as the US, China, and Japan, according to de Beers research), supports the category's conspicuous value and demand for the established brands, such as Richemont's Cartier and Van Cleef & Arpels. As an example, Cartier has been consistently in the top 10 gifting categories for the Chinese high net worth individuals (both men and women) according to Hurun Research since 2013.”
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