The Connected Consumer: A Huge Opportunity
Today, consumers increasingly enjoy life in digital mode. They spend more and more time connected, at home, at work and while on the move. They shop progressively online, live in smart homes, drive connected cars, make mobile payments, have recourse to telemedicine, and so on. These trends provide huge investment opportunities.
A booming sector
Today our everyday life is increasingly digital: we spend an increasing amount of time on devices to consume digital content. Babies born after 1980 are called “digital natives” or “millennials”. People surf the Internet, watch TV online, shop online, listen to music on MP3 players, read books on eReaders, store data on the Cloud, pay with smartphones when shopping in-store, drive connected cars, etc. Growth in all these areas reminds us of the words of the science fiction author William Gibson: “the future has arrived. It’s just not evenly distributed yet”. Indeed, more and more people are joining the world of the connected consumer and taming it. They are connected at home, at work or on the move, anywhere, anytime.
A survey conducted by the consultancy firm, A.T. Kearney, revealed four main motivations for connectivity, which meet basic, universal needs: interpersonal connection, self-expression, exploration and convenience. Exploration is the most mentioned motivation; it allows people to quench their thirst for knowledge.
The investor perspective
From an investor perspective, the connected consumer theme can be played in various ways, from looking for economic participants in hardware, such as consumer electronics (smartphones, tablets, computers, eBook readers, etc.), 4G networks or OLED equipment suppliers. This also goes for those active in IT services, e-commerce (online sales are growing rapidly and already represent 7% of the world’s total retail sales), smart homes, telemedicine, mobile payments, connected cars, etc.
The connected home market is a huge opportunity. According to a report by the business website Business Insider, it will represent roughly 27% of the broader “Internet of Things” market in 2019. This market covers thermostats, detectors, sensors, cameras, etc. And security systems are considered as necessities!
The 2016 PwC Total Retail Survey highlights several impressive trends. Online shoppers who buy every day represented 7.1% of the total in 2016 versus just 2.9% in 2012. Over the Thanksgiving weekend in the US in 2015 (24-29 November), roughly 103 million people bought online, accounting for 29% of total sales, up from 12% the year before. The frequency of purchases via mobile and smart phones rocketed from 30% in 2012 to 54% in 2015.
Connected cars are another huge opportunity. In-car technology includes infotainment systems using smartphones, Bluetooth, voice commands and hands-free controls, to traffic/safety/collision warning systems, automobile diagnostics, navigation tools, offering recommended departure times, updates on bad weather and an estimated time of arrival.
Demographics play an important role in the attractiveness of this theme. “Millennials” or “digital natives” - represent the largest generation in history (2.3bn).
They are overtaking the baby boomers in terms of spending and can be described as a “smart consumer” generation, using technology to compare prices, research products or benefit from loyalty/reward programmes. Their consumption behaviour is oriented towards healthy living and experiences, favouring areas such as fast fashion, athletic apparel, digital fitness, organic food, online travel services and airport operators.
Risks to our base case
This theme is all about secular trends and it is thus meant as a long-term investment. However, it is not immune from stock market gyrations. During downturns, this theme could suffer from larger corrections than average as a vast proportion of stocks are small-to-medium-sized companies. Because technological innovation can be very disruptive, investing in specific companies requires close monitoring as the rapid pace of modernity could lead to large losses. Many stocks that reflect this investment theme are trading at high levels. Hence, investors should pay a lot of attention to bottom-up analysis and purchase prices.