“Necessity is the mother of all invention.”
When you think about all the pandemics, wars, and crises in history, the proverb “necessity is the mother of all invention” really starts to make a whole lot of sense.
WWI and WWII gave us advancements in military technology which in turn gave us advancements in medicine, telecommunications, computing, aeronautical engineering, etc.
How?
The best conduit for a common bond is a common cause. If the Allies didn’t come together to beat the Nazi’s and rest of the Axis powers, the world would’ve seen a reign of terror it has never seen before previously, dominate the world for many many years to come. The threat of the Axis powers taking over the world made it necessary for the Allies to use their resources and their best and brightest minds to accelerate the development of technologies that would stop pure evil.
Now replace the common enemy that was the Axis powers with COVID-19 and you have the common cause for nations to come together for a common bond. You have the necessity by which nations will use to accelerate new developments and adoption of technology.
This current acceleration due to COVID-19 will lead to new medicines, widespread adoption of telehealth platforms, and the rise of virtual education. It will also accelerate the decline of traditional brick and mortar retail and accelerate the rise of e-commerce.
Upside and Downside of Acceleration
This current pandemic crisis has and will continue to lead to the acceleration of e-commerce swallowing traditional brick and mortar retail. When famed investor Mary Meeker released her annual Internet Trends Report for 2019, e-commerce as a percentage of retail sales looked like this,
E-commerce made up 15% of retail sales in June 2019 and continued to increase.
As of May 6th, 2020, this is now where e-commerce stands as a percentage of retail sales,
E-commerce as a percentage of retail sales has doubled since the release of the Internet Trends report to account for over 30% of retail sales.
What many weren’t expecting to happen for another 10-15 years, happened in months due to COVID-19. Brick and mortar on main street has been hit hard, but there is one company that’s letting them hit back…
Shopify is the new main street
In 2004, a German immigrant to Ontario, Canada named Tobi Lutke, happened to start an e-commerce business selling snowboards online. That company became Shopify and is now the highest- valued public company in Canada with a market value of $86.1 billion.
I’ve written about Shopify before in one of the first editions of this newsletter. Shopify to me is one company that I really really really regret not investing in this time last year when the stock price was around $260 a share and now trades around $728 a share. Its stock is up close to 110% since March.
It is the one company positioned outside of course Amazon/BioTech etc. as well as Twilio and Peloton, which will benefit the most out this acceleration we are seeing in the adoption of new technologies and technology-driven business strategy.
The necessity to keep their small business afloat during the pandemic is the conduit for which small business is using to finally go and expand digitally.
Shopify is bringing main street online.
Shopify will come out a winner during and post COVID-19, here’s why,
New stores created on Shopify grew 62% between March 13 and April 24, compared to the prior six weeks.
GMV through the point-of-sale channel ( think in-store) declined by 71% between Mar 13, and Apr 24, relative to the comparable 6 week period prior, BUT retail merchants managed to replace 94% of lost GMV with online sales over the same period.
GMV which represents the value of all goods sold on the platform, increased 46% or $5.5 billion to $17.4 billion from a year earlier. Analysts were expecting a 40% increase on a year-over-year basis to $16.9 billion.
Shopify is empowering main street to come online, stay online, and stay afloat. It’s not only getting stores set up to sell online- it’s providing them the capital to get started in the first place and helping them to expand in exchange for a percentage of their sales.
Take this from their first-quarter earnings report,
“More merchants are making greater use of Shopify Capital, with $192 million of advances and loans outstanding as of March 31, 2020, compared with $150 million as of December 31, 2019. And, we announced we have committed an additional $200 million above the March 31, 2020 level for the remainder of 2020, to increase funding of Shopify Capital in the United States…..”
The adage that every company eventually becomes a Fintech company is so true- especially now.
As the adoption of new and existing technologies accelerates over the course of this pandemic, Shopify is uniquely positioned to come out a winner and help main street survive by bringing it online.
What I’m Reading
The Berkshire Hathaway Annual Report
Listen to Warren,
Happy Learning,
-Sean McCroskey