The E-commerce Drop-off

As consumer spending shrinks and shifts amid the COVID-19 crisis, valuations are expanding for many e-commerce vendors. Wall Street has been rewarding online shopping businesses with higher multiples as the health emergency has deepened. But that's not likely to boost acquisition multiples. The shift that's benefiting many of the largest online players is decimating offline retailers – the buyers that have been most willing to pay up for e-commerce startups.

Stay-at-home orders and fears of infection are pushing more shoppers online. According to 451 Research's Voice of the Customer: Macroeconomic Outlook, Consumer Spending April 2020, more than eight in 10 people say the crisis has shifted at least some of their spending from stores to online channels. Those sudden movements, some of which will become permanent habits when the outbreak abates, have bolstered valuations of online shopping destinations.

Since the start of March, the S&P 500 Index has lost 7% of its value. At the same time, shares of online furniture retailer Wayfair have doubled in price. Amazon, Chewy and Shopify are all up more than 20%, according to S&P Global Market Intelligence's Capital IQ. The appetite for food delivery services was even enough to arrest Blue Apron's descent toward penny-stock territory.

Still, for those e-commerce companies that can't capitalize on Wall Street's generosity, the already challenging task of finding a buyer could become more difficult. According to 451 Research's M&A KnowledgeBase, the number of such acquisitions has declined every year since 2016, with just 34 such vendors finding a buyer in 2019. The crisis that's driving more consumers to shop online has come at the expense of would-be buyers of such startups.

Most traditional retailers are struggling to maintain sales as customers stay home en masse. Extended, or repeated, stay-at-home orders could weigh down the balance sheets of many retailers, hampering their ability to do large deals for some time to come. Since 2010, our data shows, nearly one of every six acquired e-commerce firms got bought by an offline retailer or traditional consumer products provider. In the years to come, e-commerce startups will have a hard time realizing gains from a faster shift to online shopping as an important source of exits checks out.