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Amazon boxes are stacked for delivery in New York City.MIKE SEGAR/Reuters

More Canadians are using e-commerce to shop and do their banking, but investing in the e-commerce sector is still a mystery to many.

First, it can be hard to figure out what an e-commerce company is. There's not necessarily a consensus among advisers and analysts. Inc. or Alibaba Group Holding Ltd. are obvious candidates. Each was created and developed as an online marketplace. But Amazon also offers cloud computing services, makes consumer electronics and streams original television programming.

As well, big retailers now incorporate e-commerce as a large component of their business. In August, Wal-Mart Stores Inc., the world's big-box behemoth, announced it was buying, a one-year-old online bulk retailer, for $3-billion (U.S.) to build its online retail strategy.

"Most public companies already incorporate e-commerce into their existing business models," says George Christison, an investment planner and founder of IFM Planning Services and, based in Lantzville, B.C.

E-commerce is growing more slowly in Canada than in the United States, but the pace is still brisk, says Larbi Moumni, equity specialist at Raymond James Ltd. in Toronto.

According to Forrester Research Inc., a consumer analytics and advisory firm, Canadian e-commerce is anticipated to reach $39.9-billion by 2019, representing 9.5 per cent of total retail transactions, Mr. Moumni says. Perhaps conservatively, Morgan Stanley has predicted that the U.S. e-commerce domestic market will be worth $119-billion by 2020.

Growth in Canada will be facilitated by a number of factors, Mr. Moumni says. "They include a maturing assortment of U.S. and international brands operating tailored online stores for Canadians, and the launch of all-new or revamped online stores from incumbent Canadian retailers."

Venture capital funds have been eager to invest in e-commerce. Five of the world's top VC investors in e-commerce are based in the United States (Tiger Global Management LLC and Morgan Stanley in New York, and Iconiq Capital, Accel Partners and Sequoia Capital in California), while five come from Russia, South Africa and other countries, according to PitchBook Inc., a private equity, M&A and venture capital database.

In some places, the VCs may be too eager. On the Indian investor website, writer Anurag Avula observed that in 2015, investors put $7.4-billion (U.S.) into e-commerce startups in India alone, a 57-per-cent increase over the previous year.

While it's true that in India e-commerce has grown 60 per cent year over year, "people seem to have ignored unit economics" and they may pay a price for their "exuberance," says Mr. Avula, who is also a co-founder of Shopmatic, a Singapore-based service platform for e-commerce companies.

In addition to buying shares of e-commerce firms, Canadians can invest in more indirect ways, says Jason Castelli, vice-president and portfolio manager at Raymond James Ltd. in Toronto.

For example, he cites Pure Industrial Real Estate Trust, a Canada-based industrial REIT that invests in properties in Canada and the United States. "As e-commerce grows, we anticipate warehouse and distribution capabilities near major urban centres to experience steady demand," he says. "This will benefit companies that own warehouses."

For investors who are not experts in e-commerce, one way to distinguish serious players from the also-rans is to look at how particular companies are run, says Gabriel Dubois, financial security adviser and president of Advanced Financial Systems Group Inc. in St. Catharines, Ont.

"Amazon [founder and CEO] Jeff Bezos has transformed the e-commerce landscape and is continuing to do so. Success is more a function of the leadership that drives the business model. Amazon, in particular, will continue to evolve and transform itself. Traditional players are looking over their shoulders," he says.

In addition to Amazon and Alibaba, Mr. Moumni is taking notice of other e-commerce players such as Etsy Inc., eBay Inc. and Shopify Inc. "Although all of these are pure-play e-commerce companies, they focus on different segments," he says.

"Amazon is an online store with cloud computing services and their own shelf space, and eBay is an online marketplace that simply brings buyers and sellers of all kinds of products together," he says. "Etsy is similar to eBay but focused on arts and crafts, and Shopify is a cloud-based platform that helps customers set up their e-commerce websites."

Investors can also see differences in growth patterns for e-commerce companies around the world, Mr. Avula says.

The average Indian online shopper uses e-commerce portals primarily for research and not to purchase high-ticket items, he says. "Consumers from more developed economies have a higher tendency to buy products of high-value categories online," he says. Also, "an online shopper in the U.S. makes an average of six times more online transactions than an Indian shopper."

Mr. Christison says, "If I were looking to invest in a pure e-commerce company, I would start with a top-down approach."

"Start by reading industry journals and reports to see what the industry itself is focused upon and talking about. Determine what statistics or metrics the industry uses to assess or judge an e-commerce company. Look at where Wall Street and Bay Street are throwing their money.

"Then I'd wait six to nine months," he says. "It helps to take the emotions out of your decisions."

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