How is Coronavirus Infecting eCommerce!?
Coronovirus is throwing the global supply chain off balance. Learn how to weather the storm and keep your eCommerce business afloat in the face of adversity.
8 min. read
What started out as a ‘contained’ virus in Wuhan china has mushroomed into an epidemic with 1,770 dead, at least 70,500 infected, and a jaw-dropping global spread to 26 countries.
To really illustrate the magnitude of ‘Corona’, as it has come to be known, let’s briefly compare it to the last serious global epidemic - SARS. In the 6 weeks Coronavirus has been on the loose it has killed more people than SARS did over the course of 8 months!
Beyond these deaths, Corona is threatening the wellbeing of Chinese businesses. In a desperate attempt to limit the spread of the virus the Chinese government has put over 33 million people under quarantine equal in size to the entire Californian population.
This has led CNN Business to dub this ‘The world’s biggest work-from-home experiment’! According to the China Daily newspaper, over half of the labor force in Beijing plans on working from home instead of going into the office.
Based on interviews conducted by CNN teachers appear to be very frustrated with the work from home situation as are factory workers who are being forced back to work in some parts of China, even as this poses serious health risks. According to the state-run media outlet Xinhua “China's cabinet, urged efforts to protect workers from getting infected and meanwhile resume production as soon as possible”. These efforts include taking employee’s temperature three times a day, disinfecting working areas as well as recording external people employees come in contact with such as suppliers.
How has Coronavirus affected the Chinese economy and localized eCommerce?
For China-centric operations, it is important to remember that bricks & mortar businesses are most at risk. Companies such as:
- Ralph Lauren
have shut their doors from Hong Kong to Shanghai as the vast majority of the population is shuttered in at home. The tourism industry has also been hit hard, with Chinese airline stocks plummeting.
On the flip side, many eCommerce businesses, especially those located in mainland China, are seeing this as an opportunity. Alibaba has seized this moment of crisis in order to push its DingTalk communication app, introducing online courses for people stuck at home.
Both JD.com and Alibaba, two of the largest eCommerce powerhouses in China, are seeing immense growth in their online grocery shopping categories due to government-imposed travel restrictions and sheer fear of leaving the house and contracting the virus.
The online Chinese food retailer Meica recently announced that it was looking to add 10K new employees to its workforce to temporarily help with the sorting and delivery of their internet-based food orders.
But even as very select eCom industries are booming due to the ‘virus economy’, many more are suffering. The Chinese GDP is set to drop by 0.6% to a staggering 5.4% in comparison with pre-Coronavirus predictions of 6% growth, according to Oxford Economics forecasts.
It is important to remember that what happens in the Chinese economy has global influence. Analysts are saying that Coronavirus may lead to a global recession. The Guardian is reporting that "Japan's economy [is] heading for recession" and that "Germany, the world’s fourth-largest economy, is also expected to stumble as the coronavirus epidemic and a slump in trade with China combine with weak consumer demand to drag growth lower".
The spread of the virus has contributed to two main issues:
Production - China is known as the ‘factory of the world’, yet production capabilities have been severely undermined as many workers have been instructed by government agencies to stay at home. Retailers who rely on Chinese manufacturers should expect to see a decrease in both sales and profits as items are simply not being produced.
Large corporations who are heavily reliant on production in China are highlighting the current challenges as well as the hardships to come:
- The toy industry - The American toy industry is at particular risk according to UBS Bank analysts. 85% of toys sold in the US are currently manufactured in China! Mattel, for example, produces 50% of its toys in mainland China. While this is less than the average, Mattel can — and most likely will — still be majorly affected by supply shortages.
- The automobile industry - Companies the likes of GM, Toyota, and Ford have seen production plants paralyzed due to a lack of parts being produced (and shipped).
It is a simple equation: workers at home means factories are closed, and production capabilities are either severely reduced or non-existent.
Transportation - “We think it’s reasonable to expect industry-wide delays in terms of delivery around the world — including potentially missed shipment[s] and service windows, and the need for increased air freight and additional measures at ports that could create unforeseen congestion”, stated Patrick Frisk, CEO of Under Armour who is bracing himself for an expected $50 million hit this coming quarter alone.
Here is how the two main modes of transport and shipping are being affected:
- Air - Major players in the air cargo sector are drastically reducing flights between The Middle Kingdom and the rest of the world. This includes 22 daily UPS flights to China being canceled as well as a 50% reduction in flights by Cathay Pacific, a major cargo carrier. The direct result of this is increased air freight prices.
- Ship - Many cargo ships are being quarantined. Countries like Australia and Singapore are refusing to grant them entry before being tested and deemed virus-free. This is severely disrupting supply chain schedules and global production.
The bottom line is that Coronavirus will have major implications on the global economy at large and eCommerce in particular. The entire global supply chain is being thrown off balance, affecting the price of goods as well as delivery times and schedules. But businesses are not completely powerless in the face of biological mayhem.
What steps can eCommerce businesses take in order to weather the Coronavirus storm?
Empathy - I think the first and foremost thing businesses need to stress is empathy.
This is a global crisis with huge economic implications but we need to first remember the human element - thousands of affected families, tens of thousands of infected people, and close to two thousand fatalities.
If part of your business is based in China, be it production, manufacturing or even if you are simply dropshipping, make sure that your colleagues are safe! Check-in with them to see that they and their family are ok and see if there is anything they need. A little empathy goes a long way in trying times.
On the customer’s end, if your items are produced in China, update your clientele on the health of the people that make the products they buy and love. Consumers are much more tuned into the source of the items they buy than ever before. Most people would be happy to be informed about the wellbeing of the individuals that work painstakingly to make items they want and need.
Next, it is time to react to Coronavirus from a business and marketing perspective:
Diversify Supply Chains - There is a lot to be learned from companies such as the South Korean car manufacturer Hyundai. They are gradually increasing production at their South Korean plants and slowly decreasing their reliance on Chinese suppliers.
Small and large players alike would be wise to take their cue from Hyundai. It is never good business practice to be reliant on one source. The number one rule of investing is ‘diversify, diversify, diversify!’ and the same rings true for supply and production.
I read a great article on Web Retailer entitled ‘Sourcing Products from India: An Alternative for Ecommerce Sellers?’ which I think every affected business should give a read. Adding India as an additional location where you source items from will dramatically increase your business’s supply chain stability and decrease your vulnerability during the next pandemic — no matter where it occurs.
The key here is to build a business with long term resilience which is capable of weathering any storm.
Demand forecasting - Using past sales data to forecast future demand. For example, if you know a certain item was extremely popular last Easter, then consider ordering with a longer lead time and/or additional quantities to ensure you meet the previous year's demand. This will help you avoid scenarios where you are out of stock due to manufacturing and shipping delays. Do take into consideration demand may not be as high, that you may incur additional storage fees and pay close attention to your cashflow.
You want to maintain the balance between having no products to sell and having products that you cannot sell.
Messaging and Marketing - When it comes to marketing, you need to tread very lightly with your brand’s crisis messaging. Many marketers are very quick to jump on the wagon and take advantage of a bad situation to try and promote their brand. I would vehemently advise against doing this as it has the potential of doing more harm than good by making your brand seem greedy and unsympathetic.
An example of a company whose marketing department made some serious mistakes during a world crisis, albeit a political one, is Kenneth Cole. During the Arab Spring, Tahrir square was ablaze with angry protesters, and KC tweeted the following:
People were outraged by the blatant unabashed attempt at using the Egyptian people’s real struggle for freedom and democracy to promote a fashion brand. But apparently the marketing department at KC has a steep learning curve as two years later they tweeted this during the unrest in Syria, which evolved into one of the worst civil wars in modern history:
Instead of making these kinds of mistakes, which in hindsight are obvious, try to genuinely contribute and assist those in need through your brand. A great example of this is what the Alibaba Group is currently doing in response to Coronavirus - they have set up a dedicated website in order to help with shortages of in-demand necessities, such as protective masks and thermometers.
This first and foremostly contributes to people in need. Only as a byproduct does this help lift Alibaba’s brand — and not vice-versa.
Another thing you can do is set up a donation, say 10% of an order’s value to be given to those that have been affected by the virus. The fact that you are willing to ‘sacrifice’ a percentage of your earnings demonstrates to your customers that you truly care and are committed to helping those you work within their time of need.
Summing it up
With Coronavirus showing no signs of slowing down in the near future, coming to terms with it is the responsible thing to do. This less than perfect reality demands of us to stand together as humans, prepare ourselves as businesses, and resonate with audiences as marketers who understand the plight of others.
How has Coronavirus affected your business and what steps have you taken to address these issues? Please comment below.