Production and manufacturing have halted with half of mainland China on lockdown. The consequences of the Coronavirus crisis on eCommerce and dropshippers could prove costly.
In less than a month, the Coronavirus has snowballed into a global event. It shows no signs of slowing down. If it continues to spread unchecked, the outbreak poses a global threat to the economy.
On January 30th, the Coronavirus outbreak reached a new bleak milestone. In a press conference held by WHO Director General Tedros Adhanom Ghebreyesus, the virus was declared a global health emergency.
The “super-spreader,” has already infected more than 31,500 people. It has also killed at least 630 people across 26 countries to date. These numbers continue to reach a daily record.
China has imposed a lockdown across several major cities to control the spread of this pneumonia-causing virus. Because of this, eCommerce business owners and dropshippers are already bracing for months of operational delays.
Could this transform the way eCommerce businesses operate and shape consumer behavior this year? Read on.
When China Sneezes, the world catches a cold
There’s no doubt that China is the world’s manufacturing powerhouse. The virus-related disruptions of the past month saw halted factory productions. These disruptions are ongoing amidst the Chinese government’s traffic control and efforts to quarantine the outbreak.
In fact, the shutdown encompassed more than 20 provinces in China. And these provinces accounted for 90% of exports and 80% of China’s gross domestic product (GDP). Yikes.
The chief economist for the Asia Pacific at Natixis told CNBC,
That (the disruption)…is a major blast to the global value chain, not only for China, but the world. That’s already, basically a month and a half without factories working,
— Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
This situation no doubt places immense pressure on businesses that rely on the mainland’s manufacturing hubs. Dropshippers and smaller eCommerce businesses will be the first to feel this effect.
It is still unclear when manufacturing and logistic services will bounce back from these delays. And even if factories could resume business as usual, there is still backlog. This is excluding the 2-week quarantine requirements imposed on goods shipped from the affected region.
A volatile quarter ahead for eCommerce
The first quarter of 2020 is looking to be a volatile environment for eCommerce businesses and dropshippers. Many parties still remain uncertain about this whole situation. The virus shows no signs of relenting anytime soon— although some have drawn their theories.
The manufacturing manpower isn’t the only service that’s affected. Logistic companies are currently facing operational disruptions as strict transport restrictions are implemented.
These factors could test the supply chain’s resilience.
The loss of revenues across the globe looms as idle production and choked logistics in China means an overall disruption to the U.S production. The coronavirus has hit eCommerce businesses really hard.
Foxconn and Apple
Apple may be the first high-profile case suffering from supply chain disruption. Foxconn, the company’s largest iPhone assembler, hit a manufacturing limbo when 90% of their workforce came to a grinding halt.
Their key manufacturing plant in Zhengzhou was approved to resume production. But the company is struggling to reopen plants in other parts of China.
As a result, Apple’s stocks were down by 1% as of February 10th, Monday. Ming-Chi Kuo, Apple’s top analyst, has already forecasted a 10% cut in iPhone shipments due to the outbreak.
The tech giant is already bracing themselves to account for the ripple effect of the coronavirus on quarterly revenues.
Coronavirus is posing a challenge for both eCommerce and drop shippers
Tech giants like Apple and other corporations can rely on their dedicated teams of risk management professionals to tackle supply chain disruptions and market threats head-on. But how about eCommerce businesses?
For drop shippers, avenues for transport are being garrisoned off. This spells bad news. The status of airports, train stations and other forms of long-distance transport could translate to lengthy delays without a swift resolution in sight. This applies to any transporting orders from China whether they are produced, ordered or are in the process of being ordered.
It’s safe to say you can assume that your items will not be shipped promptly due to longer-than-expected closures on production and logistic services. Here’s how you may be able to ride out the situation.
First, communication is key. Manage your customers’ expectations. Account for the expected delays prior to taking any further orders or continuing to run your paid ads. Here’s something to think about when using emails to manage your customer relationships during this critical period.
What about existing orders? It’s highly recommended to reach out to your buyers. Inform them of the situation should you predict any delays in order fulfillment— which there most likely will be. And when the goods are able to be shipped out when the airways resume business, CDC has confirmed you will not be at risk of contracting the virus from opening packages shipped from China.
For eCommerce businesses, while you can’t control how this situation plays out, you can control how you react to it. You should focus on some key steps to secure your supply chain and other key parts of your business—your customers.
1. Ramp up your Customer Support Team
If the disruption continues for 1-3 months or permanently, how will you communicate with your customers? Loop them in as soon as you can while you map out your short-term or even long-term gameplan.
While you may not be entirely equipped to handle this sort of situation, you should focus on first preparing the appropriate answers that might creep in such as updated information of service interruptions, the safety of incoming packages and more importantly, the shipment delays of any pending orders. Think of how you will stay communicated with them.
Chances are, you’d have a customer base from all over the world clamoring for an explanation. Alternatively, you can install a live chat function equipped with multilingual language support on your eCommerce website to address any incoming queries in real-time.
2. Manage your inventory
A short-term but very important for eCommerce businesses is to protect your margin. What are your current sales performances against your inventory levels? Have you accounted for any expected delays in new restocks?
First, it’s probably advisable that you gauge a manageable run rate for your business should your stocks deplete. You may want to devise a new pricing framework as well as promotions in order to not completely inhibit but slow down sales while maximizing margins with the current inventory that you have.
The idea here is to safeguard your total margin and ensure inventory sustainability until the situation improves.
Already, Cathay Pacific, a major cargo airline for the mainland and Hong Kong, has stated they plan to cut their number of flights to and fro from the mainland by 50% by the end of March. We can predict these effects to reverberate along the supply chain and drive up prices to the end consumer.
So against the macroenvironment of a “super-spreader” pandemic, how will this ripple effect shape buyer’s decisions in the eCommerce space?
Higher clicks, and healthier spending during the quarantine
Surprisingly, with threats from Coronavirus, delivery companies, and eCommerce brands can see a silver lining from this pandemic. As more people are quarantined in their homes, be it government- or self-imposed, this outbreak could in fact accelerate the adoption of eCommerce. Especially when bricks-and-mortar stores become inaccessible as security measures tighten.
Aside from panic, the surge in orders placed for face masks and disinfectants have increased dramatically. People are more likely to buy their groceries online as well as logistics services are now providing “contactless delivery”.
Ironically, this spells great news for eCommerce! People are relying heavily on online retail for functional necessities like groceries and food.
Plus, consumers are spending more time online to fight their anxiety and boredom with impulsive buying in a phenomenon known as ‘panic shopping’.
The main takeaway is, the coronavirus crisis has affected the eCommerce industry. It could spell an entirely different environment for the industry in the next quarter. Have you started preparing for what’s to come?
If this article resonated with the current situation you’re facing, we’d love to hear from you. Especially if you have any questions on how to effectively use email marketing to manage your customer relationships during this critical time, you can arrange a free strategy call to start planning ahead.
