COVID-19 continues to spread faster than a wildfire as the world races against the outbreak to contain it. Thousands of people have already lost their lives to the coronavirus, which has now been declared as a pandemic. Besides being a global health crisis, COVID-19 has shaken even the strongest economies around the world.
Businesses all over the globe have been affected as the majority of them obtained supplies for their manufacturing operations from China, where the fatal disease originated and led to a complete economic collapse. Widespread lockdowns in China and several other countries have disrupted the supply chains, closing down factories in even the least affected countries for unforeseen periods.
It’s no wonder that among other industries, the global eCommerce market is already experiencing the blow. While online retailers selling health and hygiene-related products such as masks, sanitizers, toilet papers, etc., have seen a drastic surge in sales, the outbreak does make us think about the long term impact on revenues following the stoppages in supplies and shutting down of factories.
Impact of COVID-19 on eCommerceBusinesses
Here are some of the effects of COVID-19 on eCommerce businesses:
Change in Market Dynamics
Change in consumer buying behavior is among the most critical effects of COVID-19 on eCommerce businesses. The world, especially in countries where the COVID-19 cases have been reported, has seen a significant shift in consumption patterns. This is particularly true for online shopping, which has also recorded a notable increase in the total number of orders as more people are ordering from their homes.
Most eCommerce companies have reported a significant drop in casual shopping such as that pertaining to fashion, cosmetics, and luxuries, and a considerable increase in orders for essential items such as healthcare products, groceries, and toiletries.
On top of that, there’s a huge drop in the number of people dining at restaurants. eCommerce food-delivery companies that operate via mobile apps have reported a greater influx of traffic as people now want food to be delivered at homes.
Certain food-delivery apps such as DoorDash and Postmates have rolled out contactless delivery options that resulted in a sudden increase in the number of orders. Following this initiative, restaurants that never considered getting listed on such apps are determined to register and save their business.
Stock-Outs and the Associated Issues
With cities locked down and more and more people avoiding crowded settings, consumers are increasingly turning to online marketplaces to order essential household items. Besides healthcare products, grocery and other necessities are also being ordered online. eCommerce sellers are already facing shortages for such items.
However, the outbreak is expected to impact all other product categories as the supply chain disruptions obstruct product supplies. For sellers on Amazon, it’s extremely important to prevent any extensive stock-outs because anything that remains out of stock for more than 30 days will lose all its sales history based on Amazon’s advertising algorithms and organic search. When it comes back in stock, it will be listed as a new item and will experience a significant drop in search results for its most relevant keywords.
To prevent stock-outs as well as to take advantage of the situation people are faced with, a large number of vendors selling on eCommerce marketplaces have suddenly increased the prices of such items. For instance, as the first few COVID-19 cases were reported in the US, widespread price gouge broke out on Amazon, especially for products such as Purell hand sanitizers, Clorox wipes, and the majority of surgical mask brands.
The sudden rise in demand for hygiene products, coupled with product shortages, also gave fraudsters the opportunity to sell counterfeit items, spoiling the credibility of the eCommerce market. For instance, simple face masks claiming to isolate virus-carrying saliva and latex-free gloves claiming to prevent COVID-19, pneumonia, flu emerged on Amazon that had to be delisted. During the last week of February, the eCommerce giant had to delist over one million such items from the platform.
Delayed Deliveries
Like delays in supplies, order deliveries have greatly been affected by COVID-19. While there’s no way of receiving products ordered on Ali Express, Lazada or any other Chinese eCommerce marketplace, many other international shipping operations have been hampered, affecting most eCommerce sellers around the world.
Although local orders are being fulfilled, product shortages and stock-outs are causing delays in order deliveries, a trend that’s only expected to increase as we move ahead. Because people are spending more of their time at homes, they’re actively looking for ways to have products delivered to their homes. As a result, supply shortages and longer delivery times are sure to follow.
To address this, Amazon recently made heavy investments in one-day deliveries such as Amazon Prime’s initiative of the free 2-hour delivery for certain products. Other retail giants such as Target and Walmart have taken similar measures. However, the fact that customers are valuing faster deliveries more than ever before, combined with product shortages and supply chain disturbances, has made these measures less effective.
Remote Work and Leaves Can Add to Costs
Even though many eCommerce sellers have experienced impressive growth, the majority of online businesses happen to be small stores with limited employees handling multiple tasks. Such eCommerce businesses can face troubles if the government issues orders enforcing remote working.
While the customer service team, the marketing team, and similar teams can somehow manage to work from homes, sending the factory, warehouse, distribution, and delivery staff home can hit the business hard.
Even if no such regulations are passed, business owners will want to keep everyone safe at the workplace. Installing hand sanitizers and purchasing more toiletries in different areas of the workplace are all adding to business costs.
Given the nature of the disease, the slightest of negligence can lead to the virus spreading all over the workplace, proving fatal for everyone, including their family and friends. Since no one can afford that, anyone who appears to be sick will most probably be sent home with paid leaves and the businesses may need to cover their medical bills depending on the insurance coverage.
On top of that, sending an infected employee home isn’t enough. eCommerce businesses doing that will also need to look into and document everything, from the entry and exit times of the infected employees to how they commuted to work and who they came into contact with to prevent any further troubles. While such actions will protect everyone from harm, they will also lead to high costs.
Increase in Outsourcing
Since supply chain bottlenecks can impact the entire fulfillment operations, many eCommerce businesses with in-house shipping may start outsourcing the fulfillment function. Some small businesses may even outsource their warehousing or marketplaces that work with third-party vendors may shift to a model in which they act as middlemen, requiring vendors to ship the products directly to customers.
Outsourcing fulfillment operations can also be considered to improve the delivery times while protecting in-house staff from the pandemic. Companies that see an increase in the number of cases may have no other choice but to outsource on-site operations to keep the business running. This, however, could mean warehouse and fulfillment staff losing their jobs.
Companies outsourcing operations may lose business in the short run but the reduction in costs can work greatly to their advantage.
Large eCommerce giants who can find a way out to avoid delivery slowdowns while using their own shipping fleet will probably enjoy an-ever increasing competitive edge over small players.
How eCommerce Businesses Can Cope-Up With the Challenge
While the solutions should typically vary depending on location, here are some ways to manage the effects of COVID-19 on eCommerce businesses:
Maintaining the Relationship with Suppliers
Besides following the news from reliable sources regarding the outbreak, eCommerce sellers should maintain a strong, direct connection with their suppliers and vendors. During hard times like these, clients can easily break up and come up with unpleasant surprises if you don’t keep yourself connected with them.
To ensure uninterrupted supply, eCommerce marketplaces should maintain a good relationship with the suppliers by retaining an efficient information flow with everyone. It also works the other way round. Some suppliers will need your support to keep things running in these hard times. Managing a decent business relationship with them can strengthen the bond for a long time.
Staying connected with business partners also helps you stay on top of all local and national regulations. However, whenever you come across an update, be sure to verify it from official sources because situations are often subject to spreading rumors.
Ensuring Stringent Quality Control
Following the COVID-19 outbreak, quality control should be the major concern for eCommerce marketplaces. Due to operational disruptions in factories, the majority of suppliers are working with a backlog. To minimize losses, many of them may resort to comprising the quality of items. Hence, eCommerce businesses will need to be more vigilant with quality control such as ensuring double-checks on items to be delivered to customers.
eCommerce companies that rely on supplies from China should take QC even more seriously. Even during normal circumstances, Chinese workers receive bonuses from their companies right before the Chinese New Year holidays and never turn up to work. Now that the event is accompanied by the COVID-19 outbreak, the situation is expected to be worse.
Many workers may not even have survived to come back to work. You must have heard the horror stories with Chinese supplies; multiply them a hundred times to get the real expected picture. eCommerce sellers relying on Chinese suppliers should either implement strict quality control measures or switch to suppliers from other countries.
Bulk-Ordering
Given that the COVID-19 crisis has only begun in most countries, we don’t know how long it will continue and impact businesses and lives. This means delays and disruptions are only expected to increase around the countries. To prepare for this, eCommerce businesses should consider ordering supplies in bulk and develop proper storage facilities to be able to fulfill orders during the period. While it’s true that these supplies may also be delayed, companies should at least be able to minimize serious stock-out issues.
Slowing Down the Sales Run Rate
If you’re an Amazon seller, delays in shipments and shortage of inventory will adversely impact your order fulfillment performance, causing your Amazon rankings to drop, which will lead to a further reduction in total margins. The best you can do to avoid this is to anticipate the delays in supplies, determine how the inventory levels will spread across the upcoming months and align your current sales velocity with it.
In other words, you will need to determine the sales run rate that will work without going out of stock. Once you’ve calculated the rate, you can then adjust pricing and promotions to slow down the sales. Your aim should be to maximize your margin on the inventory you’ve allocated for each month while eliminating the chances of stock-outs.
Training the Customer Support Team
It’s not just eCommerce sellers that are worried about COVID-19; their customers are also worried too. With more customers ordering products online, the number of customer queries pertaining to order deliveries, working hours, etc., is also increasing. Since you can’t afford to lose customers during this critical situation, you will have to respond to the changes to offer the best customer support possible.
What you need to do is prepare your customer support team to answer questions pertaining to shipment delays, the safety of product packaging, and contactless delivery options and so on. Safety measures are particularly important because consumers are actively looking for safe options when looking to place orders online.
In summary, the effects of COVID-19 on eCommerce businesses are massive. We truly hope that this guide helps eCommerce businesses to thrive during these difficult times. For more information on eCommerce accounting, or to speak with an outsourced accounting expert, contact Fully Accountable at 1-877-330-9401.
Chris Giorgio is the President of Fully Accountable. Fully Accountable is an outsourced accounting firm specializing in eCommerce and digital businesses. Chris has served as a CPA, CFO and has over 14 years of experience in the accounting and finance industry. Chris has dedicated his career towards helping entrepreneurs and high-level business owners achieve greater profitability through specialized outsource accounting functions.
