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Escalating concerns over the spread of the coronavirus known as COVID-19 are affecting every industry and sector, and retail and ecommerce are certainly no exception.
This includes not only challenged supply chains in Asia and other affected countries but also things like runs on certain products in supermarkets and price clubs as consumers panic.
Some observers are even saying that ecommerce here and globally is getting an unexpected boost as shoppers are wary of venturing out to public places.
“Medium term, we believe ‘cocooning’ could actually boost ecommerce growth rates, while online marketplaces should be somewhat less impacted than online retailers or DTC brands due to their diversity of suppliers and/or seller base,” said Robert W. Baird analyst Colin Sebastian in a research note. “At this point, we believe negative Q1 guidance revisions are possible or even likely across our coverage as companies attempt to quantify the near-term headwinds from the COVID-19 outbreak.”
Sebastian added that the coronavirus-driven cocooning effect here in the U.S. “is a theoretical concept, for example, if the macro situation worsens. I’m not sure we are there quite yet.” This effect has already been seen in China, where sales of fresh food on JD.com jumped 215% in the 10-day period ending Feb. 2, according to Digiday.
On the fulfillment and logistics side, Amazon, UPS and FedEx have all been announcing delivery delays caused by spikes in online ordering related to coronavirus concerns. Amazon said Prime Now and Amazon Fresh deliveries have both been impacted, according to Bloomberg, with the surge straining capacity.
Both UPS and FedEx warned of shipment disruption and delays in countries most affected by the COVID-19 outbreak, according to Reuters.
“We are taking recommended precautions in terms of pilot, team member and customer health and safety,” FedEx told Reuters, adding it is flying in and out of affected countries but travel restrictions are affecting transit times.
“In the affected areas, we continue to support demand where it exists from our customers, and we are prepared to resume normal operations in mainland China and Northern Italy as soon as government restrictions are lifted and regular commercial demand returns,” said UPS spokesman Matthew O’Connor. “In China, we are at almost 100% of normal staffing and demand is rapidly resuming as commercial activity returns to normal.”
O’Connor said while the impact is yet to be quantified, UPS is expecting the consequences of the outbreak to negatively affect its international segment this quarter. “The safety of our employees continues to be our first priority,” he said.
According to the American Association of Port Authorities (AAPA), Q1 cargo volumes at U.S. ports could be down by 20% or more compared to last year, due to coronavirus disruption, American Shipper reported.
There are also apparently a lot of questionable opportunists out there. CNBC reports that major ecommerce and marketplace companies including Amazon, Walmart, eBay and Etsy are battling sketchy sellers who are either price gouging on hot items like facemasks or selling products that make dubious claims to “cure” COVID-19 – which has no cure at this point. Last week, for example, Amazon said it removed more than 1 million items for violating its policies on these fronts.
Mitchell Bailey, chief operating officer at etailz, a growth platform for marketplace sellers, said the company has seen “upstream and downstream impact” from the coronavirus, with many brand partners seeing between 30-50% in factory production output.
“Although this has been improving, many factories are still being hindered,” Bailey said. “On the other side, we are seeing heightened demand across a few different categories on Amazon including health and personal care, sports and outdoors and baby products. Some smaller sub-categories within these verticals have seen 90% growth rates as customers make larger purchases.”
Bailey added etailz is “actively working with brand partners to forecast demand in order to effectively plan the supply chain and minimize out-of-stock exposure on Amazon.”
James Thomson, partner at Amazon seller advisory firm Buy Box Experts, said sellers who are challenged by coronavirus-fueled inventory delays need to think carefully about channel prioritization. For instance, if they’re primarily Amazon sellers, they need to consider that first and foremost as a stock-out of any duration can easily lead to a listing bounce as it’s algorithm-driven and unforgiving.
“I would recommend aiming to keep Amazon in stock ahead of other channels, as the Amazon organic search algorithm and Amazon advertising algorithms heavily punish products that are out of stock for many consecutive weeks,” Thomson said. “If it’s out of stock for more than 30 days, it will be treated as a new product with no sales history when it finally comes back in stock.”
JoAnn Martin, vice president of industry strategy and market development for supply chain platform Blue Yonder (formerly JDA), said the combination of the trade war with China and the rise of ecommerce have effectively prepared supply chains to better deal with coronavirus.
“Many retailers and manufacturers have already hedged their bets because of the trade war with China,” Martin said. “The trade climate has caused some of our customers to expand their manufacturing footprint outside of China.”
Many of Blue Yonder’s offshore retail and brand customers have also followed the trend in recent years of forward positioning inventory closer to customers. “They are increasingly establishing a U.S. presence to enable a more rapid response to local trends, better inventory planning and availability.”
As grocery stores, and especially price clubs like Costco, Sam’s Club and BJ’s see lots of panic buying, inventory levels have “highs and lows” on categories like household chemicals, personal hygiene, and personal health, said Doug Baker, vice president of industry relations for trade association the FMI, the Food Industry Association. He added no member grocery retailers have closed any doors due to COVID-19.
“Shelf-stable, frozen, and canned goods have spiked on the food side,” Baker said. “The grocery supply chain is very resilient. Although there will be periodic out of stocks, retailers working with primary and secondary source supplier partners are working quickly to address changes in consumer demand as the situation evolves.”
Cynthia Rigsby, an intellectual property lawyer and a partner with Foley & Lardner, said retailers, manufacturers and brands need to develop and execute an effective supply chain response plan in order to mitigate risk and prepare for any interruptions. This includes reviewing “force majeure” language in their supply chain partner contracts, referring to a legal doctrine that exempts parties to a contract from non-performance liability due to factors beyond their control.
While most such provisions are unlikely to list disease, epidemics or quarantines, Rigsby said many include general provisions covering natural disasters, “acts of God” or acts of government.
“The coronavirus outbreak presents a somewhat unique situation in that it includes both a naturally occurring component – the virus itself – and a government action component, such as quarantines and other measures,” she said.
Rigsby also advised any parties to M&A transactions to review any “material adverse change” clauses in their agreements to assess the impact of the coronavirus outbreak.