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April 29, 2020
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5
min read
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Written by: 
Anna Sziwek

The COVID-19 eCommerce rush

A differentiated view for online sellers

Humans are creatures of habit. When conditions in the environment change over a longer period of time, we adapt. The current COVID-19 crisis has already changed the standard conditions. The change is due to the extraordinary measures taken to effectively contain the virus. The governmental enforced lockdown makes social distancing the new normal. It results in: Keeping sufficient distance from the next person, putting on masks to protect others, and as little contact with other people as possible.

When you do business online, you first need to understand the dynamics currently emerging in the eCommerce environment. In times of social distancing, the internet has become the first point of contact for people. People who may never have ordered online before create an account for the first time, whether on marketplaces or online groceries stores, and place their first order. Online sales in certain categories such as food and household goods are currently skyrocketing. The eCommerce market is being driven forward by COVID-19 and will benefit in the long-term.

In addition to these direct consequences, the impending resulting recession will create widespread uncertainty. Customers will consider more carefully what they buy, demand for goods over and above physiological needs will fall. All categories of goods are likely to be affected by customer savings, as the OECD report about the initial impact of COVID-19 on economic activities also predicts. The following graph outlines the potential initial impact of partial or complete shutdowns on private consumption in the G7 economies:

Chart of total consumer spending per country in percent.

With these dynamics in the background, eCommerce companies must work on different fronts along the supply chain, as it is also outlined in the recently published McKinsey Article about supply-chain recovery in COVID-19 times. According to the article, three perspectives should be taken into account:

  1. Creating transparency in the current supply chain
  2. Making a realistic assessment of end-consumer demand
  3. Ensuring flexibility in planning and contracts
1. Creating transparency in the current supply chain

In view of the problems that have arisen so far during the COVID-19 crisis, the company’s own supply chain must be challenged. This can be seen in the delivery bottlenecks by Chinese suppliers, the prioritisation of goods at Amazon, and the extended delivery times due to high order volumes. The first step is to create transparency and find possible alternatives, considering local policies regarding COVID-19 and their impact on the supply chain. For example, the manufacturers could be hampered by temporary incapacities of employees to work due to illness or quarantine measures. Furthermore, the delivery process of one's own goods should become a greater focus. Dropshipping, for example, is currently causing some uncertainty due to restricted or shut down manufacturing and logistics facilities. It is important to create transparency for your online business, but also to pass this on to your own customers through early communication.

2. Making a realistic assessment of end-consumer demand

The two dynamics, positive trends in eCommerce and increasing insecurity of the end consumer, must be considered with regard to own products. Use market insights or external data sources to estimate demand more realistically in the coming months and react accordingly with regard to future orders. The impact of COVID-19 measures will depend largely on the magnitude and duration of national shutdowns. Additionally, it also depends on the efficiency and rapidity of fiscal and monetary policy support.

3. Ensuring flexibility in planning and contracts

One way to protect yourself from fluctuations in demand is to make the entire planning process more dynamic. Examine your contracts with suppliers, lenders, and others. Make the contracts as flexible as possible to be able to react to special circumstances and be well equipped for future shocks. Among other things, COVID-19 also exerts pressure on liquidity planning. Hence, liquidity should be strengthened from both sides: Use purchase financing to release cash stuck in your orders, and use factoring services to release cash stuck in receivables. Try to minimise your working capital as much as possible in order to gain flexibility.

The COVID-19 crisis forces everyone to look at their own supply chain, to question and optimise internal processes. Create transparency, for internal and external stakeholders. Evaluate realistically the future and create flexibility! All this will help you not only to survive the current challenge but also to strengthen your resilience in the future.

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