We’ve seen nothing yet: 5.9 million people could be laid off in the EU, an eCommercers take on the Coronavirus.
I run a pretty straightforward company. As a sustainable and social impact startup, we produce everyday products in circular materials and try to have a climate-positive impact on communities across the globe. When it’s business as usual, that is.
That’s not the case now.
Like the rest of the world, I’ve been carefully monitoring the spread of the Coronavirus in the past couple of months.
Some will say they began taking it seriously already in December of last year, but honestly, I was busy trying to fill an increasing amount of orders and planning around the Chinese New Year.
It wasn’t until mid-January when I started thinking that this might have an actual impact on our daily operations.
“Stop touching your face, Dave”
But first things first. What started out as a risk for human health, safety and wellbeing, has now developed into a Leviathan of financial impact ready to pounce on markets across the globe.
It’s riveting to follow the behavioural patterns of the human mind when things like this happen.
I can only turn to examine my own behaviour.
Making sure that our remote global team stays safe and continuously checking in on the quarantined team-members in Hong Kong. Halting all non-necessary travel for both myself and the team.
Slowly starting to avoid public transportation during rush-hour in Stockholm and remembering the 2011 Steven Soderbergh movie Contagion’s famous Kate Winslet quote: “Stop touching your face, Dave.”
Avoiding crowds is not ‘thinking out of the box’.
Interrupting your usual consumerist behaviour because you have no idea what’s waiting behind the corner isn’t that strange. And suddenly, there we are. Who wants to go to a massive shopping mall in the middle of a pandemic outbreak?
For the company I run, A Good Company, it’s been a quick turn of events in the past weeks. In the interest of transparency and sharing experiences, I am going to be super-candid with what we as a global eCommerce retailer, are going through right now.
Operationally, we felt some effects early on by the quarantine imposed on different areas of China as some of our key operational units are located there.
Six of our factories didn’t return to operations after the Chinese New Year, with one based in the Wuhan Area still not in operation.
However, like many other retailers working with China, we’d made sure to have a good stock margin around the holiday. So it really wasn’t until mid-February that I started thinking about the actual impact on my business as a consequence of the Coronavirus.
Then the first week of March happened.
In just one week, the situation deteriorated and more governments started imposing restrictions on crowds, with many major events being cancelled. Two industry events where I was a keynote speaker were cancelled within a day of each other. I decided to postpone my annual trip to meet with team members, suppliers and partners in Hong Kong and Taiwan and even regular 1:1 meetings were cancelled in Berlin, London and Stockholm.
5th of March – when the impact started to unravel
A Good Company sold its first product on 1 March, 2019. The first months of 2020, leading up to our first anniversary, were off to a great start.
We saw steady progress in revenue, the launch of two new products, and healthy growth for such a novel company.
It wasn’t until that first week of March, culminating on Thursday 5 March — the day when the first death was reported in the UK and the day after Italy announced it would be closing down all schools and universities as a precaution — that we saw the most impact on our business.
Our sales dropped by a staggering 80% overnight. Shocked and frozen from acting on it, at first I thought there was something amiss with our website.
A Russian-hacker attack?
A crashed payment system, maybe?
We had been doing some massive updates to our website so maybe that’s what’s behind the dramatic drop. Boy was I wrong.
After several bug-sweeps and virtually no sleep from 5–6 March, it dawned on me; this is the result of behavioural change in consumers due to the crisis.
Before I knew the magnitude of the spread, it was difficult to see how much the Coronavirus would affect us.
Naive? Yes, sort of.
But now facts were on the table. The spread of the virus has changed consumer behaviour to the core. And we’ve only seen the beginning.
Just over-night, we witnessed conversions from Facebook and Google plummet from competitive to non-converting. To put it figuratively; Cost stayed, money in the bank had gone fishing.
By then there was nothing I could do but to pull the plug. A quite dramatic thing to do for a company relying on customer acquisitions. But it was the only thing that made sense doing. After all, data is king.
Panicked consumers = can retail survive this?
The crisis has, for good reasons, triggered a major contraction in the global economy, with trillions being wiped off the markets in what’s been dubbed the black swan event of 2020.
We’ve already seen companies go down in the travel industry and unfortunately I don’t think it will be too long until retail, wholesale and hospitality gets a slice of that.
Panic, demonstrated by the stock markets, lowers consumer confidence, resulting in less spending overall. Although we’ve witnessed an uptick in demand for items such as hand gels, toilet paper, and canned food, the wider sector is doomed to take a huge hit.
To make sure I was fully prepared for what may come, I decided to set off to study this. The more you know and all that.
I found alarming signals, which without some magical extrapolation will affect our consumption-based economy for a long time to come.
Brick and mortar stores are already being forced to close as people are quarantined inside their homes, and online retailers, with the exception of food delivery and subscription services, suffer from reduced consumer attention, especially in already shaky markets. And people don’t eat out.
Let’s not forget where retail finds itself as an industry in the year 2020. Due to neck-cracking and fearless competition from online giants, direct to consumer brands and subscription-based disruptors, retail is far from ok.
It is a suffering industry.
Margins are thinner, rents are higher and since the weather has been very unstable in the latest years, the ‘sale’ sign has been a common sight to desperately push over-stock from retailer to consumer.
A great bargain, that comes with a hidden cost.
Can an already squeezed industry survive when even the good-old-fashion sale sign doesn’t work?
I predict that as we see the viral crisis move from one phase to another, the landscape will only darken further, and the full effects may not be truly felt until the end of the year.
But how big is this industry?
That’s close to 25% of the total workforce within the EU.
Worst-case: 30% could be laid-off
In a worst-case scenario, I predict that as a result of the COVID-19 outbreak and subsequent impact on the markets, 30% of all retail and foodservice jobs could be gone by the Autumn. We’ve already seen significant impact on Chinese jobs due to the Coronavirus with layoffs, slashed pay and business shutdowns.
But 30%, that is just too depressing.
So I did a pragmatic recount and ditched the doomsday theories, and ended up on 10%. A dull and not so unrealistic number, compared with what many companies so far has reported in new guidelines prior to earning calls.
That’s still a lot of people. 5.97 million people to be exact in the EU 28 zone. Over 1 million in Germany and in my home country Sweden, more than 100.000 people could be affected.
And this is just the people working directly in the industry. Surely there is a grey zone, operating close to those businesses.
“Anders, no innovation – only survival mode”
As mentioned before, early on we faced disruption in our supply chain. In Asia, our people are forced to stay at home since the schools are closed, and in Padua, Italy our factory is shut down.
We see daily delays in shipping along with emails like this one coming into our customer service all the time:
In the era of slim balance sheets, we, and many others, operate on a lean, business model that serves us well under normal circumstances.
Minimum stock, just in time deliveries.
It does, however, leave us exposed when there’s a disruptive situation like the one we’re currently right in the middle of.
Now, Asia’s factories are slowly recovering, but innovation of any kind is postponed for the foreseeable future.
I’ve received many emails from our factories forced to working remotely saying they can’t commit to making new innovations, samples and tests at this point. It is survival mode for them and I for one stand behind them in that decision. But it is still hurting us.
What is more, due to lowered investor confidence, less cash will be available to fund larger-scale innovation and new ventures.
And there are many retailers and start-ups, new and old, that need cash.
When demand does eventually pick up again, we’re likely to be faced by stock shortages because factories are no longer operating, or are doing so at reduced capacity.
What’s lucky, if you could call it that, is that most companies with production facilities in China have stockpiled for these months due to the Chinese New Year, but the problem will, without a doubt, arise in Q2 if the behavioural change in customer patterns remains.
What we do know right now is that jobs are being affected and lives are being lost.
So where does this end? And when? Let’s admit that we have no clue.
5 strategies to stay in business
Again, in times such as this, we put the health and wellbeing of our staff and partners above everything else.
But, we need to stay in business also and in the spirit of transparency am I sharing our self-made strategy executed from today.
5 strategies we are using to be conscious and survive on a day-to-day basis:
- Evaluate all spendings and lower our fixed burn-rate by at least 30% without delayering.
- Make our customer service team spend time on learning, building knowledge bases and material knowledge. Things we always need but never find enough time for.
- Drastic cut-down on marketing spend.
- Communicate openly internally (and now externally) about the situation.
- Take this bloody seriously.
Note: I am not a specialist nor an expert in the outbreak of the Coronavirus (or any kind of virus). We composed this piece sharing our insight as a long-term eCommerce retailer, based on my own first-hand experience at A Good Company, together with 15 years of knowledge of retail and e-commerce. I truly wish I am wrong in this forecast and then I’ll happily eat my words.
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The article and its research were conducted March 7–11 2020. Contact Emilia Cullborg firstname.lastname@example.org or Anders Ankarlid email@example.com, if you’d like to get yourself the full version or discuss this topic further.