Chinese E-Commerce has Taken a Big Hit from the Covid-19. “It could still be a long-term winner”, say experts

18/02/2020

Chinese e-commerce hit hard by novel coronavirus outbreak. PRC consumers have made few e-commerce purchases, but  household necessities sales increasing. Daniel Zhang: “The demand is there, but the means of production have been affected”

 

After a great 2019, PRC-based e-commerce platforms are facing difficulties due to Covid-19 outbreak. According to latest data, Chinese consumers have made few e-commerce purchases in the past weeks. Alibaba was the first to appoint the negative growth in its China retail and local services businesses during the current quarter, but JD and Pinduoduo are facing same difficulties too.

With takeout food orders also affected, the only exception are grocery deliveries. Their difficulties, however, pale compared to much brick and mortar retail. Nearly all non-essential physical stores are closed indefinitely. So, what’s really going on? Millions of people confined to their homes might seem like a golden opportunity for online platforms to make sales. But in fact, novel coronavirus outbreak has upended the momentum of China’s digital economy, depressing purchases in many remunerative sales. 

 

1. Supply-chain and logistics facing challenges

Many e-commerce players said that supply-side disruptions accounted for much of the decline, as many merchants on its online marketplaces were not able to do business under quarantine conditions. According to experts, the shutdown of production created a domino effect. Moreover, the disruptions to logistics further affected business. 

Cainiano, Alibaba’s logistics arm, was the first to launch the alarm. “We observing that significant numbers of packages were not able to be delivered on time”, reporter the company. Due to the forced quarantine, many e-commerce marketplaces have been dysfunctional during this period of crisis. Many listed products warn halfway through a product description that the seller will not ship orders for weeks, while orders that are shipped can get stuck in logistics company warehouses. Deliveries have had to contend not only with short-staffed companies, but a patchwork of quarantine regulations and checkpoints which greatly limit inter-city travel. JD or Pinduoduo both stated that  “delays are expected.” 

2. Consumers needs are changing 

What people have been buying are household necessities. Data suggest that while consumers stuck at home, they were not interested in buying nonessentials such as clothing and electronics during the height of the epidemic, normally among the top-selling categories on online marketplaces.  Both Alibaba and JD described robust growth in orders for groceries and other essentials compared with the same holiday period last year.

JD said that orders for food products on its platform grew 154% compared with a similar period following last Chinese New Year (which follows the lunar calendar), with rice and wheat products selling a respective 5.4 and 4.7 times more. All e-commerce platforms reported “fairly rapid growth” in these categories, Freshippo, the company said, saw increases in orders but also had difficulty making deliveries because of staffing issues. By the way, this growth was unable to compensate the lack of sales in much more remunerative categories. 

 

3. Without doubts, e-commerce will be the winner again!

E-commerce platforms are facing a “perfect storm”. While e-commerce platforms have experienced disruptions, many of the merchants who populate online marketplaces have been completely closed for weeks. Nevertheless e-commerce has taken a big hit from the crisis, it could still be a long-term winner.  “The demand is there, but the means of production have been affected”, said Daniel Zhang, Alibaba’s CEO. Crisis does not have the same meaning in China as in Western society.

Chinese people believe that danger can be turned into opportunity, if one acts wisely according to under the circumstances. As we know, the SARS outbreak in 2003 impacted brick-and-mortar stores badly. Facing the needs for food and other life necessities, Chinese consumers tend to order online to minimize physical contact. And now we’re facing the same challenges. According to data, the novel coronavirus outbreak let more than 800 million Chinese Internet users may give another reason to explore e-commerce channels. E-commerce platforoms are reporting many newly-online users to begin to purchase daily necessities, mostly in lower-tier cities and less-developed cities, which is a very good sign for the future. Without doubts, e-commerce will continue to take advantage during the crisis. 

 

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