The Coronavirus’s Effect on Manufacturers and Sellers 

How the coronavirus impacts Amazon sellers

As of publication, the coronavirus outbreak has infected over 75,000 individuals and claimed over 2,000 livesChina has quarantined at least 16 cities19 countries have confirmed cases of the coronavirusand governments around the world have restricted travel and transportation to curb the outbreak. 

The coronavirus has also had an economic impactdisrupting production and supply lines. On February 24th, the Dow Jones was down over 1,000 points, contributing to fears that the coronavirus, if it continues to grow and strain global economies, could trigger a recession.  

Listen to our podcast episode discussing how the coronavirus affects the retail world. 

Factory Production Significantly Slowed 

Quarantines across China have resulted in reduced operations at most factories as laborers stay home to mitigate the risk of infection. In a normal year, January and February see slowed production for Chinese New Year. As such, many brands were prepared for delays. However, the coronavirus has lengthened the pause in manufacturing beyond the normal holiday period 

Delays in production were originally forecasted to be minimal, but China has extended the forecasted delays from two weeks to four weeks, and some factories have alerted brands to expect 6 to 8 weeks before operations are back to 100%. If the delays continue much longer, small and large brands alike will face cascading challenges, from out-of-stock issues to serious revenue losses. There are also concerns that as factories work to meet demand with a limited workforce and heightened time pressure, quality control may be lost. 

Transportation Rerouted and Restricted 

In addition to factories working at low capacities, transportation has also been heavily impacted. Ships have been blocked from ports, required to anchor offshore in quarantine. Airports are shut down, and those that remain operational receive minimal use as brands and suppliers opt to avoid airports in China and neighboring countries. Air cargo out of China is practically non-existent, presenting a significant threat to lean supply chains and retailers who maintain low stock levels. Truck transportation too is affected, as vehicles must pass through multiple checkpoints and reroute around quarantine zones. All of these changes further delay deliveries. 

Unfortunately, the danger to business won’t end with the coronavirus being contained. As companies restart production and play catch up with shipping, there’s a serious risk that transportation could be over-taxed, leading to a shortage as everyone tries to move their goods out of China at the same time. 

Most Vulnerable Amazon Categories: Furniture, Footwear, and Consumer Electronics 

Experts say that the furniture and footwear categories are at the highest risk to be impacted, as many of their products are seasonal. If they cannot receive goods from China in time, they’ll lose peak season sales. Consumer electronics are also an at-risk category, as they source components from numerous countries, largely in Asia. If one component is delayed, the entire production is delayed.  

Amazon Extends Coverage 

In response to the coronavirus outbreak, Amazon has ordered an additional three to four weeks of coverage in key categories. Other major retailers like Walmart and Target have not done the same, and they are expected to be hit harder by the coronavirus outbreak because they source such a high percentage of goods from China and they have not adjusted their inventory schedule since the outbreak. 

Back to School Sales are At-Risk 

The back to school shopping season is a major concern for many brands, as shipments usually ship by end of April. If production is slowed and cannot meet volume in time for the shipment, brands will lose sales.  

Amazon is positioned to benefit from this situation, as they typically see the greatest back to school sales in August and September, when brick and mortar competitors are running low and consumers are short on time. If Walmart’s and Target’s run empty this summer, Amazon’s back to school sales may very well occur earlier.  

WHAT TO DO NEXT 

The coronavirus will have an economic impact. The question is, to what degree? Brands affected by the coronavirus or those that wish to protect themselves from future outbreaks or natural disasters should look into alternate manufacturing partners. Sourcing from a single partner is always a risky tactic, and the coronavirus has made that risk all the more evident.  

Brands can and should also look into shipping directly to Amazon, instead of a US warehouse first. This cuts out an unnecessary middleman and shortens lead times.  

Finally, brands seeking to mitigate future risk should maintain enough inventory on-hand to survive future slow-downs or other inventory complications. It may tie up more cash, but the protective measure serves as an insurance or safeguard against unforeseen challenges.   

Listen to our podcast episode discussing how the coronavirus affects the retail world.