Friday 14 February 2020

China closures may leave e-commerce shelves empty

China closures may leave e-commerce shelves emptyBengaluru: Amazon and Flipkart, the country’s two largest web retailers, are likely to see an impact on overall sales due to the prolonged closure of factories in China on account of the coronavirus outbreak, analysts and industry insiders told ET.

A supply crunch in smartphones, televisions, large appliances and consumer electronics, which comprise about half their gross merchandise value (GMV), would come on top of the slower growth in sales during the recent festive season compared with the previous year. Smartphones, the single largest category for these etailers, are expected to be the worst hit in a $31.5-billion strong online retail market as estimated by Forrester Research.

“While a big chunk of smartphones is assembled locally, only 12% of components are localised. Our estimates suggest that stocks of smartphone manufacturers will last until the end of February,” said Neil Shah, vice president of research at Counterpoint Research.

“With 41% sales of smartphones taking place online, the impact for online retailers could be significant.”

China closures may leave e-commerce shelves empty

While the repercussions of a hit on the supply chain for electronic goods will be felt across sectors, online retail’s exposure to them is significantly higher. Other categories such as furniture, home decor, fitness equipment and toys will also get affected, as per experts, due to the supply shortage. But these products won’t face as much of an impact as the sourcing isn’t predominantly from China.

Amazon declined to comment, saying the company does not give forward-looking statements. Walmart-owned Flipkart didn’t respond to queries.

Sources in both companies told ET that they were in talks with vendors and brands to determine the inventory they are holding. Research platform Counterpoint said it was expecting supply from China to remain affected for at least 4-5 weeks more, potentially hurting sales in March.

“The smartphone segment is facing a massive supply shortage. While companies sourcing from China are expected to be the worst hit, we expect players like Samsung to ease a bit of the pressure, taking advantage of the supply shortage of rivals,” said a senior Amazon executive. According to market research firm Forrester, smartphones makeup 34% of online sales, consumer electronics constitutes about 7%, and appliances a further 6%, bringing the total to 47% of online sales coming from categories that are susceptible to the shutdown in China.

Satish Meena, an analyst at Forrester, said even though products such as power banks, headphones and television don’t have as quick refresh cycles as smartphones, their sales would get affected too, given the lack of supply of products and components. Smartphones could get further hurt as even older devices in stock wouldn’t sell because consumers will defer purchases to get their hands on the latest devices.

Shah of Counterpoint, however, added that shortage in supply of smartphones and other devices, which could hurt sales in the March quarter, could lead to higher demand in the first quarter of next fiscal year.

No comments:

Post a Comment