China’s COVID-19 restrictions are causing havoc for online retailers

‘Zero-covid’ measures have caused a major slowdown in the world’s second-largest economy. We look at the impact on UK retailers.

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Online retailers are dealing with increased delivery delays and supply chain costs as strict COVID-19 restrictions affect key manufacturing hubs in China.

The city of Shenzhen, home to around half of all the online retail exporters in China, entered lockdown in mid-March. Restrictions have lifted since then, but productivity remains low.

As one of the largest manufacturers in the world, products sold from China are incredibly popular due to their low production costs. Millions of orders placed with global ecommerce platforms like Amazon and AliExpress have been disrupted as a result of the measures.

Many UK firms – particularly those that make use of dropshipping – are now having to provide extra support to customers, whilst managing significant disruption to shipping. Experts warn the situation could last until Christmas.

We spoke to Zaid Arshed, CEO of dropshipping business Armaan Resales, to hear more about the challenges that online retailers are facing as a result of the crisis, and his tips on how to minimise the impact to your supply chain.

What has been the impact of China’s COVID-19 measures on ecommerce firms?

JPMorgan’s Manufacturing Purchasing Managers' Index™, compiled by S&P Global, shows that production of goods in May 2022 remained at the second-lowest level recorded over the past 20 months.

The report suggests the figures are a result of the drop in manufacturing output in mainland China.

Global supply chains are confronting a myriad of challenges as businesses grapple with the decline in productivity.

Longer wait times

In April, the number of container vessels waiting outside of Chinese ports was 195% higher than it was in February. Disruptions to the flow of items mean UK consumers are having to deal with delivery delays.

“During the first lockdown, we extended our delivery window to include an additional 12 days to support customers,” Arshed recalls.

“[This year] we began the process of going back to our original delivery window without the extra 12 working days. But with the most recent lockdown in China, we realised now is not the time to transition back.”

Rising supply chain costs

China’s lockdown has also exacerbated the existing problem of a hike in supply chain prices.

At the beginning of the pandemic, Arshed saw a marked increase in costs from suppliers. Initially these were incurred through logistics and delivery companies. Now, however, the effect on buyers has become clear.

“We are seeing lower sales year-to-year,” Arshed tells Startups.

There are a number of other influencing factors adding to the issue. Chiefly, Russia’s invasion of Ukraine has sent the cost of fuel skyrocketing, making it more expensive to deliver goods.

Profit loss

Understandably, the increase in costs and lack of consumer confidence has meant experts are predicting a fall in sales for many retailers.

Indeed, Startups’ recent consumer spending survey found that 7% of shoppers are planning to cut down on both online and in-person purchases.

How can dropshipping firms plan for future disruptions?

The chaos caused by China’s strict COVID-19 lockdowns cannot simply be waited out.

Experts are predicting that the turmoil caused by China’s current lockdowns will continue until the end of the year – even if all restrictions in the country are lifted by this point.

Research from banking company Aldermore, has found that 890,000 UK SMEs have seen a direct financial impact on their business as a result of supply chain problems. That’s an average cost of £881,196 per company.

There is clearly a financial benefit to addressing the issue as soon as possible. It’s not too late to fortify your company's cash flow by making strategic changes to your supply chain network.

Diversify your supply chain

China’s implementation of its latest lockdown restrictions is not the first taste that most retailers have had of a global manufacturing slowdown.

Arshed experienced similar issues in 2020, when COVID-19 first emerged. China, as one of the first countries to go into lockdown, brought the first glimpses of supply chain and logistics delays.

In answer, Arshed extended his wholesaler network and partnered with other suppliers based in different countries.

“We moved away from [China] and expanded into Singapore, Malaysia, India, Pakistan, Afghanistan, and Europe. Now, we work with hundreds of suppliers across dozens of countries.”

The maths is simple. By spreading your list of wholesalers out over ten countries, 90% of your business remains operational if one of those goes into lockdown.

In contrast, if you rely on one supplier or suppliers within one region and it goes into lockdown, you could be forced to close your digital doors until you can find an alternative product sourcing solution.

As a result of this precautionary step, Armaad Resales’ clients have been less-affected.

“Dropshipping companies and stores that didn’t prepare for the second round of Chinese lockdowns have remained offline for a much longer time to arrange different product suppliers elsewhere,” Arshed tells us.

Choose from one of our top small business dropshipping suppliers to find the best, licence-approved dropshipping partner for your ecommerce business.

Speak to your suppliers

A simpler option is to open up discussions with your supplier to see if they are planning to raise costs. You might even be able to persuade them to keep prices down by offering various incentives.

For example, you could sell yourself to a partner as someone who can bring them a lot of business by showcasing your sales figures.

Or, negotiate for other things that will help lower your expenses. For example, ask for a discount when you purchase in bulk or when you pay your invoices early.

However, Arshed tells us that many dropshippers are taking a different route to maintain a steady cash flow: price increases.

“Many [clients] are willing to absorb a large portion of the cost increase to sustain their sales. Others have chosen to raise prices in line with global supply chain price increases to maintain their margins.”

How can you support customers with delivery delays?

Inevitably, China’s lockdown will have an impact on a large number of UK ecommerce businesses. Those that can’t deliver a purchase by its due date can be vulnerable to negative customer feedback. Such reputational damage can make it difficult for retailers to attract repeat buyers – establishing a long-term hit to sales figures.

Startups recommends you take the below, proactive steps to keep customers satisfied and supported as they deal with added delivery delays.

Maintain open communication channels

One way to ensure a positive customer experience, even in the face of shipping delays, is to be as transparent as possible about delivery timescales.

Arshed recommends you publish up-to-date messaging regarding estimated delivery times on your online channels. “Clearly display the estimated delivery timescale in as many places as you can before [customers] hit the buy button,” he instructs.

“We also suggest our clients contact customers three days before their delivery is due to arrive – either reassuring them of its delivery or providing information about its expected delay.”

Invest in customer relationship management software

Arshed also makes use of business software to provide live updates to clients if a delivery goes awry. This, Arshed explains, “ensures nothing slips through the cracks, and customers can be contacted as soon as we know there is an issue with their delivery.”

Customer relationship management (CRM) software is a good solution to the problem. Our guide to the top small business CRM systems has more information on building client dashboards so you can track their delivery progress and be alert to any impending delays.

Offer discounts on future purchases

Consumers don’t like to wait for shipments and tend to become upset when they are delayed. However, they are typically more empathetic and likely to remain loyal to brands that have an established record of positive customer experience.

According to a Mitto survey, 76% of respondents rated a bad customer experience as worse than a product delay.

Should one of your customers end up waiting more than the expected window you give them, extend an olive branch in the form of a promotional offer or future discount. This will increase the likelihood of them becoming a loyal, repeat customer.

Switch to an on-demand model

Davis Vasilevskis, Printful's International Business Development Lead, advises that, by switching to the on-demand model, “products are produced only after a customer orders them. This means that companies no longer have to forecast consumer demand or have inventory on hand, greatly reducing the possibility of ending up without sufficient product or with dead stock.”

Conclusion

Online retail has been one of the biggest winners to emerge from the COVID-19 outbreak.

Ecommerce firms have proved their resilience during their pandemic. There is no sign that China’s lockdowns will be anything more than a disruption to those using dropshipping.

Still, the obstacles created (delivery delays, higher supply chain costs) will have financial repercussions for ecommerce SMEs. It’s important to take steps now to mitigate the impact on customer experience and cash flow, such as diversifying your supplier network.

Crucially, any actions you take should be communicated to your customers. That way, they’ll be kept fully informed about the matter at hand and will likely be more tolerant of any delays.

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Helena Young
Helena Young Senior Writer

Helena "Len" Young is from Yorkshire and joined Startups in 2021 from a background in B2B communications. She has also previously written for a popular fintech startup.

Included in her topics of interest and expertise are tax legislation, the levelling up agenda, and organisational software including CRM and project management systems. As well as this, she is a big fan of the films of Peter Jackson.

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