The Dragon Gets the Flu (Guest Post by Eric Heller)Seller Labs
This article was originally published by Eric Heller on LinkedIn on February 12, 2020. As a friend of Seller Labs, Eric has generously allowed us to repost the article on our site so that our readers can benefit from the information.
One of my favorite quotes is by William Gibson: “The future is already here. It’s just not evenly distributed yet.” In recent years, this was on display in China for anyone to see. The country is a hotbed of innovation in retail, eCommerce and rapid product development and manufacturing. Even better, the innovations that brands from Ningbo, Shenzhen and nearly every other major Chinese city are using are portable for Western brands, a topic I wrote about after a 2018 conference.
Up until a little more than a week ago, I was still planning to head to China later this month with a group of 50+ clients and fellow WPP leaders for a tour of some the most innovative brands in Chinese retail/eCommerce. When it was postponed due to disruptions from the Coronavirus, I was certainly disappointed but I also couldn’t stop thinking how this would affect Amazon’s global business.
As a close watcher of Amazon’s growth, digital natives brands out of China like Anker and SunValley offer amazing opportunities for us to understand the potential of the platform. They are also the engine behind a huge amount of Amazon’s new product innovation, which Amazon presented on when I was at one of their events. Some stunning stats:
- Every .02 seconds Chinese sellers create a new product on Amazon
- 60% of Chinese seller’s Ordered Product Sales came from new products
- 47% of Chinese seller’s hot products w/in prior 12 months come from new products
These stats are just incredible and lead to the question, what if the biggest sourcing show in the in the world, Canton Fair, was disrupted by the virus? At first, it seemed unlikely. The fair doesn’t start until mid-April and is in Guangzhou, far from Wuhan. That said, Delta isn’t even restarting flights to mainland China until at least end of April now. By last week though, we had an answer:
So what does this mean for Amazon, for Chinese digital natives and for Western Brands? There is certainly an angle here that this could spell trouble for all three, like a fire running low of logs. Less supply drives up prices and reduces demand. Reduced demand harms the virtuous cycle that keeps the marketplace growing. I would posit though that there is a different lens to look at this through, given the strength of the installed Prime customer base and the oversupply of offers on the Amazon website. (There are over 100K search results now for “iPhone 11 case”.) In other words, as long as there is a reasonable number of offers for the majority of things customers need, the impact will be marginal. In fact, if the trend towards mobile and voice-based ordering continues, fewer offers will have even less an effect.
So who will likely gain share? Western Brands are my prediction. Many of these brands of proven supply chains honed over years of development. Assuming they have enough stock and can leverage their existing scale, they will be able to use this to maintain some product flow. Large, assembled products like cars (and even iPhones) may have parts issues that cause disruptions but, as production comes back online, many large brands are presumed to get some of the first output.
For sure though, the delay of Canton Fair and events like it are a potential problem for marketplace sellers and companies that rely on it for building new sourcing relationships or for finding innovation. China is certainly the source of much of the world’s new product and manufacturing and a lot of that happens there. I interviewed quite a few 3P brands last week and they had all waved off planning a trip to China or SE Asia until this dies down. Over time, this can’t not have an effect. There’s just no substitute for Face to Face to find innovation and build trust to invest.
I would suggest that the winners of this situation will follow the words of US president JFK and look for the hidden opportunities that arise as some selection/offers constrict. There will be fewer competitive offers in the short run. As yourself : What will reduced competition allow me to do? What other sourcing opportunities are there? How should I reconfigure my marketing and product investment given what I am seeing?
Before publishing, I connected with another thought leader at #WPP, Frank Kochenash. He had this advice for brands and 3P sellers:Finally, let’s not forget one big opportunity: Amazon Global. Chinese consumers are going to be looking to by Western goods. How can we leverage reverse logistics and the Amazon platform to get our products into the program to deliver product back into China. Even last year we saw huge growth in that platform for Infant Nutrition, skin care and many more. This is only going to get more important as people increase ordering from overseas.
- Ensure your supply chain is nimble enough to react to these types of things so as to fill demand when supply from a key region or two is removed
- Consider how you can quickly change distribution so that China can become a destination for key goods rather than a source
- If you’re a 3P maybe you need to consider other sources of product innovation.
- Finally, this past week, NPR covered this and said that 30%+ of US buyers claim to be nervous about buying Chinese-made product. Maybe we need to consider how to build in or communicate cleanliness standards into our supply chains.
Want to know how you can get involved in that program and take share on the Amazon platform? Reach out and I’ll get you connected to our team.
Eric Heller’s career as an eCommerce expert is extensive. He is currently the Executive Vice President of Marketplace Services for Wunderman Thompson Commerce as well as the Chief Knowledge Officer at WPP. You can connect with him via LinkedIn.
For more about Amazon, China, and coronavirus, including ideas for becoming less China dependent as an Amazon seller, read Beyond China: Sourcing and Manufacturing Alternatives to Alibaba and Canton Fair.
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