Might eCommerce – in China, yes, but also well beyond that country’s borders – be among the casualties of the Coronavirus?
More than one month into what is a spreading health concern, the consumer, on a global stage, has proved resilient – at least into the end of last month.
But the caution is beginning to show, and pockets of weakness may spread, as evidenced by mixed commentary from company conference calls, a staple of earnings season on Wall Street.
As related on earnings conference calls, at least initially into the epidemic (now pandemic), the payment network giants Visa and Mastercard related that spending, by and large, has been healthy.
Consider Visa, which said on its call that through Jan. 28, cross-border volumes had grown at a constant dollar volume of 8 percent. Mastercard said on its own conference call that through Jan. 21, cross-border volume growth had been up 15 percent.
Both calls, of course, came late in the month, and the data reflects a period well before an acceleration of the Coronavirus into new countries.
Overall, the idea that people, confined to their homes, may click and spend their way toward getting what they need (such as supplies), or even make impulse buys, may hold some weight.
But things may be different with the Coronavirus.
Visa’s 8 percent tally excludes China and the U.K. And as CEO Al Kelly said on the call: “Planes are being halted both in and out of China, and you’re probably reading, as we are, that companies were telling their employees to stay home. So, even for the eCommerce world, [if] employees are staying home – who’s picking goods and shipping them?”
Separately, Sachin Mehra, CFO of Mastercard, said on the earnings call that “…fortunately, a decent portion of our inbound and outbound cross-border from China is [eCommerce]-related. So it provides some level of a hedge. And we will continue to monitor the environment. It's too early to tell at this point in time, how this thing plays out.”
Transport Faces Headwinds
Since those comments were made, avenues of transport seem to be getting increasingly choked off. That means goods that have already been produced, or have been ordered or are getting ordered, are unlikely to arrive on doorsteps. As we noted in this space, Cathay Pacific, which is also a major cargo airline for China and Hong Kong, has said it will reduce flights to mainland China by 50 percent through the end of March. UPS had canceled 22 flights to China.
Beyond that, if supply chains are truly disrupted (we’re thinking here about consumer goods, such as tech-related or pharma items), the ripple effects may be that inventory in the pipeline is held up, and it will take a while for that new inventory to reach end customers, and then for new demand to materialize and bring those plants back online.
The South China Morning Post reports that Caixin Manufacturing’s purchasing managers’ index (PMI), which the paper defines as “a survey of small, private producers in China,” was 51.1 in January. A reading above 50 means growth. But the survey was taken before news of the virus hit – and the latest reading is the lowest seen in five months.
Then there’s the double whammy of stocks plunging in China. As of this writing, shares on Shanghai and Shenzhen markets exchange were down as much as 9 percent, marking their worst day in nearly five years. If that decline persists, the hit to the “wealth effect” and propensity to spend online (eCommerce is measured at roughly $2 trillion) will be palpable – especially amid an already slowing economy.