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eCommerce and Corona Virus
Global Wired Advisors are experienced M & A Advisors for digitally native enterprise
E-Commerce and Coronavirus
with Jason Somerville of Global Wired Advisors
Supply side effects of Coronavirus
- Started in China – supply chain effect
- A lot of ecommerce sellers and businesses had stocked up on inventory going into CNY – which mitigated supply chain issues
- As it spread into EU and USA it became a broader issue
Demand side effects of Coronavirus
- As effects more acute, ecommerce has been affected
- Quarantine or stay at home order, that’s when bigger picture effects really started.
- Ecommerce has tended to be affected uniquely compared to others
Public Capital markets effects of lockdown
Mid march – stock market fell a lot. Business activity ground to a halt Except “essential” businesses
Rotating from Virus discussion to post virus discussion.
Ecommerce and Corona Virus
- When people forced to stay home, many buy goods online.
- Many other businesses eg travel, airlines, restaurants, local stores been effectively shut off from economic activity for over a month.
- A lot of businesses that sell consumer goods that are “non essential”
- A number of clients march sales 4X Q4 in 2019
Supply side challenges for eCommerce and Amazon sellers
- It’s more an inventory management exercise to fulfil demand
- Amazon FBA issues
- Limit inbound
- Deprioritise non essentials
Recession for eCommerce due to Coronavirus
Most e-commerce businesses don’t have the downward trend.
It’s more like a hockey stick!
Within bigger picture, there is a big downward push in sales and economic activity.
It’s not so much a V, it’s like a backwards checkmark.
So in the short term, the left side of the V is
- There is a dramatic bounce say 50% of the depth of the left side
- Then you enter into recovery period
- The shape of that will be driven by
- How long the shutdown lasts
- Every week matters
- The longer it goes, the longer it takes to come back
- How long the shutdown lasts
- It won’t be a 1-month bounce back to the usual economy
- Government stimulus prog’s will also change it
- How effective
- How big
- Eg Federal Reserve etc. has tried hard but they’re inefficient, ham handed. Don’t always work the way they are supposed to work.
- It’s not just how many $, it’s about how they are delivered.
ecommerce and Coronavirus short term
-short term shift to online shopping
- Market share shifts from traditional to online
- This benefits a lot of ecomm business
What to expect for ecommerce after Coronavirus -in the economic recovery
stickiness is the key!
-
- This is bringing a lot of new customers to online shopping
- It’s bringing those who were online already, into categories they would still purchase in a retail outlet
- How sticky is that once economy starts to open up?
- It won’t be 100% stickiness but it may be 30-40% of that demand stays around for the long term
Next factor – consumers damaged in downturn
- Discretionary items usually go down in a recession
- Luxury good or high end (premium)
- these categories tend to go down first and sharpest
- Then you move into a new consumer behaviour model
- The changes in behaviour are correlated to depth and breadth of downturn
How to shore up the value of your ecommerce business as an asset?
Bucket 1 – if your ecommerce sales have reduced seriously during lockdown
- Try to access as much liquidity as you possibly can
- In USA, a number of progs allow smaller progs to access liquidity for the businesses
- The investment in the future you make now will pay dividends
- Because
- This event is likely to affect consumer behaviour for the long term
- Ecommerce businesses are a lot more attractive as an asset than historically
- Get smart about stock management
- If you’re in a cat that you feel will take off after crisis, be ready!
- Eg travel – even though people will be cautious, there is a lot of pent-up travel demand!
- They’re more likely to buy the stuff they need online than they would have been in Jan
Bucket 2 -If your ecommerce sales are continuing to grow during Shelter-in-place
- If you’re looking at the value of your asset, what Jason expects will occur:
- Had 5 phone calls with family offices managing 500-5M in assets
- Never invested in ecomm before
- Want to build a portfolio with ecommerce exposure
- This is early stages of this.
- Allocation models for a lot of professional capital will skew towards sectors like ecommerce
- Had 5 phone calls with family offices managing 500-5M in assets
If you’ve had a spike in ecommerce sales, then
- Seriously consider looking at the market earlier rather than later
- As this capital is re-allocating to ecom, you want to be Able to take advantage of that
Moves in capital markets tend to swing too far one way or the other
- So a bunch of capital will rush into a space that drives valuations
- That will probably get too high
- Then the pendulum will start to swing the other way
- example: public cannabis stocks
- Went so high
- Then crashed 70%
- Example 2: Dot-com bubble early 2000s
- example: public cannabis stocks
There’s a lot of dry powder in corporate equity funds and Private equity
- Prepare your business for sale. If you thought you might do it “one day, Maybe that is sooner!
More sophisticated capital is looking at ecommerce as something they need to invest in:
- A lot of people spending a lot of time at home.
- Through quarantine, we are training them to be good consumers of ecommerce.
Pre-Covid, consumer behaviours might have been different.
Eg research and discovery work on an Amazon search bar.
Where multiples are going
If you need to get an opinion on how you might prepare your ecommerce or Amazon business for sale, if your revenue is (or is heading towards) at least $1 million a year, you can book a consultation with Jason or Chris or their staff at:
