The 80/20 Of Ecommerce – May 6, 2022

China Sourcing Update 5/06/22 

What we know

• There are no recent changes in policies and rules implemented in China.
• Shanghai is still on lockdown, and our sources on the ground estimate that this will go on for another 2 months.
• Beijing is also under restrictions, and many areas are strictly monitored to prevent worsening the Covid situation.
• The Covid lockdown in China is still affecting logistics, deliveries, and trucking, and nothing has improved yet.

According to Fitch Ratings, near-term profitability constraints are developing for Chinese enterprises in various industries. Domestic and international consumer demand is being hampered, while a slew of travel restrictions is hindering supply chains inside China to halt the spread of Covid-19 cases.

Given weakening consumer confidence and the impact of lockdowns, China’s retail sales growth is expected to slow to the mid-single digits in 2022. Tourism, leisure, and luxury items, which benefit from discretionary expenditure, are expected to underperform basics.

This may put downward pressure on the ratings of more liable companies in these discretionary industries. Furthermore, gentler consumer demand in developed markets will increase demand pressures for Chinese corporations. This event is due to tighter monetary policy, normalization of demand patterns following the pandemic’s increase in goods purchases, and high inflation.

Image Credits: zhang kaiyv from Pexels

Lockdowns and supply chain disruption to accelerate Apple’s move away from China, with India a likely beneficiary, analysts say

Image Credits: Nana Dua from Pexels

According to analysts, there is an excellent chance that Apple will shift its operations away from China. It has been weeks since Shanghai and other nearby provinces have been experiencing strict lockdowns. 

As a result, the disruption to transport and production in Apple’s value chain has caused losses. There are two main reasons why Apple is directly affected by the events in China:

First, China is Apple’s assembly center. The components of devices from South Korea and Taiwan are assembled in the country’s factory. Second, the country itself is the second-largest market on the list for Apple devices. 

According to Luca Maestri, the chief financial officer of Apple, if the lockdown persists, the company’s revenue will decrease to $8 billion in June.

More than half of Apple’s 192 suppliers with internal manufacturing sites, including Foxconn, Pegatron, Quanta, Wistron, and Compal, have lockdown-hit Shanghai and Jiangsu production facilities.

Furthermore, two Foxconn factories in Shenzhen were forced to shut down for several days in March due to a local lockdown. And the most significant iPhone assembly compound in Zhengzhou has been short on labor due to Covid-19 restrictions, which have made it difficult for migrant workers from other areas to reach the Foxconn factory there.

Ming-Chi Kuo, an analyst at TF Securities, said that China had already been losing Apple’s trust even before the pandemic, yet the onset of the Covid-19 accelerated the process. 

Other possibilities include India, where land and labor are far less expensive than in the U.S. Due to the closure of China’s roadways and ports, iPhone production in India increased by 50% year over year in the first quarter of 2022. 

According to Indian media sources, this was facilitated by Apple’s choice to build the iPhone 13 in a Foxconn facility near Chennai, India.

Amazon serves as a cushion for profitless e-commerce companies

Image Credits: Karolina Grabowska from Pexels

Amazon’s first-quarter report has reflected the apparent status of the e-commerce industry. Both items sold by Amazon and its third-party sellers on their marketplace were experiencing a flatlining demand compared to the past year. 

Currently, the demand is inversely proportional to cost. Amazon’s shipping expenses increased by 14% per the year leading its operational revenue to be slashed in half. Amazon’s massive network of warehouses, distribution centers, trucks, and planes cannot keep up with the escalating supply-chain expenses.

Amazon is a giant, and as it slows down its expansion to better meet demand, it can wring out costs and enhance efficiency. Other e-commerce businesses without the same advantages are in for a challenging ride.

Companies that do not sell on Amazon must pay the increased expenses of shipping items to customers. Their business strategies revolve around convenience, which is becoming increasingly expensive.

Amazon aggregator Thrasio begins layoffs, names new CEO

Image Credits: Thrasio

Thrasio, the largest aggregator of Amazon businesses, scooping up and merging third-party Amazon vendors, will be laying off a portion of its team members on May 13th. 

That announcement comes as Thrasio announces a leadership change: Greg Greeley, a former president of Airbnb and a longtime Amazon executive, will join the company’s board of directors and take over as CEO in August.

Carlos Cashman, one of the company’s co-founders, will continue to serve on the board of directors of Thrasio.

The layoffs and new CEO appointments are the latest in a string of ups and downs for Thrasio in the past six months, highlighting some of the challenges of the aggregator business model. The layoffs are not a joke, unfortunately. The business verified the rumors. Their supervisors will tell workers over the next two days (Tuesday and Wednesday).

The message stated that the corporation “took the decision to reduce the size of the Thrasio team,” although it did not specify how many workers would be affected. It received roughly $3.4 billion in investment from investors to expand its company and acquire hundreds of businesses. 

It was buying firms at a rate of 1.5 per week and had several hundred brands in its portfolio when it raised its $1 billion round last October.

Takeaway: Thrasio has been expanding very quickly and now they’re starting to slow down their growth. If you are considering an exit, it may make sense to adjust your expectations.

Join the Orange Klik x Dragonflip Barcamp on June 9 -10

Next month, in Portugal, there will be an in-person international Amazon Barcamp event called Orange Klik Barcamp. This could be a good opportunity for you if you are selling over Amazon and you want to network with and surround yourself with like-minded e-commerce sellers in Europe.

This English-speaking Amazon FBA seller is coming up on June 9-10th in Lisbon, Portugal! 🇵🇹 

Organized by Orange Klik and Dragonflip, this Barcamp event will bring together hundreds of like-minded attendees whom you’ll have the chance to network with, address your e-commerce problems, and pitch ideas to fellow sellers.

By attending this “unconference” type of event, you will have a chance to:

✅  Learn from 100+ international sellers in one place

✅  Get only attendee-generated content that solves your biggest issues

✅  Choose the content that you want to learn about the most

✅  Discuss only the most important and hottest topics to help you grow your FBA business

✅  Network, meet new friends and business partners

👉 Limited tickets are available now. First come, first served. https://orangeklik.com/barcamp/ 

Orange Klik will offer a 50€ discount when you register through this link and use my code: 7FSS

Note to be transparent – I’m an affiliate of Orange Klik and I believe that this is going to be a great event.  If you do purchase a ticket I will receive a small commission to help us keep creating the best award-winning content to help you grow your e-commerce business.  And it helps pay for my coffee!  Thanks!

Get your Free Pass to 7FSS6 Evergreen now!

Registration is now open for the 7 Figure Seller Summit 6 Evergreen! Get ready to discover how 7 and 8 Figure Sellers think, overcome challenges, and strategize ahead of the e-commerce game. 

If you missed it the first time, good news! Due to popular demand, we have made 7FSS6 Evergreen. That means you can get a free pass to watch for a limited time right now!

You will learn how to do the following:

• Develop the MINDSET of a million-dollar business owner and FUNDAMENTALS of creating a 7 Figure eCommerce business
• Master MARKETING and Building a BRAND and Optimizing PPC to drive external traffic to your listings, build an audience that you can launch to, and rank your products with,
• Implement strategies to SCALE your e-commerce business, so you’re working ON your business and not IN your business
• Increase your PROFITABILITY, know your numbers, and cut expenses, so you keep more money in your pocket…
• EXITS – How to build a business that will be attractive to buyers so you can SELL it

We’re excited to have over 30 outstanding entrepreneurs and experts speaking at this eCommerce online event. Enjoy over 30 hours of masterclasses and expert training! You will have 24 hours to view each session for FREE!

However, we believe that every individual, especially business owners, has a timeline and learning curve. 

Learn more about this 7FSS event and grab your free pass now!

In case you missed it:

• China Sourcing Update 4/29/22 
• Falling sales and rising costs hurt Amazon’s profitability
• Amazon opens up Prime delivery service to other retailers
• [Amazon Masterclass] How to know your numbers and turn around declining sales for Amazon Sellers
• [Profitability Masterclass] Scaling From $144k to $1m: Best Practices How Sellers are Winning in 2022
• Get your Free Pass to 7FSS6 Evergreen now!

Have a great weekend!

-Gary