E-commerce is a business model that refers to the buying and selling of goods and services through the internet. Today, this industry has evolved to making products easier to discover and purchase through online retailers and marketplaces, enabling businesses to scale at a rate that was not possible with conventional offline retail. As the global pandemic hits, many countries have gone into the state of lockdown and quarantine, making travelling to brick-and-mortar stores less practical. In Malaysia’s case, the Movement Control Order (MCO) has deterred many from going out. Hence, we see many businesses trying to shift their products and services online to sustain themselves during this trying time. This article aims to discuss the effect of Covid-19 towards the e-commerce industry by elaborating on how it has affected conventional retail, the consequences of the global supply chain disruption, and the emerging trends in Malaysia’s e-commerce sector.
How Covid-19 is Changing Traditional Retail
With the enforcement of a Movement Control Order (MCO), many “non-essential” businesses and retail outlets were forced to haul operations to prevent the virus from spreading through human contact. This meant that many retail businesses had to search for an alternative way to sell their products should they continue business operations. Consequently, the e-commerce industry has experienced a surge in demand. A study done by the Capgemini Research Institute in April 2020 also showed that in the current scenario and for the coming months, consumers will be less likely to have high interactions with physical retail outlets due to health and safety concerns posed by the virus when compared with the situation prior to the outbreak.
According to a recent live survey done by Ernst & Young, it was recorded that many business owners are pushing for online sales and prioritising marketplace listings to improve their top-line growth, knowing that consumers now are shifting to online shopping. Such an “offline to online” approach not only helps engender a new channel of distribution for retailers but also helps cushion the sales losses at their physical store.
Furthermore, restriction measures such as lockdown, social distancing and working from home have encouraged consumers to browse the internet more, leading to an increase in online shopping, consumption of streaming services and electronic payment. This is evident through a statistic posted by Iprice Malaysia suggesting that by Q2 of 2020, there was an average of over 50 million visits per month. This represents a 25% increase compared to Q1 of 2020 to popular online platforms – Shopee and Lazada. The ease of use in e-commerce has removed the need to physically visit a store. It is obvious that Covid-19 has shaped the outlook of the e-commerce landscape, bringing traditional businesses into the digital realm and revolutionizing the way consumers shop. Malaysia Digital Economy Corporation (MDEC) has since projected a 20% annual growth in e-commerce contribution to the digital economy due to changes in consumer behaviour. MDEC is currently expecting an amount as high as RM170 billion (US$40 billion) generated from the digital economy to contribute to Malaysia’s gross domestic product (GDP) in 2020. Prior to the pandemic, Malaysia was expecting the e-commerce industry to contribute only around RM140 billion to its GDP in 2020.
Emerging Trends in the E-commerce Industry
Amidst this crisis, we have seen government efforts to encourage people to shop online thus reducing the need to go out. Under the “Penjana E-commerce Initiatives”, the Malaysian government announced 2 campaigns to promote the development of the digital commerce sector, namely the “Shop Malaysia Online Campaign” and the “Micro & SMEs E-commerce Campaign”. The government is committed to promote the digitalisation of businesses by subsidising on-boarding training to relevant partners and providing subsidies for eligible merchants, thus encouraging more enterprises to participate in transitioning their business into a more innovative model. Such government initiative promotes a multiplier effect through injection, thus engendering greater aggregate demand. At a time when global economic uncertainty is prevalent, encouraging consumers to spend and helping merchants digitize their commerce is a pivotal method to boost economic growth.
On the other hand, online groceries and the livestock marketplace has created an online presence. For instance, vendors are now selling meat (chicken, beef), seafood and fruits(durians, bananas) on Shopee since wet markets and bazaars are not allowed to be opened during MCO. In an NST interview with Shopee, the e-commerce giant said that in April alone, there were about 1,000 fresh and frozen sellers, including farmers and fishermen on Shopee. Generally, many of the sellers that offered assortments of more than 20 types of products in their stores could generate monthly sales of up to RM100,000. This new way of selling groceries and goods is referred to as a sustainable business model that saves vendors the need of a high start-up cost (renting a physical outlet, employing laborers &, etc) to run the business. Therefore, more capital could be invested in enhancing the quality of goods.
The Effect of Supply Chain Disruptions
Although the pandemic has created opportunities for many businesses to expand their business to a “Direct To Consumer” model, it is important to also look at how the virus has disrupted the global supply chain to understand its effect on the e-commerce sector.
When the coronavirus spiraled out of control in China, many factories were forced to close down and halt its production lines. This created a rippling effect to the global economy, especially towards the growing digital economy, causing inventory shortages and revenue reduction. According to Statista, China accounted for 28% of the global manufacturing output and 22% of Malaysia’s total imports. This means that although the demands of goods were increasing, the ability to manufacture and fulfill those purchasing orders were obsolete. This creates a disequilibrium between the demand and supply of the digital market. For example, as more companies adopt the “work from home” policy to reduce large gatherings and human contact in Malaysia, electrical and electronic products such as laptops, computer mice, printers and earphones see a spike in demand for people to set up a “work-environment” in their own comfort of home. However, due to massive closures of factories, China, a vital electronic products exported to Malaysia, contributing approximately 25% of Malaysia’s total electrical and electronic imports in 2019, was not able to fulfill the orders, negatively impacting the electronics e-commerce industry. Overall, many online businesses are facing shortages of products due to the disrupted supply chain and are unable to satisfy the demand of their customers.
Besides, the pandemic has also caused massive inconvenience in terms of logistics. As Malaysia tightened their border to avoid more influx of COVID patients, the supply of international flights had generally plummeted. For example, the Malaysian Airlines Bhd cancelled more than 4,000 flights from the 18th of March when MCO was announced to combat the spread of Covid-19. This implied that there was less air freight due to the limited space available for parcel and cargo shipments. The International Air Transport Association (IATA) also released data showing that demand for air freights dropped by 27.7% compared to the same period in 2019 and capacity was down 42%, therefore increasing international shipping price and shipping time. The delay in delivery time resulted in many buyers cancelling their orders. Furthermore, cross state borders restriction was in place during the MCO, thus only a handful of drivers were allowed to travel to a different state, causing disruption and delay in product shipments as well.
Covid-19 has definitely pushed retailers and businesses to an edge, forcing them to find ways to sustain themselves. While some were unable to do so, subsequently going into insolvencies; many thrived by embracing the opportunity presented by the electronic commerce sector. It is also becoming increasingly evident that along with this consumer-driven shift, the need for backend technologies that allow retailers to maximise online opportunities in the most efficient, environmental-friendly, and cost-effective manner will emerge. There is still a myriad of challenges ahead for this sector that will be unveiled over time. However, the rise of the digital economy is indubitably imperative to a country’s growth in the long run as we enter the industrial revolution 4.0. This pandemic has definitely sped up this process.
Researcher: Jonathan Leng Yu Cheng
Edited by: Chee Hor
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