The Effects of the Coronavirus (COVID-19) on Dropshipping Businesses
We wanted to take a moment and share how we’re seeing COVID-19 affect dropshipping businesses. This isn’t going to be an article about COVID-19 itself, we’re not medical professionals and there is plenty of information about the virus from reputable experts out there.
This article is going to share our insights into how this virus is affecting dropshipping both from China and domestically, and how you can modify and restructure your online store in response.
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The Effect Of The Coronavirus On Chinese Factories
The Coronavirus outbreak has massively affected China. Chinese factories have been closed since the beginning of the Chinese New Year (January 25). If you depend on drop shipping from China, you’re used to this schedule. Generally, these factories close up a for a few weeks and then reopen.
Many sellers don't even stop selling during this period. They keep running ads and taking orders as usual. The factories open back up and begin shipping again. Everyone receives their orders and everyone gets paid.
Unfortunately this year, the Coronavirus hit China during that time and factories couldn’t reopen. This has resulted in companies that dropship from China being hurt financially, both in the short and long-term.
What Does This Mean for Dropshippers That Rely on China?
Besides gaps in your supply chain, if your business relies on dropshipping from China you’re facing other things that can negatively impact your company.
1. Wasted Ad Spend
If you’re a business that has been investing in advertising as you wait for future shipments from Chinese factories, this is a big problem. Those future shipments haven’t been able to go out yet, and ad spend with no return can put you in a tight spot financially.
2. Potential Negative Reviews
If you've still been taking orders under the impression that everything was business as usual, you now have the difficult task of deciding what to do with this buildup of orders. Platforms with built-in review follow-ups may prove particularly troublesome.
For instance, if Facebook knows you’re running ads and that you are an e-commerce store, they’ll automatically send your customers a quick survey to rate their experience. If your customers aren’t happy with the shipping delay because you’re dropshipping from China or with how you've handled the situation, they can and likely will give you a bad rating.
The longer you go without refunding your customers, the greater chance that you will receive "chargebacks." When this happens, your merchant account provider can close your account.
In our opinion, it’s not worth risking chargebacks and losing merchant accounts. Refund every order the second the customer hints they might want to cancel their order. Be honest with your customers and let them know this is largely out of your control, you value their businesses and want to do right by them.
This way you don’t risk a high amount of chargebacks, your merchant account being canceled, or being blacklisted when you try to open new merchant accounts from different banks.
Customer Service Options for China Dropshippers
If you’ve been advertising to customers and are now unable to fill those orders because Chinese factories are closed, you need to communicate that to your customers.
1. Be Honest (Recommended)
The best thing you can do in this situation is to, once again, be honest with your customers. Make sure they understand the factory in China is closed and that you hope they’ll open by a certain date, but you can’t guarantee that. Explain that the product they purchased may ship in weeks or months, but we can’t be sure. Give them an opportunity to request a refund. Unfortunately, most customers will likely take you up on that offer.
This will obviously remove your profit and the potential return on investment (ROI) from your ad spend. However, you might retain customers who will shop with you in the future because you’re being upfront with them instead of expecting them to accept a long shipping delay.
2. Hedge Your Bets
Another response we’ve seen (that seems a little less honest) giving customers a specific shipping time with the disclaimer, “as long as you know there is a delay in shipments because of the Coronavirus, products will begin to ship again in X amount of time.”
The problem with this response is that no one really knows when Chinese factories will be able to reopen and start shipping again. Some factories have reopened, but most of them have not, so there’s no way to guarantee a real time-frame for getting new products shipped from factories in China.
If you choose to use this second type of response, you risk stringing customers along, which can lead to a high rate of chargebacks.
The Effect Of The Coronavirus On Domestic Suppliers In The United States
At Drop Ship Lifestyle, we rely on domestic dropshipping suppliers - selling from brands that are only located here in the United States. These brands have domestic warehouses. Some of these products may be made originally in China, but they’re already here in the States and ship directly from domestic warehouses.
The Coronavirus outbreak isn’t affecting our business and businesses like ours to the severity that it has affected China. But it has certainly taken a toll on our economy.
1. Limited Availability
Whether due to the fact that there are gaps in supply chains, less people at work, or a deficit of goods coming in from china, you may likely deal with stock shortages.
What can you do to combat the danger of low inventory on your bestselling items?
Solution 1: Proactively Communicate To Your Suppliers
Proactively take steps to protect your business so you’re ahead of the curve once Coronavirus starts having a negative effect on your store.
Stay in constant communication with all of your suppliers and request weekly inventory reports. This will allow you to be prepared for product shortages and get ahead of them.
Solution 2: Pre-Order Products From Their Warehouse
If you can afford it, pre-order your best-selling products when inventory starts to drop. Contact your brand reps and say, “I know you have X amount of units left of (product name), I’d like to pre-order those right now.”
You could buy them outright and keep them in your supplier’s warehouse until they need to drop ship or your supplier might ask for a deposit.
2. Wasted Ad Spend
Domestic dropshippers will also need to be careful about what they're spending on ads. There is a large chance that retailers will overspend on advertising and lose profit during this outbreak. Don’t continue to run ads as if it’s “business as usual”, that’s how you’ll end up with frustrated customers likely to leave you a bad rating and file chargebacks.
Solution 1: Keep a Close Eye on Your Inventory
If a product goes out of stock, cut your ad spend immediately. Do not wait. Even a few weeks of waiting can lead to a significant amount of revenue lost for your business.
How To Effectively Restructure Your Store
Now is the time to think outside the box. Look at what your best selling products have been however long you’ve been in business. See which items will most likely sell out or are already gone and start looking for alternatives.
You might already have alternatives on your website, or you might need to start sourcing new suppliers for alternatives to offer your customers right now.
Let’s say you sell a standing desk that is one of your best selling products. If you see inventory dip on this, start searching for any other brand out there that makes the most comparable product in style and quality. Not only that, look for alternative products that have plenty of inventory in their domestic warehouses.
Once the inventory on your standing desk hits zero, make a change to your store’s product page. Make those sales pages really unique to catch your customers’ eyes and give them a valuable alternative. If you put time and effort into these pages by adding questions & answers, reviews, videos, and photos, these products could become your new bestsellers.
When you make those changes, be sure to update all your site links on your homepage, Shopify storefront, and social media accounts.
Keep Track Of Your Changes
Remember, this won’t last forever. No one can say how long the effects of the Coronavirus outbreak will last for our economy, but it will end. Your suppliers will start to be fully stocked again and ready to ship.
So, as you’re making these changes to your website and social accounts, be sure you keep track of what you change! You know you’ll eventually have to change the content and product listings back to your original bestsellers, so make it easy to track your changes.
We recommend using a simple Google Doc or Google Sheet and make note of every change you make, along with the date.
Examples of keeping track of changes in a spreadsheet and a document:
(Click to zoom in)
Coronavirus Outbreak Takeaway
Take a deep breath and don’t panic. Things have already changed and will likely continue to change, which is why we wanted to share this information with you. Everything we’re recommending you do in this blog post are actions we’re taking ourselves at Drop Ship Lifestyle.
By making the changes outlined above, you can better prepare your dropshipping business to adjust to the effects of the Coronavirus outbreak and keep your customers, and potential customers, happy.
Here Are your next Steps...
Be sure to register for our next free web class. . Then, click here to check out our Ultimate Drop Shipping Guide.