Live Article: The War in Ukraine and Its Potential Effects on Business and E-commerce4.3.2022
The dramatic situation in Ukraine significantly affects the lives of each and every one of us. The atmosphere is changing from hour to hour and gradually moving into the business world. Concerns, possible scenarios and unpredictable reactions are arising. What do the potential risks of war mean in the digital world?
The situation is unclear and complicated. We have been following it for weeks now, and we are therefore gradually updating this article and supplementing it with relevant statements.
E-commerce has been declining since the start of 2022. Plans for 2022 were often based on figures from 2020 and 2021 (even though these data were skewed because of the COVID pandemic period). Therefore, many e-commerce players estimated greater year-on-year growth and adjusted costs and investments accordingly. The decline has been even more pronounced in the days since the start of the war.
Within business and e-commerce, we have thus far seen changes in 5 main areas.
1. Changes in the financial market
Inflation continues to grow. It leads to the raising of interest rates and the lowering of money in circulation.
Fears of another crisis – a slump in the capital market and a lack of liquidity – predominate. Loans and investments will be harder to obtain or more expensive.
EUR/USD exchange rate change
The change in the EUR/USD exchange rate can significantly impact the amount of margins. If the production or purchase of goods or materials occurs outside Europe, trade regularly leans toward the dollar during a crisis.
In the case of a change in the exchange rate to 1:1, a significant decrease in the margin must be expected.
For B2C, this can be dealt with by adjusting prices at the expense of turnover; for B2B, where contracts are already signed, this is a more significant problem.
The reaction of the other great powers (for example, China and India) may skew the exchange rate to the detriment of the USD. If they access dollar reserves, they will then affect the position of the dollar and strengthen other currencies, for example, the euro.
Sales in several currencies can partially reduce the risk, because they do not rely on the monetary policy of a single central bank.
However, the link between the currencies in Europe and the euro is strong. It can be expected that the euro will be more stable than other national currencies.
If you do business in different currencies, hedging on the financial markets can manage the risk of larger market fluctuations to some extent.
Opinest TIP: A full-day financial workshop is planned at NORTHFINDER, in the scope of which individual scenarios will be simulated on current turnover plans so that the next steps are clear in each situation. We consider this to be a very sensible step for the clear identification of risks.
2. Fluctuations in purchasing power and mentality
The level of inflation, rising grain prices (Russia and Ukraine are among the most important players in agriculture), energy, gas and oil will gradually change shopping behaviour.
Savings will increase and spending will decline on nice-to-have products and services, such as fashion, holidays and luxury goods.
Intervention in less developed regions
Less developed regions will be more hit by the change in purchasing mentality.
One way of reducing risk is to export to more developed markets (within Europe, for example, England, France or Germany), but entering these markets is investment intensive. Thus, for this reason, it is also necessary to plan and calculate very precisely.
A reduced measure of shopping
The situation a few days just after the outbreak of war can be compared with the beginning of lockdown measures during the COVID-19 pandemic. At that time, e-shops first recorded a short-term decline due to the uncertainty, but after the closure of brick-and-mortar stores, they saw a huge increase in online demand.
Currently (a week after the start of the conflict), we are seeing a reduction in searching and purchasing rates. Since the beginning of the conflict, we’ve recorded a reduction in the volume of searches on Google of between 10–20%. This may be a temporary decline, since the conflict in Ukraine is a new topic.
Since military conflicts tend to threaten supply chains (while it is also assumed that pandemic measures will no longer be as restrictive), we anticipate two scenarios:
- customer sentiment returns to the original pre-conflict levels,
- the rate of buying in the medium term will be lower than before.
3. Change in logistics
Due especially to rising oil prices, a multiple rise in transport prices is presumed.
Players who have warehouses and goods closer to the customer can keep their prices lower. In the opposite case, we recommend thinking over subsidizing logistics costs at the expense of margins.
Acceptance on the part of customers to pay even € 10 for the delivery of a shipment will probably not come any time soon, even in the developed economies of Europe.
Fixed-price contracting in logistics practically doesn’t exist due to the fuel surcharge, which in this case is crucial.
Historically, there has been no stoppage of oil and gas supplies from Russia under almost any circumstances; therefore, it is possible that in a short time the situation will calm down and the price of fuel will not climb to crisis levels.
4. Solidarity with Ukraine
Many companies have stood on the side of Ukraine through social networks (statuses, flags or the colours of their logo); some communicate pro-peace and apolitical statements, or financially or materially support humanitarian organisations.
On the contrary, some brands make no statements on the topic.
Even in such a situation, each communication should be a component of the brand strategy. Deviating from the character of the brand is not recommended.
Authentic brand communication
Customers and the general public in particular appreciate authentic and consistent communication; therefore, it is not always worth trying to please everyone.
In many cases, company owners or directors are also influencers in their field, and thus this topic can also be more personally communicated through them than through company accounts.
We’ve recorded several complaints that happy, colourful, and selling ads are still being shown during the conflict. This will likely be a short-term situation that should not significantly hurt any brand (unless it explicitly misuses the situation to its advantage).
5. Other changes in the world
Aside from the conflict in Ukraine, the development of the situation in Asia is important. The potential conflict between Taiwan and China will have a major impact on the fashion industry, as most of the materials come from this region. At the same time, Taiwan has the largest producer of computer chips, TSMC, which would significantly add to the current shortage of such chips.
Maintain your business
Even though we don’t yet know how the situation will develop, think about the measures you can take now.
- Redo budgets, adjust (lower) expectations and planned costs;
- Prepare for pessimistic development variants from a cash-flow perspective and secure financing;
- Increase the reserves of the goods well in advance;
- Design a strategy in case of rising logistics prices and delivery times;
- Switch to restrictive management of company costs due to unexpected costs and reduced profits.
We understand that the situation is chaotic and unpredictable. Don’t wait for the worst. If you need advice, we’ll help you reassess planned budgets, set crisis scenarios, and identify bottlenecks and opportunities through OpiStarter and other consulting cooperation. Luck goes to those who are ready.
If you have found any uncertainties in the article or have any suggestions to improve it, don’t hesitate to contact us. We’ll continue to monitor the situation and its development and inform about updates to the article on our social networks.