CORONAVIRUS: SWORD OF DAMOCLES OVER E-TAIL€¦ · fulfillment. Amazon has made large investments in building its own warehousing and fulfillment centers. It has control and oversight

CORONAVIRUS: SWORD OF DAMOCLES OVER E-TAIL ___

TWO SENTINELS GROUP April 2nd, 2020

The Two Sentinels Group is an informal, unpaid volunteer think tank of professionals across technology industries. Our mission is to provide timely analysis of emerging issues, unencumbered by the constraints commonly found in private and public organizations. None of the contributors to this paper holds stock in any of the companies mentioned. Reach us at [email protected]

COPYRIGHT INFORMATION This document is Copyright © 2020 by The Two Sentinels Group. It is published under the Creative Commons License with Attribution and Share Alike (CC BY-SA). This means that this document may be freely distributed and cited, as long as attribution is given to the authors. Please cite the name of the paper and give authorship attribution thusly:

Coronavirus: Sword of Damocles Over E-Tail by The Two Sentinels Group

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ABSTRACT COVID-19 is the disease caused by infection from the Novel Coronavirus, which has the scientific name SARS-CoV-2. The speed and geographic spread of infection have exceeded mathematical models that are based on primary infection causation by aeration of infected respiratory tract droplets. The virus has now been shown to be present and shed in the feces of infected individuals, even if asymptomatic, and continues to be present in human stool beyond when respiratory system tests become negative. There is growing scientific and anecdotal evidence that transmission of the virus can be made via contact with infected fecal matter. The virus present in fecal matter can survive much longer on surfaces. Human fecal matter is ubiquitous, mostly due to poor hygiene. Studies have reported high human trace fecal loads found on surfaces in hotels, rental cars, restaurants, and anywhere else humans go. Tests of the Diamond Princess cruise ship showed the presence of Coronavirus in passenger cabins 17 days after they had been vacated. This paper presents an analysis of safety to consumers of ordering products from three E-Tail archetypes: Amazon, Etsy, and Shopify. An important factor for online product safety is the degree of “Command and Control” that the E-Tailer exerts over fulfillment. Amazon has made large investments in building its own warehousing and fulfillment centers. It has control and oversight over the entire product fulfillment cycle. It can assure, with high confidence, that products are packed and shipped free of Coronavirus. In contrast, Etsy relies entirely on its independent sellers to fulfill product orders. Etsy has no command and control oversight of product fulfillment. It can make no assurances regarding the presence of Coronavirus on products. Etsy products are handmade and have much more manual contact than an item produced in a factory. The cleanliness of workshops and hygienic practices of artisans are unknowns. Products from Etsy thus have more risk of carrying Coronavirus than products from Amazon. The third E-Tailer archetype is Shopify, with risk of Coronavirus propagation that lies between Amazon and Etsy. The bulk of products sold at this time by Shopify stores are fulfilled by the stores themselves. Shopify fulfillment strategy is to facilitate relationships between stores and third party fulfillment centers. Shopify is currently heavily investing in creating its own warehousing and fulfillment centers, but they are not yet fully operational. Most Shopify stores continue to fulfill their products themselves. As with Etsy, Shopify does not exert and command and control over those fulfillment processes, and likewise has no oversight over product production. However, taken as a whole, Shopify features less “handmade” items and more factory produced goods, so is more like Amazon than Etsy. The document concludes with recommendations to E-Tailers, sellers using these E-Tail platforms, what consumers can do to ensure safety, and how the CDC should broaden its authority to regulate online product fulfillment during times of pandemics.


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INTRODUCTION A Sword of Damocles now dangles over the E-Tail world. The Novel Coronavirus (used interchangeably with its scientific name, SARS-CoV-2), is raging across the world. It causes a severe respiratory disease called COVID-19 that can be fatal. Beyond the tragic human toll, much attention and speculation has been given to the economic impact. This paper examines the possible effects of Coronavirus on consumer E-Tail businesses. Three archetypal consumer E-Tail businesses are analyzed that represent different fulfillment models: Amazon, Etsy, and Shopify.

Key Points

● Much attention has focused on the presence of Coronavirus on the outside of boxes in which products are shipped; the bigger concern should be if the virus is inside the box

● The Coronavirus can live on various surfaces for days; a cited CDC study of the Diamond Princess cruise ship reveals that the Coronavirus was found to be present in cabins 17 days after being vacated by passengers

● The Coronavirus is present and is shed in the feces of infected people, beyond the time when an infected person has recovered and respiratory tract infections test negative

● Many people do not practice good personal hygiene, resulting in trace amounts of fecal matter being spread onto surfaces; studies are cited that report on fecal traces being found on many surfaces in hotel rooms, rental cars, restaurants and homes

● The E-Tail businesses that are best suited to weather the Coronavirus crisis are those that have the strongest “Command and Control” over product fulfillment processes

● Commodity items that are factory produced and warehoused at distribution centers, then packaged and shipped can be easily disinfected and are low risk; Crafts are made with much handiwork and so have higher risk of contamination

● Amazon warehouses and ships mostly factory produced items that can be disinfected in the distribution center; Amazon is partly vulnerable because it sells third party products which fulfill outside of Amazon


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● Etsy has no control or oversight over how its sellers make or fulfill their products, including the cleanliness of work areas and the hygienic practices of artisans; given the ubiquity of fecal traces described in cited articles, it is highly likely that many handmade items have trace fecal matter

● Shopify also has high exposure because so many customers are small, and fulfill their products outside of Shopify control or oversight, much like Etsy

● Consumers can have high confidence in the safety of products purchased and fulfilled through Amazon and other E-Tailers who have invested in warehousing and fulfillment, because they have good command and control; Etsy and Shopify do not, and so consumers should understand that their products carry more risk of virus contamination

● The CDC should develop guidelines and policies to regulate products ordered online shipped to consumers to prevent the spreading of infection during pandemics

E-Tail Order Fulfillment There are three stages to an internet purchase: In the first stage, the buyer engages with an online site, then selects the product of choice, and finally checks out with payment. Then, the seller fulfills the order and the product is delivered to the consumer. To the consumer, the process looks like this:

There is intentional commonality across websites with regard to the purchase process flow. Consumers first need to find the products they want (intrasite search), select them (add to cart),


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then place the order (check out). Customers don’t need a user manual, because once they have purchased from one site, they can navigate the process on others without much trouble. While the common usage paradigm allows for easy accommodation of new customers, the corollary is that customers can easily switch to a different vendor. For commodity items priced evenly across websites, a customer’s preferred vendor will come down to selection, customer service and fulfillment.

The Coronavirus does not present infection risks through the purchase process. The buyer is totally isolated from the servers with which they are interacting. As noted, most e-commerce websites are very similar and secure. It is the fulfillment stage where there is wide divergence, and as we will explore, the possibility of impact by the Coronavius.

Command and Control

“Command and Control” is an expression commonly used in a military context. It refers to decision makers at the top being able to set and enforce idempotent rules, procedures and protocols throughout the organization. The goal is to increase predictability, credibility and reliability. For example, command and control is essential to maintaining an effective, reliable and credible strategic weapon system. The value of such a weapon is in its deterrence. To be an effective deterrent, it has to be viewed as a system that can reliably deliver its potential. On the other hand, it has to also be viewed as a reliable, predictable system that will only be engaged by deliberate, authoritative order. The US military considers the development of effective command and control essential to its mission. Applied to product fulfillment, command and control means that an organization has implemented effective control and oversight of its facilities, processes and protocols. It means that products are warehoused, picked, packed and shipped following a prescribed process with set protocols that are repeatable and applied universally to every order. To do that requires significant investment in infrastructure, equipment, people and training. For example, Amazon has made large investments to build warehouses that are strategically located and feature advanced automation systems that utilize robotics. Amazon’s goal has been to develop state of the art warehousing and fulfillment with top grade command and control, to provide reliable fulfillment of products ordered through its e-commerce portals. That investment in infrastructure and command and control has enabled Amazon to offer its customers benefits like free Prime 2-day shipping and easy returns. As this paper will discuss, having excellent command and control over fulfillment processes is essential to being able to respond to crises like the Coronavirus pandemic.


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The E-Tail Archetypes There are several E-Tail models in use on the internet by retailers. Some emulate a department store, wanting to stock and sell anything and everything and controlling sales from order through to delivery to be able to offer the lowest prices. Another approach is creating a specialized, two-sided marketplace and brokering transactions between buyers and sellers, leaving fulfillment solely to the independent seller. A third approach is akin to Levi Strauss in the 1849 gold rush, not directly selling products itself but instead creating the tools to enable others to do so. We examine each of these common models through well-known representative archetypes Amazon, Etsy and Shopify.

MODEL DESCRIPTION REVENUE ARCHETYPE COMPETITORS

End-to-End E-Tailer

Builds out a single endpoint E-Tail destination with broad product selection; invests heavily in building warehousing and fulfillment infrastructure with automation and even last mile delivery

Listing fees, transaction fees, fulfillment, services

Amazon Walmart.com, Target.com, Costco.com, Alibaba

Two-Sided E-Tail Marketplace

Creates a two-sided marketplace for specialized products; provides tooling for sellers to set up shops and search tools for buyers to find products, tools for enabling sales and payments

Listing fees, payments, services

Etsy Amazon Handmade, Artfire Shopify, Bonanza

E-Tail Enabler Creates tools that enable customers to set up E-Commerce capabilities

Subscriptions, service fees

Shopify Wix, BigCommerce, Zoey, Squarespace

End-to-End E-Tailer: The Amazon Model

Amazon is the archetype for large E-Tailers that operate their own warehousing and distribution centers, and fulfill their own customer product orders. Other E-Tailers with broad commodity product lines having this fulfillment model include Walmart.com, Target.com and Costco.com. Amazon is famous for its “Prime” membership that features free two-day shipping for many products. In the past year, Amazon has invested even more in its fulfillment infrastructure to enable it to offer same-day shipping. Amazon can only do that for the products it fulfills, because it has its own warehouses and has efficient command and control to enable quick packing and shipping of orders. In general, most products purchased through Amazon are fulfilled by Amazon, for both its own products and also for those of third-party sellers. This


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gives it a tremendous advantage over competitors, and makes it very well suited to weather the Coronavirus crisis. However, Amazon also allows third party merchants to handle their own fulfillment, which is then outside of Amazon control. That is a weakness in the Amazon model that exposes a portion of its business to impact from Coronavirus.

Two-Sided E-Tail Marketplace: The Etsy Model

Etsy is a self-contained, two-sided marketplace for handcrafted goods where it plays the role of matchmaker between buyers and sellers. Etsy provides sellers with a virtual shop using proprietary Etsy tooling, and all seller product inventories are indexed under the umbrella of Etsy’s search engine. Etsy provides an online locus for buyers to search and browse products across all sellers. The Etsy ecosystem takes orders and processes payments, but actual fulfillment is performed exclusively by the seller, totally beyond Etsy’s control and oversight. It is the lack of any command and control over fulfillment that makes Etsy vulnerable to the Coronavirus. Etsy sellers are individual artisans who fulfill their own orders. The artisans most often produce their products “on demand” when orders are placed, which they then pack and ship themselves when ready. The Etsy marketplace needs healthy buyers, healthy sellers, and healthy demand. The Coronavirus has the potential to harm Etsy in three ways: 1) Etsy goods are discretionary purchases; 2) buyers and sellers may get ill and become inactive in the marketplace; 3) Etsy has no command and control over order fulfillment, which may enable the spreading of the virus and could hurt confidence in the safety of its products.

E-Tail Enabler: The Shopify Model

Shopify is another very successful internet company in the E-Tail space. It is not a direct seller. The customer of Shopify is an individual or business that wants the ability to sell products online with a reliable, scalable website. Shopify has created a suite of tools to enable individuals and small businesses to get online and sell through multiple channels. Shopify does not have warehouses and does not directly fulfill any product orders. Fulfillment has been exclusively the responsibility of the customer. More recently, Shopify has developed a fulfillment strategy for customers that includes facilitating agreements with third-party fulfillment centers. Longer term, Shopify is investing in building out its own warehousing and fulfillment capabilities, but that won’t be ready for some time. Shopify today has a mix of customer fulfillment models, with a large percentage of customers continuing to inventory and ship their own products, and others using third party operations. Shopify’s exposure to impact on its business from Coronavirus lies between that of the Amazon and Etsy models. Shopify has a number of larger


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customers that have invested in their own warehouse and fulfillment, and also many Shopify customers use third party fulfillment centers that are well managed. However, Shopify’s main revenue is from recurring subscription fees and merchant service fees from small businesses. The Coronavirus is likely to impact the businesses of Shopify customers, and that in turn could lead to a decrease in Shopify revenues.

The Coronavirus Pandemic COVID-19 is a respiratory tract disease caused by the Coronavirus (aka SARS-CoV-2). In just three months, it has swept the world. Originating in China, it has subsequently reached every continent except Antarctica. It has proven to be highly contagious, has a relatively high fatality rate and has resulted in unprecedented societal changes.

How Coronavirus Spreads

Coronavirus has been thought to spread primarily through inhalation of aerated particles from the respiratory tract of infected persons. Another route to infection is by hands-to-face contact. The Coronavirus has proven hardy and can live on various surfaces for some time. Infection with the virus can occur when a person touches a surface that has active Coronavirus, then touches their face. This is why medical professionals have emphasized the importance of regular hand washing with soap and water, and the use of hand sanitizer. Early thinking on the viability of SARS-CoV-2 on surfaces was that it could last up to 9 days on certain surface types. Recent studies have changed that thinking, extending the effective time of possible virus transfer from infected surfaces. The CDC recently published (March 23, 2020) a report on testing of the Diamond Princess cruise ship which had COVID-19 infections: 1

SARS-CoV-2 RNA was identified on a variety of surfaces in cabins of both symptomatic and asymptomatic infected passengers up to 17 days after cabins were vacated on the Diamond Princess but before disinfection procedures had been conducted (Takuya Yamagishi, National Institute of Infectious Diseases, personal communication, 2020).

The new findings that the Coronavirus can remain viable for at least 17 days is astounding. It may significantly change scientific understanding of how the virus can spread. It may also affect public policy on containment.

1 Public Health Responses to COVID-19 Outbreaks on Cruise Ships...


https://www.cdc.gov/mmwr/volumes/69/wr/mm6912e3.htm?s_cid=mm6912e3_w

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Community Spread

There remain many unknowns about how Coronavirus spreads. Statistical models that predict the spread of the virus cannot account for the size and rapidity of infections across the globe. There are many reports of people becoming infected with Coronavirus who have had no contact with anyone else who is infected, and with no recent travel history. How these individuals have contracted the disease is a mystery and gives alarm to epidemiologists. The Center for Disease Control states:

Community Spread means people have been infected with the virus in an area, including some who are not sure how or where they became infected. 2

Also according to the CDC, at least 27 states have reported Coronavirus COVID-19 Community Spread, meaning the means of transmission is unknown. Yet, the infections are real and there 3

must be a reason for how they occur. This leads to the possibility that current thinking on how the virus spreads is not fully inclusive of all means of transmission, or that some assumptions are wrong. One possible explanation is the presence of Coronavirus in fecal matter . 4

Coronavirus Can Spread Through Fecal Transmission

According to an article in Vox, transmission of Coronavirus can occur through fecal particulate matter, much like Norovirus. Transmission can occur through inhalation of fecal particulates 5

suspended in air, or through direct contact. This may explain why the Coronavirus has spread faster and wider than models predict that are based on respiratory tract transmission alone. A recent article (March 21, 2020) article in Medicine.net reports on two recent articles published in the professional journal Gastroenterology regarding the presence of SARS-CoV-2 in fecal matter. What’s very concerning is that the SARS-CoV-2 virus continues to be shed in human 6

stool even long after a full recovery from the illness. This portends ominous implications for some E-Tail businesses.

How Fecal Transmission Occurs

There are three means by which Coronavirus can be transmitted from fecal matter: direct contact with even trace amounts, absorption of airborne particulates, and possibly even the

2 https://www.cdc.gov/coronavirus/2019-ncov/prepare/transmission.html 3 https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/summary.html 4 https://www.livescience.com/coronavirus-covid-19-spread-through-feces.html 5 https://www.vox.com/2020/2/20/21143785/coronavirus-covid-19-spread-transmission-how 6 https://www.medicinenet.com/script/main/art.asp?articlekey=229095


https://www.cdc.gov/coronavirus/2019-ncov/prepare/transmission.html

https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/summary.html

https://www.livescience.com/coronavirus-covid-19-spread-through-feces.html

https://www.vox.com/2020/2/20/21143785/coronavirus-covid-19-spread-transmission-how

https://www.medicinenet.com/script/main/art.asp?articlekey=229095

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inhalation of infected flatulence (so-called “farticles”). Note that all of these problems are 7

magnified with the Coronavirus, since the infected often suffer from bouts of explosive, voluminous diarrhea, which in itself produces significant fecal particulate aeration.

Human fecal matter is shockingly prevalent in our everyday environment. This is mostly due to poor hygiene habits of people. Many people do not do a good job of washing their hands after using the bathroom. Some don’t even wash their hands at all. Even if they do wash their hands, it may not be sufficient. They may think they are clean, but their hands and skin may still contain trace amounts of fecal matter, which can then transfer to anything they touch. A report in Time Magazine states that 16% of people have trace fecal matter present on their hands. 8

Nothing proves this better than studies that have been done on the cleanliness of hotel rooms. Door knobs, bathroom fixtures, remote controls, telephones, furnishings, bedding and everything in between have all been found to carry high loads of fecal matter, even after professional room cleaning. According to a recent article in Inc Magazine (November 2019), even 5 star hotel rooms are full of fecal matter and bacteria that have been found present on almost all surfaces. It is a fact that fecal matter gets unintentionally spread around, whether it 9

be in hotel rooms, in restaurant kitchens, or throughout the home. The many outbreaks of E-Coli infections have been caused by insufficient hygiene practiced by restaurant workers. Every restaurant bathroom in the United States has a warning that all restaurant employees must wash their hands. The reason for that warning is that many simply don’t. It’s not just restaurant workers -- it’s everybody, across all social classes. The Today show conducted an investigatory report into the cleanliness of rental cars . High concentrations of fecal matter 10

were found on almost all surfaces, including steering wheels, door handles, switches and seating surfaces. Those who frequently travel by air may have noticed that airliners have switched from cloth to leather or vinyl seating surfaces. This prevents trace fecal particulars from working their way into the seat, a problem that was found on mass transit trains in the San Francisco Bay Area. This problem of unknowing fecal spread is even more prevalent in the home. Here is a graphic of a survey from YouGov (January 2020) on the hand washing habits of Americans at home: 11

7 https://www.wired.com/2015/09/body-surrounded-clouds-skin-fart-bacteria/ 8 https://healthland.time.com/2011/10/17/study-1-in-6-cell-phones-contaminated-with-fecal-matter/ 9 Scientists Found Something Absolutely Stomach-Turning in These Hotel Rooms 10 https://www.today.com/news/rossen-reports-rental-cars-found-teeming-bacteria-1D79841756 11 https://today.yougov.com/topics/lifestyle/articles-reports/2020/01/30/hand-washing-soap-poll-survey


https://www.wired.com/2015/09/body-surrounded-clouds-skin-fart-bacteria/

https://healthland.time.com/2011/10/17/study-1-in-6-cell-phones-contaminated-with-fecal-matter/

https://www.inc.com/peter-economy/scientists-found-something-absolutely-stomach-turning-in-these-hotel-rooms.html

https://www.today.com/news/rossen-reports-rental-cars-found-teeming-bacteria-1D79841756

https://today.yougov.com/topics/lifestyle/articles-reports/2020/01/30/hand-washing-soap-poll-survey

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Those numbers probably represent a best case. Many people would find it hard to admit to not washing their hands. We have to accept that good hand washing hygiene is not practiced as much as it should be, and least of all at home. As with hotel rooms, those who do not wash their hands properly will spread trace amounts of fecal matter around their immediate environment. A study of homes would likely find traces of fecal matter on various surfaces, just as in hotel rooms and rental cars. It is unpleasant to know that we all likely ingest trace fecal matter with regularity, because we touch surfaces and then touch our faces. Most of the time, there is no ill effect. However, if a person is sick, that illness is likely present in their feces, and in any trace fecal matter that they may spread about. This is how sickness like E-Coli, Norovirus and Coronavirus can spread. It is not just breathing in droplets that sick people cough or sneeze, but also touching things and picking up trace fecal matter that infected people have left behind.

In addition to poor personal hygiene resulting in manual transfer, traces of feces can also spread by other means. Consider that when a toilet is flushed, the vortex action blasts a large plume of suspended effluent matter into the air. This is why bathrooms can have horrific odors. When you smell bathroom odors, you are effectively inhaling airborne fecal particulates into your own system. These are particles of minute fecal matter that have originated from inside someone’s body. Such particulates can be suspended in the air for some time, but eventually they settle on surfaces. Anyone then touching such a surface might well pick up the trace material, which may then be ingested by incidental hand to mouth transfer.


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The Impact on E-Tail Fulfillment The fact that SARS-CoV-2 virus is present in human feces has a potential severe impact on consumer E-Tail. The impact will be felt more by some E-Tailers than others, depending on their fulfillment model, and the types of products they sell. The types of products break down into two general categories: factory made and handmade.

Factory Produced Products

The production of factory goods is often highly automated. Many factory-produced goods are never touched by human hands. Those goods proceed along an automated assembly line, with robots doing the work. Advances in CNC (“Computer Numerical Control”) machining have allowed many products to be produced with a high degree of automation, where formerly they were made by hand. This has resulted in increased quality at lower cost. An example is home furnishings. Many items such as tables and cabinets used to be hand assembled by craftsmen manually measuring and cutting the component pieces. CNC has changed all that, and the result is more efficient component production with higher accuracy and quality. Factory produced products now have less human handling than ever, which means less opportunity for a human to transfer virus to an item. Consider also that many factory items, once produced, spend several weeks sitting in warehouses or in transit. That is likely enough time that if SARS-CoV-2 virus is present on product surfaces, it will have become inert and incapable of further infections by the time it reaches the consumer. If a consumer orders a manufactured product directly from the factory, the odds are it is going to be just fine and free of virus contamination. This is because of the limited human handling of the product during the production process.

Factory-Made Products Sold and Fulfilled By Third Party Retailers

Most factory made products are, in all likelihood, free of virus contamination when they ship out from the factory. Most factory products go through distributors who then resell to other downstream distributors, finally on to the retailer. However, the product can become infected when it is being packaged for shipping to the customer. The probability of such infection is a function of how the retailer handles the product during fulfillment. A large retailer with advanced command and control over order fulfillment is going to have less human handling of products. A small, one-person operation may have that person touching every product all over when they pack it for shipment. If that same person just came from the bathroom and didn’t wash their hands, there is a real risk of fecal contamination of the products going into the package. If that person is shedding active Coronavirus in their stool, it can remain viable for a


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long time, even after recovery from COVID-19. Given the relatively short time it takes to ship a package anywhere in the country (just a few days), the purchaser may receive a package that is free of virus contamination on the outside but highly contaminated on the inside. It’s a literal “crap shoot.”

Handmade Products

Handmade products are a special type and unfortunately, the most likely to be compromised by the presence of SARS-CoV-2 virus. This is because the very definition of a handmade product is that it is made by hand. Often many hours of labor go into making a handmade product. The more time that an item is being handled, the higher the odds that it will have trace amounts of fecal matter, possibly virus contaminated. For an item that is taking hours to craft, the artisan may head to the bathroom several times. Each round trip visit increases the probability of fecal contamination of a handcrafted product. This will not happen to every handcrafted product, but the problem is that there is no way to know, for the reasons given. One simply cannot know because the life of the product is Even trusted artisans take shortcuts on occasion; it’s human nature.

The Workshop Environment

The environments where handmade goods are crafted vary as widely as there are artisans. Some have dedicated workshops in their homes, others use the dining room table, others work in the garage, and some may rent shared space. There is no formula, and certainly no standards. While factories tend to be very clean places, artisan workshops have a wide variety of cleanliness. There are no inspections, so the artisan is free to keep them as they please. Just like regular people, some artists are clean freaks and some are slobs. Some obsessively maintain their workspace neat and tidy, others let things pile up. It’s “different strokes for different folks” but there is a greater possibility that a messy workplace might present more surface area upon which infected airborne respiratory droplets or fecal particulate matter can settle and take root. In this time of raging Coronavirus, a responsible artist should thoroughly clean and disinfect their workplace every day, if not more frequently. That’s a big ask, requiring discipline and workspace organization that many artisans don’t possess. It also takes time to do a proper job, and time is always in short supply. Of particular concern are tools and materials that are left out uncovered, which are then fair game for droplet and particulate settlement and manual transfer, all possible sources of contamination.


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Materials

Handcrafted goods make use of a wider variety of materials than most factory produced items. Fabrics, plastics, glass, wood, ceramics, paints, metals and so forth are commonly found. Many artisans like to use organic materials where possible. Most of the tests conducted to see how long the Coronavirus can remain viable have been performed on hard surfaces. As described in this document, the biggest problem might well be SARS-CoV-2 being shed in human feces. As shown with the study of hotel rooms, that awful fecal matter manages to get on everything. It’s important to understand that this is not intentional. The truth is that unless a person scrubs their hands clean with soap and water with purpose and determination, they are likely unknowingly retaining residual trace fecal matter on their hands. Then that fecal material is deposited onto anything they subsequently touch. There is no harm intended, but the results are literally sickening.

Artisans Who Have Symptoms And Those Who Are Asymptomatic

What about artisans who are feeling ill but still continue to craft handmade products? The problem is, only the artisan knows that they are ill. There is no plant manager or foreperson to tell them to go home if they are feeling or looking sick. We all have likely encountered a colleague in the workplace who is under the weather and clearly should go home to avoid spreading germs. Why do they even come to work feeling ill? This has become more common since companies combined sick days and accrued vacation days into PTO days (“Personal Time Off”). Some employees would rather come to work sick than to squander a vacation day. This same phenomenon of working through sickness applies to artisans, too. Many work out of their home, and would prefer to keep producing and earning than laying around idle. Again, there is no way to know if the handmade item you purchase was made by a sick person. Furthermore, a person can be a contagious carrier of SARS-CoV-2 virus, without knowing it. They experience no symptoms, yet they can pass on the virus to others. There is no way for a consumer to know the health status of the artisan at the time of product crafting.

A Hypothetical Infection Example

Consider a grandparent who has ordered a pair of custom, handmade, knitted baby booties as a gift for a grandchild. The artisan is constantly handling the booties as they are made. If their hands have trace amounts of fecal matter, some will get worked deep into the fibers where they will be almost undetectable, but there. When the grandparent receives the package, they open it and take out the booties to inspect and gift wrap. By handling the booties, they get exposed to the SARS-CoV-2 virus present in the fecal contamination. A few days later, the unfortunate grandparent begins to exhibit COVID-19 symptoms. Nobody knows how they got it, the


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receiving of the package of booties many days before now forgotten. Nobody has an inkling that the SARS-CoV-2 virus was handcrafted and delivered right to their door in those booties. That scenario is not only possible, but plausible. There are many cases of Coronavirus reported where no path to infection can be identified. And yet, the person has been infected, so a point of exposure occurred somewhere, somehow. The theory here is that it is possible for Coronavirus infection to spread via fecal matter that has been deposited on products and then shipped out to an unlucky recipient. It’s a theory that has merit and worthy of consideration.

About Product Packaging: Outside vs Inside

There have been studies done on the presence of the SARS-CoV-2 virus on surfaces. The studies have found that the virus is viable for 1 to 9 days, depending on surfaces. Cardboard, as used for shipping packages, has been found to support viable Coronavirus for 24 hours. Other surfaces like plastics can support viable Coronavirus for longer periods. These studies are often cited to answer the question about how long the Coronavirus can live on packages that are shipped, to allay fears. While knowing the period of infectious viability on the outside of a package is important, an even more relevant question to ask is how long the virus might live on goods inside a package. The outside can be decontaminated easily enough with alcohol or spray disinfectants. What is inside, though, is a different story. As we have learned, the Coronavirus is present in fecal matter, which gets everywhere. If it is found on most surfaces in hotels and rental cars, then surely it can be found on products made with lots of manual contact in an uncontrolled environment. Imagine a package containing a handcrafted product that has been packaged up and shipped off through any of the major shippers: USPS, UPS or FedEx. Even if those shippers decontaminate packages, that only affects the outside, not the contents. When the buyer receives their package, it may be perfectly safe to handle. But once opened, a plume of Coronavirus may be released. Even if it is a small risk, what person would knowingly order a product with uncertain provenance?

Fecal Transmission Summary Points

● The SARS-CoV-2 virus which causes COVID-19 is present and shed in human feces

● Due to poor hygienic practices, human fecal matter is omnipresent; this is proved by many studies showing high levels of fecal contamination in hotel rooms, rental cars, restaurants and at home


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● A study of the Diamond Princess cruise ship showed the presence of SARS-CoV-2 virus in passenger cabins 17 days after being vacated, perhaps indicating that the virus may be long lived in fecal matter

● There is more risk of exposure to the Coronavirus from the contents of a package than from the outside of the package

● Factory produced commodity products are less likely to be contaminated with the virus

● Handmade items have much higher manual handling and thus at higher risk of contamination with fecal matter that may be infected with Coronavirus

Federal CARES PUA Unemployment Insurance for Freelancers The new Federal CARES Act provides a type of unemployment insurance for freelancers and the self-employed who usually don’t qualify for traditional unemployment payments, called Pandemic Unemployment Assistance (PUA). PUA pays minimum 50% of a state’s average unemployment insurance, an average of $190 per week, for 39 weeks; another $600 per month is available after that. Those are minimum amounts regardless of income level, but those who made more than that will have a higher payment.

The CARES PUA program could affect E-Tailers in a significant way, particularly for the business models with archetypes like Etsy and Shopify. The reason is that PUA makes unemployment payments available to people like artists and other creatives who didn’t previously qualify for traditional unemployment. Without doubt, the Coronavirus is going to have a serious impact on the online sales of non-essential products. Most of the products sold through the Etsy marketplace and Shopify stores are non-essential. They are discretionary purchases and given current conditions, demand will decline sharply. We expect that most sellers on Etsy and individuals with Shopify stores will put their businesses on hold and collect the PUA payments for at least the full 39 weeks of availability, because PUA may actually pay them more. The minimum PUA payment is not based on income level, it is a subsistence payment set by the state. Our analysis of the qualifications concludes that most sellers on Etsy, and individuals with Shopify stores, will qualify. However, they will likely have to suspend operations or close their stores altogether. Here are the requirements:


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Eligibility for Benefits

Applicants will have to provide self-certification that they are (1) partially or fully

unemployed, OR (2) unable and unavailable to work because of one of the following

circumstances:

● They have been diagnosed with COVID-19 or have symptoms of it and are

seeking diagnosis;

● A member of their household has been diagnosed with COVID-19;

● They are providing care for someone diagnosed with COVID-19;

● They are providing care for a child or other household member who can’t

attend school or work because it is closed due to COVID-19;

● They are quarantined or have been advised by a health care provider to

self-quarantine;

● They were scheduled to start employment and do not have a job or cannot

reach their place of employment as a result of a COVID-19 outbreak;

● They have become the breadwinner for a household because the head of

household has died as a direct result of COVID-19;

● They had to quit their job as a direct result of COVID-19;

● Their place of employment is closed as a direct result of COVID-19; or

● They meet other criteria established by the Secretary of Labor.

We bolded the three qualifiers that we think are most applicable to Etsy and Shopify, and estimate that most, if not all, will qualify.

Unemployment

Unemployment applications have skyrocketed with the Coronavirus pandemic. Many workers have been laid off, furloughed or outright fired. Applications for unemployment exceeded 6 million in the last week of March 2020, and those numbers will grow. Those are people who will have less money in general to spend. We expect that discretionary spending on non-essential items will decrease in proportion to unemployment, reducing sales for many E-Tailers.


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E-Tail Coronavirus Impact Analysis How safe is it to buy products from each of the E-Tail archetypes? We examine the risks of buying products from each E-Tailer archetype, and give an analysis about the impact of the Coronavirus on the respective business models.

Potential Impact on Amazon

The Amazon archetype has these key factors related to product fulfillment:

● Has made large investments in warehouse and distribution centers

● Mostly sells its own products and fulfills them through its own fulfillment infrastructure

● Sells mostly brand name household goods and/or commodity items produced in modern, automated factories

● Fulfillment processes make use of automation and robotics thus minimizing human contact with products when packaged

● Exerts total command and control over the fulfillment process that allows for quick, surgical process enhancements, such as adding decontamination steps that apply to all outgoing orders

● Due to well-developed command and control over fulfillment, customers can be assured that the contents of the packages sent to them are very likely free of Coronavirus

● Amazon operates largest public cloud (AWS) which is a separate business

Amazon Strengths and Vulnerabilities

The E-Tailers like Amazon, with superior command and control over the fulfillment of their products, are in the best position to keep the Coronavirus out of packages. However, a part of Amazon’s business does have vulnerability. The risk is due to how Amazon accommodates third party sellers into its marketplace. These are merchants, from large to small, that list their products in the Amazon marketplace, but fulfill the orders outside of Amazon. The Amazon marketplace thus functions as a search engine for finding these products, even ones that Amazon itself does not sell directly. Amazon gains revenue from these


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listings, and they create a “network effect” that builds more value into the Amazon marketplace as a product search engine. 55% of internet purchasers begin their product searches on the Amazon marketplace. Amazon wants consumers to come to their marketplace as the first to find products. Amazon of course hopes that the consumer will select a product sold by Amazon, and by coming to the Amazon marketplace, the consumer gets exposure to that product. Proprietary Amazon benefits such as Prime shipping are enticements and reasons to prefer an Amazon product over a third party, even if both are listed in the marketplace. The truth is that Amazon is indeed relied upon by shoppers as an internet first stop to find products. For this reason, third party merchants want their products to show up in Amazon search. Amazon has two programs available to third party merchants: FBA (“Fulfilled By Amazon”) and FBM (“Fulfilled By Merchant”). FBA means that Amazon warehouses the third party merchant products and fulfills them. This also enables the third party to more easily offer Prime Shipping, a competitive advantage that customers love. The FBM option is different in that product fulfillment is completely the responsibility of the third party, and outside Amazon’s command, control and oversight. Why would a third party merchant selling on Amazon prefer FBM to FBA? The answer is known as “Multichannel Selling.”

Multichannel Selling

A fairly recent trend in online retail strategy is taking a “multichannel” approach. This means giving exposure to products in as many places on the internet as possible. Consumers get leads on products from a variety of internet sources, including Amazon, but also Google search and social media platforms like Facebook, Instagram, Snapchat, TikTok and Pinterest. Merchants who take a multichannel approach also generally take a centralized approach to product fulfillment. They want to be able to fulfill orders from one place, regardless from which channel the order is placed. So it is that most third party products on Amazon are fulfilled not by Amazon itself, rather by the merchant. The merchant will fulfill orders either directly from its own facilities, or by using a third party fulfillment operation. Either way, fulfillment is outside Amazon command, control, oversight.

Amazon Seller Breakdown

Amazon third-party sellers account for 50% of Amazon business. Of those third-party sellers, 12

80% also sell on other platforms. That implies that those sellers are using Amazon FBM and fulfilling orders themselves (to enable multi-channel sales fulfilled from one source). So only

12 https://www.bigcommerce.com/blog/amazon-statistics/#10-fascinating-amazon-statistics-sellers-need-to-know-in-2020


https://www.bigcommerce.com/blog/amazon-statistics/#10-fascinating-amazon-statistics-sellers-need-to-know-in-2020

https://www.bigcommerce.com/blog/amazon-statistics/#10-fascinating-amazon-statistics-sellers-need-to-know-in-2020

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60% of Amazon sales are fulfilled by Amazon. Amazon is so huge that 60% is still a very large business. But the strength of Amazon is the “Command and Control” it has over its fulfillment. It has invested a lot in building state of the art warehouses. A considerable amount of Amazon fulfillment processes are automated using advanced robotics. That automation has allowed Amazon to offer “Same-Day Delivery” which, as of this writing, is unique to it as a large scale E-Tailer. It is the command, control and oversight of its fulfillment infrastructure and processes that give it a degree of immunization to the uncertainty wrought by the Coronavirus.

How to Order Safely on Amazon

When placing an order on Amazon, each product page clearly states the seller of the product and how it is fulfilled. There are three possibilities. It is important to clearly understand each, in order to make a safe, informed choice:

● “Ships from and sold by Amazon.” This means that the product is sold by Amazon and ships from one of their fulfillment centers. This gives the purchaser two assurances. The first is that the product is legitimate since it is sold by Amazon itself, and secondly the fulfillment of the product is under the command, control and oversight of Amazon. The purchaser should feel high confidence that the product in the package is safe and free of Coronavirus contamination.

● “Sold by <MerchantX> and shipped by Amazon.” This means that the product is actually sold by a third party merchant, not Amazon, but the product has been warehoused, packed and shipped by Amazon fulfillment. The purchaser does not have assurance from Amazon about the product itself, but since it has been fulfilled by Amazon, they should have confidence that the contents of the package are free of Coronavirus.

● “Sold and shipped by <MerchantX>.” This third scenario is where the product is both sold and fulfilled directly by a third party merchant. In this case, Amazon functions as a product search engine and just facilitates the transaction between buyer and merchant, not touching the product in any way. The warehousing, packing and shipping of the product is handled outside of Amazon oversight and control. This scenario has the least assurance to the purchaser. The credibility of Amazon is not assured for the product per se, and since the product is shipped direct to the customer by the merchant, it does not benefit from the same control and oversight that would have come with fulfillment by Amazon. The risk of Coronavirus being present inside the package is higher, depending on factors outside Amazon control.


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The bottom line when ordering from Amazon is to know which of the above scenarios applies to the specific product. To have absolutely the highest confidence that one is getting a legitimate product that is safe from Coronavirus contamination, order products that are both sold and shipped by Amazon. There are some very legitimate third party merchants that list products on Amazon as part of their own multichannel sales strategy, but do not fulfill through Amazon. For example, eBags is a reputable seller that has been in business for many years. It has its own website, but it also sells on Amazon. In either case, eBags fulfills the product from its own fulfillment center. Because eBags is reputable, a consumer should have high confidence that they are getting a quality product that is free from Coronavirus inside the packaging, regardless if ordered through Amazon or directly from eBags. When ordering from third party merchants on Amazon, check to see if the merchant also has their own website. Many will have one; if they don’t, be concerned. Check the merchant’s website for information about their fulfillment process. Does it operate its own fulfillment center? Does it use a reputable third party fulfillment center? Is the merchant really just a garage operation? Are there any processes in place to safeguard products from Coronavirus contamination? These questions need to be asked and answered.

Which Products to Buy on Amazon

The best products to buy right now on Amazon, or from any other large E-Tailer with similar product offerings, are necessary household goods or manufactured items like computers and peripherals.. Due to high demand in these times of the spread of Coronavirus, Amazon has announced that it is prioritizing the shipping of those goods ahead of others. Other non-essential products designated to have Prime 2-Day shipping now take longer to ship compared to necessary household goods.

Amazon Safety Summary

● Amazon is a safe place to order products, especially if you order items that are sold by Amazon and shipped by Amazon. In that scenario, Amazon has command, control and oversight over the total lifecycle of the fulfillment process. It is the best, safest approach to buying product from Amazon.

● Amazon has made large investments in building the most modern warehouses in the industry, with fulfillment processes that make use of automation and robotics. To be sure, humans are still involved, but the potential for packages contaminated with Coronavirus is minimal compared to E-Tailers with less sophisticated processes.


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● Be wary ordering products that are not shipped by Amazon, from small companies with unfamiliar names. Always check to see if an Amazon third party merchant has its own website, and see what it claims for its fulfillment process.

Advice to Amazon Management, Buyers, Sellers

The most important asset that Amazon has is its reputation that it has built up over 20 years. It’s highly regarded in the industry, and loved by its customers, for providing a vast selection of quality products that are fairly priced, shipped quickly (free with Prime), with a fantastic hassle-free returns policy. It is the Gold Standard by which other online retailers are judged. The last thing that Amazon should want is any tarnish on its shining star.

Our Advice To Amazon Management

Amazon’s core business is shipping products that it sells from fulfillment centers that it owns and operates. It has built warehouses and fulfillment centers over which it exerts tremendous command and control. To be sure, it has competitors with a similar operating model, the best known at this time being Walmart. But even that great retailer has catching up to do. However, as noted earlier, Amazon has a weakness, a vulnerability: the way that it accommodates third party merchants allows products purchased on the Amazon site to be fulfilled outside of Amazon command and control. While many of those outside-Amazon fulfillments proceed without issue, the possibility is always there that a problem will occur, in which case Amazon (perhaps unfairly) will be held to blame. Since Amazon does not have control and oversight of third party fulfillment, it can’t guarantee that the contents of the package have been warehoused, packaged and shipped in a way that eliminates Coronavirus contamination. With that in mind, we recommend the following:

● Amazon should temporarily suspend its FBM third party merchant program while the risk of Coronavirus is still high. It is putting its reputation at stake by not having control over what gets shipped to customers. All it will take is one customer to contract Coronavirus from a tainted package to destroy the trust that its customers have in it. Such a move would be costly, certainly. As noted above, more than 50% of Amazon sales come from third party merchants using the FBM fulfillment option. But losing customer trust would outweigh that.

● Make it easy for third party merchants to move from FBM to FBA, so that the merchants have a path to stay in the Amazon marketplace and have their products fulfilled by Amazon.


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Our Advice To Amazon FMB Merchants

During the Coronavirus pandemic, Amazon may well limit or suspend their FBM program. If you are a merchant that relies on Amazon as an important sales channel and can’t afford to miss sales, we suggest the following as temporary measures:

● Move your fulfillment from FMB to FBA. If Amazon is your major sales channel, this is a smart move. The fulfillment costs on FBA will likely be higher than your current fulfillment solution (otherwise you would already be using FBA), but it will be worth it to keep your Amazon sales flowing.

● If you are a multichannel seller and want to keep selling on Amazon and other channels, consider moving your fulfillment to Amazon MCF (“Multi-Channel Fulfillment”). All of your orders, regardless of origin, then get relayed to Amazon for fulfillment. It works like this:

These options can keep your orders flowing through Amazon. Hopefully the pandemic will eventually pass, and you can move fulfillment back to what you had (if you so choose).

● Individuals who sell non-essential products through Amazon and are experiencing decreased sales either from the Coronavirus pandemic per se, or Amazon emphasizing sales and fulfillment of essential products, should consider applying for the new Federal CARES PUA payments described earlier


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Potential Impact on Etsy

The Etsy archetype model has these key attributes:

● Two-sided marketplace

● Provides tools for sellers to create virtual shops on the site

● Unifies all seller products under single marketplace search engine domain

● Marketplace facilitator bringing buyers and sellers together

● Products are discretionary purchases

● Provides mobile shopping and seller store administration

● Provides order-taking and payments capabilities

● Business model is transaction take and service fees

● Lacks any command, control or oversight over product fulfillment which is left entirely the responsibility of the seller

Etsy Strengths and Vulnerabilities

This document has stressed that having strong command and control over the fulfillment process is key to ensuring that the SARS-CoV-2 virus cannot spread via packages. Etsy has absolutely NO command and control over fulfillment. That has been a business model strength in the past, because it meant Etsy did not have to make large investments building out warehousing and fulfillment infrastructure. The lack of that investment lent strength to Etsy’s bottom line, and made it an investment darling. But now the lack of such a buildout means Etsy does not and can not have oversight of product fulfillment. In these times of Coronavirus pandemic, Etsy finds itself in a very difficult position.

Etsy Products: Discretionary “Nice-to-Have” not “Need-to-Have”

Etsy products are not essential to daily living. They are discretionary purchases that are “nice-to-have” items purchased during good times. These are not good times, these are times of


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life and death. Note that Etsy also owns Reverb, a site for new and used musical instrument sales. Those too are discretionary purchases rarely made in the difficult times in which we now live. It is expected that commerce transacted on both Etsy and Reverb will diminish until the Coronavirus is vanquished and better times return. Even then, the specter of this awful pandemic will cast a long shadow. We expect Etsy business to recover more slowly than the rest of the E-Tail industry, because trust in the safety of products purchased through its marketplace will have to be rebuilt.

Etsy Transactions

Once a buyer makes a purchase, the product has to get from the buyer to the seller. As a marketplace facilitator, Etsy’s job is primarily bringing buyer and seller together to transact. Etsy has no involvement in the fulfillment of the order. It is the seller that packages up the product and ships it directly to the buyer. The product does not route through Etsy in any way. That is a blessing and a curse on Etsy. On the one hand, Etsy does not have to maintain any product inventory. It doesn’t have to build warehouses with expensive equipment to pick and ship products, along with permanent and seasonal staff. Etsy brings buyer and seller together for a sale, then collects a commission on the value of the product, including shipping which is bundled into the cost of the product. Etsy collects 5% sales fees on both the product cost and shipping charges -- nice model! Etsy’s marketplace E-Tail approach garners sales fees without the need to maintain fulfillment operations and all the attendant costs. There is a lot to like with the Etsy model, and the financial markets agree. Etsy has enjoyed one of the highest P/E ratios of any public company, even exceeding that of Amazon. What could possibly go wrong? Coronavirus.

Etsy Product Fulfillment

Etsy has enjoyed the pluses of not having to maintain fulfillment operations. But the minuses are that it has no control over product fulfillment. It is the sellers who are packaging up their items in their own homes and workshops, and then shipping them directly to their customers. This lack of any control over the fulfillment process could actually be an existential threat to Etsy, because of the advent of Coronavirus. The products that are purchased through Etsy are handcrafted, implying a lot of hand contact. Some products purchased on Etsy take many hours to produce, with much handiwork. These crafts are not like some commodity item that is factory produced on an automated line and which might not be touched by a human hand at all. The whole appeal of Etsy products is that they are handmade by real people. But that means that products purchased on Etsy are ones that have had probably more direct hand contact than any other type of online product purchase. Furthermore, the products have been made in


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environments over which Etsy has no control, or even knowledge of the creation process. What if an artisan has the Coronavirus but doesn’t know it, and has been sneezing in their workshop? Tiny droplets settling everywhere and on everything. What about personal hygiene? The Coronavirus can be passed through fecal matter. Unfortunately, many people, especially in their own homes, don’t wash their hands thoroughly when using the bathroom. Given the high amount of direct handiwork that goes into a handcrafted product, there may be products sold through Etsy that have trace amounts of fecal matter. In other words, the handcrafted products sold through Etsy may have been contaminated in a number of ways in the artisans workshop. The artist may not even know, and Etsy certainly cannot know. It is apparent how very dire a threat this pandemic is to Etsy, because ultimately, the consumer will demand to know. They want to know that packages they receive don’t harbor Coronavirus inside. Women comprise 87% of Etsy buyers. Women will not compromise the health of their families to purchase non-essential, ”nice to have” items. Unfortunately, Etsy cannot give buyers anything but speculative reassurance that the products purchased through the site do not contain active Coronavirus. Until such time when the Coronavirus pandemic passes and some sort of normalcy returns to daily life, it is hard to imagine Etsy sales not suffering greatly.

Federal CARES Pandemic Unemployment Assistance (PUA) Program

This new program is part of the stimulus package passed recently by Congress. It is described more fully earlier in this report. The PUA program may pose a serious threat to Etsy, because it pays out a minimum benefit that likely exceeds what most Etsy sellers make through sales. Most Etsy sellers will likely qualify, and it could take them out of the marketplace for several months. Less product for sale means less Etsy sales revenue. In combination from buyer-side pressure due to unemployment, the Etsy marketplace could experience a rapid and severe contraction.

Summary of Coronavirus Dangers To Etsy

● An Etsy purchase is discretionary and not “need to have”

● Due to lack of oversight over craft creation process, and the absence of any command and control over fulfillment, Etsy products have a higher risk of Coronavirus contamination than those from other E-Tail vendors

● Nobody wants to order up Coronavirus exposure that is handcrafted and delivered right to their door


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● Vast majority of Etsy buyers are women who won’t risk their families’ health for non-essential products

● Buyers and sellers may both drop off as Coronavirus infections spread and they get sick, shrinking size of Etsy marketplace

● Widespread unemployment will reduce buying power and product sell through on Etsy will decrease markedly

● Sellers will likely put their shops on hiatus, or close them altogether, to take advantage of the new Federal CARES PUA unemployment program that pays up to 39 weeks of benefits to freelancers and self-employed artists (Etsy sellers)

● As an endpoint shopping destination, it is possible for an “avoid Etsy” sentiment to take hold by word of mouth once the dangers of possible contaminated product are known

● A significant portion of Etsy sales are international, mostly in advanced Western nations, many of which happen to be under lockdown; this will affect international commerce through the marketplace

Recommendations For Etsy Management, Buyers, Sellers

In our view, Etsy and other E-Tailers that follow its model are at the highest risk of serious, damaging impact from Coronavirus. Here is our advice for company management, buyers and sellers:

Our Advice to Etsy Management

Etsy management must confront a major threat to its business from the Coronavirus. As we have pointed out in this paper, as long as the pandemic persists, Etsy will experience hardship. It is possible that if the Coronavirus stubbornly persists, that it could even affect the solvency of the company. However, the pandemic would have to persist for many months. As of December 31st 2019, Etsy had over $800 Million in cash and equivalents. It should be able to weather this storm. What management has to do is address the issue head on, and act in the best interests of its buyers, sellers and investors. Here are our suggestions:

● Allow Etsy shops to easily suspend their operations and not require account payoff

● Make it easy for sellers to get Etsy documentation of store activity so that they can qualify for the new Federal CARES PUA unemployment payments described above


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● Refund sellers for any advanced payments made for unused listings or services

● Temporarily suspend the requirement that sellers pay their account balances in full each month until economic conditions improved

● Temporarily suspend automatic deductions from seller sales to pay Etsy fees

● Explore creating a certification program for sellers to document the cleanliness of their workshops and processes

● Explore creating a certification program to award to “trusted sellers” who have demonstrated commitment to high standards of cleanliness

● Aggressively pursue partnerships with third party fulfillment centers (3PFs) to facilitate relationships with sellers for shipping products

Our Advice to Etsy Buyers

As noted earlier, the products found on Etsy are overwhelmingly discretionary. There are very few products that are essential, “need to have” items. Etsy is a very successful company with a lot of money in the bank, it won’t be going away.

● Unless you absolutely need a product, put off buying it until some time in the future

● If you really do need a product, check out the seller thoroughly; engage in communications with them, and ask a lot of questions; make sure that the seller is healthy and making their products in safe ways with good hygiene

● If you do order and receive a product purchased through Etsy, do not open the package for several days minimum; best to store the package outside to let any Coronavirus that might be inside wither away and become inactive

● When you open a package, wear disposable gloves and cover your face, preferably with an approved mask; if possible, wash the product in the laundry with a hot water cycle; hard surfaces should be disinfected with rubbing alcohol or other disinfectant

● Keep any product you receive away from young children, even if you have disinfected it; children put everything in their mouths -- even the smallest trace of virus will take root that way!


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Our Advice to Etsy Sellers

The Etsy marketplace is a great place for crafters to sell their products. Unfortunately, most Etsy sellers are independent crafters and will see sales drop off markedly, if not already. Here is our advice on how to make it through this ordeal.

● Apply with your state agency for unemployment payments from the new Federal CARES Act that provides unemployment insurance for freelancers and the self-employed who usually don’t qualify for traditional unemployment payments, called Pandemic Unemployment Assistance (PUA) -- see full description given above, but know that PUA pays a minimum 50% of your state’s average unemployment insurance, an average of $190 per week, for 39 weeks; another $600 per month is available after that; all you have to do is to show that you have an Etsy shop with sales, but now due to the Coronavirus pandemic, you need to close down; See above for more information but do take advantage of this generous program!

● If you qualify for the PUA unemployment payments (almost all Etsy sellers will), you will likely need to put your Etsy shop on hiatus until after the pandemic passes

● Use the time to build up inventory but don’t actually sell the products, lest you lose PUA benefits

Impact on Shopify

The Shopify model has these features:

● Not a direct seller of retail products itself, rather it provides tools to others to enable them to build online stores, take orders and process payments

● Customers are small businesses that want to sell products online

● Shopify fulfillment model is to either let customers do it themselves, or to facilitate relationships with 3PFs; Most customers fulfill product orders themselves

● Shopify now investing in its own warehousing and fulfillment centers intended for larger volume customers, but not yet fully operational as of this writing (March 2020)

● Will always have large percentage of small stores that self-fulfill

● Has large business from drop shippers


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● Like Etsy, Shopify lacks command and control over self-fulfill stores and drop shippers

● Due to facilitating 3PF arrangements, and the investment in its own fulfillment infrastructure, a portion of the business is more like Amazon than Etsy

● Overall, Coronavirus risk to Shopify lies between Amazon and Etsy

Shopify Strengths and Vulnerabilities

Shopify is in an interesting position, with strengths and weaknesses that leave its level of vulnerability to the Coronavirus somewhere between Amazon and Etsy. On the one hand, Shopify has an impressive business model with recurring subscriptions to its e-commerce tooling. Shopify has a subscription base of more than one million stores enabled by its cloud software. It also makes additional revenue through various service fees. Some well known brands are online via Shopify, but the company has been experiencing high growth mostly by small stores. It’s well known that small businesses looking to go online consider Shopify first, it really dominates in this market segment. Shopify at this time is in no danger of going out of business itself. It currently has a valuation in the billions of dollars, and has more than $2 Billion cash in the bank. It is well situated to weather the Coronavirus storm, but its valuation could come down and recovery may take a while.

Shopify Stores Sell Mostly Non-Essential Items

As with Etsy, most products sold through Shopify-powered stores are non-essential. They are discretionary purchases, not “need to have.” The product categories that are selling well online through this pandemic (food, groceries and household items) are not strong ones for Shopify stores. This is where Shopify diverges from Amazon. Amazon purchased Whole Foods in 2017, and since that time has integrated groceries to its offerings. Shopify does not power stores that offer groceries, so does not play in that active space. Due to lessening demand for non-essential items that are the bulk of Shopify offerings, their subscriber stores will likely discount pricing to spur sales. That will decrease the transaction take that Shopify realizes on store sell-through, further negatively affecting the financials. It’s a downward spiral that will keep going until the pandemic eases.

Easy Come, Easy Go

The widespread penetration of Shopify in the small business online E-Tail enabling space is a weakness in that many of those customers are here today, and maybe gone tomorrow. Shopify makes it easy to take a business online, but that ease of entry also makes an exit less painful.


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Low cost of entry means less risk and exposure if a business fails. There will be many failures, because in general most businesses fail. Shopify stores, with a catalog of mostly non-essential products, will no doubt experience a decrease in sales. The stores that are just hanging on and barely making it will drop out. They will not want to spend the monthly subscription fees. As noted, Shopify makes it easy to launch an online business and just as easy to shut one down. Many small stores may make the decision to close, ride out the pandemic, then open up again once it’s all over and done. In the meantime, they won’t want to pay the monthly subscription fee. According to TheStreet, 21% of small businesses will fail due to the Coronavirus. That 13

could portend close to a 250,000 Shopify stores closing, if online tracks similarly. If that indeed comes to pass, it will result in a substantial decline in Shopify subscription revenues. Shopify has been investing heavily in its business, and while top line revenues have been good, the bottom line has suffered for it. Shopify loses a lot of money, but investors believe that this will right itself down the road. That is an Amazon approach, and that has worked out nicely for that company. It took two decades, but Amazon is finally turning a profit. Shopify is a good company that is well run and has proven that it can execute on its plans. But the Coronavirus is changing a lot of plans, and its effects may be to significantly alter the road to profitability.

Drop Shipper Businesses

One area of online business that Shopify really plays well in is that of the “drop shipper.” A whole cottage industry has sprung up around this online business model, and Shopify offers tools and services for enabling. At this time, 33% of online stores are drop shippers. What is 14

drop shipping, and why is it so popular? The idea is to set up a website that sells products that are actually fulfilled by another online store. Basically, a drop shipper lists products on their site for a price higher than can be purchased at other online stores. If an order is placed, the store collects payment from the customer, then orders the product from another store at a cheaper price, and has the item shipped direct to the customer. So this is a form of arbitrage: making money by taking advantage of price differentials. The attraction for getting into the drop shipping business is that it only requires a website and tooling to take payments and forward the order to the actual store shipping the product. It can be a one-person business, and one that can be lucrative if done right. Shopify recognized early on the appeal of the drop shipping model, and created enabling products to get drop shippers up and running online. In particular, Shopify’s drop ship tools make it easy to automate conveying orders online. Shopify tools allow easy creation of a website store to show products fulfilled by others. The Shopify tools enable order taking and payments, and automatic order relaying to the fulfiller.

13 https://www.thestreet.com/personal-finance/pandemic-recession-impact-small-businesses 14 https://blog.3dcart.com/can-dropshipping-be-profitable-check-these-key-statistics


https://www.thestreet.com/personal-finance/pandemic-recession-impact-small-businesses

https://blog.3dcart.com/can-dropshipping-be-profitable-check-these-key-statistics

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It all sounds very positive, and drop shipping has been a boon for Shopify. But there are problems that do not bode well:

● There is a lot of store churn. Most drop shipping online stores are powered by Shopify, because it made it easy to get up and running. The ease of entry has led to a plethora of “me too” drop shipping online stores.

● Many stores are selling the same products. There is little to differentiate one store from another. This makes it very hard to build a lasting brand, so stores come and go.

● The buyer experience is not as good as with established brand-name retailers. Shipping times tend to be long. Returns and refunds can take a long time, because the customer has to ship the product back to the fulfiller, who then has to refund the drop shipper, who then in turn refunds the customer.

● Many products are drop shipped from China, and the Coronavirus pandemic has greatly hampered that supply chain.

● Most drop shipped items are non-essential and demand has dropped

● While the right drop shipping formula can deliver high profits, most stores struggle to get it right and closure rates are high.

Summary of Coronavirus Threats to Shopify

● Most products sold through Shopify stores are non-essential items

● Many Shopify stores are on the edge of viability and Coronavirus will push them to closure

● A large part of Shopify revenues come from monthly subscription fees paid by stores, which will decline with fewer stores

● The “drop shipping” model is being impacted by Coronavirus, which is 1/3rd of Shopify stores

● Shopify is an E-Tail enabler, and lacks command and control over product fulfillment

● Many Shopify stores fulfill their own products directly


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● Many US based Shopify stores may decide to go on hiatus and collect CARES PUA unemployment for the duration of the Coronavirus pandemic

Recommendations to Shopify Management and Stores

Shopify is a very successful company. Long term, we expect Shopify to have continued success as the premier E-Tail enabler. In the near term, Shopify will have to navigate choppy waters. Here is our advice to all Shopify stakeholders.

Our Advice to Shopify Management

The most important goal for Shopify should be to retain stores. Customer acquisition is expensive, so it is important to hold on to customers.

● Give Shopify stores the option to go on temporary, low-cost hiatus; this would allow the store to keep an online presence, but not allow actual commerce; drop the monthly subscription fee to a minimum to make it easy for existing customers to choose hiatus over closing the store outright, this will allow Shopify to retain the customer

● Continue the buildout of warehouse and fulfillment infrastructure, but extend availability to smaller stores to reduce the issues around self fulfilling orders

● Identify the large drop shipping fulfillers (such as Alibaba) and create partnerships to speed fulfillment and streamline returns

● Consider ways to speed refunds for drop shipped product returns

● Expand Shopify Capital to get low rate loans to stores in need

● Publish a Shopify Guide on how to ensure virus-free products for those stores that do their own order fulfillment

● Develop a “Safe Store” certification program that would certify that a store follows protocols for safe product handling; create certificate graphic that certified stores can display on their store website; will build trust and confidence in buyers

Our Advice to Shopify Stores

● If sales are poor, stop hemorrhaging money and either close the store (you can reopen at a later date) or go on hiatus (if Shopify takes our advice and offers this); the goal is to reduce monthly subscription fee payments


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● If you are a US citizen and own and operate a Shopify store as an individual, you very likely will qualify for the Federal CARES PUA unemployment assistance program; PUA pays a minimum 50% of your state’s average unemployment insurance, an average of $190 per week, for 39 weeks; another $600 per month is available after that; all you have to do is to show that you have an online store with sales, but now due to the Coronavirus pandemic, you need to close down; See above for more information but do take advantage of this generous program!

● If you self-fulfill orders, consider adding a page to your store website that details the precautions you take to ensure that that the products you ship out are free of the Coronavirus

● If Shopify offers the “Safe Store” certification program we advocate above, definitely take advantage and participate

Our Advice to Shopify Buyers

Shopify is not an endpoint consumer shopping destination. Purchases are made through stores that Shopify enables with its cloud software. Some stores display a Shopify logo to show that they are built on the platform, but many don’t. If you are tech savvy, viewing the HTML of the homepage will often show references to Shopify. Regardless, buyers should use the same caution that they would use for any website:

● Is this an essential product purchase? If not, consider putting it off, the product will still be there later when you come back for it

● What is the provenance of the product? Who made it, and how is being fulfilled? Ask questions, learn everything you can

● If buying a handmade item, make sure that the store shows photos or video of the workshop so that you can make a decision as to whether the product is made in a hygienic environment

Center for Disease Control The CDC has authority over health policy. It can put forth regulations that it thinks are in the best public health interest of Americans. The CDC is currently working on policies to limit interpersonal contacts, such as social distancing. That is good for limiting the spread of Coronavirus through inhaling aerated droplets from the respiratory tract of infected persons. But what about transfer of the virus from surfaces, in particular those that have traces of infect


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fecal matter? As shown in this paper, such transmission must be taken seriously as a possible major means of Corinavirus infection. We urge the CDC to undertake testing of the viability of objects tainted with infected fecal matter in packages. If it is proven a plausible means of transmission, then the CDC should consider taking action. This could include quarantining packages for a period of two weeks. Taken to the extreme, the CDC might even put a temporary ban on commerce through the mail of products that are not fulfilled through an approved, safe facility.

Final Thoughts The Coronavirus poses the biggest challenge to E-Tail since its inception. This paper has taken a look at three common E-Tail approaches. We focused our analysis on archetypes that we think represent each model. The analysis, conclusions and recommendations generally apply to all online businesses that the archetypes represent.

It’s interesting to consider how the Coronavirus has different impact on the several archetypes. Amazon is in the best position because of all the investment it has made in warehousing and fulfillment. Likewise, its acquisition of Whole Foods is now looking very smart. Etsy has a different model with its two-sided marketplace, and in contrast to Amazon, has made no infrastructure investment. That’s been great for the bottom line, but now Etsy is in a position where it has no oversight of product fulfillment, and can make no safety assurances. We find Shopify in the middle, with a solid core of stores that will weather the pandemic well. But Shopify is vulnerable because of the high number of drop shippers, and also that most of the products sold through its store network are non-essential.

Finally, it will be interesting to see how the CDC responds to the possible transmission of Coronavirus through items infected with trace fecal matter. The very nature of E-Tail may well be changed.


Documents

CORONAVIRUS: SWORD OF DAMOCLES OVER E-TAIL€¦ · fulfillment. Amazon has made large investments in building its own warehousing and fulfillment centers. It has control and oversight