In 2023, Chinese New Year (CNY) will officially kick off on January 22nd. But as an online retailer, the run-up to CNY also happens to be your busiest season. From executing holiday campaigns to preparing for 2023, you have a lot on your plate.
The last thing you want to deal with? Getting thrown off by factory shutdowns in China as the country celebrates the Lunar New Year.
What Christmas is to the U.S. and other western cultures, the Lunar New Year is to China. But when it comes to this particular holiday, celebrations can go on for weeks.
For online retailers, that presents a major problem. Chinese suppliers will shut down for anywhere from three weeks to a couple of months. Planning ahead for CNY needs to be an essential part of your business strategy.
And with ongoing supply chain disruption, port shutdowns, and increasing inflation, a plan for navigating CNY has never mattered more.
But here’s the good news. Planning ahead is totally doable. Not only that, the right planning for CNY can help you develop better inventory and supply chain practices year-round.
All About Chinese New Year Shutdowns:
- What’s the Supply Chain Situation During CNY?
- How Can Chinese New Year Affect Your Store?
- How Can Online Retailers Prepare for Chinese New Year Shutdowns?
What’s the Supply Chain Situation During CNY?
If you’re in the wild world of e-commerce, you already know China is the leading supplier of goods to the U.S., with products from China amounting to nearly $506.37 billion dollars in 2021.
CNY has always had a significant impact on the global supply chain. There are a few specific market conditions that may make CNY 2023 especially challenging. Let’s break them down one by one.
Drought Conditions Across China
The devastating heatwave across China, which ravaged the country over the summer, has let up, but drought conditions haven’t.
From crop failures to wildfires to power outages, lower water levels took a major toll on China’s hydropower capacity. This led to restrictions on industrial power consumption and shutdowns across major companies.
Although the power is back up and running, there’s still a risk of disruption to global supply chains, further pointing to the fact that creating a proactive plan is absolutely crucial.
U.S. Export Restrictions
In an aim to slow Beijing’s technological and military advances, the Biden administration published new export controls recently, which included a measure to cut China off from certain semiconductor chips made with U.S. tools.
This, along with ongoing supply chain disruptions, suggests that a China+1 strategy — diversifying your production or supplier base by investing in operations in other countries — may be the way to go.
In fact, Apple is already moving toward a China+1 strategy and has diversified its manufacturing network to include countries such as Vietnam and India.
But despite the many challenges, the U.S. and other countries still don’t have the infrastructure in place to create a solid supply chain without China.
Retailers must continue to find ways to nurture relationships with Chinese suppliers while creating in-house supply chain solutions and exploring diversification options.
Higher Costs of Doing Business
To add insult to injury, U.S. retailers are now seeing a 30% cost increase when sourcing from China.
This, along with other cost increases, such as higher container prices and manufacturing rates, is making it harder to stay profitable when working with Chinese suppliers. Economists are also expecting economic growth to decelerate from 5.5% in 2021 to 3.2% in 2023, while global inflation continues to increase the cost of goods.
The key takeaway here?
Although it is getting harder to work with Chinese suppliers, you still need them as a core part of your strategy.
Staying in close communication, focusing on creating a fair mutual exchange, and strategizing a backup plan in case a supplier falls through are three essential ways store owners can build positive relationships with Chinese suppliers — and protect their profitability.
As suppliers take additional weeks (or even months) to get back to their normal operations after Chinese New Year, you may see:
- A shortage of inventory
- Shipping delays
- Higher production costs
- Reduced quality of goods
With exacerbating factors on the radar for CNY 2023, all of the above could be amplified. But there is an upside.
Accounting for these setbacks by planning could help you establish a resilient year-round supplier network. For merchants who sell in countries where CNY is celebrated, you may even see a spike in sales.
How Can Chinese New Year Affect Your Store?
Now that we’re clear on the bigger picture, let’s break down the CNY supply chain challenges in a bit more context.
What specific issues could you encounter with Chinese New Year 2023? And why should you start preparing now?
1. Little-to-No Supplier Communication
If you’ve been through a Lunar New Year or two, you already know it can be hard to get timely updates on inventory during the weeks before and after CNY.
Order management, production, and shipping may all be put on hold — often with no end or certainty in sight.
Monitoring China’s policies and restrictions, particularly those related to inflation and supply chain disruptions, could help you gauge the level of expected factory shutdowns and the supplier communication challenges you may be facing next year.
2. Shaky Production Environment
Production pre-CNY and post-CNY can be completely different worlds.
In 2021, we saw a mass exodus of workers from outside China going back home during CNY due to Covid lockdowns. Unfortunately, few of them returned.
Factories may be in a similar pickle in 2023, as they scramble to find enough skilled workers to get production back on track.
Chinese manufacturers could also get behind in production, causing them to rush jobs and potentially reduce the quality of products. Suppliers and manufacturers across the supply chain may also have a hard time procuring raw materials for products, leading to even more production delays.
3. Unprecedented Shipping Delays
Immediately after the festivities, suppliers are likely to be swamped with pending orders. An overload of shipments could lead to delays, mix-ups, or even misplacements.
The best thing online retailers can do?
Account for potential delays, be transparent with customers, and make sure you have the right amount of inventory for your best movers.
How Can Online Retailers Prepare for Chinese New Year Shutdowns?
By now, it’s pretty clear that e-commerce sellers are up against a lot when it comes to planning for CNY. But it’s not all doom and gloom!
Let’s dive into some of the practical measures you can take to keep your inventory and sales on track during one of the world’s longest holiday breaks.
Stay Ahead of the Game
One big advantage e-commerce sellers have when facing the challenges of CNY is that we know it’s coming.
CNY might vary by a week or so every year, but count on these challenges as part of your planning. By spending a little extra time refining your inventory forecasts, you can also stay one step ahead of shutdowns and shortages.
This leads us to our next tip: stock up! But only if you need to.
Stock Up! (If You Need to)
Now that you know what to expect with CNY 2023, you can use your sales and inventory data from previous years to estimate the amount of buffer inventory you’ll need in order to stay in stock while supplier factories are closed.
But proceed with caution. Don’t let factory shutdowns push you into panic-stocking.
Take a look at any excess products you might already have in stock to prevent needless ordering and stale inventory.
Rely on sound sales and inventory data to order the right amount of buffer stock ahead of time. From there, you can establish a network of new or temporary backup suppliers in case additional quantities are needed.
But there’s another caveat here. With early discounting promotions causing fewer holiday sales this year, you’ll need to balance your inventory data from previous Q4s with this holiday season’s sales projections.
Coordinate with Suppliers
Chinese New Year is similar to Christmas. There are grand festivities and a huge migratory population during this time of year.
For brand owners, this can mean only one thing: Disruptions in supplier communication.
The truth is, it would be nearly impossible to expect smooth communication with your suppliers during this busy holiday season. Be sure to get on the same page about communication expectations well before January 22.
After that time, expect suppliers to go dark during CNY. Be sure to ask in advance for a clear date for when they’ll resume regular operations.
Consider Temporarily Switching Suppliers
While this might not be the ideal solution, it’s an option to consider.
Like most sellers, you’ve likely worked hard to build your network of reliable Chinese suppliers. Deviating from those hard-won relationships is probably the last thing you want to do. But with port shutdowns and supply chain challenges now happening on a global scale, it doesn’t hurt to have options.
For example, you could think about taking on a local supplier on a short-term contract basis and resuming operations with your previous supplier once the uncertainty of CNY has died down.
Just be sure to look into your contract obligations with your existing suppliers before taking steps toward making a switch.
If you’re not able to (or don’t want to) switch suppliers, consider other shipping options. Some international shipping companies try to maintain normal operations during CNY and may be able to fulfill your deliveries on time.
While it can be challenging to switch suppliers on short notice, taking advantage of borderless payment solutions like the SellersFunding Digital Wallet can help you make timely payments in your supplier’s local currency and help make the transition smoother on both sides.
Don’t Let Chinese New Year Slow You Down
With poor weather conditions, new regulations, shipping backlogs, and inflation, there’s a lot to keep up with this Chinese New Year — but you don’t have to let it slow you down.
By working to secure inventory early, establishing additional supplier relationships, and putting a clear plan in place to keep sales on track, you’ll be able to maintain business as usual during one of the world’s biggest holiday shutdowns.
At SellersFunding, we’ve seen how the needs of even the largest e-commerce brands can change from year to year. With our all-in-one e-commerce funding solutions — including our fast and flexible working capital and cross-border digital wallet, we help brands keep their sales on track, even during hectic seasons like Q4 and CNY.
Planning ahead can get you where you want to be in 2023. Learn more about how flexible e-commerce funding can help you secure the inventory and supplier relationships you need. Watch this quick two-minute demo.