The current COVID-19 outbreak has resulted in a major disruption of people’s daily lives, work and travel. With many countries going into lockdown and businesses having to lay down their activities, the European Commission already anticipates a severe backlash on the European economy. The outbreak is expected to have a significant impact on GDP growth in 2020, but also a potentially detrimental effect on European businesses, and in particular on Small and Medium sized Enterprises (SMEs). The EU has proposed several measures to mitigate the impact of the outbreak on European businesses.
However, currently, the question remains, how a common European approach can take shape? Commission President Von der Leyen stresses that it is very important that the EU internal market continues to function, but there are increasingly more barriers to achieve that. On Tuesday 17 March, the European Council (EU Heads of State or Government) will meet via videoconference. European Council President, Charles Michel, would like to make agreements about the distribution of medical equipment and to limit the economic consequences of the crisis. In addition, the EU Finance Ministers are meeting today, Monday 16 March. Ecommerce Europe hopes that the first steps towards a full EU approach will follow in the next days.
Effects on e-commerce
The Coronavirus outbreak has initially shown an increase in online sales. In fact, in the beginning of March, sales went up significantly, especially for online groceries, cleaning supplies and health products (source: Internet Retailing). However, it should also be noted that there are several sectors that have seen a decline in sales, such as the travel, sports, and outdoor sectors. While the short-term impact may thus seem positive, it is not yet clear what the long-term and overall consequences will be.
There are already several difficulties that online merchants are dealing with. First, on the supply side, many businesses are struggling to keep up their stocks. As many products are manufactured in and supplied from China, where the outbreak has been most severe, retailers may increasingly deal with shortages. Many factories in China have been closed for extended periods and some are not yet open or fully operating, potentially leaving European retailers to deal with disruptions in their supply chain. Faced with likely shortages and delays, retailers are concerned about their ability to deliver products, especially those most wanted now, to consumers on time (if at all).
Second, if brick-and-mortar shops face further restrictions and are even fully closed in some European countries, this could mean a serious dependency on online retail. It can be expected that consumers who are working from home, on sick leave, or trying to avoid contact with others are ordering more products to be delivered to their house. As employees of marketplaces and online retailers are also increasingly asked to work from home or stop working all together due to illness, capacity issues can occur. Consequently, with increased sales and capacity problems, it becomes more difficult for online merchants to have sufficient supplies and deliver on time. E-commerce companies are expecting sales and earnings to decrease due to such delivery bottlenecks.
Third, the outbreak is having a severe impact on global postal flows, with a considerable slowdown in letter post volumes at item level already becoming clear in February. The UPU’s real-time volume monitoring shows that the decrease in letter post volumes is directly related to commercial items. Parcels and EMS items have not been affected and their volumes have not declined. Please find more information here.
Advice Ecommerce Europe
With all these unexpected changes, what can the e-commerce sector do? As Ecommerce Europe, we have two main recommendations: transparency and information. When it comes to the virus, it can be good to proactively manage consumer expectations and address their potential frustrations and fears. Consumers might be worried that products will arrive too late, will run out-of-stock or are not safe (e.g. in terms of infection in China, warehouse or during delivery). Being transparent and open to consumers, both from national associations as well as from companies directly, could be a step towards handling the situation.
Ecommerce Europe calls on European leaders to come with a concrete and coordinated action plan. In case that online retail can no longer supply goods to consumers, it should be possible to directly help these companies, for instance by providing grants to allow businesses to continue to pay their employees’ wages during quarantine measures.
To combat the economic consequences of the outbreak, the European Commission will come up with several measures. European Commissioner for the Internal Market, Thierry Breton, has indicated that the Commission will work to ensure that companies will not go under due to the outbreak. He identified several possible measures, including achieving a stable flow of money to SMEs and more flexible implementation of state aid rules. In addition, on 13 March, the Commission made extra EU money available to the Member States via existing funds. With this they can support the national economy. Please find below further information about the proposed measures.
On 16 March, Commission President Ursula von der Leyen announced that:
- There will be green or fast lanes giving priority to essential transport to keep the mobility sector going and ensure economic continuity. This includes for instance medical goods, perishable goods and food and emergency services.
- The Commission also proposes a temporary restriction on non-essential travel to the EU (30 days). This excludes essential staff, such as doctors and nurses, but also people transporting goods to continue the flow of products to the EU. This is to secure the supply of goods including essential items such as medicines, foods and components that EU factories need.
On 13 March the Commission proposed the following to provide support and financial liquidity, in particular for SMEs:
- 1 billion euros will be made available from the EU budget as a guarantee to the European Investment Fund in the coming weeks to support approximately 8 billion euros of working capital financing and help at least 100.000 European SMEs and small mid-caps;
- Support will be channeled through instruments of the EIF Programmes that support investment:
- Boost loan guarantees under COSME (EU programme for Competitiveness of Small and Medium-Sized Enterprises);
- InnovFIN SME Guarantees under Horizon 2020 will be boosted.
- These instruments will be reinforced with 750 million euros through the European Fund for Strategic Investments (EFSI) in the coming weeks;
- EFSI will provide EIF with another 250 million euros to quickly roll-out support to SMEs in a concerted effort with EU National Promotional Banks and Institutions;
- Using the flexibility of the European Fiscal Framework of the Stability and Growth Pact.
Coronavirus Response Investment Initiative
With the Coronavirus Response Investment Initiative, the Commission proposes to direct 37 billion euros under the cohesion policy to the COVID-19 outbreak and implement this fully in 2020 through accelerated procedures. It aims to provide liquidity to corporates in order to tackle short-term financial shocks covering e.g. working capital in SMEs to address the losses due to the crisis with special attention on sector which are particularly hit hard.
- 37 billion euros of European public investment
- Maximum flexibility in applying EU spending rules
- Access to the EU Solidarity Fund
State aid to SMEs
- The Rescue and Restructuring Guidelines enable Member States to put in place dedicated support schemes for SMEs and smaller state-owned companies, including to cover their acute liquidity needs for a period of up to 18 months.
- For example, in February 2019, the Commission approved a €400 million support scheme in Ireland to cover acute liquidity and rescue and restructuring needs of SMEs as a Brexit preparedness measure. The Irish authorities have now repurposed this measure to help companies cope with the COVID-19 outbreak.
- Similar support schemes are also already in place in other Member States, notably Finland, France, Germany, Poland and Slovenia, and for certain regions in Austria, Belgium and Spain. The Commission stands ready to assist other Member States to swiftly put in place similar schemes.
- If Member States wish to increase the budget of approved schemes in view of the COVID-19 outbreak, an increase of less than 20% of a budget does not need to be notified and can be done by Member States directly, without further involvement of the Commission. Notifications of budget increases of more than 20% benefit from a simplified assessment procedure.