Concerns about the coronavirus have become a major focus of conversation for companies that do business in China as leaders warn of the outbreak’s propensity to significantly disrupt supply chains and hurt long-term profits.
Major international brands like Nike, H&M and Adidas have been compelled to close some of their outposts in the country to help curb the spread of the illness. Factories and corporate offices in China have also stalled operations, while several U.S.-based trade shows, which anticipated international attendees, have been postponed amid widespread travel restrictions implemented by the U.S. government over the weekend.
Although Monday was going to mark the first business day after the extended Jan. 24–30 Lunar New Year holiday for most workers across China, local authorities have further extended the break. Jiangxi, Shandong, Anui, Chongqing and Guangdong provinces as well as the city of Shanghai are among the locales that have announced extended business closures until Feb. 9. Enterprises in Hubei — the epicenter of the virus — remain closed until Feb. 13.
With stores and factories due to open again, industry leaders have expressed worries about increased delivery costs as well as the possibility of workers opting not to return to their respective factories due to ongoing fears.
“Right now, it’s a question of when the factories will open and when brands will be comfortable sending their professionals back to offices,” said Andy Polk, SVP of the Footwear Distributors and Retailers of America. “Even with a week’s delay, you’re going to see supply chain challenges. You’ll have all these different industries making goods in China ramp back up as soon as they can and try to get [goods] on ships or air freight, which means everybody’s fighting for the same space.”
According to a recent study by Coresight Research, which cited an early estimate from the Economist Intelligence Unit, the virus could reduce China’s 2020 gross domestic product growth by 0.5 to 1 percentage point off of its baseline estimate of 5.9%, representing a loss of roughly $7.2 billion to $14.3 billion.
This morning, Capri Holdings Ltd. — parent to Michael Kors, Versace and Jimmy Choo — revised downward its revenue and earnings per share forecasts due to headwinds induced by the coronavirus, which has already killed nearly 500 and sickened more than 24,000.
Additionally, Nike announced yesterday that it would shutter roughly half of its stores in China and operate with reduced hours at the locations that remain open. H&M today shared that about 45 store closures in China affected its January sales, while Adidas said it has shut down a “considerable” number of outlets in the country.
What’s more, trade shows across the world are being forced to make contingency plans as the situation worsens. Yesterday in Las Vegas, the Footwear Sourcing at Magic show in the Mandalay Bay Convention Center kicked off with a handful of people wearing protective masks and exhibitors noting that the event was noticeably smaller than past editions.
American Events announced early this week that it would suspend the NE Materials Show, scheduled for Feb. 5 and Feb. 6 in Boston, as well as the NW Materials Show, scheduled for Feb. 12 and Feb. 13 in Portland, Ore. Organizers from Hong Kong-based Asia Pacific Leather Fair added that they were considering postponing their event, set for the end of March.
“Just like with tariffs, this is impacting sourcing strategies and thinking,” Polk added. “Things have been put on hold because there hasn’t really been any transit or travel [in and out of China]. Obviously with the Materials Show [being postponed to an indefinite date], that’s a big concern for designers and developers trying to figure out next season. That’s kind of a long-term play.”
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