On Tuesday alone, Wells Fargo said U.S. retailers could start seeing out-of-stocks as early as mid-April if the supply chain doesn’t start to back up soon; Under Armour Inc. warned its first-quarter revenues would take a $50 million to $60 million hit (up to about a third of the company’s Asia Pacific business); six Chinese brands pulled out of Paris Fashion Week, including Shiatzy Chen and Uma Wang, and denim trade show Kingpins canceled its Hong Kong show, scheduled for May 13 and 14.
The fallout is being felt even harder in Greater China, where retail has already dropped off dramatically — most large Western brands have closed about half of their stores in the country — and the rest of the business is being slow to start back up after the extended Lunar New Year break.
While it’s still not clear just when the danger will pass, the economic toll will be heavy. Dun & Bradstreet estimated that China’s real gross domestic product growth could be cut by 2.5 percentage points — from growth of 6.1 percent last year — due to a drop in private consumption.
That would make this the worst year for China’s economy since 1990, Dun & Bradstreet noted.
Other forecasts call for a more modest drop in China’s GDP, in the range of 1 percent, but at this point it’s all a guess given the massive shutdowns related to the outbreak and the numerous links in supply chains, from raw material producers to factories, ports and points in between.
Dun & Bradstreet said the 19 provinces impacted in China are home to 22 million businesses and one in 30 Chinese companies in the Hubei province, where the virus was first identified, are physically cut off from supply chains.
The net effect is to cast serious doubts on what business in the immediate future looks like.
The title of the Wells Fargo analysis said it all: “U.S. Retail: It’s Time to Start Worrying About [Coronavirus] Supply-Chain Risk.”
“The next few weeks should be critical, as further delays in the restart of production could begin to result in out-of-stocks at U.S. shelves as early as mid-April,” the analysis said.
“Inventories currently are in good shape, as companies pulled forward product to get ahead of tariff issues and the Chinese New Year,” Wells Fargo said. “Spring and early summer seasonal inventory has already shipped. That being said, our sources indicate that out-of-stocks at retail for replenishment product could start within 60 to 90 days if disruptions continue beyond the next few weeks, with more significant inventory issues in seasonal product possible by midsummer if disruptions stretch longer.”
The analysis said, “Big-box players like Target and Walmart could be the first to experience out-of-stock issues, as they are more heavily dependent on a shorter lead time replenishment model. Our industry contacts indicate that these companies likely have 60-plus days of replenishment inventory in the U.S. at the moment.”
Fashion retailers and brands have been looking to find producers in other countries, but China accounted for 29.7 percent of all apparel imports to the U.S. last year, and is also a vital source of raw materials for producers in other countries.
(And specific players in other categories could be hit even harder. Wells Fargo, for instance, estimated that 75 percent of Fossil Inc.’s goods are made in China, while 65 percent of Steve Madden’s styles are made there).
The big question now is when will the outbreak subside, at least enough for people to get back the work and the supply chain to crank back up?
In the meantime, companies of all shapes and sizes simply have to make due.
Six Chinese fashion brands had to bow out of Paris Fashion Week, including Masha Ma, Jarel Zhang, Calvin Luo and Maison Mai, in addition to Shiatzy Chen and Uma Wang. La Fédération de la Haute Couture et de la Mode, French fashion’s governing body, revealed the cancellations as it gears up for the fall ready-to-wear shows and presentations, due to take place from Feb. 24 to March 3.
“The Fédération de la Haute Couture et de la Mode will make available all its communications platforms to allow these brands to share the work they had planned to present both in France and overseas,” the federation said in a statement.
In a separate statement, Shiatzy Chen chief executive officer Harry Wang said: “We think it is the most appropriate action after deep thoughts and considerations. We will now focus on a new format of communication to introduce our new collection.”
The French initiative comes on the heels of a similar move by Italian fashion authorities, as Chinese buyers and editors sit out this round of European shows due to the draconian travel restrictions put in place to curb the spread of the virus.
The Camera Nazionale della Moda said it would aim to involve members of the Chinese fashion community during Milan Fashion Week, running Feb. 19 to 24, through its “China, we are with you” project. Live-streamed shows, dedicated social media platforms to comment on the collections and the creation of ad-hoc videos, backstage content and interviews will enable buyers and designers to partake remotely in the fashion experience.
As part of the initiative, eight Chinese emerging designers that should have presented their collections in Milan inside the Camera della Moda’s Fashion Hub space will be able to showcase their lineups digitally with video projections and explain their inspirations via live video calls.
The upcoming fashion weeks in Beijing and Shanghai, due to begin on March 25 and March 26, respectively, have also been postponed.