How Coronavirus is shattering Fashion’s Global Supply chain

Sunday is the golden clasp that binds the family together and it was 9th February 2020 and I and my family were all busy talking and packing for an upcoming family wedding in New Delhi. That’s when my brother, a Supply Chain Manager in a Chemical firm comes up and said-“Sorry! I can’t make it, there is global supply chain crisis due to Coronavirus”. Undoubtedly, the virus outbreak has rattled the global economy, disrupting the overall supply chain and closing access to a profitable consumer market.

China is the world’s largest garment producer and fashion companies have been relying heavily to make a substantial share of their clothes. It’s not just garment manufacturing but even companies performing cutting and sewing who depend on China for trims such as cords, appliques and many more have also been severely affected.

China's production share
Source: Euromonitor International

Worst news came in, which said about a significant wildcard in the outlook for the world cotton market. Brands like Puma says that its Q1 numbers are likely to get affected. Even luxury houses like Ralph Lauren expects to take a hit of up to US$70m on its fourth quarter sales. Factories around China have closed due to virus, but creating production delays is likely to have ripple effects even after the epidemic has subsided. Edward Hertzman, founder and president of fashion trade publication Sourcing Journal, said on a call, “Right now, it’s anyone’s guess when factories will fully reopen.

Over the years, companies like Nike, luxury houses like Swatch, Ferragamo, Gucci, Burberry, Hermes and Louis Vuitton have come to rely heavily on China’s efficient factories and affluent consumers. Due to the virus, companies restrict travel to China, making it impossible for the companies and fashion houses to work and cater to their potential customers.

The cascading effect of virus has caused about half the Nike stores in China to shut down and those that remain open have shortened the working hours, the company said. Nike has not released a numerical estimate of the financial repercussions, but have told investors that it is expecting “a situation to have a material impact on the operations in greater China.”

Nike temporarily closes stores in China
Source: Highsnobiety

The VF Corporation, which owns brands like Timberland and the North Face, announced that it would temporarily close about 60 percent of its stores in China. The effect has even caused the traffic to drop in stores that are currently open.

Burberry warned investors that the outbreak is having a “material negative effect on luxury demand”. Twenty-four of its 64 stores in Mainland China are closed, and those that remain open, have reduced operating hours and have fewer shoppers than usual.
Tapestry, the American luxury giant that owns Kate Spade, Coach and Stuart Weitzman, said the outbreak could reduce its sales by up to $250 million in the second half of the year.

And Estée Lauder, the luxury cosmetics company, affirmed that the outbreak would hurt its financial results “in the near term,” predicting that sales in the third quarter of 2020 would be affected. It told its investors that the spread of the virus has slowed air travel and tourism, reducing store traffic in key global shopping areas.

No wonder, China’s outbreak of Coronavirus has fashion houses scrambling.