The fallout from coronavirus has certainly impacted fashion supply chains, with China the largest producer of garments in the world. While the store closures and travel restrictions in China have made clearly visible downturns in fashion sales, the behind-the-scenes effects on global supply chains could lead to long-term changes in the way products are sourced.
While Wuhan has been in lockdown since January, more cities in China have been locked down as well, with offices and factories closed, private vehicles banned and movement restricted. Hospitals are overflowing and many people are not able to leave their apartments as the Chinese government attempts to stop the spread of the virus.
But coronavirus has not been contained, and is starting to appear unstoppable, with Italy locking down 10 towns in the north, and countries such as Austria and Croatia reporting their first cases. This was all happening while South Korea was dealing with a major spread due to the concealment of cases by the head of a religious sect there. Japan has also reported additional cases now that the cruise ship’s quarantine has ended. More recently, outbreaks have appeared in Iran, leading to cases in Iraq, Oman and Bahrain, and a case has just been reported in Saudi Arabia. In fact, on 26 February it was reported that the virus was now growing faster outside China than inside. Coronavirus has taken a toll on human health and life, and on the freedom of movement for many, while businesses are certainly being affected along with the larger economy. In China the government offered cash injections to reduce the impact on financial markets. The Japanese government has taken similar steps to prop up its market. While the 2003 SARS outbreak reduced GDP by 1.1% that year, the impact of the coronavirus will likely be much larger.
CEO Consult has been keeping an eye on how the coronavirus has specifically impacted the fashion industry. Brand growth and retail sales have already slowed down, particularly for luxury brands, where the growing Chinese market has always been key. For example, LVMH , the world’s largest luxury conglomerate, has closed some of its stores in mainland China, and Burberry, Apple, Moncler and Nike have temporarily closed some of their stores.
London Fashion Week, which ended on February 18, also felt the coronavirus, with Chinese retailers and media down sharply because of travel restrictions. With China being the largest consumer of luxury fashion goods, this dealt a heavy blow to the industry, and will likely be felt for some time.
What will be the long-term impact of coronavirus on the global fashion industry? CEO Consult believes that it is just too early to know, and much of the impact will depend on if and when factories can return to full capacity. Some factories are still closed in the coronavirus “ground zero” Hubei province, which just happens to also be part of China’s central manufacturing belt.
China’s major role in global fashion
China is a major player in all aspects of fashion’s global supply chain. As the world’s biggest textile and clothing exporter, China exported $118.5bn (£91.1bn) of textiles and $157.8bn (£121.5bn) of clothing (World Trade Statistical Review, 2018).
In the wake of the coronavirus, businesses are working to overcome the impact that reduced Chinese involvement will have. In the fashion industry this means finding ways to reduce dependence on Chinese manufacturing, with China normally responsible for 37.6% of all global textile exports (World Trade Organization).
At February’s Parisian textile trade show Première Vision, China was noticeably absent, with many Chinese mills unable to attend, causing international suppliers concern over the availability of yarns for their textiles. One British silk manufacturer has sent its undyed yarns to Italy when it would normally source 95% of its silk yarns from China. However, with many towns in the north of Italy now in lockdown, this country, the headquarters of luxury brands such as Moncler and eyewear label Luxottica, may be starting to feel the coronavirus impact on its luxury brands that has been felt in China.
Other coronavirus impacts can be seen across the fashion industry, with the Giorgio Armani collection being streamed live, with no audience in attendance, from Milan Fashion Week (18-24 February). Milan’s trade show White, also in February, had 17% fewer visitors, while Milan’s footwear event Micam reported 5% fewer visitors as a result of Asian buyers staying away. From Italy to France the coronavirus has been felt, with Chinese fashion houses such as Masha Ma, Shiatzy Chen, Jarel Zhan, Calvin Luo and Maison Mai cancelling their shows at Paris Fashion Week (24 February-3 March).
As the coronavirus was just establishing its foothold around China’s Lunar New Year holiday, which started on 25 January, the impact on fashion businesses has likely not yet been realised. As Chinese New Year is always a period of major disruption, with businesses closed for the holidays, most of this year’s spring-summer stock had already been shipped to global destinations. This makes it difficult to predict the true, ongoing impact of coronavirus, as the actual length of delays is not yet clear. While buying offices and factories are re-opening, capacity is still limited, and late summer deliveries and autumn stock are likely to be affected.
What are businesses doing?
Some of the options for businesses to weather the coronavirus storm include changing the supply chain to a location outside of China (like India or Bangladesh) while hoping the new location does not become affected by coronavirus the way that China has. This is an expensive option but it can be done. The point is to ensure that the stores receive the stock, and a temporary hit on cost may be needed to do this. There may be less stock available on store shelves, while prices may need to be raised to make up for some of the expenses involved in delays.
One example of a business considering this option is retailer Primark. While Primark has suppliers on five continents, the vast majority are located in China. Primark has been considering moving their Chinese manufacturing out of China for the short term, to south-east Asia and European countries such as Turkey, where they currently have suppliers, with the hope that the manufacturing moved out of China will soon return.
No stock?
While taking steps to make sure that stock gets to the store shelves is costly, it would be much more costly to retailers if they have nothing to sell.
TCA activewear brand, which is based in London, has been told there will be a month delay in the delivery of all orders. Their technical products are manufactured in China, with its largest supplier located exactly where the coronavirus broke out: Wuhan. The company is doing all it can to ensure supplies of its best-selling and core lines. The suppliers say that the delay at this point is one month, which could be problematic for seasonal items. The process is too far underway to be stopped (fabrics have been ordered and in some cases production has already started), so to address this issue, the company has requested that the suppliers continue making the products but not shipping them all at once—some shipments are to be delayed so the products can be introduced in the new season.”
TCA is also moving some of its production to different locations. As some top sellers, which absolutely must remain in stock, are manufactured in Wuhan, TCA has moved their manufacture to other locations, but still within China.
China’s Tenure
Chinese manufacturers provide expertise and low-cost production, and this is what has made China so important to the global fashion supply chain. Even with the current coronavirus shutdowns, China’s tenure is unlikely to end soon.
In the UK, the retail sector is facing many challenges, some brought on by the continued uncertainty of Brexit, making it essential to keep costs as low as possible. Once trade deals are finalised post-Brexit and the UK enters a more certain time, that will be the time for retailers to revisit their supply chains to increase their diversity—and therefore sustainability—for times of unexpected disruption.”
One difficulty many brands are likely to face in moving away from China is the specialised production available there. For example, a retailer had to delay new product launches because stock was being held in China, as it is a key sourcing destination for the brand due to the expertise of Chinese suppliers. Where suppliers are located is often product based, so if there is a lot of production for a specific type of product in one location, they become the specialists in production, and changing to another location without the specialisation can be costly—and risky.
But now let’s move back to the coronavirus and its impact on China—even if manufacturing were moved out of China, many markets rely on China for their fabrics, so suppliers outside of China could be impacted because they can’t access fabrics.
The fashion supply industry is a mature, global industry, which means the impact of the coronavirus cannot be limited to just one or two unfortunate locations. While coronavirus began in Wuhan, China, it has since moved across the globe, and continues moving and spreading. While the ultimate impact of the coronavirus on people and businesses will not be known for some time, we have been able to see its effect on China, which has shown us all firsthand how important it is to ensure our supply chains are flexible and diverse—if we want to be in business for the long term.
