Several Ways Coronavirus Will Impact Retail – From Luxury to Chinese Shopping Tourism

The coronavirus disease 2019 (COVID-19) - an epidemic that could become a global pandemic - emerged in a densely populated manufacturing and transport hub in central China and has since spread to 29 other countries and regions carried along by Chinese New Year and international travel.

In contrast to the Western Africa Ebola emergency of 2013-2016 – more deadly but less contagious, arguably more isolated, and eventually contained in part by richer countries putting money into Africa – COVID-19 presents larger, more interdependent economies with management dilemmas. It has also surfaced at a time of eroding trust within and between countries – with national leadership under pressure from growing societal unrest and economic confrontations between major powers.

•   China’s economic growth expected to slow to 4.5% in the first quarter of 2020 – the slowest pace since the financial crisis, according to a Reuters poll of economists.

•  "Global oil demand has been hit hard by the novel coronavirus," says the International Energy Agency.

•  Factory shutdowns are slowing the flow of products and parts from China, affecting companies around the world, including Apple and Nissan.

Falling oil demand

China is the world’s biggest oil importer. With coronavirus hitting manufacturing and travel, the International Energy Agency (IEA) has predicted the first drop in global oil demand in a decade.

Disruption to commerce

The shortage of products and parts from China is affecting companies around the world, as factories delayed opening after the Lunar New Year and workers stayed home to help reduce the spread of the virus.

As China grapples with the coronavirus, the economic damage is mounting around the world.There are around 70,000 confirmed cases of COVID-19, the new coronavirus that emerged in Wuhan, China, in December and is spreading around the world.

Businesses are dealing with lost revenue and disrupted supply chains due to China’s factory shutdowns, tens of millions of people remaining in lockdown in dozens of cities and other countries extending travel restrictions.

A recent commentary speculated that Apple would be the “canary in the coalmine for the economic impact of Covid-19, the novel coronavirus wreaking havoc in China and increasingly beyond. While it is true that Apple has a very strong reliance on Chinese manufacturers for its supply chain, it is still ultimately a brand manufacturer that has a lot of finished goods in its supply chain, which can theoretically weather at least the month’s worth of disruption that we’ve seen so far. And should that disruption extend beyond a month, it will still take a few more months before most consumers really feel it.

Most luxury brands would be pummeled if they did not have a well-articulated strategy for how to reach the Chinese market. For many, China is not just a source of growth, it is the only source of growth. Upscale Chinese consumers have a high appreciation for global luxury brands, and perhaps even more-so than Chinese-native brands serving the middle class, luxury brands coming into China are feeling the immediate impact of closures and social distancing. This impact will hit global luxury brands in Q1 2020. A month of lost sales, or longer, is unlikely to be made up in time to help a quarter, or possibly the year.

Luxury companies including Burberry, Ralph Lauren, Coach, and Capri Holdings—which owns Michael Kors, Versace, and Jimmy Choo—have already warned of lost sales amounting to tens or hundreds of millions of dollars due to the spread of coronavirus. Now a survey of top luxury executives estimates the total hit to the industry’s sales could reach as high as €40 billion ($43.4 billion).

The main concern is business in China, where sales are plummeting due to widespread store closures and shoppers hunkering down in their homes. The survey estimates as many as 10 million to 15 million products originally destined for China could go unsold, forcing companies to redirect those items to other parts of the world. Luxe outerwear company Moncler, for instance, said on a recent earnings call with investors and analysts that it had frozen shipments to Greater China and sent them instead to regions such as Europe.

Just as luxury retailers have made it a core strategy to penetrate the Chinese retail market, there are many Chinese brands and sellers that have a core strategy of selling to Western markets. A good example: Shein, long-time lurker on Pinterest. The company operates fairly opaquely, with only a few hints that it is headquartered in China. Their US site offers total business as usual currently, with recent new blog posts and no mention that operations may be disrupted by measures protecting against Covid-19. The impact won’t be felt immediately – most of these companies slow-boat their shipments to Western markets anyway – but give it a month, and the impact will start to be felt.

Cities like Melbourne, Milan, Mexico City, Munich and Las Vegas all have seen enough Chinese shopper tourism that retailers there actively advertise their services and Chinese shopper friendliness. That has undoubtedly come to a screeching halt in the last month. Most companies can absorb that much impact, but should the travel restrictions into and out of China continue, the long-term impact of the lack of Chinese tourist shopping will start to hit home in cities that have benefitted from the activity in the past.

Finally, a month of factories sitting idle means a month less of inventory in the pipeline. For most Western retailers, this won’t impact the shelves next week, but it could impact inventory any time over the next month to six months. Should disruptions continue past the current month, Western consumers will certainly see impact at the shelf as soon as April or May for those retailers that rely heavily on Chinese imports.

Latest Updates

A viral outbreak that began in China has infected more than 80,000 people globally. The World Health Organization has named the illness COVID-19, referring to its origin late last year and the coronavirus that causes it.The latest figures reported by each government's health authority as of Wednesday in Beijing:

— Mainland China: 2,715 deaths among 78,064 cases, mostly in the central province of Hubei

— Hong Kong: 81 cases, 2 deaths

— Macao: 10 cases

— South Korea: 1,146 cases, 11 deaths

— Japan: 861 cases, including 691 from a cruise ship docked in Yokohama, 5 deaths

— Italy: 323 cases, 11 deaths

— Iran: 95 cases, 15 deaths

— Singapore: 91 cases

— Thailand: 40 cases

— United States: 57 cases

— Taiwan: 31 cases, 1 death

— Australia: 23 cases

— Malaysia: 22

— Bahrain: 26

— Vietnam: 16 cases

— Germany: 17

— United Arab Emirates: 13 cases

— United Kingdom: 13

— France: 14 cases, 1 death

— Canada: 11

— Kuwait: 12

— Iraq: 5

— Philippines: 3 cases, 1 death

— India: 3

— Spain: 6

— Russia: 2

— Israel: 2

— Oman: 2

— Austria: 2

— Lebanon: 1

— Belgium: 1

— Nepal: 1

— Sri Lanka: 1

— Sweden: 1

— Cambodia: 1

— Finland: 1

— Egypt: 1

— Algeria: 1

— Afghanistan: 1

— Croatia: 1

— Switzerland: 1

— Greece: 1

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