The coronavirus is hitting the retail industry hard
The coronavirus poses such a threat to the retail industry that it was mentioned 160 times on 19 different retailer earnings calls in the past two weeks, according to research by Amenity Analytics.
High-end retailers like Canada Goose are concerned about declining foot traffic and sales from Chinese tourists to U.S. stores. In addition, brands that source materials from Chinese factories are already facing shipment delays. Sportswear brands such as Nike and Under Armour that have stores in China have also cited the impact. Tapestry—whose brands include Kate Spade and Coach —acknowledged that the virus outbreak will have a negative sales impact of as much as $250 million for the fiscal year, for which it is forecasting revenue of $5.9 billion, according to a recent Securities and Exchange filing.
“Retailers are going to have difficulty getting merchandise, wholesalers will have a hard time fulfilling obligations,” says Edward Hertzman, founder and president of Sourcing Journal, a retail publication. He notes that even brands that don’t source materials directly from China will suffer because there's a good chance their suppliers rely on Chinese companies. “The reality is if you’re in Bangladesh or Vietnam, a lot of those companies rely on fabric from China or trims from China.” Hertzman adds that retailers’ supply chain will also be disrupted by delivery delays at ports.
The sickness is also taking a toll on fashion runway shows. Women’s Wear Daily reported Tuesday that six Chinese brands have canceled Paris shows, including Taiwanese brand Shiatzy Chen. Shanghai Fashion Week has also been postponed, according to reports. A representative from Fashion Week Online, which tracks the events, says that some attendees are wearing masks—of the sequin-encrusted variety— to shows.
On Tuesday, Under Armour executives warned of shipping delays. Some retail experts say apparel coming into the U.S. for spring and summer styles may be late.
But the situation could be worse if marketers had not diversified their supply chain somewhat following trade uncertainty with China, according to Marie Driscoll, managing director of luxury and fashion at Coresight Research, a global research and advisory firm.
“Many companies have gone to some degree of localized sourcing—a supply chain that’s closer to home,” she says. “The picture has changed—if this happened two years ago, the impact would have been much more dramatic.”
Even still, Driscoll says to expect changes in messages moving forward as brands try to mitigate the falloff. Brands that don’t have product immediately on hand should promote preorders and waitlists, she says, noting that consumers will pay full price for such items.
“That creates a sense of wow,” she says. “If I were them, I would use this as an opportunity to create a sense of exclusivity and to heighten demand.”