In this China update for just-style, Rick Helfenbein looks at some of the concerns surrounding the ongoing novel coronavirus outbreak, and asks: “What does Wuhan mean for our industry?”
Those of us in the retail, footwear and apparel sectors remain extremely concerned for the safety of our workers and our industry. We lived through SARS (Severe Acute Respiratory Syndrome), but this new virus that started in Wuhan, China has sounded alarm bells worldwide. Here is what we know:
- Over 17,488 cases confirmed worldwide
- Deaths: 362 (1 outside of China)
- Countries/Territories involved: 27
Reason for immediate concern:
- Spread rate for SARS: 130 days for 1,000 people
- Spread rate for Coronavirus: 48 days for 1,000 people
Death rate lower:
- Death rate for SARS: 5 people for every 50 infected
- Death rate for Coronavirus: 1 person for every 50 infected
- Travel is limited: Quarantine and suspended flights
How it affects the US retail and apparel industry
- Factory worker return dates after the Chinese Lunar New Year holiday have been postponed by a week – and are now scheduled for 10 February.
- Transportation within China and externally is disrupted, or stopped, or very difficult.
- Exports to the US will likely shift to different ports within China.
- China has a US market share of 41% of all imported apparel – making China the largest worldwide supplier to the American market.
- China has a US market share of 69% of all imported footwear – making China the largest worldwide supplier to the American market.
- Newly added US tariffs are highly distracting to the import community, but the novel coronavirus is compounding the entire supply-side issue.
- While there is not much actual apparel production in Hubei province, the disruption to the American supply chain has the potential to be impactful.
- Factory workers returning to Jiangsu, Guangdong and Zhejiang (which maintain significant manufacturing for our industry) will have travel difficulty as they attempt to return from the Chinese New Year holiday.
- Raw material and finished goods that are due for export from China could be delayed.
- Given the time sensitivity for the apparel and footwear industries, these situations may force buyers to seek alternative markets – if they can.
- US retail is already seeing the affects of the “trade war” – causing retail selling prices to trend upwards.
- A situation like the coronavirus tends to create excess demand, which is inflationary by nature. As retailers know: when prices go up, sales go down.
- In addition, fewer Chinese tourists travelling to America due to flight cancellations and potential quarantine will cause US retail will suffer.
- Many American companies have retail in China and they will be hit as well.
- China shoppers will pursue more online purchasing, but this will be offset by less foot traffic in the stores. All in all, the coronavirus virus outbreak is not healthy for retail.
- It is estimated that SARS took six months to become contained. China is now mobilising as fast as it can. Time is of the essence.
- Wuhan has a population of 11 million people. Travel out of its international airport was previously estimated at 3,500 passengers a day to other countries.
- Wuhan is known as a transportation hub within China. Millions of people have travelled from Wuhan to other parts of China.
- In 2003, at the time of SARS, China represented only 5% of the global economy.
- In 2020, during the time of the current novel coronavirus, China now represents approximately 18% of the global economy.
The ultimate toll of the novel coronavirus will play out over time. In the short term, we all need to truly understand the scope of the issue, try to work with data from qualified and trusted institutions, establish realistic alternative plans, and hope that the virus abates as soon as possible.
Click on the following links for additional insight:
- Is coronavirus a threat to the clothing industry?
- Are commentators overreacting to coronavirus?
- Coronavirus could impact China polyester production
- Levi Strauss closes half China stores over coronavirus