How the fashion industry is coping with the coronavirus crisis
Jing Daily, a content partner of The Moodie Davitt Report, talked to various stakeholders affected by the coronavirus, from luxury brands to small fashion business owners and from lawyers to consumers, in order to better understand how the luxury fashion industries are coping with the latest ongoing crisis. By Ruonan Zheng.
It’s been little over half a month since the Chinese government warned its citizens — and the world — about the coronavirus. On 31 January, with more than 8,000 reported infections worldwide, citizens got the news that the World Health Organization (WHO) had officially listed the coronavirus as a global emergency, elevating the situation from a China-only crisis to a global one.
In the past 17 years since the outbreak of the deadly SARS virus, China has become deeply integrated into the world economy. This has helped spread the coronavirus beyond the mainland, affecting a host of global industries, including travel, tourism, and retail. Additionally, economists have warned that the timing of the virus could send China’s already fragile economy into further turmoil, compounding the newly-announced US-China phase one trade deal and China’s venture into a consumption-driven growth model.
As for the global luxury fashion industries, which rely heavily on China’s vast production and consumption power, things were already slowing down before the advent of the virus. And now, it’s only projected to get worst.
Supply chain disruptions
“Many industry trade shows are now cancelled,” says Vincent Djen, the director of Cheng Kung Garments and the Chief Strategy Officer of REmakeHub, a company that provides circular solutions for plastic waste, explaining how the coronavirus has already disrupted many fashion industries’ plans for 2020. To name a few, Spinexpo, the industry sourcing exhibition dedicated to innovation in yarns, fibres, and knitwear, and the China (Shanghai) International Optics Fair, which are held in Shanghai in February, have both been postponed.
Moreover, two Chinese staff members, one from a luxury brand and another from a beauty company, disclosed that they are now working offsite to revise their first half of the year planning and projections. Many industry insiders have also shared their concerns about whether upcoming major fashion shows, like Milan Fashion Week in late February and especially Shanghai Fashion Week in late March, will be postponed to prevent the potential for further spreading the virus.
The postponing of trade shows and fashion shows may prevent some new business from happening, but a more immediate concern is the disruption of the supply chain. Even though most factories are still closed due to the Chinese New Year break, many factories are now delaying the start of production because of the fear of inappropriate health procedures for their workers, which will have a ripple effect throughout the global fashion production cycle.
According to Djen, most Autumn 2020 collection orders from Europe usually arrive in February, with manufacturing in March to meet the major delivery month of April, which now could be delayed until May or June. Furthermore, as a result of the ongoing crisis, the production of Autumn and Winter collections may also be delayed if the situation gets worse, directly affecting the businesses of most European companies that rely heavily on Chinese manufacturers.
“If brands have not diversified their productions outside of China, then there isn’t much they can do to minimise the losses,” suggests Xi Yang, an attorney at the Seattle-based international law firm Harris Bricken that specialises in investment with China. “Factories are closed now and will not resume production anytime soon. Even when they resume production, it does not guarantee they will have enough manpower to complete orders placed, or they will make products that meet the buyer’s standard.”
Drastic actions: Landlord Dalian Wanda Commercial Management Group has waived rent for all Wanda Plaza’s tenants across the country from 24 January to 25 February
Many cities in China are following a governmental order to remain on a soft lockdown mode. And consumers that normally hit the stores around the Chinese New Year holiday have opted to stay home to minimise their outdoor exposure, which has added to a sharp decline in foot traffic in shopping malls this January. Many malls have chosen either to significantly shorten their business hours or shut down completely. The loss is hard to quantify. On 28 January, Dalian Wanda Commercial Management Group, the landlord of many high-end retail malls in China, waived rent for all Wanda Plaza’s tenants across the country from 24 January to 25 February, with estimated costs between US$429-572 million (RMB3-4 billion).
Going digital, however, seems to be the only bright spot for many vendors. Riding on the current supply and demand trend, one livestreamer said that they shifted their product selection from skincare and makeup to cleaning supplies. The Shanghai-based beauty brand BrighterBeauty pivoted as well. On 30 January, it announced to its customers via WeChat, Weibo, and SMS that they could now make orders for facial sprays, collagen shots, probiotics, and protein powder via their WeChat Mini Program and enjoy fast home delivery.
Industry veterans, too, are positive about the development of online retail. “The SARS outbreak in 2003 escalated a number of ecommerce companies’ growth, such as Taobao and JD.com,” says Gu Guojian, a retail expert. “Brands should treat the crisis as an opportunity to develop omnichannel.”
On the other hand, the virus has simply dampened the desire to shop. “Not in the mood”, “who am I showing off to”, and “health comes first now” are a few common sentiments that we’ve read so far. In some cases, the fear of the coronavirus latching itself on the outside of a package has stopped people from shopping except for necessities like groceries and cleaning supplies. In fact, it seems that only grocery or convenience stores are weathering this crisis well.
Starting 2 February, as many companies welcomed back their employees to work, the biggest question on every business owners’ mind is how to ensure the safety of their employees? Most noteworthy is the issuing of a few new employment rules from the government, ensuring companies better protect and benefit employees during epidemics.
“Some cities have been issuing new rules almost every day, be sure to check and follow all of them,” advises Yang. “In addition to being law-abiding though, at the end of the day, the employees are human beings who want to stay safe and healthy, and do not want to be punished for the virus outbreak, so be mindful of the human side of all this when making employment decisions.” Many companies have since adopted new safety measures for staff and customers.
Behind every disaster though, there is a silver lining. “Asia has room for monetary and fiscal policy responses, and these virus shocks tend to be short-lived and cause a V-shaped trajectory in economic activity, as there is a lot of pent-up activity once the virus peaks,” GM Research Head of Global Macro Research and Co-Head Rob Subbaraman told Bloomberg News. A key Chinese figure in the fight against the virus, Zhong Nanshan, the Director of the State Key Laboratory of Respiratory Disease in China, said previously that the wave of infections will slow in early February and will not increase in large scale.
It’s possible, and as the post-SARS period showed, that there will be an increase in consumption once the virus is controlled, with consumers once again willing to spend some of their disposable income on upmarket goods. “This (situation) can take up to six months, so it’s possible that this is a two-quarter rather than a one-quarter thing,” UBS Chief Economist Arend Kapteyn told Bloomberg on 28 January. “But it’s way too early to knock down your China forecast sharply.”
The Moodie Davitt eZine
Issue 276 | 7 February 2020
The Moodie Davitt eZine is published 20 times per year by The Moodie Davitt Report (Moodie International Ltd).
© All material is copyright and cannot be reproduced without the permission of the Publisher.
To find out more visit www.moodiedavittreport.com and to subscribe, please e-mail email@example.com