Core Tip: The deadly epidemic is having a negative impact on China's economy.Given that China produces a third of the world's clothing, brands need to be prepared for shipping and production delays.
Earlier this month, after an extended Lunar New Year holiday due to the outbreak of the Novel Coronavirus, Chinese companies began reopening their factories, including one owned by Lafayette 148 New York in Shantou, Guangdong province.
But a week later, the factory, which makes luxury Women's Clothing, still hasn't fully recovered, and some workers are still returning to work for the Lunar New Year holiday.Deirdre Quinn, CEO of Lafayette 148 New York, said workers who have returned to the factory will also need to wear masks and take their temperature every day.She expects a two-week delay in the brand's spring collection.
"We are dealing with a slight delay in delivery.But we were lucky that a lot of companies didn't finish their spring collections."Quinn said.
As of press time, China has reported more than 77,000 confirmed cases of Covid-19 and more than 2,500 deaths, according to the World Health Organization (WHO). The outbreak, which started in Wuhan, Hubei province, has spread across the country and 31 other countries.At least 150 million people in China have been banned from traveling, and Chinese citizens face increasing restrictions on leaving the country.
The economic impact of the outbreak is only beginning to be felt, with brands such as Ralph Lauren and Burberry predicting steep declines in sales.China accounts for more than 30% of global apparel production, according to the World Trade Organization, but international brands and retailers haven't talked much so far about the potential negative impact on apparel production in the coming months.
Lafayette 148 New York isn't the only brand that's finding it hard to ramp up production.Brands and suppliers must plan for the safety and health of their employees.Even if factories are open, getting goods out of China will be a challenge at a time when shipping and air carriers have less capacity.Despite the out-of-stock warnings, some retailers struggle to predict exactly what items will be out of stock and when.
Jonathan Gold, vice-president of supply chain and customs policy at the National Retail Federation, a trade group, said: "A lot of companies are still assessing [the impact of the outbreak].Companies are working with overseas suppliers and transportation suppliers to understand the specific downtime of the plant."
There are also steps retailers can take to keep their supply chains moving amid the Novel Coronavirus epidemic.Here is a recommended course of action from the BOF:
Ensure daily reporting between manufacturer and logistics supplier
Before making any contingency plan, you should first understand the local situation.China's Hubei province, the worst affected by the outbreak, remains in lockdown, and other Chinese cities have imposed quarantine measures.The absenteeism rate varies greatly in different regions.
Therefore, brands need to communicate closely with suppliers to know about production delays in advance, gain time, arrange delivery faster, and minimize the impact of delivery delays on wholesale partners and customers.
Brian Bourke, vice president of marketing at Seko, a global logistics and warehousing company that partners with retailers, says: "The worst thing that can happen is that there is a communication gap and people make decisions in panic."If you can't keep up to date with what's going on every day, ask for daily updates."
Have a clear understanding of available transportation options
Naked Cashmere, a direct-to-consumer knitwear brand, mainly makes sweaters at a factory in Hangzhou.Despite the geographical distance between Hangzhou and Wuhan, more than 160 confirmed cases of COVID-19 have been reported in total (as of press time).At present, the products that Naked Cashmere plans to sell in spring have been sent to the warehouse in the United States. However, if the factory cannot resume normal operation in March or April, the manufacturing of the brand's autumn products may be affected.
Bruce Gifford, chief executive of Naked Cashmere's parent 360 Sweater, says the company is already preparing for it."Right now it's hard to say whether the supply chain will be disrupted or not, but we will add a little extra production time to our schedule," he said.
Gifford said the company plans to air more of its merchandise if deliveries are delayed.At present, 60% of the goods of 360 Sweater Company are transported by sea across the Pacific Ocean, which takes about one month, while the remaining 40% are transported by air, which takes only two days.
It is wise to book in advance.The quarantine measures and travel restrictions have severely limited air services outside China.United Parcel Service (UPS) cut flights to China, and there were fewer commercial flights with passengers.Bourke says some routes have seen rates rise as much as 300 per cent.As factories ramp up production, a backlog of goods could soon appear.
"The first thing companies need to do is talk to the forwarder and ask what they have to offer," Bourke said. "Otherwise, even if the cargo is ready, there won't be enough ships to ship."Companies need to know when they can get everything ready to book capacity in advance."
Faster shipping is another possible option, with some routes cutting the journey from Shanghai to Los Angeles to 12 days.In addition, the goods can be shipped to other ports in Asia or the Middle East and then transferred by air.
Enhance customer service and ensure openness and transparency
Customers and retail partners need to know when there will be delays.In a crisis, it is best for companies to reach out to consumers before a flood of complaints emerge.
"You want to be very transparent and very specific about your return," Bourke says. "It allays any fears or doubts that people might have."
Instead of being too passive, businesses can proactively inform customers of the problems they are facing and offer compensation if necessary, such as refunds or discounts that can be used for subsequent purchases.
If possible, switch factories
After the United States threatened to impose tariffs on Chinese-made clothing and accessories last year, many retailers had aggressively sought out manufacturing sources outside China, such as Bangladesh and Vietnam.The outbreak is likely to accelerate the companies' plans to find other manufacturing sites.
"Large retailers may have more flexibility to deploy than small retailers, but depending on the type of product they are producing, it may be time to look elsewhere," Gold said.
When the latest tariffs were first announced, Lafayit decided to keep manufacturing in China, but now the brand is weighing the possibility of expanding its production channels.
"For safety reasons, we may be able to increase some of our production channels in the future," Quinn said.
U.S. imports from Vietnam and Cambodia rose 11% last year, according to Commerce Department data.Businesses can use online events and trade shows to find new suppliers or ask peers.Companies could also look at local manufacturing, which, while it may be more expensive, is also more flexible in terms of delivery times and makes it easier for companies to make informed inventory management decisions.
Forecast sales volume and adjust production schedule
Retailers that rely heavily on Chinese consumers may be even more at risk.Global brands are likely to lose a big chunk of revenue this year because of sales declines caused by Novel Coronavirus and the retail fallout from the protests that followed in Hong Kong, China.They must adjust their inventories accordingly to prevent further losses from an end-of-quarter glut.
Lafayette 148 New York gets 9% of its sales from mainland China and has nine stores (two of which are still open, but none of which are reporting sales).As a result, the brand has stopped producing the products it planned to sell in China.Kering has also suspended operations in China, delaying new store openings and advertising campaigns.
But ultimately, the best retailers can do is keep an eye on the situation and act accordingly.Gifford of Naked Cashmere believes brands can only hope for the best and prepare for the worst.
"The biggest risk is not the supply chain, but the world economy as a whole," he said. "There could be a decline in overall demand in the apparel industry, or the Novel Coronavirus could trigger a recession."
Quinn advises practitioners to "relax."
"My advice is simply to keep at it," she said. "The clothing industry and people have to keep at it, because people are dying every day from novel coronavirus."
