The expanding shadow of a global epidemic caused by the coronavirus outbreak that originated in Wuhan, China, is seeing multiple ramifications beyond the actual health threat. China and the neighbouring countries constitute the largest expansion market for luxury brands worldwide. While from LVMH to Tencent, the fashion industry has donated millions of dollars to date to fight the coronavirus threat in APAC, as a precaution, stores have been temporarily closed and industry fairs in China postponed or cancelled, while those outside of China miss the presence of their Chinese visitors. FashionUnited has put together the repercussions so far for the fashion and luxury industry caused by the coronavirus outbreak.
In order to contribute to palliating the rapidly spreading coronavirus outbreak, several global fashion and luxury goods companies are stepping up and donating funds to fight the contagious virus: The LVMH Group has donated 2.3 million US dollars to the cause while the Kering Group has provided another 1 million US dollars. Other major companies are also doing their part: L'Oreal has given 720,000 US dollars to the cause, Swarovski 430,000 US dollars and Estee Lauder and Shiseido 290,000 US dollars each. Meanwhile, Chinese conglomerates Alibaba and Tencent have donated 144 million US dollars and 43.25 million US dollars, respectively.
Chinese online platform Alibaba announced on Monday that it would give loans in the amount of 20 billion yuan - the equivalent of 2.6 billion euros - to small and medium-sized companies that are affected by the coronavirus, provided they have been doing business with Alibaba for more than a year. The company announced that low-interest loans would be made available through the group's financial subsidiary, Ant Financial, and companies from Hubei Province and the rest of the country were to be considered in equal parts. Apart from other trade advantages, interest rates are to be 20 percent below market level.
Brands are temporarily closing shops in China
As a precautionary measure while authorities are assessing the situation and due to decreased footfalls, international brands are closing their retail locations in China for the time being. Chinese New Year spending, always a major event on the retail calendar for fashion brands, already took a hit with China severely limiting the travel of its citizens. An increase of overseas holiday spending of 13 percent compared to last year seems unlikely as luxury brands brace for the impact of the coronavirus.
The VF Corporation, home to brands such as Timberland, The North Face, Kipling and others, has just announced that it would temporarily close about 60 percent of its owned and partner stores in China due to coronavirus mitigation efforts. The company also confirmed that the stores currently open had experienced significant declines in retail traffic. “The safety and well-being of our associates and partners in China is our highest priority. Our thoughts are with those people affected by the coronavirus,” said VF CEO Steve Rendle.
On Friday, the Burberry Group announced that 24 of 64 Burberry stores in Mainland China would be closed while the remaining stores operated with reduced hours due to significant footfall declines. “The outbreak of the coronavirus in Mainland China is having a material negative effect on luxury demand. While we cannot currently predict how long this situation will last, we remain confident in our strategy. In the meantime, we are taking mitigating actions and every precaution to help ensure the safety and wellbeing of our employees,” said Burberry CEO Marco Gobbetti in a statement.
Nike Inc. announced a week ago that it has temporarily closed about half of Nike-owned stores in China due to the coronavirus outbreak. Further, the company said it is operating with reduced hours and experiencing lower than planned retail traffic in stores that do remain open. The company expects the situation to have a material impact on operations in China.
Swiss multinational investment bank and financial services company Credit Suisse expects that some U.S. retail firms like Nike and Tapestry are particularly exposed to the fallout. Credit Suisse' analyst Michael Binetti said in a research note that history shows that viral outbreaks can have a significant effect on sales. Binetti calculates that for the most exposed companies, the coronavirus outbreak-related cost could amount to a 3-5 percent reduction in earnings per share next quarter if the threat continues.
Fashion companies are cutting financial forecast
Given that Chinese customers - shopping both at home and abroad - now account for 90 percent of the luxury goods market growth according to data from Bain & Co. and for more than a third of the value of luxury goods purchases according to the Financial Times, luxury stocks have been plummeting. Accordingly, fashion brands and especially luxury companies have been revising their financial forecasts for the quarter or even the whole year. However, they remain confident that long-term, there is growth to be expected and on track for the region.
Luxury fashion holding Tapestry, Inc. announced on Thursday that it was cutting its full-year forecast: “We had anticipated maintaining our FY20 guidance despite continuing headwinds in Hong Kong SAR and challenges at Stuart Weitzman. However, the escalating coronavirus outbreak is now significantly impacting our business in China, resulting in the closure of the majority of our stores on the Mainland. We now expect that our second half results could be negatively impacted by approximately 200-250 million US dollars in sales and 35 cents - 45 cents in earnings per diluted share, given current trends in China. If the situation further deteriorates, or the outbreak affects demand outside of the country, this impact could be worse,” said Tapestry CEO Jide Zeitlin about second quarter trading.
Canadian winter wear manufacturer Canada Goose said on Friday that the coronavirus outbreak is having a negative material impact on performance in the current fiscal quarter ending March 29, 2020. The health crisis had resulted in a sharp decline in customer traffic and purchasing activity and retail stores and e-commerce across Greater China had and continued to experience significant reductions in revenue. Due to global travel disruptions, retail stores in international shopping destinations in North America and Europe were also affected, the company said.
Michael Kors, Versace and Jimmy Choo owner Capri Holdings warned on Thursday that the coronavirus outbreak in China, which has already prompted the closure of 150 of its 220 stores in the region, could result in a 100 million US dollar hit to its revenue despite third quarter revenue and earnings per share exceeding expectations.
“We are in the midst of a dynamic global health emergency related to the coronavirus. Our thoughts and prayers go out to the people of China, including our own employees located in this region, as well as all of those affected by the virus globally. We hope for a speedy and positive resolution to this crisis. The situation in China and the measures being taken to protect the population are having a material impact on our business,” said the company’s CEO and chairman John D. Idle in a statement.
Apparel and textile fairs are postponed
In view of the current coronavirus situation, fashion fairs and other industry events in China but also in Europe and the Americas have also been affected. While Chic Shanghai was postponed, Ispo Beijing was cancelled altogether. Messe Frankfurt’s textile fairs Intertextile Shanghai Apparel Fabrics, Yarn Expo and Intertextile Shanghai Home Textiles - slated for March - have been postponed as well. Even The Materials shows in Boston and Portland popular with visitors from China and slated for February, have been postponed, and fashion shows in Europe will take place without the many Chinese visitors that usually attend. Berlin’s sourcing fair Asia Apparel Expo, slated to start in a week, has been postponed to June.
Fashion and lifestyle fair Chic Shanghai will not take place as planned because of the current coronavirus infection. Originally slated for 11th to 13th March at the National Exhibition and Convention Center in Shanghai, the fair has been postponed as announced by Chic’s organising committee. Earlier, Messe Munich had cancelled its event, Ispo Beijing, slated for February 2020.
American Events, the company behind The Materials Show, postponed the fair scheduled for February 5 and 6 in Boston, as well as the fair scheduled for February 12 and 13 in Portland, over concerns about the coronavirus. Both events were expected to attract many visitors from China.
At the upcoming fashion weeks in London and Milan, hundreds of Chinese buyers will be missed as they will not be able to travel this year. Organisers of both events already announced this last week but hope that Chinese participants will be doing their shopping online instead, with Milan and London promising to ramp up virtual coverage of their catwalk shows and product promotions.
In New York, Fashion Week was off to a gloomy start on Thursday, with rows of empty seats, a rarity for the event, at the beginning of Kate Han's parade of designs that fuse traditional Chinese influences with a modern twist. While the designer herself felt “very confident and very safe here to make the show,” the compere stressed the importance of solidarity, saying "We're not here only to present the great pieces of design but also we're showing Chinese people and the people around the world we have strong will and strength and love through all difficulties and hardship."
Till date, with more than 43,000 infected persons confirmed and more than 500 people having died after being infected with the coronavirus, it remains to be seen when life will get back to normal. Until then, as the fashion industry waits along with the world with bated breath, it may be best to stick with Carlo Capasa’s advice who heads the National Chamber for Italian Fashion: Apart from saying he would do his utmost "to convey the emotion and content of fashion to those who are far from the catwalks," he added, "let's build a bridge with China instead of putting up a wall, as others are doing, to send a positive and unified message against ignorance and prejudice."