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The global fashion industry is bracing for another wave of painful supply chain disruptions and store closures as China races to contain its worst Covid-19 outbreak since the start of the pandemic.

Shenzhen city and Jilin province are in lockdown, impacting 31.5 million residents along with malls, manufacturing hubs and ports. Luxury brands, including Prada, Coach and Dior, confirmed they closed stores in Shenzhen and Changchun, Jilin’s capital.

Over in Shanghai, fashion week has been postponed from its original April 6 start, while offices and shopping centres are being sporadically locked down if they are linked to a Covid-19 case. Even though stores remain open, major shopping thoroughfares like Huaihai Lu and Nanjing Xi Lu are quiet, robbed of their usual throngs of white-collar workers, replaced by dog walkers and the occasional retiree out for a masked stroll.

The outbreak is a psychological blow for the fashion industry in addition to a financial one. China had weathered the pandemic better than almost any other major economy; strict quarantine rules and health measures kept case counts low, and closures of ports and factories were relatively rare and short-lived. Now, parts of the country are entering lockdowns similar to what much of Europe and North America experienced for much of 2020 and 2021, even as those regions are rapidly returning to normal life.

The fear is that disruptions at Chinese factories and ports will inject fresh chaos into already snarled supply chains, and contribute to inflation that is at its highest point in 40 years in the US. Store closures will also add additional uncertainty to the sales outlook for brands, many of which are still assessing the impact of Russia’s invasion of Ukraine last month.

“[China is] such a centre of, not only of manufacturing but also of transportation — we’re definitely going to feel it, there’s no doubt,” said Alla Valente, senior analyst at Forrester.

The State of Play

The worst of the outbreak has so far been contained to provinces known more as tech and auto manufacturing hubs than for their garment factories. Shenzhen, however, neighbours the Pearl River Delta area, a major production centre for fashion and footwear. Some see it as only a matter of time before their operations are disrupted, especially since it’s the highly contagious Omicron variant that is currently spreading in China.

“In China, once you have a case they will shut you down, and with Omicron it’s almost impossible to prevent it,” said Gerhard Flatz is managing director at Pearl River Delta-based manufacturer KTC Group, which makes high-end activewear for European brands like Mammut and Helly Hansen. He said his factory is running normally for the moment.

Even though most global brands have lessened their reliance on China for apparel manufacturing over the past decade, widespread stoppages to manufacturing hubs like the Pearl River Delta and Yangtze River Delta, which also neighbours Shanghai, will have a huge impact on the world’s fashion supply chain, he added.

“About 60 to 70 percent of the world’s trims — buckles, buttons, zippers — all the accessories and components are produced here,” he said. “If the components can’t be shipped, the garments can’t be completed, that will mean a severe impact.”

Shenzhen is also home to Yantian Port, the world’s third-largest port, fuelling concern the lockdown could cause further strain on global supply chains. In an advisory note, Seko Logistics warned clients that, though Yantian Port remains open and cargo is currently still being loaded there, a bigger concern is a restriction on trucks coming from outside of Shenzhen not being able to get goods to the port while Shenzhen’s lockdown remains in place. Last May, a small Covid-19 outbreak among workers at Yantian Port led to a month-long closure, which caused a supply chain backlog that took months to clear.

In Shanghai, restrictions on movements in and out of the city have caused similar issues at its port, the world’s busiest, with courier companies halting shipments to Shanghai and trucks barred from entering the city.

Assessing the Impact

For Rebecca White, a Shanghai-based sourcing expert who works at HGR Consulting, it’s been the movement restrictions, rather than factory closures, that have delayed samples being sent out to clients.

“We’re not really sure what’s going to transpire, [but] I do have a feeling that our ocean freight rates will go up again,” she said, noting that the cost of shipping containers across the Pacific was already edging close to last summer’s highs even before the latest Covid surge.

China’s garment manufacturers are part of a global supply chain that can expect an item to move from concept to delivery in 90 days, leaving little room for delays. Apparel that arrives in stores too late for their intended season can be difficult to sell, and brands are quick to cancel factory orders at the first sign of production or shipping problems.

“We are on a fixed timeline and if we don’t get our goods out by August … we will not make deliveries and we will face cancellations,” White said. “So much of the supply chain is out of our control at this moment and it’s very worrisome.”

Brands that sell to Chinese consumers face problems of their own. China is a hugely important market for luxury goods brands in particular. Many relied on spending there to boost sales as Europe and the US slowly rebounded from 2020′s lockdowns.

China’s economy was already showing signs of slowing down. Last week, Chinese policymakers set its GDP growth target of 5.5 percent for 2022. Though it’s the lowest growth target ever publicly set by the country, economists have warned that it may prove a lofty target, given the macroeconomic headwinds the country is facing, a prolonged battle with Covid-19 may make it impossible. The government’s rush to lock down major cities is an indication that more pain is coming, analysts say.

“China is set to see a sharp slowdown in March, given it is dealing with the worst Covid outbreak since 2020,” Larry Hu, chief China economist at Macquarie, said in a note Tuesday. “At this moment, policymakers are clearly putting Covid-zero ahead of growth.”

Unlike in 2020, brands now have two years of experience operating under pandemic conditions, said Luca Solca, head of luxury goods research at Bernstein. He predicts a “modest headwind” from China’s outbreak.

“I think brands should only be concerned to a point: over the past two years, brands have perfected remote selling and digital distribution,” he said. “It will be a matter of going back to that, this time having accumulated useful experience on how to run these operations.”

And the pandemic hasn’t entirely dampened China’s passion for luxury fashion. On Tuesday, as Nanjing Xi Lu was mostly deserted, a small line of masked, temperature checked shoppers had formed outside of Plaza 66′s Chanel store.