The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
SHANGHAI, China — Shanghai-based stylist and creative director Alice Wang cancelled her fashion week plans when she received a job offer to style a local musical artist for a special performance. But the rapid spread of the respiratory illness 2019-nCoV, or, novel coronavirus — resulting in over 560 deaths, travel bans, store closures and face mask shortages — means that neither the styling gig nor fashion week are on the agenda.
“I’ve been at home in my apartment for the past five days without setting foot outside,” says Wang, who has been using mobile apps to order everyday essentials like groceries to her door. The entrepreneur was also meant to be buying fabrics for what will become her own brand’s debut collection, but countrywide factory closures have prevented her from making much progress. “Everything has pretty much been cancelled or delayed until who knows when,” she tells BoF.
Wang’s isolation and feeling of paralysis is shared by most industry insiders living in China’s fashion capital. On January 23 the country’s state council extended the Lunar New Year holiday to February 2 to stem the further spreading of the virus, and once-bustling cities from Wuhan to Beijing have become deserted ghost towns as the bulk of residents stay in and work from home. Shanghai's municipal government extended the holiday by an extra week to February 9.
There have been over 28,000 confirmed cases of the coronavirus and over 560 deaths across China, with more than 16,678 people sickened in Wuhan, a bustling cosmopolitan city located in the Hubei province and the outbreak’s epicentre (though actual numbers are likely much higher than the official tally). Outside China, cases have been confirmed in over two dozen countries including the US, UK and France, with the Philippines and Hong Kong reporting one death each at the time of writing.
In Hong Kong, passengers wear face masks on the MTR | Source: Shutterstock
Manufacturing's Big Freeze
One of the most important touch-points for global supply chains and consumption, China's impressive economic growth in the two decades since SARS spread to two dozen countries signals that the coronavirus poses an even stronger threat to global markets. Beyond China, where local companies are delaying plans to go public, the outbreak's ripple effect is already being felt from New York (where stocks had their worst day since October 2019 ) to Thailand (which has already reduced its 2020 GDP forecast based on estimated revenue losses of up to $1.6 billion, assuming travel restrictions last three more months.) On February 6, global shares rallied after Beijing announced plans to halve tariffs on US imports worth $75 million in a move to implement January's 'phase one' trade deal and lessen the epidemic's economic fallout.
Global panic regarding the outbreak escalated during the Lunar New Year celebrations that kicked off on January 25, which have traditionally been a lucrative stretch for domestic and global companies operating within China's travel and retail sector. Earlier this year, experts estimated that three billion trips would be made as Chinese travelled home or abroad for the 16-day period, but avoiding infection has since become a priority for most. On February 3, mainland stocks plunged about 8 percent as investors returned from a long holiday and many businesses and cities remained on lockdown.
By the time the virus was declared a global emergency by the World Health Organisation, China's annual holiday was extended until the second week of February by 14 provincial and municipal governments, which made up almost 69 percent of the country's gross domestic product in 2019 and the source of 78 percent of China's exports in December last year, according to Bloomberg. But many doubt that the mainland workforce will be up and running anytime soon, which could set off a chain reaction throughout global supply chains.
We're confident that a lot of workers won't want to go back to work so soon.
"Everyone's planning to get back to work on the 10th, but it could change at the last minute," says Wang. This uncertainty is echoed by Anne Harper, founder of the childrenswear accessories brand OMG Accessories, which is carried by retailers like Nordstrom and Saks.
“We’re expecting at least a two-month delay with deliveries even though they’ve only extended [the holidays for] a week,” says Harper, who has worked with Chinese manufacturers for almost two decades. “We’re confident that a lot of workers won’t want to go back to work so soon.”
Disruption to China’s textile manufacturing sector is unsurprising, says Taohai Lin, consumer analyst at Fitch Solutions, noting that both Wuhan and Suzhou (whose government has delayed factory openings until February 8) are textile manufacturing hubs, with the former doubling as a transport hub. However, Lin asserts that the effect will be tempered by the latter’s potentially short shutdown and the fact that other textile manufacturing hubs Ningbo, Hangzhou, Wenzhou, Guangzhou, Fuzhou and Shandong haven’t yet announced any additional shutdown measures.
According to Lin, brands should consider the freeze another reason “to shift their supply chains out of China and into neighbouring countries such as Vietnam” as manufacturing costs continue to rise in the mainland and it becomes less profitable to produce low-value goods in the country.
Contagion Hits Luxury Consumption
But an accelerated downturn in the Chinese manufacturing sector is only part of the reason the country’s already slowing headline growth could reach 5.9 percent, down from 6.1 percent in 2019 (its slowest performance since 1990), according to Fitch Solutions. Weakened sentiment in the world’s most buoyant consumer markets is also having an immediate impact, in China and beyond.
The coronavirus is adding to a multitude of risks burdening luxury groups, from ongoing US-China trade tensions and flash-points in the Middle East to mass protests taking place from Hong Kong to Paris. A new report from Fitch Solutions predicts a "contagion effect" to further hit Asian markets where Chinese tourists have traditionally buoyed luxury spending, including Macau, Singapore, Japan and Hong Kong, where measures requiring all travellers from mainland China to be quarantined for 14 days will take effect on February 8.
Customers wearing face masks at a luxury mall in Shanghai | Source: Casey Hall
Stores in other shopping hubs like London will take a hit, as airlines from British Airways to United Airlines cancel flights to and from China and countries like the US and Japan deny entry to non-citizens that recently visited the country. Footfall has already dropped in Paris' luxury hot spots, such as the Champs-Élysées.
Burberry, which was slated to re-stage its Fall/Winter 2020 collection in Shanghai this April, has declined to comment on whether the show will go on. The luxury group's share price dropped 4.6 percent by the close of London's market on January 27, while LVMH, Kering and Richemont saw their stocks slump four, three and two percent respectively. The Savigny Luxury Index ("SLI") fell 4 percent after panic around the epidemic intensified.
On January 28, LVMH Chairman and Chief Executive Bernard Arnault said that it was too early to predict the virus' impact on the group's performance. "If it's resolved within the next two, two-and-a-half months, it won't be terrible," he said. "If it lasts for two years, that's another story."
On February 5, Michael Kors owner Capri Holdings cut its forecasts for the year, citing a $100 million hit to revenue from the outbreak following the closure of 150 of its mainland stores. The likes of Uniqlo, H&M, LVMH and Hugo Boss have also temporarily shuttered stores in and around Wuhan, with Nike and Levi's reportedly closing half of their stores in the country.
Both global and local brands have pledged donations to show their support to the mainland and its consumers. LVMH and Kering have donated 16 million yuan (nearly $2.3 million) and 7.5 million yuan ($1.1 million) to the local Red Cross Foundation, whereas Chinese behemoths Alibaba pledged 1 billion yuan (around $144 million), joining local companies from Tencent and Baidu to Anta and Peacebird in making sizeable contributions to the cause. Smaller gestures — like cashmere maker Erdos re-opening its factories to produce protective gear, and beauty brand Perfect Diary’s hygiene tips on social media — have not gone unnoticed.
But other, less empathetic brand moves have come under fire. Blake Abbie, a New York-based editor-at-large at A Magazine Curated By and System Magazine, notes that Instagram approved a filter entitled "Coronavirus Analysis," which appeared to show users whether they were "infected" or not. Abbie called out and tagged the app's official account, its Community Team, Art and Fashion Lead Kristen Joy Watts and Head of Fashion Partnerships Eva Chen on his Instagram stories — the filter has since been removed.
Shanghai-based Reuter Communications’ Managing Partner Nick Cakebread encourages global brands to focus on empathetic acts of kindness and support, whether or not a donation is being made.
“Coming in during this time with ‘service as usual’ promotions and campaigns may seem like a lack of care and thought,” says Cakebread, who recommends companies to speak up but keep it short and simple. “This is not the time to educate people on your brand’s key messages.” Keeping up with local news and developments and involving Chinese staff or agencies in upcoming communications will help companies engage with mainland netizens in a respectful way.
Demand Goes Digital
As physical retail suffers, the crisis could mean room for China’s e-commerce industry to grow. “Given that most Chinese consumers are staying home,” says Fitch Solution’s Lin, “online shopping offers a conduit to shop and also a form of distraction... demand for non-essential shopping may increase as a result.”
According to Azoya Group’s Shenzhen-based Marketing and Partnerships Manager Ker Zheng, the 2003 SARS outbreak kickstarted China’s e-commerce ecosystem — Alibaba's B2B e-commerce business thrived after foreign businessmen cancelled trips to China and registered for its online services, while JD.com Founder Richard Liu began selling electronics on forums and chat groups to keep his business afloat during the outbreak.
But the increase in demand for household goods, over-the-counter pharmaceutical products and groceries won’t necessarily be mirrored in beauty and apparel. “It depends on the category,” says Azoya’s Zheng. “For discretionary purchases like luxury or cosmetics or fashion it might be more difficult.” There are also concerns that consumers will steer clear of goods made in or around Hubei province, and that this will extend to goods produced elsewhere in China, on a global scale.
If brands are unable to showcase or sell their collections this coming season, losses could carry through into the next three or four.
“[Chinese] consumers may not feel like spending money, given what is going on,” says Bernstein analyst Luca Solca.
Regardless, Lin says it is as good a time as any for global brands to improve their e-commerce chops in the competitive market. “They can again take advantage of this opportunity to strengthen their offerings in the online sphere, and aim to capitalise on the positive effect on demand.”
Shows and Small Brands Feel the Impact
As global giants brace themselves, China's event organisers and designers are most vulnerable to risks and will bear the brunt of the shutdowns, says designer incubator Labelhood's Founder Tasha Liu. She reckons that if brands are unable to showcase or sell their collections this coming season, losses could carry through into the next three or four.
The holiday extension has already caused headaches for emerging Chinese designers Angel Chen, Calvin Luo and Ricostru's Manchit Au, who have all cancelled their plans for upcoming fashion weeks in Paris and Milan. But the freeze could still have a bigger knock-on effect for China-based event organisers and smaller brands relying on the supply chain and local events to connect with local and global buyers and press.
Large-scale public events have been shut down or discouraged by governments in Shanghai and Guangdong; on February 3, annual international fashion fair Chic Shanghai announced it would be postponing its event, originally slated for March 11-13. Neither Shanghai Fashion Week (which last year kicked off its Fall/Winter schedule in late March) nor Ontimeshow (one of Shanghai’s largest trade shows) have officially postponed or cancelled their upcoming events at time of writing, but if they do, it could cause a cascade of cancellations. In Hong Kong, there have been calls for the organisers of Art Basel (slated to open March 19 to 21) to cancel the annual fair.
Global events are also feeling the heat: on February 3, the Swatch Group announced the cancellation of its B2B “Time to Move” watch summit, which was set to take place in Zurich next month, due to the outbreak.
London Fashion Week, set to kick off on February 14, is expecting a reduction in attendance from Chinese media and retailers due to the travel restrictions. "We will make every effort to ensure that the shows reach audiences that aren't able to travel and are exploring additional partnerships to further increase reach," British Fashion Council Chief Executive Caroline Rush said in a statement.
Meanwhile, the governing body of Italian fashion, Camera Nazionale della Moda Italiana (CNMI) is launching an initiative titled "China We Are With You:" the organisation will create a "digital bridge" to the Chinese fashion industry during Milan Fashion Week by broadcasting shows and other highlights while live-streaming and creating special ad hoc content for the Chinese audience. "It is fundamental to give a message of unity and support to China," says CNMI's International Brand Ambassador and Vogue Italia Deputy Director Sara Maino. "It is our responsibility to support [Chinese creatives] even though they will not physically manage to come to Milan."
While international fashion weeks are facing a significant drop in attendance from Chinese buyers and press, local events are hanging in the balance.
The absence of Chinese insiders at global events (and vice versa) won't go unnoticed by brands relying on respective media and buyers to attend their shows and presentations. Following the implementation of travel restrictions by governments in the US, UK, Italy and France, editors at Chinese editions of Vogue, Elle, Harper's Bazaar, Marie Claire and InStyle have partly or fully cancelled their fashion month plans to the US and Europe, reported WWD.
“I haven’t booked anything [and am] going to wait it out another week,” says Hong Kong-based fashion stylist and consultant Justine Lee, who would previously frequent fashion month festivities in Europe. “I’m definitely worried about travelling… with the first death announced in Hong Kong, I’m afraid other countries will ban [flights from here.]”
Abbie is just one of the industry insiders who will skip Shanghai Fashion Week this season in addition to a trip to Beijing he had planned for March. “All of my plans have been cancelled,” Abbie says. “All productions have been pushed back two months now, and in my mind that means indefinitely until the crisis has calmed down.”
But just as larger companies would be wise to be empathetic to Chinese consumers while reframing the outbreak as a learning opportunity, smaller designers and event organisers shouldn’t necessarily panic as many are exploring creative solutions to the crisis.
Shanghai-based DFO Showroom has already begun adjusting its strategy for the year, says its Chief Marketing Officer Bedi Ye. Its European team plans to help Chinese buyers place their orders digitally during the coming Fall/Winter 2020 season. “Designers should adjust their delivery times and SKUs, while keeping clients up to date and pursuing sales through Tmall and WeChat,” adds Labelhood’s Liu.
“We must be extra effective in managing our production and financing,” says Ye. “The key is to adopt a risk management mindset, and overcome this obstacle calmly.”
Additional reporting by Irina Li and Queennie Yang.
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