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The Other Cost of the Coronavirus

First and foremost a human tragedy, the long-term effects of the coronavirus look set to extend well beyond Chinese consumption.
An Hermès store in Beijing, China | Source: Getty Images
  • BoF Team

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From Barcelona, where the world's largest mobile phone industry event (MWC) has been cancelled, to Hong Kong, where Art Basel has been called off, the impact of the coronavirus is being felt far beyond its Chinese epicentre. The effects are reverberating through the global economy, including the boardrooms, retail networks and supply chains of fashion companies as the likes of Burberry, Moncler and Kering brace themselves for continued disruption. The question now becomes how long this will last and how far reaching the impact will be.

It is impossible to predict the scale and seriousness of future disruption to the global economy, but history does provide a valuable perspective. A year after the SARS epidemic began in China’s Guangdong province in 2002, the virus spread to 26 countries and put a $40-50 billion dent in the global economy. Back then, China was the world’s seventh-largest economy, and its consumers held a mere 2 percent share in the global personal luxury goods market.

Fast forward to the current coronavirus outbreak: China is now the world's second-largest economy and the largest global fashion market; its consumers make up over a third of global luxury spending. The superpower is far more connected to the rest of the world than ever before and its pivotal role in global trade has experts predicting that the public health crisis could cost the global economy three or four times that of SARS — aggravating post-Brexit trade uncertainty, political tensions in the US, Europe and Hong Kong and a wider financial slowdown.


Experts [are] predicting that the public health crisis could cost the global economy three or four times that of SARS.

First and foremost a human tragedy, the outbreak has resulted in over 1,383 deaths (surpassing SARS' on February 9) and fuelled xenophobia and mistrust towards East Asians on a global scale while exposing the inefficiencies and failings of Beijing's bureaucratic system. It also hasn't peaked —on February 12 Chinese authorities reported a record spike in deaths alongside thousands more infections, while Japan recorded the third fatality outside China.

Over 64,437 cases of the coronavirus have been confirmed in more than two dozen countries including South Korea, Germany, the US, Malaysia, the UK, Australia and France. But even after the virus finally peaks and a vaccine is eventually available (the World Health Organization estimates it will take around 18 months), will economic recovery be a matter of months or years?

Supply Chains in Limbo 

Days after reports suggested that the coronavirus could send the Eurozone into a recession, President Xi Jinping on February 12 urged local authorities to continue virus-fighting efforts without losing sight of China's 2020 economic goal to double its 2010 GDP  — in other words, get back to business. Tax cuts, lower interest rates and rent deductions are meant to help companies bring over 700 million employees back to work, but brands and manufacturers relying on mainland suppliers for everything from iPhones to textiles are still holding their breath.

“The short-term impact on China’s economy is going to be huge, and the lockdown isn’t over yet,” said Sun Xin, lecturer in Chinese and East Asian Business at the London School of Economics. “Xi has put very strong political pressure on local officials to fight the virus, so the majority of them won’t want to be blamed for failing to control it.” Many factories employ workers currently stranded in other cities (who would also be quarantined for two weeks upon arrival) and protective masks remain in short supply.

The short-term impact on China's economy is going to be huge, and the lockdown isn't over yet.

The manufacturing freeze has sent global fashion companies into panic mode. “I’ve been on the phone with Asia every day and every night for the last two weeks,” said Mark Burstein, president of digital supply chain platform NGC, whose clients include VF Corporation, Canada Goose and Footlocker. “They’re all concerned about the unknown.”

The B2B Shutdown 

It has also caused a knock-on effect for Chinese brands and fashion industry insiders. Shanghai Fashion Week has been postponed, and Chinese designers like Uma Wang, Masha Ma and Shiatzy Chen have called off their fashion month showcases in Paris, which will see losses leading into the next few seasons.


Chinese buyers and press are thin on the ground at fashion weeks in the US and Europe this season and the crisis in China has turned the mood dark for some. "This issue of [Vogue China] was signed off amid extremely trying circumstances," wrote the publication's Editor-in-Chief Angelica Cheung in an Instagram post. "The soaring numbers of confirmed cases of Coronavirus and a death toll that kept rising brought us anxiety, weeks of confinement add a feeling of being cut off from the world."

For global fashion brands, samples and spring shipments are hanging in the balance. “If they’re not in production now, I don’t know how they’ll make it to stores and consumers,” Burstein said. Although major retailers are considering supply chain diversions to countries like Vietnam, getting acquainted and up to speed with new vendors could take months, and cutting corners could create problems down the road.

It’s hard to predict when Chinese manufacturers will be operating at full capacity again. But according to Sun, China’s economy is unlikely to suffer in the long run, once the virus abates. “When the supply chain goes back to normal they won’t see too much trouble,” he said. “The demand will still be there.” Few doubt that spending will return, but the question then becomes how long “the long run” actually lasts.

The Cost to Consumption 

A drop in Chinese consumption has already been felt and global companies have gotten a taste of losses to come. Burberry, Capri Holdings and Tapestry Inc have scrapped their earlier outlooks, Kering saw a sharp drop in local traffic and sales and Moncler reported an 80 percent drop in foot traffic to its mainland stores.

These brands joined the likes of Nike, Ralph Lauren PVH Corp., VF Corp., Adidas and Levi's in closing some Chinese stores (and reducing opening hours for those in operation) — most stores haven't announced re-opening dates and it's only a matter of time before lower sales hit their bottom lines.

What people don't consume right now they could consume more of afterwards.

Flight cancellations and travel bans have left global brick-and-mortar travel retail and duty-free outlets exposed. Last week, Singapore’s Transport Minister Khaw Boon Wan said that where Chinese tourists account for a third of retail sales in Changi airport, “the one-third has evaporated.”

But Sun reckons that following a slump spanning the first and second quarters of the year, the virus' effect on luxury will also be short-lived. "For luxury goods, I imagine that after the virus, demand will pick up and rebound," he said. "What people don't consume right now they could consume more of afterwards." However, other experts believe that more affordable luxury segments will have a harder time bouncing back.


A Cultural Reckoning 

More broadly, the crisis signals dangers of becoming over-reliant on the Chinese market and how companies should urgently consider spreading their risk by expanding to other geographies. Putting humanitarian and economic considerations to one side, other effects of the outbreak are proving to be much more insidious.

Deep-seated xenophobia has reared its ugly head.

The ways in which fashion and the wider world frame China, its place on the world stage and its people through narratives ranging from subtly dehumanising remarks to overtly racist ones are likely to persist, even as supply chains recover and luxury appetites rebound. From French newspaper Le Courrier Picard's "Yellow Alert" headline to a now-deleted "Corona Girls" user comment on a fashion photographer's Instagram photo captioned "China girls," deep-seated xenophobia has reared its ugly head. How we, as an industry that prides itself on diversity and inclusivity, respond to misinformation and bigotry matters.

Companies are at a crossroads. Rethinking a macro approach to one market is just the first step that could help businesses become as culturally global as their earnings reports. As authorities and medical personnel continue to fight the coronavirus in cities from Beijing to London, acting with empathy towards those affected is crucial. But moving forward, a deeper reckoning is due.



VRSNL sells Bottega Veneta's pouch bag | Source: VRSNL website VRSNL sells Bottega Veneta's pouch bag | Source: VRSNL website

VRSNL sells Bottega Veneta's pouch bag | Source: VRSNL website

Amazon has a secret luxury fashion site. VRSNL, operated by Amazon's Zappos subsidiary, has been quietly selling coveted items like Bottega Veneta's "Pouch" bag for months, BoF has learned. The site, VRSNL, went live in September of 2019 along with an app, offering a selection of clothing, shoes and accessories from luxury brands not typically sold on Amazon or Shopbop. More brands will join the site in the coming weeks as the site heads toward a more public launch. 

Kering halts spending in China on coronavirus fears. The luxury conglomerate remained upbeat about longer-term prospects as it beat fourth-quarter sales forecasts. Group revenue rose 13.8 percent to €4.36 billion ($4.76 billion) in October to December, helped by demand in China prior to the coronavirus outbreak. Gucci's revenue was up 10.5 percent versus a consensus forecast of around 9.5 percent. Kering now relies on the luxury brand for 83 percent of its recurring operating income.

Italy's fashion industry shows promise despite coronavirus outbreak. The country's luxury goods sector is expected to see revenue rise to $87 billion in 2021. The epidemic in China will weigh heavily on Italy's fashion industry in the first quarter and probably through the first half of 2020, but will not dent the sustained growth expected for the next two years, think-tank Prometeia said. Canada Goose, Moncler and Ralph Lauren have also warned of drops in sales in 2020 due to the spread of the coronavirus.

Under Armour forecasts surprise fall in 2020 sales. The sportswear brand said the coronavirus outbreak in China would have a $50 million impact on first-quarter sales. The company has also been losing market share to rival sportswear makers such as Nike and Adidas in a saturated North America market, which accounts for about 70 percent of Under Armour's revenue. It has consequently been forced to offer big discounts at retail chains and department stores, squeezing profits.

Report: Dolce & Gabbana founders have received offers for group. The designers have no plans to sell, according to Italian newspaper reports. The unlisted group is one of the ten largest fashion groups in Italy by revenues and had sales of €1.38 billion ($1.49 billion) in the year ended March 2019.

Report: MyTheresa to list on New York Stock Exchange. The luxury e-commerce platform's owner Neiman Marcus is working with Morgan Stanley on the planned listing, which could take place as early as April, according to people familiar with the matter. MyTheresa peers such as Zalando, Global Fashion and Asos are listed in Europe, but the firm is opting for a listing in New York, following fellow online fashion retailers Farfetch and The RealReal.

Golden Goose acquired by Permira. Current owner Carlyle aimed for bids valuing the Italian sneaker brand at no less than €1.2 billion, per sources. Golden Goose's revenue rose from less than €50 million in 2014 to almost €200 million in 2018. Permira was seen as a strong contender for the asset given its expertise with luxury brands, including Valentino and Hugo Boss, which used to be part of its investment portfolio.

The EU opens trade doors for Vietnam and shuts out Cambodia. The deal rewards Hanoi for its progress on labour guarantees with a 99 percent reduction in tariffs, while sanctioning Phnom Penh for human rights abuses. The moves mark the EU's increased insistence that trading partnerships go beyond market liberalisation and are coupled with commitments to environmental, labour and social standards.


Harry's Razors | Source: Instagram @Harrys Harry's Razors | Source: Instagram @Harrys

Harry's Razors | Source: Instagram @Harrys

Edgewell drops Harry's acquisition after Federal Trade Commission opposition. The FTC earlier this month filed a lawsuit to block the acquisition, arguing it would harm competition in the US shaving industry. Harry's, which was acquired by Unilever at reportedly five times its annual revenue in 2016, had challenged the dominance of Procter & Gamble Co's Gillette razors with their online subscription models. Edgewell said Harry's intended to pursue litigation against it.

Brandless no longer a brand. The e-comm startup that sold "cruelty-free" beauty and personal care in addition to home and baby goods is shuttering three years after its launch and a $240 million investment from SoftBank's Vision Fund. The company cited a "fiercely competitive" retail market and will reportedly lay off 70 employees.


Ajay Kavan | Source: Courtesy Ajay Kavan | Source: Courtesy

Ajay Kavan | Source: Courtesy

MatchesFashion names new CEO. Ajay Kavan joins the luxury e-tailer from Amazon, replacing Ulric Jerome, who left the company in late 2019. During his time at the e-commerce giant, Kavan held a leading role in global initiatives and launched Amazon Fresh in the EU and Japan. Kavan assumes the top job amid a challenging time in the luxury e-commerce space, with online multi-brand retailers across the board struggling to expand their businesses profitably. 

Hudson's Bay appoints president to lead Saks off-price stores. The Saks Fifth Avenue owner's move comes amid attempts to bolster its outlet stores. The company's off-price business, Off 5th, will be led by Paige Thomas, who most recently served as executive vice president and general merchandise manager of Nordstrom's men's and kid's departments.

LVMH-owned Moynat taps Sephora SVP for CEO. Leather goods brand Moynat has named Lisa Attia chief executive. Attia joins the company effective March 1 from LVMH stablemate Sephora, where she was senior vice president, merchandising and image for Europe and the Middle East. She replaces Guillaume Davin, who held the role since 2011, and will report to Sidney Toledano, chairman and chief executive of LVMH Fashion Group and chairman of Moynat.


Alibaba sales beat estimates. The e-commerce giant's record-breaking annual Singles' Day shopping blitz drove strong quarterly results. Sales in the company's core commerce business jumped 38 percent to 141.48 billion yuan ($20.26 billion) in the third quarter ended December 31. Revenue rose about 38 percent to 161.46 billion yuan, beating estimates of 159.28 billion yuan.

Shopify forecasts full-year revenue above estimates. For 2020, the e-commerce company predicts revenue in a range of $2.13 billion to $2.16 billion. Shopify's results were helped by higher holiday sales, reporting worldwide sales of over $2.9 billion between Black Friday and Cyber Monday, up about 61 percent from the same period in 2018. The company also posted net income of $771,000 for the quarter ended December 31.

Esquire undergoes a redesign. Michael Sebastian, the American men's magazine's editor-in-chief, is grappling with how to honour the brand's heritage while appealing to a modern audience. Esquire's new strategy begins with the redesign which puts back into focus the brand's literary roots and opts for issues based around a theme rather than seasonality. 

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