Coronavirus impacts top brands’ sales and supply chains

Major global corporates are starting to feel the impact of the coronavirus outbreak in China as supplies and components exported from the country dry up, global brand retail stores in China remain closed and tourism in the region is rocked. Supply chain issues and business disruption are the pressing risks from the outbreak. This week, European and US companies with substantial exposure to the virus’s impact started to report effects on their operations. Major brands Adidas, Puma, Apple and Jaguar Land Rover all disclosed concerns about the impact of coronavirus on their business. For German sports brands Puma and Adidas, the coronavirus outbreak in China and other parts of Asia is expected to take its toll on sales in the region, where the firms generate a third of their sales. Stores in China have been closed, while the number of Chinese tourists has reduced, affecting sales in other Asian markets. At the same time, the region is a major producer of clothes for global brands and factories have been closed, or run with skeleton staff to minimise contagion risks. Adidas said sales in mainland China are down 85% on last year in the period since 25 January, and shopping levels are lower in Japan and South Korea. But the major impact is contained to China, where the company has 12,000 stores. Puma said sales and profits will be affected in the first quarter of 2020, with more than half of its stores in China closed, although it said it still hoped to hit full-year targets. UK car manufacturer Jaguar Land Rover said stocks of parts manufactured in China are starting to run low at its UK car plants, and after the next two weeks some will be missing. “We have flown parts in suitcases from China to the UK,” said CEO Ralf Speth. Apple told investors this week that the impact of the outbreak on its business is worse than originally thought and revenues will be “temporarily affected”. With integral manufacturing operations based in China, Apple has experienced disruption in its supply chain, and in particular iPhone supply shortages. The world’s top brand by value, Apple said work is starting to resume but is slower than anticipated, while stores are closed and footfall is lower than normal. Loss of sales has also shaken Irish food company Kerry Group, which owns Wall’s and Richmond sausages and has five factories in China affected by staff shortages and slower production levels. It said this week revenues from China are estimated to fall 30% in the first quarter of 2020. Last week, UK construction firm JCB said it will reduce production at UK factories and impose a shorter working week, after incurring supply shortages in components manufactured by Chinese suppliers. French fashion house Chanel has put its fashion show, scheduled to take place in Beijing this May, on ice. Conferences have also been thrown into jeopardy, with many Asian delegates avoiding travel and public gatherings. Mobile phone body GSMA cancelled its Mobile World Congress due to start on 24 February, despite its venue being in Barcelona. With an expected 100,000 delegates booked from 200 countries, GSMA said the cancellation was “unavoidable”. Sporting events, including the Shanghai Grand Prix in April, have been cancelled and insurers have started to take action. New event cancellation policies will exclude cover for coronavirus, according to reports. UK regulator the Financial Reporting Council (FRC) advised companies with operations in China or close trading associations with the country to consider disclosures related to the impact of coronavirus on their business. Risks include operations and manufacturing in China, with consequential staff shortages and production delays. The FRC also warned that risks extend to companies with trading links or global supply chains dependent on China’s manufacturing industry. The FRC added that these risks could widen to other countries if the virus spreads substantially outside China’s borders. Uncertainty looms large over the full impact on corporates in the midst of the outbreak. Investment firm EXANTE said this week that supply chain disruption and stock shortages driven by the coronavirus outbreak are only going to get worse. “The supply chain is under pressure. We are keeping a close eye on this matter and don’t see any imminent improvement,” said senior analyst Vitaly Kin. Much of the uncertainty rests on the spread of the disease, the number of cases and the success of containment measures. This week, cat modelling firm AIR said official figures on the number of coronavirus cases are likely to be conservative, with mild or asymptomatic cases not included. The World Health Organization said there were 73,424 cases as of 18 February, but AIR said the number of moderate cases is at least 70,000 and potentially rising to as high as 165,000, with an additional 35,000 to 85,000 severe cases and between 3,000 and 7,500 deaths.

Coronavirus impacts top brands’ sales and supply chains

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