Supply-chain worries grow as coronavirus crisis continues

Some global retailers have begun reopening stores in Mainland China as the coronavirus crisis continues – but concerns remain over supply chain challenges.

With millions of Chinese self-quarantining, affecting factories and logistics, fears are growing that supplies of stock outside the mainland may soon run short as factories struggle to keep up with demand and amidst shipping delays.

Leonie Barrie, an apparel analyst at GlobalData, says apparel brands and retailers with supply chains linked to China may suffer in coming months. While factories on the mainland have now restarted after a three-week shutdown, many are operating at reduced capacity with quarantined workers, travel restrictions and raw material deliveries delayed, causing further disruption and ongoing uncertainty.

“Aside from the human impact, the coronavirus epidemic is having major negative repercussions on the global fashion business. If factories can’t operate they won’t be able to ship products,” says Barrie. “And if they’re not getting the raw materials they need, there will be missed deliveries.

“As well as delays of up to two or three months on the delivery of summer fashion collections, there is also the potential for a knock-on later in the year on autumn, back-to-school and even holiday goods.”

The impact may not stop there. Barrie says even more severe disruption may occur if factories already suffer cashflow challenges are then hit by penalties for late deliveries, or when orders are cancelled rather than delayed.

“Because China is the workhorse of the manufacturing world, this is a situation where everyone is negatively impacted. All companies can do is closely monitor the situation and look at risk mitigation measures wherever possible.”

China Dongxiang’s brave face

One such manufacturer is Hong Kong-listed China Dongxiang, whose brands include the Kappa licence for Greater China. The majority of products for online sale and the kids’ apparel stored in the warehouses located in Wuhan have been locked down, due to a number of factors, such as extension of the Lunar New Year holiday, logistic impediments and delays in customs clearances.

For now, the company has been able to offset significant impact from the lockdown by reallocating stock from offline channels to online channels.

“As the recovery of road transportation will facilitate the stock replenishment for online sales and kids’ apparel, severe stock shortage will not be expected,” the company said in a statement.

China Dongxiang says 30 per cent of its offline stores (excluding Kappa kids’) had reopened as of last Wednesday, while the remaining stores will resume operations in stages.

“The group will follow the requirements on infection control and prevention by the respective local governments to the largest extent, and resume full operations as soon as possible without compromising on the safety of its employees and consumers. In spite of greater pressure on offline retail stores in the short run, the group will put in extra effort in developing online business by integrating online and offline resources.”

Chairman and executive director Chen Yihong was upbeat about the business being able to manage the impact of the virus.

“In the long run, the group has faith in the economy as well as the sports-apparel industry in China. Our expectation on the steady growth in the group’s performance remains unchanged. We are confident in overcoming the short-term hurdles, achieving healthy and steady growth in the business of the group.”

Lululemon partially reopens network

Canadian exercise and leisurewear label Lululemon said the majority of its 38 stores in Mainland China have been closed since February 3, however some have since resumed operating on a reduced schedule and the online business continued throughout.

“We’re inspired by the resilience and commitment of our team in China as we navigate the emerging impacts of the coronavirus,” said CEO Calvin McDonald. “The safety of our people is our highest priority, and we are adjusting store operations based upon the recommendations of local authorities.

“Despite the current disruption to our growing business in China, we remain confident in the long-term opportunities this market holds for Lululemon.”

JD develops vending machines

Meanwhile, online retailer JD has provided five AI vending machines to a residential compound in Beijing’s Tongzhou district, offering residents 24/7 access to fresh fruit, vegetables and daily essentials sourced from a nearby 7Fresh supermarket.

Developed by JD-X, JD’s logistics innovation lab, customers can select products displayed on the transparent door of the machine and use mobile phones to scan a QR code. Once scanned, the door will open and customers can select the produce they want and after closing the door be charged for what they bought.

The key to the vending machines is that they require no human interaction – a concern for many mainlanders as they try to avoid contracting the coronavirus.

JD says employees of the 7Fresh store regularly clean and disinfect the machine to further reduce the chances of virus transmission.

The company now plans to roll out the machines in Beijing, Chongqing, Shanghai and other cities.

Supply-chain worries grow as coronavirus crisis continues

This article was originally published by  Robert Stockdill, insideretail.asia.