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Coronavirus is throwing fashion’s supply chain into disarray

Corona fashion fashion supply chain

Coronavirus is throwing fashion’s supply chain into disarray

Coronavirus is throwing fashion’s supply chain into disarray

China’s outbreak of Coronavirus has fashion companies scrambling. The store closures and travel restrictions it’s causing are already putting a dent in sales inside and outside the country. Just as disruptive may be the impact the virus is having behind the scenes in global supply chains.

China is the world’s largest garment producer, and fashion companies around the world rely on it to make a substantial share of their clothes. But even companies doing their cutting and sewing elsewhere often depend on China for fabrics and trims such as the cords, appliques, and more needed to finish products before they’re ready to sell. Factories around China have closed due to the virus, however, creating production delays likely to have effects even after the epidemic has subsided and stores there welcome shoppers again.

Right now, it’s anyone’s guess when factories will fully reopen. “The answer is no one knows,” Edward Hertzman, founder and president of fashion trade publication Sourcing Journal, said on a call about coronavirus’s supply-chain impact hosted by investment bank Cowen and Co. yesterday. Sources he spoke with in countries such as Vietnam and Pakistan were suffering too, he said. Even though fashion companies might shift more sewing from China to those locations, they’re often still reliant on China for their materials.

China is the world’s largest textile exporter by a wide margin, accounting for about 38% of the global total in 2018 according to World Bank data. Hertzman noted footwear and athletic companies, which use a lot of technical fabrics such as high-performance stretch materials, will have the hardest time finding alternatives.

Under Armour addressed the situation during an earnings call with investors and analysts yesterday. “From a supply chain point of view, there could be challenges that develop from the material, factory, and logistics perspective,” CEO Patrik Frisk said. He added problems sourcing fabrics, trims, and packaging “could prove to be difficult in the second half of the year.” Meanwhile, the factories it relies on for manufacturing don’t know when they’ll reopen, leaving Under Armour to figure out how it will fulfill orders and which products to prioritize making.

The fashion and footwear industries have been looking to factories outside China to assemble more of their goods in recent years, but China’s extensive network of fashion manufacturing infrastructure has left many still leaning on the country. PVH Corp., the giant behind Calvin Klein and Tommy Hilfiger, said in a statement it makes roughly 20% of its products in China. Wells Fargo Securities estimated similar numbers at other companies in a recent research note to clients, and far higher for shoe makers Steve Madden and Skechers.

It’s only a matter of time before the factory shutdowns become noticeable in stores. “The next few weeks should be critical, as further delays in the restart of production could begin to result in out-of-stocks at US shelves as early as mid-April,” Wells Fargo analyst Edward Kelly wrote in the note.

One factor that could help is a number of companies have already produced their clothes for the spring and summer. Workers often go home on vacations around Chinese New Year, which was Jan. 25 this year—just ahead of the outbreak—so companies plan for a production slowdown around that time. But not all companies are so punctual.

Wells Fargo also noted many finished products are currently stuck in China because little is being shipped out by water or air. It’s an issue that will have its own ripple effects. ”Once labor does return, high ocean demand and limited air availability create other challenges,” it said. “Our logistics contacts compared the issue to a port strike; every day of inactivity from here could delay an order by up to a week.”

What’s certain is that fashion isn’t anywhere near done sorting through the consequences of the outbreak.

Via: https://qz.com/

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