More than 1,500 people have died and more than 50,000 have been infected in China alone as of today. The virus is now spreading abroad and putting a serious dent in the world’s economic activity. The virus has spared no part of the supply chain for footwear, as China accounts for a large part of the industry’s global production and is itself one of the industry’s major markets, especially for dress and athletic shoes.
Unfortunately, the World Health Organization (WHO) reported on Feb. 12 that there has been a hike in the number of coronavirus cases since the introduction of a new categorization for the ailment in the Chinese province of Hubei. The WHO reported 245 deaths on Wednesday and 15,152 new cases in China overall as a result of the virus, which is now being referred to as Covid-19.
The epidemic is said to have reached its peak, but it is certain to affect the growth of the Chinese and world economy for a few months before a possible rebound later in the year. Stock markets have gone up and down in the past few days based on the reported seriousness of the illness. The Italian fashion industry predicts that it will suffer a decline of 1.8 percent during the first half of 2020.
Even outside China, there is considerable concern over the impact of the disease in regions that are ill-equipped to monitor or contain it. The industry has already started to move some sourcing from China to Vietnam and other low-cost Asian countries, especially after the U.S. raised its duties on shoes and other products imported from China. On Thursday, however, news broke that Vietnam had isolated more than 10,000 people in six villages of the Son Loi area, about 40 kilometers from the capital city of Hanoi, following the discovery of six cases of coronavirus. This is the first mass quarantine outside China.
Trade shows are affected
The coronavirus has led to the cancellation or postponement of several events around the world, out of concern that some exhibitors or visitors might be infected as they come into contact with each other, as many of them come from China or deal with China. The WHO recommends a distance of one meter from a person who is sneezing or coughing, unless he or she is wearing a mask. It also suggests that people wash their hands often in potentially contaminated areas, especially before touch the mouth, the nose or the eyes.
As very few Chinese companies show at Micam, the world’s leading shoe fair opening in Milan on Sunday, its organizers have decided not to cancel after consulting with government authorities and health institutions. It’s possible, however, that some of the 1,205 exhibitors that have signed up will not show up at all. Astormueller, the German company that markets the Bugatti and Daniel Hechter shoe collections, announced on Thursday its decision to stay out of the fair as one of its collaborators had been found to have been infected.
Speaking to the Italian daily Il Sole 24 Ore, the president of the Italian shoe industry association that owns the show, Siro Badon, said earlier this week that he was expecting attendance to decline by 5 to 7 percent simply because of the inevitable decline in Chinese buyers.
The organizers of the latest Footwear Sourcing at Magic, held on Feb. 4-7 in Las Vegas, have not yet released official tallies, but early reports suggest that this latest edition was a muted affair, with travel restrictions in China lowering attendance.
The Milan Fashion Week, scheduled for Feb. 18-24, will have a new slogan: “China, we are with you.” According to the president of the Camera Nazionale della Moda Italiana (CNMI), Carlo Capasa, almost 80 percent of the thousand visitors that typically come for the event from China will be absent this year, and the Chinese who will be present were in Europe before the coronavirus outbreak occurred. Certain Chinese designers in Italy and Europe who regularly take part in the show – among them Angel Chen and Shuting Qiu – will be absent this time because of delayed shipments from China.
Meanwhile, two important raw materials shows in the U.S., the Feb. 5-6 NE Materials Show in Boston and the Feb. 12-13 NW Materials Show in Portland, have been cancelled because they attract a lot of visitors from China.
Following a governmental decree, all kinds of trade shows scheduled to happen in China during the month of February have been cancelled or postponed. The Feb. 12-15 Ispo Beijing sporting goods show was cancelled during the Ispo Munich show at the end of January.
Even later shows have been postponed to a later date. The big APLF show in Hong Kong, which was due to run from March 31 to April 2 is now set to take place on June 1-3. No new date has yet been announced for Chic Shanghai, but its organizers have said that it will not happen as planned on March 11-13.
The supply chain is disrupted
Fortunately in some ways, the coronavirus outbreak coincided in part with the Chinese Lunar Year, the long holiday where local factories shut down and their workers return to their villages. Because of the epidemic, the Chinese government decided to extend it for a few days while imposing travel restrictions to help minimize contamination.
After unexpected delays that have affected the global supply chain, the production machinery has gradually started to get back in motion, but the travel restrictions and the fear of infection have caused serious concerns that many of the workers will never go back to their factories, especially those in Wuhan, where many producers of shoes, clothing and the related raw materials are based.
The exodus of a large part of the production to Vietnam and other countries has already occurred for big shoe manufacturers like Yue Yuen, which has just reported a 22 percent drop in the revenues of its manufacturing segment for the month of January as compared to a year ago. Many brands have relocated their production to Vietnam and other low-cost countries, but they are all concerned about the potential shortage of raw materials, which still come from China.
Caleres, the parent company of the American Famous Footwear chain and the owner of many shoe brands, says it has reduced its manufacturing in China by 85 percent over the past five years, but 60 percent of the footwear it imports into the U.S. is still made there, making it highly vulnerable to the current state of affairs. “The near-term impact,” it says, “will ultimately depend on the duration of the delays in Chinese factory openings and how quickly the supply chain can return to normal operations.”
While the internet allows them now to correspond with subcontractors in other ways, fewer product managers are travelling to China these days because of the disease, as they are afraid of being contaminated and many airlines have cancelled their flights to and from the country. Besides the extended closure and slow restart of the production process, the whole logistical apparatus has been disrupted. It seems likely that many brands will have to resort to costly air freight to make up for the delay in getting products out of China once the airline traffic is resumed.
Supply chains are particularly vulnerable for players that have adopted just-in-time production models. As quarantines, Chinese New Year and other events have curtailed China’s production, manufacturers and retailers that have eliminated buffers in inventory and procurement are finding themselves at a loss.
The epidemic has also affected the movement of goods inside China. Alibaba, the biggest player in Chinese e-commerce, mentioned major delays in fulfilling orders in recent weeks, but noted an improvement in the logistics network since last Monday while more and more people in large cities are going back to work.