Is The "Suspended" Supply Chain And Consumer Market Losing Geometry To The International Fashion Group?

How long will the crisis of the "new crown pneumonia" last? How far can the impact spread? How can we prepare for the recovery after the crisis? From the positive response to rigorous prediction, the fashion industry's awareness of the epidemic began to become clearer, and international brands began to act.

Although the outbreak of new crown pneumonia has only been a few weeks since its outbreak, it has already had a huge impact on the global fashion industry. As an important sales market and production base, China's situation will make the global fashion industry suffer from declining revenue and supply chain problems for at least a few quarters. Many large enterprises say that at least half or more Chinese stores are closed, and there are not many people in the shops that are still operating.

Although most people choose not to publicly assess their financial impact, or optimism that demand will rise sharply after the end of the epidemic to make up for the current losses, but in recent days, it has been bold speculation that the impact of international brands on the financial and revenue will be "significant".

　　 What is China's influence on fashion and luxury brand groups?

Data sources: annual reports and related public statements (* from Cowen equity research estimates)

Capri Holdings, the parent company of Michael Kors, Versace and Jimmy Choo, is expected to have an impact of $one hundred million on the fourth quarter sales. 150 of Capri Holdings's 250 stores in the mainland are closed for business.

About two months of serious impact on the epidemic, canadian goose holding company lowered its annual revenue forecast to 13.8%. The company's chief executive, Dani Reiss, said: "the sudden change in consumer behavior is temporary and has nothing to do with the potential demand of our brand. We believe that when all this is over, we will restore strong growth trajectory in Greater China."

Data sources: annual reports and related public statements (* from Cowen equity research estimates)

The Tapestry group, which owns Coach, Kate Spade and Stuart Weitzman, points out that its sales revenue may lose 200 million to 250 million dollars in the second half of the year, and earnings per share will drop by 0.35 to 0.45 dollars, with a loss of 97 million to 124 million US dollars. Joanne Crevoiserat, chief financial officer of Tapestry, made an analysis in the conference call, which may be the most explicit public prediction until now for the fashion enterprises affected by coronavirus.

She said, "the crisis situation is still developing. At the moment, it is very dynamic. We can make a statement based on the reality we see now. These assumptions are based on the current situation - we see that all the brands in mainland China now sell to less than 10%, so the outlook for the region will be reduced by 70%-80%. "

"Everyone is very difficult now."

In February 6th, Tapestry has just released its second quarter results for the 2020 fiscal year ending December 28, 2019. According to the financial report, the Tapestry group's net sales amounted to US $1 billion 820 million during the period, up by 1.1% over the same period last year. The Group expects sales in the second half of fiscal year to reach the expected value. It is estimated that the total revenue in the 2020 fiscal year will be about 5 billion 900 million US dollars, while the annual revenue forecast will be lowered. The 2020 fiscal year is expected to show a low digit growth rate. The chief financial officer said, "everyone is very difficult now."

Panos Kouvelis, Professor of operations and production management at University of Washington's Olin business school, said the new coronavirus pneumonia could have caused more than $about 300000000000 impact on the global supply chain and lasted for two years.

He said, "the new coronavirus is a completely unknown field. This is a black swan event. The probability of this event is very small, but the consequences are very serious. Due to the increasing importance of China in the global economy, coupled with our high dependence on the market and the complexity of manufacturing goods and the manufacturing center, China is the second. Experience in the SARS era can not be used to predict the potential impact of the new coronavirus. "

According to the US Department of Commerce, China is still the largest producer of clothing, accounting for 29.7% of all clothing imports in the United States in 2019 and valued at $24 billion 900 million.

Carlo Capasa, head of CNMI, Italy Fashion Fashion Association, said the epidemic will lead to a 1.8% decline in Italy's fashion industry in the first half of 2020, mainly in the first quarter.

Although in the past few years, many companies have begun to shift the supply chain from China to other countries, hoping to avoid the substantial increase tariffs in the US, but in fact, most people can not completely avoid the impact.

Vans, The North Face and Timberland owners VF Corp. group, 12% of its sales came from the Asia Pacific region (6% from mainland China), but 16% of raw materials came from China. The supply chain can be changed in many ways, but if the factory can not get the raw materials and the ports are closed, how will the finished products be produced?

Even though fashion production is relatively not affected, other industries and their supply chains may be entangled enough to undermine global economic expansion. As a result, the outbreak may widen and lead to a more complicated global situation. With isolation, flight cancellation and factory closures, the situation in some areas is becoming more desperate.

Although life takes a long time to get back to normal, the leaders of the fashion industry believe that consumers will eventually return.

Under Armour Inc. warned that revenues in the first quarter will be hit by losses of 50 million to 60 million dollars.

"Although we can not predict how long this situation will last, we still have confidence in our strategy," said Marco Gobbetti, chief executive of Burberry Group. At the same time, we are taking mitigation measures and preventive measures to ensure the safety and well-being of our employees. 24 of Burberry's 64 stores in mainland China have been closed.

Data sources: annual reports and related public statements (* from Cowen equity research estimates)

Although Burberry did not issue sales and profit warnings on Friday, a recent report by Morgan Stanley said that the impact of the new crown virus could "reduce" the Burberry 2019-20 fiscal year's rating by about 5%. Meanwhile, it is expected that the epidemic will lead to a 50% to 60% decrease in Burberry sales to Chinese consumers in the next two months (Burberry fiscal year will be 31 in March). At the end of the day, however, it is believed that Burberry will partially recover its sales in the 2020-21 fiscal year.

Data sources: annual reports and related public statements (* from Cowen equity research estimates)

When discussing the supply chain level, according to the global port tracking monthly report jointly released by the US retail Confederation and consulting firm Hackett Associates, it is estimated that the US port will have a 12.9% growth slowdown this month, and the new coronavirus is one of the reasons. The port is expected to deliver about 1 million 410 thousand TEUs this month, far below the estimated 1 million 540 thousand TEUs before the outbreak.

Wells Fargo said in a report that the next few weeks will be critical. If the supply chain does not start to recover soon, retailers in the United States will begin to run out of stock as early as mid April. The title of the report is evidence of concern: "the US retail industry: it is time to start worrying about the risk of supply chain caused by the new coronavirus."

"Many factories around the world rely on China's components, whether raw materials or other inputs, which may have an impact."

Jonathan Gold, vice president of supply chain and customs policy at NRF, said that the wider impact may be difficult to quantify, but is expected to affect all aspects of the transport process. "It is not only factories that are affected, but also infrastructure such as ports, ships, truck transportation, and all ancillary services related to cargo transport."

"Although all sectors of the industry are making every effort to adjust, the impact of the supply chain is too fast, and many companies find that they are implicated in each other," Timothy Boyle, chief executive of Columbia Sportswear, recently said in an interview with WWD. "This outbreak may affect the transportation of the brand new product."