For apparel brands and retailers with supply chains linked to China, the implications of the novel coronavirus (Covid-19) outbreak continue to reverberate, writes GlobalData.
Factories in China have now restarted production after three weeks of shutdowns, but many are operating at reduced capacity with quarantined workers, travel restrictions and material holdups causing further disruption and ongoing uncertainty.
China’s role as the leading supplier of yarns, fabrics, trims, packaging and labels also means supply chain delays for garment factories in other countries who are unable to source the textiles and other inputs that they need.
Leonie Barrie, Apparel Analyst at GlobalData, says: “Aside from the human impact, the Covid-19 epidemic is having major negative repercussions on the global fashion business. If factories can’t operate they won’t be able to ship products. 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.
“Also of concern is the prospect of even more severe disruption if factories don’t have the cash flow to survive if they are hit by penalties for delayed delivery of goods, or when it becomes a matter of cancelled production rather than delayed production.”
Fashion brands and retailers will undoubtedly be weighing up options to diversify their supply chains by switching to alternative sourcing destinations outside of China – such as Latin America, South Asia and Southeast Asia. But aside from the challenge of obtaining raw material inputs from other sources, no other countries are equipped to handle the sheer volume of capacity that would be required to move production out of China.
Barrie adds: “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.”