Just as China’s factories restart production and rev up the supply chain, some retailers now say the real risk lies in store closures that have temporarily put thousands of locations out of commission.
And fashion giants based across the pond have detailed unsettling new trends that portend a malaise that could infect the entire sector as the pandemic unfolds.
On Monday, Primark parent Associated British Foods plc (ABF) said it expects higher margins at the fast-chain chain and at grocery to power the firm to first-half operating profits ahead of expectations.
But as production ramps back up to typical output capacities in virus-hit China, ABF is now fretting over a new set of risks.
“The situation in China has improved, with most factories supplying Primark having re-opened,” the company said. “However, with developments over the last week in Italy and, more materially, over the weekend in France, Spain and Austria, stores accounting for 20 percent of Primark’s selling space are now closed until the respective governments permit them to re-open.”
Stores in those four nations—all hit by significant restrictions if not outright lockdowns in recent days—generate 30 percent of Primark’s sales, said ABF, which expected a 190 million-pound ($230.3 million) contribution from those locations over the next four weeks before the virus rewrote reality.
Primark’s business in the United Kingdom, which contributes to 41 percent of sales, declined over the past two weeks on a like-for-like basis—a slide that has only accelerated over the past few days.
“We are managing the business appropriately but do not expect to significantly mitigate the effect of the contribution lost from these sales,” ABF said.
While ABF said it has not seen a material COVID-19 impact on the food side of the business, the shock to Primark’s sales means it is “too early to provide earnings guidance for the remainder of the current financial year,” the company said.
ABF pointed to a strong balance sheet, substantial cash liquidity of about 800 million pounds (approximately $934 million) of net cash at the half year, along with access to “significant undrawn bank facilities.” It expects to post first-half results on April 21.
Sweden’s H&M Group isn’t immune to the pandemic pain.
Net sales for the first quarter ended Feb. 29 rose 8 percent to 54.95 billion Swedish Krona ($5.57 billion) and up 5 percent in local currencies, the fast-fashion titan reported Monday. But the numbers were already started to take a tumble when China sales that had climbed 27 percent (in local currency) from Dec. 1-Jan. 23 erased those gains by plummeting 24 percent as the coronavirus seized the nation right as Chinese New Year celebrations began at the tail end of the month.
As China’s outbreak crescendoed in February, 334 out of the retailer’s 518 mainland stores were closed, H&M said. Excluding China, Hong Kong, Singapore, Macau, Japan and Taiwan, H&M Group sales rose 7 percent in local currencies.
This month, COVID-19’s effects are already starting to be seen across Europe, even as sales in China are stabilizing. Many of H&M’s European stores are keeping out customers and staff, though e-commerce there remains open for business.
“The situation in every country is changing rapidly,” H&M said. “Following decisions by the authorities, all of the group’s stores are temporarily closed in Italy since the past few days and during the weekend all stores were also closed temporarily in Poland, Spain, the Czech Republic, Bulgaria, Belgium, France and partly in Greece.” All of its stores in Austria, Luxembourg, Bosnia-Herzegovina, Slovenia and Kazakhstan were closed starting from this past Monday.
The H&M Group said it is now considering how to mitigate the pandemic’s negative impact, carefully evaluating corporate plans from a cost and risk perspective. The firm plans to share an update on April 3 when it post first-quarter earnings.
On Tuesday, H&M decided to temporarily shutter all 460 stores in Germany starting on March 18. All 590 doors in the U.S., 96 stores in Canada and stores in Portugal and Belgium were closed starting Tuesday. H&M also said that 500 of its 516 stores in China have now re-opened.