At least 41 people are dead in China, over 900 have been infected, and 12 cities are now in lockdown mode as authorities try to stop the coronavirus outbreak from spreading within China and around the globe.
The deadly virus is believed to have started in the central city of Wuhan, although it has spread to other cities such as Beijing and Shanghai and even to other countries. Cases have been reported in Japan, Taiwan, Thailand, Singapore, South Korea, Vietnam and the United States. The World Health Organization on Thursday called the virus an “emergency in China,” but deemed the situation as too early to call it a “global health emergency” even as it acknowledged that it “may yet become one.”
Some medical experts believe the outbreak could last for months.
Earlier in the week, stocks of many European luxury brands saw declines over worries that the outbreak would keep people away from stores. Many are concerned that the virus outbreak is occurring during a peak retail season when consumers travel and buy gifts to celebrate the week-long Lunar New Year holiday that begins on Jan. 25.
The holiday is also the most important one in the traditional Chinese calendar.
For many luxury brands, China represents a major component of their international sales. For example, Moncler received over 40 percent of its sales from Asia in 2018, though results for 2019 are not yet available. Chinese shoppers in general represent about one-third of all global luxury sales, with middle-class consumers are estimated to represent about 65 percent of all Chinese households by 2027, a report conducted by Bain & Co. for the World Economic Forum in 2019 said.
On Wednesday, Burberry disclosed its third-quarter sales figures. Given that Burberry has been relying on strong demand from the Mainland to offset lower sales from the social unrest in Hong Kong, one concern expressed during the company’s investor call was the possible spread of the virus to other parts of China. “We are keeping the situation under review at this point and monitoring it closely,” Julie Brown, chief operating and financial officer, said.
Burberry has been laser-focused on the Chinese consumer. It launched a Lunar New Year campaign at the end of December and is taking its Autumn-Winter 2020 runway show to Shanghai in April. The company has even raised Fiscal Year 2020 guidance, with total revenue expected to grow by a low-single-digit percentage at constant exchange. With that kind of guidance, investors will be keeping close tabs on whether the outbreak in China can be contained as they look for signs on whether Burberry can meet its updated outlook projection.
China has imposed travel restrictions in Wuhan, where the outbreak first occurred. Other neighboring cities quickly followed with transportation shutdowns of their own. The virus is respiratory in nature and believed capable of spreading from human to human. Experts are concerned the virus could carry a quick transmission rate as hundreds of millions of Chinese citizens travel at home and abroad this weekend for the week-long celebration.
Beijing canceled two Lunar New Year fairs and even closed the Forbidden City, a popular and famous tourist attraction. Also shutting down will be other key tourists sites across the country, such as Shanghai Disney.
The U.S. State Department first issued a warning to travelers to increase their caution in China. The American Embassy in Beijing, like the U.K., later upped the warning by telling citizens to avoid the area of the outbreak. In addition, the Centers for Disease Control will soon set up screening procedures at five U.S. international airports to check passengers arriving from China. Many other countries are following with similar screening procedures.
The last time China faced a similar health crisis was between 2002 and 2003 from another coronavirus, severe acute respiratory syndrome (SARS). SARS infected more than 8,000 people globally, killing 774. The difference between back then and now has been the quicker response and transparency from the Chinese government in disclosing the virus and in trying to contain it.
The world was also different in other ways back in 2002.
At that time, most luxury brands didn’t have much of a footprint in China. The Chinese middle class was almost non-existent, and spending by Chinese consumers on luxury goods likely accounted for less than 10 percent of the total market.