Sunday marks the end of the extended holiday break in many Chinese cities, making Monday the day when factories will find out who among their workers is able to head back to work.
Factories in China typically close up shop for the week-long Chinese New Year holiday in late January so workers can travel home to celebrate with family before heading back to work. Many were in transit when the initial cases of coronavirus were deemed serious enough to warrant a lockdown in Wuhan and its neighboring cities. Then came more travel restrictions in other Chinese cities.
When work resumes on Monday, factories and companies will find out if they have sufficient staffing to operate at full capacity. And while factories operating closer to the outbreak’s epicenter would obviously impact manufacturing of apparel for fashion brands, other components of the supply chain located further out–including textiles, parts and even shipment of goods–could be affected by travel restrictions imposed in and around parts of China to contain the outbreak.
“At this stage, it’s very difficult to predict when the cases will peak,” Tao Wang, UBS economist in Hong Kong, said, noting the 14-day incubation period starting from Jan. 25, the day of the Chinese New Year, that would conclude Sunday. “Hopefully, in the next 10 days or two weeks, we could see some indications of the numbers coming down. However, given the mass travel during the Chinese New Year period, it’s very hard to predict the future development of the outbreak,” Wang said.
Presuming that the outbreak will be controlled in the first quarter, “there should be very few new cases being confirmed” after March 31, the economist concluded, adding that the negative impact on the Chinese economy would also be limited to the first quarter. On that assumption, Wang lowered his forecast for China’s first quarter GDP forecast to 3.8 percent from a previous estimate of nearly 6 percent.
Ralph Lauren Corp. executives are waiting to see how many workers return to work before they will know what the disruption will be on their supply chain, and the same goes for Tapestry Inc. and Capri Holdings Ltd. For these firms, sourcing and production in China represent about less than 10 percent of finished goods.
The good news for most fashion firms is that many have already diversified out of China and are producing elsewhere. And for those that didn’t move fast enough, the trade spat between the U.S. and China and resulting tariffs spurred them to evolve their supply chains.