Coronavirus echoes in retail: companies anticipate “material impact” in revenues

Store closures, less trading hours and fewer store traffic. The coronavirus crisis has spread fear within the Chinese population, 3,143 people have already been infected and the death toll has reached over 800 people. Companies have taken measures all over the country, one of the largest markets for fashion, and they started to anticipate the “material impact” this can have in their results. However, all of them remain confident that China will remain a solid market and that consumption will resume once the crisis is over.

The impact is especially felt in Hong Kong. The special administrative region is in the quarantine area; however, the tourism declines and protective measures have arrived at a particularly low point for the city, following a year of citizens protests which also had an impact on business.

Nike was one of the first fashion giants that anticipated the impact that the coronavirus crisis can have in its business. Last Wednesday, the group issued a statement saying that it “expected the situation to have a material impact on our operations in Greater China”. However, the group also said that “Nike’s brand and business momentum with the Chinese consumer remains strong, as reflected in the continued strength of our Nike digital commerce business”.

The group, that operates stores in the country, has temporarily shut down approximately half of its directly operated stores in China and has been operating with reduced hours in the remaining points of sale.

Nike has temporarily shut down approximately half of its directly operated stores in China and has been operating with reduced hours

Capri group, owner of Michael Kors, Jimmy Choo and Versace, has been the group that detailed the most the impact that the crisis will have on its business. With the release of its quarterly results, the company anticipated the situation in China to reduce revenue by approximately 100 million dollars and earnings per share by 0.40 to 0.45 dollars for the fourth quarter and full year.

As of February 5, approximately 150 of the 225 stores of the group in Mainland China are closed and the remaining are operating with reduced hours and experiencing a decline in customer traffic.

The latest company to address the impact of the epidemic is Burberry. The group, that derives a significant amount of its revenue in Mainland China, currently has 24 of its 65 stores closed. “This is impacting retail sales both in both Mainland China and Hong Kong”, indicated the company in a statement.

“The outbreak of the coronavirus in Mainland China is having a material negative effect on luxury demand”, explained Marco Gobbetti, CEO. “While we cannot currently predict how long this situation will last, we remain confident in our strategy”, he said. In the third quarter, sales in Mainland China drive Burberry’s growth in Asia, while those in Hong Kong reduced in half.

China is also the growth driver of Ralph Lauren. In fiscal year 2019, sales in Mainland China grew over 30%. Altogether Asia generate sales of 1.04 billion dollars. In the third quarter of fiscal 2020, revenue in Asia increased 5%, to 290 million dollars, driven by Mainland China, that offset a decline in Hong Kong.

Capri anticipated the situation in China to reduce revenue by approximately 100 million dollars

VF has held back on the information regarding its forecast. “While the coronavirus will impact our financial results in Asia Pacific region in the near term, VF’s growth opportunity in China and across the Asia Pacific region is significant and the fundamentals of our business are strong”.

As of Friday, about 60% of the group’s own and partner stores in China have been temporarily closed due to the epidemic and the remaining stores opened, operate with reduced hours. In the fiscal year of 2019, the Asia Pacific and mainland China represented 12% and 6%, respectively, of the group total revenue.

The statement also mentioned that at least 16% of VF’s sold goods are sourced directly from Mainland China of which 7% is bound for the US market. The group will be updating its fiscal year outlook in the upcoming weeks to adapt to the forecast to the current situation in Asia.

Canada Goose Holdings, who doubled its revenue in Asia compared to the previous year and whose ecommece traffic significantly grew in Mainland China has also acted in anticipation of the impact of the outbreak in its forecast of 2020. “The coronavirus outbreak is having a material negative impact on performance in the current fiscal quarter ending March 29, 2020. As a result, the Company has revised its outlook for fiscal 2020”

VF’s sold goods are sourced directly from Mainland China of which 7% is bound for the US market

Beauty giants have also issued similar statements. Concurring with the release of the annual financial statements. L’Oréal admitted that the current epidemic in Asia “will have a temporary impact on the beauty market in the region and therefore on our business in China and Travel Retail Asia, even if it is too early to assess it.” That said, the company explained that similar situations in the past such as SARS and MERS, show that after a period of disturbance consumption resumes stronger than before. 

Estée Lauder reflects on its yearly outlook regarding the coronavirus outbreak, the American grouped delivered outstanding second-quarter results last Thursday but warned that the third quarter may not carry similar growth due to the impact of the coronavirus. “The global situation will also affect our financial results in the near term, so we are updating our fiscal year outlook; we will be ready to return to our growth momentum as the global coronavirus outbreak is resolved” said Fabrizio Freda, president, and chief executive officer of the group. Although the company has been experiencing growth in January, it has seen a significant decline in air travel and consumer traffic in the main shopping and tourist areas. The third quarter is mostly anticipated to render negative results. Estée Lauder grew by 13% and secured a 7% profit in its first six months. 

The epidemic has also impacted tradeshows’ agendas, Chic Shanghai and the fairs organized by Messe Frankfurt (Shanghai Apparel Fabrics, Yarn Expo Spring, Intertextile Shanghai, and Home Textiles) have decided to postpone their dates due to the risk of contamination by the coronavirus outbreak. The events will now take place between March 11 and 13. Likewise, ISPO Beijing 2020 gets canceled. The sports retail fair annulled its event, which was supposed to take place from 12 to 15 February 2020. The reason for this decision to protect the health and safety of the exhibitors, visitors and the general public.