When middle market fashion and apparel leaders weighed moving production from China after the onset of tariffs in the second half of 2019, a global virus outbreak probably wasn’t part of the equation.
Nonetheless, companies that elected to keep sourcing from China are faced with a new wave of uncertainty, especially with an overnight surge in confirmed cases. China said late Wednesday that new cases rose by nearly 15,000 following a revised method in counting infections.
Small and midsize companies without diversified supply chains are most at risk.
Despite the turmoil introduced by tariffs imposed by the current administration on most Chinese apparel and footwear imports to the United States, China remains an integral part of the supply chain in these sectors. Nearly 40% of all apparel and footwear imports to the United States are sourced from China which has held true into 2020.
Vulnerability in the supply chain
While the major apparel-producing provinces of Guangdong and Zhejiang have not experienced the worst of the coronavirus outbreak, both provinces border the Hubei province, home of the outbreak’s epicenter, Wuhan.
The proximity of these apparel-producing regions to the quarantined area heightens the susceptibility of the sector to a prolonged outbreak.
Apparel companies that shifted production to other South Asian and Southeast Asian countries like Bangladesh, Vietnam, Indonesia and others will also feel the impact because many of the raw materials and textiles used to manufacture apparel and footwear in these countries are sourced from Chinese suppliers.
While the extended Lunar New Year holiday issued by local government in the Guangdong and Zhejiang provinces ended recently, many factories will have difficulties getting back to full speed.
Many apparel manufacturers in China rely on migrant workers who are hampered by travel restrictions as they look to return to work. Factories in the Guangdong region must guarantee that employees are virus-free before reopening, which could mean extended quarantine periods.
Workers who are able to return to work may be hesitant because of a lack of availability and access to facemasks and protective gear.
Impact on the middle market
Small and midsize apparel and footwear companies without diversified supply chains are most at risk for disrupted supply because they lack the scale and diversity in infrastructure to shift production to factories in different geographies.
Companies in the fast fashion space will feel the effects of a manufacturing slowdown first, while the impact on the overall apparel industry will be felt throughout 2020 given the six- to seven-month lead time needed to move a product from design to production.