Coronavirus Concerns Hit Retail Supply Chain

The phrase “out of stock” is starting to show up in discussions about the coronavirus. As Chinese companies and American companies doing business in China grapple with quarantines and proliferation the disease, U.S. retailers are concerned about a supply chain problem.

While no direct evidence has been presented for a supply chain interruption from China, a new Wells Fargo report says concerns are rising among retailers. So far store closures in China and guidance cuts from companies like Starbucks and Nike have been the main financial fallout from the disease, on top of the devastating human impact. Wells Fargo said inventories in China are currently at satisfactory levels.

“That being said, our sources indicate that out-of stocks at retail for replenishment product could start within 60-to-90 days if disruptions continue beyond the next few weeks, with more significant inventory issues in seasonal product possibly by midsummer if disruptions stretch longer,” the Wells Fargo report said. Target and Walmart could be vulnerable to out-of-stock issues due to their rapid replenishment infrastructure, the report noted.

The American Chamber of Commerce in Shanghai surveyed 127 U.S. companies with operations in Shanghai on Feb. 7. Eighty-seven percent believe the coronavirus will have a direct impact on 2020 revenues; 24 percent expect revenues to fall by 16 percent or more. Sixty percent of those companies are planning a work-from-home policy for their staff.

The reports come on the heels of a CNBC report that Apple supplier Foxconn was approved by the Chinese government to resume production in Zhengzhou. Reuters reported Sunday (Feb. 9) that only 10 percent of the workforce had returned, or about 16,000 people. Reuters later reported that a Foxconn plant in Shenzhen was approved to resume partial production Tuesday. Apple is already anticipating the effects of factory slowdowns with one analyst estimating a 10 percent shipment cut.

Starbucks, McDonald’s, KFC and Pizza Hut have temporarily closed stores in some Chinese locations due to the coronavirus crisis. Disney has temporarily closed its Shanghai Disneyland park and its store in Shanghai. IKEA and Uniqlo have shut down stores across China. Microsoft, Apple, Amazon and Facebook have advised Chinese operations to cancel all non-essential business travel.

Robert Moraca, vice president of loss prevention for the National Retail Federation (NRF), points out that retailers have faced similar situations in the past, including SARS and Ebola, and are no strangers to deploying steps to counter the spread of a pandemic.

“Every retailer has what’s known as an ‘All Hazard Plan.’ It’s comprehensive in detail and it breaks down not just the basics of business continuity, but specific actions tied to whether they’re facing a natural disaster or something different,” Moraca said. “If a pandemic were to occur here in the U.S. — and clearly there is no indication of that right now — retailers have detailed plans outlined that they can quickly deploy.”

Chinese retailers are being hit hard. Several have started to recruit temporary workers. Meicai, which delivers produce from farms to restaurants and stores, announced over the weekend that it was looking to hire 6,000 truck drivers and 4,000 sorting handlers. Grocery retail chain Freshippo initiated its own recruitment program for temporary staff from restaurants that have recently suspended their operations. The retailer, which has operations in 22 cities across mainland China as of September, is owned and operated by Alibaba Group Holding.

Through its official Weibo account, Freshippo announced last week that 500 staff from Yunhaiyao and Youth Restaurant would join the company. It also said another 1,000 employees from Xibei, the country’s largest restaurant chain specializing in northwest Chinese cuisine, and 500 more staff from other restaurants, would form part of its temporary workforce.

The U.S. imports 21 percent of all its goods from China. If there is any interruption in supply from a lack of manpower or due to coronavirus contagion concerns, some retailers could be hurt more than others. With 98 percent of all video game hardware coming from China, for example, retailers such as Best Buy could get touched. However, caution is the watchword of the day. Even in China, the dreaded phrase “out of stock” has not yet been heard with frequency.