As many Chinese factories prepare to re-open next week following the Lunar New Year holiday that coincided with the outbreak of Coronavirus, there are still more questions than answers about how product availability will be affected. Aside from the obvious human and health factors, the biggest business question at this point: given the continued spread of the virus, will those factories actually open on schedule over the next several days?

Sufficient Supply – For Now
Companies in categories such as toys, housewares and dinnerware appear to have enough inventory to carry them for several weeks.

For example, many toy companies built up inventory in advance of tariffs that had been threatened for December, but so far delayed. That, coupled with sluggish holiday sales, has left most toy companies with sufficient supply – for now. Many toy factories typically operate at lower capacities between February and April for seasonal factors, so the risk of major shortages for the second half of the year wouldn’t come unless the supply chain was interrupted when full production resumes in May and June.

Though companies in many industries have been driven by the tariff threat to move at least some production away from China, those shifts don’t happen overnight. For many toy companies, factories in China can supply 90% of their products.

Travel Complications
Further complicating matters is that it’s unclear how quickly factory workers will return to the plants. Many workers dispersed across China for the holidays Jan. 24-30, but the breaks were extended into February because of the virus outbreak. Travel back to the factories has been slowed, especially since the virus’ epicenter is the crossroads city of Wuhan.

One dinnerware supplier told us that workers at its plants were expected back this week to re-start production. And while the company has inventory to carry it for now, that could change if the outbreak forces further shutdowns.

“We’re good for now, but if we can’t produce 300,000 pieces in March that’s going to be a problem,” he said.

Luxury Brand Affect
Yet the toy, housewares and dinnerware industries aren’t the only ones facing factory closings and production slowdowns. While apparel companies are less reliant on Chinese factories for manufacturing – for example, only 10% of products from Tapestry (Coach, Kate Spade, Stuart Weitzman brands) are made in China – China is an important consumer market for their goods.

And retail business for luxury brands is being hit around the world by a sharp reduction in well-heeled consumers from China making big purchases when they travel overseas.

Among those also affected:

• Disney has closed its theme parks in Hong Kong and Shanghai, and CFO Christine McCarthy said during the company’s earnings call last week that it would take a financial hit of $175M if they were to remain closed for two months.
• Luxury brands have taken a hit. Tapestry and Capri Holdings (Jimmy Choo, Versace, Michael Kors) cut their annual revenue forecasts this week by $200-$250 million and $100 million, respectively, due largely to stores being closed in China. Estee Lauder also slashed its earnings forecast for the year.
• The long tail of the virus is reaching S. trade shows. For example, the Chinese Pavilion at the upcoming New York Toy Fair later this month has been canceled, and the International Housewares Association said it wouldn’t open the International Sourcing Pavilion – populated totally by Chinese and Taiwanese companies — at the upcoming Inspired Home Show.
• For the moment, Nintendo expects “inevitable” delays in production and shipments for the Japanese market of its popular Switch gaming console, which is produced in China.
• VF Corp., home of the North Face, Timberland and Vans brand, said Friday it had closed 60% of its owned and partnered stores in China, which accounts for 6% of its annual sales. It also sources 16% of its products from Chinese factories.