The recent epidemy of coronavirus around the world has created chaos in the business environment that slows down not only handbag manufacturers, but all the other industries and adjacent companies within the supply chain. The reduced production times and scarcity of raw materials are a result of numerous quarantined workers in China, but also in other countries, such as Vietnam and South Korea.
The outbreak of the new coronavirus among the Chinese population lead to major revenue decreases and a lack of access to many goods and services. As businesses and factories shut down, what happens to the handbag manufacturers and how this situation will affect future economic activity? Have a look at the next sections for a detailed breakdown of the current situation in China and find out the possible long-term prospects for handbag manufacturers as they strive to resume their activities.
What Is Coronavirus?
World Health Organization defines the coronaviruses as a family of zoonotic viruses, which means that they can be transmitted between people and animals. Such viruses cause common cold symptoms, but can also result in severe illness, such as Severe Acute Respiratory Syndrome (SARS-CoV), among others. The nCoV is a new type of coronavirus that has never been identified in humans before.
Symptoms of the infection with the new coronavirus can include shortness of breath, fever, and cough. These can lead to significant breathing difficulties in the affected patients. Severe cases of coronavirus infections can lead to kidney failure, pneumonia, and death.
The new coronavirus (nCoV) causes the disease known as COVID-19. This stands for ‘coronavirus disease 2019’ and it is different from diagnosing patients with other known types of coronavirus diseases. It is associated with the breakout of the severe acute respiratory syndrome (SARS) in 2002-2003, but the new coronavirus is not the same virus that caused SARS.
Currently, it is not clear how quickly or how sustainably this virus can spread from person to person. This uncertainty can be seen as the cause of the new shutdown measuring all around China and other affected areas around the world. The first infections were traced back to a live animal market, however, it is clear that the virus can now spread from person to person.
This means that numerous businesses and factories around China had to limit the contact between people, some of them having to fully close their factories, as people are confined in their homes. However, current news shows that this situation is about to change, due to numerous factors.
As coronavirus spreads between people, many firms had to function with limited labor or simply shut down their operations. This limited both the production time of handbag manufacturers and the supplies, such as raw materials, that manufacturers need for handbag production.
Manufacturers in China
China, as the second-largest economy of the world and the powerhouse of the world’s eminent manufacturing industry, shut down its activity in January due to the unexpected outbreak of coronavirus infections. Now, the authorities strive to balance off both keeping people safe from new infections and putting the vital industries back on track.
While the Chinese leaders have recently emphasized how important it is to revive the economy, it is imperative to acknowledge that many factories are still operating below the capacity, with slow production time and shortage of labor. This is the direct result of severed supply lines that took a toll on the manufacturing industries in China, including handbag factories.
Apart from the fact that many workers were confined in their homes as factories and businesses shut down, the supply chain was also affected. Prohibitions regarding trade and transport led to a shortage of raw materials, rendering the production time of many handbag manufacturers. This impact of the coronavirus outbreak was felt not only in this industry but in all industries, having a harsh impact on the global supply chain and business environment.
The Chinese market for luxury goods, such as handbags, is renowned throughout the world. The virus outbreak did not only left handbag manufacturers with unsold stock, paused revenues, while incurring costs such as wages, but also hindered their ability to purchase raw materials to support a limited production capacity.
In 2003, a SARS epidemic forced China to slow down its production, which leads to a major decrease in luxury goods, including handbags and scarves. While the SARS epidemic downfall in the luxury goods industry lasted only for a few months, the coronavirus outbreak might take longer to fade away.
The new health crisis is major as more than two-thirds of the growth in this industry is fueled by China. While the SARS outbreak was shorter and affected fewer people, this year’s outbreak led to locking down Wuhan, the epicenter of the epidemy, and affected the sales for the Chinese Lunar New Year, a time in which consumers bought many luxury items.
Production Time Slowdown
China has yet to fully automate its manufacturing sector, as many factors remain labor-intensive. Placing many workers in quarantine resulted in a major slowdown in production times. Furthermore, this situation causes unpleasantries to the companies that still have to pay their workers’ wages, while feeling the plummeting profits as the revenues decrease.
Since the factories suffer from labor shortages and suppliers cut down their deliveries, the Chinese officials have started to push towards resuming economic activities in many of the affected areas.
How Is This Related to The Supply Chain?
Many Chinese cities restricted activity and transportation. This means that numerous businesses summing up to 22 million – or 90% of all active Chinese businesses – were affected. The shutdowns of factories and businesses in China took their toll on the international supply chain, shipping, and trade.
The impact is not only felt in the manufacturing sector due to the labor shortage, but also raw materials. City lockdowns impacted all types of activities, including trucking and pick-up due to the numerous workers that were placed in quarantine.
Supply Chain Recovery
Since the early weeks in February, Chinese authorities have claimed positive changes regarding the manufacturing sector. As part of the new policies aimed to resume the economic activity, more than 2,000 counties across China will be rated with red, yellow or green levels of risk of an outbreak of the new coronavirus.
Counties with a green level of risk can move freely, as their regions are less likely to contact the new virus. Yellow counties, on the other hand, will have checkpoints at all the entrances to residential buildings and villages. Lastly, the areas rated red with the highest risk of contracting the virus, all residents will be kept within their homes.
Many of these positive changes suggest the full restoration of activities regarding handbag manufacturers, as well. For instance, in Foshan, a major manufacturer of electronics reported that businesses are no longer required to seek approval when they restore their activity. Furthermore, workers are not required anymore to show proof of their health before starting their shifts.
Another region that started to restore production facilities is Guangzhou, reducing administrative barriers. Zhejiang also took important steps towards allowing businesses to restart their activity.
Evidence containing both micro and macro data demonstrate that the production activities across all industries resume slowly and are expected to resume their business in full by late March.
While it is clear that the coronavirus outbreak is a tragedy that cut down the productivity of the handbag manufacturers in China, the industry luxury might be revived sooner than expected. Chinese shoppers are expected to resume their shopping patterns, especially as China was declared as the largest luxury market in the world.
The majority of workers were able to return to work, resuming their activity. On the other hand, as the initial panic fades away, the outbreak still pushes some regions into quarantine. This is why the ability of the supply chain remains limited for the near future, which in turn will affect the product capabilities of many handbag manufacturers.
Handbag manufacturers were subject to a lower hit from the virus outbreak, as the main targets that suffered from this epidemy included hotels, restaurants, travel agents and cinemas. Manufacturers are expected to resume their full activity within a month, as more than 99% of the Chinese population is healthy.
As the picture becomes clearer and the initially extended lockdowns of cities and counties clear up, the luxury industry covering categories such as handbags and watches is expected to come back to normal. One the other hand, other companies that sell seasonal items, including clothes, might have a rougher time to return to their activity since the unsold stock will affect their budget as they have to clear up the inventory for new items.
That being said, most CEOs of luxury companies are convinced that, although the growth will not return to normal until perhaps 2021, the long-term prospects for the luxury items are positive. It is expected that all handbag manufacturers will bounce back as soon as possible, reaching the pre-virus efficiency and sales until next year.