Coronavirus Impacts on Promo Products Industry: The Latest on Supplier Expectations, Factory Disruptions and Uncertainty

Since our last report just a little over two weeks ago, the death toll from coronavirus (2019-nCoV) in China has risen to 2,009, with a total of 74,185 reported cases. The good news is that, according to The Guardian, the recovery rate in some provinces has risen to 40 percent, but in some it's still as low as 15 percent.

Aside from the global concern for the loss of life and spread to other countries and continents, sourcing from China has been difficult for companies, including those in the promo products industry, as well as retail. For example, German athletic apparel Puma warned that its first-quarter financial results would likely be affected by the outbreak.

The Hong Kong Trade Development Council even went as far as postponing all of its trade show events, pushing the Hong Kong Gifts and Premium Fair from April to July this year.

We also noted in our previous coverage that coronavirus probably won't spread through shipping containers from China, due to the nature of the illness. Despite misinformation on the internet, that remains the case, according to the Centers for Disease Control and Prevention. The CDC's official guidance still reads:

In general, because of poor survivability of these coronaviruses on surfaces, there is likely very low risk of spread from products or packaging that are shipped over a period of days or weeks at ambient temperatures.  Coronaviruses are generally thought to be spread most often by respiratory droplets. Currently there is no evidence to support transmission of 2019-nCoV associated with imported goods and there have not been any cases of 2019-nCoV in the United States associated with imported goods.

That said, factory disruptions are still ongoing as China works to contain the spread of the virus. Some suppliers are starting to see the light at the end of the tunnel, and things are getting back to something resembling business as usual.

"We are happy to report that all of our team members in China are doing well, with most having returned to work," Melissa Ralston, chief marketing officer for BIC Graphic, said in a statement. "Our Asia-based teams are working from home with our Hong Kong associates returning to the office in various shifts this week. Our Shenzhen office remains closed until next week."

Ralston added that, as factories reopen, some shipments will leave China in the beginning of March, with more leaving in the following weeks as factories catch up with demand.

Dr. Tai Lin, president and CEO of Ariel Premium Supply, had a similar forecast, though he believes shipments will be a bit further behind the early-March projections.

"The earliest date that any factory will open the production line is the end of February," he said. "Some said the first week of March, depending on the areas. Communications with factories are OK so far [now] that some of their office workers can access emails. The earliest shipment out of China is around the end of April, according to the schedule above."

Logo Included's Shenzhen factory is also up to running at around 50 percent, but is facing the issue of the government limiting congregating in large numbers to limit possible spread of the coronavirus.

"We see about one half of our partners' factories are open," Alex Harrod, president of Logo Included, told Promo Marketing. "Most of the office workers are working from home. We expect more to open next week and things to get back to normal within the next two to three weeks, barring any further spread of nCoV19."

HPG said in a statement that it did not anticipate significant delays if the situation improves in the next month, and that it has been in daily contact with its suppliers. The company is also taking steps to minimize impacts in the short run.

"To ensure that any delays are minimized, our brands will air-freight products to meet demand, if necessary, at no extra cost to our distributors," the statement reads. "Additionally, HPG’s customer service teams are constantly updated on inventory levels, to ensure delivery expectations are set accurately. Any new product launch dates have been postponed until HPG can be certain of availability.

Other suppliers were not as optimistic. Paul Lage, president of IMAGEN Brands, said in a statement that the company had, like many suppliers, ramped up inventory levels prior to the Chinese New Year, helping to avoid any short-term supply issues for its products. But he cautioned that the situation certainly seems worse than initially expected.

"We want to be proactive and start the conversation about the impact of the coronavirus," said Lage. "The situation is evolving in China and around the world. One of the questions is how is this going to impact our business? We have been in contact with our vendors and they realize there will be some issues. Many of the factories are still not open. We anticipate that many might resume their regular operations in early March. Others may not reopen until April. In the meantime, orders for their products are still coming in and they are starting to accumulate some significant backlogs. Therefore, this potential disruption may last until early summer until we all get through this issue."

Lage also said drinkware, umbrellas, tech products and bags would likely be the product categories most affected, and that IMAGEN Brands was looking for alternative sourcing options for those categories.

"We do have alternatives for our cotton products and do not see them being impacted at this time," he added. "This is an industry issue and all suppliers that source product in China and surrounding countries will be experiencing the same issues."

Forced travel restrictions and quarantines

The restrictions on travel have been one of the biggest things keeping factories from getting back to full capacity. Jeff Lee, vice president of STOPNGO Line, said that the company had to work around the travel restrictions and make things work as best it could given the situation.

"Once we understood how China was attempting to contain the outbreak, our next step was to look into our supply chain," Lee said. "While none of our factories overseas are located in the outbreak epicenter of the Wuhan area, the containment measures China has put in place have severely limited the production output of most factories throughout the country. In the short term there will not be a significant impact towards our supply chain due to the large inventory we carry, but if the situation does not improve over the next couple of weeks and months, the impact will begin to show."

Currently, Chinese workers who travel from certain parts of the country to work are subject to a 14 day quarantine, which Lee says has kept a lot of workers from returning to factories at all. He added that he and STOPNGO Line have dealt with production delays in the past, but called this situation "unprecedented."

"Managing inventory levels and working closely with our factories to re-prioritize production is very important at this point," he said. "Per our normal forecasting, we had already built in an inventory buffer due to normal holiday delays."

The big picture

Business and financial bottom lines aside, Harrod also underlined the main concern for him and many of his colleagues, which is ensuring the health of employees and their families.

"During this time, it is easy to get caught up on the business side of the equation worrying about orders and deadlines, but we have to remember that real people’s lives are at stake, and our first concern is for the health and wellbeing of our employees, friends and everyone in China," he said. "We know there will be some unavoidable delays throughout our supply chain for the next two to three weeks, however we are working diligently to minimize the effects on our distributor partners."

Right now, uncertainty is dictating a lot of the problems. As China works to contain the spread every way it can, including forced quarantines, and as workers worry about the possibilities of contracting it at work, the problems for companies that source from China grow exponentially.

"Everyone is holding [their] breath now, as nobody really knows the true situation of the virus' spread," said Lin. "One of the factories, not Ariel's factory, opened the production line last week, then immediately closed after one day [of] operation, because more than 100 workers were infected, according to the news report in Asia."

Most of these affected companies are seeing progress as Chinese officials work to contain the spread, but everything is still just a forecast or estimate of when things get back to anything close to full speed. Even companies as big as Puma can't give definite answers.

"Given the current uncertainty around the virus, it is, of course, impossible to forecast its impact on the business," Puma CEO Bjørn Gulden said, according to Just Style.

"Ultimately, our approach may impact our finances," HPG said in its statement. "But we believe moments like this call for compassion above all else. All over the world families have been separated, lives have been lost and the future for many is uncertain. With this reinforced perspective, we are especially grateful to be in a more fortunate position on this side of the world—and are committed to doing everything in our power to ease the burdens of our friends, families and partners on the other side of the world. We look forward to brighter days ahead."