Finance Finance News Coronavirus has a second wave of economic chaos, disrupting business supply chains and revenue

Coronavirus has a second wave of economic chaos, disrupting business supply chains and revenue

As many factories in China remain closed, coronavirus is disrupting supply chains and hurting business revenue. Photo: AP/Kin Cheung
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Australia is one of the countries worst affected by the coronavirus outbreak, with China’s lockdown and travel bans expected to cost the economy billions.

The first wave of economic disruption hit airports, airlines, travel agencies, casinos, hotels and educational institutions.

Now, as many factories in China remain closed, the virus is having a second wave of economic chaos, disrupting business supply chains and hurting revenue.

Australian-listed companies and major global retailers that rely on stock from China – or operate in China – are already feeling the impact and warn the situation could worsen in the coming months.

Major Australian retailers Harvey Norman and JB Hi-Fi fear there may be a delay in shipments from China to Australia of electronic parts and other goods.

Retail veteran Gerry Harvey said his Harvey Norman stores had seen delays in their supply chains in recent weeks.

JB Hi-Fi chief executive Richard Murray last week said if there was a supply shortage from the coronavirus outbreak in China, it would be evident within four to six weeks.

JB Hi-Fi chief executive Richard Murray says a supply shortage from the coronavirus outbreak in China will be evident within four to six weeks. Photo: ABC News/Stephen Letts

Queensland business delays as it orders from China

The general manager of Brisbane-based Franklyn Blinds, Michael Ford, told ABC News that factories in China have remained closed since Chinese New Year (January 25) and the company had not been able to supply hundreds of its Australian customers with plantation shutters.

He said although the company sold a variety of other products that had not been impacted, these shutters were custom-made for customers locally, with supplies that come from Chinese factories.

“Our business is huge and structurally sound, but the longer this goes on, the more difficult it’s going to become,” Mr Ford said.

“It is an inconvenience for all these people who have ordered shutters, but at this stage they haven’t cancelled their orders.”

Mr Ford said since the problem was impacting companies Australia-wide, customers of competing businesses would be facing similar problems.

He said customers had been understanding, given constant and widespread media coverage about the virus.

“I had expected more backlash from customers than what we got,” Mr Ford said.

“Nobody is screaming at us at this stage, but if it goes on for another month, that situation may change.”

Fashion and beauty industry shut down some operations

A number of major companies that operate in China and/or rely on supplies from China are warning there may be delays on stock if the virus spreads further and lockdowns and travel bans persist.

Fashion retailer H&M told ABC News it did not expect coronavirus to lead to major delays of stock in Australia, “but if the virus continues to spread, that can change”.

“We are in close contact with our suppliers and evaluate the situation together with them,” an H&M company spokesman said.

Apple Australia referred ABC News to a statement saying Apple Inc had extended its 42 retail store closures in China until February 15 as the coronavirus continues to spread, and this would hurt its sales.

A spokeswoman for Samsung Australia said the company did not see “any potential availability issues, but we continue to monitor the situation”.

Nike Inc announced about half of Nike-owned stores had been temporarily closed and this could have a “material impact on our operations in greater China”.

Adidas has also closed a significant number of its 500 stores in China and said it was “experiencing a negative impact”.

A note from Swiss investment bank UBS on February 3 said the coronavirus could pose a problem for the entire beauty business.

French beauty giant Sephora has already stopped offering custom makeovers in hundreds of its stores as a precautionary measure to protect customers and staff from the virus.

Wine, vitamins trade also affected

A number of Australian-listed companies have slashed their profit forecasts off the back of the virus.

Treasury Wine Estates, which produces the Penfolds wine brand, said in a statement to the ASX last week that “while at this stage it is too early to assess financial impacts” of coronavirus, if it is sustained, it will impact earnings.

Vitamins group Blackmores went into a trading halt on the ASX last week, before its half-year results due later this month.

It has cited the impact of coronavirus on its Chinese and Australian business.

On the one hand, the virus has led to a rise in demand over the past couple of weeks, with fearful Chinese consumers rushing out to buy vitamins.

But the downside has been the ban on Chinese tourists to Australia, which has caused a fall in the so-called “suitcase trade”, where tens of thousands of tourists stock up on vitamins before taking them to China.

In the biotech industry, Cochlear last week slashed its full-year profit forecast for the 2020 financial year by up to $30 million, due to the impact of coronavirus in China, where the company operates.

Chief executive Dig Howitt said hospitals across greater China were deferring surgery, including procedures for Cochlear implants.

“All elective surgeries are being delayed and many hospitals are not taking appointments for new surgeries,” Mr Howitt told investors.

“We will be losing money in China through the second half.”

When the Chinese students and tourists stop coming …

Most Australian economists predict Australia’s gross domestic product will be hit from the impacts of reduced student and tourist numbers.

Reserve Bank boss Philip Lowe predicted coronavirus will be worse than SARS for the Australian economy.

He said coronavirus was having a major impact on education, tourism and business deals.

Ratings agency Moody’s has warned Australian universities will be harder hit than those of any other country because of the relatively high proportion of international students.

Phil Honeywood has been appointed to lead the government-industry body charged with co-ordinating the education sector response to the epidemic.

He told ABC News travel restrictions could cut, in a worst-case scenario, $6 billion to $8 billion from education exports in the first half of the year.

Education-related travel services, which includes overseas students’ tuition fees and living expenses, was in 2017-18 Australia’s third-biggest export behind iron ore and coal.

International education was a $34 billion sector for Australia in 2018-19, and Chinese students brought in an estimated $12.1 billion that year.

“Chinese students have the most disposable income available to them because of the one child policy,” Mr Honeywood said.

But now that students have stopped coming due to travel bans, he expects a ripple effect, with accommodation providers, cafes and restaurants all impacted.

“You only need to walk around RMIT [University] and Box Hill [in Melbourne], which have a very large Chinese community – all their restaurants and hair beauty salons that used to be busy are empty,” he said.

Travel agents, airlines brace for more pain

Flight Centre founder and chief executive Graham Turner said while it was too early to predict the virus’s overall impact, it had already adversely affected the company’s small corporate travel operations in China, Hong Kong, Singapore and Malaysia, worth about $650 million.

“We can mitigate some of those risks, but it is going to have a negative impact,” he told ABC News.

He said it took three months for the company to bounce back after SARS, but warned the travel industry may generally suffer if people are not confident to head overseas.

A Virgin Australia spokeswoman said since the announcement of a ban on Chinese tour groups to overseas destinations, Virgin Australia had seen an impact on group bookings.

Earlier this month it announced the withdrawal of its Hong Kong services.

“It is still too early to determine the impact of coronavirus on passenger numbers,” Virgin’s spokeswoman said.

“We are monitoring the situation closely from both a safety and load factor perspective.”

Qantas has suspended all flights to mainland China.

The airline said it would halt its services from Sydney to Beijing and Sydney to Shanghai until March 29.

Qantas chief executive Alan Joyce told RN Breakfast last week that it was hard to put an estimate on the cost, but that China represented about 2 per cent of its international business, which was less profitable than its domestic business.

But Mr Joyce did warn there would be a “knock-on effect with people to the tourism industry, to the economy”.


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