“On standstill”: Businesses face coronavirus uncertainty amid warnings the economic fallout has just begun

coronavirus

Interior Secrets founder Bill Huynh.

When news of the coronavirus outbreak began making headlines in Australia in January, attention quickly turned to the ramifications for international supply chains.

But Bill Huynh, managing director and founder of online furniture retailer Interior Secrets, was already well aware of the emerging risk.

After Huynh’s China-based suppliers experienced delays shipping Christmas orders, he was keeping a close eye on developments in Hubei Province, ground zero for what has now become an international viral outbreak.

“We have almost $2 million worth of stock under production in China,” Huynh tells SmartCompany.

“Half of that is on standstill.”

Counting the cost

China has emerged as the largest manufacturing country in the world over the last three decades — a development that’s run rivers of gold for Australia’s resource exports and slashed product costs for local retailers.

But this reliance on Chinese factories has worsened the impact of the coronavirus on companies around the world, and as economists begin to count the possible cost of the outbreak, business owners like Huynh are facing an uncertain few months.

Interior Secrets, which made $10 million in revenue last year, imports 95% of its stock from China, or about 150 shipping containers each year.

“Australia’s fears seem premature, but this is actually going to have quite a big impact on the Australian retail landscape,” Huynh says.

“Some [suppliers] have said from April they’ll only be able to achieve 50% of their normal production.”

More than 78,000 cases of the coronavirus have now been confirmed globally as the virus spreads to more than 20 countries and Chinese authorities push ahead with contingency measures that have seen 150 million people — over 10% of China’s population — put on lockdown.

As recently as Monday, Chinese officials have reportedly begun encouraging people back to work, but the scale of quarantine efforts and the ongoing spread of the virus underscore the medium-term economic impact of the outbreak.

“Most trade shows for general retailers have all been cancelled,” Huynh says.

“You’ve got a lot of new businesses and startups who rely on those to find new customer bases.”

Huynh explains his suppliers are already warning partners about secondary disruptions.

“There’s going to be a lot of their workforce who won’t be able to come back to work … they’ll have to recruit,” he says.

“There will be effects logistically, and also from a quality aspect, because they will need time to train new staff.”

Australia’s corporate reporting season was littered with references to supply chain disruption last week, with Kogan founder Ruslan Kogan saying the virus could have a “huge impact” on the retail sector.

Meanwhile, consumers are taking to Twitter to report the first signs of product shortages in Australia as businesses face the prospect of waiting it out or trying to organise an alternate supply channel.

Australia’s wine exports are already suffering, while Torres Strait Islander lobster farmers are dealing with crashing prices.

SmartCompany reported last week that Myer supplier Mermade Hair is worried it won’t be able to make orders due to supply chain disruptions.

“No alternative supply”

Kee Guan-Saw, principal of accounting firm KST Partners and chairman of the Chinese Chamber of Commerce of Victoria, says his clients have reported a 50% reduction in shipments over the last month,

“One of my clients is supplying into Bunnings, but they’re shipments haven’t arrived,” Guan-Saw tells SmartCompany.

“There’s a backlog, and no one knows how long it will take to catch up.”

Companies in the local construction and manufacturing industries are also being impacted by the supply chain disruption, Guan-Saw explains.

“There is no alternative supply, we’ve been relying on China for cheap products,” he says.

“We’re used to it.”

The potential long-term risks associated with the outbreak are also yet to be felt, Guan-Saw says, noting companies in China and elsewhere reliant on the economic dividends of its manufacturing sector are unable to trade.

“Imagine the hundreds of thousands of Chinese students not being here when the semester starts,” Guan-Saw says.

“Their purchasing power … without them here, restaurants are impacted, travel agencies, retailers like Myer.

“There’s definitely flow-on effects.”

Retail and tourism will suffer

Higher education is Australia’s third-largest export, and while the Morrison government has begun accepting some Chinese international students into Australia on a case-by-case basis, an ongoing travel ban remains in place.

Figures circulated by ANZ Bank economists last week show spending at major airports in Australia dropped by 27% in the week ending February 8, with Chinese residents making up 15% of short-term arrivals last year.

“The effect of this fall in international tourism could be concerning for Australia’s economic activity. We recently estimated that GDP for the March 2020 quarter could go backwards as a result of the coronavirus-related drop in travel,” the economists said.

The negative impact of the coronavirus comes on top of other recent black swan events, including the bushfire crisis, which has driven a drop in tourism across Australia’s eastern seaboard.

For Huynh, who remains hopeful supply issues will resolve sooner rather than later, energy is now being focused on communicating with customers.

“It’s up to us to explain to customers what’s happened,” Huynh says.

“Our in-stock products aren’t affected … but the products out of stock and under production, there’s no concrete lead times.”

“We’re having to refund orders … there’s a lot of missed opportunities, we’ve had to switch off our pre-order feature.”

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