COVID-19 ISO Insights

Novel Coronavirus Disrupts Some Global Businesses

February 24, 2020

By: Christopher Sirota, CPCU

The New York Times has reported that not only have many industries in China been closed to help mitigate the coronavirus outbreak (possibly until March 1st 2020, per The Verge), but many global companies have been compelled to make business decisions related to the outbreak, and some expect negative financial impacts.

According to the Times, a wide range of businesses have been affected, including:

  • Fedex and UPS: pilots reportedly now have the option to avoid flying routes to China.
  • Disney: theme parks in both Shanghai and Hong Kong have reportedly been temporarily closed, which may reportedly decrease operating income for 2020Q2 by as much as $175 million.
  • Imax: has reportedly temporarily postponed the openings of five films in China.
  • Nintendo: has reportedly delayed shipments of its Switch gaming system to Japan.
  • Wynn Resorts: the City of Macau reportedly requested the closure of 41 casinos for 15 days. Wynn Resorts reportedly will lose up to $2.6 million per day during this closure.
  • Apple: some of its smartphone suppliers have reportedly been temporarily closed, and the company expects lower sales in its retails store in China.
  • Qualcomm: it reportedly expects to receive less revenue from smartphone chip sales during this quarter.
  • Mobile World Congress: this international gathering had reportedly decided to bar attendees arriving from the Hubei Province, China (the assumed origin of the coronavirus outbreak); Reuters has subsequently reported that the event, which attracted about 110,000 attendees in 2018, has been canceled altogether, potentially costing the local economy in Barcelona, Spain about $500 million.
  • Auto Industry: Nissan, Ford, Volkswagen, Fiat Chrysler, Hyundai and Tesla have reportedly either temporarily closed some factories in China, or outside of China, or had production disruption due to a shortage of parts.
  • Airlines: United, Delta, American and Air China have reportedly canceled flights to China.
  • Royal Caribbean: will reportedly temporarily not allow passengers from China, Hong Kong or Macau to board ships.
  • McDonald's: has reportedly temporarily closed hundreds of it total of 3,300 restaurants in China. It however, does not reportedly expect a large financial loss.
  • Starbucks: has reportedly temporarily closed over half of its 4,300 stores in China, and does expect "material, but temporary" impact to its revenue.
  • KFC/Pizza Hut (Yum Brands): has reportedly temporarily closed about one third of its restaurants in China and also reportedly expects a decrease in revenue.
  • Nike: has reportedly temporarily closed about half of its retail stores in China, and also reportedly expects "material" impact on its financial forecasts.
  • Canada Goose: reportedly expects loss of sales from retail stores in both China and globally.
  • Timberland (VC Corp): has reportedly temporarily closed 60 percent of its stores in China.
  • Burberry: has reportedly temporarily closed 24 of 64 stores in China, and also expects "material" impact on sales.
  • Kate Spade, Coach, Stuart Weitzman (Tapestry): reportedly expects sales to drop by as much as $250 million.
  • Estée Lauder: reportedly expects a negative impact on sales towards the end of 2020.

Cannabis and Vaping Supply Chain Concerns

MJBiz Daily reported that the cannabis and vaping industries expect some production disruption. For example, the article noted that "nearly all vaporizers, vape cartridges and batteries are manufactured in China." Also, the article noted that cannabis cultivators may be especially impacted, for example, because of the need for "LED lighting, greenhouse structures and packaging and extraction equipment" that is often reportedly sourced from China.

Huge Singapore Airshow Impacted

Bloomberg reported that the Singapore Airshow has lost some key attending companies, including Lockheed Martin, and expects fewer representatives from Boeing Co. and Airbus SE. Organizers are reportedly planning to conduct health screenings on attendees and to urge attendees not to shake hands. The biennial event reportedly attracted about 54,000 people in 2018.

Some Japanese Manufacturers Plan to Shift Production

The Japan Times reported that several Japanese manufacturers expect China to take a longer time to contain the outbreak and have therefore begun to consider shifting some production to other countries, which could increase costs. For example, per the article:

  • Aisin Seiki Co.: reportedly is considering producing auto parts in Japan.
  • Toyota Boshoku Corp: reportedly is also planning to create parts, like auto seat covers, in Japan or Thailand.
  • Fujitsu General Ltd.; reportedly is planning to produce air conditioners in Thailand.
  • Nintendo: reportedly may begin producing its gaming console in Vietnam.
  • Sharp and Ricoh: reportedly has shifted production of copiers to Thailand.

Of interest, the article noted that some Japanese companies expect to shift production quickly, in part, because they already had made plans to move in reaction to the U.S.-China trade war.

Also of interest, the article speculates that small and mid-sized companies may choose to permanently move production back to Japan, in part, because "[s]uch companies tend to be more flexible in upgrading facilities with digital and robotics technologies, and the reduction in labor costs they can achieve in China may be smaller compared with that achievable by large manufacturers […]."