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While fashion retailers of all kinds are watching how the global spread of covid-19 will affect their businesses, the two fashions giant H&M and Zaracould owner Inditex are particularly vulnerable, according to an analysis by financial firm UBS.
Last month, UBS sent a research note to customers examining European retailers most exposed to the new strain of coronavirus. Topping the list were H&M, Inditex and Dunelm, a British home furnishings retailer. UBS based its analysis on the company's share of sales from China, the total value of the products it makes in the country, and the speed with which inventories turn around, weighting each by based on its potential impact to produce the index below.
The collected value of products made in China had the greatest weight, he noted. Covid-19 has forced the closure of factories all over the country, plunging the country's fashion supply chain into disarray. Even when factories reopen, many work at reduced capacity. For H&M, China accounts for around 50% of the total value of the products it sells, according to UBS estimates, which places it second behind Dunelm in the business analysis.
It is important to look at the total value, rather than just the percentage of items, of the country. Fashion retailers such as H&M often produce their most expensive items in China, where factories have long developed skills to sew more complex products such as jackets, while making basic basic garments such as t- shirts elsewhere. On the whole, more products could come from other countries, but if you look at the inventory in terms of the cost of items hanging in stores, the balance changes.
Inditex, meanwhile, only sourced 10% of its total value of goods in China, but it had one of the highest inventory turnover rates, which could normally be an advantage but in this situation could prove to be a liability. Its biggest brand, Zara, can turn a design into a finished product faster than much of the competition and continues to release new items to stores. But it also means that Zara relies on her supply chain to feed him constantly. In its note, UBS said it thought retailers with high inventory turnover rates were likely to be affected earlier than those with low inventory turnover rates. (H&M has a relatively lower turnover than Zara).
UBS also estimated that Inditex had the highest share of sales from China at 8.7%, H&M being just behind at 6.1%.
It is difficult to predict the impact of epidemics, as UBS has noted, as the situation in China continues to change. Indeed, H&M has so far says he has seen no delay in its supply chain related to the epidemic.
In fact, China's status as the world's largest textile producer makes it difficult to assess the Covid-19 effect on a company's supply chain simply by looking in China. The country supplies many raw materials to clothing manufacturers around the world. Sports brands are probably the most at risk, as they have fewer alternatives for technical fabrics and other materials than they use for their products. Meanwhile, factories in Cambodia and Myanmar have warned that they may close if the supply of raw materials from China does not resume quickly.
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