Coronavirus wipes out a $140 billion spending week in China
This should be a busy season for Yvonne Ma, operator of a wine and spirits distributor in Foshan, a city in China’s Guangdong Province. In the days after the lunar New Year, customers usually stock up on Kweichow Moutai Co.’s fiery grain alcohol and LVMH’s Hennessy XO Cognac for post-holiday celebrations with friends, colleagues and family members.
Few consumers are in the mood to toast the arrival of the Year of the Rat as the coronavirus epidemic spreads through China. Since she reopened her shop on the fourth day of the holiday, Ma’s sales have collapsed.
“We can’t even sell a bottle of wine,” she said. “And the most horrible thing is, we don’t know when this situation will end.”
Uncertainty is hitting retailers across the country during what in an ordinary year would be a busy time. Last year, spending during the festival topped 1 trillion yuan ($143 billion), an 8.5% increase from 2018.
While it’s too early to determine the full impact of the outbreak as the number of cases swells beyond 17,000 nationwide, it’s already clear that companies relying on boosts from Chinese New Year spending will suffer badly.
Real private consumption will grow just 1.1% in the first quarter from a year earlier, according to Oxford Economics. That’s down from a previous forecast of 6.8% growth.
Those most at risk are businesses in sectors like tourism and entertainment, retailing and restaurants. Travellers have stayed put because of restrictions on movement aimed at containing the virus, as well as fear of catching it.
Robert Zhang, manager of a roughly 100-room hotel in the southeastern city of Fuzhou, said he hasn’t had any guests since the second day of the lunar New Year, wiping out revenue that reached about 400,000 yuan during the festival in 2019. The hotel, which is closed, can’t afford to reopen now and take the chance of someone getting the virus, according to Zhang.
“Then we would be closed for a long time, not just a month or two,” he said.
Similarly, numerous stores are shuttered and consumers have cancelled festive meals and outings. Many movie studios plan big releases for Chinese New Year, which accounted for about 10% of annual box-office receipts last year. Advance sales ahead of releases this year were about 500 million yuan, according to the official Xinhua News Agency, but cinemas that were planning on showing seven movies scheduled to be released for the Year of the Rat celebrations went dark.
Shares of Wanda Film Holding Co., the largest operator of cinemas in China, have fallen 30% from mid-January. Haidilao International Holding Ltd., which operates nearly 600 restaurants, on Feb. 2 announced it would extend the closure of its sites in China.
“Most retailers will be under financial pressure as the sector generally has thin profitability and tight cash-flow conditions,” said Jason Yu, Shanghai-based general manager of Kantar Worldpanel.
The picture isn’t uniformly grim for consumer-facing companies. As millions of Chinese cocoon, e-commerce companies like Alibaba Group Holding Ltd. and JD.com Inc., stand to benefit, according to AllianceBernstein. Courier services are also likely to see an increase in demand.
“The current situation is perfect for e-commerce growth,” AllianceBernstein analysts said in a report.
Retailers and other companies suffering from lost New Year sales may also bounce back quickly from pent-up demand once the outbreak eases. During the worst of the SARS epidemic in 2003, sales fell but rebounded within a few months, according to a report by DBS Group economist Ma Tieying.
For now, though, Fuzhou hotel operator Zhang is having difficulty seeing a recovery. Travellers aren’t likely to forget their fears so quickly, he said. “Even if the government says the virus is clear,” he said, “recovery will take time.”