The crisis is a stark reminder of China’s great importance to global companies.
“Whether you like it or not, at this point, if you are a multinational company, China is probably your first or second largest consumer market,” said Ben Cavender, managing director of consulting group China Market Research Group.
“And it’s probably your main production base or it’s responsible for a significant portion of your supply chain work,” he said in an interview from Shanghai that was blocked for six weeks.
Not in the mood to go shopping
este Loder, which is home to Bobbi Brown and MAC cosmetics, now expects its global sales to grow 7-9% year-on-year from the previous range of 13% to 16% hit in February.
The company said it was affected by the suspension of all operations in Russia and Ukraine following the invasion, resulting in lower sales. Sales also fell 4% in the Asia-Pacific region for the latest quarter, which was “entirely driven by Greater China,” chief financial officer Tracey Travis said during an earnings call.
Some enterprises refused to make forecasts at all.
Kering, owner of Gucci and Bottega Veneta, said last month that this is also in pain, with “traffic plummets”, store closures and severe logistical problems caused by the lockdowns.
“We hope the situation is temporary,” CFO Jean-Marc Dupleix said during a corporate sales call.
However, the mood on the ground is more gloomy.
“Honestly, consumers are not worried about buying lipstick or coffee right now,” Cavender said. “They are really much more focused on getting [necessities].”
Even those who are not at home can suffer. Consumers who live in cities without restrictions may also be hesitant to go out and visit a mall for fear of “what happened in Shanghai” where people remain locked up indefinitely, Cavender said.
“It has had a very big impact on consumption.”
Still the world’s factory
Companies are also facing problems in the back.
Apple blamed the expected drop in revenue on both restrictions in China and component shortages around the world. Some shutdowns briefly affected 20% to 30% of all iPhone production, according to Everstream Analytics, a supply chain risk analysis firm.
Apple’s restrictions were “mostly centered around the Shanghai Corridor” where several factories were affected, CEO Tim Cook said in an earnings call.
In some cases, the tension skyrocketed. Videos posted to Chinese social media last week show workers from a Shanghai factory flooding barriers and clashing with guards wearing hazmat suits, signaling increased friction during the weeks of lockdown. It was not immediately clear what exactly triggered the incident.
The plant is owned by Quanta, Apple’s Taiwanese supplier. According to Chinese state news agency Xinhua, the plant has resumed work under a closed-loop system in which workers live in designated areas and adhere to strict protocols.
Apple referred CNN Business to Quanta when asked about it. Quanta did not respond to a request for comment.
Cavender says many car suppliers continue to struggle with keeping their own factories running or supplying components.
However, Chinese ports and other logistics hubs continue to face challenges.
They were “already much higher than pre-Covid levels,” CFO Brian Olsawski told analysts during the presentation of the company’s results, citing the spread of the Omicron variant in China and labor shortages in various places.
Many brands have expressed optimism about the recovery of their business after the crisis subsides.
But analysts have warned of the adverse effects of a “zero Covid” policy, saying the economy could slow significantly this year.
In accordance with CNN’s latest estimate, based on government data, is that at least 31 cities in China are either fully or partially on lockdown, which could affect some 214 million people across the country.
According to trade groups, the ongoing dilemma may eventually lead some businesses to rethink their positions.
As other countries continue to reopen, some foreign companies may consider moving their regional headquarters out of China, according to Jörg Wuttke, president of the European Union Chamber of Commerce in China.
“I definitely see discussions,” he told CNN Business.
Cavender said the recent troubles in Ukraine and China have highlighted a “period of heightened risk” more broadly for international companies.
“I really think there are a lot more challenges facing a multinational company now than there have been in the past,” he added.
– CNN Beijing Bureau, Jorge Engels, Lizzy Yee and Nectar Gan contributed to this report.