The new coronavirus has not yet reached Israel, but the Israeli consumer may soon be feeling its effects, who will start feeling the pinch of higher prices for imported shoes and clothing, electronics and housewares, almost all of which are imported from China, retail executives said this week.
China plays a crucial role in the global supply chain for Israeli companies, no less than it does for most of the world. With tens of millions of Chinese people quarantined inside their cities and thousands of factories closed, the impact of the virus will be felt in places where no one has been sickened.
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As it is, Chinese manufacturing had dropped significantly starting two weeks ago for the Chinese New Year holiday. Now, due to the new coronavirus, the decline in output will be much lower for an indefinite period.
“I believe that we’ll be seeing higher prices and shortages in stores. China is the world’s factory. Most electronic products are manufactured in China and even those that aren’t are assembled from critical components made in China,” said Zvi Gior, CEO of the Israeli electronics importer Newpan. “We’re the importer of products from the Chinese company Haier and for now they have no date set for resuming production at their plants.”
Gior said that other suppliers have notified him that they didn’t expect to resume production for another week or two.
“That’s a serious problem. There was a lot of merchandise that was due to be sent to us right after the [Chinese New Year] and wasn’t shipped. I assume that’s the case for a lot of importers,” Gior said.
“With air conditioners, for instance, we place orders right after the Chinese New Year so they would arrive in Israel in April-May. This year, it’s not going to happen,” he said.
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On Monday, shares of the Israeli fashion retailer Adika, which sells online and through 10 brick-and-mortar stories, plunged 3.4% to 6.76 shekels ($1.96) after it said the extended closure of its Chinese production facility would force it to source products outside of China. Among the countries it’s considering is Turkey.
“Although our subsidiary’s operations in China are not in Hubei Province, following the spread of the coronavirus abroad, Chinese authorities have announced an extension of the local holiday period,” Adika said. “It’s not known when the company’s operations in China will return to normal.”
Newpan’s Gior warned that if Chinese factories ended up staying closed for an extended period, they would inevitably raise prices to help cover their losses. They can do that because there are many categories of products, such as air conditioners, television sets, clothes irons, electric kettles, blenders and microwave ovens that are made almost exclusively in China.
For Israeli clothing retailers, the coronavirus is striking at a time when they have been hurting from the loss of sales to foreign websites and by growing numbers of Israelis shopping while they are traveling abroad.
“All our manufacturers are in China. If they don’t resume production soon, we’ll have to find alternatives in Turkey, Brazil and the like,” said Meir Najibi of the footwear chain To Go. “But they can’t supply the quantities that we order from China and they certainly can’t match the prices we get there.”
At the WeShoes chain, CEO Ron Ashkenazi said the impact could run into the summer. About half his chain’s summer collection was due to arrive in Israel from Chinese makers during February and March. Right now, the merchandise is stuck in China, with no clear date for when it will be shipped.
“At least for multi-season brands, such as Blundstone and most Crocs products, we’re prepared in terms of inventory, but in general we’re expecting an impact from what’s happening in China,” he said.
To Go’s Najibi said his chain’s summer collection was already locked in, but there’s a good chance the winter collection will be delayed; he would usually be placing these orders now.
”If Chinese factories return to work within a week, everything will be OK. But if they are shuttered for two or three months, prices in Israel will rise tens or even hundreds of percent. We may even see shortages,” Najibi said.
Apart from Adika, Israel’s big clothing chains are denying that the situation in China is affecting them, but off the record executives are saying otherwise.
“Companies in Israel, just like everywhere else in the world, source more than 60% of their inventory from China, and even merchandise they get from Bangladesh or Vietnam relies on raw materials, labor and knowledge from China,” said an executive for a clothing retailer who asked not to be named.