Since its origination in Wuhan, China, the coronavirus has spread to 20 countries to date, and retailers around the world are worried. As the virus spreads and a travel ban affecting over 50 million Chinese residents goes into place, US retailers are busily analyzing what this means for their sales.
Impact On US Retail: Likely Low
According to the US Commerce Department’s National Travel and Tourism Office, 3 million tourists from China visited the US in 2018. The US Travel Association reported that the average Chinese tourist spent an estimated $6,500 during their visit, including travel expenses. That’s 50% more than the average international tourist who visited the US. While exact numbers are uncertain, it is believed that Chinese tourists spend a significant amount of that on retail during their visits to the US, including on luxury goods.
Some of that spending may decline during the next quarter, but it’s unlikely to have a big impact on US retail overall. In addition, Chinese tourism in the US has already been on the decline, which is entirely unrelated to the coronavirus outbreak. This preexisting decline may be tied to the slowing Chinese economy or, more likely, the travel advisory issued last year in the wake of the US-China trade war.
Impact On Retail In China: Uncertain
The bigger impact for retailers may be with customers in mainland China. However, this really only impacts a few big multinational US companies with a presence in China, such as Nike, P&G, and Starbucks. During its earnings call earlier this week, Starbucks CEO Kevin Johnson revealed that despite strong Q1 results, the company will not be revising guidance due to the uncertain situation involving the coronavirus. Apple’s CEO Tim Cook issued a similar statement, stating “We have a wider than usual revenue range for the second quarter due to the greater uncertainty.” Gap, McDonald’s, and Old Navy are among the US retailers that have shut down China locations until further notice.
Prepare For Pandemics
The one element that is an unknown is the scenario in which the virus mutates and becomes highly infectious, a potential national catastrophe (like measles, which can infect 10-plus people, versus this virus, which infects 2-plus people). However, the vigilance around controlling these epidemics to date (including the fact that the Americans from Wuhan who were evacuated were flown back on a military jet) suggests there is nothing to be too alarmed about at the moment. Plus, there are some common-sense tactics that could keep this from being like the SARS or H1N1 outbreaks — it can be contained with hand sanitizer and facemasks.
Considering that pandemics may continue, however, issues like this may become a bigger deal for retailers, the market, and the entire US population in the future. See more advice on how to prepare for pandemics from my colleague Stephanie Balaouras.