Business Maverick

Business Maverick

Starbucks Shuts Stores, Apple Sees Disruptions: Virus Impact

People with face masks arrive at a BTS Sky train station in Bangkok on January 27, 2020. - Thailand has detected eight Coronavirus cases so far -- three of whom are receiving treatment in hospital and five of whom have been discharged, according to a statement from Health Minister Anutin Charnvirakul. (Photo by Mladen ANTONOV / AFP) (Photo by MLADEN ANTONOV/AFP via Getty Images)

Starbucks Corp. has closed more than half of its coffee shops in mainland China -- about 2,000 of them -- and Apple Inc. is factoring disruptions in its supply chain into its outlook, as global corporations grapple with a SARS-like coronavirus that has killed more than 100 people and is threatening a key growth market.

Wuhan, the epicentre of the coronavirus that has infected more than 4,500, is manufacturing, shipping and business hub. Apple is working with its suppliers in the city to mitigate any production loss, but the impact outside of the region is less clear, Chief Executive Officer Tim Cook said Jan. 28.

As the virus has spread in China and beyond despite travel restrictions and other worldwide efforts to contain the disease, airlines suspended and chains including McDonald’s Corp. and KFC have shut locations. Volkswagen AG, Canadian insurer Sun Life Financial Inc. and banks from Credit Suisse Group to Morgan Stanley are telling staff to work from home.

Here is a summary of how some of the biggest companies are responding to a crisis that is disrupting supply chains around the world:

Business Estimates

  • Apple provided a wider-than-usual forecast range for the current quarter because of the uncertainty surrounding the coronavirus. CEO Cook addressed the virus during a conference call with analysts, saying Apple is following developments. Virtually all iPhones are made by Foxconn’s Hon Hai Precision Industry Co. in Zhengzhou, China, and by Pegatron Corp. at an assembly site near Shanghai.
  • Starbucks, which has has more than 4,000 locations in China, maintained its 2020 forecast but said it doesn’t include the impact of closing half of the mainland stores because it can’t yet calculate it. Compared with McDonald’s and Domino’s Pizza Inc., Starbucks is the most exposed to the outbreak, as measured by percentage of worldwide revenue and operating income, according to Guggenheim analyst Matthew DiFrisco.
  • Carnival Corp. and Royal Caribbean Cruises Ltd.: Carnival’s Costa Cruises brand, working with the Chinese government, decided to suspend nine voyages leaving China from Jan. 25 to Feb. 4. In a separate statement, Royal Caribbean said it suspended Jan. 27 and Jan. 31 sailings. Both pledged to provide refunds to customers. China is a small but growing market for American cruise companies, and analysts project further cancellations could hurt earnings.
  • Tesla Inc., Nio Inc. About 8 million cars were sold last year in the roughly 40 Chinese cities that have 10 or more diagnosed coronavirus cases, or 36.8% of total retail volumes in the country, Bernstein analysts estimate. Those cities accounted for 82.5% of Tesla’s retail volumes, and 68% of NIO’s, the analysts wrote in a note. “The latter looks especially vulnerable to a prolonged slump in EV sales,” they said.
  • Imax Corp. The Mississauga, Ontario-based company, known for its large-format screen technology, has said it’s delaying movie releases at its theaters in China in the wake of the outbreak. The impact of lost revenue from the Chinese New Year will cost Imax at least $60 million in global box office sales, according to MKM Partners. If the epidemic lasts for a few more weeks, “it is not unreasonable to project” a shortfall of $200 million in the first quarter, MKM Partners analysts said in a note.
  • Remy Cointreau SA: The French cognac maker abandoned its forecasts for this year after a slump in Hong Kong dented sales in the Christmas period and as the viral outbreak threatens business in China, the source of 20% of its profit, according to Jefferies estimates.
  • Aeon Co.: Japan’s largest supermarket operator, expects sales from Wuhan area stores to drop by half, spokesman Makoto Sueyoshi said Monday. Aeon shuttered the three malls it operates in Wuhan, but its five general supermarkets were operating on a limited basis to sell daily goods and food.

Latest News on the virus

Work From Home, Travel Restrictions

  • United Airlines Holdings Inc. is paring service to China due to “a significant decline in demand for travel.” Two dozen flights to Beijing, Hong Kong and Shanghai will be suspended starting Feb. 1, United said in an email on Jan. 28. The plan includes flights from United’s hubs in Chicago, San Francisco, Washington and Newark, New Jersey, although some service to China will continue.
  • Canadian insurer Sun Life Financial is asking employees who traveled to mainland China to work from home for two weeks before returning to the office, similar to steps taken by Bank of Montreal and Manulife Financial Corp. Sun Life and Manulife derived 17% and 34% of their earnings from their Asia divisions, respectively, in the most recent quarter.
  • Facebook Inc. has implemented employee travel restrictions to China across the entire company for non-essential trips, according to a spokeswoman. Employees based in China and those who recently returned from trips to the country are also being told to work from home.
  • Volkswagen AG is asking about 3,500 employees in Beijing to work from home for two weeks, starting the first day following the city’s Chinese New Year Holiday, from Feb. 3 to Feb. 17.
  • UBS Group AG and Goldman Sachs Group Inc. are among financial firms that have imposed travel restrictions to mainland China. HSBC Holdings Plc suspended business travel to Hong Kong until Feb. 11. Some including Standard Chartered Plc are providing staff with face masks and hand sanitizers, along with guidance on hygiene and how to avoid getting sick.
  • PricewaterhouseCoopers LLP: The accounting firm has suspended all business travel to Wuhan and employees returning from the city are required to work at home for two weeks before coming to the office, a spokeswoman said. The company extended Chinese New Year holidays for staff in Hong Kong and Macau to Jan. 31 and asked employees to work remotely where feasible following the holiday.
  • Shiseido Co.: The Japan-based cosmetics maker has banned employee travel to China, with some exceptions, a spokesman said Jan. 28. The company got about 20% of revenue last year from the country, its biggest overseas market.
  • Nissan Motor Co.: The automaker planned to evacuate most of its expatriates and their family members from Wuhan using chartered plane dispatched by the Japanese government, a company spokeswoman wrote in an email. Honda Motor Co. also organized evacuations. A handful of staff needed to maintain local operations will remain in the city.
  • Groupe PSA: The French maker of Peugeot cars and other brands also evacuated its expatriate staff and their families from the Wuhan area. A total of 38 people will leave, the company said in a statement Jan. 25.
Face Masks
3M Co., a top maker of protective face masks, is cranking up production. “We are focused on ramping up 24/7, not only in our China operations but in Asia, Europe and the U.S. to meet that demand,” 3M Chief Executive Officer Michael Roman said in a phone interview Jan. 28.

Closing Locations

  • Yum China Holdings Inc. temporarily closed most of its KFC and Pizza Hut stores in Hubei province until further notice.
  • Fast Retailing Co.: The operator of the Uniqlo casual clothing chain, has shut about 50 of its stores in China temporarily, a spokeswoman said.
  • Ryohin Keikaku Co.: Owner of the Muji clothing and housewares brand has closed some stores in Wuhan, according to a spokesman.
  • McDonald’s Corp.: The fast-food giant, which had about 3,000 stores in China at the end of 2018, temporarily closed locations across five cities of the Hubei province due to the virus, including Wuhan. The Chicago-based company is taking extra preventative measures in the rest of the country, including taking the temperature of workers upon arrival and giving out hand sanitizers to diners.
  • Walt Disney Co.: The world’s largest theme park operator closed its Disneyland resort in Shanghai effective Jan. 25. The company is offering refunds to guests who bought theme park tickets or reserved rooms in its hotels.
  • Nitori Holdings Co.: The Japan-based furniture and housewares retailer has closed seven stores in Wuhan, and shortened some store hours in other areas including Shanghai and Suzhou, spokeswoman Haruna Muramatsu said.

Wuhan, the epicenter, has more than 500 factories and other facilities, placing it 13th among 2,000 Chinese cities in Bloomberg’s supply chain database. It’s the capital of Hubei province, which has 1,016 facilities, making it seventh of 32 such jurisdictions. Many plants are in the auto and transportation industries.

–With assistance from Leslie Patton, Mark Gurman, Richard Clough, Christopher Palmeri, Phil Kuntz, Mary Schlangenstein, Yukari Chilnik, Brian Moran, Kana Nishizawa, Jonathan Levin, Lisa Du, Grace Huang, Anna Kitanaka, Siraphob Thanthong-Knight, Kiuyan Wong, Masatsugu Horie, Cathy Chan, Christoph Rauwald, Doug Alexander, Justin Bachman and Brendan Case.


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