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FinanceCoronavirus

As coronavirus spreads, even furniture sellers in the U.S. are starting to feel the fallout

Lucinda Shen
By
Lucinda Shen
Lucinda Shen
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Lucinda Shen
By
Lucinda Shen
Lucinda Shen
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February 14, 2020, 11:30 AM ET

China’s significance in the global economy is front and center with the spread of coronavirus.

Companies around the world turned to China for cheaper labor and materials costs over the past several decades. Now, as factories delay operations in the country due to the rapid spread of the disease, industries from the automotive sector to apparel are warning that coronavirus will lower production or deliveries.

Now the virus is spreading to an unexpected spot: furniture sellers in the United States.

“We have received notice from various manufacturers and suppliers that they are extending the ‘Chinese New Year’ [holiday] for at least one extra week to accommodate the quarantines.” said Jesús Capó, Chief Information Officer at Florida-based El Dorado Furniture. “We will run a little short on some products—but if it continues, after a while you are going to have to find products somewhere else.”

While some plants have begun reopening across the middle kingdom this week after lunar year closures were extended over fears of coronavirus, it’s still unclear how long it will take for workshops to become fully-functional as cases continue to mount.

Capó estimates of the delays in shipments could rise to a month, depending on how the virus spreads. 

“We have a buffer to deal with unforeseen circumstances, but if we continue to see delays, we may not have enough stock or have to source inside the country,” says Jameson Dion, vice president of global sourcing at interiors retailer City Furniture. “We anticipate a material impact on the business—we just don’t know how bad.”

Coronavirus, which has killed 1,107 and infected 44,138 worldwide, has brought the world’s largest exporter to a standstill and severed supply chains around the globe. Seeking to contain the spread of the disease that emerged in December, China banned travel to-and-from Wuhan and temporarily shut down factories. Several countries meanwhile have imposed travel restrictions as major shipping companies such as Maesk reducing and cancelling shipments to Chinese ports.

Now, companies hailing from multiple industries have told investors to brace for interruptions as a result of coronavirus. Athleisure maker Under Armor warned of shipping delays, while Nissan halted production at a Japanese plant due to a shortage of Chinese parts.

In particular, alongside the auto industry and discount retailers, analysts say furniture and interiors companies have a high level of supply chain disruption risk. In recent notes, Wells Fargo pointed to At Home and Wayfair, while Morgan Stanley added the likes of Floor & Decor Holdings and Lumber Liquidators to the group of companies it says sources a percentage of its products from China.

“Inventories currently are in good shape, as companies pulled forward product to get ahead of tariff issues and the Chinese New Year,” Wells Fargo Securities analysts led the round by Edward Kelly wrote in the Tuesday note about retailers in general. But the team added: Consumers may start seeing out-of-stock signs “within 60 to 90 days if disruptions continue beyond the next few weeks.”

The problem is, restarting the “world’s largest factory” will be a more painful and more gradual process than simply setting a date. While some of City Furniture’s Chinese vendors restarted their engines this week, more delays may still be in store: the vendors’ own suppliers—the fabric and glue makers for instance—may not be up and running yet. 

Analysts also worry how long it will take for factories to start running at full capacity. China’s manufacturing sector depends on migrant workers returning from outside the city to revitalize production, but with a raging health crisis outside, workers may elect to stay away.

“Ultimately, if this continues for an extended period of time, it may accomplish much more quickly what the tariffs intended to do, and force retailers into moving their sourcing to other countries, even the United States,” says Capó.

And while homebuilders and renovators say they have yet to see an impact on their sectors, economists and constructors are keeping an eye on the developments.

“I think the impact will depend on the length of this epidemic,” said Bruce Case, CEO of Case Architects and Remodelers. “In the short term and to date we have not seen an impact. But if the virus continues, inventories will be depleted and we will see supply shortages and price increases.”

Fortunately, home retailers may have a slightly larger moat than some other retailers that work with a higher inventory turnover. Broadly across his products, Capó estimates he has enough to tide him over for 90 to 120 days. What impact coronavirus may have on public home goods retailers like Wayfair and At Home, which report earnings later this year, remains to be seen. Wayfair reports Feb. 28 while At Home reports March 25.

Companies though are repeating one main piece feedback for long term impacts: We just don’t know. Coronavirus often garners comparisons to the SARS outbreak of 2003—but unlike 2003, China is at the center of a global trade ecosystem. 

The only thing that is certain: When Chinese companies come back online and the tangled wires of global trade plug back in, companies all over the world will be in for a logistical nightmare of backlogs and accounting as all parties to get back up to speed.

More must-read stories from Fortune:

—Why China is still so susceptible to disease outbreaks
—Coronavirus risks universities’ reliance on Chinese students
—Stock scammers are using coronavirus to dupe investors, SEC warns
—A new coronavirus red flag on the horizon—a stronger dollar
—WATCH: Coronavirus outbreak has disrupted global economy

Subscribe to Fortune’s Brainstorm Health for daily updates on biopharma and health care.

About the Author
Lucinda Shen
By Lucinda Shen
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