As coronavirus melts markets, Philly CEOs feel the pinch to business

In the technology world, coronavirus is the talk of the industry.

Ron Schlecht, managing partner with BTB Security of Bala Cynwyd, is attending the RSA Security conference in San Francisco this week.

“It’s the largest conference in our industry and there’s been a significant impact due to the coronavirus,” he wrote by e-mail. “Large vendors like IBM, ATT, and Verizon have dropped out and attendance is expected to be down."

Kareem Afzalm, vice president of PDC Machines, which makes equipment for the alternative-energy sector, hydrogen fuel cells, and refueling equipment, said the virus isn’t affecting his supply chain yet.

The Warminster-based company said it is “hitting our business. I did cancel a trip to Japan. I had a conference and a huge expo in Tokyo and while the expo is still going on, half of the exhibitors who were supposed to be there have canceled.”

And yes, it’s costing the company.

“We’re losing money well into six figures on the conference. We’re not a big company. I’m still feeling sick to my stomach about it. But it’s better for my staff. We’re not doing anything risky.”

PDC Machines followed the leads of big companies Toyota and Panasonic.

“You had to have a mask to enter the Expo Hall. I was supposed to go today but canceled,” he said. The conference is scanning attendees for their body temperature and advising everyone to wear masks at World Smart Energy Week.

“We had equipment in China that usually runs there filling hydrogen trucks. To our understanding, that’s not operational now. Our office in Shanghai, our staffers are having video conference calls to keep things moving. But for the most part, factories and plants, and even restaurants are closed.”

Because of the virus PDC Machines is not shipping to China. Instead, PDC has a crate “holding tank” where product is piling up.

“But all of China is a holding tank now. People are stuck. My director there, I’ve never seen him not shave. He has a big beard now. I see it on the video calls. He can’t do any face to face visits with customers.”

Philly’s Bassetts Ice Cream, among the country’s oldest family ice cream brands, sells widely in China, according to Lauren Swartz, deputy commerce director for international business and global strategy for the City of Philadelphia.

“The company sells quite a bit in shopping malls, but people aren’t going to shopping malls in China,” she said. Based in Reading Terminal Market, Bassetts also purchases "a lot of milk from Pennsylvania dairy farmers. If they can’t ship to China, and others can’t export dairy, what does that do to their margins?”

So far, David’s Bridal, the nation’s largest bridal store chain, can still adorn prospective brides with gowns. Coronavirus hasn’t sickened the wedding industry -- at least not yet.

“At this point, it’s not affecting us,” said Jim Marcum, CEO of Conshohocken-based David’s Bridal.

“Every one of our five Chinese factories is open. Half our gowns are produced there,” he said.

“We’re very fortunate; we have plenty on hand and that really sets us apart. We have two large distribution centers here in the U.S. and we have pretty significant inventory of about 300,000 bridal dresses in stock,” he said.

Most boutiques buy through a wholesaler, and that’s where there’s friction in the system.

“We had heard that wholesalers were reaching out to boutiques and telling them there could be delays in the supply chain," he said.

David’s Bridal has factories outside of China in Southeast Asia.

“We don’t have factories in Wuhan” where the virus originated, he said. “Ours are between Hong Kong and Shenzhen and have been up and running and inspected for the virus. We would isolate anyone who had the virus, but so far we have not had a single employee come down with it. We’re just very fortunate.”

“We spend a lot of time and effort to source everything domestically. We have been criticized for doing this and faced not only external but also internal challenges to doing this, but we feel that manufacturing should be local," said Thomas Lawton, head of TESCO Meter in Bristol. "As a result, we are fortunate that we have not been impacted other than one vendor who evidently sourced their parts from China.”

Said Sterling Wilson, founder and president of Pop! Promos and redeveloper of the Historic Harbison Dairy Building: “Coronavirus has impacted our operations both at our headquarters here in Philadelphia as well as at our offices in China and the Philippines. We have shelved all international travel plans for our teams until the situation clears up and have been sending lots of thoughts and prayers to our staff in Shanghai.”

“Most of our vendors returned to work on 2/17, but are starting off at only 60% capacity. It will be weeks if not months before they fully recover,” Sean Darras, CEO of LuxTech, said in an email.

When do CEOs estimate the coronavirus might stop impacting business in 2020?

“On our business, the only situation that would impact sales significantly is shutdowns of towns. For example, recently towns in Lombardy, a northern region in Italy, were shutdown, where we have nearly 50 stores,” said Eric Griffin, co-founder of Mobile Outfitters, which makes accessories for cellphones.

One of Mobile Outfitters’ core products is made in China, so “we are missing our launch for the new Samsung S20 series phones in March. We only launch our Fusion Bumper a few times a year... so this will without a doubt affect our sales this year."

Philly Marketing Labs recently took on a client in Hong Kong, a manufacturer of health supplements with distribution all over Asia.

“The virus has decimated their retail sales in Asia. As a result, they have retained us to establish their footprint in the U.S. and set up their direct to consumer retail channel on Amazon,” said CEO Bechara Jaoudeh. “This has become an accelerated launch in an effort to drive enough revenue from the U.S. market to sustain their operations until Asian markets rebound.”

A potential interest rate cut by the U.S. Federal Reserve could be the main impact of coronavirus on local real estate.

“The only thing that may be affected is interest rates on mortgages,” said Philadelphia real estate developer Noah Ostroff. “Rates have been fairly low recently as a potential result of this, but it has not made any major impact on my business.”

“Our base case is that the economic impact in China will be confined to the first quarter, followed by a V-shaped pickup in growth due to pent-up demand, inventory restocking, and policy support. That would favor our overweight to emerging markets and buying Asia ex-Japan on the dips,” said Michael Greenly, senior vice president at UBS Private Wealth Management.

“We are monitoring the economic impact outside China, but still consider that adverse effects would likely be confined to one quarter. The next two weeks will be important in determining whether the authorities in Europe and elsewhere can quickly contain the outbreak, or whether there is a further rapid spread of the virus,” he said.

Investors will also be tracking “live” activity data, including coal consumption, traffic congestion, and air quality from China to assess how quickly the country is getting back to work.

So far, the impact “has been very isolated here. The travel ban helped. Other countries didn’t have that in place right away,” said Timothy Chubb, chief investment officer based in King of Prussia with Girard, a financial advisory firm.

“However, the European and Chinese consumer may impact U.S. growth here, since 51% of revenues in the S&P 500 come from outside the U.S. The Chinese economy is now five times larger than in 2004” as a contributor to global GDP, Chubb said. “I did not think the SARS playbook would be helpful and not likely to be ‘SARS all over again’ – the market will not be able to shrug off the COVID-19 like they did SARS in 2003.”

Monday’s stock market sell-off was a “rational sell-off and orderly. There’s no panic selling taking place. It was irrational for the market to go up as much as it did. It was overdue. I’m not happy the market’s down, but I’m glad the potential impact of corona is finally being recognized.”