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February 19, 2020

Promo Distributors’ Coronavirus Challenges

Lost orders, client fears and sourcing issues are occurring. Plus, is a Made-in-the-USA sales surge in the cards for the industry?

By  Christopher Ruvo

Lost orders, complications on custom projects, a need for more dexterity on sourcing, and client concerns over contagion are some of the issues North American promotional products distributors are dealing with as a result of the 2019 Novel Coronavirus, according to promo executives.

Since the outbreak of the virus in China late last year, more than 75,000 people have been infected with COVID-19 – the official name for the disease. More than 2,000 have died. Most of the infections and all but 10 of the deaths have occurred in mainland China, the country from which the North American promo industry sources most of the products it sells domestically.

COVID-19, Coronavirus

Prompting travel restrictions and related complications aimed at controlling the virus’ spread, Novel Coronavirus has hobbled Chinese factory production and gummed up export operations from China. Should the disruption drag on, some stateside promo suppliers fear that inventory shortages and increased shipping prices will occur later in the year, which could result in heightened product prices.

Order Disruption
The complicated, seemingly daily-changing situation is already rippling complications up promo’s supply chain to distributors. For instance, Jamie Stone told Counselor that import projects have been impacted.

“The factories in China are either not open, or are having trouble staffing after the Chinese New Year closure due to the coronavirus,” said Stone, president of Seattle-based distributor Gifts By Design (asi/205947). “As a result, we have have had orders placed with proofs and preproduction approved that had to be canceled, since the supplier has absolutely no idea when they will be able to complete the order.”

Gifts By Design isn’t the only distributor to contend with orders lost or in limbo as a result of COVID-19. “So far, we’ve had one order that has been delayed with no firm delivery date, but our customer was understanding and able to wait,” Kathy Finnerty Thomas, president at Arizona-based distributor Stowebridge Promotion Group (asi/337500), told Counselor.

End-Client Concerns
Distributors are also working to allay the fears of clients, some of whom worry that products they buy from the promo pros could carry COVID-19. “We’ve had a few people wanting to make sure that their Made-in-China products are safe and virus-free,” Stone said.

Terry McGuire, senior vice president of vendor relations and communication at Top 40 distributor HALO Branded Solutions (asi/356000), told Counselor that clients have asked if products they purchase could spread the virus. “Our review of several expert opinions has allowed us to provide confidence to our customers that this will not be an issue,” McGuire said.

Currently available evidence suggests that’s indeed the case. The Centers for Disease Control and Prevention, the United States’ leading national public health institute, says “there is likely very low risk of spread from products or packaging that are shipped over a period of days or weeks at ambient temperatures. … Currently there is no evidence to support transmission of COVID-19 associated with imported goods and there have not been any cases of COVID-19 in the United States associated with imported goods.”

The primary way Novel Coronavirus is transmitted is from person to person via respiratory droplets, such as those emitted in a cough or a sneeze, medical experts have said.

Given the newness of the virus, scientists can’t say definitively how long COVID-19 might last on surfaces that have not been disinfected. SARS, a coronavirus with similar properties to COVID-19, was found to be able to last anywhere from five minutes to nine days on inanimate surfaces. Still, “it is very difficult to extrapolate these findings to the Novel Coronavirus due to the different strains, viral titers and environmental conditions that were tested in the various studies and the lack of data on the Novel Coronavirus itself,” Dr. Charles Chiu, an infectious diseases professor at the University of California, San Francisco, told CNN.

Sourcing Gymnastics and Made in the USA
Meanwhile, given the disruption in China-based supply chains, some distributors are getting dexterous when it comes to sourcing, looking to up their procurement of products with origins outside China.

“We are already looking to suppliers that are sourcing from Mexico, India, Vietnam and other areas that have not been hit by the coronavirus,” Stone told Counselor. “We just placed a large bag order with a supplier in Vietnam that would normally have been done in China.”

Gifts By Design has also been making efforts to direct customers to Made-in-the-USA options, “as much as possible,” said Stone, adding: “We have a good list of supplier partners that manufacturer domestically, though the prices tend to be higher, so it’s a challenge that we need to work through with our customers. They may need to choose to pay more for domestic production or hold off on large purchases until the China supply chain opens up again.”

To date, it’s too soon to say if COVID-19 disruption will prompt a surge in Made-in-the-USA product sales in the domestic market, industry pros said. “If the virus situation continues for many months, then that might shift some buyers, but we aren’t seeing any increased sales impact as a result of the disruption right now,” said Rich Carollo, president of Chicago-based supplier Lion Circle (asi/67620), which manufactures all of its products in the U.S.

Finnerty Thomas said product availability and other factors could limit a potential Made-in-the-USA sales rise. “While we do try to source product in the U.S., quite often the U.S. suppliers don’t have the sufficient quantity or the level of customization needed for a project,” she told Counselor. “U.S.-made products are great, but very limited in scope of available products.”

As for sourcing globally, some distributors and suppliers say they were in a relatively strong position to deal with the disruption Novel Coronavirus is causing because they’ve been, in recent years, diversifying their supply chains so as to produce more products outside China. For instance, McGuire told Counselor that the U.S./China trade war and its tariffs on Chinese imports, which have increased prices on some promo products, compelled HALO to undertake an “extensive investigative effort to find alternative country sources for key products last year.”

McGuire continued: “We developed strong relationships within and outside of China in order to secure any product a client may desire. If we anticipate supply disruptions based on the coronavirus, we will work with our domestic suppliers to source outside of China.” McGuire added that HALO feels that, once production resumes at full scale in China, large suppliers with which HALO has preferred vendor relationships will be given priority by overseas factories. “We stress the value of our preferred supplier relationships in terms of stock availability, quality and price,” he said. “We will continue to do so.”

As complications from Novel Coronavirus continue, distributors said they will do their best to be nimble and adapt. “We are working closely with our suppliers to understand what to expect and with our customers to make sure their expectations are met – and certainly that we don’t ever let them down,” Finnerty Thomas said.

Still, coming through could become an increasingly bigger challenge if the COVID-19 issues don’t soon start to abate.

“I think we haven’t really begun to feel the effects of this yet, since suppliers have good levels of stock on hand at the moment,” Stone told Counselor. “If the coronavirus continues to spread, those inventory levels will start to run low, and I would expect to see shortages that start to have a big impact on the industry.”