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The SARS Fallout: Sourcing Goes Cyber, Economic Fears Grow

The SARS outbreak in ASIA is causing numerous headaches for global fashion companies, but so far hasn’t impeded production in the region.

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NEW YORK — The SARS outbreak in China is causing major communication headaches for global fashion companies, but so far it hasn’t impeded production in the region, and firms say they’re still pressing ahead with plans to open stores there.

Most apparel firms that have canceled all travel into China have implemented contingency plans to communicate with their factories and employees via teleconferencing, e-mails and telephone calls. So far, none of the companies contacted has had to shift any of their production away from their usual Chinese factories.

But the outbreak could have major negative long-term implications as the latest blow for the global economy. Economists estimate the epidemic already has cost the world economy $30 billion, while many predict growth in Hong Kong and China could stall this year because of SARS. There also are the first rumblings from economists that SARS could nudge U.S. retail prices upward because of production bottlenecks and other disruptions — representing yet another possible pothole for retailers already struggling with poor consumer confidence and a lackluster economy.

Meanwhile, retailers in Toronto are reporting sales declines of up to 30 percent as a result of declining tourism to the area, and those in Hong Kong are beginning to pressure landlords for rent concessions. And while companies from Giorgio Armani SpA to Carrefour contend they are pushing ahead with their plans to open stores in China, they admit their businesses are being hit by the epidemic.

While businesses are coping, no one pretends the adaptations are easy. Not being able to travel to China makes quality control more difficult, can slow the design process and raises the possibility that, if the epidemic drags on, alternative production sources might have to be found.

"The biggest problem is in communication. Work is getting done, but reports are slower," said Wendy Chivian, president of Anne Klein, which does a significant percentage of its production in China, adding that so far, things are proceeding on schedule. "The e-mail is slow, and they’re communicating by phone five times a week, up from once or twice a week." Some of the administrative people are making calls from home, rather than from the factories, she said.
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