The crisis is a stark reminder of China’s outsized importance to global companies.
“Like it or not, at this point if you’re a multinational, China is probably your first or second largest consumer market,” said Ben Cavender, managing director of the consultancy China Market Research Group.
“And it’s probably your major base of production, or it’s responsible for some significant amount of your supply chain work,” he said in an interview from Shanghai, which has been under lockdown for six weeks.
No mood to shop
Estee Lauder, which is home to Bobbi Brown and MAC cosmetics, now expects its global sales to grow between 7% and 9% year-on-year, down from a previous range of 13% to 16% outlined in February.
The company said it had taken a hit from suspending all business in Russia and Ukraine following the invasion, leading to a decline in sales. Sales also fell 4% in Asia Pacific over the last quarter, which was “driven entirely by Greater China,” Chief Financial Officer Tracey Travis said on an earnings call.
Some businesses have declined to make a forecast at all.
Kering, the owner of Gucci and Bottega Veneta, said last month that it was also feeling the pain, with “sharp drops in traffic,” store closures and major logistics challenges posed by the lockdowns.
“The situation is hopefully temporary,” Chief Financial Officer Jean-Marc Duplaix said on a corporate sales call.
However, the mood on the ground is gloomier.
“Frankly speaking, consumers right now are not worried about buying lipstick or coffee,” said Cavender. “They’re really much more focused on getting [necessities].”
Even those who aren’t stuck at home may be affected. Consumers who live in cities without restrictions might also hesitate to go out and hit the mall, for fear of “what has happened in Shanghai,” where people remain in lockdown indefinitely, said Cavender.
“It’s been a very big negative drag on consumption.”
Still the world’s factory
Companies are also facing trouble at the back end.
Apple blamed the expected revenue drop on both restrictions in China and component shortages worldwide. Some of the shutdowns briefly affected about 20% to 30% of all iPhone production, according to Everstream Analytics, a firm that provides supply chain risk analysis.
Apple’s constraints were “primarily centered around the Shanghai corridor,” where it has several factories that were impacted, CEO Tim Cook said in an earnings call.
In some cases, the tension has boiled over. Videos posted on Chinese social media last week showed workers from a factory in Shanghai flooding past barriers and clashing with security guards dressed in hazmat suits, suggesting heightened friction over weeks of lockdowns. It was not immediately clear what exactly sparked the incident.
The factory is owned by Quanta, a Taiwanese Apple supplier. According to Chinese state news outlet Xinhua, the plant had resumed work under a closed loop system, whereby workers live in designated areas and adhere to strict protocols.
Apple referred CNN Business to Quanta when asked about the matter. Quanta did not respond to a request for comment.
According to Cavender, many auto suppliers have continued to face difficulties keeping their own factories up and running, or delivering components.
Chinese ports and other logistics hubs continue to face troubles, however.
Those “were already much higher than pre-Covid levels,” Chief Financial Officer Brian Olsavsky told analysts during the company’s results presentation, citing the spread of the Omicron variant in China and labor shortages in various locations.
Many brands have expressed optimism about a recovery for their businesses once the crisis subsides.
But analysts have warned of the adverse effects of the country’s “zero Covid” policy, saying that the economy could slow significantly this year.
According to CNN’s latest calculation based on government data, at least 31 cities in China are under either full or partial lockdown, potentially affecting about 214 million people across the country.
The ongoing dilemma may ultimately lead some businesses to reconsider their positions, according to trade groups.
As other nations continue to reopen, some foreign companies may consider moving their regional headquarters out of China, according to Jörg Wuttke, president of the European Union Chamber of Commerce in China.
“I definitely see discussions,” he told CNN Business.
Cavender said that the recent challenges in Ukraine and China had highlighted “a period of greater risk” more broadly for international firms.
“I do think there are a lot more challenges now to being a multinational than there have been in the past,” he added.
— CNN’s Beijing bureau, Jorge Engels, Lizzy Yee and Nectar Gan contributed to this report.