Like many other American staples and luxuries, L.O.L. Surprise! dolls are made in China. Chatsworth-based MGA Entertainment has them manufactured in Guangdong province, trucked to the port in Yantian Harbor, loaded on ships and brought to the United States, where the popular toys are distributed to retailers and scooped up by eager children. The process went smoothly for years.
Then the coronavirus outbreak hit, and the supply chain stuttered.
The situation is “a disaster, frankly,” MGA Chief Executive Isaac Larian said. Production of his company’s toys has dropped 60% compared with this period last year. To get by, he said, he is filling only partial toy orders — “if a retailer wants 100,000 pieces, we’re giving them 15,000 or 20,000.”
Businesses of all stripes nationwide are feeling pain from the coronavirus outbreak, which has killed 1,775 people and infected more than 71,300 others worldwide, mostly in China.
Activity at Chinese factories has slowed or stopped. Fewer cargo ships from China are docking at Southern California ports. Chinese visitors’ spending in Los Angeles could plunge nearly $1 billion this year.
U.S. shoppers might start seeing items missing from store shelves as early as mid-April, analyst Edward J. Kelly of Wells Fargo Securities said in a note to clients last week. Big-box retailers such as Walmart and Target “could be the first to experience out-of-stock issues” because they restock more quickly, he wrote.
Larian, however, fears the virus could “cause a major downturn on the whole consumer-goods business — electronics, shoes, apparel.”
The timing of the outbreak was key because workers at Chinese plants had returned to their hometowns for two weeks to celebrate the Lunar New Year on Jan. 25, and “now they’re stuck, they cannot come back to the factories” because of quarantines, Larian said.
“Some of the factories that did open can’t get raw materials, like fabric and plastics, to make the products. And if they can make products, they can’t get them on the road to the ships because the quarantines mean you can’t travel from one area to another,” he said.
Rival toymaker Mattel Inc. also cited that problem Friday in announcing that its Chinese factories and those of its contract partners, which were supposed to restart production Feb. 3, would stay shut until Monday.
“We do expect production delays,” Mattel Chief Financial Officer Joseph Euteneuer said on a call with analysts. “While none of our manufacturing is located in the Wuhan province” where the coronavirus outbreak started, “the ability of the manufacturing workforce to return to work after the Lunar New Year holiday is being impacted.”
One of those workers is Li Jianchao, who works in a factory that makes stuffed animals and dolls in the southern Chinese city of Dongguan but traveled to the Jiangxi province in central China, 500 miles away, for the holiday. For the last few weeks, he’s had no luck contacting his boss about returning to work.
“At first, he said he would get back to us when he knew he could resume the operation,” Li said. “Then he stopped taking anyone’s phone calls.”
It’s a problem felt across industries. Apple Inc.’s manufacturing partners, such as Hon Hai Precision Industry Co., also known as Foxconn, imposed quarantines on workers returning from the holiday this month, causing a halt in device assembly operations.
“We see that the number (of virus cases) don’t seem to be ebbing,” said Gerrit Schneemann, senior smartphone analyst at the research firm IHS Markit. “It feels like this will continue on at least for a couple more weeks.”
The delays “will be a shock to the system and disrupt the supply chain further for Apple on both its core iPhone franchise and AirPods unit production, which is already facing a short supply,” analyst Dan Ives of Wedbush Securities said in a recent note.
China makes 80% of the world’s smartphones and tablets and it exports 55% of the world’s handsets and computers, according to research from the Swiss bank UBS.
Earlier this month Facebook Inc. stopped taking new orders for its back-ordered Oculus Quest virtual reality headset due to delays in hardware production from the viral outbreak.
Amazon.com urged Chinese third-party sellers on its Marketplace section to alert buyers of the likely disruption of orders and to consider setting their status to vacation mode to avoid incurring poor customer ratings, according to messages to sellers viewed by The Times.
Qualcomm Inc., the San Diego-based chip manufacturing giant, warned shareholders on an earnings call that the virus had introduced “significant uncertainty” into the company’s overseas supply chain, with Chief Executive Steve Mollenkopf calling the outbreak an “unprecedented situation.”
Chui Yin Chau, a virtual and augmented reality industry analyst with Greenlight Insights, said there was no clear end in sight to the turmoil.
“When we talk to manufacturers, they cannot give an estimate” of when they might be able to return to full production capacity, Chau said. “Most of them are starting to resume production this week, but it still depends on many, many external factors, so they cannot guarantee anything.”
The effect on supply chains extends to the Port of Los Angeles — along with the dockworkers, truck drivers and the vast warehouse and distribution network that rely on it — all of which already had been disrupted in recent months by the U.S.-China trade war, said Gene Seroka, the port’s executive director.
He estimated that overall, there would be 80 fewer sailings of ships from China to the United States, and 350,000 fewer shipping containers received, in the coming weeks. The number of cargo containers received at the twin ports of Los Angeles and Long Beach would drop by one-fifth.
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