Kathy Phillips

Kathy Phillips, CEO and founder of Primitives by Kathy, in the company's Greenfield Corporate Center warehouse on Friday.

The deadly coronavirus outbreak in China is forcing a Lancaster-based company to quickly create new ways of doing business.

Primitives by Kathy, a wholesaler of gift items, home decor, seasonal items, home accents and other products, gets 69.3% of its sales from items it imports from China.

But with the outbreak restricting travel in China, factory workers have been slow to return to their jobs in cities following the end of their Lunar New Year celebrations in rural areas.

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So instead of full production resuming two weeks ago, on Feb. 3, that date is unknown.

“It’s going to take weeks and months until their capacity is back to what it was before the virus hit...,” said Kathy Phillips, the company’s founder and CEO.

“As people get back, they plan on working two shifts and weekends. They’re really going to crank the hours and turn up the volume as much as they can to try to catch up,” she said Friday.

To cope, Primitives by Kathy is turning more to India as a source of product, a country whose products account for 28.3% of company sales, and placing orders sooner than usual.

It’s also working with the stores that carry its wares to arrange for deliveries being later than usual, though that might come at a cost to Primitives by Kathy.

Primitives by Kathy, established in 1997, has 170 employees and posts annual sales of nearly $50 million.

Its customers are 25,000 independent “Mom & Pop” retailers and 125 corporate customers such as Hallmark, Nordstrom, TJMaxx, Dillard’s, Gabe’s, Tuesday Morning and Kohl’s (its largest customer).

The company designs its own products, which now number 8,000, but nearly all are made overseas. Only 2.4% of its sales come from items made in the U.S.

“We use 50 factories in China. There are a few that are still closed. The majority of them have been able to open doors and have workers trickling in,” said Phillips.

The coronavirus crisis in China is affecting many aspects of Primitives by Kathy’s operations.

(It hasn’t touched the size of its Lancaster workforce, though; no employees have been laid off, said Phillips.)

For instance, consider the process of checking out a potential new manufacturer.

Phillips and her team have gone to a major trade show in China, attended by 25,000 exhibitors, every April for the past 18 years. Not this year, however, due to the outbreak.

“We’re not risking our lives to attend the fair,” said Phillips.

Potential manufacturers are asked to make three samples. Again, with the outbreak, the factories have had trouble making anything. And if they can, it’s been hard to ship samples to the U.S.

Traditionally, Primitives by Kathy has used United Parcel Service’s air freight. Because of the outbreak, its China flights have been severely curtailed. So Primitives by Kathy switched to DHL.

The challenge of getting samples made and shipped has prompted Primitives by Kathy to delay the launch of its catalog of pet-themed products by two to four weeks.

Primitives by Kathy also is adjusting its approach to Chinese factories that already are among its suppliers.

For example, Primitives by Kathy typically orders its fall and Christmas merchandise for its independent retailers in mid to late March. But this year, those orders are going in this week.

While Primitives by Kathy is getting a head start on production, the company also is getting delays in delivery dates.

Delayed deliveries, though, can make seasonal products less valuable to the retailer because those products are on the shelves for a shorter time. If the season or holiday passes, and the merchant has leftover goods, deep markdowns might be needed to sell them.

“A lot of our agreements with key accounts have guaranteed margins,” Phillips explained. “When we have to ask for delays, sure, they’ll agree to that. But it could bite us later when we discuss how the product performed.”

In some cases, it already has. Phillips said she recently gave Kohl’s a $200,000 credit on a current payable or future order for that reason.

Impact on Armstrong Flooring

Another Lancaster-based firm, Armstrong Flooring, which has a 300-employee plant in plant in Wujiang, near Shanghai, is facing some of the same hurdles as Primitives by Kathy.

Production there had been shutdown because of the travel restrictions.

But a spokesman said Friday, “We have begun ramping up operations  ... Employees are now returning to work and others have been working remotely.”

Armstrong Flooring also played a role in the 10-day construction of two hospitals totaling 2,600 beds in Wuhan, the epicenter of the outbreak, to treat coronavirus patients.

Though Wuhan is more than 400 miles west of Wujiang, Armstrong's distributor in Wuhan had vinyl sheet flooring for health-care facilities in stock, putting 7,000 square meters in one hospital and 700 in the other. The product value was not disclosed.

An extra 45 workers were taught how to install the flooring in the first hospital to accelerate the completion of the job.