Nike, Under Armor and more face supply issues in Vietnam

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By Parija Kavilanz, CNN Business

The growing demand from buyers associated with shortage of shipping containers and bottlenecks in ports have already triggered a tightening of the supply of products, cars to shoes.

In particular, some of America’s biggest clothing and footwear vendors cite a catalyst that has escalated the pressure: factory closures in Vietnam resulting from a second wave of the coronavirus outbreak there. This has led brands from PacSun to Nike to warn of the effects on their supply.

At the end of December, Nike cut its full-year sales outlook due to supply chain issues, although its CEO noted strong consumer demand.

Nike manufactures about three-quarters of its shoes in Southeast Asia, with 51% and 24% of manufacturing in Vietnam and Indonesia, respectively.

But as the Vietnamese government imposed restrictions related to the pandemic, including a mandatory shutdown of factories for several weeks from July to September, Nike said it suffered 10 weeks of production loss.

Even when factories begin to reopen, which the company plans to do in phases from October, ramping up to full production could take several months, Nike CFO Matthew Friend said during of a recent call for results. Half of Nike’s clothing factories in Vietnam are currently closed, company executives said during the call.

Vietnam accounts for a third of the production of footwear and clothing for the sports brand Under Armor. Under Armor CEO Patrik Frisk said in his latest earnings call in August that he was closely monitoring the impact of plant closures there on its supply chain, calling it a “situation. in development”.

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Vietnam is a crucial supplier to the United States, especially for clothing and footwear.

“It is a very big partner of the United States. It’s our second largest source of clothing and footwear, ”said Steve Lamar, president and CEO of the American Apparel and Footwear Association, an industry group. China is the largest supplier of clothing and footwear, according to AAFA.

In July, Vietnam was caught in the throes of a coronavirus outbreak caused by a suspected new variant of the virus, which the Vietnamese Minister of Health said has led to the rapid spread of new infections in the country’s industrial areas. .

The government subsequently imposed strict closures and temporarily closed factories there until mid-August, then extended it until September. Some factories are still closed.

This all means that the production of everything from sneakers and sandals to jeans, dresses, t-shirts, jackets, etc. is at a standstill.

In a research note last month, BITG analyst Camilo Lyon said athletic shoe brands such as Nike and Adidas are most at risk of serious supply chain disruptions because ” Vietnam has been a strong manufacturing alternative to China in recent years. “

Other brands that have significant manufacturing exposure in Vietnam, he said, include maker of Ugg Deckers Outdoor, Columbia Sportswear, the parent company of Coach Tapestry and Capri Holdings (which owns the Michael Kors brand). .

Lyon estimates that it may take five to six months for the Vietnamese factories to be operational again and functioning normally after the lockdown ends. And every time they come back online, he anticipates another problem: the staff.

“Vietnamese factories are also likely to struggle to get workers back to work after the lockdown,” he said.

Teen retailer PacSun expects an impact on the holiday season.

Brieane Olson, president of PacSun, said in an August interview with CNNBusiness that about 10% of its products come from Vietnam.

Olson said the retailer was already facing a two to four week delay for its back-to-school inventory this year due to ongoing delays in the global supply chain.

Now, she said, new products for the winter and the holiday season are also expected to face another four-week delay, she said, making it a challenge to get new fashions and styles of jeans, tops, pullovers and sweatshirts in stores timely. manner.

And there is an additional effect on the consumer, Olson said: Having fewer products means the retailer will take the discounts “because it doesn’t have to,” she said.

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