Vietnam factory closures will affect clothing and footwear supplies in 2022 – RetailWire

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22 November 2021

As supply chain disruptions impact all industries, the recent closure of factories in southern Vietnam has become a particular problem. roadblock for many in the clothing and footwear sector.

Vietnam has grown in recent years to become the second largest supplier of clothing and footwear to the United States after China. Among those with high exposure, more than half of Nike’s shoe manufacturing and one-third of its clothing comes from Vietnam, while Gap and Lululemon each source around one-third of the country’s products.

Due to COVID outbreak, Vietnam entered a prolonged lockdown that closed factories in mid-July. The openings started slowly at the end of September.

On the bright side, the 10 weeks of lost productivity and continued production undercapacity are not expected to impact the holiday shopping season in the United States, as production for the holidays was completed before the surge. COVID, according to a recent report by Global research BofA.

BofA predicts, however, that US retailer inventories will be significantly disrupted in the first half of 2022 and it will take longer than expected to return to full production capacity. BofA maintains that the return of workers to factories will be slowed by the phasing out of restrictions, complicated factory guidelines, low vaccination rates and worker apprehension.

Rising input prices and port congestion could lead to a slower recovery in production activity, according to BofA. In the note, Mohamed Faiz Nagutha, BofA economist for ASEAN, said: “Efforts have been made to overcome such difficulties, such as shifting shipments to air freight and proposals to relax the overtime cap. But these are not permanent solutions. Therefore, we believe that a full recovery of productivity and usability will take longer than expected. “

By reducing their forecasts in recent quarterly calls, Nike and Adidas both said the impact of the production disruption in Vietnam would begin during the holiday quarter and continue into early next year.

Nike CFO Matt Friend told analysts: “Lost production weeks combined with longer transit times will cause short-term inventory shortages in the market for the next several quarters. “

DISCUSSION QUESTIONS: Do you see a minor or major impact on the clothing and footwear industry from factory closures in Vietnam? What mitigation measures should affected companies explore in the short term to limit the fallout as well as in the long term to reduce the risk?

Braintrust

“Management teams would be well advised to bring together various teams to think creatively about multiple scenarios. “

“Retailers should diversify their production networks and consider as much local sourcing and vertical integration as possible to overcome this. “

“The world does not revolve around southern Vietnam. We are seeing more products made in Bangladesh, India, Malaysia, Pakistan, Egypt and elsewhere.

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