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Coronavirus Limitations: Retailers Rethink Vietnam Manufacturing

The worker is Thai Son SP Co in Binh Thuan Province, Vietnam. I’m folding clothes at a garment factory.

Mica Elan | Bloomberg | Getty Images

As the holiday season approaches, long-term coronavirus regulation in Vietnam has become a major headache for retailers, especially those who rely on the region to manufacture shoes and apparel.

Worries led to Wall Street research firm BTIG Downgrade Nike Last week’s share. BTIG has raised serious production problems for sneaker makers since it last reported revenue. Supply chain challenges are expected to become a hot topic when Nike’s next accounting quarter financial report falls after the stock market closes next Thursday.

Trouble goes beyond Nike. According to recent comments to analysts and investors, there is an increased risk for many other retailers that have been hampered by delays in the supply chain waiting for Vietnam’s production facilities to recover and operate.

Difficulties even reconsidered the decision of some companies to move production from China to Vietnam.

on Monday, Authorities have announced a two-week extension of restrictions in Ho Chi Minh City, Vietnam’s business hub and epicenter of the Covid outbreak. Under restrictions, factories are subject to regulations that require workers to stay on-site or to shut down altogether. Experts also say that regulations in northern Vietnam were not as strict as those in southern Vietnam.

Some retailers are hoping that pressure will be relieved.Leggings maker Lulu Lemon The Vietnamese plant is expected to begin a gradual reopening in mid-September, he said.

High-end furniture chain RHOn the other hand, in southern Vietnam, we are aiming to restart in October. We hope to get full production by the end of the year.

The slowdown in manufacturing, coupled with longer transport times and higher transport costs, has reduced RH. Delay the launch of that contemporary furniture Collection until next spring. Also, the mailing of the autumn catalog was delayed.

For now, many companies are watching how restrictions and manufacturing activities evolve. But as the vacation approaches, things will get even darker.

Vietnam’s obstacles add to other supply chain problems, from shortages of freight containers to unprocessed ports to a limited number of truck drivers. Some companies that have moved production from China to Vietnam in the last few years to diversify their supply chains and avoid tariffs have even said they will return production to China.

During a presentation with investors last week Designer brand CEO Roger Rollins said he spoke with another industry CEO who said the slowdown in Vietnam had canceled six years of supply chain work in six days.

“Given the amount of effort everyone has put into escaping from China, China is now one of the only places where you can get your goods,” says Rawlins. “It’s really crazy, a roller coaster everyone is here.”

Rawlins said Designer Brands sells less training wear and performance shoes (such as running shoes and basketball shoes), which makes it far superior to its peers through blockades in Vietnam. Categories, including so-called athleisure, have traditionally been country-dependent.

Retailers with some of the largest exposures to Vietnam include Ugg and Hoka parents Deckers Outdoor, Michael Kors parents Capri Holdings, Columbia sportswear, Nike, coach owner Tapestry, Under armor According to BTIG’s analysis, Lululemon.

BTIG analyst Camilo Lyon said in a report to customers that manufacturing troubles in Vietnam could have little impact in the third quarter. More problems could occur in the fourth and holiday quarters, and perhaps in the first half of next year, Lyon said.

“Many brands aggressively cut orders in anticipation of capacity constraints and backlogs when factories were restored and operational after the closure,” Lyon said. “Many larger brands have moved or tried to move some production to other countries.”

Products tracked by BTIG usually take about 3 months to produce in parts of Asia, but are currently taking 12 weeks longer due to the backlog.

“It can take five to six months for the factory to recover and operate normally after the lockdown,” Lyon said. “This includes delays in receiving raw materials by 4-5 weeks and the factory taking another 8 weeks to process the production backlog.”

Vietnam’s factories are also likely to struggle to get workers back after authorities lift Covid-related restrictions, according to BTIG.

Urban Outfitters CEO Richard Hayne told analysts in late August that retailers’ primary concern was to receive inventories, especially dresses and bottoms ordered from Vietnam.

“We have a situation in Vietnam … the country is completely closed,” he explained. “There are a lot of products out there and we are trying to incorporate them.”

A few months ago, the outbreak of Covid made India a problematic place for the retail industry, according to Urban Outfitters. Later, Vietnam began to raise issues, the company said.

Donna Dellomo, CFO of furniture company Lovesac, said she returned her orders from Vietnam to China to minimize risk.

“We know that inventories from China are subject to tariffs, but we can keep them in stock, which is very important to our customers and to us,” she said in a conference call. I did. Call me earlier this month.

BTIG estimates that Nike produced about 350 million pairs of sneakers in Vietnam last year. Research firms predict that 160 million pairs may not be manufactured this year due to shutdowns.

Nike declined to comment as it was in a quiet period ahead of the earnings report.

— CNBC Michael Bloom Contributed to this report.

Coronavirus Limitations: Retailers Rethink Vietnam Manufacturing

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