Difficulties arising after difficulties

As the year-end shopping season is approaching, strict Covid-19 epidemic control measures including prolonged social distancing in Vietnam are becoming a big problem for retailers, especially those rely heavily on the footwear and clothing supply chain in this country.

Such worrisome situation is the reason why research firm BTIG downgraded Nike's stock outlook last week when the business was believed to be facing some serious production problems.

It is estimated that about 350 million pairs of sports shoes branded Nike were manufactured in Vietnam last year. The prolonged social distancing measures since the beginning of this year could cause Nike to lack production of about 160 million pairs, according to BTIG.

Not only Nike but many other companies also face high risks when they have to wait for production facilities in Vietnam to return to operation. Such difficulties in production disruption had also caused some companies to consider leaving China and moving to Vietnam in the first outbreak of Covid-19.

Many retailers expect tensions in supply chain to be eased in the near future when anti-epidemic measures are relaxed. For example, high-end furniture chain RH plans to restart in the South in October, hoping to reach 100% capacity by the end of this year. Previously, production activities of the company were slowed down, along with long shipping times and high freight rates, causing RH to delay the plan to launch its new collection till early next year.

Orders to “flee” from Vietnam

Some businesses that have moved production lines to Vietnam to avoid value-added tax in China in the past few years are now considering returning to the billion-people market.

A CEO in the fashion industry said that production disruption in Vietnam has blown the effort to build a supply chain over the past six years away in just six days. Many businesses have tried to leave China and now, one of the only places to find goods is this country.

According to analyst Camilo Lyon of BTIG, production difficulties in Vietnam currently have not much impact on the third-quarter business results, but may cause problems in the fourth quarter with the new year festival and even the first half of next year.

Accordingly, many businesses have proactively cut orders due to capacity constraints and delays when factories resume operations after a long period of hibernation. Larger brands have decided to move, or try to move some activities to another country.

Donna Dellomo, CFO of furniture firm Lovesac, earlier this month said that the company had moved orders out of Vietnam and returned to China to reduce risks.

"Goods made in China will be subject to high tariffs, but even so, businesses can still stabilize their inventory sources - which is especially important for both businesses and customers," Ms. Dellomo emphasized.

During a high-level meeting between the European business community and Vietnamese leaders, the President of the European Chamber of Commerce in Vietnam (EuroCham) Alain Cany also warned about the possibility of foreign businesses leaving if social distancing is prolonged.

“If lockdowns, social distancing and travel restrictions continue for much longer, new investments may be at risk and companies may consider relocating elsewhere in the region.” he noted.

At the press conference after the meeting, he added that there have been European businesses in Vietnam transferring part of their orders or production needs to other countries, while others are considering.

However, he also noted that this is a temporary decision of businesses and affirmed that so far, no European enterprises have left Vietnam. In mid-August, Nikkei shared that Apple and Google had temporarily stopped moving production from China to Vietnam amid the fourth outbreak. Accordingly, Google's Pixel 6 products will be manufactured in China, instead of in North Vietnam as planned at the end of last year.

Meanwhile, Apple has also changed its plans to produce AirPods and the product will be shipped from the world's top economy. However, this brand said it still expected to transfer 20% of its output to Vietnam.

Source: theleader

Compiled by VietnamCredit