Clothing companies face production challenges due to COVID-19 outbreak in Asia. Retailers with factories in Vietnam suffer the most: many factories in the country stopped working.
"Production stop in Southeast Asia, started in August, led to delivery delays and higher costs across the industry.”, analysts at investment bank Cowen said. In their opinion, companies will begin to revise their expectations during the coming reporting season.
21 company from index S&P 500 has already reported for the third quarter of 2021. According to FactSet, about 70% companies reported, that disruptions in the supply chain had a negative impact on their bottom line.
One example is sportswear manufacturer Nike.. The retailer reported a shortage of goods due to supply disruptions. 45% Nike clothes and shoes are made by Vietnamese factories, more than half of which are temporarily unemployed. According to company forecasts, in the coming months, revenue growth will slow to a few percent.
BTIG analysts downgrade Nike from Buy to Neutral and warn, that supply disruptions could seriously affect a company's holiday sales. Nike shares fell by 12% from the beginning of August, when the first reports of problems with production appeared. Foot Locker promotions, other sportswear and footwear retailer, for the same period fell by 18%.
According to BTIG forecasts, COVID-19 outbreak in Vietnam will impact retailers' financial results in Q4 and H1 2022: “It could take five to six months for factories to resume normal operations after the lockdown”.
After the outbreak of the trade war between the US and China, retailers began to move production from China to Vietnam. Companies hoped to avoid trade duties and diversify supplies. Now many are thinking of returning to China.
"Imagine those efforts, which everyone attached, to get out of China. Now this is one of the few places, where can you get your items. This is really insane, just a roller coaster ", — said the head of Designer Brands.
According to Cowen, about half of Foot Locker products, Adidas and Puma are produced in Vietnam. These companies may change their sales forecasts in the next quarterly reports.. Not at all dependent on the situation in the country American Outdoors Brands: a third of the goods the company receives from China.
Share of manufacturing companies in Vietnam and China
| Vietnam | China | |
|---|---|---|
| Foot Locker (FL) | 50% | 15% |
| Adidas (ADS) | 45% | 20% |
| Puma (FIVE) | 45% | 20% |
| Nike (NKE) | 45% | 20% |
| Skechers (SKX) | 40% | 30% |
| Lululemon (LULU) | 35% | 5% |
| Columbia (COLM) | 30% | 10% |
| Deckers Outdoor (DECK) | 30% | 5% |
| VF (VFC) | 25% | 7% |
| Yeti (YETI) | 20% | 20% |
| Dick’s Sporting Goods (DKS) | 20% | 15% |
| Under Armour (UAA) | 20% | 5% |
| TJX (TJX) | 15% | 20% |
| Ross Stores (SENSE) | 15% | 20% |
| Burlington Stores (BURL) | 15% | 20% |
| Ralph Lauren (RL) | 15% | 15% |
| PVH (PVH) | 15% | 15% |
| Hanesbrands (HBI) | 15% | 3% |
| American Outdoor Brands (AUGUST) | 0% | 35% |
