When On Holding launched its IPO this week, headlines focused on the target valuation of $ 6 billion of Swiss sportswear brands. But buried in the company’s file was one detail of greater relevance to the industry: The supply chain for the brand’s performance running shoes is largely locked down.
Almost 70 percent of the company’s factories in Vietnam where all of its shoes were made during the six months ending June 30 have been shut down, the company said on a public record. Due to the restrictions leading up to its listing, We declined to comment further.
Vietnam is in the throes of a severe Delta variant Covid-19 epidemic. In July, Hanoi and Ho Chi Minh entered strict bans that are still in place. Although factories were allowed to continue operating if they provided on-site accommodation or transportation for workers, many were unable to meet the expenses or had to close after employees tested positive.
The disruptions had a severe impact on an increasingly crucial manufacturing center that came to dominate the global sneaker market; Vietnam was the world’s largest exporter of athletic shoes in 2019, according to the Observatory of Economic Complexity, an online data platform.
Companies accounting for 62 percent of the total export value of Vietnam’s textile and clothing sectors have had to suspend production, the Vietnam Textile and Clothing Association (VITAS) said on August 4. [longest] at a major manufacturing center that happened during Covid-19, said Winnie Leung, a professor at Torontos George Brown College, who specializes in producing sustainable fashion.
Extended shutdowns have important implications for big brands. Vietnam was Adidas’ top sourcing country in 2020, accounting for 28% of the brand’s total production volume, according to its second quarter 2021 results. Almost half of U.S. maritime imports related to Nike products in the second quarter 2021 came from Vietnam, according to data from Panjiva, a division of S&P Global Market Intelligence. About 15% of global production volumes of Pumas come from the country, said senior director of corporate communications Robert-Jan Bartunek.
The current shutdown in Vietnam could be the longest at a large manufacturing hub that occurred during Covid-19.
A recent report from S&P warned that Nike might run out of sneakers made in Vietnam. Nike did not respond to a request for comment.
It is not known whether the current crisis will lead to a global sneaker shortage. It will depend on the depth [a brands] is going and how lean their supply chain is, said Andy Halliwell, senior director of retail at digital consulting firm Publicis Sapient, adding that players with diverse manufacturing bases would fare better than others.
American brands were particularly affected. Vietnam accounted for about 40 percent of U.S. imports by sea in the year through July 31, according to Panjiva. In August, the American Apparel and Footwear Association (AAFA), an industry trade group, urged President Biden to speed up the supply of vaccines to the Americas in Vietnam and other partner countries.
The success of the U.S. apparel and footwear industry, and our 3 million U.S. workers, is directly dependent on our suppliers around the world having a healthy workforce, says the AAFA letter to Biden.
In the meantime, brands like On, Puma and Adidas are reallocating resources to other centers and regions. Costs could increase in the short term, but for companies like Nike, meeting demand is more important than a run-out, Leung said.
The Vietnamese government aims to curb the epidemic by September 15. But Pumas management expects the shutdown to be extended by at least two weeks, Bartunek said. The company is not ruling out the possibility of a delay of four or even six weeks, he added. Adidas expects a chance that the shutdowns will last until the end of the third quarter, chief executive Kasper Rrsted told analysts on the company’s latest earnings conference call last month.
The outbreak adds to a litany of disruptions, such as port closures in China and shipping delays in the United States, which are already compressing supply chains and increasing costs. They also add to the uncertainty that is likely to haunt the market until next year, with securing inventory likely to prove to be a bigger challenge than increasing freight rates, according to the bank. Cowen investment. Brands will face continued pressure to diversify and adapt.
This is a new disruption in a world of escalating supply chain disruptions, Halliwell said. Lighter supply chains of brands and retailers with reduced working capital simply cannot absorb the impact of a series of black swan-style events like this.
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