After an 18-month bruise from the pandemic, this fall marked a fresh start for clothing company Everlane. It was preparing to release a slew of new products, with September marking the start of an ambitious marketing campaign around its denim.
Instead, Everlane spent this month getting jeans — along with other products such as bags and shoes — out of Vietnam, where a spate of coronavirus cases have forced factories to close or operate at greatly reduced capacity with staff living in unemployed. – site bubbles.
“Right now we have factories that are 100 percent shut down,” Everlane CEO Michael Preysman said in an interview. “Are we flying things over? Do we move things? Do we fit in the factory? It’s a non-stop game of Tetris.”
The crisis in Vietnam, which in recent years has grown into the second largest supplier of clothing and footwear to the United States after China, is the latest curve to be thrown at the pandemic-ravaged retail industry. Vietnam survived the first part of the pandemic relatively unscathed, but now the Delta strain of the coronavirus is in turmoil, highlighting the uneven distribution of vaccines worldwide and the dangers new outbreaks pose to the global economy.
With the holiday season fast approaching, many US retailers are anticipating delays and shortages of goods, along with higher labor prices and already skyrocketing shipping costs. Everlane said it faced delays of four to eight weeks, depending on when factories it partnered with in Vietnam closed. Nike lowered its sales forecast last week, citing the loss of 10 weeks of production in Vietnam since mid-July and reopening that will start in phases in October.
“We didn’t expect a full lockdown,” said Jana Gold, senior director at Alvarez & Marsal’s consumer and retail group, which has helped retailers with supply chain issues. “We will continue to see a high demand for goods from highly vaccinated countries or regions, but getting the goods from very unvaccinated countries that may be struggling.”
The blockade has highlighted Vietnam’s key role in equipping American consumers. Many retailers have moved their production from China to the country over the past decade due to rising costs. New tariffs imposed on China under former President Donald J. Trump accelerated the shift.
Contract factories in Vietnam produced 51 percent of Nike’s total shoe brand last year. Lululemon and Gap, who also own Old Navy, have said a third of their merchandise comes from factories in Vietnam. Everlane said the country supplies 40 percent of its wares.
As the coronavirus raged around the world, Vietnam was hailed as a bright spot for its bottomless caseload and strong economy. Only 3,000 infections and 15 deaths were reported in the country in 15 months. But over the summer, the Delta variant broke out among an almost completely unvaccinated population. Now the caseload has risen above 766,000 and the death toll is approaching 19,000.
The tightly packed industrial hub of Ho Chi Minh City, the country’s virus epicenter, has undergone a series of increasingly severe lockdowns, with many factories temporarily closed in July. That crippled commercial activity and added stress to a tense global supply chain. Although the number of new cases is declining, government extended the lockdown until the end of September, as it struggles to vaccinate its inhabitants.
early September, only 3.3 percent of the country’s population had been fully vaccinated, while 15.4 percent had received one shot.
The US clothing and footwear industry has asked the Vietnamese government to prioritize gunfire against factory workers. Executives from about 90 companies, including Nike and Fruit of the Loom, asked the Biden administration in a letter in mid-August to accelerate vaccine donation, saying that “the health of our industry is directly dependent on the health of the Vietnamese industry.” The group said the industry employed about three million American workers.
During a visit to Vietnam last month, Vice President Kamala Harris said: the United States would send another million doses of vaccine, on top of the five million already donated, along with $23 million in emergency aid and 77 freezers to store the vaccine.
“The situation in Vietnam is exactly why we need to accelerate our efforts to donate vaccines around the world,” said Steve Lamar, president of the American Apparel & Footwear Association, a trade group. Retailers have set up vaccination sites in factories to help administer shots once doses are obtained and are trying to keep production going through a “three-in-one place” policy, where employees eat, sleep and work in factories, he said.
According to the latest government figures, almost everyone in Ho Chi Minh City has received the first injection.
Jason Chen, chairman and founder of Singtex, a clothing factory owner, said last week that the company’s 350-strong factory in Binh Duong province has only 80 people living on the site to comply with government restrictions. The factory has set up a tent to serve dinner to the workers and has moved some shop orders to Singtex’s factories in Taiwan. Mr Chen said he was prepared for the Vietnamese factories to remain closed until November.
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“Everyone wants to go shopping in the US this year,” said Mr. chen. “Some goods cannot be delivered at the right time. So it will really affect the holiday.”
He added that plant managers called workers who were in lockdown to see if they needed financial and other assistance. But many are having a hard time.
Le Quoc Khanh, 40, who assembles electronic home appliances at Saigon Hi-Tech Park, said the rigidity of the government lockdown has been “very difficult” for him and his wife, who have three small children and their home in Ho Chi. Minh rent City. His employer has not yet been able to bring him back, even though he has been vaccinated, and he said he was forced to borrow money at high interest rates to pay for electricity, diapers and food.
“When I heard on September 15 that everyone could go to work on two doses, my wife and I were so happy that we burst into tears, but now the government says to wait until the end of September,” he said. “My wife and I are so concerned. It’s like we’re on fire – we really need money to live right now.”
The ongoing impact of the pandemic on critical supply chains could have a longer lasting effect on future investment decisions in Vietnam and other emerging economies. Companies choosing where to invest abroad have always assessed a wide range of conditions such as taxes, legal requirements and labor availability.
“All of a sudden they have to start thinking about the public health response,” said Chad P. Brown, an economist at the Peterson Institute for International Economics.
Huong Le Thu, senior analyst at the Australian Strategic Policy Institute, added: “The Delta wave is just one of the variants. Vietnam, like other countries, will have to prepare for the long game and possibly more outbreaks, even after mass vaccination.
Hoping that restrictions will be eased in October, some factories in Ho Chi Minh City that have been closed since July are preparing to resume production.
At the moment, however, American companies are looking outside of Vietnam and often return to Chinese factories they have previously worked with or find partners in other countries that are not in the middle of a wave.
Whether they will have enough time to shift before the holidays is open to question. “September is a bad time to reposition things,” said Gordon Hanson, an economist and professor of urban policy at Harvard Kennedy School.
Vietnam has been a regular subject of recent earnings calls for retailers, and concerns have likely increased as reopening has been implemented. Adidas, based in Germany, said last month that delays that started with closures in mid-July were among the problems that could cost the company more than €500 million in sales in the second half of the year.
Restoration Hardware cited the closures as a key factor in its decision to move the release of a new collection to next spring and postpone fall catalogs. Urban Outfitters said that while it would normally replenish the best-selling products during the holiday season, the biggest concern now was getting products to the United States.
The outbreak came as the United States appeared to be regaining its economic position and retailers saw a rebound in sales after a difficult 2020.
“In the middle of June the world was looking pretty good, at least in the US, and we anticipated this great recovery and here we are,” said Gihan Amarasiriwardena, president and co-founder of Ministry of Supply, a small clothing company. Brand.
Delays in production are not the only problem. The cost of ocean freight has skyrocketed during the pandemic, ports are overcrowded and demand for air transport has soared that Ms Gold of Alvarez & Marsal said some retailers had chartered their own planes to carry goods.
According to freight forwarder FreightCo, the cost of shipping a container from East Asia to the west coast of North America has risen from $4,000 to $20,000 since last year.
Mr Amarasiriwardena said the Ministry of Supply had paid about $1.50 in transportation costs for a $125 shirt before the pandemic. Now the cost is almost $6 per shirt.
Macy’s chief executive, Jeff Gennette, said, “This is the one that keeps me up at night,” referring to supply chain problems in ports and in Vietnam. For the company, “it’s a bigger potential problem in the short term than where Covid is now,” he said.
Retailers are already trying to prepare customers. LL Bean just added a banner to his website warning customers of holiday shipping delays and shortages and urging them to shop early. Stephen Smith, the company’s CEO, said the messages were “unprecedented” for mid-September and that the company normally started talking about holiday orders and shipping restrictions “well into October or even November.”
Everlane’s Mr. Preysman said he did not expect the supply chain to recover to its prepandemic health in the coming years.
“You have to live in a new normal where the stability of 2019 will only return in three to five years,” he said. “This is going to take a long time to sort out.”
Chau Doan reporting contributed.