Business

Factory closures in Vietnam will have longer impact on retailers: BofA

Nike shoes are on display at a shoe store on September 27, 2021 in Novato, California.

Justin Sullivan | Getty Images

According to analysts at BofA Securities, the consequences of the long shutdown of factories in Vietnam are likely to be worse than many apparel and footwear retailers had planned, and will last until 2022.

The Wall Street research firm said in a note to clients over the weekend that the recovery in Vietnam will be more gradual than retailers expect and that companies are overly optimistic about lead times.

BofA cited a number of reasons for its predictions, including the fact that economic recovery in southern Vietnam, where many apparel and footwear manufacturers are located, is progressing much more slowly than in the north.

Vietnam saw a devastating spike in Covid cases between July and August, prompting another round of localized lockdowns. The production hiatus has hit companies like Adidas and Nike, which are heavily dependent on the region for sneakers and sportswear. Since then, businesses have started reopening, but vaccination rates remain significantly lower compared to other countries, BofA notes.

“While manufacturing activity did recover quickly last year after a short-term disruption related to Covid, this time it will probably take longer to normalize production – perhaps up to 6 months,” said BofA economist Mohamed Faiz Naguta.

He added that the current rules for the factory in Vietnam remain strict and very complex, which could prevent employees from returning to work.

“Overall, we expect a few headwinds to impact expectations for a rapid resumption of manufacturing activity – including likely continued labor shortages … but also due to rising raw material prices and supply chain disruptions in many other parts of Asia,” said Naguta.

Puma has already warned that supply chain bottlenecks, especially in Vietnam, will cause shortages of its products well into the next year. Last week, Adidas lowered its forecast for 2021 due to supply disruptions.

This topic is likely to be brought up in several conference calls this week as retailers are due to report quarterly earnings. This list includes Kohl’s and Macy’s department store chains, Walmart and Target large-box chains, and major Victoria’s Secret and Foot Locker malls.

– CNBC Michael Bloom contributed to this report.


Source link

Read More

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button