Home Outlet store Factory closures in Vietnam will have a longer impact for retailers: BofA

Factory closures in Vietnam will have a longer impact for retailers: BofA

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

Justin Sullivan | Getty Images

The impact of prolonged plant closures in Vietnam will likely be worse than many clothing and footwear retailers predicted until 2022, analysts at BofA Securities say.

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 anticipate and that companies are overly optimistic about lead times.

BofA cited a number of reasons for its predictions, including the fact that the reopening of the economy in southern Vietnam – where many clothing and footwear producers are based – has proceeded much slower than in the North.

Vietnam saw a devastating increase in Covid cases from July to August last year, causing another round of local lockdowns. The temporary production hiatus has taken a heavy toll on companies such as Adidas and Nike, which rely heavily on the region for the manufacture of their sneakers and sportswear. Businesses have since started to reopen, but vaccination rates remain significantly lower than in other countries, BofA notes.

“While production did indeed recover quickly last year after the brief Covid-related disruption, production is expected to take longer to normalize this time around – perhaps up to 6 months,” he said. said BofA economist Mohamed Faiz Nagutha.

He added that the current rules for operating factories in Vietnam remain strict and very complicated, which could hamper the ability of employees to return to work.

“Overall, we expect several headwinds to weigh on expectations of a rapid recovery in production activities – including the likely persistence of labor shortages… but also due to the uptick. raw material costs and supply chain disruptions in many other parts of Asia, “Nagutha says.

Puma has previously warned that supply chain bottlenecks, especially in Vietnam, will lead to a shortage of its products until next year. Adidas cut its outlook for 2021 last week due to supply disruptions.

The subject will likely be covered on a number of conference calls this week, as a series of retailers are set to release quarterly results. This list includes department store chains Kohl’s and Macy’s, big box chains Walmart and Target, as well as staples from Victoria’s Secret and Foot Locker malls.

– CNBC Michael bloom contributed to this report.


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