After 18 deadly months of the pandemic, this fall marked a new beginning for clothing company Everlane. She was getting ready to release a slew of new products, September marking the start of an ambitious marketing campaign around her denim.
Instead, Everlane has spent this month scrambling just to get jeans – along with other goods like bags and shoes – out of Vietnam, where an increase in coronavirus cases has forced factories to close or to operate at a considerably reduced capacity with personnel living in construction sites.
“At this point we have factories 100% locked down,” Michael Preysman, managing director of Everlane, said in an interview. “Are we hovering over things? Are we moving things? Do we adjust in the factory? It’s a non-stop Tetris game.
The Vietnam crisis, which has grown in recent years to become the second largest supplier of clothing and footwear to the United States after China, is the latest curveball to be launched against the retail sector, which has been affected by the pandemic. Vietnam went through the first part of the pandemic relatively unscathed, but now the Delta variant of the coronavirus is unleashed, highlighting the uneven distribution of vaccines around the world and the dangers that new outbreaks pose to the global economy.
As the holiday season approaches, many U.S. retailers anticipate delays and shortages in merchandise, along with higher labor prices and already skyrocketing shipping costs. Everlane said he faces delays of four to eight weeks, depending on when the factories he worked with in Vietnam have closed. Nike cut its sales forecast last week, citing the loss of 10 weeks of production in Vietnam since mid-July and reopenings set to begin in phases in October.
“We weren’t expecting a full lockdown,” said Jana Gold, senior director of Alvarez & Marsal’s consumer and retail group, which helps retailers resolve supply chain issues. “We will continue to see a high demand for goods coming from highly vaccinated countries or regions, but obtaining goods from highly unvaccinated countries which may be in difficulty.”
The stalemate has highlighted Vietnam’s key role in equipping American consumers. Many retailers have moved their manufacturing to the country from China over the past decade due to rising costs. The new tariffs on China instituted under former President Donald J. Trump have accelerated the change.
Contract factories in Vietnam made 51% of total Nike-branded shoes last year. Lululemon and Gap, who also own Old Navy, said a third of their goods came from factories in Vietnam. Everlane said the country supplies 40 percent of its goods.
As the coronavirus ravaged the world, Vietnam was hailed as a bright spot for its lowest workload and strong economy. Over 15 months, only 3,000 infections and 15 deaths were reported in the country. But over the summer, the Delta variant burst into an almost entirely unvaccinated population. Now the number of cases has passed 766,000 and the death toll is approaching 19,000.
The densely populated industrial hub of Ho Chi Minh City, the country’s virus epicenter, has seen a series of increasingly stringent shutdowns, with many factories temporarily shutting down in July. This has crippled business activity and added stress to a strained global supply chain. Although new cases have started to decline, the government has extended the lockdown until the end of September as it struggles to vaccinate its residents.
By early September, only 3.3 percent of the country’s population had been fully immunized, while 15.4 percent had received only one injection.
The US clothing and footwear industry has called on the Vietnamese government to prioritize clichés among factory workers. Executives from around 90 companies, including Nike and Fruit of the Loom, asked the Biden administration in a letter in mid-August to speed up vaccine donations, saying “the health of our industry depends directly on the health of Vietnamese industry. The group said the industry employs about three million American workers.
During a visit to Vietnam last month, Vice President Kamala Harris said the United States would send a million additional doses of the vaccine, on top of the five million already donated, as well as $ 23 million in aid. emergency and 77 freezers to store the vaccine.
“The situation in Vietnam is exactly why we need to step up our efforts to provide vaccine donations 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 vaccines once the doses are obtained and try to maintain manufacturing under the ‘three in one’ policy, where workers eat, sleep and work in the areas. factories, he said.
According to the latest government figures, almost everyone in Ho Chi Minh City has received the first blow.
Jason Chen, president and founder of Singtex, which owns a garment factory, said last week that the company’s 350-person factory in Binh Duong province was down to 80 people, who were living there for comply with government restrictions. The factory erected a tent to serve dinner to workers and transferred some retail orders to Singtex factories in Taiwan. Mr. Chen said he was prepared for Vietnamese factories to remain closed until November.
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“This year in the United States, everyone wants to go shopping,” Chen said. “Some goods cannot be delivered on time. So it will really affect the holidays.
He added that factory administrators were calling workers who were in detention to see if they needed financial and other assistance. But many are in difficulty.
Le Quoc Khanh, 40, who assembles household appliances at Saigon Hi-Tech Park, said the rigidity of the government lockdown had been “very difficult” for him and his wife, who have three young children and rent their house in Ho Chi Minh. City. His employer is not yet able to bring him back, even though he is vaccinated, and he said he was forced to borrow money at high interest rates to pay for electricity, diapers and food.
“On September 15, when I heard that anyone who had two doses could go to work, my wife and I were so happy we broke down in tears, but now the government says to wait until the end of September,” he said. he declared. “My wife and I are so worried. It’s like we’re sitting on fire – we really need the money to live now.
The continued impact of the pandemic on critical supply chains could have a longer-term impact on future investment decisions in Vietnam and other emerging economies. Companies choosing where to invest overseas have always assessed a wide range of conditions, such as taxes, regulatory 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 variation. Vietnam, like other countries, will have to prepare for the long game and potentially more epidemics even after a mass vaccination. “
Hoping that the restrictions will be relaxed in October, some factories in Ho Chi Minh City closed since July are preparing to resume production.
For now, however, American companies are looking outside Vietnam, often returning to Chinese factories they previously worked with or finding partners in other countries that are not expanding rapidly.
It is questionable whether they will have enough time to travel before the holidays. “September is a bad time to reposition things,” said Gordon Hanson, economist and professor of urban policy at Harvard Kennedy School.
Vietnam has been a regular subject of recent revenue calls for retailers, and concerns have likely increased as reopenings have been pushed forward. Adidas, based in Germany, said last month that the delays that began with the 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 closures as a key factor in its decision to delay the introduction of a new collection until next spring and delay fall catalogs. Urban Outfitters said that while it would normally restock top-selling products during the holiday season, its main concern now is just getting products into the United States.
The outbreak emerged just as the United States appeared to be regaining its economic footing and retailers saw a rebound in sales after a difficult 2020.
“In mid-June, the world looked like a pretty good place, at least in the United States, 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. Mark.
Production delays aren’t the only problem. Sea freight costs have skyrocketed during the pandemic, ports are overcrowded, and demand for air travel has increased so much that Ms. Gold of Alvarez & Marsal said some retailers have chartered their own planes to carry cargo.
Since last year, the cost of shipping a container from East Asia to the west coast of North America has increased from $ 4,000 to $ 20,000, according to freight company FreightCo. .
Mr Amarasiriwardena said the Supply Department paid around $ 1.50 in freight costs for a $ 125 shirt before the pandemic. Now the cost is almost $ 6 per shirt.
Macy’s chief executive, Jeff Gennette, said, “He’s the one that keeps me awake at night,” referring to supply chain issues at ports and in Vietnam. For the company, “this is a larger potential problem in the short term than where Covid is currently,” he said.
Retailers are already trying to prepare customers. LL Bean just added a banner to their website to alert customers to shipping delays and shortages during the holidays and urge them to buy early. Stephen Smith, chief executive of the company, said the post was “unprecedented” for mid-September and the company would normally start talking about holiday orders and shipping times “until October or same November “.
Mr Preysman of Everlane said he predicts the supply chain will not return to its pre-pandemic health for several years.
“You have to live in a new normal where the stability of 2019 will not return for three to five years,” he said. “It will take a long time to resolve. “
Chau Doan contributed reports.