Factory shutdowns in Vietnam could have longer impact for apparel and footwear retailers, BofA warns

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  • According to analysts at BofA Securities, the impact of prolonged factory closures in Vietnam is likely to be worse than what retailers had planned.
  • Boffa cited several reasons for his predictions, including the fact that the reopening of the economy in southern Vietnam – where many apparel and footwear producers are housed – is progressing much slower than in the north. .

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According to analysts at BofA Securities, the impact of prolonged factory closures in Vietnam is likely to be worse than many apparel and footwear retailers plan, which will last well into 2022.

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The Wall Street research firm said in a note to clients over the weekend that the recovery in Vietnam would be more gradual than retailers expected, and businesses are very optimistic about the turnaround time.

Boffa cited several reasons for his predictions, including the fact that the reopening of the economy in southern Vietnam – where many apparel and footwear producers are housed – is progressing much slower than in the north. .

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Vietnam experienced a devastating increase in COVID cases from last July to August, triggering another round of local lockdowns. The temporary halt of production shocked companies such as Adidas and Nike, which rely heavily on the region to manufacture their sneakers and athletic apparel. Businesses have resumed since then, but vaccination rates are much lower than in other countries, Boffa notes.

“While production activity actually recovered rapidly after the Covid-related disruption last year, it is likely to take longer for production to return to normal this time – perhaps up to 6 months,” said BofA economist Mohamed Faiz Nagutha.

He said the current factory operating rules in Vietnam are strict and too complex, which could hinder workers’ ability to return to work.

“Overall, we expect a number of headwinds to be weighed on expectations of a rapid resumption of production activities – including the potential for labor shortages…” Naguta said.

Puma has already warned that supply chain bottlenecks, especially in Vietnam, will lead to shortages of its products by next year. Last week, Adidas cut its 2021 outlook due to sourcing disruptions.

The topic is likely to come up on several conference calls this week, as a round-up of retailers prepare to report quarterly earnings. That list includes department store chains Kohl’s and Macy’s, big-box chains Walmart and Target, as well as mall staples Victoria’s Secret and Foot Locker.

—CNBC Michael Bloom

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