International brands and retailers are beginning to adjust their purchase orders and outlook expectations following another mandatory home quarantine in Vietnam due to the ongoing outbreak of New Crown Pneumonia.
Numerous companies, including Abercrombie & Fitch Co., Big Lot, Chico's, Culp, Designer Brands and Lands' End, are expected to take a financial hit.
While some retailers were able to find alternative suppliers, many said delays in product delivery will result in lost sales.
Home quarantine orders are in place throughout Vietnam, including in key areas of manufacturing. While the Vietnamese government began lifting restrictions in some areas last week, Reuters reported that the lockdown in Ho Chi Minh City was extended until the end of the month.
Scott Lipesky, chief financial officer of fashion ready-to-wear brand Abercrombie & Fitch Co. said during an Aug. 26 earnings call that the new crown epidemic sweeping several Asian countries will cause an average delay of one to three weeks in fabric deliveries, but the company is adjusting by delivering early and using air freight The company is adjusting through strategies such as early delivery and the use of air freight.
We will continue to leverage our strong supplier partnerships and adjust our sourcing plans based on our supply chain experience in other countries to ensure that we have product available as soon as possible after the local manufacturing industry reopens," Scott Lipsky said.
However, many company executives emphasized that weeks of lost production due to late deliveries would likely result in missing inventory in retail stores, which would translate into lost sales.
Jonathan Ramsden, chief financial officer of Big Lots, said the closure of the Vietnam plant will cost Big Lots $60 million "because the shutdown prevents [us] from getting into the normal sales season in time "
The shutdown in Vietnam adds to the current situation in the import supply chain.
Jared Poff, chief financial officer of Designer Brands, said orders for Camuto, the company's shoe brand, have been delayed until the third quarter due to "limited factory capacity during the peak season, continuous power outages, the impact of the new crown epidemic and labor shortages.
Based on the outages we have seen, we expect to shift more orders out of Vietnam in Q3 to Q4," said Jared Boff.
All comments from these companies were made before Vietnam announced the extension of the Ho Chi Minh City embargo until the end of September.
As this outbreak has affected all of Vietnam, the major international buyers have different means to reduce the impact of the shutdown.
Some companies were able to move production outside of Vietnam to avoid delays in product delivery.
Molly Langenstein, CEO of fashion ready-to-wear retailer Chico's, said on an Aug. 31 earnings call, "We have successfully shifted 9% of our total production orders from Vietnam."
Golf club maker Callaway said it "has been able to mitigate a significant portion of the shortfall in the third quarter caused by supply chain disruptions in Vietnam by shifting some capacity to non-Vietnam suppliers."
Mattress company Culp, on the other hand, used its "flexible Asian platform and the upcoming addition of a Haitian platform, as well as our long-term supplier relationships and our product-driven strategy" as a strategy to address supply chain challenges in its upholstery fabrics business.
Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware, said the following three factors may influence brands' and retailers' strategies to mitigate the impact of the shutdown.
1. The degree of diversification of the sourcing base. Heavy reliance on a single supplier means the risk is higher if the supplier closes.
2, the number of product categories and SKUs carried by the brand. The more complex the supply chain, the more difficult it is to make extensive changes.
3. The price at which the retailer sells its products. If retailers sell products at higher prices, they can absorb higher sourcing costs and therefore have more options.
Professor Lu uses the footwear and apparel industry as an example. Footwear companies like Designer Brands are more dependent on Vietnam than fashion companies like Abercrombie & Fitch, while high-priced companies like Chico's may have greater sourcing flexibility in terms of product margins.
For Professor Lu, this series of case studies provides a valuable lesson in how to manage a supply chain, especially if the Newcastle pneumonia outbreak and embargo are to continue in the long run.
"It's not just about reducing risk exposure in Asia, but how to really increase supply chain flexibility," says Professor Lu.
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