As the coronavirus wreaks havoc on global markets and creates significant challenges for healthcare systems around the world, other unforeseen consequences of the outbreak continue to crop up.
Vietnam’s apparel and footwear industries, as well as other manufacturing sectors, continue to heavily rely on suppliers in China for raw materials. However, in the past few weeks, millions of workers have been delayed in returning to factories and corporate offices in China. Now, Vietnam-based producers are facing a possible shortage of materials — such as fabric, steel, buttons and zippers — from Chinese sourcing partners whose production flows have been interrupted due to the spread of illness.
“The problem is a lot of textiles — the polyester and the synthetics — and the components are still done in China,” explained Andy Polk, SVP at the Footwear Distributors and Retailers of America. “If they get to be so low in supply, they’re going to have to start shutting down and sending workers home without a paycheck, which could really crash the economy.”
China is responsible for producing the bulk of apparel, footwear and accessories sold around the world, but over the past couple years, rising labor costs and the country’s protracted trade war with the United States has prompted many manufacturers to relocate some parts of their supply chains to neighboring countries in Southeast Asia. Vietnam — which has since captured some of that dominant market share — is considered the third largest export earner of textiles and garments, according to the Vietnam Trade Promotion Agency. However, Vietnam still imports much of its raw materials from China.
While the apparel and footwear industry’s shift to a just-in-time inventory system has helped temper fashion’s overproduction problem, experts have pointed out the vulnerabilities of a model that presents no guarantee that companies can meet the demand for a specific product. What’s more, such a system can leave supply chains in disarray in the event of a natural disaster or epidemic. By waiting for demand, businesses can face significant under-stock issues — made even worse by shipping setbacks as a result of reduced air travel and upended cargo routes.
“Some are trying to build when the rain has already started, but smart brands have been working with suppliers to diversify out of China to make sure they weren’t too over-reliant [on China],” Polk said. “Things are going to get very squeezed, and a lot of people are shuffling around trying to find suppliers. You can negotiate [with suppliers on] some of this, but I think you’re going to see cost increases in the supply chain for spring and summer.”
According to the World Health Organization, the coronavirus — which has killed 2,800 and infected upwards of 83,000 people — has spread to nearly 50 countries. Concerns over the illness have led several companies to issue revenue and profit warnings for the year. A number of firms that do business in China — including luxury names Burberry as well as Versace parent Capri Holdings and Gucci owner Kering — have also opted to shutter their stores in heavily affected regions and/or cut back on their operating hours, leading to lower sales that are likely to dent their overall fiscal-year bottom lines.
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