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Nike, Adidas, and Under Armour Face Ongoing Headwinds From Vietnam Factory Closures

Leading footwear brands are still feeling the sting from factory shutdowns in Vietnam.

Since July, factories in Vietnam, the second largest supplier of footwear to the United States behind China, have been shut down due to COVID-19-related issues. The closures, which have gone on for nine weeks, have been especially problematic for athletic footwear and apparel brands that rely on supply operations in the region.

As the holiday shopping season approaches, analysts expect to see the impact in sales and inventory, with athletic brands likely to face more headwinds than fashion brands. According to a recent note from BTIG’s lifestyle and wellness analyst Camilo Lyon, Nike, Under Armour, Adidas, and Deckers Outdoor’s Hoka business are the companies most likely to sustain the most impact from the shutdowns in Vietnam.

“While the situation is fluid, we hear performance footwear has been suffering the most severe delays and is at increasing risk for cancellations for spring ’22,” Lyon wrote in a note.

While both athletic footwear and apparel have been impacted by shutdowns, the complexities and high levels of staff associated with footwear production have made it more prone to headwinds than apparel. Most of the impact is being felt in the southern part of the country, which houses the majority of manufacturing bases for footwear and apparel companies.

Since two Nike footwear suppliers in Vietnam stopped manufacturing in July, the company has had almost two months of no unit production in the region. Vietnam previously accounted for 51% of Nike’s footwear and 30% of apparel units last year. In light of recent supply chain issues, BTIG downgraded Nike to neutral from buy.

“While NKE typically is incredibly well-equipped to manage such disruptions, we fear this issue is just too large to control, even for the best-run athletic brand in the world,” Lyon wrote in a note. “As such, we downgrade to neutral until better visibility is had around timelines for a return to normalized production and shipping schedules.”

Nike’s stock fell 1.3% after the downgrade from BTIG. Adidas and Under Armour were also down as of Monday morning.

On the other hand, fashion brands have been overall less impacted by the shutdowns. In the case of Steve Madden, chairman and CEO Edward Rosenfeld said in a call with investors on July 28 that the company shifted almost half of its women’s production from China to Mexico and Brazil for the fall to alleviate backlogs.

Athletic companies are also trying to mitigate the impact. Adidas reallocated production and sourcing to other regions and is using airfreight for high-priced products.

Factories in Vietnam are set to reopen on Sept. 15. And when they do, analysts predict that operations will likely return to normal levels of production over time.

“Once the factories reopen, we expect a gradual build back up to full production capacity reaching 50% through year-end and then fully ramping back to 100% sometime in 2022.

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