You will be redirected back to your article in seconds
Skip to main content

Nike, Puma, Under Armour ‘Too Optimistic’ About Vietnam Comeback?

Sportswear companies may be underestimating how long it will take for production in Vietnam to return to normal, according to a research note BofA Securities published last week. And Nike may already have started cancelling orders it’s unable to fulfill.

Faced with soaring Covid-19 cases this summer, Vietnam’s government imposed—and then repeatedly renewed—a suite of restrictions that, though they left the door open for continued manufacturing, effectively forced many footwear and apparel factories to close for months. Since late September, companies like Nike and Puma have revealed they lost around 10 or so weeks of production due to the closures.

With the most stringent restrictions lifted, manufacturers have faced the difficult task of ramping production back up to pre-summer levels. Nike has said the process would take “several months.” Less than a month ago, Puma said it would return to full production by the end of November. With “nearly all” the company’s partner factories open at the beginning of the month, Under Armour’s CEO predicted it would take another couple months to return to normal.

Analysts at BofA Securities, however, believe that brands that are guiding for a return to full capacity by year-end “risk being too optimistic,” particularly should labor shortages persist. Instead, the research firm is advising the production impact will “likely be felt into early-2022.”

For the U.S., BofA Securities analysts estimate the impact from Vietnam’s lockdowns will be neither “huge” nor “trivial,” with a roughly 5 percent increase in apparel and footwear prices in the first half of next year “plausible.” Such an increase could contribute roughly 17 basis points to core personal consumption expenditures (PCE) inflation and shave 10 to 20 basis points off consumer spending, they said.

Related Stories

Perhaps one of the biggest factors that will decide how the next few months go will be labor. When factories closed down over the summer, throngs of out-of-work factory employees traveled back to their home provinces. Loosening restrictions, rather than simply encouraging these workers to return to the job, appear to have encouraged many of those who stayed to also return home.

According to BofA Securities, the country’s Public Security Ministry estimates that more than 2 million—4 percent of employment—would like to return to their home provinces. The New York Times, citing a senior official in charge of Covid-19 prevention efforts in Ho Chi Minh City, reported earlier this month that the total number of workers in export processing zones and industrial parks in Vietnam’s most populous city was down about 46 percent. The situation does not look so dire everywhere, though. At Pouyen Vietnam, a subsidiary of Taiwan’s Pou Chen Corp., the world’s largest athletic footwear manufacturer, 90 percent of the work force has returned to Ho Chi Minh City, according to The New York Times.

Even a small number of missing workers can have an outsized impact on output, the BofA analysts noted. “Just because a factory has 80 percent of its workers back does not necessarily mean 80 percent output if those with complementary skills are lacking,” they wrote.

The pandemic also remains an important factor, even if the country has put the summer’s most stringent restrictions aside. New cases have soared since bottoming out in mid- to late October. As of Monday, the country’s seven-day average of daily new cases stood at 9,957, roughly where cases were two months ago and less than 3,500 below Vietnam peak in early September. Confirmed deaths—nearly double where they were at the beginning of November—still remain well beneath peak levels.

Vietnam’s rapid vaccine rollout is likely playing a significant role in the seemingly reduced mortality rate. Though the country long lagged behind neighbors like Cambodia and China, it has swiftly ramped up its efforts since the summer—particularly beginning in September. According to Our World in Data, 68.2 percent of Vietnam’s population had received at least one dose of a Covid-19 vaccine as of Sunday—a milestone the United States only reached just last week. Though less are fully vaccinated—42.8 percent of the population—the country is still distributing a substantial number of doses every day.

Though Nike has doubled down on its commitment to Vietnam production, it might already be feeling the effects of curtailed supply from the virus-hit nation. A screenshot Complex sneaker expert Brendan Dunne tweeted Tuesday purports to show a Nike email cancelling upcoming orders from one of its partner distributors, citing “transportation disturbances” stemming from the coronavirus pandemic. Nike did not immediately return a request for comment.

Brendan Dunne, a sneaker writer for Complex and co-host of the Full Size Run YouTube show, tweeted this screenshot allegedly showing Nike canceling a sneaker store's orders.
Brendan Dunne, a sneaker writer for Complex and co-host of the Full Size Run YouTube show, tweeted this screenshot allegedly showing Nike canceling a sneaker store’s orders. @BrendanDunne/Twitter @BrendanDunne/Twitter

Given the still-high caseload, a relatively low full-vaccination rate and “constant changes” in travel rules, the BofA analysts predicted a “gradual” return to work. Should migrant workers choose to stay longer, a return could take until after the Tet holidays at the end of January and beginning of February. “Over time, there are strong incentives for workers to return, including the near-50 percent higher average salaries in the industrial sector which may get bid up due to shortages,” they wrote.

Despite the uncertainties that remain, at least one company is doubling down on Vietnam. Earlier this month, Noel Kinder, Nike’s sustainable development director, announced that the American footwear giant would invest and expand production in the country.

Additional reporting by Jessica Binns.