Vietnam apparel units may not reopen soon, global brands to face the heat

The impact of prolonged factory shutdowns in Vietnam is likely to be worse than many apparel and footwear retailers have planned for and may last well into 2022, says Wall Street research firm BofA Securities. Recovery in Vietnam will be more gradual than retailers are anticipating and businesses are being too optimistic about turnaround times. Reopening of the economy in Southern Vietnam—where many apparel and footwear producers are housed—has been moving much slower than in the north.

Vietnam experienced a devastating surge in Covid cases in July and August, prompting another round of local lockdowns. The temporary pause to production dealt a blow to companies such as Adidas and Nike, which rely heavily on the region for manufacturing their sneakers and athletic apparel.

Businesses have since started to reopen but vaccination rates remain significantly lower compared with other countries. Current factory operation rules in Vietnam remain strict and very complicated, which could hinder employees’ability to return to work. Several factors weigh against expectations for a fast resumption in production activities. These include the likely persistence of labor shortages, rising raw material costs and supply chain disruptions in many other parts of Asia.