Nike readies for supply chain distress amid Vietnam COVID-19 outbreak
Nike is facing sneaker shortages after its second Vietnam-based shoe supplier suspended production last week thanks to the COVID-19 pandemic.
South Korean shoemaker Changshin Vietnam closed down three of its factories near Ho Chi Minh City on Thursday after the region experienced a coronavirus outbreak that included some of the factories’ 42,000 workers. The factories will remain shut until July 20.
The Vietnamese government, meanwhile, said many of the 177 confirmed cases in the province were from shoe factory workers.
While it is not known how much of Nike’s production comes from these specific factories, the footwear and athletic apparel company gets the majority of its shoes manufactured outside of the United States, with about 50% coming from Vietnam in fiscal year 2020, according to the company.
“Having the factories shut for one or two weeks for Nike is going to cause a massive problem for its supply chain,” China Market Research Group analyst Shaun Rein told Reuters.
The supply chain disruption comes at an inopportune time for Nike, with back-to-school shopping season right around the corner. The company has also been dealing with a shortage of cargo containers and available port space in recent months.
“We continue to work with our suppliers to support their efforts in response to the dynamic and unprecedented nature of Covid-19,” a Nike spokeswoman wrote to CNBC in an email. “As we continue to navigate these circumstances, we expect our suppliers to prioritize the health and livelihoods of their employees and continue to comply with legal requirements and the Nike Code of Conduct on the provision of wages, benefits and severance. We are confident in Nike’s ability to navigate these near-term dynamics and we remain prudent in our planning.”
Shares for Nike were down about 1.3% on July 19, though the company’s stock price is up around 11.5% on the year.
Nike CFO Matthew Friend said during a fourth-quarter earnings call on June 24 to expect supply chain shortages – as well as higher logistic costs – to last through the majority of the next fiscal year.
“In-transit full price inventory remains elevated as we continue to experience longer end-to-end lead times for supply,” Friend said. “We expect supply chain delays and higher logistics costs to persist throughout much of fiscal 22.”