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A Covid-19 epidemic in Vietnam in industrial centers like Ho Chi Minh City threatens to disrupt Nike’s global supply chain.
The sneaker giant has been steadily increasing the share of its shoes that it has been making in Vietnam for over a decade, to the point where half of its shoes came from the country last year, he said. stated in a press release. regulatory filing. Its second largest sourcing destination, Indonesia, accounted for 24% of its footwear.
Two Nike suppliers operating factories in Ho Chi Minh City or neighboring Dong Nai province already had to shut down production last week, according to Reuters, raising concerns about Nike’s sneaker offering could be in danger. So far, it looks like the factories will only be closed for a few days. However, the extent of the problem that the situation becomes for Nike will likely depend on the spread of factory closures and the flexibility of its supply of sneakers.
Despite the high proportion of its shoes made in Vietnam, Nike said in its filing that it sourced shoes from 122 factories in 12 countries last year. In Vietnam alone, the company procures shoes from 53 different factories, according to its publicly available information. manufacturing card.
This setup gives Nike a diverse supplier base, so it doesn’t rely too much on a single supplier, which means the currently closed factories in Vietnam represent only a fraction of its footwear manufacturing. To offset any further disruption, Nike could potentially move some of its production from closed factories to open factories.
On the other hand, Nike relies more on some suppliers than others. Last year, four shoe makers accounted for about 61% of its Nike-branded footwear production, he said. Nike did not specify which manufacturers they were or in which countries they were located. But one of the suppliers identified by Reuters as closing its factories, Chang Shin Vietnam, runs the largest Nike shoe production plant in Vietnam, measured by the number of workers, according to data from Nike’s manufacturing map.
In a statement, Nike said it was confident in its ability to handle the situation in the short term and expects suppliers to prioritize the health of their employees.
Nike’s supply chain risks
Nike is not immune to disruptions to its supply chain. In March, for example, the company said logistics issues, including the global shortage of shipping containers and congestion at US ports, hampered its sales in the United States because it was unable to obtain enough shoes. If factory closures spread to Vietnam and other countries, Nike could find itself in a position where it does not have enough supply to meet its demand.
In a research note to customers today, Morgan Stanley also pointed out that Nike is a company that could suffer if new Covid infections in Vietnam, Indonesia and Cambodia force closures or restrictions at manufacturing plants. Many retailers have worked with reduced inventory levels after sales plummeted due to last year’s pandemic. If more factories in Asia close due to new outbreaks, they may not be able to get enough inventory for the third and fourth quarters of the year, when the holiday season arrives and buyers are ready. to buy. Such a situation would test how resilient and agile Nike’s supply chain is.
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