Garment-makers face unpredictable shopping season
Garment-makers face unpredictable shopping season
Deeply stuck amid labour and raw material shortages, textile and footwear businesses are being urged to prepare for next season, even if preparations must be executed with lowered capacities
In meetings in early October, textile and garment and footwear companies announced their third-quarter business results, which did not meet the expectations of the Ministry of Industry and Trade (MoIT). Along with that, representatives of the billion-dollar segments warned that supply chain problems could affect business operations in the months ahead.
According to the MoIT, the output of these two industries in 2021 will decrease and be lower than the set target. Even in 2022, production will continue to face difficulties, with recovery depending heavily on disease control and vaccinations.
Than Duc Viet, general director of fashion maker Garment 10 explained, “If we have a high percentage of vaccinated workers, partners will place more orders in the fourth quarter of 2021 and the first half of 2022. Otherwise, they will terminate many of the previous contracts.” Garment 10’s orders in the third quarter to the US and European countries were delayed by about two weeks.
Textile and garment companies have missed many export contracts that were originally signed for the third quarter as the pandemic and social distancing caused difficulties.
A series of businesses had to close or could simply not fulfil orders, had to deliver late by other means of transport, or had their orders cancelled, disrupting the supply chain. These interruptions are shown in the export figure of September, which reached only $3 billion, continuing to decrease by 9.2 and 10.5 per cent compared to August 2021 and September 2020, respectively.
Cao Huu Hieu, deputy general director of the Vietnam National Textile and Garment Group, warned that the group will incur additional costs of several billion USD in the fourth quarter, coming from labour shortages, rising wages, and supply chain issues. All require extra spending to minimise the impact on customers and sales partners during the holiday season.
“We have to be more careful with the trend of online business, cutting intermediaries, and extending payment time. Failing to meet orders will be a huge disadvantage for partners, which will then transfer orders to other countries,” Hieu said.
Meanwhile, exports in the leather and footwear industry were also not positive, even if these were offset by the first months of the year. In September, exports of footwear and bags reached $920 million, down 35.2 per cent. In the first nine months of 2021, the total export turnover of leather and footwear reached nearly $15.6 billion, up 8.3 per cent over the same period in 2020, but this figure is still 3.1 per cent lower than in 2019.
The industrial production index of the leather and footwear industry in September only increased by 4.5 per cent, while the labour employment index of the industry decreased by 23.8 per cent.
The efforts of textile and footwear enterprises to maintain production and keep orders are significant, especially in the face of supply constraints. Demand for goods in the world market is strong, but larger-than-expected supply constraints, including raw material shortages and production disruptions, have negatively impacted the market.
The revenues of some firms have dropped significantly. Those of Thanh Cong Textile and Garment JSC in August only reached $10.5 million, a sharp fall of 23 per cent compared to the same period last year. Meanwhile, Nha Be Garment Corporation suffered a loss after tax of around $1.35 million in just half a year.
The MoIT has been unable to make any forecasts for the year-end export situation for both industries, with the possibility of a missing year-end shopping season becoming more real.
Vietnam’s textile and apparel and footwear industries have been participating in global supply chains, although mainly based on processing orders for major brands in the world. However, there are concerns about the supply chain and the current situation of production recovery. The Vietnam Textile and Apparel Association warned that, in the best-case scenario, the industry’s exports in 2021 may only reach $32-33 billion, he stated, a very low level compared to the initial target of $39-39.5 billion.
Phan Thi Thanh Xuan, general secretary of the Vietnam Leather and Footwear Association (LEFASO), believes that footwear businesses are struggling to keep orders for next year. Enterprises in the north are still operating, but at half their capacity due to a lack of raw materials. The import of raw materials from China is also in the mud, with restrictions on customs clearance being enforced at many border gates.
“Usually, this time of the year, most manufacturers would develop samples for the next season, but many textile and footwear enterprises are unable to implement technical works,” Xuan said.
“This means that by 2022, it is likely that businesses will not have any orders. To receive an order, around six months before, most businesses must invest in sample development, while competing with other manufacturers.” Losing a season can lead to loss of customers and markets, she added.
LEFASO has proposed to restore production in three phases by putting labour into production at no more than 30 per cent capacity, then evaluating to continue implementing the next two phases with 50 and 70 per cent of capacity. “Despite the current challenges, we still see high demand for our products,” Xuan said.
