Pandemic factory scramble reshapes manufacturing — again
Factory talk hasn’t been this hot since the height of the U.S.-China trade war.
- Then: Some companies shifted production out of China to dodge tariffs and moved factories to places like Vietnam.
- Now: They’re scrambling to push production to China — and other countries.
Why it matters: The Delta variant hit manufacturing hubs in Vietnam hard, prompting strict virus mitigation tactics that brought factory production to a screeching halt — and put a dent in consumer products makers' revenues.
What's happening: Signs the angst around Vietnam (a massive supplier of clothing and shoes to the U.S., behind China) is pushing companies to make moves popped up in a ton of earnings calls.
- Nike says it's shifting apparel production out of Vietnam to Indonesia, China and other places "where viable."
- Crocs last week said it's shifting production to places besides Vietnam — like China, Indonesia or Bosnia. Because its sandals are easy to make, executives say they can ramp up quickly.
Flashback: Vietnam was an unintended winner of the trade war.
- Some companies shifted production from China to dodge those taxes. That kicked into high gear a shift that had been underway for years.
Take trendy couch maker LoveSac. At the height of trade tension, it pulled some production out of the country to dodge tariffs.
- CFO Donna Dellomo told Wall Street on an earnings call last month that the company is shifting some inventory purchases back to China while “container congestion” plagues Vietnam — even if they have to pay tariffs on that merchandise.
What we're watching: The pandemic could be what prompts companies to cough up cash and spread out where they source their stuff.
- "What we're hearing is, and this is not as much a near-term goal but a longer-term goal ... as opposed to building another factory in China, [companies] might look to Indonesia or to Mexico or Latin America," says Grant Bowers, a portfolio manager at Franklin Equity Group.
The big picture: Steve Lamar, head of the American Apparel & Footwear Association, a trade group that represents hundreds of companies, says retailers have been staking out suppliers in Central America or Africa as part of a “generational sourcing shift to diversify their supply chains.”
- Yes, but: “Vietnam remains an important partner for the industry and that will continue to be the case.”
The bottom line: For all the talk of shifting more production to China, cities there are also beating back problems — and it's not just COVID infections.
- In recent weeks, local authorities mandated factories to cut back on power usage amid a brewing energy crisis.
Kate Marino contributed reporting.