On June 6th, 2020, a woman enters the Ben Thanh Market in Ho Chi Minh City.
Manan Vatsyayana | AFP via Getty Images
According to Ankiti Bose, co-founder and CEO of Zilingo, a fashion supplier to major brands that sell their products on Amazon and Shopify, Vietnam has “completely collapsed” due to strict guidelines to contain Covid.
A rising number of Covid infections and low vaccination rates have led the Vietnamese government to close a number of factories that manufacture clothing and shoes.
“It’s really bad timing for Vietnam. Christmas shipments must be immediate, ”Bose told CNBC.
She said customers are trying to increase their manufacturing presence in countries outside of Vietnam.
“Bangladesh, India, Sri Lanka and Indonesia are good options,” she said. They “are operational at the moment in terms of factory capacity … so Vietnam could lose a lot in the very short term.”
Joyce Chang, global director of research at JPMorgan, said: “Despite a draconian quarantine policy, Vietnam’s new cases of Covid-19 remain high and macroeconomic stress is spreading to the manufacturing sector.”
BTIG analyst Camilo Lyon said the factory closures were more significant in the southern part of the country in cities like Ho Chi Minh City, where a number of shoe and clothing companies manufacture their products.
Citing serious manufacturing issues for Nike since it last reported earnings, BTIG downgraded shares in the US sneaker and sportswear giant last week. Supply chain challenges are expected to be a major focus when Nike releases its latest quarterly results after the market closes on Thursday.
Several data points illustrate a deteriorating economic picture in Vietnam.
Customs exports, industrial output and manufacturing purchasing all fell sharply in August, prompting JPMorgan to lower its third-quarter GDP forecast for Vietnam from 4.1% to 3%.
For its part, Singapore-based Zilingo is committed to helping its customers relocate production to other manufacturing centers. “Bangladesh and India have gone through major lockdowns,” said Bose, “but within a few weeks almost everything related to production has returned to normal,” which minimized the impact on brands that manufacture in these countries.
Less than 10% of Zilingo’s suppliers are in Vietnam. However, the country specializes in a type of material that is difficult to find elsewhere, making it an important base. “Vietnam specializes in synthetic fibers, and China is the fast alternative for many brands,” said Bose. “We enable most buyers to do this very quickly via our digital channels.”
With the support of Sequoia and Temasek, Zilingo has expanded its portfolio of fashion brands as companies seek to diversify their manufacturing capabilities across Asia. Zilingo also features technology used by companies on the factory floor to increase transparency and help companies better track finished goods.