Fashion rivals continuing to suffer in coronavirus fallout

H&M has been hit hard by the pandemic, prompting it to close down 170 stores

Hot on the heels of Hue Phong Leather Shoes Company Ltd. letting go 2,200 employees in May, Nike and Adidas supplier PouYuen Vietnam has now also laid off nearly 2,800 workers at its plants in Binh Tan district of Ho Chi Minh City due to the impact of COVID-19.

Entering Vietnam in 1996 and recruiting upwards of 70,000 employees, PouYuen Vietnam Co., Ltd. – which is controlled by Yue Yuen Industrial Holdings Ltd. a subsidiary of Taiwan’s Pou Chen Group – is the city’s biggest employer, so the job cuts are affecting many households when many other businesses are also on shaky ground financially. In May, it was reported that another leading Taiwanese footwear contractor was planning to lay off 30,000 workers in Vietnam, but the move has yet to be confirmed.

Due to COVID-19 impacts, Adidas’ first-quarter profits dropped a hefty 95 per cent to €31 million ($34.9 million), while the same period last year earned a record profit of €632 million ($711.8 million).

As the coronavirus outbreak has grown more serious around the world, the German-based sports clothing and shoe manufacturer shut a significant number of stores across the globe, including its key market of China. According to the information published on its official website, the closure of markets that make up about 70 per cent of the Adidas network continues to drag the company down and as a result the group cannot issue a forecast for its performance until the end of the year.

“Both top- and bottom-line declines in the second quarter of 2020 are currently expected to be more pronounced than those recorded in the first quarter, with the currency-neutral sales projected to come in more than 40 per cent below the prior-year level and the operating result to be negative,” noted a company statement.

In April, adidas created an urgent bank loan package worth €2.4 billion ($2.7 billion) from German state bank KfW and borrowed €600 million ($675.8 million) from private banks. Its weak performance during the pandemic also raises the question of whether adidas has cut the number of orders from its suppliers, including Pou Chen, which is also the reason behind the adidas partner making a sizeable number of employees redundant in both Taiwan and Vietnam.

An adidas representative told VIR, “During the pandemic we have fully met our payment obligations for all orders completed, or are in the process of doing so. We try to avoid cancelling orders and are working closely with our partners to shift some of the orders to the second half of the year.”

Its competitor Nike is in the same situation. The group recently announced a deficit of $790 million over three months (March-May), pulling the revenue down by 38 per cent to $6.3 billion. Pou Chen is also a big supplier to Nike.

Similar to footwear, garment suppliers are also on edge due to the great downturn in demand for production. Specifically, more than 1,200 stores of Inditex – the operator of Zara – will be closed until the end of this year. H&M, a Zara rival, temporarily closed 3,440 of over 5,000 stores across the globe due to the pandemic. As a result, the Swedish fashion brand late last month reported losses of $534 million during March-May, and saw a plunge of 50 per cent in earnings to $3 billion. The fashion company is weighing plans of shutting down a further 170 stores permanently across the world. As of now, it has already closed 350 outlets, or 7 per cent of its stores globally.

COVID-19 also forced US and European buyers to cancel around $1.5 billion apparel orders from Bangladesh, according to Bloomberg, raising the question of same occurring in Vietnam where H&M has been working with 30 suppliers and 40 tailor shops.

“We are firmly connecting with our suppliers and reviewing the current difficulties with them,” a representative of H&M told VIR. “If H&M is obligated to change the manufacturing plan, we assure to perform it most responsibly and also pay attention to the concerns of suppliers.”

In Vietnam, Inditex has 130 factories employing around 150,000 workers to manufacture items. It is one of the world’s largest fashion retailers with world-renowned eight brands (Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and Uterqüe) that are sold in 202 markets through its online platform and in over 7,000 physical stores in 96 markets.

Scientists at the Scripps Research Institute in Florida recently issued a study showing that the spread of coronavirus in Europe and the United States is 10 times faster than the initial wave in China. The World Health Organisation last week issued a warning that the pandemic will not be brought under control in a short time and a resurgence of even larger proportions might happen. Almost all countries and territories have yet to rescind international flight bans – as a result, the purchasing power will not be recovered anytime soon and even international fashion brands will have to continue to push expansion plans aside.

Around 3,000 shoe factories worldwide are Taiwanese-owned, accounting for one-third of the world’s shoe supply. Of these, numerous companies are present in Vietnam, including Pou Chen and HFF Group. The two corporations – which are contractors to the largest footwear brands in the world – employ about half a million workers across Asia. If orders from these factories are cancelled, labourers in these nations, including Vietnam, may suffer the way they did at Hue Phong and PouYuen.