Amazon's sudden reduction in demand has led to an overcapacity of production for partner company Gilimex, resulting in record losses and a drastic impact on Garmex Saigon's financial situation, leading to significant revenue decline and workforce reduction.
Garmex Saigon (GMC), a prominent firm in the garment and textile industry in Vietnam, has just published its Q2/2023 business results, revealing the harsh reality of its struggling financial situation. Its net revenue amounted to a meagre $4,208, down from the $5.2 million achieved in the same quarter of the previous year. GMC reported a net loss of approximately $520,833.
By the end of the first half of the year, GMC's net revenue stood at over $333,333, marking a steep decline of 97 per cent compared to the previous year, with a net loss of more than $1.38 million (in contrast to a profit of over $166,667 in the same period the previous year). As of June 30, GMC's accumulated loss exceeded $2.25 million.
During its peak, the company's revenue fluctuated between $10.4 million to $16.67 million per quarter, employing a workforce of several thousand.
Garmex's manpower has also dropped to a record low, with only 41 people on its payroll at the end of, a reduction of 144 compared to the end of March, and a decrease of 1,941 compared to the beginning of the year. Since the start of 2021, the company has shed up to 3,769 employees.
A primary factor behind GMC's declining business picture is a loss of revenue from its partner, Production, Trading, and Import-Export JSC Binh Thanh (Gilimex, GIL).
In the first half of 2022, Garmex collected almost $9.33 million for providing orders to Gilimex, but this revenue stream evaporated in the same period of 2023. This may be a consequence of the fallout following Gilimex's lawsuit against e-commerce giant Amazon Robotics LLC, which not only impacted Gilimex but also affected partner enterprises like Garmex Saigon.
As for Gilimex, the company reported a record loss of nearly $1.63 million in the first quarter of the year. For 2023, Gilimex has set a business plan with a revenue of $62.5 million and a projected pre-tax profit of $4.31 million, a decrease of 77 per cent compared to 2022. This slump in business planning is due to the abrupt downsizing of orders by the American e-commerce giant Amazon.
Revisiting the dispute between Gilimex and Amazon, the market was taken by surprise in 2022 when Gilimex filed a lawsuit against Amazon. According to the minutes from Gilimex's 2023 annual shareholder meeting, the lawsuit is proceeding through its subsequent stages.
Gilimex had a long-term agreement with Amazon to purchase raw materials, adjust factory capacity, and organise its workforce to meet the growth of its partner. As a result, Gilimex invested tens of millions of USD into manufacturing facilities, constructing steel and fabric warehouses for arranging inventory in its partner's warehouses. The company employed over 7,000 workers in various factories to produce more than one million storage units annually for Amazon.
However, in April and May 2022, Amazon "altered and reduced its anticipated demand" for the remainder of 2022 and 2023, resulting in an overcapacity of production and raw materials for Gilimex. Looking back at the period from becoming Amazon's partner in 2014 until 2021, Gilimex consistently recorded high growth in both revenue and profit.
The shockwave from Amazon caused Gilimex's business indicators to plummet, with a record loss in the first quarter of 2023. Consequently, this year the company is pushing hard to invest in the industrial real estate segment and begin recording revenue between 2023-2025.
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