Supply Chain Woes Spur Apparel Retailers To Nearshore Production
With the global supply chain bogged down for virtually all of 2021, some companies are making permanent decisions to ensure they won't be as vulnerable the next time something like this happens.
Fashion retailers like United Colors of Benetton, Hugo Boss and Lululemon have begun moving factory production away from Southeast Asia, where continued lockdowns in Vietnamese factories have compounded the delays and shortages caused by congestion at major ports worldwide, Reuters reports. In the case of Benetton, 10% of its output has already been moved out of Vietnam, Bangladesh, India and China, with a nearshoring target of 50% by the end of next year.
For the Italian-based Benetton, countries like Serbia, Croatia, Turkey, Tunisia and Egypt may come with higher production costs, but the shorter delivery time in periods of stability and greater certainty in times of instability are beginning to take precedence. Hugo Boss already has a factory in Turkey and plans to invest more in production nearby, a trend that advisory firm AlixPartners expects to become more widespread and permanent, Reuters reports.
For more specialized and industrial products, a record amount of reshoring has already begun in the U.S., but a combination of the skyrocketing cost of shipping containers and an increase in wages for workers in Asia has reduced the savings that apparel companies have taken advantage of for decades. The downsides to relying on the global supply chain figure to be more acute in the holiday season, which is just getting underway.
Consumer spending on holiday shopping is expected to increase between 7% and 9% compared to last year, according to analysis by consulting firm Deloitte. With delays in ports and factory shutdowns so severe as to cause not just price increases but outright shortages, retailers are facing the prospect of missing the boat for a crucial season.
In the short term, Lululemon, along with companies like The Gap and Kohl's, are relying on air freight to ensure that certain high-priority products arrive on time, even though the cost to ship through the air is still much higher than shipping containers, Reuters reports.
Companies that have more power or control over their shipping routes are taking advantage by routing shipments to less busy ports. Two such retailers, Walmart and Costco, are renting out shipping containers to other companies desperate to bring their products stateside, ABC News reports.