Industry leader Vinatex weighs furloughs for 50,000 as coronavirus saps demand
Global orders vanish that could be catastrophic to many garment makers in Vietnam, with industry leader Vinatex contemplating a furlough of up to 50,000 workers.
If the outbreak’s impact persists, many businesses could go under, threatening not only Vietnam’s economy but also the global supply chain that has supported such purveyors of fast fashion as Zara and H&M.
Related: Vietnam hasn’t recorded any new coronavirus cases for four days in a row
“As things stand, 30% to 50% of jobs will disappear by May,” said Vinatex CEO Le Tien Truong. The company has 200 or so factories in Vietnam and more than 100,000 workers within the group.
The impact of the novel coronavirus first emerged in February, when procurement of Chinese fabric stalled. When things just began to return to normal in March, the second wave slammed the industry.
Apparel demand has plunged in the U.S. and Europe, where many consumers have been told to stay home. Apparel vendors have canceled old orders and halted new ones.
In Vietnam, cities like Hanoi have banned nonessential travel. Factories are allowed to remain open, but orders are not coming in. Some factories have started producing masks, though they amount to a drop in the bucket in making up for lost business.
Vinatex, which commands a roughly 10% share in Vietnam, is owned in part by the state and 15% by Japanese trading house Itochu. The company counts apparel retailers Zara and H&M as clients.
Orders for textiles and footwear are set to plunge around 70% on the year by value for April and May, according to data from Vietnam’s Ministry of Industry and Trade. Vinatex stands to lose 1 trillion dong ($42.4 million), even if the COVID-19 outbreak is brought under control by the end of May. That’s nearly twice the 510 billion dong net profit turned in for 2019.
If economic activity remains restricted longer, Vinatex will sink further into the red, putting the survival of many small and midsize factories in doubt.
Also read: Vietnam textile companies struggle as EU, US buyers cancel orders
Even as Vietnam moved to modernize its industry by inviting big-name multinationals like Samsung Electronics, the textiles sector is still a major presence, accounting for around 10% of exports by value in 2019.
The Sino-American trade war prompted companies to move production to Vietnam from China, burnishing the Southeast Asian nation’s “next China” image. But now, the pandemic has upended the landscape.
A large percentage of garment workers work near minimum wage. The wage works out to 3 million dong a month in regions with the cheapest labor costs.
Fearing that widespread job losses could lead to social unrest, the Vietnamese government is rolling out a 62 trillion dong aid package for displaced workers and distressed businesses.
Shutting down Vietnamese garment factories threatens to spill over to the global supply chain. The likes of Zara, H&M and Fast Retailing’s Uniqlo would have trouble with procurement. The Asian sewing industry has secured an indispensable role in a garment industry that has accelerated its globalization over the past decade.
Textile industry representatives from six Asian countries issued a joint statement April 9 urging clothing brands to fully compensate suppliers when canceling orders. Clients including H&M are keeping to their purchasing contracts for products that have reached the production stage, but a number of apparel companies are requesting extensions on payments for completed orders, according to a Bangladeshi industry group.
Garment industries in developing economies are moving away from child labor, thanks partly to socially responsible investing. Honoring contracts has emerged as the next problem gaining attention. In the electronics industry, purchasers often pay troubled suppliers in advance to support cash flows. The coronavirus crisis is poised to test such partnerships in the apparel sector.
Reporting by TOMOYA ONISHI and YUICHI NITTA, Nikkei staff writers