By Brian Metzler
One of the busiest marathon (and half marathon) seasons in history is winding down. Among several other novel developments this year, many runners competed for the first time in new carbon-plated “super shoes.” With running stores re-opened despite the lingering Covid-19 pandemic, the running industry is finally rebounding after a difficult 2020 and a bleak first half of 2022.
Unfortunately, we’re not out of the woods yet. While shipping issues are still plaguing gear brands and retailers alike, it seems like it could get a lot worse. At the late-September Runchella industry gathering in Denver, the outlook for the 2021 holiday season and early 2022 was decidedly bleak among shoe brands, retail buyers and other industry insiders. How brands are working through that dilemma should be among the hottest topics at The Running Event trade show this week in Austin, Texas.
Surging shopper demand coupled with shipping container shortages, bottlenecks at major U.S. ports and a reduction in factory workforce have already triggered tighter supply of products and distribution issues.
The Biden Administration announced recently that its Supply Chain Distributions Task Force has worked with the Port of Los Angeles and Port Long Beach and the International Longshore and Warehouse Union (ILWU) to develop a series of public and private commitments to move more goods faster by moving toward 24-hours-a-day, 7-days a week operations. Those two ports are the point of entry for 40 percent of containers to the U.S., and are on track to reach new highs in container traffic this year.
As of earlier this month, more than 175 ships were reportedly backed up in those two harbors, four times as many as last winter.
“It’s worse than you think,” the product line manager for a major running brand said last recently. “We’re doing the best we can and making adjustments and I think everybody is, but it’s been rough because demand is higher than ever. Unfortunately, the first quarter could be even worse.”
The 24/7 efforts in the ports might be able to save the holiday season, but there is a bigger problem facing the running industry for Q1: the impacts of a massive factory shutdown in Vietnam and Indonesia this summer. The majority of running shoes are now produced in those countries, but both of those Southeast Asian countries have been decimated by the Covid-19 Delta Variant. Vietnam, which has only a 6.6 percent vaccination rate, had been forced to shut down or reduce the productivity of most of its shoe factories, greatly slowing the production of Spring 2022 shoe lines.
How brands make adjustments to both support their retailers and manage direct-to-consumer inventory with a limited amount of product is going to be crucial to their Q1 and Q2 results. Richard Sullivan, the President and COO of ASICS North America, said ASICS has been augmenting its release calendar and distribution process and will be shipping some of its Spring 2022 shoes from Vietnam by air to avoid additional delays.
“We’re dealing with it the best we can,” said Sullivan, who will become President and CEO of ASICS North America as of Jan. 1. “Has it put a strain on our business? Absolutely. I think we have managed it well, and our retail partners have been very accommodating and understanding of the challenges we’re facing. It’s not an ASICS-specific issue, it’s a global economic issue. Of course we want to get the latest and greatest out to the consumer as best that we can. Is it a bit of a drag that we can’t do that? Yes, but we have to manage that.”
Many running shoe brands have already made plans to change their lines and have told retailers that quantities of many shoes will be scarce in the first quarter. Early orders were encouraged, but because of the large-scale delays and shortages that were expected, many brands scrambled to reduce the number of colorways they originally intended to produce and instead focused on their most profitable models.
In late September, Nike cut its full-year sales outlook due to supply chain issues, despite its CEO noting strong consumer demand.
"We are not immune to the global supply chain headwinds that are challenging the [manufacturing] and movement of product around the world," Nike’s Chief Financial Officer Matthew Friend said on an earnings call.
Adidas sources 28 percent of its product from Vietnam, but it said in late August that most of its factory capacity hasn’t been available since mid-July, contributing to $600 million in lost sales.
Nike makes about three-quarters of its shoes in Southeast Asia, with 51 percent and 24 percent of manufacturing in Vietnam and Indonesia respectively. The brand could lose an estimated 160 million pairs of shoes due to its Vietnam facility closures, according to research firm BTIG.
But as the Vietnam government-imposed pandemic-related restrictions, including a mandatory shutdown of factories for several weeks from July into September, Nike said it incurred 10 weeks of lost production.
Factories began to re-open in October, ramping up to full production could take several months, Friend said. Half of Nike’s clothing factories in Vietnam are currently closed, he said.
Vietnam accounts for a third of sports brand Under Armour’s footwear and clothing production. Under Armour’s CEO Patrik Frisk said during its most recent earnings call in August that it was closely monitoring the impact of factory shutdowns there on its supply chain there, calling it a “developing situation.”
In other words, it’s going to be quite a while until this multi-pronged problem is fixed.
While some Vietnam factories have recently re-opened, industry insiders figure it will be several months before a return to maximum productivity can return given the expected worker shortage that will linger. It could be more than a year before supply chains get back to the state of equilibrium, according to Nick Vyas, co-founder of the USC Marshall Center for Global Supply Chain Management.
“We are in this battle of the Delta variant and others, and I feel like at minimum we are going to be struggling for at least 12, if not 18 months before supply chains get back to the state of equilibrium,” Vyas told Forbes.com.
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