Vertical Production Offers a ‘Distinct Competitive Advantage’ in Covid-19

Updated: Nov 18, 2020

By Sourcing Journal

This article was originally published in Sourcing Journal November 16, 2020. We are sharing because it provides examples of shifting manufacturing trends in the sewn products industry.


For all the challenges the coronavirus pandemic has heaped on the apparel and textile industry, the global crisis has also presented companies with learning opportunities and created some advantages.


This is especially true for firms that are either vertical or have substantial control of their manufacturing operations. Some are also questioning the longevity of their production pivot to personal protective equipment (PPE) that not only proved valuable to the public effort to battle the pandemic, but also filled in the gaps in production resulting from retail shutdown and faltering consumer demand.


Rustin Welton, chief financial officer of Kontoor Brands, said in a conference call with analysts to discuss third-quarter earnings that net income that jumped 319 percent to $60.79 million, and managing inventories has required close alignment with its trade partners on expected demand.


“Our owned manufacturing provides a distinct competitive advantage,” Welton said. “As conditions warrant and government restrictions and capacity permit, we are able to respond to changing demand to scale production and minimize service issues for our partners.”

Scott Baxter, president and CEO of Kontoor, which owns the Wrangler and Lee brands, said it’s about strengthening the core.


“We continue to leverage our own manufacturing here in the Western Hemisphere to service our large customers with scale and speed, further driving competitive separation within the market,” Baxter said. “Our advanced manufacturing capabilities allowed us to aggressively align production with demand, and with inventory levels down 20 percent in the quarter, we are well-positioned for the second half of 2020, and even more importantly, for 2021. We believe this has been and will continue to be a distinct advantage relative to much of our competition in the marketplace.”


Glenn J. Chamandy, president and CEO of Gildan Activewear, said the company’s strength is being a vertically integrated manufacturer.


“When we see how we performed this quarter and how we brought back our production, it’s a real function of the strength of our manufacturing team itself,” Chamanday said of the company’s sales in the three months through September nearly tripling compared to the second quarter, with an improvement in gross margin. “We brought back capacity to the 75 percent level…because we were focusing on making sure that we continue to free cash flow and bring down our inventories. So, we have all the flexibility to decide how fast we want to go up. And if we have to scale back down, we can do that relatively easy, too. We’re going to manage what occurs in the market. We’ve got available capacity to continue growing to 100 percent to pre-Covid levels.”


Chamandy said Gildan has capacity that is being installed in Central America and it is continuing to expand and planning for Bangladesh expansion by the second quarter of 2022.

“I think we’re in a very good position on manufacturing perspective, to continue to support sales growth, and we’re also in a position that if sales curtailed, we can support that relatively easy where we are today,” he said. “With the lack of travel, the convenience of purchasing in this hemisphere, I think, is going to be a big plus for us, and also the speed of five weeks versus the five months is major,” referring to average shipping times between Central America and Asia to the U.S.


Tim Boyle, chairman, president and CEO of Columbia Sportswear, which gets most of its goods from Asia, said amid good early season wholesale sell-through and continued momentum in e-commerce, issues such as port congestion, logistics and partial shipping capacity constraints are straining fulfillment service levels industrywide.


“We’re working closely with our third-party logistics providers and our customers in an effort to mitigate these risks,” Boyle said.


Unifi CEO Edmund Ingle said at the beginning of the third quarter, the company’s Central American operation in El Salvador restarted and is now running at full capacity.

“Interestingly, as we ramp up operations we saw additional growth in conversions and branded options for the pre-branded product in the region, the supply chain…that predominantly feeds the U.S. market,” Ingle said.


He noted that the company is seeing more production of apparel in Brazil and Unifi is competitive with its yarns because its local costs are cheaper than they had been in the past.

“We do see an opportunity to perhaps expand our market share [there] long-term,” he said.

Unifi Inc. reported net sales for its first quarter ended Sept. 27 fell a year-over-year 21 percent to $141.5 million, but increased 64 percent compared to the previous quarter. Ingle noted that each business segment’s recovery has been slightly ahead of expectations, with the automotive, apparel and industrial markets hovering around 15 percent to 25 percent below pre-pandemic levels.


“While we continue to provide solutions for the personal protective equipment market, or PPE as it’s known, our volumes are at a lower level from earlier in the calendar year and we expect revenues from this end market to taper off as the pandemic recedes,” he said on a call with analysts.


Hanesbrands CEO Steve Bratspies said the company is looking at segmenting its supply chain to accelerate time to market and meet the needs of its diverse brands and businesses.

“I think we have to look at our supply chain going forward and really understanding how do we…align it to make sure it supports all of our key businesses as we go forward,” Bratspies said. “It was built on one model and incredibly successful in doing that and it’s proven its ability to flex to some extent. But I think we’re challenging its flexibility right now as we build out our D2C business in different parts around the world.”


Hanesbrands has also pivoted its production to make PPE and launched its own face mask line this summer.


“The way we’re positioned and thinking about it is that you should consider PPE kind of a near-term opportunity for 2020 and we’re not factoring in it as a huge business for us going forward at this point,” he added. “But that could change and we’ll have to see how as things progress in the market.”


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