Supreme’s drop model disrupted by supply chain, shipping problems

Sportswear giants have not been the only groups whose production has been disrupted by the widespread factory closures in Vietnam. The closures, required to comply with health protection measures following Covid-19 outbreaks, are also affecting other fashion players, like streetwear labels: At the publication of VF Corp.’s quarterly results last week, the management for the US group, owner among others of Vans, The North Face, Dickies and Timberland, reported on the business impact of production and transportation difficulties in Asia.

“The renewed emergence of Covid-19 bottlenecks in key supplier countries such as Vietnam has resulted in further significant production delays, while our logistics organisation continues to face unprecedented challenges,” said VF Corp.’s CEO Steven Rendle during a conference call with financial analysts.

“Due to the significance and strategic diversification of VF's supply sources, our overall output capacity has remained better positioned than that of most competitors, with approximately 85% of our capacity remaining operational throughout the quarter. Pressures have generally been concentrated in the southern region of Vietnam, which accounts for approximately 10% of VF Corp.’s entire supply chain,” added Rendle.

He noted that Vietnam remains the group's leading sourcing market and generates a quarter of its production output. Rendle also underlined that, although the group has a number of different entry and exit points available in Asian ports, pressure on logistics has also been felt.

“In general, supply chain delays have been ubiquitous, and in some cases, they have extended up to 8 to 10 weeks. Despite these delays, cancellation rates have remained below previous levels, reflecting high demand and limited inventory across distribution channels,” he added.

However, not all of VF Corp.’s brands seem to have enjoyed the same fortunes. While they have all been impacted, and suffered delays in their schedules, Supreme was especially hard hit.

"Virtually all of our brands are experiencing delayed collections, styles and, in some cases, insufficient size assortments, limiting their ability to fully meet strong demand. For example, the Supreme brand has experienced around 30% less inventory around drops,” said Rendle.

“Despite strong sell-through trends, we are losing volume from limited supply. Supreme has suffered disproportionately from supply chain disruptions. It is highly exposed in Vietnam and, due to the nature of its product flows, it doesn’t carry forward inventory.” As a result, if a delivery doesn't arrive, there are limited options for delaying putting it on the shelves.

“The good news is that sales trends continue to be strong and we have seen a decrease in inventory. We have seen a strong and continuous interest and a clear opportunity for the brand to continue its growth. But I believe that these supply chain disruptions show us the benefits of integrating Supreme into our model, truly diversifying its footprint and focusing on areas where we can help [Supreme] maintain a better [product] flow,” said Rendle.

VF Corp.'s senior management is optimistic about Supreme, while recognising that the general business climate has curtailed opportunities for new store openings, particularly in Europe. However, Supreme is expected to generate a revenue of approximately $600 million (€517 million) in the 2021-22 fiscal year.

Supreme’s drop model disrupted by supply chain, shipping problems

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