On Tuesday, Prudential Securities Group announced that the outsourcing of Nike and Reebok International may be severely affected by the tsunami in Southeast Asia. The tsunami may have impacted suppliers in South Asia.
Lizbeth Dunn pointed out in a text message to clients that “the recent natural disasters in Southeast Asia have increased the risk of our footwear and apparel manufacturing outsourcing business. Potential risk factors include: transportation delays, production disruptions, and factories. Damage and employee losses."
Doune pointed out that 43% of Nike's footwear production comes from Indonesia and Thailand, and Reebok (RBK) also has 36% of its business from the above two countries. The sports brands mentioned above all have the risk of supplying links to the footwear industry, but the impact of their apparel business will be relatively small.
He believes that "the concentration of the apparel outsourcing business of Nike and Reebok is far less than that of the footwear business; therefore, we think the possibility of interruption of garment production will be relatively small."
The concentration of footwear outsourcing is more prominent, with the top eight producing countries accounting for about 90% of global supply. On the other hand, the degree of concentration of its apparel business is significantly reduced, with the top 10 producing countries accounting for only about 60% of its total business volume.
Nike shares climbed 64 cents to close at $91.49; Reebok’s shares climbed 61 cents to $43.06. For major apparel manufacturers, the impact of the tsunami-affected areas is even more limited.
For example, Liz Claiborne (LIZ) has manufacturing operations in more than 50 countries; Polo Ralph Lauren (RL) outsources 95% of its business to Hong Kong, Canada, and other countries; Tommy Hilfiger (TOM) outsources production in any country Business ratios are less than 10%.
Claiborne shares climbed 74 cents to close at $41.63. Polo shares climbed 80 cents to $41.60. Tommy Hilfiger shares climbed 32 cents to $11.20.
In the US apparel and footwear outsourcing business, 3.8% of apparel and 3.7% of footwear are from Indonesia and 1.9% of footwear is from Thailand.