Quake Fallout Hits Retailers That Sought Supply Resilience in Turkey

Date: Wednesday, February 15, 2023
Source: Bloomberg

The devastating earthquake in Turkey reinforces the notion that you can diversify supply chains to avoid concentration in hubs like China, but ultimately you can’t hide from the forces of nature.

Turkey is among the countries often mentioned as an alternative to Asia for low-cost manufacturing, especially textiles for traditional retailers and the online fast-fashion business.

Companies like Germany’s Hugo Boss have sought to shorten supply routes with new or larger facilities in Turkey in recent years. Inditex, the Spain-based owner of Zara stores, has 194 partners in the country with a workforce of more than 383,000, according to its 2021 annual report.

The Feb. 6 temblors that struck along the Turkish and Syrian border left a shocking human toll — surpassing 40,000 deaths as of Wednesday.

The economic costs are rising, too. Bloomberg Economics calculates the calamity could shave around 1% off GDP and lowered its real GDP growth forecast for this year to 2.6% from 3%.

Here’s a sampling of the kind of exposure some foreign fashion companies are facing:

  • Mango has 663 factories, 70 stores and about 1,300 employees across Turkey, one of the biggest suppliers for the brand
  • Levi Strauss has 17 facilities in Turkey, and three factories in the earthquake zone, according to a Bloomberg estimate
  • VF, the owner of North Face, has two factories in the earthquake zone, but the company says the any impact on business operations is minimal
  • H&M has 105 suppliers and 179 factories in Turkey, but most of those are not in the affected areas. “Our teams in the country are in close dialogue with all our business partners to understand the impact,” a company spokesperson said in an email.

A map from Open Supply Hub, a crowdsourced supplier website, overlaid with Google’s map of the earthquake strike zone, shows that there are some 500 apparel facilities in that region.

The Ekonomi newspaper reported that hundreds of textile plants in Kahramanmaras have halted operations and it may take about six months to restart production.

What’s made Turkey so alluring to the fashion industry? Its skilled labor, existing infrastructure, good trading relationships with raw-material exporters and proximity to western markets.

“Turkey became a very attractive option,” says Simon Geale, executive vice president of procurement at Proxima, a consulting firm owned by Bain. “We saw lots of fashion retailers looking at Turkey and saying, ‘can we manufacture, can we have distribution hubs nearer to our customers?’”

Now many of the companies that rely on Turkey are pouring in relief aid.

In an email, VF said its foundation is donating $100,000 to the United Nations High Commissioner for Refugees to provide immediate life-saving aid, adding that several of its suppliers near the epicenter have also opened their doors to shelter and feed local families.

Port Damage

Meanwhile, major infrastructure needed to handle Turkey’s seaborne trade and a hub of the country’s steelmaking capacity remained crippled as damages continued to be assessed.

“The Port of Iskenderun remains closed until further notice, with significant damage caused by the disaster and subsequent fire in need of operational repair,” Maersk said in a recent customer advisory.

Jennifer Bisceglie, the founder and CEO of supply-chain risk-management platform Interos, said it will take months, or perhaps years, to fully normalize trade flows through the Iskenderun port – which affect fertilizers, corn, polyester fibers, iron and other products.

Recent events ”illustrate how volatile the world’s supply chains continue to be in the face of natural disasters, pandemic shutdowns, and other systemic risks that have become the norm,” she said. “Despite that, only 24% of companies say they can immediately remediate supply-chain events and disruptions.”


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