Brooks Brothers Shirt Supplier Is Shifting to Face Masks

(Bloomberg) -- The retail slump that has pushed many U.S. chains into bankruptcy is prompting Asian suppliers to re-think their business models amid the Covid-19 pandemic.

TAL Group's apparel division, which makes one of every six men's dress shirts sold in the U.S., is shifting to personal protective equipment such as face masks as slumping demand saw garment production fall to just 30% of capacity. The supplier to Brooks Brothers Inc., J.C. Penney Co. and Charles Tyrwhitt said business from April to December is set to fall 50%.

“It's a big drop, but we've managed to replace making garments with making face masks,” TAL Group Chief Executive Officer Roger Lee said in a Bloomberg TV interview. The company has confirmed orders of 50 million masks and Lee expects the protective gear business will continue after the health crisis.

The pandemic and its ensuing economic downturn have driven a dramatic slump in discretionary spending as stores shut their doors and consumers stayed home. Offline, non-grocery retail is expected to drop 20% this year, according to Forrester Research, with J.C. Penney, Neiman Marcus, J. Crew and Pier 1 Imports Inc. among those that have filed for bankruptcy.

TAL's pivot follows similar moves around the world, with iPhone assembler Foxconn and automaker General Motors Co. among those jumping into virus-related equipment. PT Pan Brothers, which makes clothes for Prada and Armani, is now making hazardous material suits.

Lee said cutting capacity will be part of TAL's way out of the crisis given demand remains low in key markets such as the U.S. and Europe. He expects more retailers will go bankrupt.

TAL's apparel business, which also makes suits, pants and other clothing, employs more than 20,000 at factories in Vietnam, Hong Kong, China, Thailand and Ethiopia. It has an annual production capacity of as much as 55 million pieces of clothing. TAL's other customers include Giordano, Hush Puppies, L.L. Bean and Nordstrom Inc.

“We have to make some long-term decisions to close our more expensive factories permanently in the hope that when we do recover we will move to cheaper locations in the future,” said Lee. “Covid has really forced us to make some tough decisions.”

Lee said TAL will survive this crisis given that its financial planning has been “very frugal” for many years. In the worst case scenario of having only 60% of orders, the company “will be fine” for the next three years, Lee said.