VF Corp's The North Face Shifts Production from Türkiye Amidst Rising Costs

VF Corp's The North Face Shifts Production from Türkiye Amidst Rising Costs

U.S. apparel and footwear giant VF Corporation (NYSE: VFC), parent company of The North Face, is executing a significant strategic shift in its manufacturing operations. The company is relocating approximately 80% of The North Face's production from Türkiye to lower-cost hubs in Vietnam and Bangladesh, a move aimed at mitigating escalating manufacturing expenses. This decision is poised to impact its primary Turkish supplier, Gelisim Tekstil, and reflects a broader trend of supply chain re-optimization within the global apparel industry.

Production Relocation Details

The core of this strategic adjustment involves a drastic reduction in orders placed with Gelisim Tekstil, a long-standing Turkish supplier. Previously one of The North Face's largest global producers and its most significant within the European Union, Gelisim Tekstil is now expected to see its annual order value from The North Face plummet from approximately €30 million to between €4 million and €5 million. This substantial cutback means that out of an estimated 4 million pieces previously produced, only 400,000 to 500,000 pieces will remain with the Turkish manufacturer. Mustafa Akcay, chairman of Gelisim Tekstil's board of directors, confirmed the shift, stating, "Starting last year, they decided to go to Bangladesh and Vietnam. About 10%-20% of production will remain."

Analysis of Cost Drivers in Türkiye

The impetus for VF Corp's decision stems directly from a sharp rise in production costs within Türkiye. Over the past three years, the country has experienced a 302% surge in the minimum wage and a 290% climb in inflation. In contrast, the value of the U.S. dollar against the Turkish Lira increased by only 132% over the same period. This disparity has effectively more than doubled Turkish production expenses when calculated in dollar terms, making them uncompetitive on a global scale. Akcay elaborated on this challenge:

"In 2023, labour costs rose 110% while the exchange rate increased 50%. We tolerated the difference in yarn prices. But in subsequent years, labour costs remained well above the exchange rate, making us more expensive than even the EU." Vedat Yavuz, vice chairman of Gelisim Tekstil, affirmed that The North Face's relocation decision was "purely due to price," despite Gelisim Tekstil's established reputation for quality and timely delivery.

Broader Context and Market Implications

The ripple effects of this production shift extend beyond Gelisim Tekstil. The Turkish textile sector as a whole is grappling with a severe competitiveness crisis. Data from the Turkish Exporters Assembly (TIM) indicated a marginal decline of 0.6% in textile and raw materials sector exports to $9.5 billion in 2024, with ready-to-wear exports decreasing by 6.9% to $17.9 billion. The sector's cost-based competitiveness index plummeted to 86.15 in Q1 2025, marking its lowest level in a decade. Consequently, Turkish apparel products are now approximately 60% more expensive than those from East Asia and about 45% costlier than North African equivalents. This has led to substantial production losses, with the Turkish Clothing Manufacturers' Association (TGSD) reporting a $4.6 billion loss over two years and 1,270 companies closing in the first four months of 2024, resulting in 20,700 job losses.

For Gelisim Tekstil, the immediate impact is a dramatic decrease in monthly capacity utilization, which has fallen from 1 million pieces in 2022 to just 400,000-500,000 pieces currently. The company, which currently employs 1,200 individuals, faces the prospect of halving its workforce, as articulated by Akcay:

"We currently have 1,200 employees. If things don't go as we hope, there may be employees we will part ways with. We will shrink. Starting from May next year, the number of employees may drop by half." The company's export revenue, which stood at $90 million in 2022, declined to $50-60 million in 2023 and is projected to remain at similar levels through 2025. Without new partnerships, Gelisim Tekstil anticipates a 50% contraction next year.

From VF Corp's perspective, this move is integral to its broader "Reinvent" transformation program. The company aims to realize $300 million in annualized cost savings by mid-fiscal year 2025 and targets a medium-term net operating income expansion of $500 million to $600 million. The North Face brand has been identified as a key growth driver for VF Corp, demonstrating sustained positive momentum, including 6% growth in Q1 FY26 driven by Asia-Pacific demand and product innovation. The cost-cutting measures are expected to bolster the brand's profitability within VF Corp's portfolio.

Looking Ahead

The relocation by The North Face underscores a significant restructuring within global apparel supply chains. Major brands are increasingly prioritizing cost optimization and supply chain resilience, leading to a continuous re-evaluation of manufacturing footprints. For VF Corp, the shift is expected to contribute to improved profit margins and operational efficiency for The North Face, a critical brand in its portfolio.

Conversely, the challenges for Türkiye's textile sector are likely to persist, particularly given the ongoing inflationary pressures and wage increases. The country's textile manufacturers will need to adapt by exploring new market opportunities, improving efficiency, or shifting towards higher-value production to counteract the exodus of cost-sensitive orders. The event also highlights a broader cautionary tale for emerging market producers regarding the impact of macroeconomic instability on global competitiveness.