TNF Quits Türkiye: Costs Double
Hello! Today, I've brought this topic to you! We're diving into a significant shake-up in the global apparel manufacturing scene. The North Face, a brand synonymous with outdoor adventure, is making a major strategic move that's sending ripples through its supply chain. Let's explore why 80% of its production is being pulled from Türkiye and what this means for the industry.
The core reason behind The North Face's significant production shift is the escalating cost of manufacturing in Türkiye. A recent report from Türkiye Today claims that production costs in the region have reportedly doubled when compared to those of competitors in the Far East. This stark difference has made it increasingly challenging for global brands to maintain competitive pricing while producing in Türkiye.
For instance, if manufacturing a jacket in Vietnam costs $50, the same jacket produced in Türkiye could now be costing $100. This kind of disparity naturally pushes companies to seek more cost-effective alternatives to protect their margins and offer competitive prices to consumers.
This strategic move by The North Face's parent company, VF Corporation (which declined to comment on the matter), has a direct and severe impact on its key suppliers. Gelisim Tekstil, a Turkish company, was previously The North Face's second-largest global producer and its largest within the EU. They are now preparing for a drastic reduction in business.
According to local media reports, Gelisim Tekstil's orders from The North Face are expected to plummet from approximately €30 million to just €4 million to €5 million. This massive cutback could potentially halve Gelisim’s current workforce of 1,200 employees across its facilities in Corlu, Adiyaman, and Istanbul. Imagine a factory that was churning out 1 million pieces in 2022, now only producing 400,000-500,000 pieces monthly. This is the reality Gelisim Tekstil is facing.
So, what exactly caused this dramatic increase in Turkish production costs? Gelisim Tekstil's chairman, Mustafa Akcay, shed light on the economic disparity over the last three years:
- Minimum Wage Surge: A staggering 302% increase in Türkiye's minimum wage.
- Inflation Climb: Inflation has soared by 290%.
- Dollar's Value: In contrast, the US dollar's value only grew by 132% against the local currency during the same period.
This significant imbalance means that while local costs (like labor) have skyrocketed, the exchange rate hasn't kept pace, making expenses in dollar terms more than double. For example, Akcay noted that in 2023 alone, labor costs rose 110% while the exchange rate increased only 50%, making Turkish production more expensive than even some EU countries.
This shift by The North Face isn't an isolated incident; it reflects a broader trend affecting Türkiye's textile and apparel sector. Data from the Turkish Exporters Assembly (TIM) reveals worrying figures:
- Türkiye's textile and raw materials sector exports saw a marginal decline of 0.6% to $9.5 billion in 2024.
- Ready-to-wear exports decreased by 6.9% to $17.9 billion.
- Leather exports fell by 17.9% to $1.5 billion.
Despite these challenges, the Istanbul Apparel Exporters’ Association (İHKİB) vice chairman, Mustafa Paşahan, stated that the official export target for 2025 remains at $17 billion, acknowledging the sector’s regression from its $21.2 billion peak in 2022. This highlights the uphill battle Turkish manufacturers face in a highly competitive global market.
Q1. Why are production costs in Türkiye becoming so uncompetitive for brands like The North Face?
A. The primary reason is the significant mismatch between domestic cost increases (like a 302% surge in minimum wage and 290% inflation) and the relatively slower growth of the US dollar's value (only 132% over three years) against the Turkish Lira. This makes dollar-denominated production significantly more expensive.
Q2. What are the potential consequences for Turkish manufacturers like Gelisim Tekstil?
A. Manufacturers like Gelisim Tekstil face drastic reductions in orders, leading to substantial revenue loss and potential workforce reductions, possibly cutting their employee count by half. They also see a sharp decline in production capacity utilization.
The North Face's decision to move the bulk of its production from Türkiye highlights a critical challenge for manufacturers in regions experiencing high inflation and currency imbalances. While cost-cutting is a necessary business strategy for global brands to remain competitive, it underscores the urgent need for local industries to adapt, find new efficiencies, and potentially diversify their client base to thrive in an ever-shifting global supply chain. This move serves as a stark reminder of how macroeconomic factors can directly impact local economies and employment on a massive scale.