Consumer demand and retail sales are up, way up, after 2020′s many crucibles. While the delta variant of COVID-19 has thrown a shadow over the recovery, customers have been refreshing wardrobes, spending stimulus checks and going shopping.
If only the supply had bounced back as quickly as the demand. Bottlenecks have been building all along the supply chain, from raw materials to container ships, and are generally expected to continue throughout the holiday season.
With container shipping capacity down, and some Chinese ports disrupted by COVID-19 outbreaks, shipping prices have skyrocketed and wait times lengthened. The end effect is it has become a far more costly and uncertain enterprise just to bring goods into the country to sell to customers.
S&P Global Market Intelligence’s Panjiva supply chain research unit found that aggregate import prices have increased in 14 out of the past 15 months. With a 0.3% month-over-month increase, July marked the ninth straight month of price increases. Shipping rates ticked up 0.5% in the first two weeks of August, and are up 18.9% in the second quarter of 2021 versus Q1.
Finding a retailer or brand unaffected by the supply chain bottlenecks is a difficult task. One relative exception is Canada Goose, which makes much of its product domestically (more on that below). For others, the supply chain chaos goes right to the heart of their operations. Margins, profits and performance outlooks for the year are taking hits.
Industry players have a range of tools to manage the difficulties. The largest retailers — Walmart among them — can charter ships to guarantee transportation of goods. Companies are also building longer lead times into their plans and using other forms of transport, including air cargo. (With so many firms turning to the skies at the same time, air cargo has its own bottlenecks, though.)
Many players are managing their costs and raising prices to offset supply chain woes. Among publicly traded retailers, the subject has come up in nearly every Q2 quarterly conference call retail executives have held with analysts and investors in recent weeks. Below are excerpts from some of the industry’s major players on how they are managing the crisis:
Brett Biggs, Walmart CFO and executive vice president
Our merchants continue to take steps to mitigate challenges, including adding extra lead time to orders and chartering vessels specifically for Walmart goods. Out of stocks in certain general merchandise categories are running above normal, given strong sales and supply constraints.
Ted Decker, Home Depot COO and president
One of our values is entrepreneurial spirit, which is alive and well at The Home Depot. Our supply chain teams recently leveraged our scale and flexibility to arrange for several container vessels for our exclusive use. Yet another way our teams found a creative solution to better serve our customers in this dynamic environment.
Our in-stock levels are still not where we want them to be, we are maintaining the improvements we made over the last few quarters and building depth in key categories, as evidenced by inventory growing faster than sales compared to the same period last year…
There’s a COVID outbreak in a factory, there’s a shipping constraint, there’s a domestic transportation capacity constraint. So it’s been the story of two steps forward, one step back, but we are making progress. And that’s why we’re happy to lean into inventory.
We’re blessed with the financial strength and liquidity. Our goods tend to be non-perishable, not a lot of obsolescence particularly in our core product.
John Mulligan, Target COO and executive vice president
Our team has been successfully addressing supply chain bottlenecks that are affecting both domestic freight and international shipping. Steps include expedited ordering and larger upfront quantities in advance of a season, mitigating the risk that replenishment could take longer than usual. Bottom line, with Q2 ending inventory up more than 26% or nearly $2.5 billion compared with the year-ago, we believe we’re well-positioned for the fall and ready to deliver strong growth on top of last year’s record increases.
Michael Fiddelke, Target CFO and executive vice president
Among other gross margin drivers, we saw about 70 basis points of pressure and merchandising, reflecting the impact of higher product and freight costs, partially offset by the benefit of low markdown rates.
Philip Krim, Casper Sleep co-founder and CEO
We continue to see very solid demand for our products, although the well-publicized industry-wide manufacturing and supply chain disruptions impacted our second quarter results …
Specifically, despite expanding our base of third-party manufacturers earlier this year, our suppliers had less capacity than originally anticipated due to the persistent shortage of raw materials and components critical to mattress production as well as increasingly significant labor shortages and shipping constraints across the supply chain during the second quarter. These conditions had a greater-than-expected impact on our ability to meet all of the demand we receive and are creating stronger than forecasted inflationary pressures across much of our cost of goods sold. Absent these challenges, we believe that Casper would have been adjusted EBITDA profitable in the second half of 2021.
Post time: Sep-09-2021