The Lab | First Things First - Episode 6: Educating an industry stuck in the 80s

First Things First: The Fastest Five Recap – July 2022 Edition

First Things First

The Fastest Five Recap - July Edition

July 13th, 2022   ·   By Callum Berry

We hope everyone enjoyed our July edition of First Things First, where Mercado Labs CEO and podcast host, Rob Garrison, spoke with industry veteran Mark Baxa (CMPSC President and CEO) about his vast experience working in the supply chain industry.

Mark was a great guest who gave some amazing answers to Rob’s questions, if you haven’t seen it yet, you can find it here.

As part of his usual ‘Fastest Five’ segment, Rob covered some of the latest topics in supply chain topics from recent weeks, and we’re here to give a slightly more in depth recap.

As Rob mentioned, hopefully one day he can cover some more positive news, however unfortunately this episode was titled “The hits just keep on coming!”

Misforecasting Misdemeanors

Many retailers are currently struggling with excess inventory due to poor forecasting. In May, Bloomberg reported that companies such as Walmart and Gap amongst others had amassed $45 billion worth of excess stock, and there are many factors that will have led up to this. For example in January when retailers were planning their orders, there was no war in Ukraine, interest rates were termed as “transitory” at the time and demand was still strong. Fast forward to June and everything has changed, causing these retailers to have far more product in comparison to demand.

Peak season usually begins around August time due to the summer holidays, however we expect that it might be slightly tempered due to all of the excess supply. Retailers with too much inventory are going to want to be more conservative about ordering more products going forward. When we talk about the necessity of high-tech forecasting tools and the importance of improving resiliency, this is what we mean.

Rob’s perspective

Wow, that really is crazy! A 10-12% drop in demand overnight isn’t something any business leader wants to see. Economists are really struggling to predict what’s in store for businesses and our consumers from an inflation point of view—some view it as a near-term consequence of high government stimulus injection alongside shortages driving prices higher and making the cost of living more expensive; whilst others see it as something that’s been building for a long, long time. Whatever the case, we are all going to have to figure out and prepare for this added layer of complexity in an already struggling industry.

Unrest in Key Markets

Many ‘manufacturing hubs’ around the world (such as Sri Lanka, Myanmar, and Pakistan etc.) are facing both economic and political turmoil. Sri Lanka is currently dealing with huge civil unrest due to a collapsing economy overseen by President Gotabaya Rajapaksa, who recently announced his resignation after protesters stormed his living quarters. Naturally, this is likely to have an effect on its $6 billion garment industry. Currently, ports are still operating and the industry has elected to take a ‘country first’ approach, so hopefully workers remain safe and continue to earn wages.

Myanmar on the other hand, is facing a very different situation nearly 18 months after they faced a military coup, with massive labor unrest and fuel shortages causing factories to shut down with no foreseeable end in sight. Labor campaigners have also been pushing for a complete shutdown of apparel operations in protest. We can only hope for a peaceful resolution to the conflict at this stage.

Finally, Pakistan is facing a lack of affordable gas and electricity which has already forced around 400 textile mills in the Punjab region to shut down. Pakistan generates around $20 billion in textile exports every year, however soaring energy prices are making it impossible for this huge industry to keep functioning at this point.

A Gap in employment

And finally, the CEO of Gap has resigned in part due to supply chain issues. Delayed inventory arrivals as well as a general lack of inventory caused Gap to miss their sales by $162 million in the first quarter.

The once leading apparel brand is currently in the midst of a turnaround following Sonia Sygal’s resignation, with a member of Gap’s board of directors appointed to take over in the interim. We hope that this iconic but struggling brand can get back on their feet soon.

Rob’s perspective

Inflation often results in negative financial market movements—and recessions are natural consequences we’ve seen many times before in our recent history alone. Whether things balance out relatively quickly remains to be seen. It’s possible that as the cost of living increases, people buy less resulting in left demand and so price decreases—reflecting how a ‘bull market’ can just as easily turn into a ‘bear market’.

Catch-up on the live show

To watch the full episode of First Things First, head over here.
To subscribe to the podcast (available wherever you listen to yours), click here.
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