Mercado Labs | CEO supply chain quotes from the boardroom

How the global supply chain is impacting major brands

Press Release | Mercado Labs

How the global supply chain is impacting major brands

October 29th, 2021
5 minute read
By Kayleigh Hansen, Mercado Marketing Specialist
Take a look at 22 C-Suite executives as they discuss how the global supply chain is adversely impacting their operations and earnings.
Witynski told analysts that the retailer is especially sensitive to rising chaos in the world of international freight.
“We believe the Dollar Tree banner imports more containers per $100 million in sales than other large retailers. And combined with our low $1 price point, we have an outsize impact from freight costs.

After the first quarter of 2021, our updated freight outlook assumed that our regular ocean carriers would fulfill only 85% of our contractual commitments and assumed — we also assume the higher spot mark — the spot market rates. However, we are now projecting that our regular carriers will fulfill only 60% to 65% of their commitments.

Examples of steps we are taking include using dedicated space on chartered vessels for the first time, including one large vessel contracted for a 3-year term which is scheduled to make its first voyage within weeks.

We're expecting to add more charters this year. We're adding alternative sources of supply, both domestic and international that do not rely on Trans-Pacific shipping. We expect some of this shift could become permanent.”
CEO Mike Witynski
Dollar Tree
It’s been difficult to plan inventory flow with much precision. We have seen real lumpiness from the global supply chain that has led to some sort of shortages and more so just unevenness. We do not expect those conditions to change anytime soon, so it’s really on us to find ways of mitigating that.”
In an earnings call this summer, Rosenfeld said that:
"In terms of the supply chain...we could talk about this all day. There are challenges throughout the globe. There is port congestion, both in the US and China. There are Covid outbreaks at factories. There are challenges getting containers. We could go on and on."
CEO Steve Madden
Edward Rosenfeld
Rorsted said the sportswear company will be unable to fully meet the "strong demand" for its products in this second half of the year due to the shutdowns, despite switching production to other regions.
Rees said transit times from Asia to most of the company's leading markets are approximately double what they were historically. "That's been the case for some time, and we're expecting [to] live with that," he told investors.
Thomas said that for consumers, the supply chain crunch is likely to mean higher prices. The company is increasing prices to offset rising freight and commodities costs. The company is projecting that its ocean freight expenses will be on average 4 four times higher this year than last.”
“Our merchant, demand planning and supply chain teams once again did an amazing job managing through the difficult and constantly evolving supply chain environment. They worked strategically to bring in as much inventory as possible during the quarter, with actions like acquiring additional transportation, pulling up product flow and adjusting store assortment based on availability.

There will continue to be challenges, particularly as it relates to congested ports and transportation disruptions, but our teams have set us up for as strong an inventory position as possible as we move forward into the back half of the year.

As we think about the holiday period, we often have varying degrees of inventory and supply chain challenges, and this year will be no different. But we feel confident in our ability to serve our customers during the holiday.”
“As we developed this outlook, we considered a number of scenarios. Carefully balancing the benefits related to our brand strength, new product offerings and loyalty program against the near-term expense from inflation and supply chain pressures, including sizable investments in airfreight to partially mitigate longer lead times and shipping delays so that our inventories will be well-positioned to compete during back-to-school and holiday.”
“For several quarters now, there has been a significant imbalance in global transportation systems between demand and available capacity. This has caused unprecedented volatility and disruption in deliveries of merchandise across all sectors of retail, and it has caused a significant spike in international and domestic freight rates. We are anticipating some offsets to these higher expenses. In particular, continued lockdown savings driven by faster inventory turns and leverage on other expenses if we achieve our sales plans. But overall, these higher logistics costs will put significant pressure on our operating margins.”
CEO Michael O'Sullivan
Burlington Stores
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.”
“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.”
“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.”
“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.”
“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.”
“Our very strong sales and excellent merchandise margin increase more than offset the 150 basis points of incremental freight expense, the substantial supply chain and wage costs, and higher incentive compensation accruals.

We believe the costs are still going up higher in the back half as ocean freight rates have in some cases gone up 200%, which we would expect in the third and fourth quarter. We don't think this level of freight deleverage, which will be more than that 150 at least what we're seeing now, will be at the sustained levels.

If they are, that means the sales levels are going to continue because that means there's a tremendous demand.”
“But a couple of things that have been happening, the buyers when — if they're in a category where things are a little light, they've been pulling the trigger a little sooner and buying with longer lead times than we typically would...So, I really give them a lot of credit.

The logistics teams have been securing the freight capacity and we need to get the goods to our distribution centers and stores to meet our strong demand. And we're paying more when we need to.

As always, and I know we've talked ... about this, we do that because we think we will figure out, as witnessed by what we're talking about today, we'll figure out later how to offset the costs, but we want to continue to gain the market share and gain customers for the future.”
“Supply chain costs also pressured margin by 35 basis points as we absorbed some elevated distribution costs and continued to expand our omnichannel capabilities. Our supply chain team continues to leverage our scale in carrier relationships to minimize the impact of these distribution costs experienced across the retail industry.”
“As it relates to the supply chain, it is a fluid and evolving situation. While we have experienced inventory receipt delays in many areas of the business due to temporary factory closures and port congestion, our women's business has a disproportionate exposure given its high penetration of private brands.

We are managing the situation aggressively, leveraging our diversified global supply chain to ship production, when and where appropriate, and to prioritize and expedite orders while also maintaining a high frequency of pickups at the ports and deliveries to our stores. Given the fluidity of the situation, we will remain agile and responsive with a focus on minimizing disruption.”
We continue to experience late deliveries and factory delays resulting from the continued disruption in the global supply chain, due to the pandemic, as well as increased costs for inbound ocean freight, due to equipment and container shortages.

We are pulling up product receipts where possible and have been able to keep air freight costs to-date to a minimum. We anticipate that we will continue to see disruption in the environment at least until the end of 2021.”
CFO Rob Helm
The Children's Place
Worsening industry-wide supply chain congestion drove higher freight costs of 85 basis points. At some point, there will be some equilibrium in the freight world, especially with ocean freight that we expect to be an opportunity going forward. And then I would say, the return to 2019 margin levels will be highly dependent on strong sales performance over time.”
We are seeing some elevated costs primarily due to expedited freight, airfreight, as we absorb and deal with the supply chain disruptions that we see. And our outlook reflects additional airfreight really through the holiday period, which is as far as we can see in terms of getting the deliveries and trying to maintain the strong momentum we have.

As we look to next [fiscal] year, we are going to see elevated inventory positions, starting in the first quarter. And the reason for that is twofold. Number one, just supporting the growth of the business. Number two, we're expediting, as I said, what we can to bring in inventory, whether it be even by air or by sea, we're getting inventory in as fast as we can reasonably do in order to keep the momentum of the business.

And those factors together are going to be a slightly elevated increase in inventory, but I have no concerns about this at all. This is inventory that is supporting the trend of the business. And frankly, if we could get more, we probably would.”
About Mercado
Here at Mercado, we have first-hand experience with the issues a disconnected and siloed supply network creates. With internal teams disconnected from each other and vendors, it comes as no surprise that importers across the globe are feeling the strain of the current pandemic aftermath.

Designed by importers for importers, we’ve created an import order management system (iOMS) that connects and automates the global supply chain, connecting the 80% that remains “offline” to make it easier for importers to buy and ship the products they sell.

With enhanced supplier collaboration, real-time production management, and production controls, Mercado’s built-in features enable enterprises to re-prioritize supply chain convergence and harness the benefits of a unified business, including increased resilience, improved risk management, and accelerated innovation.
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Discover more about how Mercado’s digital supply network helps businesses to transform their supply chains and improve time to market, increase sales, and reduce expenses. To find out more, get in touch with us directly here.
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