How the global supply chain is impacting major brands
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.”
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.”
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.”
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.”
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.”
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.”
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.”
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 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.”
The Children's Place
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.”
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.
Thank you for using Mercado. Our goal is to empower businesses to better navigate the complex world of importing. We know data security is of paramount importance, so we place high standards on ensuring it is safely and respectfully secured. We are committed to following and continuously evolving best practices to support this principle. Your data is yours, and we guard it closely. We do not sell any of your information, and we will always be fully transparent on how we collect and use your data. That's a promise.