The Next Supply Chain Crisis
Last year's COVID- 19- induced supply backups have contributed to imbalances that could bite retailers and brands again this year.
Whether it’s too little or too much — it's the supply chain that's to blame.
Last fall, COVID-19 backups and dislocations made it hard for many retailers to get goods into their stores, whether they were stuck waiting for a cargo ship to dock or locked up in a factory that temporarily shut its doors.
Turns out, customers were in a mood to buy, so sales were lost.
Not wanting to miss out again, retailers ordered heavily — too heavily.
Now the supply chain is still not sorted out, but the goods are on their way, causing another set of problems.
“We're still in a bit of a crisis mode from a supply chain perspective,” said consultant Brian Ehrig, a partner in Kearney's consumer practice. “There's a tremendous amount of goods that are on the water in transit. Now we're starting to see retailers reporting problems with inventory levels.”
Walmart and Target are the two big recent examples, but many retailers are standing in line behind them.
“That may be the next shoe to drop,” Ehrig said. “We've got to get the inventory to a place where it can be sold, but now we're seeing a slowdown in buying and we have too much of the wrong inventory.”
To wit, John David Rainey, Walmart's chief financial officer, told analysts this month that the company has “about $1.5 billion of inventory that if we could just wave a magic wand, we'd make go away today.”
Of course, Walmart logged secondquarter sales of $151.4 billion and had $59.5 billion worth of inventory on hand going into the second half. But even so, that kind of spell would require potent magic.
And out of all of the categories Walmart carries, fashion is at the center of it all.
“The inventory issues were most acute in apparel in the second quarter,” Rainey said. “As we look into the third quarter, I'd say it's home electronics and apparel are probably the areas that stand out the most.”
Just how that plays out come fall — at Walmart and retailers higher up the price spectrum — could shape the rest of the year in fashion.