Foot traffic slows as retailers grapple with supply disruption
The pandemic has trashed the “just-in-time” model that was at the heart of modern economies.
Accent Group chief executive Daniel Agostinelli, in a business update on Tuesday, said there were delivery delays from external suppliers in December and early January.
Analysts point out that this is a global problem, part of which stems from the extended shutdowns of factories in Vietnam from July last year. Over 200 factories in Vietnam produce much of the footwear and apparel for global brands Nike and Adidas.
Citi analyst Sam Teeger said major shoemakers expect supply delays to continue for some time this year.
He says global brands will prioritize direct-to-consumer customers who are likely to be higher in the queue as production resumes, over distributors like Accent Group, as big global brands make sales. higher margins from the direct-to-consumer channel. .
Mr Teeger said “excess inventory” shielded Accent Group from supply problems in the December half, but he expects delivery delays could negatively impact the group in the June half.
Nike chief financial officer Matt Friend told analysts late last year that nearly three months of lost production in Vietnam, along with extended transport times and logistical issues, meant that shortages of stocks for the brand would be evident in the market over the next few quarters.
More than 3 million people in Vietnam work in factories making textiles and footwear for a range of major global brands.
A COVID-19 outbreak prompted shutdowns from July in a country that previously had a strong track record of keeping cases low. Most factories resumed operations at full capacity in early November.
Australian Retailers Association chief executive Paul Zahra, who is a former chief executive of the David Jones department store group, said the days when retailers could have finely tuned “just in time” supply chains was over for now.
“It’s definitely over kaput,” Mr Zahra said.
“There is no doubt that the hardest job in Australia in retail right now is trying to forecast inventory,” he said.
The inclination was to order additional stock as a buffer to ensure stock was available in case there were further delays in shipping and transportation. But it’s a tough balancing act, because that extra inventory has to be stored in warehouses and can then hurt profits.
“If you buy too much product, you end up having to cut back,” he said.
Mr Zahra said consumer confidence was at a 30-year low in Australia and retailers were nervous about the next three months.
He said a survey of ARA members found 63 per cent were concerned about the outlook over the next three months, with 62 per cent describing retail conditions at the current time as “poor” or “terrible”.
“The outlook is not great,” he said.
He said more than 80% of retail sales came from physical stores, even though online shopping had surged amid the pandemic.
Online retailers should in theory be much better positioned as people retreat back to their homes and stay away from malls.
But they also have to manage the delicate balance between having the right amount of stock levels at a time when there is so much uncertainty about when products will arrive at docks or in warehouses.
Online retailer Kogan.com, founded by entrepreneur Ruslan Kogan, has fallen on shaky times.
Its shares were pummeled this week when it said underlying earnings in the six months to Dec. 31 fell 58% due to continued ‘disruptions’ to its supply chain amid the pandemic disrupts shipping and transportation in the retail industry.
Although overall gross sales increased 9.4% to $698 million from $638 million a year earlier, profits were eaten away by rising supply chain costs and the creation of a new in-house delivery company called Kogan Delivery Services.
The in-house business has so far made 100,000 deliveries to supplement its existing main delivery contractor, Australia Post, which is withering under pressure from a new flood of e-commerce orders via thousands of retailers across Australia in the middle of the omicron wave.