What retail executives are saying about continued supply chain disruptions, inflation and operations

While it may be simple to think that the worst of the pandemic’s impact is now behind us, the ripple effect of the global health crisis is still playing out.

Over the past few weeks retailers reported their latest earnings, and as they did a number of patterns emerged. Namely, that companies are dealing with an environment marked by supply chain delays, heightened transportation costs, inflation and decisions about product prices.

On top of that, the war in Ukraine has pushed retailers to weigh how they do business with Russia as much of the world has imposed sanctions on the country.

While many companies have successfully navigated these challenges (at least for now), the pressure may not let up anytime soon. Experts recently stated that shippers should expect no relief for the rest of the year as structural issues in ocean transportation have not been resolved.

From Walmart reporting that supply chain costs were $400 million more than anticipated, to Target saying that ongoing supply chain pressures and cost increases will impact the front half of the year, here is a roundup of what executives said on their latest earnings calls about these issues .

Brett Biggs, Walmart CFO

Supply chain costs were over $400 million higher than expected, but we expect some of those costs to abate overtime.

[F]Or the first time in a while, we expect some expense deleveraging as we continue to see elevated supply chain wage and tech costs. We’ll continue the multiyear journey of accelerated capital investment focused on increasing fulfillment capacity, automation and technology to enhance productivity.

Doug McMillon, Walmart CEO

[D]During periods of inflation like this, middle income families, lower middle income families, even wealthier families become more price sensitive. And that’s to our advantage.

So we’ve been through this before. And we run with inflation around the world all the time. Inflation is a different environment in the US right now than it has been in recent times for sure, but we’ve been dealing with inflation in South America and Mexico and other places and just to kind of understand what that looks like.

Brian Olsavsky, Amazon CFO

We had said that we would have about $4 billion of additional costs due to labor shortages and the inefficiencies of that cause as well as increased labor rates and shift differentials of premiums and external transportation costs. We came in just slightly over that $4 billion. I think things went as expected.

[T]here’s specific things that I think we all see in the supply chain where we’re waiting for products. But as far as Amazon is concerned, we did a lot to combat the supply chain issues we saw in Q4 or anticipated in Q4. We bottled product ahead. We work with vendors to secure inventory early, in some cases, paid earlier, which had a working capital impact. We also worked very hard to open up channels of — existing channels of input into the country, whether it was port capacity or vessel capacity. So, we did everything.

John Mulligan, Target COO

Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period. Rather than add buildings, we grew by investing in automation, robotics and process design to improve the efficiency of our existing sites. Of course, we will always keep investing to make our buildings more efficient.

But with an additional $27 billion in sales over the last two years, we can’t rely on that alone. It’s time to expand our network. Last summer, we opened two new distribution facilities, one in New Jersey and one in Chicago. Today, we have four more currently in development that will open over the next few years with plans for several more to follow. Lighting up new buildings adds tremendous capacity to our supply chain network in support of our stores and will position Target to handle many more years of growth.

This capability isn’t something we built overnight. It’s the result of many strategic decisions we have made over time, working together in a model that’s unique to Target.

[I]n the front half of this year, we will be annualizing last year’s government stimulus, while facing ongoing supply chain pressures and other cost increases. In contrast, as the year progresses, we will begin comping over the period of higher costs that emerged in the back half of last year, while our supply chain and merchandising strategies have more time to adjust. As such, we expect our quarterly profit performance will be choppy during the year and generally improve as the year progresses.

Scott Settersten, Ulta CFO

[W]e plan to spend between $375 million and $425 million in CapEx, including approximately $195 million for supply chain and IT; $150 million for new stores, remodels and merchandise fixtures; and about $55 million for store maintenance and other.

Dave Kimbell, Ulta CEO

[W]e are tracking and monitoring closely the inflationary environment, and we understand the unique dynamics that we’re facing. We recognize consumers are going to be facing headwinds from rising prices and other dynamics.

I will say that as we look at the beauty category, even with these headwinds, we remain positive. The category is healthy. It is growing. It’s emotionally important and connected to our consumers. We are in the midst, even as we face some of these inflationary pressures, that we’re in the midst of the opening of the economy, of the world around us, which is beneficial. We know consumers are working to maintain their self-care routine.

Rob Wallstrom, Vera Bradley CEO

In the fourth, we began initiating strategic price increases across both of our brands to mitigate some of these inflationary and supply chain pressures, and we are continuing to implement price increases throughout 2022.

In hindsight, we should have implemented price changes more quickly. The price increases should more than offset continuing rising freight costs to deliver year-over-year gross margin improvement in fiscal 2023.

[W]e have started to change prices, a few of our factory items we did at the end of the year in Vera Bradley. We also started taking price changes in Pura Vida.

So far, we have not seen any negative reaction from the consumer. So we’re hoping that we see that continue as we continue to raise prices, but throughout the first half of this year.

Rob Helm, The Children’s Place CFO

Higher inbound transportation costs will continue to impact gross margin throughout the balance of fiscal 2022 resulting from the continued disruption in global supply chain. We anticipate that these increased costs, particularly expedited air freight costs, will impact us to a greater degree in the first half of the year versus the second half.

Matt Moellering, Express COO and Interim CFO

Compared to 2020, our inventory was up 36%, reflecting aggressive action we took to mitigate supply chain challenges. We have adjusted our go-to-market calendar to order product 2 to 3 weeks earlier than normal. The additional transit time will ensure that product arrives on time for product launches, while minimizing costlier shipments. We also made investments in core categories with long lead times, such as denim and men’s suits. These investments represent approximately $35 million of the increased inventory.

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