Like so many businesses, clothing retailers have endured a year or more of disrupted supply chains, challenges with maintaining appropriate inventory, and significant fluctuations in demand. The recent blockage in the Suez Canal was just the latest in a string of disruptions. Retailers were already struggling with congestion at ports and shortages of shipping containers to carry their products. Now though, some clothing retailers think that the disruptions might provide valuable lessons and a potential shift in power from the consumer to the retailer. Shoppers in malls and stand-alone locations faced with emptier than usual racks and dated fashions seem willing to buy anyway, often at much higher prices than what they would have paid just a year ago. Some retailers think that going forward a lower volume, higher priced business model may be more appealing than the more traditional high volume, discount model that has been popular in recent years.
If you have been disappointed recently after shopping for new clothes at your favorite mall or retail outlet, you are not alone. Clothing racks at most stores are emptier than usual and may not contain their usual up-to-date selection. In fact, some retailers are displaying fashions from a year ago as they struggle to regain their footing following the many disruptions related to COVID-19 over the past year. Congestion at shipping ports has been a major concern especially the recent blockage of the Suez Canal, where one of the biggest ships in the world found itself stranded sideways across one of the most traveled maritime routes, stopping cargo traffic in both directions. With more than 400 ships lined up waiting to get through, the abrupt stop to traffic through the canal was estimated to be delaying some $400 million in goods per hour. Carrying everything from cattle to IKEA flatpack furniture to car parts to clothing, ships caught in the blockage were faced with the decision of whether to wait and hope that the stranded vessel could be moved allowing traffic to resume or commit to reversing course and taking a longer, more expensive, and more dangerous route around Africa. Neither option was attractive and both options served to exacerbate problems facing clothing retailers, limited inventory and higher cargo prices. Dislodging the stranded ship involved round the clock efforts by engineers, heavy equipment movers, and others. Despite their success, getting traffic flowing again through the canal is just the beginning of what is anticipated to be a series of disruptions that could have significant implications not only for the companies that rely on China for their inventory, but also for consumers in general.
When the pandemic forced businesses to close and consumers to stay home, many clothing retailers cancelled or postponed orders, leaving them with little inventory, while others literally packed their goods into storage hoping to sell them at a later point. Now, as the global economy reopens, shipping delays are one of the biggest impediments limiting the ability of retailers to quickly restock. For retailers though, there may be a silver lining to their inventory issues as the limited selection combined with growing demand is pushing prices up as much as 40 percent over last year’s prices. For consumers, stuck with racks of last year’s fashions or an insufficient choice of current styles, together with high prices, the situation is not ideal. Retailers than typically carry overstocked items have even more limited inventory as their pipeline has all but
evaporated. Now, some retailers are wondering whether there are lessons to be learned from their experiences. Some are wondering whether a higher margin, lower volume model could be more beneficial than their pre-pandemic strategy of higher volume combined with discounting. While consumers may not agree, it seems that change is in order, at least for the short term.
Discussion Questions:
- Consider that L. Brands’ Victoria’s Secret is selling its product for as much as 30 percent more than a year ago while sister company PINK has raised its priced by 40 percent over a year ago thanks to limited inventory caused by shipping delays and other disruptions. As a consumer, discuss the shift in power within the retail industry. How has the pandemic transferred power from the consumer to the retailer? What is likely to happen in the longer term? Will retailers continue to limit their inventory to maintain their control over price?
- Discuss what the blockage in the Suez Canal means for the global economy. How will
consumers be impacted by the blockage? What does it mean for prices of critical goods
like oil? What does it mean for the cost of shipping? - What do shipping delays and port congestion mean for retailers like TJ Maxx that rely on overstocks from other retailers? Can these retailers get the inventory they need if primary retailers are unable to get their own inventory? If retailers like TJ Maxx are pushed out of the market, what are the implications for consumers? Will prices rise further or is there a point when consumers will simply stop buying?
- Discuss the fragility of global supply chains. Have Western companies become too
dependent on factories in Asia? Do shorter, more localized supply chains make sense?
Should retailers be buying more clothes made in North America? Would you be willing
to pay more for a locally produced product?
Sources: WSJ: Clothes Shoppers Are About to Realize Just How Messed Up Shipping Has Become; CNBC: Suez Canal blockage is delaying an estimated $400 million an hour in goods; Photo by Artificial Photography on Unsplash