Supply chain issues could sink $17 billion in apparel and footwear profits in 2022: report
- Current supply chain challenges could cost North American apparel and footwear brands between $9 billion and $17 billion in lost EBITDA in 2022, according to a new report released Wednesday by Kearney.
- This is a conservative estimate calculated by the report’s authors prior to omicron’s emergence, meaning the lost profits could be even greater.
- According to Kearney’s tally, only 12% of organizations in the industry are “leaders” in resilience, meaning they have design, delivery and financial agility, among other qualities that can help weather disruption. of the supply chain.
Overview of the dive:
Supply chains around the world are still working through bottlenecks at nearly every point in the chain, from raw material production to domestic trucking.
While last year’s holiday season didn’t cause the system-wide meltdown some feared, retailers and brands have had to pay for inventory, freight, domestic shipping and often for warehouses and other distribution workers in a tight U.S. job market. With limited inventory in the industry, many have been able to pass the costs on to consumers and even boost their margins.
This year is full of unknowns, both on the supply and demand side. Many expect supply chain difficulties to continue throughout the year. But the pandemic and consumer response to it will impact both sales and supply chains.
The authors of the Kearney report wrote of the clothing and footwear brands: “At some point over the next 6-18 months, they should be able to reap renewed growth from pent-up demand.” More office and party openings will require a wardrobe refresh for many, as the authors point out. But additional demand could exacerbate any supply chain safeguards the industry has seen over the past year.
Given the disruption of the past two years, many industry players are reporting that the supply chain is starting to play a bigger role in organizations compared to the past.
As apparel and footwear companies attempt to build resilience into their supply chains, the Kearney authors highlight several key tasks, including reducing complexity and SKUs, optimizing shipping, the integration of redundancy in supply and the redesign of inventory management to include AI demand planning. and data sharing with suppliers.
Kearney also grouped apparel and footwear organizations based on their resilience capabilities, based on their responses to questions as if they had redesigned their portfolio for simpler, more modular assortments. (A simple design, as Crocs executives attested last fall, can make it faster and easier to move production between factories.) Kearney also asked organizations about supply chain visibility, l access to capital, risk management practices and other key supply chain practices.
From surveys of leaders, Kearney determined that only 12% of organizations in the industry are described as “leaders” in resilience, while 52% are considered “traditional” and 36% are described as “laggards”. “.