This week’s earnings announcements highlighted progress in apparel retail supply chain cost-cutting plans and the potential for falling freight rates.
Nordstrom’s supply chain optimization initiatives are reducing costs and getting products to consumers faster, CEO Erik Nordstrom told Wall Street analysts and investors.
After increasing the productivity and throughput of its distribution and fulfillment centers by 20 percent in 2022, the retailer sees significant cost benefits as it expands its 1 million square foot omnichannel fulfillment center on the west coast in Riverside, California .
Compared to the first quarter of 2022, supply chain costs per unit were 5 percent lower in the second quarter of this year despite inflation, the CEO told investors.
For the fourth consecutive quarter, variable supply chain costs decreased by over 100 basis points (1 percentage point) as a percentage of revenue year-over-year, although the company “will begin to see moderation in these costs in coming quarters.” ‘ said CFO Cathy Smith.
The company cited supply chain optimization initiatives for second-quarter reported earnings before interest and taxes (EBIT) of 5.3 percent, up 20 basis points year-on-year.
In May, Nordstrom announced that delivery speeds increased 9 percent year-over-year.
While it saves time and money, Nordstrom is still feeling the effects of a supply chain change last year.
Beginning in the third quarter of 2022, the company stopped fulfilling online orders from Nordstrom Rack stores due to the negative impact on sales.
Despite all of today’s logistical challenges, from the congestion of the Panama Canal to the Yellow bankruptcy to labor negotiations at UPS and West Coast ports, Abercrombie & Fitch is in a “good spot”.
“The supply chain is doing well, with freight rates, delivery times and performance significantly better than last year,” said Scott Lipesky, chief financial officer and chief operating officer, Abercrombie & Fitch.
The specialty retailer saw earnings increase in the second quarter with net income of $56.9 million and gross margins up 460 basis points (4.6 percentage points) to 63.5 percent.
Approximately 340 basis points (3.4 percentage points) of the margin improvement was due to freight benefits.
“If you think about inbound transportation, ocean voyages are better than they’ve been in years,” Lipesky said. “The timing is better. Fulfillment rates are better.”
Lipesky said the improvement in dispatch times, freight costs and performance has prompted Abercrombie to “get the business back the way we’d like it to be” and reduce stock levels to remain conservative on merchandising levels.
Gap Inc. is another specialty retailer that touted the benefits of cargo shipping by both sea and air.
While the parent company of Old Navy and Athleta expected 200 basis points (2 percentage points) of headwinds in margins due to inflationary pressures, Gap Inc. instead experienced a better-than-expected 140 basis points (1.4 percentage points) headwinds.
“This was primarily because we saw better rates in the freight space through some negotiations we just finalized with some of our major suppliers,” said Katrina O’Connell, executive vice president and chief financial officer of Gap Inc., in the company’s second statement of quarterly results.
The company saw air freight gains of 200 basis points (2 percentage points) year-over-year in the quarter, which helped increase gross margin by 310 basis points (3.1 percentage points) to 37.6 percent.
Like Gap Inc., Guess expects gross margins to increase in 2023, “primarily driven by the cost improvements we are enjoying as the supply chain and shipping environment has returned to normal,” said Chief Financial Officer Markus Neubrand.
The freight costs, which have been rising again since July, could give many retailers a tailwind until 2024.
“We are not advising shippers to lock themselves into current levels through one-year or longer contracts,” Philip Damas, managing director of Drewry Supply Chain Advisors, previously told Sourcing Journal.
Notably, there was no mention of Gap’s logistics and fulfillment services division, GPS Platform Services, in the earnings announcement. With new CEO Richard Dickson taking over the role on August 22, it’s unclear what the plans are for the growth of these services.
Like American Eagle Outfitters’ Quiet Platforms, the GPS service was designed to open up Gap Inc.’s omnichannel fulfillment, warehousing, parcel shipping, and reverse logistics services to companies outside of its portfolio. However, Quiet’s reorganization earlier this year, which saw Shekar Natarajan step down as CEO, suggests retailers may still find it difficult to build their own profitable third-party logistics services.
https://sourcingjournal.com/topics/logistics/nordstrom-supply-chain-costs-freight-rates-abercrombie-fitch-gap-gps-452262/ What Nordstrom, Abercrombie and Gap have to say about the supply chain – Sourcing Journal