The Friday Five: Fast-fashion supply chain excels
Zara Is Still Well Dressed [Wall Street Journal]
Zara’s fast-fashion supply chain is helping insulate its parent company from tough trends hitting other apparel retailers. Zara parent Inditex SA says its sales at constant exchange rates increased 5% over the three months through April far from the company’s heady growth days but much better than its peers in clothing sales have been doing. Rivals including Hennes & Mauritz and Gap Inc. have been struggling with dwindling store traffic as more apparel spending moves online. Zara and other Inditex labels source much of their products close to the company’s European hub, providing less exposure to wage inflation in Asia and a faster supply chain to respond to changing fashion trends. The company has also been nimble online by blending its digital presence with physical outlets so many customers pick up orders at the stores, helping keep a lid on delivery costs.
Walmart updates supplier pricing tool to manage tariff costs [Supply Chain Dive]
Walmart has added options to its digital Cost Change Scenario tool so vendors can submit price increases needed to offset the recent rounds of China tariffs, according to materials obtained by Bloomberg. Walmart uses this data to set prices for consumers. Cost Change Scenario replaced an Excel spreadsheet that suppliers had to fill out manually until roughly one year ago, Fortune reported. It allows suppliers to enter a reason for price increases from a menu including "tariffs, labor, transportation, and raw materials," in the first time the retailer has offered this reason for a price change, according to the same report. The retailer was largely untouched by the first and second round of tariffs, but the current 25% tariff on $200 billion, increased from 10% last month, and the pending 25% tariff on $300 billion of Chinese goods impacts clothing, shoes, electronics, and furniture — major product categories for the company. Walmart CFO Brett Biggs expressed near certainty that prices would have to increase as a result of May tariff changes on an earnings call last month. Walmart is not alone in this challenge as the current tariff schedule and the impending approval of a fourth tranche has impacted major retailers' calculus on pricing. Other fashion brands that, like Walmart, depend on China to manufacture apparel, Calvin Klein and Ugg in particular, are facing significant price increases on the supplier end. Analysts predict roughly 25-50% of those back-end costs could be passed on to customers.
Inventories grew by $123.7B in first quarter [Supply Chain Dive]
Private business inventories grew by $123.7 billion in the first quarter of 2019, according to the Bureau of Economic Analysis' (BAE) quarterly release of National Income and Product Accounts. This was the third quarter in a row where inventories grew by tens of billions of dollars. The phenomenon is at least partially the result of businesses importing goods to avoid tariff increases as the trade war between the U.S. and China continues. The inventory to sales ratio also grew year-over-year in March for manufacturing, retail and wholesalers, according to Census data. Record-setting numbers at the nation's ports between the end of 2018 and early 2019 were the first indication importers were rushing to beat tariffs. But these numbers from BAE highlight just how much retailers, manufacturers and other businesses padded their inventories to guard against impact from the trade war. Those in the warehousing sector have seen the impact firsthand.
Tangles in China-U.S. tech supply chain are growing [Defense Systems]
It's becoming almost impossible to untangle U.S. supply chain security policy from other political and economic issues, particularly when dealing with China, cybersecurity experts say. Representatives from the Department of Homeland Security's Information Communications Technology Supply Chain Task Force said they hope to find a consensus set of recommendations for keeping compromised or suspect parts out of the U.S. technology supply chain that avoids singling out particular countries or companies. While the Trump administration's recent supply chain executive order, which directs the Department of Commerce to develop new rules for banning information and communications technology sales, does not mention specific countries or companies by name, it has been widely reported that the White House hopes to use the order to stop or slow the momentum of Chinese telecommunications giant Huawei in building out 5G networks around the world. In a separate action, Huawei was also placed on the Bureau of Industry and Security's entity list, forcing U.S. companies to apply for a special, rarely issued license in order to sell parts and materials to the company. In a Washington Post survey of 100 cybersecurity experts, 61 said the ban against Huawei won't make the U.S. supply chain more secure, with many arguing it could wind up hurting U.S. tech companies more than Huawei. Following the listing, Chinese officials announced they would be developing their own "unreliable entity list" for foreign companies. Beijing has also floated the possibility of cutting off U.S. firms from rare earth minerals that are used in many of tech products. China currently supplies about 80% of rare earth minerals imported to the United States.
May retail sales see gains, reports Commerce and NRF [Supply Chain Management Review]
May retail sales data issued today by the United States Department of Commerce and the National Retail Federation (NRF) showed sequential and annual gains. Retail trade sales were up 0.5% compared to April and up 3.1% annually, with nonstore retailers, which is largely comprised of e-commerce activity, seeing an 11.4% annual jump and sporting goods, hobby, musical instrument, and books store sales off 4.2% annually. “Today’s retail numbers, and upward revisions to prior months, reinforce the ongoing strength of the consumer and are consistent with a pick up in the pace of the economy in the coming months,” NRF Chief Economic Jack Kleinhenz said in a statement. “The strong job market, recent income gains and elevated confidence translates into ongoing support for spending. Households, in the aggregate, are in solid financial condition but an escalation in trade tariffs will undoubtedly create a considerable downdraft to confidence and spending, or lead to a pullback in spending.” NRF added that retail sales data has been unusually choppy given the economic environment in recent months, which include the partial government shutdown, volatile energy prices, roller coaster equity markets, notwithstanding escalating trade tensions. And it added that May’s retail sales increases were broad based, with nearly all categories showing gains, with the only decline coming from food and beverage stores.
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