Are the cards stacked against small and medium sized retailers?
The general assumption is that the economy’s three-pronged challenge — supply chain disruptions, labor shortages and inflation — will wind up hurting smaller retailers and vendors significantly more than larger ones.
Smaller businesses often can be nimbler than their larger counterparts, but many of the current obstacles seem to favor organizations with greater leverage and strong balance sheets.
On recent quarterly calls, major vendors and retailers have called out the benefits of having strong relationships with their production and logistic partners as well as scale in managing the supply chain challenges expected to last through the first half of 2022.
Lowe’s CFO David Denton told analysts, “Our supply chain team continues to leverage our scale and carrier relationships to minimize the impact of these distribution costs experienced across the retail industry.”
Chip Bergh, Levi’s president and CEO, said on his company’s call, “Our globally diversified sourcing strategy, combined with our scale, are a source of competitive advantage.”
Costco, Walmart and Home Depot are not only able to charter their own ships to circumvent the sea logjam, but being well-capitalized helps the companies absorb escalating freight, warehousing and trucking costs. With a strong balance sheet, retailers can also fund air freight and stock-ups of extra inventory.
With plastic, paper and cardboard all in short supply, packaging materials required to support e-commerce’s momentum are also expected to first go to larger retailers. Andrew Hogenson, the global managing partner of consumer goods, retail and logistics at Infosys Consulting, told NBC News, “Someone like Amazon is obviously going to be at the front of the line to get their share of capacity, whereas these smaller businesses are at the back of the line.”
Larger retailers are also believed to have more financial flexibility to absorb higher costs and keep prices down for customers than smaller competitors.
Finally, having the financial wherewithal to continually lift wages and benefits to battle worker shortages is also expected to favor larger firms. Costco and Starbucks hiked wages again in recent weeks. Kevin Johnson, Starbucks’ president and CEO, said last week on his company’s quarterly call, “We believe this investment, combined with our industry-leading benefits program, will enable us to remain an employer of choice.”
- Latest NFIB COVID-19 Survey: Half of Small Employers Report Supply Chain Disruptions Are Significantly Impacting Their Businesses – NFIB
- Lowe’s (LOW) Q2 2021 Earnings Call Transcript – The Motley Fool
- Levi Strauss & Co (LEVI) Q3 2021 Earnings Call Transcript – The Motley Fool
- Christmas is going to be great for stores, if their names are Walmart or Target – CNN
- Supply chain logjams hobbling smaller shippers – Freight Waves
- Retailers are having their own supply chain issues, leading to a battle for packing materials – NBC News
- Labor shortage, supply constraints and inflation hold back economy trying to emerge from pandemic – CNBC
- Starbucks Corporation (SBUX) Q4 2021 Earnings Call Transcript – The Motley Fool
DISCUSSION QUESTIONS: Do you agree that larger retailers and suppliers are significantly better positioned to deal with the current supply chain, labor and inflation challenges? What advantages do small and medium-sized retailers still have in the current retailing climate?