The coronavirus pandemic isn't over -- not from a health-related standpoint or an economic one. Sure, the jobs market is booming, and the national unemployment rate recently reached its lowest level since the start of the crisis. But supply chain issues fueled by the pandemic are continuing to wreak havoc on retailers and consumers alike. And one retailer in particular may be in for a very disappointing holiday season due to ongoing bottlenecks and delays.
Sales numbers are already plunging
As of late November, Gap (GPS -2.92%) had already lost $300 million in sales heading into the holiday season. And the reason boils down to inventory constraints.
The company said that factory closures spurred by COVID-19 outbreaks and backlogs at ports have created a scenario where merchandise isn't hitting shelves as fast as the retailer expected. Not shockingly, Gap's stock price is down almost 32% over the past month. And if its inventory issues don't begin to resolve themselves, the company risks a disastrous fourth quarter that could really shake investors.
Image source: Getty Images.
But it's not just shareholders who have to worry about the impact of supply chain issues on Gap's prospects. Real estate investors could feel the pain, too.
Though Gap has increasingly been moving away from indoor shopping malls, it still serves as a core tenant in many of these establishments. And after a disastrous 2020 filled with store closures and retail bankruptcies, malls simply cannot afford to lose any more tenants -- especially not a mainstay like Gap.
The good news is that Gap is taking steps to expedite inventory in time for the year-end holiday rush. That includes spending $350 million to air freight merchandise in and reroute some of its inventory to get around the port congestion that's been more rampant on the West Coast than the East Coast.
But still, a disappointing holiday sales season could lead to store closures for Gap and its various brands. And that could, in turn, leave shopping malls struggling with vacancies to fill.
A small ray of hope
The good news in all of this is that supply chain holdups are finally becoming less extreme. The aforementioned West Coast port congestion issue has started to ease, due in part to ramping up operations at key locations. And shipping costs are starting to come down.
But retailers are by no means out of the woods -- not in terms of the current holiday season or the beginning part of 2022. The emergence of the omicron variant could lead to more factory shutdowns that stall production even more. And let's not forget that the U.S. is still grappling with a major truck driver shortage, so even though port congestion is improving, inventory is still getting stalled en route to its destination.
Furthermore, as consumer prices continue to rise, shoppers may be forced to cut back on nonessential spending to cover basics like food and fuel. This means that Gap's sales numbers could plunge to sluggish levels once the holiday peak is over.
In time, these problems should manage to resolve. But whether retailers like Gap can afford the revenue losses they cause is another story.
