During the latter part of 2021, retailers got hammered by supply chain bottlenecks that resulted in a major inventory crunch just in time for the holiday season. And that was a hit many couldn't afford.
Though some retailers have managed to recover (at least somewhat) from the blow the pandemic dealt them, many are still operating in catch-up mode after a miserable 2020. So, the last thing retailers need is to shell out more money to procure inventory and expedite the delivery of goods.
But while the massive supply chain holdups that plagued the market may have eased over the past few months, some of those issues persist. And the financial toll on retailers could end up being devastating.
Image source: Getty Images.
Can retailers withstand $17 billion in losses?
A recent report from global management consulting firm Kearney reveals that ongoing supply chain issues could end up costing North American apparel and footwear companies between $9 billion and $17 billion in lost earnings. And that's a hit many can't afford to take.
As it is, many retailers had no choice but to move forward with store closures in the wake of lost revenue stemming from the early days of the pandemic. And if supply chain holdups persist, retailers might really struggle to stay afloat.
Retail REITs could suffer
Rampant store closures in the wake of the pandemic have already rocked retail REITs (real estate investment trusts). Shopping centers and malls can't, at this point, afford to lose any more tenants. But if supply chain woes persist and retailers lose too much revenue this year, it could result in an uptick in closures -- and more pain for real estate investors.
Compounding the issue is a major shift to digital sales that came about during the pandemic. To be clear, e-commerce was threatening physical stores before the health crisis began. But now, consumers are even more apt to order goods online than they were two years ago. And if that trend continues, we could see an uptick in store closures as brands shutter underperforming stores in favor of sinking more resources into upping their shipping and delivery game.
In fact, a number of retailers are already putting store expansion plans on hold and instead focusing on building out a more extensive network of warehouses and distribution centers. So, the last thing real estate investors need right now is continued supply chain holdups that plunge retailers into an even deeper financial hole.
Now, the good news is that, at least domestically, the omicron surge seems to have passed. But globally, the pandemic is still far from under control, and until that happens, supply chain bottlenecks could persist.
To be clear, retailers have done a decent job coping with these issues by getting more creative about sourcing inventory. But that creativity has and could continue to come at a cost. And that's not something retailers can afford when they're still trying to move past the devastating events of 2020.
