Ongoing supply chain challenges are expected to continue to impede the ability to meet consumer demand this year, and the North American apparel and footwear industry is slated to miss out on billions.
In a new analysis from global consultancy Kearney, continued supply chain disruptions could cost the North American apparel and footwear industry between $9 and $17 billion in lost EBITDA in 2022.
And these losses may even be larger given the fact that Kearney’s numbers were compiled before the spread of the Omicron variant hit businesses across North America the past few months.
On top of these losses, costs have gone up considerably in 2021. Kearney estimates that the cost of cotton rose 40%, transpacific container shipping rose 300%, air freight rose 50%, and OTR freight rose 20% last year. These spikes, combined with labor shortages and increasing logistics and warehousing expenses, have made the situation more hurtful to the industry.
So, what can executives do? Brian Ehrig, a partner in Kearney’s New York office, said in the report that, “The good news is there are many practical steps companies can take to make their supply chains more resilient,” he stated. “We suggest companies start by focusing on what they can control. Immediate opportunities include complexity reduction, fresh sourcing strategies, and more rigorous alignment of inventory management with merchandising.”
Ehrig went on to note that longer term solutions like nearshoring and reshoring make supply lines less vulnerable and may have a positive impact on business.
This news comes as supply chain slowdowns have impacted many quarterly results in 2021. Despite these issues, some companies have positioned themselves to come out stronger this time around, especially as regions in China go back into lockdown. More insights will come as retailers and brands report their latest earnings in the coming weeks.