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Supply-chain chaos continues to drudge on, as retailers contend with complications from lockdowns in China amid the country’s strict zero-Covid policy.
Multiple manufacturing hubs in the country have come to a halt, while ports around the world remain congested. One in five container ships is stuck waiting around ports, noted shipping analytics firm Windward, with China responsible for 30% of the bottleneck.
The long and short of it: Analysts that Retail Brew spoke to said the impact is likely to last six to 12 months for retailers across industries, including fashion, beauty, grocery, and even toys.
- About 85% of the $3 billion of toys sold in the US are made in China, according to an estimate by Steve Pasierb, CEO of The Toy Association. The country also accounted for nearly 30% of the world’s apparel exports in 2021, per Fibre2Fashion.
- Just this week, beauty giant Estée Lauder cut its profit forecast for 2022, citing the war in Ukraine, which led to higher costs, and the lockdowns in China, which restricted capacity at distribution centers.
“China still remains to be and will always be the world’s factory,” Sean Maharaj, managing director in the logistics practice at AArete, a management consultancy, told us. “I think [brands have] constantly leveraged China, probably beyond where it needs to be.”
Double trouble: But the damage isn’t limited to exports. Maharaj said that companies like Lululemon, Nike, Starbucks, and H&M—ones that have an outsize presence in China—could be hit even harder. Store closures across the country mean limited access to consumers.
“They’re going to feel a double impact of not only trying to export goods to the US, but also the ability to generate revenue within China is constrained on a consumer level,” he said.
Claire Tassin, retail and e-commerce analyst at Morning Consult, echoed similar sentiments, adding that retailers can minimize losses by adding flexibility to their supply chains and, where they can, shifting manufacturing elsewhere. “It’s hard to do, but that’s where the ability in the short-term should be effective,” she told us.—JS