Business

Costco, Nike and FedEx warn that as holidays approach, inflation will hit consumers.

On Wednesday, March 3, 2021, a worker wearing a protective mask removes rotisserie chicken from a skewer in Costco, San Francisco, California.

David Paul Morris | Bloomberg | Getty Images

Transportation bottlenecks that have led to higher fares have been a holiday headache for US retailers.

Costco has joined the long list of retailers this week warning about rising shipping prices and associated supply chain problems. Warehouse retailers, who called similar attention in May, joined athletic wear giant Nike and economic pioneers FedEx Express and General Mills to warn of similar concerns.

The cost of shipping containers abroad has skyrocketed in recent months. Obtaining a 40-foot container from Shanghai to New York cost about $ 2,000 a year and a half before the Covid pandemic. According to Bank of America, it is currently running about $ 16,000.

In a conference call with analysts, Costco Chief Financial Officer Richard Galanti called fares “permanent inflation items,” and these increases combined with “slightly permanent” items put pressure on them. Said that it is increasing. This includes not only freight rates, but also rising labor costs, rising demand for transportation and products, shortages of computer chips, oil and chemicals, and rising commodity prices.

“We can’t hold them all,” Galanti said. “Some of them have to be inherited and are inherited. We are practical about it.”

Quantifying the situation, Costco’s inflation rate is likely to be between 3.5% and 4.5%, he said. He noted that the cost of paper products has risen by 4% to 8%, and that the shortage of plastic and pet products has pushed prices up from 5% to 11%.

“We can draw a line on some of them and do a little better job — hopefully they will do a better job than some of our competitors and be even more extreme than their value,” Galanti said. Said. “So, at least despite the challenges, I think everything so far has worked a bit in our favor.”

Preparing for vacation

However, the timing is not good.

Inflationary pressures continue as retailers prepare for the holiday shopping season (Halloween, Thanksgiving, Christmas), followed by the New Year. The pandemic has led to a number of relentless factors that have made inflation an economic buzzword after almost moderate price pressures have occurred.

Companies are under pressure to deal with the situation ahead of critical times.

Keith Jerinek, Managing Director of Global Retailing for a consulting firm, said: Berkeley Research Group. “We saw an increase in the cost of goods, especially in apparel, the cost of inbound transportation with the cost of containers, and the cost of transportation and trucking to enter distribution centers.”

“All these costs will hurt operating profit,” he added. “Currently, retailers are faced with the question of how much profit they can bring to consumers, whereas they can derive other efficiencies from their operations to achieve gross profit. . “

Many companies have shown that consumers are willing to accept higher prices, at least for now. Trillions of government stimuli during the pandemic helped inflate personal wealth, household net worth increased 4.3% in the second quarter.

No one knows how high a consumer is willing to pay. Jerinek said the current situation is expected to continue at least throughout the holiday season and until the beginning of next year.

“Not much can be given to consumers,” he said. “What most retailers do is [profit and loss statements] And they aim to improve performance and optimize efficiency. That really means focusing on their supply chain. “

It also means raising the price.

Company warning

FedEx announced this week that it will raise shipping charges by 5.9% for domestic services and 7.9% for other services. The company said it was suffering from labor shortages and “costs associated with a difficult business environment.”

The head of the company’s major competitors acknowledged the hurdles the business faces.

UPS CEO Carol Tome told CNBC’s Closing Bell that “the labor market is tight and certain regions of the country must adjust market rates to meet market demand. I didn’t. “

She also added that the company is also suffering from supply chain problems.

“I think this will continue for some time. These problems have been going on for a long time and we all need to work together to remove these obstacles,” she said.

This week’s Federal Reserve Board confirmed that inflation will be higher than expected in 2021. However, we expect prices to settle in the normal range, just above 2%, over the next few years.

However, Cleveland Fed President Loretta Mester said in a speech Friday that he saw the central bank’s inflation forecast as “upward risk.”

“Many companies report increasing cost pressure, and consumers seem willing to pay higher prices,” she said. “The combination of strong demand and supply chain challenges can last longer than I expected, raising expectations for future inflation more than people and businesses have ever seen.”

The Federal Reserve Board said it was ready to withdraw the monetary stimulus it offered during the pandemic, but it probably won’t raise rates anytime soon. But Mr Mester said Fed policies “need to be adjusted” to curb inflation if prices and expectations remain high.

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Costco, Nike and FedEx warn that as holidays approach, inflation will hit consumers.

Source link Costco, Nike and FedEx warn that as holidays approach, inflation will hit consumers.

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