Date: 28.11.2022

Challenging time for retailers

With consumers expected to remain cautious at least through the first few quarters in 2023, retailers have downgraded their imports, depressing volumes, that have already declined in recent months, resulting in ocean carriers blanking services and looking at laying up ships, just as retailers try to eradicate air freight.

January imports, that are already forecasted to be down, will be further impacted with factories in Asia and across China closing for a week or two from Sunday 22nd January, for the annual Lunar New Year holiday, which is early in 2023. This is without considerations beforehand, with factories being forced to close during the current issues with the authorities zero COVID policy. Which seems to be building through China’s main conurbations and industrial / commercial areas throughout the country, that we are closely monitoring and updating regularly.

From previous years experiences, as an observation, there has been further action taken by the Chinese government to restrict travel and impose further measures during the national holidays. It’s worth monitoring if you are sourcing from the Chinese mainland. Other Asian countries in the region are not currently following the same process and actions.

Carriers have been cancelling sailings at an accelerated rate, as imports from Asia plunge, due to a number of factors including diminished demand growth, with an additional 50 blank sailings covering the last 10 weeks of 2022 announced by carriers and the likelihood that more blanks will be announced through the end of the year. This is just to The UK and Europe.

Facing the biggest tax burden since WWII, currently there is a continued increase in inflation and high interest rates and analysts say that consumers have started their Christmas shopping early, reducing discretionary spend with fewer presents purchased and a shift to cheaper retailers to make budgets stretch further.

The shocking retail outlook across Europe has prompted a slew of ratings downgrades from banks in recent months, while the FTSE 350 Retailers Index is trading at just 11 times estimated earnings, compared with 24 times for the MSCI World Retailing Index and further earnings downgrades are expected for the UK retail sector.

The Office for Budget Responsibility said household disposable incomes would fall by 4.3% in the current financial year and by 2.8% in 2023/24, the sharpest declines since the 1950s, but 67% of UK retail leaders are anticipating a rise in sales next year, according to a Retail Week report.

And an extensive NielsenIQ survey found that 63% of households planned to keep their Christmas budget unchanged from last year, and only 27% said they wanted to spend less.

So mixed messages and maybe it isn’t all that bad after all – time will be the judge.

Analysts have reported a rise in Black Friday sales, with a 3.2% boost in transactions and 9.3% increase in footfall compared to last year’s event, with many retailers and brands clearing some excess stock from the autumn/winter 22 season. 

The merchandise that retailers will sell in the coming two months has been in-country for some time, because cargo that would typically be imported in the autumn peak season, was imported in the spring this year, as retailers stocked up early to avoid supply chain disruption, port congestion and other supply chain issues. Earlier in the year this seemed like a sensible precaution and model to adopt – but the market and global economy has changed significantly.

In the most extreme cases retailers are unable to get, what has become, over-ordered stock into their warehouses, with detention and demurrage bills mounting as the warehouses are full. Unless carefully managed and alert to the dynamic changes in global supply chains and an acute market awareness.

As many of these containers were shipped when rates were at peak, the product is intrinsically more expensive, which restricts the retailers ability to discount and retain any margin.

Fingers are firmly crossed for the more optimistic forecasts, because if consumer demand falls too far some retailers will struggle, particularly if they are holding huge volumes of inventory and put their cash flow under pressure. 

Retail air freight volumes are down significantly for some products, particularly demand driven shipments. Brands and retailers are either sitting on inventory that needs to be sold, or they have elected not to use air freight and risk losing the sale which has the consequence of having to store more stock ‘in market’.

Ocean freight rates have reduced beyond all comprehension over the last 12 months on the spot market (not contract) from Asia to Europe and the USA, which is good news for retailers that are shifting stock, if they have been able to swerve their contracts or been able to divert some of their volumes.

Metro support retail customers’ success, by enhancing their ability to source, trade and grow internationally, with innovation and resilience.  

Our unique blend of experience, systems and processes means that we see opportunities that others miss. We introduce new methods and efficiencies to help you optimise global inventory, reduce shipping costs and streamline your entire supply chain. 

Please EMAIL Elliot Carlie to discuss how we can optimise your supply chain and overcome the challenges you face.

We are here to support your growth ambitions in 2023 and beyond – longevity and planning will deliver as global trade and supply chains continue to react to the changes in the environment and world events. We are one of the first to market with the latest market intel and developments and will continue to share these to ensure that you are well placed to succeed in difficult circumstances. It’s what Metro does and will continue to do.