Supply Chain by the Numbers

- Feb. 22, 2018 -

  Supply Chain by the Numbers for Week of Feb. 22, 2018

Walmart Stock Hammered on Disappointing eCommerce Sales;  KFC UK's Supply Chain Nightmare; Oceain Container Rates Stay Low even After Consolidation; Retailers Facing a Growing Mountain of Returns



That was the growth in Walmart.s US ecommerce sales in Q4 – a big drop from the 50% growth seen in Q3. In addition, quarterly earnings slumped 42.1% to $2.2 billion, as "investments" to keep prices low and the effects of on-line sales of lower-margin items hurt profits, the company said. As a result, Walmart.s stock price fell 10.2% early last week, the largest one day drop in more than 30 years. That even as the company reported another solid quarter of gains in US comparable store sales, continuing a recent streak. Walmart does say it expects ecommerce sales to grow 40% in 2018, off of a base of $11.5 billion in 2017 – a figure far below Amazon's US on-line sales. "Our visibility into picking costs, shipping costs, margin rates, the costs to acquire a customer, and how the different cohorts are behaving as we make the marketing investments is really improving," CEO Doug McMillon said. One analysts said "Walmart is following the same strategy as Amazon: taking less profit today, for the prospect of a stronger, better business tomorrow."



That is about the percent of holiday season 2017 retail purchases that will be returned in January or February, according to the National Retail Federation. That represents a massive $90 billion worth of returned goods and a figurative mountain of products retailers must figure out some way to handle. The robust retail sales in the 2017 Christmas season, with the strongest growth since 2011, naturally leads to more returns in absolute terms, while the growth in ecommerce makes things worse, as on-line purchases are returned at much higher rates. Roughly half of holiday-season returns make it back on the store shelf, though it is often sold at a discount, said Tony Sciarrotta, executive director of the Reverse Logistics Association and the former head of returns management for electronics company Philips. The other half of returns wind their way through all kinds of channels, and are then often made available on-line at very steep discounts. All that leads to huge processing costs, frequently outsourced to third parties, and sometimes retailers find it is cheaper to just throw returned merchandise away. This will continue to be huge issue as ecommerce keeps growing.



That's the percent of the total global container shipping market – as measured by TEU capacity – that is controlled by the top seven carriers, according to recent analysis from Drewry Shipping. That may sound like a lot, but even with all the recent mergers, the industry remains relatively unconcentrated, says Drewry, far from an oligopoly, and the moves have not given carriers anything in the way of new pricing power. In fact, the "other" category outside those top seven carriers actually has the largest share, at 21% of capacity, just ahead of Maersk Line's 20%. All that led Soren Skou, CEO of Maersk, to say in its Q4 earnings announcement that "We are simply not making enough money. We need to improve profitability through a combination of higher container rates and cutting costs," adding that "In the 1980s the freight cost of moving a container across the ocean was $4,000. Now it's $2,000." But shippers need to keep a close eye on the situation, as further consolidation seems inevitable in the quest from Maersk and others to move rates higher.



Source: AP/Istock

That incredibly is how may KFC restaurants in the UK, out of 870 in total, that had to be shut down because they ran out of chicken in a supply chain disaster of huge proportions. This after the company recently signed a new logistics contract with DHL to take over deliveries of food and other materials to its stores. A union executive told The Guardian newspaper there that KFC's current crisis stemmed from dropping a supply system based on six warehouses run by a services firm named Bidvest to a system of one distribution center managed by DHL, saying conditions at the distribution center were "an utter shambles." KFC announced the switch in November in a move to reduce costs, with the program going live in the past couple of weeks. In fact, DHL said in announcing the new contract that the deal would "set a new benchmark" – and it appears it has, though of a different kind than DHL expected. There was a long queue of trucks delivering supplies to the DHL DC near Coventry, as drivers waited up to 10 hours for the goods to be unloaded. In a statement, KFC said: "We anticipate the number of closures will reduce today [Tuesday] and over the coming days as our teams work flat-out all hours to clear the backlog." What would the Colonel say?