The potential disruption in the Red Sea presents a significant challenge for seasonal sales at prominent US and European fashion brands.
Abercrombie & Fitch and Gap Inc. stand out as major apparel retailers vulnerable to the rerouting of shipments around Africa. The shift in shipping routes, prompted by the crisis, poses risks of delayed deliveries for their spring-summer fashion collections, as highlighted in a report by Moody’s Investors Service.
Christina Boni, Senior Vice President-Corporate Finance, Moody's, emphasises the heightened exposure of seasonal goods compared to basic items. Late deliveries could lead to significant markdowns and excess inventories, particularly for European retailers heavily reliant on the Suez Canal for importing goods from Asia, he says.
Notable brands such as Adidas and Next have already reported delays of up to three weeks for imports typically passing through the Red Sea. This surge in delays has led to increased costs, with freight rates more than doubling since the onset of the crisis.
The impact extends across various industries, including apparel, footwear, furniture, consumer electronics, and arts and crafts. Higher freight costs, though not immediately apparent, will eventually affect margins as contracts are renegotiated.
Larger companies with sophisticated supply chains are better equipped to pivot and negotiate priority with shipping companies. However, smaller retailers like At Home and Bob's Discount Furniture may face challenges due to lower demand and potential cost increases.
Despite the disruptions, some footwear brands like Crocs and Skechers have experienced minimal impact. While Crocs noted slight delays in their European business, they have not encountered significant changes in freight rates. Skechers, too, remains optimistic about its operations, having stocked up prior to the disruptions.
Moody's predicts that certain European labels, including Hugo Boss, Isabel Marant, and Golden Goose, may fare better due to local production and nearshoring initiatives. This crisis underscores the vulnerability of global supply chains and the growing interest in nearshoring to mitigate risks associated with distant imports.
