Supply chains for many commodities and products are more out of whack today than they were a year ago. This is surprising to those of us who thought that over the course of a year of pandemic life, things would be more sorted out. But here we are today, and a number of items are now harder to get, or at least more expensive. Why?
There are different reasons for different shortages, but a common answer is that COVID-19 and its effects have pushed supply chains past the limits of their flexibility. While the first shortages we felt last spring (toilet paper, hand sanitizer, KN95 masks) were the result of pantry stocking and panic-consumption, many of the shortages of today are a result of lasting imbalances in supply and demand, changing consumer trends, and the fact that it can take years for certain industries to add new capacity.
There are numerous examples. Take, for instance, cardboard. The pandemic has resulted in a boom in ecommerce – according to Internet Retailer, ecommerce sales jumped 43% in 2020, nearly three times the average growth rate of the prior seven years. More ecommerce requires more cardboard boxes for shipping, and the corrugated industry has struggled to keep up. Mills have been running at full capacity, but it takes time to make new boxes. As a result, cardboard prices have surged, and some businesses have recently been forced to switch to plastic packaging. (More on plastics in a bit.)
Another example is semiconductors. At the start of the pandemic, consumer spending plummeted – auto sales were almost cut in half from last February to last April. At the same time, however, sales of electronics boomed as people built out home offices and bought new devices for their children’s remote schooling. Consequently, many semiconductor manufacturers switched from making chips for cars to making chips for electronics. When auto sales recovered, not only was there more demand for semiconductors in total, but less of the industry was making chips for auto manufacturing. Unfortunately, semiconductor factories are incredibly complex, and can take billions of dollars and years to build. A number of auto companies and electronics companies have felt the pinch, including Volkswagen, Fiat Chrysler, Nissan, and Samsung. General Motors, Ford, Honda and Toyota have been forced to cut production due to the shortage of semiconductors.
Another contributing reason for surging prices and shortages in a number of products and materials is the Federal Reserve’s reaction to the pandemic: cutting interest rates to nearly zero. Low interest rates has sparked a surge in real estate prices, home remodeling, and home building. According to the Wall Street Journal, lumber prices have more than doubled and have never been higher, and prices for granite, insulation, concrete blocks and bricks have all hit record highs. As with cardboard and semiconductors, home building materials suppliers just can’t catch up.
Global shipping hasn’t caught up yet either, contributing to issues across many other supply chains. In addition to the shortage of shipping containers in Asia that my colleague Marshall Schleifman wrote about in this space earlier this month, a surge of imports has resulted in a traffic jam at the California ports of Long Beach and Los Angeles, resulting in dozens of colossal cargo ships waiting at anchor until space opens, delaying their deliveries.
But changing consumption patterns aren’t the only culprit in this mess; mother nature hasn’t been kind either. Last month’s cold snap and storms in Texas knocked out power to numerous chemical plants and factories in the region, resulting in a doubling (or more) in the prices of the plastics polyethylene, polypropylene, and PVC.
Supply chain issues have already lasted much longer than some of us initially anticipated they would at the start of the pandemic and threaten to last still longer. But try to take solace in the big picture. Yes, the supply chain is going to be a mess for longer than expected, but COVID-19 vaccines were developed and made available last year faster than any vaccine in history. I’ll take that tradeoff every day of the week. I just hope the recent shortage of syringes doesn’t prevent me from getting my shots.
Headlines of the Week
Office Depot parent company ODP Corp. rejected Staples’ latest acquisition offer, claiming that the offer “lacked basic deal terms including a purchase price.” Staples has been trying to purchase assets of Office Depot since 2015, when it was thwarted by the FTC. This time around, Amazon’s status as a gargantuan office supply wholesaler theoretically makes it easier for Staples to win antitrust approval, but Staples is finding it hard to reach an agreement with Office Depot. In January, Staples reportedly offered $2.1 billion, and would allow ODP to divest its business-to-business operations to a third-party buyer. A few days later, ODP rejected the offer, and countered with a proposal to merge the two companies’ direct-to-consumer retail operations, leaving Office Depot’s business-to-business operations wholly separate from the transaction. Based on previous developments, though, it’s fair to say that ODP is open to the idea of an acquisition. It just needs to be the right offer. Either way, it doesn’t look like Office Depot’s B2B unit will be included.
Toys “R” Us has a new owner, one that is committed to bring the brand back to brick-and-mortar. WHP Global announced that it has acquired a controlling interest in Tru Kids Inc., parent company to the Toys”R”Us, Babies”R”Us, Geoffrey the Giraffe brands, and more than 20 related consumer toy and baby brands. The brand acquisition and management firm, which also owns the Anne Klein and Joseph Abboud brands, said that, going forward, it will manage the global TRU business and direct its strategic expansion. WHP is led by Yehuda Shmidman, who serves as CEO and chairman. He also has served as vice chairman of TRU since 2019. Tru Kids, which is backed by Solus Alternative Asset Management and funds managed by Ares Management, bought certain intellectual property of Toys “R” Us and intellectual property from after it filed for Chapter 11 bankruptcy protection and went on to liquidate its U.S. stores. Toys”R”Us and Babies”R”Us generate over $2 billion in global retail sales annually through nearly 900 branded stores and e-commerce sites in over 25 countries across North America, Europe, Asia, Africa, Australia, and the Middle East.
Apparel & Footwear
L Brands founder Les Wexner and his wife Abigail Wexner will not stand for reelection to the company’s board at its annual shareholders meeting in May, the company said in an emailed press release Thursday. Wexner a year ago stepped down as CEO but remained on the board in an emeritus role. Francis Hondal, president of loyalty and engagement at Mastercard, and Danielle Lee, chief fan officer at the National Basketball Association, have been appointed as independent directors. Wexner’s full departure from L Brands is something of a surprise, considering that just a year ago the plan was for him to be on the board as “chairman emeritus.” Then again, he is an octogenarian who more or less ruled retail for six decades. L Brands noted in its release that the majority of its board members, including the chair, are women.
The chief executive of Tailored Brands is leaving after serving five years in the position and seeing the retailer through bankruptcy. The parent company of Men’s Wearhouse, Jos. A. Bank, Moores Clothing for Men and K&G Fashion Superstore said that Dinesh Lathi will step down from his role as president and CEO, effective March 26. Board members Bob Hull and Peter Sachse will act as interim co-CEOs while the Board searches for a permanent successor. In December 2020, Tailored Brands completed its Chapter 11 restructuring. Earlier this month, the company secured $75 million in new financing. “With a solid financial structure now in place and the support of its new owners behind it, Tailored Brands is well positioned for growth in its next chapter,” Hull stated.
Athletic & Sporting Goods
Peloton is teaming up with Adidas to launch its most expansive branded apparel line yet, aimed at its fervent fans that can’t get enough of the trendy fitness company. The 11-piece line, called the adidas x Peloton SS21 collection, is priced between $30 to $85 and consists of tank tops, pants, shorts and hoodies. Peloton has other branded clothes with athletic companies, like Nike and Lululemon, but this is the first designed with the help of its instructors, who are quickly becoming celebrities.
Dick’s Sporting Goods is launching a men’s athletic apparel brand, called VRST, and is in the process of rolling it out to its 400-plus stores. It’s also created a website (vrst.com) just for the brand, which it describes as more like Lululemon than Nike, according to a CNBC report. It’s the second in-house brand for the retailer. The first was Calia. The VRST effort was initially announced during the retailer’s most recent earnings call. The clothing line will feature shorts, T-shirts, joggers, hooded sweatshirts and items ranging in price from $30 to $120.
Boat sales skyrocketed last year during the coronavirus pandemic as more Americans turned to the lifestyle amid more flexible work environments that allowed people to spend extra time enjoying the outdoors. Sales of boats, marine products and services across the country leaped to a 13-year high in 2020 to $47 billion, increasing 9% from the prior year, according to the National Marine Manufacturers Association. The trend, which shows few signs of slowing in 2021, shocked industry players who were certain they were in for rough times as the pandemic shut down the economy. Now, dealerships are struggling to maintain inventory and manufacturers are expanding production capacity to meet demand. What’s more, first-time buyers are entering the market in larger numbers, a sign that the growth has staying power.
Cosmetics & Pharmacy
Direct-to-consumer beauty brand MyGlamm has raised 175 crore rupees ($24.14 million) in a series C funding round led by Ascent Capital, Amazon and Wipro Consumer, which values the company at more than $100 million. This is the first investment Amazon has made in an Indian consumer brand – though it has enthusiastically been investing in Indian financial and tech services providers, as well as large retailers, such as Shoppers Stop and Future Group, in recent years. Walmart-owned Flipkart, Amazon’s major competitor in India’s online retail marketplace space, has long actively invested in brands such as Aditya Birla Fashion and Arvind Youth Brands, while Flipkart’s fashion retail platform Myntra has also invested in several brands while simultaneously building a strong portfolio of private labels, often in collaboration with celebrities. With this investment in MyGlamm, Amazon gets its foot in the door of the country’s burgeoning personal care and beauty segment.
The multi-brand beauty and personal care company formed by beauty investment from Waldencast Ventures and former Anheuser-Busch executive Felipe Dutra has gone public with a $300 million IPO, which includes an additional investment of up to $333 million in forward purchase agreements. Waldencast Acquisition Corporation is the latest SPAC in the beauty and personal care space — health company Hims also chose this route to go public in October 2020. It’s a positive sign for the future of beauty and personal care mergers and acquisitions as they have withstood economic effects of the pandemic. Waldencast Ventures founder Michel Brousset will serve as CEO of Waldencast Acquisition Corporation while Dutra will be in the executive chairman role.
Discounters & Department Stores
Nordstrom on Wednesday announced a shoppable, interactive livestream platform, an extension of the more than 50 virtual events the retailer has hosted since last year. During each show, customers can shop at Nordstrom.com and participate in a live chat, according to an emailed press release. The first, on Thursday from the New York City flagship, will feature fashion designer turned stylist José Ramón Reyes demonstrating ways to wear Burberry pieces. Part of the presentation will be pre-recorded and will conclude with a question and answer session. Upcoming events feature beauty, skincare and fashion experts and brand representatives, who will provide tips and tricks of the trade, the company said.
Walmart is elevating its fashion reputation. The retailer announced that it named acclaimed fashion designer Brandon Maxwell as creative director for Free Assembly and Scoop — the first collaboration of its kind for Walmart, according to a press release Tuesday. Maxwell, who founded his own luxury label and was a judge on TV show “Project Runway,” has had A-list celebrities including Lady Gaga, Michelle Obama and Oprah wear his designs. He was born and raised in Longview, Texas, where he said Walmart was commonly regarded as a clothing destination, per the release.
Dollar General is doubling down on brick-and-mortar by building bigger stores and expanding Popshelf, a new chain aimed at higher-income, suburban customers. On Thursday, the discounter laid out aggressive plans for the fiscal year that called for the company to open 1,050 stores, remodel 1,750 sites and relocate 100 others. As it builds new stores, shoppers will see larger sales floors and more merchandise. They’ll also notice more branding for Popshelf, which the retailer debuted in the fall. The company is testing both new locations and using the brand to create a store within a store.
Emerging Consumer Companies
Unagi, an Oakland-based electric scooter brand dubbed the “iPhone of scooters” when it was founded in 2018, is launching its subscription service to six more U.S. cities in an expansion fueled by $10.5 million in funding. The Series A funding round was led by the Ecosystem Integrity Fund, with participation from Menlo Ventures, Broadway Angels and Gaingels. Unagi will use the capital to bring its subscription service to Austin, Miami, Nashville, Phoenix, San Francisco and Seattle. It will also be expanding its service in the New York and LA metropolitan regions, including all five NYC boroughs, Long Island, Westchester and Northern New Jersey, as well as the Westside and Southeast LA, the San Fernando Valley and Orange County. The company was launched by former Beats Music CEO and MOG co-founder David Hyman, and offers its Model One electric scooter with a dual motor for $49 per month. The aim is to make the scooters accessible to a wider populace that might not want to shell out the $990 to own one outright.
3DLOOK, the San Mateo, California-based maker of AI-mobile body measuring and fit solutions, raised $6.5 million in Series A funding. The round was led by Almaz Capital with participation from TMT Investments and Zubr Capital. The investment brings the company’s total fundraising to date to $11.2 million. The new funds will be used to expand 3DLOOK’s U.S. leadership team and establish new R&D labs in the U.S. and Western Europe as the company continues building its camera-enabled personalized shopping experiences for consumers and delivering advanced body data analytics to enterprise companies. Tailored Brands and 1822 Denim are two notable retailers that are using 3DLOOK’s solutions to drive down apparel returns and increase conversion.
Grocery & Restaurants
The next restaurant chain to go public may be the fast-casual Torchy’s Tacos. Bloomberg reported last week that the Austin, Texas-based fast-casual chain has hired investment bankers to explore a proposed initial public offering this year. The report indicated Torchy’s could raise an estimated $300 million and have a valuation of about $1 billion. Torchy’s in November announced it had sold a $400 million stake in the company to a group of investors that included D1 Capital Partners, T. Rowe Price, Lone Pine Capital and XN, who joined existing investor General Atlantic. The goal at the time was to accelerate growth into as many as 10 new states over the next four years, said G.J. Hart, Torchy’s CEO. The chain added 12 new locations in 2020, moving into three new states, despite the challenges of the pandemic. Torchy’s was born in 2006 as a food trailer in Austin. Now with locations showing average unit volumes of about $3.8 million, the concept has become known for its cheeky marketing of “damn good tacos” and margaritas, with rotating Tacos of the Month.
Naf Naf Grill, the fast-casual Middle Eastern concept, and an investor group have acquired the entire minority ownership in the company previously held by affiliates of Roark Capital Group. The Chicago-based company did not disclose terms of the deal or the identity of the investor group. Atlanta-based private-equity Roark Capital Group invested in the concept in 2015. Naf Naf Grill’s website lists 39 locations in eight states, including Illinois, Indiana, Minnesota, New Jersey, Ohio, Pennsylvania, Tennessee and Wisconsin.
Private equity firm Lindsay Goldberg has reached an agreement to acquire the North American business of Schlieren, Switzerland-based Aryzta AG for $850 million. Aryzta North America provides bread, sweet and savory baked foods, and snacks to customers in the quick-service restaurant, foodservice and retail markets across the United States and Canada. The company’s portfolio includes both private label and branded offerings under the Otis Spunkmeyer, La Brea Bakery and Oakrun Farm Bakery brands. The pending sale of the North American business comes a little more than three months after Aryzta’s management announced plans to dispose of businesses in both North America and Latin America and shift focus to Europe and Asia-Pacific (APAC) markets. As part of that strategy, Aryzta in early December 2020 sold its take-and-bake pizza business in North America to Great Kitchens Food Company, Inc., a newly-formed portfolio company of Greenwich-based private equity firm Brynwood Partners VIII LP.
Since starting JoJé Bar in 2016, Founder and CEO Jess Cerra’s mission has been to create a line of energy bars baked with real-food ingredients that strikes the perfect balance of taste and nutrition. Cerra was able to take a step toward finding that balance as RoadRunner Holdings LLC announced the addition of JoJé Bar to its portfolio of athlete-focused active nutrition brands. Cerra will become the Vice President of Product and Community Development for RoadRunner, working alongside RoadRunner Holdings CEO Mac Tillman. RoadRunner Holdings LLC is creating a portfolio of athlete-focused sports nutrition brands, including SaltStick and JoJé Bar.
Home & Road
Williams-Sonoma closed fiscal year 2020 at the end of January with record growth, according to President and CEO Laura Alber in its earnings report. “In Q4, despite shipping constraints and low retail traffic, we delivered another quarter of accelerating revenue and profitability with 26% comp growth and more than 85% EPS growth,” Alber said. “This strong end to the year, combined with outperformance throughout 2020, drove record fiscal year revenue growth, substantial operating margin expansion and EPS that was almost double that of last year.”
February furniture sales declined after a strong start in January, but they remained well ahead of sales from February 2020. Bringing in $11.014 billion in February, according to advance estimates from the U.S. Department of Commerce monthly report on retail sales, the furniture and home furnishings store segment was up 8.9% over the year-ago total of $10.111 billion but down 3.8% from last month’s adjusted $11.446 billion. For the three month period of December 2020 to February 2021, furniture and home furnishings store totals were up 8.4% year-over-year and up 5.2% when compared with the previous three-month period, September to November 2020. In similar fashion, the furniture and home furnishings store segment results followed the pattern for the total U.S. retail and food services sales, which came in at an adjusted $561.685 billion, a 3% dip from January, but a 6.3% increase over February 2020.
Whole home furniture resource Classic Home has acquired upper end upholstery manufacturer Braxton Culler Inc., providing the company a domestic manufacturing presence in the upholstery segment. The company did not reveal a purchase price for Braxton Culler, or other specifics of the deal, other than to say it has purchased 100% of the High Point area-based company. In addition to a line of domestically produced upholstery and some cushions for outdoor furniture, Braxton Culler offers a line of imported indoor residential wood furniture that includes bedroom, dining and occasional. It also imports a line of wicker and rattan furniture and a line of outdoor seating and occasional furniture. Classic Home’s line, which is produced at its company-owned factories in India, includes bedroom, dining room, occasional and office furniture. It also offers a living room assortment that includes sofas, accent chairs and sectionals.
Jewelry & Luxury
Signet’s same-store sales rose 7% in its latest quarter, but executives expressed caution about the year ahead, fearing the COVID-19 pandemic’s end could shift consumer spending back to travel. “As the vaccine rollout progresses, there could be a shift of consumer discretionary spending away from the jewelry category toward experience-oriented categories,” said chief financial officer Joan Hilson on a conference call following the release of Signet’s financial results. Hilson said that Signet will boost its marketing spend to counter this anticipated shift, though it expects same-store sales will fall over the next year.
From a trend perspective, we know that white metals such as silver, white gold, and platinum have been gaining in popularity during recent years. Now, the Silver Promotion Service (SPS) is reporting that retail sales of silver grew in 2020—and that younger consumers were key in driving silver jewelry’s sales growth. The SPS, which has commissioned an annual retailer survey from InStore for 12 years running, reports that 2020 marked the 12th consecutive year of silver jewelry sales growth.
Dolce & Gabbana has joined the long list of DJ Khaled collaborators. The Italian fashion house teamed up with the award-winning hitmaker on an exclusive collection described as “Miami-meets-Mediterranean.” The capsule consists of both beachwear and ready-to-wear unisex pieces, including tracksuits, pullover hoodies, shorts, and accessories, all of which are presented in bold colors and all-over print patterns.
The British couture fashion brand which designed the Duchess of Sussex’s £56,000 engagement dress is on the brink of administration following a pandemic-induced sales slump. Sky News has learnt that Ralph & Russo could fall into the hands of insolvency practitioners as early as this week, according to people close to the company. Begbies Traynor and Quantuma, the professional services firm, are understood to have been put on standby to act as joint administrators to oversee an insolvency process. It was unclear whether a pre-pack sale – where a buyer is lined up to take on a company’s assets immediately after it enters administration – was in the cards.
Office & Leisure
Following its public debut at the start of the year, Petco on Thursday reported fourth quarter net sales increased 16.5% to $1.3 billion, driven by comparable sales growth of 17%. For the full year, the pet retailer reported net sales increased 11% year over year to $4.9 billion, while its comp sales also increased 11%. Petco’s net loss attributable to shareholders was $26.5 million for the year, which includes a $17.5 million loss on the extinguishment of debt related to its IPO. The retailer reduced its debt by 49%, or $1.6 billion, to $1.7 billion. The retailer expects net sales in the year ahead to increase up to 8.7% year over year to $5.35 billion on the higher end, or $5.25 billion on the lower end. The retailer, which added some 1 million new customers in the quarter, said it grew its digital business by more than 90%. But its store traffic also grew: Monthly visits to Petco increased 1.7% on average, according to a February report from foot traffics analytics firm Placer.ai.
Last spring, the managers at Märklin, the 162-year-old maker of model trains in Germany, were surprised by something unexpected in the sales reports. “We started to notice a serious uptick in orders,” said Florian Sieber, a director at Märklin. The jump continued into summer — a further surprise, he said, because that’s “when people don’t usually buy indoor train sets.” But buy they did. In November, Märklin’s monthly orders were up 70 percent over the previous year. The company’s video introducing its new trains and accessories, posted in January, has been viewed over 165,000 times. Along with baking and jigsaw puzzles earlier in the pandemic, model trains are among the passions being rediscovered while people are cooped up indoors. Several companies that make trains are reporting jumps in sales. For many people, the chance to create a separate, better world in the living room — with stunning mountains, tiny chugging locomotives and communities of inch-high people where no one needs a mask — is hard to resist.
Technology & Internet
The NFL has signed long-term television and digital media rights agreements that greatly expand availability to a variety of streaming platforms. Notably, Amazon has scored exclusive rights to Thursday Night Football in the first ever all-digital package. The deal begins with the 2023 season and extends through 2033. The ten-year deal is rumored to cost Amazon about $1 billion per year, according to CNBC’s sources. Amazon has been the NFL’s streaming media partner since 2017, streaming games on its Prime Video and Twitch platforms. Amazon Prime memberships cost $119 per year.
Snap, the parent of Snapchat, announced that it had acquired Berlin-based start-up Fit Analytics, which counts more than 18,000 retailers and brands as users of its solutions platform. The financial terms of the deal were not disclosed. Fit Analytics’ technology lets people enter their measurements into a tool that uses machine learning to match those dimensions up to clothes or shoes and find the best fit. The acquisition will help Snap add a substantial e-commerce technology business into its portfolio. More than 100 Fit Analytics employees will join Snap and continue to operate out of Berlin. The company will also continue to build its Fit Finder, a core tool, and other products for its clients. The team will work closely with Snap’s product group on e-commerce and shopping products, the company said.
Finance & Economy
Private equity firms are paying more for leveraged buyouts to keep pace with soaring valuations of acquisition targets, making some investors leery of whether the industry can keep delivering on promises of lucrative returns. The booming stock market and cheap debt financing have helped push leveraged buyout prices to a record high, driven by sectors that have grown as people work and stay at home during the COVID-19 pandemic, such as technology and business services. Private equity firms paid an average 13.2 times a company’s annual earnings before interest, tax, depreciation, and amortization (EBITDA) for U.S. leveraged buyouts in 2020, an all-time high, up from 12.9 times in 2019, according to financial data provider Refinitiv.
A monthly index measuring homebuilder confidence in the single-family housing market fell, as builders face rising interest rates and rising costs for materials, especially lumber. The latest results indicate that the housing industry might be in for a rough patch even as the economy roars back. A record low supply of homes for sale has caused prices for existing and newly built homes to rise quickly. Higher costs for builders are only exacerbating the situation, as these costs are being passed on to buyers. The median price of a newly built home was up more than 5% year over year in January.