Costco, Nike and FedEx are warning there’s extra inflation set to hit shoppers as holidays method

A worker wearing a protective mask removes

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Delivery bottlenecks, which have led to rising freight costs, are a vacation headache for US retailers.

Cost co This week joined the long list of retailers on the alert about rising shipping prices and the associated supply chain problems. The warehouse clerk who a similar cautionary note in MayThe sportswear giant joined her Nike and economic pioneers FedEx and General mills when discussing similar concerns.

The cost of shipping containers overseas has increased in recent months. Getting a 40-foot container from Shanghai to New York cost about $ 2,000 a year and a half ago, just before Covid pandemic. It is now around $ 16,000, according to Bank of America.

In a conference call with analysts Thursday, Richard Galanti, Costco’s chief financial officer, called freight costs “permanent inflationary items” and said these increases are being combined with things that are “somewhat permanent” to add to the pressure. This includes not only freight, but also higher labor costs, increasing transport and product demand as well as scarcity of computer chips, oils and chemicals and higher raw material prices.

“We can’t hold onto all of this,” said Galanti. “Some of it has to be passed on, and it is passed on. We are pragmatic about it.”

To quantify the situation, he said inflation is likely to be between 3.5% and 4.5% for Costco. He noticed that Paper products saw cost increases of 4% to 8% and cited shortages in plastic and pet products that are driving prices up from 5% to 11%.

“We can hold the line on some of these things and do a slightly better job – hopefully a better job than some of our competitors and even more extreme than value,” said Galanti. “So I think all of these things have worked a little in our favor so far, at least despite the challenges.”

Prepare for the holidays

However, the timing is not good.

Persistent inflationary pressures come at a time when retailers prepare for the Christmas shopping season – Halloween, Thanksgiving, and Christmas, then the New Year. The pandemic brought it about a relentless array of factors After a generation of mostly moderate price pressure, this has made inflation an economic catchphrase.

Companies are forced to deal with the situation before a critical phase.

“We’re approaching the holidays, we’ve worked with retailers, and we see that # 1 they need to be flexible with their supply chain,” said Keith Jelinek, executive director of global retail practice at consulting firm Berkeley Research Group. “We noticed an increase in the cost of goods, especially for clothing, including the cost of inbound shipping with the cost of containers, increases in transport, truck transports to get to distribution centers.”

“All of these costs will weigh on operating profit,” he added. “Retailers are currently facing the challenge of how much I can pass on to the consumer, or how I can get other efficiencies out of my operations to meet my overall margin.”

Many companies have signaled that consumers are ready, at least for now, to accept higher prices. Trillions of government incentives during the pandemic helped increase personal wealth Household net worth increased by 4.3% in the second quarter.

In the company’s conference call on Thursday, Nike CFO Matthew Friend referred to the price increases in the second half of the year, as well as “more than expected full price realization” and “additional transportation, logistics and air freight costs to move inventory in this dynamic environment”.

Nobody knows how long consumers will be willing to pay higher prices. Jelinek said he anticipates the current situation will last at least during the holiday season and until early next year

“There is only a limited amount that you can give to consumers,” he said. “What most retailers do is think about theirs [profit and loss statements] and they want to improve performance and optimize efficiency. That means really focusing on your supply chain. “

It also means raising prices.

Corporate warnings

FedEx announced this week that it will add 5.9% to the shipping cost for domestic services and 7.9% for other offers. The company said it was hit by labor shortages and “costs related to the challenging operating environment”.

The head of the company’s main competitor admitted the hurdles the business is facing.

“The job market is tight and in certain parts of the country we have had to make some market price adjustments to respond to market demands.” UPS CEO Carol Tome said on CNBC’s Thursday, “Closing bell. “

She added that the company was also affected by supply chain issues.

“I’m afraid this will continue for a while. These problems have been a long time coming and we must all work together to remove these blockages, ”said Tome.

Federal Reserve officials this week admitted that inflation will be higher in 2021 than they expected. However, you can still see that prices will settle in a more normal range of just over 2% in the years to come.

But Cleveland Fed President Loretta Mester said in a speech on Friday that she saw “upside risks” for the central bank’s inflation projections.

“Many companies report that cost pressures are mounting and consumers are willing to pay higher prices,” she said. “The combination of strong demand and supply chain challenges could last longer than I expected, leading people and businesses to raise their expectations of future inflation more than we have seen before.”

Fed officials said they were ready to withdraw monetary stimulus They provided during the pandemic, but prices are unlikely to increase anytime soon. However, if prices and expectations stay higher, Mester said, Fed policies would have to be “adjusted” to control inflation.

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Do warehouse golf equipment like Costco prevent cash in the long term?

This is just one of the stories in our “I’ve Always Wondered” series, in which we address all of your questions about the business world, no matter how big or small. Have you ever wondered if recycling is? It is worth it? Or how to store brands stack against Name brands? Check out more from the series here.

Listener Anne Prianti from Alpharetta, Georgia asked:

Do warehouse clubs (e.g. Costco, Sam’s, BJ’s) cost more than you save? I run a high school kitchen and when my monthly inventory is high (dollar terms) it has a negative impact on my finances. Wouldn’t buying and storing bulk items also have a negative impact on my household finances?

When Sarah Boling raised five children as a single mother, she recalls being unable to buy household goods in bulk because she didn’t have enough cash on hand.

That meant buying a four-pack of toilet paper for a few dollars, for example, compared to a 16-pack, which cost more but would last a lot longer.

“With all of these kids, you know, toilet paper, paper towels – it all goes through pretty quickly,” said Boling, who lives in Inverness, Florida. “So it would have helped if I could have bought large quantities.”

Now that she has a more stable salary and is married, she can shop in bulk at Sam’s Club, purchase household cleaning items and paper products, and long-life groceries such as condiments, in a two-income household at Sam’s Club. She said she saves hundreds every year.

Boling’s previous experience is reflected the “poverty penalty” – a phenomenon where low-income consumers actually pay more than rich people.

Low-income households typically buy smaller packages from cheaper brands. This undermines their efforts to save money as the unit price is loudly higher than that of items sold in bulk a 2016 working paper by Professor Yesim Orhun at the University of Michigan and Mike Palazzolo, a Ph.D. Student at that time.

Their data showed that low-income households, for example, pay 5.5% more per roll when buying toilet paper than if they had done their shopping like high-income households. These households buy in bulk and use sales more often. Not only do these less affluent households lack upfront cash, but they also don’t have the space to store extra items, so they can’t wait for the products to go on sale.

The study also showed they take advantage of volume discounts and sales when they have more liquidity.

“I was definitely aware that I was basically spending more money than I should have spent,” said Boling. “I’ve been pretty poor for most of my life, and I’ve been a single mother for a long time. So basically you have to get what is cheapest. “

Nicole Dow, Senior Writer at The penny hoarder who focuses on savings and budgeting strategies, said warehouse club shoppers can usually see price breakdowns that help them make smarter decisions.

“If you look in the store, you will find that the store actually gives the price per unit,” said Dow. “And you can use that for comparison. Because there are times when you find that the item you normally buy is better to buy as a stand-alone item rather than a bulk item. “

She also noted that while bulk foods tend to have a lower price per unit, you need to make sure you can consume them before the expiration date.

Borrowing from this point, Kara Grant, assistant professor of economics at Missouri Western State University, pointed out that the size of your family has an impact on how beneficial these businesses are in the long run. For example, buying items like fresh produce in bulk may not be the best option for smaller households.

For non-perishable items, Dow suggested sharing the cost with a roommate or friend.

Shopping at warehouse clubs like Costco, Sam’s, and BJ’s also require a membership fee between $ 55 and $ 120 per year depending on which tier you buy. However, Boling pointed out that warehouse club membership is another thing that low-income consumers typically can’t afford to buy in advance.

One tip from Dow is to find someone who has a membership, such as a neighbor, who can pick up an item for you. You could then refund them for this purchase.

“If you only shop once a month, or if you don’t really take advantage of that purchase, these stores may not be good business for you to shop for,” said Dow. “But you can still buy in bulk from your everyday grocery stores.”

Nancy Wong, a professor of consumer science at the University of Wisconsin-Madison, said she stopped shopping at Costco because she felt like she was losing money.

“I remember buying things like guacamole,” she said with a laugh. “I realized I could only dent the crowd. I threw the rest away in the end. ”

There are easily taken for granted lifestyle features that come with being able to shop in stores like this. For example, you need a car and a house with storage space to house these items, Wong said.

Costco is “clearly targeting a specific market segment,” she explained.

The typical Costco shopper is a 39 year old Asian American who earns more than $ 125,000 a year, according to data from the analysis company Numerator, which were made available to insiders. The big box retail chain draws a richer clientele than stores like Walmart – hence theirs luxurious offers.

Orhun of the University of Michigan said retailers could provide low-interest lines of credit or manufacturers could run promotions to cut the costs associated with the inability to purchase in bulk.

“There are ways to save money when you have money,” noted Boling. “And you can’t do that if you don’t have any money.”

Buyers guess on Kroger, Costco as Covid-19 circumstances spook Wall Avenue

How US stocks plummeted As of Monday, investors are betting on a familiar category that could grow if Covid-19 cases continue to rise: grocery stores.

Shares in Kroger, Albertsons, BJ’s wholesale club were awake from Monday lunchtime. Cost co hit an all-time high of $ 415.32.

These stocks were a rare ray of hope on Wall Street, according to Dow Jones Industrial seems to be heading for the biggest decline of the year. Several other stay-at-home stocks, including Clorox and Peloton, were also in the green.

Grocers were some of the biggest beneficiaries of the pandemic over the past year as restaurants temporarily closed and shoppers stocked up on basic groceries from the pantry and cooked at home.

Dealers face tough comparisons in the quarters ahead as they face unusually high sales growth numbers. Investors and companies have been trying to figure out when – and to what extent – consumers will return to their eating habits as more people are fully vaccinated and restrictions wear off. In the last few weeks, however the rise of the Delta variant of Covid-19 – especially in parts of the country with low vaccination rates – made these predictions difficult.

Brian Yarbrough, an Edward Jones retail analyst, said investors were shocked by news of the Delta variant and the withdrawal of reopening in some parts of the country – like the return of indoor mask mandates in Los Angeles. He said this is causing some to revert to tried and tested pandemic names.

“You saw a flight to be safer,” he said. “If that happens and Covid comes back up and things shut down, you would see the grocery store taking advantage of it.”

Michael Baker, retail analyst at DA Davidson, said the grocer pop in the market is “the opposite of what you see in airline stocks”. From Monday noon, Airlines and cruises were among the hardest hit sectors as investors feared travel trends could slow or reverse.

Grocery sales are still above pre-pandemic levels, according to IRI, which tracks sales patterns in supermarkets, large retailers and convenience stores. Overall demand for packaged consumer goods in the week ending July 4 was roughly the same as last year, although sales of perishable and non-edible items declined slightly overall.

Baker said some people developed new habits over the past year from cooking more. Besides, he said a labor shortage has impacted customer service in some restaurants, giving customers another reason to eat at home instead.

“The American public may have learned that it is good to eat at home,” he said. “You spend a lot of time at home with your family and that’s more economical.”

He said the latest data also corroborates the stickiness of foods at home. Receipts in grocery and beverage stores rose in June compared to the previous month by 0.6%, according to the Ministry of Commerce. On the flip side, restaurant food was still down 8% year over year in July based on OpenTable reservations tracking seating through online, phone, and walk-in reservations.

However, not all beneficiaries of the pandemic saw their fate change on Monday. Shares in Walmart, Home depot and Lowes fell on Monday.

Yarbrough attributed this to Walmart, which sold general merchandise and discretionary items instead of being a pure grocer. And, he said, investors might assume that retailers that do better during the delta variant’s proliferation might look different as the government takes different action. For example, instead of shutting down non-essential retailers, local officials can bring back masking requirements and consumers can choose to skip or cut down on trips to restaurants. That would mean less dramatic sales increases for home improvement retailers who were able to stay open as key retailers during the lockdown, he said.

Yarbrough said he remains convinced dining out will return at the expense of selling groceries. However, he said this could take longer – and could be interrupted by spikes in Covid cases.

“Since there is the Delta variant, it can make people afraid of saying, ‘You know what, I’m going to start staying home for a while until this is over,'” he said.