Santa Claus is coming to town – but at what cost to Walmart and Target?
Send a link to a friend
[November 15, 2021] By
Richa Naidu and Aishwarya Venugopal
CHICAGO (Reuters) - Pent-up demand is
expected to have boosted early holiday sales this year, but big
discounters Walmart and Target may still see margins fall as surging
costs for labor, warehousing and ocean and land freight threaten to play
Grinch.
Retailers have been under tremendous pressure from investors to control
costs amid uncertainty driven by the pandemic. Shipping logjams,
shuttered factories in China and Vietnam, and a scarcity of raw
materials have ripped through supply chains in the United States in
recent months, and left companies scrambling to make sure they have
enough product for the crucial holiday shopping season.
For the third quarter, both costs of goods sold and selling, general and
advertising expenses for Target are expected to rise about 10%, while
Walmart's operating expenses are expected to rise nearly 4% to $28.57
billion, according to Refinitiv data.
![](http://archives.lincolndailynews.com/2021/Nov/15/images/ads/current/Peasley_lda_PPP_2018.png)
Walmart, the world’s biggest retailer, will report earnings on Tuesday,
while Target is scheduled to post results on Wednesday.
Late last month, ecommerce giant Amazon.com said it expects costs during
the holiday period to reach about $4 billion as higher wages and other
operational disruptions diminish the company's windfall from online
shopping.
"It is one competitive market for labor, freight, and customers. We
believe most will be prudent in guiding to fourth-quarter profitability
even with healthy sales," Evercore analyst Greg Melich said.
RISING RENTS, WAGES
Industry warehouse rents are expected to rise 18-19% this year,
according to real estate investment trust Prologis, whose customers
include Walmart, Amazon and Target. For the full year, analysts expect
Walmart’s rent expenses to rise 7% to $3.28 billion, according to
Refinitiv.
[to top of second column] |
![](../images/111521PIX/2021-11-15T111214Z_1_LYNXMPEHAE0GB_RTROPTP_4_WALMART-RESULTS_small.JPG)
Shoppers browse merchandise beside a Christmas tree display at a
Target store in King of Prussia, Pennsylvania U.S. November 20,
2020. REUTERS/Mark Makela/File Photo
![](http://archives.lincolndailynews.com/2021/Nov/15/images/ads/current/heartland_lda_NOV2021.png)
“Importers of clothing and footwear are paying essentially double what they were
paying for transportation before the pandemic,” according to Jason Miller,
associate professor of supply chain management at Michigan State University’s
Eli Broad College of Business.
Insurance and freight costs crept up to 6.4% of the value of the imported
products in September 2021, versus 3.7% in September 2019, according to Miller,
who analyzed data from USA Trade Online, which is maintained by the Census
Bureau.
Logistics expenses are also on the rise as retailers need to get more products
around the country to satiate growing consumer demand, Mark Manduca, chief
investment officer at logistics firm GXO, whose clients include Apple, Nike and
Abercrombie & Fitch.
Meanwhile, a competitive labor environment has pushed wages up across the
country.
Still, experts and analysts have said that retailers with bigger scale are
better placed to tide over these supply chain issues and pass on higher prices
to the buyers.
"Everybody's facing higher expenses but Walmart also has a much more efficient
supply chain - they should have a very good holiday season, even with all the
cost pressure," Telsey Group analyst Joe Feldman said.
U.S. holiday sales could rise as much as 10.5% to $859 billion, according to one
forecast.
(Reporting by Richa Naidu in Chicago and Aishwarya Venugopal, Editing by Nick
Zieminski)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2021/Nov/15/images/ads/current/goodman_sda_FFARM_2019.png) |