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Mitigating the impact of Mideast tensions on retailers

BY CSA STAFF

By John Haber, [email protected]

For the past two months, consumers have paid higher gas prices as a result of the political unrest in the Mideast. But, consumers aren’t the only ones feeling a pinch. Retailers are feeling it too as many suppliers, manufacturers and distributors implement “emergency fuel surcharges” as reported by The Wall Street Journal in late March of this year.

In short, today’s retailers should prepare for the worst. The impact of Mideast tensions will continue to drive shipping costs upward and, without an end in sight, this could have a serious impact on profits.

Over the next quarter, retailers can expect astronomically high fuel surcharges, with an increase of as much as 50% in the next 60 days. For those relying on ocean, truckload (TL) and less-than-truckload (LTL) shipments, the impact will be felt immediately. For those that rely on small parcel, there will be a 30- to 60-day lag between the announcement of surcharge increases and when they show up on invoices.

By June, many suppliers and retailers will start to raise the price of goods/services to compensate for higher supply chain costs. This has the potential to create a ripple effect that will drive down consumer confidence, which is already taking a beating from higher prices at the gas pump. With this scenario in mind, effective transportation spend management is critical to the performance of retailers as they enter the second half of 2011.

Here are several tips for retailers to mitigate the impact of Mideast tensions on shipping costs:

Make sure you’re paying a fair price to begin with. Most retailers grossly overpay for fuel in their carrier contracts — and no retailer can afford to do that given current pricing volatility. Now is the time to understand exactly how much you’re paying and benchmark that pricing to determine whether it is fair.

Consolidate shipments. In the rush to meet consumer demands, many retailers sacrifice cost efficiency. To reduce costs, see how you can consolidate shipments as well as explore more cost-friendly modes. You may find the impact on the end-consumer to be minimal while realizing significant savings.

Think carefully before you expedite. Are you one of the thousands of retailers that ship a package via next day air, when it can get there via next day ground at half the cost? Closely inspect the services you’re using to determine if expediting is really needed.

Renegotiate when capacity increases (which it will). Shipping volumes will decrease as the rising cost of fuel decreases consumer confidence, creating excess carrier capacity. When this happens, be prepared to renegotiate your carrier contracts. Pricing for these contracts were quoted when shipping volumes were high and capacity was constrained, thus giving carriers extra leverage at the negotiating table.

There is no way to predict with certainty what will happen as tensions in the Mideast grow. But, with the right knowledge and commitment to effectively managing shipping costs, today’s retailers can minimize the financial impact.

John Haber is executive VP of transportation services for NPI (npifinancial.com), a supply chain spend management advisory firm that works with major retail operations across the globe. He can be reached at [email protected].

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Mobile is Best Buy’s new calling

BY CSA STAFF

MINNEAPOLIS — Best Buy said that it plans to open hundreds of wireless device stores, as well as expand online and in China in an effort to be more competitive as consumers up their online shopping. The chain is also scaling back the size of its signature namesake format.

In an analyst conference Thursday, the retailer unveiled plans to shrink square footage at big-box stores by 10% over the next three to five years, a move that Best Buy said will eventually save $70 million to $80 million annually.

The company said it expects to have 600 to 800 Best Buy Mobile freestanding stores in the United States within five years, with some 200 expected to be operating by July. The mobile stores, whose average footprint is less than 2,000 sq. ft., have proven more profitable than traditional Best Buy stores because of the popularity of smartphones and sales of add-ons like phone plans and accessories.

Best Buy said it also plans to expand its online-only selection and aims to double its $2 billion in online revenue in three to five years.

However, "Physical retailing still matters," Brian Dunn, CEO, said. "It is an important part of our strategy, because service matters."

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Zale cleared by SEC

BY CSA STAFF

Dallas — Zale Corp. announced Friday that it has been cleared by the Securities and Exchange Commission in its investigation and that the SEC will not take any action against the company.

The SEC began investigating the jeweler in October 2009 after it restated its 2008 and 2009 earnings. The company said at the time that a financial audit had uncovered internal control and accounting issues related to advertising costs, income taxes and internal company payments, among other things.

We are pleased to announce that the SEC has concluded its investigation,” said Theo Killion, CEO, Zale. “We are glad to share with our investors and employees that this matter is now behind us as we continue to focus on returning our business to profitability.”

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