Study: Up to $17 billion EBITDA at risk across apparel, footwear industry

Supply chain disruptions could take a big toll on the North American apparel and footwear industry.

Continued supply chain challenges could cost the estimated $400 billion apparel and footwear industry from $9 billion to $17 billion in lost EBITDA (earnings before interest, taxes, depreciation and amortization) in 2022, according to a study by global consultancy Kearney. The study was completed shortly before the omicron COVID-19 variant emerged and is likely conservative, the company noted.

The study noted that the industry experienced significant supply disruptions in 2021, frustrating companies’ efforts to meet rebounding consumer demand. North America’s apparel and footwear industry also endured a variety of unanticipated cost increases in 2021, including the cost of cotton (up 40%), transpacific container shipping (300%), air freight (50%) and OTR freight (20%). At the same time, labor shortages drove up logistics, warehousing, and retail wages, further contributing to industry-wide spikes in COGS (cost of goods sold) and G&A expense.

“Our 2022 analysis explored the industry’s vulnerability to ongoing supply disruptions and cost shocks,” said Greg Portell, lead partner of Kearney's Global Consumer Practice. “We benchmarked hundreds of supply chains’ preparedness to absorb unexpected challenges in ways that maintain reliability and minimize costs―a trait we call ‘resilience.’ We then calculated what lack of resilience could cost the North American apparel and footwear industry overall this year.”

The good news is there are many practical steps companies can take to make their supply chains more resilient, according to Brian Ehrig, a partner in Kearney’s New York office. He suggests that compares start by focusing on what they can control. Immediate opportunities include complexity reduction, fresh sourcing strategies and more rigorous alignment of inventory management with merchandising

“Longer term, we see companies improving resilience via nearshoring and reshoring, to make their supply lines less vulnerable, while also building up regionalized supply chains within their existing footprint,” he said. “Platforming could also have a big impact, as we often find high levels of fabric commonality and interchangeability across brands that is underleveraged. Apparel and footwear companies can use that commonality to reduce costs and flexibly prioritize within their product portfolio when disruption strikes.”

For further details on “The Cost of Covid for North American Apparel & Retail: Time for Supply Chain Resilience study methodology and findings, click here.