The Federal Trade Commission (FTC) is probing top retailers for insights into how logistical disruptions have impacted the U.S. economy and American consumers.
On Monday, the FTC—tasked with enforcing antitrust laws and protecting consumers from predatory business practices—ordered nine retailers, wholesalers and consumer goods suppliers to turn over details about issues in their supply chains.
Section 6(B) of the FTC Act enables the agency to conduct studies without a specific law-enforcement purpose. In this case, answers from Walmart, Amazon, Kroger, C&S Wholesale Grocers, Associated Wholesale Grocers, McLane Co., Procter & Gamble, Tyson Foods, and Kraft Heinz will inform the FTC about how factors like production delays and port congestion have led to bottlenecks, product shortages, anticompetitive practices and price increases at retail. The companies have been given 45 days to respond to the FTC inquiry.
“Supply chain disruptions are upending the provision and delivery of a wide array of goods, ranging from computer chips and medicines to meat and lumber,” FTC chair Lina M. Khan said. The study will shed light on market conditions and business practices that may have contributed to retail’s challenges, as well as the hardship now being felt by consumers. “The FTC has a long history of pursuing market studies to deepen our understanding of economic conditions and business conduct, and we should continue to make nimble and timely use of these information-gathering tools and authorities,” Khan added.
The companies in question are expected to highlight the primary factors that are impeding their ability to obtain, transport and distribute goods, and how those hurdles have led to delayed and canceled orders, as well as price hikes. The FTC is asking that firms identify the products and inputs that have been most affected, as well as their most challenged suppliers.
Industry leaders have also been tasked with elucidating the steps they’ve taken to alleviate issues in their value chains, and explaining their strategies for allocating products that are in short supply. They are required to submit relevant internal documents that illuminate the issues and their strategies with regard to product pricing, marketing and promotions, costs, profit margins, sales volumes, suppliers and brands, and market shares.
Parallel to this effort, the FTC is soliciting voluntary comments from retailers, consumer goods suppliers, wholesalers, and consumers with regard to how supply chain stumbling blocks have affected competition in the consumer goods space.
Walmart and Amazon
Walmart’s inventory is up 10 percent year over year as of early November. On Tuesday, John Furner, CEO of Walmart U.S., told Good Morning America that the company had its “biggest day ever in terms of store delivery” last week during the Thanksgiving week shopping period.
Asked about the FTC investigation, Furner said that the retailer’s favorable inventory positioning stems from advance planning. “A lot of what you see in stores and online right now—all the products and what’s available—those are all the results of plans that in most cases started over a year ago,” he said. “Our merchants work about 12 months out to determine what they think the trends are what people will be looking for, and we’re proud of our of our inventory position this point.”
At a business roundtable at the White House on Monday, Walmart Inc. CEO Doug McMillon reiterated that the company manufactures or grows two-thirds of its products in the U.S., mitigating the challenges that come with shipping products from overseas. A large portion of items that aren’t produced stateside are made in Mexico and Canada, he added.
While shoppers have reported feeling sticker shock at retail in recent months, Furner indicated on an earnings call Nov. 16 that the company is committed to maintaining low prices—and has been throughout the pandemic. “We’ll be the last to go up,” he said. “We see gaps that are wider now than they were before the pandemic began, and we intend to maintain that position.”
The FTC’s probe also focuses on the advantages that retail giants like Amazon have enjoyed during the pandemic. But Amazon’s third quarter missed its $111.6 projected sales, coming in at $110.8 billion. Earnings were $6.12 per share as opposed to Refinitiv’s estimated $8.92 per share.
At the time, CEO Andy Jassy said that Amazon also expected to “incur several billion dollars of additional costs” during the holiday period, stemming from labor shortages, increased wage costs, supply chain issues and increased freight and shipping costs. Still, he said Amazon will do “whatever it takes to minimize the impact on customers and selling partners this holiday season.”
Chief financial officer Brian Olsavsky estimated that the cost of labor, labor-related productivity losses and inflation to steel and trucking expenses tacked on about $2 billion in operating costs during Q3—a number he expects to double to $4 billion during the fourth quarter.
The company is also continuing to invest in its logistics infrastructure—especially last-mile delivery. This week, Amazon CEO of worldwide consumer Dave Clark told CNBC that the company is on track to become the largest package delivery service in the country as early as this December, eclipsing UPS and FedEx. The company invested $473 million in total fulfillment costs over the past 12 months—a 50-percent year-over-year increase.
Big business advantages
“Mid-sized and smaller brands and retailers don’t have the resources to buy their way out of problems like the big guys can,” said Scott Ohsman, vice president of digital commerce at digital marketing firm Quickfire, LLC. “But just because they bought their way out doesn’t mean they didn’t have to pay more—it just means that they could.”
Mass retailers have made headlines during the pandemic for their efforts to circumvent supply chain challenges by shelling out for services and building out their own logistics capabilities. This year, Walmart and Home Depot leveraged their deep pockets to charter their own vessels, something few competitors could afford.
Still, industry leaders are subject to the same market pressures as their smaller peers, according to Ohsman. Amazon now owns dozens planes, he said, “But do they get a deal on the cost of fuel? No, they have to buy it like everyone else” at the same inflated cost.
Amazon, like others, has benefited from verticalizing its supply chain, Ohsman said. The e-tailer has developed a formidable private-label portfolio, and is able to control sourcing and production. Then, it relies on its own logistics to ship the goods to consumers.
The “winners” in today’s retail landscape are those that “can control everything, from point A to point B,” he said. Many businesses have struggled to manage sourcing, and are reliant on third-party logistics partners, which have raised prices exponentially over the past year. “The shipping companies are making more money than bandits on this,” Ohsman said.
When it comes to product pricing, Ohsman doubts that retail leaders are overcharging for goods—even if shoppers are paying more. “The whole point of Amazon is that they’re going to match or be lower than any other retail offer—that’s their game,” he said. “The price of product is going to be what the market bears.”