Sticker shock is here — and it’s anyone’s guess when the rising consumer prices caused by COVID-19, supply chain bottlenecks and higher retailer costs will abate.
“People don’t have a very clear picture when this thing will start to subside,” said Jerome Griffith, the chief executive officer of Lands’ End. “Everybody believes this will not last forever, but when you read that costs will come down in two months, or two quarters, I don’t think you can guarantee that.
“We already started raising prices in the fall. We have increased that again in the spring. It’s into the low, double-digit increases from a percentage standpoint,” said Griffith, speaking Tuesday at the ICR 2022 Conference.
“You have to plan that 2022 will be another volatile year when it comes to costs and supply chain,” Griffith added. “You have to work to understand what things are most important to you and your customers. You are not going to be everything for everyone and you are going to have to prioritize.”

“Vietnam was a big country for us for fall and holiday, and those factories were shut down for a couple of months. We were able to finally get back to reasonable in-stock” positioning, for holiday, said Jim Gooch, Lands’ End president and chief financial officer. “We talked about this right before Black Friday, but it continues to be choppy as we start to go into early spring shipments, and right now we are looking at the January flow. It’s a daily conversation that we are having, but we don’t anticipate this getting better certainly for at least a couple of more quarters.”
Gooch said factories in Vietnam were shut down for about 60 to 80 days and that Los Angeles ports posed real challenges, as did trucking.
Spiking COVID-19 cases and labor shortages continue to gum up the supply chain, leaving retailers short on goods and scrambling to order earlier and diversify manufacturing sources, redirecting goods to different ports, spending more to fly goods into the U.S. and passing on their higher costs to consumers. The silver lining is that consumer demand remains high, shoppers are generally accepting the higher prices, and some retailers are selling more goods at full price, while others are escalating markdowns due to declining store traffic due to COVID-19.
The November Consumer Price Index showed annual inflation hitting 6.8 percent, the highest in 39 years. It’s expected to surpass 7 percent in the first quarter of 2022, and decline later in 2022.
“Getting space on boats right now is a major issue,” Gooch explained. “Across the board folks are seeing higher costs there. They’re having to go away from contracted container rates and having to pay at spot rates, which are significantly higher right now. Trying to get space on contract rates is very tough.
“A lot of our product comes into L.A. We rail it up to Chicago and truck it to Dodgeville, Wisc.,” where Lands’ End is based and where most of the brands’ distribution occurs. Though Dodgeville is a somewhat isolated community outside Madison, the company has been affected by the spike in Omicron cases over the last couple of months. “The fourth quarter was a challenge with hiring but we were able to work ourselves through that. The team did a great job stepping up and working extra hours,” said Gooch.
He said labor continues to be a problem. “We’re hoping that it is going to normalize going forward, but last year was a challenge.”
Getting goods out of the warehouse in 2021 was “a lot better, a lot calmer” than 2020, partly because the holiday 2021 season was elongated, Griffith noted. “Everything was very spaced out.”
Executives from Abercrombie & Fitch and Urban Outfitters at ICR also voiced concerns over the impact on sales, costs, deliveries and labor from COVID-19 and its Omicron variant. On Monday, Lululemon revised its guidance downward thanks to supply chain constraints and labor issues. Walmart and Macy’s temporarily cut store hours recently because so many employees have been falling sick with Omicron.
“Everyone sees the ocean rates rising. Air rates are also rising, and our air mix has risen in the fourth quarter as we dig out of that Vietnam shutdown that happened in late summer into early fall,” Scott Lipesky, CFO of Abercrombie & Fitch Co., said during the ICR Conference Tuesday.
Lipesky said A&F is “on track” to incur $75 million in incremental freight costs in the fourth quarter. “Freight rates are high and will likely remain high,” he said. “I’m optimistic that as we go through next year and the supply and demand starts to equalize a little bit after the world kind of reopened here in the last 12 months, we start to see some benefit there and maybe a little bit of tailwind in the freight rates going forward. There is lots to learn every day as we look at these rates.
“We will manage through the bumps in the road with the supply chain. Hopefully that will start to level out as we get into [fiscal] 2022. “We are calling things earlier, diversifying ports, diversifying manufacturing — things that will help us manage through supply chain disruption in the near term. But we are not going to lose that discipline around inventory,” meaning keeping it lean.
“We are catching up on fall goods, in the next couple of weeks we feel that will be cleaned up,” said Lipesky. For spring, he said the company “feels better each day that goes by. We use some air if we need to, but we started to call spring a lot earlier. It’s interesting. We had spring goods that we cut and sewed two months after some of these fall goods left the port and we received the spring [inventory] earlier.”
Unexpected inventory receipt delays and increased COVID-19-related impacts and restrictions took a toll on A&F’s holiday sales, as the company reported Monday. On Tuesday at ICR, Fran Horowitz, A&F’s CEO, elaborated on the shortfall. “Holiday started up strong and looks like it will end up strong, too, based on recent trends. However, holiday was weaker than expected, as units slated to arrive in December did not appear in the fourth quarter in the time frame anticipated,” she said. “This was beyond our control and resulted in a sales miss during a peak selling period.
“If those units arrived as planned, we believe we would have met our previous outlook,” said Horowitz. “Throughout the quarter, we continued to execute our planned promotional cadence to reduce the depth and breadth of markdowns and promotions.…Post holiday, sales have accelerated.”
For the fourth quarter of fiscal 2021, A&F expects net sales up 4 to 6 percent compared to 2020 net sales of $1.12 billion, and flat to down 2 percent compared to 2019 net sales of $1.19 billion, reflecting “ongoing U.S. and digital momentum.” Previously, the company forecast 3 to 5 percent fourth-quarter sales gains compared to the 2019 period.
However, the gross profit rate will be about flat to 2019 levels of 58.2 percent in line with the previous outlook, reflecting double-digit AUR (average unit retail price) improvement relative to 2019 and 2020 on reduced promotions and markdowns.
Urban Outfitters cited higher freight costs and the impact of Omicron after earlier releasing some positive sales results despite higher-than-expected transportation costs, reduced store occupancy and increased promotional activity in Free People’s wholesale division, putting a damper on holiday sales.

“Our top line is coming in exactly as we expected it to,” Frank Conforti, co-president and chief operating officer of Urban Outfitters, said during his ICR presentation. “What was different for us in the fourth quarter was our inbound freight costs were higher than we expected. Obviously, it was really expensive to get product here. We relied very heavily on air and it was expensive to get product here. It came in more expensive than we had anticipated.”
He added that the Free People brand “slowed just a little,” while in-store traffic was down for the quarter. That’s in addition to reduced store hours, in part because of employee absenteeism as associates tested positive for COVID-19.
“Our stores were a little weaker than we had anticipated,” Conforti explained. “I think we had thought our stores would pick up closer to the holidays. We just didn’t see that lift closer to the holidays as we had in previous seasons when people wanted their packages under the tree in time.
“The cost pressures will definitely be a headwind in all of those categories in the first half of the year,” he continued. “It’s a complicated year.”
Melanie Marein-Efron, CFO of Urban Outfitters, cited “disruption from absenteeism” in stores. “Clearly there is an impact. Once we’re limiting our store hours, we’re limiting our sales.”
But in Urban Outfitters’ case, investors didn’t seem to mind. Company shares were up nearly 2 percent during Tuesday’s trading session, thanks in part to strong overall holiday sales.
“We feel good about the consumer; the consumer is still out there spending,” Conforti said. “The variant is affecting our business. But the consumer seems to be resilient and continues to be spending at a high rate. And it doesn’t seem to be taking a lot of promotions to get her to spend.”
Total company net sales for the two months ending Dec. 31 were up 14.6 percent, compared with the same time frame in December 2019. Total retail segment net sales also grew, up 15 percent during the quarter, while comparable retail net sales rose 14 percent, thanks to double-digit growth in digital channel sales. Comparable retail sales, however, offset some of the gains with high-single-digit negative retail store sales.
By brand, comparable retail segment net sales during the holiday shopping season were up 47 percent at the Free People Group, 15 percent at the Anthropologie Group and 3 percent at Urban Outfitters, compared with 2019’s pre-pandemic holiday season. In the wholesale division, net sales fell 18 percent, primarily from promotional activity in the Free People Group.
The retailer is now expecting total fourth-quarter gross margins to deleverage thanks to higher-than-expected inbound transportation costs.
Kellie Ell contributed to this report.