Retail prices could rise after Strait of Hormuz closure
The Iran war may soon mean higher prices on store shelves for consumers.
Iran’s effective closure of the Strait of Hormuz transit has significantly disrupted the global supply chain, affecting many products from fertilizers to metals, gas and fuel oil. The transit is a critical point where tens of millions of barrels of oil flow each day along one of the world’s most important shipping routes, along with other exports.
And throat related tensions shows no signs of change. On Thursday, Iran’s new supreme leader, Mujtaba Khamenei, said in his first public statement since his appointment that the shutdown should be maintained as a “tool to put pressure on the enemy.” Defense Secretary Pete Hegseth downplayed concerns about the strait at a news conference at the Pentagon on Friday, saying, “We’re taking care of it and we don’t need to worry.”
The logistics provider said on Friday CH Robinson He said he continues to monitor updates and urged shippers to plan for continued variability.
“As cargo moves, carriers manage limited capacity, selective acceptance, and fuel-related cost impacts, resulting in pricing fluctuations and variable service conditions,” the statement said. The statement was included.
While it’s too early to determine what the exact impact on retail might be, Coresight Head of Research Max Kahn said disruption to the global supply chain may already be pushing the industry closer to its limits.
“Retailers have gotten a lot better at building resilience into their supply chains, and that’s been accelerated a lot with the tariffs over the last year,” Kahn told CNBC. “The biggest concern is whether this situation will continue.”
Kahn said that prices in grocery stores may be affected first because the supply chains of food products are less flexible, while clothing retailers can probably afford to slow down production and then increase stocks again without disruption.
Kahn said retailers will likely face two factors as they navigate the geopolitical environment: input cost pressure and demand pressure.
“Retailers will have to play with this,” he said. “One of the reasons why retail remained resilient in 2022 and 2023 was because they were able to raise prices, and the increase in prices offset some of the weakness in units, so we think it could be very similar this time around.”
Retail wasn’t just affected by the shipping changes either. Clothing shipments from Inditex, which owns Zara, and other clothing retailers occurred in 2017. stranded According to Reuters, flights in the Middle East were canceled last week.
Kahn said retailers’ potential struggles could also have broader economic consequences. He noted that although companies have learned to somewhat adapt to the changing macroeconomic environment over the past few years, overall growth in retail is “so-so” and that uncertainty will begin to impact GDP growth as the industry continues to battle the war.
Still, as the chaos continues, Kahn said he expects value from retailers as follows: Walmart And Kroger and like dollar stores Dollar General And Dollar Tree having an easier time as shoppers will look for more affordable items.
In addition to affecting the global supply chain, consumer confidence is already taking a hit from the war. Although Wednesday’s consumer price index came in as expected, industry experts said higher gas prices will likely impact discretionary spending as consumers pull back to cover costs at the pump, which will impact retailers who may already be reeling from supply chain impacts.
Discretionary-heavy retailers will likely be among the biggest losers in the battle, Wolfe Research analysts wrote in a note Sunday.
“Retailers with a larger discretionary mix, e.g. Five Below And Aim“It also faces headwinds as consumer confidence comes under pressure and turmoil,” they wrote.
Still, some retailers may have other factors that will help them recover from the consequences of war. Retailers that appeal to high-income consumers or offer special offers costcocan manage to escape from congestion.
“Costco’s price leadership in gas should benefit as it becomes more significant and consumers become more willing to wait 20-plus minutes for gas,” analysts added.
The war adds uncertainty to an already weakened consumer grappling with a changing macro environment and a K-shaped economy in which lower-income consumers struggle while those at the top continue to do well, UBS analysts wrote in a note Monday.
“The rise in oil prices should place a meaningful burden on household budgets and further increase the pressures already seen in the consumer environment,” they wrote.
While some retailers like Ulta and Costco has seen the same increase in store sales alongside oil inflation in the past; Companies serving low-income customers include: Ollie’s Discounted Release And Dollar General’s sales will likely decline as consumers face budget constraints, UBS analysts said.
“As a result, an increase in oil prices could have a layered and lasting impact on consumer health,” they wrote. “It is increasing fixed household spending, putting upward pressure on grocery prices, reshaping retail traffic patterns and creating operational challenges for retailers across multiple segments.”
