Abercrombie & Fitch, Gap Inc. Could See Seasonal Risks From Red Sea Delays

Glenn Taylor
·4 min read

The Red Sea crisis might throw a wrench in seasonal sales at U.S. and European fashion brands alike.

Abercrombie & Fitch and Gap Inc. are two major apparel retailers that could be impacted by the rerouting of shipments around Africa, namely due to the potential risks that come with late delivery of spring-summer fashion collections, according to a report from credit ratings firm Moody’s Investors Service.

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“Seasonal goods are more exposed,” said Christina Boni, senior vice president of corporate finance at Moody’s. “That timing is more relevant than if you’re bringing in basics, and you have stockpiles of khakis that people can wear in the spring and in the fall. The type of product matters.”

European retailers have more immediate exposure than those in the U.S., in that they heavily rely on the Suez Canal to source seagoing imports from Asia. The extended delays could trigger significant markdowns and excess inventories for brands sourcing goods that are timed to different weather patterns or fashion trends.

Companies like Adidas and Next have already noted in public earnings calls that imports that would typically go through the Red Sea are now seeing delays by as much as three weeks.

“The irony is we actually have products right now where the sell-through is so good with certain retailers that we can’t deliver [them],” said Adidas CEO Bjørn Gulden on the sportswear company’s Feb. 1 earnings call.

According to PortWatch data shared in the Moody’s report, the number of vessels that sailed around Africa’s Cape of Good Hope skyrocketed to 1,449 in the first 27 days of the year, up from 907 in the year-ago period. This voyage takes an estimated 10-to-14 extra days at sea compared to a trip through the Suez Canal.

The report said apparel and footwear, furniture, consumer electronics and arts and crafts are all categories with high exposure to the Red Sea skirmish—not just from a delay standpoint, but from a cost perspective amid freight rates that have more than doubled since the Houthi attacks in the waterway began.

“For some of these retailers that have lower revenue-generating product with high volume, that percentage of freight to them is more impactful on their bottom lines, because it’s a higher percentage of their overall costs,” said Boni.

The impacts of these costs, and any potential hits to margins, might not be felt until later in the year, regardless of how long the maritime disruptions last, Boni told Sourcing Journal.

“Over time, as freight rates are renegotiated, and people have to negotiate contracts at higher levels, eventually, that’s going to factor into higher costs for freight,” said Boni. “But there’s a delay in that. You don’t see that day one, because you capitalize that into your inventory. As you turn your inventory, then ultimately, those costs flow through your P&L. It’s not immediate—just because rates go up today doesn’t mean all of a sudden, retailers pay higher rates.”

On top of having the power to negotiate contract rates, the larger companies with relatively more sophisticated supply chains are best positioned to pivot faster and have more leverage to gain priority with shipping companies.

The Moody’s report also briefly touched on the home goods and furnishing category, saying that At Home and Bob’s Discount Furniture are already contending with lower demand and are vulnerable to future increases in cost structure.

Crocs, Skechers see Europe delays, but otherwise business as usual

Thus far, two top footwear brands have been relatively unfazed by the Red Sea disruptions. Crocs is seeing “a couple weeks’ delay” to its EMEA business, but hasn’t seen a material change to its freight rates despite the major escalations in spot rates across December and January.

“Obviously, we don’t know how this is going to play out, but at this point, [the Red Sea diversions] have not been a material impact to our business,” said Crocs chief financial officer Anne Mehlman in a Thursday earnings call.

Skechers chief operating officer David Weinberg said in a Feb. 1 earnings call that “as far as Europe is concerned, we’re no different than anybody else.” But he said the comfort footwear seller already had brought in a lot of goods prior to the end of December, counteracting any potential inventory concerns from the delays.

While Weinberg conceded that Skechers had issues in the U.S. related to backups in the West Coast stemming from Panama Canal congestion, he said “right now, we seem to be in pretty good shape” and that the company is “shipping very well in our major markets.”

Alongside these brands, Moody’s also expects some European labels to come out largely unscathed due to local production and nearshoring. The financial services company named Hugo Boss, Isabel Marant and Golden Goose as top fashion brands less likely to be affected by the Red Sea crisis.

“We saw this during Covid—we saw the vulnerability of supply chains to being beholden to imports in a faraway place,” said Boni. “There’s a lot more talk about nearshoring and getting products into the U.S. from Mexico, as opposed to getting product from Asia.”