Photo: @nataliazera via Twenty20
What does Russia’s war on Ukraine mean for U.S. retail?
Twelve days into Russia’s invasion of Ukraine, the most visible impact on U.S. retail appears to be brands suspending operations in Russia, local calls for boycotts of Russian vodka and a spike in gas prices.
Overseas, Apple, Microsoft and Nike have joined a swathe of western firms including IKEA and H&M that have halted Russian operations.
“We are deeply concerned about the Russian invasion of Ukraine and stand with all of the people who are suffering as a result of the violence,” Apple said in a statement.
Nike had indicated on its Russian website that it was suspending operations because it could not guarantee delivery. Three days after the war started, FedEx and UPS suspended shipments to Russia and Ukraine.
TJX Cos. said last Thursday it was divesting its minority investment in Familia, a Russian off-price retailer, and would instruct buyers to halt purchases from Russia and Belarus.
In a note Friday, Moody’s said that the “greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created.”
In the U.S., Publix, Kroger, and other U.S. chains have taken Russian vodka off the shelves although Russia accounted for only 1.3 percent of all vodka imports to the U.S. in 2021, according to the Distilled Spirits Council.
The most common Russian imports to the U.S. are mineral fuels, precious metals, iron and steel and fertilizer. The big production concern is whether economic sanctions will create imbalances in the worldwide supply of oil and gas. Russia represents around a third of all energy imports to Europe.
As of Sunday afternoon, the national average of a regular gallon of gas was $4.009, up 40 cents from the prior week, according to the American Automobile Association.
Skyrocketing gas prices add to the highest U.S. inflation rate in 40 years, but the duration of the conflict on U.S. shoppers’ psyche could be retail’s biggest worry amid threats of broader conflict.
“You have to think the longer it goes on, the more problematic” it gets, Chuck Grom, an analyst with Gordon Haskett told CNBC. “In other words, the consumer spends more time getting absorbed with the situation.”
- Apple pauses sales of its products in Russia. – The New York Times
- Google suspends all ad sales in Russia as censorship demands – Reuters
- Publix, Kroger, and other US chains have taken Russian vodka off the shelves after the country invaded Ukraine— see the full list – Business Insider
- Russia’s Vodka Is Getting Banned. If Only We Drank It. – Barron’s
- Retailers start to warn of business impact from Russia’s invasion of Ukraine – CNBC
- Russia-Ukraine’s Impact on Global Supply Chains – Moody’s
- Russia-Ukraine crisis replaces Covid as top risk to global supply chains, Moody’s says – CNN
Discussion Questions
DISCUSSION QUESTIONS: How should U.S. retail prepare for and respond to any fallout from Russia’s invasion of Ukraine? What’s your biggest concern as it relates to the impact of the war?
Poll
Loading …BrainTrust
Andrew Blatherwick
Chairman Emeritus, Relex Solutions
Patricia Vekich Waldron
Contributing Editor, RetailWire; Founder and CEO, Vision First
The Russian invasion will have the most significant impact on any retailer or brand doing a material amount of business in the region. Beyond individual companies, the disruption to the flow of raw materials and their downstream impact on product availability are already being felt in gas prices. But all these things aside, the biggest concern is how this conflict could escalate into a world war that creates major disruptions around the world.
In my personal opinion, it is incumbent on every company and person of goodwill to cut all economic ties with Russia. The country should be isolated as much as possible as a consequence of its actions. This may be challenging but, for most US retailers, the volume of sales made in Russia is comparatively small. Those ordering from Russia should, and likely will need to because of sanctions, find alternative suppliers. Aside from the terrible consequences for the Ukrainian people, my biggest concern is the impact this will have on inflation – especially if there is an energy embargo. Inflation is already running hot and this will stretch household budgets even further. However, while serious, this is a minor price to pay compared to having your country invaded and bombed.
The quick response to this crisis by the retail industry highlights the massive impact consumers have on issues far beyond their own back yard. While governments work through multitudes of bureaucracy, brands and retailers quickly pivot to support the wishes of their customers. From environmental sustainability, diversity and inclusion, and animal rights, to supporting Ukrainian freedom – retailers have consistently led the way for getting it done.
U.S. retailers will see a proportionate reduction in total business due to the Ukraine/Russia conflict. It is now a matter of whether principle or capitalism win.
Global retailers and brands are doing the right thing – isolating Russia and holding the country accountable for invading Ukraine.
The impacts of the war are and will be astronomical and devastating from a human loss perspective.
From a retail lens, the increase in price of oil is substantial enough to impact any man-made synthetic textiles and products. This would directly affect the cost of raw material in the leggings we love so much and the comfort categories that are trending right now, not to mention the fuel need to operate machinery to manufacture products.
This war is disastrous and devastating. Striking Russia’s economy and pocketbook is how brands can retaliate but at the end of the day, innocent Russians and Ukrainians are truly the ones that are losing the most.
Applying harsh federal sanctions against Russia is imperative, including barring every drop of Russian oil from coming into the United States, which has yet to be done. Unfortunately, the longer this continues, the more disruption we’ll see in global supply chains. And if the U.S. doesn’t start producing its own energy, the price of oil could easily zoom up to $200/barrel. And if this happens, we’re going to see skyrocketing prices on nearly all consumer items.
US oil production is close to an all time high at over 11 million barrels per day and we are the largest oil producing country by far: https://www.statista.com/statistics/236605/share-of-global-crude-oil-production-of-the-top-15-oil-producing-countries/
But, we consume the most, too. It’s too bad we haven’t made more progress on alternative fuels which would have also helped the global warming problem.
Yep, alternate fuels, renewable energy, smarter infrastructure (trains!), design-for-reuse/recycling, and overall energy conservation are all part of the solution and should be framed as America’s “can-do” response not just to Putin and his oligarchs, but to other oppressive regimes around the world as well. And a response that will save our own communities a few more years down the road.
Less disposable income in the near term until oil and gas prices can recede to well under current hyper-priced levels – this will pinch the average consumer by $1,000 annually. Ukraine is a soil rich nation, thus impacting food prices – again raising prices and the inflation rate. The good news is $3 trillion in savings over the past two-plus years so while prices are high vs. 2019 levels in consumable goods, more disposable income will counter-balance the net effect.
There is no choice. It must be done. We’ve seen this movie before, and too many of us on this thread know the legacy of ignoring this kind of thing. On the plus side, for the most part, it seems to be unifying Americans, for the first time in I don’t know how long. This cannot stand. If I have to pay more for gas, so be it.
Perhaps retailers can find a creative way to deal with this. Regardless, it needs to be stopped. Now.
The “cancellation” of Russia was remarkably swift and broad in scope. I would guess most or all of those with operations in Russia have already cut off their affiliates there. I believe the biggest impact to American consumers will be the acceleration of inflation as fuel prices go up.
While the conflict between Russia and the West is economic for now, the trade disruptions are likely to cause more price pressures on raw materials and stress on the supply chain. And, of course, any decision by the U.S. (with or without its allies) to cut off Russian oil and gas will drive high gas prices even further. This is the one issue that will most likely affect U.S. consumers’ discretionary incomes.
As Bob Amster points out, this economic pain in the defense of democracy is a price worth paying — as long as U.S. consumers buy into the policy.
Individual companies will each have to make careful decisions about their specific business dealings with and/or in Russia, including Russian products in their assortments but, as an industry, we need to be prepared for further supply chain challenges and even higher inflation. Those who effectively prepare and plan for both with strategic supply chain planning and price planning will be those best able to weather this storm.
For years, we’ve seen a rise in purpose-led brands. Now consumers expect companies to choose sides on controversial issues — especially Russia’s war on Ukraine. Right now, global consumers are paying close attention to companies’ public statements and business decisions.
To compensate for reduced reliance on Russia, U.S. retail needs a coordinated plan to mobilize supply chain partners in allied countries. More than ever, companies need efficient, integrated retail processes to minimize the impact of price hikes and market complexity.
As for risk, Ukraine’s role as “the bread basket of Europe” suddenly makes food security an international concern. Global threats of the war spreading will further increase inflation and supply chain disruption.
Most retailers have already removed any product on their shelves with reference to Russia or stopped doing business with Russia because of the conflict.
Unfortunately, the biggest concern will remain the cost of fuel which in some locations is past the $6/gallon range. I just don’t where the tipping point will be before Americans will stop paying the increased costs or limiting their travel because of the cost.
There are severe consequences and actions that have been taken on Russia’s actions. It has been a swift and targeted move by global companies to cut economic ties and dependencies on Russia. While the Ukrainian people face a humanitarian crisis of epic proportions, the impact on the worldwide economy will emerge over the coming weeks and months. The economic sanctions against Russia and other consequences need to be swift, impactful and it will have a devastating impact on their economy.
It appears as though the U.S. economy, while in recovery mode in a post-pandemic state, will be impacted, with rising prices, increasing inflation rates, increases in the price of oil and gas. However U.S. customers are resilient and appear to be willing to take on the price increases and other supply chain disruptions if it would help contribute to the cause of democracy and freedom for the Ukrainian people.
How fast can we slam the door shut on Russia? And keep it shut for a long, long time? This situation might not be winnable as a military victory, but it might be winnable on the economic front (if winnable is even the right word at this point). Even on the economic front, there will be plenty of pain. Problematic inflation will only get worse. But the kind of naked aggression we are witnessing cannot be tolerated. It has to be dealt with without plunging the whole world into military chaos. Hopefully consumers everywhere will understand the real root cause of the pain they are experiencing at the pump and the grocery store.
One of the major impacts of this war on retail will be in the food sector. Russia and Ukraine are major food producers. While this will have a much bigger impact on Europe and some of the third world countries the impact will reverberate into the U.S. Gas will also have a major impact on manufacturing in Europe and if the war goes on for any length of time that will impact supply of goods to retail. Global wheat futures are already at an all-time high. This is just the first indicator of what is to come.
My hope is that this is a wake up call for citizens and companies as to how authoritarian regimes act, and why none of us should go around saying how smart dictators are. Yes, there will be economic and supply chain pain, but the pain will be worse if crazed rulers are not stopped when they invade sovereign countries. So, we’ll all need to suck it up until the democracies of the world collectively figure out how to end this lunacy. The retail industry will have to absorb some of the economic pain, as will we all (except maybe oil companies). Retailers and brands who haven’t cut ties with Russia should do so today.
Most U.S. retail businesses don’t have direct ties to Russian exports or markets – it’s only around .07 percent of all U.S. imports. The most practical impacts to U.S. retail will be rising energy prices and raw material shortages which eventually ripple into supply chain costs. However the humanitarian crisis is already catastrophic, and the global public’s exposure to it has been traumatizing. Our collective shock and worry for the people of Ukraine and the possibility of widening war is something that many workers and consumers are feeling right now – and the effects of this on how well organizations are able to function are significant. Make no mistake, the leadership problems of retail businesses are nothing compared to what the victims of this war are experiencing, but in order to sustain our businesses and the livelihood of our teams, we shouldn’t panic, nor pretend it’s not happening. This is a time for open dialogue within companies, paired with a sober situational awareness of how events are affecting us professionally and personally. Then we can take appropriate actions to help.
U.S. citizens and businesses are feeling the impact of higher oil prices. In addition to having a direct and immediate impact on the wallets and spending habits of many Americans, the high oil prices can also lead to higher freight and delivery costs, which consumers will also likely pay for.
Russia’s invasion of Ukraine will also likely have a large impact on wheat supply and prices, as Ukraine is a big exporter of wheat. This would make certain groceries and dining out much more expensive.
Of course, the biggest concern is for the safety of the Ukrainian people and stopping Russia’s invasion of sovereign countries.
Paying higher prices for goods is just something that U.S. retailers and consumers will have to take on. I’m glad to see that many global retailers reacted swiftly in pausing sales and business dealing with Russia.
The biggest thing we should be preparing for are dramatic price hikes associated with increased fuel costs. Well — that and nuclear war. Oh and, by the way, only 1.3 percent of U.S. vodka imports actually come from Russia.
“You said that about COVID.” This was the response I got from my 17 year old son when I told him that Russia’s invasion of Ukraine was the most significant world event in my lifetime. I stand by my statement as this genuinely trumps COVID in ways that are not fully understood yet. All of this is however insignificant compared to the difficulties that the Ukrainian people are going through right now. While retailers are exiting — for many retailers this could have a huge impact on their revenues, the same is true for the consumer goods companies that supply them — some of these businesses could well lose 10% or more of their revenue immediately.
Retailers or consumer goods companies that stay in place potentially risk damage in other markets by doing so — we are already starting to see consumer boycotts of certain brands being called for.
Losing a double digit proportion of business overnight will have a dramatic impact on P&Ls.
Consequently investments that consumers and other make in these organisations will provide a lower return — we are already starting to see this evidenced in stock indices around the world.
Even a month ago, consumer price inflation was starting to bite partially as a result of the huge amounts of money pumped into Western economies in the past 2 years. Rising fuel prices (as I write this, wholesale Natural gas price is double what it was 12 months ago with futures prices looking even more frightening) as well as rising food prices (Russia & Ukraine are the largest & fifth largest global wheat producers) will soon impact consumers. Consumers will be squeezed significantly — with central banks struggling to use interest rates to control inflation.
I feel Mr. Grom summed up the situation well. I don’t think this is — yet, anyway — a particularly retail-affecting issue: few companies have anything more than a minor presence in Russia, if even that, and most of the supply chain/travel issues are on the Europe>Asia side; this doesn’t mean, of course, there is no effect: there is disruption, even higher energy prices, and a sense of unease that usually isn’t productive to a healthy economy.
The bigger question will be long term: what happens in the (likely?) event that the world tries to unite on calls for Putin’s removal? Will retail be similarly unified when a more heroic stance than “suspending delivery because we can’t guarantee delivery” is called for?
It is already impacting consumers and businesses around the world, and will continue to do so for years to come given the devastation of raw materials and disruption of fuel provided by the region. Though it means hardship for consumer and businesses, the world cannot allow reckless invasion of sovereign lands.
In grocery, the obvious move for retailers is to stop selling Russian food and beverages, That largely means vodka. It won’t have a major impact, but it’s something. Sometimes it’s good to make a statement, no matter how small the impact.
John, we sell a lot of vodka in America, but only a splash of it (1.3%) comes from Russia. Even Stole is made in Latvia, not Russia.
For now, the immediate impact will be the trickle down effect from Europe. Supply chain and demand are both being significantly disrupted there, not to mention the far-reaching impact of this on Europe’s overall energy policies.
It is the common public (especially earning middle class) who suffers the most. Last 2 years, rich became richer and mediocre became more poor from the COVID crisis. Now we this new geopolitical war. My belief is that inflation is going to be major issue and social insecurity with double the trouble.
The buying power of the consumer will be affected as we will start seeing increase in product retail prices due to increased logistics and supply chain issues.
Uncertainty due to war isn’t the bigger problem. I think the biggest concern of the Russia-Ukraine war is inflation. The supply chain is getting disrupted due to a hike in oil prices, thereby triggering inventory shortages and increased demands.
However, since retailers are unable to export their products because of inflationary pressures, I wonder how they will manage that extra inventory? And also, what will be the effect of this excess inventory on inflation?
Although Covid sensitized retailers to supply chain disruptions in Asia, geopolitics has not been considered a worthy topic or risk area. The Russian invasion of Ukraine is generating an appealing (and appalling) narrative in other parts of the world. The current economic sanctions against Russia and the SWIFT decision may be a precursor of more troubles ahead. Retailers that cast a more comprehensive risk assessment net will be better positioned to respond to the dangers ahead.