Air freight is becoming a costly fix for inventory issues
Below is the latest edition of Modern Retail’s Supply Chain Weekly newsletter, which goes out on Mondays at 10 a.m. ET, and dives into all things logistics and supply chain during a tumultuous time for the retail industry. To receive this weekly in your inbox, click here.
Some brands are increasingly justifying the higher costs of air freight to get inventory on shelves faster when their global supply chains get jammed up.
The International Air Transport Association, or IATA, reported in its latest release that jet fuel prices are still nearly 46% above levels from 2025, before the war in Iran caused widespread spikes in oil and fuel prices. The higher fuel prices, in turn, have boosted air freight rates.
But earnings calls over the past two weeks show that some companies are willing to take the hit of more expensive transportation costs in favor of getting inventory faster in unique circumstances.
Capri, which owns Michael Kors and Jimmy Choo, is dealing with a 25% year-over-year decline in Michael Kors inventory, according to a transcript of the company’s first-quarter earnings call. Part of that stems from a planned strategy to reduce markdown and clearance levels. But the brand has also weathered a setback in its full-priced inventory due to longer transit times caused by congestion at Asian ports, executives said on the call.
Tyler Reddien, executive VP, CFO and COO at Capri, said on the call that the dearth of full-price product meant that recent sales were softer than expected; revenue for the quarter was down 7.1% compared to last year. He also said that second-quarter inventory is expected to decline in the high single digits due to continued delays, and the company lowered its 2027 total revenue outlook to $3.4 billion.
“We are taking action to accelerate receipts where possible, including selective use of airfreight. But ultimately, we are landing lower than we anticipated, and that is impacting sales,” he said. “We do anticipate that when we get back to the back half of the year and our inventory levels have normalized, we will be able to deliver on our expectation of growth for both Michael Kors and Jimmy Choo.”
CEO John Idol said the inventory crunch is disappointing, but it’s also temporary, and he pointed to how the company is working to improve inventory by the back half of the year.
“We know we’re going to be able to get through it,” he said. “As Tyler mentioned, we are going to use some air freight to move some of that delivery up, and we’re working very closely with our freight forwarders to help us mitigate and get on faster vessels, et cetera, to get the product here.”
While potentially beneficial in the long run, the decision to speed up shipments via air freight comes with a much higher cost that isn’t likely to go down any time soon. The ongoing war, as well as increased demand for shipments related to building out AI infrastructure, will likely keep rates elevated this year, according to the latest air cargo market report from freight intelligence firm Xeneta.
“Airlines will be fighting tooth and nail to avoid reducing rates as quickly as they went up,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in the report. “It’s not in their interests to lower rates quickly, but there is some relief for shippers with the market on a downward trajectory year-on-year.”
For some brands, air freight becomes a way to speed up unexpected shipments. Trina Spear, co-founder and CEO at scrubs brand Figs, said on the company’s August 6 earnings call that a recently issued withhold release order (WRO) from U.S. Customs and Border Protection has prevented the company from working with one of its suppliers in Jordan. Now it’s using air freight to expedite certain products from other suppliers to make up the difference.
“In terms of mitigation, and ensuring that our core styles are in stock, we’ve really worked cross-functionally and adapted to mitigate the disruption from the WRO,” she said.
Though Figs didn’t share specific numbers on the cost difference, CFO Sarah Oughtred said air freight costs are “largely offsetting” the positives the company has realized from lower-than-expected tariff rates this year.
Spear said that the company isn’t new to such challenges. And she said it was already in the process of “derisking certain products and launches, given the Middle East conflict,” while the company’s high-volume, low-SKU styles make it a desirable partner for suppliers.
“Through Covid and the disruption in the Middle East, facing supply chain challenges is not new to us, and we have always been able to manage through them due to the strength and flexibility of the supply chain we’ve built. That remains true today,” Spear said.
The week in tariffs
- All eyes are looking north as an August 19 deadline looms for a new 50% tariff on certain goods from Canada. Barring any delays or postponements, the tariffs would apply to a range of categories, including Canada’s auto, dairy, alcohol, fishing rods and even wigs. But there are some exemptions like oil and natural gas.
- But the new Canadian tariffs policy has already had consequences and driven business changes for some organizations. As The New York Times reported last week, some Canadian companies are considering moving their operations to American factories to avoid the duties.
- Meanwhile, the federal government is challenging the ongoing refund process, according to The Associated Press. The government’s latest filing in a case before the U.S. Court of Appeals alleges that a Court of International Trade judge overstepped his authority by ordering the U.S. Customs and Border Protection to issue refunds to all companies that paid IEEPA tariffs ruled unconstitutional by the U.S. Supreme Court in February.
- “At issue are companies that paid tariffs that went through the customs process and entries were finalized. There’s a Congressional rule that the CBP cannot reprocess tariffs for which the administrative refund process is no longer available,” the AP reported. “Those companies are free to file a lawsuit to get that money back, the government said.”
What we’ve covered
Target builds digital-twin platform to improve inventory availability
Target is continuing to invest in improving its inventory availability, MR’s Mitchell Parton reports. The company wrote last week on its website about a tool it’s calling Proxima, an in-house digital twin of its inventory positioning system that helps the company test how decisions could play out before applying them in practice.
“Proxima creates faster feedback loops and helps us see around corners so we can modernize complex supply chain processes with confidence while continuing to deliver for guests,” Sousan Ortega, svp of field replenishment, supply chain for Target said in a statement.
Other big-box retailers like Walmart and Lowe’s have used digital twins — digital replicas of stores, warehouses or even products — to predict issues, to build out new spaces or even as a marketing tool on their e-commerce platforms, Modern Retail previously reported.
The new platform comes after CEO Michael Fiddelke said last fall that the company had been working with legacy technology that doesn’t meet today’s needs and, and that the company would make technology investments across its supply chain as well as stores, headquarters and digital operations.
Other improvements over the past year include hiring a new supply chain leader, opening an experimental new supply chain facility, and reevaluating which stores it uses to fulfill online orders in place of distribution centers.
The wellness M&A hot streak shows no signs of slowing down
Procter & Gamble announced its $3.8 billion acquisition of supplement brand Thorne is part of a wave of high-profile acquisitions in the wellness space. As MR’s Gabriela Barkho reports, large CPG conglomerates are increasingly seeking out science-backed, high-growth brands to add to their portfolios as consumer priorities shift toward longevity, functional health and the nutritional demands of the growing GLP-1 user base.
Mike Ross, PwC’s U.S. consumer markets deals leader, said large CPG conglomerates are adapting their portfolios by acquiring buzzy wellness brands that focus on the biggest consumer demands. Think: high-protein, fiber-rich, hydration-focused and portion-controlled products. Ross said investors increasingly view these as long-term shifts in consumer behavior rather than short-lived wellness trends.
“We’re seeing CPG companies becoming much more intentional about what belongs in their portfolios and, just as importantly, what doesn’t,” Ross said.