CFOs settle for less as they strive to reduce the impact of rising costs and supply disruptions on their businesses.
Firms in various industries face inflationary pressures caused by factors such as rising commodity prices, supply chain failures, and high demand for shipping capacity. Many of them respond by raising prices, but often this is not enough to offset the impact of cost pressures and transport problems.
For this reason, finance managers are broadening their focus to target additional savings, such as reducing the number of products or services they sell.
Beauty Elf Inc.,
the Oakland, Calif.-based cosmetics company will offer a smaller assortment of vacation products this year than in previous years, CFO Mandy Fields said Thursday. These products, which often come with special packaging, take up to four times the space of shipping containers in the usual product assortment, Ms. Fields said. The idea is to make sure Elf prioritizes its core offerings and makes the best use of its container capacity, Ms Fields said.
Elf, which sources its products from China, relies on ocean freight but struggles to find containers like many other companies, Ms. Fields said. Efforts by companies to restock as the economy rebounded and a series of shipping disruptions left several thousand containers stranded at sea, in ports or at inland freight hubs, driving costs up.
In the last quarter, Elf had to use air freight for the first time since Ms Fields began tenure as CFO in April 2019, she said. The company’s transportation costs were significantly higher in the quarter ended June 30 than in the period a year earlier, Ms. Fields said. She declined to provide details.
Toy maker Mattel Inc.
also faces challenges due to higher logistics and other costs, CFO Anthony DiSilvestro said this month. “During 2021, we have seen an escalation in cost inflation,” Mr. DiSilvestro said, highlighting higher spending on resins and ocean freight.
According to Mr. DiSilvestro. “If you have a third less SKU to consider, it reduces complexity and allows us to be more efficient,” he said, adding that Mattel is monitoring its entry costs and margins.
Chocolatier Hershey Co.
regularly reviews its product offering and packaging, CFO Steve Voskuil said earlier this month. Changing a product’s packaging can help the company drive up prices, Voskuil said. Hershey is also closely reviewing its contracts with suppliers and manufacturing plants for potential improvements, he said.
McCormick & Co., the spice and flavoring company, is taking similar steps as it strives to reduce the weight of its packaging, CFO Mike Smith said last month. “Inflation is a concern” for the industry, said Mr Smith, adding that McCormick expects overall costs to increase by a percentage of the average of the figures due to higher raw material costs. , packaging materials and transport.
Mr Smith said McCormick also expects to generate $ 110 million in further efficiency savings this year.
Elf, which has raised prices, has noted improvements in the availability of shipping containers in recent weeks, Ms Fields said. “The capacity is opening up, but the cost is still quite high,” she said. The company expects high transportation costs to continue to affect its profit margin, according to Ms. Fields.
Elf’s gross margin declined by around 3.4 percentage points to 63.8% in the last quarter compared to the prior year period, in part due to higher transportation costs.
Write to Nina Trentmann at [email protected]
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