Retail supply chains shift amid cost and channel changes

Middle East crisis risks higher grocery prices

The Middle East conflict is creating conditions that will lead to an increase in the cost of fuel, fertilizer, and packaging, three vital areas that impact what U.S. consumers pay for their groceries. The longer the crisis lasts, the more these impacts will cascade along supply chains, even after the war itself comes to an end.

What you need to know

• Perishable food items are among the most affected because they require constant and frequent replenishment, which uses more fuel.
• Mounting oil prices are also driving up costs for farming supplies, packaging materials, fertilizers, and crop protection chemicals, which are all made using oil and natural gas byproducts.
• Middle East countries provide a significant share of urea, nitrogen, and phosphates, all used in manufacturing of the fertilizers used by U.S. farmers.
• Higher crude oil prices are increasing prices for plastic packaging and films derived from petrochemicals.
• While higher fuel prices mainly impact the perishable and refrigerated categories, higher packaging prices impact center store categories like canned goods and beverages, resulting in higher shelf prices across much of the store.

The logistics takeaway

• Prepare for sustained cost and service variability even if near‑term production impacts remain limited. Knock-on effects tend to last significantly longer than the initial shock.
• Tighter routing discipline, improved demand planning, and close coordination with your logistics partners will be critical to managing margin pressure as energy‑driven volatility persists.

Retail footprints shrink as stores become fulfillment nodes

Retail network contraction and the evolution of stores into local logistics hubs are two sides of the same structural shift. As low-performing stores close and consumer demand shifts online, retailers are concentrating inventory and fulfillment into fewer - but more operationally complex - nodes.

At the same time, the remaining stores are being repurposed to support same-day delivery, curbside pickup, and returns. The result is a retail supply chain that is less about predictable store replenishment and more about dynamic, multi-modal execution across fewer locations.

What’s driving the shift

• Store closures are reshaping the network: Hundreds of U.S. retail locations are being shuttered as foot traffic declines, costs rise, and ecommerce adoption accelerates, particularly among department and specialty retailers.
• Remaining stores are doing more work: Rather than disappearing entirely, physical retail is evolving. Stores that remain open are increasingly used as local fulfillment points, supporting same-day delivery within a 10–15 mile radius and absorbing online demand.
• Inventory complexity is rising: Store-based fulfillment requires tight, real-time visibility and the ability to pool inventory across nearby locations to complete orders cost-effectively.
• Freight profiles are changing: Retail flows are shifting away from regular store replenishment toward smaller, more frequent inter-store, store-to-consumer, and return shipments—often across multiple modes and carrier types.

What it means for shippers

Retail network resets are fundamentally changing freight behavior.

• As store counts decline and fulfillment becomes more localized, shippers should expect longer average delivery distances from fewer nodes, higher parcel and LTL volumes, and increased reliance on short-haul and last-mile capacity. Build flexible short‑haul transportation strategies that support frequent, smaller inter‑store and store‑to‑consumer moves using a mix of carriers and solutions.
• Returns and reverse logistics are also becoming more centralized and operationally important. This environment rewards shippers that can re-optimize lanes quickly, adjust mode mix, and diversify capacity sources. Flexible networks—supported by broad carrier access, strong inventory visibility, and adaptable routing strategies—are becoming critical to maintaining service levels, managing costs, and absorbing volatility as retail supply chains continue to rebalance.

Off-price retailers continue to gain share

Traditional department stores have been losing market share to off-price retailers for more than a decade. The three major U.S. off-price chains—TJX, Ross, and Burlington—each plan to add between 80 and 150 stores this year, making it clear that they still see plenty of market share available. But as they expand, they will inevitably begin to grab it from each other.

What to know

• TJX, which includes TJ Maxx, HomeGoods, Sierra, Marshalls, Winners, and Homesense, commands 68% of the off-price market, with sales three times bigger than its closest competitor, Ross.
• Off-price retailers have different supply and sourcing needs than traditional retailers, with most of the assortment coming from liquidators, domestic wholesale and excess inventory.
• Because they don’t rely on imported goods, Off-price retailers have been largely insulated from the past year’s tariff pressures.

Table of Contents