As we launch into the 2021 holiday season after a second disruptive year for supply chains, consumers and retailers around the world are preparing for another transformational peak. Shoppers are emerging from their pandemic hibernation with a strong desire for normalcy around holiday traditions, and this means increased spending. Meanwhile, retailers and suppliers are facing the pressure of continuous logistical challenges, including inventory and supply shortages, labor shortages, rate hikes, port congestion and more.
Strong Consumer Demand
Inflation has driven prices up across all sectors of the economy, but it will have little impact on consumers’ eagerness to celebrate and splurge (on more than just toilet paper) this year. Spending in the months of November and December is forecasted to increase by 7% YOY (Bain), and we can expect to see profits in consumer goods categories like clothing, jewelry and electronics, as well as experiential and hospitality categories.
Shopping Trends
Omnichannel should be the crux of every business’ strategy. In a shift from last year, in-store traffic is expected to see significant growth thanks to vaccinations reducing shoppers’ apprehension around health risks. Still, online shopping has never been more popular and many are now hooked on the convenience and simplicity it provides, so hybrid ecommerce/retail “click-and-collect” options like BOPIS and curbside pickup will remain in high demand. It follows that retailers should be adjusting in-store inventory levels and preparing to move fulfillment operations from e-commerce distribution centers to stores, especially as shipping deadlines tighten.
Challenges Facing Retailers
Operational expenses are high right now. Freight, manufacturing and labor costs will put an additional $223 billion strain on U.S. retailers this holiday season (Salesforce). Manufacturing is still feeling the effects of 2020 factory shutdowns in Asia and this, coupled with a shortage of raw materials, has forced retailers to pursue alternative — and more expensive — production options.
On top of manufacturing challenges, there are logistical hurdles. Global shipping processes are substantially delayed. Ports are backed up due to container prices and capacity limits, which means retailers must plan increased lead times for inbound shipments. Those that can afford it are taking extreme measures to soften the blow, including renting their own cargo ships, pre-buying containers and exploring air freight alternatives.
Finally, competition for labor is fierce. There are roughly 1 million more job openings than unemployed people in the U.S. (CNBC), and labor shortages are prompting many retailers to voluntarily raise hourly wages and offer novel incentives in an effort to attract applicants. As a point of reference, U.S. brands and retailers are expected to spend $47 billion in additional wages for store associates in November and December compared to last year (Salesforce).
What Retailers Can Do
Retailers should expect that customers will likely face setbacks in their shopping experience this holiday season and should have cushions in place to minimize inconveniences. Aaron Cheris of Bain suggests taking small measures to soften the blow of a frustrating customer experience, including broadening delivery windows or recommending substitute items if popular ones are sold out. Communication will also go a long way in helping retailers maintain positive relationships with customers — disclose potential shipping delays before customers complete their purchases, keep them informed as their orders are fulfilled and shipped, and offer the option to be notified as inventory is replenished. By now, many consumers are familiar with supply chain challenges and by keeping lines of communication open, retailers can maintain relationships with loyal shoppers.
